The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it by Air India, upheld the orders allowing unusable old inventory of spare and parts, as loss. The aforesaid observation was made by the ITAT when cross appeals were filed before it by M/S Air India Ltd., the assessee, and the revenue, against the separate orders of the Commissioner of Income Tax (Appeals), Mumbai, passed u/s 250 of the Income Tax Act.
The brief facts of the case were that the assessee company was a Government undertaking ,engaged in the business of national and international air transportation of passengers and air cargo, who had filed the return of income for the A.Y 2010-11 on 13.10.2010, disclosing a total loss of Rs. 9123,21,07,709/.Subsequently, the case of the assesssee was selected for scrutiny under the CASS and a notice u/s 143(2) and 142(1) of the Act was also issued. And in compliance to the notice, the AR of the assessee had also appeared from time to time , thereby furnishing the details as was called for. However, it so happened that the Assessing Officer (AO), on perusal of the financial statements of assessee found that as per the Tax Audit report u/s 44AB in Form No. 3CD Para 17(e), the assessee company had claimed Foreign Station expenses of Rs. 81,18,500/- and Cargo Immigration Fine of Rs. 1,28,799/- aggregating to Rs. 82,47,299/, and since the expenses were not incurred wholly and exclusively for the purpose of business , the AO made a disallowance of the same.
The A.O was of the opinion that the assessee had earned interest income of Rs. 25.34 Crores during the F.Y 2009-10 but had disclosed the same under the head business income, where such an interest which had been earned on fixed deposits & other advances, was required to be taxed under the head income from other sources . And, therefore the AO treated the said interest on fixed deposits, under income from other sources.
Further, the AO also observed that the assessee had made a provision for obsolescence and claimed net debit to profit and loss account of Rs. 28,21,16,111/-, and since the assessee had not filed the complete break-up of information, the AO, considering the facts of provision for obsolescence, thus made a total gross disallowance which worked out to Rs. 40,87,82,586/-. And, with regard to the disallowance u/s 14A of the Income Tax Act, the AO also found that the assessee had earned dividend income of Rs. 4,08,29,371/- and the that assessee had disclosed the investments of Rs. 121.93 Crs, which prompted him to issue a show cause to the assessee as to why the expenses attributed to the exempt income shall not be disallowed.
In compliance with the same, the assessee had filed an explanation on 24.02.2013,while the AO having relied on various facts and judicial decisions , applied the provisions of Sec. 14A r.w.r 8D, thus making the disallowance of Rs. 5.26 Crs.
The next disputed issue being with respect to the depreciation on a house property held by the assessee, the AO found that the assessee company while computing income under the business and profession, had disclosed income from house property after claiming the deduction u/s 24 of the Income Tax Act, and further that the assessee had also added back proportionate expenses on Air India Building, for the floor space let out ,and that the proportionate amount of depreciation on the rented portion was not excluded from the claim of depreciation. And since the assessee had not filed the details, the AO therefore made an ad-hoc addition of Rs. 1,50,000/- as made in the preceding years.
Having found that the assessee, in preceding year had made a provision under the head frequent flyer programme of Rs. 112.3 million, wherein he had the treated the provision as per schedule ‘R’ , with significant policies and explanations have been called for, the A.O also observed that the assessee had relied on the auditors accounting policy in financial statements and that the details of provisions and actual amount utilized were filed. And since there was no satisfactory evidences or explanations filed by the asssessee, the AO thus made an addition of Rs. 11.23 crores.
The other disputed issue being with respect to the advances to wholly owned and subsidiary company charged off, the A.O found that as per the profit and loss account, the assessee had debited Rs 481.4 million as advances, to wholly owned companies charged off and that in earlier years also, the assessee had claimed the same, while in A.Y 2009-10, the A.O had followed certain norms. And based on the findings of A.Y 2009-10, he thus made a disallowance ,as the same was debited in the profit and loss account.
And, with respect to the prior period expenditure, the AO, based on the Tax Auditor’s report u/s 44AB of the Income Tax Act and financial statements, found that the assessee had debited a net sum of Rs. 32.04 crores under the head prior period expenses and credited to profit and loss account , an amount of Rs. 52.85 Crs under the same head, thereby disallowing a sum of Rs. 18,11,85,357/- in the computation of income, being prior period adjustments.
And, since the details were not furnished by the assessee as was required by the AO, the AO therefore made a disallowance considering the net amount of Rs. 66,80,14,643/, assessing the total loss of Rs. 8924,72,13,181/- and income computed u/s 115JB of Rs. Nil , thus passing the order u/s 143(3) of the Income Tax Act ,dated 30.03.2013.
Aggrieved by the aforesaid order, the assessee had filed an appeal with the CIT(A), who, considering the grounds of appeal, findings of the A.O. in scrutiny assessment and the submissions of the assessee , thus allowed the claim of the assessee in respect of treatment of interest income as business income, by relying upon the order of the Tribunal in the assessee’s own case.
Similarly, in respect of the provisions of obsolescence Written off, the CIT(A) relying upon the assessee’s own case , allowed the assessee’s ground of appeal, whereas in respect of other grounds of appeal, he confirmed the action of the AO, thus, partly allowing the assessee’s appeal. And it is by being aggrieved by this order of the CIT(A), that the assessee and the revenue, has filed the instant appeal before the Mumbai ITAT.
Hearing the opposing contentions of either sides as was presented by Shri Madhur Agrawal, on behalf of the assessee and by Smt. Sailaja Rai, the CIT DR ,for the Revenue,and perusing the materials available on record, the ITAT Bench comprising of Baskaran BR, the Accountant Member, and Pavan Kumar Gadale, the Judicial Member observed :
“The Ld. DR could not controvert the findings of the CIT(A) with new cogent evidence or material information to take different view. Accordingly, we uphold the decision of the CIT(A) on the disputed issues and dismiss the grounds of appeal of the revenue”.
“ In the result, the appeals filed by the assessee are partly allowed for statistical purposes and the appeals filed by the revenue are dismissed.”, the ITAT Bench ruled.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.
