TMI Blog2022 (8) TMI 1482X X X X Extracts X X X X X X X X Extracts X X X X ..... eal is allowed. Disallowance u/s 14A - assessee has made suo motu disallowance - assessee submitted that AO while computing disallowance u/s 14A has included interest expenditure under tonnage scheme as well - HELD THAT:- As the first argument of assessee, if any loan has been taken for shipping business (qualified for tonnage tax scheme) and live link is established between the loan taken and the particular purpose, interest payment on such loan should not form part of interest expenditure for the purpose of Section 14A of the Act. It is accepted position that the entire administrative cost cannot be allocated for earning income exempt from tax if the assessee has other businesses as well. In the instant case the contention of the assessee is that the assessing officer has made disallowance u/s 14A of the Act of an amount more than the entire administrative cost of the Treasury Department. Third contention of the assessee is own interest free funds of the assessee are sufficient to cover the investments made. It is a settled legal position that where assessee is having mixed bag of own interest free funds and interest bearing funds, the presumption would be that for inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller has to be reduced from the total consideration. In the instant case, the expenditure towards building repair funds and share certificate were paid by the assessee and the purchaser in equal ratio. Since, expenditure was incurred at the time of sale of flat, the said expenditure is allowable to the extent paid by the assessee and hence, deductible from total sale consideration. We find merit in ground of the appeal, hence, the same is allowed in the terms aforesaid. AO non-complying with directions of the DRP to grant credit of TDS - HELD THAT:- AO is directed to comply with the directions of the DRP with respect to allowing credit of TDS. The ground of the appeal is thus allowed for statistical purpose. Benchmarking foreign loan transaction to the overseas Associated Enterprise (AE) - HELD THAT:- We find that identical issue was subject of appeal before the Co-ordinate Bench in assessment year 2007-08 [ 2014 (1) TMI 709 - ITAT MUMBAI] as held the loan of USD 4 million was given in earlier accounting year and as per the agreement, the rate of interest was taken at 5%. The fixed rate of interest cannot be accepted to be changed with the subsequent change in LIBOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission are charged by different banks depending upon the extent and duration of facility availed. Taking note of wide-ranging guarantee commission rates being charged by different banks, we adopt guarantee commission rate approved by Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] , i.e 0.55%. We uphold guarantee commission charged by the assessee at 0.55%. Hence, no adjustment is warranted on this issue. The, assessee succeeds on this ground of the appeal. - SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER For the Appellant : Shri Percy j. Pardiwalla, Sr. Advocate with S/Sh. Jitendra Jain Rashid Poonawala For the Respondent : Dr.Yogesh Kamat , CIT and Shri Sambit Mishra ORDER PER VIKAS AWASTHY, JM : This appeal by the assessee is directed against the assessment order dated 15/11/2012 passed u/s. 143(3) r.w.s. 144C(13)of the Income Tax Act, 1961[ in short the Act ] for the Assessment Year 2008-09. 2. The assessee in appeal has raised as many as 24 grounds and further raised three additional grounds of appeal. The gist of grounds raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,62,168/- under non-tonnage activities. In assessment proceedings assessee was asked to substantiate the fact that aforesaid interest expenditure pertains to non-tonnage activities. The Assessing Officer after examining the details furnished by the assessee concluded that interest expenditure of Rs.5,98,48,390/- are in respect of tonnage tax activities. The ld.Counsel for the assessee referred to the Profit and Loss Account for the Financial Year ending as on 31/03/2008 and submitted that during the relevant period, the total interest and finance charges were Rs.149.28 crores. Bifurcation of income and expenditure between business of shipping (qualifying ships) and other business (Business other than of the business of qualifying ships) is at page 34 of the Paper Book. A perusal of computation of book profit would show that interest and finance charges Rs.9.21 crores was allocated to nontonnage activities(Business other than of the business of qualifying ships). The ld.Counsel for the assessee stated that in the preceding assessment years i.e. assessment year 2006-07 and 2007-08 interest and finance charges for similar reasons were disallowed. The matter travelled to the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue in this appeal is dismissed. Thus, in the facts of case and the decision of Co-ordinate Bench in assessee s own case for assessment year 2006-07, ground No.1 of the appeal is allowed. 8. In ground No.2 to 9 of appeal, the assessee has assailed disallowance under section 14A of the Act on different facets. During the period relevant to the assessment year under appeal the assessee has earned dividend income of Rs.24.25 crores, out of which the assessee has earned dividend income of Rs.15.91 crores from investments made in foreign group companies. The dividend income from overseas entities has been offered to tax. The assessee has made suo-motu disallowance of Rs.36,63,327/- under section 14A of the Act in respect expenditure incurred in relation to earning of income exempt from tax. The Assessing Officer recomputed disallowance u/s.14A r.w.r. 8D at Rs.19.99 crores. The ld.Counsel for the assessee submitted that the Assessing Officer while computing disallowance u/s 14A of the Act has included interest expenditure under tonnage scheme as well. He submitted that for the purpose of disallowance u/s 14A r.w.r 8D interest expenditure pertaining to tonnage tax income should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides heard. The assessee has made suo motu disallowance of Rs.36,63,327/- under section.14A of the Act. The assessee has filed computation of disallowance at page 49 of the Paper Book. The Assessing Officer rejected assessee s computation of disallowance under section 14A of the Act and has recomputed disallowance after invoking provisions of rule 8D and made disallowance of Rs.19,99,31,558/-. The assessee has primarily made threefold submissions: (i) The first contention of the assessee is that interest expenditure under tonnage scheme cannot be considered for section 14A of the Act; (ii) The entire expenditure towards administrative and treasury department cannot be considered for making investments as the assessee is also having other line of business; and (iii) The third contention raised by the assessee is that assessee was having sufficient own funds for making investments. 10.1. In so far as the first argument of assessee, if any loan has been taken for shipping business (qualified for tonnage tax scheme) and live link is established between the loan taken and the particular purpose, interest payment on such loan should not form part of interest expenditure for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P erred in directing the AO to exclude the general average claims received aggregating to Rs.2,84,01,893/- from the tonnage income of the Appellant and treat the same as non-tonnage tax income in case the Department had preferred an appeal to the Hon'ble ITAT on this issue in the preceding A.Y.2007-08, and in ignoring the facts of the case and the order of the Hon'ble ITAT for A.Y. 2006-07 and the CIT(A)'s Order for A.Y.2007-08 in the Appellant's own case. 12) The learned DRP erred in directing the AO to exclude liabilities of prior periods written back aggregating to Rs.15,90,4347- from the tonnage income of the Appellant and treat the same as non-tonnage tax income in case the Department had preferred an appeal to the Hon'ble ITAT on this issue in the preceding A.Y.2007-08, and in ignoring the facts of the case and the order of the Hon'ble ITAT for A.Y. 2006-07 and the CIT(A)'s Order for A.Y.2007-08 in the Appellant's own case. 12. The ld. Counsel for the assessee submitted that the DRP/Assessing Officer treated following income/receipts alleged to be under non-tonnage tax business, which according to the assessee pertains to tonnage ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term relevant shipping income has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expenses can be considered as Income from core activities of a tonnage tax company. In our opinion, write back of these items is to be considered as income from core activity. In a going concern, such write backs and making of supplementary provisions takes place. The Assessing Officer as well as the Commissioner (Appeals) have treated the very same income which is taxable under section 41(1) differently. The first being expenditure claimed in pretonnage tax scheme assessment years and the second being expenditure claimed in post tonnage tax scheme assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove discussion, we allow ground no. 1 of the assessee, 15. As the ratio of the decision rendered by the Tribunal in the case of Shipping Corporation of India Ltd, (supra) is directly applicable to the issues raised in ground Nos. 2, 3 and 4 of the assessee's appeal filed in the present case, we respectfully follow the said decision of the coordinate bench of this Tribunal and allow ground Nos. 2, 3 and 4 of the assessee's appeal. We observe from the impugned assessment order, that the aforementioned issues were decided by the Commissioner of Income Tax (Appeals) in immediate preceding AY i.e. AY 2007-08 in favour of the assessee. The Revenue filed appeal against the said order before the Tribunal. The appeal of Revenue in ITA No.437/Mum/2012 for AY 2007-08 was dismissed by the Coordinate Bench vide order dated 10-01-2014. No contrary decision or material has been brought to the notice of Bench distinguishing facts. Therefore, following the decision of Coordinate Bench in assessee s own case in the preceding assessment years, ground No.10 to 12 of the appeal are allowed for parity of reasons. 14. In ground No.13 of appeal, the assessee has assailed disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since, expenditure was incurred at the time of sale of flat, the said expenditure is allowable to the extent paid by the assessee and hence, deductible from total sale consideration. We find merit in ground No.13 of the appeal, hence, the same is allowed in the terms aforesaid. 17. In ground of appeal No.14, the assessee is seeking direction to the Assessing Officer for complying with directions of the DRP to grant credit of TDS aggregating to Rs.5,03,591/-. The Assessing Officer is directed to comply with the directions of the DRP with respect to allowing credit of TDS. The ground No.14 of the appeal is thus allowed for statistical purpose. 18. The ground No.15 of the appeal is general in nature hence, require no adjudication. 19. In grounds No.16 to 18 of appeal, the assessee has assailed findings of the Assessing Officer/TPO in benchmarking foreign loan transaction to the overseas Associated Enterprise (AE). We find that identical issue was subject of appeal before the Co-ordinate Bench in assessment year 2007-08 in in ITA No.397/Mum/2012 decided on 10/01/2014. The Co-ordinate Bench after examining the issue in detail held as under: 16.1. The Ld. CIT(A) has direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on @1% p.a. instead of 3% proposed by the TPO. 21. Per contra, the ld.Departmental Representative vehemently defended the impugned order and the directions of the DRP on this issue and prayed for dismissing the grounds raised by the assessee assailing the adjustment. 22. Both sides heard. The assessee had extended performance guarantee to shipyard in respect of its 100% subsidiary based in Singapore. The assessee has taken ALP of the performance guarantee facility as Nil . The DRP has determined ALP of the transaction @1%. The agreement in respect of which performance guarantee has been extended by the assessee on behalf of its foreign subsidiary is with respect to construction of a ship. Guarantee has been extended to a shipyard. If guarantee is invoked, the assessee would be under obligation to pay guarantee, in turn the assessee would acquire the vessel. We find force in the argument of the Counsel for the assessee, there is no element of risk involved. In any case, on enforcement of guarantee clause the assessee would acquire vessel, the same can be used by the assessee in its own business. 22.1. We find that the Tribunal in the case of ACIT vs. KEC International Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
