Adjustment of gratuity against past excess trust contributions and Ind-AS book adjustments are non-disallowable tax entries.

By | June 20, 2026
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Adjustment of gratuity against past excess trust contributions and Ind-AS book adjustments are non-disallowable tax entries.

Issue

  1. Whether an accounting debit for gratuity representing an adjustment against past excess contributions to an approved Gratuity Trust can be disallowed under Section 40A(7).

  2. Whether lease rentals paid without Tax Deducted at Source (TDS) can be allowed as a deduction in a subsequent year once the tax is fully deposited under Section 40(a)(ia).

  3. Whether Section 40(a)(ia) applies to cases of “short deduction” of TDS rather than “non-deduction,” and if so, how the disallowance should be structured.

  4. Whether a government interest waiver can be taxed under Section 41(1) while its foundational eligibility is still sub-judice before the High Court.

  5. Whether a $1/5^{\text{th}}$ Ind-AS transition amount adjustment under Section 115JB(2C) can be categorized and added back as a regular “prior period expense” in MAT computation.

  6. Whether repair and maintenance expenditure capitalized in corporate accounts under Ind AS-16 must automatically be treated as capital expenditure under the Income-tax Act.

  7. Whether Corporate Social Responsibility (CSR) expenditure can be added back to increase book profits when determining Minimum Alternate Tax (MAT) under Section 115JB.

Facts

  • Gratuity Entry: The assessee debited a gratuity amount to its Profit & Loss account. The AO disallowed it under Section 40A(7) as a mere provision on an actuarial valuation. However, it was factually an adjustment against surplus/excess payments made to an approved Gratuity Trust in earlier years.

  • Lease Rental TDS: The helicopter operator claimed a deduction of ₹6.11 crores for lease rentals paid to the Airport Authority of India. The AO disallowed ₹1.83 crores under Section 40(a)(ia) for non-deduction of TDS. The TDS was subsequently deposited in AY 2018-19.

  • Short TDS Deduction: The assessee deducted TDS on professional charges at a rate lower than legally prescribed. The AO disallowed 30% of the gross professional fees under Section 40(a)(ia).

  • Interest Waiver: The Government of India waived an interest liability of ₹339.31 crores for the assessee. The AO added ₹173.39 crores under Section 41(1) as a cessation of trading liability, which the CIT(A) reduced to ₹77.67 crores, noting the core dispute was pending before the High Court.

  • Ind-AS MAT Entry: The assessee added ₹6.67 crores as a statutory $1/5^{\text{th}}$ Ind-AS transition adjustment to other equity under Section 115JB(2C). The AO treated it as a standard “prior period expense” and added ₹6.45 crores to regular income.

  • Helicopter Repairs: The assessee spent ₹60.25 crores on essential repairs, parts replacement, and maintenance. Under Ind AS-16, this was capitalized as Property, Plant, and Equipment (PPE). The AO capitalized it for tax purposes too, allowing only depreciation, while the assessee claimed it as a 100% revenue expense.

  • CSR Book Profits: The AO increased the Book Profits under Section 115JB by adding back expenses incurred toward CSR activities.

Decision

  • On Gratuity Disallowance: Decided in favor of the assessee. Because the debit was not a new provision but an adjustment against real, excess funds already paid to an approved trust, Section 40A(7) does not apply. The disallowance was deleted.

  • On Late TDS Deposit: Decided in favor of the assessee. Since the TDS was deposited in AY 2018-19, the CIT(A)’s directive to shift and allow the corresponding expense deduction in that subsequent year matches the mechanics of Section 40(a)(ia).

  • On Short Deduction of TDS: Decided partly in favor of the assessee. Section 40(a)(ia) is technically applicable to short-deductions. However, the AO cannot disallow 30% of the entire expense; the disallowance must be strictly restricted to a proportionate amount of the short-fall.

  • On Interest Waiver: Decided partly in favor of the assessee. Because the overarching question of whether this interest is allowable is currently sub-judice before the High Court, the CIT(A)’s balanced interim approach requires no interference.

  • On Ind-AS Transition Amount: Decided in favor of the assessee. The amount was a statutory transition adjustment under Section 115JB(2C), not a prior period expense. Following the rule of consistency (as the Department accepted this for AYs 2018-19 to 2021-22), the addition was deleted.

