M/S. Electronic Corp... v. Addl. Commissioner O...

P. Madhavi Devi, J.M:— This is assessee's appeal for the assessment year 2008-2009.

2. In this appeal, assessee is aggrieved by the order of the CIT(A) in confirming the disallowance of (1) weighted deduction under S. 35(2AB); and (2) provision for wage revision arrears.

3. Brief facts of the case are that the assessee company, a central public sector undertaking, is in the business of manufacture and sale of electronic goods and components including maintenance services and computer educational services. The return of income for the assessment year 2008-2009 was filed on 30.9.2008 admitting an income of Rs. 1,91,67,98,753. During the assessment proceedings under S. 143(3) of the Income Tax Act, 1961, the Assessing Officer observed that the assessee has claimed weighted deduction under S. 35(2AB) of the Act, in respect of R&D expenditure of Rs. 32,15,85,350. The Assessing Officer therefore, asked the assessee to produce necessary approval and certification of expenditure under S. 35(2AB) of the Income Tax Act, 1961. In reply, the assessee filed letter dated 21.12.2010 submitting Form Nos. 3CM and 3CL issued by the Ministry of Science and Technology and Department of Scientific and Industrial Research towards approval of in-house research and development facilities under S. 35(2AB) of the I.T Act. The Assessing Officer observed that the Department of Scientific and Industrial Research has certified that the amount chargeable to R&D expenditure is only Rs. 2092.06 lakhs as against the assessee's claim of higher amount. Therefore, the assessee's explanation for the difference was called for.

4. The assessee vide letter dated 21.12.2010, explained that the amount of capital grant amounting to Rs. 51.84 lakhs is included in the head capital expenditure and the same has also been included in the deduction amount of Rs. 296.55 lakhs, but. The DSIR has considered an amount of Rs. 23.94 lakhs only towards capital expenditure due to which there is a difference in the claim and the certificate. Therefore, according to the assessee, there was a mistake apparent in the certificate. The assessee requested the Assessing Officer to consider the same and allow the additional benefit of Rs. 51,84,187. The Assessing Officer, however, did not accept this contention of the assessee and based on Form Nos. 3CM land 3CL issued and certified by Ministry of Science and Technology, he allowed the eligible deduction to the assessee only as approved at Rs. 3,138.09 lakhs being 150% of Rs. 2092.06 lakhs under S. 35(2AB) of the Act and brought the excess claim of deduction of Rs. 77,76,281 and added it to the returned income.

5. Aggrieved the assessee preferred appeal before the CIT(A), who confirmed the addition made by the Assessing Officer by following the decision of the ITAT in assessee's own case for the assessment year 2007-2008 on identical set of facts.

6. Aggrieved, the assessee is in second appeal before us.

7. The learned counsel for the assessee, Shri C.P Ramaswamy, while graciously admitting that the issue is covered against the assessee by the order of the Tribunal in assessee's own case for earlier assessment year, viz. 2007-2008 (ITA Nos. 895 & 1106.Hyd/2011 dated 25/0/2-12), submitted that the decision of the Tribunal was per in curium in as much as the Tribunal has misinterpreted the provisions of S. 35(2AB) of the Act. He has drawn our attention to the provisions of S. 35(2AB) to submit that the certification of the respective Ministry/prescribed authority was only to facility and not to the quantum of allowance.

8. The Learned Departmental Representative on the other hand, supported the orders of the authorities below.

9. Having regard to the contentions of both the parties and the material on record, we find that the very same set of facts had emerged in the assessee's own case for the assessment year 2007-2008 and the Tribunal after considering the provisions of S. 35(2AB) has held that the expenditure which is certified by the Ministry is only to be considered for allowance of the exemption under S. 35(2AB) of the Act and therefore, it cannot be considered to be per in-curium as canvassed by the learned counsel for the assessee. Since the issue is covered in favour of the Revenue by the decision of the co-ordinate bench of the Tribunal in assessee's own case, we do not see any reason to interfere with the order of the CIT(A) on this issue. This ground of appeal is accordingly rejected.

10. The second ground of the assessee is against the disallowance of the provision for wage revision arrears by the Assessing Officer on the ground that this is unascertained liability and therefore, cannot be allowed. The CIT(A) has also confirmed the said disallowance and the assessee is in second appeal before us.

11. The learned counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the assessment year 2007-2008 (supra) and the CIT(A) had not followed the same only by holding that the wage revision liability was ascertained only after the memorandum of settlement was reached between the management and the employees of the assessee company on 24.9.2009, which is subsequent to the relevant financial year. The learned counsel for the assessee submitted that the provision for wage arrears was made on the basis of the charter of demands raised by the employees of the assessee on 30.6.2006 for the revision of wages from 1.1.2007 and on the basis of such representation and the past history, the provision for wage revision arrears was made. He submitted that the provision was made with effect from 1.1.2007 onwards and the provision for the wage revision arrears for the period from 1.1.2007 to 31.3.2007 was allowed by the Tribunal in the earlier assessment year, viz. assessment year 2007-2008 and the balance was claimed during the relevant assessment year and therefore, the same has to be allowed during the relevant assessment year too.

12. The Learned Departmental Representative however supported the orders of the authorities below and submitted that the wage revision was approved by the D.A.E only by orders dated 1.5.2009 and therefore, the provision is only an unascertained liability as held by the Assessing Officer.

13. Having regard to the contentions of both the parties and also the material on record, we find that the employees of the assessee company have been making demand for wage revision in the earlier assessment year too and on the basis of such a demand, the assessee has been revising wages and till a final decision has been taken, a provision for such wage revision arrears has been made by the assessee. We find that the assessee has made provision for the same calendar year and for the broken period, i.e 1.1.2007 to 31.3.2007, the Tribunal has already allowed the provision by holding it to be an ascertained liability. Since the facts and circumstances during the relevant assessment year are similar and the wage revision is consequent to the charter of demand by the employees, which is the basis for making of the provision part of which was allowed by the Tribunal in the earlier assessment year, we do not see any reason to take a different view in this year. Respectfully following the decision of the co-ordinate bench in assessee's own case for the preceding year (supra), we allow the ground of the assessee on this issue and direct the Assessing Officer to deduction of the provision for wage revision arrears.

14. In the result, assessee's appeal is partly allowed.