TMI Blog2022 (2) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... interest - Decided in favour of assessee. Depreciation claimed being 40% on Aircraft which was not in use - HELD THAT:- As decided in own case [ 2018 (5) TMI 1761 - ITAT DELHI] 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 - Decided in favour of assessee. Disallowance of unpaid operational charges to ONGC - HELD THAT:- As decided in own case [ 2018 (8) TMI 1136 - ITAT DELHI] CIT(A) in the instant case while deleting the addition has followed his order for the A.Y. 2011-12 and the Tribunal has restored the issue to the file of the A.O. for adjudication of the issue afresh. Therefore, we deem it proper to restore this issue to the file of the A.O. with a direction to adjudicate the issue in the light of direction of the Tribunal in assessee s own case for the A.Y. 2011-12. Grounds of appeal number.5 raised by the Revenue is accordingly allowed for statistical purposes. TDS u/s 195 - Disallowance of expenses u/s 40 (a) (ia) - assessee has not deducted TDS on payment made to M/s. Noble Denton Middle East as per the provisions of Section 9(1)(vii) - C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panda, Accountant Member And Shri Narendra Kumar Choudhary, Judicial Member For the Revenue : Shri P.C. Maurya, CIT For the Assessee : Shri Rajiv Saxena, Advocate And Shri Rahul Prabhakar, Advocate. ORDER PER R.K. PANDA, A.M. ITA.Nos.1001 1002/Del./2016 filed by the Revenue are directed against the common order dated 23.12.2015 of the Ld. CIT(A)-5, Delhi relating to the A.Ys. 2012-13 and 2013-14 respectively. ITA.No.276/Del./2017 filed by the Revenue is directed against the order dated 17.11.2016 of the Ld. CIT(A) relating to the A.Y. 2014-15. Since common issues are involved in all these appeals, therefore, these appeals were heard together and are being disposed of by this common order for the sake of convenience. ITA.No.1001/Del./2016 A.Y. 2012-13 : 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of shipping and storage. It filed its return of income declaring income of ₹ 2,17,49,610/- under normal provisions of the I.T. Act, 1961 and at book profit at ₹ 64,93,03,889/- under section 115JB of the I.T. Act, 1961. During the course of assessment proceedings, the A.O. observed that Assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to file complete details and explanation as to why the same should not be disallowed as the expenditure was not incurred in the previous year and no detail of TDS deducted on such expenses was filed. The assessee submitted that it is operating various ships for ONGC and raised bills for the operation. The ONGC used to make payment but till the time the amount is outstanding is kept in the head unpaid operating incomes . The company declares the income as per mercantile system of accounting and so all unpaid income is already included in the operating income. The unpaid has been shown separately so that accounting errors could be avoided. However, the A.O. was not satisfied with the explanation given by the assessee on the ground that in the P L A/c assessee has claimed unpaid operating expenses whereas assessee in its submission mentioning the fact regarding unpaid operating income. He noted that similar addition was made in the A.Y. 2011-12. Therefore, on the basis of the order of his predecessor for the A.Y.2011-12, the A.O. made disallowance of ₹ 8,11,25,986/-. 2.4. During the course of assessment proceedings the A.O. asked the assessee to furnish detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arified the concept further. In the judgment the Supreme Court has defined commercial expediency as an expression of wide import' and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency . Further, following this judgment, the High Court of Delhi, in the case of Punjab Stainless Steel Industries Vs. CIT 324 ITR 396, has further elaborated The commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assessee-firm. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee-firm and working solely in the interest of the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. The reserves and surplus of the appellant as well as share capital is to the extent of ₹ 500 crores. The AO has not established any nexus between the borrowed funds and the interest free advances which is essential for making such a disallowance. In this regard the jurisdictional Delhi High Court and various other Courts in the citations mentioned below have held that, where the capital of the company and the interest-free funds with the assessee far exceeded the amounts advanced to the sister concerns or related parties, then no disallowance can be made u/s 36(l)(iii) of the Income Tax Act in respect of interest on loans and borrowed funds utilized for the purpose of business: 1. CIT vs. Gautam Motors 45 DTR 89 (Del) 2. CIT vs. Bharti Televenture Ltd. 51 DTR 98 (Del.) 3. CIT vs. Dalmia Cement (Bharti) Ltd. 29 DTR 138 (Del) 4. CIT vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom) 5. Satish Katta vs. Asstt. CIT 13 DTR 237 (Jp 'A') 6. Madhu Industries Ltd. vs. ITO 43 DTR 23 (Ahd D') 3.2.4. In a recent decision in the case of Hero Cycles Pvt. Ltd.(Civil Appeal No.514/2008 dated 5.11.2015) the Supreme Court has held that, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of grounds 7 8 for A.Y. 2012-13 9 10 for A.Y. 2013- 14 and hence this aspect is not gone into detail at this stage. Suffice it to say that the Hon'ble Delhi High Court in the appellant's own case for A.Y. 2006-07 has upheld the ITAT order that the Deep Sea Matdrills owned by the appellant were to be considered as 'qualifying ships' in accordance with section 115VD. The question that arises, therefore, is whether any disallowance made u/s 14A is mandated as the same would automatically enhance the income of the appellant but the same would, in any case, be exempt under the provisions of Chapter XIIG. It is claimed that the Bombay ITAT in the case of Varun Shipping Co. Ltd. (144 TTJ 286) has upheld the stand of the assessee in this regard. Since the major part of the income is derived from shipping business, any disallowance u/s 14A would automatically be allowable while computing income under the tonnage scheme. I find that the CIT(A) for the A.Y. 2007-08 in appeal no. 119/2009-10 has relied on the Delhi High Court's decision in the case of Sh. Ram Pistons and Rings Ltd. in giving direction to the AO while sustaining the addition made u/s 14A, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2011 in ITA No. 1854/2010 had set aside the matter to the AO to record a specific finding as to whether the aircraft was not put to use during the entire year, based on which the AO was to consider whether the assessee would be entitled to depreciation or not. On verification of the expenses incurred on fuel, repairs and maintenance, the AO reached the conclusion that depreciation was allowable in the set aside proceedings. No disallowance has been made by the AO for AYs 2006-07 and 2007- 08. The disallowance made in this regard for AY 2008-09 was allowed by the CIT(A) subject to the verification that the aircraft was put to use or not during the entire year. As per the grounds of appeal filed before the Hon'ble ITAT for that year, the department has not challenged this finding of the CIT(A). 5.3. For assessment years 2009-10 to 2011-12, my learned predecessor examined the legal provisions u/s 32, the judicial views on the subject, the facts of the assessee's case etc. to reach the conclusion that depreciation on aircraft is fully allowable. The relevant observations of the CIT(A) for A.Y. 2009-10 in this regard are reproduced herein under: 7.1. I have careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinefy, plant, etc., are actively employed but also cases where there is what may be described as a passive user of the same in the business. An asset can be said to be in use when it is kept ready for use. My attention was drawn to the fact that the AO himself by following the direction of Hon'ble Delhi High Court in AY 2005-06 has examined that the aircraft was used and, therefore, allowed the depreciation. It is not in dispute that the aircraft was earlier used by the assessee who was running the airline and thereafter has leased the aircrafts to M/s Jagson Airlines Ltd who also used these aircrafts for the so many years continuously, thus their subsequent use is immaterial under the existing laws. 7.2. The appellant has relied upon the judgment of CIT vs Oswal Agro Mills Ltd. I find that this jurisdictional high court decision squarely applicable on the facts of the present case. I find force in the contention of the appellant that the asset is under Block of Assets and was used in earlier years, its subsequent use has no relevance under amended law under IT provisions. Since AO himself in AY 2005-06 has found that the asset was used and allowed the depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand reflected. I also find that my Ld. Predecessor examined this issue in his order dated 30.06.2014 in appeal no. 0311/2013-14 for A.Y. 2011-12. His findings on the issue are reproduced herein under : 8.2. I have examined the details of short deployment and unpaid operating expense of vessels Deep Sea Matdrill, Fossil Fortune separately maintained by the assessee under different contracts with ONGC. The ONGC has deducted the expenditure for various reasons such as pot water, transportation of material and passengers, fluctuation etc and for various reasons. These payments were not made but the assessee booked the same as per bills raised. Subsequently while making payment, ONGC examined and deducted the sum for various reasons. I do not understand how can a deduction made by ONGC by making short payment would become income or could be disallowed as an expenses claimed by the assessee. Once claim has been made by the assessee but not accepted by the party i.e. ONGC as per contract only such payment would be treated as income unless disputed. The assessee company once accepted the deductions and did not dispute the same, it can claim these deductions as an expenditure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case it is seen that the foreign party M/s Noble Denton Middle East Ltd. (Dubai Branch) is based in Dubai in the United Arab Emirates and India has a comprehensive DTAA with UAE w.e.f 22.09.1993, which was amended by notification No. SO 2001 (E), dated 28.11.2007 notification no 29/2013 [F. No. 503/5/2004-FTD-II], dated 12.04.2013. Perusal of the current Double Tax Avoidance Agreement shows that the entire income of Noble Denton Middle East would be assessable as business profit as per article 7 in the UAE. This is because Middle Dental UAE does not have a permanent establishment (PE as decided under article of the DTAA). The appellant had been provided services by the Dubai Branch and not by the branches of Nobel Denton that are located within India. The AO has not brought anything on record to show that the Foreign Party to whom payment has been made, has a PE in India. As seen from the definition of 'PE' as given under article 5, sub-article (2)(i) includes furnishing of services including consultancy services, by an enterprise of one of the Contracting States through employees or other personnel in the other Contracting State, provide that such activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is taxable under the provisions of Chapter XIIG, and no change in the facts and circumstances are brought out by the AO in the assessment order vis-a-vis those years, it is held that the benefit of the said Chapter is to be allowed to the appellant. Accordingly, ground nos.7 9 for A.Y. 2012-13 2013-14 respectively are allowed . 3.7. So far as the order challenging the computation of book profit by ignoring the provisions of Section 115VO is concerned, the Ld. CIT(A) deleted the same by observing as under : 10.2. This ground is consequential to the earlier ground wherein the issue of eligibility of the appellant company to be assessed under the provision of Chapter- XIIG has been upheld by the Hon'ble Delhi High Court for A.Y. 2006-07 2007-08. Following the above decision, my learned predecessors have allowed the appeals on this issue for the A.Ys. 2008-09 to 2011-12, and I have allowed the appeals on this issue for the impugned years. Section 115VO clearly provides that the book profits derived by the tonnage tax company shall be excluded from the book profits of the company for the purposes of section 115JB. Accordingly the AO is directed to exclude t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 407 of Merchant Shipping Act, 1958. 8. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of ₹ 62,55,82,919/- made in computation of income u/s 115JB of the IT Act. 9. That the appellant carves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of hearing. 5. Grounds of appeal numbers. 1 and 9 being general in nature are dismissed. 6. So far as grounds of appeal number.2 is concerned, the same relates to the order of the Ld. CIT(A) in deleting the disallowance of ₹ 6,79,704/- made by the A.O. on account of interest free loans to its subsidiary companies. 6.1. After hearing both the sides, we find that the assessee during the impugned assessment year had reserves and surplus of more than ₹ 4.61 crores and revaluation reserve of ₹ 2.44 crores. Further the assessee company has income from shipping unit of ₹ 62,55,82,919/-. No loan has been given during the year and in fact M/s. Jagsons Airlines has returned balance amount of ₹ 31,05,05,994/- during the year out of the total amount of ₹ 31,61,70,197.53. We find identical issue had com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g loans from the bank for purchase of the vessels by the assessee company which had already advanced ₹ 21,17,41,988.05 to M/s. Jagson Airlines Ltd. out of the interest free funds and reserves available with the assessee. During the impugned assessment year the assessee had advanced only ₹ 5,21,27,291/- that too was given out of the profit of ₹ 38.97 crores earned during the year. It was submitted that in the past no such disallowance was made. Therefore, in view of the decision of Hon ble Supreme Court in the case of Radhaswami Satsang Vs. CIT reported in 193 ITR 321 (SC), no disallowance should be made following the rule of consistency. Various other decisions were also brought to the notice of the learned CIT (Appeals). 12.3 Based on the arguments advanced by the assessee the learned CIT (Appeals) directed the Assessing Officer to delete the addition by observing as under :- 3.3 I have gone through the assessment 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. In the case of CIT Vs. Reliance Utilities and Power Ltd 2009-TIOL-27-HC-MUM-IT where it was held that if there are funds available both interest free and overdraft / or loan taken, then a presumption would arise that investment would be out of the interest free fund generated or available with the company, if the interest free funds are sufficient to meet the investments. In the instant case, it is not the case of the assessee that interest expenditure should be allowed for interest free advance to its sister concerns were out of commercial expediency. Rather the case of the assessee is that the entire loan funds on which the expenditure of interest was incurred, were used in business and interest free advance was given out of own interest free funds. Thus, the decision relied upon by the assessee company squarely covered the case of the appellant as the appellant company had sufficient interest free funds to advance the money to 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company had already advanced ₹ 21,17,41,988.5 prior to taking loan for purchase of vessels and assessee company has advanced interest free loan of ₹ 5,21,27,291/- during the year whereas it has earned profit of ₹ 38,97,52,337/- during the year. In view of the above and in view of the detailed reasoning given by the learned CIT (Appeals) we find no infirmity in his order. Accordingly the same is upheld and the ground raised by the Revenue is dismissed. There is no change in the facts and circumstances of the case under consideration. Therefore, respectfully following the above decision of co-ordinate Bench in the case of assessee itself, ground No. 1 of the Revenue deserves to be dismissed. 6.3. We further find the Revenue has not preferred any appeal against the order of the Tribunal before the Hon ble Delhi High Court, meaning thereby, has accepted the decision of the Tribunal on this issue. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of notional interest, the reasons of which have already been reproduced in the preceding paragraph. Ground of appeal number.2 raised by the Revenue on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectfully following the decision of the Tribunal in assessee s own case for the immediately preceding assessment years, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly ground of appeal number.4 raised by the Revenue is dismissed. 9. Grounds of appeal number.5 of the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance of ₹ 8,11,25,986/- made by the A.O. on account of unpaid operational charges to ONGC. 9.1. After hearing both the sides, we find that an identical issue had come-up before the Tribunal in assessee s own case for the A.Y. 2011-12. We find the Tribunal vide ITA.No.4769/Del./2016 order dated 17.08.2018 has restored the issue to the file of the A.O. by observing as under : 18. As regards the issue involved in ground No. 4 with respect to addition on account of disallowance of unpaid operational charges of ₹ 4,95,74,440/-, we find that the assessee has filed the copy of ledger account of the said expenses debited to the profit and loss account, but the same have not been verified either by the AO or by the ld. CIT(A) so as to ascertain as to why ONGC has paid lesser amount as compared to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sides, we find the A.O. made disallowance of ₹ 2,14,08,343/- on the ground that assessee has not deducted TDS on payment of ₹ 2,14,08,343/- made to M/s. Noble Denton Middle East as per the provisions of Section 9(1)(vii) of the I.T. Act, 1961. We find the Ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in the preceding paragraph. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. 10.2. We find merit in the submissions of the Learned Counsel for the Assessee that as per DTAA with UAE business profits are taxable in the country of origin i.e. UAE as services were provided by the Company registered in UAE and no independent professional has provided services. Even otherwise tax involved was much low as per section 44RR on non-resident engaged in the business of providing services or facilities to be used in exploration of mineral oil only 10% income is taxable and tax thereon would be only 4% applicable on foreign companies. However, after obtaining certificate from Revenue authorities/CA no tax was payable due to DTAA and foreign payments were made only thereafter. 10.3. Further, the Ld. CIT(A) while delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Representative, we find no infirmity in the order of the learned CIT (Appeals) allowing the ground raised by the assessee. The ground raised by the Revenue is accordingly dismissed. 11.2. Following the order, the Tribunal dismissed similar ground raised by the Revenue in A.Ys. 2009-10 and 2010-11. Since the issue had already been decided by the Hon ble Jurisdictional Delhi High Court, therefore, in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of ₹ 62,55,82,919/- made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shipping Act, 1958. 5. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of ₹ 81,49,94,195/- made in computation of income u/s 115JB of the IT Act. 9. That the appellant carves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of hearing. 15. Grounds of appeal numbers. 1 and 9 being general are dismissed. 16. Grounds of appeal number.2 relates to the order of the Ld. CIT(A) in deleting the disallowance of ₹ 2,02,875/- by the A.O. on account of interest free loan given to its subsidiary company. 16.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.2 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.2 of the Revenue is dismissed. 17. Grounds of appeal No.3 relates to the order of the Ld. CIT(A) in confirming the disallowance of ₹ 74,20,053/- made by the AO on account of expenses disallowed under section 40(a)(ia) of the I.T. Act, 1961. 17.1. After hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the Ld. CIT (A) has erred by ignoring the fact that the assessee s ship Deepsea Matdrill is not a ship but a drilling rig is not covered under the definition of qualifying ships as the same is an offshore installation. 5. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of ₹ 75,67,34,820/- made in computation of income u/s 115JB of the Act. 6. That the appellant craves leave to add, alter, amend or forego any ground of the appeal raised above at the time of the hearing 22. Grounds of appeal no.6 being general in nature is dismissed. 23. Grounds of appeal number.1 relates to the order of the Ld. CIT(A) in deleting the disallowance of ₹ 90,23,327/- by the A.O. on account of interest free loans advanced to its sister concern. 23.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.2 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.1 of the Revenue is dismissed. 24. Grounds of appeal No.2 relate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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