ACIT, New Delhi V. M/s. Pawan Hans Helicopters Ltd, New Delhi

ITA 1424/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3711 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 06-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H L DIHANA
• Assessee Lawyers: JYOTI NARULA
• Keywords: Rule of consistency; Difference of opinion; Change of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A NOS. 1424,1425/DEL/09 ASSTT. YEARS 2003-04, 2005-06 ACIT, CIRCLE 14 (1), ROOM NO. 415, 4 TH FLOOR, C.R. BUILDING, NEW DELHI. VS. PAWAN HANS HELICOPTERS LTD. CORPORATION OFFICER SAFDARJUNG AIRPORT NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI H.L. DIHANA, CIT(DR) RESPONDENT BY: SMT. JYOTI NARULA, CA ORDER PER RAJPAL YADAV, JM: THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF REVENUE AGAINST THE ORDERS OF LD. CIT(A) DATED 15 TH JANUARY, 2009 AND 16 TH JANUARY, 2009 PASSED FOR ASSTT. YEARS 2003-04 AND 2 005-06 RESPECTIVELY. THESE APPEALS WERE DISMISSED BY THE TRIBUNAL FOR WANT OF COD APPROVAL . SUBSEQUENTLY, SUCH APPROVAL WAS GRAN TED TO THE ASSESSEE AND MISCELLANEOUS APPLICATION NOS. 265-266 /D/2010 WERE FILED BY THE REVENUE FOR RESTORING APPEALS TO THEIR ORIG INAL NUMBERS . THE ITAT HAS OBSERVED THAT REVENUE HAS BEEN PERMITTED T O AGITATE THE ISSUE ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 2 RELATING TO THE ALLOWANCE OF PROVISION FOR MAINTENA NCE OF COST OF HELICOPTER ONLY. IN THIS WAY, TRIBUNAL HAS ALLOWED THE MISCELLANEOUS APPLICATIONS OF THE ASSESSEE VIDE ITS ORDER DATED 2 1 ST JANUARY, 2011 AND APPEALS HAVE BEEN RESTORED TO THEIR ORIGINAL NUMBER S. IN VIEW OF THE ABOVE DEVELOPMENT, IT EMERGES OUT THAT ONLY GROUND NO. 2 IN ASSTT. YEAR 2003-04 AND GROUND NO. 4 IN ASSTT. YEAR 2005-06 HAV E BEEN ALLOWED TO BE RAISED. IN THESE GROUNDS OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF R S. 8,13,41,785/- AND RS. 60,07,33,724/- IN ASSTT. YEARS 2003-04 AND 2005 -06 RESPECTIVELY. 2. THE BRIEF FACTS OF THE CASE ARE THAT IN ASSTT. Y EAR 2003-04, THE ASSTT. ORDER WAS PASSED U/S 143(3) ON 30 TH DECEMBER, 2004 ON A TOTAL INCOME OF RS. 28,28,40,870/-. THE ASSESSMENT OF THE ASSESSEE HAS BEEN REOPENED ON THE GROUND THAT IT CAME TO THE NOT ICE OF REVENUE THAT ASSESSEE HAD MADE THE PROVISION OF RS. 42.58 LACS T OWARDS PAYMENT OF EX GRATIA TO ITS EMPLOYEES. ACCORDING TO THE REVENU E, THIS PROVISION IS NOT ALLOWABLE AND HENCE A NOTICE U/S148 OF THE INCOME T AX ACT WAS ISSUED. 3. DURING THE SCRUTINY OF ACCOUNTS, IT REVEALED TO THE AO THAT ASSESSEE HAD MADE A PROVISION OF RS. 8,13,41,785/- ON ACCOUNT OF MAINTENANCE COST OF HELICOPTER. SIMILARLY, IN ASSTT . YEAR 2005-06, DURING THE SCRUTINY ASSESSMENT, IT WAS NOTICED THAT ASSESS EE HAD MADE A PROVISION OF RS. 60,07,33,724/- ON ACCOUNT OF HELIC OPTER MAINTENANCE ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 3 EXPENDITURE. LD. AO HAS DISALLOWED THIS CLAIM IN BO TH THE ASSESSMENT YEARS. LD. CIT(A) HAS NOTICED THE REASONS ASSIGNED BY THE AO IN A SUMMARIZED WAY. THESE REASONS FROM THE ORDER OF ASS TT. YEAR 2003-04 READ AS UNDER :- (B) A PROVISION SHOULD BE RECOGNIZED ONLY WHEN THER E IS A PRESENT OBLIGATION ARISING OUT OF A PAST EVENT. IN THE INSTANT CASE, M AJOR MAINTENANCE DOES NOT ARISE OUT OF A PAST EVENT. IT REQUIRED TO BE CA RRIED OUT TO MAKE THE HELICOPTER RUN AT THE SAME OR ACCEPTANCE LEVELS OF OPERATIONAL EFFICIENCY IN FUTURE. THERE IS NO OBLIGATION AS ON THE BALANCE SH EET DATE UNLESS THE THRESHOLD LIMIT HAS BEEN REACHED. (C) THE MATCHING PRINCIPLE CANNOT BE APPLIED TO THE CURRENT SITUATION. DEFERRING REVENUES TO ACHIEVE MATCHING IS NOT PRACTICABLE UND ER THIS SITUATION. (D) MAJOR MAINTENANCE DOES NOT ARISE OUT OF A PAST EVENT. IT IS REQUIRED TO BE CARRIED OUT TO MAKE THE PLANT WORTHY FOR FUTURE OPE RATIONS. (E) THE INCURRENCE OF THE MAJOR MAINTENANCE IS CONTINGE NT UPON THE EVENT THAT THE WORKING OF HELICOPTER HAS REACHED CERTAIN PREDE TERMINED LEVELS OF RUNNING HOURS OF THE ENGINE, SAY 5000 HOURS. THE RU NNING HOURS OF THE HELICOPTER IS RELATED TO THE REQUIREMENT IN FUTURE. ITS USE IS NOT REQUIRED OR IS REQUIRED IN A LESSER QUANTITY, THEN SUCH LEVELS MAY NEVER BE REACHED. IN WHICH CASE, AN OBLIGATION FOR CARRYING OUT THE MAJ OR MAINTENANCE WOULD NEVER ARISE. 4. THE AO HAS FURTHER OBSERVED THAT A PROVISION IS REQUIRED TO BE CREATED IN CASE OF LIABILITY INCURRED AS ON BALANCE SHEET DATE, WHICH CAN BE MEASURED BY USING A SUBSTANTIAL DEGREE OF ESTIMA TION. IF CERTAIN COSTS ARE TO BE INCURRED IN FUTURE, FOR EXAMPLE FOR REPLA CEMENT OF CERTAIN REPAIRS AS PER THE MAINTENANCE SCHEDULE, PROVISION ,THEREFORE, CANNOT BE CREATED ON THE BALANCE SHEET DATE, BECAUSE INCURRE NCE OF SUCH COST RELATES TO FUTURE OPERATIONS OF A BUSINESS. DISSATI SFIED WITH THE ACTION OF AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD . CIT(A). LD. CIT(A) ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 4 HAS DELETED THE DISALLOWANCE BY FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSTT. YEAR 1995-96 TO 1997-98. THE FINDING OF THE LD. CIT(A) RECORDED IN ASTT. YEAR 2003-04, READ AS UNDER : 5.3.