2024 (1) TMI 696 - AT - Income Tax

Nature of expenditure - capital or revenue expenditure - Depreciation on new aircraft purchased during the year - assessee had claimed that this aircraft was purchased during the year and put to use while the ld. AO taking into consideration the certificate of airworthiness, issued by the Director General of Civil Aviation, concluded that the aircraft was put to use for a period of less than 180 days and, thus, instead of depreciation @ 40%, the assessee was allowed depreciation @ 20% only - HELD THAT - AR has established the fact that this aircraft was acquired by the assessee company in July, 2012 and it was brought to India at the owner s base at New Delhi, after due clearances and a ferry flight in this regard was arranged for which even insurance cover was taken from the New India Assurance Company Ltd., on 06.08.2012. AR has submitted that invoice dated 04.08.2012 was raised for 6650 USD for pilot fee for three days, SIC fees for 3 days and professional service charges for Titan Aviation for providing ferry pilot support services to the assessee between 5th August to 7th August, 2012. As submitted that these expenses are allowed by the AO. We are of the considered view that this establishes that even before the certificate of airworthiness was issued by the Director General of Civil Aviation on 21.09.2012 for a period from 18.10.2012 to 17.10.2015, the assessee was de facto and de jure owner of the aircraft. The aircraft certainly was not allowed to fly to carry passengers or cargo in the absence of this certification by the competent authority, but, that did not stop the assessee from holding it in its own name for the purpose of its business. The phrase, used for the purpose of business in section 32 of the Act does not mean that the use should be by way of generating revenue only. The use here is in the context of the direct connection of the asset with the purpose of business which is initiated in the relevant year. AR is right to point out that the expense which were incurred for making the aircraft functional and ready to use during the year from India, when stand allowed, the same also establish that the certificate of airworthiness issued by the Director General of Civil Aviation, was only for the statutory compliances and to avoid legal liability, which is part of the business activity. As decided in Essar Shipping 2005 (8) TMI 582 - ITAT MUMBAI the 'user' of an asset need not be an 'active user' of the asset. The courts have held in a number of cases that it is sufficient that the assessee makes the asset ready for putting it to use. The Delhi High Court in the case of Capital Bus Service (P.) Ltd. 1980 (2) TMI 69 - DELHI HIGH COURT has held that where an assessee puts assets ready for use that amounts to passive user and in such a case depreciation must be allowed, if claimed by the assessee. The Supreme Court has held in R.B. Jodha Mal Kuthiala 1971 (9) TMI 2 - SUPREME COURT that the term 'owner' has different meaning in different contexts and in certain circumstances, even a lessee may be considered as the owner of the property leased to him The Court has held that allowance for normal depreciation does not depend upon the actual working of the machinery. It is sufficient that the machinery in question is employed by the assessee for the purpose of the business and for no other purpose and has kept ready for actual use of the profit-making apparatus, the moment a need arises. Decided in favour of assessee. Deferred revenue expenditure incurred on account of leased aircraft engine improvement, repair and overall check up - As in the case of the assessee for AY 2012-13 2020 (10) TMI 136 - ITAT DELHI wherein the issue has been restored to the AO for re-examining the same. Prior period expenses - AR has pointed out that while referring to invoice dated 12.04.2012 for an amount maintenance fee royalty was payable to Delhi International Airport Pvt. Ltd. and the bill for the same was received in the relevant assessment year and, as the same were crystallized in the present year, it is not a prior period expense - HELD THAT - We do not agree with the findings of the CIT(A) that there was no material on record and the CIT(A) had erroneously concluded that the assessee had accepted that these are prior period expenses without appreciating that the same had crystallized in the present year. Thus, this issue is restored to the files of ld.CIT(A) to give a fresh opportunity of hearing to the assessee and consider the evidences of the assessee establishing that bills were received in the relevant assessment year and payments were made in the present assessment year. Disallowance on account of expense of repair and maintenance for which the AO has observed that supporting invoice were not filed - HELD THAT - CIT(A) has also observed that in the absence of supporting evidence, no interference is called for in the findings of the AO. In this regard also the ld.AO has relied on the bills made available at page 71 of the paper book being submissions before the AO wherein it is mentioned that original invoices are being produced in support of the claim. At assessee has brought on record the invoice and the copy of cheque showing the payment against this invoice. In the light of the aforesaid facts, we are of the considered view that the ld.CIT(A) has fallen in error in not sustaining the argument of the assessee that relevant evidences were filed before the AO which he had failed to take into consideration. Accordingly, this issue is also restored to the files of the ld.CIT(A) for taking into consideration the evidences of the assessee, after giving an opportunity of hearing and decide the issue afresh. Disallowance on account of interest on TDS - HELD THAT - As nothing substantial was argued by the ld. AR. We find that ld. CIT(A) observed that before the AO the assessee had surrendered this amount submitting that the interest on TDS has not been disallowed in the computation of income. It is also settled proposition of law that interest on TDS is not an allowable expenditure and, thus, there is no error in the findings of ld. tax authorities below. The ground is decided against the assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on aircraft.
2. Disallowance of deferred revenue expenditure.
3. Disallowance of prior period expenses.
4. Disallowance of repair and maintenance expenses.
5. Disallowance of interest on TDS.

Summary:

Issue 1: Disallowance of Depreciation on Aircraft
The AO disallowed the full depreciation claimed by the assessee on a new aircraft, allowing only 20% instead of 40%, based on the certificate of airworthiness issued by the Director General of Civil Aviation, which indicated the aircraft was put to use for less than 180 days. The Tribunal held that the phrase "used for the purpose of business" does not mean generating revenue only. The aircraft was acquired and made ready for business purposes, thus depreciation should be allowed. The Tribunal set aside the findings of the lower authorities and decided in favor of the assessee.

Issue 2: Disallowance of Deferred Revenue Expenditure
The AO disallowed the deferred revenue expenditure claimed by the assessee for engine improvement and repairs on a leased helicopter. The Tribunal referred to a previous decision for AY 2012-13, where the issue was restored to the AO for re-examination. The Tribunal decided to restore this issue to the AO for re-examination in line with the previous year's directions.

Issue 3: Disallowance of Prior Period Expenses
The AO disallowed expenses of Rs. 8,81,697/- as prior period expenses. The assessee argued that these expenses were crystallized in the current year. The Tribunal found merit in the assessee's argument and restored the issue to the CIT(A) for re-examination, giving the assessee an opportunity to present evidence that the expenses were indeed crystallized in the relevant assessment year.

Issue 4: Disallowance of Repair and Maintenance Expenses
The AO disallowed Rs. 9,35,472/- on account of repair and maintenance expenses due to lack of supporting invoices. The Tribunal found that the assessee had provided invoices and payment evidence, which the AO failed to consider. The Tribunal restored this issue to the CIT(A) for fresh consideration, allowing the assessee to present the supporting evidence.

Issue 5: Disallowance of Interest on TDS
The AO disallowed Rs. 36,912/- on account of interest on TDS, which the assessee had surrendered. The Tribunal upheld the disallowance, stating that interest on TDS is not an allowable expenditure.

Conclusion:
The appeal was partly allowed. The Tribunal decided in favor of the assessee on the depreciation issue, restored the deferred revenue expenditure and prior period expenses issues to the AO/CIT(A) for re-examination, and upheld the disallowance of interest on TDS. The repair and maintenance expenses issue was also restored to the CIT(A) for fresh consideration.