JET LITE (INDIA) LTD. v. COMMISSIONER OF INCOME TAX-XVI
[Citation -2015-LL-1104-10]

Citation 2015-LL-1104-10
Appellant Name JET LITE (INDIA) LTD.
Respondent Name COMMISSIONER OF INCOME TAX-XVI
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 04/11/2015
Judgment View Judgment
Keyword Tags barred by limitation • business expenditure • business promotion • computerized reservation system • consultancy charges • disallowance of interest • interest paid on borrowed capital • lease rent • no objection certificate • non-deduction of tax • non-resident company • outright purchase • share application money • share capital • sister concern • source of income • staff welfare expenditure • stock exchange • technical knowledge • travel tax • undisclosed income • unexplained cash credit
Bot Summary: In ITA No. 204 of 2002, which is the Assessee s appeal, the following questions were framed: Whether the Tribunal was right in law in holding that the Assessee could be regarded as Assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-tax Act, 1961 ITA Nos. In ITA No. 205 of 2002, which is the Revenue s appeal, the following questions were framed: Whether the Tribunal was correct in law in holding that the order by the AO under Section 201 of the Income Tax Act, 1961 in respect of financial year 1994-95 was barred by limitation Whether the Tribunal was right in law in holding that since the tax had not been deducted at source by the Assessee, the question of grossing up under Section 195-A of the Income Tax Act, 1961, by the Income-tax Officer did not arise Whether the Tribunal was correct in law in holding that the payments made by the Assessee towards reserve funds in respect of financial years 1996-97 to 998-99 were exempt under Section 10 of the Income tax Act, 1961 21. As regards the Assessee's appeal ITA 128 of 2005 for AY 1995-96 to 1996-98 is concerned, this Court by order dated 25th February 2005 framed the following question of law: Whether the Tribunal was right in law in holding that the assessee could be regarded as assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of the Income-Tax Act, 1961 ITA Nos. The question of holding the Assessee as an Assessee in default under Section 201 of the Act did not arise. The case of the Revenue was that while the Assessee had to borrow funds from its sister concerns for carrying on its business on which interest has been claimed under Section 36, the Assessee had allowed its other sister concerns to retain interest bearing funds without charging any interest. According to the Assessee, these expenses were incurred for the purpose of training of the pilots abroad. Further the training was imparted by technical experts for the purposes of the business of the Assessee. The ITAT followed its order dated 8th August 2008 in ITA No. 294/Luc/2000 which held that Section 43B is only attracted when the Assessee claims deduction for any sum payable by way of tax or duty under any law for the time being in force, and, where, as in the case of the Assessee, no charge is claimed or made to the profit or loss account, there was no question of disallowing the amount taken to the balance sheet on the ITA Nos.


$ * IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: September 15, 2015 Date of decision: November 04, 2015 + ITA 204/2002 JET LITE (INDIA) LTD. ..... Appellant Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. versus COMMISSIONER OF INCOME TAX-XVI ........ Respondent Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. WITH + ITA 86/2011 CIT ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. WITH + ITA 205/2002 ITA Nos. 204/2002 & batch matters Page 1 of 42 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. WITH + ITA 128/2005 JET LITE (INDIA) LTD. ..... Appellant Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates Versus COMMISSIONER OF INCOME TAX-XII ........ Respondent Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. WITH + ITA 1206/2005 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus ITA Nos. 204/2002 & batch matters Page 2 of 42 JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. AND + ITA 1209/2005 DIRECTOR OF INCOME TAX ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Junior Standing Counsel. Versus JET LITE (INDIA) LTD. ........ Respondent Through: Mr. S. Ganesh, Senior Advocate with Mr. U.A. Rana, Ms. Mrinal Elker Mazumdar and Mr. Himanshu Mehta, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU JUDGMENT % 04.11.2015 S. Muralidhar, J. Introduction 1. These are appeals both by Assessee and Revenue, under Section 260A of Income Tax Act, 1961 ( Act ). While ITA Nos. 204 of 2002 and 205 of 2002 by Revenue are directed against common order dated 12th February 2002 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA Nos.950 to 954/Del/2001 for Financial Years ( FY ) 1994-95 to 1998-99, ITA Nos. 128 of 2005 by Assessee is directed against ITA Nos. 204/2002 & batch matters Page 3 of 42 impugned order dated 30th August 2004 passed by ITAT in ITA No. 2753,3151, 3152 & 3153(Del)/1999 for Assessment Years ( AYs ) 1996-97, 1995-96, 1996-97 & 1997-98. ITA Nos. 1206 of 2005 and 1209 of 2005 of Revenue are directed against common order dated 12th April 2005 passed by ITAT in ITA Nos. l42&1143/Del/01 for AYs 1998- 99 & 1999-2000. ITA No. 86 of 2011 by Revenue is directed against impugned order dated 10th July 2009 passed by ITAT in ITA No. 682/All/2000 for AY 1996-97. 2. At outset it requires to be noticed that in these cases, Assessing Officers (AO), Commissioner of Income Tax (Appeals [CIT (A)] have in their respective orders and ITAT in order dated 12th February 2002 referred to FYs 1994-95 to 1998-99 whereas subsequent orders of those authorities including orders dated 30th August 2004, 12th April 2005 and 10th July 2009 of ITAT refer to AYs as mentioned hereinbefore. 3. Initially name of Assessee was Sahara Airlines Limited ( Sahara ). Subsequently it was renamed as Jet Lite (India) Limited. Pursuant to orders passed by Court on 23rd May 2012 and 31st July 2015 name of Assessee in these appeals stood amended as such. Background Facts 4. background to above appeals is that Sahara entered into Aircraft Parts Lease-Purchase Agreement ( APLPA ) dated 24th August 1993 with AAR Aviation Trading Inc. ( AAR ) in terms of which Sahara, which was engaged in business of running schedule airline, agreed to ITA Nos. 204/2002 & batch matters Page 4 of 42 take on hire certain aircraft parts on terms and conditions set out in APLPA. Sahara was to pay AAR rental of US dollars ( USD ) 199,370 on bi-annual basis. lease was for period of three years and in terms of Clause 22 of APLPA, Sahara had option, on termination of lease, to purchase all parts at price of USD 50,000. 5. During FY 1994-95, Sahara paid USD 199,370 each on 22nd April 1994 (equivalent to Rs. 63,00,092) and on 14th November 1994 (equivalent to Rs. 63,12,054) respectively. Admittedly, Sahara did not deduct tax at source. It is stated that Sahara had applied to Assistant Commissioner of Income Tax, Company Circle 3(3), New Delhi ( ACIT ), who was at relevant time AO having jurisdiction, to ascertain as to whether it was under any obligation to deduct tax at source in respect of said payments. 6. It is further stated that pursuant to said applications, ACIT issued no objection certificates ( NOC ) dated 24th February 1994 and 20th October 1994 permitting Sahara to remit aforementioned gross sums of USD 199,370 under both certificates. It is further stated that at end of lease period, Sahara exercised option under Clause 22 of APLPA and remitted sum of USD 50,000 without deducting tax at source as same did not represent income chargeable to tax in India. 7. AO raised objections on grounds that payments amounted to royalty. Pursuant to AO's orders requiring that TDS should be deducted @ 10%, Sahara deducted tax as directed and filed appeals against AO's order. appeals before CIT (A) being unsuccessful, further ITA Nos. 204/2002 & batch matters Page 5 of 42 appeals were filed before Tribunal. These were for AYs 1995-96 to 1997-98. After not succeeding before ITAT on this issue, Sahara filed ITA No. 128 of 2005 in this Court. 8. Sahara also entered into Training Agreements on 30th January 1996 with Hughes Flight Trading Limited ( HFTL ) in terms of which HFTL which operated flight crew training facility at Fleming Way Crawley West Sussex England agreed to provide ground and flight simulator training to Sahara s flight crews on terms and conditions set out in said agreement. HFTL was to make available to Sahara s flight crews and instructors, training equipment including flight simulator appropriate to aircraft for use in flight simulator training. Sahara was to pay HFTL GBP 171 per hour for use of flight simulator without any instructor of HFTL being present. 9. Sahara states that similar arrangements were entered into with other companies based in United Kingdom in terms of which flight crew was provided with facility of simulator. payments were made pursuant to said agreement made by Sahara without deducting tax at source during FYs 1994-95 to 1998-99 as such. Sahara was of view that no part of payment made for use of flight simulator was chargeable to tax in India. 10. Sahara had taken two aircrafts on lease for period of six years from International Lease Finance Corporation ( ILFC ) and separate agreements were entered into in respect of each aircraft. In terms of Article 1.6 read with ITA Nos. 204/2002 & batch matters Page 6 of 42 Article 5.3 thereof, Sahara was required to pay lease rent @ US Dollars ('USD') 240,000 per month with effect from 31st December 1995 and USD 241,000 with effect from 1st January 1995. In terms of Article 1.7 read with Article 5.4, Sahara was also required to pay supplemental lease rent in form of reserves @ USD 234 per hour. These reserves were categorised as 'airfreight reserves', 'engine reserves' and 'landing gear reserves' and were created to meet cost of expenditure incurred by lessee in respect of deficiencies and work specified inn Articles 13.1 and 13.2. In terms of Article 13.3 lessee (i.e. Sahara) was entitled to reimbursement from such reserves after work was completed and airframe or engine had left repair agency by submitting invoices and proper documentation in respect thereof. In terms of Article 13.6, on termination date of agreement if any balance was left in said reserve, it would be retained by lessor. Similar payments on account of supplemental lease rent were also made by Sahara to other non-resident foreign companies i.e. AMTEC, Malaysian Airlines and Lufthansa during FYs 1997-98 to 1998-99. 11. Sahara also entered into agreement dated 8th/9th May 1996 with Sochata, France, which was engaged in business of maintaining and operating certain facilities for repair, maintenance, overhaul, modification and functional testing of aircraft engine including accessories, parts and components. Pursuant to said agreement Sahara paid, on 25th September 1996, sum of Rs. 3,08,60,702 (equivalent to USD 8,63,719.63) and, on 24th January 1997, sum of Rs. 2,89,19,958 (equivalent to USD 8,04,002.18) respectively in FY 1996-97. Again it was of view that amount did not represent income chargeable to tax in India and no ITA Nos. 204/2002 & batch matters Page 7 of 42 deduction of tax at source was made. 12. It is further stated that as result of flying operation, several parts of aircrafts were required to be repaired/replaced. spares were acquired in three modes. first was outright purchase, second was exchange involving sending of defective part to non-resident company which in turn sent part in lieu thereof. non-resident company would raise bill on proforma basis for part replaced as well as levy charge. third mode was by sending defective part for repairs and Sahara used to pay charge for repair carried out. According to Sahara, it was advised that no tax was required to be deducted in respect of parts purchased, exchanged or repaired and therefore, it remitted amounts without deducting tax at source. Facts concerning subscription to share capital 13. From balance sheet filed by Assessee along with return it was noted by AO that for AY 1996-97 Sahara raised share capital of Rs. 10,87,89,090 and received premium amount of Rs. 44,60,35,269 and share application money of Rs. 7,50,000. Sahara claimed to have mobilized above amount by way of private placement of shares from 65,285 persons through network of establishments maintained by its sister concern M/s. Sahara India (Firm). Against face value of Rs. 10 per share, sum of Rs. 41was collected as premium. Sahara was asked by AO to furnish details of shares issued during year of Rs. 25,000 or more by notice dated 10th September 1998 under Section 142 (1) of Act. Sahara filed reply on 23rd October 1998. It was thereafter asked to furnish basis of ITA Nos. 204/2002 & batch matters Page 8 of 42 working out premium of shares and method of allotment of shares to such large number of persons by way of private placement. Sahara was also asked to furnish addresses of top 100 share holders who were allotted shares during year. 14. In response thereto Sahara furnished addresses of 92 such persons. Notices under Section 133 (6) were issued to 92 such persons, but notice to remaining 8 persons could not be sent as their addresses were not indicated in list furnished by Sahara. These notices were sent on 17th February 1999 and 23rd February 1999. Only 17 of those notices sent were replied to, while 25 notices were returned unserved with remarks not known , refused , incomplete address , dead , left indefinitely etc. 50 persons to whom notices were sent did not reply. Notice dated 18th March 1999 was sent to Sahara under Section 142 (1) of Act requiring it to explain why entry share capital with premium should not be treated as its unexplained income under Section 68 of Act. Sahara was called upon to substantiate identity, genuineness and creditworthiness of shareholders. 