ACIT, CHENNAI V. M/s. Sanmar Shipping Ltd., CHENNAI

ITA 737/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4911 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 17-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D R I VIJAYKUMAR IRS
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 737/MDS/2010 ASSESSMENT YEAR : 2004-05 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-VI(1), CHENNAI 34. VS. M/S. SANMAR SHIPPING LTD., NO.9, CATHEDRAL ROAD, CHENNAI 600 086. PAN AABCS 0545 C (APPELLANT) (RESPONDENT) APPELLANT BY : D R. I. VIJAYKUMAR, IRS, CIT RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN O R D E R PER DR. O.K. NARAYANAN ; VICE-PRESIDENT THIS APPEAL IS FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2004-05. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V , AT CHENNAI DATED 16.2.2010 AND ARISES OUT OF THE ASSES SMENT COMPLETED UNDER SEC.143(3) READ WITH SEC.147 OF THE I.T. ACT, 1961. ITA 737/10 :- 2 -: 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY CARRYIN G ON THE BUSINESS OF SHIPPING. THE ASSESSEE FILED ITS RETUR N FOR THE IMPUGNED ASSESSMENT YEAR ON A TOTAL INCOME OF ` NIL UNDER CONVENTIONAL METHOD AFTER SETTING OFF THE BROUGHT F ORWARD LOSSES OF ` 37,01,71,005/-. BUT THE ASSESSEE-COMPANY WORKED O UT AN ADJUSTED PROFIT UNDER SEC.115JB OF ` 19,84,08,080/- WITH A TAX LIABILITY OF ` 1,52,52,621/-. INITIALLY, THE RETURN WAS PROCESS ED UNDER SEC.143(1) AND THEREAFTER THE ASSESSMENT WAS COMPLETED UNDER SEC.143(3), ACCEPTING THE COMPUTATIONS MADE B Y THE ASSESSEE-COMPANY UNDER SEC.115JB. THEREAFTER THE A SSESSING AUTHORITY REOPENED THE ASSESSMENT AND DETERMINED M AT INCOME AT ` 32,02,87,486/- BY ADDING BACK DRYDOCK EXPENDITURE O F ` 12,18,79,406/-. IT IS THE CASE OF THE ASSESSING AU THORITY THAT THE DRYDOCK EXPENDITURE OF ` 12,18,79,406/- COULD NOT HAVE BEEN ADJUSTED FOR THE PURPOSE OF BOOK PROFIT UNDER SEC.1 15JB. 3. THE ASSESSEE-COMPANY HAD INCURRED AN AMOUNT OF ` 6,80,63,599/- TOWARDS DRYDOCK EXPENDITURE IN THE PR EVIOUS YEAR. IN THE RETURN OF INCOME, THE SAME HAS BEEN CLAIMED AS DEDUCTION BY THE ASSESSEE-COMPANY. BUT IN THE BOOKS OF ACCOU NT, THE ASSESSEE HAD DEBITED A SUM OF ` 12,18,79,406/- WHICH INCLUDED ITA 737/10 :- 3 -: DRYDOCK EXPENSES FOR THE IMPUGNED ASSESSMENT YEAR A S WELL AS EARLIER YEARS WHICH WERE NOT WRITTEN OFF OR ADJUSTE D BUT KEPT UNDER THE HEAD MISCELLANEOUS EXPENDITURE. WHILE COMPUT ING THE INCOME UNDER CONVENTIONAL METHOD, THE ABOVE BOOK FI GURE WAS DISALLOWED AS THE ASSESSEE WAS CLAIMING THE EXPENDI TURE ON ACTUAL INCURRING BASIS. AT THE SAME TIME, WHILE W ORKING OUT THE BOOK PROFIT FOR THE PURPOSE OF MAT, THE ABOVE AMOUN T OF ` 12,18,79,406/- WAS NOT ADJUSTED. ACCORDING TO THE ASSESSING OFFICER, THE SAME SHOULD BE ADDED BACK TO THE BOOK PROFIT OF THE ASSESSEE-COMPANY AS THE AMOUNT REPRESENTED UNASCERT AINED LIABILITY. IN FIRST APPEAL, THE COMMISSIONER OF IN COME-TAX (APPEALS) FOUND THAT WHILE COMPUTING THE INCOME UND ER THE PROVISIONS OF THE INCOME-TAX