TMI Blog2019 (6) TMI 1451X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee submits that only those investment which yielded the exempt income should be considered form disallwawances under section 14A and relied on the decision of ACB India [ 2015 (4) TMI 224 - DELHI HIGH COURT] and in assessee Vireet Investment [ 2017 (6) TMI 1124 - ITAT DELHI] considering the fact that the ld AR for the assessee has raised this plea for the first time before the Tribunal, therefore, this ground of appeal is restored to the file of assessing officer to adjudicate this issue afresh after following the decisions of Delhi High Court in ACB India [ 2015 (4) TMI 224 - DELHI HIGH COURT] CIT Vs Interglobe Enterprises Ltd. [ 2016 (9) TMI 552 - DELHI HIGH COURT] and decision of Special Bench of Delhi Tribunal in assessee Vireet Investment [ 2017 (6) TMI 1124 - ITAT DELHI] and in accordance with law. Needless to order that before passing the order the assessing officer shall grant opportunity to the assessee. Since, we have restored this issue to the file of assessing officer, hence, the other alternative contentions raised by the assessee has become academic. In the result this ground of appeal is allowed. Disallowances u/s 14A while computing income under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158,17,57,198/- u/s 14A of the Act r.w.r.8D of I.T. Rules. 8. The A.O and CIT(A) failed to appreciate that the appellant had already disallowed a sum of ₹ 36,10,49,722/- in the returned income, and thereby erred in making further addition to income to the extent of ₹ 36,10,49,722/- u/s 14A of the Act. 9. The CIT (A) ought to have directed the Assessing Officer that no transfer pricing adjustment in respect of shipping operations can be made since the appellant offered its income from shipping operations under tonnage tax scheme and was assessed as such. 2. The assessee vide its application dated 03.01.2019 has raised following additional grounds of appeal: (1) The ld CIT(A) erred in law and on facts in upholding the disallowances u/s 14A of the Act while computing income u/s 115JB of the Act. 3. Brief facts of the case are that the assessee is a company engaged in the business of shipping operation. The assessee filed its return of income for Assessment Year 2011-12 on 29.11.2011 declaring loss. In the computation of income the assessee computed its income under the Tonnage Tax Scheme (TTS). The assessee while filing the return of income also furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions of the ld. Authorized representative (AR) for the assessee and the ld. departmental representative (DR) for the revenue and also perused the record of the case. The assessee vide its application dated 03.01.2019 has filed an application for admitting additional ground of appeal. In the application the assessee stated that no new facts are required to be brought on record. The additional grounds are purely question of law, which was omitted due to inadvertent error. In support of its contention the assessee has relied on the case law in National Thermal Power Corporation Vs CIT (229 ITR 383SC), Jute Corporation of India Ltd Vs CIT (187 ITR 688 SC) and Ahmedabad Electricity Co. Vs CIT (199 ITR 351 Bom). The ld AR for the assessee made his submissions on the lines of the contents of the application. On the contrary the ld. DR for the revenue has not strongly opposed the submissions of the assessee. Considering the facts that the assessee has raised additional ground of appeal which is purely legal in nature and no new facts are required to be brought on record, therefore, the application for filing additional ground of appeal is allowed. Now, we shall proceed to hear the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us primarily revolves around the applicability of transfer pricing provisions to the income that is covered by Chapter XII-G of the Act i.e. Tonnage Tax Scheme. The TTS was introduced in the Finance (No. 2) Act, 2004, with the intention of increasing foreign direct investment in the Indian shipping industry and making it globally competitive. The income of a tonnage tax company depends on the tonnage capacity of the qualifying ships and the number of days for which it has been held. A reading of the provisions of TTS in Chapter XII-G suggest that the TTS is a charging section for the income generated by carrying out business of operating ships. Further, it also prescribes the mechanism for computation of income which is to be brought to tax. Thus, TTS is a presumptive basis of taxation, whereby the taxability of income from qualifying ships is restricted to the framework provided in the TTS. Further, the tonnage tax company is liable to pay taxes even in a case where the financial statements reveal a loss on actual operations. Further, all expenses, deduction, allowances or tax incentives are deemed to be allowed while computing the total income of a company as per TTS. The income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the arm's length price determined under transfer pricing provisions would be of no relevance. In other words, determination of income/ expense having regard to arm's length price would not alter the computation of income and the taxability of tonnage income of an assessee covered by TTS. 8. Further, tonnage income is based on the weight of the vessel and not on arm's length price . Section 92C prescribes methods for computation of arm's length price. None of the methods prescribed can have any application to computation of the tonnage income. In these circumstances, the computation provisions of Chapter X of the Act would fail and therefore, application of Chapter X of the Act in such circumstances has to fail. Tonnage tax provisions determine the entire chargeable income earned by the tonnage tax vessel including income from an international transaction with associated enterprise. In contrast, transfer pricing provisions apply only to international transactions entered with associated enterprises. It is not possible to segregate what portion of the final taxable tonnage income is relatable to international transactions with associated enterprises and then ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure other than the expenditure incurred for the purpose of the business had been allowed. Considering the twin factors i.e. not claiming any expenditure against the nonshipping business income by the assessee and opting for TTS for shipping business, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Therefore, confirming his order, we decide the effective ground of appeal against the AO. (underlined for emphasis by us) 10. On yet another occasion, our co-ordinate bench in the case of Tag Off shore(supra) was concerned with a situation where the Revenue sought to make an addition by invoking the provisions of Section 14A of the Act in case of a tonnage tax company, whose income was computed under the special provisions of Chapter XII-G. The Tribunal set aside the addition observing thus' No disallowance under section 14A is warranted in this case when the assessee has admittedly not claimed any expenditure, towards taxable income i.e, it has not claimed any deduction of expenditure debited in the Profit Loss account while computing the total income. 11. Further, the co-ordinate bench of this Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost ... The Hon ble Supreme Court further observed that, we would also like to refer to Circular No. 05/2005 dated 15.07.2005 explaining the need and essence of the introduction of these provisions which was issued contemporaneously by the Central Board of Direct Taxes (CBDT). The Circular clarifies that the Scheme is a preferential regime of taxation . It also clarifies that charging provision is under Section 115VA read with Section 115VF and Section 115VG .. 13. It has also been brought to our notice that an identical situation arose in assessee s own case for AY 2013-14 where the Dispute Resolution Panel( DRP ) vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which has no bearing on the income as computed under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. 17. In view of the aforesaid discussion, in our considered view, the transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS. 11. Considering the decision of coordinate bench of the Tribunal as referred above, the provisions of transfer pricing regulations are not applicable to the assessee to the extent of operation carried by assessee through qualifying ships which is covered by Tonnage Tax Scheme. Thus, we hold that the grounds of appeal No. 2 to 6 9 are covered in favour of the assessee and against the revenue. In the result the ground No.2 to 6 9 are allowed. 12. Ground No. 7 8 relates to the disallowance under section 14A. The ld. AR for the assessee submits that the assessee in its computation of income suo moto disallowed ₹ 36.10 Crore on account of interest attributable under section 14A. The ld. AR further submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Tribunal in assessee Vireet Investment (supra). considering the fact that the ld AR for the assessee has raised this plea for the first time before the Tribunal, therefore, this ground of appeal is restored to the file of assessing officer to adjudicate this issue afresh after following the decisions of Delhi High Court in ACB India (supra), CIT Vs Interglobe Enterprises Ltd. (supra), and decision of Special Bench of Delhi Tribunal in assessee Vireet Investment (supra) and in accordance with law. Needless to order that before passing the order the assessing officer shall grant opportunity to the assessee. Since, we have restored this issue to the file of assessing officer, hence, the other alternative contentions raised by the assessee has become academic. In the result this ground of appeal is allowed. 15. Additional ground of appeal relates to disallowances u/s 14A of the Act while computing income under section 115JB of the Act. The ld. AR for the assessee submits that only disallowances which are determined under section 14A can be adopted to the purpose of minimum alternative tax (MAT). Considering the facts that we have already restored the issue of disallowance under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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