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TMI Blog2018 (5) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... Ansal Landmark Counsel Pvt. Ltd., (2015 (9) TMI 79 - DELHI HIGH COURT) examined this aspect and has held that though the proviso was inserted w.e.f. 01.07.2012, but it was declaratory and curative in nature and has retrospective effect from 01.04.2005 being the date from 40(a)(ia) inserted by the Finance Act, 2004. But this aspect was not examined by the CIT(A). Since it requires verification of facts, we feel it proper to set aside the order of the CIT(A) and restore the matter to the file of the AO and if it is established that the respondent has paid the tax and filed the return in time, the assessee should not be held in default for the purpose of making disallowance under section 40(a)(ia) of the Act. Addition by treating the duty credit entitlement under SFIS - Held that:- CIT(A) has not properly adjudicated the character of receipts and the year of taxability. If itis held to be the capital receipt, it may reduce the value of the capital assets but it cannot be taxed as a revenue receipt. In any case, this issue was not properly examined by the CIT(A). We therefore set aside his order and restore the matter to his file with a direction to readjudicate this issue afre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Yadav, Judicial Member and Shri. Jason P Boaz, Accountant Member Assessee by : Shri. Sunil Jain, CA Revenue by : Smt. Vandana Sagar ORDER Per Sunil Kumar Yadav, Judicial Member These appealsare preferred by the assessee against the respective orders of CIT(A). Since common issues are involved in these appeals, they were heard together and are being disposed off through this single consolidated order. We however prefer to adjudicate them one after the other. 2. ITA No.636/Bang/2017 mThrough this appeal, assessee has assailed the order of the CIT(A) for the assessment year 2011-12, inter alia, on following grounds: Ground I: Addition on account of disallowance of collection charges of ₹ 5,22,04,677/- retained by the airlines under section 40(a)(ia): 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 2(2), Bangalore (hereinafter referred to as AO) in making the disallowance of collection charges of ₹ 5,22,04,677/- retained by the airlines under section 40(a)(ia) on completion of assessment U/s. 153A. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction for 1/30th of upfront fee and repair and maintenance for AY 2007-08 and depreciation u/s 32 on repairs and maintenance for AY 2008-09, AY 2009-10 and AY 2010-11. 2. The CIT(A) failed to appreciate and ought to have held that AO has not accepted order of the CIT(A) and has further filed appeal before ITAT. Considering non acceptance of order of CIT(A), the AO based on the decision given in the assessment order of AY 2007-08, AY 2008,-09, AY 2009-10 and AY 2010-11 completed u/s 143(3) of the Income tax Act, 1961 should have allowed deduction. 3. The Appellant therefore prays that the Assessing officer be directed to allow to allow the deduction for 1/30th of upfront fee and repair and maintenance for AY 2007-08 and depreciation u/s 32 on repairs and maintenance for AY 2008-09, AY 2009-10 and AY 2010-11. Ground V: The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal. 3. With regard to ground No. 1, the facts in brief borne out from the orders of the authorities below are that the assessee has entered into Operation Management and Development Agreement (OMDA) vide agreement dated 04.04.2006 with the Airport Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nize the revenue from PSF-(FC) in its books of account net of prompt payment rebate/cash discount and offered the same to tax in the assessment year under consideration. The revenue from PSF-(SC) is also recognized net of prompt payment rebate/cash discount allowed by the assessee on making prompt payment by them on or before due date. However, the assessee has not offered the net surplus related to PSF(SC) as its income, as the assessee considers the net proceeds of PSF(SC), held in fiduciary capacity and collected the same on behalf of Government of India and the income from Government of India is not liable for tax as per Article-289(1) of the Constitution of India. 5. The assessee was asked by the AO to furnish the details regarding the collection charges vide notice under section 142(1) and in response thereto, assessee filed areply stating therein that assessee company was offering the income to tax only on the net amount of collection charges/cash discount which was not acceptable to the AO. According to the AO, the company should have offered the entire passenger service fees collected to tax and thereafter should have debitedthe expenditure. The AO further observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale price and thus becomes obligatory on the part of the Airlines who have interface with the customers to make the payment of the PSF (FC SC) to the Airlines who in turn passes the amount so received to the assessee. While making the payment to the assessee, the Airlines deduct a small percentage from the total amount of PSF (SC FC) and retains the same as discount charges, etc. 8. It was further contended that in the event it is held that income of PSF (SC) is not includable in the hands of the appellant, then in that event, amount of service fees relatable to PSF (SC) cannot be considered for disallowance in as much as the same was not debited to the P L account and further no deduction for the same either directly or indirectly was claimed or allowed to the assessee. It was further contended that if the AO considers that appellant is liable to deduct TDS under section 194H of the Act,there is no shortfall for revenue for the reasons that Airlines operator should have discharged income tax on the service fees/cash discount/prompt payment rebate retained by them. The CIT(A) re- examined the claim of the assessee but was not convinced with the contentions of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand has placed heavy reliance upon the order of the CIT(A). 11. Having carefully examined the orders of the authorities below and the documents placed on record, we find that as per the various orders of the MOCA, the passenger service fee is to be charged by the Airlines Operators at the time of booking of tickets of passengers. The 65% passenger fees per embarking passenger is of security component and balance 35% of passenger service fees is a facilitation component. The assessee has collected passenger service fees [PSF (SC FC)] through Airlines operator at the IGI Airport. The assessee has received the said amount through Airlines operators. The Airlines operators while paying the same to assessee are retaining the amount @ 2.5% of the invoice value on account of prompt payment by them to the assessee before due date. The dispute in these appeals is with regard to nature of deduction at the rate of 2.5% of the invoice value on account of prompt payment to the assessee by the Airlines Operators. The reliance was placed upon various pronouncements in which the dispute was with regard to nature of payments by the Airlines Operators to the airport authorities in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning airlines from the passengers and then handed over to the respective airport operator/authority. Thus, it is absolutely clear that the assessee only collects the PSF from the passengers for and on behalf of the airport authority/operator and passes the same to the airport authority/operator. This view would also be made very clear by the answer to question No.24 given by the CBDT it is Circular No.715, dated 8th August, 1995, which relates to clarification of various provisions relating to tax deduction at source. Question No.24 reads as under :- Question 24 : Whether in a case of composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted ? Answer : If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof. The facts under consideration show that the PSF is a statutory liability without demarcating/earmarking the area taken on rent , nor it is a case of systematic use of land specified for consideration under an ITA No.5264/12 arrangement, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us is whether PSF collected by the assessee from the passengers travelling in the airline and paid to the airport authority or airport developer is subject to deduction of tax under section 194-I. As could be seen, the Assessing Officer has held that the terminal space utilised for the purpose of providing services would amount to rent, hence, the provisions of section 194-I is applicable. However, the issue has been decided by the co-ordinate bench in Jet Airways (India) Ltd. (supra), holding as under:- 12. We have carefully considered the rival submissions and perused the orders of the authorities below and the relevant material evidence brought on record. Let us first see the cause of PSF, cause lies in Rule 88 of the Indian Aircraft Rules, 1937, which provides as under:- the licensee is entitled to collect fees to be called as Passengers Services Fees(PSF) from the embarking passengers at such rate as the Central Government may specify and is also liable to pay for security component to any security agency designated by the Central Government for providing the security services A perusal of the aforementioned rule clearly shows that it is a statutory liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the transaction and the charges within the meaning of either lease or sub-lease or tenancy or any other agreement or arrangement or any nature of lease or tenancy and rent. For these observations, we draw support from the decision of the Hon'ble Madras High Court in the case of CIT Vs. Singapore Airlines Ltd., reported in (2012) 252 CTR (Mad) 429. 14. It would not be out of place to consider the CBDT Circular No.1/2008, dated 10th January, 2008 relating to the clarification regarding the applicability of provisions of Section 194-I of the Act to payments made by the customers on account of cooling charges to the cold storage owners, wherein the CBDT had the occasion to consider the representations in respect of the issue, whether the AIR INDIA LTD. customer hires the building, plant and machineries etc., without packages for reservation for a required period are kept in cold storage after paying cooling charges. The CBDT, thus, clarified that the customer is also not given any right to use any demarcated space/place or the machinery of the cold storage and thus does not become a tenant. Therefore, the provisions of 194-I is not applicable to the cooling charges paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the amount of commission. Para 6 of the circular is extracted hereunder for the sake of reference: 6. A question may raise whether there would be deduction of tax at source under section 194H where commission or brokerage is retained by the consignee/agent and not remitted to the consignor/principal while remitting the sale consideration. It may be clarified that since the retention of commission by the consign- ee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission. Therefore, the consignor/principal will have to deposit the tax deductible on the amount of commission income to the credit of the Central Government, within the prescribed time, as explained in the succeeding paragraphs. 14. In the judgments referred to by the assessee, this clarification by the Board was not at all examined. Therefore, we are of the view that the judgments would not render much assistance to the assessee. Once it has been held in the case of assessee that they were collecting the PSF on behalf of the Airport Authorities/Airlines Operators, the collection charges or the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder ITC (HS) classification of export and import items providing main line of business. The entitlements and the goods imported shall be non- transferrable (except within group company and managed hotels) and is subject to actual user condition. 18. Assessee earns the foreign exchange earned on service such as landing, parking, PSF (CUTE counters), etc. This foreign exchange earning is eligible under the schemes and the assessee would utilize the duty credit scrips towards payment of custom duty towards import of goods. The value of duty credit scrips would be reduced from the capital asset and the value of the duty credit script will be recognized as revenue according to the assessee. The assessee follows merchantile system of accounting. The foreign exchange accrues to the assessee when the services are provided. Therefore, the duty credit scrip shall be accounted for when the foreign exchange earning exceeds ₹ 10,00,000/- during the year. But the assessee has not recognized income on account of duty credit scrips on accrual basis for assessment years 2008-09 to 2013-14. The AO, relying upon the Experts Advisory Committee of Institute of Chartered Accountants of India ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised for import of capital goods which is lying under capital work in progress and yet to be capitalised. Further the SFIS scrips amounting to ₹ 5,31,85,162/- remains unutilized due to expiry of the said SFIS. The learned Counsel for the assessee further placed reliance upon the accounting standard 12 on accounting of Government grants issued by ICAI with the submission that assessee has treated the SFIS scrips utilised for import of capital goods as capital grant in accordance with the accounting standard 12. The detailed submissions made by the assessee is also extracted in the order of CIT(A) and for the sake of reference, we extract the same as under: 3.1 Government refers to government, government agencies and similar bodies whether local, national or international 3.2 Government grants are assistance by government in cash or kind to an enterprise for past or future compliance with certain conditions. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise. Thus, the thrust of Government gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) issued by the Institute of Chartered Accountants of India (ICAI) and the settled legal propositions as laid down by the Hon'ble Supreme Court in the case of Ponni Sugars Limited (2008, 174 Taxman 87(SC) and in accordance with the provisions of Section 43(1) of the Income Tax Act, 1961 which clearly provide that actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any,as has been met directly or indirectly by any other person or authority. Further Explanation 9 and 10 to section 43(1) reads as under: Explanation 9.-For the removal of doubts, it is hereby declared that where an asset is or has been acquired on or after the 1st day of March, 1994 by an assessee, the actual cost of asset Shall be reduced by the amount of duty of excise or the additional duty leviable under section ,3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944.] Explanation 10.-Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tever name called) by the Central Government or a State Government or any other authority or body or agency in cash Or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43. It is thus submitted that the ever growing dispute concerning the taxability of subsidy (by whatever name called) has been dealt prospectively with by the provisions of Finance Act 2015 with effect from 01st April, 2016. Though through at the very outset, in case the very incidence of subsidy awarded is unknown, then as per the statutory provisions in force, it would be reckoned as an income liable for taxation in so far as the provisions of sub clause (xviii) appended to section 2(24) provides so-, but to the excepting part concerning any award of subsidy (by whatever name called) made towards the cost of an asset, it will be dealt with by the Explanation 10 appended to section 43(1) and will be designated as merely a capital receipt and followed by consequent deduction from the cost of asset. 11. However, in so far as assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod in which it is receivable. e) Any other government grant other than mentioned above shall be recognized as income over the periods necessary to match them with the related costs, which they are intended to compensate. f) Non-Monetary Grants The Government grants in the form of non-monetary assets, given at a concessional rate, shall be accounted for on the basis of their acquisition cost. In case of refunds attributable to depreciable assets, the amount refundable in respect of a Government grant related to a depreciable fixed asset or assets shall be recorded by increasing the actual cost or written down value of block of assets by the amount refundable. Where the actual cost of the asset is increased, depreciation on the revised actual cost or written down value shall be provided prospectively at the prescribed rate. In case of refunds attributable to non- depreciable assets, shall be applied first against any unamortised deferred credit remaining in respect of the Government grant. To the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exists, the amount shall be criarged to profit and loss statement. In case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot be brought into tax net. 15. It is submitted that in a very recently settled matter, the Hon'ble High Court of Jurisdiction at Bombay in a case titled Commissioner of Income Tax vs. Kirloskar Oil Engines Ltd [2014] 364 ITR 88 (Bombay)has settled that when subsidy is received by the assessee for setting up a new unit, then receipt of subsidy is on capital account. In another path breaking judgement, the Hon'ble Bombay High Court has held in the case of Commissioner of Income Tax Vs. Chaphalkar Brothers [2013] 351 ITR. 309 (Bombay) Where object of entertainment duty subsidy was to promote construction of multiplex theatre complexes, receipt of subsidy would be on capital account. 16. Therefore, the Appellant prays that the action of AO in treating the accrual of SFIS duty credit scrips as income of the Appellant is incorrect and is contrary to the provisions of laws, settled legal position on the issue and the AO be directed to delete the aforesaid amount in the hands of the Appellant and adopt the tax treatmentwhich is given by the appellant by reducing the amount of such duty credit scrips from the capital cost and claiming depreciation on the reduced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Ponni Sugars Ltd., (supra). Therefore, we are of the view that CIT(A) has not properly adjudicated the character of receipts and the year of taxability. If itis held to be the capital receipt, it may reduce the value of the capital assets but it cannot be taxed as a revenue receipt. In any case, this issue was not properly examined by the CIT(A). We therefore set aside his order and restore the matter to his file with a direction to readjudicate this issue afresh in the light of assessee s contentions and also in the light of the judgment of the Apex Court in the case of Ponni Sugars Ltd., (supra). 22. Next ground relate to the disallowance under section 14A of the Act. In this regard, it was contended on behalf of the assessee that in the impugned assessment years, the assessee has not earned any exempted income, therefore no disallowance under section 14A is to be made. In support of his contention,he placed reliance upon the order of the Tribunal in the case of DCIT Vs. M/s. MFar Holdings Pvt. Ltd., in ITA No.1443/Bang/2017 in which it was held that in the absence of exempted income, no disallowance u/s. 14A can be made. The learned DR placed reliance upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the High Court of Punjab and Haryana in I. T. A. No. 970 of 2008)-since reported in [2015] 4 ITR-OL 246 (P H)- which in turn referred to two earlier decisions of the same court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P H) and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P H). The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj) ; [2015] 372 ITR 97 (Guj) and the third of the Allahabad High Court in CIT v. Shivam Motors (P) Ltd. (decision dated 5th May, 2014, in I. T. A. No. 88 of 2014). These three decisions reiterated the position that when an assessee had not earned any taxable income in the relevant assessment year in question corresponding expenditure could not be worked out for disallowance. 16. In CIT v. Holcim India (P.) Ltd. (supra), the court further explained as under : 15. Income exempt under section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of trans action entered into in the subsequent assessment year. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head Income from other sources . Under section 57(iii) of the Act, deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression incurred for making or earning such income, did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The court explained (page 522 of 115 ITR) : What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income. Section 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of section 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find no infirmity in the order of the CIT(Appeals) who has rightly deleted the addition. 24. Accordingly, in the light of aforesaid order of the Tribunal, we are of the view that in the absence of exempted income, disallowance under section 14A cannot be made and we accordingly set aside the order of the CIT(A) and delete the additionmade by the AO. 25. Next ground relate to the non-allowance of deduction for 1/30th of upfront fee and repair and maintenance for assessment year 2007-08 and depreciationunder section 32 on repairs and maintenance. In this regard, we do not find any observation of the AO but before the CIT(A), assessee has made the written submissions which is as under: In the previous year relevant to assessment yeaer 2007-08, the Appellant had paid Upfront Fee which it claimed as revenue expenditure. However, the learned AO restricted the claim of the Appellant only to the extent of 1/30th of the expenditure incurred spreading the expenditure so incurred over the tenure of the OMDA and accordingly, allowed 1/30th of the said expenditure in the previous year relevant to captioned assessment year. In first appeal against the said order for AY 2007-08, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A), inter alia, on following grounds: Ground I: Addition on account of disallowance of collection charges of ₹ 5,33,45,596/- retained by the airlines under section 40(a)(ia): 1. On the facts and in the circumstances of the case and in law. the learned CIT(A) has erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 2(2), Bangalore (hereinafter referred to as AO) in making the disallowance of collection charges of ₹ 5,33,45,596/- retained by the airlines under