TMI Blog2013 (2) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. 3. Ground No.2 relates to the disallowance of deduction claimed under section 35D of the Act in respect of amortization of preliminary expenses. Counsel for the assessee pointed out that the claim of the assessee has been allowed by the Revenue from assessment year 2000-2001 by which the Revenue has taken the view that assessment year 2000-2001 is the first year of eligibility. On that view of the matter, the issue involved in this ground of appeal become otiose and the Counsel fairly submitted that he is not pressing this ground of appeal. Ground No.2 is accordingly dismissed. 3. Ground No.3 relates to the disallowance of deduction claimed under section 37 (1) of the Act in respect of provisions of salaries. During the course of scrutiny assessment proceedings, the Assessing Officer observed that the assessee has debited a provision of Rs.40.71 lakhs on account of arrears of salary. It was submitted by the assessee that salaries of the employees are revised every 5 years. As the assessee is the Public Sector Undertaking (PSU), the revision of salary depend upon the decision of the Government. It was further explained that the Government set-up a Commission for revision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158 (Kol.). The learned Counsel pointed out that all these cases are of the assessees who are PSUs. 5. Per Contra, the learned D.R. relied upon the findings of the lower authorities. 6. We have considered the rival submissions and perused the Orders of the lower authorities and also gone through the judicial decisions cited by the Counsel for the assessee. It is not in dispute that salary and wages accrue daily, weekly, fortnightly or monthly as per the contract of the employment. This is so as services is rendered in praesenti, the liability of the employer to compensate the employees for the services rendered also accrues in praesenti. A perusal of the Orders of the lower authorities show that what is actually in dispute is the quantification of compensation. As the assessee is a PSU, the pay revision depends upon the decision of the Government. As the personnel department of the assessee had knowledge of dealing with such pay hikes in the past, the assessee can estimate the quantum of such enhanced liability. The liability was certain and it was just a matter of time when it would arise. What was not certain is, over the quantum of pay high. Assessee took the most prudent d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of payment to DOT towards maintenance charges of the Mumbai-Delhi Optical Fibre Link. The provisions so made, were as follows : F.Y. 1995-96 1996-97 Rs.8,44,12,000/- F.Y. 1997-98 Rs. 88,00,000/- 7.1. The Assessing Officer was of the view that the amount of Rs. 88 lakhs only pertain to the year under consideration and allowed the same. For the provision relating to the assessment year 1995-96 and 1997-98, the Assessing Officer was of the view that these pertain to the prior period expenses and therefore, provisions for earlier years, cannot be allowed even against an ascertained liability. 7.2. The assessee agitated this matter before the CIT(A), but without any success. It was argued before the CIT(A) that the bill for the above period i.e., starting from Financial Year 1995-96 to 1997-98 was received during the previous year. It was also explained that the Board of Directors of the assessee-company were not in favour of making the entire payment and some negotiations are under way with DOT. The CIT(A), agreed with the findings of the Assessing Officer and confirmed the disallowance. 8. Before us, the learned Counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowed. 10. ITA.No.3438/Mum/2003 :- Revenue has raised two grounds of appeal. Ground No.1 relates to the direction of the CIT(A) to allow depreciation to Rs.5,32,73,618/- on new earth stations at Ernakulam and Jalandhar. Revenue alleges that the same have not been put to use for business purpose. The issue finds place at page 2 para 2 of the assessment order. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee has claimed depreciation on two earth stations at Ernakulam and Jalandhar. It was the claim of the assessee that these earth stations commenced operation during the month of March, 1998 and therefore, assessee claimed 50% of the eligible depreciation as the assets were used for less than 180 days. The Assessing Officer sought details from the assessee in respect of the claim of depreciation. The assessee filed copies of the minutes of the meetings held with the supplier, test and acceptance certificates and statement of pay minutes received or transmitted through these earth stations as proof of commission. It was explained to the Assessing Officer that earth station at Ernakulam was procured under contract dated 28th January, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After considering the facts and the submissions of the assessee, the CIT(A) was convinced that the assessee has successfully test run the earth station at Ernakulam and Jalandhar on 27-3-1998, directed the Assessing Officer to allow the depreciation on these assets as claimed by the assessee. 12. Before us the D.R. supporting the findings of the Assessing Officer placed reliance on the decision of the Hon ble Bombay High Court Nagpur Bench in the case of Dinesh Kumar Gulabchand Agrawal vs. CIT 267 ITR 768 and pointed out that in this case the Hon ble High Court declined to allow depreciation on vehicle kept ready for use but not actually used. The learned D.R. further relied upon the decision of the Tribunal Mumbai A Bench in the case of ACIT vs. Rishiroop Polymers (P) Ltd. 102 ITD 128. In that case there was a lock-out in the factory which resulted in temporary closure of manufacturing activity but the assessee-company was not closed down. On those facts, the depreciation was not allowed. 13. Per Contra, learned Counsel for the assessee submitted the copy of the commissioning of Ernakulam gate-way dated 31st March, 1998 and pointed out that in this letter it has been specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in clause (i) or clause (ii) or clause (iia) as the case may be, is acquired by the assessee during the previous year is put to use for the purposes of business or profession for a period of less than 180 days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to 50% of the amount calculated at the percentage prescribed for an asset. Considering the above legal position and facts of the present case, 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. The case laws relied upon by the learned D.R. do not fit on the facts of the present case. In the case of Dinesh Kumar Gulabchand Agrawal the Hon ble jurisdictional High Court declined to allow depreciation on the ground that the word used in section 32 denotes actual use for the purposes of business and not merely ready for use. In the present case, the assets were actually put to use even though it may be only for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery, plant etc., being tangible assets. Further, knowhow patents commercial rights etc., of intangible nature are allowed depreciation only if they have been acquired on or after 1st April, 1998. The Assessing Officer was of the opinion that what the assessee has acquired is only a right in the cable system and as the right to use has been acquired before the 1st day of April, 1998 therefore, the assessee is not eligible for depreciation under the existing provisions of Section 32. The depreciation claimed by the assessee amounting to Rs.9,92,18,603/- was disallowed. 17. The assessee agitated this matter before the CIT(A) and submitted that the assignable capacity in pursuant to Flag agreement determines the voting interest. The capacity is owned by the signatories in common un-divided shares. The system is jointly operated and maintained by the signatory. It was further pointed out to the CIT(A) that under Article 13.2 of the agreement, FLAG is to convey the interest in the assignable capacity by way of sale of ownership, grant of indefeasible right of user as the matter agreed upon. It was also explained that each signatory can transfer its capacity to another body in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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