GREAT OFFSHORE LTD, MUMBAI V. ADDL CIT 5(1), MUMBAI

ITA 5221/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3087 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 18-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2010
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 244A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G MUMBAI. BEFORE AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO 5221 /MUM/201 0 ASSESSMENT YEAR: - 2006 - 07 GREAT OFFSHORE LIMITED C/O KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI 400 001. VS.` DEPUTY COMMISSIONER OF INCOME TAX - 5(1), AAYKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. PAN/GIR NO. AACCG4380N APPELLANT RESPONDENT ITA NO 2070/MUM/2011 ASSESSMENT YEAR: - 2007 - 08 DEPUTY COMMISSIONER OF INCOME TAX - 5(1), ROOM NO, 568, 5 TH FLOOR, AAYKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. VS.` GREAT OFFSHORE LIMITED 81 ENERGY HOUSE, D.N. ROAD, MUMBAI 400 001. PAN/GIR NO. AACCG4380N APPELLANT RESPONDENT ITA NO 2191/MUM/2011 ASSESSMENT YEAR: - 2007 - 08 GREAT OFFSHORE LIMITED C/O KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI 400 001. VS.` DEPUTY COMMISSIONER OF INCOME TAX - 5(1), AAYKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. PAN/GIR NO. AACCG4380N APPELLANT RESPONDENT 2 GREAT OFFSHORE LIMITED PAGE 2 OF 15 ITA NO 6913/MUM/2011 ASSESSMENT YEAR: - 2008 - 09 ADDL. COMMISSIONER OF INCOME TAX - 5(1), ROOM NO, 568, 5 TH FLOOR, AAYKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. VS.` GREAT OFFSHORE LIMITED 81 ENERGY HOUSE, D.N. ROAD, MUMBAI 400 001. PAN/GIR NO. AACCG4380N APPELLANT RESPONDENT ITA NO 7226/MUM/2011 ASSESSMENT YEAR: - 2008 - 09 GREAT OFFSHORE LIMITED C/O KALYANIWALLA & MISTRY ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI 400 001. VS.` ADDL. COMMISSIONER OF INCOME TAX - 5(1), AAYKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. PAN/GIR NO. AACCG4380N APPELLANT RESPONDENT ORDER PER RAJESH KUMAR, AM OUT OF THESE FIVE APPEALS, ITA NO. 2070/MUM/2011 AND ITA NO. 2191/MUM/2011 ARE CROSS APPEALS FOR ASSESSMENT YEAR 2007 - 08 AND ITA NO. 6913/MUM/2011 AND 7226/MUM/11 ARE CROSS APPEALS FOR ASSESSMENT YEAR REVENUE BY SHRI B.D NAIK ASSESSED BY SHRI F.V. IRANI & SHRI A.A. KHAN DATE OF HEARING 31.08.2015 DATE OF PRONOUNCEMENT .08.2015 3 GREAT OFFSHORE LIMITED PAGE 3 OF 15 2008 - 09. APPEAL IN ITA NO. 5221/MUM/2010 FOR ASSESSMENT YEAR 2006 - 07 IS FILED BY THE ASSESSEE. SINCE SOME OF THE GROUNDS RAISED IN ALL THESE APPEALS ARE COMMON , THEREFORE THE Y WERE BEING CLUBBED TOGETHER , HEARD TOGETHER AND DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY . 2. FIRST WE SHALL TAKE UP THE APPEAL IN ITA NO. 5221/MUM/2010. 3. THE COMMON ISSUE INVOLVED IN ALL GROUND OF APPEAL IS WHETHER INTEREST U/S 234B AND 234C OF THE INCOME TAX IS LEVIABLE ON THE TAX LIABILITY OF THE ASSESSEE WHERE THE SCHEME OF DEMERGER IS SANCTIONED BY THE HIGH COURT AFTER THE CLOSE OF FINANCIAL YEAR AND THE DEMERGER IS EFFECTIVE FROM THE APPOINTED DATE . 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS DEMERGED OUT OF THE PARENT COMPANY NAMELY M/S GREAT EASTER N SHIPPING CO. LTD I N A SCHEME OF DEMERGER EXHIBITED AT PAGE NO 5 TO 20 IN ORDER TO TRANSFER TO THE ASSESSEE THE OFFSHORE SERVICE BUSINESS OF THE PARENT COMPANY. THE ASSESSEE WAS INCORPORATED ON 14.07.2005. THE APPOINTED DATE OF DEMERGER WAS 01.04.2005 AS PER SCHEME OF DEMERGER . THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 03.02.2006 APPROVED THE INITIAL SCHEME OF DEMERGER. THE FINAL DEMERGER WAS TO TAKE PLACE AFTER RECEIPT OF CONSENT FROM ONGC WITH WHOM THE PARENT COMPANY HAD ENTERED INTO VARIOUS CO NTRACTS FOR OFFSHORE SERVICES . T HE ASSIGNMENTS OF CONTRACTS IN FAVOUR OF THE ASSESSEE WAS RECEIVED VIDE LETTER DATED 27.06.2006 AND 22.08.2008 EXHIBITED AT PAGE NO 26 TO 32 OF THE PAPER BOOK NO1 BY THE ASSESSEE SUBJECT TO SIGNING OF TRIPARTITE AGREEMENT. THEREAFTER THE PARENT COMPANY VIDE LETTER DATED 24.08.2006 CONFIRMED TO HAVE ACCEPTED THE VARIOUS TERMS OF ONGC AND ALSO SIGNED THE TRIPARTITE AGREEMENTS QUA ASSIGNMENTS . AN APPLICATION WAS MOVED FOR EXTENSION OF TIME ON 18.08.2006 EXHIBITED AT PAGE 35 - 4 1 AND THE HONBLE BOMBAY HIGH COURT 4 GREAT OFFSHORE LIMITED PAGE 4 OF 15 VIDE ORDER DATED 31.08.2006, SANCTIONED THE DEMERGER SCHEME AND ALSO GRANTED THE EXTENSION OF TIME. THE SCHEME WAS ADOPTED BY THE ASSESSEE ON 16.10.2006 VESTING THE OFFSHORE BUSINESS OF THE PARENT COMPANY WITH ALL ASSETS , LIABILITIES, CONTRACT RIGHTS, AND OBLIGATION AS ON 01.04.2005 THE APPOINTED DATE WITH THE ASSESSEE.THE ENTIRE REVENUES AND EXPENSES FROM 01.04.2015 WERE ALSO TAKEN OVER. THEREAFTER THE BOOK OF ACCOUNTS OF THE ASSESSEE WERE AUDITED AND RETURN OF INCOM E WAS FILED ON 30.11.2006 DECLARING AN INCOME OF RS. 11,22,72,762/ - AND SELF ASSESSMENT TAX OF RS. 1,30,00,000/ - WAS PAID AFTER ADJUSTMENT OF TDS OF RS. 2,61,54,656/ - . NO INTEREST U.S 234B & 234C WAS PAID BY THE ASSESSEE ON THE GROUND THAT THE SCHEME WAS FINALLY APPROVED BY THE HIGH COURT ON 31.08.2006 EFFECTIVE FROM THE APPOINTED DATE I.E. 01.04.2005. 5. THE AO CHARGED INTEREST U/S 234B AND 234C FOR NON PAYMENT OF ADVANCE TAX AND DEFERMENT OF ADVANCE TAX AS PER THE PROVISIONS OF SECTION 210 OF INCOME T AX ACT BY REJECTING THE PLEA OF ASSESSEE THAT THE HONBLE HIGH COURT OF BOMBAY FINALLY ACCORDED THE APPROVAL TO THE SCHEME OF DEMERGER ON 31.08.2006 MUCH AFTER THE CLOSURE OF FINANCIAL YEAR. BEING AGGRIEVED BY THE ACTION OF AO, ASSESSEE PREFERRED AN APPE AL BEFORE CIT(A). 6. THE CIT(A) OBSERVED THAT THE PARENT COMPANY WAS DEMERGED ON 16 . 10.2006 FROM THE APPOINTED DATE WHICH WAS 01.04.2005 THER E BY VESTING ITS OFFSHORE SERVICES BUSINESS TO THE ASSESSEE. THE CIT(A) FURTHER NOTED THAT THERE WAS NO DISPUTE AS TO THE TAX LIABILITY OF RS. 3,77,91,010/ - , TDS OF RS. 2,61,54,656/ - AND THE SELF ASSESSMENT TAX WAS ALSO PAID WHILE FILING THE RETURN OF INCOME. THE CIT(A) OBSERVED THAT THE PARENT COMPANY WHILE TRANSFERRING ITS OFFSHORE SERVICES BUSINESS TO THE ASSESEE COMPANY, DID NOT TRANSFER THE AMOUNT OF ADVANCE TAX PAID BY IT ON BEHALF OF THE ASSESSEE AND CONSEQUENTLY, CLAIMED REFUND OF SUCH ADVANCE TAX ALONG WITH INTEREST AND THUS THE LIABILITY U/S 234B AND 234C AROSE NOT BECAUSE OF NON 5 GREAT OFFSHORE LIMITED PAGE 5 OF 15 PAYMENT OF ADVANCE TAX BUT ON ACCOUNT OF FAILURE ON THE PART OF THE APPELLANT COMPANY TO TRANSFER THE ADVANCE TAX PAID TO THE ACCOUNT OF THE ASSESSEE. IT WAS FURTHER STATED BY CIT(A) THAT NO EVIDENCE WAS PLACED ON RECORD WHETHER THE PARENT COMPANY CLAIMED INTEREST. THE LD CIT(A) UP HELD THE ORDER OF LD ASSESSING OFFICER ON THE VARIOUS REASONS INCORPORATED IN PARA 3.3 OF THE APPEAL ORDER. 7. THE LD. AR AGRUED THAT THE ASSESSEE WAS INCORPORATED ON 14.07.2005 AND THE SCHEME OF DEMERGER SANCTIONED BY THE HONBLE HIGH COURT ON 31.08.2015 MAKING DEMERGER EFFECTIVE FROM THE APPOINTED DATE OF 01.04.2005.HE FURTHER SUBMITTED THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ESTIMATE ITS INCOME AND INCOME TAX THEREON IN TERMS OF PROVISIONS OF SECTION 209 PARTICULARLY WHEN THE SCHEME O F DEMERGER WAS NOT SANCTIONED. HE VEHEMENTLY ARGUED THAT IT IS ONLY BY VIRTUE OF HIGH COURT ORDER THE DEMERGER BECAME EFFECTIVE FROM THE APPOINTED DATE I.E 01.04.2005 AND IN CASE OF DECLINE OF SANCTION BY THE HON,BLE HIGH COURT FOR ANY REASON WHATSOEVER , THE SCHEME AS PROPOSED WOULD HAVE FAILED WITH ALL THE CONSEQUENCES. THEREFORE, HE PRAYED FOR THE QUASHING THE ORDER OF FIRS T APPELLATE AUTHORITY AS BEING AGAINST THE SPIRIT OF LAW. HE FURTHER ARGUED THAT THERE IS DIFFERENCE AND DISTINCTION BETWEEN T HE PROVISIONS OF ADVANCE INCOME TAX AND ADVANCE FRINGE BENEFIT TAX. HE POINTED OUT THAT THE WORD ESTIMATE IS MISSING IN SECTION 115WI AND 115WJ WHEREAS THE WORD ESTIMATE IS USED IN THE SECTION 209 OF THE ACT AND HE ,THEREFORE, SUBMITTED THE FACTS OF DE CISION IN ITA NO, 5000/MUM/2009 IN THE ASSESSMENT YEAR 2006 - 07 WERE DISTINGUISHABLE AS THE FBT WAS DUE AND PAID ON ACTUAL EXPENDITURE WHEREAS IN THE CASE OF ADVANCE TAX , AN ESTIMATION OF INCOME AND TAX ARE INVOLVED. THE LD. AR ALSO POINTED OUT THAT NO INTE REST U/S 244A WAS ALLOWED TO THE PARENT COMPANY THE GREAT EASTERN SHIPPING CO. LTD BECAUSE THE REFUND DUE WAS LESS THAN 10% OF THE TOTAL TAX LIABILITY. THE LD COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDGMENTS TO SUPPORT OF THE ASSESSEE: - 6 GREAT OFFSHORE LIMITED PAGE 6 OF 15 A)PRIME SECURITIES LTD. ACIT (INV.) (333 ITR 464) B)ULTRATECH CEMENT LTD. VS. DCIT (ITA NOS 7646,7647,7735 ABD 7736/MUM/2007 8 . PER CONTRA THE LD. DR SUBMITTED THAT THE INTEREST U/S 234B & 234C WAS MANDATORY AS THE LANGUAGE IN THE SAID SECTIONS USE D THE WORD SHALL AND RELIED ON THE ORDERS OF AUTHORITIES BELOW AND PR AYED FOR UPHOLDING THESE ORDERS 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS A VAILABLE ON RECORDS . AFTER GOING THE RECORDS AND THE ORDER OF THE FIRST APPELLATE AUTHORITY , WE NOTE THAT THE DEMERGER BECAME EFFECTIVE FROM APPOINTED DATE OF 01.04.2005 BY THE ORDER OF HONBLE HIGH COURT OF BOMBAY VIDE ORDER DATED 31.08.2006 EXHIBITED AT PAGE NO 42 TO 44 OF THE PAPER BOOK NO 1,FILED BY THE ASSESSEE, THEREBY VESTING AND TRANSFERRING THE OFF SHORE BUSINESS OF THE DEMERGED COMPANY M/S GREAT EASTERN SHIPPING CO LTD TO THE ASSESSEE. IT IS NOTEWORTHY THAT OF SCHEME OF DEMERGER WAS ORIGINALLY SANCTIONED BY THE HIGH COURT ORDER DATED 03.02 .2006 HOWEVER THE ASSIGNMENT OF CONTRACTS IN FAVOUR OF THE ASSESSEE COULD NOT BE DONE WITHIN A PERIOD OF SIX MONTHS AND THEREFORE EXTENSION WAS SOUGHT WHICH WAS FINALLY SANCTIONED ON 31.08.2006 AS MENTIONED SUPRA. THEREAFTER THE SCHEME WAS ADOPTED BY THE ASSESSEE COMPANY ON 16.10.2006 TAKING OVER ALL THE ENTIRE OFFSHORE DIVISION WITH ALL ASSETS , LIABILITIES, CONTRACTS RIGHTS AND OBLIGATIONS ETC. WE ALSO NOTE THAT THE ASSESSEE FILED RETURN OF INCOME ON 30.11.2006 DECLARING AN INCOME OF RS. 11,22,72,762/ - BY PAYING SELF ASSESSMENT TAX OF RS. 1,30,00,000/ - AFTER ADJUSTING TDS OF RS. 2,61,54,656/ - WITHOUT PAYING INTEREST U/S 234B AND 234C OF THE ACT. WE ALSO NOTE THAT T HE FIRST APPELLATE AUTHORITY UPHELD THE ORDER OF THE ASSESSING OFFICER BY HOLDING THAT THE DEMERGED COMPANY DID NOT TRANSFER THE ADVANCE TAX PAID IT ON BEHALF OF THE ASSESSEE AND HENCE THE INTEREST U/S 234 B & C WAS CHARGEABLE AND THUS REJECTED THE SUBMISSIONS OF THE ASSESSEES COUNSEL WHICH WAS 7 GREAT OFFSHORE LIMITED PAGE 7 OF 15 INCORPORATED IN PARA 3.2 BY CIT(A) AND ALSO INCORPORATED HIS FINDING ON PARA 3.3 OF THE SAID ORDER. SINCE THE SCHEME WAS APPROVED AFTER THE CLOSE OF THE FINANCIAL YEAR THE ASSESSEE COULD NOT HAVE ESTIMATE D ITS INCOME AND PAY THE ADVANCE TAX ON THE SAME. WE ARE IN AGREEMENT WITH THE ARGUMENTS OF THE LD AR ON THIS ISSUE. FURTHER THE CASE OF THE ASSESSEE IS SQUARELY COVERED THE DECISIONS IN THE CASE OF PRIME SECURITIES LTD. VS ACIT (INV.) (333 ITR 464) AND ULTRATECH CEMENT LTD. VS. DCIT (ITA NOS 7646,7647,7735 AND 7736/MUM/2007. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRIME SECURITIES VS ACIT HAS HELD THAT IN ORDER TO CHARGE INTEREST UNDER SECTION U/S 234B , THERE HAS TO BE DEFAULT ON THE PART OF THE ASSESSEE IN ESTIMATING THE THE ADVANCE TAX AND PAYMENT THEREOF AS PER THE PROVISIONS OF SECTI ON 209 R.W. S/ 210 OF THE ACT. ONCE THE DEFAULT IS ATTRIBUTED TO THE ASSESSEE , THEN THE CHARGING OF INTEREST BECOMES MANDATORY. THE RATIO DECENDIE IN THE SAID DECISION WAS THAT WHERE IT WAS NOT POSSIBLE FOR THE ASSESSEE TO HAVE ANTICIPATED THE EVENTS DURI NG THE YEAR WHICH TOOK PLACE AFTER THE CLOSE OF YEAR ,THERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE AND CONSEQUENTLY INTEREST U/S 234B COULD NOT TO BE CHARGED. IN THE CASE OF ULTRATECH CEMENT LTD VS DCIT, THE THE TRIBUNAL HELD THAT IN THE SCHEME OF D EMERGER , IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ESTIMATE THE INCOME AND PAY THE ADVANCE TAX AS THE SCHEME WAS APPROVED AFTER THE CLOSE OF THE FINANCIAL YEAR . WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS REVERSE THE ORDER PASSED BY THE FIRS T APPELLATE AUTHORITY ON THIS POINT AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. NOW WE TAKE UP THE APPEAL OF ASSESSEE IN ITA NO. 2191/MUM/2011, VIDE WHICH FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED: - 1) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE ADMINISTRATION EXPENSES WHICH ARE COMMON TO TONNAGE AND NON TONNAGE ACTIVITIES OF 8 GREAT OFFSHORE LIMITED PAGE 8 OF 15 THE APPELLANT ARE TO BE APPORTIONED IN THE RATIO OF CURRENT YEARS TURNOVER AS AGAINST THE RATIO 67 : 33 CONSISTENTLY ADOPTED BY THE APPELLANT IN TH E PAST. 2) BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF APPORTIONING THE COMMON ADMINISTRATIVE BETWEEN TONNAGE AND NON TONNAGE BUSINESS IN THE RATIO OF 67 : 33. 3) THE COMMISSIONER OF IN COME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN LEVYING INTEREST U/S.234C FOR DEFERMENT OF THE FIRST AND SECOND INSTALLMENTS OF ADVANCE TAX PAYABLE ON 15.6.2006 AND 15.9.2006. THE APPELLANT DENIES ITS LIABILITY TO BE LEVIED TH E SAID INTEREST. 4) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN LEVYING INTEREST U/S.23C AMOUNTING TO RS.23,76,522/ - . THE APPELLANT SUBMITS THAT THE INTEREST U/S.234C CANNOT EXCEED RS.L,20,275/ - . 9. GROUND NO. 1 AND 2 RELATE TO THE APPORTIONMENT OF COMMON ADMINISTRATIVE AND OTHER EXPENSES BETWEEN TONNAGE AND NON TONNAGE BUSINESS IN THE RATIO OF 67: 33. 10. THE FACTS IN BRIEF ARE THAT THE ASSESSEE INCURRED SOME EXPENDITURE WHICH WERE DIRECTLY RELATAB LE TO TONNAGE TAX BUSINESS AND NON TONNAGE TAX BUSINESS AND WERE CHARGED OFF A CCORDINGLY TO PARTICULAR ACTIVITY WHEREAS SOME EXPENDITURE ADMINISTRATIVE AND OTHERS WHICH WERE COMMON TO BOTH THE ACTIVITIES AND WHICH COULD NOT BE ATTRIBUTED TO ANY PARTICULAR BUSINESS ACTIVITY WERE APPORTIONED AND ALLOCATED BY THE ASSESSEE IN THE RATIO OF 67% TO TONNAGE BUSINESS ACTIVITY AND 33% TO NON TONNAGE BUSINESS ACTIVITY IN CONFORMITY WITH THE PRACTICE FOLLOWED IN THE EARLIER YEAR ON THE BASIS OF ANNUALIZED OP ERATING CHARTER HI RE INCOME. DURING THE YEAR, THE ASSESSEE INCURRED A SUM OF RS. 40 , 19 , 48 , 708/ - AS COMMON EXPENDITURE UNDER VARIOUS HEADS AND ALLOCATED IN THE RATIO OF 67:33 THEREBY APPORTIONING RS. 26,93,05,634/ - TO TONNAGE TAX ACTIVITY AND RS. 13,26,43, 074/ - TO NON TONNAGE TAX ACTIVITY. 9 GREAT OFFSHORE LIMITED PAGE 9 OF 15 11. THE AO REJECTED THE SYSTEM OF APPORTIONMENT ON THE BASIS OF ANNUALIZED OPERATING CHARTER HI RE INCOME ADOPTED BY THE ASSESSEE AND APPLIED AND APPORTIONED THE COMMON EXPENDITURE ON THE BASIS OF THE RECEIPTS FROM TONNAG E AND NON TONNAGE ACTIVITY WHICH WAS RS. 39 , 26 , 22 , 7285/ - AND RS. 1447319165/ - RESPECTIVELY BEING IN THE RATIO OF 73.06% AND 26.94% OF THE TOTAL TURNOVER. THE AO WORKED OUT THE DISALLOWANCE ON ACCOUNT OF CHANGE IN THE BASIS OF APPORTIONMENT OF EXPENSES AT RS. 2,43,58,092 WHICH IS INCORPORATED ON PAGE 4 OF THE ASSESSMENT ORDER. 12. THE CIT(A) OBSERVED THAT THE DISTRIBUTION OF COMMON EXPENSES HAD TO BE DONE ON THE BASIS OF ACTUAL REVENUE AND NOT ON THE BASIS OF ANNUALIZED OPERATING CHARTER HI RE INCOME BY R EFERRING TO THE PROVISIONS OF SECTION 115VJ (1) AND (2). THE CIT(A) FURTHER OBSERVED THAT DEPARTMENT IS NOT BOUND BY THE METHOD ADOPTED BY THE ASSESSEE AND IF SOMETHING WRONG ACCEPTED IN THE PAST COULD NOT BE THE BASIS FOR THE PRESENT AND FUTURE YEARS. TH E SUBMISSION S OF THE LD. COUNSEL BEFORE THE CIT(A) WERE INCORPORATED IN PARA 2.2 OF THE APPEAL ORDER. THUS, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. 13. AGGRIEVED BY THE DECISION OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 14. T HE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE APPORTIONED THE COMMON EXPENSES RELATING TO TONNAGE AND NON TONNAGE ACTIVITY ON THE BASIS OF ANNUALIZED OPERATING CHART HI RE INCOME WHICH WAS ALSO FOLLOWED IN THE PRECEDING YEAR. HE FURTHER FILED A STATEMENT GIVING DE TAILS OF COMMON EXPENDITURE ALLOCATED GIVING DETAILS AS TO TOTAL OPERATING EXPENSES, ADMINISTRATIVE AND OTHER EXPENSES, INTEREST AND FINANCE CHARGES AND DEPRECIATION. THE TOTAL OF ALL EXPENSES UNDER THESE HEADS WAS RS. 45.20 CR ( RS. 1.77 CR. AS TOTAL O PERATING EXPENSE + RS. 40.19 CR. 10 GREAT OFFSHORE LIMITED PAGE 10 OF 15 AS ADMINISTRATIVE AND OTHER EXPENSE + RS. 1.57CR. AS INTEREST AND FINANCE CHARGES + RS. 1.67 CR. AS DEPRECIATION). THE LD. COUNSEL POINTED OUT THAT THE ASSESSEE APPORTIONED THE ENTIRE EXPENDITURE OF RS. 45.20 CR. IN THE RAT IO OF 67:37 WHEREAS, THE AO ONLY APPLIED THE INCOME APPORTIONED METHOD TO ADMINISTRATIVE AND OTHER EXPENSES RS. 40.19 CR. THEREBY ACCEPTING THE METHOD ADOPTED BY THE ASSESSEE QUA THREE HEADS OF EXPENSES AS REFERRED TO ABOVE, NAMELY, TOTAL OPERATING EXPENS ES , INTEREST AND FINANCE CHARGES AND DEPRECIATION. THE LD. COUNSEL ALSO ARGUED THAT THE ARBITRARINESS ON THE PART OF THE AO IN APPLYING ONE METHOD TO ADMINISTRATIVE AND OTHER EXPENSES AND ACCEPTING THE METHOD ADOPTED BY THE ASSESSEE IN RESPECT OF THE R EMAINING TOTAL OPERATING EXPENSES , INTEREST AND FINANCE CHARGES AND DEPRECIATION WHICH IS BAD IN LAW. THE LD. AR RELIED ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF JASWANT RAI VS. CIT WEALTH TAX, 107 ITR 476 (P&H). LD. AR ALSO RELIED UP ON THE DECISION OF CHANDIGARH BENCH OF TRIBUNAL IN THE CASE OF S. PARAMJIT SINGH VS. WTO [55 TTJ 331] AND ALSO IN THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA IRON & STEEL COMPANY [106 ITR 363]. THE LD. COUNSEL PRAYED THAT THE ORDER OF CIT (A) REJECTING THE SYSTEM OF ANNUALIZED OPERATING CHARTER HI RE INCOME MAY KINDLY BE QUASHED AND AS S ESSEE BE ALLOWED TO FOLLOW THE SAME. 15. LD. DR RELIED HEAVILY UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE PROVISIONS OF SECTION 115VJ EMPO WERS THE AO TO APPORTION THE COMMON EXPENSES ON A REASONABLE BASIS . HE THEREFORE PRAYED THAT THE ORDER OF CIT(A) BE UPHELD. 16. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF PROVISIONS OF SECTI ON 115VJ OF THE INCOME TAX ACT, WHICH READS AS UNDER: - 11 GREAT OFFSHORE LIMITED PAGE 11 OF 15 (1) WHERE A TONNAGE TAX COMPANY ALSO CARRIES ON ANY BUSINESS OR ACTIVITY OTHER THAN THE TONNAGE TAX BUSINESS, COMMON COSTS ATTRIBUTABLE TO THE TONNAGE TAX BUSINESS SHALL BE DETERMINED ON A REASONABLE BASIS. (2) WHERE ANY ASSET, OTHER THAN A QUALIFYING SHIP, IS NOT EXCLUSIVELY USED FOR THE TONNAGE TAX BUSINESS BY THE TONNAGE TAX COMPANY, DEPRECIATION ON SUCH ASSET SHALL BE ALLOCATED BETWEEN ITS TONNAGE TAX BUSINESS AND OTHER BUSINESS ON A FAIR PROPORTION TO BE DETERMINED BY THE ASSESSING OFFICER, HAVING REGARD TO THE USE OF SUCH ASSET FOR THE PURPOSE OF THE TONNAGE TAX BUSINESS AND FOR THE OTHER BUSINESS. ' 1 6.1 THE SUB SECTION (1) OF SECTION 115VJ PROVIDES FOR ALLOCATION OF COMMON EXPENSES INCURRED FOR TONNAGE AND NON TONNAGE ACTIVITY ON A REASONABLE BASIS WHEREAS SUB - SECTION (2) OF SECTION 115JV PROVIDES FOR A FAIR PROPORTION OF DEPRECIATION BY THE AO BETWEEN TONNAGE AND NON TONNAGE ACTIVITY. IN THE PRESENT CASE, WE NOTE THAT THE ASSESSEE ALLOCATED THE COMMON EXPENSES INCURRED UNDER FOUR HEADS AS STATED AB OVE AMOUNTING TO RS. 45.20 CR. IN THE RATIO OF 67:33 BY FOLLOWING THE ANNUALIZED OPERATING CHARTER HIR E INCOME METHOD, WHEREAS, THE AO REJECTED THE SYSTEM ADOPTED BY THE ASSESSEE ONLY IN RESPECT OF ADMINISTRATIVE AND OTHER EXPENSES BY APPLYING DIRECT INCOM E PROPORTIONATE METHOD AND APPORTIONED THE EXPENSES OF ADMINISTRATIVE AND OTHER IN THE RATIO OF 73.06% TO TONNAGE TAX ACTIVITY AND 26.94 TO NON TONNAGE TAX ACTIVITY. WE FURTHER NOTE THAT THE AO ACCEPTED THE SYSTEM OF APPORTIONMENT ADOPTED BY THE ASSESSEE Q UA TOTAL OPERATING EXPENSES, INTEREST AND FINANCE CHARGES AND DEPRECIATION MEANING THEREBY THAT THE SYSTEM ADOPTED BY THE ASSESSEE IS PARTLY ACCEPTED BY THE AO. THE CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE ON THE GROUND THAT THE AO IS NOT BOUND BY TH E SYSTEM ADOPTED AND FOLLOWED BY THE ASSESSEE AND FURTHER OBSERVING THAT SECTION 115VJ ALSO EMPOWERS THE AO TO APPORTION ON REASONABLE BASIS WHICH IS IN THE PRESENT CASE IS ACTUAL REVENUE BASIS THEREBY SUSTAINING AN ADDITION OF RS. 2,43,58,093/ - . IN OUR OP INION, THE APPROACH OF THE AO AND CIT(A) IS NOT CORRECT ESPECIALLY WHEN THE 12 GREAT OFFSHORE LIMITED PAGE 12 OF 15 SYSTEM OF ALLOCATION ADOPTED BY THE ASSESSEE I S ACCEPTED FOR THREE HEADS OF EXPENSES NAMELY TOTAL OPERATING EXPENSE S , INTEREST AND FINANCE CHARGES AND DEP RECIATION AND ONLY REJE CTED APPORTIONMENT QUA ADMI NISTRATIVE AND OTHER EXPENSES AND MORE SO WHEN THE REVENUE HAD ACCEPTED SYSTEM OF APPORTIONMENT OF COMMON OVERHEADS FOLLOWED BY THE ASSESSEE IN THE EARLIER YEAR. IN VIEW OF OUR OBSERVATIONS AND THE DECISIONS CITED BY THE L D AR , WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF CIT(A) DESERVES TO BE REVERSED. 1 7. GROUND NO. 3 & 4 R ELATES TO LEVY OF INTEREST U/S 234C FOR DEFERMENT FIRST AND SECOND INSTALLMENT OF TAX WHICH IS SIMILAR TO THE ISSUE DECIDED BY US IN ITA NO. 522 1/MUM/2010 FOR ASSESSMENT YEAR 2006 AND ,THEREFORE, OUR DECISION IN THE SAID APPEAL SHALL APPLY IN THIS APPEAL ALSO QUA GROUND NO 3 & 4. 19. NOW WE TAKE UP THE APPEAL OF REVENUE IN ITA NO. 2070 /MUM/2011, VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: - 1 . 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WAS THE LD. CIT(A) JUSTIFIED IN ALLOWING THE APPORTIONED EXPENSES ON DEMERGER TO THE ASSESSEE COMPANY DESPITE THE FACT THAT SECTION 35DD (1) DOES NOT PROVIDE FOR ANY APPORTIONMENT OF EXPENSES ON DEMERGER AMONGST THE DEMERGED & RESULTANT COMPANY?' 20. THE ONLY GROUND RAISED BY THE REVENUE IS AGAINST THE DELETION OF DIS ALLOWANCE OF EXPENSES U/S 35DD(1). 21. THE FACTS IN BRIEF ARE THAT 20% OF THE TOTAL DEMERGER EXPENSES WAS APPORTIONED TO THE ASSESSEE IN THE SCHEME OF DEMERGER 80% TO THE DEMERGED 13 GREAT OFFSHORE LIMITED PAGE 13 OF 15 COMPANY. THE ASSESSEE WROTE OFF 1/5 TH OF THE SAID EXPENSES IN THE CURRENT YEAR U/S 35DD(1) OF THE ACT. 22. THE LD AO DISALLOWED THE SAID EXPENSES ON THE GROUND THAT THE DEDUCTION U/S 35DD(1) WAS ADMISSIBLE TO THE DEMERGED COMPANY AND NOT TO THE ASSESSEE , THE RESULTING COMPANY. 23. THE LD. CIT(A) BY DISAGREEING WITH THE DECISION OF THE ASSESSING OFFICER DELETED THE DISALLOWANCE BY STATING THAT THE PROVISIONS OF SECTION 35DD(1) AL LOWS THE DEDUCTION OF EXPENSES INCURRED FOR DEMERGER BY HOLDING THAT THE SECTION ONLY PROVIDES FOR WRITING OF 1/5 TH OF THE EXPENSES INCURRED ON DEMERGER. THE LD CIT(A) FURTHER HELD THAT ONCE THE EXPENSES WERE INCURRED ON THE DEMERGER, THEN 1/5 TH OF THE SAID AMOUNT HAS TO BE ALLOWED DURING FIVE SUCCESSIVE FINANCIAL YEAR BEGINNING WITH THE FINANCIAL YEAR IN WHICH THE DEMERGER TOOK PLACE BY THE COMPANY WHICH INCURRED THE SUCH EXPENSES . 24. THE LD. DR SUBMITTED THAT IN VIEW OF THE PROVISIONS OF SECTION 35DD(1) OF THE ACT, THE EXPENSES ON DEMERGER WERE ALLOWABLE TO DEMERGED COMPANY AND NOT TO THE ASSESSEE. HE , THEREFORE, PRAYED FOR UPHOLDING THE ORDER OF AO QUA THIS ISSUE AND REVERSING THE DECISION OF THE LD CIT(A). 25. THE LD. AR, ON THE OTHER HAND , SUBMITTED THAT THE ASSESSEE W AS ENTITLED TO DEDUCTION OF 1/5 TH OF THE DEMERGER EXPENSES APPORTIONED TO IT IN THE SCHEME OF DEMERGER UNDER THE PROVISIONS OF SECTION 35DD(1). HE VEHEMENTLY RELIED ON THE ORDER OF CIT(A) AND PRAYED FOR UPHOLDING THE SAME. 2 6. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIALS ON RECORDS. WE FIRST REFER TO THE PROVISIONS OF SECTION 35DD(1) WHICH PROVIDES THAT W.E.F. 01.04.1999 WHERE AN ASSESSEE BEING INDIAN COMPANY, INCURS ANY EXPENSES WHOLLY 14 GREAT OFFSHORE LIMITED PAGE 14 OF 15 AND EXCLUSIVELY FOR THE PURPOSES OF AMALGAMATION OR DEMERGER OF AN UNDERTAKING, THE ASSESSEE SHALL BE ALLOWED 1/5 TH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE EXPENSES ARE INCURRED. AFTER CLOSE LOOK AT TH E THESE PROVISIONS, WE FIND THAT IT NO WHERE SPEAKS OF THE DEMERGED OR RESULTING COMPANY. IT SIMPLY SAYS THAT IN CASE THE ASSESSEEE INCURS EXPENSES OF THE NATURE AS MENTIONED IN SECTION 35DD(1) , THE ASSESSEE SHALL BE ENTITLED TO 1/5 TH OF SUCH EXPENSES. WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THE SAID EXPENSES WHICH WAS RIGHTLY HELD SO BY THE LD CIT(A). IN VIEW OF THIS, WE DISM ISS THE APPEAL OF THE REVENUE. 27. NOW WE TAKE UP THE APPEAL OF ASSESSEE IN ITA NO. 72 26/MUM/2011. THE GROUND RAISED IN THIS APPEAL IS SIMILAR TO THAT DECIDED BY US IN THE IN ITA NO. 2191/MUM/2011, ACCORDINGLY OUR DECISION IN ITA NO. 2191/MUM/2011 SHALL APPLY MUTATIS MUTANDIS IN THIS A PPEAL ALSO. 29. NOW WE TAKE UP THE APPEAL OF REVENUE I N ITA NO. 6913/MUM/2011. THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS SIMILAR TO THAT DECIDED BY US IN THE FOREGOING PARA OF THIS ORDER IN ITA NO. 2070/MUM/2011 AND HENCE OUR DECISION IN ITA NO. 2070/MUM/2011, SHALL APPLY MUTATIS MUTANDIS TO THIS APP EAL ALSO. 8. IN THE RESULT APPEAL S OF THE ASSESSEE A R E A L L O W E D A N D T H A T B Y T H E R E V E N U E A R E D I S M I S S E D . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 0 T H DAY OF SEPTEMBER 2015. S D / - S D / - ( AMIT SHUKLA ) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) 15 GREAT OFFSHORE LIMITED PAGE 15 OF 15 MUMBAI DATED - 09 - 2015 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI