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TMI Blog2023 (1) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs.13.50 crores made under section 68 of the Income-tax Act, 1961 (In short 'the Act'). 3. Briefly the facts are, the assessee, a resident corporate entity, is engaged in the business of operating airlines. For the assessment year under dispute, the assessee filed its return of income on 29.11.2006 declaring loss of Rs.97,44,70,071/-. In course of assessment proceeding, while examining the materials on record, the Assessing Officer noticed that in the year under consideration, the assessee has shown to have received share capital of Rs.4.50 crores from Mr. Ajay Singh and Rs. 9 crores from Mr. Sanjay Malhotra. Noticing this, the Assessing Officer called upon the assessee to furnish requisite confirmation, bank statements and copy of Income Tax Returns of the concerned persons and to explain, why the amount should not be treated as unexplained cash credit under section 68 of the Act. As alleged by the Assessing Officer, despite availing adequate opportunity, the assessee failed to furnish the confirmations from the concerned persons. The Assessing Officer observed, when the concerned persons are directors/substantial shareholders of the company, the failure of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editworthiness of the concerned persons but even the genuineness of the transaction. Considering the above submissions of the assessee, we are inclined to grant opportunity to the assessee to produce Mr. Sanjay Malhotra and Mr. Ajay Singh for examination before the Assessing Officer to prove the creditworthiness of the concerned persons and the genuineness of the transaction. It is open to the assessee to furnish any other evidence to substantiate its claim regarding the genuineness of the share capital. Accordingly, the issue is restored back to the Assessing Officer for adjudicating afresh after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 7. In ground no. 2, the assessee has challenged the decision of learned Commissioner (Appeals) in directing the Assessing Officer to examine assessee's claim that the payment of Rs.1,32,00,000/- to M/s. KLM Engineering and Maintenance is not in the nature of royalty under India - Netherlands Double Taxation Avoidance Agreement and allow relief accordingly. 8. Briefly the facts relating to this issue are, in course of assessment proceeding, the Assessing Officer noticed that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c experience. Thus, as against the definition of royalty before its amendment, wherein leasing/hiring of equipment etc. was included in the expression "royalty", in the amended provision, amount received from leasing/hiring of equipment been specifically excluded. Therefore, as per the meaning of royalty under the Treaty applicable to the impugned assessment year, leasing/hiring of equipment will not constitute royalty. Though, learned Commissioner (Appeals) has given a categorical finding to the effect that as per the new provision of the Treaty it is not taxable as royalty, however, since the Assessing Officer has not examined the issue in the aforesaid perspective, he has directed the Assessing Officer to examine it and allow assessee's claim of exemption. We do not find any deficiency or irregularity in the aforesaid direction of learned Commissioner (Appeals). Accordingly, we dismiss the ground raised. 10. In ground no. 3 & 3.1, the assessee has challenged disallowance of Rs.13,98,512/- by Treating it as capital expenditure. 11. Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that the assessee debited an amount of Rs.13,98,512/- to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials on record, learned Commissioner (Appeals) observed that the building premises, wherein, the assessee has incurred the expenditure were not owned by the assessee but have been taken on lease. However, referring to section 32(1A), deleted from the statute w.e.f. 01.04.1971, read with Explanation 1 to section 32 of the Act, learned Commissioner (Appeals) held that merely because the expenditure incurred related to property taken on lease, it cannot be claimed as revenue expenditure. Having so observed, he proceeded to decide whether the expenditure can be allowed as current repairs under section 30 or revenue expenditure under section 37(1) of the Act. Referring to facts on record, he observed that two office premises have been taken on lease wherein the assessee undertook renovation work in a big way to adapt to its business. Thus, the expenditure was incurred on the building so that it may yield to the assessee fresh advantage not forthcoming from the lease of premises in its original condition. He observed that only few items, such as, surface coating paint, plumbing work, can be said to be in the nature of repair work. Whereas, major items of expenditure related to furnitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , office facility and maintenance. It has to be seen, whether by incurring such expenditure any asset of enduring benefit has been created by the assessee. Since, the nature and character of each of the expenditure is not verifiable from the material on record, we direct the Assessing Officer to verify each item of expenditure and thereafter decide the character of expenditure, whether revenue or capital, and accordingly allow deduction, either under section 37(1) or 32 of the Act. This, ground is allowed for statistical purposes. 