TMI Blog2018 (5) TMI 1761X X X X Extracts X X X X X X X X Extracts X X X X ..... elationship with these parties in later years is incorrect because in subsequent years there were no such business relationship continued with M/s Frontier Drilling as evident from the various documents and in view of the Arbitration award. - Claim of bad debts allowed - Decided against the revenue. Disallowance u/s 14A - no expenditure has been incurred for earning the dividend income - Held that:- when the assessee gets tonnage tax benefit under section 115VP / 115VR of the Act, the addition under section 14A read with Rule 8D is not at all required. - Decided against the revenue. - ITA No. 4392/Del/2011, ITA No. 5915/Del/2013, ITA No. 5916/Del/2013 - - - Dated:- 11-5-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER A N D SHRI KULDIP SINGH, JUDICIAL MEMBER Assessee by : Shri Rajiv Saxena, Adv.; Ms. Sumangla Saxena, Adv.; Department by : Shri Vijay Verma, CIT [DR]; O R D E R PER R. K. PANDA, AM : I.T. Appeal No. 4392 (Del) of 2011 filed by the Revenue is directed against the order dated 29th July, 2011 of the learned CIT (Appeals)-VII, New Delhi relating to assessment year 2008-09. I.T. Appeal No. 5915 (Del) of 2013 filed by the Revenue is directed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s main object of business was not carrying on the business of the operation of the ships. It was also seen that the assessee did not have the license which was to be issued by the Director General of Shipping u/s 407 of Merchant Shipping Act, 1958. The assessee preferred appeal before Ld. CIT(A) who, vide order dated 16.3.2007 in appeal No.44/2006-07 allowed the appeal of assessee and directed the AO to consider the rigs as qualifying ships u/s 115VD of the IT Act and allow its application for exercising option for tonnage tax scheme u/s 115VP / 115VR of the Act. Aggrieved with the order of Ld. CIT (A), the revenue preferred an appeal before ITAT who, vide order dated 20.11.2009 in ITA No.2979/Del/ of 2007 dismissed the appeal of revenue. Now the revenue has preferred an appeal before Hon'ble Delhi Court against the order of Hon'ble ITAT after obtaining approval of higher authorities. 2.4 In appeal, the learned CIT (Appeals) allowed the claim of the assessee by observing as under :- 4. Ground of Appeal No.l relates to the grievance of the appellant against the action of the A.O. in rejecting the appellant s claim for tonnage tax scheme by holding that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to off shore installations was gone into in considerable detail by the Tribunal. The Tribunal noticed that unlike in the case of off-shore installations which are stationed at one place, the very nature of the activity in which the assessee engaged is to carry out operations in different places; necessarily, at least for a short duration the vessel has to be stationed at one place. In these circumstances, Revenue s contentions that the vessel is nothing but offshore installations has no merit, in the case of Matdrills of die kind put to use by the assessee. 8. For these reasons the Court is of the opinion that the reasoning and findings of the Appellate Commissioner and the Tribunal cannot be found fault with. The substantial question of law is therefore answered in favour of the assessee and against the Revenue. The appeals are consequently dismissed. 2.7 Since the learned CIT (Appeals) while deciding the issue in favour of the assessee has followed the decision of the Tribunal in assessee s own case as well as the decision of Hon ble Jurisdictional High Court, therefore, in absence of any contrary material brought to our notice by the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,529/- received on 05.11.2007 vide cheque the amount received in US $ 49,13,945.92 and deposited in SBI, South Extension, New Delhi. On the debit side ₹ 21,24,56,452/- was calculated which relates to various deductions made by ONGC by way of TDS or due to rate fluctuation on the bill booked and payment received later in US dollars. This includes debit of ₹ 19,27,49,529/- made on 31-03-2008 by giving narration ONGC amount transferred. Due to this the closing balance under the head operating income / charges amounted to ₹ 46,89,26,669.44/- which was ultimately transferred to profit and loss account. Thus total receipts were ₹ 68,13,83,121/-(Rs. 68.13 Crores) but after adjusting certain deductions and transfers relating to ONGC the net receipts of ₹ 46,89,26,670/-(Rs. 46.89 crores) were declared in the profit and loss account. 