  • On Capitalization vs. Revenue Expense: Decided in favor of the assessee. Book accounting practices under Ind AS/Companies Act do not dictate tax logic under the Income-tax Act. Since the ₹60.25 crores was spent on routine maintenance and parts replacements to keep helicopters operational, it remains a revenue deduction.

  • On CSR and MAT: Decided in favor of the assessee. CSR expenditure cannot be arbitrarily added back to distort the final audited accounts when determining book profits under Section 115JB, unless specifically mandated by the statutory adjustments listed in the section’s explanations.

Key Takeaways

  • Tax Law Trumps Accounting Books: An entry’s presentation under Ind AS or corporate financial reporting (such as capitalizing repairs under Ind AS-16 or making equity adjustments) does not alter its legal characterization under the Income-tax Act.

  • Proportionate Disallowance for Short TDS: For partial or short deduction of TDS, taxing authorities cannot penalize the entire expenditure; the disallowance under Section 40(a)(ia) must scale proportionally to the unrecovered tax amount.

  • The Rule of Consistency: The revenue department cannot selectively challenge a specialized accounting methodology (like the $1/5^{\text{th}}$ Ind-AS transition mechanism) in one year if it has consistently accepted that exact treatment across multiple subsequent assessment cycles.

  • MAT Adjustments are Exhaustive: When calculating Book Profits under Section 115JB, the AO cannot add back items like CSR expenses out of personal preference; adjustments must strictly match the items explicitly listed under the statutory Explanations of the section.

