DCIT, New Delhi V. M/s. Jagson International Ltd., New Delhi

ITA 276/DEL/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9472 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 16-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Double taxation relief; Tax effect; Earning of tax free income; Proportionate interest; Permanent establishment; Notional interest; Commercial expediency; TDS; Rule 8D; Set aside
• Section: 32; 14A; 115JB; 40(a)(ia); 36 (1) (iii); 195; 113; 43; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “D” : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI NARENDRA KUMAR CHOUDHARY, JUDICIAL MEMBER ITA Nos.1001 & 1002/Del./2016 Assessment Years 2012-13 & 2013-14 The Dy. CIT, Circle–13 (1), Room No. 316-A, C.R. Building, New Delhi. vs., M/s. Jagson International Ltd., 3 rd Floor, Vandana Building, Tolstoy Marg, New Delhi – 110 001. PAN AAACJ2147A (Appellant) (Respondent) ITA No.276/Del./2017 Assessment Year 2014-15 The Dy. CIT, Circle–13 (1), Room No. 316-A, C.R. Building, New Delhi. vs., M/s. Jagson International Ltd., 3 rd Floor, Vandana Building, Tolstoy Marg, New Delhi – 110 001. PAN AAACJ2147A (Appellant) (Respondent) For Revenue : Shri P.C. Maurya, CIT For Assessee : Shri Rajiv Saxena, Advocate And Shri Rahul Prabhakar, Advocate. Date of Hearing : 05.01.2022 Date of Pronouncement : 31.01.2022 2 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. ORDER PER R.K. PANDA, A.M. ITA.Nos.1001 & 1002/Del./2016 filed by the Revenue are directed against the common order dated 23.12.2015 of the Ld. CIT(A)-5, Delhi relating to the A.Ys. 2012-13 and 2013-14 respectively. ITA.No.276/Del./2017 filed by the Revenue is directed against the order dated 17.11.2016 of the Ld. CIT(A) relating to the A.Y. 2014-15. Since common issues are involved in all these appeals, therefore, these appeals were heard together and are being disposed of by this common order for the sake of convenience. ITA.No.1001/Del./2016 – A.Y. 2012-13 : 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of shipping and storage. It filed its return of income declaring income of Rs.2,17,49,610/- under normal provisions of the I.T. Act, 1961 and at book profit at Rs.64,93,03,889/- under section 115JB of the I.T. Act, 1961. During the course of 3 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. assessment proceedings, the A.O. observed that Assessee- company has given interest free loans to its subsidiary company M/s Jagson Airline Ltd. amounting to Rs.56,64,204/-. He, therefore, asked the assessee to explain as to why proportionate interest should not be disallowed as the assessee-company has incurred financial cost of Rs.34,84,37,412/-,on secured/unsecured loans. He further noted that similar addition was made in the last assessment year and assessee during the proceedings had stated that advance was given to sister concern M/s Jagsons Airlines with which assessee has close business relation and it holds more than 2/3 rd share. Since the assessee could not explain commercial expediency for advancing these interest free loans to this concern the A.O. observed that there is no business exigency for advancing these loans. The A.O. in the absence of any satisfactory reply from the assessee, disallowed the interest of Rs.6,79,704/- to the total income of the assessee being interest @ 12% p.a. on Rs.56,64,204/- . . 4 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 2.1. The A.O. during the course of assessment proceedings asked the assessee to explain as to why the provisions of Section 14A read with Rule 8D should not be applicable to the assessee-company. It was explained by the assessee that since assessee-company is tonnage tax company whatever income earned which is exempt would be automatically enhancing the tonnage tax income in case any disallowance under section 14A is made. Thus, there is no tax effect if any disallowance is made. However, the A.O. was not satisfied with the arguments advanced by the assessee. Applying the provisions of Section 14A of the I.T. Act, 1961 read with Rule 8D of I.T. Rules, 1962, the A.O. made disallowance of Rs.53,40,288/- to the total income of the assessee. 2.2. During the course of assessment proceedings the A.O. noted that assessee has claimed depreciation amounting to Rs.9,51,432/- being 40% on its Aircraft. The A.O. asked the assessee to explain as to why depreciation should not be disallowed as the aircraft is not in use and there is no income from flying of aircraft. Rejecting the 5 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. explanation given by the assessee, the A.O. disallowed depreciation on aircraft at Rs.9,51,432/-. 2.3. The A.O. similarly observed during the course of assessment proceedings that assessee has claimed expenses of Rs.8,11,25,986/- on account of unpaid operational charges to ONGC. He asked the assessee to file complete details and explanation as to why the same should not be disallowed as the expenditure was not incurred in the previous year and no detail of TDS deducted on such expenses was filed. The assessee submitted that it is operating various ships for ONGC and raised bills for the operation. The ONGC used to make payment but till the time the amount is outstanding is kept in the head ‘unpaid operating incomes’. The company declares the income as per mercantile system of accounting and so all unpaid income is already included in the operating income. The unpaid has been shown separately so that accounting errors could be avoided. However, the A.O. was not satisfied with the explanation given by the assessee on the ground that in the P & L A/c assessee has claimed unpaid 6 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. operating expenses whereas assessee in its submission mentioning the fact regarding unpaid operating income. He noted that similar addition was made in the A.Y. 2011-12. Therefore, on the basis of the order of his predecessor for the A.Y.2011-12, the A.O. made disallowance of Rs.8,11,25,986/-. 2.4. During the course of assessment proceedings the A.O. asked the assessee to furnish details on TDS deducted on payment of Rs.2,14,08,343/- made to M/s Noble Denton Middle East. On being asked by the A.O, it was explained that assessee-company does not have any Permanent Establishment [“PE”] in India and assessed to tax in UAE with whom there is DTAA and so no tax is deductible. However, the A.O. was not satisfied with the explanation given by the assessee. He referred to provision of Section 9 (1) (vii) of the Income Tax Act, 1961 and Explanation thereto and noted that a conjoint reading of the above provisions clearly brings out the amount paid to Noble Denton Middle East, UAE was subject matter of TDS. Since the assessee failed to deduct tax on payment of Rs.2,14,08,344/- as per 7 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. provision of Section 195 read with Section 9 (1) (vii) of the I.T. Act, 1961, the A.O. held that the amount so paid is chargeable to tax in India and accordingly disallowed the same as per provision of Section 40 (a) (ia) of the I.T. Act, 1961. 2.5. The A.O. also made addition of Rs.10,81,064/- on account of provision of Gratuity and addition of Rs.62,55,82,919/- on account of shipping unit. Thus, the A.O. determined the total income of the assessee at Rs.75,79,19,347/-. 3. In appeal, the Ld. CIT(A) deleted all the additions. 3.1. So far as the addition of Rs.6,79,704/- made by the A.O. on account of notional interest is concerned, the Ld. CIT(A) deleted the addition by observing as under : “3.2. I have given careful consideration to the submissions of the learned A/R. The Hon'ble Supreme Court while giving judgment in the case of Madhav Prasad Jatia V. CIT, (SC) 118 ITR 200 has established that the expression "for the purposes of Business & Profession" occurring in Section 8 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 36(l)(iii) is wider in scope than the expression occurring in Section 57 (iii), meaning thereby that the scope for allowing a deduction under Section 36 (1) (iii) would be much wider than the one available under Section 57 (iii). This phrase, as held in many legal pronouncements, is the most important yardstick for the allowability of deduction under Section 36 (1) (iii) of Income Tax Act, 1961. While explaining the meaning of this phrase, the Hon'ble Supreme Court in the case of S. A. Builders Ltd. Vs. CIT reported in 288 ITR 1 has used the word "commercial expediency". By using this phrase Hon'ble Supreme Court has given a new dimension and clarified the concept further. In the judgment the Supreme Court has defined commercial expediency as "an expression of wide import' and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency". Further, following this judgment, the High Court of Delhi, in the case of Punjab Stainless Steel Industries Vs. CIT 324 ITR 396, has further elaborated "The commercial expediency would include 9 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assessee-firm. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee- firm and working solely in the interest of the assessee- firm/ company, would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advances when the assessee-firm/company itself is borrowing funds for running its business". 3.2.1. Thus, following three conditions are sine qua non for allowance of a claim for deduction of interest under this provision: 10 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. (i) The money, that is capital, must have been borrowed by the assessee. (ii) It must have been borrowed for the purpose of business. iii) The assessee must have paid interest on the borrowed amount i.e. he has shown the same as an item of expenditure. 3.2.2. The main argument of the A/R is that the loans and advances are for business activities, the appellant being a major share holder in Jagsun Airlines with long term business relationship. The aircraft belonging to the appellant company were being run by the said airline on lease basis for last many years and advance had been also taken for the airline for business purposes in the past, on which no interest had been charged. The AO has disallowed the interest on loan without recording any finding that the interest bearing loan had been diverted by the appellant for providing interest free advances to the sister concern. It is not the 11 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. case of the A.O that the interest free funds available with the appellant were not sufficient to advance the interest free money in question, as the appellant had shown a profit of Rs.64,93,03,890/- (before tax) and had reserves and surplus of Rs.464 Crores. 3.2.3. In accordance with the legal position u/s 36(1)(iii) the assessee is entitled to claim interest expenditure incurred for its purposes of business. As already stated above, the loans and advances have been established to have been made by the appellant for business purposes only and no personal nature of any kind has been attributed by the AO nor does it emerge from the assessment proceedings. The AO has presumed that the appellant has made the interest free advances from out of borrowed funds but perusal of the balance sheet for the A.Y 2012-13 shows that the appellant had stocks (net of sundry creditors) of Rs.34.99 crores as well as additions to fixed assets of Rs.784.32 crores and sundry debtors of 59.09 crores, which shows that the borrowed funds have been 12 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. utilized for the business purposes. The reserves and surplus of the appellant as well as share capital is to the extent of Rs. 500 crores. The AO has not established any nexus between the borrowed funds and the interest free advances which is essential for making such a disallowance. In this regard the jurisdictional Delhi High Court and various other Courts in the citations mentioned below have held that, where the capital of the company and the interest-free funds with the assessee far exceeded the amounts advanced to the sister concerns or related parties, then no disallowance can be made u/s 36(l)(iii) of the Income Tax Act in respect of interest on loans and borrowed funds utilized for the purpose of business: 1. CIT vs. Gautam Motors 45 DTR 89 (Del) 2. CIT vs. Bharti Televenture Ltd. 51 DTR 98 (Del.) 3. CIT vs. Dalmia Cement (Bharti) Ltd. 29 DTR 138 (Del) 4. CIT vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) 5. Satish Katta vs. Asstt. CIT 13 DTR 237 (Jp 'A') 6. Madhu Industries Ltd. vs. ITO 43 DTR 23 (Ahd D') 13 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 3.2.4. In a recent decision in the case of Hero Cycles Pvt. Ltd.(Civil Appeal No.514/2008 dated 5.11.2015) the Supreme Court has held that, so long as there is nexus between the expenditure incurred and the purpose of the business of the subsidiary company (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm chair of the business man or in the position of the board of directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case, in the said decision, the Hon'ble Supreme Court approved of the view taken by Delhi High Court in Dalmia Cement Pvt. Ltd. (254 ITR 377) and disapproved of the Punjab & Haryana High Court decision in the case of Abhishek Industries (286 ITR). Incidentally in the case of Hero Cycles, it was found that the interest liability of the assessee towards the bank on borrowings made had no bearings on the issue as otherwise, the assessee had sufficient funds of its own to advance the funds to the 14 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. sister concern. Under such circumstances it was for the AO to establish such nexus between the borrowings and advances to prove that the expenditure was for non- business purposes, which the AO failed to do. In the present case also, as already discussed at paras 3.2.2. and 3.2.3. herein before, it is found that the appellant has sufficient funds of its own which he could have advanced and therefore the interest liability on the borrowings made could not be disallowed, particularly when the AO failed to prove that the expenditure was for non-business purposes. Relying on the decision of the Supreme Court in the case of Hero Cycles, it is held that the disallowance of Rs.6,79,704/- and Rs.2,02,875/- u/s 36( 1 )(>>i) is not in order. Accordingly, it is held that no notional interest can be attributed towards the interest free advances made during the impugned year. Ground no. 1 for both the years is allowed.” 15 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 3.2. So far as the disallowance under section 14A is concerned, the Ld. CIT(A) deleted the addition by observing as under : “4.2. I have given careful consideration to the submissions filed by the AR. It is noted from the financial statements that the major incomes of Rs.241.28 crores and 315.74 crores for the impugned years 2012-13 & 2013-14 has been received on account of drilling operations. The iss U e regarding eligibility of the appellant for being assessed under the provisions of Chapter XIIG is separately discussed by way of grounds 7 & 8 for A.Y. 2012-13 & 9 & 10 for A.Y. 2013- 14 and hence this aspect is not gone into detail at this stage. Suffice it to say that the Hon'ble Delhi High Court in the appellant's own case for A.Y. 2006-07 has upheld the ITAT order that the Deep Sea Matdrills owned by the appellant were to be considered as 'qualifying ships' in accordance with section 115VD. The question that arises, therefore, is whether any disallowance made u/s 14A is mandated as the same would automatically 16 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. enhance the income of the appellant but the same would, in any case, be exempt under the provisions of Chapter XIIG. It is claimed that the Bombay ITAT in the case of Varun Shipping Co. Ltd. (144 TTJ 286) has upheld the stand of the assessee in this regard. Since the major part of the income is derived from shipping business, any disallowance u/s 14A would automatically be allowable while computing income under the tonnage scheme. I find that the CIT(A) for the A.Y. 2007-08 in appeal no. 119/2009-10 has relied on the Delhi High Court's decision in the case of Sh. Ram Pistons and Rings Ltd. in giving direction to the AO while sustaining the addition made u/s 14A, that the benefit of tonnage tax scheme may be given on the finally determined income. The department, as per the appellant, has not challenged this particular finding of the CIT(A) before ITAT. For the A.Y. 2008-09 also, the disallowance u/s 14A has been upheld. On the other hand the Ld. CIT(A) for the A.Y. 2009-10 to 2011-12 has taken the view that since the appellant gets the benefit 17 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. of tonnage tax u/s 115VP read with section 115 VR, the disallowance u/s 14A is not warranted. 4.3. Perusal of the financial statement show that while no tax free dividends were received during assessment year 2012-13, a sum of Rs. 1,32,83,957 has been received in A.Y 2013-14. The appellant has made investment in sister companies and carried out activities in mutual fund, income from which is exempt u/s 10(38). These facts has been mentioned by the AO in the impugned assessments and it is noted that no suo-motu disallowance has been offered to tax by the appellant. No proof has been submitted in respect of the contention that no interest bearing funds have been utilized in respect of investment made in mutual funds. Therefore, in principle and in accordance with the established judicial precedents, due satisfaction having been recorded by the AO that it is not possible to ascertain the correctness of the claim of the appellant that no expenditure has been incurred in relation to exempt income, the AO was duty bound to apply rule 8D 18 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. particularly for the A.Y. 2013-14. For the A.Y. 2012-13, no exempt income has been earned and in view of the jurisdictional High Court decision in the case of Cheminvest Ltd. (ITA 749/2014), it is held, as a matter of judicial discipline, that no disallowance u/s 14A needs to be made. For the A.Y 2013-14 the disallowance made is sustained but would be allowable in computing the income of the appellant uhder the tonnage tax scheme. In view of the above remarks, ground no. 2 for A.Y. 2012-13 is allowed while grounds 2 & 3 for A.Y 2013-14 are dismissed. Ground no. 4, which is the alternate ground for A.Y 2013-14 is allowed.” 3.3. So far as depreciation on Aircraft is concerned, the Ld. CIT(A) deleted the addition by observing as under : “5.2. I have given careful consideration to the submissions made. The issue on which addition has been made is now being contested had its genesis in the AY 2005-06 and the Delhi High Court vide order dated 19 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 14.01.2011 in ITA No. 1854/2010 had set aside the matter to the AO to record a specific finding as to whether the aircraft was not put to use during the entire year, based on which the AO was to consider whether the assessee would be entitled to depreciation or not. On verification of the expenses incurred on fuel, repairs and maintenance, the AO reached the conclusion that depreciation was allowable in the set aside proceedings. No disallowance has been made by the AO for AYs 2006-07 and 2007- 08. The disallowance made in this regard for AY 2008-09 was allowed by the CIT(A) subject to the verification that the aircraft was put to use or not during the entire year. As per the grounds of appeal filed before the Hon'ble ITAT for that year, the department has not challenged this finding of the CIT(A). 5.3. For assessment years 2009-10 to 2011-12, my learned predecessor examined the legal provisions u/s 32, the judicial views on the subject, the facts of the assessee's case etc. to reach the conclusion that depreciation on aircraft is fully allowable. The relevant 20 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. observations of the CIT(A) for A.Y. 2009-10 in this regard are reproduced herein under: "7.1. I have carefully considered the written submission on behalf of the appellant and finding of the assessing officer in assessment order. I find that section 32 of the Act deals 'with depreciation. There is requirement that the assets should be owned and used for the wholly or partly by the assessee for the purpose of the business or profession. This section 32 was substituted by the Finance (No 2) Act, 1998 w.e.f. 01-04-1999. However, the concept of Block of asset was introduced w.e.f. 01-04-1988. This concept was discussed in detail in the case of CIT \/s Oswal Agro Mills Ltd (Supra) by the Hon'ble Delhi High Court. The use of the asset in the block of assets method the first year of its business is sufficient to allow depreciation from year to year. Once the asset is used by the assessee for the purpose of its business and the asset is owned by the assessee 21 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. depreciation has to be allowed to it from year to year unless it is sold or discarded and whole of the block cease to exist. The allowance of the depreciation is not dependent upon sale of the asset even once that block of asset exist. The object of the Legislature, in granting depreciation allowance under section 32 of the Act, is to give due allowance to the assessee for wear and tear suffered by the asset used by him in his business so that the net income (total income) is duty arrived at. There is no factual dispute that the assets in question were owned by the assessee. In Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 (Bom), it was observed that the expression "used" in section 10(2)(vi) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act"), corresponding to section 32 of the Act has to be given a wider meaning. The expression includes passive as well as active user. In CIT v. Dalmia Cement Ltd. [1945] 13 ITR 415 22 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. (Patna) and CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 62 (Bom), it was observed that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words "used for the purposes of the business" are capable of a larger and a narrower interpretation. If the expression "used" is construed strictly, it can be taken as connoting or requiring the active employment or the actual working of a machinery, plant or building in the business. On the other hand, the wider meaning will include not only cases where the machinefy, plant, etc., are actively employed but also cases where there is what may be described as a passive user of the same in the business. An asset can be said to be in use when it is kept ready for use. My attention was drawn to the fact that the AO himself by following the direction of Hon'ble Delhi High Court in AY 2005-06 has examined that the aircraft was used and, therefore, allowed the depreciation. It is 23 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. not in dispute that the aircraft was earlier used by the assessee who was running the airline and thereafter has leased the aircrafts to M/s Jagson Airlines Ltd who also used these aircrafts for the so many years continuously, thus their subsequent use is immaterial under the existing laws. 7.2. The appellant has relied upon the judgment of CIT vs Oswal Agro Mills Ltd. I find that this jurisdictional high court decision squarely applicable on the facts of the present case. I find force in the contention of the appellant that the asset is under "Block of Assets" and was used in earlier years, its subsequent use has no relevance under amended law under IT provisions. Since AO himself in AY 2005-06 has found that the asset was used and allowed the depreciation on the direction of the Hon'ble High Court. I do not find any reason for making this disallowance from year to year once the issue has been examined by the AO himself. The subsequent AO should not agitate 24 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. the issue again and again once their predecessor has decided the issue as per directions of the Hon'ble Delhi High Court. 7.3. In view of the above discussion the AO is directed to allow the entire depreciation on aircraft as claimed by the appellant. In the result this around of appeal stands allowed." 5.2. Keeping in view the jurisdictional High Court decision in the case of Oswal Agro Mills Ltd. (supra) since the asset was used in the earlier years even if subsequent user is not there, the depreciation is to be allowed. I also find that no addition has been made by the AO on this issue for the A.Y. 2013-14 which is under appeal and which is being adjudicated as part of this order. Accordingly, taking into account all these facts and the position in law, ground no. 3 for A.Y. 2012-13 is held to be allowed”. 25 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 3.4. So far as disallowance of Rs.8,11,25,986/- on account of unpaid notional charges to ONGC is concerned, the Ld. CIT(A) deleted the same by observing as under : “6.3. During the present proceedings the AR was requested to furnish the details of the unpaid operating expenses of Rs.8,11,25,986/-. The A/R and the accountant of the appellant company were present before the undersigned on 18.12.2015 and the detailed ledger accounts of the three deep sea drilling rigs, Fortune, Fossil & DSMD relating to operating income, unpaid operating income, the journal and receipt vouchers of the company and the authorization of payment vouchers issued by ONGC Ltd. Perusal of these documents show that the bills are raised on ONGC with regard to operation of various ships for ONGC. At the time of raising the bills the same is accounted as income. At the time of payment of the bills, the ONGC may or may not, pay the entire billed amount but the amount is subject to deduction on various accounts such as short deployment of persons, non-operating hours and various other 26 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. reasons. The unpaid operational charges are deduction, made by ONGC and are booked by the appellant in the P&L account. The net effect of the operating income & expenses being credited and debited respectively to the P&L account is that only the actual receipts from ONGC stand reflected. I also find that my Ld. Predecessor examined this issue in his order dated 30.06.2014 in appeal no. 0311/2013-14 for A.Y. 2011-12. His findings on the issue are reproduced herein under : “8.2. I have examined the details of short deployment and unpaid operating expense of vessels Deep Sea Matdrill, Fossil & Fortune separately maintained by the assessee under different contracts with ONGC. The ONGC has deducted the expenditure for various reasons such as pot water, transportation of material and passengers, fluctuation etc and for various reasons. These payments were not made but the assessee booked the same as per bills raised. Subsequently while making payment, ONGC 27 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. examined and deducted the sum for various reasons. I do not understand how can a deduction made by ONGC by making short payment would become income or could be disallowed as an expenses claimed by the assessee. Once claim has been made by the assessee but not accepted by the party i.e. ONGC as per contract only such payment would be treated as income unless disputed. The assessee company once accepted the deductions and did not dispute the same, it can claim these deductions as an expenditure and so it is required to be allowed as deduction for computing the income. 8.3. In the result ground no 5 is allowed and AO is directed to allow Rs. 4,95,74,440/- claimed as unpaid operational charges." 6.3.1. I also find that the AO has not made any addition on this account in the A.Y. 2013-14. In view of the factual finding that the corresponding operational 28 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. income relating to unpaid operational charges debited to ONGC account correctly reflects the accounting treatment in respect of income not actually received, the action on the part of the AO in disallowing the unpaid operational charges to ONGC cannot be sustained. Ground no. 4 for A.Y. 2012-13 is thus allowed.” 3.5. So far as disallowance of Rs.2,14,08,344/- under section 40 (a) (ia) of the I.T. Act, 1961 is concerned, the Ld. CIT(A) deleted the same by observing as under : “7.3. I have given careful consideration to the submissions made. At the outset it may be mentioned that the payments in question have been made to a non- resident and hence the provisions of section 40(a)(i) do not apply. Assuming that the AO meant to invoke the provisions of section 40(a)(i), which section is applicable for payment made to non-residents, it is seen from the invoices of the said party that the appellant requisitioned professional services rendered in connection with the issuance of water maker letter for 29 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. the rig "Deep Sea Fortune", issuance of Suitability and Jacking capacity for the rig "Deep Sea Treasure" for operations offshore India and for movement of the Deep Sea Matdrill from one location to another. The AR has explained that the foreign personnel were deputed in order to carry out the appropriate survey and inspection of the Deep Sea Rigs that are used for the shipping operations and these personnel meet the stringent requirements and standards set by the ONGC. Undoubtedly the payments amount to fees for technical services which are ordinarily taxable under the provisions of section 9(l)(vii). In this view of the matter, the income accrued in the hands of the foreign resident as per section 5 sub section (2) of the IT Act. However, section 90(2) of the IT Act provides that where India has a DTAA with any other country, then in relation to the assessee to whom such agreements applies, the provisions of this Act shall applied to the extent they are more than beneficial to that assessee. In the present case it is seen that the foreign party M/s Noble Denton 30 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Middle East Ltd. (Dubai Branch) is based in Dubai in the United Arab Emirates and India has a comprehensive DTAA with UAE w.e.f 22.09.1993, which was amended by notification No. SO 2001 (E), dated 28.11.2007 & notification no 29/2013 [F. No. 503/5/2004-FTD-II], dated 12.04.2013. Perusal of the current Double Tax Avoidance Agreement shows that the entire income of Noble Denton Middle East would be assessable as business profit as per article 7 in the UAE. This is because Middle Dental UAE does not have a permanent establishment (PE as decided under article of the DTAA). The appellant had been provided services by the Dubai Branch and not by the branches of Nobel Denton that are located within India. The AO has not brought anything on record to show that the Foreign Party to whom payment has been made, has a PE in India. As seen from the definition of 'PE' as given under article 5, sub-article (2)(i) includes furnishing of services including consultancy services, by an enterprise of one of the Contracting States through employees or other 31 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. personnel in the other Contracting State, provide that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. Perusal of the invoices of Noble Denton Middle East revels that the professionals rendered services ranging from period between 10 to 27 days. Accordingly even under sub-article (2)(i) of Article 5, The services rendered by the foreign consultants cannot be said to amount to a permanent establishment or a fixed place for a business through which the foreign enterprise carries out its business in India, wholly and partly. It is also seen that during the appellate proceedings relating to A.Y. 2011- 12 my Ld. Predecessor considered the letter issued by Nobel Denton Middle East Ltd. clarifying that they did not have a permanent establishment in India as per Article 5 of the DTAA and were assessed to tax in the UAE. I also find from the tax audit report for the impugned years placed at pages 28 & 69 of the paper book that the auditors have clarified that no amount is 32 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. inadmissible u/s 40(a). Keeping in view the above facts it is held that neither the provisions of section 40 (a) (ia) nor 40 (a) (i) are applicable. Ground no. 5 for both A.YS. 2012-13 & 2013-14 are allowed”. 3.6. So far as the rejection of claim of the assessee that the income from shipping unit was exempt under section 115VD is concerned, the Ld. CIT(A) allowed the claim of the assessee by observing as under : “9.2. I have considered the issue and perused the order of the Hon'ble High Court available at pages 39 to 46 of the paper book wherein the High Court considered its earlier decision in Jagson International (214 CTR 227) wherein the 'Deepsea Madrill' owned or leased by the assessee were held to be ships for the purposes of section 33AC. It was noted that the vessels owned by the assessee were qualifying ships in terms of clause (a) of section 115VD and the very nature of the activity in which the assessee engaged is to carry out operations at different places, whereby necessarily, at least for a 33 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. short duration, the vessel had to be stationed at one place. In these circumstances, the Court held that the revenue's contention that the vessel is nothing but 'off shore' installations has no merit. Since the Hon'ble High Court has rendered the findings in the appellant's own case for the A.Y. 2006-07 & 2007-08, that the appellant is taxable under the provisions of Chapter XIIG, and no change in the facts and circumstances are brought out by the AO in the assessment order vis-a-vis those years, it is held that the benefit of the said Chapter is to be allowed to the appellant. Accordingly, ground nos.7 & 9 for A.Y. 2012-13 & 2013-14 respectively are allowed”. 3.7. So far as the order challenging the computation of book profit by ignoring the provisions of Section 115VO is concerned, the Ld. CIT(A) deleted the same by observing as under : “10.2. This ground is consequential to the earlier ground wherein the issue of eligibility of the appellant 34 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. company to be assessed under the provision of Chapter- XIIG has been upheld by the Hon'ble Delhi High Court for A.Y. 2006-07 & 2007-08. Following the above decision, my learned predecessors have allowed the appeals on this issue for the A.Ys. 2008-09 to 2011-12, and I have allowed the appeals on this issue for the impugned years. Section 115VO clearly provides that the book profits derived by the tonnage tax company shall be excluded from the book profits of the company for the purposes of section 115JB. Accordingly the AO is directed to exclude the income derived from shipping activities from the computation of book profits for both the years. Ground nos. 8 & 10 for 2012-13 & 2013-14 respectively are allowed”. 4. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds : 1. That the order of the learned CIT (Appeals) is erroneous & contrary to facts & law. 35 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 2. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.6,79,704/- made by AO on account of that the assessee has given interest free loans to its subsidiary company without substantiating commercial expediency. 3. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.53,40,288/- made by the AO on account of Section 14A r.w. rule 8Dby ignoring fact that as per the CBDT’s Instruction No. 5/2014 dated 11.02.2014 Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 4. That whether on the facts and in law, the Ld.CIT(A) was right in deleting the disallowance of Rs.9,51,432/- made by AO on account of depreciation claimed being 40% on Aircraft as the Aircraft was currently not in use. 36 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 5. That whether on the facts and in law, the Ld. CIT(A)was right in deleting the disallowance of Rs.8,11,25,986/- made by the AO on account of unpaid operational charges to M/s. ONGC. 6. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.2,14,08,343/- made by the A.O. on account of expenses disallowed u/s 40 (a) (ia) of the IT Act. 7. (a) That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.62,55,82,919/- made by the AO disallowing the assessee claim of exempt income under Tonnage Tax Scheme. (b) That whether on the facts and in law, the Ld. CIT (A) has erred by ignoring the fact that the assessee’s Ship “Deepsea Matdrill” is not a ship but a drilling rig which is not covered under the definition of qualifying ships as the same is an offshore installation. 37 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. (c) That whether on the facts and in law, the Ld. CIT (A) has erred by ignoring the fact that the assessee did not have the license which was to be issued by the Director General of Shipping under section 407 of Merchant Shipping Act, 1958. 8. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.62,55,82,919/- made in computation of income u/s 115JB of the IT Act. 9. That the appellant carves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of hearing.” 5. Grounds of appeal numbers.1 and 9 being general in nature are dismissed. 6. So far as grounds of appeal number.2 is concerned, the same relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.6,79,704/- made by the A.O. on account of interest free loans to its subsidiary companies. 38 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 6.1. After hearing both the sides, we find that the assessee during the impugned assessment year had reserves and surplus of more than Rs.4.61 crores and re- valuation reserve of Rs.2.44 crores. Further the assessee company has income from shipping unit of Rs.62,55,82,919/-. No loan has been given during the year and in fact M/s. Jagsons Airlines has returned balance amount of Rs.31,05,05,994/- during the year out of the total amount of Rs.31,61,70,197.53. We find identical issue had come-up before the Tribunal in assessee’s own case for the A.Y. 2010-11 and 2011-12 wherein the Tribunal decided the issue in favour of the assessee. 6.2. We find the Tribunal in assessee’s own case for the A.Y. 2011-12 vide ITA.No.4769/Del./2014 order dated 17.08.2018 has decided the issue in favour of the assessee by observing as under : 12. We have considered the rival submissions and have gone through the entire material available on record and we find that most of the issues involved in 39 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. this appeal are covered in favour of the assessee by various decisions of Tribunal and Delhi High Court. 13. As far as the first issue regarding disallowance of notional interest on interest free loans given to subsidiary company, we find that this issue has been settled by the Tribunal in assessee’s own case for the assessment year 2010-11 vide order dated 11 th May, 2018. The relevant observations of the Tribunal read as under : “12. Ground No. 1 by the Revenue reads as under :- “Whether on the facts and circumstances of the case, the learned CIT (Appeals) erred in deleting proportionate disallowance of interest of Rs.2,53,61,633/- on account of advancing of interest free loans to sister concern ?” 12.1 Facts of the case, in brief, are that during the course of assessment proceedings the Assessing Officer observed that assessee has given interest free loans to its subsidiary company M/s. Jagson Airlines Ltd. of 40 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Rs.26,38,69,280/-. Since these funds are interest bearing in nature and the assessee has incurred financial charge of Rs.2,53,61,633/- the Assessing Officer disallowed an amount of Rs.2,53,61,633/- to the total income of the assessee. 12.2 Before the learned CIT (Appeals) it was submitted that the assessee company holds more than 69% of the shares of M/s. Jagson Airlines Ltd. Since M/s. Jagson Airlines Ltd. suffered huge losses, therefore, in order to run this company the assessee company has advanced interest free loan to M/s. Jagson Airlines Ltd. It was submitted that out of three aircrafts of the airlines, two aircrafts were owned by the assessee company. In order to safeguard the interest of the assessee it was necessary to feed this company also. It was accordingly argued that the advance given by the assessee company was based purely on commercial expediency. The assessee further submitted that prior to taking loans from the bank for purchase of the vessels by the assessee company which had 41 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. already advanced Rs.21,17,41,988.05 to M/s. Jagson Airlines Ltd. out of the interest free funds and reserves available with the assessee. During the impugned assessment year the assessee had advanced only Rs.5,21,27,291/- that too was given out of the profit of Rs.38.97 crores earned during the year. It was submitted that in the past no such disallowance was made. Therefore, in view of the decision of Hon’ble Supreme Court in the case of Radhaswami Satsang Vs. CIT reported in 193 ITR 321 (SC), no disallowance should be made following the rule of consistency. Various other decisions were also brought to the notice of the learned CIT (Appeals). 12.3 Based on the arguments advanced by the assessee the learned CIT (Appeals) directed the Assessing Officer to delete the addition by observing as under :- “3.3 I have gone through the assessment order, written & oral submission of the appellant and materials available on record. In the instant case, 42 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. during the year assessee advanced Rs.5,21,27,291.3 as interest free advance to its sister concern namely, M/s. Jagson Airlines Ltd. My attention was also drawn on the fact that prior to taking loan for the purchase of vessel the assessee company had already advanced Rs.21,17,41,988.5 to the Jagson Airlines Ltd. In support of his contention the appellant has enclosed Annexure ‘A’ in its paper book showing last 10 years transaction between the two companies. From the chart it is also clear that M/s Jagson International Ltd has also taken advance from Jagson Airlines Ltd for the business purposes whenever required. M/s. Jagson Airlines Ltd has never charged any interest on such advances. Further, it is also not in dispute that the assessee has incurred financial charges of Rs 2,53,61,633/- during the year under consideration. It is also seen from the Annexure ‘B’ that more than 69% shares in Jagson Airlines Ltd belong to the 43 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. assessee company and assessee company also given its Aircrafts to M/s Jagson Airlines Ltd on lease. 