Mesco Airlines Ltd., New Delhi vs Department Of Income Tax

ITA no. 1571/Del/2012 A.Y. 2007-08 ACIT,Cen. Circle-7, Vs. Mesco Airlines ltd., New Delhi. H-1, Zamrudpur Community Centre, Kailash colony, New Delhi. PAN: AAACM 3539 R ( Appellant ) ( Respondent )

Appellant by : Shri Salil Aggarwal Adv. Respondent by : Shri K.K. Jaiswal Sr. DR

Date of hearing : 20/04-2015 Date of order : 29-04-2015.

ORDER

PER S.V. MEHROTRA, A.M:-

This appeal, preferred by the revenue, is directed against CIT(A)'s order dated 10-1-2012 relating to AY 2007-08.

2. Brief facts of the case are that the assessee had filed its return of income declaring Nil income. The assessee company in the relevant assessment year was engaged in the business of plying of helicopters on commercial basis. The assessment was completed by making disallowance of following expenses:

- Business Promotion & Transit House Rs. 3,58,750/-

- Travelling and Trunk Call Rs. 24,48,421/-

2 ITA 1571/Del/2012 ACIT Vs. Mesco Airlines Ltd.

2.1. In appeal, the ld. CIT(A) deleted the disallowance. Being aggrieved, the revenue is in appeal before and has taken following grounds of appeal:

"1. On the facts and in the circumstances of the Ld. CIT (Appeal) has erred in deleting of the addition of Rs. 3,58,750/- which was made by the assessing officer on account of ad-hoc disallowance out of business promotion expenses as the assessee debited in profit and loss account.

2. On the facts and. in the circumstances of the cases, the Ld CIT(A) has erred in' deleting disallowances of Rs. 24,48,421/- which was made by the assessing officer: on account of disallowance out of travelling and telephone expenses as the; . assessee 'failed to produce vouchers or bills in support of travelling ,and telephone expenses and part of the expenses being personal in nature. ,

3. The order of Ld CIT (A) is perverse in law arid on the facts.

4. The appellant craves leave to add, amend any/all 'of the grounds of appeal before or during the course of the hearing of the appeal.

3. Apropos ground no. 1, we find that assessee had debited a sum of Rs. 6,77,685/- on account of business promotion expenses, including foreign travelling and Rs. 11,16,068/- on account of Tansit House expenses. The AO disallowed 20% of the expenses on account of being non-verifiable and non-business nature, inter alia, observing that assessee could not give details of expenses incurred under the above two heads.

3 ITA 1571/Del/2012 ACIT Vs. Mesco Airlines Ltd.

3.1. In appeal, ld. CIT(A) deleted the disallowance, inter alia, observing that AO made ad hoc disallowance without specifying any item of expenditure which was not verifiable and for which assessee did not maintain any voucher.

3.2. Ld. DR submitted that assessee did not furnish complete details in time and, therefore, the AO had no option but to make disallowance on estimate basis.

3.3. Ld. counsel for the assessee Shri Salil Agarwal relied on the decision of Hon'ble Supreme Court in the case of State of Orissa Vs. Maharaja Shri B.P. Singh Deo 76 ITR 690 for the proposition that arbitrary disallowance is not called for. The Hon'ble Supreme Court in this decision, inter alia, has observed as under:

"Where in an appeal from a best judgment assessment made on the basis of an estimate, the Assistant Collector, apart from comig to the conclusion that the material placed before him by the assessee were not reliable, had given no reasons for enhancing the assessment:

Held, that the mere fact that the material placed by the assessee were unreliable did not empower the Assistant Collector to make an arbitrary order of enhancement. The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment: the assessment had to be based on relevant material."

4 ITA 1571/Del/2012 ACIT Vs. Mesco Airlines Ltd.

3.4. He further relied on the following decisions for the proposition that no disallowance can be made in case of company on account of personal expenses.

- Sayaji Iron & Engineering Co. Vs. CIT 253 ITR 749 (Guj.)

- ITAT Agra Bench order dated 28-1-2013 rendered in ITA no. 92/Agr/2008 in the case J.M. Agarwal Tobacco Co. Vs. ACIT

4. Having heard both the parties, we find that AO has observed that on test check basis some of the expenses could not be verified by the assessee. Therefore, the AO should have given at least the details of those expenses which assessee could not vouch or verify. Under such circumstances, we do not find any reason to interfere with the order of ld. CIT(A) because ad hoc disallowance without any basis cannot be sustained.

5. Facts, apropos ground no. 2, are that assessee had claimed an amount of Rs. 1,04,21,538/- on account of travelling expenses (including foreign travelling) and Rs. 18,20,569/- on account of telephone & trunk call expenses. The AO has observed that during the assessment proceedings the assessee submitted details of travelling including foreign travelling and after considering the same, since assessee could not produce all the bills and vouchers in support of these expenses, 20% disallowance was to be made. He further observed that the personal expenses along with the business could not be ruled out.

5.1. Before ld. CIT(A) the assessee, inter alia, submitted that complete details of the expenditure duly supported by bills/ vouchers were filed before the AO and hence there was no ground for making such disallowance.

5 ITA 1571/Del/2012 ACIT Vs. Mesco Airlines Ltd.

5.2. Ld. CIT(A) deleted the disallowance qua following two reasons-

a. The AO could not give separate details of vouchers which were not produced during assessment proceedings;

b. In case of company disallowance could not be made by treating the part of such expenditure as personal in nature.

5.3. Having heard both the parties, we do not find any reason to interfere with the finding recorded by ld. CIT(A) on both the counts. Reliance placed by ld. counsel on the decisions, noted supra, squarely covers the issue. Ground is dismissed.

6. In the result, revenue's appeal is dismissed. Order pronounced in open court on 29-04-2015.

SD/- Sd/- (H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29-04-2015. MP: Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR