M/s. Elecronics Corporation of India Ltd, Hyd, Hyderabad V. ACIT, Range-2, Hyderabad

ITA 1106/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66295 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Depreciation; Competent authority; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1106/HYD/2011 ASST. YEAR: 2007-08 M/S ELECTRONICS CORPORATION OF INDIA LTD., APPELL ANT HYDERABAD (PAN - AAACE 4809 L) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 2(2), HYDERABAD ITA NO. 895/HYD/2011 ASST. YEAR: 2007-08 ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 2(2), HYDERABAD VS. M/S ELECTRONICS CORPORATION OF INDIA LTD., RESPON DENT APPELLANT HYDERABAD (PAN - AAACE 4809 L) ASSESSEE BY : SHRI C.P. RAMASWAMY RESPONDENT BY : SMT. ALKA R. JAIN DATE OF HEARING 25.7.2012 DATE OF PRONOUNCEMENT 25/09/2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: BOTH THESE APPEALS ARE CROSS APPEALS DIRECTED AGA INST THE ORDER OF THE CIT(A) DATED 23.3.2011 FOR THE ASS ESSMENT YEAR 2007-08. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 2 ITA NO. 1106/HYD/2011 APPEAL BY THE ASSESSEE 2. FACTS OF THE CASE IN RELATION TO THE ISSUE IN B RIEF ARE THAT THE ASSESSEE-COMPANY IS A CENTRAL PUBLIC SECTO R UNDERTAKING AND IS ENGAGED IN BUSINESS OF MANUFACTU RE AND SALE OF ELECTRONIC GOODS AND COMPONENTS. IT ALSO D ERIVES INCOME FROM MAINTENANCE SERVICES AND FROM COMPUTER EDUCATIONAL SERVICES. FOR THE ASSESSMENT YEAR 2007 -08, IT HAS FILED RETURN OF INCOME ON 29.10.2007, DECLARING AN INCOME OF RS.1,89,78,55,064. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE VERIFYING THE DETAILS OF MISCELLANEOUS EXPENSES NOTICED THAT THE ASSESSEE HA S DEBITED AN AMOUNT OF RS.2,62,42,012/- TOWARDS PROVISION FO R CISF SECURITY EXPENSES. HE NOTED THAT SUCH AMOUNT IS A MERE PROVISION. ON QUERY RAISED BY HIM FOR JUSTIFYING S UCH CLAIM, THE ASSESSEE WHILE STATING THAT THE SAID AMOUNT PER TAINED TO THE PROPORTIONATE EXPENSES AT 32% OF THE TOTAL COST INCURRED BY NUCLEAR FUEL COMPLEX ON CISF PERSONNEL, FOR PROV IDING SECURITY TO THEIR COMPLEXES AND PREMISES, HAS SUBMI TTED THAT THEY ARE REQUIRED TO MAKE SUCH PROVISION IN THE ACC OUNTS FOR THE FINANCIAL YEAR 2006-07, AS PER THE APPROVAL OF THEIR PARENT DEPARTMENT, DEPARTMENT OF ATOMIC ENERGY(DAE), TO TH E PROPOSAL IN THAT REGARD SUBMITTED BY NFC. THE ASSES SING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE. REFERRING TO THE LETTER OF THE DEPARTMENT OF ATOMIC ENERGY DATED 16.4.2003, THE ASSESSING OFFICER NOTED THAT T HE APPROVAL OF COMPETENT AUTHORITY HAS NOT BEEN TAKEN FOR FINAL IZING THE MEMORANDUM OF UNDERSTANDING. HE THEREFORE, NOTED T HAT SUCH ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 3 LIABILITY IN THIS CASE IS IN THE NATURE OF A CONTIN GENT LIABILITY AND THE SAME CANNOT BE ALLOWED AS A DEDUCTION FOR THE A SSESSMENT YEAR 2007-08. 3. THE ASSESSING OFFICER, FURTHER, ON VERIFICATIO N OF FORM NOS.3CM AND 3CL ISSUED BY THE MINISTRY OF SCIE NCE & TECHNOLOGY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, THE ASSESSING OFFICER NOTICED THAT AS PER SUCH CERT IFICATES ISSUED BY THE SAID AUTHORITY, THE R&D EXPENDITURE W AS ONLY RS.3126.02 LAKHS. BASED ON THIS FACT, ON QUERY R AISED BY THE ASSESSING OFFICER FOR JUSTIFYING THE CLAIM OF DEDUC TION, THE ASSESSING OFFICER SUBMITTED THAT THE SAID AUTHORITY HAS NOT CONSIDERED CERTAIN EXPENDITURE IN THAT REGARD. HOW EVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAID SUBMISSIO N OF THE ASSESSEE, AND SINCE THE SAID CERTIFICATE ISSUED BY THE COMPETENT AUTHORITY IN FORM NO.3CM AND 3CL ONLY AN AMOUNT OF RS.3126.02 LAKHS WAS SHOWN AS EXPENDITURE INCURR ED BY THE ASSESSEE ON RESEARCH & DEVELOPMENT, THE ASSESSING O FFICER HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF AN AMOUNT OF RS.46879.03 LAKHS ONLY BEING 150% OF RS.3126.02 LAKHS. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE EX CESS CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.35(2AB), WHIC H RESULTED IN AN ADDITION OF RS.1,69,73,987. 4. THE ASSESSING OFFICER MADE CERTAIN OTHER ADDIT IONS LIKE RS.10,764,00,000 ON ACCOUNT OF PROVISION MADE TOWARDS WAGE REVISION ARREARS AND DISALLOWANCE OF DEPRECIAT ION TO THE EXTENT OF RS.16,79,224 ON SOFTWARE CAPITALIZED DUR ING THE ASSESSMENT YEAR 2003-04, AND ALSO ALLOWING FURTHER DEPRECIATION FOR THE SAID AMOUNTS OF RA.16,79,224, THE ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 4 ASSESSING OFFICER COMPLETED THE ASSESSMENT ON A TOT AL INCOME OF RS.2,04,57,91,840, VIDE ORDER OF ASSESSMENT DATE D 10.12.2009 PASSED UNDER S.143(3) OF THE ACT. 5. ON APPEAL BEFORE THE CIT(A), ON THE ISSUE DISALLOWANCE OUT OF SECURITY EXPENSES, IT WAS PLEA DED THAT ONCE THE PROPOSAL FOR SHARING OF EXPENDITURE FOR DE PLOYMENT OF CISF PERSONNEL ON PROPORTIONATE BASIS PUT FORWARD B Y NFC WAS FOUND TO BE REASONABLE, REALISTIC AND PRACTICAL AN D THEREFORE APPROVED IN THE DEPARTMENT AND FURTHER ECIL WAS DI RECTED TO TAKE IMMEDIATE ACTION TO FINALIZE THE MOU AND SETT LE THE PENDING DUES ON THE EXPENDITURE INCURRED BY NFC ON DEPLOYMENT OF CISF VIDE DAES LETTER DATED 16.4.2 003. THEREAFTER, THE SHARING OF EXPENDITURE ON DEPLOYME NT OF CISF ON AN ANNUAL BASIS, HAS BECOME A ROUTINE EXERCISE R EQUIRING NO FURTHER APPROVAL FROM THE DEPARTMENT. IT WAS STATE D THAT THE PROVISION IN QUESTION OF RS.2,62,42,012/- RELATES T O THE SHARE OF SECURITY CHARGES FOR THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 ONLY. IT WAS CLARIFIED BEF ORE THE CIT(A) THAT THE QUESTION OF OBTAINING APPROVAL ON Y EAR TO YEAR BASIS DOES NOT ARISE. RELIANCE IN THIS BEHALF WAS ALSO PLACED ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, WHEREIN THE TRIBUNAL ALLOW ED THE ASSESSEES CLAIM ON THE BASIS OF THE ONE TIME APPRO VAL GRANTED BY THE CONTROLLING DEPARTMENT, VIZ. DAE. IT WAS FU RTHER SUBMITTED THAT NFC HAS BEEN RAISING DEMAND TOWARDS SHARE ON SECURITY EXPENSES ON PROVISIONS OF CISF PERSONNEL, ON QUARTERLY BASIS AND THE ECIL HAS BEEN MAKING PAYMEN TS AFTER ADJUSTING NFCS SHARE OF PRIVATE SECURITY EXPENSES BORNE BY ECIL, AND THUS, AS AGAINST DEMANDS OF RS.57,81,333 AND ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 5 RS.70,77,460 RECEIVED FROM NFC FOR THE FIRST TWO QU ARTERS OF FINANCIAL YEARS 2006-07, ACTUAL PAYMENTS TO NFAC AM OUNTED TO RS.55,67,529 AND RS.68,74,4893 RESPECTIVELY, WHICH WORKED OUT TO A TOTAL OF RS.128.42 LAKHS. SINCE DEMAND LE TTERS FOR THE LAST TWO QUARTERS WERE NOT RECEIVED FROM NFC BEFORE THE CLOSE OF THE ACCOUNTS, ECIL MADE A PROVISION OF RS.138 LA KHS FOR THESE TWO QUARTERS SINCE IT IS MANDATORY TO FOLLOW ACTUAL BASIS OF ACCOUNTING, AND THUS, THE TOTAL EXPENDITURE INCL UDING PROVISION OF RS.138 LAKHS AMOUNTED TO RS.262.42 LAK HS, WHICH HAS BEEN CLAIMED BY THE ASSESSEE. IT WAS FURTHER S UBMITTED THAT ON RECEIPT OF DEMAND LETTERS FROM NFC FOR THE LAST TWO QUARTERS, VIDE THEIR LETTERS DATED 21.4.2007 AND 12 .6.2007, ECIL MADE THE PAYMENTS ON 31.5.2007 AND 21.8.2007. 6. THE CIT(A), AFTER DETAILED CONSIDERATION OF TH ESE SUBMISSIONS AND TAKING INTO ACCOUNT THE LETTER OF T HE CMD OF THE ASSESSEE-COMPANY DATED 20.12.2010 FILED BEFORE HIM, TO ASSERT THAT THE ASSESSEE, HAVING OBTAINED THE PERMI SSION FOR SHARING OF SECURITY EXPENSES ON PROPORTIONATE BASIS WITH NFC IN THE FIRST INSTANCE THERE IS NO NEED SUBSEQUENTLY TO OBTAIN SUCH APPROVALS PERIODICALLY TIME AND AGAIN THEREAFT ER, AND ALSO FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. ASSESSMENT YEAR 2006-07 NOTED ABOVE, HELD THAT THE AMOUNT INCURRED TOWARDS EXPENDITURE FOR DEPLOYMENT OF CISF PERSONNEL FOR P ROVIDING SECURITY TO THE PREMISES OF THE ASSESSEE COMPANY DU RING THE ASSESSMENT YEAR 2006-07 IS ALLOWABLE IN THIS CASE. 7. HOWEVER, THE CIT(A) GRANTED ONLY PART RELIEF T O THE ASSESSEE AND RESTRICTED THE DISALLOWANCE OF RS.2,62 ,42,012 ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 6 MADE BY THE ASSESSING OFFICER TO RS.69,00,000, WITH THE FOLLOWING OBSERVATIONS- 5.4. .IT HAS BEEN STATED THAT AGAINST THE DEMAND RAISED FOR THE FIRST TWO QUARTERS DURING THE F.Y. 2006-07, THE APPELLANT HAS MADE NECESSARY PAYMENT. HOWEVER, THE INVOICES/BILLS TOWARDS SUCH EXPENSES FOR THE LAST TWO QUARTERS OF THE CURRENT FINANCIAL YEAR HAS NOT BEEN RECEIVED DURING THE YEA R. HOWEVER, I AM UNABLE TO AGREE WITH THE CONTENTION OF THE APPELLANT. EVEN IF, IT IS STATED THAT THE BI LL FOR THE THIRD QUARTER HAS NOT BEEN RECEIVED FROM NFC, THE APPELLANT COULD HAVE OBTAINED THE SAME FROM THE SAID AUTHORITY, AFTER DECEMBER, 2006. IT IS ONLY TH E DEMAND FOR THE LAST QUARTER WHICH THE APPELLANT MIGHT NOT HAVE RECEIVED BEFORE 31 ST MARCH, 2007. UNDER THE CIRCUMSTANCES, THE PROVISION MADE BY THE APPELLANT TOWARDS SECURITY EXPENSES FOR THAT QUARTE R ONLY IS ALLOWABLE ON BASIS OF SUCH PROVISION MADE B Y THEM. HOWEVER, SINCE THE APPELLANT WAS MAKING PAYMENT OF ITS DUES ON THAT ACCOUNT ON QUARTERLY BASIS, THE AMOUNT CLAIMED TOWARDS PROVISION OF FOR THE THIRD QUARTER DURING THE YEAR, IN MY VIEW, CANNOT BE ALLOWED AS DEDUCTION IN THIS CASE. SINCE THE APPELLANT HAS NOT FURNISHED THE AMOUNT OF SUCH PROVISION PERTAINING TO THE SAID THIRD QUARTER, 50% O THE SAID AMOUNT OF RS.138 LAKHS CLAIMED AS PROVISION FOR THE LAST TWO QUARTERS, SHALL BE CONSIDERED AS THE PROVISION PERTAINING TO SUCH THIR D QUARTER. HENCE, EXCLUDING AN AMOUNT OF RS.69 LAKHS OUT OF SUCH AMOUNT OF RS.262.42 LAKHS, THE BALANCE AMOUNT IS ALLOWABLE AS DEDUCTION IN THIS CASE. THU S, OUT OF SUCH DISALLOWANCE OF RS.2,62,42,012/- TOWARDS PROVISION OF CISF SECURITY EXPENSES MADE IN THE ASSESSMENT, DISALLOWANCE TO THE EXTENT OF RS.69,00,000/- IS CONFIRMED AND THE BALANCE AMOUNT IS DELETED. 8. AS FOR THE OTHER DISALLOWANCES, DISPUTED IN TH E FIRST APPEAL BEFORE HIM, OF RS.1,69,73,787/- ON ACCOUNT O F EXCESS CLAIM MADE FOR WEIGHTED DEDUCTION UNDER S.35(2AB) O F THE ACT, AND THE DISALLOWANCE OF RS.10,64,L00,000/- TOWARDS PROVISION ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 7 FOR WAGE REVISION ARREARS, THE CIT(A) CONFIRMED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER, REJECT ING THE GROUNDS OF THE ASSESSEE IN THAT BEHALF, AND IN THAT PROCESS ULTIMATELY PARTLY ALLOWED THE APPEAL OF THE ASSESSE E BEFORE HIM. 9. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A) T HE ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: THE ORDER OF THE CIT(A) IN SO FAR AS IT IS PREJUDIC IAL TO THE INTERESTS OF THE APPELLANT, IS AGAINST LAW, WEI GHT OF EVIDENCE AND PROBABILITIES OF THE CASE. SECURITY EXPENSES A) THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 69,00,000/- OUT OF EXPENDITURE INCURRED FOR DEPLOYMENT OF SECURITY PERSONNEL JOINTLY WITH NFC. HE OUGHT TO HAVE ALLOWED THE FULL AMOUNT ON ACCRUAL BA SIS. B) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ACCRUA L OF LIABILITY ON THIS ACCOUNT FOR THE THIRD QUARTER DID NOT DEPEND ON RECEIPT OF INVOICE FROM NFC, ESPECIALLY W HEN THE DECISION OF THIS HONBLE B BENCH FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO. 1056/HYD/08 SPECIFICALLY UPHELD THE CLAIM OF THE APPELLANT ON A CCRUAL BASIS. WEIGHTED DEDUCTION U/S 35(2AB) A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM U/S 35(2AB) FOR A SUM OF RS. 1,69,73,987/-. HE OUGHT TO HAVE ALLOWED THE CLAIM F ULLY. B) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE WEIGHTED DEDUCTION AVAILABLE IN TERMS OF SECTION 3 5(2AB) IS IN RESPECT OF THE EXPENDITURE INCURRED ON IN-HOU SE RESEARCH AND DEVELOPMENT FACILITY AND THAT FORM NO. 3CM DOES NOT SPECIFY THE AMOUNT OF EXPENDITURE TO BE AL LOWED. NOR THE PROVISIONS OF SECTION 352AB) RESTRICT THE C LAIM IN SUCH MANNER. C) THE LEARNED CIT(A) FAILED TO APPRECIATE THE ARITHME TICAL ERROR COMMITTED BY THE DSIR WHILE ISSUING FORM NO. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 8 3CL AND CONSEQUENTLY ERRED IN CONFIRMING THE DISALLOWANCE. WAGE REVISION ARREARS A) THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE O F ARREARS OF WAGE REVISION DESPITE THE FACT THAT SUCH PROVISION WAS MADE IN TUNE WITH SIMILAR CLAIM ALLOW ED BY THE HONBLE TRIBUNAL IN THE CASE OF NMDC. B) FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL BE ALLOWED. C) THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR MODI FY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, IT IF IS CONSIDERED NECESSARY. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW. WE ARE OF THE OPINION THAT THE L IABILITY TO SHARE THE EXPENSES FOR THE SECURITY PROVIDED BY NFC IS AN ACCRUED LIABILITY. IN FACT, NFC HAD RAISED BILLS A ND ASSESSEE PAID FOR THE SAME FOR THE FIRST TWO QUARTERS FOR TH E RELEVANT PREVIOUS YEAR BUT FOR THE LAST TWO QUARTERS, FOR WH ATEVER REASON, THE NFC HAS NOT RAISED BILLS AND ASSESSEE THEREFORE HAD TO MAKE A PROVISION FOR THE SAID EXPENDITURE. SIMILAR EXPENDITURE HAS BEEN CLAIMED AND ALLOWED BY THE ITA T IN ASSESSEES OWN CASE FOR THE AY 2003-04. THE TRIBUN AL IN ITA 1056//08 DT.10.10.09 HAS HELD CONSIDERING THE VARIO US CORRESPONDENCE THAT THE LIABILITY OF ECIL TO PAY IT S DUES ON ACCOUNT OF SECURITY EXPENSES TO NFC DEFINITELY ACCR UED DURING THE AY 2003-04 RELEVANT TO THE AY 2004-05. 11. THE TRIBUNAL, FOLLOWING THE DECISION OF THE AP EX COURT IN CASE OF BHARATH EARTH MOVERS LTD 245 ITR 428 UPHEL D THE CLAIM OF THE ASSESSEE THAT THE LIABILITY TO PAY SEC URITY EXPENSES ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 9 TO NFC ACCRUED DURING THE FINANCIAL YEAR AND IT WAS NOT CONTINGENT UPON ANY OTHER HAPPENING. HENCE, THE ITA T HAD ALLOWED THE CLAIM OF THE ASSESSEE TOWARDS THEIR SHA RE OF SECURITY EXPENSES. AS HELD BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 THE LIABIL ITY TO PAY THEIR SHARE TO THE SECURITY EXPENSES TO NFC IS A DE FINED AND ACCRUED LIABILITY. THE MERE FACT THAT IT WAS NOT Q UANTIFIED DURING THE YEAR BY WAY OF RAISING OF BILLS BY NFC C OULD NOT ALTER THE FACT THAT SUCH LIABILITY EVEN THOUGH ON AN ESTI MATED BASIS IS AN ACCRUED AND ALLOWABLE LIABILITY. THE SUPREME COURT IN THE CASE OF ROTOR CONTROL PVT LTD VS CIT 314 ITR 62 HAD HELD THAT A PROVISION MADE FOR WARRANTY EXPENSES, EVEN THOUGH W ILL BE ACTUALLY EXPENDED AT A LATER POINT OF TIME, IS AN A LLOWABLE EXPENDITURE IN THE YEAR OF SALE OF PRODUCT FOR WHIC H SUCH WARRANTY HAS BEEN GIVEN. SIMILARLY, THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD 245 ITR 428 HAS HELD THA T ONCE A LIABILITY HAS ACCRUED, THEN EVEN IF SUCH LIABILITY CAN BE QUANTIFIED AND SETTLED ONLY AT FUTURE POINT OF TIME , IS ALLOWABLE DEDUCTION IN THE YEAR IN WHICH THE LIABILITY HAS AC CRUED. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE LIABILITY TO SHARE THE EXPENSES FOR SECURITY PROVIDED BY NFC HAS ACCRUED A ND PERTAINS TO THE YEAR UNDER APPEAL. THEREFORE, THE ESTIMATED LIABILITY FOR SUCH EXPENSES PROVIDED FOR IN THE BOO KS OF ACCOUNTS BY THE ASSESSEE IS AN ALLOWABLE EXPENDITUR E IN VIEW OF THE DECISION OF APEX COURT AS CITED ABOVE AS WEL L AS THE DECISIONS OF THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2004-05. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 10 12. IN THE CIRCUMSTANCES THE APPEAL OF THE ASSESSEE REGARDING DISALLOWANCE OF RS.69 LAKHS OUT OF THE PR OVISION MADE FOR THEIR SHARE OF SECURITY EXPENSES IS ALLOWE D. 13. WITH RESPECT TO THE ISSUE OF WEIGHTED DEDUCTION U/S.35(2AB), THE ASSESSEE HAD CLAIMED A DEDUCTION O F RS.48,58,76,987/- U/S.35(2AB) OF THE ACT. HOWEVER, THE MINISTRY OF SCIENCE & TECHNOLOGY, THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH HAD VIDE THEIR CERTIFICATE IN FORM 3CL DT.20.3.09 HAD APPROVED OF RESEARCH & DEVELOPMENT EXPENDITURE OF RS.3,126.02 LAKHS AS ELIGIBLE FOR WE IGHTED DEDUCTION. ACCORDINGLY THE AO GRANTED WEIGHTED DED UCTION OF RS.4,689.03 LAKHS (150% OF RS.3,126.02 LAKHS). THE REFORE, HE DISALLOWED THE EXCESS CLAIM OF DEDUCTION MADE BY TH E ASSESSEE TO THE EXTENT OF RS.1,69,73,97/-. THE ASSESSING OF FICER AND CIT(A) REJECTED THE CLAIM OF THE ASSESSEE FOR A HIG HER DEDUCTION U/S.35(2AB). 14. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. 15. IT IS THE CONTENTION OF THE ASSESSEE THAT THE D SIR IN GIVING CERTIFICATE IN FORM 3CL HAD COMMITTED A MIST AKE BY EXCLUDING CERTAIN AMOUNT OF CAPITAL EXPENDITURE WHI LE AT THE SAME TIME REDUCING THE TOTAL AMOUNT OF EXPENDITURE BY THE GRANT GIVEN BY THE GOVERNMENT WHICH INCLUDED THE V ERY SAME CAPITAL EXPENDITURE WHICH WAS NOT TAKEN INTO ACCOUN T IN DETERMINING THE R&D EXPENDITURE. ACCORDING TO ASSE SSEE THIS WOULD AMOUNT TO DOUBLE DEDUCTION AND HENCE IT IS A PRIMA FACIE MISTAKE IN THE CERTIFICATE GIVEN BY DSIR THEREFORE THE ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 11 ASSESSEE SUBMITTED THAT THEIR ENTIRE CLAIM OF RS.48 ,58,76,987 U/S.35(2AB) SHOULD BE GRANTED. 16. SECTION 35(2AB) READS AS UNDER: 1. WHERE A COMPANY ENGAGED IN THE BUSINESS OF [BIO - TECHNOLOGY OR IN ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, NOT BEING AN AR TICLE OR THING SPECIFIED IN THE LIST OF THE ELEVENTH SCHEDUL E] INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BU ILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE S HALL BE ALLOWED A DEDUCTION OF [A SUM EQUAL TO [TWO] TIMES OF THE EXPENDITURE] SO INCURRED. [EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, EXPENDITURE ON SCIENTIFIC RESEARCH, IN RELATION T O DRUGS AND PHARMACEUTICALS, SHALL INCLUDE EXPENDITURE INCU RRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATE NT UNDER THE PATENTS ACT, 1970 (39 OF 1970).] 2. NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN CLAUSE(I0 UNDER ANY OTHER PROVISION OF THIS ACT. 3. NO COMPANY SHALL BE ENTITLED FOR DEDUCTION UNDER CLAUSE (I) UNLESS IT ENTERS INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY FOR CO-OPERATION IN SUCH RESEA RCH AND DEVELOPMENT FACILITY AND FOR AUDIT OF THE ACCOUNTS MAINTAINED FOR THAT FACILITY. 4. THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF THE SAID FACILITY TO TH E DIRECTOR GENERAL IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED.] 5. NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE REFERRED TO IN CLAUSE (I) WHICH IS INCU RRED AFTER THE 31 ST DAY OF MARCH.[2012]. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 12 6. NO DEDUCTION SHALL BE ALLOWED TO A COMPANY APPRO VED UNDER SUB-CLAUSE OF CLAUSE (IIA) OF SUB-SECTION ( 1) IN RESPECT OF THE EXPENDITURE REFERRED TO IN CLAUSE (I ) WHICH IS INCURRED AFTER THE 31 ST DAY OF MARCH, 2008. 17. AS PER THE PROVISIONS OF SEC 35(2AB) OF ACT AS APPLICABLE TO THE RELEVANT ASSESSMENT YEAR , THE EXPENDITURE I NCURRED BY THE ASSESSEE IN ANY APPROVED IN-HOUSE RESEARCH FACI LITY, TO THE EXTENT OF APPROVED BY THE PRESCRIBED AUTHORITY, IS ENTITLED TO WEIGHTED DEDUCTION OF 150% OF SUCH APPROVED EXPENDI TURE. THEREFORE, THE EXPENDITURE AS APPROVED BY THE DSIR IN THE CERTIFICATE GIVEN BY THEM IN FORM 3CL ALONE IS TO B E GRANTED WEIGHTED DEDUCTION. THE DSIR IN THEIR CERTIFICATE HAS CERTIFIED EXPENDITURE ELIGIBLE FOR WEIGHTED DEDUCTION AS RS.3 ,126.02 LAKHS. THEREFORE, IT IS NOT FOR EITHER THE ASSESSI NG AUTHORITY OR THE APPELLATE AUTHORITY TO DECIDE ON THE EXPENDITUR E WHICH WILL BE ENTITLED TO WEIGHTED DEDUCTION U/S.35(2AB). IN FACT, U/S.35(2AB)(3) IF ANY QUESTION ARISES U/S.35 AS TO WHETHER AND IF SO, WHAT EXTENT ANY ACTIVITIES CONSTITUTES OR CO NSTITUTED OR ANY ASSET WAS USED FOR SCIENTIFIC RESEARCH, THE M ATTER SHOULD BE REFERRED TO THE APPROPRIATE AUTHORITY WHOSE DECI SION WILL BE FINAL. IN THIS CASE THE APPROPRIATE AUTHORITY IS T HE DSIR. THEREFORE ONCE THE DSIR HAS CERTIFIED THE QUANTUM O F ELIGIBLE R&D EXPENDITURE FOR THE PURPOSES OF WEIGHTED DEDUCT ION U/S 35(2AB) THE FIGURE CANNOT BE TAMPERED WITH BY ITAT. EVEN IF THE ASSESSEE IS RIGHT IN THAT THE THERE IS A MISTAK E IN THE CERTIFICATE ISSUED BY THE DSIR, WHICH WE DONT KNOW , THE SAME CAN ONLY BE RECTIFIED BY DSIR AND NOT THE ITAT IN A PPELLATE PROCEEDINGS. WE, THEREFORE, UPHOLD THE DECISION OF LOWER AUTHORITIES IN RESTRICTING THE WEIGHTED DEDUCTION U /S.35(2AB) ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 13 TO RS.46,89,03 LAKHS AND DISALLOWING SUM OF RS.1,69 ,73,987 OUT OF THE CLAIM MADE BY THE ASSESSEE. WE, HOWEVER , DIRECT THAT IN CASE DSIR CORRECTS THE AMOUNT OF RESEARCH A ND DEVELOPMENT EXPENDITURE ON WHICH THE ASSESSEE IS EN TITLED WEIGHTED DEDUCTION FOR THE ASSESSMENT YEAR UNDER AP PEAL, CORRESPONDING WEIGHTED DEDUCTION U/S.35(2AB) SHALL BE GRANTED ON RECEIPT OF THE CLARIFICATION FROM DSIR. CONSEQUENTIALLY IF THE ASSESSEE IS ABLE TO PROVE TH AT ANY AMOUNT OF EXPENDITURE IN THEIR IN-HOUSE RESEARCH AN D DEVELOPMENT FACILITIES WAS OMITTED TO BE CONSIDERED BY THE DSIR FOR WEIGHTED DEDUCTION THE SAME MAY BE ALLOWED AS A DEDUCTION U/S.35/ 37 OF THE ACT. WITH THIS OBSERVA TION WE DISMISS THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 18. WITH RESPECT TO THE PROVISION FOR WAGE REVISION , THE ASSESSING OFFICER AND THE CIT(A) DISALLOWED RS.10.6 4 CRORES TOWARDS PROVISION FOR WAGE REVISION ARREARS. FROM THE FACTS FURNISHED TO US THE ASSESSEE ENTERED INTO WAGE AGRE EMENT FOR A PERIOD OF 10 YEARS FROM 1.1.97 TO 31.12.2006. TH EREFORE THE DUE DATE FOR REVISION OF WAGES AND SALARIES WERE FR OM 1.1.07. THE WORKMEN HAD SUBMITTED THEIR CHARTER OF DEMANDS ON 30.6.06 DURING THE PREVIOUS YEAR RELEVANT ASSESSME NT YEAR UNDER APPEAL. EVEN THOUGH FINAL MEMORANDUM OF SETT LEMENT WAS REACHED ON 24.9.09 THE INCREASE IN SALARY WAS E FFECTIVE FROM 1.1.07. THE ENHANCED SALARY IS AN ACCRUED AND CRYSTALLIZED LIABILITY FROM 1.1.07 TO 31.3.07. MER ELY BECAUSE THE SAME WAS QUANTIFIED LATER WOULD NOT ALTER THE F ACT THAT THE AMOUNT IS A CRYSTALLIZED LIABILITY. AS HELD BY THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD VS. CIT 245 ITR 428 AND ROTOR CONTROL INDIA PVT LTD 314 ITR 62 AND THE ACCO UNTING ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 14 STANDARD ISSUED BY THE CBDT U/S.145 ANY LIABILITY W HICH HAS ACCRUED DURING ANY FINANCIAL YEAR IS TO BE ALLOWED IN THAT YEAR NOTWITHSTANDING THE FACT THAT THE ACTUAL QUANTIFICA TION AND SETTLEMENT OF THE LIABILITY IS MADE AT A LATER POIN T OF TIME. 19. IN FACT, IN THE CASE OF BHARAT EARTH MOVERS LTD , THE COMPANY HAD MADE PROVISION FOR LEAVE SALARY WHICH H AD ACCRUED EVERY YEAR. THE APEX COURT HELD THAT SUCH LIABILITY IS A ALLOWABLE DEDUCTION NOTWITHSTANDING THE FACT THAT AN EMPLOYEE MAY AVAIL OF THE LEAVE AND HENCE WILL NOT BE ENTITLED TO ANY AMOUNT TOWARDS LEAVE SALARY. IT WILL NOT ALT ER THE ACCRUAL AND ALLOWABILITY OF LIABILITY IN THE YEAR I N WHICH IT ACCRUED. 