15. Sahara filed two replies dated 24th March 1999 stating that shareholders were spread all over country and requisitions had to be sent to Zonal Managers placed in different zones. Sahara enclosed photocopies of share applications filed in 1996 to prove identity of subscribers. Department took upon itself to verify genuineness of transactions and replies were received only in about 20% of cases. AO noticed from share application forms that shareholders were ITA Nos. 204/2002 & batch matters Page 9 of 42 allotted only 25% of shares and 75% of shares were retained by collecting agent on plea of getting shares listed in stock exchanges. AO was of opinion that since 75% of shares were not handed over to subscribers transactions themselves appeared to be suspicious. Further it was noticed that those who had replied stated that they had invested money in cash. This also gave transaction dubious colour. All persons who replied claimed to have sold their shares back to Sahara. order of AO 16. AO was not convinced by statement of Sahara and it was found evasive as shares were not quoted in stock exchange and hence were not transferable in market. Observing that it appeared that Assessee had concealed some very vital facts with regard to issue and transfer of shares, AO treated sum of Rs. 55,55,89,359 as unexplained credit in books of Assessee under Section 68 of Act and consequently as undisclosed income of Assessee which was attributable to total income of Assessee. Orders of CIT (A) and ITAT 17. On appeal, Commissioner of Income Tax (Appeals) [ CIT (A) ] by order dated 3rd March 2000 held that since AO has chosen to enquire only into genuineness of 100 shareholders, no additions could have been made in respect of other 65,185 shareholders. CIT(A) noticed that out of these 100 persons, AO himself had stated that 17 shareholders had furnished replies and 50 of persons to whom notices were served, did not ITA Nos. 204/2002 & batch matters Page 10 of 42 respond. However, as notices sent were duly received, existence of these 50 persons was duly proved. CIT (A), therefore, directed AO to delete additions with respect to these 67 persons. With respect to group of 25 persons in relation to whom notices were returned with comments such as refused , dead , left indefinitely , etc, CIT(A) held that they certainly were in existence and their identity is duly proved. With respect to those persons who, according to AO, were not traceable and 8 other persons to whom AO had not issued notices for want of addresses, CIT (A) restored matter back to AO and also directed Assessee to furnish necessary evidence to prove their identity. 18. ITAT by its order dated 10th July 2009 confirmed said order passed by CIT (A) thereby deleting addition made by AO on this account. ITAT upheld order of CIT (A) and held that Assessee had proved identity of shareholders. Questions of law 19. At time of admission of ITA Nos. 204 of 2002 and 205 of 2002, which pertained to FYs1994-95 to 1998-99, this Court by orders dated 28th February 2003 framed separate questions for determination in each of these appeals. In ITA No. 204 of 2002, which is Assessee s appeal, following questions were framed: (i) Whether Tribunal was right in law in holding that Assessee could be regarded as Assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of Income-tax Act, 1961? ITA Nos. 204/2002 & batch matters Page 11 of 42 (ii) Whether Tribunal s conclusion that fee paid by Appellant for use of flight simulator in terms of agreement dated 30 th January 1996, was to be regarded as payment by way of fee for technical services and accordingly, chargeable to tax in India is correct in law? (iii) Whether Tribunal was justified in holding that payments made to M/s. Sochata France in terms of agreement dated 8th March 1996/9-5-1996, were to be regarded as fee for technical services? 20. In ITA No. 205 of 2002, which is Revenue s appeal, following questions were framed: (i) Whether Tribunal was correct in law in holding that order by AO under Section 201 of Income Tax Act, 1961 in respect of financial year 1994-95 was barred by limitation? (ii) Whether Tribunal was right in law in holding that since tax had not been deducted at source by Assessee, question of grossing up under Section 195-A of Income Tax Act, 1961, by Income-tax Officer did not arise? (iii) Whether Tribunal was correct in law in holding that payments made by Assessee towards reserve funds in respect of financial years 1996-97 to 998-99 were exempt under Section 10 (15A) of Income tax Act, 1961? 21. As regards Assessee's appeal ITA 128 of 2005 for AY 1995-96 to 1996-98 is concerned, this Court by order dated 25th February 2005 framed following question of law: "Whether Tribunal was right in law in holding that assessee could be regarded as assessee in default for failing to deduct tax at source in respect of payments made to AAR Aviation Trading Inc as required under Section 195 of Income-Tax Act, 1961?" ITA Nos. 204/2002 & batch matters Page 12 of 42 22. As far as Revenue's appeal ITA 1209 of 2005 for AY 1998-99 is concerned, this Court by order dated 14th December 2005, framed following question of law: Whether Tribunal was correct in law in holding that payments made by Assessee towards reserve funds in respect of financial year 1998-99 were exempt under Section 10(15A) of Income Tax Act, 1961? 23. As far as Revenue's appeal ITA 1206 of 2005 for AY 1999-2000 is concerned, this Court by order dated 31st January 2006, framed following question of law: Whether Tribunal was correct in law in holding that payments made by Assessee towards reserve funds in respect of financial year 1999-2000 were exempt under Section 10(15A) of Income Tax Act, 1961? 24. As far as Revenue's appeal ITA No. 86 of 2011 is concerned, it arises from Revenue's appeal before ITAT being ITA No. 682/All/2000 for AY 1996-97. Although in said appeal before ITAT, Revenue had raised fourteen questions, at time of admission of appeal before this Court being ITA 86 of 2011, Court framed only following eleven questions of law, on 27th August 2012: (i) Whether ITAT was justified in eyes of law in upholding deletion of addition of Rs. 55,40,38,959 made by AO under Section 68 of Income Tax Act, 1961, on account of unexplained cash credit, ignoring material fact that Assessee had failed to substantiate credit worthiness of shareholders and genuineness of transactions? (ii) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs. 4,74,13,470 made under Section 195 ITA Nos. 204/2002 & batch matters Page 13 of 42 read with Section 40 (a) (i) of Income Tax Act, 1961, by AO, on account of non-deduction of tax at source (TDS) on amount paid by assessee to non-resident company towards maintenance reserve for leased Aircraft? (iii) Whether ITAT was correct in eyes of law in not adjudicating issue of inadmissibility of expenses of Rs. 52,47, 225 towards training and manpower development, paid to foreign companies u/s 40 (a) (i) of Act for being paid without deducting TDS? (iv) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs. 1,77,82,789 made under Section 40 (a) (i) of Income Tax Act, 1961, by AO, for non-deduction of TDS on payment to non-residents of computerized reservation system? (v) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs. 30,40,170 made by AO on account of disallowance of 50% of total expenditure incurred by Assessee in issuing free tickets was business