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2015 (7) TMI 598 - ITAT MUMBAI

2015 (7) TMI 598 - ITAT MUMBAI - TMI - Disallowance u/s. 14A r.w. Rule 8d - CIT(A) deleted addition - assessee into shipping business - Held that:- In view of the precedent dated 30.11.2011 [2011 (11) TMI 370 - ITAT MUMBAI ], we find that the impugned disallowance made by the Assessing Officer has been rightly deleted by the CIT(A) wherein held that if at all the assessee has claimed any such expenditure in computation of profit of business of shipping, the same are to be taken as disallowed whe .....

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ips by the Assessing Officer for the purposes of determining the Book Profit of the assessee company u/s 115JB of the Act related to the activities of a tonnage tax company and it is also not disputed by the Revenue that such amount was reduced by the assessee while computing the ‘Book Profits’ from the activities of a tonnage tax company. Therefore, if the stand of the Assessing Officer is to be upheld then similar amount ought to be added back for the purposes of computing Book Profits derived .....

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a tonnage tax company also; and the so computed book profit shall be liable to be excluded from the Book Profits of the assessee company for the purposes of section 115JB of the Act, in view of section 115VO of the Act. - Decided in favour of assessee.

Enhancing the Book Profit u/s 115JB on account of the disallowance made u/s 14A - Held that:- The amount disallowed u/s 14A of the Act cannot be considered while computing the book profit u/s 115JB of the Act. In the absence of any deci .....

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spondent : Shri Mahesh O Rajora ORDER Per G.S. Pannu, AM The captioned cross appeals are directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A) ] dated 19.09.2011 which in-turn has arisen from an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 23.12.2011 pertaining to assessment year 2009-10. 2. In the appeal of the Revenue, the following Ground has been raised:- Whether .....

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and is inter-alia, engaged in the business of hiring and operation of ships. For the assessment year 2009-10, it filed a return of income declaring total income of ₹ 2,67,88,623/-, which inter-alia included an income of ₹ 2,48,72,672/- with respect to its shipping business. In the said return of income assessee company declared its income from the shipping activities on a presumptive basis in terms of Chapter XII-G of the Act, which deals with Special Provisions Relating to Income o .....

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by an assessee. 4. In the course of assessment proceedings, the Assessing Officer noted that assessee had received a dividend income of ₹ 1,03,65,433/- which was exempt u/s 10(34) of the Act. The Assessing Officer required the assessee to show-cause as to why the income in relation to such exempt income should not be disallowed u/s 14A of the Act, r.w.r 8D of the Income Tax Rules, 1962. The stand of the assessee was that the disallowance envisaged u/s 14A of the Act had no relevance in the .....

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Accordingly, the CIT(A) set aside the addition of ₹ 38,58,497/- made by the Assessing Officer to the returned income. 5. Against such a stand of the CIT(A), Revenue is in further appeal before us. At the time of hearing, it was a common ground between the parties that so far as the disallowance made by the Assessing Officer by invoking the provisions of section 14A of the Act is concerned, the same is unsustainable in view of the order of the Tribunal dated 31.01.2011(supra) in assessee s .....

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CIT(A). Nevertheless, in order to impart completeness to this order, we reproduce hereinafter, the operative part of the order of the Tribunal dated 30.11.2011 (supra), which has been rendered under identical circumstances:- 7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee is mainly engaged in the business of operation of ships and its income from the said business was declared and assessed as per the special provision .....

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ithstanding anything to the contrary contained in section 28 to 43C. It, therefore, follows that when the income of the assessee from the business of operating ships is computed as per the special provisions contained in Chapter XIIG, only the expenses incurred by the assessee for earning income of the said business are deemed to be allowed and nothing else. It, therefore, cannot be said that when the income of the assessee from the business of operating ships is computed as per the special prov .....

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n accordance with the provisions of Chapter XIIG, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance u/s 14A on account of any expenditure incurred in relation to earning of exempt dividend income. In our opinion, if at all the assessee has claimed any such expenditure in computation of profit of business of shipping, the same are to be taken as disallowed when the income of the said business is final .....

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g Officer. Thus, on this aspect, Revenue fails in its appeal. 8. Now, we may take up the appeal of the assessee, wherein, the following Grounds of appeal have been raised. (a) The Commissioner of Income Tax (Appeals)- 9 , Mumbai [hereinafter referred to as CIT(A)] erred in confirming the addition of Impairment loss on certain ships of ₹ 9,38,22,OOO to the book profit of the Appellant u/s l15JB of the Act. The Appellant submits that impairment loss forms part of core activity of the Appella .....

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hips and such enhanced shipping profit shall be reduced from the book profit for arriving at taxable MAT liability. The CIT(A) erred in confirming the addition of expenditure of ₹ 38,58,497/- disallowed u/s l4A r.w.rule 8D to the book profit computed u/s l15JB of the Act. The Appellant submits that disallowance u/s 14A r. w. rule 8d of the Act computed under Chapter IV of the Act has no application to books profit computed under Chapter XII-B of the Act and hence no disallowance u/s l4A r. .....

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the said Explanation. In the context of the present controversy, it would also be relevant to observe that in terms of section 115VO of the Act, the Book Profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1) of section 115V-I, is liable to be excluded from the Book Profit of the company for the purposes of section 115JB of the Act. Insofar as the applicability of aforesaid two provisions to the instant case are concerned, there is no dispute. 10. In .....

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minution in the value of an asset which was liable to be added back to compute the Book Profit in terms of clause (i) of Explanation 1 to section 115JB of the Act. As a consequence, the Assessing Officer determined the Book Profit of the assesssee company u/s 115JB of the Act at ₹ 37,79,35,313/- as against assessee s computation of Book Profit at ₹ 28,41,13,313/- thereby resulting in an addition of ₹ 9,38,22,000/- on this count. The CIT(A) has also affirmed the aforesaid action .....

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er to the market value of such assets. The ld. Representative submitted that the same has been correctly deducted by the assessee while computing the book profit u/s 115JB of the Act. At the time of hearing, the Ld. Representative for the assessee pointed out that the action of the Assessing Officer would have no implication because if the impairment loss is to be excluded for the purposes of computing Book Profit u/s 115JB of the Act, then it should also be excluded while computing the Book Pro .....

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the Ld. Representative submitted that in the assessee s own case for assessment year 2008-09, the Tribunal in its order dated 30.11.2011 (supra) has appreciated the aforesaid legal position. 12. On the other hand, the Ld. DR appearing for the Revenue has merely reiterated the stand of the lower authorities, which is to the effect that the impairment loss debited in the Profit & Loss Account was a Provision for diminution in the value of the asset, which could not be reduced in order to comp .....

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he income tax authorities is that the impugned adjustment relates to the activities of a tonnage tax company and, therefore, similar adjustment ought to have been made in computation of Book Profit derived from such activity also as the same relates to the shipping business. Section 115VO of the Act, prescribes that the Book Profit derived from the activities of a tonnage tax company shall be excluded from the Book Profit of the assessee company for the purposes of section 115JB of the Act. The .....

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on the ground that Book Profit computed by the assessee from the activities of a tonnage tax has been computed at ₹ 97,82,28,861/- as per Form 29B submitted by the assessee which is duly certified by a Chartered Accountant and such amount of Book Profit has already been reduced while computing the Book Profit of the assessee for the purposes of section 115JB of the Act. Accordingly, as per the Revenue, no further deduction as contemplated u/s 115VO of the Act, can be allowed to the assesse .....

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to furnish a report in the prescribed form No. 29B from the Auditors certifying that the book profit has been computed in accordance with the provisions of section 115JB. The said report has to be furnished with the return of income filed under sub-section (1) of section 139 or along with the return of income filed in response to notice issued u/s 142(1)(i). The Auditors thus are required to certify that the book profit declared by the assessee company in its return of income has been computed .....

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ors after having found that the book profit so computed and certified by the Auditors was not in accordance with the provisions of section 115JB. The AO thus has not gone by the Auditor s report furnished in form No. 29B for the purpose of computation of book profit of the assessee company u/s 115JB and has made the adjustment by adding back two amounts in question to the book profit declared by the assessee u/s 115JB and certified by the Auditors in their report furnished in form No. 29B. Howev .....

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d by the Auditors in the report furnished in form No. 29B. This stand taken by the AO, in our opinion, is self contradictory and inconsistent which cannot be upheld. 15. Quite clearly, the impugned sum of ₹ 9,38,22,000/- added by the Assessing Officer for the purposes of determining the Book Profit of the assessee company u/s 115JB of the Act related to the activities of a tonnage tax company and it is also not disputed by the Revenue that such amount was reduced by the assessee while comp .....

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the Act. Therefore, we find it expedient to set aside the impugned order of CIT(A) on this aspect and direct the Assessing Officer to make adjustment for the Impairment loss in the Book Profit derived from the activities of a tonnage tax company also; and the so computed book profit shall be liable to be excluded from the Book Profits of the assessee company for the purposes of section 115JB of the Act, in view of section 115VO of the Act. As a consequence, we uphold the claim of the assessee a .....

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of the Act is concerned, the same has already been deleted by us while dealing with the Cross Appeal of the Revenue in earlier paras. Further, the Revenue has justified the enhancement of Book Profit u/s 115JB of the Act on the ground that the statutory disallowance computable u/s 14A of the Act is applicable while working out the Book Profits u/s 115JB of the Act. In this context, the plea set up before us is that no expenditure has been claimed by the assessee relating to the exempt dividend .....

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rofit, the provisions of section 14A of the Act cannot be imported into clause (f) of the Explanation 1 to section 115JB of the Act. The Mumbai Bench of the Tribunal in the case of M/s Bengal Finance & Investments Vs. The Asstt. Commissioner of Income-tax In ITA No. 5620/Mum/2010 dated 31.07.2012 has also taken a similar view, and the relevant discussion is as follows:- 5. We have heard the rival submissions and perused the relevant material on record. It is observed that the Assessing Offic .....

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