20. THE TRIBUNAL IN THE CASE OF NATIONAL MINERAL DE VELOPMENT CORPORATION LTD IN ITA 12,705/H/02 AND ITA 1035/H/1 03 FOR ASSESSMENT YEAR 2000-01 DT.11.7.05 HAS HELD AS UNDE R: IT IS AN UNDISPUTED LEGAL PRINCIPLE THAT SALARY AND WAGES ACCRUE EITHER DAILY, WEEKLY, FORTNIGHTLY OR MONTHLY AS PER THE CONTRACT OF APPOINTMENT. THIS IS SO AS SERVICE IS RENDERED IN PRAESENTI. AS SOON AS THE SERVICE I9S RENDERED RIGHT TO COMPENSATION FOR THE SERVICE REND ERED ACCRUES. HOWEVER, THE RIGHT TO RECEIVE THE PAYMENT ARISE AS PER THE CONTRACT OF EMPLOYMENT. ALSO FOR THE EMP LOYER LIABILITY TO COMPENSATE THE EMPLOYEES FOR THE SERVI CE RENDERED ACCRUES IN PRAESENTI. SUCH SERVICES HAVE BEEN INCURRED FOR EARNING THE INCOME WHICH THE EMPLOYER REFLECTS IN HIS ACCOUNTS. IN THE PRESENT CASE THE RIGHT TO RECEIVE COMPENSATION FOR THE SERVICES RENDERED BY T HE EMPLOYEES ARISE OUT OF THE CONTRACT ON EMPLOYMENT. THE CONTRACT OF EMPLOYMENT IN THE INSTANT CASE IS NOT I N DISPUTE. WHAT IS IN DISPUTE IS QUANTIFICATION OF COMPENSATION. IN THIS CASE THE CHARTER OF DEMANDS BY THE EMPLOYEES COVERED UNDER IDA SCHEME FOR SALARY W AS AVAILABLE AS EARLY AS 1.1.97. FOR THESE EMPLOYEES THE REVISED WAGES/SALARY WAS TO BE GIVEN W.E.F. 1.1.97. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 15 THUS, IT CAN BE SAID THAT THE APPELLANT WAS REASONA BLY CERTAIN OF ITS INCREASED LIABILITY ON THIS ACCOUNT. AS THE PERSONNEL DEPARTMENT OF THE APPELLANT HAD KNOWLEDGE OF DEALING WITH SUH PAY HIKES IN THE PAST, THE ASSESSE E COULD ESTIMATE THE QUANTUM OF SUCH ENHANCED LIABILITY. T HE LIABILITY WAS CERTAIN. WHAT WAS NOT CERTAIN IS THE QUANTUM OF SUCH LIABILITY. ALSO, THE ENTRIES TAKEN IN THE BOOKS OF ACCOUNT TOWARDS PROVISION OF ENHANCED SALARY/WAGES CANNOT BE SAID TO BE UNILATERAL ENTRY MADE BY THE APPELLANT. THE APPELLANT ACCEPTED ITS LIABI LITY TO THE EXTENT PROVISION WAS MADE IN THE BOOKS OF ACCOU NT BASED ON THE DEMANDS FROM ITS EMPLOYEES. IT MAY AL SO BE NOTED THAT THE ACCOUNTING STANDARDS WERE ALSO MA DE PART OF THE ACT. TAKING INTO ACCOUNT PRINCIPLE OF PRUDENCE AND THE DEFINITION OF ACCRUAL AS GIVEN THEREIN, AS ALSO THE PRINCIPLE OF REAL INCOME, WE ARE OF THE OPINION THA T IN THE FACTS OF THE PRESENT CASE, THE PROVISION MADE TOWAR DS ADDITIONAL LIABILITY ON ACCOUNT OF ENHANCED WAGES A ND SALARY ARE ALLOWABLE IN THE YEAR OF MAKING SUCH PRO VISION. IN THIS VIEW OF THE MATTER, THIS GROUND OF THE ASSE SSEE IS ALLOWED. 21. THE CIT(A) HAS REFERRED TO THE DECISION IN THE ASSESSEES OWN CASE IN ITA 875/H/06 DT.9.5.08 FOR THE AY 2003- 04. WE FIND THAT THE ISSUE ON APPEAL FOR THAT YEAR IS ALLO WABILITY OF THE PROVISION OF RS.82,57,45,377 BEING ARREARS PAYABLE ON ACCOUNT OF PAY/WAGE REVISION REFERABLE TO EARLIER YEARS, I. E. FROM 1.1.97. IN THAT CASE, THE TRIBUNAL CONCLUDED THAT THE PROVISION FOR ARREARS ARISING ON ACCOUNT OF WAGE REVISION REL ATING TO THE EARLIER YEARS IS NOT AN ADMISSIBLE DEDUCTION FOR TH E AY 2003-04 BECAUSE THE ASSESSEE DID NOT OBTAIN THE APPROVAL OF THE COMPETENT AUTHORITY AND HENCE THE PROVISION MADE WA S MERELY A CONTINGENT LIABILITY. HOWEVER, IN THE INSTANT CASE THE PROVISION MADE IS FOR THE YEAR UNDER APPEAL ITSELF AND NOT ARREARS RELATING TO EARLIER YEARS AND HENCE DISTING UISHABLE ON FACTS. THEREFORE THE PROVISION MADE BY THE ASSESSEE FOR ESTIMATED LIABILITY OF PROVISION OF WAGES FOR THE P ERIOD 1.1.07 ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 16 TO 31.3.07 APPLYING THE RATIO OF THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD AND ROTOR CONTROL INDIA PVT LTD (SUPRA) IS AN ALLOWABLE DEDUCTION. 22. ACCORDINGLY WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS ISSUE. ITA 895/H/11 - REVENUES APPEAL: 23. THE EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEAL READ AS FOLLOWS- 1) THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORD ER OF ASSESSING OFFICER. 2) THE LEARNED CIT(A) ERRED IN LAW. 3) THE LEARNED CIT(A) OUGHT NOT TO HAVE RESTRICTED THE DISALLOWANCE OF SECURITY EXPENSES TO RS.69,00,000/- ON ESTIMATE BASIS HAVING CONFIRMED THE DISALLOWANCE MADE BY THE A.O. TOWARDS WEIGHTED DEDUCTION U/S. 35(2AB ) OF THE ACT. 24. THUS, THE ONLY EFFECTIVE GRIEVANCE OF THE REVEN UE IN THIS APPEAL RELATES TO THE RELIEF GRANTED BY THE CIT(A) IN THE MATTER OF THE ASSESSEES CLAIM FOR SECURITY EXPENSES. 25. THE FACTS RELATING TO THIS GROUND IS IDENTICAL WITH A SIMILAR GROUND RAISED BY THE ASSESSEE IN THEIR APPEAL IN IT A NO 1106/HYD/2011 AND ARE DEALT WITH IN THAT APPEAL SUP RA. THE SECURITY FOR THE ASSESSEES FACILITIES WAS PROVIDED BY NUCLEAR FUEL COMPLEX (NFC) WHICH IS A UNIT OF DAE IS LOCATE D ADJACENT TO ECILS MANUFACTURING AND OTHER FACILITIES. IT H AS BEEN AGREED BETWEEN THE ASSESSEE AND NFC THAT THE LATTER WILL CHARGE 32% OF TOTAL COST INCURRED BY NFC FOR CISF P ERSONNEL, ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 17 AS ASSESSEES SHARE OF SECURITY EXPENSES. ACCORDING LY THE ASSESSEE CLAIMED RS.2,62,42,012 AS THEIR SHARE OF S ECURITY EXPENSES. THE ASSESSING OFFICER REJECTED THE SAME ON THE GROUNDS THAT IT IS ONLY CONTINGENT EXPENDITURE. ON APPEAL, IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE PROVISION OF RS.2,62,42,012 RELATES TO THE SHARE OF SECURITY CHA RGES FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007- 08 ONLY. THE CIT(A) FOUND THAT NFC HAD RAISED BILLS TOWARDS ECILS SHARE OF SECURITY EXPENSES ON PROVISION OF CISF PER SONNEL FOR THE FIRST TWO QUARTERS OF THE FY 2006-07 AND THE AS SESSEE HAD MADE NECESSARY PAYMENTS. HOWEVER, FOR THE LAST TWO QUARTERS THE ASSESSEE HAD NOT RECEIVED THE BILLS BEFORE 31.3 .07. CIT(A) FOUND THAT THE PROVISION MADE FOR THE LAST TWO QUAR TERS AMOUNTED TO RS.138 LAKHS AND ON ADHOC BASIS DISALLO WED RS.69 LAKHS I.E. OUT OF THE CLAIM OF RS.2,62,42,012 THE C IT(A) HAD RESTRICTED THE DISALLOWANCE TO RS.69 LAKHS. 26. AGGRIEVED THE REVENUE IS ON APPEAL. 27. AS HELD BY US IN THE ASSESSEES APPEAL(SUPRA) T HE LIABILITY TO SHARE THE EXPENSES FOR THE SECURITY PROVIDED BY NFC IS AN ACCRUED LIABILITY. HENCE WE HELD THAT THE ENTIRE A MOUNT OF RS.2,62,42,012 CLAIMED BY THE ASSESSEE IS AN ALLOWA BLE EXPENDITURE. IN LINE WITH OUR DECISION IN THE ASSES SEES APPEAL ON THIS ISSUE, THE APPEAL OF THE REVENUE REGARDING DISALLOWANCE OF RS.69 LAKHS OUT OF THE PROVISION MADE FOR SECURI TY EXPENSES IS DISMISSED. ITA NO.1106 & 895/.HYD/2011 M/S. ELECTRONICS CORPORATION OF INDIA LTD., 18 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 25/09/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER. ACCOUNTANT MEMBER. HYDERABAD, DT/- 25 TH SEPTEMBER, 2012 COPY FORWARDED TO: 1 . M/S. ELECTRONICS CORPORATION OF INDIA LTD., ECIL, P OST MOULA ALI, HYDERABAD 500 062. 2. 3. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 2(2), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS) III, HYDERABAD 4. COMMISSIONER OF INCOME-TAX II, HYDERABAD 5. D EPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S./KV