ACT, ASSESSEE-COMPANY HAD ADDED THE DEPRECIATION AS PER THE BOOKS ALONG WITH BOOK P ROFIT AND THEREAFTER DEDUCTED THE DEPRECIATION ADMISSIBLE AS PER THE INCOME-TAX RULES. LIKE WISE HE FOUND THAT ASSESSEE -COMPANY HAS ADDED DRYDOCK EXPENSES OF ` 12,18,79,406/- DEBITED IN ITS BOOKS OF ACCOUNT AND DEDUCTED THE EXPENSES OF ` 6,80,63,599/- INCURRED ON DRYDOCK FOR INCOME-TAX PURPOSES. HE, T HEREFORE, FOUND THAT THE ISSUE WAS WHETHER DRYDOCK EXPENDITUR E INCURRED BY THE ASSESSEE THAT HAS BEEN CHARGED TO PROFIT AND LO SS ACCOUNT ITA 737/10 :- 4 -: SHOULD BE ADDED BACK FOR THE PURPOSE OF COMPUTING T HE ADJUSTED BOOK PROFIT UNDER SEC.115JB. THE COMMISSIONER OF I NCOME-TAX (APPEALS) FOUND THAT THE ASSESSEE-COMPANY HAS COMPU TED THE INCOME, BOTH UNDER SEC.115JB AND UNDER REGULAR PROV ISIONS OF THE IAW, IN A PROPER MANNER. HE FURTHER FOUND THAT THE ASSESSING OFFICER HAS AGAIN ADDED BACK A SUM OF ` 12,18,79,406/- FOR THE PURPOSE OF SEC.115JB, WHICH WOULD AMOUNT TO DOUBLE TAXATION. HE OBSERVED THAT THE ASSESSEE COMPANY HAD ADOPTED D IFFERENT METHODS OF ACCOUNTING UNDER THE COMPANIES ACT AND U NDER THE INCOME-TAX ACT. ACCORDINGLY, THE EXPENDITURE INCUR RED UNDER THE HEAD DRYDOCK EXPENDITURE MAY VARY FOR THE PURPOSE OF SEC.115JB AND FOR THE PURPOSE OF COMPUTING OF INCOM E AS PER THE REGULAR PROVISIONS OF LAW. HE FOUND THAT IT IS NOT AN UNASCERTAINED LIABILITY. ACCORDINGLY, HE DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER AND ALLOWED THE APPEAL ON THIS PO INT. 4. NOW, REVENUE IS AGGRIEVED AND THEREFORE, THE SEC OND APPEAL BEFORE US. ITA 737/10 :- 5 -: 5. DR. I. VIJAYKUMAR, THE LEARNED COMMISSIONER OF I NCOME-TAX APPEARED FOR THE REVENUE AND SHRI VIKRAM VIJAYARAGH AVAN, ADVOCATE APPEARED FOR THE RESPONDENT-ASSESSEE. 6. WE CONSIDERED THE MATTER. THE DRYDOCK EXPENSES INCURRED BY THE ASSESSEE-COMPANY IN A PARTICULAR PREVIOUS YE AR IS ELIGIBLE TO BE DEDUCTED AS EXPENSES IN THE CORRESPONDING PRE VIOUS YEAR ITSELF. AT THE SAME TIME, THE ASSESSEE IS ALSO PER MITTED TO TREAT THE EXPENDITURE AS DEFERRED REVENUE EXPENDITURE IN ITS BOOKS OF ACCOUNT FOR THE PURPOSE OF REPORTING THE FINANCIAL RESULTS. REPORTING OF THE TRUE AND FAIR NATURE OF ACCOUNTS I S DONE UNDER THE COMPANIES ACT. THEREFORE, IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAS NOT WRITTEN OFF THE ENTIRE AMOUNT OF EXPENDITUR E AS DONE FOR THE COMPUTATION OF INCOME-TAX LIABILITY UNDER THE R EGULAR PROVISIONS OF LAW. IN SUCH A CIRCUMSTANCE, UNEXPIR ED PORTION OF THE EXPENDITURE REFLECTED IN THE BOOKS OF ACCOUNT O F THE ASSESSEE- COMPANY COULD NOT BE TREATED AS UNASCERTAINED LIABI LITY. THE FINDING OF THE ASSESSING AUTHORITY IS NOT SUSTAINAB LE IN LAW. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RIGHTLY AP PRECIATED THE POINT AND ALLOWED THE APPEAL FILED BY THE REVEN UE. ITA 737/10 :- 6 -: 7. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 15 TH DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 15 TH JUNE, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR