TMI Blog2012 (7) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount, thus in the absence of any reconciliation or evidence in support of the amount the amount is need to be disallowed - against assessee. Disallowance for want of reconciliation - Accounts with Indian Airlines Ltd., the parent company, have neither been reconciled nor confirmed - Held that:- Since no reconciliation has been submitted either before the AO or before the CIT(A), in the absence of any basis, no alternative left but to uphold the findings of the ld. CIT(A)to warrant disallowance - against assessee. Addition on account of grant received - AO has taken the entire grant received for the year as the revenue of the assessee, which has been vehemently contested - Held that:- It is not in dispute that the grant given to the assessee was Rs. 35 crores for the year which was based on the MOU between the assessee and NEC (North Eastern Council). As per the MOU, the total sanction from the government was Rs. 175 crores over a period of 5 years for improving air connectivity in the north east region - the assessee has been following the accounting standards as prescribed by ICAI which cannot be faulted for this. It is not a matter of dispute here is that the govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. Revenue by : Ms.Anuradha Misra, DR. ORDER Per Bench: These six appeals - appeals for AYs 2000-01 2004-05 filed on 21st May, 2010 by the assessee against two separate orders dated 12th March, 2010 of the ld. CIT(A)-IV, New Delhi, and cross-appeals filed on 29th July, 2011 by the assessee and by the Revenue on 21st July, 2011 against two separate orders dated 25th May, 2011 and 30th May, 2011 of the ld. CIT(A)-IV, New Delhi, for the AYs 2003-04 2004-05 respectively, raise the following grounds:- ITA no.2405/Del/2010[Assessee]-AY 2000-01 1. For that the order passed by the learned Commissioner 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 Rs. 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 in appeal without appreciating the fact that the liability crystalised during the year. 3. For that the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowances made by the assessing officer under prior period claim on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal without appreciating the fact that the liability crystalised during the year. 3. For that the learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs. 34.31 lacs without appreciating that the detailed consumption was advised by Indian Airlines, the holding co. on the basis of working done and which is a supporting voucher. 4. For that the Learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs. 6,98,92,000/- on account of amount remaining unreconciled with the parent company, Indian Airlines without appreciating the fact that the reconciliation statement had been done later and the same was filed with the assessing officer. 5. For that the order passed by the learned Commissioner of Income Tax (Appeals) is in violation of the principles of natural justice, is not based on the sound principles of interpretation of statutes, and is contrary to the scheme of the Income Tax Act, 1961. Your appellant craves the leave to alter, modify, add to, delete from or otherwise vary the above grounds of appeals. Your appellant further submits that the grounds of appeal, save as otherwise specified, notwithstanding and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011[Revenue]-AY 2005-06 1. The ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 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 found satisfactory. 2. The ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 7,99,315/- on a/c of disallowance of uninsured risk towards loss of license of pilots, ignoring that said expenditure was purely contingent in nature which was neither accrued nor actually spent. Further, principle of res-judicata is not applicable in income-tax proceedings. 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of this appeal. 2. At the outset, none appeared before us on behalf 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not been fully provided by the appellant, there is no justification for allowing this expense to the appellant. This addition made by the Assessing Officer has been upheld and this ground of the appellant is dismissed. 4.1 Likewise in the AY 2004-05, the ld. CIT(A) upheld the disallowance, holding as under:- After going through the observations of the Assessing 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 why prior period expenses being considered in the year in which they actually pertained to. The AR has only provided vague and general reasons to state that these expenses got crystalised in this financial year and had also not been claimed earlier year. However it is pertinent to note that these expenses were pertaining to earlier years and without any proper justification or proof of crystallization there was no justification for allowing these expenses in this relevant financial year. Further the issue has earlier been decided against the appellant and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years it cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year, the Hon ble High Court observed. It was further concluded that it is 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 under the mercantile system of maintaining books of account. An estimated income or 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 case 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 crystallized in the respective years under consideration. In the absence of any basis, we 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amount of Rs. 534.79 lacs is not in dispute. Insofar the amount of Rs. 34.31 lacs is concerned it is clearly mentioned in the Audit Report that the same was unverifiable. Considering the fact that no evidence has been provided to support the contention of the assessee, the addition is sustained. This is on account of the fact that the assessee has failed to furnish any evidence to support its contention in this regard. The assessee succeeds 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 Rs. 34.31 lakhs while Revenue is in appeal for deleting the addition of Rs. 534.79 lakhs. The ld. DR merely supported the findings of the AO. 10. We have heard the ld. DR and gone through the facts of the case. Indisputably and as pointed out by the ld. CIT(A), the amount of Rs. 534.79 lakhs was included in the closing stock for the year under consideration, as detailed in para 16 of the impugned order. Thus, the plea of the ld. DR on this aspect is devoid of any merit. As regards amount of Rs.34.31 lakhs mentioned in the audit observation, neither any evidence was furnished before the AO nor before ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government sanctioned a grant of Rs. 35 crores to improve air connectivity in northeastern region. For this purpose, the assessee took on lease four ATR-42-320 aircrafts for a period of five years from M/s Aviande Transport Regional (ATR). The assessee submitted that 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 Rs. 7.29 crores. However, the AO did not accept the submissions of the assessee on the ground that assessee was following mercantile system of accounting and since the amount of Rs. 35 crores accrued to the assessee, the AO added the difference of Rs. 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 remanded to the ld. AO. No reply was submitted. On 22.02.2011, it was added that the appellant had been following the mercantile system of accounting uniformly since incorporation. Even the grant had not been received by the assessee upto 31.03.2003 but on the basis of the working submitted earlier, Alliance Air booked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Standards as under: (3C) For the purposes of this section, the expression Accounting Standards means the standards of accounting recommended by the ICAI constituted under the Chartered Accountants Act, 1949 as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established 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 Accounting Standards are prescribed by the Central Government under this sub-section. 12. It is mentioned that the accounting standards have been recognized and judicially noted by various 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. 13. Thus, the assessee has been following the accounting standards as prescribed by ICAI. They cannot be faulted for this. It is not a matter of disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal of the assessee for AY 2005-06 relates to disallowance of an amount of Rs. 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 Airlines in terms of certain agreements between the assessee and the holding company. CAG in its report pointed out that the assessee made excess payment of Rs. 3.92 crores to its holding company, without deducting proportionate lease charges for utilisation of aircraft by the holding company for 637 hours, thereby overstating the loss to that extent. To a query by the AO, the assessee did not furnish any reply. However, while referring to the reply submitted before CAG that as substitution of aircraft between two airlines is done on grounds of operational necessity, there is a mutual understanding to bill the other airline on cash cost basis only , the AO having recourse to provisions of sec. 40A(2)(a) of the Act, treated the amount of Rs. 3.92 crores excessive and accordingly disallowed the amount. 20. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:- 23. Having perused the matter and taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not substantiate its claim of change in method of accounting. Accordingly, the AO disallowed the amount. 24. On appeal, the ld. CIT(A) while observing that the accounting standards have been recognized and judicially noticed by various 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, allowed the claim in the following terms:- 11. Thus, the assessee has been following the accounting standards as prescribed by ICAI. They cannot be faulted for this. Further, the ld.AO, in the impugned order has not shown that how the change in the accounting policy was not bonafide. He has also not rejected the books of accounts. Evidently, the change in accounting was done based on the decision of the management and was not deliberate. Further, it is observed that even if there is a change in the method of accounting, the taxability would come in the subsequent years as held in CIT Vs. Dinesh Kumar Goel [2011] 239 CTR (Del.) 46 if we go by the AO. Therein, the Hon ble High Court has held as following: 27. In a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in method of accounting for provision of obsolescence of aircraft rotables and special tools. The assessee claimed that change in accounting policy on inventory was bonafide. The ld. CIT(A) allowed the claim, there being nothing to suggest that change in method of accounting was not bonafide. Before proceeding further , we may have a look at the relevant 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 regularly employed by the assessee; and (b) further adjusted to include the amount of any tax, 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 condition as on the date of valuation. Explanation .--For the purposes of this section, any tax, duty, cess or fee (by whatever name calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation, 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 so as to reduce its tax burden. Hon ble Calcutta High Court in the case of CIT v. Delta Plantation Ltd. [1993] 114 CTR 271, held that when the change is made by the asessee in the method of valuation of stock, so as to follow the method of stock 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 the method of stock valuation is changed. Similarly in the case of CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612,(Cal), it was held that when the accounting method is changed with a bona fide intention, the change should be accepted by the Revenue. 26.3 Likewise, Hon ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alued the stock in terms of the accounting standard and that the changed method has been regularly followed by the assessee in subsequent years, after allowing sufficient opportunity to the assessee. If the method of stock valuation is in terms of the said accounting standard and regularly followed 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. In view of the foregoing , ground no.1 in the appeal of the Revenue for the AY 2005-06 is disposed of as indicated hereinbefore. 28.. Ground No.2 in the appeal of the Revenue relates to disallowance of Rs. 7,99,315/-. The AO noticed during the course of assessment proceedings that the assessee created an insurance reserve in respect of uninsured risk by crediting 2.45% of the annual gross salary of pilots and crew on contract for contingencies of their accident/hospitalization. To a query by the AO, the assessee submitted that the aforesaid reserve has been 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 in nature and, accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent from the findings in the impugned order, the assessee is consistently following the prescribed accounting policy 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 assessee made the provision on the basis of actuarial valuation. The ld. DR did not place any material before us, suggesting that the liability was contingent in nature. 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. 32. Ground nos.1 4 in the appeals of the assessee 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 separate adjudication while there is nothing to suggest the ld CIT(A) violated any principles of natural justice; rather the assessee did not furnish the relevant details requisitioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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