TaxTMI 
TaxTMI 
2015 (11) TMI 304
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.... ITAT in ITA No. 2753,3151, 3152 & 3153(Del)/1999 for the Assessment Years ('AYs') 1996-97, 1995-96, 1996-97 & 1997-98. ITA Nos. 1206 of 2005 and 1209 of 2005 of the Revenue are directed against the common order dated 12th April 2005 passed by the ITAT in ITA Nos. l42&1143/Del/01 for the AYs 1998-99 & 1999-2000. ITA No. 86 of 2011 by the Revenue is directed against the impugned order dated 10th July 2009 passed by ITAT in ITA No. 682/All/2000 for the AY 1996-97. 2. At the outset it requires to be noticed that in these cases, the Assessing Officers (AO), the Commissioner of Income Tax (Appeals [CIT (A)] have in their respective orders and the ITAT in the order dated 12th February 2002 referred to FYs 1994-95 to 1998-99 whereas the subsequent orders of those authorities including the orders dated 30th August 2004, 12th April 2005 and 10th July 2009 of the ITAT refer to AYs as mentioned hereinbefore. 3. Initially the name of the Assessee was Sahara Airlines Limited ('Sahara'). Subsequently it was renamed as Jet Lite (India) Limited. Pursuant to the orders passed by the Court on 23rd May 2012 and 31st July 2015 the name of the Assessee in these appeals stood amended as such. B....
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....greed to provide ground and flight simulator training to Sahara's flight crews on the terms and conditions set out in the said agreement. HFTL was to make available to Sahara's flight crews and instructors, training equipment including a flight simulator appropriate to the aircraft for use in flight simulator training. Sahara was to pay HFTL GBP 171 per hour for the use of the flight simulator without any instructor of HFTL being present. 9. Sahara states that similar arrangements were entered into with other companies based in the United Kingdom in terms of which flight crew was provided with the facility of a simulator. The payments were made pursuant to the said agreement made by Sahara without deducting tax at source during the FYs 1994-95 to 1998-99 as such. Sahara was of the view that no part of the payment made for the use of the flight simulator was chargeable to tax in India. 10. Sahara had taken two aircrafts on lease for a period of six years from International Lease Finance Corporation ('ILFC') and separate agreements were entered into in respect of each aircraft. In terms of Article 1.6 read with Article 5.3 thereof, Sahara was required to pay lease rent @ US Dol....
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....he repair carried out. According to Sahara, it was advised that no tax was required to be deducted in respect of the parts purchased, exchanged or repaired and therefore, it remitted the amounts without deducting tax at source. Facts concerning subscription to share capital 13. From the balance sheet filed by the Assessee along with return it was noted by the AO that for the AY 1996-97 Sahara raised share capital of Rs. 10,87,89,090 and received premium amount of Rs. 44,60,35,269 and share application money of Rs. 7,50,000. Sahara claimed to have mobilized the above amount by way of private placement of shares from 65,285 persons through a network of establishments maintained by its sister concern M/s. Sahara India (Firm). Against the face value of Rs. 10 per share, a sum of Rs. 41was collected as premium. Sahara was asked by the AO to furnish the details of shares issued during the year of Rs. 25,000 or more by a notice dated 10th September 1998 under Section 142 (1) of the Act. Sahara filed a reply on 23rd October 1998. It was thereafter asked to furnish the basis of working out the premium of shares and the method of allotment of shares to such a large number of persons by....
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....d to the issue and transfer of the shares, the AO treated the sum of Rs. 55,55,89,359 as unexplained credit in the books of the Assessee under Section 68 of the Act and consequently as undisclosed income of the Assessee which was attributable to the total income of the Assessee. Orders of the CIT (A) and the ITAT 17. On appeal, the Commissioner of Income Tax (Appeals) ['CIT (A)'] by order dated 3rd March 2000 held that since the AO has chosen to enquire only into the genuineness of 100 shareholders, no additions could have been made in respect of the other 65,185 shareholders. The CIT(A) noticed that out of these 100 persons, the AO himself had stated that 17 shareholders had furnished replies and 50 of persons to whom notices were served, did not respond. However, as the notices sent were duly received, the existence of these 50 persons was duly proved. The CIT (A), therefore, directed the AO to delete the additions with respect to these 67 persons. With respect to the group of 25 persons in relation to whom the notices were returned with comments such as 'refused', 'dead' , 'left indefinitely', etc, the CIT(A) held that they certainly 'were in existence and their identity is d....
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....7 to 998-99 were exempt under Section 10 (15A) of the Income tax Act, 1961? 21. As regards the Assessee's appeal ITA 128 of 2005 for AY 1995-96 to 1996-98 is concerned, this Court by order dated 25th February 2005 framed the following question of law: "Whether the Tribunal was right in law in holding that the assessee could be regarded as assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-Tax Act, 1961?" 22. As far as the Revenue's appeal ITA 1209 of 2005 for AY 1998-99 is concerned, this Court by order dated 14th December 2005, framed the following question of law: 'Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial year 1998-99 were exempt under Section 10(15A) of the Income Tax Act, 1961?' 23. As far as the Revenue's appeal ITA 1206 of 2005 for AY 1999-2000 is concerned, this Court by order dated 31st January 2006, framed the following question of law: 'Whether the Tribunal was correct in law in holding that the payments made by the Assessee tow....
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....orrect in the eyes of law in upholding the deletion of the addition of Rs. 1,42,76,535 made by the AO on account of disallowance of the interest paid on borrowed capital, when the said interest is not allowable under Section 36 (1) (iii) of the Income Tax Act, 1961, on account of substantial interest-free funds advance to the sister concerns? (vii) Whether the ITAT was correct in the eyes of law in upholding the deletion of addition of Rs. 35,97,812 made by the AO, on account of disallowance of the 1/5th of the foreign travel total expenses claimed under Section 37 (l) of the Income Tax Act, 1961, when the same are inadmissible for want of genuineness to prove that the expenditure was incurred wholly and exclusively for the business purposes? (viii) Whether ITAT was correct in the eyes of law in upholding the deletion of addition of Rs. 21,60,000 made by the AO, on account of disallowance of consultancy expenses, paid by the assessee to M/s. Sahara India International Corporation Limited, invoking the provisions of Section 40A (2) of the Income Tax Act, 1961, when the said expenditure is excessive and unreasonable and the services, which have been claimed to have ....
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....er denies or repudiates the transaction set up by the Assessee nor should the AO take such repudiation at face value and construe it, without more, against the Assessee. (v) The AO is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and veracity of the repudiation. 28. In CIT v. Steller Investment Limited (1991) 192 ITR 287 (Del) it was observed: 'Even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons.' 29. Both the aforementioned decisions were again considered by the Division Bench of this Court in CIT v. Lovely Exports Limited 299 ITR 268 (Del). Thereafter, in CIT v. Nova Promoters and Finance (P) Limited (2012) 342 ITR 169 (Del) it was observed as under: '38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen t....
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....ditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the Assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders.' 31. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. 206 (2014) DLT 97 (DB) the Court reiterated the need of the Assessee to satisfy the AO about the "identity, creditworthiness and genuineness" of the creditors. It was pointed out that 'mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are ....
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....sort, the share capital invested by them has also been treated as unexplained. This action of the AO by no stretch of imagination can be sustained and I, therefore, direct the AO to delete the addition in respect of the share capital invested by these persons.' 35. The CIT (A) then took up the case of the 100 shareholders in respect of whom the AO tried to conduct certain enquiries. Of the 92 persons whose addresses had been furnished, 17 persons had filed replies. Even in respect of the 50 others who were served, but had not replied, their existence was held to be duly proved. the CIT (A), therefore, directed the AO to delete the addition in respect of the share capital introduced by the 17+ 50 persons. Of the balance 25, some had died or had left for an indefinite period or had refused to receive the notices. Their existence and identity were held to be duly proved and, therefore, the AO was directed to delete the share capital introduced by the said persons also. Of the balance 8 persons plus some part of the 25 persons who were unserved, the AO himself noted that notice was not sent to them since addresses were not furnished. In this regard the CIT (A) noted the contention o....
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....matter for determining the identity of the said 65,185 shareholders. 39. Consequently, the Court sets aside the orders of the CIT (A) and the ITAT as regards the deletion of the addition ordered by the AO in the sum of Rs. Rs. 55,55,89,359 under Section 68 of the Act on the ground of the failure by the Assessee to establish the identity of the 65,185 shareholders who are stated to have contributed the aforementioned sum. 40. However, as regards the 100 shareholders in whose cases some details were furnished by the Assessee, it is seen that 17 shareholders filed their replies and 50 others did not respond despite receiving the notice. The CIT (A) came to the conclusion that their existence or identity was duly proved. It is noticed that the persons who responded stated that they were agriculturists and not income tax assessees. Pradeep Kumar Sinha of Bhagalpur and Masood Ahmed of Madhubani, Bihar stated that they had sold their shares back to Sahara, but under the Companies Act that was not permissible. 41. The Court is of the considered view that the order of the CIT (A) as affirmed by the ITAT regarding the deletion of the addition made by the AO with regard to the share ....
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.... not fall within the ambit of the exclusionary provisions of Section 10 (15A) of the Act. Prior to 1st April 1996 the payments were covered by the main provision and thereafter they continued to be exempt under Section 10 (15A) of the Act. The payments of supplemental rent to AMTEC, Malaysian Airlines and Lufthansa were also dealt with likewise. Therefore, the question of holding Sahara to be an assessee in default under Section 201 (1) of the Act did not arise. The ITAT also disapproved the action of the AO in determining the tax liability by applying the grossed up rate of 122%. 45. It is submitted by the Revenue that by way of amendment to Section 10 (15A) of the Act, the payment for providing spares, facilities or services in connection with the operation of lease aircraft was specifically excluded. Prior to 1st April 1996 such payments were exempted and the approval given by the CBDT related back to 31st January 1995, i.e., AY 1995-96 during which exemption was available. It is pointed out that under the agreement in question the lease payment for the aircraft was separately mentioned and the payment for maintenance reserve was separately mentioned. In these circumstances, ....
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....services in connection with the leased aircraft. Therefore, the supplemental rent did not fall within the ambit of the exclusionary provisions of Section 10 (15A) of the Act. Since prior to 1st April 1996 such payments continued to be exempted under Section 10 (15A) of the Act, they were not chargeable to tax. Consequently, there was no obligation on the Assessee to deduct the tax at source under Section 195 of the Act. The question of holding the Assessee as an Assessee in default under Section 201 (1) of the Act, therefore, did not arise. 50. Consequently, the Court affirms the order of the ITAT deleting the additions made by the AO under Section 195 read with Section 40 (a) (i) of the Act on account of the non-deduction of tax at source for the payment of supplemental lease rent to the various lessors, i.e., ILFC, AMTEC, Malaysian Airlines and Lufthansa. Training and manpower development 51. The issue concerning payments made for training and manpower development arises in the Assessee's appeal ITA 204 of 2002 arising out of the decision dated 12th February 2002 of the ITAT in ITA Nos.950 to 954/Del/2001 for FYs 1994-95 to 1998-99 and in the Revenue's appeal ITA....
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.... The addition by the AO was accordingly deleted by the CIT (A). 55. In the appeal for AY 1996-97, the ITAT noted its decision dated 12th February 2002 but omitted to say that it was following the said decision and was, therefore, sustaining the addition. This is one of the grounds on which the Revenue has preferred ITA 86 of 2011. 56. The agreement dated 30th January 1996 between Sahara and HFTL has been discussed in the order dated 12th February 2002 of the ITAT. It has referred to the submissions of the learned counsel for the Assessee to the effect that what was provided to Sahara's personnel was the facility of training on a simulator without an instructor. A higher rate of 256 pounds per hour was charged for providing training on the simulator with an instructor whereas Sahara was charged 171 pounds per hour which was the rate applicable for providing a simulator without an instructor. The ITAT however appears to have in its order dated 12th February 2002 gone by Clause 14 of the said agreement which talked of HFTL providing free training to the instructors of the Assessee. Although the ITAT states that the invoice showed the payment "for use of the simulator alone" ....
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....ion of TDS from payment to non-residents for computerized reservation system, the Court finds that no objection was raised in AY 1995-96 with respect to the certificates issued by ITO (TDS). The ITAT also confirmed that the said certificate issued by ITO (TDS) was valid. The Revenue has not able to persuade this Court to hold that the said decision is perverse. The Assessee has made the payment after obtaining the said certificates. The issue is decided in favour of the Assessee and against the Revenue. Free tickets 60. The next ground concerns the addition on account of expenditure incurred for allowing free tickets in the sum of Rs. 30,40,170. The AO noticed that these tickets were issued to a large number of persons including the following persons: '(i) spouses of certain persons accompanying their husbands/wife, (ii) minors including infants, (iii) relatives of the Directors, (iv) persons with names only but without any surname or surname without any initial, whose identities were ambiguous, including one Swamiji.' 61. It was held that 50% of the above expenses were disallowed by the AO which worked out to Rs. 30,40,170. The ITAT following its order dated 8th ....
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.... was taken by the Assessee for the business purpose. Therefore, there could be no disallowance of interest. 65. The Court finds that the ITAT has concurred with the finding of the CIT (A) which turned on facts. The Court is not persuaded that the said decision is perverse or suffers from any legal infirmity. Accordingly, the issue is decided in favour of the Assessee and against the Revenue. Foreign travel expenses 66. The next issue concerns the addition made by the AO on account of foreign travel expenses. The Assessee had claimed foreign travelling expenses amounting to Rs. 2,21,33,253. According to the Assessee, these expenses were incurred for the purpose of training of the pilots abroad. Further the training was imparted by technical experts for the purposes of the business of the Assessee. The AO disallowed the above expenses in the sum of Rs. 44,26,650. The CIT (A) found that the decision of the AO was ill founded, without proper appreciation of the facts of the Assessee's case and that the entire foreign travelling expenses were incurred after obtaining approval from the R.B. I. for purchase of foreign currency from the market which can never be done as an afterth....
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....has upheld the order of the CIT (A). 69. Having perused the documents produced as evidence, the Court finds that the CIT (A) was right in observing that it was not necessary for every employee to sign a voucher and that the AO has erred in treating the staff welfare expenses as entertainment expenses. However, the CIT (A) found that the expenses claimed as conveyance expenses were in the nature of entertainment expenses as defined by Section 37(2)(iii) and directed the AO to restrict the disallowance insofar as conveyance expenses of Rs. 7,31,324. 70. The Court is unable to find any illegal infirmity in the order of the CIT (A) as upheld by the ITAT. The issue is decided in favour of the Assessee and against the Revenue. Advertisement and publicity expenses 71. The next issue concerns the addition of Rs. 10,37,367 on account of disallowance of advertisement and publicity expenses as they were not related to AY 1996-97. As rightly pointed out by the ITAT, as per the mercantile system of accounting, bills received by the Assessee in respect of advertisement services pertaining to the previous year and continued during the year was booked only when it was crystallized. The....
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....was passed on 10th May 2000. The other orders in respect of AY 1995-96 to 1998-99 were within the period of limitation. 77. The Court has heard the submissions of Mr. Rohit Madan, learned counsel for the Revenue at length. The payment in question for the AY 1995-96 pertained to the payment made to Jeppson & Co. for navigational data. It is noticed that the issue is covered by the decision in CIT v. Mak Japan Broadcasting (2007) 305 ITR 222 and it is answered in favour of the Assessee and against the Revenue. This amendment to Section 210 of the Act with effect from 1st April 2010 provided for an extended limitation period of seven years. However, that amendment was prospective as held in Bhura Exports Limited v. The Income Tax Officer (TDS) (2014) 365 ITR 548 (Cal). 78. Consequently, the said issue is decided in favour of the Assessee and against the Revenue. Payment to Sochata France 79. The Court is informed that pursuant to the remand of the issue to the AO as directed by the ITAT, the Assessee succeeded before the AO. Therefore the said issue is not pressed. Summation and answers 80. The questions framed in the appeals are answered as indicated hereafter. ITA ....