VARUN SHIPPING COMPANY LTD, MUMBAI V. ADDL CIT 5(3), MUMBAI

ITA 5576/MUM/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55842 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-10-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 29-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: ARVIND SONDE SHRI A T JAIN
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 5576/MUM/2011 ASSESSMENT YEAR : 2008-09. M/S VARUN SHIPPING COMPANY LTD., ADDL. COMMISSIONER OF LAXMI BUILDING, 6 SHOORJI VS. INCOME-TAX-5(3), VALLABHDAS MARG, BALLARD ESTATE, MUMBAI. MUMBAI 400 001. PAN : AAACV 1658C APPELLANT. RESPONDENT APPE LLANT BY : SHRI ARVIND SONDE. SHRI A.T. JAIN. RESPONDENT BY : SHRI SUBACHAN RAM. DATE OF HEARING : 18-10-2011. DATE OF PRONOUNCEMENT : 30-11-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-9, MUMBAI DATED 21-06-2011. 2. THE ISSUE RAISED IN GROUND NO. 1 OF THIS APPEAL RELATES TO THE DISALLOWANCE OF RS.44,07,875/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) U/S 14A OF THE INCOME-TAX ACT READ WITH RULE 8D OF THE INCOME-TAX RULES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF HIRING AND OPERATION OF SHIPS. THE RETU RN OF INCOME FOR THE YEAR UNDER 2 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. CONSIDERATION WAS FILED BY IT ON 29-09-2008 DECLARI NG TOTAL INCOME OF RS.3,82,98,162/-. IN THE SAID RETURN, THE INCOME FR OM SHIPPING BUSINESS WAS OFFERED BY THE ASSESSEE UNDER THE TONNAGE TAX SCHEME AS PER THE PROVISIONS OF SECTION 115VP AT RS.2,49,84,700/-. THE ASSESSEE HAD ALSO SH OWN DIVIDEND INCOME OF RS.90,64,409/- RECEIVED DURING THE YEAR UNDER CONS IDERATION WHICH WAS CLAIMED TO BE EXEMPT U/S 10(34). NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOWEVER, WAS MA DE BY THE ASSESSEE AS REQUIRED BY THE PROVISIONS OF SECTION 14A. THE AO, THEREFORE , WORKED OUT SUCH EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME AT RS.44,07,875/- AS PER RULE 8D OF INCOME TAX RULES A ND THE SAID AMOUNT WAS DISALLOWED BY HIM U/S 14A AND ADDED TO THE INCOME O F SHIPPING BUSINESS DECLARED BY THE ASSESSEE AS PER TONNAGE TAX SCHEME. 4. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(AP PEALS) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT THE INCOME FROM SHIPPING BUSINESS HAVING BEEN DECLARED AND ASSESSED AS PER T ONNAGE TAX SCHEME, NO ADDITION TO THE SAID INCOME ON ACCOUNT OF DISALLOWANCE U/S 1 4A COULD BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME. THE LEARNED CIT(APPEALS) DID NOT ACCEPT THIS STAND OF T HE ASSESSEE AND PROCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE AO U/S 14A FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.1 OF HIS IMPUGNED ORDER : I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. AFTER CON SIDERING THE ENTIRE FACTS, I AM OF THE VIEW THAT THE ARGUMENT OF THE AP PELLANT THAT THEY ARE ASSESSED IN TONNAGE TAX SCHEME; THEREFORE NO ADDITI ON SHOULD BE MADE CANNOT BE ACCEPTED BECAUSE THE ASSESSMENT OF T OTAL INCOME IS TO BE MADE AND IT CANNOT BE ASSESSED IN PARTS. THEREFO RE, IF SOME INCOME IS EARNED BY THE APPELLANT BY OTHER THAN SHIPPING A CTIVITIES, THEN HOW IT COULD BE LEFT WITHOUT TAXING THOUGH TAX SCHEME U /S 115VG HAS BEEN 3 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. BROUGHT TO TAX SHIPPING. HOWEVER, IT DOES NOT MEAN THAT THEY ARE EXCLUDED FROM TAXATION FOR ANY INCOME EARNED BY THE M. SO FAR AS THE APPLICABILITY OF SEC. 14A AND RULE 8D IS CONCERNED, AS REGARDS DIVIDEND INCOME OF RS.90,64,409/- IT CANNOT CLAIM T HAT NO EXPENDITURE AT ALL HAS BEEN INCURRED FOR EARNING THIS EXEMPTED INCOME. AFTER THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO. LTD. 328 ITR 81. IT IS VERY CLEAR THAT RULE 8D IS A PPLICABLE FROM ASSESSMENT YEAR 2008-09. IN THIS CASE, THE ASSESSIN G OFFICER HAS MADE HIS CALCULATION AS PER RULE 8D WHICH ARE PERFE CTLY CORRECT. THE APPELLANT HAS RELIED ON CERTAIN CASE LAWS. HOWEVER, THESE CASE LAWS ARE NOT RELEVANT HERE BECAUSE THEY ARE NOT ON THE I SSUE INVOLVED. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE RELEVANT PROVISIONS OF CHAPTER XIIG AND EXPLAINED THE SPECIA L TONNAGE TAX SCHEME PROVIDED THEREIN FOR THE PURPOSE OF TAXING THE INCOME FROM S HIPPING BUSINESS. HE SUBMITTED THAT ONCE THE INCOME FROM SHIPPING BUSINESS IS OFFE RED BY THE ASSESSEE UNDER THE SAID SCHEME AND THE SAME IS ASSESSED ACCORDINGLY, N O EXPENDITURE OTHER THAN THE EXPENDITURE INCURRED FOR EARNING INCOME FROM SHIPPI NG BUSINESS CAN BE SAID TO HAVE BEEN ALLOWED. HE CONTENDED THAT THE EXPENDITUR E, IF ANY, INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME THEREFORE, CANNOT BE SAID TO HAVE BEEN ALLOWED IN COMPUTATION OF INCOME OF TH E ASSESSEE FROM SHIPPING BUSINESS WHICH HAS BEEN ASSESSED UNDER THE SPECIAL TONNAGE TAX SCHEME AND NO DISALLOWANCE ON ACCOUNT OF SUCH EXPENDITURE U/S 14A CAN BE SEPARATELY MADE TO THE INCOME SO ASSESSED. HE ALSO CONTENDED THAT THE PROV ISIONS OF SECTION 14A ARE APPLICABLE ONLY IN RESPECT OF INCOME COMPUTED UNDER CHAPTER IV AND THE SAME, THEREFORE, CANNOT BE APPLIED TO MAKE A DISALLOWANCE WHEN THE INCOME OF SHIPPING BUSINESS IS COMPUTED AS PER TONNAGE TAX SCHEME PROV IDED UNDER CHAPTER XIIG. HE CONTENDED THAT THE PROVISIONS OF SECTION 115VA REL ATING TO COMPUTATION OF PROFITS AND GAINS FROM THE BUSINESS OF OPERATING SHIPS AS C ONTAINED IN CHAPTER XIIG ARE OVERRIDING PROVISIONS AND SINCE THEY EXCLUDE THE AP PLICABILITY OF SECTION 28 TO 43C, 4 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. THE DISALLOWANCE U/S 14A CANNOT BE MADE WHEN INCOME IS COMPUTED UNDER THE PROVISIONS OF SECTION 115VA. 6. THE LEARNED DR, ON THE OTHER HAND, READ OUT AND RELIED ON PARAGRAPH NO. 3.1 OF THE LEARNED CIT(APPEALS) IMPUGNED ORDER IN SUPP ORT OF REVENUES CASE ON THIS ISSUE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSE E IS MAINLY ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS AND ITS INCOME FROM THE SAID BUSINESS WAS DECLARED AND ASSESSED AS PER THE SPECIAL PROVISIONS CONTAINE D IN CHAPTER XIIG WHICH LAY DOWN TONNAGE TAX SCHEME. AS PER THE PROVISIONS OF S ECTION 115VA CONTAINED IN CHAPTER XIIG, THE INCOME FROM THE BUSINESS OF OPERA TING QUALIFYING SHIPS CAN BE COMPUTED AT THE OPTION OF THE ASSESSEE IN ACCORDANC E WITH THE PROVISIONS OF CHAPTER XIIG AND ONCE THIS OPTION IS EXERCISED BY T HE ASSESSEE, THE INCOME SO COMPUTED SHALL BE DEEMED TO BE THE PROFITS AND GAIN S OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION NOTWITHSTANDING ANY THING TO THE CONTRARY CONTAINED IN SECTION 28 T O 43C. IT, THEREFORE, FOLLOWS THAT WHEN THE INCOME OF THE ASSESSEE FROM THE BUSINESS O F OPERATING SHIPS IS COMPUTED AS PER THE SPECIAL PROVISIONS CONTAINED IN CHAPTER XIIG, ONLY THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING INCOME OF THE SAID BUSINESS ARE DEEMED TO BE ALLOWED AND NOTHING ELSE. IT, THEREFORE, CANNOT BE SAID THAT WHEN THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPERATING SHIPS IS CO MPUTED AS PER THE SPECIAL PROVISIONS OF CHAPTER XIIG, ANY EXPENDITURE OTHER T HAN THE EXPENDITURE INCURRED FOR THE PURPOSE OF THE SAID BUSINESS HAS BEEN ALLOW ED AND CONSEQUENTLY NO ADDITION TO INCOME SO COMPUTED CAN BE MADE BY WAY OF DISALLO WANCE U/S 14A ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME. WE, THEREFORE, FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE 5 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. ASSESSEE THAT THE INCOME OF THE ASSESSEE FROM THE B USINESS OF OPERATING SHIPS HAVING BEEN COMPUTED IN ACCORDANCE WITH THE PROVISI ONS OF CHAPTER XIIG, ONLY THE EXPENSES INCURRED FOR THE SAID BUSINESS ARE DEEMED TO HAVE BEEN ALLOWED AND NO ADDITION TO SUCH INCOME CAN BE MADE BY WAY OF DISAL LOWANCE U/S 14A ON ACCOUNT OF ANY EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME. IN OUR OPINION, IF AT ALL THE ASSESSEE HAS CLAIMED ANY SUCH EXPENDITURE IN COMPUTATION OF PROFIT OF BUSINESS OF SHIPPING, THE SAME ARE TO BE TAKEN AS DISALLOWED WHEN THE INCOME OF THE SAID BUSINESS IS FINALLY COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XIIG AND NO SEPARATE DISALLOWANCE ON ACC OUNT OF SUCH EXPENDITURE U/S 14A CAN BE MADE. WE, THEREFORE, DELETE THE DISALLOW ANCE MADE BY THE AO U/S 14A AND CONFIRMED BY THE LEARNED CIT(APPEALS) AND ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL. 8. THE ISSUE RAISED IN GROUND NO.2 OF THE ASSESSEE S APPEAL RELATES TO THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNE D CIT(APPEALS) ON ACCOUNT OF IMPAIRMENT LOSS OF RS.12,62,29,000/- AND PROVI SIONS FOR EXCHANGE RATE VARIATION OF RS.50 CRORES TO THE BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB OF THE ACT. 9. IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED A SUM OF RS.50 CRORES ON ACCOUNT OF PRO VISION FOR EXCHANGE RATE VARIATION. BEFORE THE AO, IT WAS SUBMITTED BY THE A SSESSEE THAT THE SAID PROVISION HAS BEEN MADE AS A MATTER OF PRUDENCE AND ABUNDANT CAUTION KEEPING IN VIEW THE WIDE FLUCTUATIONS IN US DOLLARS TO INDIAN RUPEE EXC HANGE RATE WHICH MIGHT PREVAIL AT THE TIME OF REPAYMENT OF FOREIGN CURRENCY LOAN T AKEN FOR ACQUISITION OF SHIPS. ACCORDING TO THE AO, THE AMOUNT OF RS.50 CRORES THU S WAS CLEARLY SET ASIDE BY THE ASSESSEE AS A PROVISION FOR MEETING A LIABILITY, OT HER THAN ASCERTAINED LIABILITY AND THE SAME WAS LIABLE TO BE ADDED BACK IN COMPUTING B OOK PROFIT OF THE ASSESSEE U/S 6 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. 115JB AS PER EXPLANATION 1 THERETO. THE ASSESSEE CO MPANY HAD ALSO DEBITED A SUM OF RS.12,62,29,000/- IN ITS PROFIT & LOSS ACCOUNT ON ACCOUNT OF IMPAIRMENT LOSS ON CERTAIN SHIPS DUE TO EXCHANGE RATE VARIATION. IT WA S SUBMITTED BEFORE THE AO THAT THE SAID LOSS WAS RECOGNIZED DURING THE YEAR UNDER CONSIDERATION IN RESPECT OF CERTAIN SHIPS IN ACCORDANCE WITH THE ACCOUNTING STA NDARD 28 CONSEQUENT TO FALL IN THE VALUATION OF THE SAID ASSETS DUE TO FLUCTUATION IN FOREIGN CURRENCY RATE. IT WAS CONTENDED THAT THE BOOK VALUE OF THESE ASSETS, AFTE R CORRECTING FOR THE IMPAIRMENT RECOGNIZED, WAS ALIGNED CLOSER TO THE MARKET VALUE. ACCORDING TO THE AO, THE AMOUNT OF RS.12,62,29,000/- THUS WAS CLEARLY SET AS IDE BY THE ASSESSEE COMPANY AS A PROVISION FOR DIMINUTION IN THE VALUE OF ASSETS A ND THE SAME, THEREFORE, WAS LIABLE TO BE ADDED BACK IN COMPUTING THE BOOK PROFIT OF TH E ASSESSEE U/S 115JB AS PER EXPLANATION 1 THERETO. IN THIS REGARD, CONTENTION WAS RAISED BY THE ASSESSEE BEFORE THE AO THAT BOTH THESE AMOUNTS BEING DIRECTLY RELAT ED TO EARNING OF SHIPPING INCOME FROM ITS CORE ACTIVITIES, THE SAME WERE LIAB LE TO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT OF THE SHIPPING BUSINESS U/S 115VO ALSO IF THEY WERE TO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT U/S 115 JB. THIS CONTENTION OF THE ASSESSEE WAS ALSO NOT ACCEPTED BY THE AO ON THE GRO UND THAT BOOK PROFIT OF SHIPPING BUSINESS U/S 115VO FOR THE PURPOSE OF TONN AGE TAX WAS COMPUTED AT RS.223,42,48,971/- AS PER FORM 29B SUBMITTED BY THE ASSESSEE COMPANY ITSELF DULY CERTIFIED BY A CHARTERED ACCOUNTANT. HE HELD THAT T HE ASSESSEE, THEREFORE, WAS ENTITLED FOR DEDUCTION WHILE COMPUTING THE BOOK PRO FIT U/S 115JB ONLY TO THE EXTENT OF RS.223,42,48,971/- AND THERE WAS NO PROVISION FO R CLAIMING ANY FURTHER DEDUCTION U/S 115VO AS CLAIMED BY THE ASSESSEE. ACC ORDINGLY THE AMOUNTS OF RS.50 CRORES AND RS.12,62,29,000/- WERE ADDED BACK BY THE AO WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB I N THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 25-11-2010. 7 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. 10. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLENGIN G INTER ALIA, THE ADDITIONS OF RS. 50 CRORES AND RS. 12,62,29,000/- MADE BY THE AO WHILE COMPUTING BOOK PROFIT U/S 115JB ON ACCOUNT OF PROVISION FOR EXCHANGE RAT E VARIATION AND IMPAIRMENT LOSS RESPECTIVELY. DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE THE LEARNED CIT(APPEALS), THE SUBMISSIONS MADE BEFORE THE AO WE RE REITERATED ON BEHALF OF THE ASSESSEE. THE SAME, HOWEVER, DID NOT FIND FAVOU R WITH THE LEARNED CIT(APPEALS) WHO CONFIRMED THE ADDITIONS MADE BY TH E AO WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE FOR THE FOLLOWING REASO NS GIVEN IN PARAGRAPH NO. 4.2 OF HIS IMPUGNED ORDER : I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE A SSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. I HAVE ALSO REFERRED TO EXPLANATION TO SECTION 115JB, ACCORDING TO WHICH BOOK PROFIT U/S. 115JB IN CLUDES ANY AMOUNT SET ASIDE AS PROVISION FOR MEETING LIABILITIES, OTHER T HAN ASCERTAINED LIABILITIES. IT ALSO INCLUDES AMOUNT SET ASIDE AS PROVISION FOR DIM INUTION IN THE VALUE OF ASSET. DEDUCTION OF RS.5 CRORES HAS BEEN CLAIMED BY THE APPELLANT IN ITS P & L ACCOUNT ON ACCOUNT FOR PROVISION FOR EXCHANGE RAT E VARIATION. IT IS ALSO ARGUED THAT THIS PROVISION HAS BEEN MADE AS A MATTE R OF PRUDENCE AND ABUNDANT CAUTION CONSIDERING THE WIDE FLUCTUATION I N US DOLLER TO INDIAN RUPEE EXCHANGE RATE PARITY WHICH MAY PREVAIL AT THE TIME OF THE PAYMENT OF REPAYMENT OF FOREIGN CURRENCY LOANS TAKEN FOR ACQUI SITION OF SHIPS. SO THIS AMOUNT IS CLEARLY AN AMOUNT SET ASIDE AS PROVISION FOR MEETING A LIABILITY WHICH IS NOT ASCERTAINED LIABILITY AND ACTUAL LIABI LITY. THE APPELLANT HAS OPTED ON PROBABILITIES AS PRECAUTIONARY MEASURE. HOWEVER, ONLY THOSE PROVISIONS ARE ALLOWABLE WHICH ARE MADE FOR ASCERTAINED LIABIL ITIES BUT THAT IS NOT THE SITUATION IN THIS CASE. SIMILAR ARE THE FACTS ABOUT THE DEDUCTION OF RS.12,62,29,000/- WHICH HAS BEEN CLAIMED BY THE APP ELLANT DUE TO EXCHANGE RATE VALUATION IN THE P & L ACCOUNT. THIS CLAIM IS ALSO AN AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF AN ASSE T AND IS LIABLE TO BE ADDED BACK IN COMPUTING INCOME OF THE APPELLANT U/S. 115J B OF THE ACT AS PER THE EXPLANATION.1. THERE IS NO PROVISION UNDER THE INCO ME-TAX ACT FOR CLAIMING ANY FURTHER DEDUCTION U/S 115V-O AS CLAIMED BY THE APPELLANT. HOWEVER, I DO NOT AGREE THAT THE ARGUMENT OF THE APPELLANT THA T THE EXCHANGE GAIN RELATED TO THE LOAN TAKEN FOR ACQUIRING QUALIFYING SHIPS IS DIRECTLY RELATED TO EARNING 8 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. OF SHIPPING INCOME FROM THE CORE ACTIVITIES BECAUSE THE CORE ACTIVITY OF THE APPELLANT IS EARNING INCOME FROM SHIPPING ACTIVITY AND NOT OTHERWISE. THE ARGUMENT OF THE APPELLANT IS NOT ACCEPTABLE BECAUSE THE EXCHANGE GAIN RELATED TO THE LOAN TAKEN FOR ACQUIRING QUALIFYING SHIP IS FOUND TO BE FROM THE CORE ACTIVITIES OF THE APPELLANT AND IS EXCLUDED FO R COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 115VO, THE BOOK PROFIT DERIVED FROM THE ACT IVITIES OF A TONNAGE TAX COMPANY IS LIABLE TO BE EXCLUDED FROM THE BOOK PRO FIT OF THE COMPANY FOR THE PURPOSES OF SECTION 115JB. HE INVITED OUR ATTENTION TO THE STATEMENT GIVING COMPUTATION OF BOOK PROFIT OF THE ASSESSEE COMPANY TO SHOW THAT BOTH THE AMOUNTS IN QUESTION WERE EXCLUDED FOR THE PURPOSE OF COMPUT ATION OF BOOK PROFIT U/S 115JB AS WELL AS WHILE COMPUTING THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF A SHIPPING BUSINESS COMPUTED U/S 115VO WHICH WAS EXCLUDED FROM THE BOOK PROFIT U/S 115JB. HE SUBMITTED THAT BOTH THESE AMOUNTS WHICH HAVE BEE N ADDED BACK BY THE AO FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB ARE RELEVANT TO THE SHIPPING BUSINESS OF THE ASSESSEE AND THE SAME, THEREFORE, O UGHT TO HAVE BEEN ADDED BY HIM FOR COMPUTING THE BOOK PROFIT DERIVED FROM THE SHIP PING BUSINESS U/S 115VO WHICH WAS LIABLE TO BE EXCLUDED FROM THE BOOK PROFI T OF THE ASSESSEE COMPANY FOR THE PURPOSES OF SECTION 115JB. HE CONTENDED THAT TH E AO, HOWEVER, HAS NOT MADE THESE ADJUSTMENTS AND HAS GONE BY AUDITORS COMPUTA TION OF BOOK PROFIT DERIVED FROM THE SHIPPING BUSINESS U/S 115VO. HE CONTENDED THAT THIS ACTION OF THE AO IS NOT TENABLE IN LAW SINCE ADJUSTMENTS WERE MADE BY H IM TO THE BOOK PROFIT COMPUTED BY THE AUDITORS U/S 115JB WHEREAS WHEN IT CAME TO EXCLUSION OF PROFIT DERIVED FROM THE SHIPPING BUSINESS U/S 115VO, HE HA S GONE BY THE AUDITORS COMPUTATION WITHOUT MAKING THE SAID ADJUSTMENTS. HE CONTENDED THAT WHEN THE SAID ADJUSTMENTS WERE ADMITTEDLY RELATED TO THE SHI PPING BUSINESS OF THE ASSESSEE COMPANY, THE SAME SHOULD HAVE BEEN MADE WHILE COMPU TING BOOK PROFIT OF THE 9 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. SHIPPING BUSINESS U/S 115VO WHICH WAS LIABLE TO BE EXCLUDED FROM THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSES OF SECTION 115JB. 12. THE LEARNED DR, ON THE OTHER HAND, STRONGLY REL IED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE CONTENDED THAT THE PROVISIONS OF SECTION 115JB ARE OVERRIDING PROV ISIONS AND SINCE THE BOOK PROFIT DERIVED FROM THE SHIPPING BUSINESS, WHICH IS LIABLE TO BE EXCLUDED FROM THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSES OF SECTION 115JB, WAS COMPUTED BY THE AUDITORS IN THE REPORT FURNISHED IN THE PRES CRIBED FORM NO. 29B AS PER THE PROVISIONS OF SUB-SECTION (4) OF SECTION 115JB, THE RE WAS NO SCOPE OF ANY FURTHER ADJUSTMENT TO BE MADE TO THE SAID PROFIT AS SOUGHT BY THE ASSESSEE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE EXPRESS ION BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB HAS BEEN DEFINED IN EXPLANATION 1 TO SECTION 115JB AS THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2) AS INCREASED AND REDUCED BY T HE ADJUSTMENTS SPECIFIED IN THE SAID EXPLANATION. AS PER THE PROVISIONS OF SECTION 115VO, THE BOOK PROFIT OR LOSS DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPAN Y, REFERRED TO IN SUB-SECTION (1) OF SECTION 115VI, IS LIABLE TO BE EXCLUDED FROM TH E BOOK PROFIT OF THE COMPANY FOR THE PURPOSES OF SECTION 115JB. THERE IS NO DISPUTE THAT THE ASSESSEE IN THE PRESENT CASE IS A TONNAGE TAX COMPANY AS REFERRED TO IN SUB -SECTION (1) OF SECTION 115VI. THERE IS ALSO NO DISPUTE THAT BOTH THE AMOUNTS IN Q UESTION ADDED BACK BY THE AO FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB WERE RELATED TO THE ACTIVITIES OF TONNAGE TAX COMPANY I.E. SHIPPING BUSINESS AND THE SAME WERE DEDUCTED FOR THE PURPOSE OF COMPUTING BOOK PROFIT DERIVED FROM THE A CTIVITIES OF TONNAGE TAX COMPANY AS WELL AS FOR THE PURPOSE OF COMPUTATION O F BOOK PROFIT U/S 15JB. THESE 10 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. TWO AMOUNTS HAVE BEEN ADDED BACK BY THE AO FOR THE PURPOSES OF COMPUTING BOOK PROFIT OF THE ASSESSEE COMPANY AS PER EXPLANATION 1 TO SECTION 115JB. 14. BEFORE US, IT IS NOT THE CASE OF THE ASSESSEE T HAT THESE ADJUSTMENTS ARE NOT PERMISSIBLE AS PER EXPLANATION 1 TO SECTION 115JB. THE PLEA OF THE ASSESSEE IS THAT THE SAID TWO ADJUSTMENTS BEING UNDISPUTEDLY RELATIN G TO THE SHIPPING BUSINESS, I.E. THE ACTIVITIES OF A TONNAGE TAX COMPANY, SIMILAR AD JUSTMENTS SHOULD HAVE BEEN MADE IN COMPUTATION OF BOOK PROFIT DERIVED FROM THE SAID ACTIVITIES WHICH WAS LIABLE TO BE EXCLUDED FROM THE BOOK PROFIT OF THE A SSESSEE COMPANY FOR THE PURPOSE OF SECTION 115JB AS PROVIDED IN SECTION 115VO. THIS STAND OF THE ASSESSEE, HOWEVER, HAS NOT BEEN ACCEPTED EITHER BY THE AO OR BY THE LEARNED CIT(APPEALS) ON THE GROUND THAT THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF THE TONNAGE TAX COMPANY WHICH IS LIABLE TO BE EXCLUDED FROM THE BOO K PROFIT FOR HE PURPOSE OF SECTION 115JB AS PER THE PROVISIONS OF SECTION 115V O WAS COMPUTED BY THE AUDITORS OF THE ASSESSEE COMPANY IN THEIR REPORT FU RNISHED IN THE PRESCRIBED FORM NO. 29B. AFTER HAVING CONSIDERED THE ARGUMENTS OF B OTH THE SIDES IN THE LIGHT OF THE FACTS OF THE CASE AND THE RELEVANT PROVISIONS OF TH E ACT, WE ARE UNABLE TO UPHOLD THIS BASIS GIVEN BY THE AUTHORITIES BELOW TO REJECT THE CLAIM OF THE ASSESSEE. 15. AS PER THE PROVISIONS OF SUB-SECTION (4) OF SEC TION 115JB, EVERY COMPANY TO WHICH SECTION 115JB APPLIES IS REQUIRED TO FURNISH A REPORT IN THE PRESCRIBED FORM NO. 29B FROM THE AUDITORS CERTIFYING THAT THE BOOK PROFIT HAS BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. TH E SAID REPORT HAS TO BE FURNISHED WITH THE RETURN OF INCOME FILED UNDER SUB -SECTION (1) OF SECTION 139 OR ALONG WITH THE RETURN OF INCOME FILED IN RESPONSE T O NOTICE ISSUED U/S 142(1)(I). THE AUDITORS THUS ARE REQUIRED TO CERTIFY THAT THE BOOK PROFIT DECLARED BY THE ASSESSEE COMPANY IN ITS RETURN OF INCOME HAS BEEN COMPUTED I N ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. HOWEVER, IF THE BOOK P ROFIT SO COMPUTED BY THE 11 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. ASSESSEE IS FOUND TO BE NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB, THE AO IS DULY EMPOWERED OR RATHER IS DUTY BOUND TO MAK E THE ADJUSTMENT SO AS TO COMPUTE THE BOOK PROFIT OF THE ASSESSEE COMPANY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. IN THE PRESENT CASE, SUCH ADJUSTM ENTS INDEED HAVE BEEN MADE BY THE AO TO THE BOOK PROFIT COMPUTED BY THE ASSESSEE AND CERTIFIED BY THE AUDITORS AFTER HAVING FOUND THAT THE BOOK PROFIT SO COMPUTED AND CERTIFIED BY THE AUDITORS WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 115JB. THE AO THUS HAS NOT GONE BY THE AUDITORS REPORT FURNISHED IN FORM NO. 29B FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB AND HAS MADE THE ADJUSTMENT BY ADDING BACK TWO AMOUNTS IN QUESTION T O THE BOOK PROFIT DECLARED BY THE ASSESSEE U/S 115JB AND CERTIFIED BY THE AUDITOR S IN THEIR REPORT FURNISHED IN FORM NO. 29B. HOWEVER, WHILE COMPUTING THE BOOK PRO FIT DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS ELIGIB LE FOR EXCLUSION FROM THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB, HE HAS DEC LINED TO MAKE THE SAID ADJUSTMENTS DESPITE THE FACT THAT BOTH THE AMOUNTS IN QUESTION ADDED BACK BY HIM FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB WERE RELATED TO THE ACTIVITIES OF A TONNAGE TAX COMPANY ON THE GROUND THAT THE BOOK P ROFIT OF THE SAID ACTIVITIES AS DECLARED BY THE ASSESSEE WAS DULY CERTIFIED BY THE AUDITORS IN THE REPORT FURNISHED IN FORM NO. 29B. THIS STAND TAKEN BY THE AO, IN OUR OPINION, IS SELF CONTRADICTORY AND INCONSISTENT WHICH CANNOT BE UPHELD. 16. IT IS OBSERVED THAT BOTH THE AMOUNTS IN QUESTI ON WHICH WERE ADDED BACK BY THE AO FOR THE PURPOSE OF COMPUTING BOOK PROFIT OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB ADMITTEDLY RE LATED TO THE ACTIVITIES OF A TONNAGE TAX COMPANY AND THE SAME WERE ALREADY DEDUC TED BY THE ASSESSEE FOR THE PURPOSE OF COMPUTING BOOK PROFIT DERIVED FROM THE S AID ACTIVITY. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE SAME SHO ULD HAVE BEEN ADDED BACK 12 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. EVEN FOR THE PURPOSE OF COMPUTING BOOK PROFIT DERIV ED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS ELIGIBLE FOR EXCLUSION FROM THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. IN OUR OPINION, THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS ELIGIB LE FOR EXCLUSION FROM THE BOOK PROFIT OF THE COMPANY FOR THE PURPOSE OF SECTION 11 5JB CANNOT BE ASSIGNED A DIFFERENT MEANING THAN THE ONE GIVEN TO THE EXPRESS ION BOOK PROFIT IN EXPLANATION 1 TO SECTION 115JB. THE BOOK PROFIT DER IVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS ELIGIBLE FOR EXCLUSION FROM THE BOOK PROFIT OF THE COMPANY FOR THE PURPOSE OF SECTION 115JB THUS HAS T O BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB READ WITH EXPL ANATION 1 THERETO AND THE ADJUSTMENTS PERMISSIBLE AS PER THE SAID EXPLANATION ARE REQUIRED TO BE MADE EVEN FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT DERIVE D FROM THE ACTIVITIES OF TONNAGE TAX COMPANY WHICH IS ELIGIBLE FOR EXCLUSION FROM TH E BOOK PROFIT OF THE COMPANY FOR THE PURPOSE OF SECTION 115JB. WE, THEREFORE, DI RECT THE AO TO MAKE SUCH ADJUSTMENTS BY ADDING BACK THE TWO AMOUNTS IN QUEST ION TO THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS LIABLE TO BE EXCLUDED FROM THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR THE PUR POSE OF SECTION 115JB AS PER THE PROVISIONS OF SECTION 115VO. THE CLAIM OF THE ASSES SEE ON THIS ISSUE IS, THEREFORE, ACCEPTED AND GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2011. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 30 TH NOV., 2011. 13 ITA NO.5576/MUM/2011 ASSESSMENT YEAR:2008-09. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI. WAKODE FIT FOR PUBLICATION J.M. A.M.