Airline Allied Services Ltd., New Delhi V. DCIT, New Delhi

ITA 2405/DEL/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7855 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-06-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 21-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANURADHA MISRA
• Keywords: Rejection of books of accounts; Search and seizure; Principle of natural justice; Rule of consistency; Reassessment proceedings
• Section: 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI U.B.S.BEDI, JUDICIAL MEMBER AND SHRI A.N.PAHUJA, ACCOUNTANT MEMBER ITA N O S . 2405/DEL/2010, 2406/DEL/2010, 3667/DEL/2011 & 3671/ DEL/2011 A YS : 2000 - 01, 2004 - 05, 2003 - 04 & 2005 - 06 M/S AIRLINE ALLIED SERVICES LTD.,DOMESTIC TERMINAL-1, IGI AIRPORT,PALAM, NEW DELHI 110 037. [PAN : AAACA1517B] VS. DEPUTY COMMISSIONER OF INCOME TAX,COMPANYCIRCLE-1(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA N OS.3612/DEL/2011 & 3613/DEL/2011 A YS : 2003 - 04 & 2005 - 06 DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1(1), NEW DELHI. VS. M/S AIRLINE ALLIED SERVICES LTD., DOMESTIC TERMINAL-1, IGI AIRPORT,PALAM, NEW DELHI 110 037. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE. REVENUE BY : MS.ANURADHA MISRA, DR. DATE OF HEARING 11-06-2012 DATE OF PRONOUNCEMENT 15-06-2012 ORDER PER BENCH: TH ESE SIX APPEALS - APPEALS FOR AYS 2000-01 & 2004-05 FILED ON 21 ST MAY, 2010 BY THE ASSESSEE AGAINST TWO SEPARATE ORDE RS DATED 12 TH MARCH, 2010 OF THE LD. CIT(A)-IV, NEW DELHI, AND CROSS-APPEALS FILED ON 29 TH JULY, 2011 BY THE ASSESSEE AND BY THE REVENUE ON 21 ST JULY, 2011 AGAINST TWO SEPARATE ORDERS DATED 25 TH MAY, 2011 AND 30 TH MAY, 2011 OF THE LD. CIT(A)-IV, NEW DELHI, FOR THE AYS 2003-04 & 2004-05 RESPECTIVELY, RAISE THE FOLLO WING GROUNDS:- ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 2 ITA NO.2405/DEL/2010[ASSESSEE]-AY 2000-01 1. FOR THAT THE ORDER PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND BAD ON FACTS OF THE CASE. 2. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING ADDITION OF ` .1,82,61,773/- BY HOLDING THAT THE EXPENSES UNDER THE HEAD PRIOR PERIOD EXPENSES DO NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR I N APPEAL WITHOUT APPRECIATING THE FACT THAT THE LIABILITY CRYSTALISE D DURING THE YEAR. 3. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCES MADE BY THE AS SESSING OFFICER UNDER PRIOR PERIOD CLAIM ON THE PRETEXT THAT EVEN N O EVIDENCE WAS SHOWN/PRODUCED FOR THE LIABILITIES WHICH WERE CRYST ALISED DURING THE YEAR UNDER APPEAL. 4. FOR THAT THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) IS IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE, IS NOT BASED ON THE SOUND PRINCIPLES OF IN TERPRETATION OF STATUTES, AND IS CONTRARY TO THE SCHEME OF THE INCO ME TAX ACT, 1961. YOUR APPELLANT CRAVES THE LEAVE TO ALTER, MODIFY, A DD TO, DELETE FROM OR OTHERWISE VARY THE ABOVE GROUNDS OF APPEALS. YO UR APPELLANT FURTHER SUBMITS THAT THE GROUNDS OF APPEAL, SAVE AS OTHERWISE SPECIFIED, NOTWITHSTANDING AND WITHOUT PREJUDICE TO EACH OTHER. ITA NO.2406/DEL/2010[ASSESSEE]-AY 2004-05 1. FOR THAT THE ORDER PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND BAD ON FACTS OF THE CASE. 2. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING ADDITION OF ` .2,80,39,540/- BY HOLDING THAT THE EXPENSES UNDER THE HEAD PRIOR PERIOD EXPENSES DO NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR I N APPEAL WITHOUT APPRECIATING THE FACT THAT THE LIABILITY CRYSTALLIZ ED DURING THE YEAR. 3. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCES MADE BY THE AS SESSING OFFICER UNDER PRIOR PERIOD CLAIM ON THE PRETEXT THAT EVEN N O EVIDENCE WAS SHOWN/PRODUCED FOR THE LIABILITIES WHICH WERE CRYST ALLIZED DURING THE YEAR UNDER APPEAL. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 3 4. FOR THAT THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) IS IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE, IS NOT BASED ON THE SOUND PRINCIPLES OF IN TERPRETATION OF STATUTES, AND IS CONTRARY TO THE SCHEME OF THE INCO ME TAX ACT, 1961. YOUR APPELLANT CRAVES THE LEAVE TO ALTER, MODIFY, A DD TO, DELETE FROM OR OTHERWISE VARY THE ABOVE GROUNDS OF APPEALS. YO UR APPELLANT FURTHER SUBMITS THAT THE GROUNDS OF APPEAL, SAVE AS OTHERWISE SPECIFIED, NOTWITHSTANDING AND WITHOUT PREJUDICE TO EACH OTHER. ITA NO.3667/DEL/2011[ASSESSEE]-AY 2003-04 1. FOR THAT THE ORDER PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND BAD ON FACTS OF THE CASE. 2. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING ADDITION OF ` .1,18,99,957/- BY HOLDING THAT THE EXPENSES UNDER THE HEAD PRIOR PERIOD EXPENSES DO NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR I N APPEAL WITHOUT APPRECIATING THE FACT THAT THE LIABILITY CRYSTALISE D DURING THE YEAR. 3. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION OF ` .`34.31 LACS WITHOUT APPRECIATING THAT THE DETAILED CONSUMPTION WAS ADVI SED BY INDIAN AIRLINES, THE HOLDING CO. ON THE BASIS OF WORKING D ONE AND WHICH IS A SUPPORTING VOUCHER. 4. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION OF ` .`6,98,92,000/- ON ACCOUNT OF AMOUNT REMAINING UNRECONCILED WITH THE PARENT CO MPANY, INDIAN AIRLINES WITHOUT APPRECIATING THE FACT THAT THE REC ONCILIATION STATEMENT HAD BEEN DONE LATER AND THE SAME WAS FILE D WITH THE ASSESSING OFFICER. 5. FOR THAT THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) IS IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE, IS NOT BASED ON THE SOUND PRINCIPLES OF IN TERPRETATION OF STATUTES, AND IS CONTRARY TO THE SCHEME OF THE INCO ME TAX ACT, 1961. YOUR APPELLANT CRAVES THE LEAVE TO ALTER, MODIFY, A DD TO, DELETE FROM OR OTHERWISE VARY THE ABOVE GROUNDS OF APPEALS. YO UR APPELLANT ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 4 FURTHER SUBMITS THAT THE GROUNDS OF APPEAL, SAVE AS OTHERWISE SPECIFIED, NOTWITHSTANDING AND WITHOUT PREJUDICE TO EACH OTHER. ITA NO.3671/DEL/2011[ASSESSEE]-AY 2005-06 1. FOR THAT THE ORDER PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND BAD ON FACTS OF THE CASE. 2. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING ADDITION OF ` .1,44,42,723/- BY HOLDING THAT THE EXPENSES UNDER THE HEAD PRIOR PERIOD EXPENSES DO NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR I N APPEAL WITHOUT APPRECIATING THE FACT THAT THE LIABILITY CRYSTALISE D DURING THE YEAR. 3. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF ` .3,92,00,000/- BY TREATING THE SAME AS EXCESSIVE WITHOUT APPRECIATING THE FACT THAT THERE EXISTED AN AGREEMENT BETWEEN THE HOLDING AND THE SU BSIDIARY COMPANY THAT THE SUBSTITUTION OF AIRCRAFTS WILL BE BILLED ON CASH COST BASIS AND WAS A BUSINESS DECISION. 4. FOR THAT THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) IS IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE, IS NOT BASED ON THE SOUND PRINCIPLES OF IN TERPRETATION OF STATUTES, AND IS CONTRARY TO THE SCHEME OF THE INCO ME TAX ACT, 1961. YOUR APPELLANT CRAVES THE LEAVE TO ALTER, MODIFY, A DD TO, DELETE FROM OR OTHERWISE VARY THE ABOVE GROUNDS OF APPEALS. YO UR APPELLANT FURTHER SUBMITS THAT THE GROUNDS OF APPEAL, SAVE AS OTHERWISE SPECIFIED, NOTWITHSTANDING AND WITHOUT PREJUDICE TO EACH OTHER. ITA NO.3612/DEL/2011[REVENUE]-AY 2003-04- 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF ` .27,71,00,000/- ON A/C OF GRANT RECEIVED IGNORING THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING AND THEREFORE, THE ACCRUED INCOME OF ` .35 CRORES SHOULD HAVE BEEN TAKEN INTO ACCOUNT AS TAXABLE INCOME. FURTHER, THE GRANT WAS SANCTIONED BY THE GOVT. ON A FINANCIAL YEAR BASIS A ND NOWHERE IT PRESCRIBED THAT THE GRANT WILL BE SPREAD OVER THE L EASE PERIOD. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 5 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF ` .5,34,79,358/- ON A/C OF AUDIT OBSERVATION WITH RES PECT TO UNASCERTAINED CORRECTNESS OF THIS AMOUNT INCLUDE D IN THE INVENTORIES, IGNORING THE CLEAR CUT OBSERVATION OF THE AUDITOR ON THIS ACCOUNT. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND (S) OF APPE AL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. ITA NO.3613/DEL/2011[REVENUE]-AY 2005-06 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF ` .1,05,36,000/- ON A/C OF CHANGE IN THE METHOD OF VALUATION IN INVENTORY IGNORING THAT THE CHANGE IN THE METHOD OF ACCOUNTING RESULTED INTO ENCASHMENT OF LOSS BY THIS AMOUNT AND ANY LOSS EFFECTED OWING TO CHANGE IN THE METHOD OF ACCOUNTING FOR VALUATION OF INVENTORY CANNOT BE ALLOWED, UNLESS FO UND SATISFACTORY. 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF ` .7,99,315/- ON A/C OF DISALLOWANCE OF UNINSURED RIS K TOWARDS LOSS OF LICENSE OF PILOTS, IGNORING THAT SA ID EXPENDITURE WAS PURELY CONTINGENT IN NATURE WHICH WAS NEITHER ACCRU ED NOR ACTUALLY SPENT. FURTHER, PRINCIPLE OF RES-JUDICATA IS NOT A PPLICABLE IN INCOME- TAX PROCEEDINGS. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND (S) OF APPE AL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. AT THE OUTSET, NONE APPEARED BEFORE US ON BE HALF OF THE ASSESSEE NOR ANY REQUEST FOR ADJOURNMENT WAS SUBMITTED. CONSIDERING THE NATURE OF THE ISSUES AND FINDINGS OF THE LD.CIT(A), THE BENCH PROCEEDED TO DISPOSE OF THESE APPEALS AFTER HEARING THE LD. DR. 3. ADVERTING FIRST TO GROUND NOS. 2 TO 4 IN THE APP EALS OF THE ASSESSEE FOR AYS 2000-01 & 2004-05 & GROUND NO.2 IN THEIR APPEALS FO R THE AYS 2003-04 & 2005- 06, FACTS, IN BRIEF. AS PER RELEVANT ORDERS FOR THE AY 2000-01 ARE THAT RETURN DECLARING INCOME OF ` `2,30,08,630/- FILED ON 30 TH NOVEMBER, 2000 BY THE ASSESSEE, WAS PROCESSED ON 24 TH JANUARY, 2002 U/S 143(1) OF THE INCOME-TAX ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 6 ACT, 1961 (THE ACT IN SHORT). SUBSEQUENTLY, THE ASSESSING OFFICER (AO' IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED A SUM OF ` ` 1,82,61,773/- ON ACCOUNT OF PRIOR PERIOD EXPENSES BESIDES A SUM OF ` ` 44,87,44,394/- ON ACCOUNT OF EMPLOYEES REMUNERATION AND BENEFITS ETC., OF WHICH ` ` 43.13 LACS PERTAINED TO THE OTHER STAFF COST, WHICH WAS NOT VERIFIABLE. ACCO RDINGLY, THE AO, AFTER RECORDING REASONS IN WRITING, REOPENED THE ASSESSMENT WITH THE SERVICE OF A NOTICE ISSUED U/S SECTION 148 OF THE ACT ON 29 TH MARCH, 2007. IN RESPONSE, THE ASSESSEE RAISED A NUMBER OF OBJECTIONS, WHICH WERE DISPOSED OF BY T HE AO VIDE HIS ORDER DATED 15 TH DECEMBER, 2008. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, TO A QUERY BY THE AO, THE ASSESSEE DID NOT FURNISH ANY E VIDENCE WHATSOEVER WITH REGARD TO PRIOR PERIOD EXPENSES NOR ESTABLISHED THA T THE LIABILITY FOR THESE EXPENSES CRYSTALLIZED IN THE YEAR UNDER CONSIDERATI ON. ACCORDINGLY, THE AO DISALLOWED THE AMOUNT OF ` ` 1,82,61,773/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 3.1 LIKEWISE IN AY 2003-04, 2004-05 AND 2005-06, THE AO DISALLOWED THE CLAIM OF PRIOR PERIOD EXPENSES OF ` ` 1,18,99,957/-, ` ` 2,80,39,540/- AND ` ` 1,44,42,723/- RESPECTIVELY, THE ASSESSEE HAVING FAILED TO ESTABLI SH THAT THE LIABILITY FOR THESE EXPENSES CRYSTALLIZED IN THE RESPECTIVE YEARS UNDE R CONSIDERATION. 4. ON APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWANC E IN THE AY 2000-01 IN THE FOLLOWING TERMS:- THE OBSERVATIONS OF THE ASSESSING OFFICER WERE CON SIDERED AS WELL AS THE SUBMISSIONS OF THE AR OF THE APPELLANT WERE KEPT IN MIND WHILE CONSIDERING THIS GROUND OF APPEAL. IN THIS C ONTEXT IT IS ALSO IMPORTANT TO NOTE THAT ON THIS ISSUE ADDITION HAD A LSO BEEN MADE IN THE EARLIER YEAR AND THE ISSUE HAD BEEN DECIDED AGA INST THE APPELLANT BY THE CIT(APPEAL) AND SIMILAR EXPENSES H AD NOT BEEN ALLOWED. AFTER CONSIDERING THE FINDINGS OF MY PRED ECESSOR CIT(APPEAL) FOR THE EARLIER ASSESSMENT YEAR AND ALS O KEEPING IN VIEW THE FACT THAT THE PROPER EVIDENCES AND SUPPORT ING VOUCHERS HAVE NOT BEEN FULLY PROVIDED BY THE APPELLANT, THER E IS NO JUSTIFICATION FOR ALLOWING THIS EXPENSE TO THE APPE LLANT. THIS ADDITION MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD AND T HIS GROUND OF THE APPELLANT IS DISMISSED. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 7 4.1 LIKEWISE IN THE AY 2004-05, THE LD. CIT(A) UP HELD THE DISALLOWANCE, HOLDING AS UNDER:- AFTER GOING THROUGH THE OBSERVATIONS OF THE ASSESS ING OFFICER AS WELL AS THE SUBMISSIONS OF THE AR OF THE APPELLANT AND ALSO KEEPING IN VIEW THAT THIS ISSUE HAS EARLIER BEEN DECIDED BY THE CIT(APPEAL) AGAINST THE APPELLANT, I AM OF THE OPINION THAT THE AR OF THE APPELLANT HAS NOT PROVIDED ADEQUATE REASONS AS TO W HY PRIOR PERIOD EXPENSES BEING CONSIDERED IN THE YEAR IN WHICH THEY ACTUALLY PERTAINED TO. THE AR HAS ONLY PROVIDED VAGUE AND G ENERAL REASONS TO STATE THAT THESE EXPENSES GOT CRYSTALISE D IN THIS FINANCIAL YEAR AND HAD ALSO NOT BEEN CLAIMED EARLIER YEAR. H OWEVER IT IS PERTINENT TO NOTE THAT THESE EXPENSES WERE PERTAINI NG TO EARLIER YEARS AND WITHOUT ANY PROPER JUSTIFICATION OR PROOF OF CRYSTALLIZATION THERE WAS NO JUSTIFICATION FOR ALLOWING THESE EXPEN SES IN THIS RELEVANT FINANCIAL YEAR. FURTHER THE ISSUE HAS EAR LIER BEEN DECIDED AGAINST THE APPELLANT AND ALSO KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY I AM BOUND TO UPHOLD THE FINDINGS MADE BY THE EARLIER CIT(APPEAL). AS A RESULT THIS GROUND OF THE APPEAL IS TREATED AS DISMISSED. 4.2 IN THE AYS 2003-04 AND 2005-06, THE LD. CIT(A), FOLLOWING HIS DECISION IN THE AY 2000-01, UPHELD THE FINDINGS OF THE AO. 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US IN THESE FOUR ASSESSMENT YEARS AGAINST THE FINDINGS OF THE LD. CIT(A).THE LD. DR, WHILE SUPPORTING THE FINDINGS OF THE LD. CIT(A) CONTENDED THAT SINCE THE ASSESSEE DI D NOT PRODUCE ANY EVIDENCE WHATSOEVER THAT THE LIABILITY FOR THE AFORESAID EXP ENSES CRYSTALLIZED IN THE RESPECTIVE YEARS UNDER CONSIDERATION, ACCORDINGLY, THE FINDINGS OF LD. CIT(A) SHOULD BE UPHELD. 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FA CTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FINDINGS OF THE LD. CIT (A), THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE WHATSOEVER BEFORE THE AO AND T HE LD.CIT(A) THAT THE LIABILITY FOR THE EXPENSES SHOWN AS PRIOR PERIOD EX PENSES CRYSTALLIZED IN THE RESPECTIVE YEARS UNDER CONSIDERATION. THERE IS NOTH ING TO SUGGEST AS TO WHETHER OR NOT ANY DETAILS OR REPLY WAS FILED BEFORE THE AO . THE LD. CIT(A),ACCORDINGLY, UPHELD THE FINDINGS OF THE AO . INDISPUTABLY, THE A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS WELL SETTLED THAT ACCR UAL OF A STATUTORY LIABILITY ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 8 DEPENDS UPON THE TERMS OF THE RELEVANT STATUTE. TH E QUANTIFICATION OR ASCERTAINMENT CANNOT POSTPONE ITS ACCRUAL TO THE EX TENT OF ADMITTED LIABILITY. ON THE OTHER HAND, CONTRACTUAL LIABILITY ACCRUES WHEN THE BASIS FOR ITS QUANTIFICATION IS SETTLED BY AN AGREEMENT OR OTHERWISE. AS HELD BY TH E HONBLE GUJRAT HIGH COURT IN THEIR DECISION IN SAURASHTRA CEMENT & CHEMICAL I NDUSTRIES LTD. VS. CIT, 213 ITR 523(GUJ) ,MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALL IZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZ ED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED I N THE BOOKS OF ACCOUNT OF THAT PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOU S YEARS IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THE ACCOUNTS ARE M AINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE P REVIOUS YEAR, THE HONBLE HIGH COURT OBSERVED. IT WAS FURTHER CONCLUDED THAT IT I S ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR THE LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLIZED, WHICH IS TO BE TAKEN INTO ACCOUNT UND ER THE MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME O R LIABILITY, WHICH IS YET TO BE CRYSTALLIZED, CAN ONLY BE ADJUSTED AS A CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. IN THE INSTANT CA SE BEFORE US, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE BEFORE THE AO OR THE LD. CIT(A ) THAT THE LIABILITY FOR THE EXPENSES SHOWN AS PRIOR PERIOD EXPENSES CRYSTALLIZE D IN THE RESPECTIVE YEARS UNDER CONSIDERATION. IN THE ABSENCE OF ANY BASIS, W E ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NOS. 2 TO 4 IN THE APPEALS OF THE ASSESSEE FOR AYS 2000-01 & 2004-05 & GROUND NO.2 IN THEIR APPEALS FOR THE AYS 2003-04 & 2005-06, ARE DISMISSED. 7. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE AND GR OUND NO.2 THE APPEAL OF THE REVENUE FOR AY 2003-04 RELATES TO DISALLOWANCE OF AN AMOUNT OF ` ` 34.31 LAKHS DEBITED TO P/L A/C & ` 5,34,79,358/- INCLUDED IN THE INVENTORIES. THE AO ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 9 WHILE REFERRING TO AUDIT OBSERVATION IN PARA 2(XI) OF THE REPORT ASKED THE ASSESSEE TO EXPLAIN AS TO WHY AN AMOUNT OF ` ` 34.31 LAKHS AND ` `534.79 LAKHS BE NOT DISALLOWED. IN RESPONSE, THE ASSESSEE REPLIED THAT SINCE BASIC RECORDS WERE MAINTAINED BY THE INDIAN AIRLINES AS PER PROCEDURE WHILE RECONCILIATION OF THE SAME WAS DONE AT A MUCH LATER DATE AND TOTAL CONSUM PTION OF MATERIAL OF ` ` 34.31 LAKHS WAS BASED ON THE CERTIFICATE OBTAINED FOR CL OSING STOCK AS ON 31 ST MARCH, 2003, NO AMOUNT COULD BE DISALLOWED. THE ASSESSEE ALSO STATED THAT AN AMOUNT OF ` 534.79 LACS WAS INCLUDED IN THE INVENTORIES. HOWEVE R, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE AUDITORS HAD CLEARLY NOTED THAT LIABILITY OF ` ` 75.10 LAKHS FOR PURCHASES, ` ` 40.37 LAKHS INCLUDED AS STOCK IN TRANSIT, ` ` 28.94 LAKHS ON ACCOUNT OF CUSTOM AND FREIGHT ON INV ENTORIES BESIDES ` ` 25.41 LAKHS INCLUDED IN MATERIAL CONSUMED, REMAINED UNVERIFIED.. THUS, THE ASSESSEES SUBMISSION THAT IT DID NOT HAV E ANY NET IMPACT ON THE PROFIT & LOSS ACCOUNT BECAUSE THESE ARE ALREADY INCLUDED I N THE INVENTORY, IS NOT ACCEPTABLE. ACCORDINGLY, THE AO DISALLOWED AN AMOU NT OF ` ` 34.31 LAKHS AND ` `534.79 LAKHS REFERRED TO IN THE AUDITORS OBSERVAT IONS. 8. ON APPEAL, THE LD. CIT(A), WHILE UPHOLDING THE A DDITION TO THE EXTENT OF ` ` 34.31 LAKHS, CONCLUDED AS UNDER:- 16. THERE WAS NO REPLY TO THE REMAND REPORT REQUIS ITIONED FROM THE AO. THERE IS NO DOUBT THAT AS FAR AS THE AMOUN T OF RS.5,34,79,358/- IS CONCERNED, THE SAME HAS BEEN DU LY REFLECTED IN PAGE 22 OF THE ANNUAL REPORT WHICH READS AS UNDER: AS AT 31.03.2003 AS AT 31.03.2002 (IN ` ) (IN ` ) SCHEDULE IV. INVENTORIES (AS TAKEN, VALUED AND CERTIFIED BY MANAGEMENT) (I) AIRCRAFT INVENTORIES A) SPARES NON-ROTABLES 37290940 0 B) SPARES ROTABLES 7512120 0 C) SPECIAL TOOLS 3174393 0 ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 10 D) GENERAL TOOLS 292847 0 (II) CUSTOM/FREIGHT ON SPARE PARTS 1172265 0 (III) GOODS IN TRANSIT 4036793 53479358 17. THUS, THE AMOUNT OF ` .534.79 LACS IS NOT IN DISPUTE. INSOFAR THE AMOUNT OF ` .34.31 LACS IS CONCERNED IT IS CLEARLY MENTIONED IN THE AUDIT REPORT THAT THE SAME WAS UNVERIFIABLE. C ONSIDERING THE FACT THAT NO EVIDENCE HAS BEEN PROVIDED TO SUPPORT THE CONTENTION OF THE ASSESSEE, THE ADDITION IS SUSTAINED. THIS I S ON ACCOUNT OF THE FACT THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EV IDENCE TO SUPPORT ITS CONTENTION IN THIS REGARD. THE ASSESSEE SUCCEE DS PARTLY IN GROUND OF APPEAL NO.4. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST UPHOLDING OF THE ADDITION TO THE EXTENT OF ` ` 34.31 LAKHS WHILE REVENUE IS IN APPEAL FOR DELETING THE ADDITION OF ` ` 534.79 LAKHS. THE LD. DR MERELY SUPPORTED THE FIND INGS OF THE AO. 10. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. INDISPUTABLY AND AS POINTED OUT BY THE LD. CIT(A), THE AMOUNT OF ` `534.79 LAKHS WAS INCLUDED IN THE CLOSING STOCK FOR THE YEAR UNDE R CONSIDERATION, AS DETAILED IN PARA 16 OF THE IMPUGNED ORDER. THUS, THE PLEA OF T HE LD. DR ON THIS ASPECT IS DEVOID OF ANY MERIT. AS REGARDS AMOUNT OF ` `34.31 LAKHS MENTIONED IN THE AUDIT OBSERVATION, NEITHER ANY EVIDENCE WAS FURNISHED BEF ORE THE AO NOR BEFORE LD. CIT(A) IN SUPPORT OF THIS AMOUNT . EVEN BEFORE U S, THE ASSESSEE IS NOT PRESENT. IN THE ABSENCE OF ANY RECONCILIATION OR EVIDENCE I N SUPPORT OF THE AMOUNT OF ` 34.31LACS AND THERE BEING NO BASIS, WE HAVE NO ALTE RNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.3 IN THE APPEAL OF THE ASSESSEE AS ALSO GROUND NO.2 IN THE APPEAL OF THE REVENUE ARE DISMISSED. 11. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE FOR A Y 2003-04 RELATES TO DISALLOWANCE OF AN AMOUNT OF ` `6,98,92,000/- FOR WANT OF RECONCILIATION. THE AO DISALLOWED THE AMOUNT IN TERMS OF FOLLOWING AUDIT O BSERVATIONS IN PARA 2(XII):- ACCOUNTS WITH INDIAN AIRLINES LTD. THE PARENT CO MPANY, HAVE NEITHER BEEN RECONCILED NOR CONFIRMED. ACCORDINGLY , ACCOUNTING TRANSACTION IS ON THE BASIS OF DEBIT/CREDIT RAISED BY INDIAN AIRLINES AND VICE VERSA COULD NOT BE ENSURED AND VERIFIED. HOWEVER, AS PER ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 11 THE COMPANY, DEBITS AMOUNTING TO RS.698.92 LACS AND CREDIT OF RS.141.76 LACS ARE YET TO BE RESPONDED BY INDIAN AI RLINES LTD. THE IMPACT OF UNRESPONDED TRANSACTIONS INCLUDING DEBTS AND CREDITS NOT RAISED BY IAL, IF ANY, ON LOSS FOR THE YEAR AND OTH ER RELATED ACCOUNTS COULD NOT BE COMMENTED UPON. 11.1 IN RESPONSE TO A SHOW CAUSE NOTICE ISSUED BY T HE AO, THE ASSESSEE DID NOT RECONCILE THE AMOUNT NOR SUBMITTED ANY EXPLANAT ION. ACCORDINGLY, THE AO DISALLOWED THE AMOUNT. 12. ON APPEAL ALSO, THE ASSESSEE DID NOT FURNISH ANY RECONCILIATION NOR THE AO RESPONDED TO THE LETTER OF THE LD. CIT(A), SEEKING A REMAND REPORT. ACCORDINGLY, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO. 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE FINDINGS IN THE IMPUGNED ORDER. 14. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FACTS OF THE CASE. SINCE NO RECONCILIATION HAS BEEN SUBMITTED EITHER BEFORE THE AO OR BEFORE THE LD. CIT(A) NOR EVEN BEFORE US, IN THE ABSENCE OF ANY BA SIS, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THER EFORE, GROUND NO.4 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2003-04 IS DISMISSED. 15. GROUND NO.1 IN THE APPEAL OF THE REVENUE FOR TH E AY 2003-04 RELATES TO ADDITION OF ` ` 27.71 CRORES ON ACCOUNT OF GRANT RECEIVED. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSES SEE WAS SANCTIONED A GRANT OF ` `175 CRORES, SPREAD OVER A PERIOD OF FIVE YEARS. I N THE YEAR UNDER CONSIDERATION, THE GOVERNMENT SANCTIONED A GRANT OF ` `35 CRORES TO IMPROVE AIR CONNECTIVITY IN NORTHEASTERN REGION. FOR THIS PURP OSE, THE ASSESSEE TOOK ON LEASE FOUR ATR-42-320 AIRCRAFTS FOR A PERIOD OF FIV E YEARS FROM M/S AVIANDE TRANSPORT REGIONAL (ATR). THE ASSESSEE SUBMITTED TH AT TOTAL LEASE MONTHS FOR OPERATION OF THESE AIRCRAFTS WAS 10 AIRCRAFTS LEASE MONTHS OUT OF TOTAL OF 240 AIRCRAFTS LEASE MONTHS. ACCORDINGLY, THE ASSESSEE HAD SHOWN PRO-RATA INCOME OF ` ` 7.29 CRORES. HOWEVER, THE AO DID NOT ACCEPT THE SU BMISSIONS OF THE ASSESSEE ON THE GROUND THAT ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 12 SINCE THE AMOUNT OF ` `35 CRORES ACCRUED TO THE ASSESSEE, THE AO ADDED T HE DIFFERENCE OF ` `27.71 CRORES (35,00,00,000 7,29,00,000). 16. ON APPEAL, LEARNED CIT(A) DELETED THE ADDITION IN THE FOLLOWING TERMS:- 9. AS MENTIONED EARLIER, THE MATTER HAD BEEN REMAN DED TO THE LD. AO. NO REPLY WAS SUBMITTED. ON 22.02.2011, IT WAS ADDED THAT THE APPELLANT HAD BEEN FOLLOWING THE MERCANTILE SYS TEM OF ACCOUNTING UNIFORMLY SINCE INCORPORATION. EVEN THE GRANT HAD NOT BEEN RECEIVED BY THE ASSESSEE UPTO 31.03.2003 BUT O N THE BASIS OF THE WORKING SUBMITTED EARLIER, ALLIANCE AIR BOOKED THE PROPORTIONATE INCOME AS PER AS12. RELIANCE WAS PLACED ON THE DEC ISIONS IN CIT VS. ASHOK BHAIA CHIMAN BHAI (1965) 56 ITR 42 (SC), MURVI INDIA LTD. VS. CIT (1971) 82 ITR 835 (SC) AND LAKSHMI PAT I SINGHANIA VS. CIT (1969) 72 ITR 291 (SC). IT WAS URGED THAT THE ADDITION OF RS.27.71 CRORES BE DELETED. 10. I HAVE GONE THROUGH THE IMPUGNED ORDER AND THE SUBMISSIONS MADE BY THE LD.AR OF THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE GRANT GIVEN TO THE ASSESSEE WAS ` .35 CRORES FOR THE YEAR WHICH WAS BASED ON THE MOU SIGNED ON 04.08.2004 BET WEEN THE ASSESSEE AND NEC (NORTH EASTERN COUNCIL). AS PER T HE MOU, THE TOTAL SANCTION FROM THE GOVERNMENT WAS ` .175 CRORES OVER A PERIOD OF 5 YEARS FOR IMPROVING AIR CONNECTIVITY IN THE NO RTH EAST REGION. AS PER THE MOU, THE AIRLINE WAS TO PROVIDE 4177 SEATS PER WEEK. NEC WAS TO MAKE AVAILABLE ` .35 CRORES FOR MEETING OPERATIONAL EXPENSES OF THE 4 LEASED AIRCRAFTS. ALLIANCE AIR W AS TO BEAR ALL EXPENDITURE RELATING TO THE INDUCTION, OPERATION AN D MAINTENANCE OF AIRCRAFT CONNECTIVITY REQUIRED TO SUPPORT THE OPERA TION. ALLIANCE AIR WAS TO OBTAIN CONCESSION ON ATF, LANDING CHARGES ET C. THE PROGRESS OF THE SCHEME WAS TO BE INTIMATED TO NEC. ALSO AVAILABLE ON THE FILE IS THE LETTER DATED 21.10.2002 WHICH SP EAKS ABOUT OPERATIONALIZING ADDITIONAL AIR FLIGHTS IN THE AREA . PERUSAL OF AS12 SUGGESTS THE AMBIT WITHIN WHICH GOVERNMENT GRANTS O PERATE. CRUCIAL IS THE FACT THAT A GOVT. GRANT BE RECOGNIZE D IN THE PROFIT & LOSS STATEMENT ON A SYSTEMATIC AND RATIONAL BASIS O VER THE PERIOD NECESSARY TO MATCH THEM WITH THE RELATED COST. IT IS CLARIFIED THAT THE PERIOD OVER WHICH AN ENTERPRISE RECOGNIZED THE COST OR EXPENSES RELATED TO A GOVERNMENT GRANT ARE READILY ASCERTAINABLE AND THUS GRANTS IN RECOGNITION OF SPECIFIC EXPENSES ARE TAKEN TO INCOME IN THE SAME PERIOD AS THE RELEVANT EXPENSES. 11. THE FACT REMAINS IS THAT THE LD.AO HAS TAKEN TH E ENTIRE GRANT RECEIVED FOR THE YEAR AS THE REVENUE OF THE ASSESSE E, WHICH HAS BEEN VEHEMENTLY CONTESTED. THE ASSESSEE HAS BEEN F OLLOWING AS12 IN ITS ACCOUNTING WHICH IS IN ACCORDANCE WITH SECTION 145 OF ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 13 THE ACT, APART FROM SECTION 211 OF THE COMPANIES AC T. IT PRESCRIBES THE FORM AND CONTENTS OF BALANCE SHEET AND P&L A/C, WHICH ARE TO BE MAINTAINED BY THE COMPANIES UNDER THE SAID ACT. SUB-S. (2) CASTS A DUTY ON A COMPANY TO GIVE TRUE AND FAIR VIE W OF PROFIT AND LOSS OF A COMPANY FOR THE FINANCIAL YEAR IN ITS P&L A/CS. SUB-S. (3A) ADHERES TO THE ACCOUNTING STANDARDS FOR PREPARING P &L A/C AND BALANCE SHEET. SUB-S. (3C) DEFINES ACCOUNTING STAN DARDS AS UNDER: (3C) FOR THE PURPOSES OF THIS SECTION, THE EXPRESSI ON ACCOUNTING STANDARDS MEANS THE STANDARDS OF ACCOUNTING RECOMM ENDED BY THE ICAI CONSTITUTED UNDER THE CHARTERED ACCOUNTANTS ACT, 19 49 AS MAY BE PRESCRIBED BY THE CENTRAL GOVERNMENT IN CONSULTATIO N WITH THE NATIONAL ADVISORY COMMITTEE ON ACCOUNTING STANDARDS ESTABLIS HED UNDER SUB-S. (1) OF S. 210A: PROVIDED THAT THE STANDARD OF ACCOUNTING SPECIFIED BY THE ICAI SHALL BE DEEMED TO BE THE ACCOUNTING STANDARDS UNTIL THE ACC OUNTING STANDARDS ARE PRESCRIBED BY THE CENTRAL GOVERNMENT UNDER THIS SUB-SECTION. 12. IT IS MENTIONED THAT THE ACCOUNTING STANDARDS H AVE BEEN RECOGNIZED AND JUDICIALLY NOTED BY VARIOUS COURTS I NCLUDING CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. (2009) 312 ITR 254 (SC), CIT VS. BILAHARI INVESTMENTS (P) LTD. (2008) 299 ITR 1 (SC) AND J.K.INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS . (2007) 213 CTR (SC) 301. 13. THUS, THE ASSESSEE HAS BEEN FOLLOWING THE ACCOU NTING STANDARDS AS PRESCRIBED BY ICAI. THEY CANNOT BE FA ULTED FOR THIS. IT IS NOT A MATTER OF DISPUTE HERE IS THAT THE GOVERNM ENT GRANT GIVEN TO THE ASSESSEE WAS BASED ON OPERATIONS FROM WHICH A N ET EXPENDITURE/INCOME HAD TO BE ARRIVED AT AFTER DEDUC TING THE EXPENDITURE. IN SUCH CIRCUMSTANCE, IF THE ASSESSEE HAS SHOWN ONLY AN AMOUNT OF ` .7.29 CRORES, THE SAME HAS TO BE SUSTAINED. THE AMOUNT CANNOT BE THE TOTAL RECEIPT OF ` .35 CRORES OR THE FIGURE OF ` .27.71 CRORES. THE ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO.3. 17. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. DR MERELY SUPPORTED TH E FINDINGS OF THE AO. 18. WE HAVE HEARD THE LD. DR AND HAVE GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE IS FOLLOWING ACCOUNTING STANDARDS AS PRESCRIBED BY ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 14 THE ICAI AND IN ACCORDANCE WITH THESE GUIDELINES, T HE ASSESSEE REFLECTED AN AMOUNT OF ` `7.29 CRORES IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) OBSERVED THAT IN TERMS OF OBSERVATIONS OF THE HONB LE APEX COURT IN CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. 312 ITR 254, CIT VS. BILAHARI INVESTMENTS (P) LTD. 299 ITR 1 AND J.K.INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS. 213 CTR 301, THE ACCOUNTING STANDARDS PRESCRIBED BY THE ICAI HAVE TO BE FOLLOWED AND ACCORDINGLY,DELETED THE ADDITION. WE F IND THAT THE EARLIEST ACKNOWLEDGMENT BY THE COURTS OF ACCOUNTING PRACTICE S AS EXPLAINING THE CONCEPT OF ACCRUAL CAN BE FOUND IN THE DECISION OF THE PRIV Y COUNCIL IN CIT V. AHMEDABAD NEW COTTON MILLS CO. LTD. [1930] 4 ITC 245. THE ACC OUNTING STANDARDS ISSUED BY THE ICAI REQUIRE THAT ACCOUNTING POLICIES MUST BE G OVERNED BY THE PRINCIPLE OF 'PRUDENCE'. IN THIS CONNECTION, HONBLE JURISDICTIO NAL HIGH COURT IN CIT VS. WOODWARD GOVERNOR INDIA (P) LTD,294 ITR 451(DEL.) O BSERVED THAT THE JUDICIALLY ACCEPTED POSITION APPEARS TO BE THAT IN DETERMINING WHETHER THERE HAS IN FACT BEEN ACCRUAL OF LIABILITY OR INCOME, THE ACCOUNTANC Y STANDARDS PRESCRIBED BY THE ICAI WOULD HAVE TO BE FOLLOWED AND APPLIED. THE LD. CIT(A) FOUND THAT THE ASSESSEE HAS BEEN FOLLOWING THE ACCOUNTING STANDARD S AS-12 AS PRESCRIBED BY ICAI AND ACCORDINGLY, DELETED THE AMOUNT. SINCE RE VENUE HAVE NOT PLACED ANY MATERIAL BEFORE US, CONTROVERTING THE AFORESAID FIN DINGS OF THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, W E ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.1 IN THE APPEAL OF THE REVENUE FOR THE AY 2003-04 IS DISMISSED. 19. NEXT GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR AY 2005-06 RELATES TO DISALLOWANCE OF AN AMOUNT OF ` ` 3.92 CRORES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE PAID AIRCRAFT LEASE HANDLING AND MAINTENANCE CHARGES TO ITS HOLDING COMPANY INDIAN A IRLINES IN TERMS OF CERTAIN AGREEMENTS BETWEEN THE ASSESSEE AND THE HOLDING COM PANY. CAG IN ITS REPORT POINTED OUT THAT THE ASSESSEE MADE EXCESS PAYMENT O F ` ` 3.92 CRORES TO ITS HOLDING COMPANY, WITHOUT DEDUCTING PROPORTIONATE LE ASE CHARGES FOR UTILISATION OF AIRCRAFT BY THE HOLDING COMPANY FOR 637 HOURS, THER EBY OVERSTATING THE LOSS TO THAT EXTENT. TO A QUERY BY THE AO, THE ASSESSEE DID NOT FURNISH ANY REPLY. HOWEVER, ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 15 WHILE REFERRING TO THE REPLY SUBMITTED BEFORE CAG T HAT AS SUBSTITUTION OF AIRCRAFT BETWEEN TWO AIRLINES IS DONE ON GROUNDS OF OPERATIO NAL NECESSITY, THERE IS A MUTUAL UNDERSTANDING TO BILL THE OTHER AIRLINE ON C ASH COST BASIS ONLY, THE AO HAVING RECOURSE TO PROVISIONS OF SEC. 40A(2)(A) OF THE ACT, TREATED THE AMOUNT OF ` ` 3.92 CRORES EXCESSIVE AND ACCORDINGLY DISALLOWED T HE AMOUNT. 20. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE FOLLOWING TERMS:- 23. HAVING PERUSED THE MATTER AND TAKEN THE SUBMIS SIONS OF BOTH THE SIDES ON RECORD, I AM OF THE BELIEF THAT T HE ASSESSING OFFICER CANNOT SIT ON THE ARM CHAIR OF THE BUSINESS MAN AND DECIDE UPON THE QUANTUM OF EXPENSES IN A PARTICULAR TRANSA CTION. THIS IS A WELL SETTLED POSITION OF LAW. HOWEVER, I AM AFRAID THAT THIS IS NOT THE POSITION HERE. WHEN SPECIFICALLY QUESTIONED ON THE ISSUE, THE ASSESSEE DID NOT FILE ANY RESPONSE DURING ASSESSMEN T PROCEEDING. SECONDLY, THE C&AG IN ITS REPORT HAS CATEGORICALLY STATED THAT EVIDENCE WAS NOT PROVIDED TO EXPLAIN THE EXPENDITUR E OF RS.3.92 CRORES. IN SUCH A SITUATION, WE CANNOT STATE THAT THE LD.AO HAS QUESTIONED THE VERY EXPENDITURE WHEN HE HAD NO DOCU MENT OR EVIDENCE BEFORE HIM TO DECIDE ON THE MATTER. HE HA D GIVEN AN OPPORTUNITY WHICH WAS NOT AVAILED BY THE ASSESSEE. IN SUCH CIRCUMSTANCE, I HAVE NO OPTION BUT TO SUSTAIN THE A DDITION MADE BY THE LD.AO TO THE TUNE OF ` .3.92 CRORES. THE ASSESSEE FAILS IN GROUND OF APPEAL NO.6. 21. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 22. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE DID NOT FURNISH ANY EXPLANAT ION WHATSOEVER BEFORE THE AO NOR EVEN BEFORE THE LD. CIT(A).IN VIEW OF THE AFORE SAID OBSERVATIONS OF CAG POINTING OUT THAT EXCESSIVE PAYMENT HAD BEEN MADE T O INDIAN AIRLINES TO THE EXTENT OF ` ` 3.92 CRORES, THE LD. CIT(A) UPHELD THE DISALLOWANCE . EVEN BEFORE US, SITUATION IS NO BETTER. IN THE ABSENCE OF ANY BASI S, ESPECIALLY NOT EVEN AN IOTA OF EVIDENCE OR EXPLANATION WAS PLACED BEFORE THE AO OR THE CIT(A), WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. C IT(A). THEREFORE, GROUND NO.3 IN THE APPEAL OF THE ASSESSEE FOR THE AY 2005-06 IS DI SMISSED. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 16 23. NEXT GROUND NO.1 IN THE APPEAL OF THE REVENUE F OR THE AY 2005-06 RELATES TO ADDITION OF ` `1,05,36,000/- ON A/C OF CHANGE IN THE METHOD OF AC COUNTING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO WHILE REFERRING TO AUDIT REPORT IN FORM 3CA NOTICED THAT ASSESSEE CLAIMED AN AMOUNT OF ` ` 1,05,36,000/- REPORTED AS INCREASE IN LOSS DUE TO CHANGE IN METHO D OF ACCOUNTING FOR PROVISION OF OBSOLESCENCE OF AIRCRAFT ROTABLES AND SPECIAL TO OLS MADE ON CLOSING STOCK BASED ON COMPLETED AIRCRAFT LEASE MONTHS OVER THE T OTAL AIRCRAFT LEASE MONTHS FROM THE DATE OF STOCK HELD. TO A QUERY BY THE AO, THE ASSESSEE DID NOT SUBSTANTIATE ITS CLAIM OF CHANGE IN METHOD OF ACCOU NTING. ACCORDINGLY, THE AO DISALLOWED THE AMOUNT. 24. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING T HAT THE ACCOUNTING STANDARDS HAVE BEEN RECOGNIZED AND JUDICIALLY NOTICED BY VARI OUS COURTS INCLUDING CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. (2009) 312 ITR 254 (SC), CIT VS. BILAHARI INVESTMENTS (P) LTD. (2008) 299 ITR 1 (SC) AND J.K. INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS. (2007) 213 CTR (SC) 301, ALLO WED THE CLAIM IN THE FOLLOWING TERMS:- 11. THUS, THE ASSESSEE HAS BEEN FOLLOWING THE ACCO UNTING STANDARDS AS PRESCRIBED BY ICAI. THEY CANNOT BE FA ULTED FOR THIS. FURTHER, THE LD.AO, IN THE IMPUGNED ORDER HAS NOT S HOWN THAT HOW THE CHANGE IN THE ACCOUNTING POLICY WAS NOT BONAFID E. HE HAS ALSO NOT REJECTED THE BOOKS OF ACCOUNTS. EVIDENTLY, THE CHANGE IN ACCOUNTING WAS DONE BASED ON THE DECISION OF THE MA NAGEMENT AND WAS NOT DELIBERATE. FURTHER, IT IS OBSERVED TH AT EVEN IF THERE IS A CHANGE IN THE METHOD OF ACCOUNTING, THE TAXABILIT Y WOULD COME IN THE SUBSEQUENT YEARS AS HELD IN CIT VS. DINESH KUMA R GOEL [2011] 239 CTR (DEL.) 46 IF WE GO BY THE AO. THEREIN, THE HONBLE HIGH COURT HAS HELD AS FOLLOWING: 27. IN A DECISION RENDERED ABOUT 50 YEARS AGO, THE BOMBAY HIGH COURT, SPEAKING THROUGH CHIEF JUSTICE TENDOLKAR IN CIT VS. NAGRI MILLS CO.LTD. [1958] 33 ITR 681 (BOM) OBSERVED AS UNDER : WE HAVE OFTEN WONDERED WHY THE IT AUTHORITIES, IN A MATTE R SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 17 UNDER THE IT ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE R ATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASST. YR. 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASST. YR . 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS TO THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COL LECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 28. IN THIS COURT, IN ITS DECISION DT. 6 MAY, 2008 IN IT REF. NO.229 OF 1988 ENTITLED CIT VS. VISHNU INDUSTRIAL GASES (P) LT D. HAD QUOTED THE AFORESAID PASSAGE AND THEREAFTER REMARKED THAT THE SITUATION DOES NOT SEEM TO HAVE CHANGED OVER THE LAST FIFTY YEARS AND THE REVENUE CONTINUES TO AGITATE THE QUESTION WHETH ER TAX IS LEVIABLE IN THE PARTICULAR YEAR OR IN SOME OTHER YEAR. ALAS! THE AFORESAID WORDS OF WISDOM OF BOMBAY HIGH COURT REMINDED TO THE REVENUE AUTHORITIES MORE THAN TWO YEARS AGO AGAIN HA VE NOT MADE ANY DENT ON THE PSYCHE OF THE REVENUE. 12. IN VIEW OF THE DISCUSSION ABOVE, IT IS HELD THA T THE ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO.3 & THE ADDITION OF ` 105.36 LACS IS DELETED. THE ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO.3. 25. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR MERELY SUPPORTED THE FI NDINGS OF THE AO. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 18 26. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DISALLOWED THE CLAIM OF ` `1,05,36,000/- REPORTED AS INCREASE IN LOSS DUE TO CHANGE IN METHOD OF ACCOUNTING FOR PROVISION OF OBSOLESCENCE OF AIRCRAF T ROTABLES AND SPECIAL TOOLS. THE ASSESSEE CLAIMED THAT CHANGE IN ACCOUNTI NG POLICY ON INVENTORY WAS BONAFIDE. THE LD. CIT(A) ALLOWED THE CLAIM, T HERE BEING NOTHING TO SUGGEST THAT CHANGE IN METHOD OF ACCOUNTING WAS NOT BONAFIDE. BEFORE PROCEEDING FURTHER , WE MAY HAVE A LOOK AT THE RELE VANT PROVISIONS OF SECTION 145A OF THE ACT, INTRODUCED BY THE FINANCE ACT,1998 W.E.F. 1.4.1999, WHICH READ AS UNDER: 145A. METHOD OF ACCOUNTING IN CERTAIN CASES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE-- (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY T AX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIO N AS ON THE DATE OF VALUATION. EXPLANATION.--FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIM E BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. 26.1. THE AO HAS REJECTED THE CHANGED METHOD OF ACCOUNTING WHILE THE LD. CIT(A) FOUND THE SAME TO BE BONAFIDE. HERE WE MAY ANALYSE THE LEGAL RECOGNITION OF ACCOUNTING STANDARDS ISSUED BY ICAI. THE ACCOUNTING STANDARDS REFLECT THE VIEWS OF A PROFESSIONAL BODY, VIZ., THE ICAI AND ARE THEREFORE ENTITLED TO THE HIGHEST RESPECT. THEIR VI EW S WITH REGARD TO CAPITALISATION OF INTEREST DURING PREPRODUCTION PERIOD WAS ACCEPTE D AS REFLECTING THE PROPER COMMERCIAL PRINCIPLES OF ACCOUNTING BY THE HONBLE SUPREME COURT IN CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167 . THE HONBLE MADRAS HIGH COURT ACCEPTED ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 19 THE VIEW OF THE ICAI AS REFLECTING THE CORRECT ACCO UNTING PRACTICE IN SIVAKAMI MILLS LTD. V. CIT [1979] 120 ITR 211 . EVEN THE VIEWS EXPRESSED BY AUTHOR, WHOSE BOOKS ON ACCOUNTANCY ARE RECOGNISED THROUGHOUT THE WORLD, HAVE BEEN APPLIED BY THE CALCUTTA HIGH COURT IN THE CASE OF GARDEN RE ACH WORKSHOP LTD. V. CIT [1981] 132 ITR 814 . A METHOD OF ACCOUNTING OR ACCOUNTING PRACTICE OR POLICY PRESCRIBED OR APPROVED BY THE ICAI IS NORMALLY TO B E GIVEN EFFECT TO. SIMILARLY, THE VIEWS OF AUTHORS OF RECOGNISED BOOKS ON ACCOUNTANCY ARE ENTITLED TO HIGHEST RESPECT. HONBLE DELHI HIGH COURT IN A RECENT CASE OF CIT VS. WOODWARD GOVERNOR INDIA P LTD.,294 ITR 451(DELHI) WHILE ANA LYZING THE IMPACT OF THE FOREIGN EXCHANGE RATE FLUCTUATION ON REVENUE A ND CAPITAL ACCOUNT HELD THAT (I) THE JUDICIALLY ACCEPTED POSITION APPEARS TO B E THAT IN DETERMINING WHETHER THERE HAS IN FACT BEEN 'ACCRUAL' OF LIABILITY OR IN COME, THE ACCOUNTANCY STANDARDS PRESCRIBED BY THE ICAI WOULD HAVE TO BE FOLLOWED AN D APPLIED. 26.2. IN THE LIGHT OF AFORESAID JUDICIAL PRONO UNCEMENTS, WE ARE OF THE OPINION THAT THE ACCOUNTING STANDARDS REFLECTING THE VIEWS OF A PROFESSIONAL BODY, VIZ., THE ICAI ARE ENTITLED TO THE HIGHEST RESPECT AND HAVE TO BE FOLLOWED AND APPLIED. IN THE INSTANT CASE, THERE IS NOTHING TO SUGGEST THAT THE CHANGE MADE IN THE METHOD OF INVENTORY VALUATION BY THE ASSESSEE WAS NOT WITH A BONA FIDE INTENTION. IT IS, THUS, APPARENT THAT ONLY WITH A BONA FIDE INTENTION THE ASSESSEE CHANGED THE METHOD OF STOCK VALUATION IN THE LIGHT OF RELEVANT ACCOUNTING STANDARD PRESCRIBED BY ICAI. IT IS TRUE THAT, AS A RESULT OF THE CHANGE MADE IN THE METHOD OF STOCK VALUATION, THE INCOME OF THE ASSESSEE HAS REDUCED. ANY CHANGE IN ANY METHOD OF STOCK VALUATION IS BOUND TO MAKE SOME CHANGE IN THE TAXABLE INCOME. SIMPLY BECAUSE, BY VIRTUE OF THE CHANGE INTRODUCED BY THE ASSESSEE, THE INCOME HAS BEEN REDUCED, BY NO STRETCH OF IMAGINATION, IT CAN BE SAID THAT THE ASSESSEE HAD AN INTENTION TO DELIBERATELY UNDERVALUE ITS STOCK S O AS TO REDUCE ITS TAX BURDEN. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. D ELTA PLANTATION LTD. [1993] 114 CTR 271, HELD THAT WHEN THE CHANGE IS MADE BY THE A SESSEE IN THE METHOD OF VALUATION OF STOCK, SO AS TO FOLLOW THE METHOD OF S TOCK VALUATION ADOPTED BY THE ENTIRE INDUSTRY, THE REVENUE SHOULD NOT REJECT THE METHOD MERELY BECAUSE THERE WOULD BE LOSS TO THE REVENUE IN THE YEAR IN WHICH T HE METHOD OF STOCK VALUATION ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 20 IS CHANGED. SIMILARLY IN THE CASE OF CIT V. GANGA C HARITY TRUST FUND [1986] 162 ITR 612 ,(CAL), IT WAS HELD THAT WHEN THE ACCOUNTING METHO D IS CHANGED WITH A BONA FIDE INTENTION, THE CHANGE SHOULD BE ACCEPTED BY THE REVENUE. 26.3 LIKEWISE, HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DALMIA CEMENT (BHARAT) LTD. [1995] 215 ITR 441 ,HELD THAT WHEN THE ASSESSEE CHANGED ITS METHOD OF STOCK VALUATION AND WHEN THERE IS A FINDI NG THAT THE CHANGE WAS BONA FIDE AND WHEN THE CHANGED METHOD HAD BEEN FOLLOWED IN THE SUBSEQUENT YEARS, THE TRIBUNAL WAS JUSTIFIED IN PERMITTING THE ASSESS EE TO CHANGE THE METHOD. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. CAR BORANDUM UNIVERSAL LTD. [1984] 149 ITR 759 , HELD THAT IF THE METHOD OF STOCK VALUATION IS CHA NGED AND IF THE CHANGE IS BONA FIDE AND THE CHANGED METHOD HAS BEEN CONTINUED, THE DIFFERENCE ARISING IN THE INCOME ON ACCOUNT OF THE CHANGED METHOD IS NOT INCLUDIBLE IN THE INCOME OF THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR. EVEN THE HONBLE KARNATAKA HIGH COURT HAS TAKEN A VIEW THAT WHEN THE METHOD OF STOCK VALUATION IS CHANGED AND THE CHANGE IS BON A FIDE, THE CHANGE MADE BY THE ASSESSEE CANNOT BE OBJECTED TO BY THE REVENUE. IN CIT V. HARYANA MINERALS LTD.[2000] 242 ITR 704(PUNJAB & HARYANA), HONBLE H IGH COURT ALSO HELD THAT WHEN THERE IS A FINDING TO THE EFFECT THAT THE CHA NGE MADE IN THE METHOD OF STOCK VALUATION IS BONA FIDE, IT IS NOT OPEN TO THE REVEN UE TO ADD ANY AMOUNT IN THE TAXABLE INCOME OF THE ASSESSEE WHICH RESULTS ON ACC OUNT OF THE CHANGED METHOD OF STOCK VALUATION. 27. IN THE LIGHT OF THE LAW LAID DOWN BY SEVERAL HIGH COURTS ON THE SUBJECT- MATTER, WE ARE OF THE OPINION THAT IF THE METHOD OF STOCK VALUATION IS CHANGED BY THE ASSESSEE AND IF THE CHANGE IS BONA FIDE, EVEN I F THE INCOME IS REDUCED ON ACCOUNT OF THE CHANGED METHOD OF STOCK VALUATION, I T IS NOT OPEN TO THE REVENUE TO ADD ANY AMOUNT IN THE INCOME OF THE ASSESSEE AS A RESULT OF THE CHANGED METHOD OF VALUATION. OF COURSE IT HAS TO BE EXAMINE D WHETHER THE ASSESSEE HAS IN FACT FOLLOWED THE ACCOUNTING STANDARD CONSISTENT LY IN VALUING THE STOCK. WE FIND FROM THE ORDERS OF LOWER AUTHORITIES THAT NO WHERE IT SEEMS TO HAVE BEEN EXAMINED AS TO WHETHER OR NOT STOCK HAS ACTUALLY BE EN VALUED IN TERMS OF THE ACCOUNTING STANDARD OR THE SAME METHOD HAS BEEN ADOPTED BY OTHER BUSINESS UNITS IN THE INDUSTRY OR HAS BEEN CONTINUOUSLY FOLL OWED IN THE SUBSEQUENT YEARS ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 21 BY THE ASSESSEE . THE AUTHORITIES APPEAR NEVER TO H AVE QUESTIONED THIS ASPECT. ACCORDINGLY, FOR THIS LIMITED PURPOSE , WE RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTIONS TO VERIFY AS TO WHETHER OR NOT THE METHOD OF STOCK VALUATION PRESCRIBED BY THE AFORESAID ACCOUNTING STANDARD LAI D DOWN BY THE ICAI, HAS BEEN ADOPTED BY OTHER BUSINESS UNITS IN THE INDUSTRY AN D THE ASSESSEE ACTUALLY VALUED THE STOCK IN TERMS OF THE ACCOUNTING STANDARD AND T HAT THE CHANGED METHOD HAS BEEN REGULARLY FOLLOWED BY THE ASSESSEE IN SUBSEQUE NT YEARS, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. IF THE METH OD OF STOCK VALUATION IS IN TERMS OF THE SAID ACCOUNTING STANDARD AND REGULARLY FOLL OWED IN THE SUBSEQUENT YEARS BY THE ASSESSEE AND THE INDUSTRY, THEN NO ADDITION WOULD BE CALLED FOR SINCE IT IS NOT IN DISPUTE THAT THE CHANGE WAS BONA FIDE ONE. I N VIEW OF THE FOREGOING , GROUND NO.1 IN THE APPEAL OF THE REVENUE FOR THE A Y 2005-06 IS DISPOSED OF AS INDICATED HEREINBEFORE. 28.. GROUND NO.2 IN THE APPEAL OF THE REVENUE RELAT ES TO DISALLOWANCE OF ` `7,99,315/-. THE AO NOTICED DURING THE COURSE OF A SSESSMENT PROCEEDINGS THAT THE ASSESSEE CREATED AN INSURANCE RESERVE IN RESPEC T OF UNINSURED RISK BY CREDITING 2.45% OF THE ANNUAL GROSS SALARY OF PILOT S AND CREW ON CONTRACT FOR CONTINGENCIES OF THEIR ACCIDENT/HOSPITALIZATION. T O A QUERY BY THE AO, THE ASSESSEE SUBMITTED THAT THE AFORESAID RESERVE HAS B EEN MADE AFTER A POLICY FOLLOWED YEAR AFTER YEAR. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE THAT THE LIABILITY WAS PURELY CONTINGENT I N NATURE AND, ACCORDINGLY, ADDED BACK THE AMOUNT. 29. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM IN THE FOLLOWING TERMS:- 15. I HAVE GONE THROUGH THE ORDER OF THE LD.AO AND THE SUBMISSIONS MADE BY THE LD.AR OF THE ASSESSEE. IT IS INDISPUTABLE THAT THE ASSESSEE HAS BEEN FOLLOWING THE PRESCRIBED ACCOUNTING POLICY SINCE LONG. FURTHER, THE ACCOUNTING POLICY HAD BEEN ACCEPTED EARLIER BY THE REVENUE. IN THE ABSENCE OF ANY CHANGE OF FACTS AND LAW, THERE IS NO REASON WHY THE REVENUE S HOULD DEVIATE FROM THE ALREADY ACCEPTED LINE OF ASSESSMENT. WHIL E IT IS TRUE THAT RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEE DINGS, THE RULE OF CONSISTENCY HAS BEEN ACCEPTED BY THE VARIOUS COURTS INCLUDING THE ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 22 APEX COURT. IN RADHASOAMI SATSANG VS. CIT [1992] 1 93 ITR 321 (SC), IT WAS HELD THAT : WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS. AGAIN EACH ASSESSMENT YEA R BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND P ARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHAN GED IN A SUBSEQUENT YEAR. 16. FURTHER, THE ASSESSEE HAS MADE THE PROVISION ON THE BASIS OF ACTUARIAL VALUATION. IN OTHER WORDS, IT WAS DONE O N THE BASIS OF HISTORICAL COSTS. THE ACCOUNTING AS DONE HERE ON T HE BASIS OF ACTUARIAL VALUATION CANNOT BE IGNORED ESPECIALLY WH EN ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE OBS OLESCENCE OF PILOTS LICENSES AND HOSPITALIZATION OF THE PILOTS AND THE CABIN CREW CAN BE CONSTRUED IN DEFINITE TERMS, ALTHOUGH ITS AC TUAL QUANTIFICATION AND DISCHARGE MAY BE DEFERRED TO A FUTURE DATE. ON CE THE ASSESSEE IS MAINTAINING ITS ACCOUNTS ON THE MERCANTILE SYSTE M, A LIABILITY IS ACCRUED, THOUGH IT MAY BE DISCHARGED TO A FUTURE DA TE AND THEREFORE PROPER DEDUCTION SHOULD BE GIVEN WHILE WORKING OUT THE PROFITS AND GAINS OF BUSINESS. THIS PRINCIPLE HAS BEEN ACCEPTE D BY THE APEX COURT IN CIT VS. WOODWARD INDIA (P) LTD. [2009] 223 CTR (SC) 1. THUS, THE ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO. 4. 30. THE REVENUE IS NOW AGGRIEVED BY THE AFORESAID F INDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDER OF THE AO. 31. WE HAVE HEARD THE LD. DR AND HAVE GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE FINDINGS IN THE IMPUGNED O RDER, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE PRESCRIBED ACCOUNTING PO LICY BY CREDITING THE RESERVE ACCOUNT ON ACCOUNT UNINSURED RISK AND THIS METHOD HAS BEEN ACCEPTED EARLIER BY THE REVENUE. THE LD. CIT(A) FOUND THAT THE ASSESSE E MADE THE PROVISION ON THE BASIS OF ACTUARIAL VALUATION. THE LD. DR DID NOT P LACE ANY MATERIAL BEFORE US, SUGGESTING THAT THE LIABILITY WAS CONTINGENT IN NAT URE. IN THE ABSENCE OF ANY BASIS, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.2 IN THE APPEAL OF THE REVENUE FOR THE AY 2005-06 IS DISMISSED. ITA NOS.2405& 2406/DEL/2010 & ITA NOS.3612-3613-3667 &3671/DEL./2011 23 32. GROUND NOS.1 & 4 IN THE APPEALS OF THE ASSE SSEE FOR THE AYS 2000-01 2004-05 & 2005-06 AS ALSO GROUND NOS.1 & 5 IN THEIR APPEAL FOR THE AYS 2003- 04,BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPA RATE ADJUDICATION WHILE THERE IS NOTHING TO SUGGEST THE LD CIT(A) VIOLATED ANY PR INCIPLES OF NATURAL JUSTICE; RATHER THE ASSESSEE DID NOT FURNISH THE RELEVANT DETAILS R EQUISITIONED BY THE AO NOR SUBMITTED ANY COGENT EVIDENCE BEFORE THE LD. CIT(A) .ACCORDINGLY ,ALL THESE GROUNDS ARE DISMISSED. 33. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN RESPECT OF RESIDUARY GROUND IN THE APPEALS OF THE ASSESSEE AND RESIDUARY GROUND NO.3 IN THE APPEALS OF THE REVENUE FOR THE AYS 2003-04 & 2005-06, ACCOR DINGLY, ALL THESE GROUNDS ARE DISMISSED. 34. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US . 35 IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE BESIDES THAT OF REVENUE FOR THE AY 2003-04 ARE DISMISSED WHILE APPEAL OF TH E REVENUE FOR THE AY 2005- 06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/ - (U.B.S.BEDI) SD/ - (A.N.PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER VK. COPY FORWARDED TO: - 1. ASSESSEE 2. DEPUTY COMMISSIONER OF INCOME TAX,COMPANYCIRCLE- 1(1),NEW DELHI 3. CIT CONCENED 4. CIT(A)-IV,NEW DELHI 5. DR, ITAT,A BENCH,NEW DELHI 6. GUARD FILE ASSISTANT REGISTRA R,ITAT