2013 (9) TMI 964 - HC - Income Tax

Taxability of government grants Accounting Standard (AS) - 22 - Held that - There was no dispute that the grant given to the respondent was based upon operations from which net profit/income had to be arrived at after deducting the expenditure - The grant had to be utilised over five years Hon ble Tribunal, accordingly accepted that amount of Rs.7.29 crores declared by the respondent, out of grant of Rs.35 crores should be treated as income of the year in question - Counsel for the Revenue has not been able to point out and state, how and why the reasoning can be faulted as the assessee had followed AS-12 - Revenue has not disputed that the accounting standard, as prescribed by the institute, has been followed Decided against the Revenue. Addition on the basis of auditors report - Addition of Rs.534.79 lacs - In the notes of the Auditor, they had qualified the accounts stating that details of inventories of Rs.534.79 lacs could not be ascertained Held that - On the question of inventories of Rs.534.79 lacs, the CIT (Appeals) has recorded that this amount was duly reflected in the Annual Report. He has made reference to Schedule IV of the Annual Report where under the head inventories full details had been given. It is pointed out that the inventories were maintained by Indian Airlines and the figures given by them have been taken in the books. The Auditor had hedged his report and had stated that they could not ascertain inventories of Rs.534.79 lacs in view of the said factual position, i.e., they had taken the figures given by Indian Airlines and had not examined the accounts/books of Indian Airlines. A remand report from the Assessing Officer was called for. The Assessing Officer did not submit the remand report to contest the contention of the respondent-assessee Decided against the Revenue.

Summary

Issues:
1. Deletion of addition of Rs.27,71,00,000 made by the Assessing Officer regarding grant spread over five years.
2. Addition of Rs.534.79 lacs due to unascertained inventories.

Issue 1:
The first issue in this case involves the deletion of the addition of Rs.27,71,00,000 by the Assessing Officer, which was made by the Commissioner of Income Tax (Appeals) and affirmed by the tribunal. The grant of Rs.35 crores was sanctioned by the Government to improve air connectivity in the North-Eastern Region. The respondent-assessee leased four ATR-42-320 aircraft for five years from Aviande Transport Regional (ATR). The Assessing Officer contended that the entire grant amount should have been brought to tax in the year of receipt, but the respondent spread it over five years in accordance with the lease period. The CIT (Appeals) and the tribunal found the Assessing Officer's reasoning erroneous as the grant was in line with the Memorandum of Understanding, and the respondent followed AS-12 accounting standards to match the grant with related costs. The tribunal upheld that the accounting standard followed by the respondent was appropriate and no substantial question of law arose on this issue.

Issue 2:
The second issue pertains to the addition of Rs.534.79 lacs, which the Assessing Officer made but was later deleted by the first appellate authority and upheld by the tribunal. The Auditor had qualified the accounts stating that details of inventories worth Rs.534.79 lacs could not be ascertained. The CIT (Appeals) noted that the inventories were duly reflected in the Annual Report under Schedule IV, and the figures were taken from Indian Airlines' records. The tribunal sustained an addition of Rs.34.31 lacs but accepted the rest of the amount. During the proceedings, a remand report was called for, but the Assessing Officer did not contest the respondent's contention regarding the inventories. The tribunal also found no substantial question of law on this issue, as the Revenue did not contest the position regarding the unascertained inventories. Consequently, the appeal was dismissed.

In conclusion, the High Court upheld the decisions of the lower authorities regarding both issues, emphasizing the correctness of the accounting standards followed by the respondent and the lack of substantial legal questions raised by the Revenue.