DCIT CIR 5(3), MUMBAI V. VARUN SHIPPING CO. LTD, MUMBAI

ITA 7161/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93116 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Bench Allotted: F
• Next Hearing Date: 19-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-11-2012
• Court: TRIBUNAL
• Keywords: Presumptive income; Earning of tax free income
• Section: 143(3); 14A; 115JB; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO 7161/MUM/2012 ( ASSESSMENT YEAR: - 2009 - 10.) DEPUTY COMMISSIONER OF INCOME TAX, 573, AAYKAR BHAVAN, 5 TH FLOOR, ROOM NO. 583, AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS.` M/S VARUN SHIPPING COMPANY LTD. LAXMI BUILDING, 6 SHOORJI VALLABHDAS MG., BALLARD ESTATE. MUMBAI 400 001. PAN/GIR NO. AAA CV1658C APPELLANT RESPONDENT ITA NO 7248/MUM/2012 ASSESSMENT YEAR: - 2009 - 10.) M/S VARUN SHIPPING COMPANY LTD. LAXMI BUILDING, 6 SHOORJI VALLABHDAS MG., BALLARD ESTATE. MUMBAI 400 001. VS.` THE ADDITIONAL COMMISSIONER OF INCOME TAX 5(3), AAYKAR BHAVAN, MUMBAI 400 020. PAN/GIR NO. AAACV1658C APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THE CAPTIONED CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 19.09.2011 WHICH IN - TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INC OME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) DATED 23.12.2011 PERTAINING TO ASSESSMENT YEAR 2009 - 10. REVENUE BY SHRI PAWAN KUMAR BEERLA ASSESSEE BY SHRI MAHESH O RAJORA DATE OF HEARING 13 .05.2015 DATE OF PRONOUNCEMENT 30 . 06 .2015 2 M/S VARUN SHIPPING COMPANY LTD PAGE 2 OF 12 2. IN THE APPEAL OF THE REVENUE, THE FOLLOWING GROUND HA S BEEN RAISED : - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 38,58,497/ - MADE BY THE ASSESSING OFFICER U/S. 14A R.W. RULE 8D OF THE I.T. ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE EARNING OF DIVIDEND IS OBVIOUSLY NON - TONNAGE ICOME AND IS NOT COVERED UNDER CHAPER XII G OF THE INCOME - TAX ACT, 1961 ? 3 . IN BRIEF , THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, AND IS INTER - ALIA , ENGAGED IN THE BUSINESS OF HIRING AND OPERATION OF SHIPS. FOR THE ASSESSMENT YEAR 2009 - 10, IT FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 2,67,88,623/ - , WHICH INTER - ALIA INCLUDED AN INCOME OF RS. 2,48,72,672/ - WI TH RESPECT TO ITS SHIPPING BUSINESS. IN THE SAID RETURN OF INCOME ASSESSEE COMPANY DECLARED ITS INCOME FROM THE SHIPPING ACTIVITIES ON A PRESUMPTIVE BASIS IN TERMS OF CHAPTER XII - G OF THE ACT, WHICH DEALS WITH SPECIAL PROVISIONS RELATING TO INCOME OF SHIP PING COMPANIES . I N COMMON PARLANCE , SUCH SCHEME OF PRESUMPTIVE TAXATION IS KNOWN AS TONNAGE TAX SCHEME. BROADLY SPEAKING, IN TERMS OF THE TONNAGE TAX SCHEME, INCOME FROM THE BUSINESS OPERATION OF QUALIFYING SHIPS IS COMPUTED IN ACCORDANCE WITH THE PROVIS IONS OF SUB - SECTION S ( 2 ) AND ( 3 ) OF SECTION 115VG OF THE ACT. NOTABLY, IN TERMS OF THE SAID SCHEME OF TAXATION, THE INCOME FROM OPERATION OF THE QUALIFYING SHIPS IS DEDUCED IGNORING THE ACTUAL PROFIT & LOSS ACCOUNT THAT MAY BE PREPARED BY AN ASSESSEE. 