RAJ SHIPPIING AGENCIES PRIVATE LIMITED , MUMBAI V. DY. CIT-CC-5|(3)(1), MUMBAI

ITA 5861/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6184 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 10-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.5861/Mum/2019 (Asse ssment Year :2012-13) M/s. Raj Shipping Agencies Pvt. Ltd., C/o. Kalyaniwalla and Mistry LLP, 2 nd Floor Esplanade House 29, Hazarimal Somani Marg Fort, Mumbai- 400 001 Vs. Dy. Commissioner of Income Tax, Circle 5(3)(1) Room No.573, 5 th Floor Aayakar Bhavan M.K.Road, Mumbai – 400 020 PAN/GIR No.AAACR3051R (Appellant) .. (Respondent) Assessee by Shri M.M.Golwala Revenue by Shri T. Shankar Date of Hearing 17/08/2022 Date of Pronouncement 17/08/2022 आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.5861/Mum/2019 for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-10, Mumbai in appeal No.CIT(A)-10, Mumbai/11183/2015-16 dated 14/06/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 27/03/2015 by the ld. Dy. Commissioner of Income Tax, Circle- 5(3)(1), Mumbai (hereinafter referred to as ld. AO). ITA No. 5861/Mum/2019 M/s. Raj Shipping Agencies Pvt. Ltd., 2 2. The only issue to be decided in this appeal is with regard to disallowance made u/s.14A of the Act. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of charter hire of ship /barges. It primarily earns its income from operations of vessels. The assessee has duly registered under tonnage tax scheme and has been paying taxes on presumptive basis in respect of “relevant shipping income” as per Section 115VI of the Act. 3.1. The assessee has received dividend income of Rs.3,10,91,777/- which was claimed as exempt u/s.10(35) of the Act. The assessee had not disallowed any expenditure u/s.14A of the Act as attributable to earning of the said exempt income. The ld. AO during the course of assessment proceedings directed the assessee to explain as to why the disallowance u/s.14A of the Act should not be computed in accordance with computation mechanism provided under Rule 8D(2) of the Income Tax Rules. The assessee vide letter dated 18/02/2015 filed detailed written submissions before the ld. AO which is also reproduced in pages 2 & 3 of the assessment order. 3.2. From the perusal of the said reply, we find that assessee had made submissions on two counts - (i) it has got sufficient own funds in its kitty which would cover its investments and hence, no disallowance of interest in terms of Rule 8D(2)(ii) of the Rules would be warranted ; (ii) since assessee is paying tax under the tonnage tax scheme, the disallowance of expenditure u/s.14A of the Act would not be applicable in terms of decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Varun Shipping Co. Ltd., vs. Addl. CIT in ITA No.5576/Mum/2011 dated ITA No. 5861/Mum/2019 M/s. Raj Shipping Agencies Pvt. Ltd., 3 30/11/2011. From the perusal of the said reply, we find that no explanation was offered by the assessee with regard to disallowance of indirect expenses contemplated under Rule 8D(2)(iii) of the Rules. The ld AO directly proceeded to make disallowance u/s.14A of the Act r.w.r. 8D(2)(iii) of the Rules in the sum of Rs.16,75,334/-. 3.3. Before the ld. CIT(A), the assessee had furnished the complete details of Revenue as per profit and loss account and allocation of expenses as directly attributable to shipping income and also furnishing the details of common expenses. The same is reproduced hereunder:- ITA No. 5861/Mum/2019 M/s. Raj Shipping Agencies Pvt. Ltd., 4 3.4. The ld. CIT(A) in principle agreed with the contentions of the assessee and held that in A.Y.2009-10, a sum of Rs.20,000/- was disallowed which was upheld up to the Tribunal. Further the ld. CIT(A) sought to add 0.5% of fresh investments made during the year u/s.14A of the Act. In other words, the ld. CIT(A) directed the ld. AO to make disallowance u/s.14A of the Act by considering Rs.20,000/- + 0.5% of fresh investments made during the year. Aggrieved, the assessee is in appeal before us. 3.5. At the outset, we find that the ld. AO had not recorded its satisfaction on the claim of the assessee that no expenses were incurred for earning exempt income in the assessment order. It is the duty of the ld. AO to record objective satisfaction having regard to the accounts of the assessee which has admittedly not been done in the instant case. Hence, no disallowance could be made by applying the computation mechanism provided in Rule 8D(2) of the Rules. 3.6. We find that assessee had duly furnished the details of various streams of income and the common expenses incurred thereon. On perusal of various streams of income which has already tabulated hereinabove, we find that assessee is in receipt of both shipping as well as non-shipping income. The shipping income would be covered under tonnage tax scheme wherein the expenses directly attributable to the said shipping income would be deemed to be allowed to the assessee. In respect of common expenses incurred by the assessee, the same requires to be attributable for the purpose of earning non-shipping income which includes dividend income claimed as exempt. Hence the reliance placed by the assessee on the decision of this Tribunal in the case of Varun Shipping referred to supra , would not come to the rescue of the ITA No. 5861/Mum/2019 M/s. Raj Shipping Agencies Pvt. Ltd., 5 assessee. We find that the ratio of dividend income to the total income works out to 7.90%. Hence, it would be just and fair to apportion the common expenses in the ratio of 7.90%. However, considering the total income of Rs.3,10,91,777/- ; the total disallowance made by the ld. AO in the sum of Rs.16,75,334/- by considering the total indirect expenses for earning shipping as well as non- shipping income and considering the fact that the common expenses incurred by the assessee in non-shipping activity alone need to be considered for the purpose of disallowance, we hold that adhoc disallowance of Rs.1,00,000/- would meet the ends of justice in the peculiar facts and circumstances of the instant case. We would like to make it clear that the addition contemplated herein shall not stand as a binding precedent for other assessment years in the case of the assessee. The ld. AO is directed to disallow only Rs.1,00,000/- u/s.14A of the Act. Accordingly, the grounds raised by the assessee are partly allowed. 4. In the result, appeal of the assessee is partly allowed. Order pronounced on 17/08/2022 by way of proper mentioning in the notice board. Sd/- (AMIT SHUKLA) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 17/08/2022 KARUNA, sr.ps ITA No. 5861/Mum/2019 M/s. Raj Shipping Agencies Pvt. Ltd., 6 Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary / Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//