expenditure, claimed as business expenditure, when said expenditure had not been incurred wholly and exclusively for purpose of business and hence is not allowable under Section 37 (1) of Income Tax Act, 1961? (vi) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs.1,42,76,535 made by AO on account of disallowance of interest paid on borrowed capital, when said interest is not allowable under Section 36 (1) (iii) of Income Tax Act, 1961, on account of substantial interest-free funds advance to sister concerns? (vii) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs. 35,97,812 made by AO, on account of disallowance of 1/5th of foreign travel total expenses claimed under Section 37 (l) of Income Tax Act, 1961, when same are inadmissible for want of genuineness to prove that expenditure was incurred wholly and exclusively for business purposes? ITA Nos. 204/2002 & batch matters Page 14 of 42 (viii) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs. 21,60,000 made by AO, on account of disallowance of consultancy expenses, paid by assessee to M/s. Sahara India International Corporation Limited, invoking provisions of Section 40A (2) of Income Tax Act, 1961, when said expenditure is excessive and unreasonable and services, which have been claimed to have been rendered have not been substantiated for genuineness? (ix) Whether ITAT was justified in eyes of law in upholding deletion of addition of Rs.54,06,701 made on account of disallowance of claim made by Assessee as staff welfare, when same were considered as entertainment expenses in absence of any corroboratory evidence to substantiate genuineness and reasonableness of expenditure? (x) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs.10,37,367/- made on account of disallowance of advertising and publicity expenses, as same being not related to year under consideration i.e. AY 1996-97? (xi) Whether ITAT was correct in eyes of law in upholding deletion of addition of Rs.10,17,553/- made on account of disallowance of Air Travel Tax paid by assessee, when same is covered under Section 43B of Income Tax Act, 1961 and for which no proof of payment has been furnished? 25. This Court has heard submissions of Mr. S. Ganesh, learned Senior counsel for Assessee as well as Mr. Rahul Chaudhary and Mr. Rohit Madan, learned Standing counsel for Revenue respectively. Unexplained cash credit under Section 68 of Act 26. Court first proposes to examine issue concerning unexplained ITA Nos. 204/2002 & batch matters Page 15 of 42 cash credits under Section 68 of Act. 27. Full Bench of this Court in CIT v. Sophia Finance Limited (1994) 205 ITR 98 [FB, (Delhi)] held that in context of Section 68 of Act that: (i) Assessee has to prima facie prove "(1) identity of creditor/subscriber; (2) genuineness of transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) creditworthiness or financial strength of creditor/subscriber . (ii) If relevant details of address of PAN identity of creditor/subscriber are furnished to Department along with copies of Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by Assessee. (iii) Department would not be justified in drawing adverse inference only because creditor/subscriber fails or neglects to respond to its notices. (iv) onus would not stand discharged if creditor/subscriber denies or repudiates transaction set up by Assessee nor should AO take such repudiation at face value and construe it, without more, against Assessee. (v) AO is duty-bound to investigate creditworthiness of ITA Nos. 204/2002 & batch matters Page 16 of 42 creditor/subscriber genuineness of transaction and veracity of repudiation. 28. In CIT v. Steller Investment Limited (1991) 192 ITR 287 (Del) it was observed: Even if it be assumed that subscribers to increased share capital were not genuine, nevertheless, under no circumstances, can amount of share capital be regarded as undisclosed income of assessee. It may be that there are some bogus shareholders in whose names shares had been issued and money may have been provided by some other persons. 29. Both aforementioned decisions were again considered by Division Bench of this Court in CIT v. Lovely Exports Limited 299 ITR 268 (Del). Thereafter, in CIT v. Nova Promoters and Finance (P) Limited (2012) 342 ITR 169 (Del) it was observed as under: 38. ratio of decision is to be understood and appreciated in background of facts of that case. So understood, it will be seen that where complete particulars of share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to Assessing Officer and Assessing Officer has not conducted any enquiry into same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in hands of company under sec. 68 and remedy open to revenue is to go after share applicants in accordance with law. We are afraid that we cannot apply ratio to case, such as present one, where Assessing Officer is in possession of material that discredits and impeaches particulars furnished by assessee and also establishes link between self- confessed "accommodation entry providers", whose business it ITA Nos. 204/2002 & batch matters Page 17 of 42 is to help assessees bring into their books of account their unaccounted monies through medium of share subscription, and assessee. existence with Assessing Officer of material showing that share subscriptions were collected as part of premeditated plan-a smokescreen-conceived and executed with connivance or involvement of assessee excludes applicability of ratio. 30. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it was held that point at which initial onus on Assessee to prove unexplained discredit would stand discharged depends upon facts and circumstances of each case. It was pointed out that where there is private placement of shares Assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as general proposition as Assessee cannot plead that they had received money, but could do nothing more and it was for Assessing Officer to enforce share holders attendance. Some cases might require or justify visit by Inspector to ascertain whether shareholders/subscribers were functioning or available at addresses, but it would be incorrect to state that Assessing Officer should get addresses from Registrar of Companies' website or search for addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of cheque or by furnishing copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that said subscribers had made genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or conclusion must be practicable, pragmatic and might in given case take into account that Assessee might find it difficult to unimpeachably establish creditworthiness of shareholders. 31. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. 206 (2014) ITA Nos. 204/2002 & batch matters Page 18 of 42 DLT 97 (DB) Court reiterated need of Assessee to satisfy AO about "identity, creditworthiness and genuineness" of creditors. It was pointed out that mere production of incorporation details, PAN Nos. or fact that third persons or company had filed income tax details in case of private limited company may not be sufficient when surrounding and attending facts predicate cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon individuals behind them who run and manage said companies. It is persons behind company who take decisions, controls and manage them. 32. Turning facts on hand, Court notes that only 17 cases of 92 noticees whose addresses and share application forms were provided elicited response. 