4 . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD RECEIVED A DIVIDEND INCOME OF RS. 1,03,65,433/ - WHICH WAS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW - CAUSE AS TO WHY THE INCOM E IN RELATION TO SUCH EXEMPT INCOME SHOULD NOT BE DISA LLOWED U/S 14A OF THE ACT, R.W. R 8D OF THE INCOME TAX RULES, 1962. THE STAND OF THE ASSESSEE WAS THAT THE DISALLOWANCE ENVISAGED U/S 14A OF THE ACT HAD NO RELEVANCE IN THE PRESENT CASE AS ASSESSEES INC OME WAS ASSESSABLE ON A PRESUMPTIVE BASIS UNDER THE TONNAGE TAX SCHEME. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE ASSESSEE 3 M/S VARUN SHIPPING COMPANY LTD PAGE 3 OF 12 AND INSTEAD HE COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 38,58,497/ - AND ADDED THE SAID AMOUNT TO THE RETURN ED INCOME. THE CIT(A), HOWEVER, ACCEPTED THE PLEA OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 VIDE ITA NO. 5576/MUM/2011 DATED 30.11.2011. ACCORDINGLY, THE CIT(A) SET ASIDE THE ADDITI ON OF RS. 38,58,497/ - MADE BY THE ASSESSING OFFICER TO THE RETURNED INCOME. 5 . AGAINST SUCH A STAND OF THE CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. AT THE TIME OF HEARING, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT SO FAR AS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT IS CONCERNED, THE SAME IS UNSUSTAINABLE IN VIEW OF THE ORDER OF THE TRIBUNAL DATED 31.01.2011(SUPRA) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09 (SUPRA) . IT HAS A LSO BEEN POINTED OUT BY THE LD. REPRESENTATIVE FOR THE ASSESSEE THAT THE ORDER OF THE TRIBUNAL DATED 30.11.2011 (SUPRA) CONTINUES TO HOLD THE FIELD AS IT HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORIT Y . SUCH ASSERTION BY THE LD. REPRESENTATIVE FOR THE ASSESSE E HA S NOT BEEN DISPUTED BY THE LD. DR. 6 . IN VIEW OF THE PRECEDENT DATED 30.11.2011, WE FIND THAT THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN RIGHTLY DELETED BY THE CIT(A). NEVERTHELESS, IN ORDER TO IMPART COMPLETENESS TO THIS ORDER, WE REPRODUCE HEREINAFTER, THE OPERATIVE PART OF THE ORDER OF THE TRIBUNAL DATED 30.11.2011 (SUPRA) , WHICH HAS BEEN RENDERED UNDER IDENTICAL CIRCUMSTANCES : - 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS AND ITS INCOME FROM THE SAID BUSINESS WAS DECLARED AND ASSESSED AS PER THE SPECIAL PROVISIONS CONTAINED IN CHAPTER XIIG WHICH LAY DOWN TONNAGE TAX SCHEME. AS PER THE PROVIS IONS OF SECTION 115VA CONTAINED IN CHAPTER XIIG, THE INCOME FROM THE BUSINESS OF OPERATING QUALIFYING SHIPS CAN BE COMPUTED AT THE OPTION OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XIIG AND ONCE THIS OPTION IS EXERCISED BY THE ASSESSEE, T HE INCOME SO COMPUTED 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 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 28 TO 43C. IT, 4 M/S VARUN SHIPPING COMPANY LTD PAGE 4 OF 12 THEREFORE, FOLLOW S THAT WHEN THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPERATING SHIPS IS COMPUTED AS PER THE SPECIAL PROVISIONS CONTAINED IN CHAPTER XIIG, ONLY THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING INCOME OF THE SAID BUSINESS ARE DEEMED TO BE ALLOWED AND NOTHING ELSE. IT, THEREFORE, CANNOT BE SAID THAT WHEN THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPERATING SHIPS IS COMPUTED AS PER THE SPECIAL PROVISIONS OF CHAPTER XIIG, ANY EXPENDITURE OTHER THAN THE EXPENDITURE INCURRED FOR THE PURPOSE OF THE SAI D BUSINESS HAS BEEN ALLOWED AND CONSEQUENTLY NO ADDITION TO INCOME SO COMPUTED CAN BE MADE BY WAY OF DISALLOWANCE U/S 14A ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME. WE, THEREFORE, FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPERATING SHIPS HAVING BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XIIG, ONLY THE EXPENSES INCURRED FOR THE SAID BUSINESS ARE DEEMED TO H AVE BEEN ALLOWED AND NO ADDITION TO SUCH INCOME CAN BE MADE BY WAY OF DISALLOWANCE U/S 14A ON ACCOUNT OF ANY EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME. IN OUR OPINION, IF AT ALL THE ASSESSEE HAS CLAIMED ANY SUCH EXPENDITURE IN C OMPUTATION OF PROFIT OF BUSINESS OF SHIPPING, THE SAME ARE TO BE TAKEN AS DISALLOWED WHEN THE INCOME OF THE SAID BUSINESS IS FINALLY COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XIIG AND NO SEPARATE DISALLOWANCE ON ACCOUNT OF SUCH EXPENDITURE U/S 14A CAN BE MADE. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE AO U/S 14A AND CONFIRMED BY THE LEARNED CIT(APPEALS) AND ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL. 7 . FOLLOWING THE AFORESAID DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 30.11.2011 (SUPRA), WE HEREBY AFFIRM THE ORDER OF THE CIT ( A) DELETING THE DISALLOWANCE OF RS. 38 ,58,497 / - MADE BY THE ASSESSING OFFICER. THUS, ON THIS ASPECT, REVENUE FAILS IN ITS APPEAL. 8. NOW, WE MAY TAKE UP THE APPEAL OF THE ASSESSEE, WHEREIN, THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED . (A) THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE ADDITION OF IMPAIRMENT LOSS ON CERTAIN SHIPS OF RS.9,38,22,OOO TO THE BOOK PROFIT OF THE APPELLANT U/ S L15JB OF THE ACT. THE APPELLANT SUBMITS THAT IMPAIRMENT LOSS FORMS PART OF CORE ACTIVITY OF THE APPELLANT AND HENCE THE SAME IS TO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. 5 M/S VARUN SHIPPING COMPANY LTD PAGE 5 OF 12 (B) IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ABOVE, T HE CIT(A) ERRED IN IGNORING THE ADJUSTMENT OF SHIPPING PROFIT AS CONTEMPLATED U / S L15VO OF THE ACT BY THE IMPAIRMENT LOSS ON CERTAIN SHIPS WHILE COMPUTING BOO K PROFIT U/S L15JB OF THE ACT. THE APPELLANT SUBMITS THAT SHIPPING PROFIT REQUIRED TO BE REDUCED FROM THE BOOK PROFIT OUGHT TO HAVE BEEN INCREASED BY THE AMOUNT OF IMPAIRMENT LOSS ON CERTAIN SHIPS AND SUCH ENHANCED SHIPPING PROFIT SHALL BE REDUCED FROM THE BOOK PROFIT FOR ARRIVING AT TAXABLE MAT LIABILITY. THE CIT(A) ERRED IN C ONFIRMING THE ADDITION OF EXPENDITURE OF RS.38,58,497/ - DISALLOWED U/S L4A R.W.RULE 8D TO THE BOOK PROFIT COMPUTED