DCIT, New Delhi V. M/s Interocean Shipping India (P) Ltd., New Delhi

ITA 2855/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7482 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: K K
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI G.D. AGARWAL, VICE PRESIDENT & SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 2855/DEL/2013 ASSESSMENT YEAR: 2009-10 DCIT, VS. INTEROCEAN SHIPPING INDIA (P) LTD., CIRCLE 11(1), 75, LINK ROAD, LAJPAT NAGAR-III, NEW DELHI. NEW DELHI. AAAC10143F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.R.R. KUMAR, SR. DR RESPONDENT BY : SH. P.K. SAHU, ADV., SH. SANJEEV R AI MEHRA, FCA & SH. K.K. SINGH, CA ORDER PER H.S. SIDHU, J.M. THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 28.02.2013 PASSED BY THE COMMISSIONER O F INCOME TAX (APPEALS)-XV, NEW DELHI FOR A.Y. 2009-10 ON THE FOL LOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,06,85,552/- ON ACCOUNT OF UNPAID LIABILITY U/S 41(1) OF INCOME TAX ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,05,53,374/- ON ACCOUNT OF EXCESS PAYMENT U/S 40A(2)(B) OF INCOME TAX ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 33,53,650/- O N ACCOUNT OF UNPROVED EXPENSES. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE FACTS RELATING TO THE ISSUE IN DISPUTE ARE T HAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30/09/2009 DE CLARING TOTAL INCOME AT ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 2 RS. 32,86,74,688/-. THE RETURN WAS PROCESSED U/S 1 43(1) OF THE ACT AND LATER ON THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS. NOTICE U/S 143(2) OF THE ACT WAS ISSUE D ON 25/08/2010 WHICH WAS DULY SERVED ON THE ASSESSEE IN RESPONSE TO THE SAME THE AUTHORIZE REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED DOCUMENTARY EVIDENCE WHICH WAS EXAMINED BY THE AO. 3. DURING THE YEAR UNDER CONSIDERATION, THE AO HAS ADDED BACK RS. 1,06,85,552/- U/S 41(1) IN RESPECT OF SUNDRY CREDIT ORS BY HOLDING THAT ALL CONDITIONS U/S 41(1) OF THE ACT FOR SATISFYING CESS ATION OF LIABILITY WERE PROVED. THE AO HAD CARRIED ENQUIRY U/S 133(6) OF T HE ACT IN RESPECT OF CERTAIN SUNDRY CREDITORS AND BASED ON THE SAME, HE ZEROED IN ON 4 MAJOR SUNDRY CREDITORS IN RESPECT OF WHICH NO PAYMENT WAS MADE BY THE ASSESSEE, ON THE BASIS OF WHICH HE REACHED TO THE CONCLUSION THAT IN VIEW OF LAW OF LIMITATION, SINCE THE UNPAID LIABILITIES WERE PENDI NG FOR MORE THAN 3 YEARS THERE WAS CESSATION OF LIABILITY AND HE ADDED THE A MOUNT OF RS. 1,06,85,552/- U/S 41(1) OF THE I.T. ACT. SECONDLY, DURING THE YEAR UNDER CONSIDERATION THE AO HAS DISALLOWED RS. 20553354/- U/S 40A(2)(B) OF THE ACT AS EXCESSIVE REMUNERATION PAID TO SH. ARJUN SEHGAL, DIRECTOR/CEO. THIRDLY, THE AO HAS MADE ADHOC DISALLOWANCES OF RS. 3358650/ - I.E. @ 2% OF THE AMOUNT CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO THE THIRD PARTIES ON BEHALF OF FOREIGN SHIP OWNERS ON THE GROUND THAT SE VERAL PAYMENTS ARE NOT SUPPORTED BY DOCUMENTARY EVIDENCES, EXPENSES HAVE B EEN CLAIMED UNDER THE HEAD MUTUALLY AGREED OR DISCUSSED AND OTHER PA YMENTS PAID IN CASH. 4. AGAINST THE ASSESSMENT ORDER ASSESSEE FILED AN A PPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY WHO VIDE IMPUGNED ORDER P ARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AND NOW THE REVENUE HAS FILED THE PRESENT APPEAL. 5. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE RELIED UPON THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY AND HAS ALSO FILED ONE SYNOPSIS OF SUBMISSION IN WHICH HE HAS ALSO ATTACHED SOME DECIS IONS RENDERED BY THE HONBLE HIGH COURTS. LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED A SMALL ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 3 PAPER BOOK CONTAINING PAGE 1-44 IN WHICH HE HAS ATT ACHED COPY OF DELHI HIGH COURT CASE ROSTER IN THE MATTER OF QUEST MARIN E, COPY OF MINUTES OF THE ARBITRATION WITH ONGC LTD., COPY OF DEBIT NOTES TO ONGC LTD., ABSTRACT OF THE ANNUAL REPORT OF F.Y. 1991-92, FORM 16 OF MR . ARJUN SAIGAL OF F.Y. 2008-09, COMPARABLE SALARY OF THE INDUSTRY, COMPARI SON OF RECOVERY OF EXPENSES AND THE EXPENDITURE INCURRED FOR F.Y. 2008 -09, COPY OF BALANCE SHEET OF F.Y. 2008-09. 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PA SSED BY THE AO AND THE CONTENTION RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL. 7. WE HAVE HEARD THE BOTH PARTIES AND PERUSED THE D OCUMENTARY EVIDENCE FILED BY THE PARTIES AND WE ARE OF THE VIE W THAT OUR GROUND WISE FINDINGS ARE AS UNDER: AS REGARD TO ISSUE INVOLVED IN GROUND NO. 1 REGARD ING DELETION OF ADDITION OF RS. 10685552/- ON ACCOUNT OF UNPAID LIA BILITY U/S 41(1) OF THE INCOME TAX ACT. THE AO HAS HELD THAT THERE WAS CESSATION OF LIABILITIES OF RS. 10685552/- AGAINST FOUR PARTIES AND HE ADDED BACK THIS AMOUNT TO THE INCOME OF THE ASSESSEE U/S 41(1) OF THE I.T. ACT. THESE FOUR PARTIES ARE AS UNDER: 1. M/S MELROSE SHIP MANAGEMENT CO., GOA RS. 1,33 ,005.00 2. RAJMUNDRI SHIPPING & OIL FIELD SERVICES LTD. RS. 1,61,660.00 3. M/S QUEST MARINE SERVICES RS. 92,43,663.07 4. M/S GLOBAL MARINE WORKS RS. 11,47,224.00 TOTAL RS. 1,06,85,552.00 /- THE ASSESSEE SUBMITTED THAT THE LD. CIT HAS GIVEN R ELIEF IN RESPECT OF SL. NO. 3 & 4 ONLY THESE LIABILITIES WERE NEVER IN THE NATURE OF TRADING LIABILITIES AND NO DEDUCTIONS IN RESPECT OF THEM WE RE CLAIMED BY IT. ASSESSEE FURTHER SUBMITTED THAT LIABILITIES SUBSIST ED AND THESE WERE NOT BARRED BY LIMITATION. IN FACT IN CASE OF M/S Q UEST MARINE SERVICES AND M/S GLOBAL MARINE WORKS, THE MATTER WAS SUB-JUD ICE BEFORE THE VARIOUS COURTS AND IT COULD NOT BE SAID THAT THE LI ABILITY HAS CEASED AS REGARDS M/S QUEST MARINE SERVICES AND M/S GLOBAL MA RINE WORKS. THE ASSESSEE INCURRED THESE EXPENSES ON BEHALF OF O NGC LIMITED ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 4 FOR REPAIR TO THEIR SHIPS AND THE MATTER IS SUB-JUD ICE IN THE DELHI HIGH COURT AS WELL AS ARBITRATOR APPOINTED BY BOMBAY HIG H COURT. 8. WE HAVE PERUSED THE PAPER BOOK FILED BY THE ASSE SSEE CONTAINING PAGE 1-44 IN WHICH THE ASSESSEE HAS ATTACHED THE CO PY OF HONBLE DELHI HIGH COURT CASE ROSTER IN THE MATTER OF QUEST MARIN E & COPY OF MINUTES OF THE ARBITRATION WITH ONGC LTD. AND OTHER DOCUMENTAR Y EVIDENCE SUPPORTING THE CONTENTIONS RAISED BY THE ASSESSEE BEFSORE THE REVENUE AUTHORITY. THE DOCUMENTS FURNISHED BY THE ASSESSEE CLEARLY SHOWS T HAT THESE LIABILITIES ARE UNDER DISPUTE, FOR WHICH JUDICIAL PROCEEDINGS BEFOR E THE HONBLE BOMBAY HIGH COURT AND THE HONBLE DELHI HIGH COURT ARE PEN DING. THEREFORE, THESE LIABILITIES CANNOT BE CONSIDERED AS HAVING CEASED. THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY DELETED THE ADDITION IN DISPU TE BY UPHOLD THE IMPUGNED ORDER ON THE ISSUE RAISED BY THE REVENUE IN THE GRO UND NO. 1 AND DECIDED THE ISSUE AGAINST THE REVENUE BY DISMISSING THE ISS UE INVOLVED IN GROUND NO. 1. 9. AS REGARD TO THE ISSUE INVOLVED IN GROUND NO. 2 REGARDING DELETION OF ADDITION OF RS. 20553374/- ON ACCOUNT OF EXCESS PAY MENT U/S 40A(2)(B) OF INCOME TAX ACT. THE AO HAS HELD THAT THESE EXPENDI TURES ARE EXCESSIVE BECAUSE ASSESSEE HAS PAID THIS AMOUNT MUCH MORE THA N THE AMOUNT PAID TO SH. ARJUN SEHGAL, DIRECTOR/CEO OF THE ASSESSEE COMP ANY MUCH MORE THAN THE AMOUNTS PAID TO OTHER DIRECTORS TAKING INTO ACC OUNT QUALIFICATION, EXPERIENCE AND AGE. LD. FIRST APPELLATE AUTHORITY HAS DELETED THE ADDITION IN DISPUTE BY HOLDING THAT MR. SEHGAL WAS THE MAIN FOR CE BEHIND THE COMPANYS BUSINESS GROWTH AND SUBSCRIBING FOR A KEY MAN INSUR ANCE POLICY ON HIS LIFE IS IN LARGER BUSINESS INTERESTS OF THE COMPANY. LD. F IRST APPELLATE AUTHORITY FURTHER HELD THAT THE EFFORTS MADE BY MR. SEHGAL TO INCREASE THE BUSINESS OF THE ASSESSEE COMPANY ARE VERY MUCH RELEVANT TO GIVE HIM EXCESS PAYMENT FOR WHICH HE DESERVES. LD. FIRST APPELLATE AUTHORI TY HAS GIVEN VARIOUS INSTANCES IN THE IMPUGNED ORDER FOR SATISFYING THE DELETION OF ADDITION IN DISPUTE FOR WHICH WE ARE FULLY AGREED AND UPHOLD TH E FINDING OF THE LD. FIRST ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 5 APPELLATE AUTHORITY ON THE ISSUE RAISED IN GROUND N O. 2. THEREFORE, THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 2 IS DISMISSED. 10. AS REGARD TO THE ISSUE RAISED IN GROUND NO. 3 R EGARDING THE DELETION OF ADDITION OF RS. 3353650/- ON ACCOUNT OF UNAPPROVED EXPENSES. THE AO HAS MADE ADHOC DISALLOWANCES OF 2% OF THE AMOUNT CLAIME D BY THE ASSESSEE TO HAVE BEEN PAID TO THE THIRD PARTIES ON BEHALF OF FO REIGN SHIP OWNERS ON THE GROUND THAT SEVERAL PAYMENTS ARE NOT SUPPORTED BY D OCUMENTARY EVIDENCE, EXPENSES HAVE BEEN CLAIMED UNDER THE HEAD MUTUALLY AGREED OR DISCUSSED AND OTHER PAYMENTS PAID IN CASH. THE ASSESSEE SUB MITTED THAT PAYMENT TO THE THIRD PARTIES ON BEHALF OF FOREIGN SHIP OWNERS HAVE NEVER BEEN CHARGED TO PROFIT AND LOSS ACCOUNT. THEREFORE, THERE IS NO JUSTIFICATION OF ANY DISALLOWANCES OUT OF SUCH PAYMENTS. LD. FIRST APPE LLATE AUTHORITY HAS DELETED THE ADDITION IN DISPUTE BY HOLDING THAT THE ASSESSEE HAS DULY SHOWN ALL RECOVERIES FROM FOREIGN SHIP OWNERS IN PROFIT A ND LOSS ACCOUNT AND CORRESPONDING EXPENSES WERE CLAIMED UNDER BROAD HEA DINGS OF EXPENSES SUCH AS TELEPHONE, CONVEYANCE, ETC. SINCE THESE EXP ENSES ARE FOR THE WHOLE YEAR, FOR THE BILLS/VOUCHERS ARE VERIFIABLE, THERE IS NO JUSTIFICATION BY THE AO TO INSIST ON BREAK UP OF SUCH EXPENSES, IN TERM OF EACH SHIP LANDING AND THE AO HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCIES A ND THE THIRD PARTIES RECOVERY HAD DULY CREDITED TO THE ASSESSEES INCOME ON WHICH SERVICE TAX TOO HAS BEEN PAID WHERE APPLICABLE, THEREFORE, IN S UCH AN EVENT THE AO IS NOT JUSTIFIED TO MAKE AN ADHOC DISALLOWANCE @ 2% OU T OF SAID THIRD PARTY EXPENSES. EVEN OTHERWISE THE ASSESSEE HAS NEVER BE EN CHARGED TO PROFIT AND LOSS ACCOUNT. THEREFORE, THERE IS NO JUSTIFICA TION OF ANY DISALLOWANCE OUT OF SUCH PAYMENTS. WE FULLY AGREE WITH THE FINDINGS GIVEN BY LD. FIRST APPELLATE AUTHORITY ON THE ISSUE INVOLVED IN GROUND NO. 3. THEREFORE, THE ISSUE INVOLVED IN GROUND NO. 3 IS DISMISSED BY UPHO LD THE IMPUGNED ORDER ON THIS ISSUE RESULTING THE IMPUGNED ORDER IS UPHOLD A ND THE DEPARTMENTS APPEAL IS DISMISSED. ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 6 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/12/2014 SD/- SD/- (G.D. AGARWAL) (H.S. SIDHU ) VICE PRESIDENT JUD ICIAL MEMBER DATED: 19/12/2014 *KAVITA, P.S. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 7 ITA NO. 2855/D/2013 INTEROCEAN SHIPPING INDIA (P) LTD. 8