COMMISSIONER OF INCOME TAX-I Vs. AIRLINE ALLIED SERVICES LTD.
August, 16th 2013
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 13/2013
Date of decision: 8th August, 2013
COMMISSIONER OF INCOME TAX-I
Through Mr. Sanjeev Rajpal, Sr. Standing
AIRLINE ALLIED SERVICES LTD.
Through Mr. P.K. Sahu & Mr. Prashant
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
This appeal by the Revenue pertains to Assessment Year 2003-
04 and arises out of order passed by the Income Tax Appellate
Tribunal dated 15th June, 2012.
2. Revenue in this appeal has only raised two issues. First issue
relates to deletion of addition of Rs.27,71,00,000/- made by the
Assessing Officer, by Commissioner of Income Tax (Appeals), which
have been affirmed by the tribunal. The Assessing Officer had noticed
that grant of Rs.35 crores was sanctioned by the Government in the
said year to improve air connectivity in North-Eastern Region. The
respondent-assessee had taken on lease four ATR-42-320 aircrafts for
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five years from Ms/ Aviande Transport Regional (ATR).
3. The respondent-assessee had authorised and had spread this
grant over a period of five years as the lease period of the aircrafts was
sixty months. The Assessing Officer disagreed and held that once the
respondent-assessee had received the grant of Rs.35 crores from the
Ministry of Finance and Company Affairs, the same could not have
been spread over five years, i.e., the lease period, and the entire amount
should be brought to tax in one year, i.e., year of receipt itself. The
assessee was following mercantile system of accounting and the grant
had accrued to the respondent-assessee in the period relevant to the
present assessment year. Thus, addition of Rs.27.71 crores was made.
4. CIT(Appeals) and the tribunal have observed that the Assessing
Officer had committed a mistake and his reasoning was erroneous.
The grant was in terms of the Memorandum of Understanding and as
per the terms of the grant the respondent-assessee was to provide 4177
seats per week. This payment of Rs.35 crores was made for
operational expenses of four leased aircrafts for 60 months. It was held
that the respondent had obtained concessions under the scheme and the
progress of the scheme had to be intimated to North-Eastern Council.
As the respondent was utilising the said grant over a period of five
years, they had followed AS-12 accounting standards. CIT(Appeals)
and the tribunal have held that the said standard recognises that while
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computing profit and gains, the account should be prepared on
systematic and rational basis so as to match the receipt or the grant,
with the related cost. AS-12 was in accordance with Section 145 of the
Income Tax Act, 1961 and Section 211 of the Companies Act, 1956.
CIT (Appeals) and the tribunal have referred to the aforesaid admitted
factual matrix and the applicable and relied upon accounting standard,
which were prescribed by the Institute of Chartered Accountants. It
was held that the accounts of the respondent should give true and fair
view of the profit and loss account. Reference has been made to
judgments of the Supreme Court in CIT versus Woodward Governor
India Private Limited, (2009) 312 ITR 254 (SC), CIT versus Bilahari
Investments (P) Limited, (2008) 299 ITR 1 (SC) and J.K. Industries
Limited & Another versus Union of India & Others, (2007) 312 CTR
5. The findings recorded by the two appellate authorities is that the
standard followed by the respondent was as per accounting standard
AS-12 prescribed by the Institute of Chartered Accountants. The
said method of accounting cannot be faulted or ignored. It is further
recorded that there was no dispute that the grant given to the
respondent was based upon operations from which net
profit/income had to be arrived at after deducting the expenditure.
The grant had to be utilised over five years. They accordingly
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accepted that amount of Rs.7.29 crores declared by the respondent, out
of grant of Rs.35 crores should be treated as income of the year in
question. Before us, the counsel for the Revenue has not been able to
point out and state, how and why the reasoning can be faulted as the
assessee had followed AS-12. Revenue has not disputed before us that
the accounting standard, as prescribed by the institute, has been
followed. On the first question, therefore, no substantial question of
6. The second question relates to addition of Rs.534.79 lacs, which
was made by the Assessing Officer but again deleted by the first
appellate authority and upheld by the tribunal in the impugned order.
The Assessing Officer has recorded that in the notes of the Auditor,
they had qualified the accounts stating that details of inventories of
Rs.534.79 lacs could not be ascertained. The assessee in the reply had
stated that the basic records were maintained by the Indian Airlines as
per procedure and the reconciliation of the same was done at much
later date. On the question of reconciliation, we may state that the
tribunal has sustained addition of Rs.34.31 lacs. On the question of
inventories of Rs.534.79 lacs, the CIT (Appeals) has recorded that this
amount was duly reflected in the Annual Report. He has made
reference to Schedule IV of the Annual Report where under the head
`inventories' full details had been given. It is pointed out that the
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inventories were maintained by Indian Airlines and the figures given
by them have been taken in the books. The Auditor had hedged his
report and had stated that they could not ascertain inventories of
Rs.534.79 lacs in view of the said factual position, i.e., they had taken
the figures given by Indian Airlines and had not examined the
accounts/books of Indian Airlines.
7. During the course of the first appellate proceedings, in view of
the response/contention of the appellant, a remand report from the
Assessing Officer was called for. The Assessing Officer did not
submit the remand report to contest the contention of the respondent-
assessee. CIT (Appeals) accordingly recorded that amount of
Rs.534.79 lacs was not in dispute. The respondent-assessee succeeded.
Before tribunal also, the Revenue could not contest the said position as
has been recorded in paragraph 10 of the impugned order passed by the
tribunal. Therefore, even on the second issue, we do not find any
substantial question of law arises for consideration.
The appeal is dismissed.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
AUGUST 08, 2013
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