TMI Blog2006 (5) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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the Assessing Officer on these assets in the year under consideration as also in the subsequent years is directed to be withdrawn.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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - G.E. Veerabhadrappa, Vice President and Shailendra Kumar Yadav For the Appellant: P. Daniel, Standing Counsel For the Respondent: A.V. Sonde, Krupal Kanakia and Avnish Arora ORDER Per : G.E. Veerabhadrappa, Vice President : These are cross-appeals arising out of different orders of the CIT(A) involving assessment years 1997-98 to 2001-02. Some of the issues being common the appeals were heard together and are being disposed of by this consolidated order. 2. We shall take up the assessee's appeal for A.Y. 1997-98 in ITA No. 4228/M/2000 first. This appeal arises out of the order of the CIT(A) 22nd June 2000. The first dispute in this appeal relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. The facts of the present case are identical to the facts of the Bharat Earthmovers. Therefore, following the decision of the apex court we delete the disallowance made by the revenue authorities. 5. The next issue in this appeal of the assessee for assessment year 1997-98 relates to the disallowance made by the Assessing Officer out of the repairs to furniture and fixtures. From out of the details filed by the assessee, the Assessing Officer was of the opinion that some of the items of expenditure are capital in nature. He has mentioned such details as under : Sl. No. Name of the Party Date Amount Nature of expenditure 1. Salasar Cont. Co. 6.6.96 1,00,589 Towards interior work carried out as S.M. Centre 2. Salasar Cont. Co. 6.6.96 2,19,579 Towards renovation work (furniture) carried out at Raj Air Counter 3. Salasar Cont. Co. 10.01.97 74,800 Reservation and ticketing counter and storage box. 4. Salasar Cont. Co. 20.1.97 2,62,090 Renovation of ticketing counter and repair of key board drawer. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure requiring replacement every now and then to give a better look to its customers. The assessee has not derived any asset or benefit of an enduring nature. The learned counsel for the assessee further relied upon the decision of the Tribunal in the assessee's own case in ITA Nos. 2037, 20.8 and 2039/M/1999 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, (233 ITR 468) and the decision of the Bombay High Court in CIT(A) v. Hede Consultancy P. Ltd (258 ITR 380) has allowed these expenses as revenue in nature. The learned standing counsel for the revenue, on (he other hand, pointed out that these expenses are rightly treated as capital in nature by the Assessing Officer and has granted depreciation thereon. 7. We have carefully considered the rival submissions and have gone through the details including the discussions in paragraph 6.5 in the order of the Tribunal for A.Y. 1995-96, wherein the Tribunal following the decision of the Supreme Court and also the Jurisdictional High Court cited supra, has accepted the claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or heavy maintenance cost as incurred. The company has changed its method of accounting. The charge for the year as a result of the change was to the extent as aforementioned. Heavy aircraft maintenance expenses on C/D -checks are booked at a predetermined rate. The assessee submitted a detailed note on the allowability of this expenditure vide letter dated 26.11.99 which read as under: As per the Maintenance Programme laid down by the manufacturers, a D check is required to be carried out on 737-400 aircraft after every 22,400 flight hours. This requirement is again reemphasized when the aircraft is taken on lease basis and all lease agreements specify the performance of the 'D' check. As this expenditure relates to the period of use of the aircraft, it is necessary to book the expenditure year wise instead of booking it after the completion of 22,400 flight hours. The details of the expenses provided for and the actual expenses incurred in the subsequent year are given in annexure-A. Further this practice is in line with the 'IATA' airline accounting guideline on maintenance costs' which provides that heavy maintenance costs should be expressed on a basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Madras Industrial Investment Corporation Ltd. (225 ITR 802) The Assessing Officer was of the view that all the three issues viz (i) aircraft redelivery charges (ii) heavy maintenance expenses and (iii) major engine repair expenses are all of similar nature and, therefore, proceeded to deal with all the three claims together. Coming to the aircraft redelivery charges the Assessing Officer was of the view that the said expenses have to be incurred