Deductibility of repair provision for unserviceable aircraft spares upheld as a reasonable business liability

A provision for repair of unserviceable aircraft spare parts was treated as deductible business expenditure because the spares formed part of regular inventory and their repair or replacement was a normal recurring requirement in airline operations. The Tribunal accepted that an estimate based on reasonable probability could be allowed even if the exact liability would be quantified later. It rejected disallowance on the ground of contingency, holding that a business liability reasonably estimated and arising in the course of operations is deductible. The disallowance was deleted and the claim was allowed in favour of the assessee.

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Issues: Whether the provision for repair of unserviceable spare parts was allowable as a deductible business expenditure.

Analysis: The provision related to unserviceable aircraft spares forming part of the regular business inventory. The Tribunal held that repair or replacement of such spares was a normal recurring business requirement in the airline industry, and that an estimate based on reasonable probability could be allowed even though the exact liability would be quantified later. The disallowance on the footing that the liability was contingent was rejected, following the settled principle that a business liability reasonably estimated and arising in the course of operations is deductible.

Conclusion: The disallowance was deleted and the claim was allowed in favour of the assessee.

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