2023 (3) TMI 404 - AT - Income Tax

Addition of prior period expenditure - AO had considered the fact that the expenditures are allowable on accrual basis - HELD THAT - CIT(A) on facts and law following order of co-ordinate bench in DCIT-6 Kanpur vs. UP State Handloom Corporation Ltd. 2014 (11) TMI 1268 - ITAT LUCKNOW wherein it was held that if any disallowance is required to be made in regard to it same can only be made with respect to net prior period expenses debited to the profit and loss account of the current year. Reliance in this regard can also be placed on the judgment in PCIT-7 vs. M/s. Mazagaon Dock Ltd. 2019 (8) TMI 1860 - BOMBAY HIGH COURT wherein as sustained the findings of Tribunal for netting of prior period income against prior period expenses. No interference is required. The ground is decided against the Revenue. Disallowance of staff welfare expenses - based on the opinion reported in 3CD report the disallowance was made as the expense was not actually incurred - HELD THAT - During the year under consideration Ld. CIT(A) seems to have been carried with the fact that as expenditure was allowed in previous years same should be allowed on principal of consistency but as every assessment is independent and if no evidence is on record to show that out of this reserved created to meet an exigency at any point of time in the past or in the present year an expenditure has been incurred towards payment of compensation to the pilot then the on principal of consistency alone allowing it is not justified. Thus Bench is inclined to allow this ground of appeal in favour of Revenue. Provision for maintenance expenses obsolescence of spares and redelivery - HELD THAT - As the matter of fact is that in assessee s own case for A.Y. 2006-07. 2017 (12) TMI 1857 - ITAT DELHI the issue has been decided in favour of the assessee by following co-ordinate Bench judgment in ACIT vs. M/s. ACIT-5(2) Mumbai vs. Jet Airways (I) Ltd. 2010 (10) TMI 1243 - ITAT MUMBAI which is also being relied by the Ld. CIT(A). Ld. DR could not cite any distinguishing fact or question of law involved thus this ground is decided against the revenue.

Summary

Issues:
1. Addition of prior period expenses
2. Disallowance of staff welfare expenses
3. Addition of provision for maintenance expenses, obsolescence of spares, and redelivery

Analysis:

Issue 1: Addition of Prior Period Expenses
The appeal by the Revenue was against the order of the Commissioner of Income Tax (Appeals) regarding the additions made by the Assessing Officer (AO) in the assessment year 2007-08. The AO had made additions for prior period expenses, loss of crew license, and provision for maintenance expenses. The Commissioner had deleted these additions. The Revenue contended that the AO had considered the expenses on an accrual basis without accounting for prior period income received by the assessee. However, the Tribunal upheld the Commissioner's decision, citing precedents that disallowances should only be made with respect to the net prior period expenses debited to the profit and loss account of the current year. The Tribunal also referenced a Bombay High Court judgment supporting the netting of prior period income against expenses. Thus, the ground was decided against the Revenue.

Issue 2: Disallowance of Staff Welfare Expenses
Regarding the disallowance of staff welfare expenses, the Tribunal noted that the expenses were reserved for meeting contractual obligations with pilots when grounded, resulting in loss of license compensation. The AO had disallowed these expenses, stating they were not welfare expenditures. The Tribunal found that the expenses had been allowed in previous years based on consistency but emphasized that each assessment is independent. As there was no evidence to show that the reserve had been used for compensation, the Tribunal decided in favor of the Revenue, disallowing the expenses.

Issue 3: Addition of Provision for Maintenance Expenses
The Tribunal considered the deletion of the addition made by the AO for provisions of maintenance expenses, obsolescence of spares, and redelivery. Referring to a previous decision in the assessee's favor for another assessment year, the Tribunal upheld the Commissioner's decision to delete the addition. The Tribunal found no distinguishing facts or legal questions presented by the Revenue, leading to a decision against the Revenue on this ground as well.

In conclusion, the appeal by the Revenue was partly allowed, with the Tribunal ruling on each issue based on the facts and legal principles presented during the proceedings.

This summary provides a detailed analysis of the judgment, addressing each issue raised in the appeal comprehensively.