M/s. THE GREAT EASTERN SHIPPING CO. LTD., MUMBAI V. ACIT CENT.RG. 5(3), MUMBAI

ITA 2506/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8523 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 16-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 10-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: F H BILIMORIA
• Keywords: Depreciation; Opportunity of being heard
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.2506/MUM/2008 ASSESSMENT YEAR-2004-05 THE GREAT EASTERN SHIPPING CO. LTD., C/O KALYANIWALLA & MISTRY, KALPATARU HERITAGE, 127, M.G. ROAD, FORT, MUMBAI-400 001 PAN-AAACT 1565C VS. THE ACIT, RANGE 5(3), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI JITENDRA JAIN & SHRI F.H. BILIMORIA RESPONDENT BY: SHRI PAVAN VED DATE OF HEARING :16.10.2012 DATE OF PRONOUNCEMENT:19.10.2012 O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)- V, MUMBAI DT. 01.02.2008 PERTAINING TO ASSESSMENT Y EAR 2004-05. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN CONFIRMING THAT THE APPELLANT WAS NOT ENTITLED TO DEDUCTION UL S.35D OF THE INCOME TAX ACT. HAVING REGARD TO THE FACTS AND CIRCUMSTAN CES OF THE CASE AND THE PROVISIONS OF LAW, THE APPELLANT SUBMITS THAT T HE ASSESSING OFFICER BE DIRECTED TO GRANT DEDUCTION U/S.35D AMOUNTING TO RS.24,17,256/-. 2. WITHOUT PREJUDICE TO WHAT IS STATED IN THE ABOVE GROUND, THE APPELLANT SUBMITS THAT THE EXPENSES ON THE ISSUE OF SHARES BE ADDED TO THE COST OF SHIPS ACQUIRED AND THAT DEPRECIATION BE GRANTED TO IT, AS THE PROCEEDS OF THE SHARE ISSUE HAVE BEEN UTILISED FOR THE PURCHASE OF SHIPS. ITA NO. 2506/MUM/2008 2 3.THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) E RRED IN IGNORING THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE APPELLANTS OWN CASE IN PRECEDING YEARS, ON THE VER Y SAME ISSUE, REGARDING THE DISALLOWANCE OF ADHOC EXPENSES ATTRIB UTED TO THE EARNING OF DIVIDEND INCOME, UNDER SECTION 1 4A OF THE ACT. 4.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN INVOKING THE PROVISIONS OF SECTION 1 4A OF THE ACT AND HOLDI NG THAT THE ADHOC ALLOCATION OF INTEREST EXPENDITURE AGGREGATING TO R S.5,49,26,000/-, WAS ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME. HAV ING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, TH E APPELLANT SUBMITS THAT THE ARBITRARY ALLOCATION OF INTEREST I S ERRONEOUS AND THE SAME REQUIRES TO BE DELETED. 5. WITHOUT PREJUDICE TO WHAT IS STATED IN THE ABOV E GROUND AND IN ANY EVENT, THE APPELLANT SUBMITS THAT THE NOTIONAL DISA LLOWANCE ESTIMATED AT RS.5,49,26,000/- IS GROSSLY EXCESSIVE AND ARBITR ARY, AND THE SAME REQUIRES TO BE REDUCED SUBSTANTIALLY. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN INVOKING THE PROVISIONS SECTION 14A OF THE ACT AND IN ARBITRARILY ALLOCATING AN ADHOC AMOUNT OF RS.5,57,880/- AS EXP ENSES TOWARDS THE EARNING OF DIVIDEND INCOME. HAVING REGARD TO THE F ACTS OF THE CASE AND THE PROVISIONS OF LAW, THE ADHOC DISALLOWANCE IS UN WARRANTED AND REQUIRES TO BE DELETED. 7. WITHOUT PREJUDICE TO WHAT IS STATED IN THE AB OVE GROUND AND IN ANY EVENT, THE APPELLANT SUBMITS THAT THE NOTIONAL DISALLOWANCE ESTIMATED AT RS.5,57,880/- IS GROSSLY EXCESSIVE AND ARBITRARY, AND THE SAME REQUIRES TO BE REDUCED SUBSTANTIALLY. 8. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R ERRED IN CALCULATING INTEREST UNDER SECTION 234B OF THE ACT. HAVING REGA RD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE PROVISIONS OF LA W, THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO R ECALCULATE THE SAID INTEREST. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE FAIRLY CONCEDED THAT THE ISSUE RAISED IN GROUND NO.1 HAS BEEN DECID ED AGAINST THE ASSESSEE IN ASSESSEES OWN CASE BY THE TRIBUNAL SINCE ASSESSMEN T YEARS 1993-94 TO 2003- 04. ITA NO. 2506/MUM/2008 3 4. WE HAVE PERUSED THE ORDERS OF THE TRIBUNAL IN IT A NO. 727/MUM/1999 FOR ASSESSMENT YEAR 1993-94. THE RELEVANT ISSUE HA S BEEN DECIDED BY THE TRIBUNAL WHICH IS ON PAGE-5 PARA 9 & 10 WHICH IS AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OOF THE AUTHORITIES BELOW AND RELEVANT PROVISIONS OF INCOME TAX ACT AND WE FIND THAT THE TERM INDUSTRIAL UNDERTAKING IS DEFINED IN THE INCOME TAX ACT ITSELF AS PER EXPLANATION TO SEC. 33B, WHIC H READS AS UNDER: IN THIS SECTION, INDUSTRIAL UNDERTAKING MEANS AN Y UNDERTAKING WHICH IS MAINLY ENGAGED IN THE BUSINESS OF GENERATION OR DISTRIBUTION OF ELECTRICITY OR ANY OT HER FORM OF POWER OR IN THE CONSTRUCTION OF SHIPS OR IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN MINING. IN VIEW OF THIS DEFINITION OF THE TERM INDUSTRIAL U NDERTAKING GIVEN IN THE INCOME TAX ACT ITSELF, WE ARE OF THE CO NSIDERED OPINION THAT THERE IS NO REASON TO CONSIDER THE DEFINITION GIVEN IN IDBI ACT, 1964, TO THE TERM INDUSTRIAL CONCERN. FROM THE D EFINITION OF THE TERM INDUSTRIAL UNDERTAKING GIVER IN SECTION 33B AS AB OVE, IT CAN BE SEEN THAT CONSTRUCTION OF SHIPS IS COVERED WITHIN THE D EFINITION OF THE TERM INDUSTRIAL UNDERTAKING, BUT THE ASSESSEE IS ENGAGED IN OPERATION OF SHIPS AND NOT IN CONSTRUCTION OF SHIPS AND IN VIEW OF THIS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT COVERED BY THE TERM INDUSTRIAL UNDERTAKING, AS PER THIS DEFINITION OF T HE TERM INDUSTRIAL UNDERTAKING AND FOR THE SAME REASON, IT CANNOT BE S AID THAT ACQUISITION AND OPERATION OF A SHIP AMOUNTS TO SETTING UP OF A NEW INDUSTRIAL UNIT, AND THEREFORE, WE ARE OF THE CONSIDERED OPINION THA T GROUND NO. 5 OF ASSESSEES APPEAL IS LIABLE TO BE REJECTED. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNA L AND AS CONCEDED BY THE COUNSEL, GROUND NO. 1 IS DISMISSED. 4. GROUND NO. 2 IS WITHOUT PREJUDICE TO WHAT IS CLA IMED IN GROUND NO. 1. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO IN ALL THE ASSE SSMENT YEARS COMMENCING FROM 1993-94 ONWARDS. IT IS ALSO POINTED OUT BY TH E LD. COUNSEL THAT THE AO HAS NOT PASSED ANY ORDER FOR THE ASSESSMENT YEARS 1 993-94 TO 1996-97 TO GIVE EFFECT TO THE ORDER OF THE TRIBUNAL. HOWEVER, THE AO HAS FOR THE ITA NO. 2506/MUM/2008 4 REMAINING ASSESSMENT YEARS I.E. 1997-98 TO 2003-04 PASSED THE CONSEQUENTIAL ORDER TO GIVE EFFECT TO THE ORDERS OF THE TRIBUNAL. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE FOR THE ASSESSMENT YEARS 1997-98 TO 2003-0 4 AND THE ASSESSEE- COMPANY HAS ACCEPTED THE SAID ORDERS. THE LD. COUN SEL HAS FURNISHED THE COPIES OF THE RELEVANT ASSESSMENT ORDERS. 5. WE HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE RS FURNISHED BY THE LD. COUNSEL AND FIND THAT IN ALL THE ASSESSMENT ORD ERS, THE ISSUE HAS BEEN DECIDED AS UNDER: AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE EXPE NSES ON ISSUE OF SHARES BE CONSIDERED AS PART OF THE COST O F THE SHIPS, THE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE AS THERE IS NO SPECIFIC PROVISION UNDER SECTION 43(1) OF THE AC T WHICH ALLOWS SUCH EXPENSES TO BE CONSIDERED AS PART OF THE ACTUA L COST OF THE SHIPS ON WHICH DEPRECIATION IS TO BE ALLOWED. AS THE ISSUE IS NOW SETTLED AND THE ASSESSEE HAS A CCEPTED, WE DO NOT FIND ANY REASON AND MERIT IN GROUND NO. 2 WHICH ACC ORDINGLY IS DISMISSED. 6. GROUND NO. 3 IS OF GENERAL IN NATURE AND NEEDS N O ADJUDICATION. 7. GROUND NOS. 4 AND 5 RELATE TO THE ADHOC ALLOCATI ON OF INTEREST EXPENDITURE AGGREGATING TO RS. 5,49,26,000/- WHICH IS ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME. 8. BRIEFLY STATED THE FACTS INVOLVED IN THESE GROUN DS SUGGESTS THAT THE AO COMPUTED THE DISALLOWANCE OF INTEREST FOR THE EARNI NG OF DIVIDEND INCOME WHICH IS CLAIMED TO BE EXEMPT FROM TAX . INVOKING TH E PROVISIONS OF SEC. 14A, THE AO HAS COMPUTED THE DISALLOWANCE AT RS. 549.26 LAKHS. THE CALCULATION IS DEMONSTRATED AT PAGE-20 OF THE ASSESSMENT ORDER WHE REIN THE AO HAS CONSIDERED THE FIGURE OF INVESTMENT AT RS.41,669 LA KHS AND WENT ON TO COMPUTE THE INVESTMENT ALLOCABLE OUT OF LOAN FUNDS AT RS. 17,547 LAKHS WHICH COMES TO 42.11% APPLYING THE AVERAGE RATE OF INTERE ST AT THE RATE OF 3.13% ON INVESTMENTS ALLOCABLE OUT OF LOAN FUNDS AT RS. 1 7,547 LAKHS. THE AO FINALLY ITA NO. 2506/MUM/2008 5 COMPUTED THE ALLOCATION OF INTEREST TO DIVIDEND INC OME AT RS. 549.26 LAKHS AND DISALLOWED THE SAME U/S. 14A OF THE ACT. 9. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DRE W OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE-COMPANY AS AT 31 ST MARCH, 2004. POINTING OUT TO PAGE-7 OF THE PAPER BOOK, THE LD. COUNSEL ARGUED THAT THE ASSESSEE COMPANY IS HOLDING LONG TERM INVESTMENT TO THE TUNE OF RS. 1907 LAKHS AND CURRENT INVESTMENT (STOCK-IN-TRADE) OF SHARES AT RS . 39,762 LAKHS TOTALING TO RS. 41,669 LAKHS. THE LD. COUNSEL POINTED OUT THAT THE AO HAS GROSSLY ERRED IN TAKING THE STOCK IN TRADE OF SHARES FOR COMPUTIN G THE DISALLOWANCE U/S. 14A OF THE ACT. TO SUBSTANTIATE HIS CLAIM, THE LD. COU NSEL RELIED UPON THE DECISION OF THE ITAT, MUMBAI I BENCH IN ITA NO. 6711/MUM/20 11. THE LD. COUNSEL FURTHER RELIED UPON THE DECISION OF THE ITAT MUMBAI BENCH IN ITA NOS. 3724/M/2005, 932/M/2006 AND 1384/MUM/2007. THE LD. COUNSEL CONCLUDED THAT IN BOTH THESE DECISIONS, THE TRIBUNAL HAS HELD THAT NO DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT IN RELATION TO THE EXEM PT DIVIDEND INCOME RECEIVED FROM SHARES HELD ON TRADING ACCOUNT. 11. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 12. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT AT PAGE-20 OF THE ASSESSMENT ORDER, THE AO HAS CONSIDERED THE TOTAL INVESTMENT AT RS. 4 1,669 LAKHS. IT IS ALSO NOT IN DISPUTE THAT OUT OF THIS 39,762 LAKHS ARE SHARES HELD BY THE ASSESSEE AS STOCK-IN-TRADE UNDER THE HEAD CURRENT INVESTMENT IN ITS BALANCE SHEET AS EXHIBITED AT SCHEDULE-VI. WE FIND FORCE IN THE CONT ENTION OF THE COUNSEL THAT TO THIS EXTENT SECTION 14A CANNOT BE I NVOKED. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE TRIBUNAL (SUPRA). IN OUR CONSIDERATE VIEW, ITA NO. 2506/MUM/2008 6 THE DISALLOWANCE, IF ANY, HAS TO BE CONSIDERED ONLY IN RESPECT OF THE LONG TERM INVESTMENT SHOWN AT RS. 1907 LAKHS. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK TO THE FILE O F THE AO. THE AO IS DIRECTED TO RECALCULATE THE DISALLOWANCES IGNORING THE CURRE NT INVESTMENTS IN SHARES HELD AS STOCK-IN-TRADE TO THE TUNE OF RS. 39,762 LA KHS AND CONSIDER ONLY LONG TERM INVESTMENT AT RS. 1907 LAKHS AFTER GIVING REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NOS. 4 & 5 IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NOS. 6 & 7 RELATE TO ALLOCATION OF ADHOC AMOUNT OF RS. 5,57,880/- AS EXPENSES TOWARDS THE EARNING OF DIVID END INCOME. 14. THE ISSUE FINDS PLACE AT PAGE-21 OF THE ASSESSM ENT ORDER WHEREIN THE AO HAS ADDED 10% OF THE TOTAL COST INCURRED BY THE TREASURY DEPARTMENT OF THE ASSESSEE AT RS. 55,78,876/- DISALLOWING RS. 5,5 7,880/- U/S. 14A OF THE ACT. 15. THE MATTER WAS CARRIED OVER BEFORE THE LD. CIT( A) BUT WITHOUT ANY SUCCESS. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ARG UED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) IN ASSESSMENT YE AR 2001-02 AND 2002-03 WHEREIN THE LD. CIT(A) HAS DIRECTED TO RESTRICT THE DISALLOWANCE TO 5% OF THE TOTAL EXPENDITURE. THE LD. COUNSEL PLEADED THAT TH E SAME MAY BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION AS THE REVENUE HAS ACCEPTED THE ORDER OF THE LD. CIT(A) FOR A.Y. 2001-02 AND 2002-03. 17. WE HAVE PERUSED THE ORDERS OF THE LD. CIT(A) FO R THE RELEVANT YEAR AS POINTED OUT BY THE LD. COUNSEL AND WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL . THE LD. CIT(A) HAS RESTRICTED THE DISALL OWANCE AT 5% OF THE TOTAL EXPENDITURE. WE ACCORDINGLY DIRECT THE AO TO RESTR ICT THE DISALLOWANCE AT 5% OF RS. 55,78,876/-. GROUND NOS. 6 & 7 ARE PARTLY A LLOWED. 18. GROUND NO. 8 IS CONSEQUENTIAL AND ACCORDINGLY D ISPOSED OFF. ITA NO. 2506/MUM/2008 7 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 19 TH DAY OF OCTOBER, 2012 SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA ) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 19 TH OCTOBER, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI