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2015 (11) TMI 1059 - ITAT MUMBAI

2015 (11) TMI 1059 - ITAT MUMBAI - TMI - Interest u/s 234B and 234C - whether leviable on the tax liability of the assessee where the scheme of demerger is sanctioned by the High Court after the close of financial year and the demerger is effective from the appointed date? - Held that:- Once the default is attributed to the assessee , then the charging of interest becomes mandatory. The ratio decendie in the said decision was that where it was not possible for the assessee to have anticipated th .....

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sue in favour of the assessee.

Apportionment of common administrative and other expenses between tonnage and non tonnage business in the ratio of 67: 33 - Held that:- AO accepted the system of apportionment adopted by the assessee qua total operating expenses, interest and finance charges and depreciation meaning thereby that the system adopted by the assessee is partly accepted by the AO. The CIT(A) decided the issue against the assessee on the ground that the AO is not bound by the .....

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ment qua administrative and other expenses and more so when the revenue had accepted system of apportionment of common overheads followed by the assessee in the earlier year. In view of our observations and the decisions cited by the Ld AR , we are of the considered view that the order of CIT(A) deserves to be reversed.- Decided in favour of assessee.

Disallowance of expenses u/s 35DD(1) - Held that:- We first refer to the provisions of section 35DD(1) which provides that w.e.f. 01.04 .....

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e nature as mentioned in section 35DD(1) , the assessee shall be entitled to 1/5th of such expenses. We, therefore, are of the considered view that the assessee is entitled to claim the said expenses which was rightly held so by the ld CIT(A). In view of this, we dismiss the appeal of the revenue. - Decided in favour of assessee. - ITA NO 5221/Mum/2010, ITA NO 2070/Mum/2011, ITA NO 2191/Mum/2011, ITA NO 6913/Mum/2011, ITA NO 7226/Mum/2011 - Dated:- 30-9-2015 - AMIT SHUKLA, JUDICIAL MEMBER AND SH .....

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in all these appeals are common, therefore they were being clubbed together, heard together and disposed of by this single consolidated order for the sake of convenience and brevity. 2. First we shall take up the appeal in ITA No. 5221/Mum/2010. 3. The common issue involved in all ground of appeal is whether interest u/s 234B and 234C of the Income Tax is leviable on the tax liability of the assessee where the scheme of demerger is sanctioned by the High Court after the close of financial year .....

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2.2006 approved the initial scheme of demerger. The final demerger was to take place after receipt of consent from ONGC with whom the parent company had entered into various contracts for offshore services. The assignments of contracts in favour of the assessee was received vide letter dated 27.06.2006 and 22.08.2008 exhibited at page no 26 to 32 of the paper book no1 by the assessee subject to signing of tripartite agreement. Thereafter the parent company vide letter dated 24.08.2006 confirmed .....

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.2005 the appointed date with the assessee.The entire revenues and expenses from 01.04.2015 were also taken over. Thereafter the book of accounts of the assessee were audited and return of income was filed on 30.11.2006 declaring an income of ₹ 11,22,72,762/- and self assessment tax of ₹ 1,30,00,000/- was paid after adjustment of TDS of ₹ 2,61,54,656/-. No interest u.s 234B & 234C was paid by the assessee on the ground that the scheme was finally approved by the High Court .....

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(A) observed that the parent company was demerged on 16.10.2006 from the appointed date which was 01.04.2005 thereby vesting its offshore services business to the assessee. The CIT(A) further noted that there was no dispute as to the tax liability of ₹ 3,77,91,010/- , TDS of ₹ 2,61,54,656/- and the self assessment tax was also paid while filing the return of income. The CIT(A) observed that the parent company while transferring its offshore services business to the assesee company, d .....

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held the order of ld assessing officer on the various reasons incorporated in para 3.3 of the appeal order. 7. The ld. AR agrued that the assessee was incorporated on 14.07.2005 and the scheme of demerger sanctioned by the Hon ble High court on 31.08.2015 making demerger effective from the appointed date of 01.04.2005.He further submitted that it was not possible for the assessee to estimate its income and income tax thereon in terms of provisions of section 209 particularly when the scheme of d .....

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the provisions of advance income tax and advance fringe benefit tax. He pointed out that the word estimate is missing in section 115WI and 115WJ whereas the word estimate is used in the section 209 of the Act and he ,therefore, submitted the facts of decision in ITA No, 5000/Mum/2009 in the assessment year 2006-07 were distinguishable as the FBT was due and paid on actual expenditure whereas in the case of advance tax, an estimation of income and tax are involved. The Ld. AR also pointed out tha .....

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said sections used the word shall and relied on the orders of authorities below and prayed for upholding these orders 9. We have considered the rival submissions and perused the materials available on records . After going the records and the order of the first appellate authority , we note that the demerger became effective from appointed date of 01.04.2005 by the order of Hon ble High Court of Bombay vide order dated 31.08.2006 exhibited at page no 42 to 44 of the paper book no 1,filed by the .....

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assessee company on 16.10.2006 taking over all the entire offshore division with all assets , liabilities, contracts rights and obligations etc. We also note that the assessee filed return of income on 30.11.2006 declaring an income of ₹ 11,22,72,762/- by paying self assessment tax of ₹ 1,30,00,000/- after adjusting TDS of ₹ 2,61,54,656/- without paying interest u/s 234B and 234C of the Act. We also note that the first appellate authority upheld the order of the assessing offi .....

