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2012 (7) TMI 183 - AT - Income TaxDis allowance of Prior Period Expenses - Held that - the assessee is following mercantile system of accounting. It is well settled that accrual of a statutory liability depends upon the terms of the relevant statute and the quantification or ascertainment cannot postpone its accrual to the extent of admitted liability - the assessee did not furnish any evidence before the AO or CIT(A) that the liability for the expenses shown as prior period expenses crystallized in the respective years under consideration. In the absence of any basis dis allowance is warranted - against assessee. Disallowance of an amount of Rs. 34.31 lakhs debited to P/L a/c & Rs. 5,34,79,358/- included in the inventories - Held that - As the amount of Rs. 534.79 lakhs was included in the closing stock for the year under consideration as detailed in the impugned order, thus the plea of the DR on this aspect is devoid of any merit - As regards amount of Rs.34.31 lakhs mentioned in the audit observation neither any evidence was furnished before the AO nor CIT(A) in support of this amount, thus in the absence of any reconciliation or evidence in support of the amount the amount is need to be disallowed - against assessee. Disallowance for want of reconciliation - Accounts with Indian Airlines Ltd., the parent company, have neither been reconciled nor confirmed - Held that - Since no reconciliation has been submitted either before the AO or before the CIT(A), in the absence of any basis, no alternative left but to uphold the findings of the ld. CIT(A)to warrant disallowance - against assessee. Addition on account of grant received - AO has taken the entire grant received for the year as the revenue of the assessee, which has been vehemently contested - Held that - It is not in dispute that the grant given to the assessee was Rs. 35 crores for the year which was based on the MOU between the assessee and NEC (North Eastern Council). As per the MOU, the total sanction from the government was Rs. 175 crores over a period of 5 years for improving air connectivity in the north east region - the assessee has been following the accounting standards as prescribed by ICAI which cannot be faulted for this. It is not a matter of dispute here is that the government grant given to the assessee was based on operations from which a net expenditure/income had to be arrived at after deducting the expenditure. In such circumstance, if the assessee has shown only an amount of Rs. 7.29 crores, the same has to be sustained. The amount cannot be the total receipt of Rs. 35 crores or the figure of Rs. 27.71 crores - in favour of assessee. Disallowance of aircraft lease handling and maintenance charges to its holding company - Held that - Assessee did not furnish any explanation whatsoever before the AO nor the CIT(A). Thus in view of the aforesaid observations of CAG pointing out that excessive payment had been made to Indian Airlines to the extent of Rs.3.92 crores, the CIT(A) upheld the disallowance and in the absence of any basis, especially not even evidence or explanation was placed before the AO or the CIT(A) no alternative but to uphold the findings of the CIT(A) - against assessee. Addition on a/c of change in the method of accounting - Held that - As there is nothing to suggest that the change made in the method of inventory valuation by the assessee was not with a bona fide intention it is thus apparent that only with a bona fide intention the assessee changed the method of stock valuation in the light of relevant accounting standard prescribed by ICAI. As a result of the change made in the method of stock valuation, the income of the assessee has reduced as any change in any method of stock valuation is bound to make some change in the taxable income. Simply because, by virtue of the change introduced by the assessee, the income has been reduced, by no stretch of imagination, it can be said that the assessee had an intention to deliberately undervalue its stock so as to reduce its tax burden - against revenue. Disallowance of insurance reserve - Held that - The assessee is consistently following the prescribed accounting policy by crediting the reserve account on account uninsured risk and this method has been accepted earlier by the Revenue. The CIT(A) found that the assessee made the provision on the basis of actuarial valuation and DR did not place any material suggesting that the liability was contingent in nature - in favour of assessee.
Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order. 2. Disallowance of prior period expenses. 3. Disallowance related to unverifiable consumption and inventory amounts. 4. Disallowance due to lack of reconciliation with parent company. 5. Addition on account of grant received. 6. Disallowance of excessive payment to the holding company. 7. Addition due to change in the method of accounting. 8. Disallowance of uninsured risk provision. Detailed Analysis: 1. Legality and Factual Correctness of the CIT(A)'s Order: The assessee contended that the CIT(A)'s order was "bad in law and bad on facts of the case." This issue was raised across multiple assessment years (AYs 2000-01, 2003-04, 2004-05, and 2005-06). The Tribunal found no violation of natural justice principles by CIT(A), as the assessee failed to provide the necessary details and evidence. Therefore, these grounds were dismissed. 2. Disallowance of Prior Period Expenses: The assessee argued against the disallowance of prior period expenses, claiming these expenses crystallized during the relevant years. However, the Tribunal upheld the CIT(A)'s decision, noting that no evidence was provided to establish that the liability for these expenses crystallized in the respective years. The Tribunal cited the Gujarat High Court decision in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, which states that prior period expenses must be shown to have crystallized in the year they are claimed. Consequently, the disallowance for AYs 2000-01, 2003-04, 2004-05, and 2005-06 was upheld. 3. Disallowance Related to Unverifiable Consumption and Inventory Amounts: For AY 2003-04, the assessee's claim of Rs. 34.31 lakhs as consumption advised by Indian Airlines and Rs. 5,34,79,358 included in inventories was partly upheld and partly dismissed. The CIT(A) found no evidence supporting the Rs. 34.31 lakhs claim but accepted the inventory amount as it was included in the closing stock. The Tribunal upheld these findings, dismissing both the assessee's and the Revenue's appeals on this ground. 4. Disallowance Due to Lack of Reconciliation with Parent Company: For AY 2003-04, the AO disallowed Rs. 6,98,92,000 due to the lack of reconciliation with Indian Airlines. The CIT(A) upheld this disallowance as the assessee failed to provide any reconciliation. The Tribunal agreed with the CIT(A), dismissing the assessee's appeal. 5. Addition on Account of Grant Received: For AY 2003-04, the AO added Rs. 27.71 crores, arguing that the entire grant of Rs. 35 crores should be recognized as income. The CIT(A) deleted this addition, finding that the assessee followed Accounting Standard AS-12 and recognized income proportionately. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide contrary evidence. 6. Disallowance of Excessive Payment to the Holding Company: For AY 2005-06, the AO disallowed Rs. 3.92 crores, citing excessive payment to Indian Airlines. The CIT(A) upheld this disallowance, noting the absence of any explanation from the assessee. The Tribunal agreed, dismissing the assessee's appeal. 7. Addition Due to Change in the Method of Accounting: For AY 2005-06, the AO disallowed Rs. 1,05,36,000 due to a change in the method of accounting for inventory valuation. The CIT(A) allowed the claim, finding the change bona fide and in accordance with Accounting Standards. The Tribunal remanded the issue to the AO for verification, directing that if the change was bona fide and consistently followed, no addition should be made. 8. Disallowance of Uninsured Risk Provision: For AY 2005-06, the AO disallowed Rs. 7,99,315 for uninsured risk provision, deeming it contingent. The CIT(A) allowed the claim, noting the provision was based on actuarial valuation and consistently followed. The Tribunal upheld this decision, dismissing the Revenue's appeal. Conclusion: The Tribunal dismissed all the assessee's appeals and the Revenue's appeal for AY 2003-04. The Revenue's appeal for AY 2005-06 was partly allowed for statistical purposes, with the issue of change in the method of accounting remanded for verification.
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