Indo Russian Aviation Ltd.,, Nashik v. Addl.CIT, R-1, Nashik, Nashik

ITA 208/PUN/2009 | 2001-2002
Pronouncement Date: 23-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 20824514 RSA 2009
Bench Pune
Appeal Number ITA 208/PUN/2009
Duration Of Justice 1 year(s) 10 month(s) 11 day(s)
Appellant Indo Russian Aviation Ltd.,, Nashik
Respondent Addl.CIT, R-1, Nashik, Nashik
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 23-12-2010
Assessment Year 2001-2002
Appeal Filed On 11-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER S.NO . ITA NO. ASSTT.YEAR 1. 208/PN/09 2001-02 2. 209/PN/09 2002-03 3. 210/PN/09 2003-04 4. 211/PN/09 2004-05 INDO RUSSIAN AVIATION LTD .. APPELLANT NASHIK PAN AAAC15908C VS ASSTT. COMMISSIONER OF INCOME-TAX CIR.1 NASHIK .. RESPONDENT AND S.NO . ITA NO. ASSTT.YEAR 1. 229/PN/09 2001-02 2. 230/PN/09 2002-03 3. 231/PN/09 2003-04 4. 232/PN/09 2004-05 ASSTT. COMMISSIONER OF INCOME-TAX CIR.1 NASHIK .. APPELLANT VS INDO RUSSIAN AVIATION LTD .. RESPONDENT NASHIK ASSESSEE BY : SHRI PRAMOD SHINGTE DEPARTMENT BY : SHRI SANGRAM GAIKWAD & ABHAY DAMLE ORDER PER G.S. PANNU A.M: THE CAPTIONED EIGHT CROSS APPEALS FOUR BY THE ASS ESSEE AND FOUR BY THE REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 2 INCOME-TAX (APPEALS) ALL DATED 20.11.2008 PERTAININ G TO THE ASSESSMENT YEARS 2001-02 TO 2004-05 WHICH IN TURN HAS ARISEN FROM THE RESPECTIVE ORDERS OF THE ASSESSING OFFICER DATED 24.12.2007 FO R ASSESSMENT YEARS 2001-02 2002-03 2003-04 AND 12.12.2006 FOR ASSESS MENT YEAR 2004-05 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961 (IN SHORT THE ACT) FOR THE AFORESAID ASSESSMENT YEARS. 2. SINCE THE CAPTIONED APPEALS RELATE TO THE SAME A SSESSEE AND INVOLVE CERTAIN COMMON ISSUES THEY HAVE BEEN HEARD TOGETHE R AND A COMMON ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BRE VITY. 3. WE MAY TAKE UP ITA NO 211/PN/09 AND 232/PN/09 WH ICH ARE CROSS- APPEALS BY THE ASSESSEE AND THE REVENUE RESPECTIVEL Y PERTAINING TO THE ASSESSMENT YEAR 2004-05. 4. BEFORE PROCEEDING TO ADJUDICATE THE RESPECTIVE G ROUNDS OF APPEAL IT WOULD BE APPROPRIATE TO NOTE THE BACKGROUND IN BRIE F. THE ASSESSEE BEFORE US IS A JOINT VENTURE COMPANY OF HINDUSTAN AERONAUT ICS LTD (HAL) ICICI REPRESENTING THE GOVERNMENT OF INDIA AND RAC MIG AVIZAPCHAST PLC AND GRPZ WHICH REPRESENT THE GOVERNMENT OF RUSSIA FEDE RATION AND WAS INCORPORATED IN 1994. THE PRIMARY PURPOSE OF THE AS SESSEE IS TO SUPPLY SPARE PARTS FOR THE MIG AIRCRAFT SUPPLIED BY RUSS IA. FOR THE ASSESSMENT YEAR 2004-05 IT FILED A RETURN OF INCOME ON 26.10. 2004 DECLARING TOTAL INCOME OF RS 4 80 98 980/-. IN THE ASSESSMENT FINALIZED UN DER SECTION 143(3) OF THE ACT ON 12.12.2006 ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT RS 5 14 31 110/- AFTER MAKING CERTAIN DISALLOWANCES ON ACCOUNT OF WARRANTY EXPENDITURE PROVISION OF GRATUITY/VACATION LEAVE A ND PARTIAL DENIAL OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ETC. THE DISALLOWANCES MADE BY THE ASSESSING OFFICER WERE CARRIED IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WHO ALLOWED PARTIAL RELIEF. T HE ASSESSEE IS IN APPEAL ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 3 AGAINST THE ADDITIONS/DISALLOWANCES SUSTAINED BY TH E COMMISSIONER OF INCOME-TAX (APPEALS) WHEREAS REVENUE IS IN APPEAL O N THE RELIEF ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). HENCE THE CROSS-APPEALS BEFORE US. 5. IN THE APPEAL OF THE ASSESSEE THE ONLY ISSUE RA ISED RELATES TO THE DISALLOWANCE OF GRATUITY AND PROVISION FOR VACATION LEAVE AMOUNTING TO RS 76 715/- AND RS 1 53 233/- RESPECTIVELY. THE ASSESS ING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS 76 715/- AS P ROVISION FOR GRATUITY AND ACCORDING TO HIM THE SAME WAS TO BE DISALLOWED BECAUSE IT DID NOT REPRESENT ANY ACTUAL PAYMENT BEING A MERE PROVISIO N. FOR THE SIMILAR REASON THE ASSESSING OFFICER DISALLOWED A SUM OF R S 1 53 233/- DEBITED AS PROVISION FOR VACATION LEAVE. 6. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ASSESSEE CONTENDED THAT BEING A JOINT VENTURE WITH HAL VARIOUS PERSONNEL ARE DEPUTED FROM HAL TO LOOK AFTER THE ACTIVITIES O F THE ASSESSEE FROM TIME TO TIME. ALL THE EMPLOYEE-COSTS OF SUCH PERSONNEL ARE PAID BY HAL BUT ARE TO BE REIMBURSED BY THE ASSESSEE AS AND WHEN DEMAND IS RAISED BY HAL. IN THIS CONTEXT IT WAS SUBMITTED THAT THE EXPENSES ON GRATUITY AND VACATION LEAVE THOUGH SHOWN AS A PROVISION IN THE ACCOUNT B OOKS THE SAME ARE ACTUAL EXPENSES WHICH ARE REIMBURSABLE BY THE ASSE SSEE TO HAL. IT WAS CONTENDED THAT THE TWO PROVISIONS ARE AGAINST ASCER TAINED LIABILITIES AND ARE ALLOWABLE WHILE COMPUTING THE TOTAL INCOME. IN THIS CONTEXT A COPY OF THE DEMAND LETTER RECEIVED FROM HAL WAS ALSO FURNISHED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSIO NER OF INCOME-TAX (APPEALS) HAS SUSTAINED THE DISALLOWANCE BY MAKING FOLLOWING DISCUSSION IN PARA 4.2 OF HIS ORDER: ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO THE REASONS GIVEN BY THE AO BOTH IN HIS ASSESSMENT ORDER AND REPORT. IT MAY BE SEEN FROM THE SUBMISSIONS OF THE APPELLANT THAT THE AMOUNTS WERE PROVIDED IN THE APPELLANTS BOOKS OF ACCOUNTS REGARDING THE EMPLOYEES WHO WERE DEPUTED BY HAL. THESE EXPENSES WOULD BE SETTLED ON RECEIPT OF THE ACTUAL CLAIM FROM THE HAL. THUS THESE EXPENSES WERE NOT WITH REGARD TO APPELLANTS OWN EM PLOYEES. THERE IS ALSO NO MATERIAL BROUGHT ON RECORD BY THE APPELLANT TO SHOW THAT THESE EXPENSES WERE PROVIDED FOR ON SCIENTIFIC BASIS. IN VIEW OF THESE FACTS THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BEML V CIT (20 00) 245 ITR 428 CANNOT BE EXTENDED. THEREFORE THESE PROVISIONS CANNOT BE ALL OWED AS ALLOWABLE EXPENDITURE DURING THE PERIOD UNDER CONSIDERATION. HENCE THE A CTION OF THE AO IS UPHELD AND THE DISALLOWANCES ARE CONFIRMED. 7. ON THIS ISSUE THE LEARNED COUNSEL FOR THE ASSES SEE VEHEMENTLY ARGUED THAT THE LOWER AUTHORITIES HAVE NOT APPRECIA TED THE FACTS IN THEIR PERSPECTIVE INASMUCH AS THE SAID AMOUNTS WERE REIM BURSABLE TO HAL ON THE BASIS OF CONTRACTUAL OBLIGATION. THE EMPLOYEES OF H AL WERE WORKING FOR THE ASSESSEE AND THEREFORE THE PAYMENTS TO SUCH EMPLO YEES THOUGH MADE BY HAL WERE ON THE ACCOUNT OF ASSESSEE AND THEREFORE THE SAME WERE REIMBURSABLE TO HAL. IN THIS CONNECTION IT WAS ALS O POINTED OUT THAT BEFORE THE LOWER AUTHORITIES THE ASSESSEE HAD ALSO FURNISH ED A COPY OF THE DEMAND LETTER RECEIVED FROM HAL A COPY OF WHICH HAS ALSO BEEN PLACED IN THE PAPER BOOK AT PAGES 66-67. THE LEARNED COUNSEL FOR THE AS SESSEE SUBMITTED THAT HE HAD NO OBJECTION IF THE MATTER IS RE-EXAMINED I N THE SAID LIGHT BY THE ASSESSING OFFICER TO ASCERTAIN WHETHER OR NOT THE S AID EXPENDITURE IS INCURRED BY THE ASSESSEE ON ACCOUNT OF CONTRACTUAL OBLIGATIO N. 8. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES IN SUPPORT OF THE CASE OF THE REVENUE A ND AT THE SAME TIME HAS NOT SERIOUSLY DISPUTED THE PLEA OF THE ASSESSEE FOR RE-EXAMINATION OF THE MATTER IN THE LIGHT OF CONTRACTUAL OBLIGATION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THE PAPER BOOK FILED BEFORE US A COPY OF THE WRITTEN SUBMISSIONS A DDRESSED TO THE ASSESSING OFFICER AS WELL AS TO THE COMMISSIONER OF INCOME-TA X (APPEALS) HAVE BEEN ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 5 PLACED ON RECORD. IT CLEARLY EMERGES THEREFROM THAT ASSESSEE HAS BEEN CLAIMING THAT VARIOUS PERSONNEL ARE DEPUTED BY HAL TO LOOK AFTER THE ACTIVITIES OF THE ASSESSEE COMPANY. ALL THE COSTS ( SALARY GRATUITY VOCATION LEAVE ETC.) IN RELATION TO SUCH EMPLOYEES ARE PAID BY HAL BUT ARE ULTIMATELY REIMBURSABLE BY THE ASSESSEE AS AND WHEN THE DEMAND FROM HAL IS RECEIVED. THE ASSESSEE HAS ALSO EXPLAINED IN THE WR ITTEN SUBMISSION THAT THOUGH IMPUGNED EXPENSES OF GRATUITY AND VOCATION L EAVE ARE SHOWN AS PROVISIONS IN THE ACCOUNT BOOKS BUT THESE ARE EXPE NSES REIMBURSABLE TO HAL AND ARE ASCERTAINED LIABILITIES. THE DEMAND LE TTER FROM HAL IS ALSO ON RECORD. THEREFORE IN THE CONTEXT OF THE POSITION C ANVASSED BY THE ASSESSEE WE FIND THAT THE LOWER AUTHORITIES HAVE NOT RENDERE D ANY FINDING. WE THEREFORE ARE OF THE CONSIDERED VIEW THAT THE LOWE R AUTHORITIES HAVE MIS- DIRECTED THEMSELVES IN NOT APPRECIATING THE MATERIA L AND SUBMISSIONS PUT- FORTH BY THE ASSESSEE THAT THE AFORESAID LIABILITIE S AROSE OUT OF A CONTRACTUAL OBLIGATION WITH HAL IN RELATION TO COSTS OF EMPLOYE ES OF HAL DEPUTE FOR THE WORK RELATING TO THE ASSESSEE. IN THIS LIGHT WE DE EM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER WHO SHALL EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF T HE FACT POSITION SOUGHT TO BE BROUGHT OUT BY THE ASSESSEE. FURTHER-MORE THE A SSESSING OFFICER SHALL CARRY OUT THE AFORESAID EXERCISE AFTER ALLOWING ASS ESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND OF PUTTING FORTH THE RELEVANT MATERIAL IN SUPPORT OF THE RETURN OF INCOME. THE ASSESSING OFFI CER SHALL CONSIDER THE MATERIAL AND SUBMISSIONS PUT-FORTH BY THE ASSESSEE AND RE-ADJUDICATE THE MATTER IN ACCORDANCE WITH LAW. THUS ON THIS ASPECT THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. RESULTANTLY APPEAL OF THE ASSESSEE VIDE ITA NO 21 1/PN/09 FOR ASSESSMENT YEAR 2004-05 STANDS ALLOWED FOR STATISTI CAL PURPOSES. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 6 10. NOW WE TAKE UP CROSS APPEAL OF THE REVENUE; VI DE ITA NO 232/PN/09 WHEREIN TWO ISSUES HAVE BEEN RAISED. FIRSTLY THE G RIEVANCE OF THE REVENUE IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME -TAX (APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTI ON 80HHC OF THE ACT AMOUNTING TO RS 1 92 764/-. IN THIS CONNECTION BRI EF FACTS ARE THAT THE ASSESSING OFFICER FOUND THAT THE EXPORT SALES WERE MADE ON THE HIGH SEAS AND NO GOODS WERE EXPORTED OUT OF INDIA FROM THE IN DIAN TERRITORY. THE ASSESSEE HAD PURCHASED GOODS FROM OUTSIDE INDIA AND SOLD THE SAME WITHOUT BRINGING THE SAME TO THE INDIAN TERRITORY A ND FOR THIS REASON ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION UND ER SECTION 80HHC OF THE ACT. 11. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ASSESSEE SUBMITTED THAT THE CLAIM OF DEDUCTION UNDER SECTION 80HHC WAS ALLOWABLE AS THE NECESSARY CONDITIONS PRESCRIBED IN SECTION 8 0HHC WERE FULFILLED NAMELY THAT THERE WAS AN EXPORT MADE BY THE ASSESS EE COMPANY AND IN LIEU IT HAD RECEIVED FOREIGN EXCHANGE. IN SUPPORT RELIANCE WAS PLACED ON FOLLOWING DECISIONS OF THE TRIBUNAL: I) SM ENERGY TEKNIK ANDELECTRO V CIT 109 TTJ (MUM) 34 II) ADDL. CIT V SWAN INDUSTRIES 109 TTJ (JP) 998. 12. THE COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT UNDER SIMILAR CIRCUMSTANCES THE TRIBUNAL IN THE CASE OF S M ENER GY TEKNIK & ELECTRONICS LTD V DY. CIT (SUPRA) HAD FOUND THE ASSESSEE ELIGIB LE FOR THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. FOLLOWING THE RATIO OF THE SAID DECISION THE COMMISSIONER OF INCOME-TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 13. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT SUBSEQUENT TO THE DECISION OF THE TRIBUNAL IN THE C ASE OF SM ENERGY TEKNIK ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 7 AND ELECTRO V CIT (SUPRA) SIMILAR CONTROVERSY CAME UP BEFORE THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V PCI LTD 15 DTR 215 (DEL) WHEREIN A CONTRARY VIEW HAS BEEN TAKEN. IN THE CASE BEFORE THE DELHI BENCH THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80 HHC OF THE ACT IN RESPECT OF A TRANSACTION OF SALE OF GOODS BY PURCHA SING FROM USA AND SELLING THE SAME TO BANGLADESH DIRECTLY THEREOF AND THE GOO DS NEVER ENTERED INDIAN TERRITORY OR LEFT THE INDIAN TERRITORY. THE TRIBUNA L FOLLOWING THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENT ERPRISED AND ENGINNERS P. LTD V CIT 295 ITR 481 (GUJ) HAS HELD THAT THE ASSES SEE WAS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE A CT. 14. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE RESPONDENT-ASSESSEE VEHEMENTLY POINTED OUT THAT THE COMMISSIONER OF INC OME-TAX (APPEALS) HAS MADE NO MISTAKE IN ALLOWING THE CLAIM OF DEDUCTION FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SM ENERGY TEKNIK AND EL ECTRO V CIT (SUPRA) INASMUCH AS THE TRIBUNAL HAS APPROPRIATELY ANALYSED THE PROVISIONS OF SEC. 80HHC WHICH DOES NOT PROVIDE THAT EXPORT HAS TO BE NECESSARILY FROM THE INDIAN TERRITORY AS IS THE CASE WITH RESPECT TO TH E CLAIM UNDER SEC. 80HHE OF THE ACT. IN THIS MANNER HE HAS DEFENDED THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THIS CASE THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 8 0HHC IS IN RESPECT OF SALE OF GOODS WHICH IT HAS PURCHASED FROM OUTSIDE I NDIA. FACTUALLY THE ASSESSEE HAS NOT BROUGHT INTO INDIA ANY GOODS BEFOR E SUPPLYING IT TO CUSTOMER STATIONED ABROAD. UNDER THESE CIRCUMSTANCE S THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISED AND ENG INEERS P LTD V CIT (SUPRA) HELD THE ASSESSEE INELIGIBLE FOR CLAIM OF D EDUCTION UNDER SECTION 80HHC OF THE ACT. THE HONBLE HIGH COURT NOTED THAT IN ORDER TO CLAIM ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 8 DEDUCTION UNDER SECTION 80HHC OF THE ACT THERE MUS T BE EXPORT OF ARTICLE OUT OF INDIA AND IN CASE THE ASSESSEE HAD MADE DIRECT SUPPLY FROM ONE COUNTRY TO ANOTHER WITHOUT BRINGING GOODS INTO INDIA SAME WOULD NOT SATISFY THE REQUIREMENTS OF SECTION 80HHC OF THE ACT. THE SAID JUDGMENT OF THE HONBLE GUJARAT HIGH COURT HAS BEEN RENDERED SUBSEQUENT TO THE JUDGMENT OF THE TRIBUNAL IN SM ENERGY TEKNIK AND ELECTRO V CIT (SUP RA) RELIED UPON BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THEREFORE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS UNSUSTAINAB LE. THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT BEING OF A HIGHER JUDIC IAL AUTHORITY IS REQUIRED TO BE PREFERRED. IN THIS VIEW OF THE MATTER WE REVERS E THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND RESTORE TH E ORDER OF THE ASSESSING OFFICER DENYING THE CLAIM OF DEDUCTION UN DER SEC. 80HHC OF THE ACT. THUS ON THIS GROUND REVENUE SUCCEEDS. 16. THE LAST GROUND IN APPEAL OF THE REVENUE RELATE S TO ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN ALLOWING WA RRANTY EXPENSES CLAIMED BY THE ASSESSEE AT RS 29 09 518/-. THE FACT S IN THIS REGARD ARE THAT THE ASSESSEE HAD DEBITED UNDER THE HEAD PURCHASES PROVISION FOR WARRANTY EXPENSES AMOUNTING TO RS 29 09 518/-. BEFORE THE AS SESSING OFFICER IT WAS EXPLAINED THAT ASSESSEE WAS MAKING SALES OF SPARE P ARTS TO HAL AND AS PER THE TERMS AND CONDITIONS OF THE CONTRACT WARRANTY WAS TO BE PROVIDED AND THE IMPUGNED PROVISION WAS MADE IN TERMS THEREOF. THE A SSESSING OFFICER WAS OF THE OPINION THAT SINCE THE SAID CLAIM WAS A MERE PROVISION IT COULD NOT BE ALLOWED BEING A CONTINGENT LIABILITY. ACCORDINGLY THE AMOUNT OF RS 29 09 518/- WAS DISALLOWED. 17. BEFORE COMMISSIONER OF INCOME-TAX (APPEALS) AS SESSEE CONTENDED THAT AS PER THE CONDITIONS OF CONTRACT AS AND WHEN THE SALES ARE EFFECTED WARRANTY IS UNDERTAKEN BY THE ASSESSEE. THEREFORE AS A MATTER OF INDUSTRIALL ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 9 PRACTICE AND AS PER THE CONTRACTUAL LIABILITY THE ASSESSEE IS OBLIGED TO PROVIDE FOR REPLACEMENT OF DEFECTIVE PARTS OF THE P RODUCTS SOLD. IT WAS CONTENDED THAT SUCH A PROVISION IS NOT A CONTINGENT LIABILITY BUT IT IS A PART AND PARCEL OF THE SALE TRANSACTION. SALES ARE CREDI TED TO THE TRADING ACCOUNT AND THE EXPENSES ON WARRANTY ON A PRUDENT BASIS A RE DEBITED TO THE PROFIT & LOSS ACCOUNT AND THAT SUCH PRACTICE WAS BEING CONSI STENTLY FOLLOWED. IN SUPPORT RELIANCE WAS PLACED ON THE FOLLOWING DECIS IONS: I) JT. CIT V SONY INDIA P LTD. 160 TAXMAN 397 (DEL ) II) CIT V VINITEC COPRP (P) LTD 278 ITR 337 (DEL) III) HAMILTON RESEARCH & TECHNOLOGY (P) LTD V ACIT 142 TAXMAN 79 (KOL) IV) HONA SIEL CARS INDIA LTD V ACIT 157 TAXMAN 76 (DEL) THE ASSESSEE ALSO SUBMITTED THAT PROVISION WAS MADE ON A SCIENTIFIC AND REASONABLE BASIS FOLLOWING THE ACCOUNTING PRINCIPL ES AND IT WAS NOT A CONTINGENT LIABILITY. THE COMMISSIONER OF INCOME-TA X (APPEALS) HAS SINCE ALLOWED THE CLAIM OF THE ASSESSEE WHILE MAKING FOL LOWING DISCUSSION IN PARAGRAPH 3.3 OF THE IMPUGNED ORDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO THE REASONS GIVEN BY THE AO IN HIS ASSESSMENT ORDER. THE APPELLANT IS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING AND PROVIDED FOR THE WARRANTY CLAIM AS P ER THE SCIENTIFIC AND REASONABLE BASIS AND AS PER THE TERMS OF THE WARRANTY. UNDER S IMILAR CIRCUMSTANCES THE HONBLE TRIBUNAL OF DELHI BENCH IN THE CASE OF JT. CIT V SO NY INDIA PVT .LTD.(2007) 168 TAXMAN 397 HELD THAT SUCH CLAIM IS ALLOWABLE. IN VI EW OF THE DECISION OF THE HONBLE DELHI TRIBUNAL THE APPELLANTS CLAIM IS ALLOWABLE E EN THOUGH IT IS A PROVISION. THEREFORE THE DISALLOWANCE OF RS 29 09 518/- IS DE LETED. 18. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTAT IVE VEHEMENTLY SUBMITTED THAT THE CLAIM HAS BEEN ALLOWED BY THE CO MMISSIONER OF INCOME- TAX (APPEALS) WITHOUT APPRECIATING THE ARGUMENT OF THE ASSESSING OFFICER THAT IT WAS A MERE PROVISION AND THE LIABILITY WAS NOT A CTUALLY INCURRED BY THE ASSESSEE. ACCORDING TO THE LEARNED DEPARTMENTAL REP RESENTATIVE IT IS A CONTINGENT LIABILITY. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 10 19. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE RESPONDENT-ASSESSEE HAS DEFENDED THE ORDER OF THE COMMISSIONER OF INCOM E-TAX (APPEALS) AND HAS POINTED OUT THAT THE CLAIM IS SUPPORTED BY THE FOLLOWING JUDGMENTS: I) CIT V MAJESTIC AUTO LTD 296 ITR 309 (P&H) II) JT. CIT V SONY INDIA (P) LTD 114 ITD 448 (DEL) III) TATA HONEYWELL LTD V DY.CIT VIDE ITA NO 418/P N/95 DATED 18.3.2002. 20 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THIS CASE THE ASSESSEE IS UNDERTAKING SALE OF SPARE-PARTS TO HAL AND AT THE TIME OF SALE IT PROVIDES WARRANTY WHEREBY ASSESSEE IS TO REPLACE TH E DEFECTIVE PARTS OF THE PRODUCTS SOLD. IN THIS CONTEXT THE ASSESSEE MADE A PROVISION OF RS 29 09 518/- WHICH HAS NOT BEEN ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL INCOME. AS PER TH E REVENUE THE SAID CLAIM WAS A MERE PROVISION AND A CONTINGENT LIABILITY AND THEREFORE WAS NOT AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE AC T. THE SAID ISSUE IS NO LONGER RES INTEGRA INASMUCH AS THE SAME HAS BEEN D EALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF ROTOR CONTROLS INDIA ( P) LTD V CIT 314 ITR 62 (SC). AS PER THE HONBLE SUPREME COURT A WARRANTY COST IS AN INTEGRAL PART OF THE SALE PRICE THE ASSESSEE MUST PROVIDE FOR SU CH WARRANTY COSTS IN ITS ACCOUNT FOR THE RELEVANT YEAR OTHERWISE THE MATCHIN G CONCEPT WILL FALL. THE HONBLE SUPREME COURT APPROVED THE ACTION OF THE AS SESSEE BEFORE IT TO PROVIDE FOR WARRANTY BASED ON THE PAST EXPERIENCE A ND HELD THAT THE SAME SATISFIED THE ACCRUAL CONCEPT ALSO. AS PER THE HON BLE SUPREME COURT A PROVISION MADE FOR WARRANTY ON THE BASIS OF PAST EX PERIENCE IS TO BE VIEWED AS A LIABILITY INCURRED DURING THE RELEVANT ASSESSM ENT YEAR AND THE SAID PROVISION WAS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. THEREFORE IN SO FAR AS THE ISSUE BEFORE US IS CONC ERNED THE CLAIM OF THE ASSESSEE IS LIABLE TO BE UPHELD IN PRINCIPLE. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 11 21. WITH REGARD TO THE QUANTUM OF PROVISION MADE T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2004-05 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALLOWED TH E CLAIM BY OBSERVING THAT THE PROVISION WAS MADE AS PER THE SCIENTIFIC A ND REASONABLE BASIS WHEREAS IN ASSESSMENT YEARS 2002-03 AND 2003-04 CL AIM HAS BEEN DENIED BECAUSE OF ABSENCE OF DETAILS TO ASCERTAIN THE BASI S OF MAKING THE PROVISION. IN THIS CONTEXT IT WAS SUBMITTED THAT THE ASSESSEE IS IN A POSITION TO EXPLAIN THE BASIS OF MAKING THE PROVISION AND FOR THAT MAT TER THE FACTUAL ASPECTS MAY BE REMANDED BACK TO THE FILE OF THE ASSESSING O FFICER TO BE APPRAISED AFRESH. TO THIS SUBMISSION OF THE LEARNED COUNSEL O F THE ASSESSEE THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT RAISED ANY SERIOUS OBJECTION. THEREFORE IN DEFERENCE TO THE AFORESAID WHILE UPH OLDING THE CLAIM OF THE ASSESSEE IN PRINCIPLE WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ALLOW THE ASSESSEE REASONABLE OPP ORTUNITY TO ADDUCE MATERIAL AND EVIDENCE TO POINT OUT THE BASIS OF PRO VISION MADE FOR THE WARRANTY HAVING REGARD TO THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ROTOR CONTROLS INDIA (P) LTD V CIT (SUPRA) AND AS PER LAW. THE ASSESSING OFFICER SHALL CONSIDER THE SUBMI SSIONS AND MATERIAL PUT- FORTH BY THE ASSESSEE AND THEREAFTER PASS AN ORDER ON THIS ASPECT IN ACCORDANCE WITH LAW. THUS ON THIS GROUND REVENUE SUCCEEDS FOR STATIST ICAL PURPOSES. 22. IN THE RESULT APPEAL OF THE REVENUE VIDE ITA NO 232/PN/09 PERTAINING TO ASSESSMENT YEAR 2004-05 IS PARTLY ALL OWED. 23. NOW WE TAKE UP ITA NO 208/PN/09 AND 229/PN/09 WHICH ARE CROSS- APPEALS BY THE ASSESSEE AND REVENUE RESPECTIVELY PE RTAINING TO ASSESSMENT YEAR 2001-02. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 12 24. IN THE APPEAL OF THE REVENUE THE FIRST ISSUE R AISED IS WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF RS 2 60 084/- ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE SAID ISSU E IS SIMILAR TO THAT DEALT WITH BY US IN THE APPEAL OF THE REVENUE FOR ASSESSM ENT YEAR 2004/05 IN ITA NO 232/PN/09 (SUPRA) IN THE EARLIER PARAGRAPHS. FOL LOWING THE SAME THE SAID GROUND RAISED BY THE REVENUE IS ALLOWED INASMUCH A S THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS SET ASIDE A ND THAT OF THE ASSESSING OFFICER IS RESTORED. 25. THE NEXT ISSUE RAISED IN THE APPEAL BY THE REVE NUE IS WITH REGARD TO THE EXPENSES ON AIR SHOW OF RS 10 74 677/- WHICH HA S BEEN ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE ASSESSING OFFICER DISALLOWED THE AIR-SHOW EXPENDITURE INCURRED BY THE ASSESSEE F OR THE REASON THAT THE SAME HAD NO RELEVANCE TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. AS PER THE ASSESSING OFFICER THE PRIMARY ACTIVITY OF THE ASSE SSEE WAS FOR MAINTENANCE AND UPKEEP OF THE MIG AIRCRAFTS AND THE SALE AND P URCHASE CONTRACTS ARE REACHED DIRECTLY BETWEEN THE TWO COUNTRIES AND IN T HESE CIRCUMSTANCES THE AIR SHOW EXPENSES HAD NO RELEVANCE TO THE ACTIVITIE S OF THE ASSESSEE. HENCE THE SAME WAS DISALLOWED AS NON BUSINESS EXPENDITURE . 26. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THE ASSESSEE CONTENDED THAT AT THE AIR SHOW EXHIBITIONS AIRCRAFTS ARE DISPLAYED FOR BUSINESS PROMOTION AND A LARGE NUMBER OF COMPAN IES WHO MAKE VARIOUS AIRCRAFT SYSTEMS ITS PARTS AND COMPONENTS ALSO PAR TICIPATE FOR BUSINESS PROMOTION; THAT THE CONDUCT OF SUCH AIR SHOWS IS PR IMARILY TO IDENTITY NEW PRODUCTS PRODUCT UPGRADATION MAINTENANCE AND FLEE T SERVICEABILITY OF VARIOUS AIRCRAFTS IN FLYING CONDITIONS ETC. IT WAS ALSO EXPLAINED THAT THE PRACTICE OF ORGANIZING AIR SHOWS TO DISPLAY AND MAR KET AIRCRAFTS AND ITS COMPONENTS IS BEING FOLLOWED WORLDWIDE AND THE ASS ESSEE HAD PARTICIPATED ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 13 IN SUCH AIR SHOWS ONLY TO ACHIEVE ITS BUSINESS OBJE CTIVES. IT WAS EXPLAINED THAT THE AIR SHOW IN QUESTION WHEREIN THE ASSESSEE PARTICIPATED WAS AN EVENT ORGANIZED BY THE GOVERNMENT OF INDIA ONCE IN TWO YEARS IN INDIA. THE ASSESSEE CONTENDED THAT THOUGH ITS ROLE WAS TO ENSU E SUPPLY OF VARIOUS PARTS AND COMPONENTS OF DIFFERENT AIRCRAFTS TO INDIAN DEF ENSE ORGANIZATIONS BUT IT WAS NOT BARRED FROM SUPPLYING THE GOODS TO OTHER PA RTIES AND IN THIS DIRECTION IT WAS POINTED OUT SUPPLIES WERE MADE BY THE ASSESS EE TO SRI LANKAN AIR FORCE AND ROYAL MALAYSIAN AIR FORCE ALSO. THE ASSES SEE ALSO EXPLAINED THAT IT WAS RECEIVING ENQUIRIES FROM COUNTRIES LIKE BANG LADESH OMAN TURKEY AND YEMEN. IN SUM AND SUBSTANCE THE CONTENTION OF THE ASSESSEE WAS THAT THE EXPENDITURE WAS INCURRED ON AIR SHOW IN ORDER TO A CHIEVE ITS BUSINESS OBJECTIVE. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SINCE ALLOWED THE CLAIM OF THE ASSESSEE BY MAKING THE FOLLOWING DISCU SSION IN PARA 5.2 OF THE IMPUGNED ORDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO THE REASONS GIVEN BY THE AO. THE AO DISALLOWED THE ABOVE EXPENDITURE BAS ED ON PRESUMPTION THAT THE APPELLANT WAS PRIMARILY FORMED FOR PERSUASION OF AG REEMENT REACHED BETWEEN INDIA AND RUSSIA FOR MAINTENANCE AND UPKEEP OF THE AIRCRA FTS. EVEN THOUGH THE APPELLANT WAS ENGAGED IN THE BUSINESS OF MAINTENANCE AND UPKE EP OF MIG AIRCRAFTS THEY WERE ALSO DEALING WITH VARIOUS OTHER CUSTOMERS. THE AIR SHOW WAS TO PROVIDE A WINDOW TO THE APPELLANT FOR MARKETING THE SERVICES AND FACILITIES PROVIDED BY THEM. THEREFORE IT IS WRONG TO COME TO THE CONCLUSION TH AT THE EXPENDITURE ON THIS HEAD WAS NOT ALLOWABLE BECAUSE IT WAS A MATTER OF AGREEM ENT BETWEEN TWO NATIONS. THE APPELLANT IS ENGAGED IN THE BUSINESS OF UPKEEP AND MAINTENANCE WORK FOR VARIOUS OTHER CUSTOMERS ALSO AND NOT BETWEEN ONLY TWO COUNT RIES. THE EVIDENCE FOR NON BUSINESS PURPOSES ETC. IS NOT BROUGHT ON RECORD FO R DISALLOWING THE EXPENSES. THE EXPENSES INCURRED BY THE APPELLANT FOR THE PURPOSE OF AIR SHOW ARE THEREFORE ALLOWABLE AS BUSINESS EXPENDITURE HENCE THE DISALLO WANCE MADE BY THE AO IS DELETED. 27. AGAINST THE AFORESAID DISCUSSION OF THE COMMISS IONER OF INCOME-TAX (APPEALS) THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS MERELY REITERATED THE REASONING PUT-FORTH BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN THE EARLIER PARAS AND IS NOT BEING REPEATED HERE FO R THE SAKE OF BREVITY. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 14 28. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE HAS DEFENDED THE ACTION OF THE COMMISSIONER OF INCOME-T AX (APPEALS) AND HAS RELIED ON THE FOLLOWING DECISIONS: I) OMKAR TEXTILES (P) LTD V ITO 115 TTJ 716 (AHD) II) CRABTREE (I) LTD V ACIT 38 SOT 479 (DEL) 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. ON PERUSAL OF THE RESPECTIVE ORDERS OF THE AUTHORITIES BELOW WE FIND NO JUSTIFICATION TO INTERFERE WITH THE CONCLUSION DRAWN BY THE COMMISSIONER OF IN COME-TAX (APPEALS). IT IS EVIDENT THAT THE COMMISSIONER OF INCOME-TAX (APPEAL S) HAS ARRIVED AT A FACTUAL FINDING THAT THERE IS NO MATERIAL TO SUGGES T THAT THE EXPENDITURE WAS FOR NON-BUSINESS PURPOSES. IN OUR VIEW NO COGENT R EASON HAS BEEN ASSIGNED BY THE ASSESSING OFFICER TO DISALLOW THE SAID EXPEN DITURE AND THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAK E IN DELETING THE ADDITION. THE ORDER OF THE COMMISSIONER OF INCOME-T AX (APPEALS) IS THEREFORE CONFIRMED. THUS ON THIS GROUND REVENUE FAILS. 30. THE NEXT ISSUE IS IN RELATION TO LIQUIDATED DAM AGES OF RS 3 51 312/- CLAIMED BY THE ASSESSEE. THE SAID CLAIM WAS DISALLO WED BY THE ASSESSING OFFICER AS ACCORDING TO HIM THE EXPENDITURE WAS I N THE NATURE OF A PENALTY WHICH WAS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER ALSO NOTED THE FACT THAT THE EXPENDITURE WA S INCURRED FOR NON-SUPPLY OF MATERIALS TO THE CUSTOMERS AS PER THE TERMS AND CON DITIONS. THE ASSESSING OFFICER THUS CONCLUDED THAT THE PAYMENTS WERE PENA L IN NATURE AND HENCE THE DISALLOWANCE. 31. THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETE D THE ADDITION BY MAKING THE FOLLOWING DISCUSSION IN PARA 6.1 OF THE IMPUGNED ORDER: THIS ISSUE HAS ALREADY BEEN DISCUSSED AND DECIDED BY ME IN THE APPELLANTS OWN CASE FOR THE AY 2002-03 IN APPEAL NO NSK/ADDL.CIT.R G.2/12/07-08. THE RELEVANT PORTION OF MY DECISION IS EXTRACTED BELOW FOR READY REFERENCE: ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 15 7.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND ALSO THE REPORT OF THE AO IN THIS REGARD. IT IS AN UNDISPUTED FACT THAT THESE PAYMENTS WERE MADE O THE CUSTOMERS WHENEVER THERE WERE DEFAULTS R EGARDING THE DELAY IN DELIVERY OR DIFFERENCE IN QUANTITY AS PER THE TERMS OF CONTRACT. THESE TERMS OF CONTRACT ARE VERY NORMAL IN BUSINESS FOR ENSURING T IMELY SUPPLY OF GOODS AND QUALITY OF WORK. THERE ARE VARIOUS DECISIONS WHICH HAVE HELD THAT SUCH PAYMENTS ARE ALLOWABLE AS BUSINESS EXPENDITURE SINC E THEY ARE INCIDENTAL TO CARRYING ON OF THE BUSINESS. THE INTERPRETATION OF THE AO THAT THESE PAYMENTS WERE IN THE NATURE OF PENALTY IS NOT CORRE CT EVEN THOUGH THEY ARE CALLED PENALTY. THESE PAYMENTS ARE NOT PAID FOR INF RACTION OF LAW BUT ONLY DURING THE COURSE OF THE BUSINESS FOR DEFAULTS IN T HE BUSINESS AGREEMENTS. THEREFORE THE REASONING GIVEN BY THE APPELLANT IS NOT ACCEPTABLE HENCE I AGREE WITH THE SUBMISSIONS OF THE APPELLANT AND HOL D THAT THESE LIQUIDATED DAMAGES ARE ALLOWABLE AS BUSINESS EXPENDITURE. IN VIEW OF THE ABOVE DECISION THE AO IS DIRECTED T O ALLOW THE CLAIM OF LIQUIDATED DAMAGES AMOUNTING TO RS 3 51 312/-. 32. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE EXPENDITURE WAS INCURRED IN BREACH OF A CONTRACT AN D THEREFORE THE SAME WAS PENAL IN NATURE AND HENCE COVERED BY THE DISA LLOWANCE ENVISAGED IN THE EXPLANATION BELOW SECTION 37(1) OF THE ACT. 33. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO VIOLATION OF ANY LAW SO AS TO REQ UIRE INVOKING OF EXPLANATION TO SECTION 37(1) OF THE ACT AND THAT THE SAID EXPEN DITURE WAS ALLOWABLE IN TERMS OF THE FOLLOWING DECISIONS: I) TATA HONEWELL LTD V DCIT VIE ITA NO 418/PN/95 D T 18.3.2002 II) THERMAX BABCOCK & WILCOX LTD 7 DTR 162 (PUNE) 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. IT IS EVIDENT THAT THE EXPENDITURE IN QUESTION HAS RESULTED IN THE COU RSE OF BUSINESS IN TERMS OF A CONTRACTUAL BREACH AND THERE IS NO BREACH OR INFR ACTION OF LAW SO AS TO JUSTIFY THE DISALLOWANCE IN TERMS OF EXPLANATION TO SECTION 37(1) OF THE ACT. THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APP EALS) IN THIS REGARD ARE APPROPRIATE AND DO NOT REQUIRE ANY INTERFERENCE AND ARE ACCORDINGLY AFFIRMED. IN THE RESULT REVENUE HAS TO FAIL ON THIS GROUND. ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 16 35. IN THE RESULT APPEAL OF THE REVENUE VIDE ITA N O 229/PN/09 PERTAINING TO ASSESSMENT YEAR 2001-02 IS PARTLY ALLOWED. 36. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN IT A NO 208/PN/09 FOR THE ASSESSMENT YEAR 2001-02. 37. IN THE APPEAL OF THE ASSESSEE FIRST ISSUE RAIS ED IS AGAINST THE ACTION OF THE ASSESSING OFFICER IN INITIATING THE PROVISIONS OF SECTION 147 OF THE ACT. THE SAID ISSUE IS COMMON IN THE THREE ASSESSMENT YEARS OF 2001-02 2002-03 AND 2003-04. 38. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ONLY BASIS FOR REOPENING THE ASSESSMENT WAS THE ASSESSME NT FINALIZED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2004-05 U NDER SECTION 143(3) OF THE ACT DATED 12.12.2000 WHEREIN DISALLOWANCES ON ACCOUNT OF WARRANTY EXPENSES PROVISION FOR GRATUITY AND DENIAL OF DEDU CTION UNDER SECTION 80HHC WAS MADE. IT IS CONTENDED THAT THE AFORESAID ITEMS OF DISALLOWANCE IN A LATER ASSESSMENT YEAR COULD NOT CONSTITUTE ESCAP EMENT OF INCOME WITHIN THE MEANING OF SECTION 147/148 OF THE ACT FOR THE T HREE ASSESSMENT YEARS OF 2001-02 TO 2003-04. SECONDLY IT IS POINTED OUT THA T IN THE SUBSEQUENT ASSESSMENTS FINALIZED FOR THE THREE YEARS ADDITION S HAVE BEEN MADE ON ACCOUNT OF VARIOUS EXPENSES WHICH WERE NEVER BEING THE REASON FOR REOPENING OF ASSESSMENTS. IT IS CONTENDED THAT THE ASSESSING OFFICER HAS TRAVELLED BEYOND HIS JURISDICTION AND THEREFORE T HE ENTIRE ASSESSMENT SHOULD BE QUASHED. 39. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESE NTATIVE HAS DEFENDED THE INITIATION OF PROCEEDINGS UNDER SECTION 147 BY THE ASSESSING OFFICER BY RELYING ON THE REASONING ADVANCED BY THE COMMISSION ER OF INCOME-TAX (APPEALS). ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 17 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. IN THIS CASE WE FIND NO FORCE IN THE PLEA OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS TRAVELED BEYOND HIS JURISDICTION ON EITHER OF THE I SSUES. QUITE CLEARLY THE ADDITIONS MADE IN THE ASSESSMENT YEAR 2004-05 FORME D THE BASIS FOR REOPENING WHICH IS A VALID REASON HAVING REGARD T O THE FACTS OF THE PRESENT CASE. IN SO FAR AS THE JURISDICTION OF THE ASSESSIN G OFFICER TO MAKE ADDITIONS ON ISSUES OTHER THAN THE REASONS FOR WHICH THE ASSE SSMENT WAS REOPENED THE SAME IS ALSO COMPETENT IN VIEW OF THE EXPLANATI ON 3 TO SECTION 147 OF THE ACT INSERTED BY THE FINANCE (NO 2) ACT 2009 WITH R ETROSPECTIVE EFFECT FROM 1.4.1989. THEREFORE THE PLEA OF THE ASSESSEE WITH REGARD TO THE VALIDITY OF INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE ACT IS DISMISSED. 41. THE OTHER ISSUE RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2001- 02 IS ON ACCOUNT OF GRATUITY AND VACATION LEAVE EXP ENSES WHICH HAVE ALREADY BEEN DEALT WITH BY US IN APPEAL FOR THE ASS ESSMENT YEAR 2004-05 IN THE EARLIER PARAGRAPHS. FOLLOWING THE SAME THE SA ID GROUNDS ARE DISPOSED OF. 42 IN THE RESULT APPEAL OF THE ASSESSEE IN ASSESSM ENT YEAR 2001-02 IS PARTLY ALLOWED. 43 IN THE ASSESSMENT YEAR 2002-03 IN THE APPEAL OF THE ASSESSEE ISSUES RAISED RELATE TO INITIATION OF PROCEEDINGS UNDER SE CTION 147 GRATUITY AND VACATION LEAVE EXPENSES AND WARRANTY EXPENSES. THES E ISSUES HAVE BEEN DEALT WITH BY US IN THE EARLIER PARAGRAPHS AND ARE ACCORDINGLY DISPOSED OF. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 44. IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2002-03 THE ONLY ISSUE RAISED IS WITH REGARD TO CLAIM OF DEDUCT ION UNDER SECTION 80HHC WHICH HAS BEEN ALLOWED IN FAVOUR OF THE REVENUE BY US IN THE EARLIER ITA 208-211/PN/09 ETC INDO RUSSIAN AVIATION LTD NASHIK 18 PARAGRAPHS. ACCORDINGLY THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2002-03 IS ALLOWED. 45. SIMILARLY APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2003-04 IN RELATION TO THE CLAIM OF DEDUCTION UNDER SECTION 80 HHC IS ALLOWED. WITH REGARD TO THE AIR SHOW EXPENSES THE APPEAL OF THE REVENUE IS DISMISSED FOLLOWING OUR DECISION FOR ASSESSMENT YEAR 2002-03. 46. IN THE ASSESSMENT YEAR 2003-04 IN THE APPEAL O F THE ASSESSEE ISSUES RAISED RELATE TO INITIATION OF PROCEEDINGS UNDER SE CTION 147 GRATUITY AND VACATION LEAVE EXPENSES AND WARRANTY EXPENSES. THES E ISSUES HAVE BEEN DEALT WITH BY US IN THE EARLIER PARAGRAPHS AND ARE ACCORDINGLY DISPOSED OF. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 47. IN THE RESULT THE APPEALS ARE ACCORDINGLY DISP OSED OF. PRONOUNCED IN THE OPEN COURT ON THIS 23RD DAY OF D ECEMBER 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED:23RD DECEMBER 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 4) THE CIT. 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH ITAT PUNE BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B