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TMI Blog2021 (4) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned CIT(A) and therefore disallowance without giving any opportunity to the Assessee is invalid under the Income-tax Act, 1961. 2. The Learned CIT(A) has erred in not considering that the shares are held under DEMAT and dividend is credited directly to the bank account of the Company and therefore Company does not incur any expenditure for earning dividend income and therefore disallowance of amount @ 0.5% of average of investments is not valid. 3. The Learned CIT(A) has erred in not considering that Hon'ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. 349 ITR 449reversed the judgment of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 194 Taxmann 203 and held that no disallowance can be made under Section 14A for expenses incurred for investments yielding tax-free income if the same was not disallowed in earlier years on the PRINCIPLES OF CONSISTENCY as held by Hon'ble Supreme Court in the case of RADHASOAMI SATSANG VS. CIT 193 ITR 321. 4. Brief facts on this issue are that the assessee has earned dividend income of Rs. 39,68,141/- which was claimed exempt under section 10(33) of the I.T. Act. The Assessing Officer found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/r. 8D(2)(iii) amounting to half percent of assessee's investment which earned exempt income. We find that there is no infirmity in the above direction of learned CIT(A). Assessee's claim that this limb of disallowance u/r. 8D(2)(iii) was not invoked by the Assessing Officer is not at all sustainable. The Assessing Officer had made disallowance of Rs. 2,29,93,962/- under section 14A. Learned CIT(A) had deleted that and directed for a disallowance of 0.5% of the average value of investment under rule 8D(2)(iii) after necessary verification by the Assessing Officer. We find that the disallowance sustained by learned CIT(A) in effect is much less than that by the Assessing Officer. Even if investment have been made out of available interest free fund the same by no stretch of imagination goes on to the prove that no disallowance under rule 8D(2)(iii) is required. We are not at all convinced by the assessee's contention that due to technicality there is infirmity in the direction of learned CIT(A) as the Assessing Officer initially has not proposed any such disallowance . Hence, we uphold the order of learned CIT(A). Hence, this appeal by the assessee for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count." Apropos ground No. 1, 2 & 3:- 10. Brief facts are that the assessee company is engaged in the business of shipping. The assessee had filed a return of income for A.Y. 2004-05 on 01.11.2004, declaring total income at Rs. 4,11,91,919/-. The return was processed u/s. 143(1) of the Act on 07.01.2005 and subsequently selected for scrutiny. Thereafter, the assessee company revised the taxable income to Rs. 3,33,45,240/- by filing a revised statement of income along with letter dated 25.09.2006. An assessment u/s. 143(3) of the Act determining the total income of, Rs. 61,35,50,490/- was concluded on 29.12.2006. Aggrieved, the assessee filed an appeal before the CIT (A) on 25.01.2007. 11. Thereafter, on application of the assessee u/s. 154, the AO passed a rectification order on 09/02/2007 u/s. 154, re-computing the deduction allowable u/s. 33AC of the Act, at Rs. 46,00,00,000/- and reducing the assessed income to Rs. 47,67,42,540/-. In both these orders, unabsorbed depreciation was not allowed to be carried forward, as there remained no unabsorbed depreciation for carry forward as per the assessment order for A.Y. 2003-04 completed earlier on 29/03/2006. 12. Consequent upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has filed the appeal before learned CIT(A). Further, the Assessing Officer also passed another order u/s. 154 of the act on 20.11.2015 and relying on the provisions of section 115JAA, the Assessing Officer restricted the credit for tax paid under MAT to the extent of Rs. 19,65,076/- pertaining to A.Y. 1999-2000 and 2000-01 for set off in A.Y. 2004-05 as against set-off of Rs. 1,99,46,785/- allowed earlier on the ground that MAT credit from A.Y. 2001-02 to 2005-06 is not allowable as deduction as per provisions of section 115JAA. Assessee also filed appeal against the this order to the learned CIT(A). The learned CIT(A) has noted for adjudication the ground raised by the assessee against both the orders of Assessing Officer. After noting grounds raised against both the assessment order the learned CIT(A) proceeded to treat and adjudicate the ground as arising in a single appeal. 16. Thereafter the learned CIT(A) as regards the impugned ground noted that the assessee has challenged the exclusion of Rs. 9,81,23,493/- representing 19.62% of the profit earned on behalf of the subsidiary while computing income from operations of ships for the business for determining the deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard submission of assessee's counsel are as under:- "The Learned CIT(A) has erred in not considering the ground against reduction of sum of Rs. 9,81,23,493/- representing 19.62% of the profit earned on account of freight paid to subsidiary company overlooking that the freight was paid at the same rates which was received by the Appellant Company and therefore the Appellant Company has not earned any profit on the same and therefore the same cannot be reduced from shipping business income for the purpose of computation of deduction u/s. 33AC and Hon'ble ITAT is entitled to consider the same as information is available with the Department as under and as the Hon'ble ITAT is the final facts finding body. Sr. No. Voyage No. Rate of freight received from Govt. Concerns on the voyage (USD) Rate of freight paid to the subsidiary company on the voyage (USD) a) PG01 11.45 11.45 b) PG02 14.85 14.85 c) PG 10 20.00 20.00 d) PPN271 11.45 11.45 e) PPN 272 13.75 13.75 f) PG06 14.50 14.50 g) PG08 14.50 14.50 h) PPR05 14.50 14.50 i) PPR02 14.50 14.50 The Learned CIT(A) erred in not considering the profit earned on shipping freight even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned A.O. has reduced the deduction u/s. 33AC to Rs. 40,19,96,24/- vide Order dated 24.02.2014 instead of deduction u/s. 33AC 46,00,00,000/-. The Hon'ble ITAT is entitled to consider the same as information is available in the records of the Department and Hon'ble ITAT is final fact finding body." 22. Furthermore, learned Counsel of the assessee contended that this issue is squarely covered by the following case laws:- * Mercator Lines Ltd. vs. DCIT 17 SOT 54 (Mum) * Dolphin Offshore vs. ACIT 38 SOT 404 (Mum) * GAL Offshore vs. CIT 175 Taxmann 485 (Bom) * Shipping Corporation of India Ltd. vs. Ad din CIT 15 Taxmann.com 141 (Mum) * DCIT vs. Mercator Lines Ltd. 28 Taxmann.com 256 (Mum) * Dredging Corporation of India Ltd. vs. ACIT 13 Taxmann.com 37 (Vish.) 23. Per contra, learned Departmental Representative relied upon the orders of the authorities below. 24. We have carefully considered the submissions. We note that learned CIT(A) has gone into hyper technicality and not adjudicated the issue on merits. He noted that on this issue the Assessing Officer's order is upheld by earlier learned CIT(A). It is settled law that when the substantial interest of jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shipping reserve account. These conditions do not refer to the ownership of the ships/barges. What is needed is the 'carrying on the business of operation of ships' and not the 'owning of the ships/barges' and the intention of deduction may be to generate internal resources to augment the fleet, which the assessee in any case would be doing by complying with the conditions (iii) and (iv) above. Under these circumstances, the owning the ships/barges is not a condition for availing of the benefits of section 33AC. In other words, the ships/barges owned by the third party, i.e., JNPT in the instant case when they were operated in the assessee's business, the assessee was entitled to the deduction." 26. Similarly in the case of Sirius Shipping Co. Ltd. (supra) it has been held as under:- Held, (i) that the delay in filing the appeal was only of 113 days and the assessee acted bona fide on the advice of its counsel. The delay had to be condoned. (ii) That the normal rule of construction is that the intention of the Legislature is primarily to be gathered from the words used in the statute, A careful analysis of section 33AC shows that the deduction contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a licence given to the assessee to utilise the amount credited to the reserve for the general purpose of the business till the assessee acquires a ship. There is no restriction in section 33AC to the number of assessees who could claim such deduction and further the deduction under section 33AC is with reference to the profit or income of each and every assessee and not linked to any particular turnover like in section 80HHC. (iii) That the phrase "running and maintenance" is nothing but "operation of ships", as envisaged by section 33AC. The nomenclature found in the agreement, namely "technical manager", could not change the nature of the business done by the assessee-company in the operation of ships. So long as the assessee had not contravened the provisions of section 33AC(2)(b), the assessee could not be denied the claim of deduction under section 33AC. In this case since the assessee had not contravened the provisions of section 33AC(2)(b) and had already bought a new ship within the specified period of eight years, it was entitled to the deduction under section 33AC." 27. From the above exposition it is abundantly clear that the ownership by the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's claim for deduction under section 33AC was rejected by revenue authorities on ground that shipping was not core business of assessee - On instant appeal, it was seen that no other activity had been done by assessee except operations of ships and income earned from said operation had been shown as charter hire fees - It was also noted that reserve account had been maintained by assessee and surplus amount, as per conditions of section 33AC, had been transferred to reserve account-Whether, on facts, revenue authorities were not justified in rejecting assessee's claim - held Yes. In the case of Gal Offshore Services Ltd. Vs. CIT (175 Taxman 485), Hon'ble Bombay High Court has held that:- Section 33AC of the Income-tax Act, 1961 - Shipping business, reserves for-Assessment 1994-95 - Whether amendment to section 33AC by Finance Act, 1995 is clarificatory and/or retrospective - Held, no - Whether section 33AC(1), as applicable to assessment year 1994-95, required that assessee in order to be eligible for deduction under said section had to actually operate ships or that amount in respect of which deduction was to be allowed had to be income earned from shipping business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether in view of above, receipt in question could not be considered as turnover as per provisions of section 115VA and, thus, it was out of purview of Chapter-XII-G of Act - Held, yes - Whether, consequently, authorities below were justified in making separate addition in respect of income arising from sale of ships - Held, yes [In favour of revenue] In the case of DCIT Vs. Mercator Lines Ltd. (28 taxmann.com 256) it was held by the Tribunal that:- Section 33AC of the Income-tax Act, 1961 - Shipping Business - Reserves for-Computation of deduction - Assessment year 2003-04 - Assessee claimed deduction under section 33AC on insurance claim amount received towards repairs carried out in respect of a vessel - Assessing Officer held that such insurance receipt could not be taken to be assessee's business income and, therefore, same was not eligible for deduction under section 33AC-Commissioner (Appeals) however allowed assessee's claim - Whether only if insurance claim was found to be assessee's profits derived from business operation of ships, amount so received shall be taken as an eligible profit for purpose of creating reserve and allowing deduction in terms of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee's challenge to ground relating to allowability of interest under section 244A of the Act on the excess amount of tax paid by the assessee. Learned CIT(A) directed that the Assessing Officer should grant interest under section 244A of the Act as provided under the Act. In the absence of any further detail furnished by the assessee, we find that there is no infirmity in the direction to grant interest under section 244A of the Act as per provisions of the Act. We find that learned CIT(A) has already directed the Assessing Officer to follow the prescription of the Act. Hence, no separate adjudication is required. Hence, we uphold the order of learned CIT(A). This ground raised by the assessee stands dismissed. Apropos ground No. 5 & 6:- 33. This issue arises out of adjudication of ground No. 8 by the learned CIT(A). Learned CIT(A) has noted that the assessee has claimed that short-term capital gain amounting to Rs. 7,91,43,378/- on account of sale of VESSEL assessed to tax @ 37.5% is taxable at the rate of 20% as provided in Section 112 of the Act as Long-term Capital Gain and Long-term Capital Loss of Rs. 20,74,036/- incurred by the Appellant should be deducted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 74 of the Act against the long term capital gains on sale of transformers and meters. In the case of Ace Builders Limited, this Court held that by virtue of Section 50 of the Act only the capital gains is to be computed in terms thereof and be deemed to be short term capital gains. This deeming fiction is restricted only for the purposes of Section 50 of the Act and the benefit under Section 54E of the Act which is available only to long term capital gains was extended. Further, an identical issue with regard to set off against long term capital loss arose in an appeal filed by the Revenue in the matter of Commissioner of Income Tax 9 V/s. Hathway Investments Private Limited, being Income Tax Appeal No. 405 of 2012. This court by its order dated 31st January, 2013 refused to entertain the appeal filed by the Revenue. The Revenue has not been able to point out any distinguishing features in the present case warranting a departure from the principles laid down by this court in the matter of Ace Builders (P) Limited (supra) and in our order dated 31st January 2013 in Income Tax (L) No. 405 of 2012. 35. Accordingly, the alternate ground No. 5 is decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the provisions of this section. (1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section. 7.6 The relevant para of Explanatory Notes to the Finance Act, 2005, (Circular No. 003 of 2006 dt. 27th February, 2006) which explains the intention behind the insertion of the new provision, reads as follow; 3.23 Allowing tax credit for MAT paid u/s. 115JB against tax liability in subsequent years under other provisions under the existing provisions of section 115JB, where the income-tax payable by a company in the previous year is less than seven and one-half per cent, of its book profit such book profit is deemed to be the total income of the company and it is liable to pay income-tax at the rate of seven and one-half per cent, of such book profit. No credit of such tax paid by the company under this section is allowed against the tax liability which arises in subsequent years under the other provisions of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving effect to CIT(A)'s Order, the Learned A.O. has while computing the Book Profit u/s. 115JB has considered deduction u/s. 33AC amounting to Rs. 40,19,96,248 instead of the amount credited to reserve u/s. 33AC and debited to Profit and Loss Account amounting to Rs. 46,00,00,000. In the original appeal filed before CIT(A) and the Hon'ble ITAT the above grounds of appeal remained to be included. The Appellant therefore has filed the additional grounds of appeal raising the above ground. As the facts of the case and details are available with the Assessing Authorities and therefore the Appellant is entitled to raise the additional ground as held by Hon'ble Mumbai ITAT in the case of Grasim Industries Ltd. vs. Department of Income-tax M.A. No. 247/Mum/2010 arising out of ITA No. 6253/Mum/99 dated 25.03.2011." 42. Upon careful consideration and hearing both the parties, we note that the assessee is raising a legal issue. We note that it is settled law that book profit shown by the assessee has to be as per the profit shown in the profit and loss account subject to only those adjustments as provided in the Act. As mandated by Hon'ble Apex Court in the case of Apoll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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