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TMI Blog2019 (9) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... committed any violation of law nor any breach or infraction of the law. As noted earlier the expenses incurred by the assessee on fines/penalties at foreign airport is also in the nature of loss incurred in the carrying on assessee's business and it is incidental to carrying on of such business of International Air transportation of passengers. In the case of Ramchand Shrinarayan Vs. CIT [ 1977 (11) TMI 2 - SUPREME COURT] held that if there is a direct and proximate nexus between the business operations and the Loss and it is incidental to its business operation and doing all that is incidental for profit earning, such losses would be allowable as a business loss u/s.28 of the Act. We noted that on the above mentioned facts in the assessee's case the penalty/fine paid at the foreign airports has a direct and proximate nexus between the business operations and the loss (penalty or fine) and such penalty or fine is incidental to the carrying on of the assessee's business in ordinary course of business and hence it is allowable to the assessee as a business loss also Characterization of income - income derived from interest - income from other sources or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- As provisions was never allowed as deduction in earlier years, any amount transferred to the credit of P L Account from such Provisions for Obsolescence could not be added to the income of the appellant and accordingly the Assessing Officer is directed to delete the addition made in respect of Provisions for Obsolescence - ITA No. 2182/Mum/2012, 1423/Mum/2012 - - - Dated:- 19-7-2019 - SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM Appellant by: S/shri Shri D.J. Shukla And R.J. Shukla, ARs Respondent by: Shri M. Dayasagar, CIT DR ORDER PER MAHAVIR SINGH, JM: These are appeals filed by both assessee and Revenue, directed against the order of the Commissioner of Income Tax (Appeals)-9, [in short CIT(A)] in Appeal No. CIT(A)-9/DC-5(2)/286/2010-11 vide order dated 14.12.2011. The assessment was framed by the Dy. Commissioner of Income Tax Circle 5(2), Mumbai (in short DCIT/AO) for the AY 2007-08 vide order dated 24.12.2010, under section 143(3) of the Income-tax Act, 1961 (hereinafter the Act ). 2. The first issue in this appeal of assessee is against the order of CIT(A), confirming the action of Assessing Officer (AO) in disallowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity so as to avoid seizure of the aircraft. However, this argument was not placed before any lower authorities and the nature of penalty/fine had not been examined in detail at all. Considering that the COD has not permitted to agitate this issue in assessment year 2002-03 we are of the opinion that the amount cannot be allowed as business expenditure in the absence of any justification for payment of penalty or fine as a commercial expediency. In these circumstances, we are inclined to agree with the learned CIT(A) s opinion. Consequently, the ground is rejected. 6. Since the issue under consideration is identical to that of the case decided by the ITAT in assessee s own case for AY 2001-02 and 2002-03, we respectfully follow the same and in the light of that we confirm the order of CIT(A) in sustaining the disallowance of penalty of ₹ 38,93,553/- made by the Assessing Officer. Accordingly, this ground of appeal of the assessee is dismissed . Aggrieved, now the assessee is in second appeal before us. 5. Before us, Ld. Counsel for the assessee argued that in earlier years, the Tribunal has taken a view against assessee but he stated that recently, the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling to pay, is liable for the punishment as provided in the section, but nowhere it is provided that to save a life of the person if a ransom is paid, it will amount to an offence. No provision is brought to our notice that payment of ransom is prohibited by any law. In the absence of it, the Explanation to sub-section (1) of section 37 will not be applicable in the present case . 6. Ld. Counsel for the assessee also relied on the decision of the Hon'ble Supreme Court in the case of Ramchandar Shivnarayan Vs. CIT [111 ITR 263] (SC), wherein it was held that the loss occurred on account of theft to be a trading loss incurred in the ordinary course of business of purchasing Government securities. It was also held that the loss by theft is connected directly with and incidental to the business of assessee. In this connection, Ld. Counsel for the assessee relied on para Nos.11 and 12 of the said order, as under: 11. Now, we proceed to point out the persistently wrong application of the law laid down by this Court by the Andhra Pradesh High Court in two earlier decisions followed in the decision under appeal also. They are : CIT vs. Chakka Narayana (1961) 43 ITR 249 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock-in- trade or for disbursement to meet the business expenses or for purchasing stock-in-trade and if he loses such money in the ordinary course of business, the loss is a deductible trading loss. It is immaterial whether the money is a part of the stock- in-trade, such as, of a banking company or a money-lender, or is directly connected with the other business operations. The risk is inherent in the carrying on of the business and is either directly connected with it or incidental to it. 7. In terms of the above, Ld.Counsel for the assessee stated that the Corporation has been engaged in the International Transportation of passengers and cargo. The passengers carried by the Corporation on its Aircraft, if on arrival at the foreign airport are not found in possession of proper or sufficient documents for enabling them entry in such foreign country, the Corporation becomes liable to transport such passengers back and may also become liable to penalty/fine in accordance with law of the foreign country. The documents carried by the passengers are checked by the staff of the assessee-carrier Aircraft at the time of departure from the Indian Airports and the documents are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I cannot see any business expediency from an illegitimate activity and therefore, disallowance made by the AO is perfectly in order . 11. We noted that as such activity of the assessee is neither illegal nor illegitimate. The assessee's activity in the International Air Transport is carried on with due authority and licensed by the Govt. of India and also the respective countries to which it operates its flights. Penalty or fines are paid in foreign country by the assessee for default or mistake of the passengers and not on account of any violation or infraction of law by the assessee. However, under the International Air Transport laws, it is the obligation of the Airlines to bear such penalty/fines which arise in the ordinary course of carrying on its business. As stated above, the penalty/fine which is incurred by the assessee should be considered in the context of nature of business carried on by the assessee. In this case, the assessee's business is fully authorized and carried on legally. However, the assessee incurs the liability for payment of penalty/fine as the documents are misplaced or lost by the passengers for which the assessee cannot be held liable and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court in the case of CIT Vs. P.C.Tangal (184 1TR 88). In this case penalty was imposed by the Customs Authority on the ground that the assessee had under invoiced certain imports and thereby imported more goods than were authorized by the Import License. The penalty was reduced by the appellate authorities and the Hon'ble Bombay High Court held that such penalty was allowable as deduction u/s.37(1) of the Act as it could not be determined that the assessee has himself committed an infraction of law. 15. In the case under consideration, it is observed that the assesses had not committed any infraction of law but the assessee is required to bear the amount of such penalty/fine levied at foreign airports for certain deficiencies in the records/passports/visa of the passengers carried by the assessee and in accordance with International Air Transportation Laws and/or for commercial expediency and such penalties or fines are borne by the assessee though the assessee itself has not made any infraction of law. At this juncture, a distinction is justified between the case of a deliberate violation of law and one which is innocent and unintended. Where a trader has not been at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income . For this, assessee has raised the following Ground No.2: 2 (i) On the facts and circumstances of the case and in law the learned CIT(Appeals) erred in disregarding and ignoring the decisions of C.I.T(Appeals) erred in appellant's own case in Asst. Years 2001-02 to 2004-05 where the Hon'ble I.T.A.T. had held that Income from Interest on Short Term Deposits was assessable as Business Income of the appellant. (ii) The learned C.I.T.(A) erred in confirming action of the A.O. to tax Income from Interest on Short Term Deposits of ₹ 74,37,00,000/-as Income from Other Sources and rejecting the claim of the appellant that such interest income was assessable as Income from Profits and Gains of Business . 19. At the outset, Ld. Counsel for the assessee stated that this issue is covered by the Tribunal s decision in assessee s own case for the AY.2001-02 and further, the Department s appeal against the ITAT s order were decided by the Hon'ble Bombay High Court vide order dt.14-06-2012, confirming order of ITAT stating that the interest income is taxable as business income . 20. We noted that the assessee has earned interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 1996-97. For these reasons, we are of the opinion that the interest earned on short term deposits is to be considered as Income from Business. Consequently, the Assessing Officer is directed to treat the interest income as income from Business. The assessee's grounds are allowed on this issue . 21. This was affirmed by the Hon'ble Bombay High Court and answered this issue in favour of assessee vide paras 7 and 8 as under: 7. It is of vital importance to note the representation made by the CBDT to the Revenue Authorities of U.K. in 1990 to the effect that the interest income earned in England from the current account and short term fixed deposits were not income from other sources chargeable to tax in U.K. but in fact income from business. The very fact that in the year 1990, the Central Board of CBDT through its Chairman had represented to the Revenue Authorities in U.K. that the interest income earned on amounts kept in current account arid short terms fixed deposits was essentially business income and not income from other sources is certainly binding upon the department, more so when they are unable to show any difference on facts when the repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.39 NACIL (A) Foreign Dividend 2,11,18,743.39 -------------------- Total ₹ 2,39,14,898.63 -------------------- On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression does not form part of the total income in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision made of ₹ 11,81,12,010/-. Ld. Counsel for the assessee stated that this issue is squarely covered in favour of assessee by the decision of the Co-ordinate Bench of this Tribunal in assessee s own case for AY.2007-08 in ITA No.5204/Mum/2011, dt.01-04-2016, vide para 6, as under: 6. The last ground pertains to deleting the disallowance of ₹ 455.28 lakhs made on account of frequent flier program (FFP). The ld. DR defended the disallowance made by the Assessing Officer, whereas, the ld. Counsel for the assessee contended that the impugned issue is covered by the decision of the Tribunal in the case of Jet Airways Ltd. (ITA No.3201/Mum/2003 and 6084/Mum/2003) order dated 30/05/2006. This factual matrix was not controverted by the ld. DR. 6.1. We have considered the rival submissions and perused the material available on record. There is uncontroverted finding that the liability in respect of FFP miles accrues simultaneously with a passenger undertaking travel on a fare paying ticket, therefore, it cannot be a contingent liability. Following the aforesaid decision of the Tribunal dated 30/05/2006 and further in the absence of any contrary facts/decision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alised in October, 2008, accounting action could not be taken in FY.2007-08 relevant to AY.2008-09. For this, assessee s Counsel placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. Gajapathy Naidu (1964) [53 ITR 114] (SC). The assessee before us now claimed that the authorities have rejected the entire invoice value for overhaul of engine to the extent of ₹ 105.90 Million and settled such invoices towards ferry cost only partly to the extent of ₹ 4.53 Million for the FY.2008-09, relevant to AY.2009-10. It was also explained that on settlement of claim in October, 2008, such amount of ₹ 4.53 Million was accounted in the year 2008-09. When these facts were asked to file in details, Ld. Counsel for the assessee as well as the Ld. CIT-DR agreed that this matter can be restored back to the file of AO for fresh verification and adjudication. In terms of concession given by both the sides, we restored this issue back to the file of AO, who will consider the issue as per law. This issue is accordingly treated as allowed for statistical purposes. 33. The only issue in Revenue s appeal is as regards the order of CIT(A), confirming the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,87,36,908 Added by AO on completing Asst. Addition deleted by CIT(A) Dept. has not filed appeal to I.T.A.T. 35. We noted that the CIT(A) has considered this issue and following the findings of CIT(A) in AY.2007-08, deleted the addition by observing in para 5.3, as under: 5.3 Ground of appeal No. 3 : 5.3.1 This issue has been discussed by my Ld.Predecessor in appellant's own case in assessment year 2007-08 vide appeal No.CIT(A)-9/AC 5(1)/252/2009-10 dated 28.03.2011 vide para No.3. The LAO as well as the LAR have argued thatthe facts are identical in assessment year 2007-08 and 2008-09 with reference tothis particular disputed issue. Since the facts are identical, hence the decision of my Ld.Predecessor is reproduced from the appellate order for Assessment year 07-08 as under: In ground No.2, the appellant has challenged the action of the assessing officer against addition of ₹ 42,87,36,908/- credited to the P L Account for the year ended 31st March 2007 in respect of transfer from provision for obsolescence. 3.1 The facts are that the appellant is engaged in the business of internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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