5.5 The perusal of the TDS certificates issued by ONGC (placed at Pages 51 52 of the paper book filed on behalf of the appellant) and Form No.26AS reveals that the amounts paid by ONGC to the appellant are in US dollars $1,64,79,606,.96 and $ 645. Apart from this an amount of ₹ 8,66,571/- has been shown as paid by ONGC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the ONGC account as Nil. This was done in view of clause 8 of the settlement agreement wherein payment of $ 50,46,487 less ₹ 10,00,000 was payable to the appellant in full and final settlement of all claims. The appellant has implemented this settlement agreement in its letter and spirit and made the ONGC account Nil as on 31-03-2008. 5.8 It is not the case of the AO that certain receipts were not declared and income was declared less. In fact the appellant could have declared the receipts separately and claimed writing off the old outstanding balance of ₹ 17.98 Crores shown as opening balance during the year as bad debts but appellant opted to adjust ONGC outstanding balances against the ONGC receipts so as to make ONGC account as Nil. The AO has not made any efforts to understand these accounts either during the assessment proceedings or during the remand proceedings. The addition of ₹ 19,16,80,789/- calculated by him by taking difference of TDS certificates and receipts declared in Profit Loss Account is also incorrect because in the TDS certificates gross amount is required to be taken as Income which is before adjusting TDS. The total receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Supreme Court is squarely applicable to the facts of the present case. 5.10 Therefore, I am of the considered view that on the facts and in the circumstances of the case, the Assessing Officer was not justified in making the addition of ₹ 19,16,80,789/- under section 69 of the Act and the same is directed to be deleted. As a result, Ground of appeal No.3 is allowed. 3.3 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before us. 3.4 We have heard the rival contentions made by both the sides and perused the material available on record. We find the learned CIT (Appeals) after obtaining the remand report from the Assessing Officer and on the basis of reconciliation filed by the assessee has passed a detailed order and has given a finding that the credit side of the total receipt ₹ 68,13,83,121/- also includes an amount of ₹ 19,27,49,529/- received on 05.11.2007 and deposited in SBI. On the debit side an amount of ₹ 21,24,56,452/- appears as various deductions made by ONGC by way of TDS or due to rate fluctuation on the bill and payment received later on in US$. This includes debit of ₹ 19,27,49,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) deleted the addition by observing as under :- 6.4 I have gone through the assessment order, the written and oral submission(s) of the appellant and the remand report of the A.O. I have also gone through the order sheet submitted along with the remand report whereby the AO highlighted the noting for furnishing copy of account of ONGC in the books for FY 2006-07 to FY 2008-09. After perusing the direction of the Mumbai High Court in the order dated 11.04.2007 I find from the consent terms that the appellant was directed to make payment of US $ 13,00,000 to M/s. Frontier Drilling ASA Pvt. Ltd. This was duly been paid as mentioned in the documents addressed to State Bank of Hyderabad. Tax has been deducted on these payments and the relevant cheque and the challan dated 12.04.2007 are also placed on record. All these documents are on account of arbitration award granted by Mumbai High Court. Copy of account of M/s Frontier Drilling ASA Pvt. Ltd for the period from 01-02-2003 to 31-03-2008 was also filed in which there was outstanding claim of ₹ 2,49,00,231/- but on the contrary the appellant has to make payment of US $ 13,00,000 amounting to ₹ 5,57,18,000/- due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to payment made to M/s Frontier Drilling in view of the direction of the Hon ble Mumbai High Court could not be controverted by ld. DR. In view of the above and in view of the detailed reasoning given by ld. CIT(A) on this issue and in absence of any contrary material brought to our notice by ld. DR against the finding given by ld. CIT(A), we find no infirmity in his order. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. 5. Ground No. 5 reads as under :- On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in deleting the addition of ₹ 2,01,280/- made by the AO under section 40(a)(ia). 5.1 Facts of the case, in brief, are that during the course of assessment proceedings, the Assessing Officer observed that the payments/credits in respect of expenditure aggregating to ₹ 2,01,280/- were made on 19-01-08 and 06-02- 08 i.e. before last month of the Financial Year 2007-08 relevant to Asstt.Year 2008-09 on which the TDS was deducted but paid on 26-08-08 i.e. after 31st of March 2008. He, therefore, made disallowance u/s 40(a)(ia) of the I.T. Act. 5.2 Before ld. CIT(A) it was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue is dismissed. 7. Ground No. 2 by the Revenue reads as under :- Whether on the facts and circumstances of the case, the learned CIT (Appeals) erred in deleting disallowance of the ₹ 15,12,468/- under section 14A rw Rule 8D (iii)? 7.1 Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that the assessee has investments in equity shares of various companies as well as in the units of mutual funds. During the impugned assessment year the assessee has earned tax free dividend income of ₹ 2,94,299/- from these investments. Since the assessee has not allocated any expenditure attributable for earning the exempt income under section 14A the AO held that the assessee must have incurred certain expenditure for the investment activity generating tax free income. He, therefore, rejected the claim of the assessee that no expenditure has been incurred. Applying the provision of section 14A read with Rule 8D the Assessing Officer disallowed an amount of ₹ 15,12,468/-. 7.2 Before the learned CIT (Appeals) the assessee argued that assessee has not incurred any expenditure for earning the exempt income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account while working the benefit of tonnage tax scheme as the exempted income would be enhanced accordingly on the finally determined income under the head Profit Gains of business or Profession . As a result of alternative ground 6 of the appellant is allowed in view of the ITAT decision in Varun Shipping (Supra). Since, the appellant gets Tonnage Tax benefit under Section 115 VP / 115 VR, the addition under Section 14A/Rule 8D is not at all required. Thus, ground No. 2 is allowed. 7.4 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before the Tribunal. 8. We have heard the rival submissions made by both the sides and perused the material available on record. We do not find any infirmity in the order of ld. CIT(A) deleting the addition. We find the Mumbai Bench of the Tribunal in the case of Varun Shipping Company Ltd. Vs. Addl. CIT (supra) has held that when the assessee gets tonnage tax benefit under section 115VP / 115VR of the Act, the addition under section 14A read with Rule 8D is not at all required. We further find that the learned CIT (Appeals) has deleted the disallowance under section 14A read with Rule 8-D amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT (Appeals). The Hon ble Delhi High Court in the case of CIT Vs. Rajinder Kumar reported in (2014) 362 ITR 241 (Delhi) has held that once TDS has been deposited before the due date of filing, no disallowance is called for under section 40(a)(ia) of the Act. It has been held that amendment to this section in 2010 is retrospective. The relevant observations of the Hon ble High Court reads as under:- 25. In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assessee did not violate the un-amended section 40(a)(ia) of the act. We have noted the ambiguity and referred the contention of the Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17 to 20 that the expression said due date used in clause (A) of the proviso to the un-amended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statute when it stipulates that deductions made in the first eleven months of the previous year bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation has to be allowed to it from year to year unless it is sold or discarded and whole of the block cease to exist. The allowance of the depreciation is not dependent upon sale of the asset even once that block of asset exist. The object of the Legislature, in granting depreciation allowance under section 32 of the Act, is to give due allowance to the assessee for wear and tear suffered by the asset used by him in his business so that the net income (total income) is duly arrived at. There is no factual dispute that the assets in question were owned by the assessee. In Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 (Bom), it was observed that the expression used in section 10(2)(vi) of the Indian Incometax Act, 1922 (hereinafter referred to as the old Act ), corresponding to section 32 of the Act has to be given a wider meaning. The expression includes passive as well as active user. In CIT v. Dalmia Cement Ltd. [1945] 13 ITR 415 (Patna) and CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 62 (Bom), it was observed that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words used for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the issue was examined by the Assessing Officer during the assessment year 2005-06, who after examining the issue allowed the claim of depreciation. Further this issue was not there in assessment years 2006-07 and 2007-08. In assessment year 2008-09 although the learned CIT (Appeals) has deleted such addition, Revenue has not challenged the same issue although Revenue has filed appeal before the Tribunal on various other issues. Further in the scheme of block of assets, once depreciation is allowed it is required to be allowed subsequently irrespective of the fact asset has been used or not. The decision of the Hon ble Delhi High Court in the case of CIT Vs. M/s. Oswal Agro Mills Ltd. 238 CTR 113 which has been relied upon by the learned CIT (Appeals) is squarely applicable to the facts of the case. Therefore, we do not find any infirmity in the order of the learned CIT (Appeals) allowing depreciation on the aircraft which is ready for use, but has not earned any income during the year. The ground raised by the Revenue is accordingly dismissed. 11. Ground of appeal Nos. 5 to 7 being general in nature are dismissed. ITA No. 5916/Del/2013 [Assessment Year : 2010-11] : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order, written oral submission of the appellant and materials available on record. In the instant case, during the year assessee advanced ₹ 5,21,27,291.3 as interest free advance to its sister concern namely, M/s. Jagson Airlines Ltd. My attention was also drawn on the fact that prior to taking loan for the purchase of vessel the assessee company had already advanced ₹ 21,17,41,988.5 to the Jagson Airlines Ltd. In support of his contention the appellant has enclosed Annexure A in its paper book showing last 10 years transaction between the two companies. From the chart it is also clear that M/s Jagson International Ltd has also taken advance from Jagson Airlines Ltd for the business purposes whenever required. M/s. Jagson Airlines Ltd has never charged any interest on such advances. Further, it is also not in dispute that the assessee has incurred financial charges of ₹ 2,53,61,633/- during the year under consideration. It is also seen from the Annexure B that more than 69% shares in Jagson Airlines Ltd belong to the assessee company and assessee company also given its Aircrafts to M/s Jagson Airlines Ltd on lease. 3.4 I find that the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its sister concern. 3.6 For the reasons given above I am of the considered opinion that disallowance made is not sustainable in the eyes of the law. As a result this ground of appeal is allowed. 12.4 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before the Tribunal. 12.5 The learned Departmental Representative strongly objected to the order of the learned CIT (Appeals). He submitted that the Hon ble Supreme Court in the case of Addl. CIT Vs. M/s. Tulip Star Hotels Ltd. vide order dated 30th April, 2012 has held that the decision in the case of S.A. Builders Ltd. Vs. CIT reported in 288 ITR 1 needs reconsideration. Referring to the decision of Hon ble Delhi High Court in the case of Punjab Stainless Steel Ltd. Vs. CIT reported in 324 ITR 396 (Del.) he submitted that the onus is on the assessee to establish the commercial expediency. He submitted that the learned CIT (Appeals) in para 4.4 of his order has shifted this onus to the Assessing Officer regarding the establishment of nexus between interest free funds and amount of advance which is not correct. Without prejudice to the above he submitted that the profit accrues on the last day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is exempt. 13.2 In appeal the learned CIT (Appeals) deleted the addition by observing as under :- 4.4 I have gone through the record and perused the material available on record. I find that similar issue arose in Assessment Year 2008-09 dealt by my predecessor and also by me in Assessment Year 2009-10 in appeal No 400/2011-12. The AR of the appellant has produced a copy of the Hon ble Delhi High Court decision in ITA No 1395/2010 in assessee s own case wherein the Hon ble Jurisdictional high court has held that the assessee possess a Ship not a rig and thereby allowed the tonnage tax benefit. Respectfully following the jurisdictional high court decision in assessee s own case, I had allowed the appeal in Assessment Year 2009-10 following the same I hereby direct the Assessing Officer to delete the addition of ₹ 13,83,209/-. Since the appellant gets Tonnage Tax benefit under section 115VP / 115VR, the addition u/s 14A/Rule 8 D is not at all required. Thus, Ground No 2 is allowed. 13.3 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before the Tribunal. 13.4 After hearing both the sides we find the above ground raised by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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