DCIT 5(1)(1), MUMBAI vs. AIR INDIA LTD, MUMBAI

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ITA 4484/MUM/2018Status: DisposedITAT Mumbai21 February 2025AY 2012-1368 pages
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What did the Tribunal hold?

The Tribunal held that the addition made on account of provision for obsolescence was based on surmise and conjecture, and it is settled law that once a debt written off as irrecoverable is recorded in the books, it need not be proved as a bad debt. Reliance was placed on the Bombay High Court and Supreme Court decisions. Therefore, the addition was directed to be deleted, and the assessee's ground of appeal was allowed. The appeals filed by the assessee were partly allowed for statistical purposes, and the appeals filed by the revenue were dismissed. Specifically, regarding the loss on sale of inventory, the Tribunal upheld the CIT(A)'s decision, noting that inventory includes stores and spare parts for aircraft maintenance, and the loss on sale of obsolete inventory is an allowable deduction. The Tribunal found no evidence to suggest that this inventory was part of fixed assets on which depreciation was claimed. Consequently, the AO was directed to allow the loss of Rs.35.35 crores.

What were the facts?

The assessee, Air India Ltd., filed appeals and the Revenue filed cross-appeals against orders of the CIT(A). The appeals concerned Assessment Years 2010-11, 2011-12, and 2012-13. The Assessing Officer (AO) made several disallowances, including fines and penalties, disallowance under Section 14A, estimated depreciation, provision for obsolescence, advances charged off, and prior period expenses. The CIT(A) partly allowed the assessee's appeal, allowing the claim for interest income as business income and provisions for obsolescence, but confirming other disallowances. The Tribunal consolidated the appeals due to common issues. The specific disputed amounts and grounds are detailed in the respective appeals.

What were the issues?

1. Whether the disallowance of Rs.68,41,068/- on account of fines and penalties incurred in the course of business is valid (Assessee's ground 1)? The assessee argued that these were incurred in the course of lawful business activity. The Revenue did not record specific arguments on this point. 2. Whether the disallowance under Section 14A read with Rule 8D is justified, particularly concerning the quantum and inclusion of investments yielding no exempt income (Assessee's grounds 2(i) to 2(v))? The assessee contended that the disallowance should not exceed exempt income and that investments yielding no exempt income should not be included. The assessee also disputed the CIT(A)'s reliance on prior year ITAT decisions. The Revenue argued for the disallowance as made by the AO. 3. Whether the disallowance of Rs.1,50,000/- on account of estimated depreciation of the Air India building is valid (Assessee's ground 3)? The assessee argued against this ad-hoc addition. The Revenue supported the AO's action. 4. Whether the disallowance of loss on sale of inventory of Rs.35.35 Crores is valid (Revenue's ground (iv) in ITA No. 4484/Mum/2018)? The Revenue argued that inventory is part of fixed assets, and the loss on sale should not be allowed. The assessee contended that inventory includes stores and spare parts for maintenance, and the loss on sale of obsolete inventory is an allowable business deduction.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SHRI BASKARAN BR, ACCOUNTAT MEMBER & SHRI PAVAN KUMAR GADALE

For Appellant: Shri Madhur Agrawal.AR
For Respondent: Smt Sailaja Rai, CIT DR
Hearing: 15.09.2022Pronounced: 07.12.2022

PER JUSTICE (RETD.) C.V. BHADANG, PRESIDENT :

1.

By an order dated 21.02.2025 in MA No. 576/Mum/2023 this appeal has been restored to file for the limited purpose of deciding ground no. (iii) as under :-

(iii) Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in allowing an amount of Rs.56.43 crores being interest paid on account of delayed payment of service tax is not compensatory in nature u/s 37(1) of the I.T. Act, 1961

2.

The appeal is taken up for hearing by consent of parties.

3.

In this case, the learned Commissioner of Income Tax (Appeals) (‘CIT(A)’ for short) had deleted the disallowance/addition made by the learned Assessing Officer on

4.

The learned counsel for the respondent-assessee has placed reliance on the decision of Supreme Court in Lachmandas Mathuradas vs CIT, 254 ITR 799 (SC) in order to submit that interest paid on delayed payment of service tax is an allowable deduction. It is pointed out that Lachmandas Mathuradas (supra) was a case involving admissibility of interest on arrears/outstanding balance of sales tax which was held to be compensatory in nature and, therefore, an allowable deduction in computing the profits of a business. It is submitted that the same analogy applies to delayed payment of service tax, which is also compensatory in nature.

5.

The learned DR, in all fairness, submitted that appropriate order be passed.

6.

We have considered the submissions made. The Supreme Court in Lachmandas Mathuradas (supra) has, inter alia, held that the interest paid on arrears of sales tax is compensatory in nature and, therefore, an allowable deduction. Following this decision, there are various orders passed by this Tribunal wherein the interest paid on delayed payment of service tax has been allowed as a deduction. We, therefore, find that the impugned order passed by learned CIT(A) deleting the disallowance does not suffer from any infirmity so as to require interference. Thus, the said ground as raised by the Revenue stands dismissed.

7.

This order shall be read alongwith order dated 07.12.2022.

Order pronounced in the open court on 21/02/2025.

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