on expiry of the lease. On perusal of the lease agreements the Assessing Officer was of the opinion that the redelivery of the aircrafts will take place upon the happening of an event i.e. on expiration or termination of the lease term (Article 12) and all costs including painting in the lessor's livery, fuel cost, applicable fee, accommodation costs, and all other referable cost to the ferry flight are to be borne by the lessee. Article 7 of the lease agreement deals with use, operation, maintenance and taxes. As per Article 7.3 it is the responsibility of the lessee to maintain operational control of the aircraft and to use the aircraft in accordance with the Laws and Regulations of any governmental authority. As per Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of accounting from earlier year by estimating the expenditure instead of debiting at actuals. During the year the assessee provided an amount of ₹ 5,35,15,993/- towards heavy maintenance. This expenditure is mainly provided for D-check payable to Malayaian Airline Systems. The assessee has not incurred this expenditure during the year but merely provided in the books on the ground that the assessee is going to incur this expenditure in future. It means that the assessee estimating the expenditure for the present without actually incurring the same. The assessee argued that this practice is in line with I.A.T.A. accounting guidelines on maintenance cost, which provides that heavy maintenance cost should be expressed on a basis that ensures that the charge to the P and L account is matched with the associated revenues. The assessee has not furnished the basis for provision made. The expenditure incurred on maintenance (D-check) etc., cannot be provided on estimate basis in view of the clear provisions of the I.T. Act. (Section 31). Moreover, the IATA, guidelines on accountancy cannot determine whether a particular expenditure is allowable on the basis of provision. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being incurred or accrued under this head. The assessee is following different methods of accounting for different heads of expenses to suit its convenience. There is no uniformity in the accounting practice of the assessee. The claims of the assessee are only on provisional basis and, therefore, disallowed all the claims. 9. Before the learned CIT(A) the assessee submitted detailed notes in respect of each of the claim and pointed out that the assessee's main line of business is subject to strict control. So far as the maintenance of aircrafts and their airworthiness is concerned, some of such controls are (i) Before any aircraft is allowed to fly, mandatory Certificate of airworthiness is to be obtained from Civil Aviation authorities. (ii) Before each flight takes off, the aircraft is checked and routine repair are carried out. An airworthiness certificates is issued by a qualified engineer and accepted by the Captain of the aircraft. (iii) Apart from the above, the aircrafts engines are to be mandatorily inspected after flying certain hours as per the specifications laid down by the DGCA and lessor of the aircraft. (iv) In respect of leased aircraft/engine, the lease agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve mandatory conditions and contractual obligations. The other salient feature, which was noticed, was that, except for routine maintenance which is carried on day to day basis, all other mandatory and contractual obligations spilled over the accounting year Taking in to account these peculiarities and ground realities of the airline business, IATA had laid down the norms for recognizing the income and expenditure so as to ensure that in every accounting year the income and expenditure are matched and lopsided treatment of accounting either income or expenditure is avoided The assessee has also placed airline accounting guidelines No 5 issued by JATA in the paper-book filed before the CIT(A), The assessee claimed that it had only adopted the guidelines issued by the IATA as the same were required to be followed by all major airlines in the world and these guidelines synchronized with the modified accounting norms promulgated by the Central Government. The so-called clarifications in the balance-sheet are nothing but mandatory compliance of such provisions. The change in the method of accounting was only the result of these compliances and cannot be subjected to any disallowance mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crafts of the appellant company had undergone D Check and in both the instances the provision made by the appellant company to meet the cost were inadequate as can be seen from the table below : Aircraft No. Provision made Rs. Actual Expenses Rs. Short Provision Rs. VT JAC 4,51,74,337 4,91,86,661 40,12,324 VT JAD 4,39,56,486 4,51,65,137 12,98,651 Thus, it is submitted that the Appellant Company has been very conservative in providing for these expenses. In the opinion of the A.O. the expenditure was not actually spent during the assessment year under review and therefore the appellant company was not eligible for deduction under Section 31 of the Income-Tax Act. It is submitted that in this case the A.O. has neither challenged the lease agreement of the appellant company or the DGCA guidelines nor the fact that the appellant company is under contractual obligation to undertake this inspection and pay this amount. Just because the liability for heavy maintenance cost secured during the assessment year under review but would be paid in future cannot be the basis for disallowance of appellant's claim. Major Engine Repairs The aircraft engine requires major repairs at periodic inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t policy for providing US$ 290,000 per aircraft as redelivery charges. This amount is accrued over the lease term since inception. The Appellant Company had provided (he details of current year provisions to the A.O. vide its letter dated 17-9-1999 which is again given on pages 264 and 265 of the Paper Book. It is submitted that the provisions made be the appellant company in respect of redelivery charges are on conservative side and the actual expenditure incurred for redelivery of aircrafts exceeded the provisions made as can be observed from the table given hereinbelow: Aircrafts No. Liability Provided during Asstt. Year 1997-98 Rs. Total Provision in Books Rs. Actual Expenses VT JAC MSN 24096 20,90,900 1,02,10,229 200,24,530 VT JAD MSN 24097 20,90,000 1,02,10,229 192,66,190 The appellant had followed the scientific method of accounting by proportionately claiming the contractual liability under the lease agreement over the period of the lease. The agreement between the appellant company and (he lessor has not been challenged by the A.O, Further; the liability on account of the redelivery of the aircrafts is definite and certain. The fact that the aircraft will go back to the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn to the decision of the Allahabad High Court in the case of New Victoria Mills Co. Ltd. (61 ITR 395) wherein it has been held that the liability, which the assessee has provided has neither crystallized nor is ascertained nor is enforceable. He contended that the Allahabad High Court in the case of Ashok Iron and Steel Rolling Mills (supra), the liability accrues only when it crystallizes or becomes ascertained. According to the learned standing counsel for the department, in this case none of these conditions are satisfied for the purpose of claiming the same as deduction under the Act. He submitted that the redelivery of the aircraft has to take place in future. He pointed out that as per the agreements, which are kept on record by the assessee, there can be no question of providing as liability towards the expenditure which are definitely to be arising in future. Any provision based on estimate cannot be allowed as a deduction according to the clear provisions of law. The Assessing Officer, the learned Standing Counsel for the department submitted, has given elaborate reasons why such expenditure cannot be allowed as deduction. The assessee's method of accounting in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the terms of the lease which the assessee has entered into in the course of its business. The department, the learned counsel vehemently pleaded, should have appreciated that the assessee has recognized the expenditure on every conceivable front to match its income and the exercise besides being conservative, is again based upon the technical opinion given by the experts in the field of maintenance of aircraft. Such a regulation by those authorities cannot be simply ignored to suit the convenience of the revenue. To complete the issue, the learned counsel also filed a paper-book containing 340 pages wherein the assessee has enclosed several aircraft lease agreements at pages 2 to 75. A copy of the MPD regarding 737-300/400/500 issued by Boeing USA is placed at pages 94 to 112 and a copy of the Airline Accounting Guidelines for maintenance issued by IATA in association with KPMG is placed at pages 113 to 120 of the paper-book. The assessee has also provided in the paper-book details of the provisions made and the actual expenses incurred so as to show that there has been a short provision on most of the items, which has been properly appreciated by the learned CIT(A) in deleting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic in general. The assessee is under a necessary obligation to follow this regimentation in its aircraft maintenance. No exception can be taken to this. It is for this reason that the IATA prescribes norms for recognizing the income and expenditure so as to ensure that in every accounting year the income and expenditure are matched and lopsided treatment of the accounting either of the income or of the expenditure is avoided. The assessee has filed the guidelines issued by IATA which is a part of the paper-book filed before us. The accounting methods and procedures will have to thoroughly follow these accounting standards laid down by the regulatory authorities of the principal business. It cannot be said that any change in the method of accounting to fall in line with those prescribed obligations are not bona fide and the assessee after fallen in line with these prescriptions has followed from year to year basis on the same line, it only strengthens the bona fides of the assessee's claim. All require to be appreciated by the revenue authorities. By following the changed method of accounting, the assessee has not violated any of the provisions of the act. But such method has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not become bankrupt or insolvent and there should not be any liability attached to the payment to be made to the owner. The Assessing Officer concluded as under: From the above clause it is clear that transfer of ownership is not automatic and there is no binding obligation on the hirer to purchase the asset and therefore his needs to be distinguished from the hire purchase agreement regarded as sale that gives the purchaser the facility of paying the price by installments. Moreover, the option given to the hirer as per the above clause for purchase of aircraft was beset with many conditions to be fulfilled by the hirer. Even if the hirer becomes bankrupt/insolvent and any claim is made or to be made on the aircraft by any creditors the hirer cannot exercise his right of option to acquire the aircraft. In the light of above facts and circumstances, the terms of agreement of the hire purchase do not appear to be a simple hire purchase agreement regarded as sale that gives the purchaser the facility of paying the price by installments. The terms of agreement of hire purchase in the present case is a complicated one and the owner had all the rights including the right of ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 of the agreement, upon fulfillment of several conditions stipulated therein and, therefore, the assessee is not entitled to claim any deprecation as owner of the asset. The learned counsel for the assessee, on the other hand, relied upon the discussions in the order of the CIT(A) including the case laws relied by him. He also relied upon the decision of the Tribunal, Jabalpur Bench in the case of Vinod Kumar Malhotra v. ITO (1983) 15 TTJ (Jab) 170 and also the decision of the Delhi High Court in the case of General Industries Corporation (supra) in support of the order of the CIT(A). The assessee has placed a copy of the hire purchase agreement at pages 129 to 197 of the paper-book and also the copy of the certificate of registration from DGCA for aircraft purchased on hire purchase basis. Further a copy of the certificate of initial value from ANZ Grindlays Export Finance for aircrafts taken on hire purchase basis is also enclosed at page 200 of the paper-book. 16. We have carefully considered the rival contentions and have gone through the impugned orders. The order of the learned CIT(A), in our view, does not require any interference. The learned CIT(A) has properly apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai Engg. Corp. vs. DCIT 63 ITD 223 (Nag. Spl. Bench), Hindustan Lever Ltd. vs.IAC 58 ITD 555 (Bom.), and Mahindra and Mahindra Ltd. vs. 61 ITD 129 (Bom.), where expenses of similar nature have been allowed by the respective courts. A.R. has further pointed out that the actual amount spent is ₹ 10183693 and not ₹ 13217646/- as taken by A.O. in the order. Further, CIT(A) has deleted the addition of similar nature in Asstt. Year 1994-95 vide discussion contained in para 7 of the order dated 18-1-1999. I have considered the above submission and also perused the case laws and the appellate order passed by my predecessor for Asstt. Year 1994-95. As the facts are identical, agreeing with views taken by my predecessor, the A.O. is directed to delete the addition made by him u/s 37(4) of the Act. 18. We have heard the learned standing counsel for the department, who strongly supported the findings of the Assessing Officer and in the light of the Bombay High Court decision in the case of Ocean Carriers P. Ltd. (211 ITR 357) and also the decision of the Madhya Pradesh High Court in the case of National Newsprint and Paper Mills Ltd. v. CIT (234 ITR 729) wrongly mentioned in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer treated the same as assess's income u/s.2(24)(x) r.w.s. 36(1)(va) of the Act. Before the CIT(A) the assessee contended that both the payments were late by only one day but were within the grace period of five days allowed under the relevant statutes. Reliance was also placed on the Tribunal decisions in the case of Fluid Air India Ltd. v. DCIT (63 ITD 182-Bom), Hunsur Plywood Works Ltd. v. DCIT (54 ITD 394-Bangalore) and Madras Radiators and Pressings Ltd. v. DCIT (59 ITD 515-Madras). The CIT(A) following the above decisions deleted the disallowance. 21. We have heard the rival submissions and have gone through the record. We find that identical issue was decided in favour of the assessee in its own case for A.Y. 1994-95 vide our order mentioned above holding that after the amendment of section 43B all the payments towards employees as well as employers contribution to provident fund etc., made after the close of the accounting period, but before the due date of filing the return are admissible as deduction. Facts and circumstances being similar as also following the decisions cited before, and relied upon by, the CIT(A) we uphold the order of the CIT(A) on this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank, Austria and these aircraft were registered in India By DGCA in the name of the lessor and the assessee has been shown as an operator of these aircraft. These aircraft as per the license issued by DGCA are to operate within the Indian territory. Further the place of effective management of these aircraft as well as source of income generated from operation of these aircraft is in India. In view of these facts, it is clear that the income of M/s. Mercurbank form leasing activity on aircraft in India would be liable to tax in India, because such income accrues and arises in India. In this context, reference has been made to provision of sec.5(2) (b) of the I.T. Act, which reads as subject to the provision of this Act, total income of any previous year of a person who is anon-resident, includes all income form whatever source derived which. (a) is received or deemed to be received in India in such year, by or on behalf of such person or (b) accrues or arises or is deemed to accrues or arise to him in India during such year . Further section 9 describes the instances of Income deemed to accrue or arise in India. The provisions of this Section 9(1) relevant to the present case are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax was deductible. The assessee has complied with those orders and not deducted tax at source. In other words, the assessee has fully complied with the provisions of Chapter XVII-B. Therefore, The provisions of 40(1)(i) can have no application in a case where the assessee has followed the procedures laid down in Chapter XVII-B. To hold to the contrary would mean that the assessee must not follow the orders passed by the A.O. It is submitted that the A.O. cannot at the same time hold that tax ought not to be deducted and that tax ought to be deducted. In any event the assessee has acted in accordance with the orders of the A.O. and changed his position to comply with those orders. The A.O. cannot take advantage of that change in position to the detriment of the assessee. In view of the above, it is submitted that the very invocation of section 40(a)(i) is incorrect and therefore the above addition of ₹ 14,00,92,734 is unsustainable. The CIT(A) considered the issue in the following manner: 13.19 I have considered the Assessing Officer's reasoning as well as the appellant's submissions. It is not in dispute that. The assessee made an application seeking authorization fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 9(10)(iv) and none of the clauses referred therein as applicable to AY 199S-99 can have any application to lease of Aircraft. It may be noted that at Clause (iva) in Exploitation 2 to section 9(l)(vi) was introduced w.e.f 01.01 2002 and it reads as under: The following clause (iva) shall be inserted after clause (iv) in Explanation 2 to clause (vi) of sub-section (1) of section 9 by the Finance Act7 2001 w.e.f 01.04.2002: (iva) the use of right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in Section 44BB Thus prior to AY. 2002-03 income form use or right to use any industrial, cotrynercial or scientific equipment was not taxable under the Income-tax Act, 1961 13.23 I find that the A.O. has not taken into account the relevant provisions of the DTAA between India and Austria. An analysts of the relevant articles of the DTAA (supra) shows that under the treaty the income earned by the Austrian company would not fall under articles 6 dealing with royalties but would fall under article 3 (supra) dealing with the business profits. Accordingly in the circumstances of the case would be taxable in Austria. 13.24 fn view of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It computed certain variable cost for passenger and made provision in the account and claimed it as a deduction while computing the income. The Assessing Officer asked the assessee's explanation and the assessee vide letter dated 14.03.2003 submitted the following details, 6.2 The Company runs a Frequent Flyer Programme wherein the passengers who frequently use the services of the Airline accumulate mils to their credit. They can accumulate certain miles based on the distance traveled. However, in order to be admitted as a member into the programme, a passenger would have to fly a minimum of 14 sectors in 3 consecutive months ... From Dec' 99 onwards the Frequent Flyer programme was relaunched as Jet Privilege (JP) Programme. The highlights of the scheme are as follows: - A passenger can apply for membership after his first flight by filling up an application form. He will then be issued a Blue Card. To become a Silver Card holder the passenger in required to collect a minimum of 30,000 miles to his credit or complete 30 flights in one financial year whichever is earlier. To become a Gold Card holder the passenger is required to collect a minimum of 60,000 miles to his cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the Hon'ble Calcutta High Court in the case of CIT v. Royal Boot House, (1970) 75 ITR 507 held that an estimated liability, say, in respect of extra sales tax, is debitable in the profit and loss account as an ascertained liability under the mercantile system of accounting. The assessee further relies on the decision of the Gujrat High Court in the case of Balapur Vibhag Jungle Kamdar Mandali Ltd v. CIT (19S2) 135 ITR 91 The assessee submits that in view of the Hon'ble Supreme Court in the case of Poona Electric Supply Co Ltd. v. CIT (1965) 57 ITR 521 if a business liability has actually arisen in the accounting year ( in our case F.Y 1999-000) a deduction should be allowed though the liability may have been estimated and discharged at a later date. Coming to jurisdictional High Court of Mumbai, it was held in the case of Indian United Mills Ltd v. CIT (1975) 98 ITR 426 that such a liability is an ascertainable liability in praesenti though payable in future. It is also submitted that if the liability to a particular sum has been incurred during the accounting period and if otherwise the sum is allowable as a revenue expense, then whether the sum has been actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mileage to that particular passenger and confirms the same to the passenger by giving him information through a letter. The argument of the assessee's counsel that this is not a contingent expenditure but an ascertainable expenditure was rejected by the AO, who treated the same as provision only and did not allow the same. The counsel for the assessee invited my attention to the Tacts of the case and submitted that it is not a case of the liability being contingent, it was submitted that the A.O. relied upon the cases which are not relevant to the facts of the case. Therefore, it was submitted that the amount of ₹ 13,25,08,309/- which was the issued cost worked out by following strict principles of accountancy has to be allowed. 28. The revenue is aggrieved. The learned Standing Counsel for the department vehemently argued that the deduction claimed by the assessee is in respect of a liability that may arise in future, which is purely contingent in nature and such contingent liability, according to the learned Standing Counsel, cannot be subjected to deduction under the provisions of the 1 T Act. It was vehemently argued that the order of the CIT(A) in so far as it al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit of the employees. In the light of the principle laid down by the apex court, the learned counsel for the assessee pleaded that the provision made by the assessee in its accounts under the head frequent flyer programme' should be allowed as a deduction 29. We have carefully considered the rival contentions and have gone through the record. In our view, the claim of the assessee has been properly allowed by the CIT(A). The assessee has a scheme known as frequent flyer programme , whereby the passengers who frequently use the services of the assessee's airline are permitted to accumulate certain number of miles to their credit The can accumulate miles equivalent to the extent of distance travelled. There is a condition to this facility in order to be admitted as a member into this programme. A passenger would have to fly minimum 14 flights in 3 consecutive months. A passenger can apply for membership after his first flight by filling up an application form. He will then be issued a Blue Card To become a Siler Card holder the passenger is required to collect a minimum of 30,000 miles to his credit or complete 30 flights in one financial year whichever is earlier To become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Policy followed by Jet Airways (I) Ltd. In respect of reusable items such as rotetables, galley equipment and tooling under (e) above, NRV takes into consideration provision for obsolescence and wear land tear based on the estimated useful life of the aircraft derived from schedule XIV of the companies Act, 1956 and also includes provisioning for nonmoving / slow moving items. The cost of the routable part acquired at the time of taking possession of the aircraft is capitalized and classified as a Fixed Asset. Every subsequent purchase of such reusable forms a part of the Inventory. A provision for obsolescence on such inventory is made to take into consideration the effluxion of time. It is made taking into consideration the estimated useful life of the aircraft. The estimated, useful life is derived from Schedule XIV of the Companies Act. The company on the opening stock of such reusable stock makes a provision @ 5.6% On every addition during the year the company applies a rate of 2.8%. The policy so followed is consistent with internationally accepted accounting practice in accordance with the industry, Audit Guide prepared by The Civil Aeronautics Subcommittee including Statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.6% Purchases Provision @ 2.8% Galleys 18,300,038.62 1,024,802.16 11,087441.38 310,448.36 Rotables 83,387,843.00 4,669,719.21 63,691,854.00 1,783,371.91 Tools 27,035,330.00 1,513,978.48 5,311,123.00 148,711.44 Total 128,723,211.62 7,208,499.85 80,090,418.38 2,242,531,71 Total Provision 9,451,031.56 32. The learned counsel for the assessee reiterated all the contentions that were taken before the Assessing Officer as well as before the CIT(A) and he vehemently argued that the claim of the assessee is based on a scientific basis approved under the Companies Act, 1956 and the International Accounting Standard applicable to aircraft industry and it is definitely an allowable expenditure as the same was laid out or expenditure for the purposes of assessee's business The assessee has also filed all the relevant information at paged 192 to 206 of the Paper Book for the assessment year 1998-99. Further reliance was placed on the following decisions; a) CIT vs, Mahalaxmai Textile Mills Ltd. (66 ITR 710) b) Kedarnath Jute Mfg Co. Ltd vs CIT ( 82 ITR 363 - SC) c) Jute Corporation of India Ltd vs. CIT (187 ITR 688 - SC) Similar details are filed for every subsequent assessment years To m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it does not make any difference. We, therefore, without going into the merits of the same, confirm the order of the CIT(A) on this issue. 35. The next common dispute in assessee's appeal for the A Ys 1998-99 to 2001-02 relates to disallowance made in respect of repairs to furniture and fixtures. Similar issue has been dealt with by us above in the assessee's appeal for AY 1997-98 wherein we have held that the expenditure in question is purely revenue in nature and is directed to be allowed with a further direction to withdraw the depreciation, if any, granted. With similar directions, this issue for the four years under consideration is disposed off 36 The only remaining ground in the assessed appeal for AY. 1998-99 relates to the disallowance of consultancy fees paid These are the consultancy fees paid to architects, whose services were used in interior designing, The expenditure on interior designing is already a part of repairs and maintenance of furniture The assessee has furnished details of these expenses along with bills at pages 214 to 221 of the paper-book We have gone through the same and find that none of these expenses are in connection with acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the interlacing of business funds and the purpose involved in the short term deposits, we agree with the contention of the assessee that the income in question should be assessed as income from business and not as income from other sources The Assessing Officer is directed accordingly, 40. The next dispute in the assessee's appeal for A.Y. 2001-02 relates to the disallowance of provision for bad and doubtful debts. The learned counsel for the assessee did not press this ground at the time of hearing We, therefore, confirm the findings of the CIT(A) on this issue. 41. The next dispute in the assessee's appeal for assessment year 2002-02 relates to the action of the Assessing Officer in treating the provision for obsolescence as a contingent liability while computing the profit under section 115JB of the Act. The learned counsel for the assessee heavily relied upon the decision of the Hon'ble Supreme Court in the case of Apollo Tyres (255 ITR 273) The learned Standing Counsel for the department, on the other hand, reiterated the departmental stand on the issue. 42. We have carefully considered the rival submissions and have gone through the record. In the light ..... X X X X Extracts X X X X X X X X Extracts X X X X
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