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TMI Blog2008 (1) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2001-02 declaring a loss of Rs. 49,21,329. In arriving at this loss the assessee had made deduction of Rs. 39,67,988 as the provision for overhauling and hot section inspection charges for the engine of the aircraft. According to the recommendations of the manufacturers of the aircraft the assessee was required to carry out overhauling and hot section inspection of the aircraft, if the aircraft completes flying of 3500 hours and 750 hours respectively. At the time when the assessee purchased the aircraft it had already completed 2700 hours and 58 minutes of flying time. The Aircraft Act, 1934, was enacted with a view to make better provision for the control of manufacture, possession, use, operation, sale, import and export of the aircraft. Section 5 of the said Act empowers making of rules for regulating the purpose for which the Act was enacted. Pursuant to such rule making power, the Aircraft Rules, 1937 were framed. Rule 50 Part VI of the said Rules provides for the provisions with regard to airworthiness. An airworthiness certificate has to be obtained from the Director General. Rule 52 provides that an operator of aircraft should follow the repair schemes issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01-02 256 hrs 20 min. 39,67,988 91,26,906 2002-03 308 hrs 05 min. 47,75,282 1,39,02,188 ---------------------------------------------------------- The assessee further brought to the notice of the Assessing Officer that the engine of the aircraft was actually sent for TBO and HSI to Singapore in November, 2000 and a sum of Rs. 1,54,30,379 was incurred in carrying out the TBO and HSI. This was paid on June 11, 2001, in the previous year ended March 31,2002. The assessee further explained before the Assessing Officer that the provision made up to March 31, 2001, viz., Rs. 91,26,906 was reduced by the assessee from the aggregate expenses incurred in the assessment year 2002-03 and only the net expenses were claimed by the assessee in the assessment year 2002-03. This is made clear in the notes to the balance-sheet as on March 31, 2002, which reads as follows: "During the year, the company has incurred Rs. 1,77,75,637 towards repair of damaged engine of the aircraft and its transportation expenses to Singapore. This includes overhauling expenses of Rs. 91,26,917 which has been adjusted against the provisions made for hot section inspection charges and overhauling of aircraft engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, therefore, the claim of the appellant for future expenses are held to be inadmissible. The Assessing Officer has correctly disallowed the same. These additions are, therefore, confirmed." Aggrieved by the order of the Commissioner of Income-tax (Appeals) the assessee has preferred the present appeal before the Tribunal. The issue for consideration in this appeal is as to whether the assessee is entitled to claim a sum of Rs. 39,67,998 being provision for overhauling and hot section inspection of aircraft. We have heard the submissions of learned counsel for the assessee who highlighted with reference to provisions of the Aircraft Act as to how the liability of the assessee is a certainty. He also brought to our notice the fact that the estimate of liability made by the assessee was reasonable. In this regard it was also highlighted by him that in the assessment year 2002-03 when the actual expenses were incurred, it turned out that the provision made by the assessee was not excessive. Reliance was placed by learned counsel for the assessee on the decision of the hon'ble Supreme Court in the case of Calcutta Company Ltd. v. CIT [1959] 37 ITR 1, Metal Box Co. of India Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year that can be considered as an expenditure deductible for income-tax purposes. A liability which is dependent on fulfilment of a condition cannot be allowed as a deduction unless the dependent condition is fulfilled during the previous year. According to the Revenue authorities, the liability was contingent. Till such time the contingency occurs there is no liability in law and therefore the claim for deduction on account of estimated liability cannot be allowed. The hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 had an occasion to consider the claim for deduction on account of a contingent liability. The following principles were laid down by the hon'ble Supreme Court: "If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in prae ..... X X X X Extracts X X X X X X X X Extracts X X X X
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