Income Tax Appellate Tribunal - Mumbai
Jet Airways (I) Ltd, Mumbai vs Department Of Income Tax
„ ‟
IN THE INCOME TAX APPELLATE TRIBUNAL "J", BENCH, MUMBAI
,
BEFORE SHRI R.K.GUPTA, JM & SHRI RAJENDRA, AM
ITA No.3865/Mum/2011
( Assessment Year :2006-2007)
M/s Jet Airways (India) Ltd., Vs. ADCIT, Range-5(2), Mumbai
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.4200/Mum/2011
( Assessment Year :2006-2007)
ADCIT, Range-5(2), Mumbai Vs. M/s Jet Airways (India) Ltd.,
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.7383/Mum/2011
( Assessment Year :2005-2006)
M/s Jet Airways (India) Ltd., Vs. DCIT, Range-5(2), Mumbai
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.7317/Mum/2011
( Assessment Year :2005-2006)
M/s Jet Airways (India) Ltd., Vs. DCIT, Range-5(2), Mumbai
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
2
ITA Nos.3865, 4200, 7383, 7317
6690, 6594, 7316 & 7312/2011
AND
ITA No.7316/Mum/2011
( Assessment Year :2004-2005)
DCIT, Range-5(2), Mumbai Vs. M/s Jet Airways (India) Ltd.,
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.7312/Mum/2011
( Assessment Year :2003-2004)
DCIT, Range-5(2), Mumbai Vs. M/s Jet Airways (India) Ltd.,
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.6690/Mum/2011
( Assessment Year :2007-2008)
M/s Jet Airways (India) Ltd., Vs. ADCIT, Range-5(2), Mumbai
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
AND
ITA No.6594/Mum/2011
( Assessment Year :2007-2008)
DCIT, Range-5(2), Mumbai Vs. M/s Jet Airways (India) Ltd.,
Siroya Centre, Sahara Airport
Road, Andheri (E), Mumbai-
400 099
PAN/GIR No. : AAACJ 0920 H
( Appellant) .. ( Respondent)
/Revenue by : Mr. S.D.Shrivastava
/Assessee by : Mr. Vijay Mehta
Date of Hearing : 13th Feb., 2013
Date of Pronouncement : 05/04/2013
3
ITA Nos.3865, 4200, 7383, 7317
6690, 6594, 7316 & 7312/2011
ORDER
Per Bench:
These are eight appeals by the assessee and department against the order of CIT(A) relating to assessment years 2003-04 to 2007-08.
2. Appeals for assessment years 2005-06 to 2007-08 have been filed by both i.e. by assessee and by department. Appeals for assessment years 2003-04 & 2004-05 have been filed by the department only. The main order passed by the AO is for assessment year 2006-07. Both the parties requested that since the main order has been passed by the AO is for assessment year 2006-07, therefore, appeal for assessment year 2006-07 may be taken up first and thereafter all other appeals may be taken as the issues are similar in those years. In view of the above facts and circumstances, we take first appeal for assessment year 2006-07 for hearing. We will discuss the facts in appeal for assessment year 2006-07 filed by both the parties i.e. assessee and department, and the outcome of the same will be applicable on the appeals of other years as similar grounds are involved in those appeals. To this proposition, both the parties were agreed.
3. Now, we will take first appeal of the assessee for the assessment year 2006-07 listed in ITA No.3865/M/2011.
4
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 3.1 The assessee company filed return on 30-11-2006 declaring total income of Rs.398,25,56,492/- under normal provisions of the Act and Rs.711,83,59,394/- under Section 115JB of the Act. Earlier return of income was prepared under Section 143(3). Thereafter notice under Section 143(2) and 142(1) along with detailed questions, was issued. The case was discussed with the counsel of the assessee by the AO in detail and the order was passed on 21-8-2009 by taking the income of the assessee at Rs.431,70,38,492/- under normal provision of the Act are at Rs.773,97,13,679/- under Section 115JB of the Act. 3.2 Assessee preferred appeal before the CIT(A) taking various grounds of appeal against the additions made by the AO. Learned CIT(A) allowed most of the grounds in favour of the assessee following the order of the Tribunal for earlier year as well as deciding the issue on merit.
Two additions have been sustained by the learned CIT(A) i.e. on account of prior period expenditure and on account of provision of leave encashment in computing the book profit under section 115JB of the Act. The assessee is challenging these additions sustained by the learned CIT(A), whereas the department is challenging various additions deleted by the learned CIT(A). As stated above, we are taking appeal of the assessee first.
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 3.3 First ground in appeal of the assessee relates to confirming the disallowance of Rs.1,48,73,553/- treating the same as prior period expenditure.
3.4 This issue has been discussed by the AO at page 84 to 86 of his order and by the CIT(A) at page 84 to 86.
3.5 During the assessment proceeding, the AO asked to explain as to why the prior period expenditure claimed during the year under consideration should not be disallowed. Detailed reply was filed before the AO. It was submitted that certain expenses pertaining to earlier years have been claimed during the year under consideration. It was further submitted that in most of the cases there was a dispute regarding the claimed amount or information/invoices were received and which were only finalized during the year under consideration. Accordingly, they have been claimed during the year under consideration. It was also submitted that no such claim has been made in past. Reliance was placed on the decision of the Tribunal in the case of Toyo Engineering India Ltd. Vs. JCIT, reported in 100 TTJ 373, wherein it has been held that the actual carrying of business is a live process and it is quite natural that information pertaining to earlier year expenditure would be received after the close of the accounting year. In such cases there is no justification in disallowing the said expenditure, which otherwise is normally eligible for deduction. However, the learned AO was not satisfied as he found that certain 6 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 expenses relating to assessment year 2004-05. The AO also observed that the assessee may not have claimed these expenses in earlier year due to some dispute. The assessee company was to produce the supporting evidence to substantiate its claim during special audit or during the assessment proceedings, however, the assessee company failed to produce the supporting evidences for the same and therefore, he disallowed these expenses. Same contentions were reiterated before the CIT(A). Further reliance was placed on the decision of the Hon'ble Delhi, Rajasthan and Madhya Pradesh High Courts. However, learned CIT(A) was also not satisfied with the contention of the assessee. Accordingly, he also confirmed the disallowance. 3.6 The contentions raised before both the authorities below were reiterated by the learned AR of the assessee here before the Tribunal. On the other hand, learned DR placed reliance on the order of CIT(A). 3.7 After considering the submission and perusing the material on record, we found that the assessee deserves to succeed on the issue involved. It has been argued that there was some dispute among the parties and finally dispute was settled during the year under consideration. The claims of various parties were finalized during the year under consideration. Therefore, these expenses have been claimed during the year under consideration. It was also explained that the Special Auditor while giving his report under Section 142(A) has not appreciated the facts in right perspective. All the details were filed 7 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 before the AO stating that there was certain dispute among the parties and the claim was not made in earlier year. It was also submitted that this fact can be verified by sending the matter back to the AO. It is well settled position of law that prior period expenditure can be allowed if they are otherwise allowable in the year in which the claim is finalized. As claim was not made in past as the same was quantified in the year under consideration only, therefore, we are of the view that these expenses are allowable. Accordingly, we direct to allow these expenses, subject to verification at the end of the AO that these expenses were not claimed in earlier year, if he feels so. It is also pertinent to note here that various cases relied upon by the assessee are in favour of the assessee. In case of Toyo Engineering India Ltd. (supra) and in the case of Nagri Mills Co. Ltd., reported in 33 ITR 681, the Hon'ble Bombay High Court has allowed the issue in favour of the assessee. Similar claim was allowed by the Tribunal in the case of Deepak Fertilizers and Petrochemicals Corporation Limited Vs. DCIT, reported in 304 ITR 167 (AT). We order accordingly.
4. Remaining issue in appeal of the assessee is against the addition of Rs.11,79,38,279/-, being provision for leave encashment in computing the book profit under section 115JB of the Act. 4.1 This issue has been discussed by the AO at pages 106 and 107 in para 33 and by learned CIT(A) at pages 67 to 72 in para 22. During the assessment proceedings, the AO noticed that the assessee 8 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 company has made provision of leave encashment of Rs.11.79 crore or odd along with various other provision i.e. on account of bad debts on account of gratuity. The AO was of the view that while computing income under Section 115JB, any provision has to be added back for computation of book profits on account of doubtful debts, provision on leave encashment and on account of gratuity. Accordingly, he added all the amount in computation of income under Section 115JB of the Act. On account of doubtful debts, addition was confirmed by the learned CIT(A), which has not been challenged by the assessee before the Tribunal.
The addition in respect to leave encashment, while computing the book profit under Section 115JB, has also been confirmed by the CIT(A), which has been objected by the assessee. The CIT(A) examined the provision for payment of tax by certain companies under Section 115JB (1)(2). Detail submission were also filed before the CIT(A). It was submitted that leave encashment is a form of retirement benefit to the employees. The cost of retirement benefits to an employer results from receiving services from the employees, who are entitled to receive such benefits. Consequently, the cost of retirement benefits is accounted for in the period during which these services are rendered. The liability towards leave encashment accrues from year to year, only the payment is made on cessation of employment. The liability, therefore, is in present though it will be discharged at a future date. It does not make any difference if the future date on which the 9 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 liability shall have to be discharged is not certain. The liability can be estimated with reasonable certainty although it cannot be quantified with precision. It was also submitted that the company has made provision for leave encashment on the basis of actuarial valuation, which is as per Accounting Standard 15 issued by the Institute of Chartered Accountants of India. The relevant extracts from the Accounting Standard 15 was also provided by the AR of the assessee. It was also submitted that provision of leave encashment is calculated on the basis of the assumption that all the employees who are in the service of the company as at the year end are entitled for the same. The provision for leave encashment is for meeting ascertained liability and is mandatorily required to be provided by the applicable Accounting Standard 15 issued by the Institute of Chartered Accountants of India read with the other applicable provisions of the Companies Act, 1956. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bharat Earth Movers Ltd., reported in 112 Taxman 61. After considering the submission and perusing the material on record, learned CIT(A) found that though the issue has been decided in favour of the assessee for assessment year 2003-04 to 2005-06 by learned CIT(A) as well as by the Tribunal, however, by mentioning further that he is not agree with the argument that the issue is covered because the provision for leave encashment is not an ascertained and definite liability because the valuation certificate was issued on the basis of number of leaves in credit of the 10 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 employees but the actuarial Valuation Officer has ignored the factor of availment and consumptions of leave by various employees. He has mentioned in his certificate that the factor of consumption and availment of leave was ignored by him while calculating liability. He also observed that since the provision for leave encashment is not for an ascertained liability, the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. (supra), is not applicable in the case of the assessee. Similarly the order of the Tribunal was also not found applicable in the case of the assessee. Accordingly, he confirmed the order of the AO.
h 4.2 The contentions raised before the CIT(A), were reiterated by the learned AR of the assessee here before the Tribunal. Reliance was placed on same cases relied upon before the CIT(A). It was submitted that on identical facts, the issue involved in earlier year, therefore, the CIT(A) was not justified for not following the order of the Tribunal for earlier year. On the other hand learned DR placed reliance on the order of the CIT(A).
4.3 After considering the order of the AO as well as of learned CIT(A) and the arguments of both the parties and various case laws relied upon by the learned AR, we found that this issue is to be decided in favour of the assessee. Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. (supra), has held that, " if the liability has definitely arisen in the accounting year the deduction should be allowed even 11 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 though the liability may have to be quantified and discharged in a future date. What should be certain is the incurring of liability and it should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If the requirements are satisfied the liability is not the contingent one." Following this observation of the Hon'ble Supreme Court, the Tribunal has allowed the issue in favour of the assessee while disposing the appeal for assessment year 1997-98. For assessment year 2003-04 & 2004-05, the decision of the Tribunal, in our view, should have been followed by the learned CIT(A) as there is no change in material facts. Facts are identical for the year under consideration as well as in the earlier year. Hon'ble Supreme Court even held that if it is not possible to quantify the actual liability, however, on a reasonable estimated basis is allowable. The assessee has claimed on the basis of actuarial basis, therefore, in our view, the liability on account of leave encashment should have been allowed while computing the income under Section 115JB of the Act. Accordingly, we direct to allow the provision for the liability on account of leave encashment. We order accordingly.
5. Now, we will take up the appeal of the department i.e. ITA No.4200/Mum/2011 for the assessment year 2006-07. 5.1 Grounds No.1 & 2 in the appeal of the department relate to addition of Rs.3,03,04,715/- under the normal provision of law and the same amount deleted under Section 115JB of the Act. 12
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 5.2 The AO has discussed this issue at pages 13 to 28 in para 11 whereas in appeal, learned CIT(A) has discussed this issue at pages 1 to 8 of his order. Learned counsel of the assessee has filed a chart mentioning the grounds of appeal raised by the department showing pages of the order of the AO as well as of the CIT(A) and the order of the Tribunal for previous years, where the issue is covered by the order of the Tribunal either in favour of the assessee or in favour of the department.
5.3 On the other hand, learned DR made his submission by which the order of the AO has been supported and has been explained also. Attention of the Bench was also drawn on the order of the AO. Part of the order of the AO was read also. It was submitted that no delivery was given by the assessee in this year. Accounting Standard 29 is very clear. It was also submitted that four aircrafts were due to return but have not returned. The heavy expenses have been made by the assessee. Therefore, the disallowance of provision of redelivery of aircrafts amounting to Rs.3..3 crores or odd under the normal provision of law as well as under the provision of Section 115JB of the Act was correct. Learned CIT(A) was not justified in allowing the issue in favour of the assessee. It was also submitted that there was a report by Special Auditor under Section 142(A), who has discussed the issue in detail, which has been followed by the AO. Since there was a special audit during the year under consideration, therefore, that should have 13 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 been considered by the learned CIT(A) while deciding the issue in favor of the assessee. It was also submitted in earlier years when the issue was decided in favour of the assessee, there was no special audit under section 142(A) of the Act.
5.4 Per Contra, learned counsel of the assessee stated that the issue is squarely covered by the decision of the Tribunal for assessment year 1997-98 to assessment year 2005-06. This decision has been relied upon by the learned CIT(A), copies of which are placed on the record from pages 5 to 85 of the paper book. Regarding the contention of the learned DR that there was a special audit during the year under consideration, it was also submitted that no doubt there was a special audit during the year under consideration but there is no change in facts. Facts are identical for the year under consideration and in earlier years. Regarding the applicability of provision of Accounting Standard 29 of Institute of Chartered Accountants of India. It was also submitted that Accounting Standard 29 & other provision are not new provisions as they are old provisions. This provision has been considered in earlier years and the claim of the assessee is in accordance with the provision of Institute as well as provision of the Act. It was also submitted that in view of the consistency, the order of the Tribunal has to be followed, which has been followed by the learned CIT(A). Accordingly, he placed reliance on the order of the learned CIT(A).
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 5.5 We have heard rival submissions and considered them carefully. After considering the submission and perusing the material on record, we found no infirmity in the finding of the learned CIT(A). We noted that the AO disallowed the claim of the assessee under the normal provision of the Act and under the provision of Section 115JB by observing that the provision made in respect of redelivery expenses has not accrued or expended during the year. The said liability has been reported on the basis of certain estimation. Further the nature of provision was found to be contingent in nature and, therefore, the claim of such provision is disallowed. While holding so, reliance was placed on various case laws, which are reproduced in the order of the learned CIT(A) at page 3. Accordingly, the provision made while computing both the income i.e. under normal provision of law as well as under
Section115JB, were disallowed by the AO and were added to the income computed under the normal provision of law as well as under
Section115JB of the Act. Learned CIT(A) after considering the submissions and perusing the material on record, found that this issue has already been decided by the Tribunal for assessment year 1997-98 to 2005-06 and, therefore, the issue was decided by the learned CIT(A) in favour of the assessee on account of both i.e. in respect of provision made under normal provision of the Act as well as the provision made under Section115JB of the Act. Both the additions were deleted by the learned CIT(A).15
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 5.6 After considering the submission of the assessee as well as of the department, we found no infirmity in the order of the learned CIT(A). The contention of the learned DR that there is no delivery of aircraft during the year and also after Accounting Standard 29, the same cannot be allowed, we found that even if there is no delivery of aircraft, it will not make a difference. Accounting Standard 29 was introduced w.e.f. 1-4-2004 and even after the introduction of Accounting Standard 29, the Tribunal has allowed the same in assessee's own case for assessment year 2005-06. Even the leave period is extended, the liability will continue to exist. We also found that the method cannot be changed now because the same has been allowed by the Tribunal for the assessment year 1997-98 to 2005-06.
There is no material difference in the facts of the year under consideration as well as facts of the earlier years. In view of these facts and circumstances of the case and in view of the rule of consistency, we hold that learned CIT(A) was justified in allowing these two grounds in favour of the assessee following the decision of the Tribunal in assessee's own case. Accordingly, we confirm the order of the learned CIT(A) on both the issues.
6. Grounds No.3 & 4 relate to relating deleting the addition of Rs.1,67,50,541/- computed under the normal provision of Act and in the computation of book profit under Section 115JB of the Act, respectively.
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 6.1 This issue has been discussed by the AO at pages 28 to 32 of his order ant at pages 6 to 10 by the learned CIT(A) in his order. According to the AO, the expenditure on re-delivery of the aircrafts leased from South African Airways Pvt. Ltd. bearing tail Nos.VT-JWA, JWB and JWC was on account of lessor and the assessee was under
no obligation to incur any expenditure on redelivery of the said aircrafts. Thus, the provision made for re-delivery of aircraft for aircraft No.VT-JWA, VT-JWB and VT-JWC amounting to Rs.1,67,50,541/- cannot be allowed as it was not the liability of the assessee company under the agreement entered between assessee and lessor. 6.2 Detailed submissions were filed before learned CIT(A), which are discussed in para 5.1 at pages 7 to 8 of the order of learned CIT(A). It was submitted that similar additions were made for assessment years 1997-98 to 2005-06 and the Tribunal has allowed the issue in favour of the assessee. After considering the submissions and perusing the material on record, learned CIT(A) found that the issue is covered by the decision of the Tribunal for the assessment year 1997-1998 to 2005-06. Accordingly, he deleted the addition made on account of provision made for redelivery of aircraft amounting to Rs.1,67,50,541/- in income computed under the normal provision of the Act and in the computation of book profit under the 115JB of the Act. 6.3 Learned DR placed reliance on the order of the AO. Part of the order of the AO was read also. It was contended that ferrying and 17 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 pending cost is not borne by the assessee but was borne by the lessor. Therefore, the AO was correct in making the disallowance. On the other hand, learned counsel of the assessee stated that the costs are not borne by the lessor. They are borne by the lessor only if the job of pending is to be done as per their requirement. The ferrying cost is also not borne by the lessor always. It was also submitted that this fact has also been admitted by the AO at page 28 of his order, where the clauses of agreement have been reproduced in the order of the AO. It was further stated that the AO has not stated that these expenses were not incurred by the assessee but has stated that there was no liability of the assessee even in future for expenses of re-delivery of these aircrafts as it is the expenditure to be borne by the lessor on completion of lease agreement. Accordingly, it was submitted that this is incorrect in stating that the AO has stated that lessor has borne the expenses not the assessee. In fact the assessee has claimed the expenses only to the extent, which they have been incurred by the assessee. It was further submitted that on identical facts, the Tribunal has allowed the issue in favour of the assessee in earlier years. 6.4 After considering the order of AO and learned CIT(A) and the submission of both the parties, we found that learned CIT(A) was justified in deleting these additions. It is seen that on identical facts the issue has been decided by the Tribunal is immediately preceding years i.e. for assessment year 1997-98 to 2005-06. The CIT(A) has followed 18 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 those decisions and thereafter has allowed the issue in favour of the assessee. Finding of the CIT(A) have been recorded in 5.7 & 5.8 of his order at pages 9 & 10. Since the issues are covered by the order of the Tribunal for earlier year, therefore, we see no reason to interfere in the finding of the learned CIT(A) on account of both these additions.
Accordingly, we confirm the order of learned CIT(A) on both the accounts.
7. Ground No.5 relates to deleting of Rs.3,28,55,249/- made by the AO under Section 41(1) of the Act on protective basis in respect of accumulated provision on account of re-delivery of aircraft acquired on operating lease. This issue has been discussed by the AO at pages 30 to 36 and by learned CIT(A) at pages 10 to 13 in their respective orders.
7.1 Learned DR placed reliance on the order of the AO. On the other hand, learned counsel of the assessee placed reliance on the order of CIT(A). It was further stated that even though the lease period has expired, it has been renewed for a further period and, hence, the event of redelivery is not extinguished. The actual expenses incurred by the assessee on re-delivery of aircrafts are much more than the provision created by the assessee. Accordingly, it was submitted that addition under Section 41(1) of the Act cannot be made since the liability has not been ceased.
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 7.2 After considering the order of the AO, the CIT(A) and the submissions of the assessee, we noted that the AO disallowed the expenses by observing that the assessee has already claimed expenses for redelivery of these aircrafts on provisional basis in the earlier years and since the actual re-delivery of these aircrafts was not made during the year under consideration, the provision of re-delivery of these aircrafts made in the earlier years should have been reversed and the same should be subjected to tax under the provision of Section41(1) of the Act as there was cessation of liability on the part of the assessee. The AO further noted that fresh provision for re-delivery of expenditure should have been made by the assessee in respect of said aircrafts during the extended period of these terms. Accordingly, the AO has made the addition under Section 41(1) of the Act of Rs.3,28,55,249/-. It was further submitted before the CIT(A) that the assessee company had acquired four aircrafts bearing Nos.VT-JCA, VT-JCB, VT-JCC and VT-JCD in the earlier years on operating lease. As per the policy consistently followed by the assessee, the assessee had made provision of redelivery expenses on these aircrafts amounting to Rs.3,28,55,250/- upto 31-3-2005. During the relevant assessment year, the lease period in respect of the said aircrafts had expired and the same had been extended for a further period. As a result, the assessee was not required to redeliver the said aircrafts to the lessor. It was also pointed out that the said aircrafts had not been redelivered during the year under consideration and therefore there 20 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 was no cessation of liability on part of the assessee to incur these expenses at the time of actual re-delivery of these aircrafts to the lessor upon expiry of the extended lease term. The assessee was still under an obligation as per the contractual terms to incur the expenses on redelivery of aircrafts such as C Checks, inspection, etc. at the time of redelivery of the said aircrafts. It was further pointed out that no fresh provision of re-delivery expenses on these aircrafts had been made by the assessee and thereafter for extended period of lease term. It was also submitted that there was no cessation of liability on the part of the assessee to incur the said re-delivery expenses and no benefit had been obtained by the assessee on account of the same. Accordingly, it was also submitted that addition made under Section 41(1) was not justified. Reliance was placed on the decision in the case of CIT Vs. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC) and in the case of Chief CIT Vs. Kesaria Tea Co. Ltde. (2002) 254 ITR 434. After considering the submission and perusing the material on record, learned CIT(A) noted that the liability has not been ceased because provisions were made upto 31-3-2005 of Rs.3,28,55,249/- on account of redelivery expenses in respect of these four aircrafts. The lease period has been extended for a further period of four years. Therefore, there was no question of cessation of liability, neither the assessee has incurred nor has provided any further expenditure on account of re- delivery of these four aircrafts. Accordingly, learned CIT(A) opined that provision of Section41(1) of the Act applied by the AO was not correct. 21
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 The case laws relied upon by the learned AR before the learned CIT(A) found supporting the case of the assessee. Accordingly, he deleted the addition. The findings of the learned CIT(A) were remained uncontroverted as nothing has been brought on record to establish otherwise. The CIT(A) has ascertained the factual aspect that period of lease has been extended in respect of four aircrafts and no fresh expenditure has been incurred or booked by the assessee, therefore, the provision of re-delivery expenses provided in earlier year cannot be said that liability has been ceased and the assessee should have shown the expenses claimed in earlier year as income of the year under consideration. Therefore, we feel that learned CIT(A) was justified in deleting the addition. Accordingly, we confirm his order in this respect also.
8. The next issue i.e. ground Nos.6 & 7 are in regard to deleting the addition on account of provision made of obsolescence amounting to Rs.19,47,65,816/- under the normal provision and the same amount under the computation of book profit under Section 115JB of the Act, respectively.
8.1 Both the issues have been discussed by the AO at page 38 to 44 and by learned CIT(A) at pages 13 to 16 in their respective orders. The AO while making the addition stated above, has observed that the said items are not covered under Schedule XIV of the Companies Act, 1956. The AO disallowed the amount in holding that the same was a 22 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 mere provision which was contingent in nature and also on the ground that the assessee had only made provision for obsolescence and had not actually written off old and obsolete spares during the relevant assessment year. Accordingly, the AO disallowed the provision made under the normal provision of income and under Section 115JB of the Act, respectively. Detailed submissions were filed before the CIT(A). It was further submitted that similar additions were made for 1997-98 to 2005-06 and the Tribunal has allowed this issue in favour of the assessee for these years. After considering the submission and perusing the material on record, learned CIT(A) found that the issue is covered in favour of the assessee by the order of the Tribunal for assessment year 1997-98 to 2005-06. Accordingly, he allowed the grounds in favour of the assessee.
8.2 Learned DR placed reliance on the order of the AO. It was further submitted that this item did not find mention in the Schedule of the Companies Act, 1956. It was also pointed out that the AO in his assessment order had mentioned that the assessee had misrepresented the facts before the ITAT. Therefore, the order of the Tribunal should not be taken into consideration in respect to these disallowances.
8.3 In reply, learned counsel of the assessee has stated that the assessee has not misrepresented any facts before the Tribunal. There are no prescribed rules under the Income Tax Act for such parts of the 23 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 aviation industry and, hence, the assessee had accordingly borrowed/derived the rates of depreciation from the Schedule of the Companies Act and not misrepresented any facts. It was further submitted that this issue has been covered by the Tribunal while deciding the issue in favour of the assessee for assessment year 1997- 98 to 2005-06. It was also submitted that the AO has also not stated in his order that any fact has been misrepresented by the assessee before the Tribunal. He just disallowed by observing that these items are not covered under Schedule XIV of the Companies Act and the assessee has made mere provision which was contingent in nature. Accordingly, it was submitted that the arguments of the learned DR that the assessee has misrepresented the facts before the Tribunal is factually incorrect. Further reliance was placed on order of the learned CIT(A).
8.4 After considering the order of the AO, the CIT(A) and the arguments of both the parties, we find that this issue has been decided by the Tribunal for assessment year 1997-98 to 2005-06, copies of which are placed on record. Learned CIT(A) has followed the order of the Tribunal and has allowed the issue in favour of the assessee. Therefore, we see no reason to interfere in the finding of the learned CIT(A), which are in consonance with the order of the Tribunal. Merely stating that the assessee has misrepresented the facts before the Tribunal in earlier year, in our opinion, is not correct because some materials has to be brought on record that which facts were 24 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 misrepresented by the assessee before the Tribunal. The AO has also not made any observation in his order that in the earlier year there was misrepresentation of facts before the Tribunal. In view of the above facts and circumstances of the case, we confirm the order of the CIT(A) in this respect. We order accordingly.
9. The next issue i.e. ground No.8 is against deleting the addition of Rs.98,42,67,988/-on account of depreciation on aircraft acquired on hire purchase basis.
9.1 This issue has been discussed by the AO at pages 44 to 59 and by CIT(A) at pages 16 to 17 in their respective order. 9.2 While disallowing the claim of the assessee, the AO observed that the claim of depreciation of Rs.98,42,67,988/- cannot be allowed on the ground that the assessee cannot be treated as a owner of these aircrafts and engines for the purposes of claiming depreciation allowance. The AO also observed that the title and ownership of the aircraft continued to vest with seller at all times. 9.3 Before the CIT(A) it was submitted that similar claim was disallowed for assessment year 1997-98 to 2005-06 and the Tribunal has decided the issue in favour of the assessee. It was also submitted that during the year the assessee has claimed depreciation in respect of aircrafts and engines acquired under hire purchase in earlier assessment years. The assessee had entered into hire purchase agreement in earlier years. It was further stated that during the relevant 25 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 assessment year, the assessee has not acquired any new aircraft on hire purchase basis and all its hire purchase agreements were on identical lines. After considering the submission and perusing the material on record, learned CIT(A) found that this issue is covered by the order of the Tribunal for the earlier assessment years i.e. 1997-98 to 2005-06. Accordingly, he allowed the issue in favour of the assessee.
9.4 After considering the order of the AO, the CIT(A) on which reliance has been placed by the respective parties, we found no infirmity in the finding of the learned CIT(A) as learned CIT(A) has allowed the claim of the assessee following the orders of the Tribunal for earlier years, where similar issue was decided in favour of the assessee. Accordingly, we confirm the order of the CIT(A) on this issue also.
10. Ground No.9 relates to deleting the addition of Rs.100,52,85,728/- under Section 41(1) of the Act on account of sale and lease back of five aircrafts.
10.1 This issue has been discussed by the AO at pages 59 to 64 and by learned CIT(A) at pages 17 to 23 in their respective orders. The AO observed that the assessee was not the owner of these aircrafts as held by the Tribunal in earlier assessment years. It was further observed by the AO that the assessee was eligible to claim deduction in respect of principal payment of installments of these aircrafts as per 26 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 the stand taken by the department in the earlier assessment years. The AO also observed that the amount received on sale of the said aircrafts in excess of the installment payable needs to be assessed as income under Section 41(1) of the Act. Accordingly, the AO made an addition of Rs.100,52,85,727/- (Rs.462,24,97,188/- being sale consideration of five aircrafts - Rs.361,72,11,460/- installments payable) under Section 41(1) of the Act being the difference between the sale consideration of Rs.462,24,97,188/- and installment payable Rs.361,72,11,460/- on the ground that it has resulted in a benefit to the assessee on account of cessation of trading liability. It was explained before the CIT(A) that it is pertinent to note that Section 41(1) of the Act provides for charging of certain benefits, which are obtained by the assessee as deemed profits. It was also explained that the assessee had sold five Boeing 737 aircrafts bearing tail Nos. JAS, JAT, JAR, JNC and JND to Injet 400 Aircrafts Leasing Co. Ltd., Grand Cayman, Cayman Islands for a sum of Rs.462,24,97,188/-. The said aircrafts were acquired on hire purchase from Wasington Aircraft Hire Co. Ltd. in earlier years for a sum of Rs.671,95,92,523/-. Pursuant to the sale, the said aircrafts were taken on operating lease by the assessee from Injet 400 Aircraft Leasing Co. Ltd.. In the books of accounts, the assessee reduced the sale consideration of Rs.462,24,97,188/- from the block of assets. Further depreciation for the year was claimed only on the reduced block of assets. Accordingly, it was submitted that this is not a case of cessation of liability and the AO was totally misguided himself in 27 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 understanding the facts of the case. Reliance was placed on various case laws. It was also submitted that in order to invoke the provision of Section 41(1) of the Act, the assessee should have claimed deduction in respect of expenditure in earlier years and subsequently there has been remission/cessation of liability as a result of which some benefit accrues to the assessee. In the instant case, the assessee had capitalized the cost of the said aircrafts acquired on hire purchase and claimed depreciation thereon. Further the sale of aircrafts in any way does not result in remission or cessation of liability of the assessee to pay the balance amount to the entity from whom the aircrafts were purchased on hire-purchase basis. Thus, the conditions for invoking the provisions of Section 41(1) of the Act are not present in case in hand.
In respect to contention of the AO that the assessee has not considered the view taken by the department in earlier years regarding the liability of the depreciation and lease rent, is erroneous. It was submitted that in preceding assessment year, the issue has been decided for assessment year 1997-98 to 2005-06 in favour of the assessee by holding that the assessee was an owner of the aircraft acquired under hire purchase basis and allowed the depreciation on the aircrafts and engines acquired under the hire purchase basis. Accordingly, it was pointed out that question of ownership of these aircrafts has been settled inasmuch as the assessee is the owner of these aircrafts and the claim of depreciation has also been upheld by 28 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 the CIT(A) as well as by the Tribunal. After considering the submission and perusing the material on record, learned CIT(A) found that the AO was not correct in making any addition under Section 41(1) of the Act. It was seen that the assessee has been declared as owner of these aircrafts. The issue has been decided by the Tribunal in favour of the assessee in earlier years and depreciation has been allowed. It is seen that on sale of these aircrafts, the assessee has reduced the block of assets by sale consideration and accordingly claimed lesser depreciation. This fact was in conformity with the finding of the Tribunal in earlier year. Accordingly, the addition made under Section 41(1) was deleted by the learned CIT(A).
10.2 Learned placed reliance on the order of AO. On the other hand, learned counsel of the assessee placed reliance on the order of CIT(A).
10.3 After considering the order of AO and CIT(A), we found no infirmity in the finding of the learned CIT(A). Learned CIT(A) has noted that in earlier year, the issue in respect of ownership of these aircrafts have been settled by the Tribunal by declaring that the assessee is the owner of these aircrafts. Accordingly, depreciation disallowed by the AO was allowed by the CIT(A) and the order of CIT(A) has been affirmed by the Tribunal upto the assessment year 2005-06. It was further noticed by the learned CIT(A) that the cost of these aircrafts have been shown in the block of assets and sale consideration 29 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 received by the assessee has been reduced from the block of assets and on reduced value, the assessee has claimed lesser depreciation. Therefore, this is not a case of cessation of liability and accordingly, provisions of Section 41(1) are not applicable on the facts of this issue. Finding of the CIT(A) remained uncontroverted as learned DR has placed heavy reliance on the order of AO only. Therefore, we confirm the order of the learned CIT(A) on this issue also.
11. The next ground i.e. ground No.10, which relates to deleting the addition of Rs.6,91,38,488/- made on account of provision for frequent flyers expense under Section 115JB of the Act.
11.1 The AO made addition of Rs.6,91,38,488/- under the normal provision of the Act and under the book profit computation under Section 115JB each, by observing that any provision made in books of account is not allowable deduction under that except for those which are specifically mentioned in the Income Tax Act. 11.2 Detailed submissions were filed before the CIT(A). It was submitted that similar disallowance made for assessment year 1997-98 to 2005-06 have been deleted by the Tribunal. After considering the order of the AO and the Tribunal, the CIT(A) found that the issue is covered in favour of the assessee by the decision of the learned CIT(A) for earlier year and the decision of the CIT(A) has been confirmed by the Tribunal i.e. for assessment year 1997-98 to 2005-06. Accordingly, he deleted both the additions i.e under normal provision and under 30 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 Section 115JB of the Act. The department challenged the deletion under Section 115JB, however, the department has not challenged the deletion made under normal provision of the law. 11.3 After considering the AO land CIT(A) on which reliance has been placed by respective parties, we found that the issue is squarely covered by the decision of the Tribunal for assessment year 1997-98 to 2005-06, which has been followed by learned CIT(A). Therefore, there is no reason to interfere in the finding of the learned CIT(A). Accordingly, we confirm the order of CIT(A) on this issue.
12. The next issue i.e. ground No.11, which relates to deleting the addition of Rs.2,85,09,245/- made on account of repairs of premise, furniture and fixtures.
12.1 The AO made addition on the basis of past history that these expenses are capital in nature. Before CIT(A) detailed submissions were filed and it was submitted that similar additions were made in the earlier year also, which has been deleted by the Tribunal in assessee's own case. Learned CIT(A) after considering the submissions and perusing the material on record, found that similar additions have been deleted by the Tribunal for assessment year 1997-98 to 2005-06. Accordingly, he deleted the disallowance made by the AO. 12.2 Learned DR placed reliance on the order of CIT(A). On the other hand, learned counsel of the assessee placed reliance on the order of learned CIT(A).