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ORDER OF THE AO AND SUBMISSIONS MADE BY THE LD. AR APPEARING FOR THE AP PELLANT. IT IS NOTED THAT THIS ISSUE IS A RECURRING ONE DURING LAST SEVERAL Y EARS AND IT IS SEEN THAT IN EARLIER YEARS THE SAME WAS DECIDED BY MY LD. PREDEC ESSOR VIDE A COMBINED DECISION FOR A.Y. 1995-96 TO 1997-98 DATED 30.11.20 00, WHEREIN AFTER DETAILED DISCUSSION THE ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT. THE RELEVANT PORTION OF THE SAID ORDER IS RE-PRODUCED H EREUNDER: A CHART GENERATED BY THE WESTERN REGION DEPICTING THE PMC BASED ON ACTUAL HOURS OF FLYING UNDERTAKEN AND ACTUAL EXPENS ES INCURRED TOWARDS MAINTENANCE EACH YEARS HAVE BEEN SUBMITTED (P-38 O F THE PAPER BOOK). IT IS POINTED OUT THAT THE FIRST G INSPECTION SINCE THE I NCORPORATION OF COMPANY WAS CARRIED OUT IN F.Y. 1997-98. ANALYSIS OF THE CHART IN VIEW OF THE FACT STATED ABOVE PROVE THAT THE DIFFERENCE BETWEEN THE ACTUAL EXPENSES INCURRED AND THE PROVISION CREATED TO MEET THESE EXPENSES WAS WR ITTEN BACK IN THAT YEAR. IT MAY BE NOTED THAT THERE COULD BE INSTANCES WHEN THE ACTUAL EXPENSES INCURRED EXCEED PROVISION THEREOF BASED ON ACTUAL NUMBER OF HOURS FLOWN AND THE SAME WOULD HAVE TO BE DEBITED TO THE P & L A/C FOR THAT PARTICULAR YEAR. IT IS THEREFORE REITERATED THAT NO DISALLOWAN CES SHOULD BE MADE ON ACCOUNT OF PROVISION OF MAINTENANCE COST. THE DISC USSION ABOVE SHOWS THAT THE AO HAS NOT BROUGHT ON RECORD ANY REASON FOR CHA NGING THE METHOD OF ACCOUNTING ADOPTED BY THE APPELLANT AND ACCEPTED BY THE DEPARTMENT TILL THE ASSESSMENT YEAR 1994-95. THE METHOD ADOPTED BY THE APPELLANT IS BASED ON THE RECOMMENDATIONS OF THE FOREIGN EXPERTS, ICAI AN D CAG. THIS ALSO APPEARS TO BE A SCIENTIFIC METHOD BECAUSE THE COST OF MAINTENANCE GETS DISTRIBUTED OVER SEVERAL YEARS AND BECAUSE IT IS TR UE THAT IT LARGELY DEPENDS ON THE NUMBER OF FLYING HOURS WHICH HAS INCIDENTALL Y INCREASED DURING THE YEAR UNDER CONSIDERATION. CONSIDERING ALL THESE FAC TS AND CIRCUMSTANCES OF THE CASE, THE ADDITION OF RS. 10,74,39,829/-. IS DE LETED AND THE METHOD OF CLAIMING PMC ADOPTED BY THE APPELLANT IS UPHELD. 5.3.2 SINCE THE ISSUE IS IDENTICAL AND THE AO HAS N EITHER POINTED OUT ANY DISCREPANCY IN THE SAID DECISION OF LD. CIT(A) IN E ARLIER YEARS NOR HAS BROUGHT OUT ANY FRESH MATERIAL ON RECORD TO DEVIATE FROM TH E VIEW TAKEN IN ORIGINAL ASSESSMENT WHILE ACCEPTING THE PROVISION FOR MAINTE NANCE COST BY HIS PREDECESSOR, THE DISALLOWANCE MADE BY HIM APPEARS M ERELY A CHANGE OF OPINION. I AGREE WITH THE CONTENTIONS OF THE LD. AR AS WELL AS THE VIEW OF MY LD. PREDECESSOR IN THE ABOVE QUOTED ORDER OF A.Y. 1 995-96 TO 1997-98 AND HOLD THAT LOOKING TO THE PAST HISTORY AND PECULIAR BUSINESS REQUIREMENT OF THE APPELLANT IT IS NECESSARY TO MAKE THE PROVISION FOR MAINTENANCE COST FOR ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 5 CALCULATING THE TRUE PICTURE OF PROFITS. ACCORDINGL Y, THE DISALLOWANCE MADE BY THE AO IS DELETED . 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT A SIMILAR PROVISION WAS MADE RIGHT FROM ASSTT. YEAR 1992-93. IT WAS ALLOWED BY THE AO HIMSELF UPTO 1994-95. IN 1995-96 TO 1997-98, IT WAS DISALLOWED BY THE AO BUT LD. CIT(A) HAS DELETED THE DISALLOWAN CE. REVENUE DID NOT CHALLENGE THE ORDER OF LD. CIT(A). FROM ASSTT. YEAR 1998-99 UPTO 2002- 03, AO HIMSELF ALLOWED THIS CLAIM. FROM 2003-04 TO 2005-06, IT WAS DISALLOWED TO THE ASSESSEE BY THE AO BUT ALLOWED BY THE LD. CIT(A). IN ASST. YEAR 2006-07, AO HAS ALLOWED THE CLAIM TO THE ASSESSEE IN AN ASSESSMENT PASSED U/ S 143(3) ON 29.12.2008. SHE P OINTED OUT THAT IN ALL THESE YEARS, SCRUTINY ASSESSMENTS HAVE BEEN MAD E. SHE ALSO TOOK US THROUGH THE SUBMISSIONS OF ASSESSEE FILED BEFORE THE AO. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF AO. 6. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES, WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE . THE ASSESSEE HAS BEEN FOLLOWING SAME PRINCIPLE OF ACCOUNTANCY IN ALL THE ASSTT. YEARS. AO HIMSELF ACCEPTED IT IN A NUMBER OF YEARS PRIOR TO T HESE ASSTT. YEARS AND SUBSEQUENT TO THESE ASSTT. YEARS. IT IS NOT ADVISAB LE TO DISTURB THE PRINCIPLE OF ACCOUNTANCY FOLLOWED BY THE ASSESSEE F OR ONE OR TWO YEARS UNLESS IT IS ESTABLISHED THAT TRUE INCOME OF THE AS SESSEE CANNOT BE ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 6 WORKED OUT ON THAT PRINCIPLE. THE DETAILS OF MAINTE NANCE COST RESERVED FROM ASSTT. YEAR 2002-03 UP TO 2005-06 HAS BEEN PLA CED BY THE ASSESSEE IN A TABULAR FORM. SIMILARLY, ASSESSES HAS PLACED ON RECORD THE OPENING BALANCE OF MAINTENANCE COST, PROVISION CREA TED DURING THE YEAR, THE AMOUNT UTILIZED AND THE CLOSING BALANCE FOR ASS TT. YEAR STARTING FROM 2002-2003 UPTO 2007-2008 IN A TABULAR FORM AT PAGE 3 OF THE PAPER BOOK. WE FIND THAT THERE IS DECREASING TREND IN THE CLOSING BALANCE ON THIS PROVISION. THE ACCOUNTING TREATMENT AS WELL AS ALLOWABILITY OF SUCH MAINTENANCE EXPENSE ON ACCRUAL BASIS WAS ACCEPTED I N THE PAST BY THE AUDITOR INCLUDING CAG AS WELL AS BY THE INCOME TAX DEPARTMENT. THERE IS NO SOUND REASONING ASSIGNED BY THE AO IN THE ASS TT. ORDERS FOR DISTURBING THIS METHOD OF ACCOUNTANCY. THUS FOLLOWI NG THE PRINCIPLE OF CONSISTENCY, WE UPHOLD THE ORDER OF LD. CIT(A). 7. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.6.2011. SD/- SD/- [K.D. RANJAN] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10.6.2011 VEENA COPY FORWARDED TO: - 1. APPELLANT ITA NOS. 1424,1425/DEL/09 ASSTT . YEARS 2003-04, 2005-06 7 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT