DCIT (OSD) CIR 2(2), MUMBAI V. NHAVA SHEVA INTERNATIONAL CONTAINER TERMINAL P. LTD, MUMBAI

ITA 2935/MUM/2012

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 8239 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 20-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 115JB; 80IB; 37; 6; 10; 2; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM I.T.A. NO. 2935/MUM/2012 ( ASSESSMENT YEAR: 2008 - 09 ) ACIT, CIRCLE - 2(2), AAYAKAR BHAVAN, ROOM NO. 577, 5 TH FLOOR, M. K. ROAD, MUMBAI - 400 020 VS . M/S. NHAVASHEVA INTERNATIONAL CONTAINER TERMINAL PVT. LTD. DARABSHA HOUSE, LEVEL 1, N. M. ROAD, BALLARD ESTATE, MUMBAI - 400 001 PAN/GIR NO. AABCN 0185 H ( REVENUE ) : ( ASSESSEE) I.T.A. NO. 3093/MUM/2012 (ASSESSMENT YEAR: 2008 - 09 ) M/S. NHAVASHEV A INTERNATIONAL MUMBAI - 400 001 VS. DY. CIT, RANGE (OSD), 2(2), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 PAN/GIR NO. AABCN 0185 H ( ASSESSEE) : ( REVENUE ) REVENUE BY : SHRI KIRAN UNAVEKAR ASSESSEE BY : SHRI GIRISH DAVE DATE OF HEARING : 24.0 9.2018 DATE OF PRONOUNCEMENT : 28.09 .2018 O R D E R PER S HAMIM YAHYA, A. M.: T HESE ARE CROSS - APPEALS BY THE RE VENUE AND THE ASSESSE E ARISING OUT OF ORDER OF THE LD. CIT(A) DATED 24.02.2012 AND PERTAINS TO ASSESSMENT YEAR 2008 09 . R EVENUES APPEA L 2. T HE GROUNDS OF APPEAL READ AS UNDER : 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT (A) ERRED IN GIVING GENERAL DIRECTIONS FOR RESTRICTING DISALLO WANCE OF TECHNICAL SERVICES FOR 2 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. THE YEAR CONCERNED PROVIDED BY THE ASSOCIATED ENTERPRISES (AE) TO 50% OF AMOUNT CLAIMED BY THE APPELLANT, WITHOUT GIVING ANY SPECIFIC FINDING ON THE ISSUE CONTRARY TO THE FINDING GIVEN BY THE TPO THAT SERVICES RENDERED WERE ONLY FOR THREE ASPECTS OF AGREEMENT?' 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE - TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 3. T HE FACTS ON THE ISSUE RAISED ARE THAT ASSESSEE WAS IN THE BU SINESS OF PROVIDING PORT SERVICE AND HAD INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE WHICH WAS ITS PRINCIPAL NAMED M/S. D.P. WORLD AUSTRALIA LIMITED, IN AUSTRALIA . T HE ASSESSEE HA D INCURRED EXPENDITURE OF RS .3,46,50,000/ - ON ACCOUNT OF TECHNIC AL SERVICES PROVIDED BY THE ASSOCIATED PROVIDED. THE ASSESSING OFFICER (A.O. FOR SHORT) R EFERRED THE MATTER TO THE TRANSFER PRICING OFFICE R WHO DETERMINE D THE ARM'S LENGTH PRICE OF THE TECHNICAL SERVICE . T HE ASSESSING OFFICER THEREF ORE MADE AN ADJUSTMENT OF RS .2,15,41,247/ - . 4. UPON THE ASSESSEE'S APPEAL , THE LEARNED CIT(A) NOTED THAT IDENTICAL ISSUE WAS DECIDED EARLIER BY THE L D. CIT ( A ) AND THE ARM'S - LENGTH PRICE OF THE SAID TRANSACTION OF TECHNICAL SERVICE WAS DIRECTED TO BE TAKEN AT 50% OF THE AMOUNT CLA IMED BY THE ASSESSEE. THE LD. CIT(A) FURTHER NOTED THAT FOR ASSESSMENT YEAR 20 0 3 - 04 AND 2004 - 05 THE ORDER OF THE LD. CIT(A) WAS CONF I RMED BY THE ITAT. IT WAS FURTHER NOTED THAT THE R EVENUE HAD NOT CHALLENGED DECISION OF ITAT BEFORE THE HON BLE HIGH COURT. ACCORDINGLY , THE LD. CIT ( A ) DIRECTED THAT PRICE OF THE TRANSACTION OF TECHNICAL SERVICE FEE BE TAKEN AT 50% OF THE AMOUNT CLAIMED B Y THE ASSESSEE. 5. AGAINST THE ABOVE ORDER , THE R EVENUE IS IN APPEAL BEFORE US. 3 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. 6. WE HAVE HEARD BOTH THE COUNS EL AND PERUS ED THE RECORDS. BOTH THE COUNSEL FAIRLY AGREED THAT THE ISSUE HAS BEEN DEALT WITH BY THE ITAT FOR ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 WHEREIN THE TRIBUNAL HAD CONFI RMED THE ORDER OF L D. CIT ( A ) AND THE R EVENUE HAS NOT CHALLENGED THE SAID ORDER BEFORE THE IT AT. 7. WE FIND THAT IN A.Y. 2003 - 04, THE TRIBUNAL HAD CONCLUDED AS UNDER: 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING TRANSFER PRICING ADJUSTMENTS BASED ON ARMS LENGTH PRICE. THE ASSESSEE HAD MADE PAYME NTS OF RS.5,76,10,656/ - TO ITS OVERSEAS AE FOR VARIOUS SERVICES CLAIMED TO HAVE BEEN RENDERED AS LISTED IN PARA 2 OF THIS ORDER. CIT(A) AFTER DETAILED EXAMINATION HAS GIVEN A FINDING THAT FULL SERVICES HAD BEEN RENDERED ONLY IN RESPECT OF CLAUSES (A), (B) & (C). AS REGARDS SERVICES MENTIONED IN CLAUSES (D) & (E) THESE WERE ALSO RENDERED BUT THESE SERVICES WERE MOSTLY REQUIRED DURING THE INITIAL YEARS AND THEREFORE QUANTUM OF PAYMENT FOR THESE SERVICES WAS NOT JUSTIFIED. IN REGARD TO THE SERVICES MENTIONED I N CLAUSES (F) & (G), CIT(A) WAS GIVEN A FINDING THAT THERE WAS NO EVIDENCES TO SUBSTANTIATE THE SERVICES. THERE IS NO MATERIAL PLACED BEFORE US BY THE REVENUE TO CONTROVERT THE FINDINGS OF CIT(A). WE THEREFORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) WHICH IS A REASONED AND SPEAKING ORDER AND THE SAME IS THEREFORE UPHELD. 8. FURTHER, WE NOTE THAT FOR A.Y. 2004 - 05, THE TRIBUNAL HAS CONCLUDED AS UNDER: 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN DECLARING INCOME OF? NIL UN DER THE NORMAL PROVISIONS AND RS.2 ,43,45,71,882 U/S 115JB. THE ASSESSEE WAS INCORPORATED IN 1997 WITH THE OBJECT TO BUILD, OWN, OPERATE, TRANSFER, ETC. IT ENTERED INTO 30 YEARS AGREEMENT WITH JAWAHARLAL NEHRU PORT TRUST (JNPT) FOR CONSTRUCTION, OPERA TION AND MAINTENANCE OF TWO - BERTH CONTAINER TERMINAL ON BOT BASIS. THE A.O. MADE REFERENCE TO THE TPO IN REGARD TO TECHNICAL SERVICE FEES SHOWN BY THE ASSESSEE AT RS. 5,78,44,654. THE TPO PROPOSED ADJUSTMENT OF RS. 3,30,54,088 BY DETERMINING ALP FOR THE INTERNATIONAL TRANSACTION ON ACCOUNT OF TECHNICAL SERVICE FEES AT RS.2 ,47,90,566. RESULTA NTLY THE A.O. MADE ADDITION OF RS. 3.30 CRORE. THE LEARNED CIT(A), ON THE BASIS OF TPO'S ORDER FOR THE IMMEDIATELY PRECEDING YEAR I.E. 2003 - 2004, HELD THAT THE ARM' S LENGTH PRICE OF THE SAID TRANSACTION OF TECHNICAL SERVICE FEES BE DETERMINED AT 50% OF THE AMOUNT CLAIMED BY THE ASSESSEE (FULL VALUE FOR CLAUSE (A) AND (B) OF THE AGREEMENT AND HALF CONSIDERATION FOR (C), (D), (E) OF THE AGREEMENT). IN THIS WAY THE AD JUSTMENT TO THE TUNE OF RS. 2,88,22,327 WAS HELD TO BE CORRECT THEREBY DETERMINING THE TRUE ALP OF THE INTERNATIONAL TRANSACTION AT RS. 2,89,22,327. 4 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE I S NO APPEARANCE FROM THE SIDE OF THE ASSESSE DESPITE NOTICE. AT THE VERY OUTSET, THE LEARNED DEPARTMENTAL REPRESENTATIVE CONCEDED THAT THE ISSUE IN QUESTION IS COVERED AGAINST THE REVENUE BY VIRTUE OF THE ORDER PASSED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S.GEMPLUS INDIA PVT. LTD. VS. ACIT IN ITA NO.352/BANG/2009 FOR ASSESSMENT YEAR 2003 - 2004. IN THE LIGHT OF THIS ORDER DATED 21.10.2010, THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH TO ACCEPT THAT THE DECISION TAKEN BY THE LEARNE D CIT(A) ACCORDS WITH THE VIEW TAKEN BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE AFORE - NOTED CASE. IN SUCH CIRCUMSTANCES, WE ARE LEFT WITH NO CHOICE BUT TO UPHOLD THE IMPUGNED ORDER ON THIS ISSUE AND TO THIS EXTENT. 9. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF L D. CIT ( A ). A CCORDINGLY WE UPHOLD THE SAME . A SSESSEE'S APPEAL : 10. T HE GROUNDS OF APPEAL RAISED READ AS UNDER: GROUND 1: ADDITIONS MADE UNDER SECTION 115JB OF THE ACT - RS 77,305,970 T HE CIT(A) ERRED IN TREATING AMOUNT OF RS 77,305,970 AS UNASCERTAINED LIABILITY THEREBY CONFIRMING THE ADDITION TO THE BOOK PROFIT COMPUTED THE INCOME UNDER SECTION 115JB OF THE ACT. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT SUCH ACCRUED LIABILITY WAS D ETERMINED ON THE BASIS OF THE AGREEMENT ENTERED INTO WITH VARIOUS VENDORS. YOUR APPELLANT PRAYS THAT THE AO BE DIRECTED TO TREAT THE PROVISION OF RS 77,305,970 AS PROVISION TOWARDS AN ASCERTAINED LIABILITY. ACCORDINGLY, THE ADDITION MADE TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT BE DELETED. GROUND 2: ADDITIONS MADE UNDER SECTION 115JB OF THE ACT ON ACCOUNT OF DISPUTED CLAIMS - RS 13,560,000 THE CIT(A) ERRED IN TREATING THE PROVISION OF RS 13,560,000 AS CONTINGENT IN NATURE THEREBY CONFIRMI NG THE ADDITION TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. THE C1T(A) ERRED IN HOLDING THAT THE BASIS OF CREATING THE PROVISION AND QUANTIFICATION THEREOF IS DISPUTED. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE. LIABILITY WAS DETERM INED ON THE BASIS OF THE CONCESSION AGREEMENT ENTERED INTO WITH JAWAHARLAL NEHRU PORT TRUST ('JNPT') AND HENCE IS AN ASCERTAINED LIABILITY. FURTHER THE ABOVE ASCERTAINED LIABILITY WAS NOT PAID BY YOUR APPELLANT PENDING THE RECEIPT OF COPIES OF INVOICES/OTH ER SUPPORTING DOCUMENTS FROM JNPT. 5 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. YOUR APPELLANT PRAYS THAT THE AO BE DIRECTED TO TREAT THE PROVISION OF RS 13,560,000 AS PROVISION TOWARDS AN ASCERTAINED LIABILITY. ACCORDINGLY, THE ADDITION MADE TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT BE DELETED. GROUND 3: DEDUCTION UNDER SECTION 80 - IA OF THE ACT FOR OTHER INCOME - RS 60,536,836 THE CIT (A) ERRED IN NOT ALLOWING DEDUCTION, UNDER SECTION 80 - IA OF THE ACT, IN RESPECT OF THE FOLLOWING INCOME EARNED BY YOUR APPELLANT PARTICULARS OF OTHER 'I NCOME AMOUNT IN RS. RENT RECOVERY 495,000 SUNDRY REVENUE 4,411,000 INTEREST INCOME 58,154,000 TOTAL 60,536,836 THE CIT(A) FAILED TO APPRECIATE THAT THE OTHER INCOME EARNED BY YOUR APPELLANT IS DERIVED FROM THE BUSINESS OF OPERATING AND MAINTAINING THE CONTAINER TERMINAL. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE SAID INCOME WOULD NOT HAVE BEEN RECEIVED BY YOUR APPELLANT, HAD YOUR APPELLANT NOT BEEN CARRYING ON ITS BUSINESS OF OPERATING AND MAINTAINING THE CONTAINER TERMINAL. WITHOUT PREJUDICE T O THE ABOVE, THE CIT (A) ERRED IN NOT OBSERVING THE PRINCIPLES OF JUDICIAL CONSISTENCY OF ALLOWING DEDUCTION UNDER SECTION 80 - IA OF THE ACT IN RESPECT OF SCRAP SALES AND MISCELLANEOUS INCOME ALLOWED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) IN AY 2004 - 05 . YOUR APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW DEDUCTION UNDER SECTION 80 - IA OF THE ACT FOR OTHER INCOME EARNED BY YOUR APPELLANT. APROPOS GROUND NO.1: 1 1 . BRIEF FACTS OF THE CASE ARE AS UNDER: IN COMPUTATION OF INCOME, THE ASSESSEE HAS ADDED D ISALLOWANCE U/S 40 (A) OF THE ACT AMOUNTING LO RS. 7,73,05,970/ - . THE DETAILS OF WHICH WERE AS UNDER: NATURE OF EXPENSES AMOUNT DEBITED IN P&L ACCOUNT OPERATING EX P ENSES - SECURITY EXPENSES 722370 - REPAIRS AND MAINTENANCE 3749548 - MISCELLANEOUS EXPENS ES 40000 - LASHING CHARGES 1102666 - SUPERVISION CHARGES 964000 6 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. ADMINISTRATIVE EXPENSES - AUDIT FEES 535000 - HARDWARE MAINTENANCE 45000 - HIRE CHARGES 23268390 - MISCELLANEOUS EXPENSES 358702 - PROFESSIONAL FEES 2191462 - SOFTWARE MAINTENANCE 74 17474 - TECHNICAL SERVICE FEES 34650079 - TRANSPORTATION EXPENSES 1461279 PERSONNEL EXPENSES - CANTEEN EXPENSES 800000 TOTAL 77305970 THESE WERE ALSO REPORTED IN THE TAX AUDIT REPORT. II. THE AO ASKED THE ASSESSEE WHETHER INTEREST U/S 201(1 A ) OF THE ACT WAS PAID, THE COMPANY SUBMITTED THAT THE PROVISIONS BEING ON ESTIMATE BASIS, WERE REVERSED IN THE NEXT FINANCIAL YEAR AND NO TDS WAS DEDUCTED ON THE ABOVE PROVISION IN THE NEXT FINANCIAL YEAR AND THEREFORE QUESTION OF INTEREST ON DELAYED PAYME NT DID NOT ANSE. III. THE AO OBSERVED THA T SINCE THE PROVISIONS HAS BEEN MADE ON AN ESTIMATE HAS,IS, IT BEING NOT AN ASCERTAINED LIABILITY, THE PROVISIONS FALL IN CATEGORY OF AMOUNT SET ASIDE UNDER EXPLANATION 1 (C) OF SECTION 115JB , ACCORDINGLY THE AP PELLANT WAS ASKED WHY THE PROVISION OF RS. 7,73,05,970/ - MAY NO T BE HELD AS UNASCERTAINED LIABILITY AND FURTHER ADDED BACK TO THE BOOK PROFIT FOR COMPUTATION U/S 1 55JB OF THE ACT. IV. THE APPELLANT MADE ITS SUBMISSION WHICH WAS NOT FOUND LO BE ACCEPT ABLE BY THE AO. THE ASSESSEES SUBMISSION INTER ALIA WERE AS UNDER: THE PROVISIONS OF SECTION J15JB OVERRIDE THE OTHER PROVISIONS IN THE ACT. COMPUTATION OF BOOK PROFIT IS GOVERNED BY THE PROVISIONS OF SECTION 11 5 JB OF THE ACT. ACCORDINGLY SPEC IFIC ADDITIONS AND DEDUCTIONS TO THE NET PROFIT APPEARING IN THE PROFIT AND LOSS ACCOUNT TO COMPUTE THE BOO K PROFIT. 7 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. THE COMPANY INVITES ATTENTION OF YOUR GOODSELF IN THE CASE OF APOLLO TYRES LTD. V CIT (20 02) 255 ITR 273 WHEREIN THE HON 'BLE SUPREME COURT HAS HELD: 'THE ASSESSING OFFICER WHILE COMPUTING THE INCOME UNDER SECTION 115JB HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WIT H THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED IN EXPLANATION I TO SECTION 115JB. THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROF IT AND LOSS ACCOUNT TO THE EXTENT MENTIONED IN EXPLANATION 1 TO SECTION 1 I5JB' IN VIEW OF THE ABOVE DECISION, IT IS SUBMITTED THAT THE COMPANY HAS COMPUTED BOOK PROFITS AFTER MAKING SPECIFIC ADJUSTMENTS TO THE NET PROFIT APPEARING IN THE AUDITED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF SCHEDULE V I OF THE COMPANIES ACT, 1956. FURTHER, THE SPECIFIC ADJUSTMENTS DO NOT REQUIRE ANY DISALLOWANCE UNDER SECTION 40(A) OF THE ACT, THEREFORE THE SAME HAS NOT BE CONSIDERED FOR THE PURPOSE OF C OMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE COMPANY CRAVES LEAVE TO RELY ON THE DECISION OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V ECHJAY FORGINGS (P.) LTD (2001) 116 TAXMAN 322 WHEREIN IT HAS HELD THAT: ' IF A SUM IS D EBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE PROVISIONS OF THE COMPANIES ACT, IT WILL NOT BE ADDED TO COMPUTE BOOK PROFIT, EVEN IF THE SAME IS DISALLOWED UNDER SECTION 37 OR UNDER ARTY OTHER PROVISION OF THE INCOME - TAX ACT' IN VIEW OF THE ABOVE, THE C OMPANY HUMBLY SUBMITS THAT THE EXPENDITURE AMOUNTING TO RS 77,305,970 DISALLOWED UNDER SECTION 40(A) OF THE ACT IS NOT REQUIRED TO BE CONSIDERED FOR COMPUTING THE BOOK PROFITS FOR THE PURPOSES OF 'MAT COMPUTATION.' THE AO OBSERVED THAT IF THE EXPENSES WER E ASCERTAINED THEN THE SAME SHOULD NOT HAVE BEEN REVERSED AND THE ASSESSEE SHOULD HAVE MADE TDS PARTY WISE WHICH IT DID NOT. THE AO FURTHER OBSERVED THAT THE TAX WAS DEDUCTED ONLY AFTER ASCERTAINING TH E PARTY WISE LIABILITY LATER ON IN THE F.Y. 2008 - 09 AND TDS WAS DEDUCTED ONLY AT THAT TIME. THE A.O. DID NOT DEALT WITH THE CASE LAW FROM HONBLE APEX COURT AND HON'BLE BOMBAY HIGH COURT REFERRED BY THE ASSESSEE. 8 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. V. THE AO APPLYING THE RATIONALE OF THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF NEW VICTORIA MILLS CO LTD V CIT (61 1TH 395) HELD THAT THE PROVISION CREATED IR, THE BOOKS IS MADE TOWARDS AN UNASCERTAINED LIABILITY WHICH IS TO BE ADDED BACK TO COMPUTE THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. VI. FURTHER THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSION TO ALLOW THE SUM OF RS.6,84,02,962/ - WHICH WAS ADDED BACK AS UNASCERTAINED LIABILITY IN A.Y. 2007 - 08. 1 2 . UPON THE ASSESSEES APPEAL, THE LD. CIT(A) PRINCIPALLY CONFIRMED THE ACTION OF THE A.O. HOWEVER, HE GRANTED PART RELIEF AND DIR ECTED THE A.O. TO ALLOW THE DEDUCTION OF PROVISION WHICH WAS ADDED BACK FOR ARRIVING AT THE BOOK PROFIT. 1 3 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 1 4 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ASSE SSEE HAS MADE PROVISION F OR OUTSTANDING LIABILITIES OF REVENUE NATURE IN ITS ACCOUNTS. THE ESTIMATED PROVISIONS WERE REVERSED IN SUBSEQUENT YEAR. THIS HAS BEEN THE CONSISTENT PRACTICE OF THE ASSESSEE. THE AMOUNTS DEBITED WERE BASED UPON P A ST PATTERN OF EXP ENDITURE. HOWEVER, SINCE TDS HAD NOT BEEN DEDUCTED BY THE ASSESSEE AS INDIVIDUAL PARTIES WERE NOT IDENTIFIED , THE SUMS WERE DISALLOWED IN NORMAL COMPUTATION BY THE ASSESSEE. THE A.O. HAD MADE THE DISALLOWANCE UNDER SECTION 115JB ON THE GROUND THAT THESE WE RE ASCERTAINED LIABILITY AND TDS WERE NOT DEDUCTED. 15. WE NOTE THAT THE PROVISION WAS MADE UNDER NORMAL ACCOUNT ING SYSTEM AS PER PA S T PRACTICE. THE ACCOUNTS WERE DULY CERTIFIED BY THE AUDITORS. IN SUCH SCENARIO, RATIO OF 9 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. HONBLE APEX COURT DECISION IN TH E CASE OF BHARAT EARTH MOVERS LIMITED VS. CIT [2000] 245 ITR 428 (SC) SUPPORTS THE CASE OF THE ASSESSEE. IN THIS CASE, IT WAS HELD AS UNDER: IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. 16. FURTHERMORE, THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT [2002] 255 ITR 273 (SC) HAS HELD AS UNDER: THE ASSESSING OFFICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POW ER OF MAKING INCREASE AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT P ROVIDED IN THE EXPLANATION TO SECTION 115J. IN VIEW OF THE ABOVE DECISION, IT IS SUBMITTED THAT THE COMPANY HAS COMPUTED BOOK PRO/ITS AFTER MAKING SPECIFIC ADJUSTMENTS TO THE NET PROFIT APPEARING IN THE AUDITED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF SCHEDULE VI OF THE COMPANIES ACT, 1956. FURTHER, THE SPECIFIC ADJUSTMENTS DO NOT REQUIRE ANY DISALLOWANCE UNDER SECTION 40(A) OF THE ACT, THEREFORE THE SAME HAS NOT BEE CONSIDERED FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 17. FURTHER, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FORGINGS (P.) LTD. [2001] 116 TAXMAN 322 (BOM) HAS HELD AS UNDER: ' IF A SUM IS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE PROVISIONS OF THE COMPANIES ACT, IT WILL NOT BE ADDED TO COMPUTE BOOK PROFIT, EVEN IF THE SAME IS DISALLOWED UNDER SECTION 37 OR UNDER ANY OTHER PROVISION OF THE INCOME - TAX ACT' 10 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. 18. IN THE B ACKGROUND OF THE ABOVE DECISION A ND PRECEDENT, WE ARE OF THE CONSIDERED OPINION THAT THE AU THORITIES BELOW HAVE ERRED IN ADDING BACK THE IMPUGNED A MOUNT S U/S. 115JB. HENCE, WE DIRECT FOR THESE DELETION. APROPOS GROUND NO.2 : 1 9 . ON THIS ISSUE, THE A.O. NOTED THAT THE ASSESSEE HAS MADE A PROVISION FOR DISPUTED CLAIM AMOUNTING TO RS.1,35,60,000/ - . THE AMOUNT IN QUESTION WAS A PROVISION FOR THE SUM TOWARDS SECURITY CHARGES PAYABLE TO JAWAHARLAL NEHRU PORT TRUST AS PER THE CONCESSION AGREEMENT. THE A.O. WAS NOT SATISFIED WITH THE ASSESSEES RESPONSE. HE WAS OF THE OPINION THAT THE CLAIMS WERE IN THE NATURE OF DISPUTE AND WERE NOT ASCERTAINABLE AS TO WHETHER THE ACTUAL AMOUNT CAME COULD BE SPENT. HENCE, HE ADDED BACK THE SAME HOLDING THEM TO BE CONTINGENT IN NATURE. BEFORE THE LD. CIT(A), THE ASSESSEES SUBMISSIONS WERE AS UNDER: THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD MADE ( \ PROVISION OF RS 13,560,000 TOWARDS SECURITY CHARGES PAYABLE TO JAWAHARLAL NEHRU PORT TRUST ('JNPT ) AS PER THE CONCESSION AGREEMENT ('THE AGREEMENT'). SUCH PROVISION IS CHARACTERISED AS 'PROVISION FOR DISPUTED CLAIMS' UNDER THE HEAD PROVISIONS IN THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008. II. THAT AS PER THE TERMS OF THE AGREEMENT, THE APPELLANT SHOULD ABIDE BY THE SECURITY REGULATIONS / PROCEDURES AS STIPULATED BY JNPT FROM TIME TO TIME. THE DEPLOYMENT OF CENTRAL INDUSTRIAL SECURITY FORCE ('CISF') STAFF WAS COMPULSORY AT THE PORT PREMISES AND SERVICES OF THE CISF STAFF SHOULD BE SHARED FACILITY BETWEEN JNPT AND THE APPELLANT. THE APPELLANT HAD TO BEAR EXPENDITURE OF DEPLOYMENT OF CI SF STAFF AT THE CONTAINER TERMINAL TO THE EXTENT OF FORTY PERCENT OF THE ACTUAL RELEVANT EXPENSES INCURRED BY JNPT. III. THAT JNPT HAD INVOICED CERTAIN AMOUNTS IN RESPECT OF ABOVE MENTIONED SECURITY CHARGES IN THE PAST YEARS. APPELLANT HAD MADE A PROVISION FOR SECURITY CHARGES IN THE YEAR UNDER CONSIDERATION ON THE BASIS OF THE INVOICES RECEIVED IN THE PAST YEARS. HOWEVER, THIS ASCERTAINED LIABILITY WAS NOT DISCHARGED PENDING RECEIPT OF ORIGINAL INVOICES ALONG WITH THE COPIES OF SUPPORTING DOCUMENTS FROM JN PT. IT HAD ACCEPTED THE LIABILITY AND ACCORDINGLY PROVIDED FOR THE SAME IN THE BOOKS OF 11 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. ACCOUNT, HOWEVER THE SAME WOULD BE DISCHARGED ON RECEIPT OF ORIGINAL INVOICES ALONG WITH THE COPIES OF SUPPORTING DOCUMENTS FROM JNPT. IN VIEW OF THE ABOVE FACTS APPELL ANT SUBMITTED THAT THE PROVISION PERTAINS TO AN ASCERTAINED LIABILITY WHICH WOULD BE DISCHARGED IN SUBSEQUENT YEARS ON RECEIPT OF THE ORIGINAL INVOICES ALONG WITH THE COPIES OF SUPPORTING DOCUMENTS. 20 . THEREAFTER, THE ASSESSEE ALSO PLACED RELIANCE UPON THE SEVERAL CASE LAWS. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED. HE NOTED THAT THE ASSESSEE HAS SUBMITTED THAT SUCH CLAIMS WAS IN RESPECT OF PAST YEARS. HE NOTED THAT TH E A.O. HAS MENTIONED THAT ASSESSEE H AD ACCEPTED THE CLAIM BUT IT IS STILL MENTIONED IN THE BOOKS OF ACCOUNT AS THE PROVISION OF THE DISPUTED CLAIMS. HE ALSO NOTED THAT EVEN DURING THE INSTANT PROCEEDINGS, IT HAS NOT BEEN MENTIONED AS TO WHAT EVENTUALLY HAPPENED TO SUCH PROVISION. THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. 21 . AGAINST TH E ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 22 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS . WE FIND THAT IT IS SETTLED LAW THAT IT IS THE SUBSTANCE THAT COUNTS AND NOT THE NOMENCLATURE GIVEN TO IT. IN THE PRESE N T CASE, THE ASSESSEE HA S RECEIVED INVOICES FROM JNPT TOWARD SECURITY CHARGES. THESE WERE ON ACCOUNT OF DEPLOYMENT OF CISF PERSONAL. THE PAYMENT FOR WHICH WAS COMPULSORY. THE ASSESSEE ACCEPTED THE LIABILITY BUT A WAITING SUPPORTING DOCUMENTS MADE THE DEBIT IN THE NAME OF DISPUTED LIABILITY. AS MENTIONED ABOVE, THE NAME GIVEN BY THE PARITIES IS NOT DETERMINATIVE OF THE CHARACTER OF THE TRANSACTION BUT IT IS THE SUBSTANCE THAT COUNTS. 23. IN THIS REGARD, THE CASE LAW REFERRED IN PRECEDING ISSUE F ROM HONBLE APEX COURT AND HON'BLE B OMBAY HIGH COURT IS GERMANE. H OWEVER, WE ALSO NOTE THAT THE LD. CIT(A) HAS NOTED THAT WHAT WAS THE ULTIMATE FATE O F THE LIABILITY HAS NOT BEEN SUBMITTED BEFORE 12 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. HIM. EVEN BEFORE US, THE LD. COUNSEL OF THE ASSESSEE HAS NOT GIVEN DETAILS OF THE PRESENT POSITION OF THIS LIABILITY. IN OUR CONSIDERED OPINION THIS ASPECT IS CRUCIAL FOR PROPER ADJUDICATION OF THIS ISSUE. HENCE, WE REMIT THIS ISSUE TO THE FILE OF THE A.O. TO CONSIDER THE ISSUE AFRESH AFTER ASCERTAINING THE PRESENT FATE OF THE LIABILITY. A PROPOS GROUND NO. 3: 24 . THIS ISSUE RELATES TO THE DISALLOWANCE OF DEDUCTION U/S. 80 - IA IN RESPECT OF THE FOLLOWING INCOME: PARTICULARS OF OTHER INCOME AMOUNT (IN RS.) RENT RECOVERY 4,95,000 SUNDRY REVENUE 4,411,000 INTEREST INCOME 58,154,000 TOTAL 6 0,536,836 25 . AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHALL NOT BE PRESSING FOR THE DISALLOWANCE ON ACCOUNT OF A RENT RECOVERED AND SUNDRY REVENUE. HENCE , THESE GROUNDS ARE DISMISSED AS NOT PRESSED. HOWEVER, AS REGARDS THE CLAIM OF THE INTEREST INCOME, THE FOLLOWING U/S.80IA, THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE UPON THE RECENT DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. TEMA EXCHANGERS MANUFACTURERS PVT. LTD. VS. THE ASST. CIT (IN ITA NO.415 O F 2004 V IDE ORDER DATED 18.07.2018 ) , WHEREIN THE QUESTION WAS AS UNDER: (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE INCOME - TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW IN REVERSING THE ORDER OF THE CIT(A) AND RESTORING THAT OF THE RESPOND ENT NO.1 AND THEREBY DENYING THE APPELLANT THE BENEFIT OF SECTION 80IA OF THE I.T. ACT IN RESPECT OF INTEREST INCOME OF RS.6,69,573/ - ? 13 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. 2 6 . THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 3. THE DEDUCTION UNDER BOTH THE AFORESAID HEADS UNDER SECTION 80IA OF THE ACT WAS DISALLOWED BY THE IMPUGNED ORDER OF THE TRIBUNAL.IT FOLLOWED THE DECISION OF THE APEX COURT IN COMMISSIONER OF INCOMETAX VS. PANDIAN CHEM ICALS LTD. 318 ITR 420 WHICH HAS HELD THAT THEWORDS 'DERIVED FROM' MEANS SOMETHI NG WHICH HAS DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. THUS, THE CLAIM FOR DEDUCTION ON THE ABOVE HEADS WAS DISALLOWED UNDER SECTION 80IA OF THE ACT. 4.MR. SUBRAMANIAM, LEARNED COUNSEL APPEARING IN SUPPORT OF THEAPPEAL POINTS OUT THAT PANDIAN CHEMICALS LTD. (SUPRA) WAS RENDERED INTHE CONTEXT OF SECTION 80HH O F THE ACT AND WE ARE CONCERNED WITHSECTION 80IA OF THE ACT. IT IS PARTICULARLY POIN TED OUT THAT THERE IS ADIFFERENCE IN THE WORDIN G OF THE TWO SECTIONS AS EXISTING DURIN G THEPREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR. SECTION 80HHOF THE ACT GRANTS DEDUCTION IN RESPECT OF THE PROFITS AND GAINS DERIVEDFROM INDUSTRIAL UND ERTAKING WHILE SECTION 80IA OF THE ACT AS IN FORCE A T THE RELEVANT TIME GRANTS DEDUCTION OF PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING. IT IS SUBMITTED THAT THE ABOVEISSUE IS NO LO NGER RES INTEGRA AS THE ISSUE STAND CONCLUDED IN ITS FAVOUR BY THE DECISION OF THIS COURT I N COMMISSIONER OF INCOME TAX VS. JAGDISHPRASAD M. JOSHI, 318 ITR 420. 5.WE FIND THAT THIS COURT IN JAGDISHPRASAD M. JOSHI (SUPRA), THEQUESTION WHICH WA S POSED FOR OUR CONSIDERATION WAS AS UNDER : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND INLAW, THE TRIBUNAL WAS RIGHT IN ALLOWING THE APPEAL OF THE ASSESSEEHOLDING THAT THE INTEREST INCOME EAR NED BY THE ASSESSEE ON FIXEDDEPOSITS WITH THE BANK AND OTHER INTEREST INCOME ARE EL IGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT , 1961? 6. THIS COURT ANSWERED THE QUESTION IN THE AFFIRMATIVE WHILE DISMISSING THE REVENUE'S APPEAL. THIS BY HOLDING THAT INCOME EARNEDBY THE ASSESS EE ON THE FIXED DEPOSIT FROM THE BANK HAS TO BE EXTENDEDDEDUCTIONS UNDER SECTION 80IA OF THE ACT. IN SUPPORT OF THE ABOVE, THIS COURT RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX VS. ELTEK SGS P. LTD., 300 ITR 06WHEREIN THE DIFFERENCE IN THE LANGUAGE EMPLOYED IN SECTIONS 80IB AND8 0H H OF THE ACT WAS BROUGHT OUT I.E. PROFITS AND GAINS DERIVED FROMINDUSTRIAL UNDERTA KINGS AS FOUND IN SECTION 80HH OF THE ACT WITH PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKINGS. IN VIEW OF THEDI FFERENCE IN LANGUAGE OF THE TWO SECTIONS, THIS COURT HELD THAT INTEREST ON FIXED DEPOSITS IN THE BANKWOULD BE PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING. THE SAME REASONING WOULD APPLY TO EXTEND DEDUCTIONSUNDER SECT ION 80IA OF THE A 14 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. CT FOR THE COMPENSATION RECEIVED FOR NONSUPPLY OF SPARE PARTS. THUS, THE ISSUE STA NDS CONCLUDED IN FAVOUR OF THE APPELLANT ASSESSEE BY THE DECISION OF THIS COURT IN JAGDISHPRASAD M. JOSHI (SUPRA). 7.MR. TEJVEER SINGH, LEARNED COUNSEL F OR THE REVENUE IS UNABLE TOPOINTS OUT WHY T HE AFORESAID DECISION IN THE CASE OF JAGDISHPRASAD M.JOSHI (SUPRA) WOULD NOT APPLY TO THE PRESENT FACTS. 8. IN THE ABOVE VIEW, BOTH THE QUESTIONS OF LAW ARE ANSWERED IN THE NEGATIVE I.E. IN FAVOUR OF THE APPELLANT ASSESSEE AND AGAINST THE RESPONDENT REVENUE. 9. ACCORDINGLY, THE APPEAL IS ALLOWED. 2 7 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE INTEREST INCOME CANNOT QUALIFY FOR DEDUCTION U/S. 80IA. FOR THIS, HE REF ERRED TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT [2009] 317 ITR 218 (SC) VIDE ORDER DATED 31 .0 8 .2009 A ND CIT VS. DILIP KUMAR VIDE ORDER DATED 30.07.2018. 2 8 . UPON CAREFUL CONSIDERATION, WE FIND THAT SINCE IN THE RECENT DECISION, THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE JUDICIAL PRECEDENT, WE UPHOLD THE ORDER OF THE LD. CIT(A). 2 9 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED AND THE ASSESSEES APPEAL IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.09.2018 SD/ - SD/ - ( PAWAN SINGH ) (S HAMIM YAHYA) J UDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI ; DATED : 28.09.2018 ROSHAN I , SR. PS 15 ITA NO S . 2935 & 3093/MUM/2012 M/S. NHAVASHEVA INTERNATIONAL CONTAIN ER TERMINAL PVT. LTD. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI