2021 (7) TMI 1380 - AT - Income Tax

Disallowance of interest due and payable to the Government of India - assessee acquired helicopters from Government Company setup to meet the long term requirements of ONGC to provide the helicopter services in its critical offshore exploration work - Ministry of Finance releases payment in Foreign Exchange on behalf of the assessee and assessee company was required to deposit the rupee equivalent of these Foreign exchange payments so released along with the commission and incidental charges of 1% ad valorem and crown agent charges payable to Ministry of Finance and for any delay in deposit of the amount due the Ministry of Finance claims interest - assessee did not claim the amount of interest in the profit and loss account as the Ministry of civil Aviation (MCA) had requested the Ministry of Finance for the waiver of interest and shown the same as contingent liability - CIT-A directing that the deduction be allowed not on accrual but on actual payment of the interest. HELD THAT - The assessee has taken the loan in the year 1986-87 and interest during that period was also allowed to the assessee as is evident from the assessment order and no disallowance has been made by the revenue. Further no disallowances were made in A.Y. 1988-89 and A.Y. 1989-90 as is evident from the assessment orders. It is only then in AY 1990-91 in the impugned assessment year the AO has made the disallowance. It is also pertinent to note that subsequently also in A.Y. 1993-94 A.Y. 1994-95 A.Y. 2000-01 and A.Y. 2001-02 similar expenditure claimed by the assessee have been allowed as is evident from the assessment orders. This issue has been going on with the Ministry of Finance and from the correspondences it can be seen that the interest due to the government is payable and request for the waiver have been rejected repeatedly by the Ministry of Finance. Thus the liability pertains to the current year only and the assessee is following the mercantile system of accounting and thus the interest claimed by the assessee has to be allowed. The assessee has claimed similar expenditure in the following preceding assessment years as well as succeeding assessment years which have been allowed by the department and there being no deviation in the facts of the case in the present assessment year and the claim of interest expenditure made by the assessee has to be allowed. On going through the entire factum of the case we hereby hold that no disallowance is called for on account of interest payable to the Ministry of Finance. Disallowance of depreciatiion on Westland Helicopters - depreciation on the Block of Assets - claim not allowable since the asset was not used in the current year - HELD THAT - Once an asset is part of the block of assets and depreciation is granted on that block it cannot be denied in its subsequent year on the ground that one of the assets is not used by the assessee in some of the years. The concept user of assets has to apply upon block as a whole instead of an individual asset. As in the case of Sony India (P.) Ltd. 2017 (1) TMI 1442 - DELHI HIGH COURT held that the assessee would be entitled to depreciation in respect of assets which were part of block of assets even if said assets had not been put to use during relevant assessment year and had been sold prior to end of accounting year. Similarly in the case of CIT vs Oswal Agro Mills Ltd. 2010 (12) TMI 947 - DELHI HIGH COURT as per amended Section 32 deduction is to be allowed in the case of any block of assets such percentage on the WDV thereof as may be prescribed as per Circular No. 469 dated 23.09.1986 thus it is difficult to accept the submission of the Revenue that for allowing the depreciation user of each and every asset is essential even when a particular asset forms part of block of assets . The Hon ble High Court held that the Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset forming part of the block of assets even when that particular asset is not used in the relevant assessment year. Thus keeping in view the judgments on allowability of depreciation on the Block of Assets we hereby hold that the assessee cannot be denied the benefit of depreciation claimed u/s 32 with regard to the Westland Helicopters. Both Appeal of assessee allowed.

Summary

Issues involved:
1. Disallowance of interest payable to the Government of India.
2. Disallowance of depreciation on Westland Helicopters.

Analysis:

Issue 1: Disallowance of interest payable to the Government of India:
The case involved the disallowance of interest aggregating to a significant amount due and payable to the Government of India by the assessee company. The company had acquired helicopters funded by grants from the UK and France governments, with a shortfall in deposits to the Ministry of Finance, resulting in interest liabilities. The Ministry of Civil Aviation requested a waiver of interest, but the Ministry of Finance rejected the waiver. The Assessing Officer disallowed the claimed deduction, citing reasons such as non-provision in accounts, unascertained liability, lack of bifurcation details, and potential capital expenditure. The CIT (A) upheld the disallowance. However, the Tribunal held that the interest claimed was a definite liability, not contingent, as evidenced by continuous insistence from the government for payment and rejection of waiver requests. The Tribunal noted that similar deductions were allowed in preceding and succeeding assessment years, and the liability pertained to the current year, aligning with the mercantile system of accounting followed by the assessee. Consequently, the disallowance was deemed unwarranted, and the interest payable to the Ministry of Finance was allowed as a deduction.

Issue 2: Disallowance of depreciation on Westland Helicopters:
The second issue revolved around the disallowance of depreciation claimed on Westland Helicopters, part of the block of assets acquired in 1986-87 but not used in the current assessment year. The Assessing Officer disallowed the depreciation, asserting non-usage of the asset. However, the Tribunal highlighted that the concept of "Block of Assets" under Section 2(11) encompassed group assets, and depreciation granted on the block could not be denied based on the non-usage of individual assets within the block. Citing relevant case laws, the Tribunal emphasized that depreciation on assets forming part of a block of assets should be allowed irrespective of individual asset usage. Therefore, the assessee was entitled to the depreciation claimed on Westland Helicopters, and the disallowance was overturned.

In conclusion, both appeals of the assessee were allowed by the Tribunal, emphasizing the rightful allowance of interest payable to the Government of India and depreciation on Westland Helicopters.