25 notices were retuned unserved by postal authorities with remarks namely, "not known" , "refused", "incomplete address", "dead", "Left indefinitely", etc." balance 50 noticees who were served did not respond. 33. AO concluded that credit entries were of doubtful nature for following reasons: (i) shareholders were allotted only 25% of shares and 75% shares were retained by collecting agent on plea of getting shares listed in stock exchanges. fact that 75% of shares were not handed to shareholders rendered genuineness of transactions doubtful. (ii) All persons who replied stated that they made investment ITA Nos. 204/2002 & batch matters Page 19 of 42 in cash. (iii) Almost all persons in their replies stated that they are agriculturists and their source of income was from agricultural activities. Excepting one, none of them were income tax assessees. (iv) Although there was no provision enabling company to buy-back shares, at least two persons had categorically stated that they had sold shares back to Sahara. If purchase of shares by Sahara was made through cheque this made transactions dubious. (v) Sahara has concealed some very vital transactions relating to issue and transfer of shares and had not come clean with all relevant facts and documents for purpose of ascertainment of exact nature of transactions. 34. CIT (A), however, disagreed and held that once identity of persons was fully established before AO, there was no occasion to treat share capital as unexplained . CIT (A) concluded that fact that AO had required Assessee to furnish addresses of top 100 shareholders only meant that AO was not at all interested in verifying share capital invested by 65185 shareholders and I am really surprised that even with respect to these large numbers of shareholders, without conducting any enquiry of any sort, share capital invested by them has also been treated as unexplained. This action of AO by no stretch of imagination can be sustained and I, therefore, direct AO to delete addition in respect of share capital invested by these persons. ITA Nos. 204/2002 & batch matters Page 20 of 42 35. CIT (A) then took up case of 100 shareholders in respect of whom AO tried to conduct certain enquiries. Of 92 persons whose addresses had been furnished, 17 persons had filed replies. Even in respect of 50 others who were served, but had not replied, their existence was held to be duly proved. CIT (A), therefore, directed AO to delete addition in respect of share capital introduced by 17+ 50 persons. Of balance 25, some had died or had left for indefinite period or had refused to receive notices. Their existence and identity were held to be duly proved and, therefore, AO was directed to delete share capital introduced by said persons also. Of balance 8 persons plus some part of 25 persons who were unserved, AO himself noted that notice was not sent to them since addresses were not furnished. In this regard CIT (A) noted contention of Sahara that it had furnished their complete addresses and it was prepared to furnish confirmations of those persons. CIT (A) then directed, in respect of 8 persons plus some part of 25 persons notices to were returned with remark not traceable , as under: I, therefore, in respect of this category of persons only i.e. who according to AO, were not traceable or whose addresses were not furnished, restore matter back to AO and Appellant is directed to furnish necessary evidence in this regard before AO to prove their identity. 36. ITAT has upheld deletion by CIT (A) of additions made by AO on ground that existence and identity of shareholders had been established; that retaining of 75% not unusual in light of ITA Nos. 204/2002 & batch matters Page 21 of 42 DEMAT provisions; that Companies Act does not debar share subscription by cash hence payments in cash were not dubious per se; that there was no buy back since there was separate custodial agreement under which shareholder could entrust his shares to be kept in custody of Sahara India who were managers of issue of shares by way of private placement. 37. Having perused documents placed on record, Court is of view that there was no justification for CIT (A) to have deleted addition made by AO in respect of 65,185 shareholders on ground that AO did not conduct any enquiry. When AO sought details of shareholders who invested Rs. 25,000 or more, Assessee was able to furnish addresses of only top 100 shareholders. only conclusion that was possible in this regard was that reached by AO, viz., that Assessee was unable to establish identities of 65,185 persons in respect of amount of Rs. 55,55,89,359. onus on Assessee of providing some prima facie material to establish identity, genuineness and creditworthiness of said 65,185 persons was not discharged by Assessee. 38. It was then urged by Mr. Ganesh, learned Senior counsel for Assessee, that in respect of above 65,185 persons, matter should be sent back to AO for fresh consideration as has been done in respect of those persons whose addresses were purportedly not furnished. With Assessee even now not coming forth with any further details, no purpose would be served in remanding matter for determining identity of said 65,185 shareholders. ITA Nos. 204/2002 & batch matters Page 22 of 42 39. Consequently, Court sets aside orders of CIT (A) and ITAT as regards deletion of addition ordered by AO in sum of Rs. Rs. 55,55,89,359 under Section 68 of Act on ground of failure by Assessee to establish identity of 65,185 shareholders who are stated to have contributed aforementioned sum. 40. However, as regards 100 shareholders in whose cases some details were furnished by Assessee, it is seen that 17 shareholders filed their replies and 50 others did not respond despite receiving notice. CIT (A) came to conclusion that their existence or identity was duly proved. It is noticed that persons who responded stated that they were agriculturists and not income tax assessees. Pradeep Kumar Sinha of Bhagalpur and Masood Ahmed of Madhubani, Bihar stated that they had sold their shares back to Sahara, but under Companies Act that was not permissible. 41. Court is of considered view that order of CIT (A) as affirmed by ITAT regarding deletion of addition made by AO with regard to share capital introduced by said 50+17 persons does not call for interference as, on facts, it was possible view to take. Even as regards 8 shareholders and those other shareholders who were untraceable, order of CIT (A) remanding matter to AO does not call for interference. 42. net result is that orders of CIT (A) and ITAT deleting ITA Nos. 204/2002 & batch matters Page 23 of 42 addition made by AO of sum corresponding to 65185 shareholders are set aside. said sum will stand added to income of Assessee. However, orders of CIT (A) as confirmed by ITAT deleting addition made in respect of amount brought in by 50 + 17 shareholders are upheld. Also, order of CIT (A), affirmed by ITAT, remanding matter to AO in respect of 8 persons and some part of 25 persons who were not traceable and whose addresses had not been furnished is upheld. Payment of supplemental lease rent 43. next issue that is taken up for consideration is disallowance of Rs. 4,74,13,470 made by AO under Section 195 read with Section 40 (a) (i) of Act for non-deduction of tax at source from payment to non- residents for maintenance reserve (supplemental lease rent). In case of AMTEC, Malaysian Airlines and Lufthansa, CIT (A), deleted addition, and concluded that supplementary rent paid by Assessee was not taxable as agreement in question was entered into after amendment to Section 10 (15A) of Act. This was upheld by ITAT by holding that there should be inextricable link between expenditure for spares/facility and operation of aircraft and that payment was exempt under Section 10 (15A) of Act. 44. As regards payments to ILFC, AO was of view that after 1st April 1996, above payments of supplemental rent were for operating aircraft and not for acquiring it. Therefore, they fell within exclusionary provision of Section 10 (15A) of Act and were chargeable to tax in ITA Nos. 204/2002 & batch matters Page 24 of 42 hands of recipient and Sahara was, therefore, liable to deduct tax at source under Section 195 from such payments. It was held that AO who had issued no objection certificate (NOC) to Sahara for remitting payments without deductions of TDS had no jurisdiction to do so and therefore such NOC was null and void. ITAT, however, agreed with Sahara that supplemental rent did not fall within ambit of exclusionary provisions of Section 10 (15A) of Act. Prior to 1st April 1996 payments were covered by main provision and thereafter they continued to be exempt under Section 10 (15A) of Act. payments of supplemental rent to AMTEC, Malaysian Airlines and Lufthansa were also dealt with likewise. Therefore, question of holding Sahara to be assessee in default under Section 201 (1) of Act did not arise. ITAT also disapproved action of AO in determining tax liability by applying grossed up rate of 122%. 45. It is submitted by Revenue that by way of amendment to Section 10 (15A) of Act, payment for providing spares, facilities or services in connection with operation of lease aircraft was specifically excluded. Prior to 1st April 1996 such payments were exempted and approval given by CBDT related back to 31st January 1995, i.e., AY 1995-96 during which exemption was available. It is pointed out that under agreement in question lease payment for aircraft was separately mentioned and payment for maintenance reserve was separately mentioned. In these circumstances, it is submitted that ITAT erred in holding that maintenance reserve was in nature of lease. ITA Nos. 204/2002 & batch matters Page 25 of 42 46. perusal of Section 10 (15A) of Act as existed with effect from 21 st January 1989 and substituted with effect from 1st April 1996 shows that prior to 1st April 1996 payments made for acquisition of aircraft or aircraft engine on lease, were exempted from taxation but from 1 st April 1996, Legislature has excluded payments made for providing spares, facilities or services in connection with operation of leased aircraft from ambit of exemption under Section 10(15A) of Act. 47. Clause 13 of Agreement between Sahara and ILFC shows that lessor was not under obligation to meet any expenditure or bear any loss in respect of leased aircraft. Complete maintenance of aircraft was absolute responsibility of lessee. Clause 13.1 talks of Airframe Reserves. It states that Lessor will reimburse Lessee from Airframe Reserves for actual cost of completed scheduled major structural inspection and rectification of structural deficiencies (overhauls) of Airframe (i.e., complete D check or equivalent if aircraft is on block D maintenance system under Lessee s Maintenance Programme or D check level structural inspections carried out during C check if aircraft is on phased D check system under Lessee s Maintenance Programme), with any other partial structural overhauls and work performed for all other causes excluded, including those causes set forth in Article 13.4. Reimbursement will be made up to amount in Airframe Reserve. 48. ITAT has examined object behind amending Section 10 (15A) with effect from 1st April 1996. If any payment had to be brought within exclusionary portion of Section 10(15A) of Act, then it must be shown ITA Nos. 204/2002 & batch matters Page 26 of 42 (i) that lessor either had supplied spares or provided any facility or service in connection with operation of leased aircraft; and (ii) payment has been made by lessee in consideration of such spares/facilities/services. ITAT has rightly pointed out that supplement rental was within ambit of original provision of Section 10 (15A) of Act. 49. On facts Revenue was unable to point out any clause in agreement that required lessor to provide facilities or services in connection with leased aircraft. Therefore, supplemental rent did not fall within ambit of exclusionary provisions of Section 10 (15A) of Act. Since prior to 1st April 1996 such payments continued to be exempted under Section 10 (15A) of Act, they were not chargeable to tax. Consequently, there was no obligation on Assessee to deduct tax at source under Section 195 of Act. question of holding Assessee as Assessee in default under Section 201 (1) of Act, therefore, did not arise. 50. Consequently, Court affirms order of ITAT deleting additions made by AO under Section 195 read with Section 40 (a) (i) of Act on account of non-deduction of tax at source for payment of supplemental lease rent to various lessors, i.e., ILFC, AMTEC, Malaysian Airlines and Lufthansa. Training and manpower development 51. issue concerning payments made for training and manpower ITA Nos. 204/2002 & batch matters Page 27 of 42 development arises in Assessee's appeal ITA 204 of 2002 arising out of decision dated 12th February 2002 of ITAT in ITA Nos.950 to 954/Del/2001 for FYs 1994-95 to 1998-99 and in Revenue's appeal ITA 86 of 2011 arising out of decision dated 10th July 2009 of ITAT in ITA No. 682/All/2000 for AY 1996-97. 52. There are two periods during which question arises. One relates to payments for FYs 1994-95 to 1998-99 and other in relation to AY 1996-97. For FYs 1994-95 to 1998-99, AO by order dated 10th May 2000 under Section 201 of Act held that payments were in nature of fees for technical services as defined under Section 9(1)(vii) of Act and hence tax was deductible under Section 195(1). For FYs 1994-95 to 1998-99 CIT (A) by order dated 5th December 2000, upheld order of AO. ITAT too by order dated 12th February 2002 in ITA Nos. 950- 954/Del/2001 (Sahara Airlines Ltd. v. CIT [2002] 83 ITD 11) held that payments were in nature of fees for technical services chargeable to tax in hands of recipient under Section 9 (1 )(vii) as well as under provisions of agreement. Aggrieved by said order, Assessee has filed ITA 204 of 2002. 53. As regards AY 1996-97, AO by order dated 26th March 1999 held on examination of copy of agreements with M/s Crown Mart Ltd. (CML), U. K. and J. T. P. Aircraft Training Services (P) Ltd., Australia (JTP) furnished by Assessee on 10th March 1999, that said foreign entities were to impart training in India by deputing their personnel and not in foreign country. income accruing to said companies by way of ITA Nos. 204/2002 & batch matters Page 28 of 42 fees to be paid to them in accordance with agreement was in fact income through and from source of income in India as defined in Section 9(1)(vii) of Act. It was taxable and tax was deductible in respect thereof under Chapter XVII B i.e Section 195 (1) of Act. It was held that fees paid to said foreign agencies were indeed fees for technical services, as was evident from agreement in question and came under purview of Article 13 of DTAA and was as such taxable. 54. For AY 1996-97, CIT by order dated 3rd March 2000 held that no payments were made to CML; that addition of Rs. 46,77,491/- paid to HFTL was deleted as training agreement dated 30th January 1996 clearly provided that flight crew training facility was located in England. addition of Rs. 5,69,734/- paid to JPT was deleted as Assessee stated that tax had already been deducted in relation to said payment. addition by AO was accordingly deleted by CIT (A). 55. In appeal for AY 1996-97, ITAT noted its decision dated 12th February 2002 but omitted to say that it was following said decision and was, therefore, sustaining addition. This is one of grounds on which Revenue has preferred ITA 86 of 2011. 56. agreement dated 30th January 1996 between Sahara and HFTL has been discussed in order dated 12th February 2002 of ITAT. It has referred to submissions of learned counsel for Assessee to effect that what was provided to Sahara's personnel was facility of training on simulator without instructor. higher rate of 256 pounds ITA Nos. 204/2002 & batch matters Page 29 of 42 per hour was charged for providing training on simulator with instructor whereas Sahara was charged 171 pounds per hour which was rate applicable for providing simulator without instructor. ITAT however appears to have in its order dated 12th February 2002 gone by Clause 14 of said agreement which talked of HFTL providing free training to instructors of Assessee. Although ITAT states that invoice showed payment "for use of simulator alone" it held that it did not mean that "technical knowledge was not provided by UK company." What was perhaps missed was that payment had to be for providing such technical knowledge and not merely for use of simulator. personnel of HFTL having experience is one thing but question of payment for such technical services is another. other aspect which has not be sufficiently been examined by ITAT is purport of expression "make available" occurring in Article 13 (4) (c) of DTAA. In interpreting similar clause occurring in DTAA with Netherlands Karnataka High Court in CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467 (Kar) held that "payment of consideration would be regarded as 'fee for technical/included services' only if twin test of rendering services and making technical knowledge available at same time is satisfied." decision of this Court in DCIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504 (Del)is also relevant in this regard. 57. As regards AY 1996-97, ITAT has indeed abruptly ended its discussion after extracting passage from its order dated 12th February 2002 and has not rendered any opinion. Apart from fact that said order of ITAT, for reasons discussed above, is found not to have ITA Nos. 204/2002 & batch matters Page 30 of 42 addressed certain important aspects, issues highlighted by CIT (A) in order dated 3rd March 2000 have not been addressed. For e.g., fact that no payment was made to CML and that tax was deducted by Assessee while making payment to JPT was not dealt with by ITAT. Further insertion of Explanation below Section 9 (2) of Act with retrospective effect from 1st June 1976, making place of rendering services redundant, has not been considered. Again, it is necessary for ITAT to consider, in context of agreement with HFTL and Article 13 (4) (c) of DTAA with UK, whether any technology was 'made available' to Assessee and whether there was payment for such services. 58. Consequently on issue of payment for payment for training and manpower development Court remands matter for both periods i.e. FYs 1994-95 to 1998-99 and AY 1996-97 to ITAT for fresh decision in accordance with law. Payment for computerised reservation system 59. On issue of disallowance of Rs. 1,77,82,789 for non-deduction of TDS from payment to non-residents for computerized reservation system, Court finds that no objection was raised in AY 1995-96 with respect to certificates issued by ITO (TDS). ITAT also confirmed that said certificate issued by ITO (TDS) was valid. Revenue has not able to persuade this Court to hold that said decision is perverse. Assessee has made payment after obtaining said certificates. issue is decided in favour of Assessee and against Revenue. ITA Nos. 204/2002 & batch matters Page 31 of 42 Free tickets 60. next ground concerns addition on account of expenditure incurred for allowing free tickets in sum of Rs. 30,40,170. AO noticed that these tickets were issued to large number of persons including following persons: (i) spouses of certain persons accompanying their husbands/wife, (ii) minors including infants, (iii) relatives of Directors, (iv) persons with names only but without any surname or surname without any initial, whose identities were ambiguous, including one Swamiji. 61. It was held that 50% of above expenses were disallowed by AO which worked out to Rs. 30,40,170. ITAT following its order dated 8th August 2008 in case of Assessee in ITA No. 470/Del/99 accepted submission of Assessee that free charged tickets were being issued on account of business promotion to various persons and merely because they have been issued to spouses or infants or where full names had not been given it cannot be presumed that they were not for business purposes. It was held that this discretion of management at time of issue of FOCs is of issuance thereof and Department to best of our understanding has no right to question prudency of decision. There was no basis for disallowance of 50% of such expenses. 62. view taken by CIT (A) as concurred with by ITAT appears to be plausible. disallowance of 50% of these expenses appears to be not based on any material. Accordingly, said issue is answered in favour ITA Nos. 204/2002 & batch matters Page 32 of 42 of Assessee and against Revenue. Interest on borrowed capital 63. next issue concerns disallowance of interest on borrowed capital of Rs. 1,42,76,535. case of Revenue was that interest bearing funds were being diverted as interest free advances to sister concerns. Assessee had paid interest to two sister concerns, namely, M/s. Sahara India Mutual Benefits Co. Ltd. at 24% and M/s. Sahara India Corporation Limited. case of Revenue was that while Assessee had to borrow funds from its sister concerns for carrying on its business on which interest has been claimed under Section 36 (1) (iii), Assessee had allowed its other sister concerns to retain interest bearing funds without charging any interest. Therefore, proportionate interest relatable to funds retained by sister concerns was stated to be not for purpose of business. 64. CIT (A) allowed claim of Assessee after observing that AO did not hold interest payment to be excessive or unreasonable and it was found factually that not single paisa has been advanced to four sister concerns out of borrowed funds and that AO has himself accepted that outstanding amounts were on account of trading connections. Accordingly, addition of Rs. 1,42,76,534 made by AO was deleted. ITAT accepted factual finding that Assessee had allowed its sister concerns to retain amount as result of trading transactions. Further entire amount was taken by Assessee for business purpose. Therefore, there could be no disallowance of interest. ITA Nos. 204/2002 & batch matters Page 33 of 42 65. Court finds that ITAT has concurred with finding of CIT (A) which turned on facts. Court is not persuaded that said decision is perverse or suffers from any legal infirmity. Accordingly, issue is decided in favour of Assessee and against Revenue. Foreign travel expenses 66. next issue concerns addition made by AO on account of foreign travel expenses. Assessee had claimed foreign travelling expenses amounting to Rs. 2,21,33,253. According to Assessee, these expenses were incurred for purpose of training of pilots abroad. Further training was imparted by technical experts for purposes of business of Assessee. AO disallowed above expenses in sum of Rs. 44,26,650. CIT (A) found that decision of AO was ill founded, without proper appreciation of facts of Assessee s case and that entire foreign travelling expenses were incurred after obtaining approval from R.B. I. for purchase of foreign currency from market which can never be done as afterthought. It was observed that agreement of Assessee with Hughes Flight Training Ltd. clearly provided that latter was not to give training to flight crews in India. CIT (A) demarcated expenditure incurred on travel of relatives of directors and confirmed addition to that extent in sum of Rs.2200. expenditure on travel in which destination of journeys were not mentioned was also separated and this expenditure in sum of Rs.8,26,638 was restored matter back to AO for fresh determination so as to give opportunity to Assessee to produce necessary evidences. addition of remaining expenditure in sum ITA Nos. 204/2002 & batch matters Page 34 of 42 of Rs.35,97,812 was deleted. ITAT did not interfere with said order. Court finds no reason to interfere with decision of ITAT on this aspect. Consultancy charges 67. next issue concerns disallowance of consultancy charges of Rs.21,60,000 on ground that no reliable documentary evidence has been furnished by Assessee. On this aspect ITAT, for AY 1995-96 held that services rendered by Sahara India International Corporation Limited ( SIICL ) to Assessee was in connection with lease of two aircrafts and payment made to it for services rendered. Revenue had been unable to show as to how such payment should be treated as unreasonable. Court finds that even in present appeal Revenue has been unable to show that said payment has been excessive or unreasonable. issue is decided in favour of Assessee and against Revenue. Staff welfare expenses 68. next issue concerns deletion of Rs. 54,06,701 on account of claim made by Assessee as staff welfare. Assessee categorised expenditure under two heads meetings and conveyance expenditure and staff welfare expenditure. Observing that it was unclear that staff welfare expenditure was actually incurred for staff of Assessee itself and that expenditure claimed under both heads was excessive, AO treated entire expenses claimed as entertainment expenses under Section 37 (2) and added same to income of Assessee on basis that amount ITA Nos. 204/2002 & batch matters Page 35 of 42 constituted entertainment expenses. CIT (A) reversed AO s order on ground that it was not clear what kind of evidence AO was expecting. ITAT has upheld order of CIT (A). 69. Having perused documents produced as evidence, Court finds that CIT (A) was right in observing that it was not necessary for every employee to sign voucher and that AO has erred in treating staff welfare expenses as entertainment expenses. However, CIT (A) found that expenses claimed as conveyance expenses were in nature of entertainment expenses as defined by Section 37(2)(iii) and directed AO to restrict disallowance insofar as conveyance expenses of Rs. 7,31,324. 70. Court is unable to find any illegal infirmity in order of CIT (A) as upheld by ITAT. issue is decided in favour of Assessee and against Revenue. Advertisement and publicity expenses 71. next issue concerns addition of Rs. 10,37,367 on account of disallowance of advertisement and publicity expenses as they were not related to AY 1996-97. As rightly pointed out by ITAT, as per mercantile system of accounting, bills received by Assessee in respect of advertisement services pertaining to previous year and continued during year was booked only when it was crystallized. issue has been answered in favour of Assessee by decision of Gujarat High Court in Saurashtra Cement and Chemical Industries v. CIT 213 ITR 523 which observed that merely because expenditure relates to earlier ITA Nos. 204/2002 & batch matters Page 36 of 42 year, it does not become liability payable in earlier year unless it can be said that liability was determined and crystallized in year in question on basis of maintaining accounts on mercantile basis. 72. Consequently, issue is answered in favour of Assessee and against Revenue. Air travel tax 73. next issue concerns addition of Rs. 10,17,553 made on account of disallowance of air travel tax (or passenger service fee) incurred by Assessee. question was whether said expenditure is covered under Section 43 B of Act. payment challans were filed by Assessee along with its reply dated 24 th March 1999. AO held that since evidence for payment of amount in sum of Rs 10,17,553 could not be produced, same was to be disallowed under Section 35B and added said amount back to income of Assessee. CIT (A), following its earlier order dated 23rd March 1999 for AY 1994-95 and order dated 29th December 1999 for A. Y. 1995-96 in AY, held that Section 43B does not apply. 74. ITAT followed its order dated 8th August 2008 in ITA No. 294/Luc/2000 which held that Section 43B is only attracted when Assessee claims deduction for any sum payable by way of tax or duty under any law for time being in force, and, where, as in case of Assessee, no charge is claimed or made to profit or loss account, there was no question of disallowing amount taken to balance sheet on ITA Nos. 204/2002 & batch matters Page 37 of 42 liabilities side or of adding back and deleted addition. 75. Consequ JET LITE (INDIA) LTD. v. COMMISSIONER OF INCOME TAX-XVI
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