M/s. Poombuhar Shipping Corporation Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1659/CHNY/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73664 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-01-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 24-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OMKARESHWAR CHIDRA
• Assessee Lawyers: R VIJAYARAGHAVAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ! '# $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.1659/MDS/2012 ( / ASSESSMENT YEAR : 2004-05 ) M/S. POOMPUHAR SHIPPING CORPORATION LTD., 692, ANNA SALAI, 4 TH FLOOR NANDANAM CHENNAI-600 035. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(4), CHENNAI-34. PAN : AAACP4383J ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR.OMKARESHWAR CHIDRA, CIT / DATE OF HEARING : 15 TH JANUARY, 2014 ! /DATE OF PRONOUNCEMENT : 28 TH JANUARY, 2014 ' / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI DATED 28.05.2012 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.1659/MDS/2012 2 1. THE ORDER OF THE COMMISS I ONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW , FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF PENALTY RS.6 , 51 , 48,657/- IN RESPECT OF UNDER PERFORMANCE OF VOYAGE. 2 . 2 THE COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE APPREC I ATED THAT THE DEDUCTION BY THE TNEB HAS BEEN MADE PURSUANT TO THE CONTRACTUAL OBLIGATION ARISING OUT OF AG R EEMENT BETWEEN THE PARTIES AND IS A VALID CLAIM IN LAW. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE , ALLOWANCE OF RS.58 , 91 , 00,000/- U / S 40(A)(IA) IN RESPECT OF CHARTER HIRE 1\ CHARGES FOR NON-DEDUCTION OF TDS . 3 . 1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED I THAT A TIME CHARTER IS NOT A CONTRACT FOR HIRE OF SHIP BUT A CONTRACT FOR I PROV I SION OF STANDARD SERVICES WHICH THE OWNER OF THE SHIP PROVIDES THROUGH THE I R OFFICERS, CREW AND SHIP . 3 . 2 THE COMMISSIONER OF I NCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE DIFFERENCE BETWEEN A TIME CHARTER ARRANGEMENT AND A BARE BOAT ARRANGEMENT AND THEREBY ERRED I N CONCLUDING THAT THE ITA NO.1659/MDS/2012 3 TIME-CHARTER PAYMENTS WOULD FALL UNDER THE DEFINITION OF ROYALTY UNDER THE ACT BY DISREGARDING THE VIEW OF CBDT. 3. GROUND NO. 1 IS GENERAL AND NEEDS NO ADJUDICAT ION. 4. IN RESPECT OF GROUND NO.3, COUNSEL FOR THE ASSES SEE SUBMITS THAT THIS ISSUE HAS BEEN DECIDED AGAINST TH E ASSESSEE BY THE HONBLE MADRAS HIGH COURT IN ASSESS EES OWN CASE IN TAX CASE APPEAL NO.2206 TO 2208 OF 2006 DATED 9.10.2013, COPY OF WHICH IS PLACED ON RECORD. SO RE SPECTFULLY FOLLOWING THE ORDER OF THE HONBLE MADRAS HIGH COUR T DECISION IN THE ASSESSEES OWN CASE CITED ABOVE, WE DISMISS THE GROUNDS 3 TO 3.2 RAISED BY THE ASSESSEE. 5. IN RESPECT OF GROUND NO.2, COUNSEL FOR THE ASSES SEE SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) IS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE OF ` 6,51,48,657/- WHICH REPRESENTS THE AMOUNT FOREGONE BY THE ASSESSE E IN RESPECT OF UNDER-PERFORMANCE OF VOYAGE. THE COUNSEL SUBMITS THAT THE ASSESSEE IS A STATE GOVERNMENT OWNED UNDER TAKING ITA NO.1659/MDS/2012 4 ENGAGED IN THE BUSINESS OF OPERATING OWN SHIPS PLYI NG IN EAST COAST OF INDIA MOVING COAL FROM VARIOUS PARTS IN IN DIA TO THE STATE ELECTRICITY BOARD FOR GENERATION OF POWER IN THE STATE. THE COUNSEL SUBMITS THAT DURING THIS ASSESSMENT YEA R THE ASSESSEE HAS REDUCED THIS AMOUNT OF ` 6,51,48,657/- FROM THE FREIGHT INCOME EARNED FROM TAMIL NADU ELECTRICITY B OARD (HEREINAFTER REFERRED TO AS TNEB). THE COUNSEL S UBMITS THAT THE SAID AMOUNT WAS NOT ALLOWED BY TNEB FOR UNDER- PERFORMANCE OF VOYAGE BY THE ASSESSEE. THE COUNSEL FOR THE ASSESSEE REFERRING TO SIGNIFICANT ACCOUNTING POLICI ES OF THE COMPANY IN RESPECT OF FREIGHT INCOME SUBMITS THAT T HE INCOME IS RECOGNIZED ON THE BASIS OF COAL MOVED BY OWN VES SELS ON TNEBS ACCOUNT AS PER FREIGHT AGREEMENT REFERRING T O SCHEDULE 19 TO THE BALANCE SHEET I.E. NOTES CLAUSE (A). THE COUNSEL SUBMITS THAT THE ASSESSEE HAS DETERMINED AN D PROVIDED ` 6.51 CRORES FOR UNDER-PERFORMANCE OF VOYAGES DURING THE YEAR IN PURSUANCE OF THE FREIGHT AGREEME NT WITH TNEB. THE COUNSEL SUBMITS THAT AS PER THE FREIGHT AGREEMENT, THE ASSESSEE HAS AGREED TO MAINTAIN TOTA L VOYAGES AT A MINIMUM OF 60 PER ANNUM FOR ALL THE T HREE SHIPS ITA NO.1659/MDS/2012 5 IRRESPECTIVE OF DRY DOCK PERIODS. THE FREIGHT RATE PER TONNE WILL BE ARRIVED AT 60 VOYAGES OR ACTUAL IF MORE THAN 60. HE SUBMITS THAT DURING THE ASSESSMENT YEAR 2004-05, TH E ASSESSEES OWN VESSEL HAS PERFORMED ONLY 53 VOYAGES , SO THE ASSESSEE HAD PROVIDED FOR UNDER-PERFORMANCE FO R 7 VOYAGES AMOUNTING TO ` 6.51 CRORES. HOWEVER, HE SUBMITS THAT TNEB WHILE SANCTIONING THE EXPENSES FOR THE AS SESSMENT YEAR 2004-05 HAD NOT CONSIDERED THE PROPORTIONATE D ISCHARGE EXPENSES AT TUTICORIN AND ARRIVED AT THE UNDER-PERF ORMANCE PENALTY AS ` 6.45 CRORES. THE COUNSEL SUBMITS THAT ASSESSING OFFICER HAS ADDED 6.51 CRORES TO THE INCOME OF THE ASSESSEE STATING THAT THERE WAS NO SPECIFIC CONDITION IN THE AGREEMENT TOWARDS RECOVERY OF AMOUNT UNDER THE HEAD UNDER- PERFORMANCE VOYAGE FROM THE FREIGHT INCOME. HE SUB MITS THAT AS PER THE CONTRACT BETWEEN THE PARTIES TIME IS ESS ENCE OF THE CONTRACT AND THEREFORE UNDER-PERFORMANCE RECOVERY B Y THE TNEB THOUGH THE SAME IS DISPUTED BY THE ASSESSEE HA S ARISEN DUE TO THE CONTRACTUAL OBLIGATION AND THEREF ORE, THE LOSS IS INCIDENTAL TO THE BUSINESS AND HENCE ALLOWABLE. THE COUNSEL SUBMITS THAT THE ASSESSING OFFICER TREATED THIS ITA NO.1659/MDS/2012 6 AMOUNT AS PENALTY LEVIED BY TNEB FOR UNDER-PERFORMA NCE OF VOYAGE. THE COUNSEL SUBMITS THAT THERE IS NO INFRAC TION OF LAW SO AS TO TREAT THIS AMOUNT AS PENALTY NOT ALLOWABLE UNDER LAW. THE COUNSEL SUBMITS THAT THIS PENALTY IS NOTHING BU T REDUCTION IN FREIGHT INCOME AND NOT PENALTY FOR INFRACTION OF LAW. REFERRING TO THE DECISION OF HONBLE PUNJAB & HARYA NA HIGH COURT DECISION IN THE CASE OF JAMNA AUTO INDUSTRIES VS. CIT (299 ITR 92), THE COUNSEL SUBMITS THAT DAMAGES FOR BREACH OF CONTRACT ARE DEDUCTIBLE. HE ALSO PLACES RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. NATIONAL STEEL & GENERAL MILLS P.LTD. (188 ITR 571) , THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF CIT VS. SOHANLAL KUNWAR & SONS (164 ITR 129) AND THE D ECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF SARDAR P RIT INDER SINGH VS. CIT ( 160 ITR 493) IN SUPPORT OF HIS CON TENTIONS. THE COUNSEL FURTHER SUBMITS THAT IN THE CASE OF CIT VS. INDO ASIAN SWITCHGEAR P. LTD.,( 222 ITR 772), THE HONBL E PUNJAB & HARYAHA HIGH COURT HELD THAT PENALTY PAID TO ST ATE ELECTRICITY BOARD ON ACCOUNT OF LATE DELIVERY OF GO ODS UNDER A ITA NO.1659/MDS/2012 7 CONTRACTUAL OBLIGATION WAS HELD TO BE LOSS INCIDENT AL TO BUSINESS AND COULD NOT BE DISALLOWED. 6. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE OR DERS OF THE LOWER AUTHORITIES. 7. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. THE ASSES SING OFFICER WHILE COMPLETING THE ASSESSMENT TREATED ` 6.51 CRORES WHICH WAS NOT REIMBURSED BY TNEB DUE TO UNDER-PERFORMANCE OF VOYAGE AS PENALTY LEVIED BY TNEB AND THEREFORE NOT ALLOWABLE EXPENSES. THE COMMISSIONER OF INCOME TAX (APPEALS) AFFIRMED THE SAID DISALLOWANCE SIMPLY ACC EPTING THE CONTENTION OF THE ASSESSING OFFICER STATING THAT IT IS NOT COMPENSATORY. ON HEARING THE COUNSEL FOR THE ASSESS EE, WE FIND THAT AMOUNT OF ` 6.51 CRORES, WHICH WAS NOT PAID BY TNEB TO THE ASSESSEE AND WAS RETAINED, IS ONLY FOR NOT PERFORMING THE CONTRACT OF VOYAGE BY THE ASSESSEE A S PER THE AGREEMENT I.E 60 VOYAGES PER ANNUM. THE ASSESSEE H AD PERFORMED ONLY 53 VOYAGES INSTEAD OF 60 VOYAGES FO R WHICH ITA NO.1659/MDS/2012 8 TNEB RETAINED CERTAIN AMOUNT AS UNDER-PERFORMANCE OF VOYAGE AS PER THE TERMS OF CONTRACT. IT IS NOT A PE NALTY LEVIED AT ALL FOR ANY INFRACTION OF LAW. IT IS FOR NON-PER FORMANCE OF CONTRACT OBLIGATION AND IS COMPENSATORY IN NATURE. THE DECISIONS RELIED ON BY THE ASSESSEES COUNSEL SUPPO RTS THE CONTENTION OF THE ASSESSEE THAT IT IS ONLY LOSS INC IDENTAL TO THE BUSINESS FOR NOT DISCHARGING CONTRACTUAL OBLIGATION S. IN THE CIRCUMSTANCES, WE REVERSE THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE GRO UND RAISED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, TH E 28 TH DAY OF JANUARY, 2014 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) (CHALLA NAGEN DRA PRASAD) ACCOUNTANT MEMBER JUDI CIAL MEMBER CHENNAI, DATED THE 28 TH JANUARY, 2014. SOMU COPY TO: (1) APPELLANT (4) CIT (A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.