TOLANI SHIPPING CO.LTD, MUMBAI V. ASST CIT CEN CIR 17 & 28, MUMBAI

ITA 6325/MUM/2011

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6795 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 19-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 14-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NEELKANT KHANDELW AL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Wholly owned subsidiary; Revised return; Rule 8D; Set aside; Capital Gains
• Section: 244A; 92F; 14A; 115JB; 201; 191; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 2582/MUM/10 2003-04 TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] DCIT, CEN. CIRCLE-17, MUMBAI 6325/MUM/11 2005-06 ACIT, CEN. CIRCLE-17, MUMBAI 1481/MUM/11 2005-06 1589/MUM/11 2005-06 ACIT, CEN. CIRCLE-17 & 28, MUMBAI TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] 8051/MUM/11 2006-07 ASST. COMMISSIONER OF INCOME TAX-5(3), MUMBAI 8077/MUM/11 2006-07 TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] ACIT, CEN. CIRCLE-17, MUMBAI 2149/MUM/12 2007-08 ASST. COMMISSIONER OF INCOME TAX-5(3), MUMBAI TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] 1168/MUM/12 2007-08 TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] ACIT, CEN. CIRCLE-17, MUMBAI 1755/MUM/14 2009-10 DCIT, CIRCLE-17, MUMBAI 3313/MUM/15 2009-10 DEPUTY COMMISSIONER OF INCOME TAX-5(3)(2), MUMBAI TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] 1160/MUM/15 2010-11 1243/MUM/15 2010-11 TOLANI SHIPPING CO. LTD., 10-A, BAKHTAWAR, NARIMAN POINT, MUMBAI [PAN: AAACT 4127 C] DEPUTY COMMISSIONER OF INCOME TAX-5(3)(2), MUMBAI 7087/MUM/16 2008-09 ACIT, CIRCLE-5(3), MUMBAI APPELLANT BY : SHRI NEELKANT KHANDELWAL, AR RESPONDENT BY : SHRI A. MOHAN, DR TOLANI SHIPPING CO. LTD., 2 DATE OF HEARING : 12 - 12 - 201 8 DATE OF PRONOUNCEMENT : - 28 - 0 2 - 201 9 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THESE APPEALS ARE FILED BY BOTH ASSESSEE AND REVENU E. SINCE THE ISSUES ARE ALMOST COMMON IN ALL THESE APP EALS, WE HAVE HEARD THEM TOGETHER AND ADJUDICATED BY THIS CO MMON ORDER. ITA NO. 8077/MUM/2011 AY 2006-07 : 2. WE WOULD LIKE TO FIRST DECIDE THE ISSUES INVOLV ED IN THE PRESENT APPEALS ON MERITS. ACCORDINGLY, WE ARE TAK ING UP ITA NO. 8077/MUM/2011, DECIDING THE GROUNDS ON MERITS FIRST . IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 1. APPELLANT IS A SHIPPING COMPANY AND APPROVED TO BE TAXED UNDER THE PROVISIONS OF TONNAGE TAX SCHEME UNDER CHAPTER XIIG OF THE ACT : THE LEARNED A.O. AS WELL AS LEARNED CIT(A) HAVE ERR ED IN OVERLOOKING THAT APPELLANT IS A SHIPPING COMPANY AND HAS BEEN G RANTED OPTION TO BE TAXED UNDER THE TONNAGE TAX SCHEME UNDER CHAPTER XIIG OF THE ACT AND SECTION 115VA OF THE ACT BEGINS WITH A NON- OBSTINATE CLAUSE WHICH READS AS 'NOTWITHSTANDING ANYTHING TO THE CON TRARY CONTAINED IN SECTIONS 28 TO 43 C IN THE CASE OF A C OMPANY, THE INCOME FROM BUSINESS OF OPERATING QUALIFYING SHIPS MAY AT ITS OPTION BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THUS CHAPTER AND SUCH INCOME SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION' AND THEREFORE INCOME OF THE APPELLAN T COMPANY HAS TOLANI SHIPPING CO. LTD., 3 TO BE COMPUTED AS PER THE PROVISIONS OF CHAPTER XII G AND NO ADJUSTMENT CAN BE MADE APPLYING THE PROVISIONS OF SECTIONS 28 TO 43C SUGGESTED BY TRANSFER PRICING OFFICER ACTING U/S.92 CONSIDERING ARM'S LENGTH PRICE IN CONNECTION WITH SHIPPING FREIGHT TA XABLE UNDER SECTIONS 28 TO 43C OF THE ACT. 2. DOUBLE FICTION IS NOT PERMITTED UNDER INCOME-T AX ACT: THE LEARNED A.O. AS WELL AS THE LEARNED CIT(A) HAVE ERRED IN NOT FOLLOWING THE JUDGEMENTS OF DIFFERENT COURTS WHEREI N IT IS HELD THAT WHILE COMPUTING TAXABLE INCOME THERE CANNOT BE DOUBLE FIC TION OF COMPUTING TAXABLE INCOME AND WHEN INCOME OF SHIPPING COMPANY IS TAXED UNDER THE PROVISIONS OF TONNAGE TAX SCHEME BY CONSIDERING THE REGISTERED TONNAGE CAPACITY OF THE SHIPS IRRESPECTIVE OF INCOM E BY WAY OF FREIGHT RECEIVED, NO ADJUSTMENT CAN BE MADE UNDER SECTION 9 2 UNDER THE PROVISIONS OF TRANSFER PRICING CONSIDERING THE ARM' S LENGTH PRICE AND THEREFORE ACTION OF LEARNED A.O. IS CONTRARY TO LAW WHEN HE IS COMPUTING TAXABLE INCOME UNDER TONNAGE TAX SCHEME O N THE BASES OF TONNAGE CAPACITY OF SHIPS AND AGAI9N MAKING ADDITIO N TO THE SAME UNDER THE PROVISIONS OF TRANSFER PRICING CONSIDERIN G THE REASONABLENESS OF FREIGHT RECEIVED OR FREIGHT PAID IN TERMS OF ARM 'S LENGTH PRICE WHICH AMOUNTS TO DOUBLE FICTION OF BUSINESS. 3. THE LEARNED A.O. AS WELL AS LEARNED CIT(A) HAV E ERRED IN NOT CONSIDERING THAT WHEN INCOME OF SHIPPING BUSINESS I S COMPUTED UNDER THE PROVISIONS OF TONNAGE TAX SCHEME, AS INCOME FRO M BUSINESS, NO ADJUSTMENT CAN BE MADE TO TONNAGE TAX SCHEME INCOME ON ACCOUNT OF RECEIPTS OF FREIGHTS AS ADJUSTMENTS TO TONNAGE TAX SCHEME CAN BE MADE ONLY OF THE AMOUNTS WHICH HAS BEEN COMPUTED AS PER THE METHOD PROVIDED UNDER THE TONNAGE TAX SCHEME U/S.LLSVG AND NOT THE AMOUNT OF FREIGHT RECEIVED AS THERE IS DIRECT CONFLICT BET WEEN FICTION U/S.115VA OF TONNAGE TAX SCHEME AND COMPUTATION OF INCOME U/S.28 TO 43C AND THEREFORE APPLYING BOTH THE PROVISIONS W ILL AMOUNT TO FICTION UPON FICTION WHICH IS AGAINST THE PROVISION S OF THE ACT. 4. THE LEARNED CIT(A) HAS ERRED IN COMING TO THE C ONCLUSION IN PARA 4.4.2 OF APPEAL ORDER THAT PROVISIONS OF TONNAGE TA X SCHEME DO NOT OVERRIDE THE PROVISIONS OF TRANSFER PRICING UNDER S ECTION 92 TO 92F AS PROVISIONS OF TRANSFER PRICING ARE SPECIAL PROVISIO NS AND ARE ON ELEVATED POSITION AS COMPARED TO PROVISIONS UNDER TONNAGE TA X SCHEME. 5. THE LEARNED CIT(A) HAS ERRED IN MENTIONING IN PARA 4.4.3 OF APPEAL ORDER THAT IN SCHEME OF THINGS UNDER THE INCOME-TAX ACT THE INCOME FROM TOLANI SHIPPING CO. LTD., 4 INTERNATIONAL TRANSACTIONS ARE TO BE TREATED AS AN ADDITIONAL AND SEPARATE SOURCE OF INCOME UNDER INTERNATIONAL TRANS ACTION OVERLOOKING THAT THERE IS NO SUCH PROVISIONS IN INCOME-TAX ACT AS TREATING THE INCOME ON ACCOUNT OF INTERNATIONAL TRANSACTIONS AS SEPARAT E SOURCE OF INCOME AS THE PROVISIONS OF TRANSFER PRICING IS A METHOD OF A RRIVING AT TAXABLE INCOME AND THE SAME CANNOT BE CONSIDERED AS SEPARAT E SOURCE OF INCOME. 6. THE LEARNED CIT(A) HAS ERRED IN CONSIDERING IN PARA 8.4 SUB PARA XI THAT INTEREST ON LOAN GIVEN TO SUBSIDIARY COMPANY S HOULD BE WORKED OUT AT A RATE OF INTEREST AT LIBOR PLUS 200 BASIS POINT S AS AGAINST INTEREST AT LIBOR PLUS 100 BASIS POINTS CHARGED BY APPELLANT OVERLOOKING THAT LOANS UTILIZED BY SUBSIDIARY COMPANY WAS FOR SHORT PERIOD OF THREE MONTHS AND THE APPELLANT WAS NOT RUNNING ANY RISK A S THE LOAN WAS GIVING LOAN TO ITS WHOLLY OWNED SUBSIDIARY COMPANY AND THE PREVAILING RATE OF INTEREST UNDER CUP METHOD WAS LIBOR PLUS 10 0 BASIS POINTS AS THE APPELLANT COMPANY ITSELF HAS AVAILED A TERM LOA N OF USD 15,000,000 FROM DVB MERCHANT BANK (ASIA) LTD. AT LI BOR PLUS 100 BASIS POINTS FOR SEVEN YEARS VIDE AGREEMENT DATED 1 4.1.2005 AND THE SAME IS COMPARABLE TRANSACTION AND HAS TO BE ACCEPT ED. 7. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE TO THE EXTENT OF RS. 18,24,9467- U/S.14 A ON THE GROUND OF EXPENDITURE INCURRED FOR EARNING INCOME WHICH IS TA X-FREE OVERLOOKING THAT EXPENDITURE CAN BE DISALLOWED PROVIDED THAT TH E SAME IS CLAIMED BY THE APPELLANT IN COMPUTATION OF INCOME AND WHEN THE APPELLANT HAS NOT CLAIMED ANY SUCH EXPENDITURE THE QUESTION OF DI SALLOWANCE DOES NOT ARISE AS THE COMPANY IS ENGAGED IN SHIPPING BUSINES S AND THE COMPANY IS TAXED AS PER THE PROVISIONS OF TONNAGE T AX SCHEME UNDER CHAPTER XIIG OF THE ACT AND THE TONNAGE TAX SCHEME PROVIDES THAT INCOME OF SHIPPING COMPANY APPROVED UNDER TONNAGE T AX SCHEME HAS TO BE COMPUTED ON THE BASIS OF REGISTERED TONNAGE C APACITY OF THE SHIP AT FIXED RATES IRRESPECTIVE OF THE INCOME EARNED BY WAY OF FREIGHT INCOME OR EXPENDITURE INCURRED IN EARNING FREIGHT INCOME A ND THEREFORE THE QUESTION OF DISALLOWING EXPENDITURE U/S. 14A DOES N OT ARISE. (HON'BLE MUMBAI ITAT IN THE CASE OF BIRLA SUNLIFE INSURANCE CO. LTD. AND THE HON'BLE SUPREME COURT IN THE CASE OF LIFE INSURANCE CORPORATION OF INDIA VS. CIT 51 ITR 773 (SC)) 8. THE LEARNED A.O. AS WELL AS LEARNED CIT(A) HAS ERRED IN INCLUDING TAX-FREE INTEREST ON GOVERNMENT BONDS AMOUNTING TO RS.2,46,050/- AS TAXABLE INTEREST INCOME EVENTHOUGH VIDE LETTER DATE D 9.9.2009 THE APPELLANT CLAIMED THAT THE SAME IS NOT TAXABLE OVER LOOKING THAT INCOME TOLANI SHIPPING CO. LTD., 5 WHICH IS NOT TAXABLE CANNOT BE INCLUDED IN TAXABLE INCOME IN ASSESSMENT ORDER. 9. THE LEARNED A.O. HAS ERRED IN NOT ALLOWING DED UCTION OF SECURITIES TRANSACTION TAX AMOUNTING TO RS.20,39,671/- U/S.88E AS A REBATE U/S.88E NOR ALLOWED AS A DEDUCTION WHILE COMPUTING SHORT-TERM AND LONG-TERM CAPITAL GAIN AND LEARNED CIT(A) HAS ERRED IN NOT ALLOWING THE SAME ON THE GROUND THAT THE SAID CLAIM WAS NOT MADE IN SECOND REVISED RETURN OVERLOOKING THAT THE APPELLANT HAD N OT CLAIMED DEDUCTION IN COMPUTING CAPITAL GAIN IN ORIGINAL RETURN OF INC OME AND IN FIRST REVISED RETURN THE APPELLANT INCREASED THE CAPITAL GAIN TO THAT EXTENT AND CLAIMED THE SAME AS DEDUCTION U/S.88E BUT BY OV ERSIGHT IN 2 ND REVISED RETURN THE CLAIM U/S.88E REMAINED TO BE CLA IMED WHICH WAS CLAIMED BY WAY OF GROUND NO. 15 IN APPEAL BEFORE HO N'BLE CIT(A) BUT IN PARA 11.3 OF APPEAL ORDER THE LEARNED C1T(A) REJECT ED THE GROUND OF APPEAL. 10. THE LEARNED A.O. HAS ERRED IN NOT ALLOWING DEDU CTION OF MUNICIPAL TAXES AS WELL AS SOCIETY CHARGES AMOUNTING TO RS.75 ,549/- WHILE COMPUTING INCOME UNDER THE HEAD PROPERTY INCOME EVE NTHOUGH THE SAME WAS CLAIMED BEFORE A.O. VIDE LETTER DATED 9.9. 2009 AND THE SAID CLAIM HAS BEEN REJECTED BY THE LEARNED CIT(A) VIDE PARA 12.3 OF THE APPEAL ORDER ONLY ON THE GROUND THAT THE SAID CLAIM WAS MADE IN THE LETTER DATED 9.9.2009 BUT NOT CLAIMED IN THE RETURN OF INCOME. 11. THE LEARNED A.O. HAS ERRED IN INCLUDING SUM OF RS.25,12,533/- UNDER THE HEAD MISCELLANEOUS INCOME OVERLOOKING THE FACTS THAT THE SAME WAS REFUND OF INCOME-TAX FOR ASSESSMENT YE ARS 1993-94 AND 1994-95 AND NOT MISCELLANEOUS INCOME AS SUBMITT ED BEFORE LEARNED A.O. AND THE LEARNED CIT(A) REJECTED THE CL AIM IN PARA 13.3 OF APPEAL ORDER ON THE GROUND THAT THE SAID CLAIM WAS NOT MADE IN THE RETURN OF INCOME FILED. 12. APPELLANT CRAVES LEAVE TO SUBMIT PRECISED (SUMM ARY) GROUNDS OF APPEAL ADD AND OR ALTER THE ABOVE GROUNDS OF APPEAL . 3. IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED TH E ORDER OF CIT(A) ON THE ISSUE OF UPHOLDING THE ORDER OF THE AO PARTLY BY SUSTAINING THE ADDITION ON ACCOUNT OF INT EREST ON LOAN TOLANI SHIPPING CO. LTD., 6 FROM ASSOCIATED ENTERPRISE (AE) AT LIBOR+200 BASIS POINTS AS AGAINST LIBOR+300 POINTS MADE BY THE AO, WHEREAS TH E ASSESSEE HAS BENCHMARKED THE SAID INTERNATIONAL TRA NSACTION WITH ITS AE AT LIBOR+100 BASIS POINTS. 3.1. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF OWNING AND OPERATION OF VESSELS AND MANAGING VESSELS OF ITS AE. ASSESSEE ENTERED INTO VARIOUS CO NTRACTS OF AFFREIGHTMENTS WITH EXTERNAL PARTIES FOR TRANSPORTI NG THEIR CARGO FROM ONE PLACE TO ANOTHER PLACE. BESIDES, ASSESSEE ALSO OUTCHARTERS ITS OWN VESSELS TO AE ON WHICH IT EARNS FREIGHT INCOME. ASSESSEE IS ALSO RENDERING TECHNICAL MANAGE MENT SERVICES IN RESPECT OF VESSELS NOMINATED BY TOLANI SHIPPING (SINGAPORE) PTE. LTD., (HEREAFTER REFERRED TO AS TS SPL), A 100% SUBSIDIARY OF TOLANI SHIPPING CO. LTD. DURING THE Y EAR, ASSESSEE- COMPANY HAS ENTERED INTO AGREEMENT WITH TSSPL VIDE AGREEMENT DT. 01-12-2005, WHEREBY LOAN OF US$ 60 LAKHS WAS AD VANCED UNDER THE CONDITION THAT SAME WAS TO BE REPAID BY T HE AE WITHIN ONE YEAR FROM THE DATE OF ITS DISBURSEMENT. THE SA ID LOAN WAS ADVANCED TO AE AT LIBOR+100 BASIS POINTS P.A. TO BE APPLIED ON THE OUTSTANDING LOAN AMOUNT. THE SAID LOAN WAS REP AID ALONG WITH INTEREST OF US$ 88,543.33 (EQUIVALENT TO RS. 39,26,985/-) TOLANI SHIPPING CO. LTD., 7 ON 19-03-2006. THE ASSESSEE HAS BENCHMARKED THE SAI D TRANSACTION USING CUP METHOD. ASSESSEE BORROWED A TERM LOAN OF US$ 1,50,00,000 FROM DVB MERCHANT BANK (ASIA) LT D., AT LIBOR+100 BASIS POINTS FOR A PERIOD OF SEVEN YEARS VIDE AGREEMENT DT. 14-01-2005. ACCORDING TO ASSESSEE SI NCE THE RATE CHARGED BY THE SAID BANK TO THE ASSESSEE WAS LIBOR+ 100 BASIS POINTS, THEREFORE, THE ASSESSEE-COMPANY HAS LENT MO NEY TO ITS AE AT A FAIR RATE AND IS AN ARMS LENGTH PRICE (ALP) F OR THE SAID TRANSACTION. ACCORDING TO THE TRANSFER PRICING OFFI CER (TPO), PRICE CHARGED BY THE ASSESSEE FROM THE AE IS NOT AN ALP F OR THE REASON THAT CUP METHOD REQUIRES HIGH DEGREE OF COMPARABILI TY, WHEREAS IN THE CASE OF ASSESSEE, THERE WERE GEOGRAPHICAL DI FFERENCES BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS, W HEREAS ACCORDING TO ASSESSEE, THE TPO HAS OVERLOOKED THE V ERY FACT THAT DVB MERCHANT BANK (ASIA) LTD., IS AN INTERNATIONAL BANK AND IS OPERATING IN THE INTERNATIONAL MARKET AND ARENA. TH E SAID BANK IS OPERATING FROM SINGAPORE AND ASSESSEE-COMPANY HA S ALSO GIVEN LOAN TO ITS AE, OPERATING IN SINGAPORE. THERE FORE, THE QUESTION OF GEOGRAPHICAL DIFFERENCE DOES NOT ARISE AND OBSERVATION OF TPO ARE AGAINST THE FACTS OF THE CAS E WHILE THE RATE OF INTEREST CHARGED BY THE ASSESSEE TO THE AE IS AT ARMS TOLANI SHIPPING CO. LTD., 8 LENGTH. HOWEVER, THE AO BRUSHING ASIDE THE SUBMISSI ONS OF ASSESSEE MADE AN ADJUSTMENT/ADDITION TO THE TUNE OF RS. 10,23,204/- BY BENCHMARKING THE TRANSACTION WITH AE AT LIBOR+300 BASIS POINTS AS PROPOSED BY THE TPO. 3.2. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) PART LY ALLOWED THE APPEAL OF ASSESSEE, AFTER CONSIDERING THE SUBMI SSIONS OF ASSESSEE, AS REPRODUCED IN PARA 8.3 OF THE APPELLAT E ORDER BY OBSERVING AND HOLDING AS UNDER: 8.4 I HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS OF THE APPELLANT AS AGAINST THE OBSERVATION/FINDINGS OF TH E AO/TPO IN THEIR ORDERS. THE CONTENTIONS RAISED, BY THE APPELLANT AS AGAINST ITS GROUND, OF APPEAL ARE BEING DISCUSSED AND DECIDED AS UNDER: I. THERE IS NO DISPUTE TO THE FACT THAT FOR THE LOAN W HICH HAS BEEN ADVANCED TO THE AE INTEREST IS TO BE CHARGED AT THE ALP RATE. II. FURTHER THE METHOD APPLIED BY THE APPELLANT HAS ALS O NOT BEEN DISPUTED BY THE TPO. III. ONLY DISPUTE IS IN RESPECT OF THE RATE OF INTEREST AND ITS COMPARABILITY WITH THE RATE CHARGED TO THE AE BY TH E APPELLANT. IV. APPELLANT HAS CHARGED INTEREST AT LIBOR + 100 BASIS POINTS WHEREAS THE TPO HAS ARRIVED AT THE RATE OF LIBOR + 300 BASIS POINTS. V. THERE IS NO DISPUTE ABOUT THE FACT OF THE DIFFERENC E IN THE TIME OF AGREEMENT FOR THE CONTROLLED AND UNCONTROLLED TR ANSACTION AND FURTHER THE AMOUNT OF LOAN BEING VASTLY DIFFERE NT IN THESE TWO AGREEMENTS. VI. IT IS ALSO A FACT THAT THE LOAN TO THE AE WAS GRANT ED FOR PURCHASE OF THE SHIP. FURTHER IT IS THE FACT THAT T HE AE CAME INTO EXISTENCE ONLY IN THE FINANCIAL YEAR 2002-03, WHERE AS THE TOLANI SHIPPING CO. LTD., 9 APPELLANT IS A PRETTY OLD COMPANY AND IS OPERATIONS FOR MORE MAN 30 YEARS. VII. IT MAY BE MENTIONED HERE THAT IF THE AE WAS ALSO AS REPUTED AND HAD SOUND FINANCIAL CREDIBILITY, IT WOULD HAVE APPROACHED THE BANK FOR LOAN ON ITS OWN, BUT THAT IS NOT THE F ACT OF THE CASE. FURTHER THE APPELLANT ITSELF TOOK LOAN FROM T HE BANK OF MUCH LARGER SUM, WHICH SHOWS ITS FINANCIAL CREDIBIL ITY AND GENERAL REPUTATION. VIII. GIVEN THE FACTS WHICH HAVE BEEN DISCUSSED, THE CUP USED BY THE APPELLANT IS NOT FOUND TO BE ACCEPTABLE. IX. THE TPO HAS APPLIED RATE OF LIBOR + 300 BASIS POINT OUT HAS NOT MENTIONED WHERE FROM SUCH RATE HAS BEEN CHOSEN AND ON WHAT BASIS THE SAME HAS BEEN ADOPTED. THE TPO ONLY MENTIONED THAT IT IS GATHERED THAT THE AVERAGE RATE OF INTEREST PREVAILING DURING THE PERIOD UNDER CONSIDERATION IS CLOSE TO LIBOR + 300 BASIS POINT. IN THIS REGARD IT WOULD OF IMPORTANCE TO SEE THE GUIDELINES OF THE RBI, WHICH PRESCRIBES ALL IN COST CEILING FOR ECB WHICH IS AS UNDER: 'AS PER THE CIRCULAR NO. 60 DATED 31.3.2004 OF THE RBI THE ALL-IN-COST CEILING FOR ECB IS AS UNDER : MINIMUM AVERAGE MATURITY PERIOD A LL - IN - COST CEILING OVER SIX MONTH LIBOR THREE YEAR AND UP TO FIVE YEARS 200 BASIS POINT MORE THAN FIVE YEARS 350 BASIS P OINT FURTHER AS PER THE CIRCULAR NO. 5 OF THE RBI DATED 01.08.2005, THE ALL-IN- COST CEILING IS AS UNDER: MINIMUM AVERAGE MATURITY PERIOD ALL - IN - COST CEILING OVER SIX MONTH LIBOR THREE YEAR AND UP TO FIVE YEARS 200 BASIS POINT MORE THAN FIVE YEARS 350 BASIS POINT X. IT IS THE FACT OF THE CASE THAT THE LOAN TO THE AE IS SHORT TERM LOAN AND IS FOR THE PERIOD OF ONE YEAR. THE ALL IN COST CEIL ING OF RBI WOULD BE CLOSEST RATE FOR SHORT TERM LOAN IN FOREIGN CURRENC Y WHICH WOULD BE LIBOR + 200 BASIS POINT WHICH IS APPLICABLE FROM 01 .08.2005. THUS THE PERIOD OF THE TRANSACTION UNDER CONSIDERATION WOULD BE COVERED BY THE CIRCULAR NO. 5 OF THE RBI DATED 01.08.2005 AND ACCO RDING TO WHICH RATE TOLANI SHIPPING CO. LTD., 10 WHICH COULD BE TAKEN AND WHICH WOULD BE NEAREST TO THE TRANSACTION OF THE APPELLANT WOULD BE LIBOR + 200 BASIS POINT, WHI CH WHAT IS CONSIDERED SUITABLE TO BE ADOPTED INSTEAD OF LIBOR + 300 BASIS POINT WHICH HAS BEEN ADOPTED BY THE TPO, FOR WHICH NO BAS IS HAS BEEN GIVEN. ACCORDINGLY THE AO/TPO IS DIRECTED TO WORK OUT THE ADJUSTMENT TO ARRIVE AT THE ALP OF THE INTEREST RECEIVED BY THE APPELLAN T BY ADOPTING RATE OF INTEREST AT LIBOR + 200 BASIS POINTS. XII. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY AL LOWED. 3.3. LD. AR VEHEMENTLY ARGUED BEFORE THE BENCH THA T THE CIT(A) HAS GROSSLY ERRED IN PARTLY SUSTAINING THE A DDITION QUA THE INTEREST ON LOAN ADVANCED TO AE IN SINGAPORE BY DIR ECTING THE AO TO BENCH MARK THE LOAN TRANSACTION AT LIBOR+200 BA SIS POINTS, WHEREAS THE PRICE CHARGED BY THE ASSESSEE TO THE AE WAS AN ALP WHICH WAS BENCHMARKED BY THE ASSESSEE ON THE BASIS OF CUP METHOD. THE SAID METHOD WAS THE MOST SUITABLE METH OD IN THE PRESENT CIRCUMSTANCES AS THE ASSESSEE HAS BORROWED MONEY FROM DVB MERCHANT BANK (ASIA) LTD., WHICH IS OPERATING F ROM SINGAPORE, FROM WHERE THE AE OF THE ASSESSEE IS ALS O RUNNING AND OPERATING ITS BUSINESS. LD. AR FURTHER CONTEND ED THAT THE REASONS CITED BY THE TPO AND AE OF GEOGRAPHICAL DIF FERENCE IS OF NO IMPORTANCE AND WEIGHT AS BOTH THE ASSESSEE AND T HE SAID INTERNATIONAL BANK ARE OPERATING FROM THE SAME COUN TRY I.E., SINGAPORE. TOLANI SHIPPING CO. LTD., 11 3.4. LD. DR SUBMITTED THAT SINCE THE LOAN WAS ADVA NCED BY THE DVB MERCHANT BANK (ASIA) LTD., AT LIBOR+100 BASIS POINTS, THE TPO AS WELL AS AO AND FINALLY CIT(A) ER RED IN SUSTAINING ADDITION TO THE EXTENT AS CALCULATED @ LIBOR+200 BASIS POINTS. 3.5. LD. AR SUBMITTED THAT IN VIEW OF THESE FACTS, THE TRANSACTION OF ASSESSEE WITH THE AE HAS BEEN BENCHM ARKED AT LIBOR+100 BASIS POINTS, WHICH IS CORRECT AND JUSTIF IED IN THE BACKGROUND OF THESE CIRCUMSTANCES. LD. AR PRAYED T HAT THE ORDER OF CIT(A) IS TO BE SET ASIDE ON THIS ISSUE A ND AO IS DIRECTED TO DELETE THE ADDITION. 3.6. LD. DR ON THE OTHER HAND RELIED HEAVILY ON TH E ORDER OF AO SPECIFICALLY IN VIEW OF THE FACT THAT THE REV ENUE HAS ALSO CHALLENGED A SIMILAR DELETION OF ADDITION FROM LIBO R+300 BASIS POINTS TO LIBOR+200 BY THE CIT(A). LD. DR CONTENDED THAT LENDING BY THE ASSESSEE TO THE AE WAS CORRECTLY BEN CHMARKED AS LIBOR+300 BASIS POINTS FOR VARIOUS REASONS SUCH AS RISK ASSOCIATED WITH LENDING GEOGRAPHICAL DIFFERENCE AND ALSO THE FACT THAT THE PRICE CHARGED TO THE AE SHOULD HAVE BEEN C OMPARABLE TO THE PRICE AT WHICH THE ASSESSEE WOULD HAVE LENT THE MONEY TO THE TOLANI SHIPPING CO. LTD., 12 THIRD PARTY. THEREFORE, THE LD. DR PRAYED THAT THE ORDER OF AO NEEDS TO BE AFFIRMED ON THIS ISSUE. LD. DR RELIED ON THE FOLLOWING DECISIONS: I. ITAT, PUNE BENCH IN THE CASE OF CAPGEMINI TECHNOLOG Y SERVICES INDIA LTD., VS. DY.CIT [90 TAXMANN.COM 191 ] (PUNE-TRIB); II. ITAT, MUMBAI BENCH IN THE CASE OF PARLE BISCUITS (P ) LTD., VS. DY.CIT [46 TAXMANN.COM 11] (MUMBAI-TRIB); III. ITAT, PUNE BENCH IN THE CASE OF IGATE COMPUTER SYST EMS LTD., VS. ADDL.CIT [65 TAXMANN.COM 44] (PUNE-TRIB); IV. ITAT, MUMBAI BENCH IN THE CASE OF BHANSALI & CO., V S. ACIT [54 TAXMANN.COM 131] (MUMBAI-TRIB); 3.7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER INC LUDING DECISIONS CITED BY THE PARTIES. WE OBSERVE FROM TH E RECORD THAT ASSESSEE HAS BORROWED THE MONEY FROM DVB MERCHANT B ANK (ASIA) LTD., AT LIBOR+100 BASIS POINTS. THE SAID BA NK IS OPERATING FROM SINGAPORE, FROM WHERE THE AE OF THE ASSESSEE IS ALSO OPERATING. ASSESSEE HAS BENCHMARKED THE TRAN SACTION WITH AE AT LIBOR+100 BASIS POINTS ON THE SAME RATE OF IN TEREST AT TOLANI SHIPPING CO. LTD., 13 WHICH THE ASSESSEE HAS BORROWED MONEY FROM DVB MERC HANT BANK (ASIA) LTD. THE TPO BENCHMARKED THE TRANSACTIO N AT LIBOR+300 BASIS POINTS ON THE GROUND THAT THEY HAVE GEOGRAPHICAL DIFFERENCES AND THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF ASSESSEE BY DIRECTING THE AO TO CHARGE IN TEREST AT LIBOR+200 BASIS POINTS. AFTER CONSIDERING THE FACTS OF THE CASE IN TOTALITY AND DECISIONS RELIED UPON BY THE LD. DR , WE FIND MERITS IN THE CONTENTION OF LD. AR THAT THERE WAS N O GEOGRAPHICAL DIFFERENCE AS OBSERVED BY THE TPO FOR THE REASON TH AT DVB MERCHANT BANK (ASIA) LTD., SINGAPORE AND ASSESSEE I S OPERATING FROM THE SAME COUNTRY I.E., SINGAPORE. IN OUR OPIN ION, ASSESSEE HAS RIGHTLY FOLLOWED THE CUP METHOD TO BENCHMARK TH E INTERNATIONAL TRANSACTION AT THE SAME RATE AT WHICH IT BORROWED THE LOAN FROM THE BANK, THEREBY INCURRING NO EXTRA COST NOR EARNING ANY INCOME ON THE TRANSACTION FROM THE AE. WE ARE OF THE CONSIDERED VIEW THAT THE TRANSACTION BY ASSESSE E WITH AE HAS RIGHTLY BEEN BENCHMARKED ON CUP BASIS AT LIBOR+100 BASIS POINTS AS THE DVB MERCHANT BANK (ASIA) LTD., SINGAP ORE HAS LENT THE MONEY TO ASSESSEE AT THE SAME RATE AT WHICH THE ASSESSEE LENT THE MONEY TO ITS AE MEANING THEREBY HAD THE AE BORROWED FUNDS FROM THE BANK DIRECTLY , THESE WOULD HAVE BEE N AVAILABLE TOLANI SHIPPING CO. LTD., 14 AT THE SAME RATE OF INTEREST I.E. LIBOR + 100 BASIS POINT. IN OUR VIEW, THE ORDER OF CIT(A) CANNOT BE SUSTAINED ON TH IS POINT FOR THIS REASON THAT THE AE OF THE ASSESSEE AND DVB MER CHANT BANK (ASIA) LTD., IS OPERATING FROM THE SAME COUNTRY, SO THE REASONS SOUGHT BY THE TPO AND CIT(A) ARE NOT REASONABLE, AC CORDINGLY WE DIRECT THE AO THE DELETE THE ADDITION. THE GROUND NO. 6 IS ALLOWED. 4. THE ISSUE RAISED IN GROUND NO. 7 IS AGAINST CONFIRMATION OF ADDITION OF RS. 18,24,946/- BY THE CIT(A) AS MADE BY THE AO U/S. 14A R.W. RULE 8D BY IGNORING TH E FACT THAT ASSESSEE IS COVERED BY TONNAGE TAX SCHEME. 4.1. THE FACTS IN BRIEF ARE THAT AO, DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT ASSESSEE HAS EARNED DIVIDEND INCOME FROM MUTUAL FUNDS TO THE TUNE OF RS . 10,50,63,582/- WHICH WAS CLAIMED EXEMPT U/S. 10(34) OF THE ACT. SIMILARLY, THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN ON EQUITY SHARES OF RS. 99,76,921/- AND CLAIMED THE SAME AS EXEMPT U/S. 10(38) OF THE ACT, WHILE NO CORRESPONDI NG DISALLOWANCE OF EXPENSES WERE MADE U/S. 14A. ACCOR DINGLY, AO CALCULATED THE DISALLOWANCE UNDER RULE 8D AT RS. 45 ,54,204/- TOLANI SHIPPING CO. LTD., 15 UNDER RULE 8D(2)(III) BY APPLYING 0.5% TO THE AVERA GE INVESTMENTS AND ADDED THE SAME TO THE INCOME OF ASSESSEE. 4.2. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) PART LY ALLOWED THE APPEAL OF ASSESSEE AFTER CONSIDERING THE CONTEN TIONS OF ASSESSEE, WHICH HAS BEEN REPRODUCED BY THE APPELLAT E AUTHORITY IN PARA 9.3 BY OBSERVING AND HOLDING AS UNDER: 9.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION OF THE APPELLANT AS ABOVE. THESE GROUNDS OF APPEALS ARE BE ING DISCUSSED AND DECIDED AS UNDER: (I) IT IS A FACT OF THE CASE THAT THE APPELLANT HAS MAD E SOME INVESTMENT AGAINST WHICH HE HAS EARNED AN INCOME WH ICH IS NOT FORMING PART OF THE TOTAL INCOME OF THE APPELLA NT. ACCORDINGLY, THE PROVISIONS OF SECTION 14A OF THE A CT, IS CLEARLY APPLICABLE IN RESPECT OF DISALLOWANCES OF CORRESPON DING EXPENDITURE DEBITED BY THE APPELLANT IN ITS P & L A /C. APART FROM THE DIRECT COSTS THAT MAY HAVE BEEN INCURRED I N RESPECT OF EMPLOYEE'S SALARY HANDLING THIS WORK IN THE COMPANY , THERE WOULD COSTS ASSOCIATED WITH THE INFRASTRUCTURAL FAC ILITIES USED FOR INVESTMENTS, THERE WOULD BE CERTAIN DIRECT AND INDIRECT EXPENSES RELATING TO SUCH INVESTMENTS, SUCH AS EXPE NSES RELATING TO PORTFOLIO MANAGEMENT, SUPERVISORY CHARG ES, AUDIT CHARGES, TAXATION AND LAW CHARGES ETC. THEREFORE, I T CANNOT BE SAID THAT THERE ARE NO COSTS/EXPENSES ATTRIBUTABLE TO EARNING OF THE INCOME WHICH IS NOT FORMING PART OF THE TOTA L INCOME, AND ACCORDINGLY THE DISALLOWANCE HAS TO BE WORKED OUT I N VIEW OF SECTION 14 A OF THE ACT. (II) THE AO AT PARA 5 ON PAGE 17 OF HIS ORDER HAS STATED THAT THAT THE AS PER PROVISIONS OF SEC 14A, NO DEDUCTION SHAL L BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELAT ION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . HENCE, THE EXPENDITURE ON EXEMPT INCOME WAS CALCULATED AS PER RULE 8D AND ACCORDINGLY RS. 45,54,204/- WAS DISALLOWED A ND ADDED TO THE TOTAL INCOME. TOLANI SHIPPING CO. LTD., 16 (III) THE AO HAS ARRIVED AT THE DISALLOWANCE BASED ON. RU LE 8D OF THE I. T. RULES, 1962. IN THE CASE OF GODREJ & BOYC E MFG. CO. LTD. BOMBAY VS. DCIT RANGE 10(2), MUMBAI AND ANR. T HE HON'BLE HIGH COURT OF BOMBAY HAVE HELD THAT THE RUL E 8D OF I.T. RULES, 1962 IS APPLICABLE FROM A.Y. 08-09 BUT THEY HAVE ALSO HELD THAT THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE-TOTAL INCOME UNDER THE ACT ON A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. THE ADOPTION O F REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACT IS TO ARRIVE AT CERTAIN LEVEL OF OBJECTIVITY I N DETERMINATION OF EXPENDITURE ATTRIBUTABLE TO EARNING OF INCOME WHICH IS NOT FORMING PART OF THE TOTAL INCOME. (IV) IN VIEW OF THE DECISION OF HON'BLE COURT IN GODREJ & BOYCEE MFG. CO. LTD. (SUPRA), WHERE IT HAS BEEN HELD THAT THE AO IS DUTY BOUND TO WORK OUT THE DISALLOWANCE IN TERMS OF SECTION 14A ON A REASONABLE BASIS OR METHOD CONSISTENT WITH THE FACTS OF THE CASE, THE ; APPELLANT VIDE NOTICE DATED 13.09.2011 WAS ASKED TO SUBMIT CERTAIN DETAIL AS UNDER AND WAS ASK ED TO SHOW CAUSE AS TO WHY BASED ON THE DETAILS, THE AMOU NT OF DISALLOWANCE BE NOT WORKED OUT, AS UNDER : EXPENDITURE INCURRED BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT OTHER THAN 1 ABOVE A THE WEIGHTED MONTHLY AVERAGE VALUE OF INVESTMENT, I NCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IS THE BALANCE SHEET OF THE B THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE SHEET OF THE APPELLANT AS ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR C AN AMOUNT EQUAL TO ONE - HALF PERCENT OF THE MONTHLY WEIGHTED AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NTO OR SHALL NOT FORM PART OF THE TOTAL INCOME D THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME E THE COMPUTATION OF DISALLOWANCE FOR THE PURPOSES OF SECTION 14A WAS PROPOSED AS: A*B/G + D+E. (V) IN RESPONSE, THE APPELLANT SUBMITTED ITS REPLY VIDE ITS LETTER DATED 15.09.2011, WHERE IN IT HAS BEEN SUBMITTED AS UNDER: TOLANI SHIPPING CO. LTD., 17 'WE ARE TO SUBMIT THAT THE LEARNED AO WHILE COMPUTI NG THE DISALLOWANCE U/S 14A RESTRICTED THE DISALLOWANCE OF EXPENDITURE COMPUTED AT ONE HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT AT THE OPENING AND CLOSE OF THE YEAR, INCOME FROM W HICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AND DISALLO WED A SUM OF RS. 45,54,204/- U/S 14A COMPUTED US PER PROVISIONS OF R ULE 8D. WE ARE TO SUBMIT THAT THE APPELLANT HAD NOT INCURRE D ANY EXPENDITURE DIRECTLY FOR EARNING TAX FREE INCOME WHICH CAN BE D ISALLOWED U/S 14A. FURTHER, THE APPELLANT HAS ALSO NOT INCURRED ANY IN TEREST EXPENDITURE WHICH IS ATTRIBUTABLE TO EARNING TAX FREE INCOME SI NCE ALL THE LOANS HAVE, BEEN AVAILED FOR ACQUISITION OF SHIPS AND THEREFORE THE SAME HAVE NOT BETN USED FOR PURCHASE OF INVESTMENTS YIELDING TAX FREE INCOME. THE LEARNED AO HAS ACCEPTED THE SUBMISSION OF THE APPEL LANT AND HE RESTRICTED THE DISALLOWANCE OF EXPENDITURE COMPUTED AT ONE HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT AT THE. O PENING AND CLOSE OF THE YEAR, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THAT THE APPELLANT COMPANY IS COVERED BY THE PROVIS IONS OF TONNAGE. TAX SCHEME - CHAPTER XIIG WHEREIN INCOME OF THE SHI PPING COMPANY IS TAXED ON THE BASIS OF REGISTERED TONNAGE OF SHIPS W ITHOUT CONSIDERING THE FREIGHT INCOME EARNED WE HAVE TO STATE THAT WHI LE COMPUTING TONNAGE TAX INCOME, EXPENDITURE IS NEITHER CLAIMED NOR ALLOWED AND THEREFORE THERE IS NO QUESTION OF DISALLOWING EXPEN DITURE U/S. 14A. INFORMATIVELY, DIVIDEND INCOME, INTEREST INCOME ETC . HAVE BEEN OFFERED UNDER INCOME FROM OTHER SOURCES AND THE COMPANY HAS NOT CLAIMED ANY EXPENDITURE AGAINST INCOME SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES. WE ARE TO SUBMIT THAT EXPENSES CAN B E DISALLOWED ONLY WHEN EXPENSES HAVE BEEN CLAIMED. THEREFORE, WHEN NO EXPENSE HAS BEEN CLAIMED, THE QUESTION OF DISALLOWANCE DOES NOT ARISE. WITHOUT PREJUDICE TO OUR ABOVE SUBMISSIONS, WE GIVE BELOW INFORMATION IN THE FORMAT AS REQUESTED BY YOUR GOODSELF; S. N O . PARTICULARS AMOUNT (IN RS.) I THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME NIL II EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT NIL TOLANI SHIPPING CO. LTD., 18 III AN AMOUNT EQUAL TO ONE HALF PERCENT OF THE MONTHLY WEIGHTED AVERAGE OF THE VALUE OF INVESTMENT, INCOME FORM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME 18,24,946 (VI) IN VIEW OF DECISION OF HON'BLE COURT IN THE CASE OF GODRSJ& BOYCE MFG. CO. LTD. (SUPRA), THE AO IS DUTY BOUND T O WORK OUT DISALLOWANCE UNDER SECTION U/S 14A. FURTHER IN THE FACTS OF THE CASE THE PRINCIPLE OF APPORTIONMENT IS APPLICABLE A S IT IS NOT POSSIBLE TO DETERMINE THE ACTUAL EXPENDITURE INCURR ED IN RELATION TO TAX FREE INCOME. THE QUANTUM OF DISALLO WANCE HAS TO BE ARRIVED AT ON REASONABLE BASIS OR METHOD CONS ISTENT WITH THE FACTS OF THE CASE. IN TB.3 LIGHT OF THE DECISIO N OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING LIMITED (SUPRA), IT IS DUTY OF THE AS SESSING OFFICER TO DETERMINE THE QUANTUM OF DISALLOWANCE ON A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. AS RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION, THE ME THOD WHICH IS THOUGHT TO BE CONSISTENT WITH FACTS AND CIRCUMST ANCES OF THE CASE WAS THE ONE WHICH WAS PROPOSED TO THE APPELLAN T VIDE THIS OFFICE NOTICE DATED 13.09.2011 AND SAME IS FOL LOWED. AS PER THE SAME, THE DISALLOWANCE IS WORKED OUT TO RS. 18,24,946/-. (VII) THE AO HAS MADE A TOTAL DISALLOWANCE UNDER SECTION 14A OF RS. 45,54,204/-. ACCORDINGLY AS A CONSEQUENCE OF TH IS GROUND OF APPEAL, THE APPELLANT GETS RELIEF OF RS.27,29,25 8/-I.E. (RS. 45,54,204 - RS. 18,24,946). THEREBY SUSTAINING THE ADDITION TO THE EXTENT OF RS . 18,24,946/-. 4.3. LD. AR ARGUED BEFORE THE BENCH THAT THE ASSES SEE HAS NOT CLAIMED ANY EXPENSES AS DEDUCTION, WHILE COMPUT ING TAXABLE INCOME UNDER ANY OF THE HEADS OF INCOME AND THEREFO RE, THERE IS NO QUESTION OF DISALLOWANCE OF ANY EXPENSES WHICH I S ATTRIBUTABLE TO INCOME OF DIVIDEND U/S. 14A OF THE ACT. LD. AR SUBMITTED THAT TOLANI SHIPPING CO. LTD., 19 THE INCOME IS COMPUTED ON PRESUMPTIVE/DEEMED BASIS ON THE TONNAGE CAPACITY OF THE SHIP IRRESPECTIVE OF SHIPPI NG INCOME EARNED OR SHIPPING EXPENDITURE INCURRED. THEREFORE, WHILE MAKING COMPUTATIONS OF TONNAGE INCOME, NO EXPENSES HAVE BEEN CLAIMED AND THEREFORE THE ORDER OF CIT(A), UPHOLDIN G THE DISALLOWANCE TO THE TUNE OF RS. 18,24,946/- IS INCO RRECT AND SHOULD BE SET ASIDE. LD. AR IN DEFENSE OF HIS ARGU MENTS RELIED ON THE FOLLOWING DECISIONS: A. VARUN SHIPPING CO. LTD., [17 ITR (TRIB) 587]; B. TAG OFFSHORE LTD. [49 TAXMANN.COM 209]; C. RAJ SHIPPING AGENCIES LTD., [38 TAXMANN.COM 345] LD. AR SUBMITTED THAT IN THE ABOVE DECISIONS OF THE CO-ORDINATE BENCHES, IT WAS HELD THAT WHERE THE INCOME OF THE ASSESSEE IS COMPUTED UNDER TONNAGE TAX SCHEME, NO DISALLOWANCE U/S. 14A OF THE ACT IS ATTRACTED. FINALLY, LD. AR PRAYED TH E BENCH THAT THE RATIO LAID DOWN BY THE CO-ORDINATE BENCHES MAY BE F OLLOWED AND AO BE DIRECTED TO DELETE THE DISALLOWANCE. 4.4. LD. DR RELIED ON THE ORDER OF AO AND SUBMITTE D THAT EVEN IF THE INCOME OF ASSESSEE IS COMPUTED UNDER TO NNAGE TAX SCHEME, IT IS PRESUMED THAT THE EXPENSES INCURRED I N CONNECTION TOLANI SHIPPING CO. LTD., 20 TO THAT ARE AUTOMATICALLY TAKEN CARE OF AND THEREFO RE, THERE IS NO FORCE IN THE ARGUMENTS OF THE LD. AR THAT THE ASSES SEE HAS NOT CLAIMED ANY EXPENSES WHILE COMPUTING THE INCOME UND ER TONNAGE TAX SCHEME. LD. DR PRAYED THAT THE ORDER O F AO SHOULD BE RESTORED ON THIS ISSUE. 4.5. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE DECISIONS CITED BY THE LD. AR, WE OBSERVE THAT THE INCOME OF THE ASSESSEE HAS BEEN COMPUTED UNDER TONNAGE TAX SCHEME. LD. AR REFERRED TO PG. N O. 139 OF THE PAPER BOOK TAKING US THROUGH THE ORDER PASSED U /S. 115VP(3)(1) OF THE ACT POINTING OUT THAT THE DEPARTMENT HAS APPROVED THE TONNAGE TAX SCHEME BY THE ASSESSEE UND ER CLAUSE(1) OF SUB-SECTION (3) OF SECTION 115VP OF THE ACT. THE RELEVANT ORDER IS REPRODUCED BELOW: NAME OF THE ASSESSEE : M/S. TOLANI SHIPPING CO. LT D., ADDRESS : 10-A, BHAKHTAWAR, NARIMAN POINT, MUMBAI-400 021 PAN NO. : AAACT4127C DATE OF ORDER : 29/11/04 ORDER UNDER SECTION 115VP(3)(1) OF THE I.T. ACT, 19 61 M/S. TOLANI SHIPPING COMPANY LTD HAS FILED AN APPL ICATION ON 05/10/04 IN FORM NO. 65 EXERCISING THE OPTION FOR T HE TONNAGE TAX TOLANI SHIPPING CO. LTD., 21 SCHEME IN ACCORDANCE WITH THE PROVISION OF SUB-SECT ION (1) OF THE SECTION 115VP OF THE INCOME TAX ACT WITH EFFECT FROM THE A. Y. 2005-06. AFTER VERIFICATION, THE ASSESSEE WAS FOUND ELIGIBL E TO MAKE OPTION FOR TONNAGE TAX SCHEME. TONNAGE TAX OPTED BY THE C OMPANY IS APPROVED UNDER CLAUSE (1) OF SUB-SECTION (3) OF SEC TION 115 VP OF THE INCOME TAX ACT, 1961. THE PROVISION OF CHAPTER XII G SHALL APPLY IN THE CASE OF THE ASSESSEE FROM THE A.Y. 2005-06. SD/- (PANKAJ VIDYARTHI) ADDL. COMMISSIONER OF INCOME-TAX CENTRAL RG.4, MUMBAI ONCE THE DEPARTMENT HAS ALLOWED THE OPTION TO THE A SSESSEE UNDER CLAUSE (1) SUB-SECTION (3) OF SECTION 115VP O F THE ACT, THEN, WE ARE OF THE VIEW THAT DISALLOWANCE U/S. 14A WILL NOT BE ATTRACTED. THE SIMILAR VIEW HAS ALSO BEEN UPHELD BY THE VARIOUS DECISIONS, RELIED ON BY THE LD. AR AS STATED SUPRA. 4.5.I. WE, THEREFORE, RESPECTFULLY FOLLOWING THE D ECISION OF THE CO-ORDINATE BENCH, DIRECT THE AO TO DELETE THE DISALLOWANCE U/S. 14A R.W. RULE 8D. GROUND OF APPEAL NO. 7 IS A LLOWED. 5. THE ISSUE RAISED IN GROUND NO. 8 IS AGAINST THE ORDER OF AO AND CIT(A) INCLUDING TAX FREE INTEREST ON GOV ERNMENT BONDS AMOUNTING TO RS. 2,46,050/- AS TAXABLE INTERE ST INCOME EVEN THOUGH VIDE LETTER DT. 09-09-2009 THE ASSESSEE CLAIMED THAT SAME IS NOT TAXABLE. TOLANI SHIPPING CO. LTD., 22 5.1. THE FACTS IN BRIEF ARE THAT ASSESSEE WHILE CO MPUTING THE INCOME, ERRONEOUSLY OFFERED TO TAX, THE TAX FRE E INTEREST INCOME OF RS. 2,46,050/- ON ACCOUNT OF INTEREST REC EIVED FROM 6.85% TAX FREE BONDS. THE SAID INTEREST IS EXEMPT U /S. 10(15)(IV)(H) OF THE ACT AND SHOULD NOT HAVE BEEN P ART OF THE TAXABLE INCOME AS WELL AS BOOK PROFITS UNDER MAT PR OVISIONS. ASSESSEE BROUGHT THE FACTS TO THE NOTICE OF AO VIDE LETTER DT. 09- 09-2009 BUT THE REQUEST OF THE ASSESSEE WENT UNHEAD ED BEFORE THE AO. 5.2. IN THE APPELLATE PROCEEDINGS, THE CIT(A) UPHE LD THE ACTION OF AO BY OBSERVING AND HOLDING AS UNDER: 10.3. IN THIS REGARD IT IS STATED THAT IT IS THE APPELLANT WHO HAD FILED THE RETURN OF INCOME WHERE SUCH INCOME WAS OFFERED TO TAX AND ACCORDINGLY THE CLAIM WHICH HAS BEEN MADE BEFORE TH E AO NEITHER IN THE RETURN NOR THE APPELLANT HAS CLAIMED SUCH INCOME AS EXEMPT BY WAY OF REVISED RETURN. THEREFORE RELYING ON DECISION OF H ON'BLE APEX COURT IN THE CASE OF GOETZ INDIA LTD (157 TAXMANN 1), THIS G ROUND OF APPEAL IS DISMISSED. 