Tribunal rules in favor of company, overturns interest disallowance and depreciation on helicopters

The Tribunal allowed both appeals of the assessee, ruling in favor of the company. The disallowance of interest payable to the Government of India was deemed unwarranted as the interest claimed was a definite liability, not contingent, and aligned with the mercantile system of accounting. Similarly, the disallowance of depreciation on Westland Helicopters was overturned, emphasizing that depreciation on assets forming part of a block of assets should be allowed regardless of individual asset usage.

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Issues involved:
1. Disallowance of interest payable to the Government of India.
2. Disallowance of depreciation on Westland Helicopters.

Analysis:

Issue 1: Disallowance of interest payable to the Government of India:
The case involved the disallowance of interest aggregating to a significant amount due and payable to the Government of India by the assessee company. The company had acquired helicopters funded by grants from the UK and France governments, with a shortfall in deposits to the Ministry of Finance, resulting in interest liabilities. The Ministry of Civil Aviation requested a waiver of interest, but the Ministry of Finance rejected the waiver. The Assessing Officer disallowed the claimed deduction, citing reasons such as non-provision in accounts, unascertained liability, lack of bifurcation details, and potential capital expenditure. The CIT (A) upheld the disallowance. However, the Tribunal held that the interest claimed was a definite liability, not contingent, as evidenced by continuous insistence from the government for payment and rejection of waiver requests. The Tribunal noted that similar deductions were allowed in preceding and succeeding assessment years, and the liability pertained to the current year, aligning with the mercantile system of accounting followed by the assessee. Consequently, the disallowance was deemed unwarranted, and the interest payable to the Ministry of Finance was allowed as a deduction.

Issue 2: Disallowance of depreciation on Westland Helicopters:
The second issue revolved around the disallowance of depreciation claimed on Westland Helicopters, part of the block of assets acquired in 1986-87 but not used in the current assessment year. The Assessing Officer disallowed the depreciation, asserting non-usage of the asset. However, the Tribunal highlighted that the concept of "Block of Assets" under Section 2(11) encompassed group assets, and depreciation granted on the block could not be denied based on the non-usage of individual assets within the block. Citing relevant case laws, the Tribunal emphasized that depreciation on assets forming part of a block of assets should be allowed irrespective of individual asset usage. Therefore, the assessee was entitled to the depreciation claimed on Westland Helicopters, and the disallowance was overturned.

In conclusion, both appeals of the assessee were allowed by the Tribunal, emphasizing the rightful allowance of interest payable to the Government of India and depreciation on Westland Helicopters.

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