IN THE ITAT DELHI BENCH ‘F’
Pawan Hans Ltd.
v.
Asstt. CIT
SATBEER SINGH GODARA, Judicial Member
and Naveen Chandra, Accountant Member
IT Appeal Nos. 5572 and 5964 (Del) of 2025
[Assessment years 2017-18]
APRIL  23, 2026
Ved Jain, Ayush Garg, Advs. and Ms. Kanishka Garg, CA for the Appellant. Ms. Monika Singh, CIT-DR for the Respondent.
ORDER
Naveen Chandra, Accountant Member.- These two appeals are preferred by the assessee as well as by the Revenue against the order dated 15.07.2025, passed by the Learned Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre, New Delhi (hereinafter referred to as ‘ld. CIT(A)), under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2017-18. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.
2. The assessee has raised following grounds of appeal:-
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre [CIT(A), ITD, NFAC] is bad both in the eye of law and on facts.
2. (i) On the facts and circumstances of the case the learned CIT(A), ITD, NFAC has erred both on facts and in law in confirming the disallowance of Rs. 15,49,151/- on account of gratuity payable to employees under section 40A(7) of the Act.
(That the abovesaid disallowance has been confirmed despite the fact that the contribution has been made towards “approved gratuity fund” as defined under section 2(5) of the Income Tax Act, 1961 and hence cannot be disallowed as per the provisions of section 40A(7)(b) of the Act.
3. (i) On the facts and circumstances of the case the learned CIT(A), ITD, NFAC has erred both on facts and in law in confirming the disallowance of Rs. 1,83,30,058/- on account of non-deduction of TDS on the lease rental to Airport Authority of India under section 40(a)(ia) of the Act.
(i) Without prejudice to the above and in the alternative, the learned CIT(A), ITD, NFAC has erred in ignoring the proviso to section 40(a)(ia) whereby the deductee having including the income in its return of income, the deductor cannot be treated as assessee in default and hence no disallowance can be made under section 40(a)(ia) of the Act.
4. (i) On the facts and circumstances of the case, the learned CIT(A), ITD, NFAC has erred both on facts and in law, in confirming the disallowance of Rs. 9,54,852/- on account of non-deduction of TDS on the professional charges under section 40(a)(ia) of the Act.
(ii) Without prejudice to the above and in the alternative, the learned CIT(A), ITD, NFAC has erred in ignoring the proviso to section 40(a)(ia) whereby the deductee having including the income in its return of income, the deductor cannot be treated as assessee in default and hence no disallowance can be made under section 40(a)(ia) of the Act.
5. (i) On the facts and circumstances of the case the learned CIT(A), ITD, NFAC has erred both on facts and in law in confirming the disallowance of Rs. 77,67,14,266/- made by the AO on account of adjustment of interest claimed by the assessee.
(ii) That the abovesaid disallowance has been confirmed ignoring the submissions and explanations made by the assessee and evidences brought on record in this regard.
6. (i) On the facts and circumstances of the case, the learned CIT(A), ITD, NFAC has erred both on facts and in law, in confirming the disallowance of Rs. 6,44,91,988/- on account of prior period expenses.
(ii) That the abovesaid disallowance has been confirmed despite the fact that these expenditures have been crystallized in the year under consideration and hence allowable expenditure under the Income Tax Act.
3. The Revenue has raised following grounds of appeal:-
1. The grounds of appeal submitted by Asstt. Commissioner of Income Tax, Circle-19(1), Delhi is as below: Whether the Ld. CIT(A) was correct in deleting the disallowance of Rs. 60,25,19,888/- towards repair and maintenance charges, despite the assessee itself capitalizing such expenditure in its books under Ind AS 16, thereby making it capital in nature and allowable only through depreciation u/s 32?.
2. Whether the Ld. CIT(A) was justified in granting relief of Rs. 95.72 crore out of waiver of interest of 173.39 crore, merely on the ground that the issue is sub judice before the Hon’ble High Court, ignoring that waiver of liability result in income chargeable u/s 41(1) in the year of waiver?
3. Whether the Ld. CIT(A) was correct in deleting the disallowance of Rs. 1,83,30,058/- u/s 40(a)(ia), even though the assessee deducted and deposited TDS only in the subsequent year, making the claim allowable in that subsequent year and not in the year under consideration?
4. Whether computing the book Ld. CIT(A) of erred in deleting the addition of Rs. 83.85 lakh towards CSR expenditure while purposes and is profit U/s 115JB despite the fact that CSR is not incurred wholly for business disallowed under section 37?
4. The assessee has taken additional ground 8 with respect to validity of notice u/s 143(2), on account of not being issued in prescribed format, and ground no 9 with respect to the scope of limited scrutiny. The ld counsel of the assessee has not pressed these grounds. The same is therefore dismissed as not pressed.
5. Ground No. 2 of Assessee Appeal relates to disallowance made by AO of Rs.15,49,151/- on account of gratuity payable to employees under section 40A(7) of the Act. In the present case the ld. AO has made the disallowance of Rs.15,49,151/- on account of gratuity payable to employees under section 40A(7) of the Act stating that the same has been shown as payable only, based on the Actuarial valuation, and has not been accrued during the year, neither the payment has been made out of it. On appeal, the ld CIT(A) confirmed the same.
6. The ld counsel of the assessee submitted that no disallowance of expenditure can be made on account of gratuity representing amount actually paid to an approved gratuity fund. The ld AR submitted that the amount of gratuity debited to the Profit & Loss Account during the year represents an accounting adjustment against excess contribution/advance already paid to the approved Gratuity Trust in preceding years. The Ld AR referred to Clause 21(e) of the Tax Audit Report placed at PB Page 112, wherein the Tax Auditor has categorically recorded that the gratuity amount debited to the Profit & Loss Account is an adjustment against excess payment made to the Gratuity Trust in earlier years. The ld AR further, invited our attention to the ledger account of the Gratuity Trust in the books of the assessee placed at PB Pages 262-263 which show that the opening balance of the Gratuity Trust stands at Rs. 1,81,66,619/- (Dr.). The debit balance clearly signifies advance/excess contributions already made to the approved gratuity fund in earlier years. The impugned amount of Rs. 15,49,151/- is merely a reduction/adjustment of such excess payment and does not partake the character of a provision or unpaid liability.
7. The ld AR without prejudice, submitted that Section 40A(7)(b) clearly allows deduction of gratuity provision where the contribution or provision relates to an approved gratuity fund or gratuity that has become payable during the year. In the present case, the gratuity fund of the assessee is duly approved in nature. Copy of the Approval of Gratuity Fund and Provident Fund is placed at PB Pages 259-261. This material fact has neither been disputed nor rebutted by the Ld. AO in the remand report. The ld AR placed reliance on the following judgments: –
• Delhi High Court in the case of CIT v. BECHTEL INDIA (P) LTD [IT Appeal No. 423 of 2007, dated 7-11-2007]/2007 (11) TMI 2 , dated 07.11.2007
• Madras High Court in the case of Sanmar Speciality Chemicals Ltd. v. Asstt. CIT (Madras)
• ITAT Chennai in the case of ACIT v. Tyco Sanmar Ltd. Chennai [I.T. Appeal No. 1551 (Mds) of 2014, dated 12-12-2014]/2014 (12) TMI 1356 , dated 12.12.2014
• Savita Oil Technologies Ltd v. ACIT [I.T. Appeal No. 1258 (Mum) of 2023, dated 25-10-2023]/2023 (12) TMI 630 , dated 25.10.2023
8. Per contra the ld DR relied on the orders of authorities below.
9. We have heard the rival submissions. We are of the considered view that the aforesaid gratuity debited to P & L Account is merely an adjustment against excess payment made to approved Gratuity Trust in earlier years. Alternately, the Gratuity Fund of the assessee is duly approved, hence amount debited in the said Fund is allowable u/s 40A(7)(b). Ground 2 is allowed.
10. Ground No. 3 of Assessee Appeal and Ground 3 of Revenue Appeal relates to disallowance of Rs. 1,83,30,058/- on the lease rental paid to Airport Authority of India on account of non-deduction of TDS u/s 40(a)(ia) of the Act. The ld AR submitted that the assessee has claimed the amount of Rs. 6,11,10,194/- on which TDS has not been deducted. The CIT(A), however, sustained the disallowance for the year under consideration but directed the Ld. AO to allow the corresponding deduction in the subsequent Assessment Year 2018-19, subject to verification and reconciliation of figures. Against the above, the assessee as well as the Revenue is in appeal before us, the assessee being aggrieved by sustenance of disallowance in the year under consideration and the Revenue being aggrieved by the direction to allow the deduction in the subsequent year.
11. The ld AR stated that the payments were made to the payee who had duly accounted for the said receipts in its return of income and paid taxes thereon; hence, in view of the second proviso to section 40(a)(ia) read with first proviso to section 201(1), the assessee cannot be treated as an assessee-in-default and no disallowance is warranted.
12. Alternately, the ld AR stated that even if disallowance is sustained for the year under consideration, the deduction ought to be allowed in the subsequent assessment year since the TDS along with applicable interest was duly deposited in the following year, in terms of the first proviso to section 40(a)(ia).
13. Per contra, the AO relied on the order of the AO.
14. We find that the disallowance was made u/s 40(a)(ia) for nondeduction of TDS on payment made against lease rent to AAI. We find that the CIT(A) has allowed the deduction of the same in the subsequent AY 2018-19 wherein the TDS has been deducted and duly deposited. We are of the considered view that the CIT(A) decision is in conformity with the express provisions of section 40(a)(ia) of the Act, and does not call for any interference. Ground 3 of the assessee as well as the Revenue are both dismissed.
15. Ground No. 4 of Assessee Appeal is with regard to disallowance of Rs. 9,54,852/- on account of short-deduction of TDS u/s 40(a)(ia) of the Act. It is the case of the assessee that section 40(a)(ia) applies only in cases of non-deduction of tax at source and not in cases of short deduction of tax. It is submitted that the Ld. AO, on perusal of the Tax Audit Report (PB Pg. 132), observed that TDS of Rs. 1,59,145/- was deducted on professional fees of Rs. 31,82,892/- and held that the tax was deducted at a rate lower than the prescribed rate. On this basis, the Ld. AO treated the assessee as being in default and disallowed 30% of Rs. 31,82,892/-, amounting to Rs. 9,54,852/- u/s 40(a)(ia) of the Act. The ld AR relied on
• HIGH COURT OF UTTARAKHAND, in the case of CIT v. Samsung Heavy Industries Company Ltd. [2025]  (Uttarakhand)
• ITAT DELHI in the case of Indian Renewable Energy Development Agency Ltd. v. Dy. CIT (Delhi – Trib.)
• ITAT COCHIN in the case of Apollo Tyres Ltd. v. Dy. CI 60 SOT 1 (Cochin – Trib.)
• ITAT KOLKATA in the case of Jashojit Mukherjee v. Asstt. CIT /170 ITD 701 (Kolkata – Trib.)
• ITAT RAJKOT in the case of Dy. CIT v. DML Exim (P.) Ltd.184 ITD 432 (Rajkot – Trib.)
16. Per contra, the ld DR relied on the order of the AO.
17. We have heard the rival submissions. We find that high court of Uttarakhand, in the case of Samsung Heavy Industries Company Ltd., (supra) referred to the decision of High Court of Kerala in the case of CIT v. P V S Memorial Hospital Ltd. [2015] [2016] 380 ITR 284 (Kerala), which decided against the assessee on the issue that section 40(a)(ia) of the Act cannot be made applicable to short deduction of tax at source; and the decision of Hon’ble Calcutta High Court in the case of CIT v. S. K. Tekriwal [2014] 361 ITR 432 (Calcutta) which decided in favour of the Assessee. Thereafter, referring to the decision Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), the hon’ble Uttarakand High Court held that where two views are possible, the view favouring the assessee be followed and decided the issue in favour of the assessee. The hon’ble Uttarakand High Court also referred to the hon’ble Delhi Court in the case of Pr. CIT v. Future First Info Services (P.) Ltd (Delhi), saying the hon’ble Delhi Court Court subscribed to the same view that section 40(a)(ia) of the Act cannot be made applicable to short deduction of tax at source.
18. We find that the question of disallowance u/s 40(A)(ia) for short deduction of TDS was held as infructuous by the hon’ble Delhi High Court in the case of PCIT v. Future First info Services Pvt (supra). The hon’ble Court decided the issue as follows:
9. As regards the proposed ground related to Section 40A(ia) of the Act, as mentioned above, no arguments were advanced. Perhaps that was for the reason that regarding this issue the CIT(A) had given direction to the Assessing Officer to verify whether the copies of deduction of tax at lower rate were filed before the Assessing Officer before passing of the assessment order and if that be so, then no disallowance could be made. Before the Tribunal the counsel for revenue stated that the Assessing Officer would give effect to the order of the CIT(A). Accordingly, this ground was treated as infructuous by the Tribunal. This question thus does not arise for our consideration.
19. We thus find that the hon’ble Delhi Court did not deal with the issue of validity of disallowance u/s 40(a)(ia) on short deduction of TDS. As no decision of the jurisdictional High Court has been cited by any parties before us, we are of the considered view that we should adopt the ratio of decision of the hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company (SC)/AIR 2018 SUPREME COURT 3606 where the Hon’ble Court held that exemption/deduction are to be interpreted strictly and if there is ambiguity in the notification, the benefit of such ambiguity cannot be claimed by the subject/assessee and must be interpreted in favour of revenue. We therefore hold that section 40(a)(ia) of the Act is applicable to short deduction of tax at source and the disallowance made was valid in law. However, we direct the AO to restrict the disallowance u/s 40(a)(ia) to the proportionate amount of the remaining short deducted amount. The addition made is sustained. The ground is dismissed.
20. Ground 5 of assessee and ground 2 of Revenue relates to adjustment relating to waiver of interest. During the course of assessment, the AO noticed that the assessee received an amount of Rs. 339.31 crore on account of interest waiver under the head Extraordinary/Exceptional income. The assessee deducted the same from its computation of income while computing the taxable income. The assessee explained that GOI has waived of interest of INR 339.31 crore on 1.12.2016 after prolonged and pending decision since 2001 (as per Note 29 of annual accounts) which were claimed as interest expenses in earlier assessment years. Such a claim of interest below the tables worked out to Rs. 173.39 crore which was disallowed in various assessment years, was claimed in current year computation of income under normal provisions of Income Tax Act. However, the entire interest income of Rs. 339.31 crore was offered for computing tax under MAT provisions as per 115JB in the last quarter of Dec 16/JAN.
21. Further, the assessee submitted before the CIT(A) that the hon’ble ITAT Delhi has directed to allow interest liability of Rs 95.72 crore (for AY 1990-91, 1995-96, 1996-97 and 1997- 98) out of Rs. 173.39 crore and the balance amount is still pending for a decision. On this, the Department approached Hon’ble High Court of Delhi. Accordingly, it was pleaded if the Hon’ble High Court decides in favour of revenue, then the amount of Rs. 95.72 crore is liable to be added back to the income of the appellant on account of waiver off interest. On the contrary, if the appeal of the Department goes against Revenue, then there would be no addition since the relief already granted by the ITAT stands confirmed and if any addition is made, then that would tantamount to double taxation. Out of the balance amount of Rs. 173.39 Cr (Rs. 95.72 crore relief already granted by ITAT and balance of Rs. 77.67 crore), no addition is warranted since the matter is subjudice before Hon’ble High Court of Delhi.
22. With these facts, the CIT(A) decided the issue as follows:
5.32 After examining the contentions of the appellant and the arguments of the AO and the Remand Report and facts of the case, I am of the considered opinion that the addition made by the AO do not require some tinkering at this point of time without prejudice to the Hon’ble ITAT (Delhi) decision and the pendency of the matter before the Hon’ble High Court of Delhi. Accordingly, I proceed to sustain the addition made by the AO amounting to Rs. 77.67 cr wherein appellant has already got a relief of Rs. 95.72 cr for earlier years out of the total addition of Rs. 173.39 cr, subject to final out come on the decision of Hon’ble Delhi High Court. Accordingly, the decision of Hon’ble ITAT Delhi is followed to an extent of Rs. 95.72 cr (out of total addition of Rs. 173.39 cr). The balance addition of Rs. 77.67 cr is thus sustained. The appellant’s claim that if the Hon’ble High Court decided in Revenue favour would allow the amount of Rs. 95.72 cr to be added and the alternative claim that in the event of dismissal of departmental appeal no addition is required to be made which results in double taxation, is premature at this stage and as such the same is brushed aside. In the result, the appellant gets a relief of Rs. 95.72 cr on this ground out of the total addition of Rs. 173.39 cr subject to verification of figures by the AO as per the ITAT Delhi order. In the result, the ground is partially allowed.
23. Per contra, the ld DR relied on the order of AO.
24. We have heard the rival submissions and have perused the materials on record. It appears the issue of allowability of interest is still sub-judice before the hon’ble High Court. We however note that the CIT(A) has taken cognizance of the coordinate bench of ITAT which has allowed the assessee’s appeal. In such facts and circumstances, we are the view that no interference is warranted with the decision of the CIT(A). Grounds of both the assessee as well as Revenue is accordingly dismissed.
25. Ground 6 of Assessee Appeal relates to adjustment of “Transition amount” as per section 115JB(2C), wrongly treated as ‘prior period expense’ by the AO. The Ld. AO, from the perusal of computation of income (PB Pg. 3-4), observed that the assessee had added back an amount of Rs. 6,67,02,980/- in the MAT computation treating the same as prior period expense, whereas no corresponding add-back was made in the normal computation of income. On this basis, the Ld. AO concluded that the assessee had left out the balance amount and accordingly made an addition of Rs. 6,44,91,988/- to the total income computed as per normal provisions. On appeal, the Ld. CIT(A) confirmed the addition. Aggrieved the assessee is in appeal before us.
26. The ld AR submitted that the ‘Transition Amount’ has wrongly treated as Prior Period Expense. He drew our attention to Form 29B (PB Pg. 5-9, relevant Pg. 6 Point 15 and Pg. 9) which reflects the adjustment required u/s 115JB(2C). The assessee company had adopted Ind-AS for the first time, and the “transition amount” represents the aggregate adjustments made to Other Equity (excluding capital reserve and securities premium) on the convergence date. The total transition amount was Rs. 32,92,02,980/-, and as per section 115JB(2C), only 1/5th of such amount is to be adjusted in each of the five years beginning from the year of convergence. Thus, the amount added in MAT was a statutory Ind-AS transition adjustment and not a prior period expense, and the addition made by the ld. AO under the normal provisions is based on an incorrect understanding of the nature of the item.
27. The ld AR further submitted that the same 1/5th transition adjustment has been consistently reflected in AY 2018-19, AY 2019-20, AY 2020-21 and AY 2021-22 and invited our attention to Form 29B for AY 2018-19 and AY 2019-20 (PB Pg. 167-178). The identical treatment has been duly accepted by the Department in the subsequent assessment years, and therefore, on the principle of consistency as well, the impugned addition in the year under consideration is unsustainable.
28. Per contra, the ld DR relied on the orders of AO and the CIT(A).
29. We have heard the rival submissions. We find that the Department has consistently accepted the treatment of 1/5th transition adjustment in AY 2018-19, AY 2019-20, AY 2020-21 and AY 2021-22. In view of the rule of consistency as well as the express provisions of section 115JB(2C), we hold that the impugned amount represents a statutory Ind-AS transition adjustment and not a prior period expense, and hence the addition made by the Ld. AO is unwarranted and is therefore deleted. The ground is allowed.
30. Ground 1 of Revenue Appeal in respect of repairs & Maintenance of Components (ICDS Effect). During the assessment proceedings, the Ld. AO, on the basis of observations in the Tax Audit Report, noted that the assessee had incurred repair and maintenance expenditure of Rs. 60,25,19,888/- which, in the books of account prepared under Ind AS-16 / ICDS, stood capitalised as part of Property, Plant & Equipment.
31. The AO formed a view that since the assessee itself had capitalised such expenditure in its financial statements, the same could not be claimed as revenue expenditure under the Income-tax Act. Holding that the expenditure resulted in enhancement of asset value and future benefit, the AO treated the entire amount as capital in nature and added Rs. 60.25 crore to the income of the assessee. Aggrieved by the above addition, the assessee preferred an appeal before the Ld. CIT(A), who deleted the addition. Against this deletion, the Revenue is now in appeal before us.
32. Briefing on the facts, the ld AR submitted that the assessee had adopted component accounting in accordance with Ind AS-16 from FY 2016-17, whereby only significant components (above 8% of the asset cost) were capitalised in the books, while other routine repairs were charged to Profit & Loss Account.
33. We find that the Ld. CIT(A) observed that accounting treatment under the Companies Act / Ind AS / ICDS and tax treatment under the Income-tax Act operate on different footings, and capitalization in books does not automatically determine allowability under tax law. The CIT(A) found that the expenditure pertained to repairs, replacement of parts, and maintenance necessary for operational efficiency and safety, especially considering that the assessee was engaged in helicopter operations where even minor component replacement is critical. Further we find that the AO had not disputed the genuineness or business necessity of the expenditure; the disallowance was made solely on the basis of accounting presentation. The Ld. CIT(A) further held that ICDS / Ind AS standards do not override the provisions of the Income-tax Act, and the intrinsic nature of expenditure must be examined independently for tax purposes. Accordingly, the Ld. CIT(A) concluded that the impugned expenditure was revenue in nature for income-tax computation, and deleted the addition of Rs. 60.25 crores made by the AO. We find no reason to interfere with the decision of the CIT(A). The ground is dismissed.
34. Ground 4 of Revenue Appeal relates to disallowance of CSR expenditure while calculating the book profit u/s 115JB of the Act. The ld. AO has made an addition of Rs. 83,85,000/- on account of corporate social responsibility in the book profits u/s 115JB of the Act. The said adjustment has been made simply on the ground that the assessee has itself added back it as disallowable under section 37 of the Act i.e. under normal provisions of the Act. Aggrieved the assessee filed an appeal before CIT(A), who has deleted the adjustment. Against this, the Revenue is in appeal before us.
35. The ld AR submitted that the provisions of section 115JB, which provides the adjustments that can be made while computing the book profits, nowhere prescribed any adjustment on corporate social responsibility. The disallowance made by the AO does not fall in any of the said clause. Accordingly, the action taken by him is not justified. The ld AR relied on
• ITAT Delhi in the case of Pawan Hans Ltd. v. Dy. CIT [I.T. Appeal No. 7388 (Del) of 2017, dated 18-3-2021]/2021 (3) TMI 779 , dated 18.03.2021
• Delhi High Court in the case of Pr. CIT v. Sony India (P.) Ltd.[2025] 477 ITR 576 (Delhi)
• ITAT Delhi in the case of Span India Pvt. Ltd v. ACIT [IT Appeal No. 9648 (Del) of 2019 and IT Appeal Nos. 609 & 610 (Del) of 2020, dated 23-4-2025]/2025 (6) TMI 880 , dated 23.04.2025
• ITAT Raipur in the case of DCIT Circle-1 (1), Bilaspur, v. Jindal Power Ltd., Chhattisgarh [IT Appeal Nos. 47 to 49 (RPR) of 2023 and Cross-Objection Nos.16 to 18 (RPR) of 2023, dated 9-8-2023]/2023 (8) TMI 636 , dated 09.09.2023
• ITAT Delhi in the case of Green Infra Solar Energy Limited v. ACIT [IT Appeal No. 1680 (Delhi) of 2020, dated 1-12-2022]/2022 (12) TMI 1566 , dated 01.12.2022
36. We have heard the rival submissions. We find that the coordinate bench of ITAT Delhi has allowed the assessee’s case on this issue vide its order dated 18.03.2021. We are therefore of the considered view that the expenditure incurred on CSR could not be excluded from final accounts for purpose of determining book profits under section 115JB. The action of the CIT(A) is upheld. The ground is dismissed.
37. In the result the appeal of the assessee in ITA No.5572/Del/2024 is partly allowed and appeal of the Revenue in ITA 5964/Del/2016 is dismissed.