DCIT, New Delhi V. M/s. Airline Allied Services Ltd., New Delhi

ITA 6544/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2991 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U C DUBEY SENIOR
• Assessee Lawyers: A K SRIVASTAVA
• Keywords: Depreciation; Audit objection
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6544/DEL./2015 (ASSESSMENT YEAR : 2006-07) DCIT, CIRCLE 2 (1), VS. M/S. AIRLINE ALLIED SERVIC ES LTD., NEW DELHI. 1 ST FLOOR, ARRIVAL HALL, DOMESTIC TERMINAL, IGI AIRPORT, (PAN : AAACA1517B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.K. SRIVASTAVA, CA REVENUE BY : SHRI U.C. DUBEY, SENIOR DR DATE OF HEARING : 09.11.2017 DATE OF ORDER : 07.12.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE R EVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE I MPUGNED ORDER DATED 02.09.2015 PASSED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS)-I, NEW DELHI QUA THE ASSESSMENT YEAR 2006 -07 ON THE GROUNDS INTER ALIA THAT :- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS I N DELETING ADDITION OF RS.3,49,38,968/- MADE BY THE A O ON ITA NO.6544/DEL./2015 2 ACCOUNT OF DISALLOWANCE OF PROVISION FOR OBSOLESCEN CE OF SPARES. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD, OR FOREGO ANY GROUND (S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : ORIGINALLY, ASSESSMENT OF THE ASSESSEE COMPANY WAS COMPLETED UNDER SECTION 143 (3) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AT THE RETURNED DEC LARED LOSS OF (-) RS.50,33,30,128/-. HOWEVER, AO AFTER RECORDING REA SONS INITIATED THE PROCEEDINGS U/S 147 OF THE ACT AFTER ISSUANCE O F THE NOTICE U/S 148 OF THE ACT. AO ON THE BASIS OF AUDIT OBJECTION PROCEEDED TO CONCLUDE THAT PROVISION FOR OBSOLESCENCE OF SPARES OF RS.3,49,38,968/- HAS ESCAPED ASSESSMENT FOR AY 2006 -07 AND THEREBY ISSUED NOTICE U/S 142 (1). AO, BEING NOT S ATISFIED WITH THE REPLY FILED BY THE ASSESSEE COMPANY, PROCEEDED TO C ONCLUDE THAT THE PROVISION FOR OBSOLESCENCE OF SPARES IS NOT ALL OWABLE EXPENDITURE AS THE SAME WERE PROVISIONS AND ARE NOT ACTUAL EXPENDITURE DURING THE YEAR UNDER ASSESSMENT AND TH EREBY MADE AN ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSE E COMPANY 5. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION MADE B Y THE AO. ITA NO.6544/DEL./2015 3 FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT (A) . 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF AIRLINE AND HAS GOT ITS ACCOUNTS AUDITE D U/S 44AB OF THE ACT, WHICH WERE PRODUCED BEFORE AO DURING ORIGINAL ASSESSMENT PROCEEDINGS AND WERE EXAMINED ON TEST CHECK BASIS. IT IS ALSO NOT IN DISPUTE THAT DISALLOWANCE OF THE PROVISION FOR O BSOLESCENCE OF SPARES HAVE BEEN MADE BY THE AO MERELY ON THE BASIS OF AUDIT OBJECTION. 8. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINED I N THIS CASE IS :- AS TO WHETHER ADDITION OF RS.3,49,38,968/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF THE PROVISION FOR OBSOLESCENCE OF SPARES NOT BEING ACTUAL EXPENDITURE DURING THE YEAR DELETED BY THE CIT (A) IS SUSTAINAB LE ADDITION? 9. LD. DR FOR THE REVENUE RELYING ON THE ASSESSMENT ORDER CONTENDED THAT THE LD. CIT (A) HAS ERRED IN DELETIN G THE ADDITION MADE BY THE AO ON ACCOUNT OF THE PROVISION FOR OBSO LESCENCE OF SPARES. ITA NO.6544/DEL./2015 4 10. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE COMP ANY TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. DR FOR THE REVEN UE CONTENDED THAT THE ISSUE IN CONTROVERSY HAS BEEN SQUARELY COV ERED IN ITS FAVOUR BY THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS ACIT VS. M/S. JET AIRWAYS (P) LTD. IN ITA NO.4402/MUM./2008 DATED 06.10.2010 . 11. AO MADE DISALLOWANCE OF RS.3,49,38,968/- FOR TW O REASONS : ONE THAT IT WAS NOT ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE COMPANY; AND TWO THAT THIS LIABILITY WAS UNASCERTAI NABLE IN THE HANDS OF THE ASSESSEE COMPANY. HOWEVER, THE ASSESS EE COMPANY HAD FILED DETAILED REPLY TO THE QUERIES RAISED BY T HE ASSESSEE COMPANY THAT THIS IS NOT AN AD HOC PROVISION BUT IS ON ACCOUNT OF USES OF THE AIRCRAFT ON HOURLY BASIS FOR WHICH THE MAINTENANCE IS DUE AFTER THE PRESCRIBED HOURS. BEFORE LD. CIT (A) , THE ASSESSEE COMPANY ALSO RELIED UPON THE DECISION RENDERED BY T HE COORDINATE BENCH OF THE TRIBUNAL IN M/S. JET AIRWAYS (I) LTD. (SUPRA). 12. THE COORDINATE BENCH OF THE TRIBUNAL WHILE DEAL ING WITH IDENTICAL ISSUE HAS HELD THAT THE PROVISION FOR OBS OLESCENCE OF SPARES IS NOT AN AD HOC CLAIM FOR DEDUCTION RATHER IT IS A CLAIM IN RESPECT OF NORMAL WEAR AND TEAR ACCEPTABLE IN THE A ERONAUTIC INDUSTRY AND AS SUCH, CLAIM IS BASED ON PROVISION O F SCHEDULE XIV OF THE COMPANIES ACT, 1956 WHICH DEALS WITH THE RAT E OF ITA NO.6544/DEL./2015 5 DEPRECIATION. FOR READY PERUSAL, OPERATIVE PART OF THE ORDER RENDERED BY THE TRIBUNAL IN M/S. JET AIRWAYS (I) LTD. (SUPRA) IS REPRODUCED BELOW :- 33. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED TH EIR RIVAL SUBMISSIONS AND HAVE ALSO GONE THROUGH THE RE CORD. IN OUR VIEW, THE CONTENTIONS OF THE ASSESSEE DESERV E TO BE ACCEPTED IN THE LIGHT OF THE INTERNATIONAL ACCOUNTI NG STANDARD APPLICABLE AERONAUTIC INDUSTRIES. THE DE PARTMENT AUTHORITIES SHOULD HAVE APPRECIATED THE NATURE OF T HE ASSESSEES BUSINESS AND THE CHARACTER OF ITS CLAIM BASED ON APPLICABLE ACCOUNTING STANDARD BEFORE REJECTING THE SAME. IT IS NOT AN ADHOC CLAIM FOR DEDUCTION IN RESPECT O F A CONTINGENT LIABILITY. THE CLAIM IS IN RESPECT OF T HE NORMAL WEAR AND TEAR WHICH IS ACCEPTABLE IN THE AERONAUTIC INDUSTRIES AND SUCH CLAIM IS BADE ON THE PROVISIONS OF SCHEDULE XIV OF THE COMPANIES ACT, 1056 WHILE DEALI NG WITH THE RATE OF DEPRECIATION. THE 5.6% IS THE RA TE OF DEPRECIATION PRESCRIBED UNDER THE COMPANIES ACT FOR PROVIDING DEPRECIATION FOR THE PURPOSES OF SECTION 2-5 AND 350 OF THE SAME ACT. IN FACT, THE RATE OF DEPRECIA TION PRESCRIBED UNDER THE INCOME-TAX ACT IS @ 40% WHICH IS DEFINITELY HIGHER THAN 5.6%. IT IS THE 5.6% OF THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE. THE STORES AND SPARES WHICH GO OBSOLESCENCE DUE TO USAGE AND NORMA L WEAR AND TEAR HAVE A USEFUL LIFE OVER THE LIFE OF THE AI RCRAFT BEYOND A YEAR. IF SUCH EXPENSES ARE CLAIMED ON ACT UAL BASIS ON THE PURCHASE OF SUCH INVENTORY, ASSESSEES CLAIM WILL HAVE BEEN MUCH LARGER AND THE ASSESSEES CLAIM, IN OUR VIEW, IN THE LIGHT OF THE TABLE EXTRACTED ABOVE, IS VERY MUCH REASONABLE AND DESERVES TO BE ACCEPTED IN THE LIGHT OF THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT. TH E ASSESSING OFFICER MAY ENSURE THAT THE ASSESSEE DOES NOT CLAIM MORE THAN THE ACTUAL COST AS DEDUCTION IN; TH E FORM OF ANNUAL WRITE OFF TO THE PROFIT AND LOSS ACCOUNT. I N VIEW OF THE FACT THAT WE HAVE ACCEPTED THE MAIN CONTENTION OF THE ASSESSEE, THE OTHER ALTERNATIVE PRAYERS ARE NOT ACC EDED TO. 13. FACTS OF THE CASE AT HAND ARE IDENTICAL TO THE FACTS OF M/S. JET AIRWAYS (I) LTD. (SUPRA) SO FAR AS MAKING DISALLOWANCE ON ACCOUNT ITA NO.6544/DEL./2015 6 OF THE PROVISION FOR OBSOLESCENCE OF SPARES AND THE REVENUE HAS NOT BROUGHT ON RECORD ANY OTHER CASE LAW TO CONTROV ERT THE SETTLED PRINCIPLE OF LAW AND FACTS ON THE POINT IN CONTROVE RSY. 14. LD. CIT (A) VIDE IMPUGNED ORDER HAS THRASHED TH E ISSUE AT LENGTH TO REACH AT THE CONCLUSION THAT THE PROVISIO N FOR OBSOLESCENCE OF SPARES IS NOT AN AD HOC PROVISION B UT ON THE BASIS OF ACTUAL USES OF AIRCRAFT ON HOURLY BASIS AND MAIN TENANCE IS DUE AFTER THE PRESCRIBED HOURS OF USES. IN OTHER WORDS , IT IS ASCERTAINED LIABILITY WHICH IS CHARGED AS PER AIRLINE INDUSTRY PRACTICE AND STANDARD NORMS. 15. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE C IT (A) HAS RIGHTLY DELETED AN ADDITION OF RS.3,49,38,968/- MAD E BY THE AO ON ACCOUNT OF THE PROVISION FOR OBSOLESCENCE OF SPARES , BEING GENUINE EXPENDITURE TO RUN THE AIRLINE BUSINESS. SO, FINDI NG NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER, PRESENT APPEAL FI LED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF DECEMBER, 2017. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER DATED THE 7 TH DAY OF DECEMBER, 2017 TS ITA NO.6544/DEL./2015 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.