SVITZER HAZARIA P.LTD, MUMBAI V. DCIT CIR 5(3), MUMBAI

ITA 2690/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0429 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: KIRAN NISAR
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 2690 /MUM/20 1 5 (ASSESSMENT YEAR 20 1 0 - 11 ) M/S. SVITZER HAZIRA PVT. LTD. 302, DELTA HIRANANDANI BUSINESS PARK POWAI, MUMBAI - 400 076. VS. DCIT CIRCLE - 5(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAICS2193R ASSESSEE BY SHRI KIRAN NISAR DEPARTMENT BY SHRI V. VIDHYADHAR DATE OF HEARING 4 . 8 . 201 7 DATE OF PRONOUNCEMENT 11 . 8 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.2.2015 PASSED BY THE LEARNED CIT(A) - 10, MUMBAI AND IT RELATES TO A.Y. 2010 - 11. 2. AT THE TIME OF HEARING LEARNED AR ADVANCES HIS ARGUMENTS ON T HE FOLLOWING TWO ISSUES : - A) ADDITION MADE U/S. 14A OF THE I.T. ACT B) ADDITION RELATING TO FOREIGN EXCHANGE GAINS. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TOWAGE, SALVAGE AND RELATED MARINE SERVICES , I.E., IN SHIPPING BUSINESS . THE ASSESSEE OWN ED QUAL IFYING SHIPS (AS PER TONNAGE TAX SCHEME) AND NON - QUALIFYING SHIPS. ACCORDINGLY IT OFFERED ITS INCOME UNDER TONNAGE SCHEME FOR QUALIFYING SHIPS AND UNDER REGULAR PROVISIONS OF THE ACT FOR NO N - QUALIFYING SHIPS. THE ASSESSING OFFICER , INTER ALIA , ADDED A SUM OF ` 14.26 LAKHS US. 14A OF THE ACT AND ALSO ADDED M/S. SVITZER HAZIRA PVT. LTD. 2 FOREIGN EXCHANGE GAIN S OF ` 921.33 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. THE LEARNED CIT(A) PARTLY CONFIRMED BOTH THE ADDITION S REFERRED ABOVE. STILL AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEF ORE US. 4. FIRST ISSUE RELATES TO ADDITION MADE U/S. 14A OF THE ACT. LEARNED AR SUBMITTED THAT T HE ASSESSEE EARNED DIVIDEND INCOME OF RS.2.22 LAKHS FROM MUTUAL FUND UNITS AND CLAIMED THE SAME AS EXEMPT. HENCE THE AO COMPUTED DISALLOWANCE U/S 14A AS PER RULE 8D OF THE IT RULES. HE SUBMITTED THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS IN EXCESS OF THE VALUE OF INVESTMENTS AND HENCE NO DISALLOWANCE OUT OF ITS INTEREST EXPENDITURE IS CALLED FOR. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD MADE INVESTMENT S IN THREE SCHEMES OF MUTUAL FUNDS IN THE EARLIER YEARS AND ALL OF THEM HAVE BEEN LIQUIDATED DURING THE YEAR U NDER CONSIDERATION. ACCORDINGLY, HE SUBMITTED THAT THE ASSESSEE HAS RIGHTLY CLAIMED THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING DIVIDEND INCO ME OF ` 2.22 LAKHS. ACCORDINGLY, HE PRAYED THAT THE ADDITION MADE U/S. 14A BE DELETED. 5. ON THE CONT RA RY, LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE LEARNED CIT(A). 