section 40(a)(ia) on completion of assessment U/s. 153A. 2. The CIT(A) failed to appreciate and ought to have held that the provisions of section 194H of the Income Tax Act,1961 are not applicable in as much as there is no principal and agent relationship between the appellant and the airlines. Further the appellant has made detailed submission in support of claim that the airlines has discharged its income tax liability on collection charges of ₹ 5,33,45,596/- retained by the airlines wherever applicable 3. The Appellant therefore prays that the Assessing officer be directed to allow the claim of collection charges of ₹ 5,33,45,596/-. Ground II: Allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law, the learned CIT(A) has erred in upholding the action of the AO in Not allowing the deduction for 1/30th of upfront fee and repair and maintenance for AY 2007-08 and depreciation u/s 32 on repairs and maintenance for AY 2008-09, AY 2009-10 and AY 2010-11. 2. The CIT(A) failed to appreciate and ought to have held that AO has not accepted order of the CIT(A) and has further filed appeal before ITAT. Considering non acceptance of order of CIT(A), the AO based on the decision given in the assessment order of AY 2007-08, AY 2008-09, AY 2009-10 and AY 2010-11 completed u/s 143(3) of the Income Tax Act,1961 should have allowed deduction. 3. The Appellant therefore prays that the Assessing officer be directed to allow to allow the deduction for 1/30th of upfront fee and repair and maintenance for AY 2007-08 and depreciation u/s 32 on repairs and maintenance for AY 2008-09, AY 2009-10 and AY 2010- 11. Ground VI: The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal. 28. Ground Nos. 1, 2, 4 5 are already adjudicated by us in the foregoing paras in ITA No.636/Bang/2017 in which the matter was restored to the AO with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, after due diligence took the decision to recognize revenue from M/s. NACIL on cash basis. 30. The submission and reasons furnished by the assessee were not acceptable to the AO since the assessee is following the mercantile system of accounting and the assessee has to recognize the revenue on accrual method and as per this system the assessee company has the benefit to claim bad debts if and when it can be reasonably established that the debt has gone bad and there is no chance of any recovery from the debtor. The AO has also observed that assessee has not stopped offering services to M/s. NACIL and its affiliates and has recognized the expenditure incurred for services provided to M/s. NACIL on mercantile basis. The assessee cannot recognized expenditure on mercantilemethod but the revenue recognition from the same party on cash method. The AO further observed that as per accounting standards and accepted principle of taxation the assessee has to follow consistent method of accounting. As per the matching concept of the accountancy, expenditure claimed is to be matched with the income offered. The AO further observed that assessee company has claimed the expenditure incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utstanding Amount as on Month end Rs. in Crores 1 April-10 27.71 18.94 2 May-10 16.40 12.50 3 June-10 13.65 -0.33 4 July-10 29.38 18.45 5 August-10 42.33 45.64 6 September-10 17.65 49.42 7 October -10 17.51 52.92 8 November-10 13.80 48.56 9 December-10 19.53 54.31 10 January-11 16.12 57.21 11 February-11 15.81 71.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (approx.) during the financial year 2010-11 2011-12 and non- payment of outstanding dues from Air India has further worsen the cash crunch situation faced by the appellant. Further the Appellant had a series of correspondences with Air India/AAI/Ministry of Civil Aviation (MoCA) in which the Appellant Company at several times has raised the issue relating to non-payment of outstanding dues from Air India wherein also no concrete response was received. Also the Company raised the issue with Air India/AAI/Ministry of Civil Aviation (MoCA) that inspite of non- payment of outstanding dues by Air India, the Company is paying the revenue share to AAI @45.99% on the amount of revenue billed to Air India which in turn creating a cash crunch situation in the Appellant Company. The Appellant has issued the Cash carry notice to Air India on January 28, 2011. Further vide its letter- no 273 dated 12th 2011, the Company informed the Chairman Managing Director (C MD) of Air India regarding cash flow crisis faced by the Company and requested to Air India to reduceits outstanding by 75 % immediately and also submit the action plan for reducing balance outstanding to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alization of dues from Air India, the Company vide its letter no. 581 dated June 24th 2011, explained the Secretary, MoCA, regarding the cash losses suffered by the Appellant due to non-recovery of dues from Air India. Further, the Company requested to advise the AAI to recognize the revenue share on revenue from Air India on receipt basis and allow the Company to put Air India on Cash Carry basis . - During the period April, 2011 to September, 2011, the billing done by the Appellant to Air India was ₹ 132.61 Crores (inclusive of DF charges, Utility charges, and service tax) but the receipt during the same period was merely 21.77 Crores, which mounting up to total outstanding dues from Air India to ₹ 191.88 Crores as on 30'n Sep, 2011. - It is further submitted that. Air India was not able to honour its commitment made at several time and there was tremendous pressure on the Company's cash flow conditions, the Company was not realizing money from Air India and on the other hand it was required to pay revenue share from Air Inida and on the other hand it was required to pay revenue @ 45.99% to AAI in advance on the amount which is outstanding for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of consideration that shall be derived from rendering the service. ii. Revenue is measurable. iii. It is not unreasonable to expect the ultimate collection vi. As per Clause 9.2 of Accounting Standard-9, where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, then in such cases, it may be appropriate to recognize the revenue only when it is reasonable certain that the ultimate collection will be made. vii. As per OMDA, Annual Fees was paid to AAI on the basis of Business Plan and Business Plan can be updated as and when required. Thus, having explored all the possibilities at all the levels and also approached the Government but no concrete solution was forth coming and due to continuous uncertainty in respect of the timing of ultimate collection of recovery of dues from Air India, the Board of Directors of the Company deliberated and concluded that there were serious issues on certainty of realization of outstanding dues from Air India from a timing perspective in the current financial year and accordingly in its meeting held on October 25th 2011 (having nominee of AAI MoCA on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments. - Based on above, it is submitted that due to uncertainty in ultimate collection of dues from Air India which resulted in severe cash crisis to the company due to the reasons as mentioned above. The Company has changed recognizing the revenue from Air India in terms of the provisions of AS-9 on Revenue Recognition issue by the ICAI. Therefore, the Company has started recognizing the revenue / receivables from Air India on receipt basis for the period October 2011 to March 2012, related to the financial year 2011-12. It is submitted further that the Company has disclosed all the relevant facts vide letter no 3302 dated August 5th 2013 filed with the Assessing Officer. 31. The CIT(A) was not convinced with the submissions furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous meeting and follow upswith the senior management. Despite all repeated reminders and efforts, dues were not cleared and ultimately vide letter dated 24.06.2011, assessee has explained the Secretary, MOCA regarding cash losses suffered by the appellant due to non-recovery of dues from Air India. Further assessee company requested to advise the Airport Authority of India to recognize the revenue share from Air India on receipt basis and allow the company to put Air India on cash and carry basis. Thereafter, several meetings were held with the Board of Directors explaining the detailed reasons for recognizing the revenue from NACIL on cash basis. On the basis of outcome of the meetings and accounting standards 9, the assessee has started recognizing the revenue/receivables from Air India on receipt basis for the period of October to March 2012 related to financial year 2011-12. The learned counsel for the assessee further contended that since the assessee was engaged with the government agencies and the public sectors, it cannot be so harsh to affect the business of public sectors. The assessee had been adopting all these changes and was following the mercantile system of accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the Appellant. 2. The Assistant Commissioner of Income-tax, Circle-10(1), New Delhi has completed the assessment of the Appellant vide order dated December 29, 2009 passed under section 143(3) and in the course of such assessmentand examination was made. A search and seizure operationunder section 132 was conducted on October 11, 2012 and during the course of search no incriminating documents or undisclosed income was found. 3. The CIT(A) has erred in not considering that having regard to the second proviso to section 153A, the completed assessment cannot be disturbed except only in the case where there is any undisclosed income found in the course of search or any incriminating documents pointing towards such undisclosed income is found in the course of search or in the course of assessment proceedings under section 153A of the Income-tax Act. 4. The Appellant therefore prays that the order passed by the Assessing Officer is contrary to the provisions of law and liable to be quashed since no undisclosed income is found in the course of search or in the course of proceedings under section 153A WITHOUT PREJUDICE TO THE ABOVE Ground II: Addition on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment U/s. 153A. 2. The CIT(A) failed to appreciate and ought to have held that the provisions of section 194H of the Income Tax Act,1961 are not applicable in as much as there is no principal and agent relationship between the appellant and the airlines. Further the appellant has made detailed submission in support of claim that the airlines has discharged its income tax liability on collection charges of ₹ 4,53,88,032/- retained by the airlines wherever applicable. 3. The Appellant therefore prays that the Assessing officer be directed to allow the claim of collection charges of ₹ 4,53.88,032/-. Ground II :Disallowance u/s 14A 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of AO for disallowance of an amount of ₹ 91 .09,065/- u/s.14A as against disallowance of ₹ 16.47.676/- made in the return of income . 2. The CIT(A) failed to appreciate that the Appellant had worked out at ₹ 16,47,676/- (comparing of interest of ₹ 97,676/- and administrative expenses of ₹ 15,50,000/-) in the return of income. 3. The Appellant therefore prays that AO be directe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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