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

ITA 4347/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3903 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 30-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT MISHRA
• Assessee Lawyers: S N BANSAL S
• Keywords: Earning of tax free income
• Section: 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.4347/DEL/2010 ASSESSMENT YEAR : 2007-08 A.C.I.T., VS. M/S JAGSON INTERNATIONAL LTD., CIRCLE-4(1), 3 RD FLOOR, VANDANA BUILDING, NEW DELHI TOLSTOY MARG, NEW DELHI PAN NO.AAACJ 2147 A CROSS OBJECTION NO.359/DEL/2010 (I.T.A. NO.4347/D/2010) ASSESSMENT YEAR : 2007-08 M/S JAGSON INTERNATIONAL LTD., VS. A.C.I.T., 3 RD FLOOR, VANDANA BUILDING, CIRCLE-4(1), TOLSTOY MARG, NEW DELHI. NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI RAJIV SAXENA & S.N. BANSAL, ADVOCATES DEPARTMENT BY : SHRI JAYANT MISHRA, CIT-DR. ORDER PER K.G. BANSAL: AM: THIS APPEAL AND THE CROSS OBJECTION WERE ARGUED IN A CONSOLIDATED MANNER BY THE LEARNED CIT-DR AND THE LE ARNED COUNSEL FOR THE ASSESSEE. THEREFORE, A CONSOLIDATED ORDER IS PASSE D. 1.1 THE ONLY GROUND TAKEN BY THE REVENUE IN ITS APPE AL IS THAT THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DIRECTIN G THE ASSESSING OFFICER TO CONSIDER THE RIG AS QUALIFYING SHIP U/S 115V D OF THE INCOME- TAX ACT, 1961 AND, THEREFORE, ALLOWING THE ASSESSEE TO OPT FOR TONNAGE TAX SCHEME (TTS FOR SHORT). IT IS MENTIONED THAT H E FAILED TO 2 CONSIDER THE FACT THAT THE SHIP OF THE ASSESSEE WAS AN OF FSHORE INSTALLATION AND THAT REGISTRATION UNDER MERCHANT SH IPPING ACT, 1958, AS A SHIP WAS NOT A RELEVANT CONSIDERATION. ON THE OTH ER HAND, THE ASSESSEE HAS DISPUTED THE DISALLOWANCE OF `37,66,957/- MAD E U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES, 1962 . 2. THE LEARNED CIT-DR DREW OUR ATTENTION TOWARDS THE DECISION OF C BENCH OF DELHI TRIBUNAL IN THE CASE OF THE ASSESSEE, (2010) 35 SOT 285 (DELHI) FOR ASSESSMENT YEAR 2006-07, IN WHICH THE M ATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY MAKING FOLLOWING O BSERVATIONS:- 9.LEARNED COUNSEL FURTHER CONTENDS THAT CIT(A) ON TH E BASIS OF FACTS ALONE VIDE ORDER DATED 16.03.2007 HAS HE LD THAT ASSESSEE IS ENTITLED TO OPTION FOR TONNAGE TAX SCHEM E UNDER SECTION 115VP/115VR. THEREAFTER, HONBLE DELH I HIGH COURT DELIVERED THE ABOVE JUDGMENT OF 14.11.20 07 AND ITAT, AS MENTIONED ABOVE, ON 17.10.2008. BOTH T HESE ORDERS IN FAVOUR OF THE ASSESSEE WERE NOT AVAILABLE BEFO RE CIT(A). THEREFORE, THE ORDER OF CIT(A) NEEDS TO BE UPHELD IN VIEW OF JUDGMENTS BY HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE IN I.T.A. NO.75 OF 2006 AND ITAT DELH I (SUPRA). 2.1 THE DECISION OF THE HIGH COURT, REFERRED TO IN T HE DECISION OF THE TRIBUNAL HAS BEEN PLACED BY THE ASSESSEE IN THE PAPER BO OK ON PAGE NOS. 8 TO 11. THE DECISION HAS BEEN REPORTED IN (2008 ) 214 CTR 227 (DELHI). THE DECISION HAS BEEN RENDERED U/S 33AC AND IT HAS BEEN HELD THAT THE DRILLING RIG, PLACED ON A VESSEL DESCRIBED AS A BARGE WHICH COULD BE MOVED OUT FROM PLACE TO PLACE FOR OFFSHORE DRILLING IS A SHIP AND THE CLAIM U/S 33AC HAS TO BE ALLOWED. THE RELEVA NT PORTIONS OF THIS JUDGMENT ARE REPRODUCED BELOW:- 20. WE FIND FROM THE FACTS OF THIS CASE THAT THE ASSESSIN G OFFICER HAD SPECIFICALLY RAISED THE ISSUE OF THE APPLIC ABILITY OF SECTION 801A(3) OF THE ACT IN THE NOTICE GIVEN BY HIM UNDER SECTION 148 OF THE ACT AND THAT ISSUE WAS RESPONDE D 3 TO BY THE ASSESSEE. IT DOES APPEAR THAT THE ASSESSING OFFICER DID NOT CONDUCT ANY FURTHER INQUIRY APPAREN TLY BECAUSE HE WAS SATISFIED WITH THE EXPLANATION GIVEN. W E CANNOT UNDERSTAND GEE VEE ENTERPRISES (SUPRA) TO MEAN THAT THAT EVEN WHEN THE ASSESSING OFFICER IS SATISFIED WIT H THE EXPLANATION GIVEN BY THE ASSESSEE, HE MUST MAKE A FURTHER INVESTIGATION SO AS TO UNEARTH SOMETHING AGAINST THE ASSESSEE. 21. THAT APART, THE TRIBUNAL HAS NOTED THAT THERE WA S NO MATERIAL AT ALL BEFORE THE COMMISSIONER TO TAKE A DIF FERENT VIEW OF THE MATTER PARTICULARLY SINCE THE ASSESSING OFFI CER HAD DROPPED THE OBJECTION. IT IS TRUE THAT IF THERE WAS MATERIAL BEFORE THE COMMISSIONER TO HAVE THE ISSUE RECONSIDERED, HE COULD HAVE DONE SO BUT IT WAS NOTED B Y THE TRIBUNAL THAT THERE WAS NO MATERIAL BEFORE THE COMMISSIONER TO CONTRADICT THE VIEW TAKEN BY THE ASSESSING OFFICER. NO SUCH MATERIAL HAS BEEN SHOWN TO US ALSO. 2.2 THE CASE OF THE LEARNED DR IS THAT THE DECISION OF THE HIGH COURT WAS RENDERED UNDER A TOTALLY DIFFERENT CONTEXT, I.E. , SECTION 33AC, UNDER WHICH A RIG PLACED ON A BARGE MAY BE A SHIP. HOWEVER, SECTION 115VD FURNISHES THE DEFINITION OF THE TERM QUALIFYIN G SHIP, IN RESPECT OF WHICH THE ASSESSEE MAY EXERCISE OPTION FOR TAXATION U NDER TTS. UNDER THIS DEFINITION EVERY SHIP MAY NOT BE A QUALIFY ING SHIP AS A NUMBER EXCLUSIONS HAVE BEEN MADE, THE NOTABLE EXCLUSIO NS BEING FACTORY SHIPS AND OFFSHORE INSTALLATIONS. THIS ISSUE HAS NO T BEEN EXAMINED BY THE TRIBUNAL IN THE DECISION REFERRED TO ABOVE. THE ASSESSEE OWNS A RIG, WHICH HAS BEEN PLACED IN A VESSEL SO TH AT THE RIG COULD BE MOVED FROM PLACE TO PLACE FOR ITS OPERATION . THE RIG AND THE VESSEL TAKEN TOGETHER REMAIN THE RIG AND THE BARGE DO ES NOT BECOME THE QUALIFYING SHIP AS DEFINED IN THE AFORESAID PROVISI ON. THEREFORE, IT IS URGED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4 2.3 IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE RELIE D ON THE DECISION OF THE TRIBUNAL, WHICH IS RENDERED ON THE SAM E FACTS AND UNDER THE SAME LAW. THE RELEVANT PORTIONS OF THIS JUD GMENT HAVE ALREADY BEEN REPRODUCED BY US EARLIER. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIO NS MADE BEFORE US. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE DECISION FOR THIS YEAR IS BASED UPON THE FINDINGS RECORDED IN ASSESSMENT YEAR 2006- 07, WHICH HAVE NOT BEEN CONSIDERED BY THE TRIBUNAL I N ITS DECISION REFERRED TO ABOVE. FURTHER, THE LEARNED CIT(A) HAS FOLLOWED THE AFORESAID DECISION OF THE TRIBUNAL. THUS, NO DISTINGUI SHABLE FEATURE HAS BEEN MADE BY ANY OF THE LOWER AUTHORITIES IN RESPECT OF THE FACTS OF THE TWO YEARS. THE QUESTION WHETHER THIS SHIP IS A FACTORY SHIP HAS NOT BEEN EXAMINED BY ANY OF THE LOWER AUTHORITIES. THER EFORE, THE FACTS ON RECORD REMAIN THE SAME. IN SUCH A CIRCUMSTANCE, WE AR E LEFT WITH NO OPTION BUT TO FOLLOW THE EARLIER DECISION OF THE DIV ISION BENCH. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT (A). 4. COMING TO THE CROSS OBJECTION OF THE ASSESSEE, IT IS SEE N THAT THE LEARNED CIT(A) INVOKED THE PROVISION CONTAINED IN RU LE 8D. IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED V S. DCIT, (2010) 194 TAXMAN 203 (BOMBAY), IT HAS BEEN HELD THAT THIS R ULE COMES INTO OPERATION FROM ASSESSMENT YEAR 2008-09. IN OTHER WORDS, THE RULE IS NOT APPLICABLE TO THE PROCEEDINGS OF ASSESSMENT YEAR 200 7-08, UNDER CONSIDERATION IN THIS CASE. HOWEVER, THE HONBLE COUR T ALSO HELD THAT THE ASSESSING OFFICER IS COMPETENT TO EXAMINE ALL FACTS A ND DISALLOW A REASONABLE PORTION OF THE EXPENDITURE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. THE LEARNED COUNSEL SUBMITTED A CALCU LATION BEFORE US ACCORDING TO WHICH A SUM OF `51,364/- MAY BE DISALLOW ED ON THE BASIS OF THE AFORESAID DECISION. THE WORKING IS GIVEN AS UND ER:- A. TOTAL EXEMPTED INCOME 7,68,817 B. TOTAL PROFIT 5,18,78,542 C. SALARY PAID TO SH. J.P. GUPTA, 5 CHAIRMAN OF THE COMPANY WHO LOOKS AFTER THE INVESTMENT. 34,65,860 `2,88,830 P.M. (`2 LACS + TAX PAYABLE) D. PROPORTIONATE EXPENDITURE 34,65,960X7,68,817 ----- ---------------------------- 5,18,78,542 4.1 ON THE OTHER HAND, THE LEARNED CIT-DR SUBMITTED THAT IN VIEW OF THE AFORESAID DECISION OF MUMBAI HIGH COURT, THE MATT ER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER SO THAT HE MAY EXAMINE THE FACTS OF THE CASE IN THE LIGHT OF THE DECISION. THE L EARNED COUNSEL HAD NO OBJECTION TO THIS COURSE OF ACTION. 4.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSI ONS MADE BEFORE US. THE ISSUE REGARDING DISALLOWANCE U/S 14A FOR THIS YEAR STANDS SQUARELY COVERED BY THE DECISION OF MUMBAI HIGH COURT. THE FACTS OF THE CASE HAVE NOT BEEN EXAMINED BY THE LOWER AUTHORITIES IN THE LIGHT OF PROPOSITIONS LAID DOWN IN THE DECISION. THEREFORE, WE THINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE ASSESSIN G OFFICER FOR DECIDING THE MATTER DE NOVO AS PER LAW AFTER HEARING THE ASSESSEE. 5. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATIST ICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 03.06. 2011. ( R.P. TOLANI ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 03.06.2011. NS 6 COPY FORWARDED TO:- 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).