Income Tax Appellate Tribunal Mumbai Videsh Sanchar Nigam Ltd., Mumbai vs Department Of Income Tax on 22 November, 2012 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "F" : MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA.No.3062/Mum/2003 Assessment Year 19981999 TATA Communications Ltd. (formerly Videsh Sanchar Nigam vs. JCIT, S.R. 1 Limited) Mumbai. Mumbai 400 001 PAN AAACV2808C (Appellant) (Respondent) ITA.No.3438/Mum/2003 Assessment Year 19981999 DCIT, Circle 1 (3) TATA Communications Ltd. Mumbai 20. vs. (formerly Videsh Sanchar Nigam Limited) Mumbai 400 001 PAN AAACV2808C (Appellant) (Respondent) For Assessee : Shri Dinesh Vyas & Shri Rajuvakharia For Revenue : Shri A.P.Singh (CIT/DR) Date of Hearing : 22112012 Date of pronouncement : 05122012 ORDER PER N.K.BILLAIYA, A.M. These crossappeals by the Revenue and the Assessee are directed against the very same Order of the CIT(A)24, Mumbai dated 1722003 pertaining to the assessment year 199899. As both these appeals were heard 2 together, they are being disposed of with this common order for the sake of convenience and brevity. 2. ITA.No.3062/Mum/2003 : Assessee has raised 4 substantive grounds of appeal. Ground No.1 relates to the claim made under section 80IA of the Act in respect of new undertakings commissioned after 141995. Counsel for the assessee fairly conceded that the issue involved in this ground have been held against the assessee's own case for the assessment years 199697 and 1997 98. That being the fact of the matter, ground No.1 is dismissed. 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 20002001 by which the Revenue has taken the view that assessment year 20002001 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 setup a Commission for revision of pay scales of PSUs and the said Commission submitted its report in June, 1999. The Assessing Officer was of the opinion that the assessee has created a provision in the books during the previous year which pertains to arrears of salary from January, 1997 till March, 1999. The Assessing Officer further observed that the liability was not determinable during the previous year, it 3 was determinable and actually arose in June 1999. When the Commission submitted its report. As assessee's previous year ended on 31.3.1998, the assessee has nowhere of knowing the recommendation of the Commission. The Assessing Officer finally concluded that the assessee is entitled to claim expenditure on actual payment and accordingly, disallowed Rs.40.71 lakhs. The assessee agitated this matter before the CIT(A) and reiterated that assessee being a PSU the salaries were being paid to the employees as prescribed by the Department of Public Enterprise (DPE). The DPE revised salaries of the employees once in 5 years. Accordingly, employees of the assessee company were due for pay revision w.e.f. 1st January, 1997. It was further explained that pending finalization of pay scales by DPE, provisions were made by the assessee based on the best estimate possible. It was further pointed out that DPE had finally prescribed the revised pay scales during June, 1999. The CIT(A), after considering the facts and the submissions came to the conclusion that the liability to pay