M/s. SRC Aviation Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2215/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52610 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 17-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY; NIRANJAN KAMLI
• Keywords: Depreciation; Fair market value; Difference of opinion; Corroborative evidences; Change of opinion
• Section: 40A(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NOS.1557, 1558 & 2215/DEL/2010 ASSESSMENT YEARS : 2005-06, 2006-07 & 2007-08 SRC AVIATION PVT. LTD., D-90B, CHHATTERPUR ENCLAVE, NEW DELHI. PAN : AABCS2455F VS. DCIT, CIRCLE 9(1), NEW DELHI. ITA NO.3824/DEL/2010 ASSESSMENT YEAR : 2007-08 DCIT, CIRCLE 9(1), ROOM NO.163, CR BUILDING, NEW DELHI. SRC AVIATION PVT. LTD., C-6/6107, VASANT KUNJ, NEW DELHI. PAN : AABCS2455F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL PURI, CA REVENUE BY : SHRI NIRANJAN KAMLI, CIT, DR & SMT. S. MOHANTHY, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER ITA NOS.1557 & 1558/DEL/2010 ARE THE APPEALS FILED B Y THE ASSESSEE AGAINST TWO SEPARATE ORDERS PASSED BY THE CIT, DELH I-III, NEW DELHI DATED 8 TH MARCH, 2010 FOR ASSESSMENT YEARS 2005-06 & 2006-07. 2. ITA NOS.2215 & 3824/DEL/2010 ARE THE CROSS APPEALS I N RESPECT OF ASSESSMENT YEARS 2007-08 AND THEY ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) DATED 8 TH MARCH, 2010. ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 2 3. THE GROUNDS IN ITA NOS.1557 & 1558/DEL/2010 ARE ID ENTICAL AND READ AS UNDER:- 1. THAT THE LD. CIT HAS ERRED IN INITIATING PROCEEDIN GS U/S 263 OF INCOME TAX ACT, 1961. 2. THAT THE LD. CIT-II HAS FURTHER ERRED IN INTERPRE TING THE LAW AND BASED THE FINDINGS ON ASSUMPTIONS AND SURMISES. 3. THAT THE LD. CIT-III HAS FURTHER ERRED IN IGNORI NG THE EVIDENCE PRODUCED BY THE ASSESSEE ON ASSUMPTION THAT THE FACTS CANNOT BE THE SAME DESPITE THE FACTS AND ISSUES BEING ID ENTICAL. 4. THAT THE LD. CIT-III HAS FURTHER ERRED IN CONCLU DING THAT THE A.O. WHILE FRAMING THE ASSESSMENT U/S 143 (3) HAS NOT ASKED FOR THE DETAILS REGARDING DEPRECIATION AND FAILED TO INVESTI GATE THE ISSUE. 5. THAT THE LD. CIT-III HAS FURTHER ERRED IN CONCLU DING THAT AEROPLANES AND AIRCRAFTS ARE DIFFERENT MACHINERIES. 6. ANY OTHER GROUND AT THE TIME OF HEARING. 3.1 GROUNDS OF CROSS APPEALS FOR ASSESSMENT YEAR 2007-08 RE AD AS UNDER:- ITA NO.2215/DEL/2010 1. THAT THE LEARNED CIT (A) HAS MISUNDERSTOOD THE FACTS OF THE CASE. 2. THAT THE LEARNED CIT (A) HAS ERRED IN INTERPRETING TH E LAW AND CONFIRMED THE DISALLOWANCE OF RS.1,75,009.00 U/S 14A IGNORING THE FACTS, CIRCUMSTANCES AND EVIDENCE ON RECORDS. 3. THAT THE LEARNED CIT (A) HAS FURTHER ERRED IN DIREC TING THE A.O. TO ALLOW THE PAYMENT OF COMMISSION TO DIRECTORS AS PER LAST YEAR BY IGNORING THE FACTS OF THE CASE AND BUSINESS NE CESSITIES. 4. ANY OTHER GROUND AT THE TIME OF HEARING. ITA NO.3824/DEL/2010 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW A S WELL AS ON MERITS IN ALLOWING THE DISALLOWANCE OF RS.14,40,228/- MADE BY THE A.O. U/S 40A(3) OF THE IT ACT. ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 3 2. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. ALL THESE APPEALS WERE ARGUED TOGETHER BY BOTH THE PARTIES. HENCE, FOR THE SAKE OF CONVENIENCE, ALL THESE APPEALS ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. ITA NOS.1557 & 1558/DEL/2010 . 5. LD. CIT HAS INVOKED HIS POWERS U/S 263 IN THE CASE OF THE ASSESSEE ON THE GROUND THAT DEPRECIATION @ 40% HAS BEEN CLAIMED BY THE ASSESSEE ON THE BEECHCRAFT SUPER KING AIR B-200C AIRCRAFT OWNED BY IT AND GRANT OF DEPRECIATION @ 40% IN PLACE OF E LIGIBLE DEPRECIATION @ 20% TANTAMOUNT TO AN ERROR ON THE PART OF THE ASSESSI NG OFFICER. THE REASON GIVEN BY LD. CIT FOR HOLDING SO IS THAT THE ASSESSING OFFICER HAD NOT INVESTIGATED THIS ISSUE AND HAD NOT MADE ANY IN QUIRIES IN THIS REGARD. HE ALSO DID NOT ASK THE ASSESSEE TO JUSTIFY ITS CLA IM REGARDING DEPRECIATION ON AIRCRAFT AND THE ABSENCE OF ANY SUCH MATERIAL ON RECORD WILL MEAN THAT THE ASSESSING OFFICER HAS FAILED T O INVESTIGATE THE ISSUE WHICH DOES NOT MEAN THAT THE ASSESSING OFFICER HAS NO T VERIFIED THE ISSUE PROPERLY OR IS ALLOWING THE ISSUE IN A DIFFERE NT MANNER, BUT IT IS A CASE WHERE NO INVESTIGATION AT ALL HAS BEEN MADE. IT IS ALSO THE CASE OF LD. CIT THAT IT CANNOT BE THE CASE OF DIFFER ENCE OF OPINION AS THE DEPRECIATION HAS TO BE PROVIDED TO THE ASSET IN AC CORDANCE WITH THE RATES PRESCRIBED IN APPENDIX-I OF INCOME-TAX RULES, 19 62 AND SINCE THE DEPRECIATION HAS BEEN ALLOWED AT HIGHER RATE, THE OR DER PASSED BY THE ASSESSING OFFICER WILL BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. LD. CIT HAS FURTHER OBSERVED THAT TH E WORDS AIRCRAFT AND AEROPLANE ARE NOT DEFINED IN THE INCOME-TAX ACT AND THESE ARE NOT EVEN DEFINED UNDER INCOME-TAX RULES AND TO UNDER STAND THE MATTER IN A BETTER PERSPECTIVE, ONE HAS TO SEE THE GENERAL ME ANING AND GENERAL UNDERSTANDING OF THESE TERMS. TAKING RECOURSE TO THE ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 4 DEFINITION GIVEN ON INTERNET SITE GOOGLE OF AIRCR AFT, LD. CIT OBSERVED THAT IT IS: (I) A VEHICLE THAT CAN FLY; (II) AN AIRC RAFT IS A VEHICLE WHICH IS ABLE TO FLY BY BEING SUPPORTED BY THE AIR. REFERRIN G TO THE DEFINITION OF AEROPLANE GIVEN ON THAT SITE, IT IS DEFINED AS: (I) AN AIRCRAFT THAT HAS A FIXED WINGS AND IS POWERED BY PROPELLERS OR JETS; (II) A FIXED WINGS AIRCRAFT USUALLY CALLED AN AEROPLANE OR AIRPLANE, IS A HEAVIER-THAN- AIRCRAFT CAPABLE OF FLIGHT; (III) A POWERED HEAVIER THAN AIRCRAFT WITH FIXED WINGS. HE FURTHER OBSERVED THAT THE WORD AIRCRAFT GIVES AN IMPRESSION OF A THING THAT CAN TRAVEL IN THE AIR WHICH CAN BE A BALLOON, GLIDER, HELICOPTER OR EVEN A PAPER MADE TOY WHICH COVERS A L ITTLE DISTANCE WHEN THROWN INTO THE AIR. THE AEROPLANE IS A MACH INE, MUCH BIGGER, HEAVIER AND POWERFUL THAT AIRCRAFT WHICH TRAVELS IN THE AIR MORE THAN AN AIRCRAFT. THUS, THOUGH AN AEROPLANE CAN BE CALLED A N AIRCRAFT, BUT EVERY AIRCRAFT CANNOT BE CALLED AN AEROPLANE. HE OBSERV ED THAT AIRCRAFT OWNED BY THE ASSESSEE CANNOT BE AN AEROPLANE SINCE IT IS MUCH SMALLER, LIGHTER AND LESS POWERFUL THAN AN AEROPLANE. 6. LD. CIT ALSO REFERRED TO THE APPENDIX-I OF INCOME -TAX RULES, 1962 WHICH ARE APPLICABLE FOR ASSESSMENT YEARS 1984-85 TO 198 7-88 WHICH DESCRIBE THE TERM AEROPLANE-AIRCRAFTS AND WHICH ARE INCLUDED IN THE BLOCK OF MACHINERY AND PLANT BEING ELIGIBLE FOR D EPRECIATION @ 30%. AT THE SAME TIME, IT ALSO PROVIDES DEPRECIATION FOR A EROPLANES- AEROENGINES UNDER THE SAME BLOCK OF ASSETS, NAMELY, PL ANT AND MACHINERY AND THESE ARE ELIGIBLE FOR DEPRECIATION @ 40%. TAKING RECOURSE TO SUCH SEGREGATION, LD. CIT HAS OBSERVED THAT THE INTENTION OF THE LEGISLATURE IS TO DIFFERENTIATE BETWEEN AIRCRAFT AND AEROPLANE AND AS OLD APPENDIX-I HAS DIFFERENTIATED BETWEEN THE AEROPLANE- AEROENGINES AND AEROPLANE-AIRCRAFT AND DIFFERENT RATES OF DEPRECIATION HAVE BEEN PRESCRIBED, THEREFORE, THE CO NTENTION OF THE ASSESSEE CANNOT BE ACCEPTED THAT THE AIRCRAFT OWNED BY THE ASSESSEE IS AN AEROPLANE, HENCE, ELIGIBLE FOR HIGHER DEPREC IATION. ACCORDING TO ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 5 LD. CIT, THESE TWO TERMS HAVE DIFFERENT MEANINGS AND A RE ELIGIBLE FOR DIFFERENT RATES OF DEPRECIATION. TO SUPPORT THIS PROP OSITION LD. CIT HAS REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. KIRLOSKER OIL ENGINES 230 ITR 88 (BOM) AND REF ERRING TO THE OBSERVATIONS THEREIN LD. CIT HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON AIRCRAFT @ 25% WHICH IS APPLICABLE T O MACHINERY AND PLANT AND GRANT OF DEPRECIATION @ 40% MADE THE ORD ER OF THE ASSESSING OFFICER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HE SET ASIDE THE ASSESSMENT ORDER FOR THIS REASON AND HAS DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIA TION ON AIRCRAFT @ 25%. IN THIS MANNER, LD. CIT HAS PASSED ORDER U/S 263 WHICH IS SUBJECT MATTER OF APPEAL BEFORE US. 7. FIRSTLY, IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER HAD MADE INQUIRIES DURING THE ORIGINAL ASSESSMENT PROCEE DINGS AND UPON INQUIRY ON THE ISSUE HE HAS ALLOWED THE DEPRECIAT ION TO THE ASSESSEE @ 40%, THEREFORE, IT IS THE CASE OF THE ASSESSEE THA T POWERS U/S 263 COULD NOT BE VALIDLY INVOKED AS THE ISSUE WAS DE LIBERATED UPON BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL A SSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HAD FORMED AN OPIN ION AND HAS GRANTED DEPRECIATION @ 40%. SUCH OPINION OF THE ASSE SSING OFFICER CANNOT BE SAID TO BE A WRONG OPINION. THE OPINION A DOPTED BY THE ASSESSING OFFICER WAS ONE PERMISSIBLE IN LAW, HENCE, THE P OWERS U/S 263 COULD NOT BE INVOKED AS THE SAME WILL BE BASED ON MERE CHANGE OF OPINION. SECONDLY, IT IS THE CASE OF THE ASSESSEE THAT T HE DEPARTMENT IN SO MANY OTHER CASES, EVEN PRESENTLY, IS ALLOWING DEPR ECIATION TO THE AIRCRAFTS (SIMILAR TO THE AIRCRAFT OWNED BY THE ASSESSEE) @ 40% BY TREATING THEM AEROPLANE-AEROENGINES. THEREFORE, O N MERITS ALSO, THE OPINION FORMED BY THE LD. CIT IS NOT TENABLE. FOR T HIS PURPOSE, THE LEARNED AR OF THE ASSESSEE HAS PLACED BEFORE US THE INFOR MATION OBTAINED FROM THE DEPARTMENT IN RESPECT OF VARIOUS ASSE SSEES IN WHICH ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 6 IT HAS BEEN CLEARLY STATED THAT THE AIRCRAFTS OWNED BY THE RESPECTIVE ASSESSEES HAVE BEEN GRANTED DEPRECIATION @ 40%. FOR THE SAKE OF CONVENIENCE THE DETAILS OF SUCH INFORMATION OBTAINED BY THE ASSESSEE FROM THE INCOME-TAX DEPARTMENT IN RESPECT OF VARIOUS ASSESSEES ARE GIVEN BELOW:- SL. NO. LETTER DATED NAME OF THE ASSESSEE ASSESSMENT YEAR/S INFORMATION GIVEN BY 1. 22 ND JULY, 10 JINDAL STEEL & POWER LTD. 2005-06 & 2006-07 DY. COMMISSIONER, INCOME-TAX, HISAR. 2. 4 TH JUNE, 2010 ALCHEMIST AIRWAYS PVT. LTD. NIL ACIT, CIR.1(1), CHANDIGARH. 3. 3 RD JUNE, 2010 M/S UNIVERSAL AIRWAYS PVT. LTD. NIL ITO, WARD 18(1), NEW DELHI. 4. 4 TH JUNE, 2010 SKB INFRACTIONS PVT. LTD. NIL ITO, WARD 8(4), NEW DELHI. 5 5 TH FEB., 2010 AIR INDIA NIL ACIT, CIRCLE 2, MUMBAI. 8. TO FURTHER SUPPORT THE CONTENTION THAT DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD I NQUIRED THIS POINT. THE ASSESSEE HAD PLACED ON RECORD A COPY OF LETTER DATED 1 ST OCTOBER, 2007 IN WHICH THE ASSESSEE HAD GIVEN THE EXPLA NATION TO THE ASSESSING OFFICER REGARDING DEPRECIATION BEING ELIGIBLE @ 40% IN PLACE OF 25%. WHEN SUCH COPY OF LETTER WAS PLACED BEFORE U S, THE SAME WAS GIVEN TO THE LEARNED DR TO TAKE THE COMMENTS OF ASSESSIN G OFFICER AS IN THE ASSESSMENT ORDER IT WAS NOT POINTED OUT THAT WHET HER OR NOT SUCH LETTER WAS FILED BY THE ASSESSEE. DURING THE COURSE OF HEARING THE LEARNED DR HAS PLACED BEFORE US COPY OF CORRESPONDENCE RECEIVED FROM THE CONCERNED ASSESSING OFFICER IN WHICH THE ASSESSING OFFI CER THOUGH HAS ADMITTED THAT SUCH COPY IS FOUND ON RECORD, BUT, A T THE SAME TIME, HE HAS MENTIONED THAT THE SAME WAS NOT AS PER THE CHRON OLOGY OF THE FIXED DATES AND THE ASSESSEE WAS NEVER REQUIRED TO SUBMIT EXPLANATION REGARDING THE ALLOWABILITY OR OTHERWISE OF DEPRECIAT ION @ 40%. THE LEARNED DR, RELYING UPON THE SAID OBSERVATIONS OF THE ASSESSING OFFICER, PLEADED THAT IT IS NOT CERTAIN THAT WHETHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO SUBMIT SUCH ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 7 DETAILS. THEREFORE, RELYING UPON THE OBSERVATIONS OF THE LD. CIT IN HIS ORDER THAT THIS ISSUE WAS NOT INVESTIGATED BY THE ASSESSING OFFICER, THE LEARNED DR SUBMITTED THAT THE ASSESSING OFFICER HAD MADE NO INQUIRIES DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE REFORE, THIS ISSUE WAS NOT DELIBERATED UPON BY THE ASSESSING OFFICER. 9. IT IS ALSO THE CASE OF THE ASSESSEE THAT THOUGH THERE M AY BE A DIFFERENCE BETWEEN THE TERMINOLOGY AEROPLANE AND AIRCRAFT, IN RESPECT OF DEPRECIATION BEING ELIGIBLE UNDER INCOME- TAX RULES, BUT THAT DIFFERENCE HAS BEEN OMITTED IN RESPECT OF ASSESSMENT YEAR S FALLING AFTER ASSESSMENT YEARS 1987-88. IT IS THE CASE OF THE ASSESSE E THAT BOTH THESE TERMS HAVE NOT BEEN DEFINED EITHER IN INCO ME-TAX ACT OR IN INCOME-TAX RULES, 1962 AND THIS BEING SO, THE GENERAL DEFINITIONS OF THESE ITEMS HAVE TO BE TAKEN INTO CONSIDERATION. IN T HE PAPER BOOK, EXTRACT FROM DICTIONARY HAVE BEEN FILED ACCORDING T O WHICH AIRCRAFT HAS BEEN DEFINED AS AN AIR PLANE, AIRSHIP, HELICOPTER OR BALLOON; ANY MACHINE FOR FLYING IN THE AIR THAT IS SUPPORTED IN FL IGHT BY BUOYANCY (SUCH AS BALLOON), OR BY THE ACTION OF AIR (SUCH AS AIR PLANE), OR BY REACTION TO ONE OR MORE JET STREAMS (SUCH AS A ROCKET); (II) SUCH MACHINES COLLECTIVELY OR AS A CLASS; AIRPLANES, AIRSHIPS, HELICOPTERS OR BALLOONS. THE AIRPLANE HAS BEEN DEFINED AS FLYING MA CHINE THAT HAS ONE OR MORE PLAINS OR WINGS AND IS DRIVEN BY ONE OR MO RE PROPELLERS OR JET ENGINES OR A ROCKET ENGINE. AN AIRPLANE IS AN A IRCRAFT HEAVIER THAN AIR, SUPPORTED IN FLIGHT BY THE ACTION OF THE AIR FL OWING PAST OR THRUSTING UPWARD ON ITS FIXED WINGS. RELYING ON THESE DEFINITIO NS, IT IS THE CASE OF THE ASSESSEE THAT THE AIRCRAFTS OWNED BY THE ASSESSEE HAVING QUALITIES OF AEROPLANE IS ACTUALLY AEROPLANE AND, THEREFORE, E LIGIBLE FOR DEPRECIATION @ 40%. THE LEARNED AR OF THE ASSESSEE HAS ALSO PLACED BEFORE US THE LITERATURE SHOWING THE PICTURES AND SPECI FICATIONS OF THE AIRCRAFT OWNED BY THE ASSESSEE TO SHOW THAT THE AIRCRAFT OWNED BY THE ASSESSEE HAS FIXED WINGS AND IT WAS INFORMED THAT THE AIR CRAFT OWNED ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 8 BY THE ASSESSEE IS A NINE-SEATER. THEREFORE, IT IS THE CA SE OF THE LEARNED AR OF THE ASSESSEE OTHERWISE IS ELIGIBLE FOR DEPR ECIATION @ 40% AND POWERS U/S 263 HAVE WRONGLY BEEN EXERCISED BY LD. CIT. THE ORDER PASSED BY HIM U/S 263 SHOULD BE QUASHED. 10. ON THE OTHER HAND, RELYING UPON THE FINDINGS REC ORDED BY LD. CIT, WHICH HAVE BEEN DESCRIBED IN THE ABOVE PART OF THIS O RDER, IT IS THE CASE OF THE LEARNED DR THAT POWERS U/S 263 HAVE RIGHTL Y BEEN EXERCISED BY LD. CIT AND HIS ORDER SHOULD BE UPHELD. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. LD. CIT WHILE INVOK ING THE POWER U/S 263 HAS MAINLY RELIED UPON THE EARLIER DESCRIPTION OF DEPRECIATION RATE WHICH WAS APPLICABLE FOR ASSESSMENT YEARS 1984-85 TO 1987 -88 IN WHICH THE AEROPLANE AS AIRCRAFT AND AEROPLANE AS AERO -ENGINES WERE TREATED DIFFERENTLY FOR THE PURPOSE OF COMPUTING DEP RECIATION. FROM SUCH DESCRIPTION OF DIFFERENT RATES OF DEPRECIATION, I T IS THE CASE OF LD. CIT THAT AIRCRAFT OWNED BY THE ASSESSEE CANNOT BE TERME D TO BE AEROPLANE WHICH ONLY IS ENTITLED FOR HIGHER DEPRECIA TION UNDER THE RATES OF DEPRECIATION APPLICABLE FOR THE YEARS UNDER CONSID ERATION AS DESCRIBED IN APPENDIX-I. FOR THIS PURPOSE, LD. CIT HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KIRLOSKER OIL ENGINES (SUPRA). IN OUR OPINION, SUCH RE LIANCE BY THE CIT ON THE DECISION OF HONBLE BOMBAY HIGH COURT IS MISPLA CED AS IN THAT CASE THE ASSESSEE WAS OWNER OF THE AIRCRAFT AND IT CLAIME D DEPRECIATION @ 40%. THE APPENDIX-I AS APPLICABLE FO R THE RELEVANT ASSESSMENT YEARS IN THE CASE OF THAT ASSESSEE HAD DESCRIBED DEPRECIATION IN RESPECT OF AEROPLANES UNDER ITEM D(1) AND E(1) WHICH READ AS UNDER:- D(1) AEROPLANES AIRCRAFT, AERIAL PHOTOGRAPHIC APPA RATUS (NESA). E(1) AEROPLANES AERO ENGINES (NESA). ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 9 12. UNDER D(1) THE RATE OF DEPRECIATION WAS DESCRIBED AS 30% AND UNDER E(1) IT WAS DESCRIBED AS 40%. REFERRING TO THE ABOVE MENTIONED RATES, IT WAS OBSERVED BY THE HONBLE BOMBAY HIGH COUR T THAT THE AFOREMENTIONED TWO ITEMS ARE QUITE DIFFERENT AND DIST INCT. THAT BOTH THE ITEMS ARE GIVEN UNDER THE HEADING AEROPLANES. I TEM D(1) DESCRIBE THE RATES OF DEPRECIATION ON AIRCRAFT AND AERIAL PH OTOGRAPHIC APPARATUS, WHEREAS THE ITEM E(1) DESCRIBE THE RATE OF DEPRECIATION OF AERO ENGINES. AS THE ASSESSEE WAS ADMITTEDLY CLAIMING DEP RECIATION ON AIRCRAFT, IT WAS HELD THAT IT WILL FALL UNDER ITE M D(1) WHICH HAVE SPECIFIC ONE AND, THEREFORE, THE ASSESSEE WILL BE ENTITL ED FOR DEPRECIATION @ 30% AND THE DEPRECIATION @ 40% IS APP LICABLE ONLY ON AERO-ENGINES AND THE AERO ENGINES IS NOT COVERED UNDER AIRCRAFTS. BUT THE POSITION UNDER THE APPENDIX-I WHICH IS APPLICABLE IN THE CASE OF THE ASSESSEE IS DIFFERENT. IN THE PRESENT CASE, THERE IS NO SUC H CLASSIFICATION UNDER THE HEAD AEROPLANES AS IT WAS APP LICABLE IN THE CASE OF THE CIT VS. KIRLOSKER OIL ENGINES (SUPRA). DURI NG THE YEAR UNDER CONSIDERATION, ONLY ONE DESCRIPTION IS THERE WHICH IS I N ITEM 3 WHICH READ AS UNDER:- AEROPLANE-AEROENGINES 13. NO OTHER SEPARATE HEAD HAS BEEN GIVEN FOR CLAIMIN G OF DEPRECIATION UNDER THE HEAD AEROPLANES WHICH WAS DI STINCTIVELY DESCRIBED IN THE OLD APPENDIX AS APPLICABLE IN THE CA SE OF THE CIT VS. KIRLOSKER OIL ENGINES (SUPRA). 14. FROM THE ABOVE POSITION, IT WILL BE CLEAR THAT I N A CASE WHERE THE WORD AEROPLANE AS DESCRIBED IN APPENDIX-I IS ONLY ON E AND AEROPLANES CONSISTED OF AIRCRAFTS HAVING SPECIFIC SPECIFICATIONS, TH EN, IT CANNOT BE SAID THAT AEROPLANE OR SPECIES THEREOF WILL FALL UNDER THE GENERAL HEAD, NAMELY, MACHINERY AND PLANT WHICH HAS DESCRIBED THE RATE OF DEPRECIATION OF 25% FOR ASSESSMENT YEAR 2005-06 AND 15% FOR ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 10 ASSESSMENT YEAR 2006-07. IT MAY BE MENTIONED HERE THAT ITEM 3 UNDER THE HEAD MACHINERY AND PLANT OF APPENDIX-I READ A S UNDER:- MACHINERY AND PLANT OTHER THAN THOSE COVERED BY SUB-ITE MS (II), (III) AND (VIII) BELOW. 15. THEREFORE, THE GENERAL RATE AS DESCRIBED IN THE R ELEVANT APPENDIX-I CREATE EXCEPTIONS ABOUT THE ITEMS DESCRIBED UNDER ITEMS (II), (III) AND (VIII). ITEM (III) DESCRIBE AEROPL ANES-AEROENGINES. THUS, IT WILL MEAN THAT ANY AEROPLANES OWNED BY THE ASSESSEE WILL BE ELIGIBLE FOR DEPRECIATION @ 40% AS APPLICABLE TO THE RELEVANT ASSESSMENT YEARS. IF THE VESSEL OWNED BY THE ASSESSEE FALLS UNDER THE BROAD HEAD AEROPLANE, THEN, IT WILL BE ELIGIBLE FOR DEPRECIA TION @ 40%. FOR THAT PURPOSE, WE HAVE TO ANALYSE WHETHER THE AIRCRAFT OWNE D BY THE ASSESSEE FALLS UNDER THE HEAD AEROPLANE AND SIMPLY IF I T FALLS WITHIN THE SPECIES OF AEROPLANE AND IT IS AN AIRCRAFT WHETH ER IT CAN BE CONSIDERED FOR DEPRECIATION UNDER THE HEAD MACHINER Y AND PLANT. IT HAS BEEN HELD BY HONBLE BOMBAY HIGH COURT IN THE AF OREMENTIONED CASE THAT NO AIRCRAFT CAN EVER BE TERMED AS AERO-ENG INES BECAUSE AERO-ENGINE IS NOT AN AIRCRAFT OR AEROPLANE AT ALL. IT IS ONLY A POWER UNIT OF AIRCRAFT AND THIS IS CLEAR FROM THE FOLLOWING OBSER VATIONS OF THEIR LORDSHIPS IN THE SAID DECISION:- IN CHAMBERS SCIENCE AND TECHNOLOGY DICTIONARY, THE WORD AIRCRAFT HAS BEEN DESCRIBED ONLY AS A MECHAN ICALLY DRIVEN HEAVIER-THAN-AIR FLYING MACHINE WITH WINGS OF FIXED OR VARIABLE SWEEP ANGLE. IT HAS NOT BEEN DESCRIBED TO MEAN GLIDERS, BALLOONS AND OTHER FLYING MACHINES. SIMILA RLY, IN THE DEFINITION OF AIRCRAFT IN THE AIRCRAFT ACT, 1934, BAL LOONS, AIRSHIPS, KITES, GLIDERS AND FLYING MACHINES HAVE B EEN ADDED BY SPECIFIC INCLUSION. IT IS, THEREFORE, NOT CORRECT TO SAY THAT AIRCRAFT WHICH ARE HEAVIER-THAN-AIR ARE NOT AIRCRAFTS BUT ARE AERO- ENGINES. ALL AIRCRAFTS WHETHER LIGHTER-THAN-AIR OR HE AVIER-THAN- AIR, ARE AIRCRAFTS. NO AIRCRAFT CAN EVER BE TERMED AS AN AERO- ENGINE BECAUSE AN AERO-ENGINE IS NOT AN AIRCRAFT O R AEROPLANE AT ALL. IT IS ONLY THE POWER UNIT OF AN AIRCRAFT. IT IS THUS CLEAR FROM THE ABOVE DISCUSSION THAT AIRCRAFT DOES NOT MEAN ONLY CRAFTS ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 11 LIKE BALLOONS, AIRSHIPS, HELICOPTERS BUT ALSO MEANS A IRCRAFTS HEAVIER-THAN-AIR. 16. IF IT IS SO, THEN, THE DESCRIPTION OF DEPRECIATION RATE @ 40% UNDER THE HEAD AEROPLANE-AERO-ENGINES CANNOT BE UNDERSTOO D TO BE DEPRECIATION RATE PRESCRIBED ONLY FOR AERO-ENGINES AS THAT WILL NEVER FALL WITHIN THE CATEGORY OF AEROPLANE AS AERO-ENGI NES IS ONLY A POWER UNIT OF AN AIRCRAFT. THEREFORE, NO ANALOGY CAN BE DRAWN FROM THE OLD APPENDIX TO HOLD THAT AIRCRAFT CANNOT BE GRANTED DE PRECIATION UNDER THE HEAD AEROPLANE AS THE TERM AEROPLANE DOES NOT DESCRIBE THE AIRCRAFT THEREIN. THE DEFINITION OF AIRCRAFT HAS ALREADY BEEN GIVEN IN THE ABOVE PART OF THIS ORDER. APART FROM THAT, AIRC RAFT ACT, 1934 DESCRIBE THE AIRCRAFT AS UNDER:- AIRCRAFT MEANS ANY MACHINE WHICH CAN DERIVE SUPPOR T IN THE ATMOSPHERE FROM REACTIONS OF THE AIR (OTHER THAN REACTION S OF THE AIR AGAINST THE EARTHS SURFACE) AND INCLUDES BALLOONS , WHETHER FIXED OR FREE, AIRSHIPS, KITES, GLIDERS AND FLYING M ACHINES. 16.1. FURTHER, ENCYCLOPEDIA BRITANNICA (MACROPAEDIA ) VOL. I DESCRIBE THE AIRCRAFT IN BROAD TWO CATEGORIES WHICH ARE DEF INED AS UNDER:- ALL AIRCRAFT FALL INTO TWO GENERAL CATEGORIES LIGHTE R-THAN- AIR OR HEAVIER-THAN-AIR. SEVERAL DISTINCT TYPES ARE RE COGNIZED WITHIN EACH GROUP. EACH MAY PERFORM A VARIETY OF MIS SIONS CALLING FOR MODIFICATIONS FOR SPECIAL USAGE. LIGHTER-THAN-AIR CRAFT RISE AND FLOAT BECAUSE THEY DISPL ACE A VOLUME OF AIR THE WEIGHT OF WHICH IS EQUAL TO OR GRE ATER THAN THE TOTAL WEIGHT OF THE AIRCRAFT. SUCH AIRCRAFT INCLUDE B ALLOONS AND AIRSHIPS. HEAVIER-THAN-AIR CRAFT DERIVE THEIR FLIGHT CAPABILITY (L IFT) FROM THE DYNAMIC REACTION OF AIR FLOWING AROUND SUITAB LY SHAPED SURFACES (WINGS OR AIRFOILS). SUCH CRAFT INCLUDE GL IDERS AND SAILPLANES, CONVENTIONAL AIRPLANES, SHORT TAKEOFF AND LANDING (STOL) AIRPLANES, AND VERTICAL TAKEOFF AND LANDING (V TOL) AIRCRAFT. ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 12 16.2. THE INTERNATIONAL CIVIL AVIATION ORGANISAT ION (ICAO) IN ITS AVIATION GLOSSARY TERMS & DEFINITIONS HAS DEFINED AIRCR AFT AND AEROPLANE AS UNDER:- AIRCRAFT AN AIRCRAFT IS ANY MACHINE THAT CAN DERIVE SUPPORT IN THE ATMOSPHERE FROM THE REACTIONS OF THE AIR OTHER THAN THE RE ACTIONS OF THE AIR AGAINST THE EARTHS SURFACE (ICAO ANNEX.1, ANNE X 6 PART I). AEROPLANE A POWER DRIVEN HEAVIER THAN AIR AIRCRAFT, DERIVING ITS LIFT IN FLIGHT CHIEFLY FROM AERODYNAMIC REACTIONS ON SURFACES WHICH REMAIN FIXED UNDER GIVEN CONDITIONS OF FLIGHT (ICAO ANNEX I, ANNEX 6). 17. A COMBINED READING OF ALL THESE DEFINITIONS WILL BE THAT AEROPLANE IN COMPARISON TO AIRCRAFT HAS A FIXED WINGS AND IS POWE RED BY PROPELLERS OR JETS. THOUGH BOTH THE DEFINITIONS HAVE BEEN GIVEN BY THE LD. CIT IN HIS ORDER, BUT HE HAS IGNORED THE SUBMISSION OF THE ASSESSEE THAT AIRCRAFT OWNED BY IT HAS FIXED WINGS AND IS POWER ED BY PROPELLERS OR JETS ON THE GROUND THAT IT SHOULD BE HEAVIER THAN THE AIRCRAFT. WE FIND NO JUSTIFICATION IN SUCH OBSERVATIONS OF LD. CIT T HAT THE AIRCRAFT OF THE ASSESSEE SHOULD NOT BE DESCRIBED AS AEROPLANE SIMPLY FOR THE REASON THAT AEROPLANE IS A MACHINE MUCH BIGGER, HEA VIER AND POWERFUL THAN AN AIRCRAFT WHICH TRAVELS IN THE AIR M ORE THAN AN AIRCRAFT. THOUGH TECHNICAL DETAILS HAVE NOT BEEN FURNISHED BEFO RE US, BUT, IT IS CLEAR FROM THE PICTURE SUBMITTED TO US THAT THE AIRCR AFT OWNED BY THE ASSESSEE HAS FIXED WINGS AND HAS THE CHARACTERISTICS OF THE AEROPLANE THOUGH IT MAY BE OF A SMALLER CAPACITY WHICH IS ABLE TO FLY ONLY NINE PASSENGERS ON BOARD. BUT, FOR THAT REASON THE AIRCRAFT OWNED BY THE ASSESSEE CANNOT BE THROWN OUT OF THE CATEGORY OF AEROP LANE AND THE AIRCRAFT OWNED BY THE ASSESSEE CANNOT BE CONSIDERED ONLY AS PLANT AND MACHINERY WHICH IS A TERM DISTINCT TO SUCH TYPE OF AI RCRAFT. 18. FURTHER, IT HAS BEEN DEMONSTRATED BY THE LEARNED AR OF THE ASSESSEE THAT IN MANY CASES THE DEPARTMENT IS CONSIDERING SU CH AIRCRAFT AS AEROPLANE AND GRANTING DEPRECIATION T O THE RESPECTIVE ASSESSEES @ 40% AND SUCH CONTENTION OF THE ASSESSEE IS BASED ON THE ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 13 INFORMATION GIVEN BY THE DEPARTMENT ITSELF. THE DEP ARTMENT HAS NOT BEEN ABLE TO BRING ON RECORD ANY OF THE CASES WHEREIN SUCH AIRCRAFT HAS BEEN CONSIDERED BY THEM ELIGIBLE FOR DEPRECIATION UN DER THE HEAD MACHINERY AND PLANT. NOT GOING INTO THE CONTROVE RSY WHETHER OR NOT THE ISSUE REGARDING THE CLAIM OF DEPRECIATION WAS DELI BERATED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAD GRANTED THE DEPRECIATION TO THE ASSESSEE @ 40% IN ACCORDANCE WITH THE PROVISIONS OF THE R ULE, THEREFORE, SUCH GRANT OF DEPRECIATION CANNOT BE CONSI DERED TO BE A CLAIM NOT SUPPORTED BY LAW, AS THE DEPARTMENT CANNOT STRAIGHTAWAY SHOW THAT SUCH CLAIM OF DEPRECIATION WAS NOT IN ACCORD ANCE WITH THE LAW AND, IN SUCH, CIRCUMSTANCES, THE POWERS U/S 263 COUL D NOT BE INVOKED. 19. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPI NION THAT POWERS U/S 263 HAVE BEEN WRONGLY EXERCISED BY THE LD. CIT TO HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON ITS AIRCRAFT @ 25% IN PLACE OF 40% CLAIMED BY IT. THEREFORE, WE SET ASIDE THE OR DER PASSED BY THE LD. CIT FOR BOTH THE YEARS AND ALLOW THE APPEALS FILE D BY THE ASSESSEE. ITA NO.2215/DEL/2010 20. THE EFFECTIVE GROUNDS IN THIS APPEAL ARE GROUND N OS.2 AND 3. 21. APROPOS GROUND NO.2, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD DECLARED EXEMPTED INCOME OF ` 14,75,20 1/- WHICH WAS IN THE SHAPE OF DIVIDEND INCOME FROM INDIAN COMPA NIES. HE FOUND THAT NO EXPENSES WERE ALLOCATED TOWARDS THE SAID EXEMPT ED INCOME AND HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLO WANCE SHOULD NOT BE MADE U/S 14A OF THE INCOME-TAX ACT, 1961. AF TER CALLING FOR SUCH EXPLANATION FROM THE ASSESSEE AND RELYING UPON THE DECISION OF SPECIAL BENCH IN THE CASE OF ITO VS. DAGA CAPITAL MAN AGEMENT LTD. 117 ITD 169 AND ALSO THE DECISION OF DELHI ITAT IN TH E CASE OF ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 14 CHEMINVEST LTD. VS. ITO (2009) 121 ITD 318 (DEL) (SB) MADE DISALLOWANCE U/S 14A BY COMPUTING THE SAME UNDER RULE 8D OF IT RULES AT AN AMOUNT OF ` 1,75,009/- THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LD. CIT (A) FOLLOWING THE AFOREMENTIONED DECISION OF THE SPECIAL BENCH. 22. IT HAS BEEN THE CASE OF THE LEARNED AR THAT NO PA RT OF THE EXPENDITURE WERE ATTRIBUTABLE TO THE EXEMPTED INCOM E, HENCE, DISALLOWANCE WAS NOT CALLED FOR. IT IS ALSO THE CASE OF THE LEARNED AR THAT THE DISALLOWANCE HAS BEEN CALCULATED AS PER RULE 8D WHICH IS INAPPLICABLE FOR THE YEAR UNDER CONSIDERATION AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BO YCE MFG. PVT. LTD. VS. DCIT 234 CTR 1 (BOM). AS AGAINST THAT IT IS T HE CASE OF THE LEARNED DR THAT THE DISALLOWANCE HAS RIGHTLY BEEN CAL CULATED UNDER RULE 8D AND LD. CIT (A) HAS ALSO RIGHTLY UPHELD THE D ISALLOWANCE. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER OF LEARNED CIT (A). IT IS SEEN THAT WHILE COMPUTING THE DISALLOWANCE, THE ASSESSING OFF ICER HAS CALCULATED THE SAME AS PER RULE 8D. THE RULE 8D HAS B EEN HELD TO BE INAPPLICABLE PRIOR TO ASSESSMENT YEAR 2008-09. THE IMP UGNED ASSESSMENT YEAR IS 2007-08. THE LEARNED CIT (A) ALSO HAS U PHELD THE DISALLOWANCE ONLY ON THE BASIS OF RULE 8D WHICH HAS BEE N HELD APPLICABLE RETROSPECTIVELY BY THE AFOREMENTIONED DEC ISION OF THE SPECIAL BENCH. THE AFOREMENTIONED DECISION OF THE S PECIAL BENCH HAS BEEN OVER-RULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THEREFORE, T HE VERY BASIS ON WHICH THE DISALLOWANCE HAS BEEN MADE DOES NOT EXIST. H OWEVER, IT IS SEEN THAT THOUGH RULE 8D IS NOT APPLICABLE, BUT THE A SSESSING OFFICER IS DUTY BOUND TO MAKE THE DISALLOWANCE UNDER SECTION 14 A AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AS OBSERVED BY ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 15 HONBLE BOMBAY HIGH COURT IN THE AFOREMENTIONED CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONSIDER IT JUST AND PROPE R TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE ISSUE RAISED IN THE PRESENT APPEAL DENOVO AS PER THE PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THEREFORE , WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO RECONSIDER A ND RE- ADJUDICATE THE SAME AFTER GIVING THE ASSESSEE A REASONABL E OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. 24. APROPOS GROUND NO.3, THE FACTS AS NOTED BY THE ASSESSI NG OFFICER ARE THAT THE ASSESSEE DURING THE YEAR HAD PAID EXCESSIVE REMUNERATION, BONUS AND COMMISSION TO THE DIRECTORS WHI CH WAS REPRESENTING UNPRECEDENTED INCREASE IN PERCENTAGE OF 1460% AS COMPARED TO THE IMMEDIATE PRECEDING YEAR AND AS COMP ARED TO THE PERCENTAGE OF INCREASE IN THE RECEIPTS. THE ASSESSING OF FICER HAS WORKED OUT SUCH CALCULATION IN THE SHAPE OF CHARTS IN THE ASSESSMENT ORDER WHICH, FOR THE SAKE OF CONVENIENCE, ARE REPROD UCED BELOW:- RECEIPTS A.Y. 04-05 A.Y. 05-06 A.Y. 06-07 A.Y. 07-0 8 %AGE INCREASE OVER LAST YEAR PROFESSIONAL RECEIPTS 3,72,60,962/- 5,42,06,171/- 6,49,48,474/- 7,57,92,344/- AIR CHARTER RECEIPTS - 1,10,22,017 1,49,89,727/- 4,13,23,540/- TOTAL RECEIPTS 3,72,60,962/- 6,52,28,188/- 7,99,38,201/- 11,71,15,884/- 46.5% PAYMENTS A.Y.04-05 A.Y.05-06 A.Y.06-07 A.Y. 07-08 % AGE INCREASE OVER LAST YEAR DIRECTORS REMUNERATION 2,40,000/- 9,00,000/- 9,60,000/- 48,00,000/- BONUS TO DIRECTORS - - - 48,00,000/- COMMISSION TO DIRECTORS - - - 53,77,500/- TOTAL PAYMENTS 2,40,000/- 9,00,000/- 9,60,000/- 1,49,77,500/- 1460% ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 16 25. THE ASSESSEE WAS REQUIRED TO EXPLAIN AND EXPLANATION WAS FURNISHED BY THE ASSESSEE WHICH WAS NOT CONSIDERED TO BE P ROPER BY THE ASSESSING OFFICER AND HE OBSERVED THAT AS AGAINST EARL IER PAYMENT OF ` 9,60,000/-, CONSIDERING THE INCREASE IN THE PAYM ENT TO DIRECTORS OF ` 1 CRORE WILL BE APPROPRIATE. THEREFORE, ALLOWING THE CLAIM OF THE ASSESSEE AT ` 1 CRORE, BALANCE AMOUNT OF ` 49,77,500/- WAS DISALLOWED UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE LEARNED CIT (A) HAS UPHELD THE DISALLOWANCE. THE ASSESSEE IS AGGRIEVE D, HENCE, IN APPEAL. 26. IT WAS SUBMITTED BY THE LEARNED AR THAT THE DIREC TORS OF THE ASSESSEE COMPANY HAD TO DO HARD WORK AND IN THE ABSENCE OF REQUISITE PROFITS DURING THE EARLIER YEARS AND TO MAINTAIN THE FINANCIAL POSITION OF THE ASSESSEE, THE DIRECTORS WERE NOT ADEQUATELY PAID AND DURING THE YEAR UNDER CONSIDERATION, THERE BEING ADEQUATE PROFI TS THE DIRECTORS WERE REMUNERATED AND THE PAYMENTS MADE TO THE DIRECT ORS WERE NOT IN ANY WAY EXCESS IF THE SAME IS COMPARED TO THE MARKET RA TE PREVAILING AT THAT TIME. HE, THEREFORE, SUBMITTED THAT NO EXCESS PAYMENT WAS MADE BY THE ASSESSEE TO ITS DIRECTORS, HENCE, DISALLOWANCE U/S 40A(2)(B) WAS NOT CALLED FOR. THE LEARNED AR WAS REQ UIRED TO SUBMIT WHETHER OR NOT SUCH PAYMENTS TO THE DIRECTORS WAS SUPPOR TED BY RESOLUTIONS PASSED BY THE COMPANY AND WHEN THE SAID RESOL UTION WAS PASSED. THE LEARNED AR EXPRESSED HIS INABILITY TO SUBMIT THE COPY OF THE SAID RESOLUTION READILY. HOWEVER, HE SUBMITTED TH AT SUCH PAYMENTS ARE SUPPORTED BY THE RESOLUTION, THE COPY OF WHICH CA N BE SUBMITTED. HE, THEREFORE, SUBMITTED THAT THE DISALLOWANCE HAS WRO NGLY BEEN UPHELD BY THE LEARNED CIT (A) AND THE SAME SHOULD BE DELETED. 27. ON THE OTHER HAND, RELYING UPON THE ASSESSMENT ORDE R AND THE ORDER OF THE CIT (A), IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSESSEE COULD NOT SUBMIT ANY JUSTIFICATION FOR MAKING HU GE PAYMENTS ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 17 TO ITS DIRECTORS. HE SUBMITTED THAT IN EARLIER YEARS T HE ASSESSEE HAD MADE LOW PAYMENTS WHICH ARE INCREASED TO 1460% AS COMP ARED TO THE INCREASE IN THE RECEIPTS ONLY OF 46.5%. THEREFORE, HE SUBMITTED THAT THE DISALLOWANCE HAS RIGHTLY BEEN UPHELD BY THE CIT ( A) AND HIS ORDER SHOULD BE CONFIRMED. 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THOUGH IT IS THE SUBM ISSION OF THE ASSESSEE THAT THE DIRECTORS HAVE BEEN PAID COMMISSION @ 2. 3% OF THE TURNOVER (EACH DIRECTOR), BUT NO SUPPORTING EVIDENCE HAS BEEN PLACED ON RECORD BY THE ASSESSEE TO SUBSTANTIATE THAT SUCH PAYMEN T WAS SUPPORTED BY THE RESOLUTION. IT IS ALSO THE CASE OF THE ASSESSEE THAT SUCH PAYMENTS MADE BY THE ASSESSEE TO THE DIRECTORS ARE IN ACCORDANCE WITH THE MARKET RATES. HOWEVER, TO SUPPOR T SUCH CONTENTION, NO DOCUMENTARY EVIDENCE HAS BEEN PLACED ON RECORD TO SHOW THAT THE PAYMENTS MADE BY THE ASSESSEE TO ITS DIRECTO RS WERE NEITHER EXCESSIVE NOR UNREASONABLE. FOR THE APPLICABI LITY OF THE PROVISIONS OF SECTION 40A(2), THE DIRECTORS OF THE ASSESSE E FALLS WITHIN THE CATEGORY DESCRIBED IN THAT SECTION. THEREFORE, THE SECTION IS VERY MUCH APPLICABLE AND IT IS NOT THE CASE OF THE ASSESSEE TH AT SECTION 40A(2) (B) IS NOT APPLICABLE. UNDER THE PROVISIONS OF SECTION 40A(2)(A), THE ASSESSING OFFICER HAS AN AUTHORITY TO DISALLOW ANY PA RT OF EXPENDITURE WHICH IS PAID TO THE PERSONS DESCRIBED IN S ECTION 40A(2)(B) IF HE IS OF THE OPINION THAT SUCH EXPENDITU RE PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH TH E PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED OR ACCRUING TO HIM THEREFROM. THEREFORE, THERE SHOULD BE A MATERIAL ON RECORD TO SUGGEST THAT THE PAY MENTS MADE BY THE ASSESSEE TO ITS DIRECTORS WERE NEITHER EXCESSIVE NOR UN REASONABLE. THIS IS MORE REQUIRED AS THERE IS UNPRECEDENTED INCREASE IN THE ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 18 REMUNERATION PAID BY THE ASSESSEE TO ITS DIRECTORS IF THE SAME IS CONSIDERED VIS-A-VIS THE PERCENTAGE OF INCREASE IN THE RECEIPTS. THIS POSITION HAS ALREADY BEEN DESCRIBED IN THE SHAPE OF A C HARTS WHICH HAVE BEEN REPRODUCED ABOVE. THEREFORE, LOOKING INT O THE ENTIRELY OF THE FACTS, WE CONSIDER IT JUST AND PROPER TO RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION IN ACC ORDANCE WITH THE LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY O F HEARING TO PLACE RELEVANT MATERIAL ON RECORD. AFTER GIVING SUC H OPPORTUNITY, THE ASSESSING OFFICER WILL RE-ADJUDICATE THIS ISSUE. FOR STATI STICAL PURPOSES, THIS GROUND IS TREATED TO BE ALLOWED. 29. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES IN THE MANNER AFORESAID. ITA NO.3824/DEL/2010 30. THE ASSESSING OFFICER IN PARA 4.1 HAS LISTED OUT THE CASH PAYMENTS MADE BY THE ASSESSEE ON VARIOUS DATES IN RESPECT O F VARIOUS CHARGES WHICH WILL TOTAL TO ` 72,01,143/- AND WHICH ARE IN THE NATURE OF RNFC CHARGES, DUTY ON FUEL, LANDING AND PARKING EXPE NSES, AIRCRAFT BOARDING AND LODGING, AIRCRAFT HANDLING CHARGES, ETC . AGAINST THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER, FOR DISALLOWA NCE OF CASH PAYMENTS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40A(3), THE ASSESSEE SUBMITTED THAT MOSTLY THESE PAYMENTS ARE MADE TO A IRPORT AUTHORITY OF INDIA (AAI) TOWARDS ROUT NAVIGATION (RN FC), LANDING AND PARKING AND/OR DUTY ON FUEL AND THE CHARGES FOR FUEL WHICH ARE MADE OUT OF THE BUFFER WITH IOC, BUT THE DUTY WAS TO BE P AID IN CASH BEFORE THE FLIGHT COULD TAKE OFF. IT WAS SUBMITTED THAT THE RE ARE SEVERAL REASONS FOR MAKING SUCH CASH PAYMENTS AS THESE ARE THE PAY MENTS MADE IN RESPECT OF NON-SCHEDULED AIRCRAFTS OR AIRLINES WHICH, AS PER RULES OF GOVERNMENT OF INDIA, MINISTRY OF CIVIL AVIAT ION MUST BE PAID IN CASH BECAUSE BEFORE HAND THE EXACT AMOUNT OF PAYMENT CANNOT BE ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 19 KNOWN. THE AMOUNT IS DEPENDENT ON SEVERAL FACTORS SUCH AS ROUT AS PER AIR TRAFFIC CONTROL BRIEFING, THE DEVIATION THAT MA Y OCCUR DUE TO WEATHER, VIP MOVEMENT, DEFENCE SERVICE SORTIES, ETC. IT WAS SUBM ITTED THAT FLIGHT TAKE OFF AT ODD HOURS AND NO FLIGHT CAN TAKE OFF WITHOUT CLEARING THE DUES OF AAI. IT WAS ALSO CLAIMED THAT THESE PAYMEN TS ARE MADE ON BEHALF OF OPERATORS OF THE NON-SCHEDULED AIRCRAFT/AIR LINES AND ARE REIMBURSED TO THE ASSESSEE THROUGH BILLING. HOWEVER, TH E ASSESSING OFFICER REJECTED SUCH SUBMISSIONS OF THE ASSESSEE AND HAS HEL D THAT THERE IS NO SPECIFIC EXCEPTION IN SECTION 40A(3) READ WITH RULE 6DD TO EXEMPT SUCH PAYMENTS FROM DISALLOWANCE. HE DISALLOWED 20% OF THIS AMOUNT WHICH HAS BEEN CALCULATED AT ` 14,40,228/-. T HE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED BEFOR E THE CIT (A) AND LEARNED CIT (A) HAS HELD THAT THE PAYMENTS MADE B Y THE ASSESSEE WERE IN ACCORDANCE WITH ITS OPERATION ON URGENCY BASI S AND, THEREFORE, NO DISALLOWANCE WAS CALLED FOR. THE DEPARTMENT IS AGG RIEVED, HENCE, IN APPEAL. 31. THE LEARNED DR , REFERRING TO THE PROVISIONS OF S ECTION 40A(3) AND RULE 6DD SUBMITTED THAT THE CASE OF THE ASSESSEE DOES NOT FALL UNDER ANY OF THE EXCEPTIONS AND, THEREFORE, THE DISALLOWANC E HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER AND LEARNED CIT (A) HAS WR ONGLY DELETED THE SAME. 32. ON THE OTHER HAND, RELYING UPON THE SUBMISSIONS MAD E BEFORE THE ASSESSING OFFICER AND CIT (A) AND ALSO THE CERTIFICA TE GRANTED BY THE AAI, THE COPIES OF WHICH ARE PLACED AT PAGES 26-2 7 OF THE PAPER BOOK, LEARNED AR SUBMITTED THAT AS A CONDITION PRECED ENT THE ASSESSEE HAS TO MAKE SUCH PAYMENTS IN CASH. THE CONTENTS OF THE SAID CERTIFICATES ARE AS UNDER:- ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 20 AAI/RNFC/ATCO-31/276 DATED : 14 /12/2009 TO WHOM SO EVER IT MAY CONCERN THE FOLLOWING PROCEDURES ARE TO BE FULFILLED BEFORE CLEARING THE NON SCHEDULED FLIGHTS: 1. THE PIC OR DGCA APPROVED FLIGHT DISPATCHER HAS TO R EPORT IN BRIEFING SECTION TO: FILE THE FLIGHT PLAN. YA NUMBER DOCUMENTS NON SCHEDULE PERFORMA CUSTOM IMMIGRATION CLEARANCE. 2. ALL TRAFFIC CHARGE IN CASH HAS TO BE PAID IN CASH WITH AAI AND DIAL. SD/- ANIL KALRA, SRC AVIATION AGM (ATM-RNFC) NATS COMPLEX, IGI AIRPORT, NEW DELHI 110037. TELEFAX : 011-25654473 PHONE: [phone] AAI/RNFC/ATCO-31/ DATED : 22/12/20 09 TO WHOM SO EVER IT MAY CONCERN THE FOLLOWING PROCEDURES ARE TO BE FULFILLED BEFORE CLEARING THE NON SCHEDULED FLIGHTS: 3. THE PIC OR DGCA APPROVED FLIGHT DISPATCHER HAS TO R EPORT IN BRIEFING SECTION TO: FILE THE FLIGHT PLAN. YA NUMBER DOCUMENTS NON SCHEDULE PERFORMA CUSTOM IMMIGRATION CLEARANCE. 4. AS PER RULES ALL RNFC AND TNLC (TRAFFIC) CHARGES WITH AAI AND DIAL ARE TO BE PAID IN CASH BEFORE DEPARTURE OF N ON SCHEDULED FLIGHT. SD/- ANIL KALRA, SRC AVIATION AGM (ATM-RNFC) NATS COMPLEX, IGI AIRPORT, NEW DELHI 110037. TELEFAX : 011-25654473 PHONE: [phone] ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 21 33. THUS, HE SUBMITTED THAT RELIEF HAS RIGHTLY BEEN GI VEN BY LEARNED CIT (A) AND THE DEPARTMENTAL APPEAL SHOULD BE DISMISSED . 34. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE PAYMENTS WITH REGA RD TO WHICH DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ARE M OSTLY PAID TO AAI AND IS IN RELATION TO FLIGHTS UNDERTAKEN BY TH E ASSESSEE IN THE COURSE OF ITS REGULAR ACTIVITIES. SUCH PAYMENTS ARE TO BE MADE IN CASH AS PER THE DIRECTIONS GIVEN BY AAI. SUCH FACT HAS BEE N CERTIFIED BY THE AAI. IF IT IS SO, THEN, IN OUR OPINION, LEARNED CIT (A) HAS RIGHTLY GRANTED THE RELIEF TO THE ASSESSEE AS THE SAME MAY FALL UNDER THE EXCEPTIONS SPECIFIED IN RULE 6DD (K) WHICH READ AS UNDER:- WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT W HO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICE S ON BEHALF OF SUCH PERSON; 35. IN VIEW OF THE ABOVE DISCUSSION, WE DECLINE TO INT ERFERE IN THE RELIEF GIVEN BY LEARNED CIT (A) AND THE DEPARTMENTA L APPEAL IS DISMISSED. 36. TO SUM UP, IN THE RESULT, ITA NOS.1557 & 1558/DEL/ 2010 ARE ALLOWED, ITA NO.2215/DEL/2010 IS ALLOWED FOR STATISTIC AL PURPOSES AND ITA NO.3824/DEL/2010 IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.08.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 26.08.2011. DK ITA NOS.1557,1558 & 2215/D/10 ITA NO.3824/DEL/2010 22 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSTT. REGISTRAR, ITAT, DELHI BENCHES