9911796707
TMI Blog2008 (1) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the manufacturer of an aircraft. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ 1998-99 71 hrs 15 min. Nil Nil 1999-2000 171 hrs 45 min. Nil Nil 2000-01 332 hrs 50 min. 51,58,918 51,58,918 2001-02 256 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 transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling and hot inspection expenditure will accrue only when the overhauling and hot inspection is carried out. These future expenses cannot be termed as accrued expenses. On the facts and circumstances of the case, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in question was a capital expenditure. We have considered the rival submissions. The assessee follows the mercantile system of accounting. It is only the actual liability which accrues or arises during 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard are as follows. Where the expenditure is only incurred for preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give the assessee a new or different advantage, then the same must be regarded as a revenue expenditure. As we have already noticed the expenditure in question was in respect of an aircraft engine for its overhauling and hot air inspection. These are necessary for preserving and maintaining the aircraft. Such expenses does not bring a new asset into existence or does not give the assessee a new or different advantage. The expenditure cannot therefore be said to be a capital expenditure. The learned Commissioner of Income-tax (Appeals) in his order has not discussed this aspect at all and has merely held that those cases are entirely different and does not help the assessee's case, we are therefore of the view that the expenditure in question cannot be said to be a capital expenditure. We therefore hold that the assessee is entitled to claim the expenditure in question as of revenue expenditure and the disallowance made by the Assessing Officer is directed to be deleted. The appeal of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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