U / S L15JB OF THE ACT. THE APPELLANT SUBMITS THAT DISALLOWANCE U /S 14A R. W. RULE 8D OF THE ACT COMPUTED UNDER CHAPTER IV OF THE ACT HAS NO APPLICATION TO BOOKS PR OFIT COMPUTED UNDER CHAPTER XII - B OF THE ACT AND HENCE NO DISALLOWANCE U/ S L4A R.W.RULE 8D IS CALLED FOR. 9 . IN SO FAR AS THE GROUND OF APPEAL NO. 1 IS CONCERNED, THE DISPUTE RELATES TO THE COMPUTATION OF BOOK PROFITS FOR THE PURPOSES OF SECTION 115JB O F THE ACT. PERTINENTLY, THE EXPRESSION BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF THE ACT, HAS BEEN DEFINED IN EXPLANATION 1 TO SECTION 115JB TO MEAN THE NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UND ER SUB - SECTION ( 2 ) AS INCREASED AND REDUCED BY ADJUSTMENTS SPECIFIED IN THE SAID EXPLANATION. IN THE CONTEXT OF THE PRESENT CONTROVERSY, IT WOULD ALSO BE RELEVANT TO OBSERVE THAT IN TERMS OF SECTION 115VO OF THE ACT, THE BOOK PROFIT OR LOSS DERIVED FROM TH E ACTIVITIES OF A TONNAGE TAX COMPANY, REFERRED TO IN SUB - SECTION ( 1 ) OF SECTION 115V - I , IS LIABLE TO BE EXCLUDED FROM THE BOOK PROFIT OF THE COMPANY FOR THE PURPOSES OF SECTION 115JB OF THE ACT. INSOFAR AS THE APPLICABILITY OF AFORESAID TWO PROVISIONS TO THE INSTANT CASE ARE CONCERNED, THERE IS NO DISPUTE. 10 . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT WHILE COMPUTING THE BOOK PROFITS FOR THE PURPOSES OF SECTION 115JB OF THE ACT, THE ASSESSEE HAD NOT DISALLOWED A SUM OF RS. 9,38,22,000/ - DEBITED IN ITS PROFIT & LOSS ACCOUNT. NOTABLY, IN ITS P&L ACCOUNT, ASSESSEE HAD DEBITED A SUM OF RS. 9,38,22,000/ - WHICH REPRESENTED AN IMPAIRMENT LOSS ON CERTAIN SHIPS. AS PER THE 6 M/S VARUN SHIPPING COMPANY LTD PAGE 6 OF 12 ASSESSING OFFICER, THE SAID DEBIT IN THE PR OFIT & LOSS ACCOUNT WAS A MERE P ROVISION FOR DIMINUTION IN THE VALUE OF AN ASSET WHICH WAS LIABLE TO BE ADDED BACK TO COMPUTE THE BOOK P ROFIT IN TERMS OF CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. AS A CONSEQUENCE , THE A SSESSING OFFICER DETERMINED THE BO OK PROFIT OF THE ASSESSSEE COMPANY U/S 115JB OF THE ACT AT RS. 37,79,35,313/ - AS AGAINST ASSESSEES COMPUTATION OF BOOK PROFIT AT RS. 28,41,13,313/ - THEREBY RESULTING IN AN ADDITION OF RS. 9,38,22,000/ - ON THIS COUNT. THE CIT(A) HAS ALSO AFFIRMED THE AFOR ESAID ACTION OF THE ASSESSING OFFICER AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11 . BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD RECOGNIZED IMPAIRMENT LOSS OF RS. 9,38,22,000/ - IN RESPECT OF CERTAIN SHIPS CONSEQUENT TO THE FALL IN VALUA TION OF SUCH ASSETS, FOLLOWING A CCOUNTING S TANDARD (AS) - 28 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA . IT WAS SUBMITTED THAT THE BOOK VALUE OF SUCH ASSETS, AFTER ACCOUNTING FOR THE IMPAIRMENT RECOGNIZED , IS ALIGNED CLOSER TO THE MARKET VALUE OF SUCH ASSETS. THE LD. REPRESENTATIVE SUBMITTED THAT THE SAME HAS BEEN CORRECTLY DEDUCTED BY THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OU T THAT THE ACTION OF THE ASSESSING OFFICER WOULD HAVE NO IMPLICATION BECAUSE IF THE IMPAIRMENT LOSS IS TO BE EXCLUDED FOR THE PURPOSES OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT, THEN IT SHOULD ALSO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT OF THE AC TIVITIES OF THE SHIPPING BUSINESS AS IT PERTAINS TO THE SHIPPING BUSINESS. THE BOOK PROFIT OF SHIPPING ACTIVITY SO COMPUTED WOULD BE ELIGIBLE TO BE REDUCED FROM THE BOOK PROFIT OF THE COMPANY FOR THE PURPOSES OF SECTION 115JB OF THE ACT. THUS , ACCORDING TO THE LD. REPRESENTATIVE, ON A COMBINED APPLICATION OF SECTION S 115VO AND 115JB OF THE ACT, AFORESAID ASPECT OF THE CONTROVERSY WOULD NOT HAVE ANY EFFECT ON THE RESULTANT BOOK PROFIT SUBJECT TO TAX U/S 115JB OF THE ACT. FURTHERMORE, THE LD. REPRESENTATIVE SUBMITTED THAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09, THE TRIBUNAL IN ITS ORDER DATED 30.11.2011 (SUPRA) HAS APPRECIATED THE AFORESAID LEGAL POSITION. 7 M/S VARUN SHIPPING COMPANY LTD PAGE 7 OF 12 12 . ON THE OTHER HAND, THE LD. DR APPEARING FOR THE REVENUE HAS MERELY REITERATED THE STAND OF THE LOWER AUTHORITIES, WHICH IS TO THE EFFECT THAT THE IMPAIRMENT LOSS DEBITED IN T HE PROFIT & LOSS ACCOUNT WAS A P ROVISION FOR DIMINUTION IN THE VALUE OF THE ASSET, WHICH COULD NOT BE REDUCED IN ORDER TO COMPUT E THE BOOK PROFITS F OR THE PURPOSES OF SECTION 115JB OF THE ACT. 13. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND THAT THE INCOME TAX AUTHORITIES HAVE GROSSLY MIS - DIRECTED THEMSELVES IN ENHANCING THE BOOK - PROFIT U/S 115JB OF THE ACT. INFACT, THERE CAN BE NO DISPUTE THAT INSOFAR AS THE ADJUSTMENT OF P ROVISION FOR IMPAIRMENT LOSS IS CONCERNED, THE SAME IS WELL FOUNDED IN TERMS OF CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. SO HOWEVER, THE PERTINENT POINT WHICH IS MISSED OUT BY THE INCOME TAX A UTHORITIES IS TH AT THE IMPUGNED ADJUSTMENT RELATES TO THE ACTIVITIES OF A TONNAGE TAX COMPANY AND, THEREFORE , SIMILAR ADJUSTMENT OUGHT TO HAVE BEEN MADE IN COMPUTATION OF BOOK PROFIT DERIVED FROM SUCH ACTIVITY ALSO AS THE SAME RELATES TO THE SHIPPING BUSINESS. SECTION 11 5VO OF THE ACT, PRESCRIBES THAT THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY SHALL BE EXCLUDED FROM THE BOOK PROFIT OF THE ASSESSEE COMPANY FOR THE PURPOSES OF SECTION 115JB OF THE ACT . THE EFFECT OF THE ACTION OF THE ASSESSING OFFI CER IS THAT THE BOOK PROFIT OF THE ASSESSEE COMPANY HAS BEEN INCREASED BY A SUM OF RS. 9,38,22,000/ - ON ACCOUNT OF IMPAIRMENT LOSS OF CERTAIN SHIPS, WHICH IS RELATABLE TO SHIPPING BUSINESS WHEREAS THE BOOK PROFIT OF THE SHIPPING BUSINESS COMPUTED BY THE AS SESSEE IS OF A DIFFERENT FIGURE, ALBEIT WHICH IS COMPUTED WITHOUT CONSIDERING THE AFORESAID ADJUSTMENT OF RS. 9,38,22,000/ - . 1 4 . THE REVENUE HAS NOT ACCEPTED THE AFORESAID STAND OF THE ASSESSEE ON THE GROUND THAT BOOK PROFIT COMPUTED BY THE ASSESSEE FROM T HE ACTIVITIES OF A TONNAGE TAX HAS BEEN COMPUTED AT RS. 97,82,28,861/ - AS PER FORM 29B SUBMITTED BY THE ASSESSEE WHICH IS DULY CERTIFIED BY A CHARTERED ACCOUNTANT AND SUCH AMOUNT OF BOOK 8 M/S VARUN SHIPPING COMPANY LTD PAGE 8 OF 12 PROFIT HAS ALREADY BEEN REDUCED WHILE COMPUTING THE BOOK PROFIT OF TH E ASSESSEE FOR THE PURPOSES OF SECTION 115JB OF THE ACT. ACCORDINGLY, AS PER THE REVENUE, NO FURTHER DEDUCTION AS CONTEMPLATED U/S 115VO OF THE ACT, CAN BE ALLOWED TO THE ASSESSEE WITH RESPECT TO THE SUM OF RS. 9,38,22,000/ - DEBITED IN THE PROFI T & LOSS AC COUNT ON ACCOUNT OF I MPAIRMENT LOSS OF CERTAIN SHIP. AN IDENTICAL OBJECTION HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09, VIDE ORDER DATED 30.11.2011 (SUPRA). THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 30.11.2011 IS RELEVANT : - 15. AS PER THE PROVISIONS OF SUB - SECTION (4) OF SECTION 115JB, EVERY COMPANY TO WHICH SECTION 115JB APPLIES IS REQUIRED TO FURNISH A REPORT IN THE PRESCRIBED FORM NO. 29B FROM THE AUDITORS CERTIFYING THAT THE BOOK PROFIT HAS BEEN COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 115JB. THE SAID REPORT HAS TO BE FURNISHED WITH THE RETURN OF INCOME FILED UNDER SUB - SECTION (1) OF SECTION 139 OR ALONG WITH THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE ISSUED U/S 142(1)(I). THE AUDITORS THUS ARE REQUIRED TO CERTIFY THAT THE BOOK PROFIT DECLARED BY THE ASSESSEE COMPANY IN ITS RETURN OF INCOME HAS BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. HOWEVER, IF THE BOOK PROFIT SO COMPUTED BY THE ASSESSEE IS FOUND TO BE NOT IN ACCORDANCE WITH TH E PROVISIONS OF SECTION 115JB, THE AO IS DULY EMPOWERED OR RATHER IS DUTY BOUND TO MAKE THE ADJUSTMENT SO AS TO COMPUTE THE BOOK PROFIT OF THE ASSESSEE COMPANY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. IN THE PRESENT CASE, SUCH ADJUSTMENTS INDEED HAVE BEEN MADE BY THE AO TO THE BOOK PROFIT COMPUTED BY THE ASSESSEE AND CERTIFIED BY THE AUDITORS AFTER HAVING FOUND THAT THE BOOK PROFIT SO COMPUTED AND CERTIFIED BY THE AUDITORS WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. THE AO THUS HA S NOT GONE BY THE AUDITORS REPORT FURNISHED IN FORM NO. 29B FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB AND HAS MADE THE ADJUSTMENT BY ADDING BACK TWO AMOUNTS IN QUESTION TO THE BOOK PROFIT DECLARED BY THE ASSESSEE U/S 115JB AND CERTIFIED BY THE AUDITORS IN THEIR REPORT FURNISHED IN FORM NO. 29B. HOWEVER, WHILE COMPUTING THE BOOK PROFIT DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY WHICH IS ELIGIBLE FOR EXCLUSION FROM THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115 JB, HE HAS DECLINED TO MAKE THE SAID ADJUSTMENTS DESPITE THE FACT THAT BOTH THE AMOUNTS IN QUESTION ADDED BACK BY HIM FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB WERE RELATED TO THE ACTIVITIES OF A TONNAGE TAX COMPANY ON THE GROUND THAT THE BOOK PRO FIT OF THE SAID ACTIVITIES AS DECLARED BY THE ASSESSEE WAS DULY CERTIFIED BY THE AUDITORS IN THE REPORT FURNISHED IN FORM NO. 29B. THIS STAND TAKEN BY THE AO, IN OUR OPINION, IS SELF CONTRADICTORY AND INCONSISTENT WHICH CANNOT BE UPHELD. 