High Court affirms deletion of Rs.27.71Cr, Rs.534.79 lacs by Assessing Officer. Respondent's accounting standards valid.

The High Court upheld the decisions of the lower authorities, affirming the deletion of the addition of Rs.27,71,00,000 by the Assessing Officer and the deletion of Rs.534.79 lacs for unascertained inventories. The Court found that the respondent's accounting standards were appropriate and in line with the grant's terms, and no substantial legal questions were raised by the Revenue. Consequently, the appeal was dismissed.

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Issues:
1. Deletion of addition of Rs.27,71,00,000 made by the Assessing Officer regarding grant spread over five years.
2. Addition of Rs.534.79 lacs due to unascertained inventories.

Issue 1:
The first issue in this case involves the deletion of the addition of Rs.27,71,00,000 by the Assessing Officer, which was made by the Commissioner of Income Tax (Appeals) and affirmed by the tribunal. The grant of Rs.35 crores was sanctioned by the Government to improve air connectivity in the North-Eastern Region. The respondent-assessee leased four ATR-42-320 aircraft for five years from Aviande Transport Regional (ATR). The Assessing Officer contended that the entire grant amount should have been brought to tax in the year of receipt, but the respondent spread it over five years in accordance with the lease period. The CIT (Appeals) and the tribunal found the Assessing Officer's reasoning erroneous as the grant was in line with the Memorandum of Understanding, and the respondent followed AS-12 accounting standards to match the grant with related costs. The tribunal upheld that the accounting standard followed by the respondent was appropriate and no substantial question of law arose on this issue.

Issue 2:
The second issue pertains to the addition of Rs.534.79 lacs, which the Assessing Officer made but was later deleted by the first appellate authority and upheld by the tribunal. The Auditor had qualified the accounts stating that details of inventories worth Rs.534.79 lacs could not be ascertained. The CIT (Appeals) noted that the inventories were duly reflected in the Annual Report under Schedule IV, and the figures were taken from Indian Airlines' records. The tribunal sustained an addition of Rs.34.31 lacs but accepted the rest of the amount. During the proceedings, a remand report was called for, but the Assessing Officer did not contest the respondent's contention regarding the inventories. The tribunal also found no substantial question of law on this issue, as the Revenue did not contest the position regarding the unascertained inventories. Consequently, the appeal was dismissed.

In conclusion, the High Court upheld the decisions of the lower authorities regarding both issues, emphasizing the correctness of the accounting standards followed by the respondent and the lack of substantial legal questions raised by the Revenue.

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