5.3. LD. AR VEHEMENTLY SUBMITTED BEFORE THE BENCH THAT THE INCOME WHICH IS NOT PART OF THE TOTAL INCOME UN DER THE REGULAR PROVISION AS WELL AS UNDER THE SPECIAL PROV ISIONS UNDER MAT, CANNOT BE BROUGHT TO TAX EVEN IF THE ASSESSEE HAS ERRONEOUSLY OFFERED THE SAID INCOME TO TAX WHILE FI LING RETURN OF TOLANI SHIPPING CO. LTD., 23 INCOME. LD. AR SUBMITTED THAT THE ASSESSEE HAS SPEC IFICALLY BROUGHT TO THE NOTICE OF THE AO VIDE LETTER DT. 09- 09-2009 REQUESTING THAT INCOME TO THE EXTENT OF RS. 2,46,05 0/- WAS ERRONEOUSLY RETURNED AS INCOME AND TAXES GOT PAID T HEREON AND REQUESTED THE AO TO EXCLUDE THE SAME FROM THE INCOM E OF ASSESSEE. BUT THE SAME WAS NOT EXCLUDED EITHER B Y THE AO OR BY THE CIT(A) ON THE GROUND THAT ASSESSEE HAS NOT C LAIMED AS PER RETURN FILED BEFORE THE AO NOR ANY REVISED RETURN HAS BEEN FILED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. THE ASSESS EE RELIED ON OLD CBDT CIRCULAR NO. 14(XL-35) OF 1955, THAT THE DEPA RTMENT SHOULD NOT TAKE THE BENEFIT OF ASSESSEES IGNORANCE .THE ASSESSEE ALSO RELIED ON A DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF BALMUKUND ACHRAYA [310 ITR 310] THEREFORE, LD. AR PRAYED BEFORE THE BENCH THAT AO BE DIRECTED TO EXCL UDE THE SAME FROM THE TAXABLE INCOME OF THE ASSESSEE. 5.4. LD. DR RELIED ON THE ORDERS OF THE AUTHORITIE S BELOW. 5.5. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL ON RECORD BEFORE US, WE ARE OF THE VIEW TH AT THE INCOME WHICH IS TOTALLY EXEMPT FROM TAX I.E., TAX FREE INT EREST INCOME ON 6.85% TAX FREE BONDS CANNOT BE INCLUDED IN THE INCO ME AND TOLANI SHIPPING CO. LTD., 24 BROUGHT TO TAX. IN OUR OPINION, SUCH A CLAIM OF AS SESSEE COULD HAVE BEEN ADMITTED AT THE APPELLATE STAGE BY THE CI T(A). BUT UNFORTUNATELY, IT WAS NOT DONE. WE THEREFORE RELYIN G ON THE AFORESAID CBDT CIRCULAR AND JURISDICTIONAL HIGH COU RT DECISION ARE OF THE CONSIDERED VIEW THAT THE INCOME WHICH IS EXEMPT AND DOES NOT FALL IN THE CHARGING PROVISIONS OF THE ACT HAS TO BE EXCLUDED FROM THE TOTAL INCOME. IN THIS REGARD, WE DIRECT THE AO TO EXCLUDE THE AMOUNT OF RS. 2,46,050/- FROM THE TO TAL INCOME OF ASSESSEE. THIS GROUND NO. 8 IS ALLOWED. 6. THE ISSUE RAISED IN GROUND NO. 9 IS NOT PRESSED , THEREFORE, THE SAME IS DISMISSED. 7. THE ISSUE RAISED IN GROUND NO. 10 IS AGAINST TH E ORDER OF THE CIT(A), NOT ALLOWING DEDUCTION OF MUNI CIPAL TAXES AMOUNTING TO RS. 75,549/- WHILE COMPUTING TOTAL INC OME. 7.1. THE FACTS IN BRIEF ARE THAT ASSESSEE, WHILE C OMPUTING THE INCOME, FORGOT TO CLAIM THE MUNICIPAL TAXES OF RS. 75,549/- FROM PROPERTY INCOME. REALIZING HIS MISTAKE, ASSES SEE VIDE LETTER DT. 09-09-2009, MADE A CLAIM BEFORE THE AO, WHICH D ID NOT FIND FAVOUR AND ULTIMATELY, THE SAME WAS REJECTED BY THE AO. TOLANI SHIPPING CO. LTD., 25 7.2. IN THE APPELLATE PROCEEDINGS, THE CIT(A) ALSO REJECTED THE APPEAL OF ASSESSEE ON THIS ISSUE BY HOLDING THA T NEITHER THE CLAIM WAS MADE BY ASSESSEE IN THE RETURN OF INCOME NOR ANY REVISED RETURN WAS FILED. IN THIS CONNECTION, LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF GOETZE INDIA LTD ., [157 TAXMAN 1] FOR THE SAID CLAIM. 7.3. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL ON RECORD BEFORE US AND DECISION RELIED ON , WE FIND THAT ASSESSEE CAN MAKE A PLEA, CLAIMING DEDUCTION WHICH WAS NOT CLAIMED OR INADVERTENTLY LEFT FROM BEING CLAIMED BE FORE THE AO. IN THIS CASE, ASSESSEE HAS VIDE LETTER DT. 09-09-20 09, REQUESTED THE AO TO ALLOW THE DEDUCTION OF MUNICIPAL TAXES TO AN EXTENT OF RS. 75,549/-, WHILE COMPUTING THE TOTAL INCOME, BUT THE SAME WAS REJECTED. LD. CIT(A) ALSO REJECTED THE CLAIM S TATING THAT ASSESSEE HAS NOT CLAIMED THIS AMOUNT IN ITS RETURN OF INCOME FILED. THE AO DENIED CLAIM OF ASSESSEE ON THE GRO UND THAT IT IS NOT MADE IN THE RETURN OF INCOME OR REVISED RETURN AND THUS FOLLOWING THE DECISION OF THE HON'BLE APEX COURT I N THE CASE OF GOETZE INDIA LTD., [157 TAXMAN 1], CIT(A) REJECTED THE SAME. IN OUR OPINION, THE FIRST APPELLATE AUTHORITY IS WELL WITHIN ITS JURISDICTION TO ACCEPT THE FRESH CLAIM MADE BY ASSE SSEE EVEN IF TOLANI SHIPPING CO. LTD., 26 NOT MADE IN THE RETURN OF INCOME OR AS PER THE REVI SED RETURN. WE ,THEREFORE FOLLOWING THE CBDT CIRCULAR NO14(XL-3 5) OF 1955 AND BOMBAY HIGH COURT DECISION IN THE CASE OF BALMU KUND ACHARYA(SUPRA), REVERSE THE ORDER OF CIT(A) ON THI S ISSUE AND DIRECT THE AO TO ALLOW THE DEDUCTION OF MUNICIPAL T AXES TO THE TUNE OF RS. 75,549/-. THIS GROUND OF APPEAL NO. 10 IS ALLOWED. 8. THE ISSUE RAISED IN GROUND NO. 11 IS AGAINST TH E ORDER OF THE CIT(A), REJECTING THE CLAIM OF ASSESSE E TO AN EXTENT OF RS. 25,12,477/- UNDER THE HEAD MISCELLANEOUS INCOM E SHOULD NOT BE INCLUDED IN THE INCOME OF ASSESSEE AS THE SA ME REPESENTED THE REFUND OF INCOME TAX FOR AYS. 1993-9 4 AND 1994- 95. 8.1. THE FACTS IN BRIEF ARE THAT DURING THE YEAR, ASSESSEE RECEIVED THE FOLLOWING REFUND OF INCOME TAX AND IN TEREST THEREON: ASSESSMENT YEAR TAX REFUND RS. INTEREST U/S. 244A (RS) TOTAL RS. 1993-94 9,44,759 6,40,735 15,85,494 1994-95 15,67,718 10,63,225 26,30,943 TOTAL: 25,12,477 17,03,960 42,16,437 THE ASSESSEE DULY SHOWN THE INTEREST EARNED ON THE REFUNDS U/S. 244A OF THE ACT TO THE TUNE OF RS. 17,03,960/- UNDE R THE HEAD TOLANI SHIPPING CO. LTD., 27 INTEREST AND THE SAME WAS OFFERED TO TAX ACCORDI NGLY. HOWEVER, THE REFUND OF PRINCIPAL AMOUNT OF RS. 25,12,477/- W AS WRONGLY SHOWN UNDER THE HEAD MISCELLANEOUS INCOME AND THE SAME WAS ALSO OFFERED TO TAX. DURING THE ASSESSMENT PROCEED INGS, ASSESSEE VIDE LETTER DT. 09-09-2009, SUBMITTED TO THE AO THA T AN AMOUNT OF RS. 25,12,477/- SHOULD BE EXCLUDED FROM THE INCO ME OF ASSESSEE AS THE SAME REPRESENTS THE REFUND OF INCOM E TAX EXCLUSIVE OF INTEREST THEREON FOR AYS. 1993-94 & 19 94-95. HOWEVER, THE AO DID NOT AGREE TO THE CONTENTION OF ASSESSEE. 8.2. IN THE APPELLATE PROCEEDINGS, CIT(A) ALSO UPH ELD THE ACTION OF AO BY OBSERVING THAT THE ASSESSEE HAS NOT MADE CLAIM EITHER IN THE ORIGINAL RETURN OF INCOME OR BY WAY O F REVISED RETURN OF INCOME AND JUST FOLLOWING THE DECISION IN THE CA SE OF GOETZE INDIA LTD., [157 TAXMAN 1] (SUPRA), APPEAL OF THE A SSESSEE WAS DISMISSED. 8.3. HAVING REGARD TO THE RIVAL CONTENTIONS AND PE RUSING THE MATERIAL ON RECORD BEFORE US AND DECISION(S) RE LIED ON, WE ARE OF THE VIEW THAT EVEN IF THE ASSESSEE HAS INADVERTE NTLY AND ERRONEOUSLY OFFERED REFUND OF INCOME TAX IN HIS TOT AL INCOME, THERE IS NO BAR IN MAKING CORRECTION OF MISTAKE IN THE RETURN OF TOLANI SHIPPING CO. LTD., 28 INCOME. LD. CIT(A) IS NOT CORRECT IN DENYING THE S AID RELIEF TO ASSESSEE. IN OUR VIEW, WHEN THE REFUND IS AN ASSET OF THE ASSESSEE, WHICH HAS BEEN GIVEN BY THE DEPARTMENT ON ACCOUNT OF BEING EXCESS PAYMENT BY ASSESSEE OF TAX AND THEREFO RE, SAME CANNOT BE INCLUDED IN THE INCOME OF ASSESSEE. IN OU R VIEW, THE LD. CIT(A) SHOULD HAVE DIRECTED THE AO TO EXCLUDE T HE SAID INCOME TAX REFUND FROM THE INCOME OF THE ASSESSEE, BUT WRONGLY RELYING ON THE DECISION IN THE CASE OF GOETZE INDI A LTD., [157 TAXMAN 1] (SUPRA), UPHELD THE ACTION OF AO. IN OUR VIEW, THE CLAIM OF ASSESSEE COULD HAVE BEEN ENTERTAINED BY TH E APPELLATE AUTHORITY AS THE RATIO LAID DOWN IN THE CASE OF GOE TZE INDIA LTD., [157 TAXMAN 1] (SUPRA) IS NOT APPLICABLE TO THE AP PELLATE AUTHORITIES. WE THEREFORE, DIRECT THE AO TO EXCLUDE AN AMOUNT OF RS. 25,12,477/- FROM THE INCOME OF ASSESSEE. ACCO RDINGLY, THIS GROUND OF APPEAL NO. 11 IS ALLOWED. 9. GROUND NOS. 1 TO 5 BY THE ASSESSEE ARE OF LEGA L NATURE CHALLENGING THE APPLCIABLILITY OF TRANSFER P RIXING PROVISIONS TO TONNAGE TAX SCHEME ARE NOT BE ADJUDIC ATED AS ALL THE ISSUES HAVE BEEN DECIDED ON MERITS. IN THE RESULT, THIS APPEAL OF ASSESSEE IS PARTLY A LLOWED. TOLANI SHIPPING CO. LTD., 29 ITA NO. 8051/MUM/2011 AY 2006-07(REVENUE APPEAL) : 10. THIS APPEAL IS FILED BY THE REVENUE. IN THIS A PPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE A DDITION/ADJUSTMENT OF RS. 9,69,74,059/- MADE BY THE ASSESSING OFFICER/TRA NSFER PRICING OFFICER ON ACCOUNT OF PROFIT SPLIT METHOD, IGNORING THAT THE TRANSFER PRICING OFFICER REJECTED THE CUP METHOD AFTER GIVIN G DETAILED REASONS IN THE ORDER PASSED U/S. 92CA(3) OF THE I.T. ACT, 1961 . 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE A DJUSTMENT/ADDITION OF RS. 16,46,859/- MADE BY THE TRANSFER PRICING OFFICE R/ASSESSING OFFICER ON ACCOUNT OF TECHNICAL MANAGEMENT FEES WITHOUT APP RECIATING THAT THE TRANSFER PRICING OFFICER MADE THE ADJUSTMENT NOT ON THE SUFFICIENCY OF THE MARK UP BUT ON THE INCLUSION OF THE INCREASE IN OPERATING COST WHICH WAS NOT TAKEN INTO ACCOUNT BY THE ASSESSEE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING TH E DISALLOWANCE OF RS. 45,24,204/- MADE BY THE ASSESSING OFFICER U/S. 14A/ RULE 8D TO RS. 18,24,946/- AND FURTHER HOLDING THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE ONLY FOR AND FROM A.Y. 2008-09 ONWARDS. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUND WHICH MAY BE NECESSARY. 11. THE ISSUE RAISED IN FIRST GROUND OF APPEAL IS AGAINST DELETING THE ADDITION/ADJUSTMENT OF RS. 9,69,74,059 /- BY THE CIT(A) AS MADE BY THE AO/TPO BY APPLYING PROFIT SPL IT METHOD, IGNORING THE FACT THAT TPO HAS REJECTED THE CUP MET HOD AFTER TOLANI SHIPPING CO. LTD., 30 GIVING DETAILED REASONS IN THE ORDER PASSED U/S. 92 CA(3) OF THE ACT. 11.1. THE FACTS IN BRIEF ARE THAT ASSESSEE HAS ENT ERED INTO A CONTRACT WITH A GOVERNMENT UNDERTAKING FOR TRANSPOR TING CARGO FROM QUEENSLAND, AUSTRALIAN PORTS TO INDIAN PORTS A T FREIGHT RATE PER METRIC TONNE AS AND WHEN CARGO IS AVAILABLE. A T THE TIME GOVERNMENT UNDERTAKING ASKS THE ASSESSEE TO MAKE AV AILABLE THE SHIPS, IF ASSESSEE DOES NOT HAVE OWN SHIPS AVAILABL E DUE TO PREOCCUPATION AND PRE-ENGAGED WITH EXISTING COMMITM ENTS, THEN THE ASSESSEE MAKES ARRANGEMENT TO INCHARTER VESSE L OF SIMILAR CAPACITY FROM ASSOCIATE CONCERNS/THIRD PARTY IN OR DER TO PROVIDE THE SAME TO THE SAID GOVERNMENT UNDERTAKINGS SO THA T ASSESSEE DOES NOT SUFFER ANY LOSSES ON ACCOUNT OF NON HONOUR ING THE CONTRACTUAL OBLIGATION/COMMITMENTS. IN THAT EVENT, ASSESSEE AVAILED THE VESSELS FROM THE ASSOCIATE CONCERN IN S INGAPORE. FOR THAT PURPOSE, ASSESSEE HAS TO OBTAIN PERMISSION FRO M DG SHIPPING, A REGULATOR FOR INDIAN SHIPPING COMPANIES AND PROVE WITH EVIDENCE THAT SIMILAR INDIAN SHIPS ARE NOT AVA ILABLE FOR LOWER FREIGHT AT WHICH THE SINGAPORE SUBSIDIARY OFFERS VE SSEL. IN ORDER TO MEET SUCH AN EVENTUALITY, THE ASSESSEE ENTERED I NTO AN AGREEMENT WITH THE ASSOCIATE CONCERN AT SINGAPORE T O MAKE TOLANI SHIPPING CO. LTD., 31 AVAILABLE THE SHIPS TO THE GOVT UNDERTAKING WHEN AS SESSEES SHIPS ARE NOT AVAILABLE. ACCORDINGLY TO AO SUCH TRA NSACTIONS DURING THE YEAR NEEDED TO BE BENCH MARKED AND HE AC CORDINGLY REFERRED THE MATTER TO THE TPO AFTER OBTAINING REQU ISITE APPROVALS U/S. 92 OF THE ACT. THE TPO PASSED ORDER U/S. 92CA (3) ON 27- 10-2009, MAKING THE FOLLOWING ADJUSTMENT: ADJUSTMENT AMOUNT (RS) 1. TECHNICAL MANAGEMENT FEES 16,46,859 2. INTEREST ON LOAN ADVANCED TO ASSOCIATED ENTERPRISES 10,23,204 3. INCHARTERING OF VESSELS 9,43,03,996 TOTAL 9,69,74,059 11.2. THE AO , ACCORDINGLY, ISSUED SHOW CAUSE NOT ICE TO THE ASSESSEE AS TO WHY THE SAID ADDITION SHOULD NOT BE MADE TO THE INCOME OF THE ASSESSEE WHICH WAS REPLIED BY ASS ESSEE VIDE LETTER DT. 06-10-2009, GIVING DETAILED OBJECTIONS T O SUCH ADJUSTMENT AND THE SAID LETTER HAS BEEN REPRODUCED BY THE AO FROM PG. 2 TO 16 OF THE ASSESSMENT ORDER. FINALLY, THE AO REJECTING THE CONTENTIONS OF ASSESSEE, MADE ADDITIO NS TO THE INCOME OF ASSESSEE OF THE AFORESAID THREE ADDITION S. 11.3. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) ALL OWED THE APPEAL OF ASSESSEE, DELETING THE ADDITION OF RS. 9, 69,74,059/- AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS O F ASSESSEE, TOLANI SHIPPING CO. LTD., 32 WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN PARA 5.3 OF THE APPELLATE ORDER BY OBSERVING AND HOLDING AS UNDER: 5.4. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS OF THE APPELLANT AS AGAINST THE OBSERVATION/FINDINGS OF TH E APO/TPO IN THEIR ORDERS. THE CONTENTIONS RAISED BY THE APPELLANT AS AGAINST THEIR GROUNDS OF APPEAL ARE BEING DISCUSSED AND DECIDED AS UNDER: I. IT IS OBSERVED THAT THE APPELLANT HAD CARRIED OUT T RANSPORTATION OF CARGO THROUGH ITS OWN SHIPS. OUT OF THE VOYAGES THAT THE APPELLANT COMPANY CARRIED OUT IN RESPECT OF TRANSPO RTATION OF CARGO, IT IS SEEN THAT ONLY IN CASE OF 7 VOYAGES, T HE AES SHIP WERE ENGAGED. THIS WAS BECAUSE THE SHIPS OF THE AP PELLANT COMPANY WERE NOT AVAILABLE AT THE SPECIFIC TIME WHE N THE CHARTERERS CALLED FOR TRANSPORT OF CARGO FROM SPECI FIC PORT. IT IS OBVIOUS THAT IF THE APPELLANT COMPANY WAS NOT ABLE TO PRESENT THE SHIP AT THE NOMINATED TIME AND PLACE, IT WOULD HAVE TO SUFFER FOR NON PERFORMANCE OF CONTRACT WITH THE GOV ERNMENT UNDERTAKING AND WOULD HAVE TO INCUR FINANCIAL LOSS INCLUDING THE PAYMENT OF DAMAGES. II. CONCLUSION REGARDING COMPARABILITY IN TRANSFER PRIC ING ARE SUBJECT TO ANALYSIS OF FOUR FACTORS DETERMINING COM PARABILITY. THEY ARE: A) CHARACTERISTICS OF PROPERTY OR SERVICES B) FUNCTIONAL ANALYSIS C) CONTRACTUAL TERMS D) ECONOMIC CIRCUMSTANCES THE TPO HAS SPECIALLY IGNORED THE CONTRACTUAL TERMS WHICH HAD MADE THE APPELLANT LIABLE TO MAKE AVAILABLE SHI PS AS PER CONTRACT, AS AND WHEN IT REQUIRED. THUS HIRING OF AE SHIPS FOR 7 VOYAGES WAS A BUSINESS COMPULSION AND NOT AN EXER CISE FOR ASSISTING THE AE IN GETTING BUSINESS. THE RATE AT WHICH THE APPELLANT HAS PAID TO THE AE COMPARES FAVOURABLY WI TH THE PREVAILING MARKET RATE AS CONCLUDED BY THE TRANS CH ART, NEW DELHI, WHICH IS A CHARTERING WING OF MINISTRY OF SU RFACE TRANSPORT, GOVT. OF INDIA. THE MARKET FIXTURES DET ERMINED BY THE TRANSFER CHART ARE BASED ON ACTUAL DATA OF CHAR GES AND OFTEN REFERRED BY THE BROKERS IN INDIA WHO ARE IN I TS PANEL. THUS THE DATE PROVIDED BY THE TRANS CHART IS WIDELY AND ROUTINELY USED IN THE ORDINARY COURSE IN THE INDUST RY TO NEGOTIATE PRICES FOR UNCONTROLLED SOURCES. TOLANI SHIPPING CO. LTD., 33 III. THE ACTION OF THE TPO IN RESORTING OF PROFIT SPLIT METHOD IS NOT A JUSTIFIED METHOD. THERE IS NOTHING ON RECORD TO SU GGEST THAT THE OPERATIONS OF THE RELATED PARTY ARE HIGHLY INTE GRATED SO AS TO MAKE THE EVALUATION ON INDIVIDUAL BASIS DIFFICUL T. NOR IT CAN BE SAID THAT BOTH THE PARTY OWN VALUABLE NON-INTANG IBLE ASSETS FOR WHICH NO COMPARABLE DATA IS AVAILABLE. IT IS A LSO SEEN THAT THE CIT(A) ON THE SAME FACTS AND CIRCUMSTANCES FOR THE EARLIER YEARS HAD COME TO THE CONCLUSION THAT NO ADJUSTMENT WAS REQUIRED TO BE MADE. THE SAME DECISION STANDS FOR THE CURRENT YEAR ALSO. IV. TO SUM UP, THE CUP METHOD (EXTERNAL) IS THE BEST ME THOD FOR COMPARABILITY OF THE TRANSACTION. THE RATE OF TRAN S CHART ARE QUITE FAVOURABLE/HIGHER AS COMPARED TO THE RATES CH ARGED BY THE APPELLANT TO ITS AE [POINT (H) OF PARA 5.3 ABO VE]. THE HIRE OF THE 7 VOYAGES FROM A.E. SHIPS, WAS TO FULFIL THE CONTRACTUAL TERMS AND NOT A POLY TO BOOST THE BUSINESS OF THE A .E. THUS TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES , INCLUDING THE DECISION TAKEN IN THE EARLIER YEAR, THE ADDITIO N OF RS. 9,69,74,059/- IS DELETED. 11.4. AT THE OUTSET, WE WOULD LIKE TO MENTION THAT ADDITION ON ACCOUNT OF INTEREST CHARGED FROM AE ON THE LOAN ADVANCED WAS ADJUDICATED BY US HEREIN ABOVE VIDE PARA NO.3.7 UPHOLDING THE CUP METHOD FOR BANKING TRANSACTIONS AND ALSO UP HOLDING LIBOR+100 BASIS POINTS. THEREFORE, THE ADDITION OF RS. 10,23,204/- IS COVERED BY THE SAID DECISION ON THIS ISSUE. WE ACCORDINGLY DISMISS THIS LIMB OF THE GROUND NO. 1 O F THE REVENUE. 11.4.I. SO FAR AS THE ADDITION OF RS. 16,46,859/- O N ACCOUNT OF TECHNICAL MANAGEMENT SERVICES AND RS. 9,43,03,99 6/- FOR INCHARTERING OF VESSELS BY ASSESSEE BELONGING TO T HE AE ARE CONCERNED , THE SAME HAVE BEEN DEALT WITH BY THE CI T(A) IN A VERY TOLANI SHIPPING CO. LTD., 34 COMPREHENSIVE MANNER, GIVING DETAILED FINDINGS AND REASONS FOR DELETING THE ADDITION. 11.5. WE FIND THAT SIMILAR ADDITION WAS MADE IN TH E EARLIER YEARS AND DELETED BY THE APPELLATE AUTHORITY. THE L D. CIT(A) FOLLOWED THE EARLIER YEARS ORDERS ALLOWED THE GROU ND IN FAVOUR OF THE ASSESSEE. AFTER PERUSING THE FACTS ON RECORD A ND ORDER OF THE LD. CIT(A), WE DO NOT FIND ANY REASON TO DEVIATE TH EREFROM THE CONCLUSION DRAWN BY THE FIRST APPELLATE AUTHORITY. ACCORDINLY THE GROUND OF THE REVENUE IS DIMISSED. 12. THE ISSUE RAISED IN GROUND NO. 2 HAS ALREADY BEEN DECIDED BY US WHILE DECIDING GROUND NO. 1, HEREINAB OVE AND REQUIRES NO SEPARATE ADJUDICATION. GROUND IS DISMI SSED. 13. THE ISSUE RAISED IN GROUND NO. 3 IS AGAINST TH E REDUCTION IN DISALLOWANCE BY CIT(A) AS MADE BY THE AO U/S. 14A R.W. RULE 8D TO RS. 18,24,946/- AS AGAINST RS. 45,2 4,204/-BY THE AO. 13.1. WE HAVE ALREADY DECIDED THE ISSUE OF DISALLO WANCE U/S. 14A R.W. RULE 8D ARE NOT APPLICABLE TO THE ASS ESSEE IN THE ASSESSEES APPEAL IN PARA NO.4.6 BY HOLDING THAT PR OVISIONS OF SECTION 14A R.W.R 8D NOT APPLICABLE AS THE INCOME OF ASSESSEE IS TOLANI SHIPPING CO. LTD., 35 ASSESSED TO TAX UNDER TONNAGE TAX SCHEME. THEREFORE , THIS GROUND OF THE REVENUE IS ACCORDINGLY DISMISSED. 14. IN THE RESULT, THIS APPEAL OF REVENUE IS DISMI SSED. ITA NO. 2582/MUM/2010 AY 2003-04 : 15. THIS APPEAL IS FILED BY THE ASSESSEE. THE ISS UE RAISED IN GROUND NOS. 1 TO 7 ARE AGAINST THE ORDER OF CIT (A), UPHOLDING THE ORDER OF AO IN MAKING ADDITION OF RS. 6,27,30,3 53/- TO THE BOOK PROFITS ON ACCOUNT OF PROFIT ON SALE OF DEPREC IABLE ASSETS, WHEREAS AS PER THE INCOME TAX RULES, SALE PRICE IS DEDUCTIBLE FROM WRITTEN DOWN VALUE OF BLOCK OF ASSETS AND THER EFORE THERE IS NO PROFIT ON SALE OF FIXED ASSETS WHILE CALCULATING THE BOOK PROFIT U/S. 115JB OF THE ACT. DURING THE YEAR THE ASSESSE E HAS SOLD ITS SECOND HAND VESSEL M.V. PRABHU PUNI TO 100% SUBSID IARY M/S TOLANI SHIPPING (SINGAPORE) PVT LTD. FOR A SALES CONSIDERATION OF US. $ 9,50,000 EQUIVALENT TO RS. 45,32,45,000/- WH ICH WAS REDUCED FROM THE BLOCK OF ASSETS. THE ASSESSEE HAS NOT MADE THE CLAIM WHILE FILING THE RETURN OF INCOME BUT MADE TH E CLAIM BEFORE THE AO VIDE LETTER DATED 10.02.2006 DURING THE COU RSE OF ASSESSMENT PROCEEDINGS. THE REVISED COMPUTATION FIL ED BY THE ASSESSEE ARE AS UNDER:- TOLANI SHIPPING CO. LTD., 36 PROFIT BEFORE TAX AS PER PROFIT AND LOSS A/C RS. 15 6,377,243 LESS: PROFIT ON SALE OF VESSEL(NET) RS.62,730,353 BOOK PROFIT RS. 93,646,890 HOWEVER THE AO DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND REJECTED THE SAID CLAIM. THUS THE BOOK PROFITS WERE COMPUTED AFTER TAKING INTO ACCOUNT THE PROFIT ON SALE OF VES SEL TO SUBSIDIARY COMPANY. 15.1. IN THE APPELLATE PROCEEDINGS LD CIT(A) DISMI SSED THE APPEAL OF THE ASSESSEE AFTER TAKING INTO ACCOUNT TH E CONTENTIONS OF THE ASSESSEE AS UNDER: 5.4 FOR THE COMPUTATION OF TAX UNDER SECTION 115JB OF THE I.T. ACT, THE APPELLANT HAS TO PREPARE THE PROFIT AND LOSS ACCOUN T AS PER PROVISIONS OF COMPANIES ACT. IF IT IS SO, THE PROFIT ON SALE OF DEPRECIABLE ASSET HAS TO BE PART OF BLOCK PROFITS. SECTION 115 JB LISTS OUT CERTAIN INCOMES TO BE EXCLUDED FROM THE PROFIT WORKED OUT ON THE BASIS OF PROVISIONS OF COMPANIES ACT. THE INCOME AT ISSUE IS NOT ALL LISTED IN SUCH EXCLUDED ITEMS. THE PROVISION IS SO CLEAR AND HENCE IT IS NECESSARY TO ADOPT LITERAL INTERPRETATI ON. IN THIS REGARD RELIANCE IS PLACED ON THE FOLLOWING OBSERVATIONS OF THE HONBLE ITAT SPECIAL BENCH IN THE CASE OF AZTECH SOFTWARE VS. ASST. C.I.T., 224 ITR ( AT) 32 (BANG.) (SB): WHERE THE LANGUAGE USED BY THE LEGISLATURE IS CLEA R AND UNAMBIGUOUS, THE PLAIN AND NATURAL MEANING OF THE W ORDS SHOULD BE SUPPLIED TO HE LANGUAGE USED AND RECOURSE TO ANY RU LE OF INTERPRETATION TO UNFOLD THE INTENTION IS PERMISSIB LE ONLY WHERE THE LANGUAGE IS AMBIGUOUS. COURTS ARE NOT REQUIRED TO LOOK INTO THE OBJECT OR INTENTION OF THE LEGISLATURE BY RESORTING TO AID S TO INTERPRETATION WHERE THE LANGUAGE OF THE PROVISION IS CLEAR AND UN AMBIGUOUS. CONSEQUENTLY THE MEANING OF EACH WORD USED BY THE L EGISLATURE IS TO BE GIVEN ITS PLAIN AND NATURAL MEANING AND NO WORD SHOULD BE IGNORED WHILE INTERPRETING PROVISION OF A STATUTE. TOLANI SHIPPING CO. LTD., 37 IN MY VIEW, THE PROFIT ON SALE OF DEPRECIABLE ASSET S CANNOT BE EXCLUDED FROM THE BOOK PROFITS FOR THE PURPOSE OF SECTION 11 5JB OF THE I.T. ACT. THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES I N 255 ITR 273 HAS HELD THAT THE A.O. CANNOT DISTURB THE BOOK PROFIT COMPUTED UN DER THE PROVISIONS OF THE COMPANIES ACT EXCEPT THE ITEMS OF INCOME LISTED IN SECTION 115JB OF THE I.T. ACT. 5.5 THE HONBLE ITAT IN THE CASE OF FRIGSALES (SUPR A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE RELYING ON THE PROVISIONS OF SECTION 115JB(5) OF THE I.T. ACT WHICH READS AS FOLLOWS: (5) SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COMPANY, MENTIONED IN THIS SECTION. THE COMPUTATION OF BOOK PROFIT IS PROVIDED IN SECT ION 115JB OF THE I.T. ACT. SECTION 115JB(5) COVEYS CLEARLY THAT THE ISSU ES WHICH ARE DEALT IN SECTION 115JB OF THE I.T. ACT CANNOT BE COVERED BY THE OTHE R PROVISIONS OF THE I.T. ACT. IN VIEW OF THIS, IN MY OPINION THE PROFITS FROM DEP RECIABLE ASSETS CANNOT BE DEDUCTED FOR THE PURPOSE OF BOOK PROFIT U/S. 115JB OF THE I.T. ACT IRRESPECTIVE OF THE FACT WHETHER THE PROFIT ON SALE OF DEPRECIAB LE ASSETS ARE TAXED OR NOT UNDER THE NORMAL PROVISIONS OF THE I.T. ACT. 5.6 IT IS ALSO NOT CORRECT TO SAY THAT PROFIT FROM THE SALE OF DEPRECIABLE ASSETS IS ALWAYS NOT TAXED. SUCH PROFITS MAY ALSO BE TAXABLE IN VIEW OF PROVISIONS OF SECTION 50, 50A, 50B OF THE I.T. ACT. I AM OF THE VIEW THAT BECAUSE OF THIS FACT ONLY THE PROFIT FROM SALE OF D EPRECIABLE ASSET IS NOT EXCLUDED IN SECTION 115JB OF THE I.T. ACT. FURTHER IN MY VIEW, IT MAY NOT BE CORRECT TO SAY T HAT THE PROFITS FROM SALE OF DEPRECIABLE ASSET IS EXEMPT UNDER THE INCOM E TAX ACT. IT IS NOT SO. IF ANY PROFIT ARISES FROM THE TRANSFER OF ANY CAPITAL ASSET IRRESPECTIVE OF WHETHER IT IS ELIGIBLE FOR DEPRECIATION OR NOT IS TAXABLE U NDER SECTION 45 OF THE I.T. ACT. THE QUANTIFICATION IS ONLY DEALT BY SECTION 50 OR 5 0A OR 50B OF THE I.T. ACT. IF THE SALE PRICE OF A DEPRECIABLE ASSET IS LESS T HAN THE WDV OF THE BLOCK OF ASSETS (IN WHICH THE ASSET WHICH WAS SOLD WAS A PART) THEN THE CAPITAL GAIN WILL BE NIL. IF THE SALE PRICE EXCEEDS THE WDV OF THE BLOCK OF ASSETS, THEN THE EXCESS WILL BE CAPITAL GAINS. NOWHERE IN SECTION 5 0 OF THE ACT IT IS MENTIONED THAT CAPITAL GAINS ON DEPRECIABLE ASSET IS NOT TAXA BLE OR EXEMPT. 