Hightech Marine Servies P.Ltd, New Delhi V. ITO, Ward-11(3), New Delhi

ITA 6924/DEL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2443 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 20-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Principle of natural justice
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER ITA NO. 6924 /DEL/201 7 [ASSESSMENT YEAR: 2 0 13 - 14 ] M/S HIGHTECH MARINE SERVICES PVT. LTD VS. THE I.T. O 15, SHRI RAM ROAD, CIVIL LINES WARD 1 1 ( 3 ) NEW DELHI NEW DELHI PAN: A ABCH 6110 Q [APPELLANT] [RESPONDENT] DATE OF HEARING : 0 5 . 11 .201 8 DATE OF PRONOUNCEMENT : 1 4 . 1 1 .2018 ASSESSEE BY : SHRI ASHWINI TANEYA , ADV SHRI SOMIL AGGARWAL, ADV REVENUE BY : MS. AASHNA PAUL , SR. DR ORDER PER N .K. BILLAIYA, ACCOUNTANT MEMBER: T HIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - 4, NEW DELHI , DATED 0 6 . 1 0 .201 7 PERTAINING TO ASSESSMENT YEAR 20 13 - 14 . 2 2. THE SUBSTANTIVE GRIEVANCE S OF THE ASSESSEE READ AS UNDER: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING AGGREGATE DISALLOWANCE OF RS. 13,59,729/ - (I.E. EMPLOYEES BENEFIT EXPENSES OF RS. 1 1,48,400/ - , FINANCE COST OF RS.45,528/ - , DEPRECIATION OF RS.L,65,801/ - ) U/S 37 OF THE I.T. ACT ON ACCOUNT OF AND FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS.7,86,508/ - UNDER THE HEAD ADMINISTRATIVE EXPENSES U/S 37 AND THAT TOO BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. 2. THAT HAVING REGARD TO THE F ACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADDITION OF RS.32,31,550/ - BY TREATING IT AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS & PROFESSION AS CLAIMED BY THE ASSESSEE AND THAT TOO BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. 3. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADDITION OF R S.32,31,550/ - BY TREATING IT AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS & PROFESSION, IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS . 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY BELONGS TO SUPERIOR GROUP MANAGED BY SHRI PRADEEP AGRAWAL WITH THE AIM AND OBJECT TO DO BUSINESS IN SHIPPING LINE, I.E., OWNING A SHIP/CRUISE AND RUN IT ITSELF OR LET IT ON HIRE/CHARTER BASIS OR SUPPLY MANPOWER ETC. THE RETURN FOR THE YEAR WAS FILED ON 30.03.2014 DECLARING INCOME OF RS. 10.63 LAKHS. RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF SC RUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ONLY INCOME DECLARED BY THE ASSESSEE IS THE INTEREST INCOME ON FIXED DEPOSITS AMOUNTING TO RS. 32.31 LAKHS. THE ASSESSING OFFICER FURTHER NOTICED THAT AGAINST THE SAID INTEREST INCOME, THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENSES: SL. NO. HEAD OF EXPENSES RUPEES 1. EMPLOYEES BENEFIT EXPENSE 11,48,400 2. FINANCE COST 45,528 3. DEPRECIATION 1,65,801 4. ADMINISTRATION AND OTHER EXPENSES 8,08,490 TOTAL 21,68,219 4 5. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE EXPENSES CLAIMED BY THE ASSESSEE HAS NO RELEVANCE WITH THE INTEREST INCOME EARNED. THEREFORE, THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF EXPENDITURE. 6. IN ITS REPLY, THE ASSESSEE STATED THAT ALL THE EXPENSES HAVE BEEN INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS ONLY. THE ASSESSEE STATED THAT STANDBY LETTER OF CREDIT [SBLC] WAS TAKEN FOR AN AMOUNT OF EURO TEN MILLIONS AND THE PRIMARY OBJECTIVE OF INVES TMENT IN FDRS W AS TO OBTAIN SBLC PERTAINING TO ASSESSEES BUSINESS ACTIVITY. IT WAS FURTHER EXPLAINED THAT THE SOURCE OF THE FDS ARE PRIMARILY SHARE APPLICATION MONEY OF RS. 3.75 CRORES RECEIVED BY THE APPELLANT COMPANY IN EARLIER YEARS FROM GROUP CONCERNS, VIZ., NARMADA DRINKS PVT. LTD. AND UDAIPUR BEVERAGES LTD. 7. THE ASSESSI NG OFFICER OBSERVED THAT SBLC OF 10 MILLION EURO DOLLARS WAS ISSUED IN FAVOUR OF VISHAL CRUISE PVT. LTD. MAURITIUS ON THE REQUEST OF THE ASSESSEE COMPANY TO ENABLE VISHAL CRUISE PVT. LTD. TO PURCHASE A CRUISE SHIP . THE ASSESSING OFFICER FURTHER OBSERVED T HAT 5 THE SHIP PURCHASED BY VISHAL CRUISE PVT. LTD., WH OSE OPERATION WAS MANAGED BY PASSAT KREUZFAHRTEN GMBH (PASSAT) IN GERMANY . THE ASSESSING OFFICER WAS OF THE OPINION THAT NEITHER THE OWNERSHIP OF CRUISE BUSINESS NOR ITS OPERATION WAS HANDLED BY THE ASS ESSEE COMPANY AT ANY STAGE. 8. THE ASSESSING OFFICER FORMED A BELIEF THAT THE FIXED DEPOSITS WERE NOT PLEDGED FOR BUSINESS ACTIVITY OF THE ASSESSEE COMPANY BUT WERE USED IN BUSINESS ACTIVITY OF OTHER GROUP CONCERNS LOCATED AND OPERATING OUTSIDE INDIA. THEREFORE, UNDER NO PROVISIONS OF I.T. ACT, EXPENSES CLAIMED BY THE ASSESSEE CAN BE ALLOWED IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT INTEREST EARNED ON FIXED DEPOSITS CANNOT BE REGARDED AS BUSINESS INCOME . ACCORDINGLY, VA RIOUS EXPENSES CLAIMED BY THE ASSESSEE WERE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. SINCE INTEREST INCOME HAVE BEEN EARNED ON BANK FDS WHICH WERE MADE FOR THE PURPOSE OF OBTAINING SBLC FOR ANOTHER COMPANY, THEREFORE, INTEREST INCOME WAS T AXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 6 9. THE ASSESSEE AGITATED THE MATTER BEFOR E THE LD. CIT(A) BUT COULD GET ONLY RELIEF OF RS. 21,910/ - AND THE BALANCE EXPENDITURE OF RS. 21,46,309/ - WAS CONFIRMED. 10. BEFORE ME, THE LD. AR STATED THAT FOR SECURING FUNDS FROM PNB INTERNATIONAL, LONDON, NET WORTH OF THE ASSESSEE COMPANY WAS NOT ADEQUATE FOR DOING BUSINESS. THEREFORE, THE ASSESSEE COMPANY REDEFINED ITS SHARE BUSINESS AND DECIDED TO FLOAT ANOTHER GROUP COMPANY I.E. VISHAL CRUIS E PVT. LTD. (VCPL) AND PASSAT KREUZFAHRTEN GMBH (PASSAT) IN GERMANY TO MANAGE/OPERATE ITS SHIPPING BUSINESS TO ACQUIRE SHIPPING ASSETS. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT IT WAS DECIDED AND AGREED BY THE GROUP THAT THE ASSESSEE COMPANY WILL L OOK AFTER ALL THE SHIPPING MAINTENANCE AND MANPOWER AND M/S VISHAL CRUSIES (P) LTD. I.E. VCPL WILL ACQUIRE SHIPPING ASSETS AND PASSAT KREUZFAHRTEN GMBH WILL LOOK AFTER OPERATIONAL SHIPPING BUSINESS. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT E XPENSES INCURRED AND CLAIMED BY THE ASSESSEE ARE IN FURTHERANCE OF ITS BUSINESS ACTIVITIES AND, THEREFORE, CANNOT BE DISALLOWED. THE LD. A.R, FURTHER POINTED OUT THAT TRAVELLING EXPENSES INCURRED BY THE ASSESSEE WERE BOOKED FOR TRAVEL TO HAMBURG, GERMANY AND MAURITIUS WHERE ITS GROUP COMPANIES ARE LOCATED. 7 11. THE LD. AR VEHEMENTLY STATED THAT EVEN THE FIXED DEPOSITS WERE TAKEN FROM THE BANK FOR SBLC WHICH WAS USED BY THE GROUP COMPANIES IN FURTHERANCE OF BUSINESS ACTIVITY OF THE GROUP. THEREFORE, THERE I S DIRECT NEXUS BETWEEN THE INTEREST EARNED FROM FDRS AND BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, THE INTEREST EARNED ON FIXED DEPOSIT SHOULD BE TAXED UNDER THE HEAD BUSINESS INCOME AND NOT UNDER THE HEARD INCOME FROM OTHER SOURCES. 12 PER CONTRA, T HE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT THE EXPENSES WERE INCURRED FOR ITS BUSINESS AS NO PROFIT FROM BUSINESS HAS BEEN RETURNED BY THE ASSESSEE. THE LD. DR FURTHER RELYING UPON THE FINDINGS OF THE ASSESSING OFFICER STATED THAT THERE IS NO NEXUS BETWEEN EARNING OF INTEREST ON FIXED DEPOSITS AND CLAIM OF EXPENDITURE AGAINST THE SAME. 9. I HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE APPELLANT COMPANY RESTRUCTURED ITS SHARE BUSINESS BY FLOATING TWO GROUP COMPANIES, NAMELY, M/S VISHAL CRUISES (P) LTD. I.E. VCPL AND PASSAT 8 KREUZFAHRTEN GMBH, GE RMANY. IT IS ALSO NOT DISPUTED THAT THE FIXED DEPOS I TS MADE BY THE ASSESSEE WAS USED FOR THE PURPOSES OF OBTAINING SBLC. THIS IN ITSELF PROVES THAT THE SBLC WAS ISSUED BY THE BANK FOR THE BUSINESS PURPOSE OF THE ASSESSEE COMPANY. IN MY UNDERSTANDING OF THE FACTS, PROMOTING BUSINESS OF SUBSIDIARIES/GROUP COMPANIES IN ITSELF IS BUSINESS ACTIVITY. IN MY CONSIDERED OPINION, EXPENSES HAVE TO BE INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND NOT FOR THE PURPOSES OF EARNING PROFIT. THE LOWER AUTHOR ITIES HAVE DISALLOWED THE EXPENDITURE BECAUSE THE ASSESSEE HAS NOT EARNED ANY PROFIT FROM ITS BUSINESS ACTIVITY. IN MY CONSIDERED VIEW, THE DISALLOWANCE IS ON FALSE PREMISE. AS MENTIONED ELSEWHERE, THE EXPENDITURE HA S TO BE INCURRED FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSES OF EARNING PROFIT. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, I AM OF THE VIEW THAT THE EXPENDITURE HAS BEEN INCURRED IN FURTHERANCE OF BUSINESS ACTIVITY OF THE APPELLANT COMPANY AND DESERVES TO BE ALLOWED. I , ACCORDINGLY , DIRECT THE ASSESSING OFFICER TO ALLOW EXPENDITURE OF RS. 21 , 46 , 309/ - . GROUND NO. 1 IS ACCORDINGLY ALLOWED. 10. SECOND GRIEVANCE RELATES TO TAXING OF INTEREST EARNED ON FIXED DEPOSITS UNDER THE HEARD INCOME FROM OTHER SOURCES. 9 11. AS MENTIONED ELSEWHERE, THE FIXED DEPOSITS WERE PURCHASED BY THE APPELLANT COMPANY OUT OF SHARE APPLICATION MONEY RECEIVED FROM GROUP CONCERNS AND AS MENTIONED ELSEWHERE, THE FIXED DEPOSITS WERE USED FOR OBTAINING SBLC OF 10 MILLION EU ROS IN FURTHERANCE OF BUSINESS ACTIVITY OF THE APPELLANT COMPANY ALONGWITH ITS GROUP COMPANIES. IN MY CONSIDERED VIEW, INTEREST EARNED ON FIXED DEPOSIT HA S A DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND SUCH INTEREST BEARS THE REQUISITE CHA RACTERISTIC S OF BUSINESS INCOME AND H A S NEXUS WITH THE BUSINESS ACTIVITIES O F THE ASSESSEE, CANNOT BE FAULTED WITH. INTEREST EARNED ON FIXED DEPOSITS WOULD FORM PART OF PROFITS OF THE BUSINESS OF THE APPELLANT COMPANY. FOR THIS PROPOSITION, I DRAW SUPPOR T FROM THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF UNIVERSAL P RECISION SC RE WS [ 2015 ] 94 CCH 0046. I , ACCORDINGLY , DIRECT THE ASSESSING OFFICER TO TAX INTEREST INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. GROUND 2 IS ALLOWED. 10 11. I N THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 6924 /DEL/201 7 IS ALLOWED . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 4 . 1 1 .2018. SD/ - [N.K. BILLAIYA] ACCOUNTANT MEMBER DATED: 1 4 T H NOVEMBER , 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) ASST. REGISTRAR, 5. DR ITAT, NEW DELHI 11 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER