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

ITA 4769/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4199 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 02-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY VERMA
• Assessee Lawyers: AJIT KR JHA
• Keywords: Depreciation; Proportionate interest; Question of law; Notional interest; Tax effect; Commercial expediency
• Section: 14A; 11

Judgement Text

1 ITA NO. 4769/DEL/2014 IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH D, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 4769/DEL./2014 ASSESSMENT YEAR: 2011-12 DCIT, CIRCLE 4(1), NEW DELHI. (APPELLANT) VS. JAGSON INTERNATIONAL LTD., 3 RD FLOOR, VANDANA BUILDING, 11, TOLSTOY MARG, NEW DELHI PAN- AAACJ 2147A (RESPONDENT) A PPELLANT BY SHRI VIJAY VERMA, CIT/DR RE SPONDENT BY SHRI RAJIV SAXENA AND SHRI AJIT KR. JHA, ADVOCATES ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-18 NEW DELHI DATED 30.06.2014 FOR THE ASSESSMENT YEAR 2011 -12 ON THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 3,7 8,40,423/- MADE BY THE AO ON ACCOUNT OF THAT THE ASSESSEE HAS GIVEN INTER EST FREE LOANS TO ITS SUBSIDIARY COMPANY? DATE OF HEARING 06.08.2018 DATE OF PRONOUNCEMENT 17 .08.2018 2 ITA NO. 4769/DEL/2014 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 49, 54,769/- MADE BY THE AO ON ACCOUNT OF SECTION 14A.W.RULE 8D? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS. 15,85,,719/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION CLAIMED BEING 40% ON AIRCRAFT AS THE AIRCRAFT WAS CURRENTLY NOT IN USE.? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IN DELETING THE DISALLOWANCES OF RS. 4,95,74 ,440/- MADE BY THE AO ON ACCOUNT OF UNPAID OPERATIONAL CHARGES TO M/S ONG C.? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS. 90 ,89,065/- MADE BY THE AO ON ACCOUNT OF EXPENSES CLAIMED AS PREVIOUS YEAR ADJUSTMENT UNDER THE HEAD ADMN. & OTHER EXPENSES? 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS. 4, 42,355/- MADE BY THE AO ON ACCOUNT OF PROVISION OF GRATUITY? 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS. 12 ,66,36,468/- 8. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AN D IS NOT TENABLE ON FACTS AND IN LAW. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME SHOWING LOSS OF RS.39,56,19,757/- ON 15.09.2011. TH E CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS GI VEN INTEREST FREE LOANS TO ITS SUBSIDIARY COMPANY M/S. JAGSON AIRLINES LTD. AMOUNT ING TO RS.31,61,70,198/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE PROPORTIONATE INTEREST 3 ITA NO. 4769/DEL/2014 SHOULD NOT BE DISALLOWED, AS THE ASSESSEE HAS INCUR RED FINANCIAL COST OF RS.26,99,16,661/- ON LOANS TAKEN OF RS.704.64 CRORE S. IN HIS REPLY, THE ASSESSEE SUBMITTED THAT THE ADVANCE WAS GIVEN TO SI STER CONCERNS, M/S. JAGSON AIRLINES WITH WHICH THE ASSESSEE HAD CLOSED ITS BUS INESS RELATIONS AND IT HELD MORE THAN 2/3 RD SHARES. THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE WAS UNABLE TO ESTABLISH THE COMMERCIAL EXPEDIENCY FOR A DVANCING INTEREST FREE LOANS TO SISTER CONCERN. HE ALSO NOTED THAT THE ASS ESSEE COULD NOT PRODUCE DOCUMENTARY EVIDENCE TO PROVE AS TO HOW THE INTERES T FREE FUNDS WAS ADVANCED TO ITS SISTER CONCERN AND CONCLUDED THAT T HE INTEREST BEARING FUND HAS BEEN UTILIZED FOR NON-COMMERCIAL ACTIVITIES. TH EREFORE, HE DISALLOWED PROPORTIONATE INTEREST OF RS.37,94,023/- (12% OF RS .31,61,70,198/-). 3. ON SCRUTINY OF ACCOUNTS, THE ASSESSING OFFICER F URTHER OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENTS OF RS.24,99,91,283/- ON WHICH THE INCOME EARNED WAS EXEMPT. IN THIS REGARD, THE ASSESSEE WAS UNABLE TO DIFFERENTIATE THAT INVESTMENT SO MADE ARE NOT FROM COMMON POOL OF FUNDS. THEREAFTER, THE ASSESSING OFFICER RELYING ON SOME CASE LAWS, MADE D ISALLOWANCE U/S. 14A READ WITH RULE 8D AND CALCULATED THE DISALLOWANCE OF RS. 49,54,869/-. 4. THE ASSESSING OFFICER FURTHER FOUND FROM THE SCH EDULE OF FIXED ASSETS AND DEPRECIATION THAT THE ASSESSEE HAS CLAIMED 40% DEPRECIATION ON ITS AIR CRAFT AMOUNTING TO RS.15,85,719/-. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT PRESENTLY, THE AIR CRAFT IS NOT IN RUNNING CONDITIO N AND ALSO NOT FETCHING ANY INCOME. THE AIR CRAFT IS KEPT FOR SALE, BUT NO BUYE R WAS AVAILABLE DESPITE ALL EFFORTS. THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM OPERATING OF THE AIRCRAFT. 4 ITA NO. 4769/DEL/2014 THEREFORE, THE DEPRECIATION CLAIMED ON THE SAID AIR CRAFT WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 5. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENSES OF RS.4,95,74,440/- ON ACCOUNT OF UNPAID O PERATIONAL CHARGES TO M/S. ONGC. IN THIS REGARD, THE ASSESSEE SUBMITTED COMPLE TE LEDGER ACCOUNT OF SUCH EXPENSES. THE ASSESSEE FURTHER SUBMITTED WRITTEN RE PLY, BUT THE ASSESSING OFFICER WAS NOT CONVINCED THEREWITH. THE ASSESSING OFFICER NOTED THAT NO SUCH EXPENSES WERE DEBITED IN EARLIER YEARS ALTHOUGH BUS INESS OF THE ASSESSEE REMAINED THE SAME WITH ONGC. HE ACCORDINGLY DISALLO WED THE ENTIRE OPERATIONAL CHARGES CLAIMED AND ADDED THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE. 6. IT WAS FURTHER NOTICED THAT IN THE PROFIT AND LO SS ACCOUNT, THE ASSESSEE HAD CLAIMED EXPENSES OF RS.90,89,065/- AS PREVIOUS YEARS ADJUSTMENT UNDER THE HEAD ADMINISTRATION AND OTHER EXPENSES. THE ASS ESSEE WAS ASKED TO FILE THE DETAILS TO JUSTIFY THESE EXPENSES, BUT THE ASSE SSEE STATED THAT THE EXPENDITURE STANDS INCURRED FOR THE PURPOSE OF BUSI NESS, DEBITED TO ADMINISTRATIVE OR OTHER HEADS AND SO, THE SAME ARE REQUIRED TO BE ALLOWED. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DI D NOT DISCHARGE HIS OBLIGATION TO EXPLAIN THE NATURE OF EXPENSES WHETHE R THESE EXPENSES PERTAIN TO THE CURRENT YEAR OR FOR PREVIOUS YEAR OR THE SAM E WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE, THEREF ORE, DISALLOWED THESE EXPENDITURE. 5 ITA NO. 4769/DEL/2014 7. THE ASSESSING OFFICER FURTHER FOUND FROM THE TAX AUDIT REPORT OF THE ASSESSEE THAT THE ASSESSEE HAD MADE PROVISION FOR G RATUITY OF RS.6,42,335/-. ON BEING ASKED TO JUSTIFY THE SAME, THE ASSESSEE EX PLAINED AS UNDER : 'AS REGARDS TO PROVISION FOR GRATUITY IT IS SUBMITT ED THAT THE SAME IS ALLOWABLE IN THE YEAR IN CONCERN ONLY IF PAID BEFOR E THE DUE DATE OF FILING OTHERWISE IN THE YEAR IN WHICH IT IS ACTUALLY PAID UNDER SECTION 438 OF THE IT ACT. THE COMPUTATION OF INCOME IS PREPARED BY THE PROFESS IONALS IN CASE IT IS NOT ACCOUNTED FOR WHILE CALCULATING THE PROFIT THE SAME MAY BE DISALLOWED NOW AND THE PROFIT ENHANCED IS ALREADY EXEMPT UNDER TONNAGE TAX SCHEME SO NO TAX EFFECT WOULD BE ON THE ASSESSEE.' THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SU BMISSIONS OF THE ASSESSEE AND HE ADDED THE PROVISION FOR GRATUITY INTO THE IN COME OF THE ASSESSEE. 8. IT WAS ALSO NOTICED THAT WHILE COMPUTING THE INC OME AS PER SECTION 115JB, THE ASSESSEE HAD CLAIMED A SUM OF RS.12,66,3 6,468/- AS EXEMPT U/S. 115VO. IN THIS REGARD, THE OBSERVATION OF THE ASSES SING OFFICER IS AS UNDER : 11. THE ASSESSEE WHILE WORKING OUT INCOME AS PER PRO VISION OF SECTION 115 JB HAS CLAIMED INCOME FROM SHIPPING UNIT OF RS.12,6 6.36,468/- AND CLAIMED AS EXEMPT AS PER SECTION 115 VO. THE ISSUE OF CLAIM OF THE INCOME AS PER TONNAGE SYSTEM IS OLD AND HAS BEEN DEALT WITH IN PREVIOUS Y EARS. THE FACTS ARE THAT IN THE A Y 2006-07, THE ASSESSEE MADE AN APPLICATION IN FO RM NO. 65 FOR EXERCISING OPTION FOR TONNAGE TAX SCHEME UNDER SECTION 115VP 1 1 15VR OF THE INCOME TAX ACT, 1961. THE ADD!. COMMISSIONER OF INCOME TAX REJEC TED THE APPLICATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE'S SHIP 'DE EPSEA MATDRILL' IS NOT A SHIP BUT A DRILLING RIG WHICH IS NOT COVERED UNDER THE D EFINITION OF QUALIFYING SHIPS AS THE SAME IS AN OFFSHORE INSTALLATION. IT WAS ALSO H ELD THAT THE SHIP WAS NOT REGISTERED UNDER THE MERCHANT SHIPPING ACT, 1958 AN D ASSESSEE'S MAIN OBJECT OF BUSINESS WAS NOT CARRYING ON THE BUSINESS OF THE OP ERATION OF THE SHIPS IT WAS ALSO SEEN THAT THE ASSESSEE DID NOT HAVE THE LICENS E WHICH WAS TO BE ISSUED BY THE DIRECTOR GENERAL OF SHIPPING UNDER SECTION 407 OF M ERCHANT SHIPPING ACT, 1958. 6 ITA NO. 4769/DEL/2014 ON THIS ISSUE THE ASSESSEE PREFERRED AN APPEAL BEFO RE LD CIT (A) WHO VIDE ORDER DATED 16.3.2007 IN APPEAL NO. 44/2006-07 ALLOWED TH E APPEAL OF ASSESSEE AND DIRECTED THE AO TO CONSIDER THE RIGS AS 'QUALIFYING SHIPS' UNDER SECTION 115VD OF THE INCOME TAX ACT AND ALLOW ITS APPLICATION FOR EXE RCISING OPTION FOR TONNAGE TAX SCHEME U/S 115VP/115VR OF THE ACT. AGGRIEVED WI TH THE ORDER OF LD. CIT(A), THE REVENUE PREFERRED AN APPEAL BEFORE HON'BLE ITAT WHO HAS HOWEVER VIDE ORDER DATED 20.112009 IN ITA NO. 2979/DEL OF 2007 D ISMISSED THE APPEAL OF REVENUE NOW THE REVENUE HAS PREFERRED AN APPEAL BEF ORE HON'BLE DELHI COURT AGAINST THE ORDER OF HON'BLE IT AT. SIMILAR TREATMENT WAS GIVEN IN A. Y. 2007- 08, 2008-09 & 2009-10 ALSO. DURING THE YEAR UNDER C ONSIDERATION THE APPEAL IS PENDING BEFORE HON'BLE SUPREME COURT OF INDIA. BASED ON THE AFORESAID FACTS, THE CLAIM OF THE ASSE SSEE TO TREAT SHIPPING UNIT EXEMPT IS HEREBY REJECTED AND SAME IS ADDED TO THE BOOK PROFIT FOR WORKING OUT INCOME UNDER MAT AS THE MATTER IS STILL SUB-JUDI CE. THE INCOME CLAIMED AS EXEMPT IN THE COMPUTATION OF I NCOME FOR CALCULATION OF BOOK PROFIT AS PER MAT ULS 115 VA IS ACCORDINGLY NOT ALLOWED TO THE ASSESSEE AND AN ADDITION OF RS 12,66,36,468/- I S MADE ON THIS ACCOUNT . ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION OF RS12,66,36,466/-. 9. AGGRIEVED FROM THE ORDER OF THE ASSESSING OFFICE R, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE AND THE ORDER OF THE LOWER AUTHORITY, PARTLY ALLOWE D THE APPEAL OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. 10. THE LEARNED DR, APPEARING ON BEHALF OF THE REVE NUE, RELYING ON THE ASSESSMENT ORDER, SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO DELETE THE IMPUGNED ADDITIONS IGNORING THE COGENT REASONINGS G IVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR EACH AND EVERY ADDITIONS MADE. HE, THEREFORE, URGED TO ALLOW THE APPEAL OF THE REVENUE . 7 ITA NO. 4769/DEL/2014 11. DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE SUBMISSIONS MADE BEFORE THE AUT HORITIES AND ALSO SUBMITTED THAT THE ISSUES INVOLVED IN GROUND NO. 1, 2, 3, & 5 ARE COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY V ARIOUS DECISIONS OF TRIBUNAL IN THE CASES OF ASSESSEE ITSELF FOR DIFFER ENT ASSESSMENT YEARS. REGARDING THE ISSUE INVOLVED IN GROUND NO. 4, I.E., REGARDING UNPAID OPERATIONAL CHARGES TO M/S. ONGC OF RS.4,95,74,440/ - IT WAS SUBMITTED THAT CLAIM OF SIMILAR EXPENSES WAS ALSO MADE IN A.Y. 201 3-14 AND THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION ON THIS SCORE WHI LE MAKING THE ASSESSMENT OF ASSESSEE. HE, THEREFORE, SUBMITTED THAT THE ISSU ES INVOLVED IN THIS APPEAL OF THE REVENUE ARE ALREADY SETTLED BY VARIOUS ORDERS A ND DECISIONS IN THE CASES OF ASSESSEE ITSELF AND HENCE, THE GROUNDS RAISED IN APPEAL OF THE REVENUE ARE NOT TENABLE IN THE EYE OF LAW. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD AND WE FIND THA T MOST OF THE ISSUES INVOLVED IN THIS APPEAL ARE COVERED IN FAVOUR OF TH E ASSESSEE BY VARIOUS DECISIONS OF TRIBUNAL AND DELHI HIGH COURT. 13. AS FAR AS THE FIRST ISSUE REGARDING DISALLOWANC E OF NOTIONAL INTEREST ON INTEREST FREE LOANS GIVEN TO SUBSIDIARY COMPANY, WE FIND THAT THIS ISSUE HAS BEEN SETTLED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 VIDE ORDER DATED 11 TH MAY, 2018. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL READ AS UNDER : 8 ITA NO. 4769/DEL/2014 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 CONCE RN ? 12.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASS ESSEE HAS GIVEN INTEREST FREE LOANS TO ITS SUBSIDIARY COMPANY M/S. JAGSON AIRLINE S LTD. OF 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 DI SALLOWED AN AMOUNT OF RS.2,53,61,633/- TO THE TOTAL INCOME OF THE ASSESSE E. 12.2 BEFORE THE LEARNED CIT (APPEALS) IT WAS S UBMITTED THAT THE ASSESSEE COMPANY HOLDS MORE THAN 69% OF THE SHARES OF M/S. J AGSON AIRLINES LTD. SINCE M/S. JAGSON AIRLINES LTD. SUFFERED HUGE LOSSES, THEREFOR E, 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 AI RLINES, TWO AIRCRAFTS WERE OWNED BY THE ASSESSEE COMPANY. IN ORDER TO SAFEGUARD THE IN TEREST OF THE ASSESSEE IT WAS NECESSARY TO FEED THIS COMPANY ALSO. IT WAS ACCORD INGLY ARGUED THAT THE ADVANCE GIVEN BY THE ASSESSEE COMPANY WAS BASED PURELY ON C OMMERCIAL EXPEDIENCY. THE ASSESSEE FURTHER SUBMITTED THAT PRIOR TO TAKING LOA NS FROM THE BANK FOR PURCHASE OF THE VESSELS BY THE ASSESSEE COMPANY WHICH HAD ALREA DY 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 I MPUGNED ASSESSMENT YEAR THE ASSESSEE HAD ADVANCED ONLY RS.5,21,27,291/- THAT TO O WAS GIVEN OUT OF THE PROFIT OF RS.38.97 CRORES EARNED DURING THE YEAR. IT WAS SUB MITTED THAT IN THE PAST NO SUCH DISALLOWANCE WAS MADE. THEREFORE, IN VIEW OF THE D ECISION OF HONBLE 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 C ONSISTENCY. VARIOUS OTHER DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE LE ARNED CIT (APPEALS). 12.3 BASED ON THE ARGUMENTS ADVANCED BY THE AS SESSEE 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, WR ITTEN & ORAL SUBMISSION OF THE APPELLANT AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, 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 ASSES SEE COMPANY HAD ALREADY ADVANCED RS.21,17,41,988.5 TO THE JAGSON AIRLINES LTD. IN SU PPORT 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 CHARGE D ANY INTEREST ON SUCH ADVANCES. 9 ITA NO. 4769/DEL/2014 FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE ASSESSE E 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 LT D BELONG TO THE 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 DISA LLOWED THE INTEREST ON LOANS WITHOUT RECORDING IST ANY FINDING TO THE EFFECT THAT THE LO ANS 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 QU ESTION 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 ASSESS ING OFFICER HAS FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY IS A MAJOR INVESTOR IN JA GSON AIRLINES LTD AND THEY HAVE LONG BUSINESS RELATIONSHIP AS THE AIRCRAFTS BELONGING TO THE ASSESSEE COMPANY WERE RUN BY M/S JAGSON AIRLINES LTD ON LEASE BASIS IN LAST SO MA NY 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 ASSES SING OFFICER. MOREOVER, THERE IS A BUSINESS EXPEDIENCY AND INTEREST OF THE ASSESSEE COM PANY IN M/S. JAGSON AIRLINES LTD DUE TO WHICH LOANS WERE GIVEN BY THE ASSESSEE COMP ANY. 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 UTILITIE S 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 INTEREST FREE FUND GENERATED OR AVAILA BLE 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 ALL OWED 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 SQ UARELY COVERED THE CASE OF THE APPELLANT AS THE APPELLANT COMPANY HAD SUFFICIENT I NTEREST FREE FUNDS TO ADVANCE THE MONEY TO ITS SISTER CONCERN. 3.6 FOR THE REASONS GIVEN ABOVE I AM OF THE CONSI DERED OPINION THAT DISALLOWANCE MADE IS NOT SUSTAINABLE IN THE EYES OF THE LAW. AS A RESULT THIS GROUND OF APPEAL IS ALLOWED. 12.4 AGGRIEVED WITH SUCH ORDER OF THE LEARNED C IT (APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 12.5 THE LEARNED DEPARTMENTAL REPRESENTATIVE ST RONGLY OBJECTED TO THE ORDER OF THE LEARNED CIT (APPEALS). HE SUBMITTED THAT THE H ONBLE SUPREME COURT IN THE CASE 10 ITA NO. 4769/DEL/2014 OF ADDL. CIT VS. M/S. TULIP STAR HOTELS LTD. VIDE O RDER 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 O F HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL LTD. VS. CIT REPORTE D 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 (APP EALS) IN PARA 4.4 OF HIS ORDER HAS SHIFTED THIS ONUS TO THE ASSESSING OFFICER REGA RDING THE ESTABLISHMENT OF NEXUS BETWEEN INTEREST FREE FUNDS AND AMOUNT OF ADVANCE W HICH IS NOT CORRECT. WITHOUT PREJUDICE TO THE ABOVE HE SUBMITTED THAT T HE 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 T HE 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 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIE S AND POWER LTD. 2009-TIOL-27- HC-MUM-IT, NO DISALLOWANCE IS CALLED FOR. 12.7 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MA DE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIND INGS GIVEN BY THE LEARNED CIT (APPEALS) THAT THE INTEREST FREE FUNDS AVAILABLE WI TH THE COMPANY WERE SUFFICIENT TO ADVANCE INTEREST FREE ADVANCE COULD NOT BE CONTROVE RTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE U TILITIES AND POWER LTD. (SUPRA) WHERE IT HAS BEEN HELD THAT IF THE INTEREST FREE FU NDS ARE SUFFICIENT TO MAKE THE INVESTMENT THE PRESUMPTION WOULD ARISE THAT INVESTM ENT 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 ADM ITTED FACT THAT THE ASSESSEE COMPANY HAD ALREADY ADVANCED RS.21,17,41,988.5 PRI OR TO TAKING LOAN FOR PURCHASE OF VESSELS AND ASSESSEE COMPANY HAS ADVANCED INTERE ST 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 DETA ILED REASONING GIVEN BY THE LEARNED CIT (APPEALS) WE FIND NO INFIRMITY IN HIS ORDER. A CCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE UNDER CONSIDERATION. THEREFORE, RESPECTFULLY FOLLOWING TH E ABOVE DECISION OF CO- ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF, GROU ND NO. 1 OF THE REVENUE DESERVES TO BE DISMISSED. 11 ITA NO. 4769/DEL/2014 14. ADVERTING TO THE NEXT ISSUE RELATING TO DELETIO N OF DISALLOWANCE U/S. 14A, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THIS SCORE. THIS ISSUE IS ALSO COVERED BY THE AFORESAID DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2010-11 AS UNDER : 13. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER :- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT (APPEALS) ERRED IN DELETING DISALLOWANCE OF THE RS.13,83,209/ - UNDER SECTION 14A RW RULE 8D (III)? 13.1 AFTER HEARING BOTH THE SIDES WE FIND THAT THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D DISALLO WED AN AMOUNT OF RS.13,83,209/- BEING EXPENDITURE INCURRED FOR INVESTMENTS MADE, TH E DIVIDEND INCOME OF WHICH IS EXEMPT. 13.2 IN APPEAL THE LEARNED CIT (APPEALS) DELET ED THE ADDITION BY OBSERVING AS UNDER :- 4.4 I HAVE GONE THROUGH THE RECORD AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I FIND THAT SIMILAR ISSUE AROSE IN ASSESSMENT YEAR 20 08-09 DEALT BY MY PREDECESSOR AND ALSO BY ME IN ASSESSMENT YEAR 2009-10 IN APPEAL NO 400/2011-12. THE AR OF THE APPELLANT HAS PRODUCED A COPY OF THE HONBLE DELHI H IGH COURT DECISION IN ITA NO 1395/2010 IN ASSESSEES OWN CASE WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE ASSESSEE POSSESS A SHIP NOT A RIG A ND THEREBY ALLOWED THE TONNAGE TAX BENEFIT. RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION IN ASSESSEES OWN CASE, I HAD ALLOWED THE APPEAL IN ASSESSMENT YEAR 2 009-10 FOLLOWING THE SAME I HEREBY DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIO N OF RS.13,83,209/-. SINCE THE APPELLANT GETS TONNAGE TAX BENEFIT UNDER SECTION 1 15VP / 115VR, THE ADDITION U/S 14A/RULE 8 D IS NOT AT ALL REQUIRED. THUS, GROUND NO 2 IS ALLOWED. 13.3 AGGRIEVED WITH SUCH ORDER OF THE LEARNED C IT (APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 13.4 AFTER HEARING BOTH THE SIDES WE FIND THE A BOVE GROUND RAISED BY THE REVENUE IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN I TA. NO. 5915 (DEL) OF 2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISE D BY THE REVENUE IS DISMISSED. FOLLOWING SIMILAR REASONING, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 12 ITA NO. 4769/DEL/2014 15. THE ISSUES INVOLVED IN GROUND NO. 5 & 6 AND GRO UND NO. 7 ARE ALSO COVERED BY THE AFORESAID DECISION OF TRIBUNAL WHO V IDE PARA 14.1 OF ITS ORDER FOR A.Y. 2010-11, AFTER FOLLOWING ITS REASONING GIV EN IN APPEAL OF REVENUE FOR 2008-09 DISMISSED THE RELEVANT GROUND OF REVENUES APPEAL, HELD AS UNDER : 14.1 AFTER HEARING BOTH THE SIDES WE FIND THE A BOVE GROUND RAISED BY THE REVENUE IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN I TA. NO. 4392 (DEL) OF 2011. WE HAVE ALREADY DECIDED THIS ISSUE AND THE GROUND R AISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING SIMILAR REASONING, THIS G ROUND BY THE REVENUE IS DISMISSED. 16. THE RELEVANT FINDINGS OF THE TRIBUNAL APPEAL FO R A.Y. 2008-09 READ AS UNDER : 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 HONBLE JURISDICTI ONAL HIGH COURT IN ASSESSEES OWN CASE VIDE ITA NO.1395/2010 AND ITA NO.1289/2011 ORD ER DATED 08.11.2012 BY OBSERVING AS UNDER :- 7. IN THE FACTS OF THIS CASE THE VESSELS WERE CONS ISTENTLY REGISTERED UNDER SECTION 407 OF THE MERCHANT SHIPPING ACT AND HAD A VALID CERTIFICA TE 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 S EA IN TERMS OF CLAUSE (A) OF SECTION 115VD. THE QUESTION AS TO WHETHER IT AMOUNTED TO O FF SHORE INSTALLATIONS WAS GONE INTO IN CONSIDERABLE DETAIL BY THE TRIBUNAL. THE TRIBU NAL NOTICED THAT UNLIKE IN THE CASE OF OFF-SHORE INSTALLATIONS WHICH ARE STATIONED AT O NE PLACE, THE 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 VESS EL HAS TO BE STATIONED AT ONE PLACE. IN THESE CIRCUMSTANCES, REVENUES CONTENTIONS THAT THE VESSEL IS NOTHING BUT OFFSHORE INSTALLATIONS HAS NO MERIT, IN THE CASE OF MATDRIL LS OF DIE KIND PUT TO USE BY THE ASSESSEE. 8. FOR THESE REASONS THE COURT IS OF THE O PINION 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 I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEALS ARE CONSEQUENTLY DISMISSE D. 13 ITA NO. 4769/DEL/2014 2.7 SINCE THE LEARNED CIT (APPEALS) WHILE DECID ING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LEAR NED DEPARTMENTAL REPRESENTATIVE, WE FIND NO INFIRMITY IN THE ORDER O F THE LEARNED CIT (APPEALS) ALLOWING THE GROUND RAISED BY THE ASSESSEE. THE GR OUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. NOT ONLY THIS, THE LD. CIT(A) HAS ALSO DECIDED THES E ISSUES IN A.Y. 2007-08 TO 2010-11 IN FAVOUR OF THE ASSESSEE. THE ADDITIONS WH ICH HAVE BEEN CHALLENGED IN GROUND NO. 5 & 6 ALSO DESERVE TO BE DELETED IN V IEW OF THE FACT THAT SINCE THE ASSESSEE GETS TONNAGE TAX BENEFIT U/S. 115VP/VR. TH EREFORE, THE ADDITIONS OF RS.90,89,065 ON ACCOUNT OF ADMINISTRATION AND OTHER EXPENSES AND RS.4,42,355/- ON ACCOUNT OF PROVISION FOR GRATUITY IS NOT REQUIRED AT ALL. IN VIEW OF ABOVE DISCUSSION, WE OBSERVE THAT THE LD. C IT(A) HAS RIGHTLY DELETED THE ADDITIONS, CHALLENGED BY REVENUE BY WAY OF GROU NDS NOS. 5, 6 & 7 OF APPEAL. 17. THE ISSUE INVOLVED IN GROUND NO. 3 REGARDING DE LETION OF DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.15,85,719/- IS ALSO CO VERED BY THE DECISION OF TRIBUNAL FOR A.Y. 2010-11 VIDE 15 TO 15.1, WHICH RE AD AS UNDER : 15. GROUND OF APPEAL NO. 4 BY THE REVENUE READS A S UNDER :- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT (A) ERRED IN DELETING ADDITION OF RS.26,42,865/- BEING DISALLOWANCE OF DEP RECIATION ON AIRCRAFTS? 15.1 AFTER HEARING BOTH THE SIDES WE FIND THE A BOVE GROUND IS IDENTICAL TO GROUND OF APPEAL NO. 4 IN ITA. NO. 5915 (DEL) OF 20 13. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE IS DISMI SSED. FOLLOWING SIMILAR REASONING, THIS GROUND IS ALSO DISMISSED. 14 ITA NO. 4769/DEL/2014 FROM THE ABOVE DECISION, IT REVEALS THAT THE TRIBUN AL HAS FOLLOWED ITS OWN DECISION IN APPEAL OF REVENUE IN THE CASE OF ASSESS EE ITSELF FOR A.Y. 2009-10. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF C O-ORDINATE BENCH, GROUND NO. 3 OF THE REVENUE DESERVES TO BE DISMISSED. 18. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 4 W ITH RESPECT TO ADDITION ON ACCOUNT OF DISALLOWANCE OF UNPAID OPERATIONAL CH ARGES OF RS.4,95,74,440/-, WE FIND THAT THE ASSESSEE HAS FILED THE COPY OF LED GER ACCOUNT OF THE SAID EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, BU T THE SAME HAVE NOT BEEN VERIFIED EITHER BY THE AO OR BY THE LD. CIT(A) SO A S TO ASCERTAIN AS TO WHY ONGC HAS PAID LESSER AMOUNT AS COMPARED TO THE BILL S RAISED BY THE ASSESSEE. THE AO HAS ALSO OBSERVED THAT SOME PAYMENT MIGHT HA VE RELATED FOR THE PREVIOUS YEAR, BUT IT HAS BEEN DEBITED TO THE CURRE NT YEARS PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS NOT FURNISHED ANY BILL-WI SE 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 LESS ER 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 TO THE FILE OF AO FOR DECIDING TH E SAME AFRESH AFTER ASCERTAINING AND VERIFYING THE ABOVE FACTS, MENTION ED 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. NEE DLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEAR S. ACCORDINGLY, THIS GROUND 15 ITA NO. 4769/DEL/2014 OF APPEAL DESERVES TO BE ALLOWED FOR STATISTICAL PU RPOSES. 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE A PPEAL OF THE REVENUE DESERVES TO BE PARTLY ALLOWED FOR STATISTICAL PURPO SES. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH AUGUST, 2018. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH AUGUST, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI