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2015 (11) TMI 304 - HC - Income TaxUnexplained cash credit under Section 68 - Held that - The orders of the CIT (A) and ITAT deleting the addition made by the AO of the sum corresponding to 65185 shareholders are set aside. The said sum will stand added to the income of the Assessee. However, the orders of the CIT (A) as confirmed by the ITAT deleting the addition made in respect of the amount brought in by 50 17 shareholders are upheld. Also, the order of the CIT (A), affirmed by the ITAT, remanding the matter to the AO in respect of 8 persons and some part of 25 persons who were not traceable and whose addresses had not been furnished is upheld. Payment of supplemental lease rent - Disallowance under Section 195 read with Section 40 (a) (i) of the Act for non-deduction of tax at source from payment to non-residents for maintenance reserve (supplemental lease rent) - CIT (A) deleted the addition confirmed by ITAT - Held that - On facts the Revenue was unable to point out any clause in the agreement that required the lessor to provide facilities or services in connection with the leased aircraft. Therefore, the supplemental rent did not fall within the ambit of the exclusionary provisions of Section 10 (15A) of the Act. Since prior to 1st April 1996 such payments continued to be exempted under Section 10 (15A) of the Act, they were not chargeable to tax. Consequently, there was no obligation on the Assessee to deduct the tax at source under Section 195 of the Act. The question of holding the Assessee as an Assessee in default under Section 201 (1) of the Act, therefore, did not arise. Thus the Court affirms the order of the ITAT deleting the additions made by the AO under Section 195 read with Section 40 (a) (i) of the Act on account of the non-deduction of tax at source for the payment of supplemental lease rent to the various lessors, i.e., ILFC, AMTEC, Malaysian Airlines and Lufthansa. Training and manpower development - Held that - Payment for payment for training and manpower development the Court remands the matter for both periods i.e. FYs 1994-95 to 1998-99 and AY 1996-97 to the ITAT for a fresh decision in accordance with law as the insertion of an Explanation below Section 9 (2) of the Act with retrospective effect from 1st June 1976, making the place of rendering services redundant, has not been considered. Again, it is necessary for the ITAT to consider, in the context of the agreement with HFTL and the Article 13 (4) (c) of the DTAA with UK, whether any technology was made available to the Assessee and whether there was payment for such services. Payment for the computerised reservation system - non-deduction of TDS from payment to non-residents for computerized reservation system - Held that - The Court finds that no objection was raised in AY 1995-96 with respect to the certificates issued by ITO (TDS). The ITAT also confirmed that the said certificate issued by ITO (TDS) was valid. The Revenue has not able to persuade this Court to hold that the said decision is perverse. The Assessee has made the payment after obtaining the said certificates. The issue is decided in favour of the Assessee and against the Revenue. Free tickets - Held that - Free charged tickets were being issued on account of business promotion to various persons and merely because they have been issued to spouses or infants or where full names had not been given it cannot be presumed that they were not for business purposes. It was held that this discretion of the management at the time of issue of FOCs is of the issuance thereof and the Department to the best of our understanding has no right to question the prudency of the decision. There was no basis for disallowance of 50% of such expenses. The view taken by the CIT (A) as concurred with by the ITAT appears to be plausible. The disallowance of 50% of these expenses appears to be not based on any material. Accordingly, the said issue is answered in favour of the Assessee and against the Revenue. Interest on borrowed capital - Held that - The CIT (A) allowed the claim of the Assessee after observing that the AO did not hold the interest payment to be excessive or unreasonable and it was found factually that not a single paisa has been advanced to the four sister concerns out of the borrowed funds and that the AO has himself accepted that the outstanding amounts were on account of the trading connections. Accordingly, the addition of ₹ 1,42,76,534 made by the AO was deleted. The ITAT accepted the factual finding that the Assessee had allowed its sister concerns to retain the amount as a result of the trading transactions. Further the entire amount was taken by the Assessee for the business purpose. Therefore, there could be no disallowance of interest. Foreign travel expenses - Held that - The CIT (A) found that the decision of the AO was ill founded, without proper appreciation of the facts of the Assessee s case and that the entire foreign travelling expenses were incurred after obtaining approval from the R.B.I. for purchase of foreign currency from the market which can never be done as an afterthought. It was observed that the agreement of the Assessee with Hughes Flight Training Ltd. clearly provided that the latter was not to give training to the flight crews in India. The CIT (A) demarcated the expenditure incurred on travel of relatives of the directors and confirmed an addition to that extent in the sum of ₹ 2200. The expenditure on travel in which the destination of the journeys were not mentioned was also separated and this expenditure in the sum of ₹ 8,26,638 was restored the matter back to the AO for a fresh determination so as to give an opportunity to the Assessee to produce the necessary evidences. The addition of the remaining expenditure in the sum of was deleted. Consultancy charges - Held that - On this aspect the ITAT, for the AY 1995-96 held that the services rendered by Sahara India International Corporation Limited ( SIICL ) to the Assessee was in connection with the lease of two aircrafts and the payment made to it for the services rendered. The Revenue had been unable to show as to how such payment should be treated as unreasonable. The Court finds that even in the present appeal the Revenue has been unable to show that the said payment has been excessive or unreasonable. The issue is decided in favour of the Assessee and against the Revenue. Staff welfare expenses - Held that - CIT (A) was right in observing that it was not necessary for every employee to sign a voucher and that the AO has erred in treating the staff welfare expenses as entertainment expenses. However, the CIT (A) found that the expenses claimed as conveyance expenses were in the nature of entertainment expenses as defined by Section 37(2)(iii) and directed the AO to restrict the disallowance insofar as conveyance expenses. The Court is unable to find any illegal infirmity in the order of the CIT (A) as upheld by the ITAT Advertisement and publicity expenses - Held that - The issue has been answered in favour of the Assessee by the decision of the Gujarat High Court in Saurashtra Cement and Chemical Industries v. CIT 1994 (10) TMI 30 - GUJARAT High Court which observed that merely because the expenditure relates to an earlier year, it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. Air travel tax - Held that - Section 43B is only attracted when the Assessee claims deduction for any sum payable by way of tax or duty under any law for the time being in force, and, where, as in the case of the Assessee, no charge is claimed or made to the profit or loss account, there was no question of disallowing the amount taken to the balance sheet on the liabilities side or of adding back and deleted the addition. The Court upholds the order of the ITAT which affirmed the order by the CIT (A) deleting the above addition. Limitation under Section 201 - Held that - The payment in question for the AY 1995-96 pertained to the payment made to Jeppson & Co. for navigational data. It is noticed that the issue is covered by the decision in CIT v. Mak Japan Broadcasting (2008 (4) TMI 182 - DELHI HIGH COURT) and it is answered in favour of the Assessee and against the Revenue. This amendment to Section 210 of the Act with effect from 1st April 2010 provided for an extended limitation period of seven years. However, that amendment was prospective as held in Bhura Exports Limited v. The Income Tax Officer (TDS) (2011 (8) TMI 449 - CALCUTTA HIGH COURT ).
Issues Involved:
1. Unexplained cash credit under Section 68 of the Act. 2. Payment of supplemental lease rent. 3. Training and manpower development. 4. Payment for the computerized reservation system. 5. Free tickets. 6. Interest on borrowed capital. 7. Foreign travel expenses. 8. Consultancy charges. 9. Staff welfare expenses. 10. Advertisement and publicity expenses. 11. Air travel tax. 12. Limitation under Section 201 of the Act. 13. Payment to Sochata France. Detailed Analysis: 1. Unexplained Cash Credit under Section 68 of the Act: The Court examined the issue of unexplained cash credits under Section 68 of the Act. The Assessee failed to establish the identity, genuineness, and creditworthiness of 65,185 shareholders who contributed Rs. 55,55,89,359. The CIT (A) and ITAT's deletion of this addition was set aside, and the sum was added to the Assessee's income. For the 100 shareholders, the CIT (A) and ITAT's decision to delete the addition for 50+17 shareholders was upheld, and the remand for 8 shareholders and some part of 25 shareholders was also upheld. 2. Payment of Supplemental Lease Rent: The Court affirmed the ITAT's decision that supplemental rent payments to ILFC, AMTEC, Malaysian Airlines, and Lufthansa were exempt under Section 10(15A) of the Act and not chargeable to tax. Consequently, the Assessee was not required to deduct tax at source under Section 195, and the Assessee was not in default under Section 201(1). 3. Training and Manpower Development: The Court remanded the issue of payments for training and manpower development for FYs 1994-95 to 1998-99 and AY 1996-97 to the ITAT for fresh consideration. The ITAT's previous decision did not sufficiently address whether the payments were for technical services and whether technology was "made available" as per the DTAA. 4. Payment for the Computerized Reservation System: The Court found no objection to the certificates issued by ITO (TDS) for AY 1995-96 and upheld the ITAT's decision confirming the validity of the certificates. The issue was decided in favor of the Assessee. 5. Free Tickets: The Court upheld the ITAT's decision that the expenses for free tickets were for business promotion and not disallowable. The disallowance of 50% of these expenses by the AO was not based on material evidence and was thus rejected. 6. Interest on Borrowed Capital: The Court upheld the ITAT's decision that the interest-bearing funds were not diverted as interest-free advances to sister concerns. The interest payment was for business purposes, and the disallowance of Rs. 1,42,76,535 was deleted. 7. Foreign Travel Expenses: The Court upheld the ITAT's decision to delete the disallowance of Rs. 35,97,812 out of the foreign travel expenses claimed by the Assessee. The expenditure was incurred for business purposes, and the AO's disallowance was ill-founded. 8. Consultancy Charges: The Court upheld the ITAT's decision that the consultancy charges of Rs. 21,60,000 paid to SIICL were reasonable and for services rendered. The Revenue's claim of excessive payment was not substantiated. 9. Staff Welfare Expenses: The Court upheld the ITAT's decision to delete the addition of Rs. 54,06,701 on account of staff welfare expenses. The AO's treatment of these expenses as entertainment expenses was incorrect. 10. Advertisement and Publicity Expenses: The Court upheld the ITAT's decision that the advertisement and publicity expenses were related to the year in question as per the mercantile system of accounting. The addition of Rs. 10,37,367 was deleted. 11. Air Travel Tax: The Court upheld the ITAT's decision that the air travel tax was not covered under Section 43B of the Act. The addition of Rs. 10,17,553 was deleted. 12. Limitation under Section 201 of the Act: The Court upheld the ITAT's decision that the order under Section 201 for FY 1994-95 was barred by limitation. The amendment to Section 201 with an extended limitation period of seven years was prospective. 13. Payment to Sochata France: The Court noted that the Assessee succeeded before the AO on remand, and the issue was not pressed. Summation and Answers: ITA 204 of 2002: - Question (i) regarding payments to AAR Aviation Inc is answered in favor of the Assessee. - Question (ii) regarding payment for use of flight simulator is remanded to the ITAT. - Question (iii) regarding payments to Sochata France is disposed of as not pressed. ITA 205 of 2002: - Question (i) regarding the order under Section 201 for FY 1994-95 being barred by limitation is answered in favor of the Assessee. - Question (ii) regarding grossing up under Section 195-A is answered in favor of the Assessee. - Question (iii) regarding payment towards reserve funds is answered in favor of the Assessee. ITA 128 of 2005: - The sole question regarding payment to AAR Aviation Inc is answered in favor of the Assessee. ITA 1206 and 1209 of 2005: - The sole question in both appeals regarding payment towards reserve funds is answered in favor of the Assessee. ITA 86 of 2011: - Question (i) regarding additions under Section 68 is partly in favor of the Revenue and partly in favor of the Assessee. - Question (ii) regarding payment towards maintenance reserve for leased aircraft is answered in favor of the Assessee. - Question (iii) regarding payment towards training and manpower development is remanded to the ITAT. - Question (iv) regarding payments for computerized reservation system is answered in favor of the Assessee. - Question (v) regarding disallowance of 50% of expenditure on free tickets is answered in favor of the Assessee. - Question (vi) regarding disallowance of interest on borrowed capital is answered in favor of the Assessee. - Question (vii) regarding disallowance of 1/5th of foreign travel expenses is answered in favor of the Assessee. - Question (viii) regarding disallowance of consultancy expenses is answered in favor of the Assessee. - Question (ix) regarding disallowance of staff welfare and entertainment expenses is answered in favor of the Assessee. - Question (x) regarding disallowance of advertisement and publicity expenses is answered in favor of the Assessee. - Question (xi) regarding disallowance of Air Travel Tax is answered in favor of the Assessee. The appeals were disposed of with no order as to costs.
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