3.4 I find that the Assessing Officer has disallowed the interest on loans without recording Ist any finding to the effect that the loans on which interest was paid by the assessee was diverted by the assessee for providing interest free advances to its sister concerns. It is not the case that the interest free funds available with the assessee were not sufficient to advance interest free money in question to its sister concerns as the appellant company has shown a profit of Rs.38,97,52,337/- which was sufficient to advance the money to its sister concern. The Assessing Officer has failed to appreciate that the assessee company is a major investor in Jagson Airlines Ltd and they have long business relationship as the aircrafts belonging to the assessee company were run by M/s Jagson 44 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Airlines Ltd on lease basis in last so many years. In my considered view, the onus, which was on the Assessing Officer for making the disallowance by bringing on record some material to show nexus between interest free advance and interest bearing loans was not at all discharged by the Assessing Officer. Moreover, there is a business expediency and interest of the assessee company in M/s. Jagson Airlines Ltd due to which loans were given by the assessee company. Therefore, in my considered opinion, the disallowance was made by the Assessing Officer was on a wrong footing and unsustainable. 3.5 The decision relied upon by the appellant company also support the case of the assessee. In the case of CIT Vs. Reliance Utilities and Power Ltd 2009-TIOL-27-HC-MUM-IT where it was held that “if there are funds available both interest free and overdraft / or loan taken, then a presumption would arise that investment would be out of the 45 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. interest free fund generated or available with the company, if the interest free funds are sufficient to meet the investments. In the instant case, it is not the case of the assessee that interest expenditure should be allowed for interest free advance to its sister concerns were out of commercial expediency. Rather the case of the assessee is that the entire loan funds on which the expenditure of interest was incurred, were used in business and interest free advance was given out of own interest free funds. Thus, the decision relied upon by the assessee company squarely covered the case of the appellant as the appellant company had sufficient interest free funds to advance the money to its sister concern. 3.6 For the reasons given above I am of the considered opinion that disallowance made is not sustainable in the eyes of the law. As a result this ground of appeal is allowed.” 46 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 12.4 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before the Tribunal. 12.5 The learned Departmental Representative strongly objected to the order of the learned CIT (Appeals). He submitted that the Hon’ble Supreme Court in the case of Addl. CIT Vs. M/s. Tulip Star Hotels Ltd. vide order dated 30th April, 2012 has held that the decision in the case of S.A. Builders Ltd. Vs. CIT reported in 288 ITR 1 needs reconsideration. Referring to the decision of Hon’ble Delhi High Court in the case of Punjab Stainless Steel Ltd. Vs. CIT reported in 324 ITR 396 (Del.) he submitted that the onus is on the assessee to establish the commercial expediency. He submitted that the learned CIT (Appeals) in para 4.4 of his order has shifted this onus to the Assessing Officer regarding the establishment of nexus between interest free funds and amount of advance which is not correct. Without prejudice to 47 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. the above he submitted that the profit accrues on the last day of the financial year and cannot be a source of loan advanced during the year. He accordingly submitted that the order of the learned CIT (Appeals) not being in consonance with law should be reversed. 12.6 The learned counsel for the assessee, on the other hand, strongly supported the order of the learned CIT (Appeals). He submitted that when the interest free funds available with the assessee are sufficient to advance interest free loan to the sister concerns, therefore, in view of the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. 2009-TIOL-27- HC-MUM-IT, no disallowance is called for. 12.7 We have considered the rival arguments made by both the sides and perused the material available on record. The findings given by the learned CIT (Appeals) that the interest free funds available with the company were sufficient to 48 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. advance interest free advance could not be controverted by the learned Departmental Representative. Therefore, in view of the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (supra) where it has been held that if the interest free funds are sufficient to make the investment the presumption would arise that investment would be out of interest free funds generated or available with the company if the funds are both interest free and interest bearing funds. It is also an admitted fact that the assessee company had already advanced Rs.21,17,41,988.5 prior to taking loan for purchase of vessels and assessee company has advanced interest free loan of Rs.5,21,27,291/- during the year whereas it has earned profit of Rs.38,97,52,337/- during the year. In view of the above and in view of the detailed reasoning given by the learned CIT (Appeals) we find no infirmity in his order. 49 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Accordingly the same is upheld and the ground raised by the Revenue is dismissed.” There is no change in the facts and circumstances of the case under consideration. Therefore, respectfully following the above decision of co-ordinate Bench in the case of assessee itself, ground No. 1 of the Revenue deserves to be dismissed.” 6.3. We further find the Revenue has not preferred any appeal against the order of the Tribunal before the Hon’ble Delhi High Court, meaning thereby, has accepted the decision of the Tribunal on this issue. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of notional interest, the reasons of which have already been reproduced in the preceding paragraph. Ground of appeal number.2 raised by the Revenue on this issue is accordingly dismissed. 7. So far as disallowance of Rs.53,40,288/- made by the A.O. on account of Section 14A read with Rule 8D is concerned, it is an admitted fact that no exempt income has 50 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. been received by the assessee during the year. Therefore, in view of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited vs., CIT [2009] 317 ITR 86 (Del.) the order of the Ld. CIT(A) does not suffer from any infirmity. Accordingly, the grounds of appeal number.3 raised by the Revenue on this issue is dismissed. 8. Grounds of appeal number.4 of the Revenue relates to disallowance of Rs.9,51,432/- made by the A.O. on account of depreciation claimed being 40% on Aircraft which was not in use. 8.1. After hearing both the sides, we find an identical issue had come-up before the Tribunal in assessee’s own case for the A.Y. 2009-10 in ITA.No.5916/ Del./2013 order dated 11.05.2018. We find the Tribunal vide ITA.No.5916/ Del./2013 order dated 11.05.2018 has decided the issue by observing as under : “10.4. After hearing both the sides we do not find any infirmity in the order of the learned CIT (Appeals). 51 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. We find that on the basis of the direction of the Hon'ble Delhi High Court the issue was examined by the Assessing Officer during the assessment year 2005-06, who after examining the issue allowed the claim of depreciation. Further this issue was not there in assessment years 2006-07 and 2007-08. In assessment year 2008-09 although the learned CIT (Appeals) has deleted such addition, Revenue has not challenged the same issue although Revenue has filed appeal before the Tribunal on various other issues. Further in the scheme of block of assets, once depreciation is allowed it is required to be allowed subsequently irrespective of the fact asset has been used or not. The decision of the Hon'ble Delhi High Court in the case of CIT Vs. M/s. Oswal Agro Mills Ltd. 238 CTR 113 which has been relied upon by the learned CIT (Appeals) is squarely applicable to the facts of the case. Therefore, we do not find any infirmity in the order of the learned CIT (Appeals) allowing depreciation on the aircraft which is ready for use, but has not earned 52 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. any income during the year. The ground raised by the Revenue is accordingly dismissed.” 