Income Tax Appellate Tribunal - Mumbai
Jet Airways (I) Ltd., Mumbai vs Department Of Income Tax on 16 April, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'J' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKOTAIAH,AM
ITA No.4402/Mum/2008
Assessment Year : 2005-06
Asstt. Commissioner of Income tax -5(2)
Room No.571, 5th Floor
Aayakar Bhavan
M.K. Road
Mumnbai-400 020. .....(Appellant)
Vs.
M/s. Jet Airways (I) Ltd.
S.M. Centre,
Andheri-Kurla Road
Andheri (E)
Mumbai-59. .....(Respondent)
P.A. No.(AAACJ 0920 H)
Appellant by : Ms. Kusum Ingle
Respondent by : Shri Arvind Sonde
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the revenue is directed against the order dated 16.4.2008 passed by the ld. CIT(A) for the Assessment Years 2005-06.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of running of aircrafts as scheduled Air Taxi Operator under the registration of Director General of Civil Aviation. 2 ITA No.4402/M/08
A.Y: 05-06 The assessee operates its fleet of aircrafts on various sectors in India. The assessee filed return declaring total income of Rs. Nil under the normal provisions and u/s. 115 JB of the Income tax Act, 1961 (the Act) at Rs.5,79,29,36,621/-. However, the assessment was completed after making various disallowance at an income of Rs. Nil under normal provisions of the Act and at Rs.6,04,23,94,090/- u/s. 115JB of the Act, vide order dated 12.12.2007 passed u/s. 143(3) of the Act. On appeal, the ld. CIT(A) while deleting all the impugned disallowances partly allowed the appeal of the assessee.
3. Being aggrieved by the order of the ld. CIT(A) the Revenue is in appeal before us taking following grounds of appeal.
4. Ground No.1. reads as under -
"1. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by Assessing Officer of Rs.18,27,38,472/- on account of provision for obsolescence.
5. The brief facts of the above issue are that on perusal of profit and loss account the Assessing Officer noted that the assessee company has debited a sum of Rs.18,27,38,472/- towards provision for spares obsolescence shown under the schedule of operating expenses. The Assessing Officer after considering the assessee's submission was of the view that the provision for obsolescence is an 3 ITA No.4402/M/08 A.Y: 05-06 estimated liability which is contingent in nature. The said claim therefore cannot be allowed since it has not been actually incurred or expended during the year. Accordingly, he disallowed the claim of provision for obsolescence of Rs.18,27,38,472/- and added to the total income of the assessee. On appeal the ld. CIT(A) following the order of the Tribunal in assessee's own case dated 30.5.2006 for the Assessment Year 1997-98 and subsequent Assessment Years directed the Assessing Officer to allow appellant's claim of obsolescence subject to the condition that the total claim over the years does not exceed the cost to the appellant.
6. At the time of hearing both the parties have agreed that the above issue is covered against the revenue and in favour of the assessee vide para 30 to 33 of the order of the Tribunal dated 30.5.2006 in assessee's own case in batch of appeals in Jet Airways India Pvt. Ltd. vs. JCIT and vice versa in ITA No.4228/M/00 for the Assessment Year 1997-98 and subsequent Assessment Years. It was further submitted that the above order of the Tribunal has been followed in assessee's appeal in Asstt. Commissioner of Income tax vs. Jet Airways (India) Ltd., in ITA No.3530/M/2007 for Assessment Year 2004-05 dated 16.10.2008. It was further submitted that recently the Tribunal has again followed its earlier orders in ACIT vs. Jet Airways (I) Ltd. in ITA Nos.116 & 156/Mum/2007 for Assessment Years 2002- 4 ITA No.4402/M/08 A.Y: 05-06 03 and 2003-04 dated 4.1.2010. The copy of the said orders was also placed on record.
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit that the above issue is squarely covered against the revenue and in favour of the assessee vide order of the Tribunal supra wherein the Tribunal vide para-33 of its order dated 30.5.2006 has held as under :
"33. We have heard both the sides and considered their rival submissions and have also gone through the record. In our view, the contentions of the assessee deserve to be accepted in the light of the International Accounting Standard applicable aeronautic industries. The department authorities should have appreciated the nature of the assessee's business and the character of its claim based on applicable accounting standard before rejecting the same. It is not an adhoc claim for deduction in respect of a contingent liability. The claim is in respect of the normal wear and tear which is acceptable in the aeronautic industries and such claim is bade on the provisions of Schedule XIV of the Companies Act, 1056 while dealing with the rate of depreciation. The 5.6% is the rate of depreciation prescribed under the Companies Act for providing depreciation for the purposes of section 2-5 and 350 of the same Act. In fact, the rate of depreciation prescribed under the Income-Tax Act is @ 40% which is definitely higher than 5.6%. It is the 5.6% of the actual expenditure incurred by the assessee. The stores and spares which go obsolescence due to usage and normal wear and tear have a useful life over the life of the aircraft beyond a year. If such expenses are claimed on actual basis on the purchase of such inventory, assessee's claim will have been much larger and the assessee's claim, in our view, in the light of the table extracted above, is very much reasonable and deserves to be accepted in the light of the method of accounting regularly followed by it. The Assessing Officer may ensure that the assessee does not claim more than the actual cost as deduction in; the form of annual write off to the profit and loss account. In view of the 5 ITA No.4402/M/08 A.Y: 05-06 fact that we have accepted the main contention of the assessee, the other alternative prayers are not acceded to."
The Tribunal in the recent case after following the above order has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
8. Ground Nos. 2. and 3. read as under :-
"2. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by the Assessing Officer of Rs.3,21,56,726/- on account of proportionate aircraft redelivery charges.
3. On the facts and in the circumstances of the case, and as per law, the learned CIT(A) erred in deleting the disallowance made by the Assessing Officer of Rs.5,96,31,804/- being heavy maintenance charges provided on the basis of maintenance programme manual laid down by the manufacturers of the air craft."
9. The brief facts of the above issues are that on perusal of P&L Account it was observed by the Assessing Officer that the assessee has claimed various categories of repairs and maintenance expenses pertaining to aircraft operated by it as under:
6 ITA No.4402/M/08
A.Y: 05-06
a) Aircraft redelivery expenses Rs. 3,21,56,726/-
b) Heavy maintenance expenes "C-check" Rs.5,96,31,804/-
The Assessing Officer after considering the assesee's explanation was of the view that the provisions made in respect of redelivery expenses & heavy maintenance expenses have not incurred or expended during the year. The said liabilities have been provided on the basis of certain estimation and hence he disallowed the said expenses and added to the income of the assessee. On appeal the ld. CIT(A), following the order of the Tribunal(supra), directed the Assessing Officer to allow both the expenses claimed by the appellant.
10. At the time of hearing both parties have agreed that the Tribunal in assessee's own case supra vide para 8-13 of the order has decided the aforesaid issues against the revenue and in favour of the assessee, therefore, the issues may be decided accordingly.
11. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit that the aforesaid issues have been decided by the Tribunal against the revenue and in favour of the assessee vide para-13 of the order dated 30.5.2006 (supra), wherein the Tribunal while observing at page 20 of the order that " ..............it cannot be said that the claims of the assessee are only contingent in nature and are not the accrued 7 ITA No.4402/M/08 A.Y: 05-06 liabilities. In fact, in the nature of the assesee's business the assessee has to incur these expenses. The only uncertainty is the actual time of the expenditure. But the expenditure itself has to be incurred because of the flying hours completed. Even the quantum of the expenditure provided for in the accounts are based on the opinion of the technical people. The independence of such authorities is not in serious dispute by the revenue authorities...........," has upheld the order of the ld. CIT(A) in deleting the disallowance made by the Assessing Officer . The Tribunal in the recent case also after following the above order of the Tribunal has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the grounds taken by the revenue are rejected.
12. Ground No. 4. reads as under :-
"4. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the disallowance of Rs.4,08,11,40,667/- made by Assessing Officer on account of depreciation on aircraft taken on hire purchase."
13. The brief facts of the above issue are that on perusal of details of depreciation it was found by the Assessing Officer that the assessee 8 ITA No.4402/M/08 A.Y: 05-06 has claimed depreciation Rs.4,08,11,40,667/- on aircrafts taken on hire purchase by the assessee. The Assessing Officer for the reasons as mentioned in the assessment order for Assessment Year 2004-05 wherein he has considered the hire purchase agreement between the assessee and North American Aircraft Hire Co. Ltd. was of the view that right of ownership continued to vest with seller and it is nowhere provided in the agreement that the equipments shall eventually become the property of the hirer. The hirer (assessee) only exercises the option to purchase the asset by fulfilling all the conditions mentioned in the agreement. Till such time the ownership of the asset in question remains with the various owners as per specific hire purchase agreement the assessee cannot be treated as the owner of the aircraft for the purposes of depreciation allowance and accordingly he disallowed the depreciation of Rs.4,08,11,40,667/- on the aircrafts acquired on hire purchase. However, the Assessing Officer following the assessment orders for the earlier years allowed the alternate claim of the assessee that if depreciation is not allowed, then repayment of principle amount of hire charges of Rs.2,60,16,03,711/- is allowable and accordingly he allowed the same. On appeal the ld. CIT(A) following the order of the Tribunal in assessee's own case for the earlier years directed the Assessing Officer to allow depreciation on aircraft acquired on hire purchase by appellant. 9 ITA No.4402/M/08
A.Y: 05-06
14. At the time of hearing both parties have agreed that this issue is also covered against the revenue and in favour of the assessee by the order of the Tribunal vide para-16 of the order dated 30th May, 2006(supra).
15. After hearing the rival parties and perusing the material available on record we find merit that the issue is squarely covered against the revenue and in favour of the assessee by the order of the Tribunal supra, wherein the Tribunal while relying on the decision of Hon'ble Madras High Court in the case of Tamil Nadu Dairy Development Corporation Ltd. Vs CIT (239 ITR 142) has held vide para-16 of the order dated 30th May, 2006 as under :
"..... we agree with the view of the ld. CIT(A) that the conditions laid down in the said clause 30 are nothing but more than the routine formalities that are to be performed by the hirer. Such terms and conditions are usually part and parcel of every hire purchase agreement. To avoid these controversies the Board has issued circulars from time to time enabling the hirer to claim depreciation on assets acquired under what is known as hire purchase agreements. The Madras High court in the case of Tamil Nadu Dairy Development Corporation Ltd. (supra), has also considered similar agreement and upheld the claim of depreciation on the assets acquired under similar hire purchase agreement. Therefore, the CIT(A) was right in law in directing the allowance of depreciation on the two aircrafts acquired by the assessee and we decline to interfere."
The Tribunal in the recent case also after following the above order has rejected the similar ground taken by the revenue vide order dated 10 ITA No.4402/M/08 A.Y: 05-06 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
16. Ground No. 5. reads as under :-
"5. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the disallowance of Rs.1,48,84,275/- made by Assessing Officer on account of repairs to furniture & fixture although the said expenses were capital in nature."
17. The brief facts of the above issue are that on perusal of details of repairs to furniture and fixtures reproduced at page-17 to 26 of the assessment order it was observed by the Assessing Officer that the furniture and fixture were newly made for opening new offices at various places in India, which is essentially capital in nature. The Assessing Officer after considering the assessee's explanation was of the view that the said expenditure were essentially acquisition of new furniture and fixture, partition etc. which was tailor-made to the requirements of the office premises and hence not in nature of revenue as claimed by the assessee company and accordingly he disallowed Rs.1,48,48,275/- as capital expenditure. However, he allowed for depreciation Rs.12,87,114/- on the said capital expenses. 11 ITA No.4402/M/08
A.Y: 05-06 On appeal the ld. CIT(A) following the order of the Tribunal in assessee's own case for the earlier years directed the Assessing Officer to allow the expenses in question as revenue expenditure after withdrawing depreciation.
18. At the time of hearing both parties have agreed that this issue is also covered against the revenue and in favour of the assessee by the order of the Tribunal vide para-7 of the order dated 30th May, 2006(supra).
19. Having carefully considered the submissions of the rival parties and perusing the material available on record we find merit that the issue is squarely covered against the revenue and in favour of assessee by the order of the Tribunal supra wherein the Tribunal vide para-7 of its order dated 30th May, 2006 while following the order of the Tribunal for Assessment Year 1995-96 wherein the Tribunal following the decision of the Hon'ble Supreme Court and also the Hon'ble Jurisdictional High Court has held that the assessee is not the owner of any of these assets and the expenses are only to give a better working atmosphere to its employees and also to give an aesthetic look to its customers. Therefore, the expenditure in question is purely revenue in nature and is directed to be allowed after withdrawing depreciation allowed by the Assessing Officer. The 12 ITA No.4402/M/08 A.Y: 05-06 Tribunal in the recent case also after following the above order has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
20. Ground No. 6. reads as under :-
"6. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by Assessing Officer in respect of provisions made for frequent flyer expenses of Rs.6,31,36,406."
21. The brief facts of the above issue are that it was observed by the Assessing Officer that as per company's accounting policy as mentioned in schedule S, of the assessee company accounts for frequent flyer programme as follows "the cost of allowing free travel to members as contractually agreed under the frequent flyer programme is accounted considering the members accumulated mileage on incremental cost basis." The Assessing Officer after considering the asessee's explanation was of the view that the frequent flyer programme expenses is a provision made in the books of account of the assessee and contingent in nature, it is benevolent scheme in the nature and there is no contractual liability on the part of the assessee 13 ITA No.4402/M/08 A.Y: 05-06 to incur the expenses, it is contingent upon the utilisation of facility by the passenger and the liability is not ascertained as the passenger may or may not utilise the facility provided by the company and any provision made in the books of account is not allowable deduction under the Act and hence, he disallowed the provision for frequent flyer programme Rs.6,31,36,406/- and added to the income of the assessee. On appeal the ld. CIT(A) following the order of the Tribunal wherein it has been held that the expenses booked on account of frequent flyer programme expenditure is allowable expenditure, directed the Assessing Officer to allow the same.
22. At the time of hearing both parties have agreed that this issue is also covered against the revenue and in favour of the assessee by the order of the Tribunal vide para-29 of the order dated 30th May, 2006(supra).
23. We have carefully heard the submissions of the rival parties and perusing the material available on record. We find merit that the issue is squarely covered against the revenue and in favour of assessee by the order of the Tribunal supra wherein the Tribunal vide para-29 of its order dated 30th May, 2006 while following the principle laid down by the Hon'ble Supreme Court in Bharat Earth Movers vs. CIT (245 ITR
428) has held that -
14 ITA No.4402/M/08
A.Y: 05-06 "the claim of the assessee is based on the liability it has undertaken under the frequent flyer programme. It is not the case of the revenue that the liability provided by the assessee is not in accordance with the scheme operated by the assessee. The liability provided is in respect of variable cost of flying the aircraft. That is also based on the minimum cost. In our view, these provisions are based on the experience of the airline and the actual miles accumulated by the passengers. If one were to go through the entire scheme it cannot be said that the provision made by the assessee is in respect of a contingent liability. The principle laid down by the Hon'ble Supreme Court supra, equally applies to the scheme in question and the claim of the assessee has been properly appreciated by the ld. CIT(A) and his order is confirmed."
The Tribunal in the recent case also after following the above order has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
24. Ground No.7. reads as under :-
7. On the facts and in the circumstances of the case and as per law, the ld. CIT(A) erred in directing the Assessing Officer to treat interest income on fixed deposits of Rs.
30,63,78,087/- as profit from business and profession rather than as income from other sources as held by Assessing Officer."
15 ITA No.4402/M/08
A.Y: 05-06
25. The brief facts of the above issue are that on perusal of the P&L Account it was observed by the Assessing Officer that the company had earned interest income Rs.30,63,78,087/- The assessee was asked to explain as to why the interest earned should not be assessed under the head 'income from other sources' since investments is not its business activity. The Assessing Officer after considering the assessee's explanation was of the view that the assessee company, without any statutory obligation has invested the surplus funds, and earned the interest, and therefore, such interest income is assessable under the head 'income from other sources' and accordingly he assessed the same. On appeal the ld. CIT(A) following the order of the Tribunal in assessee's own case directed the Assessing Officer to treat interest income under the head 'profit and gains of business and profession' .
26. At the time of hearing both parties have agreed that this issue is also covered against the revenue and in favour of the assessee by the order of the Tribunal vide para-39 of the order dated 30th May, 2006(supra).
27. After hearing the rival parties and perusing the material available on record we find merit that the issue is squarely covered against the revenue and in favour of assessee by the order of the 16 ITA No.4402/M/08 A.Y: 05-06 Tribunal supra wherein the Tribunal vide para-39 of its order dated 30th May, 2006 while observing that most of the short term deposits are made in the banks as a margin money required for issue of Letter of Credit and commercial instruments required for the purpose of assessee's business. Moreover all the surplus funds that are invested have come out of the business receipts of the assessee, held that the income in question should be assessee in toto as income from business of the assessee and the residuary section as income from other sources will come into play only when the income is not assessable under other specified heads and accordingly directed the Assessing Officer to treat the interest income as income from business and not as income from other sources. The Tribunal in the recent case also after following the above order has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
28. Ground No. 8 reads as under :-
"8. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in allowing the additional claim of Rs.2,80,49,904/- for proportionate 17 ITA No.4402/M/08 A.Y: 05-06 initial rent paid and other expenses incurred on aircraft acquired on finance lease although the assessee company failed to make the said claim through a revised return as provide in the Act.
29. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee during the course of hearing filed an additional claim for proportionate initial rent paid and other expenses incurred on aircraft acquired on finance lease amounting to Rs.2,80,49,904/-. The Assessing Officer after considering the assessees explanation that the additional claim is allowable u/s.37 of the Act was of the view that since the assessee has made claim by way of separate letter and no revised return was filed making such additional claim, therefore, following the judgment of Hon'ble Supreme Court in Goetze (India) Ltd. vs. CIT reported in 284 ITR 323(SC), there is no need to examine the issue on merits and accordingly he disallowed the claim of the assessee. On appeal, the ld. CIT(A) after considering the assessee's submission and the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. supra, and other decisions cited in his order while distinguishing the above decision followed the decision of Hon'ble Supreme Court in NTPC Limited 229 ITR 383 (SC) and observed that there is no dispute that the impugned claim is allowable and has been allowed in past. Further the impugned disallowance of claim is not allowed because of the fact that the Assessing Officer has found the claim non-genuine and thus 18 ITA No.4402/M/08 A.Y: 05-06 disallowable. The ld. CIT(A) following the administrative instructions issued by CBDT vide Circular No.14(XL-35) of 1955 dated 11.4.1955 (referred to as item 491 in Taxman's Direct Taxes Circulars, Volume I, 1977, 4th Edition) has held vide para 7.2.1 of his order as under :-
"7.2.1. From the above, it is clear that though an Assessing Officer is not empowered to entertain the claim of deduction otherwise than by filing a revised return, he has been burdened with a duty enunciated in CBDT Circular No.14(XL-35) of 1955, dated April 11, 1955 to advise the assessees about their rights w.r.t. relief's, if any. In the instant case, I find that there was a case for advice from the Assessing Officer to the appellant within the meaning of Circular No.14(XL-35) of 1955, dated April 11,1955, as the ld. Assessing Officer has allowed the claim in the immediately preceding assessment year. In any case, there is a legitimate and bonafide claim of deduction and there is a mistake apparent from records in not getting the claim allowed for whatsoever reasons. Once, the mistake is detected, it should be remedied as the Hon'ble Supreme Court in the case of Distributors (Baroda) P. Ltd. vs. Union of India 155 ITR 120 (SC) on Page No.0123 has already held that, " To perpetuate an error is no heroism. To rectify it, is the compulsion of the judicial conscience." Thus, in this legal and factual backdrop as discussed above, the impugned genuine, legitimate and bonafide claim of deduction of the appellant is allowed in the facts and circumstances of the instant case as the correct and true income and tax liability of the appellant for assessment year 2005-06 can not be determined without allowing this impugned deduction. The appeal succeeds on this ground accordingly."
30. At the time of hearing the ld. DR supports the order of the Assessing Officer.
31. On the other hand the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) also relied on the decision of the Tribunal 19 ITA No.4402/M/08 A.Y: 05-06 in Emerson Network Power India (P) Ltd. vs. ACIT (2009) 122 TTJ (Mum.) 67 wherein the Tribunal following the decision in Chicago Pneumatic India Ltd. vs. DCIT (2007) 15 SOT 252 (Mum.) has held that the Assessing Officer was obliged to give due relief to the assessee or entertain its claims if admissible as per law even though the assessee had not filed the revised return. He therefore, submits that the order passed by the ld. CIT(A) be upheld.
32. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the impugned claim has been allowed in past. It was disallowed on the ground that the assessee has made the claim through its letter without filing any revised return as held by the Hon'ble Supreme Court in Goetze (India) Ltd. vs. CIT (2006) 284 ITR 323 (SC). In the absence of any other material placed on record by the ld. DR to show that the assessee's claim is otherwise not allowable, keeping in view that it has been held by Their Lordships in Goetze (India) Ltd. supra, that "............ However we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income tax Appellate Tribunal u/s.254 of Income tax , 1961........" and the CBDT vide Circular No.14(XL-35) of 1955 dated 11.4.1955 (supra), and also the consistent view of the Tribunal (supra), we are 20 ITA No.4402/M/08 A.Y: 05-06 inclined to uphold the order of the ld. CIT(A) in allowing the claim of the assessee. The ground taken by the revenue is therefore, rejected.
33. Ground No. 9 reads as under :-
"9. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by Assessing Officer in respect of provisions for obsolescence of Rs.18,27,38,472/- while computing Book Profits u/s. 115JB as the same was a contingent liability."
34. The brief facts of the above issue are that on perusal of the P&L account it was observed by the Assessing Officer that the assessee company has debited Rs.18,27,38,472/-towards provision for spares obsolescence shown under the schedule of operating expenses. The Assessing Officer after considering the assessee's explanation and following ratio of decisions cited in para-2.3 of the assessment order disallowed the provision for obsolescence and added the same in the computation of book profit u/s.115 JB of the Act. On appeal the ld. CIT(A) following the Tribunal order dated 30.5.2006 (supra), allowed the claim of the assessee .
35. At the time of hearing both parties have agreed that this issue is also covered against the revenue and in favour of the assessee vide para-42 of the order of the Tribunal dated 30.5.2006(supra). 21 ITA No.4402/M/08
A.Y: 05-06
36. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit that the issue is squarely covered against the revenue and in favour of assessee by the order of the Tribunal (supra), wherein the Tribunal vide para-42 of its order dated 30.5.2006 while following the decision in Apollo Tyres (2002) 255 ITR 273 (SC) has observed and held as under :
"42. We have carefully considered the rival submissions and have gone through the records. In the light of our above finding that the provision for obsolescence as made by the assessee in its accounts based on International Accounting Standard should be treated as provision and liabilities incurred in the course of the business and the same is in the nature of ascertained liabilities and proper debit to the profit and loss account, the contentions of the revenue have no force. Apart from the above and in the light of the principle laid down by the supreme Court in the case of Apollo Tyres (supra), the AO is not permitted to make adjustment while determining the book profit for the purpose of section 115 JB of the Act. Accordingly, we allow this ground of the assessee."
The Tribunal in the recent case also after following the above order of the Tribunal has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
37. Ground No.10. and 11 read as under :-
22 ITA No.4402/M/08
A.Y: 05-06 "10. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by Assessing Officer on account of Provision for doubtful debts Rs.2,80,97,359/- while computing Book Profit u/s.115JB."
"11. On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in deleting the addition made by Assessing Officer on account of provision for gratuity of Rs.3,86,21,638/- while computing Book Profit u/s.115JB."
38. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee company has made provisions of Rs.2,80,97,359/- on account of doubtful debts and provisions of Rs.3,86,21,638/- on account of gratuity. According to the Assessing Officer while computing the income as per normal provisions of the Act the same provisions are to be added back to the total income of the assessee company but while computing income as per book profit, the same is not to be added back. As per the provisions of section 115JB, any provision has to be added back for computation of book profit. Considering the facts the Assessing Officer added back to the book profit provision of Rs.2,80,97,359/- on account of doubtful debts and Rs.3,86,21,638/- on account of gratuity. On appeal the ld. CIT(A) following the order of the Tribunal dated 30.5.2006 supra has allowed the grounds raised by the assessee in this regard.
39. At the time of hearing both parties have agreed that in view of the amendment made in clause (i) by the Finance (No.2 ) Act, 2009. 23 ITA No.4402/M/08
A.Y: 05-06 w.r.e.f. 1.4.2001 the assessee has no case with regard to the addition of provision for doubtful debts to book profit u/s.115JB of the Act.
40. However, with regard to the Ground No.11 both parties have agreed that the issue is covered against the revenue and in favour of the assessee by the order of the Tribunal in assessee's own case in M/s. Jet Airways (India) Ltd. Vs. DCIT in ITA Nos. 6242 & 6057/Mum/2004 and 2798/Mum/05 for Assessment Years 1998-99, 1999-00 and 2000-01 vide para-7 of the order dated 27.11.2007 and also by the recent order of the Tribunal for Assessment Years 2002-03 and 2003-04 dated 4.1.2010(supra). The copy of the said orders was also filed.
41. We have carefully heard the submissions of the rival parties and perused the material available on record. We find merit that in view of the amendment made by Finance (No.2) Act, 2009, w.r.e.f 1.4.2001, in Clause (i) of the second proviso to sec.115JB(2) of the Act the issue with regard to the provisions for doubtful debt to book profit is decided against the assessee and in favour of the revenue. The ground No.10 taken by the revenue is, therefore, allowed.
42. However, with regard to the provision for gratuity to book profit we find merit that the issue is squarely covered against the revenue and in favour of assessee by the order of the Tribunal supra wherein 24 ITA No.4402/M/08 A.Y: 05-06 the Tribunal vide para-7 of its order dated 27.11.2007 while observing that the issue is covered by the judgment of Jurisdictional High Court in CIT vs. Echjay Forgings Pvt. Ltd. 251 ITR 15 (Bom.) in which it has been held that the provisions for gratuity has been made on the basis of actual calculations such it was an ascertained liability and the said amount cannot be added to the net profit, deleted the addition made by the Assessing Officer and sustained by the ld. CIT(A). The Tribunal in the recent case also after following the above order of the Tribunal has rejected the similar ground taken by the revenue vide order dated 4.1.2010, supra. In the absence of any distinguishing feature brought on record by the revenue we respectfully, following the order of the Tribunal(supra), and the rule of consistency decline to interfere with the order passed by the ld. CIT(A) on this account and accordingly the ground taken by the revenue is rejected.
43. In the result revenue's appeal is partly allowed. Order pronounced in the open court on 6.10.2010.
Sd/- Sd/-
(B. RAMAKOTAIAH) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 6.10.2010.
Jv.
25 ITA No.4402/M/08
A.Y: 05-06
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.