DCIT, CIRCLE-19(2), NEW DELHI vs. PAWAN HANS LTD., NOIDA

These are the appeals filed by the revenue against the order of the ld CIT(A)-38, New Delhi dated 18.07.2017 for AY 2013-14 and dated 27.06.2019 for AY 2016-17.

The revenue has raised the following grounds of appeal for Assessment Year 2013-14: “1. On the facts and in the circumstances of the case the ld CIT(A) has erred in deleting the disallowance of claim of intangible assets amounting to Rs. 1,26,64,778/-. , Pawan Hans Ltd

The revenue has raised the following grounds of appeal for Assessment Year 2016-17:-

The revenue is aggrieved by the action of the ld. CIT(A) in deleting the amount of Rs. 1,26,64,778/- made by the AO on account of expenditure incurred by the assessee during the year on training of air and ground crew while computing income under the normal provision of the Act.

During the year under consideration the assessee has incurred Rs. 1,57,05,972/- for the training of air and ground crew and treated it as intangible asset in the return filed under section 139(1). The AO treated this expenditure as creation of intangible asset and allowed 1/5th of the expenditure. , Pawan Hans Ltd 6. The ld. CIT(A) held that the expenditure was incurred by the appellant for the purpose of training of air and ground crew engaged in the operation of two new helicopters acquired by the appellant during the year under consideration. This expenditure is of operative nature and no lasting asset is formed out of the same. Since, the training expenditure of the “crew” do not yield to any intangible asset, the expenditure is allowable u/s 37(1) of the Income Tax Act, 1961. The decision of the ld. CIT(A) on this issue is affirmed.

It is an undisputed fact that rotables and stores of value of Rs.1.51 Cr. has been actually written off by the assessee during the year. These stores are declared unusable and can’t be put to use in commercial flying keeping in view of the strict compliance of the safety norms issued by the Director General of Civil Aviation (DGCA). The write off has been wrongly considered as provisions. The actual provisions made by the assessee was Rs.2.31 Cr. and written off of rotables was Rs.1.51 Cr. There crept an error of judgment by the AO which has been rectified by the ld. CIT(A). Further, this matter has been held in favour of the assessee by the Hon’ble High Court of Delhi. Hence, we decline to interfere with the order of the ld. CIT(A).

We have gone through the Assessment Order, order of the ld. CIT(A) and the grounds raised by the Revenue. The AO observed that the assessee has claimed deduction on account of notional interest of Rs.1.56 Cr. on sick PSU namely, Hindustan Photo Films Ltd.

The facts relevant to this issue are as under:

The ld. CIT(A) held that the similar issue was involved in the A.Y. 1995-96, A.Y. 1996-97, A.Y. 1997-98 and A.Y. 2007- 08. The order of the ld. CIT(A) is as under:

The appellant had advanced an unsecured inter corporate loan of Rs.5 Crore to Instrumentation Limited and of Rs. 7.25 Crore to Hindustan Foto Films Mfrg. Co. Limited, both in the public sector. Both these companies have become sick and are registered with BIFR. It is submitted that the appellant is not hopeful of recovering even the principal amounts. It did not provide for receipt of interest on these amounts oh due basis. However, the AO did not accept this plea and held that the interest has to be based on due basis.

The Ld. AR has reiterated the arguments that the appellant has no hope of recovering the principal amounts or the interest and, therefore, it cannot be taxed. He has relied on CIT vs. Method Trading & Investment Limited (2000) 109 taxmann.com 414 (Cal). In this case, the assessee advanced certain sums to another company against hundies which were co-accepted by a bank. The drawer company went into liquidation and the bank also disowned the hundies as void and fraudulent. It was resolved by the appellant that no interest should be charged or accounted for on the said amount. No interest was debited to debtors. However, the AO included the accrued interest as the assessee followed mercantile system of accounting. The Hon'ble Court inter-alia held that mere fact that the assessee followed the mercantile system of accounting would not lead to taxation of income on accrual basis. It distinguished the case of State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC) as in that case the bank debited the amount of interest to the account of the debtor but instead of crediting the P & L Account as interest income, too the same into the balance sheet in suspense account. This conduct of the bank in the said case clearly showed that it had treated the interest income as having accrued to it. In the case before the Court the assessee had not debited to the debtor any interest. No entry in the books of accounts were at all made. Its Board of Directors resolved not to do so. Hence, the evidence clearly established that the income did not accrue in the real sense. The facts of the appellant's case make the judgment applicable to it. Since, no such interest has been accounted for in the books of accounts and since in the case of Instrumentation Limited, as per clause 4.6 of the draft rehabilitation Scheme the unpaid interest was to be written off, the question of accrual of the income does not arise. The Ld. AR further argued that Government of India should also be allowed on accrual basis. In fact, he submitted that the appellant may be happy to offer the interest income if the interest payable to Government of India is allowed. He further submitted that no interest has been paid by the appellant on any borrowing.

On a careful consideration of all the facts and the circumstances of the case and the judgment cited above I am of the view that the interest income of Rs.2.53 crore is not taxable and the addition of this sum for all the three years is accordingly deleted.

For the AY 97-98 the AO also added a sum ofRs.1.41 Cr. on account of interests receivable but not accounted for on unsecured loans made by the appellant to Andrew Yule & Co. and Hindustan Antibiotics Ltd. The later company has been registered with BIFR and declared sick. It is again submitted that like in the previous case the recoverability of the loans become doubtful and so it was not shown as income."

After going through the entire factum as mentioned above, we decline to interfere with the order of the ld. CIT(A).

As discussed in : A.Y. 2013-14. The order of the ld. CIT(A) is affirmed.

In the result, both the appeals of the Revenue are dismissed. Order Pronounced in the Open Court on 03/03/2023.