8.2. Similar view has been taken by the Tribunal in subsequent assessment year. Therefore, respectfully following the decision of the Tribunal in assessee’s own case for the immediately preceding assessment years, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly ground of appeal number.4 raised by the Revenue is dismissed. 9. Grounds of appeal number.5 of the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance of Rs.8,11,25,986/- made by the A.O. on account of unpaid operational charges to ONGC. 9.1. After hearing both the sides, we find that an identical issue had come-up before the Tribunal in assessee’s own case for the A.Y. 2011-12. We find the Tribunal vide ITA.No.4769/Del./2016 order dated 17.08.2018 has restored the issue to the file of the A.O. by observing as under : 53 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. “18. As regards the issue involved in ground No. 4 with respect to addition on account of disallowance of unpaid operational charges of Rs.4,95,74,440/-, we find that the assessee has filed the copy of ledger account of the said expenses debited to the profit and loss account, but the same have not been verified either by the AO or by the ld. CIT(A) so as to ascertain as to why ONGC has paid lesser amount as compared to the bills raised by the assessee. The AO has also observed that some payment might have related for the previous year, but it has been debited to the current year’s profit and loss account. The assessee has not furnished any bill-wise reconciliation statement clarifying as to for how much amount the bills were raised and how much was actually received by the assessee from ONGC. It was also not explained, if there was any agreement with ONGC for payments lesser than the bill amounts. All these facts were to be examined by the ld. CIT(A) before deleting the addition, which has not been done. Accordingly, we think it appropriate to restore the issue 54 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. to the file of AO for deciding the same afresh after ascertaining and verifying the above facts, mentioned in earlier part of this order. The assessee is also directed to furnish all the necessary evidence in support of its claim and as required by the AO. Needless to say, the assessee shall be given reasonable opportunity of being hears. Accordingly, this ground of appeal deserves to be allowed for statistical purposes .” 9.2. It is the submission of the Learned Counsel for the Assessee that the Tribunal has set aside the matter to the file of the A.O. because neither the A.O. nor the Ld. CIT(A) had verified the details. However, during the set aside proceedings the A.O. examined and allowed the claim of the assessee, copy of which is placed in the paper book. Further during the year the A.O. and the Ld. CIT(A) have examined the bills and in appeal, the Ld. CIT(A) has deleted the addition and in A.Y. 2013-14 the A.O. himself did not make any addition. We find the Ld. CIT(A) in the instant case while deleting the addition has followed his order for the 55 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. A.Y. 2011-12 and the Tribunal has restored the issue to the file of the A.O. for adjudication of the issue afresh. Therefore, we deem it proper to restore this issue to the file of the A.O. with a direction to adjudicate the issue in the light of direction of the Tribunal in assessee’s own case for the A.Y. 2011-12. Grounds of appeal number.5 raised by the Revenue is accordingly allowed for statistical purposes. 10. Grounds of appeal number.6 by the Revenue relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.2,14,08,343/- on account of disallowance of expenses under section 40 (a) (ia) of the I.T. Act, 1961. 10.1. After hearing both the sides, we find the A.O. made disallowance of Rs.2,14,08,343/- on the ground that assessee has not deducted TDS on payment of Rs.2,14,08,343/- made to M/s. Noble Denton Middle East as per the provisions of Section 9(1)(vii) of the I.T. Act, 1961. We find the Ld. CIT(A) deleted the addition, the reasons of 56 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. which have already been reproduced in the preceding paragraph. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. 10.2. We find merit in the submissions of the Learned Counsel for the Assessee that as per DTAA with UAE business profits are taxable in the country of origin i.e. UAE as services were provided by the Company registered in UAE and no independent professional has provided services. Even otherwise tax involved was much low as per section 44RR on non-resident engaged in the business of providing services or facilities to be used in exploration of mineral oil only 10% income is taxable and tax thereon would be only 4% applicable on foreign companies. However, after obtaining certificate from Revenue authorities/CA no tax was payable due to DTAA and foreign payments were made only thereafter. 10.3. Further, the Ld. CIT(A) while deleting the addition has followed his order for the A.Y. 2011-12 and no appeal 57 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. has been filed by the Revenue on this issue before the Tribunal although Revenue had filed an appeal against other issues where the Ld. CIT(A) had given relief to the assessee. Under these circumstances and in view of the detailed discussion made by the Ld. CIT(A) on this issue, we do not find any infirmity in his order and the same is, therefore, upheld. Grounds of appeal number.6 raised by the Revenue is dismissed. 11. Grounds of appeal number.7 (a) (b) and (c) relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.62,55,82,919/- made by the A.O. by disallowing the claim of exemption in tonnage tax system. 11.1. After hearing both the sides, we find that identical issue had come-up before the Tribunal in assessee’s own case in A.Y. 2008-09. We find the Tribunal vide ITA.No.4392/Del./2011 order dated 11.05.2018 has decided the issue by observing as under : 58 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. “2.6. We have considered the rival arguments made by both the sides and perused the material available on record. We find that the issue has been decided in favour of the assessee by the Hon'ble Jurisdictional High Court in assessee's own case vide ITA No.1395/2010 and ITA No.1289/2011 order dated 08.11.2012 by observing as under :- "7. In the facts of this case the vessels were consistently registered under Section 407 of the Merchant Shipping Act and had a valid certificate which was produced for consideration by the appellate authority who sought remand report. It is also not disputed that the vessel is a qualifying ship for sea in terms of clause (a) of Section 115VD. The question as to whether it amounted to "off shore installations" was gone into in considerable detail by the Tribunal. The Tribunal noticed that unlike in the case of off-shore installations which are stationed at one place, the 59 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. very nature of the activity in which the assessee engaged is to carry out operations in different places; necessarily, at least for a short duration the vessel has to be stationed at one place. In these circumstances, Revenue's contentions that the vessel is nothing but "offshore installations" has no merit, in the case of Matdrills of die kind put to use by the assessee. 8. For these reasons the Court is of the opinion that the reasoning and findings of the Appellate Commissioner and the Tribunal cannot be found fault with. The substantial question of law is therefore answered in favour of the assessee and against the Revenue. The appeals are consequently dismissed." 2.7 Since the learned CIT (Appeals) while deciding the issue in favour of the assessee has followed the decision of the Tribunal in assessee's own case as well as the decision of Hon'ble Jurisdictional 60 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. High Court, therefore, in absence of any contrary material brought to our notice by the learned Departmental Representative, we find no infirmity in the order of the learned CIT (Appeals) allowing the ground raised by the assessee. The ground raised by the Revenue is accordingly dismissed.” 11.2. Following the order, the Tribunal dismissed similar ground raised by the Revenue in A.Ys. 2009-10 and 2010-11. Since the issue had already been decided by the Hon’ble Jurisdictional Delhi High Court, therefore, in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of Rs.62,55,82,919/- made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of appeal numbers.7(a) (b) and (c) of the Revenue on this issue is accordingly dismissed. 12. Grounds of appeal number.8 by the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance 61 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. of Rs.62,55,82,919/- made in computation of income under section 115JB of the I.T. Act, 1961. 12.1. Since we have already upheld the order of the Ld. CIT(A) in deleting the disallowance of Rs.62,55,82,919/- made by the A.O. and since the provisions of Section 115JB of the I.T. Act, 1961 clearly provides that the profit derived by the tonnage tax company shall be excluded from the book profits of the company for the purpose of Section 115JB of the I.T. Act, 1961, therefore, we do not find any infirmity in the order of the Ld. CIT(A) in directing the A.O. to exclude the income derived from shipping activities from the computation of book profits. Accordingly, grounds of appeal number.8 raised by the Revenue on this issue is dismissed. 13. In the result, ITA.No.1001/Del./2016 of the Revenue is dismissed. 62 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. ITA.No.1002/Del./2016 – A.Y. 2013-14 : 14. Grounds raised by the Revenue are as under : 1. “That the order of the learned CIT (Appeals) is erroneous & contrary to facts & law. 2. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.2,02,875/- made by AO on account of that the assessee has given interest free loans to its subsidiary company without substantiating commercial expediency. 3. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.74,20,053/- made by the AO on account of expenses disallowed u/s 40(a)(ia) of the IT Act. 4. (a) That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs.81,49,94,195/- made by AO disallowing the assessee claim of exempt income under Tonnage Tax Scheme. 63 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. (b) That whether on the facts and in law, the Ld. CIT(A) has erred by ignoring the fact that the assessee’s Ship “Deepsea Matdrill” is not a ship but a drilling rig which is not covered under the definition of qualifying ships as the same is an offshore installation. (c) That whether on the facts and in law, the Ld. CIT (A) has erred by ignoring the fact that the assessee did not have the license which was to be issued by the Director General of Shipping under section 407 of Merchant Shipping Act, 1958. 5. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.81,49,94,195/- made in computation of income u/s 115JB of the IT Act. 9. That the appellant carves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of hearing.” 15. Grounds of appeal numbers.1 and 9 being general are dismissed. 64 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 16. Grounds of appeal number.2 relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.2,02,875/- by the A.O. on account of interest free loan given to its subsidiary company. 16.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.2 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.2 of the Revenue is dismissed. 17. Grounds of appeal No.3 relates to the order of the Ld. CIT(A) in confirming the disallowance of Rs.74,20,053/- made by the AO on account of expenses disallowed under section 40(a)(ia) of the I.T. Act, 1961. 17.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.6 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this 65 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. issue has been dismissed. Following the similar reasonings, the grounds of appeal number.3 of the Revenue is dismissed. 18. Grounds of appeal numbers.4 (a) (b) (c) relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.81,49,94,195/- made by the A.O. by disallowing the claim of exemption in tonnage tax system. 18.1. After hearing both the sides, we find the issue is identical to Grounds of appeal numbers.7 (a) (b) and (c) in ITA.No.1001/Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal numbers.4 (a) (b) (c) of the Revenue are dismissed. 19. Grounds of appeal number.5 by the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance of Rs.81,49,94,195/- made in computation of income under section 115JB of the I.T. Act, 1961. 66 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. 19.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.8 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.5 of the Revenue is dismissed. 20. In the result, ITA.No.1002/Del./2016 of the Revenue is dismissed. ITA.No.276/Del./2017 – A.Y. 2014-15 : 21. Grounds raised by the Revenue are as under : 1. Whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.90,23,327/- made by the AO out of interest paid on loan in respect of interest free loans advanced to its sister concern, without substantiating commercial expediency. 2. Whether on the facts and in law, the Ld. CIT (A) 67 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. was right in deleting the disallowance of Rs.2,95,90,331/- made by the AO u/s 40(a)(ia) of the Act with regard to payments made to M/s. Nobel Denton Middle East. 3. Whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.75,67,34,820/- made by the AO, disallowing the assessee’s claim of exempt income under Tonnage Tax System. 4. That whether on the facts and in law, the Ld. CIT (A) has erred by ignoring the fact that the assessee’s ship “Deepsea Matdrill” is not a ship but a drilling rig is not covered under the definition of qualifying ships as the same is an offshore installation. 5. That whether on the facts and in law, the Ld. CIT (A) was right in deleting the disallowance of Rs.75,67,34,820/- made in computation of income u/s 115JB of the Act. 6. That the appellant craves leave to add, alter, 68 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. amend or forego any ground of the appeal raised above at the time of the hearing 22. Grounds of appeal no.6 being general in nature is dismissed. 23. Grounds of appeal number.1 relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs.90,23,327/- by the A.O. on account of interest free loans advanced to its sister concern. 23.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.2 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.1 of the Revenue is dismissed. 24. Grounds of appeal No.2 relates to the order of the Ld. CIT(A) in confirming the disallowance of 69 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Rs.2,95,90,331/- made by the AO on account of expenses disallowed under section 40(a)(ia) of the I.T. Act, 1961. 24.1. After hearing both the sides, we find the issue is identical to Ground of appeal number.6 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.2 of the Revenue is dismissed. 25. Grounds of appeal numbers.3 and 4 relate to the order of the Ld. CIT(A) in deleting the disallowance of Rs.75,67,34,820/- made by the A.O. by disallowing the claim of exempt income under Tonnage Tax System. 25.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.7 (a) (b) and (c) in ITA.No.1001/Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following similar 70 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. reasonings, the grounds of appeal numbers.3 and 4 of the Revenue are dismissed. 26. Grounds of appeal number.5 by the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance of Rs.75,67,34,820/- made in computation of income under section 115JB of the I.T. Act, 1961. 26.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.8 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.5 of the Revenue is dismissed. 27. In the result, ITA.No.276/Del./2017 of the Revenue is dismissed. 28. To sum-up, all the three appeals of the Revenue are dismissed. 71 ITA.Nos.1001 & 1002/Del./2016 And ITA.No.276/Del./2017 M/s. Jagson International Ltd., New Delhi. Order pronounced in the open court on 31.01.2022. Sd/- Sd/- [NARENDRA KUMAR CHOUDHARY] [R.K.PANDA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated 31 st January, 2022 VBP/- Copy to 1. The assessee 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘D’ Bench, Delhi 6. Guard File. // By Order // Assistant Registrar : ITAT Delhi Benches : Delhi.