9 M/S VARUN SHIPPING COMPANY LTD PAGE 9 OF 12 1 5 . QUITE CLEARL Y, THE IMPUGNED SUM OF RS. 9,38,22,000/ - ADDED BY THE ASSESSING OFFICER FOR THE PURPOSES OF DETERMINING THE BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB OF THE ACT RELATED TO THE ACTIVITIES OF A TONNAGE TAX COMPANY AND IT IS ALSO NOT DISPUTED BY THE REVEN UE THAT SUCH AMOUNT WAS REDUCED BY THE ASSESSEE WHILE COMPUTING THE BOOK PROFITS FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY. THEREFORE, IF THE STAND OF THE ASSESSING OFFICER IS TO BE UPHELD THEN SIMILAR AMOUNT OUGHT TO BE ADDED BACK FOR THE PURPOSES O F COMPUTING BOOK PROFITS DERIVED FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY , BECAUSE SUCH BOOK PROFIT FROM THE ACTIVITIES OF A TONNAGE TAX COMPANY ARE LIABLE FOR EXCLUSION FROM THE BOOK PROFITS FOR THE PURPOSES OF SECTION 115JB OF THE ACT, IN VIEW OF T HE SPECIFIC ENACTMENT CONTAINED IN SECTION 115VO OF THE ACT. THEREFORE, WE FIND IT EXPEDIENT TO SET ASIDE THE IMPUGNED ORDER OF CIT(A) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO MAKE ADJUSTMENT FOR THE IMPAIRMENT LOSS IN THE BOOK PROFIT DERIVED F ROM THE ACTIVITIES OF A TONNAGE TAX COMPANY ALSO; AND THE SO COMPUTED BOOK PROFIT SHALL BE LIABLE TO BE EXCLUDED FROM THE BOOK PROFITS OF THE ASSESSEE COMPANY FOR THE PURPOSES OF SECTION 115JB OF THE ACT, IN VIEW OF SECTION 115VO OF THE ACT. AS A CONSEQUE NCE, WE UPHOLD THE CLAIM OF THE ASSESSEE AND GROUND OF APPEAL NO. 1 OF THE ASSESSEE IS ALLOWED. 1 6 . INSOFAR AS, THE SECOND GROUND OF APPEAL IS CONCERNED, THE ASSESSEE HAS CONTESTED THE ACTION OF THE I NCOME T AX A UTHORITIES IN ENHANCING THE BOOK PROFIT U/S 115JB OF THE ACT BY AN AMOUNT OF RS. 38,58,497/ - ON ACCOUNT OF THE DISALLOWANCE MADE U/S 14A OF THE ACT. 14. PERTINENTLY, INSOFAR AS THE DISALLOWANCE OF RS. 38,58,497/ - MADE BY THE ASSESSING OFFICER UNDER THE NORMAL PROVISIONS OF THE ACT BY INVOKING THE P ROVI SIONS OF SECTION 14A OF THE ACT IS CONCERNED, THE SAME HAS ALREADY BEEN DELETED BY US WHILE DEALING WITH THE CROSS APPEAL OF THE REVENUE IN EARLIER PARAS. FURTHER , THE REVENUE HAS JUSTIFIED THE ENHANCEMENT OF BOOK PROFIT U/S 115JB OF THE ACT ON THE GR OUND THAT THE STATUTORY DISALLOWANCE COMPUTABLE U/S 14A OF THE ACT IS APPLICABLE WHILE WORKING OUT THE BOOK PROFITS U/S 115JB OF THE ACT. IN THIS CONTEXT , THE PLEA SET UP BEFORE US IS 10 M/S VARUN SHIPPING COMPANY LTD PAGE 10 OF 12 THAT NO EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE RELATING TO THE EX EMPT DIVIDEND INCOME SO AS TO JUSTIFY ANY SUCH ADJUSTMENT IN THE COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE CONTROVERSY WITH REGARD TO THE ADJUSTMENT RELATING TO THE AMOUNT OF DISALLOWANCE COMPUTED U/S 14A OF THE ACT WHILE COMPUTING THE BOOK PRO FIT U/S 115JB OF THE ACT, HAS BEEN A SUBJECT MATTER OF CONSIDERATION BY VARIOUS CO - ORDINATE BENCHES OF THE TRIBUNAL. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GOETZE (INDIA) PVT. LTD. [32 SOT 101] (DEL) HELD THAT FOR THE PURPOSES OF COMPUTATION OF BOO K PROFIT, THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 115JB OF THE ACT. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M /S BENGAL FINANCE & INVESTMENTS VS. THE ASSTT. COMMISSIONER OF INCOME - TAX IN ITA NO. 5620/MUM/2010 DATED 31.07.2012 HAS ALSO TAKEN A SIMILAR VIEW, AND THE RELEVANT DISCUSSION IS AS FOLLOWS: - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSING OFFICER A DDED THE AMOUNT DISALLOWED BY HIM U/S 14A TO THE TUNE OF `78.84 LAKH TO THE BOOK PROFIT COMPUTED U/S 115JB. THE LEARNED CIT(A) ORDERED FOR THE DELETION OF THIS AMOUNT. THE LEARNED AR HAS PLACED ON RECORD A COPY OF THE ORDER PASSED BY THE MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF M/S.ESSAR TELEHOLDINGS LTD. V. DCIT IN ITA NO.3850/MUM/2010 IN WHICH IT HAS BEEN HELD THAT THE AMOUNT DISALLOWED U/S 14A CANNOT BE ADDED TO THE AMOUNT OF BOOK PROFIT U/S 115JB. IN THIS ORDER IT HAS BEEN LAID DOWN THAT UNLESS A PAR TICULAR EXPENDITURE IS DEBITED TO THE PROFIT AND LOSS ACCOUNT RELATING TO THE EARNING OF EXEMPT INCOME, THE SAME CANNOT BE IMPORTED INTO THE COMPUTATION OF BOOK PROFIT AS CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB WHICH ONLY REFERS TO THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN REACHING THIS CONCLUSION THE MUMBAI BENCH RELIED ON ANOTHER ORDER OF THE DELHI BENCH IN THE CASE GOETZE (INDIA) LTD. V. CIT [(2009) 32 SOT 101 (DEL.)] LAYING DOWN SIMILAR PROPOSITION. THE LEARNED AR HAS ALSO PLACED ON REC ORD ONE MORE ORDER PASSED BY THE DELHI BENCH IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. V. ACIT IN ITA NO.4931/DEL/2010 IN WHICH IT HAS BEEN REITERATED THAT THE AMOUNT DISALLOWED U/S 14A CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. NO CONTRARY DECISION HAS BEEN BROUGHT ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECTING THAT THE AMOUNT OF DISALLOWANCE U/S 14A CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFIT U/S 115JB. 11 M/S VARUN SHIPPING COMPANY LTD PAGE 11 OF 12 15. IN VIEW OF THE AFORESAID DECISION, IT IS CLEAR THAT THE AMOUNT DISALLOWED U/S 14A OF THE ACT CANNOT BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. IN THE ABSENCE OF ANY DECISIO N TO THE CONTRARY BROUGHT OUT BY THE REVENUE, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE AFORESAID PRECEDENT. THUS, ON THIS GROUND ALSO ASSESSEE SUCCEEDS. 16. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED AND THAT BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JUNE 2015. SD/ - SD/ - (AMIT SHUKLA) (G.S. PANNU) (JUDICIAL MEMBER/ U;KF;D LNL; ) (ACCOUNTANT MEMBER/ YS[KK LNL; ) MUMBAI DATED 30 - 0 6 - 2015 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI 12 M/S VARUN SHIPPING COMPANY LTD PAGE 12 OF 12 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 16.06.2015 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16.06.2015 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT .06.2015 SR. PS/PS 7 FILE SENT TO BENCH CLERK .6.2015 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER