TaxTMI 
TaxTMI 
2019 (9) TMI 493
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....n possession of proper or sufficient documents of the passengers on arrival at foreign airports, enabling them to enter in such foreign countries. The assessee-carrier aircrafts are accordingly levied penalties/fines in accordance with law of the corresponding foreign nations. For this, assessee has raised the following Ground No.1: "1. On the facts and circumstances of the case and in law the learned C.I.T(Appeals) erred in confirming disallowance made by the Assessing Officer (A.O) of penalty of Rs. 1,20,27,531/- paid by the appellant in the course of carrying on its business activities". 3. Briefly stated facts are that the assessee is engaged in the international transportation of passengers and cargo. The passengers carried by the assessee on its international carrier and if on arrival at the foreign airport, passengers are not found in possession of proper or sufficient documents for enabling them to enter in such foreign countries, the foreign countries/nations levy penalty on the assessee-carrier aircraft in accordance with their laws. The assessee has claimed such penalties/fines u/s.37 of the Act. But the AO, after examination of facts, came to the conclusion ....
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....s P. Ltd., [340 ITR 99] (MP) has considered the identical situation, wherein the assessee's claim of business expenditure paid for un-lawful purpose i.e., kidnapping of Director of a company while on business tour and amount paid as ransom was held to be deducted. The Hon'ble High Court held that - Section 364A of the Indian Penal Code provides that kidnapping a person for ransom is an offence and any person doing so or compelling to pay, is liable to the punishment as provided in the section, but nowhere is it provided that to save a life of the person if a ransom is paid, it will amount to an offence. There is no provision that the payment of ransom is prohibited by any law. In the absence of it, the Explanation to sub-section (1) of Section 37 would not be applicable. In this connection, the Ld. Counsel for the assessee relied on paras 13 and 14, as under: "13 The contention of the petitioner is that under the Explanation of subsection (1) of section 37, such expenditure could not have been allowed. We find it appropriate to refer section 37(1) and the Explanation to it for ready reference which reads as under : "The Explanation provides that any expenditur....
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.....310. In Chakka Narayana's case (supra) the assessee, who was a dealer in cloth and Government securities, encashed Government securities worth about Rs. 20,000. He went to the Madras railway station for taking the cash to his place of business but lost the money on account of theft committed. The High Court referred to Badridas Daga's case (supra), but yet distinguished it and preferred to follow the majority decision of the Full Bench of the Madras High Court in Ramaswami Chettiar's case (supra), which, as we have already pointed out, was not approved by this Court in Nainital Bank's case (supra). The High Court enunciated the law correctly, but committed an error in applying the same to the facts of that case when it said-See (1961) 43 ITR 249 (AP) : "It could not be posited that it was absolutely necessary for the assessee to cash the cheque issued and to carry the money on his person. It is only when it could be posited that it was part of his business to take money with him that it could be said that the loss was incidental to his business." We do not approve of this distinction. Similarly, the Andhra Pradesh High Court took a narrow view in ....
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.... at the airport of departure. Sometimes, the passengers misplace or lose the travel documents carried by them or the immigration authority at foreign airport may not be satisfied fully with the travel documents and/or visa etc., carried by the passengers. In such event inspite of the assessee-carrier Aircraft at the airport of departure checking the documents, and the immigration authorities of Govt. of India having been duly satisfied about the passenger travelling abroad with proper travel documents etc., on account of reasons beyond the control of the corporation, it may become liable to penalty/fine at the foreign airports and in such an event the assessee-carrier Aircraft is also required to transport such passengers back, who are refused entry in such foreign airport. 8. In terms of above, he argued that the penalty/fine levied by the corresponding foreign countries at the foreign aircraft and transport of such passengers back, who are refused entry of such airports, the expenses incurred are incidental to carry on its legal business and liability for expenses and penalty arises in the capacity of a trader for carrying on its legal business. He argued that such liability w....
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.... made any contravention of law but inspite of the assessee exercising all care as explained above, the liability arises which is incidental and arises ordinarily in the course of international Air Transportation business and the fine/penalty is paid on account of default/non-compliance of laws by the passengers and not by the assessee. We further note the following: (a) As submitted above the fine/penalty which is paid by the assessee is not for any infraction of law by the assessee but assessee becomes liable for payment of such fines/penalties either on account of the passengers carried by the assessee-aircraft not possessing proper or sufficient documents for enabling them entry in the foreign country or because of the Immigration Authorities in foreign countries being not satisfied with the documents of the passengers. (b) The documents carried by the passengers are duly checked by the assessee's staff at the time of departure from Indian Airport and also checked by the Immigration Authorities of the Govt. of India at the Airport of departure. 12. From the above it will be obvious that the assessee has neither carried on any illegal activity nor committ....
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....s unlawfully or in contravention of the rules but discovering that the goods purchased by him are liable to be confiscated as unauthorisedly imported, saves them from being confiscated by paying a penalty and such penalty may be viewed as part of the purchase price of the goods as laid down by the Hon'ble Bombay High Court in the case of C1T Vs. Pannalal Narottamdas & Co. (1968) (67 1TR 667) and allowable as deduction. Applying the ratio of above case, it will be obvious that the case of the assessee for allowance of payment of penalty/fines is on a very strong footing as in the assessee's case the assessee had neither committed any violation of law nor any breach or infraction of the law. As noted earlier the expenses incurred by the assessee on fines/penalties at foreign airport is also in the nature of loss incurred in the carrying on assessee's business and it is incidental to carrying on of such business of International Air transportation of passengers. 16. From the above stated facts, it will be obvious that the penalty/fine paid by the assessee has been incurred on carrying out an operation of the assessee's business and it is incidental to the business o....
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....to Rs. 74,37,00,000/- declared as 'business income'. However, the AO treated this interest income under the head 'income from other sources', whereas the Tribunal in AYs.2001-02 & 2002-03 in ITA Nos.6865&6866/Mum/2005, dated 31-10-2008 has considered this issue and held the same as 'business income' by observing as under: "We have considered the issue, examined the facts and the case laws. It is true that various judicial principles were established on the basis of the facts available in each case. If the funds arc nor having any business requirement and funds are deposited for Long Term Investments or funds are received and invested which are not required for business purposes the income thereon can be considered as 'Income form Other Sources'. The various case laws relied upon by the learned D.R. are given in the context where the surplus funds were not being used for the business. However, in the various case laws relied upon by the learned counsel for the assessee, the deposits are being used in the course of business and are only deposited for short term periods or in current accounts and the source of funds are business receipts. In the present case, there is....
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....g the Assessment years 2001-02 and 2002-03 in question. 8. In view of the above, so far as question (b) is concerned, no substantial question of law arises and therefore the same is dismissed." 22. When these facts were confronted, Ld. CIT-DR, he fairly agreed that there is no difference in facts in this year, what was in AY.2001-02 and he could not controvert or could not distinguish the decision of Hon'ble Bombay High Court or of the Tribunal. We noted that this issue is squarely covered in favour of assessee and against the Revenue and respectfully following the view taken in AY.2001-02 by the Hon'ble Bombay High Court, we reverse the order of lower authorities and allow this issue of assessee's appeal. 23. The next issue in this appeal is as regards the order of CIT(A), confirming the action of AO in holding that the provisions of Section 14A of the Act are applicable to the dividend income received by assessee. For this, assessee has raised the following Ground No.3: "3(i) On the facts and circumstances of the case and in law the learned C.I.T.(A) erred in confirming action of the A.O. that provisions of Sec. 14A were applicable to dividend rece....
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....tments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income." Hence, this issue is decided in favour of assessee. 26. The next issue in this appeal of assessee is against the order of CIT(A), confirming the action of AO in disallowing the provision made in respect of accounts of Frequent Flyer Programme. For this, assessee has raised the following Ground No.4: "4. On the facts and circumstances of the case and in law the learned C.I.T.(A) erred in confirming disallowance of Rs. 115.90 Million out of provision of Rs. 118 Million made in the accounts in respect of Frequent Flier Programme". 27. Brief facts are that the AO noticed that the assessee-company has made provision under Frequent Flyer Programme of Rs. 118.1 Million. The AO required the assessee to justify as to how such provision is deductible and also to furnish the working of such claim. The assessee explained vide letter dated 25-10-2010 and noted that the assessee in a view to encourage the passengers to prefer travelling by the same air-line over flights of other air-lines, introduced the reward programme style....
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....s the issue is covered in favour of assessee, respectfully following the decision of the Co-ordinate Bench decision, we allow this issue of assessee. 29. The next issue in this appeal of assessee is against the order of CIT(A), confirming the addition made to income in respect to disputed bills, amounting to Rs. 116.3 Million. For this, assessee has raised the following Ground No.5: "5. On the facts and circumstances of the case and in law the learned C.I.T.(A) erred in confirming additions made to income of the appellant by the A.O. of Rs. 116.3 Million in respect of disputed bills". 30. Briefly stated facts are that the AO noticed from the Government's Auditor's note qualifying remark that the amount of Rs. 116.3 Million is income actually accrued during the FY.2007-08, relevant to AY.2008-09. The AO reproduced the relevant note, which is being again reproduced herein for the sake of clarity, which reads as under: "The company has neither accounted for the revenue of R.116.3 million raised in respect of invoices raised on M/s. US Bank Trust National Association during 2007-08 towards ferry flight including crew cost modification of 777-200 ER aircraft nor ....
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....) erred in directing the Assessing Officer to delete the addition of Rs. 358.50/- crores made by the assessing officer on account of excess provisions for obsolescence without appreciating the fact that the provision made is contingent liability and was not incurred by the Assessee? 2. Whether on the facts and in the circumstances and in law, the Ld.CIT(A) erred in directing the Assessing Officer to delete the addition of Rs. 358.50/- crores without appreciating the fact that the provision was written back and credited to the P/L A/c. and was further reduced from the total income in the computation of income?" 34. At the outset, Ld. Counsel for the assessee stated that this issue has been adjudicated by the CIT(A) in AY.2007-08 and the Department has accepted the decision and not filed any appeal in any higher forums regarding the disallowance of exclusion of provisions for obsolescence transfer to credit of Profit and Loss A/c while computing business income. When this fact was pointed out, Ld. Counsel for the assessee stated that the Tribunal can take a view. The assessee has filed complete details for AYs.2004-05, 2005-06 and 2006-07, wherein excess provision for obs....