19. In ground no. 5, the assessee has challenged part disallowance of expenditure claimed on leased aircrafts. 20. Briefly the facts are, while examining the financial statements of the assessee, the Assessing Officer noticed that in the year under consideration, the assessee had capitalized expenditure of Rs.7,29,95,186/- under the head capital expenditure on leased aircrafts. He found that the assessee had claimed depreciation on such expenditure at the rate of 40%. The Assessing Officer was of the view that depreciation at the rate of 40% is allowable only on aero engines and not on airplanes. Whereas, in respect of assets under consideration, deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire expenditure relating to such lease of aircraft has to be treated as revenue expenditure. The aforesaid claim of the assessee was totally ignored by the Assessing Officer. For the aforestated reason the assessee raised an additional ground before learned Commissioner (Appeals) claiming the expenditure as revenue expenditure. However, learned Commissioner (Appeals) has declined to admit the additional ground by referring to the decision of the Hon'ble Supreme Court in case of Goetz (India) Ltd. (supra). 23. In our view, learned Commissioner (Appeals) is unjustified in refusing to admit the additional ground raised by the assessee by misinterpreting the ratio laid down by Hon'ble Supreme Court in case of Goetz (India) Ltd. A careful reading of the aforesaid judgment would make it clear that the restriction in entertaining a fresh/new claim otherwise than through a revised return of income is only applicable to the proceeding before the Assessing Officer and not appellate authority. It is fairly well settled, there are no fetters on the appellate authority in entertaining a fresh claim/additional ground raised by the assessee, if it can be decided based on the facts available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer by holding that since, the FCCBs are convertible at the option of bond holders and the company and will be redeemed on 13th December, 2010 only if not previously redeemed, repurchased, cancelled or converted, it cannot be said that the bond period of 5 years is static. While so concluding, learned Commissioner (Appeals) relied upon the decision of the Hon'ble Rajasthan High Court in case of Secure Meters Ltd., 175 Taxman 567 (Raj) and the decision of ITAT, Special Bench, in case of Ashima Syntex Ltd., 310 ITR 1 (AHD) (SB) (AT). 28. We have considered rival submissions and perused the materials on record. As could be seen from the facts on record, that the expenditure was fully incurred in the impugned assessment year is not in dispute. The Assessing Officer has amortized the expenditure over the five year period of bonds assuming that the FCCBs cannot be redeemed, repurchased, cancelled etc., either at the option of the assessee or the company before the bond period of five years. 29. In case of Taparia Tools Ltd. Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition/endorsement of mandatory license of pilots. 33. Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that the assessee has claimed deduction for an amount of Rs.11,30,94,833/- towards deferred revenue expenses. When called upon to justify such claim, the assessee furnished its submissions justifying its claim. The Assessing Officer observed, the assessee has followed accounting policy of debiting expenses to its profit and loss account over a period of 5 years. Following the same policy, the assessee had debited an amount of Rs.1,75,62,647/- to the profit and loss account. Whereas, in the statement of computation of income, the assessee had added back the amount debited to the profit and loss account and claimed deduction for the full amount of expenditure incurred. Considering the fact that the assessee itself has considered the expenditure as resulting in benefit over a period of 5 years and, hence, followed the policy of debiting the expenses over the period of 5 years, the Assessing Officer disallowed assessee's claim for the entire expenditure and allowed 1/5th of such expenditure. The assessee contested the disallowance before lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the assessee had failed to deduct tax at source while making the payment, the Assessing Officer disallowed the amount under section 40(a)(i) of the Act. Similarly, for the very same reason of non-deduction of tax at source, the Assessing Officer disallowed various other expenses under section 40(a)(i) of the Act. The assessee contested the disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 38. We have considered rival submissions and perused the materials on record. The expenditures, which have been subjected to disallowance under section 40(a)(i) are as under: i. Supplemental Rent/Maintenance Reserve of Rs.26,88,07,231/- ii. Engine Guarantee Availability Fee of Rs.5,24,155/- iii. Repair of Rotables of Rs.3,75,556/- iv. Logo Printing of Rs.25,15,000/- 39. As far as supplemental rent/maintenance reserve is concerned, it is observed, learned Commissioner (Appeals) after analyzing the lease agreement has recorded a factual finding that the supplemental rent was paid for acquisition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k was carried out outside India, therefore, the assessee had no liability to deduct tax as the income was not taxable in India. Insofar as the expenses on Logo printing, the revenue has failed to demonstrate that the make available condition under Article 12(4B) of the Treaty is fulfilled. Therefore, the amount is not taxable at the hands of the non-resident company in India. That being the case, the assessee has no liability to deduct tax at source. 41. In view of the aforesaid, we do not find any reason to interfere with the decision of learned Commissioner (Appeals). The ground raised is dismissed. 42. As regards ground no. 3(b), while deciding corresponding ground raised by the assessee in its appeal, being ground no. 2 of ITA No. 2688/Del/2011, we have upheld the decision of the learned Commissioner (Appeals) on the issue. Our decision therein will apply mutatis mutandis to this ground as well. Accordingly, this ground is dismissed. 43. In ground no. 4, the Revenue has challenged reduction of disallowance made on account of repairs and maintenance expenses to Rs. 20,84,982/- from Rs.4,16,99,667/-. 44. Briefly the facts are, in course of assessment proceeding, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant criteria to be considered in order to adjudicate whether the expense is capital or revenue. Thereafter, following the decision of the Hon'ble Jurisdictional High Court in case of CIT Vs. Jagatjit Industries Ltd. [2006] 287 ITR 46, learned Commissioner (Appeals) deleted the disallowance. 49. We have considered rival submissions and perused the materials on record. While deciding Revenue's appeal for assessment years 2006-07, being ITA No.3264/Del/2011, we have upheld the decision of learned Commissioner (Appeals) in allowing assessee's claim of revenue expenditure in respect of expenditure incurred on issue of FCCBs. It is further observed, in assessment years 2006-07, the Assessing Officer himself has allowed the premium payable on redemption of FCCBs as revenue expenditure. Therefore, we do not find any infirmity in the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 50. In ground no. 2, the Revenue has challenged the deletion of addition of Rs.54,54,11,786/- on account of aircraft maintenance cost. 51. The issue raised in this ground is identical to the issue raised in ground no. 3(a) of ITA No. 3264/Del/2011. Following our decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was found that it ranged between Rs.26,000/- per month to Rs.60,000/- per month for four bed rook apartment. He observed, for a fully furnished property, the rent is Rs.80,000/- per month. Holding that the assessee has paid Rs.1,00,000/- in excess of the market rate for a period of 7 months, the Assessing Officer disallowed an amount of Rs.7 Lakhs under section 40A(2) of the Act. The assessee contested the disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee and taking note of the fact that the Assessing Officer has not confronted the materials relied upon, collected suo motu, deleted the addition. 58. We have considered rival submissions and perused the materials on record. On a reading of sections 40A(2) of the Act, it becomes clear that any payment made to a related party, if considered to be unreasonable and excessive, having regard to the market rate for such goods and services, then disallowance under section 40A(2) can be made. In the facts of the present appeal, the Assessing Officer has made the disallowance relying upon certain information obtained through a search in the internet. The source and authenticity of such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cross Objection for AY: 2008-09 64. The only ground raised by the assessee reads as under: "1. That on the facts and in law the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of the interest paid u/s 201(1A) of Rs.5,89,643/-." 65. As could be seen from the ground raised, the issue arising for consideration is whether the interest paid by the assessee on delayed remittance of TDS is allowable under section 37(1) of the Act. 66. Before us, learned counsel appearing for the assessee has relied upon a decision of the Coordinate Bench in case of Resolve Salvage & Fire India (P) Ltd., 195 ITD 266 to submit that interest paid is allowable as deduction. However, in case of Chennai Property & Investment, 239 ITR 435 (Madras), the Hon'ble Madras High Court has held that the interest paid on delayed remittance of TDS is not allowable as deduction under section 37(1) of the Act. No contrary decision of any other High Court has been brought to our notice by learned counsel appearing for the assessee. Therefore, respectfully following the decision of the Hon'ble Madras High Court, we uphold the disallowance. 67. In the result, the Cross Objection is dismissed. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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