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reement with the arguments of the ld AR on this issue. Further the case of the assessee is squarely covered the decisions in the case of Prime Securities Ltd. Vs ACIT (Inv.) (333 ITR 464) and Ultratech Cement Ltd. Vs. DCIT (ITA Nos 7646,7647,7735 and 7736/Mum/2007. The Hon ble Bombay High court in the case of Prime Securities Vs ACIT has held that in order to charge interest under section u/s 234B , there has to be default on the part of the assessee in estimating the the advance tax and payment .....

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T, the the Tribunal held that in the scheme of demerger , it was not possible for the assessee to estimate the income and pay the advance tax as the scheme was approved after the close of the financial year. We, therefore, respectfully following the above decisions reverse the order passed by the first appellate authority on this point and decide the issue in favour of the assessee. 10. Now we take up the appeal of assessee in ITA No. 2191/Mum/2011, vide which following grounds of appeal have be .....

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nnage business in the ratio of 67 : 33. 3) The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in levying interest u/s.234C for deferment of the first and second installments of advance tax payable on 15.6.2006 and 15.9.2006. The appellant denies its liability to be levied the said interest. 4) The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in levying interest u/s.23C amounting to ₹ 23,76,522/-. Th .....

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h were common to both the activities and which could not be attributed to any particular business activity were apportioned and allocated by the assessee in the ratio of 67% to tonnage business activity and 33% to non tonnage business activity in conformity with the practice followed in the earlier year on the basis of annualized operating charter hire income. During the year, the assessee incurred a sum of ₹ 40,19,48,708/- as common expenditure under various heads and allocated in the rat .....

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e total turnover. The AO worked out the disallowance on account of change in the basis of apportionment of expenses at ₹ 2,43,58,092 which is incorporated on page 4 of the assessment order. 12. The CIT(A) observed that the distribution of common expenses had to be done on the basis of actual revenue and not on the basis of annualized operating charter hire income by referring to the provisions of section 115VJ (1) and (2). The CIT(A) further observed that department is not bound by the met .....

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n the basis of annualized operating chart hire income which was also followed in the preceding year. He further filed a statement giving details of common expenditure allocated giving details as to total operating expenses, administrative and other expenses, interest and finance charges and depreciation. The total of all expenses under these heads was ₹ 45.20 Cr ( ₹ 1.77 Cr. as total operating expense +Rs. 40.19 Cr. as administrative and other expense + ₹ 1.57Cr. as interest an .....

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rgued that the arbitrariness on the part of the AO in applying one method to administrative and other expenses and accepting the method adopted by the assessee in respect of the remaining total operating expenses , interest and finance charges and depreciation which is bad in law. The Ld. AR relied on the Judgment of Punjab & Haryana High Court in the case of Jaswant Rai Vs. CIT Wealth Tax, 107 ITR 476 (P&H). Ld. AR also relied upon the decision of Chandigarh Bench of Tribunal in the cas .....

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on a reasonable basis .He therefore prayed that the order of CIT(A) be upheld. 16. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record in the light of provisions of section 115VJ of the Income Tax Act, which reads as under:- (1)Where a tonnage tax company also carries on any business or activity other than the tonnage tax business, common costs attributable to the tonnage tax business shall be determined on a reasonable basis. (2) Where any asset, other than .....

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ge activity on a reasonable basis whereas sub-section (2) of section 115JV provides for a fair proportion of depreciation by the AO between tonnage and non tonnage activity. In the present case, we note that the assessee allocated the common expenses incurred under four heads as stated above amounting to ₹ 45.20 Cr. in the ratio of 67:33 by following the annualized operating charter hire income method, whereas, the AO rejected the system adopted by the assessee only in respect of administr .....

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st the assessee on the ground that the AO is not bound by the system adopted and followed by the assessee and further observing that section 115VJ also empowers the AO to apportion on reasonable basis which is in the present case is actual revenue basis thereby sustaining an addition of ₹ 2,43,58,093/-. In our opinion, the approach of the AO and CIT(A) is not correct especially when the system of allocation adopted by the assessee is accepted for three heads of expenses namely total operat .....

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d installment of tax which is similar to the issue decided by us in ITA No. 5221/Mum/2010 for assessment year 2006 and ,therefore, our decision in the said appeal shall apply in this appeal also qua ground no 3 & 4. 19. Now we take up the appeal of Revenue in ITA No. 2070/Mum/2011, vide which following grounds have been raised:- 1. "Whether on the facts and in the circumstances of the case and in Law, was the Ld. CIT(A) justified in allowing the apportioned expenses on demerger to the A .....

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u/s 35DD(1) of the Act. 22. The ld AO disallowed the said expenses on the ground that the deduction u/s 35DD(1) was admissible to the demerged company and not to the assessee, the resulting company. 23. The Ld. CIT(A) by disagreeing with the decision of the assessing officer deleted the disallowance by stating that the provisions of section 35DD(1) allows the deduction of expenses incurred for demerger by holding that the section only provides for writing of 1/5th of the expenses incurred on de .....

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the order of AO qua this issue and reversing the decision of the ld CIT(A). 25. The ld. AR, on the other hand , submitted that the assessee was entitled to deduction of 1/5th of the demerger expenses apportioned to it in the scheme of demerger under the provisions of section 35DD(1). He vehemently relied on the order of CIT(A) and prayed for upholding the same. 26. We have heard the rival submission and perused the materials on records. We first refer to the provisions of section 35DD(1) which p .....

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