6. HAVING HEARD THE RIVAL CONTENTIONS, WE FIND MERIT IN THE C ONTENTION S OF THE ASSESSEE. WE NOTICED FROM THE FINANCIAL STATEMENTS OF THE ASSESSEE THAT THE ASSESSEE HAS MADE INVESTMENT IN THE UNITS OF MUTUAL FUND UNITS TO THE TUNE OF ` 4.03 CRORES IN THE IMMEDIATELY PRECEDING YEAR. DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE DID NOT MAKE ANY FRESH INVESTMENT AND , IN FACT, IT HAS LIQUIDATED ALL THE UNITS HELD IN MUTUAL FUNDS. THE ASSESSEE WA S HAVING SHAREHOLDER FUND S OF ` 8.06 CRORES AS ON 1.4.2009 AND ` 13.53 LAKHS AS ON 31.3.2010. THUS, WE NOTICE THAT OWN FUN DS AVAILABLE WITH THE ASSESSEE IS IN FAR EXCESS OF THE AMOUNT OF INVESTMENT S AND HENCE NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR AS PER DECISION RENDERED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT (366 ITR 505) . WE NOTICED THAT THE ASSESSEE HAS HELD INVESTMENTS IN THREE SCHEMES OF MUTUAL FUNDS AND M/S. SVITZER HAZIRA PVT. LTD. 3 ALL OF THEM HAVE BEEN LIQUIDATED DURING THE YEAR . ACCORDINGLY , WE ARE OF THE VIEW THAT THE RE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PROVISIONS OF R U LE 8D(2)(III) OF THE I.T. RULES SHOULD NOT BE APPLIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE THE ASSESSEE HAS RECEIVED DIVIDEND INCOME AND SINCE THERE WERE ACTIVITIES RELATING TO LIQUIDATION OF MUTUAL FUNDS, WE ARE OF THE VIEW THAT SOME AMOUNT SHOULD BE DISALLOWED U/S 14A OF THE ACT. ACCORDINGLY, IN ORDER TO PUT THIS ISSUE AT REST, WE MODIFY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO MAKE A DISALLOWANCE OF ` 5000/ - OUT OF ADMINISTRATIVE EXPENSES TO MEET THE REQUIREMENTS OF 14A OF THE ACT AND IN OUR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE . 7. NEXT ISSUE URGED BY THE ASSESSEE RELATES TO ADDITION OF FOREIGN EXCHANGE GAIN. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED FOREIGN EXCHANGE GAIN OF ` 9 . 21 CRORES , BUT DID NOT OFFER THE SAME AS INCOME UNDER THE ACT ON THE REASONING THAT THE SAME RELATES TO SHIPPING ACTIVITIES AND INCOME THERE FROM WA S COMPUTED UNDER TONNAGE TAX SCHEME FOR QUALIFYING SHIPS. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTE NTION S OF THE ASSESSEE , SINCE HE WAS OF THE VIEW THAT THE ASSESSEE DID NOT ADDUCE ANY EVIDENCE TO PROVE THAT THE AFORESAID INCOME HAS ARISEN FROM TONNAGE AC TIVITY . A CCORDINGLY HE ADDED ` 9.21 CROES TO THE TOAL INCOME OF THE ASSESSEE. 8. BEFORE THE LEAR NED CIT(A), THE ASSESSEE SUBMITTED THAT IT HAS INCURRED FOREIGN EXCHANGE LOSS OF ` 1.53 CRORES AND HENCE NET FOREIGN EXCHANGE GAIN WORKS OUT TO ` 7.68 CRORES. THE ASSESSEE FURTHER PLACED RELIANCE ON THE DECISION RENDERED BY THE COORDINATE BENCH OF ITAT IN THE CASE OF TAG OFFSHORE LTD. (49 TAXMANN. COM 209) AND CONTENDED THAT FOREIGN EXCHANGE GAIN ARISING ON ACCOUNT OF SUNDRY CREDITORS AND DEBTORS SHOULD BE CONSIDERED AS ARISEN FROM SHIPPING BUSINESS ONLY AND HENCE THE ABOVE SAID INCOME WOULD BE COVERED UNDE R TONNAGE TAX SCHEME . 9. THE LEARNED CIT(A) AGREED WITH THE CONTENTION S OF THE ASSESSEE THAT NET FOREIGN EXCHANGE GAIN OF ` 7.68 CRORES ONLY SHOULD BE CONSIDERED FOR THE M/S. SVITZER HAZIRA PVT. LTD. 4 PURPOSE OF ADDITION. THE LEARNED CIT(A) NOTICED THAT FOREIGN EXCHANGE GAIN HAS ARISE N TO THE ASSESSEE OUT OF LOAN TRANSACTIONS, WHEREAS IN THE CASE OF TAG OFFSHORE LTD. (SUPRA) , FOREIGN EXCHANGE GAIN AROSE ON REVENUE ACCOUNT , I.E., OUT OF DEBTORS AND CREDITORS BALANCES. ACCORDINGLY, HE HELD THAT ENTIRE AMOUNT OF NET FOREIGN EXCHANGE GAIN IS TAXABLE IN THE HANDS OF THE ASSESSEE UNDER NORMAL PROVISIONS OF THE ACT . BEFORE, THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT PROPORTIONATE GAIN OF ` 14.74 LAKHS RELATING TO NON - QUALIFYING SHIP (NOT COVERED UNDER TONNAGE TAX SCHEME) HAS ALREADY BEEN OFFERED BY THE ASSESSEE AS ITS INCOME . H ENCE THE LD CIT(A) DIRECTED THE AO TO DELETE THE ADDITION TO THAT EXTENT , AS THE SAME WOULD RESULT IN DOUBLE TAXATION. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN PARTIALLY CONFIRMING THE ADDITION. 1 0. LEARNED AR SUBMITTED THAT THAT FOREIGN EXCHANGE GAIN OF ` 7.68 CRORES CONSISTS OF TWO PARTS , VIZ., FOREIGN EXCHANGE DIFFERENCE ARISING ON ACCOUNT OF ECB LOAN - ` 5.28 CRORES AND FOREIG N EXCHANGE DIFFERENCE RELATING TO OTHER ITEMS , I.E., OTHER THAN ECB LOAN - ` 2.40 CRORES. HE SUBMITTED THAT PROVISIONS OF SECTION 43A WOULD BE APPLICABLE FOR THE PURPOSE OF INCOME TAX IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION ARISING OUT OF LOAN TRANSACTION S WHEN ANY ASSET WAS ACQUIRED OUT OF THE FOREIGN LOANS . HE SUBMIT TED THAT SECTION 43A PROVIDES THAT FOREIGN EXCHANGE GAIN WOULD GO TO REDUCE THE COST OF FIXED ASSET AND FURTHER THE GAIN SHOULD BE ASCERTAINED ONLY AT THE TIME OF MAKING ACTUAL PAYMENT. HE SUBMITTED THAT THE FOREIGN EXCHANGE GAIN HAS BEEN ACCOUNTED FOR BY THE ASSESSEE AS PER ACCOUNTING PRINCIPLES AND HENCE THE SAME IS REQUIRED TO BE IGNORED , SINCE ADJUSTMENTS SHALL BE MADE AT THE TIME OF MAKING PAYMENT . I N THIS REGARD , THE LEARNED AR PLACED RELIANCE ON THE DEC I SION RENDERED BY KOLKATA BENCH OF THE ITAT IN THE CASE OF VODAFONE EAST LTD. VS. ADD. CIT (2016) 156 ITD 337, WHEREIN IT WAS HELD AS UNDER: - 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE ARE UNDISPUTED. THERE IS NO DISPUTE THAT THE PROVISIONS OF SECTION 43A OF THE ACT WOULD BECOME APPLICABLE FOR RECOGNIZING THE EXCHANGE FLUCTUATION IF THE LOAN WAS OBTAINED FOR ACQUISITION OF FIXED ASSETS ONLY AT THE TIME OF MAKING PAYMENT AND ACCORDINGLY THE EXCHANGE GAIN, IF ANY, WOULD GO TO RE DUCE THE COST OF M/S. SVITZER HAZIRA PVT. LTD. 5 THE FIXED ASSET. SINCE IN THE INSTANT CASE, THE EXCHANGE GAIN IS DERIVED ONLY ON A NOTIONAL BASIS AND IS UNREALIZED, BY APPLYING THE PROVISIONS OF SECTION 43A OF THE ACT, THE SAID GAIN NEEDS TO BE REDUCED FROM THE TAXABLE INCOME. WE ALSO F IND THAT THE LEARNED ASSESSING OFFICER HAVING ACCEPTED TO THE FACTS OF THE CASE AND THE RELEVANT PROVISION OF THE INCOME TAX ACT IN HIS REMAND REPORT, OUGHT NOT TO HAVE COME ON APPEAL BEFORE US ON THIS ISSUE. WE ALSO FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR OF INDIA (P.) LTD. [2009] 312 ITR 254/179 TAXMAN 326 WHEREIN THE PRIN CIPLES WERE LAID DOWN FOR RECOGNITION OF EXCHANGE GAIN/LOSS UNDER VARIOUS CIRCUMSTANCES. ACCORDINGLY , HE SUBMITTED T HAT FOREIGN EXCHANGE DIFFERENCE OF ` 5.28 CRORES ARIS ING OUT OF ECB LOAN IS NOT REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF DE TERMINING TH E TOTAL INCOME OF THE ASSESSEE. WITH REGARD TO FOREIGN EXCHANGE DIFFERENCE RELATING OTHER ITEMS (OTHER THAN ECB LOAN ) , THE LEARNED AR SUBMITTED THAT FOREIGN EXCHANGE GAIN HAS BEEN ALLOCATED TO VARIOUS SHIPS AND FURTHER THE FOREIGN EXCHANGE GAIN RELATING T O NON - QUALIFYING SHIPS HAS ALREADY BEEN OFFERED BY THE ASSESSEE IN COMPUTING THE TOTAL INCOME. SINCE THE F OREIGN EXCHANGE GAIN RELATING TO QUALIFYING SHIPS SHOULD BE CONSIDERED AS PART OF SHIPPING INCOME AS HELD IN THE CASE OF TAG OFFSHORE LTD. (SUPRA) , N O SEPARATE ADDITION IS REQUIRED TO BE MADE . ACCORDINGLY HE SUBMITTED THAT THE ENTIRE ADDITION SUSTAINED BY LD CIT(A) SHOULD BE DELETED. 1 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , ON THE CONTRARY, PLACED RELIANCE ON THE ORDER PASSED BY THE LEARNED CIT(A ). 12 . WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS ISSUE . WE FIND MERIT IN THE CONTENTION S OF THE ASSESSEE THAT FOREIGN EXCHANGE DIFFERENCE ARIS ING ON ACCOUNT OF ECB LOAN , WHICH WAS USED TO PURCHASE ASSETS, WOULD BE GOVERNED BY THE PROVISIONS OF SECTION 43A OF THE ACT AND FURTHER THE DIFFERENCES ARE REQUIRED TO BE ADJUSTED AGAINST THE COST OF ASSET AT THE TIME OF MAKING ACTUAL PAYMENT. IN THE INSTANT CASE, ASSESSEE HAS ACCOUNTED FOR THE FOREIGN EXCHANGE DIFFERENCES ARISING ON ECB LOAN AS PER THE ACCOUNTIN G PRINCIPLE S AND HENCE THE SAME IS REQUIRED TO BE IGNORED FOR THE PURPOSE OF COMPUTING TOTAL INCOME AS PER THE M/S. SVITZER HAZIRA PVT. LTD. 6 PROVISIONS OF SECTION 43A OF THE ACT AS HELD IN THE CASE OF VODAFONE EAST LTD (SUPRA) . 1 3 . IN RESPECT OF FOREIGN EXCHANGE GAIN DIFFERENCE ARIS IN G ON OTHER ITEMS, WE NOTICED THAT THE ASSESSEE HAS ALLOCATED THE GAIN BETWEEN THE QUALIFYING SHIPS AND NON - QUALIFYING S HIPS . INCOME FROM QUALIFYING SHIPS IS COMPUTED UNDER TONNAGE TAX SCHEME. SINCE THE EXCHANGE DIFFERENCE ON OTHER ITEMS HAVE ARISEN OUT OF SHIPPING BUSINESS, IT WILL FORM PART OF SHIPPING INCOME. SINCE THE INCOME FROM QUALIFYING SHIPS WAS COMPUTED UNDER TONNAGE TAX SCHEME, NO SEPARATE ADDITION IS REQUIRED TO BE MADE IN RESPECT OF FOREIGN EXCHANGE GAIN ALLOCATED TO QUALIFYING SHIPS . IT WAS S UBMITTED THAT TH E ASSESSEE IT SELF HAS OFFERED THE FOREIGN EXCHANGE GAIN ARISING ON OTHER ITEMS AND WHICH WAS ALLOCATED TO NON - QUALIFYING SHIPS , WHICH FACT HAS ALSO BEEN ACCEPTED BY LD CIT(A) . 14. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VI EW THAT THERE WAS NO REQUIREMENT TO MAKE ANY FURTHER ADDITION ON ACCOUNT OF FOREIGN EXCHANGE GAINS OVER AND ABOVE THAT WAS OFFERED BY THE ASSESSEE AS RELATING TO NON - QUALIFYING SHIP. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO AGREE WITH THE DECISION TAKE N BY THE LEARNED CIT(A) IN SUSTAINING THE ADDITION . ACCORDINGLY, WE MODIFY THE ORDER PASSED BY THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION THAT WAS SUSTAINED BY THE LEARNED CIT(A). 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 11 . 8 .201 7. SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 11 / 8 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) M/S. SVITZER HAZIRA PVT. LTD. 7 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, M UMBAI