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2006 (5) TMI 508 - AT - Income TaxDisallowance of a provision for leave encashment - HELD THAT:- In the light of the observations made by Hon'ble Supreme Court in Bharat Earthmovers v. CIT[2000 (8) TMI 4 - SUPREME COURT]; the assessee was entitled for deduction in respect of the provision made for the liability and the liability was held to be not contingent in nature, if a provision is made by the assessee for meeting the liability incurred by it under the leave encashment scheme. Therefore, following the decision of the apex court we delete the disallowance made by the revenue authorities. Repairs to furniture and fixtures - Tribunal in the assessee's own case for AYs 1994-95, 1995-96 and 1996-97, wherein an identical issue came up for consideration and the Tribunal relying upon the decision of the Supreme Court in the case of Madras Auto services (P) Ltd,[1998 (8) TMI 1 - SUPREME COURT] and the decision of the Bombay High Court in CIT(A) v. Hede Consultancy P. Ltd [2002 (6) TMI 19 - BOMBAY HIGH COURT] has allowed these expenses as revenue in nature. Thus, we accept the claim of the assessee. The assessee is not the owner of any of these assets and the expenses are only to give a better working atmosphere to its employees and also to give an aesthetic look to its customers. Therefore, the expenditure in question is purely revenue in nature and is directed to be allowed. The depreciation granted by the Assessing Officer on these assets in the year under consideration as also in the subsequent years is directed to be withdrawn. Disallowance of aircraft redelivery charges, heavy maintenance expenses and major engine repairs - change in the method of accounting - In the light of facts it cannot be said that the claims of the assessee are only contingent in nature and are not the accrued liabilities. In fact, in the nature of the assessee's business the assessee has to incur these expenses. The only uncertainly is the actual time of the expenditure But the expenditure itself has to be incurred because of the flying hours completed. Even the quantum of the expenditure provided for in the accounts are based on the opinion of the technical people. The independence of such authorities is not in serious dispute by the revenue authorities. We, therefore, do not agree with the Assessing Officer that the expenditure to the extent claimed is contingent in nature having regard to the facts of the case and the method of accounting that are required to be followed by the assessee in the line of business in which it is operating. The learned CIT(A) has discussed all the case laws on which reliance was placed by the assessee and we have only avoided repetition by not mentioning of the same. We approve the impugned order not only on the basis of the discussion of the case also but also on the factual aspect of the matter. In other words, the case laws discussed by the CIT(A) justifies the claim of the assessee for acceptance as accrued liability. His order on all the three disallowances is therefore confirmed. Disallowance of depreciation - We agree with the view of the CIT(A) that the conditions laid down in the said clause 30 are nothing but more than the routine formalities that are to be performed by the hirer. Such terms and conditions are usually part and parcel of every hire purchase agreement. To avoid these controversies the Board has issued circulars from time to time enabling the hirer to claim depreciation on assets acquired under what is known as hire purchase agreements. The Madras High Court in the case of Tamil Nadu Dairy Development Corporation Ltd.[1998 (3) TMI 61 - MADRAS HIGH COURT] has also considered similar agreement and upheld the claim of depreciation on the assets acquired under similar hire purchase agreement. Therefore, the CIT(A) was right in law, in directing the allowance of depreciation on the two aircrafts acquired by the assessee and we decline to interfere. Addition for frequent flyer expenses - It is not the case of the revenue that the liability provided by the assessee is not in accordance with the scheme operated by the assessee The liability provided is in respect of variable cost of flying the aircraft. That is also based on the minimum cost. In our view, these provisions are based on the experience of the airline and the actual miles accumulated by the passengers. If one were to go through the entire scheme it cannot be said that provision made by the assessee is in respect of a contingent liability. The principle laid down by the Hon'ble Supreme Court in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT], equally applies to the scheme in question and the claim of the assessee has been properly appreciated by the CIT(A) and his order is confirmed. Accordingly, this ground of the revenue is rejected for all the years. In the result, the departmental appeals are dismissed; the assessee's appeal for A.Ys. 1998-99 and 2001-02 are partly allowed and those for A.Ys. 1997-98, 1999-2000 and 2000-01 are allowed.
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