2020 (10) TMI 136 - AT - Income Tax

Deduction for deferred revenue expenditure incurred in respect of maintenance and overall check-up (in compliance with DGCA guidelines) of helicopter EC145 taken on lease - disallowance of deduction as copy of lease agreement and invoices were not furnished by the appellant - As argued maintenance and overall check-up expenses under consideration were incurred in a preceding assessment year and suo motu amortized by the appellant over the lease period of the helicopter - HELD THAT - In the year under consideration, the issue does not seem to have been examined by the Assessing Officer in the proper perspective i.e. with reference to the lease agreement. We also note that even the Ld. CIT (A) did not examine the relevant documents. Issue be restored to the file of the AO for duly considering the claim of the assessee after going through contents of the lease deed as well as the relevant bills and vouchers. It is so directed accordingly. While the Assessing Officer is re-examining the issue, he should also consider the factum of similar expenditure having been allowed in 143(3) proceedings in Assessment Years 2010-11 and 2011-12. Disallowance of regular repairs and maintenance of Aircraft after capitalizing the same and allowing depreciating thereon - As per AO this replacement was in the nature of major repairs which added to the life of the asset - CIT (A), while dismissing the assessee s appeal, also held that these were repairs of a nature which enhanced the efficiency of the Aircraft and were not part of the regular maintenance expenses - HELD THAT - We agree with the contention of AR that the quantum of expenditure cannot determine whether a particular expenditure is capital or revenue in nature. In our opinion, replacement of Primary Adaptive Display and Tail Rotor Blade are essential to keep the aircraft in a running usable condition and the replacements do not enhance the useful life of the aircraft. Thus, the impugned repairs would fall under current repairs which were essential to keep the aircraft in a running condition. Therefore, we set aside the order of the Ld. CIT (A) on the issue and direct the Assessing Officer to delete the disallowance. Interest of Income Tax Refund - assessee s contention that the assessee has not received any such interest - AR has submitted that the issue may be restored to the file of the Assessing Officer for passing appropriate order after due verification in this regard and the Ld. SR. DR also does not have any objection to the same - HELD THAT - In view of the agreement of both the parties, this issue is also restored to the file of the Assessing officer for the purpose of being adjudicated afresh after due verification of the assessee s claim .

Summary

Issues Involved:
1. Disallowance of Deferred Revenue Expenditure Written off.
2. Disallowance on account of repairs treated as capital expenses.
3. Addition on account of interest on income tax refund.

Issue-wise Detailed Analysis:

1. Disallowance of Deferred Revenue Expenditure Written off:
The assessee, a company providing aircrafts on charter basis, incurred ?92,63,156 on maintenance and overall check-up of a leased helicopter EC145, which was amortized over the lease period. The Assessing Officer (AO) disallowed this expenditure, treating it as prior period expenses not related to the assessment year 2012-13. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld this disallowance, citing the absence of the lease agreement and relevant invoices, which prevented verification of the lease period and the responsibility for repairs. The Tribunal noted that these documents were not requested during the appellate proceedings and were now presented. Given that similar expenditures were allowed in previous assessment years (2010-11 and 2011-12), the Tribunal directed the AO to re-examine the issue with the lease agreement and relevant vouchers, considering the past allowances and providing the assessee an opportunity to present its case.

2. Disallowance on account of repairs treated as capital expenses:
The assessee incurred ?19,08,376 on repairs and maintenance, specifically for the replacement of the 'Primary Adaptive Display' and 'Tail Rotor Blade Assembly.' The AO capitalized this expenditure, treating it as enhancing the asset's life, and allowed depreciation. The CIT (A) upheld this view, considering the repairs as major and efficiency-enhancing. The assessee argued that these were current repairs necessary to maintain the aircraft's usability, not extending its life. The Tribunal agreed, stating that the nature of the expenditure, not its quantum, determines its classification. The replacements were deemed essential for the aircraft's running condition, thus qualifying as current repairs. Consequently, the Tribunal directed the AO to delete the disallowance.

3. Addition on account of interest on income tax refund:
The AO added ?3,41,268 as interest on an income tax refund, which the assessee claimed was never received. Both the assessee and the Senior Departmental Representative (DR) agreed that this issue should be verified. The Tribunal restored the matter to the AO for verification and appropriate adjudication, ensuring the assessee is given a proper opportunity to present its case.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the disallowance of deferred revenue expenditure with relevant documents, delete the disallowance of repairs treated as capital expenses, and verify the claim regarding the interest on the income tax refund. The order was pronounced on 30/09/2020.