2010 (10) TMI 1243 - AT - Income Tax

Issues Involved:
1. Deletion of addition on account of provision for obsolescence.
2. Deletion of addition on account of proportionate aircraft redelivery charges.
3. Deletion of disallowance of heavy maintenance charges.
4. Deletion of disallowance of depreciation on aircraft taken on hire purchase.
5. Deletion of disallowance of repairs to furniture and fixture.
6. Deletion of addition on account of provisions for frequent flyer expenses.
7. Treatment of interest income on fixed deposits.
8. Allowance of additional claim for proportionate initial rent paid and other expenses on aircraft acquired on finance lease.
9. Deletion of addition on account of provision for obsolescence while computing book profits u/s. 115JB.
10. Deletion of addition on account of provision for doubtful debts while computing book profit u/s. 115JB.
11. Deletion of addition on account of provision for gratuity while computing book profit u/s. 115JB.

Issue-Wise Detailed Analysis:

1. Deletion of addition on account of provision for obsolescence:
The Assessing Officer (AO) disallowed Rs.18,27,38,472/- for provision for spares obsolescence, considering it an estimated liability. The CIT(A) allowed the claim following the Tribunal's earlier orders, which recognized the provision based on International Accounting Standards applicable to the aeronautic industry. The Tribunal upheld this view, emphasizing the nature of the business and the character of the claim.

2. Deletion of addition on account of proportionate aircraft redelivery charges:
The AO disallowed Rs.3,21,56,726/- for aircraft redelivery expenses, considering them contingent liabilities. The CIT(A) allowed the claim, referencing the Tribunal's previous decisions that such expenses are accrued liabilities due to the nature of the business. The Tribunal upheld this decision.

3. Deletion of disallowance of heavy maintenance charges:
The AO disallowed Rs.5,96,31,804/- for heavy maintenance charges, viewing them as contingent liabilities. The CIT(A) directed the AO to allow these expenses, following the Tribunal's earlier rulings. The Tribunal upheld this decision, recognizing the expenses as necessary due to the flying hours completed.

4. Deletion of disallowance of depreciation on aircraft taken on hire purchase:
The AO disallowed Rs.4,08,11,40,667/- in depreciation on aircraft taken on hire purchase, arguing the ownership remained with the seller. The CIT(A) allowed the depreciation, referencing the Tribunal's earlier decisions and the Madras High Court's ruling in Tamil Nadu Dairy Development Corporation Ltd. vs. CIT. The Tribunal upheld this view.

5. Deletion of disallowance of repairs to furniture and fixture:
The AO disallowed Rs.1,48,84,275/- for repairs to furniture and fixtures, considering them capital expenditures. The CIT(A) allowed the expenses as revenue expenditures, following the Tribunal's earlier decisions. The Tribunal upheld this decision, recognizing the expenses as necessary for providing a better working atmosphere and aesthetic look.

6. Deletion of addition on account of provisions for frequent flyer expenses:
The AO disallowed Rs.6,31,36,406/- for frequent flyer expenses, considering them contingent liabilities. The CIT(A) allowed the claim, referencing the Tribunal's earlier decisions and the Supreme Court's ruling in Bharat Earth Movers vs. CIT. The Tribunal upheld this decision, recognizing the provision as based on actual miles accumulated by passengers.

7. Treatment of interest income on fixed deposits:
The AO assessed Rs.30,63,78,087/- in interest income under 'income from other sources.' The CIT(A) directed the AO to treat it under 'profits and gains of business and profession,' following the Tribunal's earlier decisions. The Tribunal upheld this view, recognizing the interest as arising from business receipts.

8. Allowance of additional claim for proportionate initial rent paid and other expenses on aircraft acquired on finance lease:
The AO disallowed Rs.2,80,49,904/- for initial rent and other expenses due to the claim not being made through a revised return. The CIT(A) allowed the claim, referencing the Supreme Court's ruling in NTPC Limited and the CBDT Circular No.14(XL-35) of 1955. The Tribunal upheld this decision, recognizing the claim as legitimate and bonafide.

9. Deletion of addition on account of provision for obsolescence while computing book profits u/s. 115JB:
The AO added Rs.18,27,38,472/- for provision for obsolescence to the book profit. The CIT(A) allowed the claim, following the Tribunal's earlier decisions and the Supreme Court's ruling in Apollo Tyres. The Tribunal upheld this view, recognizing the provision as an ascertained liability.

10. Deletion of addition on account of provision for doubtful debts while computing book profit u/s. 115JB:
The AO added Rs.2,80,97,359/- for provision for doubtful debts to the book profit. The CIT(A) allowed the claim, but the Tribunal decided against the assessee due to the amendment made by the Finance (No.2) Act, 2009.

11. Deletion of addition on account of provision for gratuity while computing book profit u/s. 115JB:
The AO added Rs.3,86,21,638/- for provision for gratuity to the book profit. The CIT(A) allowed the claim, following the Tribunal's earlier decisions and the Jurisdictional High Court's ruling in CIT vs. Echjay Forgings Pvt. Ltd. The Tribunal upheld this view, recognizing the provision as an ascertained liability.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on most issues, rejecting the revenue's grounds except for the addition of provision for doubtful debts to book profit u/s. 115JB, which was allowed due to the legislative amendment. The appeal was partly allowed.

← Previous Next →