5.7 THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES HAS HELD AS FOLLOWS: TOLANI SHIPPING CO. LTD., 38 THEREFORE, WE ARE OF THE OPINION, THE ASSESSING OF FICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY TH E POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. T HE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO TH E SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LO SS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 1 15J. EVEN WITH REGARD TO 115JA, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KOVAI MARUTI PAPER & BOARD (P) LTD., 294 ITR 57 (MAD) AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. C.J. INTERNA TIONAL HOTELS LTD. 15 DTR (DEL.) 166 HAVE HELD SO. 5.8 RESPECTFULLY FOLLOWING THE HONBLE SUPREME COUR T, HONBLE MADRAS HIGH COURT AND HONBLE DELHI HIGH COURT AND ALSO DU E TO THE FACT THAT THE PROFIT FROM SALE OF DEPRECIABLE ASSET IS NOT EXEMPT UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT (PARA 5.6 OF THIS ORDER) I HOLD THAT THE PROFITS FROM SALE OF SHIPS CANNOT BE EXCLUDED FROM THE BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE I.T. ACT. 15.2. THE LD. AR OF THE ASSESSEE ARGUED THAT THE I SSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECIS ION OF THE CO- ORDINATE BENCH IN THE CASE OF SHIVALIK VENTURE (P) LTD., VS. DCIT [60 TAXMANN.COM 314] (MUMBAI-TRIB) WHEREIN IT HAS B EEN HELD THAT PROFIT ARISING FROM TRANSFER OF CAPITAL ASSET BY THE ASSESSEE TO WHOLLY OWNED SUBSIDIARY COMPANY IS LIABLE TO BE EXCLUDED FROM THE NET PROFIT AND THE NET PROFIT SO ARRIVED A T SHOULD BE TAKEN AS PROFIT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER EXPLANATION 1 TO SECTION 115JB OF THE ACT. LD . AR TOLANI SHIPPING CO. LTD., 39 VEHEMENTLY SUBMITTED BEFORE US THAT LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ORDER OF AO IN NOT EXCLUDING THE P ROFIT ON SALE OF DEPRECIABLE ASSETS WHILE COMPUTING BOOK PROFITS UND ER THE PROVISIONS OF SECTION 115JB OF THE ACT. LD. AR CONT ENDED THAT PROFIT ARISING ON TRANSFER OF CAPITAL ASSET TO SUBS IDIARY IS NOT TREATED AS INCOME U/S 2(24) OF THE ACT SINCE IT DOE S NOT ENTER THE COMPUTATIONAL PROVISION AT ALL UNDER THE NORMAL PRO VISION OF THE ACT, THEREFORE, THE SAME SHOULD NOT BE CONSIDERED F OR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115J B OF THE ACT. THE LD. A.R. TOOK US THROUGH THE DEFINITION O F TERM INCOME AND SUBMITTED THAT UNDER CLAUSE (VI) CAPITAL GAIN I S INCLUDED IN THE DEFINITION OF INCOME WHICH IS CHARGEABLE UNDER SECTION 45 OF THE ACT. LD. A.R. SUBMITTED THAT THE TERM TRANSFER IS DEFINED IN SECTION 2(47) OF THE ACT AND ONLY PROFIT AND GAIN A RISING FROM THE TRANSFER OF CAPITAL ASSETS SHALL BE CHARGEABLE TO T AX UNDER SECTION 45 OF THE ACT. THE LD. A.R. SUBMITTED THAT THE EXP RESSION TRANSFER AS DEFINED UNDER SECTION 2(47) OF THE ACT INTER ALIA INCLUDES SALE, EXCHANGE OR RELINQUISHMENT OF ASSETS . AND THUS SALE OF FIXED ASSETS BY THE ASSESSEE SHOULD NORMALL Y FALL UNDER THE DEFINITION OF TRANSFER AS GIVEN IN SECTION 2(47 ) OF THE ACT. HOWEVER, THE LD. A.R. SUBMITTED THAT THE CAPITAL GA IN IN CASE OF TOLANI SHIPPING CO. LTD., 40 DEPRECIABLE ASSETS IS DEALT WITH BY THE PROVISION O F SECTION 50 OF THE ACT WHICH PROVIDES THAT EVEN IF A TRANSACTION F ALLS UNDER THE DEFINITION OF TRANSFER AS PER PROVISION OF SECTION 2(47) OF THE ACT THEY SHALL NOT BE CHARGEABLE TO TAX UNDER SECTION 4 5 OF THE ACT IN VIEW OF THE PROVISION OF SECTION 50 OF THE ACT. AC CORDINGLY, THE GAINS AND PROFITS ARISING ON SAID TRANSFER OF DEPRE CIABLE ASSETS BY THE COMPANY IS NOT CHARGEABLE TO TAX UNDER SECTION 45 OF THE ACT AND FOLLOWING THE SAME ANALOGY THE SAID PROFITS AND GAINS IS NOT CHARGEABLE TO TAX UNDER SECTION 45 OF THE ACT AND C ONSEQUENTLY CAN NOT BE CONSIDERED AS INCOME AT ALL UNDER THE DE FINITION OF INCOME GIVEN IN SECTION 2(24) OF THE ACT. THE LD. A.R. SUBMITTED THAT SALE OF CAPITAL ASSET BY THE ASSESSEE TO ITS S UBSIDIARY SHOULD NORMALLY FALL IN THE DEFINITION OF TRANSFER AS GI VEN IN SECTION 2(47) OF THE ACT BUT SECTION 47 SPECIFICALLY PROVID ES CERTAIN EXEMPTIONS BY HOLDING THAT CERTAIN TRANSACTIONS SHA LL NOT BE REGARDED AS TRANSFER, MEANING THEREBY EVEN IF A TRA NSACTION FALLS UNDER THE DEFINITION OF TRANSFER AS PER THE PROVISI ON OF SECTION 2(47) YET THEY SHALL NOT BE CHARGEABLE UNDER SECTIO N 45 OF THE ACT IN VIEW OF SPECIFIC PROVISIONS OF SECTION 47. THE L D. A.R. VEHEMENTLY SUBMITTED THAT THE TRANSFER OF ASSETS BY A COMPANY TO WHOLLY OWN SUBSIDIARY COMPANY IS NOT CONSIDERED A TRANSFER TOLANI SHIPPING CO. LTD., 41 UNDER SECTION 47 OF THE ACT AND ACCORDINGLY THE PRO FIT ARISING FROM THE SAID TRANSFER IS NOT CHARGEABLE TO TAX UND ER SECTION 45 OF THE ACT AND IF THE SAID PROFITS AND GAINS ARE NO T CHARGEABLE TO TAX UNDER SECTION 45 SAME WOULD NOT BE CONSIDERED A S INCOME AT ALL UNDER THE DEFINITION OF INCOME GIVEN IN THE SEC TION 2(24) OF THE ACT. WITHOUT PREJUDICE ARGUMENT TAKEN BY THE LD AR IS WITH REGARD TO THE FACT WHEN THE BLOCK OF ASSETS IS EXIS TING IN THE BOOKS OF ASSESSEE AND NO PROFIT IS DETERMINED WHILE COMPUTING THE DEPRECIATION AS PER THE INCOME TAX ACT, THE SAM E CANNOT BE INCLUDED WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. LD. AR SUBMITTED THAT THIS ISSUE HAS BEEN SETTLED I N FAVOUR OF ASSESSEE BY A SERIES OF DECISIONS. IN THE CASE OF SHIVALIK VENTURE (P) LTD., VS. DCIT [60 TAXMANN.COM 314] (MUMBAI-TRI B) (SUPRA), THE CO-ORDINATE BENCH HAS DECIDED THAT THE PROFIT A RISING FROM SALE OF CAPITAL ASSETS IS LIABLE TO BE EXCLUDED FRO M THE NET PROFIT I.E., NET PROFIT, IN THE PROFIT & LOSS A/C SHOULD BE REDUCED BY THE AMOUNT OF PROFIT ARISING ON TRANSFER OF CAPITAL ASS ET AND AMOUNTS SO ARRIVED AT SHOULD BE TAKEN AS NET PROFIT IN THE PROFIT & LOSS A/C FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U NDER EXPLANATION (1) TO SECTION 115JB OF THE ACT. LD. AR FINALLY PRAYED THAT IN VIEW OF THE DECISION OF THE CO-ORDINATE BEN CH OF THE TOLANI SHIPPING CO. LTD., 42 TRIBUNAL, THE ORDER OF CIT(A) BE SET ASIDE AND THE AO BE DIRECTED TO EXCLUDE THE PROFIT ON SALE OF DEPRECIABLE ASSETS WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. 15.3. LD. DR ON THE OTHER HAND RELIED ON THE ORDER S OF AUTHORITIES BELOW BY SUBMITTING THAT SECTION 115JB OF THE ACT IS A COMPLETE CODE IN ITSELF AND THEREFORE, THERE IS N O ROOM FOR ANY ADJUSTMENT WHAT-SO-EVER BEYOND WHAT HAS BEEN MENTIO NED IN THE SECTION ITSELF. THEREFORE, THE LD. DR PRAYED T HAT THE ORDER OF CIT(A) WAS PERFECTLY IN ACCORDANCE WITH LAW AND DES ERVES TO BE UPHELD. 15.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD BEFORE US. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR ASSESSEE HAS SOLD VESSEL I.E., DEP RECIABLE ASSET, ON WHICH IT HAS SHOWN PROFIT OF RS. 6,27,30,353/- I N THE PROFIT & LOSS A/C. WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT , THE ASSESSEE REDUCED THE SAID FIGURE ON THE GROUND THAT PROFIT ON SALE OF DEPRECIABLE ASSETS WILL BE FORM PART OF BOO K PROFIT WHEN THE BLOCK OF ASSETS TO WHICH THE SAID ASSET PERTAIN S IS NOT ELIMINATED FROM THE BOOKS OR IS STILL EXISTING IN T HE BOOKS OF ACCOUNT. LD. DR ON THE OTHER HAND RELIED ON THE OR DERS OF THE TOLANI SHIPPING CO. LTD., 43 AUTHORITIES BELOW. WE HAVE PERUSED THE DECISION IN THE CASE OF SHIVALIK VENTURE (P) LTD., VS. DCIT [60 TAXMANN.COM 314] (MUMBAI-TRIB) (SUPRA), WHEREIN THE SIMILAR QUESTION HAS COME UP FOR ADJUDICATION BEFORE THE CO-ORDINATE BENCH, THE SAME HAS BEEN DECIDED BY THE CO-ORDINATE BENCH BY STATING AS UNDER: 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E RECORD. THERE IS NO DISPUTE THAT THE PROFIT ARISING ON TRANSFER OF A CAPITAL ASSET BY THE ASSESSEE TO ITS WHOLLY OWNED INDIAN SUBSIDIARY COMP ANY WAS NOT ASSESSED AS 'CAPITAL GAIN' WHILE COMPUTING TOTAL IN COME UNDER NORMAL PROVISIONS OF THE ACT. THE CONTENTION OF THE ASSESS EE IS THAT THE SAME IS ALSO REQUIRED TO BE EXCLUDED WHILE COMPUTING 'BOOK PROFIT' U/S 115JB OF THE ACT FOR THE REASONS CITED BY IT. THE CONTENTION OF THE REVENUE IS THAT THE PROVISIONS OF SEC. 115JB ARE A SELF CONTAINED C ODE AND THE 'BOOK PROFIT' HAS TO BE STRICTLY COMPUTED IN ACCORDANCE W ITH THE PROVISIONS STATED THEREIN. 12. THE PROVISIONS OF SEC. 115JB SHALL COME INTO OP ERATION, ONLY IF THE INCOME TAX PAYABLE UNDER THE NORMAL PROVISIONS OF T HE ACT BY AN ASSESSEE, BEING A COMPANY, IS LESS THAN THE PRESCRI BED PERCENTAGE OF 'BOOK PROFIT'. THE EXPRESSION 'BOOK PROFIT' IS DEFI NED UNDER EXPLANATION 1 TO SEC. 115JB OF THE ACT. ACCORDING TO THIS EXPLA NATION 'BOOK PROFIT' MEANS THE NET PROFIT SHOWN IN THE PROFIT AND LOSS A CCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION ( 2) (I.E., PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDU LE VI TO THE COMPANIES ACT, 1956..), AS INCREASED/REDUCED BY THE ITEMS LISTED OUT IN THE EXPLANATION. IN THE INSTANT YEAR, THE PROVISION S OF SEC. 115JB COME INTO OPERATION FOR THE ASSESSEE, SINCE THE TAX PAYA BLE BY THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT IS LESS THAN THE AMOUNT OF TAX PRESCRIBED U/S 115JB OF THE ACT. 13. THOUGH THE ASSESSEE HAS CREDITED THE PROFIT AND LOS S ACCOUNT WITH THE PROFITS ARISING ON TRANSFER OF A CAPITAL ASSET TO ITS SUBSIDIARY COMPANY, YET IT HAS EXCLUDED THE SAME FROM THE NET PROFIT WHILE COMPUTING 'BOOK PROFIT' IN TERMS OF SEC. 115JB OF T HE ACT. ADMITTEDLY, THE SAID PROFIT IS NOT AN ITEM OF EXCLUSION PRESCRIBED UNDER THE EXPLANATION 1 TO SEC. 115JB OF THE ACT. THE CONTENTIONS ADVANCE D BY THE ASSESSEE IN SUPPORT OF ITS ACTION ARE TWOFOLD, VIZ., TOLANI SHIPPING CO. LTD., 44 (A) IT HAS CLEARLY STATED IN THE NOTES FORMING PART OF ACCOUNTS THAT THE SAID PROFIT IS NOT INCLUDIBLE FOR COMPUTING BOO K PROFIT U/S 115JB OF THE ACT, EVEN THOUGH IT IS CREDITED TO PRO FIT AND LOSS ACCOUNT. THE PROFIT AND LOSS ACCOUNT PREPARED IN AC CORDANCE WITH THE PROVISIONS OF PART II TO SCHEDULE VI OF THE COM PANIES ACT SHOULD BE READ ALONG WITH THE 'NOTES FORMING PART O F ACCOUNTS'. HENCE THE NET PROFIT SHOWN IN THE PROFIT AND LOSS A CCOUNT SHALL BE FIRST ADJUSTED TO TAKE CARE OF THE QUALIFICATIONS G IVEN IN THE NOTES. THEREAFTER ONLY, THE PROVISIONS OF EXPLANATION 1 TO SEC. 115JB SHOULD BE APPLIED. (B) THE GAIN ARISING ON TRANSFER TO ASSETS TO SUBSIDIAR Y COMPANY DOES NOT FALL UNDER THE DEFINITION OF 'INCOME' AT A LL. HENCE, ONCE A PARTICULAR RECEIPT IS NOT REGARDED AS INCOME AT ALL , THE QUESTION OF BRINGING THE SAME TO TAX UNDER ANY O* PROVISIONS OF THE ACT DOES NOT ARISE. 14. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ATTA CHED A NOTE IN THE NOTES FORMING PART OF ACCOUNTS EXPLAINING THEREIN T HAT THE PROFITS ARISING ON TRANSFER OF CAPITAL ASSET TO ITS SUBSIDIARY COMP ANY IS, IN ITS OPINION, NOT COMING WITHIN THE PURVIEW OF SEC. 115JB OF THE ACT. IT IS CONTENDED THAT THE PROFIT AND LOSS ACCOUNT SHOULD BE READ ALO NG WITH THE NOTES FORMING PART OF ACCOUNTS AND THE NET PROFIT SHOULD BE UNDERSTOOD AS THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT AS ADJUSTED BY THE NOTES GIVEN IN THE NOTES TO THE ACCOUNTS. IN THIS REGARD, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION RENDERED BY THE HON 'BLE DELHI HIGH COURT IN THE CASE OF SAIN PROCESSING &WVG. MILLS (P ) LTD (SUPRA). IN THE CASE BEFORE HON'BLE DELHI HIGH COURT, THE ASSESSEE THEREIN ISSUE DID NOT CHARGE DEPRECIATION TO THE PROFIT & LOSS ACCOUNT, B UT DISCLOSED THE SAME IN THE NOTES FORMING PART OF ACCOUNTS. HOWEVER, WHI LE COMPUTING BOOK PROFIT U/S 115J OF THE ACT, IT CLAIMED THE AMOUNT O F DEPRECIATION AS DEDUCTION FROM THE NET PROFIT DISCLOSED IN THE PROF IT AND LOSS ACCOUNT. THE HON'BLE HIGH COURT CONSIDERED THE AFORESAID ASP ECT OF THE CONTROVERSY IN THE FOLLOWING WORDS: THE ANSWER TO THIS POSER IS FOUND IN SUB-SECTION (6 ) OF SECTION 211 OF THE COMPANIES ACT, WHICH PROVIDES THAT EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES ANY REFERENCE TO A BALANCE SHEET OR PROFIT AND LOSS ACCOUNT SHALL INCLUDE THE NOTES THEREON OR DOCUMENTS ANNEXE D THERETO, GIVING INFORMATION REQUIRED TO BE GIVEN AND/OR ALLOWED TO BE GIVEN IN THE FORM OF NOTES OR DOCUMENTS BY THE COMPANIES ACT. AS ALREADY NOTED IT IS OBLIGATORY UNDER CLAUSE 3(IV ) OF PART II TO SCHEDULE VI TO THE COMPANIES ACT TO GIVE INFORMATION WITH RE GARD TO DEPRECIATION, WHICH HAS NOT BEEN PROVIDED FOR ALONG WITH THE QUAN TUM OF ARREARS. TOLANI SHIPPING CO. LTD., 45 ACCORDING TO US, ONCE THIS INFORMATION IS DISCLOSED IN THE NOTES TO THE ACCOUNTS IT WOULD CLEARLY FALL WITHIN THE AMBIT OF THE EXPLANATION TO SECTION 115 J OF THE ACT WHICH DEFINES 'BOOK PROFIT ' TO MEAN 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE REL EVANT ASSESSMENT YEAR'. TO OUR MINDS, AS LONG AS THE DEPRECIATION WHICH IS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT BUT IS OTHERWISE DISCLOSED IN THE NOTES OF THE ACCOUNTS, IT WOULD COME WITHIN THE AMBIT OF THE EXP RESSION 'SHOWN' IN THE PROFIT AND LOSS ACCOUNT, AS NOTES TO ACCOUNTS F ORM PART OF THE PROFIT AND LOSS ACCOUNT BY VIRTUE OF SUB-SECTION (6) OF SE CTION 211 OF THE COMPANIES ACT, 1956. THIS IS QUITE EVIDENT IF THE P ROVISIONS OF SUB- SECTION (6) OF SECTION 211 OF THE COMPANIES ACT, AR E READ IN CONJUNCTION WITH SUB SECTION (1 A) AS WELL AS THE EXPLANATION T O SECTION 115J OF THE ACT.' 15. THE DECISION RENDERED BY HON'BLE DELHI HIGH COU RT, CITED ABOVE, WAS FOLLOWED BY THE PUNE 'A' BENCH OF THE TRIBUNAL IN T HE CASE OF K.K. NAG LTD. (SUPRA). IN THIS CASE, THE INCREMENTAL LIABILI TY TOWARDS LEAVE ENCASHMENT WAS NOT DEBITED TO PROFIT AND LOSS ACCOU NT, BUT OTHERWISE DISCLOSED IN NOTES TO ACCOUNTS. THE TRIBUNAL HELD T HAT THE SAID LIABILITY WOULD HAVE TO BE DEDUCTED WHILE DETERMINING 'BOOK P ROFITS' UNDER SECTION 115JB OF THE ACT. 16. WE NOTICE THAT AN IDENTICAL ISSUE WAS CONSIDERE D BY THE VISAKHAPATNAM BENCH OF ITAT ALSO IN THE CASE OF HIN DUSTAN SHIPYARD LTD V. DY. CIT [20101 6 ITR (TRIB) 407. IN THE CASE OF ASSESSEE THEREIN, IT WAS NOTICED THAT THE GOVERNMENT OF INDIA, BY AN ORD ER DATED 24.3.99, HAD WAIVED LOAN AND INTEREST ACCRUED THEREON TO THE TUNE OF RS.591.13 CRORES WHICH WAS OTHERWISE PAYABLE BY THAT ASSESSEE . HOWEVER, THE SAID COMPANY DID NOT INCORPORATE THE EFFECT OF SUCH WAIVER IN ITS BOOKS OF ACCOUNT, THOUGH IT DISCLOSED THE DETAILS OF WAIV ER IN THE NOTES ON ACCOUNTS. THE ASSESSING OFFICER NOTICED THAT THE AS SESSEE WOULD BE LIABLE TO PAY TAX AS PER THE PROVISIONS OF SECTION 115JA OF THE ACT, (MINIMUM ALTERNATIVE TAX), IF THE WAIVER BENEFITS A RE INCORPORATED IN THE BOOKS OF ACCOUNT ACCORDINGLY HE INCLUDED THE WAIVER BENEFITS IN THE BOOK PROFIT. THE TRIBUNAL, AFTER CONSIDERING THE DECISIO N OF HON'BLE DELHI HIGH COURT IN THE CASE OF SAIN PROCESSING &WVG. MILLS (P ) LTD. (SUPRA), HELD THAT THE ASSESSING OFFICER IS ENTITLED TO INCLUDE T HE WAIVER BENEFIT THAT WAS DISCLOSED IN THE NOTES ON ACCOUNTS. 17. WE SHALL NOW EXAMINE ABOUT THE RATIO OF ALL THE ABOVE SAID DECISIONS VIS-D-VIS SEC. 115JB OF THE ACT. SINCE THE TERM 'BO OK PROFIT' IS DEFINED IN EXPLANATION-1 TO SEC. 115JB, WE NEED TO REFER THE S AME, WHICH STARTS WITH THE FOLLOWING EXPRESSION: TOLANI SHIPPING CO. LTD., 46 ' FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' M EANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVA NT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY' IN SEC. 115JB(2), IT IS PROVIDED THAT THE PROFIT AN D LOSS ACCOUNT SHALL BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956. SO THE PROFIT AND LOSS ACC OUNT PREPARED AS PER THE PROVISIONS OF COMPANIES ACT IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF PROVISIONS OF SEC. 115JB OF THE ACT, MEA NING THEREBY THE INTERPRETATION GIVEN TO THE VARIOUS PROVISIONS OF C OMPANIES ACT ARE RELEVANT HERE. WE HAVE NOTICED THAT THE STARTING PO INT FOR COMPUTATION OF 'BOOK PROFIT' IS THE 'NET PROFIT AS SHOWN IN THE PR OFIT AND LOSS ACCOUNT'. IN THE ABOVE SAID THREE DECISIONS, IT HAS BEEN HELD THAT THE ITEMS DISCLOSED IN THE NOTES TO ACCOUNTS ARE REQUIRED TO BE ADJUSTED TO THE NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT. IN ORDER TO UNDERSTAND THE SIGNIFICANCE OF 'NOTES TO ACCOUNTS' OR 'NOTES FORMI NG PART OF ACCOUNTS', WE MAY REFER TO THE PROVISIONS OF SEC. 211(6) OF TH E COMPANIES ACT, WHICH READ AS UNDER: '(6) FOR THE PURPOSE OF THIS SECTION, EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES ANY REFERENCE TO A BALANCE SHEET OR PROFIT AND LOSS ACCOUNT SHALL INCLUDE ANY NOTES THEREON OR DOCUMENTS ANNEXE D THERETO GIVING INFORMATION REQUIRED BY THIS ACT AND ALLOWED BY THI S ACT TO BE GIVEN IN THE FORM OF SUCH NOTES OR DOCUMENTS.' HENCE, IN THE CASE OF SAIN PROCESSING &WVG. MILLS ( P) LTD (SUPRA), THE HON'BLE DELHI HIGH COURT OBSERVED AS UNDER, AFTER C ONSIDERING THE PROVISIONS OF COMPANIES ACT:-(EXTRACTED BELOW AGAIN AT THE COST OF REPETITION) 'ACCORDING TO US, ONCE THIS INFORMATION IS DISCLOSE D IN THE NOTES TO THE ACCOUNTS IT WOULD CLEARLY FALL WITHIN THE AMBIT OF THE EXPLANATION TO SECTION 115J OF THE ACT WHICH DEFINES 'BOOK PROFIT' TO MEAN 'NET PROFIT AS SHOWN IN THE PROFIT AND ACCOUNT FOR THE RELEVANT AS SESSMENT YEAR'. TO OUR MINDS, AS LONG AS THE DEPRECIATION WHICH IS NOT CHARGED TO THE PROFIT AND ACCOUNT BUT IS OTHERWISE DISCLOSED IN TH E NOTES OF THE ACCOUNTS, IT WOULD COME WITHIN THE AMBIT OF THE EXP RESSION 'SHOWN' IN THE PROFIT AND LOSS ACCOUNT, AS NOTES TO ACCOUNTS F ORM PART OF THE PROFIT AND LOSS ACCOUNT BY VIRTUE OF SUB-SECTION (6) OF SE CTION 211 OF THE COMPANIES ACT, 1956. THIS IS QUITE EVIDENT IF THE P ROVISIONS OF SUB- SECTION (6) OF SECTION 211 OF THE COMPANIES ACT, AR E READ IN CONJUNCTION WITH SUB SECTION (1 A) AS WELL AS THE EXPLANATION T O SECTION 115J OF THE ACT'. TOLANI SHIPPING CO. LTD., 47 HENCE, IN THE DECISION GIVEN BY HON'BLE DELHI HIGH COURT (SUPRA) AND ALSO OTHER TWO DECISIONS RENDERED BY THE TRIBUNAL ( SUPRA), IT HAS BEEN HELD THAT THE NOTES GIVEN IN THE NOTES FORMING PART OF ACCOUNTS HAVE TO BE READ ALONG WITH THE PROFIT AND LOSS ACCOUNT, MEA NING THEREBY THE ITEMS HAVING EFFECT OVER THE NET PROFIT SHOWN IN TH E PROFIT AND LOSS ACCOUNT, BUT OTHERWISE DISCLOSED IN THE NOTES TO AC COUNTS SHOULD BE ADJUSTED TO THE SAID NET PROFIT. SUCH KIND OF ADJUS TMENT IS HELD TO BE FALLING 'WITHIN THE AMBIT OF THE EXPRESSION 'SHOWN' IN THE PROFIT AND LOSS ACCOUNT'. THE RATIO OF THESE DECISIONS IS THAT THE EXPRESSION 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT' SHOULD NOT BE UNDERSTOOD AS THE NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT , BUT THE NET PROFIT ADJUSTED TO THE EFFECTS OF NOTES GIVEN IN THE NOTES FORMING PART OF ACCOUNTS. HENCE THE COURT AS WELL AS TRIBUNALS, IN THE ABOVE CITED CASES, HELD THAT THE DEPRECIATION, INCREMENTAL LIAB ILITY ON LEAVE ENCASHMENT, LOAN WAIVER BENEFITS HAVE TO BE ADJUSTE D TO THE PROFIT/LOSS SHOWN IN THE PROFIT AND LOSS ACCOUNT, WHICH MEANS T HAT THE 'NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT' IS THE FIGURE ARRIVED AT AFTER MAKING SUCH KIND OF ADJUSTMENTS. FROM THESE DISCUSS IONS, IT FOLLOWS THAT, FOR THE PURPOSE OF MAKING SUCH KIND OF ADJUST MENTS, IT IS NOT NECESSARY THAT THOSE ITEMS SHOULD HAVE BEEN SPECIFI ED IN ITEMS OF 'INCREASE' OR 'REDUCTION' GIVEN IN THE EXPLANATION 7, SINCE THE 'NET PROFIT' ITSELF IS ARRIVED AT BY ADJUSTING THE EFFECTS OF NO TES GIVEN IN THE NOTES TO ACCOUNTS, I.E., THE SAME FORMS PART OF THE PROCESS OF ARRIVING AT 'NET PROFIT' AT THE SOURCE LEVEL. 15.4.I. SINCE THE FACTS OF THE CASE BEFORE US ARE S AME AS DECIDED BY THE CO-ORDINATE BENCH IN THE CASE OF THE SHIVALIK VENTURE (P) LTD., VS. DCIT [60 TAXMANN.COM 314] (MU MBAI-TRIB) (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO NOT TO INCLUDE THE PROFIT ON SALE OF VESSEL WHILE COMPUTI NG BOOK PROFITS U/S. 115JB OF THE ACT. 16. THE ISSUES RAISED IN THE ASSESSEES APPEALS IN GROUND NOS. 1 & 2 IN AY 2005-06, GROUND NOS 1 TO 5 IN AY 2 007-08 & 2008-09, ADDL. GROUND NO. 1 IN AY 2009-10 AND GROUN D NOS.10 TOLANI SHIPPING CO. LTD., 48 TO 12 IN AY 2010-11 ARE LEGAL ISSUES RELATING TO AP PLICABILITY OF TRANSFER PRICING AND ARE IDENTICAL TO GROUND NOS. 1 TO 5 IN AY 2006-07 WHICH HAVE NOT BEEN ADJUDICATED BY US FOR THE REASONS THAT THE ISSUES ON MERITS HAVE BEEN DECIDED. THEREF ORE SIMILARLY THE LEGAL ISSUES IN ALL THESE APPEALS OF THE ASSESS EE ARE NOT BEING ADJUDICATED AS STATED HEREINABOVE. 17. THE ISSUE IN ASSESSEES APPEAL IN GROUND NO. 3 IN AY 2005-06, GROUND NO 6 IN AY 2007-08 & 2008-09, GROUN D NO. 4 IN AY 2009-10 AND GROUND NO. 1 TO 5 IN 2010-11 ARE IDENTICAL TO ISSUE AS DECIDED BY US IN GROUND NO. 7 IN AY 2006-0 7 AND THEREFORE, OUR DECISION ON GROUND NO. 7 IN /AY 2006 -07 WOULD, MUTATIS MUTANDIS, APPLY TO THESE APPEALS AS WELL. A CCORDINGLY, THE ISSUE RAISED BY THE ASSESSEE IN THESE GROUNDS Q UA APPLICABILITY OF PROVISIONS 14A TO TONNAGE TAX COMP ANY IS DECIDED IN FAVOUR OF THE ASSESSEE. 18. THE ISSUE OF INTEREST ON INCOME TAX REFUND IN ASSESSEES APPEAL IN GROUND NO.4 IN AY 2005-06, ADD L. GROUND NO.1 AY 2007-08 AND GROUND NO.12 IN AY 2008-09 IS I DENTICAL TO THE ISSUE IN GROUND NO. 11 IN AY 2006-07 WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE OUR DE CISION WOULD, TOLANI SHIPPING CO. LTD., 49 MUTATIS MUTANDI, APPLY TO THE ABOVE GROUNDS ALSO. A CCORDINGLY THE ABOVE GROUNDS ARE ALLOWED. 19. GROUND OF APPEAL NO. 7 FOR THE AY. 2007-08 IN ASSESSEES APPEAL IS EXTRACTED BELOW: THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANC E OF SHORT TERM CAPITAL LOSS OF RS. 1,13,497/- UNDER SECTION 9 4(7) ON THE GROUND OF DIVIDEND STRIPPING. 19.1. AFTER HAVING HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSING THE FACTS ON RECORDS , WE OBSERVE THAT THE LD CIT(A) HAS PASSED A REASONED AND SPEAKING ORDER AS PER THE PROVISIONS OF THE ACT. WE, THEREFORE, DO NOT FIND ANY REASONS TO DISTURB THE ORDER ON THIS ISSUE. GROUND OF APPEAL NO. 7 IS DECI DED AGAINST THE ASSESSEE. 20. THE ISSUE RAISED IN ASSESSEES APPEAL IN THIS GROUND NO. 10 IN AY. 2008-09 IS SIMILAR TO THE ISSUE AS DECIDED BY US IN THE AY. 2007-08 IN GROUND OF APPEAL NO. 7. THE REFORE OUR DECISION ON GROUND NO.7 IN AY 2007-08 WOULD BE APPL ICABLE FOR GROUND NO. 10 IN AY. 2008-09 AS WELL. THE AO IS DI RECTED ACCORDINGLY. TOLANI SHIPPING CO. LTD., 50 21. GROUND OF APPEAL NO. 8 IN AY. 2008-09 IN ASSE SSEES APPEAL IS AGAINST THE ORDER OF CIT(A) NOT ALLOWING THE SET-OFF OF LONG-TERM CAPITAL LOSS ARISING ON ACCOUNT OF UNITS OF MUTUAL FUNDS ON WHICH STT HAS BEEN PAID AGAINST LONG-TERM CAPITAL GAINS ON WHICH NO STT IS PAID 21.1. AFTER HEARING BOTH THE SIDES AND GOING THROU GH THE FACTS OF THE CASE AND AFTER CAREFULLY PERUSING THE DECISION OF THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CAS E OF RAPTAKOS BRETT & CO LTD. ITA NO. 3317/MUM/2009 & 1692/MUM/2010, WE AGREE CONTENTIONS OF THE LD. AR THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE ASSESS EE. WE THEREFORE, RESPECTFULLY, FOLLOWING THE SAME, ALLOW GROUND NO. 8 OF THE ASSESSEE. 22. GROUND OF APPEAL NO. 9 IN AY. 2008-09 IN ASSES SEES APPEAL IS AGAINST NOT ALLOWING COST OF ACQUIRING S HARES OF FOREIGN SUBSIDIARY COMPANY TO BE INCREASED WHILE COMPUTING LTCG WHEN THE SALE PRICE OF SHIP INCREASED UNDER TRANSFE R PRICING PROVISIONS. TOLANI SHIPPING CO. LTD., 51 22.1. THE FACTS IN BRIEF ARE THAT DURING THE YEAR THE ASSESSEE SOLD SOME SHARES OF ITS SINGAPORE AE ALLO TTED IN LIEU OF THE VALUE OF SHIPS TRANSFERRED TO THE SAID AE DURI NG THE FINANCIAL YEAR 2003-04. THE PRICE OF THE SHIP WAS INCREASED T O RS. 50,00,00,000/- IN PLACE OF RS. 45,32,45,000/- BY MA KING TP ADJUSTMENTS AS PER TRIBUNAL ORDER IN ITA NO. 1491/M UM/2008 FOR AY 2003-04 ORDER DATED 30.04.2013. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE PRICE OF THE SHARE SHOULD BE TAKEN AT RS. 50,00,00,000/-.THE LD CIT(A) DID NOT ADJUDICATE THE ISSUE. 22.2. THE LEARNED AR SUBMITTED THAT THE ASSESSEE H AS SOLD SHARES OF ITS ASSOCIATE COMPANY DURING THE YEAR. TH E ASSESSEE CONTENDED THAT THAT INITIALLY, THE ASSESSEE HAD BEE N ALLOTTED SHARES OF ITS ASSOCIATE COMPANY, IN LIEU OF THE VAL UE OF SHIP TRANSFERRED TO THE ASSOCIATE COMPANY DURING THE PRE VIOUS YEAR ENDED 2003-04. THE ITAT BY ORDER DATED 30-04-2013, ITA NO. 1491/M/2008 FOR A.Y.2003-04, DETERMINED THE PRICE O F SHIP AT RS.50,00,00,000/- INSTEAD OF RS.45,32,45,000/- THE LD.AR THEREFORE ARGUED THAT SINCE THE SHARES WERE ALLOTT ED INITIALLY AGAINST THE VALUE OF THE SHIP, THEREFORE, IN THE EV ENT OF ANY ADDITION TO THE VALUE OF THE SHIP, DETERMINED ON AC COUNT OF TRANSFER PRICING PROVISIONS, THERE SHOULD BE CORRES PONDING TOLANI SHIPPING CO. LTD., 52 INCREASE IN THE COST OF THE SHARES OF THE SUBSIDIAR Y COMPANY AND SUBSEQUENTLY. THE REVISED COST OF SHARES AT RS.50 CRORES SHOULD BE CONSIDERED INSTEAD OF RS.45.32 CRORES FOR DETERM INING THE LONG-TERM CAPITAL GAINS. 22.3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIALS ON RECORDS CAREFULLY INCLUDING THE DECISI ON OF THE COORDINATE BENCH DATED 30-04-2013 PASSED ON THIS IS SUE INCREASING THE VALUE AT WHICH SHIP WAS TRANSFERRED TO THE AE AT RS. 50.00 CR . IN OUR OPINION IF THE PRICE OF THE S HIP IS INCREASED BY MAKING TP ADJUSTMENTS, THEN THE VALUE OF SHARES ALLOTTED IN LIEU OF SHIP TRANSFERRED SHOULD BE INCREASED BY THE CORRESPONDING AMOUNT. ACCORDINGLY WE DIRECT THE AO TO TAKE THE CO ST OF ACQUISITION AT RS. 50 CRORES. THE GROUND NO. 9 O F THE ASSESSEE IS ALLOWED. 23. GROUND OF APPEAL NO 11 FOR THE AY. 2008-09 IN ASSESSEES APPEAL IS AGAINST THE ORDER OF CIT(A) C ONFIRMING ADDITION OF RS.76,84,762/- BEING DISALLOWANCE U/S 1 4A WHILE COMPUTING BOOK PROFIT U/S.115JB. TOLANI SHIPPING CO. LTD., 53 23.1. THE FACTS IN BRIEF ARE THAT THE AO HAS MADE ADDITION /ADJUSTMENT TO THE BOOK PROFITS WHILE COMPUTING BOO K PROFIT U/S 115JB OF THE ACT FOR THE DISALLOWANCE AS MADE U/S 1 4A OF THE ACT. AFTER HEARING THE RIVAL CONTENTIONS OF THE PA RTIES AND GOING THROUGH THE FACTS ON RECORDS, WE OBSERVE THAT NO D ISALLOWANCE CAN BE MADE U/S.115JB OF THE ACT ON ACCOUNT OF DISA LLOWANCE MADE U/S 14A R.W. RULE 8D. THE CASE OF THE ASSESSEE IS COVERED BY THE RATIO LAID DOWN IN THE FOLLOWING DECISIONS: (I) CIT VS. BENGAL FINANCE & INVESTMENTS PVT. LTD APPEA L NO.337 OF 2013 DATED (BOMBAY HIGH COURT) (II) ESSAR TELEHOLDINGS LTD. APPEAL NO. 438 OF 2012 DATE D 07-08-2014 (III) ASST. CIT VS. VIREET INVESTMENTS P. LTD (2017) 82 TAXMANN.COM 415 (DELHI-TRIB) (SB) (IV) BHARAT PETROLEUM CORPORATION LTD. VS. ASST. CIT (2018) 63 ITR (TRIB) 244 (MUM) SINCE THE FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS OF THE ABOVE DECISIONS, WE ACCORDINGLY ALLOW GROUND NO . 11 OF THE ASSESSEE BY DIRECTING THE AO TO DELETE THE DISALLOW ANCE. TOLANI SHIPPING CO. LTD., 54 24. GROUND NO. 13 IN AY 2008-09 IS AGAINST THE OR DER OF LD CIT(A) INCLUDING PROFIT ON SALE OF SHIP U/S.115 JB (MAT) AS THE SAME IS NOT COVERED BY EXPLANATION 1 TO SECTION 115 JB(2) AND THEREFORE THE PROFIT ON SALE OF SHIP SHOULD BE REDU CED FROM BOOK PROFITS CONSIDERED U/S.115JB. 24.1. THIS GROUND HAS ALREADY BEEN ADJUDICATED IN GROUND OF APPEAL NO. 1 AND 2 FOR THE AY. 2003-04 AND GROUN D OF APPEAL NO. 7 FOR THE YEAR UNDER CONSIDERATION IN ASSESSEE S APPEAL. THE ADDITIONS ON TRANSFER PRICING ADJUSTMENT AND SECTIO N 14A HAVE BEEN DELETED AND 94(7) HAS BEEN UPHELD. THE AO IS D IRECTED ACCORDINGLY. 25. AS REGARDS THE ADDITIONAL GROUNDS RAISED BY TH E ASSESSEE OF APPEAL FOR THE AY. 2005-06, IT IS CONTE NDED BY THE LD AR THAT THE ADDITIONAL GROUNDS OF APPEAL HAVE BEEN TAKEN AS THE SAME INADVERTENTLY HAVE NOT BEEN TAKEN IN THE ORIGI NAL GROUNDS OF APPEAL. IT IS CONTENDED BY THE LD. AR THAT IN TH ESE ADDITIONAL GROUNDS, IT IS EITHER THAT THE INCOMES THAT HAVE BE EN OFFERED TO TAX IN THE RETURN OF INCOME ARE EXEMPT FROM TAX OR ARE COVERED BY THE TONNAGE TAX SCHEME AND THEREFORE, SHOULD NOT HA VE BEEN OFFERED TO TAX IN THE RETURN OF INCOME. THE LD AR T HEREFORE, TOLANI SHIPPING CO. LTD., 55 CONTENDS THAT THE ADDITIONAL GROUNDS OF APPEAL SHOU LD BE ADMITTED AND DISPOSED OF. 25.1. THE ADDITIONAL GROUNDS OF APPEAL ARE (I) INTEREST INCOME RECEIVED FROM 6.85% IIFCL TAX-F REE BONDS WHICH ARE EXEMPT U/S. 10(15)(IV)(H) OF THE INCOME-TAX ACT , 1961 AND THEREFORE THE SAME ARE NOT TAXABLE. RS.2,29,647/- (II) INTEREST INCOME RECEIVED FROM STAFF MEMBERS EM PLOYED FOR SHIPPING BUSINESS COVERED UNDER TONNAGE TAX BUSINES S AND THEREFORE THE SAME IS PART OF SHIPPING BUSINESS INC OME NOT TAXABLE AS INCOME FROM OTHER SOURCES RS. 1,86,621/- (III) INTEREST INCOME RECEIVED FROM TOLANI BULK CAR RIERS LTD., AS SUBSIDIARY COMPANY OF THE ASSESSEE ENGAGED IN SHIPP ING BUSINESS AND THEREFORE THE SAME IS BUSINESS INCOME OF THE ASSESSEE COMPANY - RS. 15,46,074/- (IV) INTEREST INCOME ON SECURITY DEPOSIT ON ACCOUNT OF CASES PERTAINING TO CUSTOM DUTY WHICH ARE PART OF SHIPPIN G BUSINESS COVERED UNDER TONNAGE TAX SCHEME - RS.56,250/- (V) INTEREST INCOME ON FIXED DEPOSITS WITH BANK AGA INST BANK GUARANTEE GIVEN TO CUSTOM AUTHORITIES WHICH IS PART OF THE TONNAGE TAX INCOME RS.18,635/- (VI) INTEREST INCOME ON ACCOUNT OF DELAYED PAYMENT OF FREIGHT BY VISHAKHAPATNAM STEEL PLANT WHICH IS PART OF TONNAGE TAX SCHEME - RS.16,116/- 25.2. WE HAVE HEARD THE RIVAL CONTENTIONS ON THE A DMISSION OF ADDITIONAL GROUNDS AND ALSO PERUSED THE FACTS EM ANATING OUT OF THE RECORDS BEFORE US. AFTER TAKING INTO ACCOUNT THE CONTENTIONS OF THE REPRESENTATIVES AND THE FACTS ON RECORDS, WE TOLANI SHIPPING CO. LTD., 56 ARE OF THE VIEW THAT ISSUES RAISED BY WAY OF ADDITI ONAL GROUNDS DO NOT REQUIRE ANY FURTHER VERIFICATION. THE ISSUE RAI SED ARE IN RESPECT OF INCOMES WHICH ARE SUCH THAT ARE PRIMA FA CIE EITHER EXEMPT OR ARE COVERED BY THE TONNAGE TAX SCHEME AND WERE INADVERTENTLY NOT TAKEN IN THE ORIGINAL GROUNDS OF APPEAL. HOWEVER WE RESTORING THESE ADDITIONAL GROUNDS TO TH E FILE OF THE AO TO DECIDE THE SAME AFTER VERIFYING THE CLAIM OF THE ASSESSEE AS PER FACTS AND LAW. 26. SIMILAR ADDITIONAL GROUNDS OF APPEAL ARE RAISE D BY THE ASSESSEE FOR THE AY. 2007-08 WHICH ARE REPRODUCED AS UNDER:- (I) INTEREST INCOME RECEIVED FROM 6.85% IIFCL TAX-F REE BONDS WHICH ARE EXEMPT U/S.10(15)(IV)(H) OF THE INCOME-TAX ACT, 1961 AND THEREFORE THE SAME ARE NOT TAXABLE. - RS.2,46,050/- (II) INTEREST INCOME RECEIVED FROM STAFF MEMBERS EM PLOYED FOR SHIPPING BUSINESS COVERED UNDER TONNAGE TAX BUSINES S AND THEREFORE THE SAME IS PART OF SHIPPING BUSINESS INC OME NOT TAXABLE AS INCOME FROM OTHER SOURCES RS.3,37,050/ - (III) INTEREST INCOME RECEIVED ON ACCOUNT OF DELAYE D FREIGHT PAYMENT AS DECIDED BY ARBITRATOR -RS.5,93,454/- (IV) INTEREST INCOME ON SECURITY DEPOSIT AND BANK GUARA NTEES ON ACCOUNT OF CASES PERTAINING TO CUSTOM DUTY WHICH AR E PART OF SHIPPING BUSINESS COVERED UNDER TONNAGE TAX SCHEME - RS.28,52,858/- 26.1. SINCE WE HAVE ALREADY RESTORED THESE GROUND TO THE FILE OF THE AO IN AY. 2005-06, WE ARE THEREFORE RE STORING THESE FOR TOLANI SHIPPING CO. LTD., 57 THE AY. 2007-08 ALSO. THE AO IS DIRECTED TO DECIDE THESE GROUNDS AS PER LAW AND FACTS AFTER GIVING REASONABLE OPPORT UNITY TO THE ASSESSEE. 27. THE GROUND NOS. A TO D IN AY 2005-06, GROUND NO. 1 FOR AY 2007-08 AND 2008-09, GROUND NO. (II) IN AY 2 009-10 ALL REVENUE APPEALS ARE IDENTICAL TO ONE AS DECIDE BY U S IN GROUND NO. 1 IN AY 2006-07 IN REVENUE APPEAL WHICH HAS BEE N DISMISSED BY US. THEREFORE OUR DECISION ON GROUND NO. 1 IN AY 2006-07 WOULD, MUTATIS MUTANDIS , APPLY TO THESE GROUNDS AS WELL. RESULTANTLY THE GROUNDS IN THE RESPECTIVE ASSESSMEN T YEARS ARE DISMISSED. 28. THE GROUND NO. 2 FOR AY 2007-08 AND 2008-09, GROUND NO. (I) IN AY 2009-10 & 2010-11 ALL REVENUE APPEALS ARE IDENTICAL TO ONE AS DECIDE BY US IN GROUND NO. 2 IN AY 2006-07 IN REVENUE APPEAL WHICH HAS BEEN DISMISSED BY US. THER EFORE OUR DECISION ON GROUND NO. 2IN AY 2006-07 WOULD, MUTATI S MUTANDIS APPLY TO THESE GROUNDS AS WELL. RESULTANTLY THE GRO UNDS IN THE RESPECTIVE ASSESSMENT YEARS ARE DISMISSED. 29. THE GROUND NO. 3 FOR AY 2007-08, GROUND NO. 4 FOR AY 2008-09 BOTH REVENUE APPEALS ARE IDENTICAL TO ONE AS DECIDE BY TOLANI SHIPPING CO. LTD., 58 US IN GROUND NO. 3 IN AY 2006-07 IN REVENUE APPEAL WHICH HAS BEEN DISMISSED BY US. THEREFORE OUR DECISION ON GRO UND NO. 3 IN AY 2006-07 WOULD, MUTATIS MUTANDIS , APPLY TO THESE GROUNDS AS WELL. RESULTANTLY THE GROUNDS IN BOTH ASSESSMENT YE ARS ARE DISMISSED. 30. THE GROUND NO. 3 IN REVENUE APPEAL IS AGAINST THE ORDER OF CIT(A) DELETION THE ADDITION AS INCOME FR OM THE OTHER SOURCES ON ACCOUNT OF INTEREST FROM LOANS GIVEN TO EMPLOYEES, SUNDRY BALANCES WRITTEN BACK AND INTEREST INCOME ON SHORT TERM DEPOSITS. 30.1. THE FACTS IN BRIEF ARE THAT THE ASSESSEE TRE ATED THE INTERST ON LOAN TO EMPLOYEES RS.496480/-, SUNDRY BA LANCES WRITTEN OFF RS.59877/- AND INTEREST INCOME OF RS.1, 26,59,058/- AS INCOME FROM BUSINESS. THE AO CAME TO THE CONCLU SION THAT THE SAID INCOME ARE NOT CONNECTED TO THE CORE BUSIN ESS OF THE ASSESSEE AND HENCE ASSESSED THE SAME AS INCOME F ROM OTHER SOURCE. 30.2. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASS ESSEE AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: TOLANI SHIPPING CO. LTD., 59 6.2 THE APPELLANT SUBMITTED THAT HOUSING LOANS AND VEHICLES GIVEN TO EMPLOYEES AND THE INTEREST RECEIVED THEREON IS INCO ME FROM CORE ACTIVITY AND THEREFORE THE SAME IS BUSINESS INCOME AS HELD B Y THE HONBLE MUMBAI ITAT IN THE CASE OF SHIPPING CORPORATION OF INDIA V S. ACIT 133 ITD 290. 6.3 THE APPELLANT FURTHER SUBMITTED THAT ADDITION O F INTEREST ON LOANS TO EMPLOYEE WAS DELETED BY DRP FOR A.Y. 2010-11. SINC E THE FACTS OF THE CASE REMAINS THE SAME, ADDITION OF INTEREST OF INCOME OF RS.496480/- TO INCOME FROM OTHER SOURCES IS DELETED. 6.4 WITH REGARD TO THE ADDITION OF SUNDRY BALANCES WRITTEN BACK AMOUNTING TO RS.59877/-, THE APPELLANT SUBMITTED TH AT SUNDRY BALANCES WRITTEN BACK IS INCOME FROM CORE ACTIVITIES AND INT EREST DERIVED FROM SUCH ACTIVITY IS TAXABLE UNDER THE HEAD INCOME FROM BUSI NESS AND IT CAN NOT BE TAXED SEPARATELY. 6.5 THE APPELLANT RELIED ON THE HONBLE MUMBAI TRIB UNAL IN THE CASE OF SHIPPING CORPORATION OF INDIA VS. ACIT 133 ITD 290 WHEREIN SIMILAR ADDITION OF WRITE BACK OF SUNDRY CREDIT BALANCES WAS DELETED BY HONBLE ITAT. SINCE THE FACTS OF THE CASE REMAIN SAME, ADDITION OF SUND RY BALANCES WRITTEN BACK OF RS.59877/- TO INCOME FROM OTHER SOURCES IS DELET ED. . 6.10 I HAVE CONSIDERED THE ABOVE JUDGMENTS SUBMITT ED BY THE APPELLANT AND THE CONTENTION BY THE APPELLANT. THE SUBMISSIO N MADE BY THE APPELLANT THAT THESE DEPOSITS WERE SHORT TERM DEPOSITS MADE TEMPORARILY WHEN FUNDS WERE LYING IDLE FOR A SHORT TENURE IS FOUND TENABLE . THE APPELLANT HAS SUBSTANTIAL BORROWING AND HAS PAID INTEREST OF OVER RS.20 CR. THE INTEREST HAS BEEN EARNED ON SHORT TERM DEPOSITS ONLY, IN RES PECT OF FUNDS WHICH WERE TO BE USED FOR BUSINESS PURPOSE BY THE APPELLANT. IN VARUN SHIPPING CO. LTD. 334 ITR 263 BOM. THE COMPANY WAS TO BUY A NEW SHIP FOR WHICH IT HAD BORROWED FUNDS AND HAD OBTAINED RBI APPROVAL AND I T EARNED INTEREST ON THE UNUTILIZED PORTION OF THIS AMOUNT. AO BROUGHT THIS AMOUNT TO TAX AS INCOME FROM OTHER SOURCES. HOWEVER, ITAT HELD THAT THIS ACTIVITY WAS A PART OF APPELLANTS BUSINESS AND HENCE INTEREST EARNED W AS LIABLE TO BE TREATED AS BUSINESS INCOME. THE FINDING OF ITAT WAS UPHELD BY BOMBAY HIGH COURT IN THE ABOVE DECISION. I FIND THAT CASE OF THE APPELL ANT IS COVERED BY THE BOMBAY HIGH COURT IN THE CASE OF VARUN SHIPPING AS QUOTED ABOVE. RESPECTFULLY FOLLOWING THE JUDGMENT, ADDITION OF IN TEREST INCOME OF RS.1,26,59,058/- AS INCOME FROM OTHER SOURCES IS DE LETED. TOLANI SHIPPING CO. LTD., 60 30.3. WE HAVE HEARD THE RIVAL ARGUMENTS AND PERUSE D THE MATERIAL ON RECORDS INCLUDING THE DECISION OF THE L D CIT(A) AND THE DECISIONS RELIED BY THE LD AR. WE FIND THE LD C IT(A) HAS PASSED A VERY REASONED AND SPEAKING ORDER AND THERE IS NO REASON TO DEVIATE FROM THE FINDINGS OF THE LD CIT(A ). ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS DISMISSED. 31. THE ISSUE IN GROUND NO. (II) AND (III) IN AY 2010-11 IN REVENUE APPEAL IS SIMILAR TO THE ONE AS DECIDED BY US IN GROUND NO. 3 IN AY 2008-09 IN REVENUES APPEAL AND THEREFO RE OUR DECISION ON GROUND NO. 3 IN AY 2008-09 WOULD, MUT ATIS MUTANDI, APPLY TO THESE GROUNDS ALSO. ACCORDINGLY, THE GROUND NO. (II) AND (III) ARE DISMISSED. 32. IN RESULT THE APPEALS OF THE ASSESSEE ARE PART LY ALLOWED, WHEREAS THE APPEALS OF THE REVENUE ARE DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.02.2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /MUMBAI; /DATED : 28.02.2019 TNMM & TOLANI SHIPPING CO. LTD., 61 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT, MUMBAI 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI