TMI Blog2015 (11) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... nnage 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 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. 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 operating expenses, interest and finance charges and depreciation and only rejected apportionment 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd in a scheme of demerger exhibited at page no 5 to 20 in order to transfer to the assessee the offshore service business of the parent company. The assessee was incorporated on 14.07.2005. The appointed date of demerger was 01.04.2005 as per scheme of demerger. The Hon ble Bombay High Court vide order dated 03.02.2006 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 to have accepted the various terms of ONGC and also signed the tripartite agreements qua assignments. An application was moved for extension of time on 18.08.2006 exhibited at page 35-41 and the Hon ble Bombay High Court vide order dated 31.08.2006, sanctioned the demerger scheme and also granted the extension of time. The scheme was adopted by the assessee on 16.10.2006 vestin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective 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 demerger was not sanctioned. He vehemently argued that it is only by virtue of high court order the demerger became effective from the appointed date i.e 01.04.2005 and in case of decline of sanction by the Hon,ble High Court for any reason whatsoever, the scheme as proposed would have failed with all the consequences. Therefore, he prayed for the quashing the order of first appellate authority as being against the spirit of law. He further argued that there is difference and distinction between 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the close of the financial year the assessee could not have estimated its income and pay the advance tax on the same. We are in agreement 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 thereof as per the provisions of section 209 r.w. s/ 210 of the Act. 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 the events during the year which took place after the close of year ,there was no default on the part of the assessee and consequently interest u/s 234B could not to be charged. In the case of Ultratech Cement Ltd Vs DCIT, the the Tribunal held that in the scheme of demerger , it was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/- as common expenditure under various heads and allocated in the ratio of 67:33 thereby apportioning ₹ 26,93,05,634/- to tonnage tax activity and ₹ 13,26,43,074/- to non tonnage tax activity. 11. The AO rejected the system of apportionment on the basis of annualized operating charter hire income adopted by the assessee and applied and apportioned the common expenditure on the basis of the receipts from tonnage and non tonnage activity which was ₹ 39,26,22,7285/- and ₹ 1447319165/- respectively being in the ratio of 73.06% and 26.94% of the 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 method adopted by the assessee and if something wrong accepted in the past could not be the basis for the present and future ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a qualifying ship, is not exclusively used for the tonnage tax business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for the purpose of the tonnage tax business and for the other business. 16.1 The sub section (1) of section 115VJ provides for allocation of common expenses incurred for tonnage and non tonnage 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger amongst the Demerged Resultant Company? 20. The only ground raised by the revenue is against the deletion of disallowance of expenses u/s 35DD(1). 21. The facts in brief are that 20% of the total demerger expenses was apportioned to the assessee in the scheme of demerger 80% to the demerged company. The assessee wrote off 1/5th of the said expenses in the current year 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 demerger. The ld CIT(A) further held that once the expenses were incurred on the demerger, then 1/5th of the said amount has to be allowed during five successive financial year beginning with the financial year in which the demerger took place by the company which incurred the such expenses. 24. The Ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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