2013 (2) TMI 506 - AT - Income Tax

Provision of salaries - deduction claimed u/s 37 (1) disallowed - assessee submitted that it is a Public Sector Undertaking (PSU) & the revision of salary depend upon the decision of the Government - Held that - As decided in Bharat Earth Movers vs. CIT 2000 (8) TMI 4 - SUPREME COURT if a business liability has definite origin in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date, it does not make any difference if the future date on which the liability shall have to be discharged is not certain. Thus following the above case AO is directed to allow the claim of deduction of provision for salary of Rs.40.71 lakhs as the services rendered are in presentee - in favour of assessee. Disallowance of deduction of provision of OFC charges considering as prior period expenses - assessee s submission that it is the demand note received from the Department of Telecommunication (DOT) - Held that - As decided in Sourashtra Cement and Chemical Industries Ltd. vs. CIT 1994 (10) TMI 30 - GUJARAT HIGH COURT that merely because expenses relate to a transaction of an earlier year, it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on mercantile basis. As the facts of the present case are identical with the ratio laid down by the Gujarat High Court, no hesitation in following the findings. Also see Satna Stone & Lime Company vs. CIT 1989 (9) TMI 11 - CALCUTTA HIGH COURT - in favour of assessee. Depreciation on new earth stations at Ernakulam and Jalandhar on Trial run - Direction of the CIT(A) to allow depreciation disallowed by AO as the same have not been put to use for business purpose - Held that - The claim of the assessee is based on the trial run of the equipments before putting them for commercial use. And as find that the documents which were submitted before the lower authorities clearly show that the assets were put to test run before the close of the financial year under consideration. Thus as decided in ACIT vs. Ashima Syntex Ltd. (2000 (8) TMI 22 - GUJARAT HIGH COURT) that on trial run of machinery assessee is entitled to depreciation - it is not in dispute that the assets had been acquired by the assessee during the previous year and is put to use for the purposes of business or profession and as the assets have been put to use for less than 180 days, the assessee has rightly claimed depreciation @ 50% of the allowable rate of depreciation - in favour of assessee. Depreciation on the ownership of Flag Project - Direction of the CIT(A) to allow depreciation disallowed by AO as assessee is not a complete owner of the asset which is in the form of cable network and owned by a consortium of number of operators - Held that - The words wholly or partly have been inserted in Section 32 with effect from 14.4.1997 and as such, the assessee is eligible to claim depreciation on the cable network even though the entire network is not owned by it. The CIT(A) concluded that the assessee is clearly entitled to claim the depreciation and directed the Assessing Officer to allow depreciation accordingly - in favour of assessee.

Issues Involved:
1. Claim under section 80IA of the Act.
2. Disallowance of deduction under section 35D of the Act.
3. Disallowance of deduction under section 37(1) of the Act for provisions of salaries.
4. Disallowance of deduction for provision of OFC charges.
5. Depreciation on new earth stations at Ernakulam and Jalandhar.
6. Depreciation on ownership of FLAG Project.

Issue-wise Detailed Analysis:

1. Claim under section 80IA of the Act:
The assessee's claim under section 80IA for new undertakings commissioned after 1-4-1995 was dismissed. The counsel conceded that similar issues had been decided against the assessee in previous assessment years (1996-97 and 1997-98).

2. Disallowance of deduction under section 35D of the Act:
The assessee's claim for amortization of preliminary expenses under section 35D was dismissed. The counsel did not press this ground as the Revenue had allowed the claim from the assessment year 2000-2001, considering it the first year of eligibility.

3. Disallowance of deduction under section 37(1) of the Act for provisions of salaries:
The assessee's provision for arrears of salary amounting to Rs.40.71 lakhs was disallowed by the Assessing Officer (AO) and confirmed by the CIT(A). The AO argued that the liability was not determinable during the previous year but arose in June 1999. The Tribunal, however, allowed the claim, citing that the liability had a definite origin in the accounting year and was not contingent, following the Supreme Court's decision in Bharat Earth Movers vs. CIT.

4. Disallowance of deduction for provision of OFC charges:
The AO disallowed the provision of Rs.8,44,12,000/- for prior period expenses, which the CIT(A) upheld. The Tribunal reversed this, stating the liability crystallized in the current financial year when the bill was received from DOT, following the Gujarat High Court's decision in Sourashtra Cement and Chemical Industries Ltd. vs. CIT.

5. Depreciation on new earth stations at Ernakulam and Jalandhar:
The AO disallowed the depreciation claim of Rs.5,32,73,618/- on the grounds that the earth stations were not put to commercial use. The CIT(A) allowed the claim, noting the assets were used for trial runs. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's decision in ACIT vs. Ashima Syntex Ltd., which allowed depreciation on assets used for trial runs.

6. Depreciation on ownership of FLAG Project:
The AO disallowed the depreciation claim of Rs.9,92,18,603/- on the FLAG Project, arguing it was an intangible right acquired before April 1, 1998. The CIT(A) allowed the claim, stating the assessee was a part owner of the asset. The Tribunal upheld the CIT(A)'s decision, following its earlier ruling in the assessee's case for the assessment year 1997-98.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the AO to allow the deductions and depreciation claims as per the findings. The order was pronounced in the open Court on 05.12.2012.

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