2016 (2) TMI 572 - HC - Income Tax

Addition u/s 41 - cessation or remission of liability - Held that - There are concurrent findings of fact that the lease for the air crafts has been extended for further period and liability of expenses at the time of redelivery of the aircrafts has not ceased. Thus the same would have to be provided for as it is likely to be incurred when the lease expires and said four air crafts are redelivered. Section 41(1) of the Act has application only when there is cessation and/or remission of liability incurred (which has been duly paid and/or provided for) in the subsequent years consequent of which some benefit in cash or in any other manner were obtained by the party whose liability has ceased. In this case in fact there is no cessation or remission of liability nor any benefit obtained by the Respondent-Assessee for the purposes of Section 41(1) of the Act to be invocable. Written back of excess provision made in earlier years - AO held it to be a part of prior period income - Held that - The Tribunal on examination of the order of the CIT(Appeals) upheld the same as the amount of 68.50 lacs was erroneously shown as prior period income and had rectified the same subsequently. We find that both the CIT(Appeals) as well as the Tribunal have arrived at concurrent findings of fact. The Revenue has not been able to show that the same is in any way perverse and/or arbitrary. Disallowance of business expenditure - Held that - We find that the CIT(Appeals) as well as the Tribunal have arrived at findings of fact that the expenses of 11, 65, 950/- were incurred for the purposes of Respondent s business. The concurrent finding of fact has not been shown to be in any way perverse and/or arbitrary to give rise to any substantial question of law Additional expenditure relating to aircrafts taken on finance lease - Held that - It is not disputed before us that the revised return of income was a valid return. In that view of the matter the Assessing Officer was not justified in not considering the claim only on the ground that the claim of 25.22 crores for expenditure was made only in the revised return of income. It is not disputed before us that the expenditure as claimed is eligible for deduction under Section 37(1) of the Act as it has been expended exclusively for the business of the Respondent-Assessee.

Issues Involved:

1. Prior period expenses
2. Leave encashment in computing book profit u/s 115JB
3. Redelivery of aircraft under normal provisions
4. Provision for redelivery of aircraft
5. Accumulated provision for redelivery of aircraft on operating lease
6. Provision for obsolescence as contingent liability
7. Depreciation on aircraft acquired on hire purchase
8. Frequent flyer expenses u/s 115JB
9. Repair of premises, furniture, and fixtures as capital expenditure
10. Prior period expenses (second instance)
11. Directors' personal expenses
12. Interest income treated as business income vs. income from other sources
13. Provision of gratuity u/s 115JB
14. Aircraft taken on finance lease
15. Sale and leaseback of five aircrafts u/s 41(1)

Detailed Analysis:

1. Prior Period Expenses:
The Tribunal allowed prior period expenses, restoring the issue to the Assessing Officer for verification. The Tribunal referenced Toyo Engineering India Ltd v/s JCIT and Commissioner of Income Tax, Delhi v/s Nagri Mills Co. Ltd. The High Court found no fault with the Tribunal's decision, as it involved verification of the genuineness of the claim. Thus, this question did not raise a substantial question of law.

5. Accumulated Provision for Redelivery of Aircraft on Operating Lease:
The Tribunal upheld the CIT(A)'s decision that there was no cessation of liability as the lease period was extended. Consequently, the provision for redelivery expenses continued, and Section 41(1) was not applicable. The High Court agreed, noting that there was no cessation or remission of liability, nor any benefit obtained by the Respondent-Assessee. Therefore, this question did not raise a substantial question of law.

10. Prior Period Expenses (Second Instance):
The Tribunal upheld the CIT(A)'s decision that the amount of Rs. 68.50 lacs was erroneously shown as prior period income and was subsequently rectified. The High Court noted that the Revenue did not challenge the findings of fact by the CIT(A) and Tribunal, and thus, this question did not raise a substantial question of law.

11. Directors' Personal Expenses:
The Tribunal upheld the CIT(A)'s decision that the expenses were incurred for business purposes and deleted the addition. The High Court found that the concurrent findings of fact by the CIT(A) and Tribunal were not perverse or arbitrary. Thus, this question did not raise a substantial question of law.

14. Aircraft Taken on Finance Lease:
The Tribunal upheld the CIT(A)'s decision that the expenses claimed were for business purposes and allowed the deduction under Section 37(1). The High Court noted that the revised return of income was valid and the expenses were eligible for deduction. Therefore, this question did not raise a substantial question of law.

15. Sale and Leaseback of Five Aircrafts u/s 41(1):
The Tribunal upheld the CIT(A)'s decision that the Respondent-Assessee was the owner of the aircrafts and there was no cessation of liability. The High Court agreed, noting that Section 41(1) was not applicable as the future installments were never claimed as a deduction. Thus, this question did not raise a substantial question of law.

6, 7, 9, 12, 13:
The High Court noted that these questions were dismissed in a previous Revenue Appeal (No. 1159 of 2010) and did not raise substantial questions of law. For Question No. 13, the High Court referenced the binding decision in Commissioner of Income Tax V/s M/s. Echjay Forgings Pvt Ltd.

Admitted Questions:
The appeal was admitted on the substantial questions of law formulated at Question Nos. 2, 3, 4, and 8.

Order:
The Registry was directed to communicate a copy of the order to the Tribunal to keep the papers and proceedings relating to this appeal available. The appeal is to be heard along with Appeal No. 1159 of 2010.

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