TaxTMI 
TaxTMI 
2012 (7) TMI 183
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....73/- by holding that the expenses under the head "Prior Period Expenses" do not relate to the previous year relevant to the assessment year in appeal without appreciating the fact that the liability crystalised during the year. 3. For that the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowances made by the assessing officer under prior period claim on the pretext that even no evidence was shown/produced for the liabilities which were crystalised during the year under appeal. 4. For that the order passed by the learned Commissioner of Income Tax (Appeals) is in violation of the principles of natural justice, is not based on the sound principles of interpretation of statutes, and is contrary to the scheme of the Income Tax Act, 1961. Your appellant craves the leave to alter, modify, add to, delete from or otherwise vary the above grounds of appeals. Your appellant further submits that the grounds of appeal, save as otherwise specified, notwithstanding and without prejudice to each other." ITA no.2406/Del/2010[Assessee]-AY 2004-05 "1. For that the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and bad on fact....
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....n of the principles of natural justice, is not based on the sound principles of interpretation of statutes, and is contrary to the scheme of the Income Tax Act, 1961. Your appellant craves the leave to alter, modify, add to, delete from or otherwise vary the above grounds of appeals. Your appellant further submits that the grounds of appeal, save as otherwise specified, notwithstanding and without prejudice to each other." ITA No.3671/Del/2011[Assessee]-AY 2005-06 "1. For that the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and bad on facts of the case. 2. For that the learned Commissioner of Income Tax (Appeals) erred in sustaining addition of Rs. 1,44,42,723/- by holding that the expenses under the head "Prior Period Expenses" do not relate to the previous year relevant to the assessment year in appeal without appreciating the fact that the liability crystalised during the year. 3. For that the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of Rs. 3,92,00,000/- by treating the same as excessive without appreciating the fact that there existed an agreement between the holding and the subsidiary com....
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....leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of this appeal." 2. At the outset, none appeared before us on behalf of the assessee nor any request for adjournment was submitted. Considering the nature of the issues and findings of the ld. CIT(A), the Bench proceeded to dispose of these appeals after hearing the ld. DR. 3. Adverting first to ground nos. 2 to 4 in the appeals of the assessee for AYs 2000-01 & 2004-05 & ground no.2 in their appeals for the AYs 2003-04 & 2005- 06, facts, in brief. as per relevant orders for the AY 2000-01 are that return declaring income of Rs. 2,30,08,630/- filed on 30th November, 2000 by the assessee, was processed on 24th January, 2002 u/s 143(1) of the Income-tax Act, 1961 ("the Act" in short). Subsequently, the Assessing Officer ("AO" in short) noticed that the assessee claimed a sum of Rs. 1,82,61,773/- on account of prior period expenses besides a sum of Rs. 44,87,44,394/- on account of employees remuneration and benefits etc., of which Rs. 43.13 lacs pertained to the other "Staff Cost", which was not verifiable. Accordingly, the AO, after recording re....
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....that these expenses got crystalised in this financial year and had also not been claimed earlier year. However it is pertinent to note that these expenses were pertaining to earlier years and without any proper justification or proof of crystallization there was no justification for allowing these expenses in this relevant financial year. Further the issue has earlier been decided against the appellant and also keeping in view the principle of consistency I am bound to uphold the findings made by the earlier CIT(Appeal). As a result this ground of the appeal is treated as dismissed." 4.2 In the AYs 2003-04 and 2005-06, the ld. CIT(A), following his decision in the AY 2000-01, upheld the findings of the AO. 5. The assessee is now in appeal before us in these four assessment years against the findings of the ld. CIT(A).The ld. DR, while supporting the findings of the ld. CIT(A) contended that since the assessee did not produce any evidence whatsoever that the liability for the aforesaid expenses crystallized in the respective years under consideration, accordingly, the findings of ld. CIT(A) should be upheld. 6. We have heard the ld. DR and gone through the facts of the case....
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....furnish any evidence before the AO or the ld. CIT(A) that the liability for the expenses shown as prior period expenses crystallized in the respective years under consideration. In the absence of any basis, we are not inclined to interfere. Therefore, ground nos. 2 to 4 in the appeals of the assessee for AYs 2000-01 & 2004-05 & ground no.2 in their appeals for the AYs 2003-04 & 2005-06, are dismissed. 7. Ground no.3 in the appeal of the assessee and ground no.2 the appeal of the Revenue for AY 2003-04 relates to disallowance of an amount of Rs. 34.31 lakhs debited to P/L a/c & Rs. 5,34,79,358/- included in the inventories. The AO while referring to audit observation in para 2(xi) of the report asked the assessee to explain as to why an amount of Rs. 34.31 lakhs and Rs. 534.79 lakhs be not disallowed. In response, the assessee replied that since basic records were maintained by the Indian Airlines as per procedure while reconciliation of the same was done at a much later date and total consumption of material of Rs. 34.31 lakhs was based on the certificate obtained for closing stock as on 31st March, 2003, no amount could be disallowed. The assessee also stated that an amount of ....
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....534.79 lakhs was included in the closing stock for the year under consideration, as detailed in para 16 of the impugned order. Thus, the plea of the ld. DR on this aspect is devoid of any merit. As regards amount of Rs.34.31 lakhs mentioned in the audit observation, neither any evidence was furnished before the AO nor before ld. CIT(A) in support of this amount . Even before us, the assessee is not present. In the absence of any reconciliation or evidence in support of the amount of Rs. 34.31lacs and there being no basis, we have no alternative but to uphold the findings of the ld. CIT(A). Therefore, ground no.3 in the appeal of the assessee as also ground no.2 in the appeal of the Revenue are dismissed. 11. Ground no.4 in the appeal of the assessee for AY 2003-04 relates to disallowance of an amount of Rs. 6,98,92,000/- for want of reconciliation. The AO disallowed the amount in terms of following audit observations in para 2(xii):- "Accounts with Indian Airlines Ltd. - the parent company, have neither been reconciled nor confirmed. Accordingly, accounting transaction is on the basis of debit/credit raised by Indian Airlines and vice versa could not be ensured and verifie....
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...., the matter had been remanded to the ld. AO. No reply was submitted. On 22.02.2011, it was added that the appellant had been following the mercantile system of accounting uniformly since incorporation. Even the grant had not been received by the assessee upto 31.03.2003 but on the basis of the working submitted earlier, Alliance Air booked the proportionate income as per AS12. Reliance was placed on the decisions in CIT Vs. Ashok Bhaia Chiman Bhai (1965) 56 ITR 42 (SC), Murvi India Ltd. Vs. CIT (1971) 82 ITR 835 (SC) and Lakshmi Pati Singhania Vs. CIT (1969) 72 ITR 291 (SC). It was urged that the addition of Rs.27.71 crores be deleted. 10. I have gone through the impugned order and the submissions made by the ld.AR of the assessee. It is not in dispute that the grant given to the assessee was Rs. 35 crores for the year which was based on the MOU signed on 04.08.2004 between the assessee and NEC (North Eastern Council). As per the MOU, the total sanction from the government was Rs. 175 crores over a period of 5 years for improving air connectivity in the north east region. As per the MOU, the airline was to provide 4177 seats per week. NEC was to make available Rs. 35 crores for....
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....Woodward Governor India (P) Ltd. (2009) 312 ITR 254 (SC), CIT Vs. Bilahari Investments (P) Ltd. (2008) 299 ITR 1 (SC) and J.K.Industries Ltd. & Anr. Vs. Union of India & Ors. (2007) 213 CTR (SC) 301. 13. Thus, the assessee has been following the accounting standards as prescribed by ICAI. They cannot be faulted for this. It is not a matter of dispute here is that the government grant given to the assessee was based on operations from which a net expenditure/income had to be arrived at after deducting the expenditure. In such circumstance, if the assessee has shown only an amount of Rs. 7.29 crores, the same has to be sustained. The amount cannot be the total receipt of Rs. 35 crores or the figure of Rs. 27.71 crores. The assessee succeeds in ground of appeal No.3." 17. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The ld. DR merely supported the findings of the AO. 18. We have heard the ld. DR and have gone through the facts of the case. Indisputably, the assessee is following Accounting Standards as prescribed by the ICAI and in accordance with these guidelines, the assessee reflected an amount of Rs. 7.29 crores in the year ....
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....utual understanding to bill the other airline on cash cost basis only", the AO having recourse to provisions of sec. 40A(2)(a) of the Act, treated the amount of Rs. 3.92 crores excessive and accordingly disallowed the amount. 20. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:- "23. Having perused the matter and taken the submissions of both the sides on record, I am of the belief that the Assessing Officer cannot sit on the arm chair of the business man and decide upon the quantum of expenses in a particular transaction. This is a well settled position of law. However, I am afraid that this is not the position here. When specifically questioned on the issue, the assessee did not file any response during assessment proceeding. Secondly, the C&AG in its report has categorically stated that evidence was not provided to explain the expenditure of Rs.3.92 crores. In such a situation, we cannot state that the ld.AO has questioned the very expenditure when he had no document or evidence before him to decide on the matter. He had given an opportunity which was not availed by the assessee. In such circumstance, I have no option but to sustain the addit....
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....was done based on the decision of the management and was not deliberate. Further, it is observed that even if there is a change in the method of accounting, the taxability would come in the subsequent years as held in CIT Vs. Dinesh Kumar Goel [2011] 239 CTR (Del.) 46 if we go by the AO. Therein, the Hon'ble High Court has held as following: "27. In a decision rendered about 50 years ago, the Bombay High Court, speaking through Chief Justice Tendolkar in CIT vs. Nagri Mills Co.Ltd. [1958] 33 ITR 681 (Bom) observed as under: We have often wondered why the IT authorities, in a matter such as this where the deduction is obviously a permissible deduction under the IT Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the asst. yr. 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the asst. yr. 1953-54, should be a matter o....
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....ly employed by the assessee; and (b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.--For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment." 26.1. The AO has rejected the changed method of accounting while the ld. CIT(A) found the same to be bonafide. Here we may analyse the legal recognition of accounting standards issued by ICAI. The accounting standards reflect the views of a professional body, viz., the ICAI and are therefore entitled to the highest respect. Their views with regard to capitalisation of interest during preproduction period was accepted as reflecting the proper commercial principles of accounting by the Hon'ble Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The Hon'ble Madras High Court accepted the view of the ICAI as reflecting the correct accounting practice in Sivakami ....
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....IT v. Ganga Charity Trust Fund [1986] 162 ITR 612,(Cal), it was held that when the accounting method is changed with a bona fide intention, the change should be accepted by the Revenue. 26.3 Likewise, Hon'ble Delhi High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 215 ITR 441,held that when the assessee changed its method of stock valuation and when there is a finding that the change was bona fide and when the changed method had been followed in the subsequent years, the Tribunal was justified in permitting the assessee to change the method. Hon'ble Madras High Court in the case of CIT v. Carborandum Universal Ltd. [1984] 149 ITR 759, held that if the method of stock valuation is changed and if the change is bona fide and the changed method has been continued, the difference arising in the income on account of the changed method is not includible in the income of the assessee during the relevant assessment year. Even the Hon'ble Karnataka High Court has taken a view that when the method of stock valuation is changed and the change is bona fide, the change made by the assessee cannot be objected to by the Revenue. In CIT v. Haryana Minerals Ltd.[2000] 242 ITR....
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.... 2.45% of the annual gross salary of pilots and crew on contract for contingencies of their accident/hospitalization. To a query by the AO, the assessee submitted that the aforesaid reserve has been made after a policy followed year after year. However, the AO did not accept the submissions of the assessee that the liability was purely contingent in nature and, accordingly, added back the amount. 29. On appeal, the learned CIT(A) allowed the claim in the following terms:- "15. I have gone through the order of the ld.AO and the submissions made by the ld.AR of the assessee. It is indisputable that the assessee has been following the prescribed accounting policy since long. Further, the accounting policy had been accepted earlier by the Revenue. In the absence of any change of facts and law, there is no reason why the Revenue should deviate from the already accepted line of assessment. While it is true that res judicata is not applicable to income tax proceedings, the Rule of Consistency has been accepted by the various Courts including the Apex Court. In Radhasoami Satsang Vs. CIT [1992] 193 ITR 321 (SC), it was held that : "We are aware of the fact that, strictly speaking,....