TMI Blog2023 (10) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is not for business purpose - HELD THAT:- We find that this issue is no longer res integra in view of the decision of this Tribunal in assessee s own case [ 2022 (11) TMI 1404 - ITAT DELHI] As held it was for the AO to establish such nexus between the borrowings and advances to prove that the expenditure was for non-business purposes, which the AO failed to do. In the present case also, it is found that the appellant has sufficient funds of its own which he could have advanced and therefore the interest liability on the borrowings made could not be disallowed, particularly when the AO failed to prove that the expenditure was for non-business purposes - Decided against revenue. Disallowance of employees contribution to PF and ESI - sum as remitted beyond the due date prescribed under the respective Acts, but, were remitted before the due date of filing of return of income u/s 139(1) of the Act - HELD THAT:- This issue is no longer res integra in view of the decision of the Hon ble Supreme court in the case of Checkmate Services Pvt. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT] as decided against assessee. Since the assessee is paying presumptive tax on its income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsequently, as and when the bills are deducted on account of certain disputes by ONGC, the same remains outstanding as sundry debtor in the books of the assessee company. Since the said sums are not recoverable from ONGC, the assessee chose to write off the same in its books during he year under consideration. However, we find that the ld. AO, without appreciating these facts, had proceeded to treat the entire written off amount as not an allowable deduction. Similarly, for the remaining sum no findings has been recorded by the lower authorities. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this issue to the file of the ld.AO for denovo adjudication in accordance with law, after considering the detailed break-up of the amounts written off submitted by the assessee which are enclosed in the paper book. The assessee is also at liberty to furnish fresh evidences, if any, in support of its contentions. With these directions, raised by the assessee is allowed for statistical purposes. - Shri Saktijit Dey, Vice President And Shri M. Balaganesh, Accountant Member For the Assessee : Shri Rajiv Saxena, Ms Sumangla Saxena Shri Shyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income Tax rejected the application of the assessee on the ground that the assessee s ship Deepsea Matdrill is not a ship but a Drilling Rig which is not covered under the definition of qualifying ships as the same is an offshore installation. It was also held that the ship was not registered under the Merchant Shipping Act, 1958 and assessee 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 under section 407 of Merchant Shipping Act, 1958. On this issue the assessee preferred an 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 under section 115VD of the Income Tax 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 Hon ble ITAT who has however vide order dated 20.11.2009 in ITA no. 2979/Del of 2007 dismissed the appeal of Revenue. The revenue further preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argo spaces of the ship. Tonnage tax Scheme basically a scheme for special rate of taxation depending upon the volume of cargo space of the ship. It is essentially based on load carrying capacity of ships engaged in sea transport business. The taxable income is based on net tonnage and is computed in the manner provided in the said chapter. The income generated by the operation of a drilling rig has no correlation with its net tonnage. Therefore tonnage tax scheme is prima facie inapplicable for computing income arising to a rig from drilling operations. The fact that it has been registered under the Merchant Shipping Act, 1958 also does not help the case as even the Income Tax Act in 115VD includes in its ambit various ships but specifically excludes off-shore installations like drilling rig from the definition of qualifying ships. Therefore in a sense rig is taken as ship for the purpose of both the Acts but has been excluded in section 115VD from being treated as qualifying ships . This is apart from the fact that the registration certificate was not available during A.Y. 2006- 07 and part of A.Y. 2008-09 as stated above. The ITAT has taken an argument that delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee sought to opt for tonnage tax scheme under Chapter XII-G especially Section 115VP/115VR of the Income Tax Act, 1961. The assessee claims to be owner of ship/ vessels engaged in drilling operations. Its claim was rejected on the ground that in terms of Section 115VD, Deep Sea Matdrills were not qualifying ships. The Assessing Officer rejected the claim stating as follows: I have gone through the submission of the assessee and the AO s report. After going through the submission of the assessee as well ass (sic) the AO s report, I am satisfied that assessee s claim is not found to be acceptable for the purpose of Section 115VP/115VR of the I.T.Act because as per I.T. Act, the drilling rig is not covered under the definition of Qualifying ship. The claim of the assessee was not registered as a ship under the Merchant Shipping Act, 1958. The assessee s main object of business was not the carrying on of the business of the operation of ships. 3. It transpired that the assessee had applied but had not been granted registration under Section 407 of the Merchant Shipping Act, 1958 which was granted on 19.5.2006. In these circumstances, the Appellate Commissioner directed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smantled according to distance of place and availability of facilities. Further for a ship it is not only necessary to be registered under the Merchant Shipping Act but it has to fulfill all the requirements and formalities to be fulfilled. 7. The relevant chapter of Merchant Shipping Act is named as Control of Indian ships and ships engaged in coasting trade. This clearly shows that it applies to only ships and not to the offshore installation. Section 405 specifically explained about application of part - it clearly states as under : Application of part. - This Part applies only to sea- going ships fitted with mechanical means of propulsion of not less than one hundred and fifty tons gross, but the Central Government may, by notification in the Official Gazatte, fix any lower tonnage for the purposes of this part. Thus ship required to be licensed is sea-going ship fitted with mechanical means of propulsion which is not provided in any of the offshore installation. 4. The Tribunal took into consideration the observations of the Appellate Commissioner and noticed that in this case the ship was not initially built and thereafter equipments were amounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in favour of the assessee in respect of the assessment year 1994-95. There is merit in the contention urged by learned counsel for the assessee that this issue cannot be agitated by the revenue again and again. The drilling rig was placed on a vessel described as a barge, which could be moved out from place to place for offshore drilling. The Tribunal considered this aspect of the matter and came to the conclusion that the Deep Sea Matdrill is nothing but a ship. It is a barge, which can be moved from place to place like any other ship. When the drilling rig is in use, then apparently to save some expenses the ship s propeller is removed; but whenever it is required to be shifted, the propeller is refixed and the ship is made mobile. On merits, therefore, we are of the view that the claim made by the assessee in respect of section 33AC of the Act is quite justified. Only one view is possible, namely, that the Deep Sea Matdrill is a ship. Even if learned counsel for the revenue is right in contending that the Deep Sea Matdrill is not a ship, we do not think that exercise of power under section 263 of the Act by the Commissioner would be justified only because the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows : 115VD. For the purposes of this Chapter, a ship is a qualifying ship if- (a) it is a sea going ship or vessel of fifteen net tonnage or more; (b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director-General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958); and (c)a valid certificate in respect of such ship indicating its net tonnage is in force, but does not include- (i) a sea going ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land; (ii) fishing vessels; (iii) factory ships; (iv) pleasure crafts; (v) harbour and river ferries; (vi) offshore installations; (vii) 3[***] (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. 7. In the facts of this case the vessels were consistently registered under Section 407 of the Merchant Shipping Act and had a valid certificate which was produced for consideration by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided interest free loans amounting to Rs. 11,63,62,793/- to its subsidiary companies due to the reason that there is no business exigency for advancing these loans and the appellant has incurred substantial interest expenditure towards its borrowed fund. 18. It is contended by the appellant that this issue is duly covered for the AY 2010-11 2011-12 by the decision of Hon ble ITAT, where the revenue appeal was dismissed and no further appeal was filed on this issue before the Hon ble Delhi High Court. In subsequent years, the then CIT(A) has allowed this issue in appeal. 19. This issue has been found duly covered by the order of CIT(A) dated 23.08.2018 for the appellate order in AY 2015-16 where in the Ld. CIT(A) has deleted the addition holding as under: The disallowance of proportionate interest of Rs. 98,14,547/- calculated in account of interest free loans to M/s. Jagson Airlines Ltd. in which it had major shareholding out of financial cost of Rs. 33,38,73,122/- claimed by it for the purpose of its business. For the AY 2013-14 and AY 2012-13 the same issue was examined by my predecessor. While deleting the aforesaid addition it was observed as under: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g) 20 SOT 47 (Mum) Tata Finance Ltd. vs. ACIT h) 194 CTR 451 (All) CIT vs. RadicoKhaitan Ltd. The ld. CIT(A) held that the Hon ble Supreme Court while giving judgment in the case of Madhav Prasad Jatia V. CIT, (SC) 118 ITR 200 has established that the expression for the purposes of Business Profession occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii), meaning thereby that the scope for allowing a deduction under Section 36(1)(iii) would be much wider than the one available under Section 57(iii). This phrase, as held in many legal pronouncements, is the most important yardstick for the allowability of deduction under Section 36(1)(iii) of Income Tax Act, 1961. While explaining the meaning of this phrase, the Hon ble Supreme Court in the case of S. A. Builders Ltd. Vs. CIT reported in 288 ITR 1 has used the word commercial expediency . By using this phrase Hon ble Supreme Court has given a new dimension and clarified 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free money in question, as the appellant has shown a profit of Rs. 64,93,03,890/- (before tax) and had reserves and surplus of Rs. 464 Crores. 22. In accordance with the legal position u/s 36(1)(iii) the assessee is entitled to claim interest expenditure incurred for its purposes of business. As already stated above, the loans and advances have been established to have been made by the appellant for business purposes only and no personal nature of any kind has been attributed by the AO nor does it emerge from the assessment proceedings. The AO has presumed that the appellant has made the interest free advances from out of borrowed funds but perusal of the balance sheet for the A.Y 2012-13 shows that the appellant had stocks (net of sundry creditors) of Rs. 34.99 crores as well as additions to fixed assets of Rs. 784.32 crores and sundry debtors of 59.09 crores, which shows that the borrowed funds have been utilized for the business purposes. The reserves and surplus of the appellant as well as share capital is to the extent of Rs. 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest can be attributed towards the interest free advances made during the impugned year. The decision of the ld. CIT(A) is affirmed. 10. In fact, the ld.CIT(A) had relied on the order of his predecessor for AY 2016-17 and granted relief to the assessee. Since, earlier order of the ld. CIT(A) order had been confirmed by this Tribunal, we do not find any infirmity in the order of the ld.CIT(A) granting relief to the assessee. Accordingly, ground No.2 (3) raised by the Revenue is dismissed. 11. In the result, the appeal of the Revenue is dismissed. 12. Let us now take up the assessee s appeal in ITA No.902/Del/2022. 13. The ground No.1 raised by the assessee is general in nature and does not require any specific adjudication. The ground No.6 raised by the assessee regarding the levy of penalty u/s 270A of the Act is premature for adjudication at this stage. Hence, dismissed. 14. The ground No.2 raised by the assessee is challenging the disallowance of employees contribution to PF and ESI amounting to Rs. 14,96,558/- which was remitted beyond the due date prescribed under the respective Acts, but, were remitted before the due date of filing of return of income u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of employees contributions- which are deducted from their income. They are not part of the assessee employer s income, nor are they heads of deduction per se in the form of statutory pay out. They are others income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the details in various tabular format giving the details of the cash deposits made during the period 01.04.2015 to 08.11.2015; 09.11.2015 to 30.12.2015; 01.04.2016 to 0.11.2016 and 09.11.2016 to 30.12.2016. The assessee also provided month wise details of cash balance, cash receipts, cash deposits in bank, cash purchase/expenses, cash withdrawn from bank and closing cash balance for the year under consideration as well as for the immediately preceding year (i.e., AY 2016-17). From the said table, the assessee also proved before the ld.AO that it had cash balance of Rs. 2,94,28,861/- as on 08.11.2016 which was used for depositing cash in specified bank notes during demonetization period of 09.11.2016 to 30.12.2016. But, the ld. AO did not agree to this contention of the assessee and proceeded to treat the cash deposits made during the demonetization period as unexplained cash credit u/s 68 of the Act and added the same to the total income of the assessee to be taxed at a higher rate prescribed u/s 115BBE of the Act. This action of the ld. AO was upheld by the ld.CIT(A). 20. At the outset, we find that the assessee had explained the source of cash deposits made in specified ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2016 2,97,43,776/- October, 2016 2,95,11,903/- 01.11.2016 to 08.11.2016 2,94,28,861/- 21. From the above, it could be safely concluded that the assessee has been consistently holding huge cash balance which meets the entire cash deposits made during the whole year including the cash deposits made during the demonetization period in specified bank notes. Hence, there is absolutely no case for the Revenue to make an addition for cash deposits made during the demonetization period as the entire cash deposits are totally explained by proper sources by the assessee. Accordingly, the ground No.3 raised by the assessee is allowed. 22. The ground No.4 raised by the assessee is challenging the disallowance made u/s 40(a)(ia) of the act in the sum of Rs. 68,15,000/- in respect of payment made to non-resident M/s All Farida Worldwide Fze which is a resident of UAE. As per form 15CA submitted by the assessee, the nature of service was mentioned as engineering service. The assessee did not deduct tax at source while making the said payment. Accordingly, the ld. AO iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 557 of the paper book containing ledger account of the payee in the books of the assessee company together with the invoice raised by the payee on the assessee, proforma invoice, bank correspondences, declaration-cum-undertaking to be given under Foreign Exchange Management Act, 1999, Form A2 for making remittance abroad, Form No.15CB issued by a Chartered Accountant and Form 15CA issued by a Director of the assessee company. The ld. AR also placed reliance on the decision of this Tribunal in assessee s own case for AY 2012-13, 2013-14 and 2014-15 dated 31.01.2022. We find that in those years, the payments were made by the assessee to M/s Noble Denton Middle East Ltd., Dubai Branch. Similarly, the ld. AR also placed reliance on the orders of this Tribunal for AY 2015-16 and 2016-17 dated 25.11.2022 in assessee s own case which, in turn, relied on the Tribunal order for AYs 2012-13 and 2013-14. However, in those years, it is not clear from the orders of the Tribunal as to whether the ld. AO had treated the said payment as fee for technical services taxable u/s 9(1)(vii) of the Act. However, we find from pages 547 to 557 of the paper book relied upon by the ld. AR that the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y ONGC, the same remains outstanding as sundry debtor in the books of the assessee company. Since the said sums are not recoverable from ONGC, the assessee chose to write off the same in its books during he year under consideration. However, we find that the ld. AO, without appreciating these facts, had proceeded to treat the entire written off amount as not an allowable deduction. Similarly, for the remaining sum of Rs. 1,88,29,557/-, no findings has been recorded by the lower authorities. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this issue to the file of the ld.AO for denovo adjudication in accordance with law, after considering the detailed break-up of the amounts written off submitted by the assessee which are enclosed in the paper book. The assessee is also at liberty to furnish fresh evidences, if any, in support of its contentions. With these directions, the ground No.5 raised by the assessee is allowed for statistical purposes. 26. In the result, the appeal of the assessee is partly allowed for statistical purposes. 27. To sum up, the appeal of the assessee is partly allowed for statistical purposes and the appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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