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 12.3 After considering the order of the CIT(A) and AO, again we found no infirmity in the finding of the CIT(A), who has deleted the additions following the order of Tribunal for assessment year 1997-98 to 2005-
06. Accordingly, we confirm the order of the CIT(A) in this respect also.
13. The next issue i.e. ground No.12, which relates to deleting the disallowance of Rs.68,50,425/- on account of prior period expenses. 13.1 The AO made this addition by observing that the deduction claimed relating to expenses of prior period, therefore, they are not allowable. Before learned CIT(A), it was submitted that in fact the assessee had written back an amount of Rs.1,16,43,548/- on account of excess provision made in earlier years on account of inventory purchased and treated the same as prior period income. It was further submitted that during the finalization of the account, it was found that the amount written back to the extent of Rs.68,50,425/- was excessive and accordingly reduced this amount. Learned CIT(A) after examining the issue, found that the assessee has written back the provision on account of inventory amounting to Rs.1,16,43,548/- on 31-3-2006. Subsequently, the assessee realized that the amount written back on account of provision of inventory were excessive to the extent of Rs.68,50,425/- and accordingly reduced the same from the amount written back on account of provision for inventory amounting to Rs.1,16,43,548/- by way of a reversal entry in its books of account and offered the amount of Rs.1,03,57,712/- as income on account of 32 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 excessive provision for inventory which relates to prior period expenses. Therefore, the CIT(A) found that the addition made by the AO, which was on account of reversal entry in the books of account, was not justified and deleted the same.
13.2 Finding of CIT(A) are finding of fact, which neither could be controverted nor any other material was brought on record. Therefore, we see no reason to interfere in the finding of the learned CIT(A), which are discussed above. Accordingly, we confirm the order of the learned CIT(A) on this issue also.
14. The next issue i.e. ground No.13, which relates to deleting the addition of Rs.11,65,950/- on account of Directors or key personnel of the assessee company.
14.1 The addition of Rs.11,65,950/- was made by the AO on ad-hoc basis on the assumption that a part of such expenditure was for non- business purposes. It was explained before the CIT(A) that the assessee company had incurred expenses amounting to Rs.64,29,750/- on Directors/key personnel for fuel for staff vehicle, hotel accommodation, parking charges, foreign travel, car hire charges, business promotion expenses, driver's expenses, telephone expenses, repair and maintenance expenses vehicle, staff medical expenses, membership/subscription, conference meeting expenses, repair and maintenance-staff residence, domestic travel expenses, internet expenses and insurance expenses. Details of these expenses were 33 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 also filed. It was also submitted that for assessment year 2003-04 to 2005-06, similar disallowance was deleted by the learned CIT(A) and no second appeal has been filed by the department. Reliance was placed on various case laws also. After considering the submission and perusing the material on record, learned CIT(A) found that there was no basis to disallow the ad-hoc disallowance. It was noticed that expenditure have been incurred for fuel for staff vehicle, hotel accommodation, parking charges, foreign travel, car hire charges, business promotion expenses, driver's expenses, telephone expenses, repair and maintenance expenses etc. etc. and found that they are allowable as business of the assessee. Reliance was placed on various decision of the Tribunal relied upon before him. 14.2 After considering the order of the AO, and CIT(A) again we found no infirmity in the finding of the learned CIT(A). The CIT(A) has ascertained that these expenses were for purpose of business and, therefore, the ad-hoc disallowance was no justified. Accordingly, we confirm the order of the learned CIT(A) in this respect also.
15. Ground No.14 relates to deleting the addition of Rs.55,42,37,262/- on account of interest income which was treated as business income as against income from other sources. 15.1 Detailed submissions were filed before learned CIT(A). Reliance was placed on various case laws. It was further submitted that in assessee's own case, similar disallowance was made for earlier year 34 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 and learned CIT(A) has allowed the issue in favour of the assessee and the order of learned CIT(A) has been confirmed by the Tribunal. After considering the decision of the various High Courts as well as Tribunal and the decision in the case of assessee itself, learned CIT(A) found that similar additions were made in earlier year, which has been deleted by the learned CIT(A) and the order of the learned CIT(A) has been confirmed by the Tribunal. Accordingly, he deleted the addition for the year under consideration also.
15.2 Learned CITDR fairly stated that the margin money-interest earned is not business income but income from other sources as held in the case of Pandian Chemicals Ltd. Vs. CIT, 262 ITR 278 (SC), derivation of profits on deposits made with electricity board cannot be said to be flow directly from the industrial undertaking, although electricity may be required for the purposes of industrial undertaking, the deposit required for its supply is a step removed from the Industrial Undertaking itself. Similarly, in the present case deposit of margin money may be needed for business purposes but interest earned on its is a step removed from the business. Hence, to be assessee as income from other sources. Without prejudice, the decision of the Hon'ble Supreme Court in the case of Liberty India, 317 ITR 218 (SC) is clear on this that the nexus is not of the first degree but of the second degree, hence, it is not business income. 35
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 15.3 On the other hand, learned counsel of the assessee placed reliance on the order of learned CIT(A). It was further submitted that in assessee's own case, the Tribunal has allowed the issue in favour of the assessee. It was further submitted that in the case of Lok Holdings, reported in 308 ITR 356, the Hon'ble Bombay High Court has held that interest on surplus business fund is also taxable under head business income, if the funds relate to business. Regarding the decision of the Hon'ble Supreme Court, it was submitted that the said decision was in respect to deduction under Section 80(I), where the word is "derived from", here is no addition under Section 80(I), however, business funds were used for taking loans and, therefore, the interest income has to be treated as income from business. 15.4 After considering the order of AO and CIT(A) and the decision of the Tribunal for earlier year, we found that similar issue has been decided by the Tribunal in favour of the assessee for assessment year 1997-98 to 2005-06. Learned CIT(A) has followed those decision, therefore, in view of the consistency, we find no reason to interfere in the finding of the learned CIT(A). Accordingly, we confirm the order of the learned CIT(A) on this issue also.
16. Ground No.15 relates to deleting addition of Rs.1,04,41,07,743/- made under Section 115JB of the Act.
16.1 The AO made disallowance under the provision for gratuity in computing the book profit under Section 115JB of the Act. It was 36 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 submitted that provision for gratuity is an ascertained liability and as such it cannot be added back as a mere provision in computing book profit under Section 115JB of the Act. Provision of Section 115JB was explained before the learned CIT(A). It was submitted that gratuity is a form of retirement benefit to the employees. The cost of retirement benefits to an employer results from receiving services from the employees, who are entitled to receive such benefits. Consequently, the cost of retirement benefits is accounted for in the period during which these services are rendered. The liability towards leave encashment accrues from year to year, only the payment is made on cessation of employment. The liability, therefore, is in present 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. The liability can be estimated with reasonable certainty although it cannot be quantified with precision. It was also submitted that the company has made provision for leave encashment on the basis of actuarial valuation, which is as per Accounting Standard 15 issued by the Institute of Chartered Accountants of India. The relevant extracts from the Accounting Standard 15 was also supplied to the learned CIT(A). Reliance was placed on various case laws including decision of the Hon'ble Bombay High Court in the case of CIT Vs. Echjay Forgings (P) Ltd., reported in 251 ITR 15 and also on the decision of the Tribunal in the case of assessee itself i.e. from assessment year 1998-99 to 2005-06. After considering the submission 37 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 and perusing the material on record, learned CIT(A) found that the issue is covered by the decision of the Tribunal in the case of assessee itself. Accordingly, addition made under the provision of Section 115JB was deleted by the learned CIT(A).
16.2 After considering the order of the AO and learned CIT(A), we found that learned CIT(A) has allowed the issue in favour of the assessee following the decision of the Tribunal in case of assessee itself and the decision of the Hon'ble Bombay High Court n the case of Echjay Forgings (P) Ltd (supra). Accordingly, we confirm the order of CIT(A) on this issue also.
17. Ground Nos.16, 17 & 18 relate to deleting the addition of Rs.25,22,70,223/- relating to aircraft taken on finance lease without appreciating the fact in view of the provision of Section 43A, such foreign exchange loss has to be considered in the cost of the asset purchased.
17.1 Revised return was filed before the AO claiming the additional expenditure of Rs.25,22,70,223/- relating to aircrafts taken on finance, however, the AO did not accepted the revised return and disallowed the claim made by the assessee in the revised return. Detailed submission were filed before the CIT(A). It was submitted that there was no valid reason for not taking into consideration the revised return. The revised return was filed as per the provision of law. It was 38 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 explained that the assessee acquired aircraft No.MSN 33740 on finance lease of Rs.1,91,43,58,377/- during the assessment year 2004-
05. Apart from repayment of finance lease, the assessee had paid an amount of 15% of the purchase price amounting to Rs.28,71,53,756/- as initial rent during the same year. The acceptance certificate as an evidence of payment of the initial was filed. The same was capitalized in the books of accounts as per the Accounting Standard-19 issued by the Chartered Accountant of India (ICAI). The initial rent paid upfront for finance lease is an expense over the lease period of 12 years under the Act. It was explained that the above expenses were paid for acquiring the aircraft under finance lease and as per the Act are deductible expenses over the lease period i.e. 12 years. Accordingly, the assessee has claimed the proportionate initial lease rent and other expenses amounting to Rs.2,39,28,480/- and Rs.41,27,315/-, respectively incurred for aircraft MSN 33740 acquired on finance lease. It was further submitted that similar claim was made by the assessee for assessment year 2005-06 and the CIT(A) had allowed the issue in favour of the assessee for the assessment year 2005-06. Reliance was placed on various case laws. It was explained that the lease rental was paid for the use of aircraft and, therefore, it was in the nature of revenue field, as it does not confer on the assessee any enduring benefits. Further, the other expenses were incurred in connection with the said finance lease. Thus, the said expenditure was exclusively for the business of the assessee, which is into operation of aircraft. 39
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 Therefore, the above two conditions are wholly satisfied and the said expenditure is allowable as a deduction under Section 37(1) of the Act. It was also submitted that the assessee has claimed deduction under the Act for payment of interest on loan amounting to Rs.2,88,46,707/- for assessment year 2004-05 and the AO has allowed the same. After considering the submission and taking into consideration various case laws, learned CIT(A) found that the AO committed a mistake in not accepting the revised return. It was found by the learned CIT(A) that the expenses are allowable under Section 37(1) and, therefore, learned AO should have accepted revised return and should have allowed the expenses claimed by the assessee in its revised return, which are otherwise allowable. The finding of the learned CIT(A) has been discussed at page 72 to 94 in his order.
17.2 Learned DR has placed reliance on the order of AO. On the other hand, learned counsel of the assessee placed reliance on the order of learned CIT(A). It was submitted that the expenses claimed for assessment year 2007-08 and 2008-09 has been allowed by the AO himself.
17.3 After considering the order of the AO, CIT(A) and submission of both the parties, we found that the CIT(A) was justified in allowing the claim of the assessee. It is further seen that the AO disallowed merely on the reason that the assessee has claimed these expenses in 40 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 revised return, however, similar expenses claimed in the original return for assessment year 2007-08 & 2008-09, the AO himself has allowed by treating these expenses as allowable under Section 37(1) of the Act. In view of these facts and circumstances, we hold that learned CIT(A) was justified in allowing these expenses. Accordingly, we confirm the order of the learned CIT(A) on these issues also.
18. In the result, appeal of the assessee is allowed whereas the appeal of the department is dismissed.
19. Now, we will take the appeal of the assessee filed for the assessment year 2005-06, which has been listed under ITA No.7383/Mum/2011.
19.1 In the appeal of the assessee only issue is against confirming the addition of Rs.3,49,38,827/-, being provision for leave encashment in computing the book profit under section 115JB of the Act. 19.2 This issue was involved in appeal of the assessee for assessment year 2006-07, listed under ITA No.3865/Mum/2011, which we have already disposed of and we have allowed the issue in favour of the assessee. For the same reasoning, this ground of the assessee is allowed.
20. ITA No.7317/Mum/2011, has been filed by the department for the assessment year 2005-06.
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 20.1 The first issue is against deleting the disallowance of provision for re-delivery of aircraft amounting to Rs.3,21,56,726/- in the income computed under Section 115JB of the Act.
20.2 This issue was also involved in the appeal of the department for assessment year 2006-07 listed under ITA No.4200/Mum/2011. We have dismissed the ground of the department for that year as the issue is covered by the decision of the Tribunal for assessment year i.e. 1997-98 to 2005-06. Therefore, we confirm the order of the CIT(A) on this issue for the year under consideration also.
21. Second issue is in regard to deleting the addition of Rs.6,31,36,406/- in respect of provision for frequent flyers expense under Section 115JB of the Act.
21.1 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
22. The next ground relates to deleting the disallowance of Rs.1,66,09,160/- in respect of purchase of licence for SAP software. 22.1 During the assessment proceeding, the AO noticed that the assessee had paid an amount of Rs.1,66,09,160/- towards maintenance expenses and towards licence fees for additional users of 42 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 SAP Software and claimed the same as revenue expenditure. However, the AO held that the said amount was capital in nature and disallowed the entire amount. The AO also held that the said licence fees are depreciable as intangible asset but the AO has not allowed even depreciation on the same.
22.2 Before learned CIT(A) detailed submissions were filed. Alternate contentions were made that at least depreciation should have been allowed by the AO. Reliance was placed on various case laws. Learned CIT(A) after considering the submission and perusing the material on record, found that the assessee has paid an amount of Rs.1,66,09,160/- towards licence fee for additional user and maintenance of software. These expenditure was claimed as revenue expenditure. The AO disallowed the same by treating the same capital in nature, however, the depreciation was also not allowed. After considering the case of the assessee and decision of the Tribunal, the CIT(A) found that the expenditure on purchase of licence to use SAP software for its employer etc. is an expenditure of revenue in nature. Software has not been transferred to the assessee which has only the right to use the same. No capital asset has thus come into existence. The CIT(A) has also observed that the technology has become efficient resulting into the development of business at a faster phase. Accordingly, he deleted the entire addition.
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ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 22.3 Learned DR placed reliance on the other of AO. On the other hand, learned counsel of the assessee placed reliance on the order of CIT(A). Further reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Raychem RPG Ltd. (2012) 346 ITR 138 (Bom), wherein it has been held that expenses incurred on software comprising ERP package to facilitate assessee's trading operations were business expenditure allowable under Section 37(!) of the Act.
22.4 After considering the order of the AO, CIT(A) and the submissions of both the parties, we found that this issue is now squarely covered by the decision of the Hon'ble jurisdictional High Court in the case of Raychem RPG Ltd. (supra). We further noted that learned CIT(A) has ascertained the factual aspect of the case and the finding of learned CIT(A) was remained uncontroverted as the learned DR has placed reliance on the order of AO. In view of the above facts and circumstances of the case, we confirm the order of the learned CIT(A) in this respect also.
23. Remaining issue is against deleting the addition of Rs.52,365/- on account of interest payment on delayed TDS.
23.1 The AO added the amount of Rs.52,365/- as interest income received under section 244A of the Act. Learned CIT(A) after considering the submission has deleted the addition. 44
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 23.2 Learned DR placed reliance on the order of AO. On the other hand, learned counsel of the assessee placed reliance on the order of CIT(A). It was further submitted that interest payment of delayed TDS is not tax but a compensation incurred by the assessee for delay in depositing the tax of third party in the account of Government within stipulated time. Accordingly, this expenditure is revenue expenditure. 23.3 After considering the order of AO, CIT(A) and submission of both the parties, again we found no infirmity in the finding of the learned CIT(A), who has deleted this addition by observing the factual aspect that the expenditure incurred on delayed payment of TDS was a revenue expenditure at the ene of the assessee. In fact, this amount was not interest received on refund but it was paid on delayed TDS by the third party. Therefore, we see no reason to interfere in the finding of the learned CIT(A).
24. Now, we will take appeal for the assessment year 2004-05, listed under ITA No.7316/Mum/2011.
24.1 In this appeal, the department has taken ground in regard to deleting the addition on account of provision for re-delivery of aircraft amounting to Rs.2,86,97,144/- in the income computed under Section 115JBof the Act.
24.2 This issue was involved for assessment year 2006-07 in appeal of the department (i.e. ITA No.4200/Mum/11). We have already 45 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 disposed of the appeal for the assessment year 2006-07, whereby the order of the learned CIT(A) has been confirmed. On the same reasoning, the ground raised by the department is dismissed for the year under consideration.
25. The next issue is against deleting the addition for frequent flyers expense amounting to Rs.9,74,92,277/- in income computed under Section 115JB of the Act.
25.1 This issue was also involved for the assessment year 2006-07 and we have confirmed the order of the learned CIT(A) for assessment year 2006-07. Therefore, for the same reasoning, this ground of department fails and is hereby dismissed.
26. The next issue relates to deleting the addition on account of provision for gratuity amounting to Rs.4,36,86,984/- in the income computed under Section 115JB. This issue was also involved for assessment year 2006-07. The issue is also covered by the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Echjay Forgings (P) Ltd., reported in 251 ITR 15. We have decided this issue in favour of the assessee. For the same reasoning, the ground of the department fails for the year under consideration.
27. The next issue relates to deleting the addition made on account of purchase of licence from SAP software amounting to Rs.17,33,285/-. 46
ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 27.1 This issue was involved for assessment year 2005-06. We have disposed of the appeal for the assessment year 2005-06. This is directly covered by the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Raychem RPG Ltd., reported in 346 ITR 138. Therefore, for the same reasoning, this ground of the department also fails.
28. Remaining issue is deleting the addition of Rs.32,21,118/- on account of interest payment on delayed TDS.
28.1 This very issue was involved in the assessment year 2005-06, where we have confirmed the order of the learned CIT(A).Therefore, on the same reasoning, this ground of department also fails.
29. Now we take appeal of the department for the assessment year 2003-04, listed under ITA No.7312/Mum/2011.
29.1 The first issue is against deleting the addition of Rs.5,36,84,354/- made by the AO on account of provision for re-delivery of aircrafts in the income computed as per Section 115JB and the second issue is against deleting the addition of Rs.6,13,70,666/- made by the AO on account of provision for frequent flyers expense under Section 115JB of the Act.
29.2 These two issues were involved in assessment year 2006-07. We have already confirmed the order of the CIT(A) on account of both the additions deleted by him while disposing the appeal for assessment 47 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 year 2006-07. Therefore, for the same reasoning, these grounds of the department fail and are hereby dismissed.
30. Remaining issue is against deleting the addition of Rs.5,09,708/- made by the AO on account of interest payment on delayed TDS. 30.1 This issue was also involved in the appeal for the assessment year 2005-06 & 2004-05, wherein we have already confirmed the order of the learned CIT(A) for these two years. Therefore, on the same reasoning, this ground of the department also fails and is hereby dismissed.
31. Now, we will take up appeal of the assessee for the assessment year 2007-08, listed under ITA No.6690/Mum/2011. 31.1 In the appeal, the assessee has raised the only ground in regard to addition of Rs.10,87,29,408/-, being provision for leave encashment in computing the book profit under section 115JB of the Act. 31.2 This very issue was involved in the appeal of the assessee for the assessment year 2006-07, (i.e in ITA No.3865/Mum/2011), wherein we have allowed the same. Therefore, for the same reasoning, we also allow the ground raised by the assessee in its appeal.
32. The department has filed ITA No.6594/Mum/2011, for the assessment year 2007-08.
32.1 Grounds Nos.1 & 2 are against deleting the addition on account of obsolescence of Rs.23,41,58,427/- in the income computed under 48 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 the normal provision of the Act as well as under Section 115JB of the Act.
32.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
33. In ground No.3 & 4, the department has raised objection in regard to deleting the addition on account of re-delivery of aircraft amounting to Rs.8,85,76,134/- in the income computed under the normal provision of the Act as well as under Section 115JB of the Act. 33.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
34. In ground No.5 & 6, the department has raised objection in regard to deleting the addition on account of re-delivery of aircraft amounting to Rs.1,96,62,235/- in the income computed under the normal provision of the Act as well as under Section 115JB of the Act. 34.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in 49 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
35. In ground No.7, the department has raised objection in regard to deleting the depreciation on aircraft amounting to Rs.178,53,78,765/- acquired on hire purchase.
35.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
36. In ground No.8 & 9, the department has raised objection in regard to deleting the addition on account of frequent flyers expenses amounting to Rs.3,59,12,929/- in the income computed as per Section 115JB of the Act .
36.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
37. In ground No.10, the department has raised objection in regard to directing to treat interest income earned on fixed deposits amounting 50 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 to Rs.53,55,49,997/- as business income as against income from other sources.
37.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
38. In ground No.11, the department has raised objection in regard to deleting the disallowance of Rs.1,90,25,438/- on account of repairs of premise, furniture and fixtures either at office or rental premises, treating it as capital expenditure.
38.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
39. In ground No.12 & 13, the department has raised objection in regard to deleting the addition of Rs.145,89,72,198/- under Section 41(1) of the Act on account of sale and lease back of five aircrafts and holding that the same amount cannot be taxed alternatively under Section 28(iv) of the Act.
39.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in 51 ITA Nos.3865, 4200, 7383, 7317 6690, 6594, 7316 & 7312/2011 consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
40. In ground No.14, the department has raised objection in regard to deleting the disallowance of Rs.10,87,83,063/- being provision for gratuity in section 115JB of the Act.
40.2 This issue was also involved for the assessment year 2006-07, in which we have confirmed the order learned CIT(A), which was in consonance with the order of the Tribunal for earlier year i.e. for assessment year 1997-98 to 2005-06. On the same reasoning, this ground of the department is also rejected.
41. Resultantly, appeals of the assessee (i.e. ITA Nos.3865, 7383 & 6690/Mum/2011) are allowed and appeals of the department (i.e. ITA Nos.4200, 7312, 7316, 7317 & 6594/Mum/2011) are dismissed.
(i.e. ITA Nos.3865, 7383 &
6690/Mum/2011) (i.e. ITA
Nos.4200, 7312, 7316, 7317 & 6594/Mum/2011)
Order pronounced in the open court on this 5th day of April.2013. 2013
Sd/- Sd/-
( ) ( )
(RAJENDRA) (R.K.GUPTA)
/ ACCOUNTANT MEMBER / JUDICIAL MEMBER
Mumbai; Dated : 05/04/ 2013.
/pkm, PS
52
ITA Nos.3865, 4200, 7383, 7317
6690, 6594, 7316 & 7312/2011
Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. / The CIT(A), Mumbai .
4. / CIT
5. / DR, ITAT, Mumbai.
6. Guard file.
//True Copy//
/ BY ORDER,
(Asstt. Registrar)
/ ITAT, Mumbai