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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVANAND SHRI JASON P BOAZ
Per Jason P Boaz, Accountant Member
This appeal by the assessee is directed against the order of CIT(A)-7, Bangalore, dated 17.03.2017, for Assessment Year 2010-11.
Briefly stated, the facts relevant for disposal of this appeal are as under:-
2.1 The assessee, a company, engaged in the business of mining and trading in Page 2 of 7 iron-ore, filed its return of income for Assessment Year 2010-11 on 15.10.2010 declaring NIL income. The case was selected or scrutiny and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 31.03.2013, wherein the assessee’s income was determined at NIL after adjusting carry forward loss of mining unit amounting to Rs.19,20,35,010/- and set off of carry forward loss of the windmill unit amounting to Rs.11,75,178/-. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had taken a helicopter on lease in the year under consideration from Srei Infrastructures Finance Ltd., and had incurred and claimed running and maintenance expenses amounting to Rs.1,27,77,540/- thereon. On being queried in this regard by the AO, the assessee furnished certain details of expenses but could not furnish the log book to ascertain the usage of the helicopter. In these circumstances, the AO took the view that the element of personal use of the helicopter for non-business purposes cannot be ruled out and proceeded to disallow 50% of the expenses claimed amounting to Rs.63,88,770/- in the absence of the log book being produced for verification.
2.2 Aggrieved by the order of assessment dated 31.03.2013 for Assessment Year 2010-11, the assessee preferred an appeal before the CIT(A)-7, Bangalore; in respect of aforesaid disallowance of 50% of the helicopter running and maintenance expenses claimed. The assessee’s appeal was dismissed by the CIT(A) vide the impugned order dated 17.03.2017.
3. The assessee, being aggrieved by the order of CIT(A)-7, Bangalore, dated 17.03.2017 for Assessment Year 2010-11, has preferred this appeal before the Tribunal, wherein it has raised the following grounds:-
Page 3 of 7 The orders of the authorities below in so far as they are against 1. the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] is not justified in upholding the disallowance of Rs. 2. 63,88,770/- being the 50% of the expenses incurred by the appellant on running and maintenance of the helicopter under the facts and in the circumstances of the appellant's case.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Ground Nos. 1 and 3, being general in nature and not urged before us, are dismissed as infructuous.
Ground No.2 : Disallowance of Rs.63,88,770/- being 50% of Running and Maintenance Expenditure incurred on Helicopter 5.1 The only issue for consideration in this appeal is the disallowance of Rs.63,88,770/-; being 50% of expenses incurred on running and maintenance of helicopter. According to the learned AR for the assessee, the entire expenses incurred for running and maintenance of the helicopter should be allowed and the log book of the helicopter could not be produced since the assessee did not operate the helicopter anymore; as the log book goes along with the helicopter and does not remain with the assessee. It was submitted that there was no personal use of the helicopter. It was entirely used for the business purposes of the company and therefore the entire expense incurred should be allowed. Alternately, the learned AR also submitted that the extent of disallowance made by the AO was excessive. It was submitted that fixed expenses of running the helicopter was allowable and only some disallowance could be made in respect of variable expenses. In this regard, reliance was placed on Page 4 of 7 the decision of a Co-ordinate Bench of this Tribunal in the case of McDowell and Co. Ltd., in to 190/Bang/2011 dated 12.10.2012.
5.2 Per contra, the learned DR supported the orders of the authorities below. According to the learned DR, since the assessee failed to establish that the helicopter was used wholly and exclusively for business purposes, therefore, some estimation was required to be made and since there was no material to controvert the estimation of disallowance by the authorities below, the order of the CIT(A) on this issue ought to be upheld.
5.3.1 We have considered the rival contentions and carefully perused the material on record; including the judicial decision cited. It is clear from the facts of the case on hand that there is no material brought on record to support the claim of the assessee that the helicopter was used wholly and exclusively for the purposes of the assessee’s business; as the assessee has not been able to produce the log book to establish its claim. Therefore, as rightly held by the authorities below, there has to be some disallowance made towards the use of the helicopter for non-business purposes. It is seen that the AO has disallowed 50% of the total helicopter expenses incurred by the assessee on the ground that the assessee has failed to place on record evidence i.e., log book, for establishing the use of the helicopter exclusively for business purposes and this has been upheld by the CIT(A). We find that a Co-ordinate Bench of this Tribunal in the case of McDowell & Co. Ltd., in to 190/Bang/2011 dated 12.10.2012 has considered the similar issue, with regard to Aircraft expenses disallowed on similar grounds i.e., failure on the part of the assessee to establish the list of passengers, etc., to prove that the entire expenses related to the assessee’s business and in this regard at paras 17 to 20 thereof, the Co-ordinate Bench of this Tribunal held as under:- 17.We have heard the rival submissions. We have also perused the break up of the expenses given by the assessee before the Page 5 of 7 Tribunal. At the outset, we are of the view that the Hon'ble Karnataka High Court in its order dated 15.09.2006 in in the assessee's own case for the A.Y. 1994-95 has not laid any emphasis on the list of passengers. The Hon'ble High Court has only remanded the matter to the AO for considering the material already available on record. In fact in the appeal for the A.Y. 1995-96, the Hon'ble High Court in its order dated 15.09.2006 in ITA No.46/2001 had in para 5 while answering the question (c) had clearly given liberty to the assessee to file additional documents and has also observed that all contentions are left open. It is therefore not correct to lay emphasis on the list of passengers who traveled and draw adverse inference against the assessee for non-production of the list of passengers.
18.We have also perused the order of the Assessing Officer in the set aside proceedings and we find that in such proceedings, the assessee has harped on the point that income from hiring the aircraft to others was also offered to tax as income by the assessee. There appears to be no fresh material placed on record. We also find that the use of the aircraft by the assessee for the purpose of its business has not been denied by the revenue authorities. In the circumstances, we are of the view that the fixed expenses which are necessary for maintaining the aircraft cannot be disallowed as they are necessarily to be incurred whether the aircraft is used or not. As far as variable expenses are concerned, they will vary depending upon the usage of the aircraft. It is only in respect of the variable expenses that personal use of the aircraft or use of the aircraft other than for the business of the assessee can be said to have taken place. With this approach, we will not look into the fixed and variable expenses produced by the assessee before us.
19.In the A.Y. 1994-95, the total fixed expenses is at a sum of Q1,48,63,498. Out of this, we find that aircraft repairs and maintenance expenses of Q 1,09,17,181, licence renewal fees of Q 39,085, rent of Q 42,00cLand security expenses of Q 24,900. These expenses will have to be allowed as a deduction irrespective of the actual usage of the aircraft, as these expenses are necessary whether the aircraft is used or not. As far as the other expenses are concerned, it comprises of salaries & wages, printing & stationery, telephone telex, vehicle repairs etc. As to whether these expenses of salaries & wages and other expenses were in relation to to 190/Bang/11 the aircraft or not is not clear. We are therefore of the view that the other fixed expenses should be allowed at 60% of the expenses.
20.As far as the variable expenses are concerned, we are of the view that in the light of the failure of the assessee to produce satisfactory evidence, 4o% of the variable expenses should be allowed as a deduction. We are adopting this approach to give finality to the litigation.
5.3.2 Respectfully following the aforesaid decision of the Co-ordinate Bench of this Tribunal in the case of McDowell & Co. Ltd., (supra), we hold that the fixed expenses incurred by the assessee in the case on hand also has to be allowed in full and the variable expenses on running the helicopter have to be allowed at 40% since no evidence was produced to conclusively establish the use of helicopter entirely for business purposes of the assessee. From the details / break up of the helicopter expenses filed before us, it is seen that the assessee has incurred the following expenses:-
SI.No Particulars Amount 1 Helicopter Spare Purchase 6,387,179 2 Helicopter Maintenance 2,002,054
3 Custom Duty - Helicopter Spares 1,553,543 4 Fuel Helicopter 1,507,748 5 Helicopter Hangarage Charges 960,234 6 Custom Clearance and agent charges 366,780
Total 12,777,538 5.3.3 The fixed expenses incurred by the assessee towards helicopter spare purchases, customs duty on spares, helicopter hangarage charges, custom clearance
Page 7 of 7 and agent charges. These expenses are required in full. The variable expenses are towards Helicopter maintenance – Rs.20,02,054/- and fuel of Rs.15,07,748/- and 40% thereof amounting to Rs.14,03,920/- is allowed and the balance of the disallowance is sustained to he extent of Rs.21,05,882/-. Consequently, the disallowance of Rs.63,88,769/- upheld by the CIT(A) is reduced and sustained to the extent of Rs.21,05,882/-. Therefore, ground No.2 of assessee’s appeal is partly allowed.
In the result, the assessee’s appeals for Assessment Years 2010-11 is partly allowed. Order pronounced in the open court on this 10th day of April, 2019.