Dy.CIT, Hyderabad V. M/s. Sealion Sparkle Port & Terminal Services (Dahej) Ltd., Hyderabad

ITA 1399/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74593 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: A V RAGHURAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 1399, 1400, & 1401/HYD/2013 ASSESSMENT YEARS: 2007-08, 2009-10 & 2010-11 THE ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 3(1), HYDERABAD. VS. SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD., RESPONDENT HYDERABAD. (PAN AAHCS0841D) 1402/HYD/2013 ASSESSMENT YEAR: 2010-11 THE ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 3(1), HYDERABAD. VS. SEALION SPARKLE MARITIME SERVICE LTD., RESPONDENT HYDERABAD. (PAN AAHCS0839F) APPELLANT BY : SHRI B. YADAGIRI RESPONDENT BY : SHRI A.V. RAGHURAM DATE OF HEARING : 20/02/2014 DATE OF PRONOUNCEMENT : 20/02/ 2014 ORDER PER CHANDRA POOJARI, A.M.: APPEALS IN ITA NOS. 1399, 1400 & 1401/HYD13 IN CAS E OF M/S SEALION SPARKLE PORT & TECHNICAL SERVICES (DAHE J) LTD. AND APPEAL IN ITA NO. 1402/H/13 IN CASE OF M/S SEALION SPARKE MARITME SERVICES LTD., FILED BY THE REVENUE ARE DIR ECTED AGAINST THE RESPECTIVE ORDERS OF CIT(A). SINCE COMMON GROUN DS ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HE ARD TOGETHER AND THEREFORE A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. 2. IN ITA NO. 1399/H/2013, THE REVENUE HAS RAISED T HE FOLLOWING SUBSTANTIVE GROUND: 2. THE LEARNED CIT(A) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE OF PAYMENTS MADE TO M/S PSA MARINE PTE LTD. TOWARDS PROFESSIONAL AND CONSULTANCY FEES AS THE AS SESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 3. IN ITA NOS. 1400, 1401 & 1402/H/2013, THE REVENU E HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS OF APPEAL BEING COMMON: 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS FAILED TO COMPLY WITH CONDITI ONS AS PER SUB-SECTION (A) TO (C) OF 80IA (4) OF THE ACT. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN THE ACTIVITY OF OPERATING AND MAINTAINING A PORT, AND THE ACTIVITY OF THE ASS ESSEE IS LIMITED MERELY TO RENTING OUT THE TUG BOATS, PILOT LAUNCHES AND MOORING LAUNCHES FOR USE BY ENNORE PORT LTD. 4. THE LEARNED CIT(A) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE OF PAYMENTS MADE TO M/S PSA MARINE PTE LTD. TOWARDS PROFESSIONAL AND CONSULTANCY FEES AS THE AS SESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 4. WE REFER TO THE FACTS FROM ITA NO. 1399/H/2013 F OR AY 2007-08. BRIEFLY THE FACTS ARE THAT M/S PETRONET LN G LTD. (PLL) WAS A COMPANY ENGAGED IN DEVELOPING A TERMINAL FOR RECEIPT, STORAGE AND RE-GASIFICATION OF LNG AT DAHEJ PORT. T HE ASSESSEE HAD ENTERED INTO A CONTRACT WITH PLL AS AN OPERATOR TO PROVIDE TUG BOATS, MARINE CRAFTS AND PERSONNEL FOR THIS WORK. T HE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA OF RS. 50,61,920/- W ITH REGARD TO THE SERVICES RENDERED BY IT AT DAHEJ LNG PORT, CLAI MING IT TO BE OPERATION AND MAINTENANCE OF PORTS. THE AO DISALLOW ED THE CLAIM. HE ALSO DISALLOWED THE ASSESSEES CLAIM OF PAYMENT OF 3 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. PROFESSIONAL CHARGES TO PSA MARINE PTE LTD., ON THE GROUND THAT THERE WAS NO NECESSITY FOR SUCH PAYMENTS. THIS ISSU E IS THE SUBJECT MATTER IN THESE APPEALS FILED BY THE REVENU E. 5. ON APPEAL, THE CIT(A) ALLOWED THE ASSESSEES CLA IM FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2008-09 IN ITA NO. 142/H/2013, DATED 21/06/2013. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US FO R THE ASSESSMENT YEARS UNDER CONSIDERATION. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE GROUNDS RAISED BY THE REVENUE IN THESE APPEALS ARE SQUARELY COVERED BY TH E DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2008-09 IN ITA NO. 142/HYD/2013 VIDE ORDER DATED 21/06/2013 AN D THE COORDINATE BENCH FOLLOWING THE DECISION OF ANOTHER COORDINATE BENCH DECISION THE CASE OF SEALION SPARKLE MARITIME SERVICES LTD. VS. DCIT FOR AY 2006-07 IN ITA NO. 697/HYD/2010 ORD ER DATED 30 TH SEPTEMBER, 2010, ALLOWED THE APPEAL OF THE ASSESSE E. THE COORDINATE BENCH IN ITA NO. 697/HYD/2010) HELD AS F OLLOWS: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDL Y, THE ASSESSEE IS A JOINT VENTURE COMPANY OF M/S. OCEAN S PARKLE LTD. ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. E NNORE PORT LTD. FOR MAINTENANCE AND OPERATION. AS RIGHTLY SUBMITTED BY THE LEARNED REPRESENTATIVE FOR THE ASS ESSEE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.238/HYD/2007, IN THE CASE OF M/S. OCEAN SPARKLE LIMITED, AFTER CONSI DERING SIMILAR AGREEMENT WITH M/S. ENNORE PORT LTD., THIS TRIBUNAL, VIDE ITS ORDER DATED 18.7.2008, FOUND THAT THE ASSE SSEE HAS COMPLIED WITH ALL THE THREE CONDITIONS PRESCRIBED U NDER S.80IA(4) OF THE ACT. ONE OF US, THE JUDICIAL MEMBE R, WAS A PARTY TO THE ORDER OF THE TRIBUNAL DATED 18.7.2008. THIS TRIBUNAL AFTER EXAMINING THE AGREEMENT ENTERED INTO WITH M/S. ENNNORE PORT LTD. WITH SIMILAR TERMS AND CONDI TIONS FOR 4 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. CARRYING OUT SIMILAR ACTIVITY FOUND THAT THE ASSESS EE WAS ENTITLED FOR DEDUCTION U/S. 80IA PROVIDED M/S. ENN ORE PORT LTD. HAS NOT AVAILED THE SAME DEDUCTION UNDER S.80 IA OF THE ACT. IN THE CASE BEFORE US ALSO, INSTEAD OF M/S . OCEAN SPARKLE LIMITED, ASSESSEE, A JOINT VENTURE COMPANY OF M/S. OCEAN SPARKLE LIMITED. ENTERED INTO AGREEMENT WITH SIMILAR TERMS AS IN THE CASE OF M/S.OCEAN SPARKLE LIMITED A ND M/S. ENNORE PORT LTD. HAS GIVEN A CERTIFICATE STAYING TH AT THE ACTIVITY OF THE ASSESSEE AMOUNTS TO OPERATION AND MAINTENANCE OF ENNORE PORT. IN THE CIRCUMSTANCES, H EREFORE, AS FOUND BY THIS TRIBUNAL IN THE CASE OF M/S. OCEA N SPARKLE LIMITED, THE ASSESSEE HAS COMPLIED WITH ALL THE THR EE CONDITIONS REQUIRED FOR DEDUCTION UNDER S.80IA(4) O F THE INCOME TAX ACT. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER S.80IA, PROVIDED M/S. ENNORE PORT LTD. HAS NOT AVAILED THE SAID RELIEF FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE DISCUSSION, WEA RE UNABLE TO SUSTAIN THE ORDERS OF THE LOWER AUTHORITIES ON T HIS ISSUE. WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE, AND DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEE'S CLAIM FOR DEDUCTION UNDER S.80IA O F THE ACT, IF M/S. ENNORE PORT LTD. HAS NOT AVAILED THE S AME FOR THE YEAR UNDER CONSIDERATION. 8. THE COORDINATE BENCH FOLLOWING THE SAID CASE, IN ITA NO. 142/HYD/2013 IN ASSESSEES OWN CASE HELD AS FOLLOWS : 9. SINCE THE ISSUE UNDER CONSIDERATION IS MATERIALL Y IDENTICAL TO THAT OF THE CASE DECIDED BY THE COORDI NATE BENCH IN THE CASE OF SEALION SPARKLE MARITIME SERVICES LTD FOR AY 2006-07, RESPECTFULLY FOLLOWING THE SAME, WE SET AS IDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSE SSEE FOR DEDUCTION OF RS. 54,81,140 U/S 80IA OF THE ACT. ACC ORDINGLY, GROUND NOS. 1, 2 & 3 ARE ALLOWED. 10. WITH RESPECT TO GROUND NOS. 4 TO 6, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT OF RS. 24,36,600/- TO PSAM IS TO ESTABLISH BUSINESS CONTIN GENCY. EVEN THOUGH THE ASSESSEE HAS ALREADY ENTERED INTO BIMCO AGREEMENT WITH OSL. IT WAS SUBMITTED BY THE LEARNED COUNSEL THAT BIMCO AGREEMENT BETWEEN SSPTDL AND OCE AN SPARKLE LTD WAS PLACED AT PAGES 72 TO 92 OF THE PAP ER BOOK, WHICH IS DIFFERENT FROM CONSULTANCY AGREEMENT BETWE EN SSPTDL AND PSA MARINE PTE LTD., WHICH IS PLACED AT PAGES 5 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. 59 TO 71 OF THE PAPER BOOK. WE FIND THAT AT PAGE 70 OF THE PAPER BOOK SCHEDULE OF SERVICES TO BE PROVIDED BY PSAM UNDER THE AGREEMENT IS AS FOLLOWS: A. IN RESPECT OF THE PETRONET LNG LTD.S CAPTIVE TERMINAL AT DAHEJ, GUJARAT: 1. ADVISE ON THE MITIGATION OF RISK ASSOCIATED WITH THE MARINE OPERATIONS. 2. ADVISE ON PROCEDURES AND PRACTICES FOR SAKE AND SECURE OPERATIONS. 3. UPDATE AND ADVISE ON THE CHANGES IN THE VARIOUS INTERNATIONAL REGULATIONS AND APPROVED OPERATING PRACTICES. 4. ADVISE AND PROVIDE INFORMATION ON THE ADEQUACY O F RISK COVERS FOR THE OPERATIONS. B. IN RESPECT OF THE MARINE CRAFTS DEPLOYED FOR OPERATIONS AT THE PETRONET LNG LTDS CAPTIVE TERMIN AL AT DAHEJ, GUJARAT: 1. ADVISE ON THE MAINTENANCE SYSTEM AND CYCLE OF MAINTENANCE OF THE MARINE CRAFTS. 2. IDENTIFICATION OF YARDS FOR REPAIR, MAINTENANCE AND DRY-DOCKING OF THE MARINE CRAFTS AND ASSISTANCE IN NEGOTIATIONS. 3. ADVISE AND PROVIDE THE INFORMATION ON THE AVAILABILITY OF SUBSTITUTES IF REQUIRED FOR THE OPE RATIONS AND ASSIST IN NEGOTIATION FOR ACQUISITION OR HIRE A S THE CASE MAY BE. 11. WE FIND THAT AGREEMENT DATED 29/10/2004 WITH PS AM IS PURELY ADVISORY TO PROVIDE INFORMATION ON CERTAIN THINGS AND DOES NOT INCLUDE ACTUALLY CARRYING OUT OF ANY OPERA TIONS. THE OTHER AGREEMENT WITH BIMCO IS STANDARD SHIP MANAGEM ENT AGREEMENT, WHICH IS DIFFERENT FROM THAT ENTERED WIT H PSAM. THE AO HAS NOT POINTED OUT THAT PAYMENT MADE TO PSA M IS NOT GENUINE OR NOT REQUIRED EXCEPT FOR SAYING THAT THE ASSESSEE HAS ALREADY ENTERED BIMCO AGREEMENT WITH O SL, WHICH TAKES CARE OF ALL THE REQUIREMENTS OF THE ASS ESSEE. THE ASSESSEES CONTENTION THAT THE PRIMARY RESPONSI BILITY FOR CARRYING OUT SERVICES RESTS ON THE ASSESSEE AND AS SUCH THEY ARE REQUIRED TO ENGAGE OTHER CONSULTANCY SERVICE HA S BEEN EXPLAINED AT PARA 3 OF THE LETTER DATED 12/11/2010 SUBMITTED BY THE ASSESSEE, WHICH IS AS UNDER: 3. WE INVITE YOUR KIND ATTENTION TO ARTICLE 9 OF T HE POSA AGREEMENT WHICH MENTIONED VARIOUS SPECIFIC SERVICES TO BE RENDERED BY US WITH REFERENCE TO THE LNG TERMINAL AND RELATED SERVICES. WE SPECIFICALLY 6 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. INVITE YOUR ATTENTION TO CLAUSE NO. 9.3 AND 9.5. AL L THESE SPECIFIC SERVICES AND EXPERTISE RELATING TO L NG TERMINAL ARE AVAILABLE WITH PSA MARINE PTE LTD. AND HENCE THERE IS A CLEAR BUSINESS NECESSITY AND EXIGE NCY FOR US TO ENGAGE THE SERVICES OF PSA MARINE PTE LTD . 12. IN OUR OPINION, THE AO AND THE CIT(A) WERE NOT CORRECT IN CONCLUDING THAT THERE WAS NO NECESSITY FOR SERVI CES TO BE RENDERED OVER AND ABOVE THOSE CONTEMPLATING IN THE BIMCO AGREEMENT. IN THIS CONNECTION, WE REFER TO THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DH ANRAJGIRI RAJA NARSINGIRIJI, [1973] 91 ITR 544 (SC) WHERE IT WAS HELD THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVE RY BUSINESSMAN KNOWS HIS INTEREST BEST. IN THE CASE OF JAIPUR ELECTRO (P) LTD. VS. CIT [1996] 134 CTR (RAJ.) 237, THE HIGH COURT HELD THAT THE DOCTRINE THAT THE BUSINESSMAN IS THE BEST JUDGE OF BUSINESS EXPEDIENCY DOES NOT AFFECT T HE RIGHT, ANY DUTY OF THE ASSESSING AUTHORITIES TO KNOW WHETH ER IT WAS INCURRED FOR BUSINESS PURPOSES AND NOT FOR OTHER EX TRANEOUS CONDITIONS. IN VIEW OF OUR ABOVE OBSERVATIONS, WE ARE OF THE OPINION THAT THE EXPENDITURE TO PSAM HAS BEEN W HOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINES S IS TO BE ALLOWED AS A DEDUCTION. FURTHER, THE LOWER AUTHORIT IES HAVE NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE IN Q UESTION. HENCE, THE CLAIM OF THE ASSESSEE FOR PAYMENT OF RS. 24,36,600/- TO PSAM TOWARDS PROFESSIONAL CHARGES IS ALLOWED. ACCORDINGLY, GROUND NOS. 4 TO 6 ARE ALLOWE D. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 9. AS THE GROUNDS RAISED BY THE REVENUE IN ALL THES E APPEALS ARE MATERIALLY IDENTICAL TO THAT OF THE CASES DECID ED BY THE COORDINATE BENCHES (SUPRA), RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDERS OF THE CIT(A) IN ALL THE YEARS UN DER CONSIDERATION AND DISMISS THE GROUNDS RAISED BY THE REVENUE ON THESE COUNTS. 7 ITA NOS. 1399, 1400, 1401 & 1402/H/13 SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD. M/S SEALION SPARKLE MARITME SERVICES LTD. 10. IN THE RESULT, ALL THE REVENUE APPEALS IN ITA N OS. 1399/H/2013 FOR AY 2007-08, 1400/H/2013 FOR AY 2009 -10, 1401/H/2013 FOR AY 2010-11 AND 1402/H/2013 2009-10 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2014. SD/- SD/- (SAKTIJIT DEY) (CHANDRA P OOJARI) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED: 20 TH FEBRUARY, 2014 KV COPY TO:- 1) SEALION SPARKLE PORT AND TERMINAL SERVICES (DAHEJ) LTD., 1 ST FLOOR, 128 SRINAGAR COLONY, HYDERABAD. 2) SEALION SPARKE MARITIME SERVICES LTD. 3) DCIT, CIRCLE 3(1), HYDERABAD. 4) THE CIT (A)-IV, HYDERABAD 5) THE CIT-III, HYDERABAD 6) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HY DERABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER