ACIT CC 3(3), MUMBAI V. SHREYAS SHIPPING & LOGIESTICS LTD, MUMBAI

ITA 7406/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3726 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 11-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SATHYA MOORTHYDR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/7406/MUM/2014, /ASSESSMENT YEARS: 2011-12 ACIT, CENTRAL CIRCLE-3(3) CENTRAL RANGE-3 MUMBAI. VS. M/S. SHREYAS SHIPPING LOGISTICS LTD., 2 ND FLOOR, GEETMALA COMPLEX NEAR SHAH INDL ESTATE, OFF DEONAR VILLAGE RD., GOVANDI (E),MUMBAI-400 088. PAN:AAACS 7927 B ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N. SATHYA MOORTHY-DR ASSESSEE BY: SHRI VIJAY MEHTA / DATE OF HEARING: 13.07.2016 / DATE OF PRONOUNCEMENT: 03.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 01/09/2014, OF THE CIT (A) 39, MUMBAI THE ASSESSEE HAS FILED PRESENT APPEAL.ASSESSEE -COMPANY , ENGAGED IN THE BUSINESS OF SHIPPING AND LOGISTICS BUSINESS,FILED ITS RETURN OF INCOME ON 29/09/2011 ADMITT - ING TOTAL INCOME OF RS.69.60 LAKHS.THE ASSESSING OF FICER (AO) COMPLETED THE ASSESSMENT, U/S.143(3)OF THE ACT, ON 31/01/2014, DE TERMINING THE INCOME OF THE ASSESSEE AT RS.1,47,78,690/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION MADE BY THE AO U/S.14A R.W.R. 8 OF THE INCOME TAX RULES, 1962 (RUL ES), AMOUNTING TO RS.78.18 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUN D THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,42,29,145/-,THAT IT HAD ALS O INCURRED INTEREST EXPENSES AND FINANCE CHARGES OF RS.6,18,33,378/-. HE DIRECTE D THE ASSESSEE TO SHOW CAUSE AS TO WHY EXPENSES ATTRIBUTABLE TO DIVIDEND INCOME SHOULD NOT BE DISALLOWED U/S.14A R.W.R. 8D OF THE RULES.THE ASSESSEE CONTEND ED THAT NONE OF THE INVESTMENTS WERE MADE OUT OF THE BORROWED FUNDS,THA T THE INTEREST/FINANCE CHARGES PERTAIN TO INTEREST ON LOANS AND OVERDRAFTS TAKEN FOR PURCHASE AND OPERATION OF VESSELS I.E. QUALIFYING SHIPS UNDER TH E TONNAGE TAX SCHEME (TTS) THAT IN THE EARLIER YEARS DISALLOWANCE MADE U/S.14A WAS DELETED IN THE APPELLATE 7406/MUM/2014(SHREYAS SHIPPING) 2 PROCEEDINGS.IT REFERRED TO THE CASE OF VARUN SHIPPI NG COMPANY LTD. (ITA/ 5576/11/MUM/2011). AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE PERTAINING TO EXEMPT INCOME WAS NOT CORRECT, THAT IT WAS MAINTAIN ING CONSOLIDATED BALANCE SHEET,THAT THE UTILISATION OF BORROWINGS FOR THE PU RPOSE OF BUSINESS AND FOR PURPOSE OF INVESTMENT WERE NOT BROUGHT OUT CLEARLY. HE MADE A DISALLOWANCE OF RS. 78.18 LAKHS(RS. 66.11 LAKHS UNDER THE HEAD INTE REST EXPENDITURE AND RS. 12. 06 LAKHS UNDER THE HEAD 0.05% OF THE AVERAGE OF THE VALUE OF INVESTMENT), INVOKING THE PROVISIONS OF SECTION 14 A R.W.R. 8D O F THE RULES. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS AR GUED THAT ALTHOUGH LOANS AVAILED OF HAD BEEN UTILISED FOR SHIPPING BUSINESS ALONE I.E. MAINLY FOR ACQUISI - TION OF THE VESSELS,THAT PART OF THE INVESTMENT WAS UTILISED FOR THE PURPOSE OF BUSINESS OPERATIONS AND FOR INVESTMENT IN FRESH SHA RES, THAT THE CLOSING BALANCE OF INVESTMENT IN MUTUAL FUNDS IN SHARE CAPITAL WAS RS.1,506.53 CRORES,THAT THE AO HAD ERRED IN MAKING DISALLOWANCE U/S.14 A ESPECI ALLY IGNORING THE FACT THAT THE SHIPPING RELATED INCOME WAS TAXABLE UNDER THE P RESENT A PROVISIONS OF SECTION 115 VG OF THE ACT. AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE,THE F AA HELD THAT AS PER THE PROVISIONS OF SECTION 115 VG PRESUMPTIVE TAX WAS LE VIABLE ON THE BASIS OF VESSEL TONNAGE,THAT NO EXPENSES,INCLUDING INTEREST EXPENSES, WERE BEING CLAIMED OR ALLOWED,THAT THE CONDITION PRECEDENT FOR INVOKIN G SECTION 14A WAS MISSING IN THE CASE UNDER CONSIDERATION, THAT THE ASSESSEE HAD INCURRED NO EXPENSES IN THE FORM OF INTEREST EXPENDITURE OR HAD CLAIMED THE SAM E EITHER AGAINST THE SHIPPING INCOME OR AGAINST THE NON-SHIPPING INCOME, THAT THE GROSS INTEREST INCOME OF RS. 33.45 LAKHS,EARNED ON FDR.S HAD BEEN OFFERED TO TAX AS NON-SHIPPING INCOME 7406/MUM/2014(SHREYAS SHIPPING) 3 WITHOUT CLAIMING ANY CORRESPONDING EXPENSES,THAT WH EN NO EXPENSES WERE BEING CLAIMED AGAINST THE NON-SHIPPING INCOME THE Q UESTION OF DISALLOWANCE VIS--VIS NON-SHIPPING INCOME WOULD NOT ARISE,THAT THE INTEREST EXPENDITURE PERTAIN TO VESSEL LOANS INCIDENTAL TO THE SHIPPING BUSINESS CARRIED ON, THAT THERE WAS NO DIRECT NEXUS AGAINST THE DIVIDEND INCOME EXE MPT FROM THE TAX.FINALLY,HE DELETED THE ADDITION MADE BY THE AO. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. THE AUTHORISED REPRE SENTATIVE (AR) ARGUED THAT THE ASSESSEE WAS ASSESSED AS PER THE PROVISIONS OF SECTION 115 VG OF THE ACT, THAT IT HAD NOT CLAIMED ANY EXPENDITURE AGAINST THE NON-SHIPPING BUSINESS, THAT THE FAA HAD ALLOWED THE APPEALS,FILED BY THE ASSESS EE,FOR THE EARLIER THREE YEARS ON THE IDENTICAL ISSUE, THAT THE THEN AO.S DID NOT CHALLENGE THE ORDER OF THE FAA BEFORE THE TRIBUNAL, THAT THE ASSESSEE HAD MADE INV ESTMENT FROM ITS OWN FUNDS, THAT THERE WAS NO JUSTIFICATION FOR INVOKING THE PR OVISIONS OF SECTION 14A OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD MADE DISALLOWANCE UNDER SECTIO N 14A, THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST THE INCOME ARISING OUT OF NON-SHIPPING BUSINESS,THAT IT HAD OPTED FOR TTS FOR THE SHIPPING BUSINESS,THAT IT HAD SUFFICIENT OWN FUNDS TO MAKE INVESTMENTS.SO,WE ARE OF THE OPIN ION THAT DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIABLE.IF NO EXPENDITUR E WAS CLAIMED AGAINST THE EXEMPT INCOME ARISING OUT OF NON-SHIPPING BUSINESS, THE BASIC INGREDIENT FOR INVOKING THE PROVISIONS OF SECTION 14A WAS ABSENT. NOW WE WOULD LIKE TO DISCUSS THE TTS.SECTION 115VA OF THE ACT IS UNIQUE IN THE SENSE THAT IT DEALS WITH THE COMPUTATION OF INC OME FROM THE BUSINESS OF OPERATING QUALIFYING SHIPS WHICH OPT FOR TONNAGE TA X SCHEME(TTS).THE 7406/MUM/2014(SHREYAS SHIPPING) 4 METHOD OF COMPUTATION OF INCOME UNDER THE SCHEME,AS PROVIDED BY THE SECTION,STIPULATES THAT INCOME HAS TO BE ASSESSED I N A PARTICULAR MANNER.IN OTHER WORDS,NO EXPENDITURE CAN BE ALLOWED OR DISALLOWANCE CAN BE MADE,WHILE COMPUTING THE INCOME UNDER TTS.THE INCOME OF THE AS SESSEE IS COMPUTED AT A FIXED RATE AND ALL OTHER PROVISIONS OF THE ACT ARE NOT TO BE APPLIED,ONCE AN ASSESSEE OPTS FOR THE SCHEME.IN SHORT,IF THE ASSES SEE CANNOT CLAIM ANY EXPENDITURE AFTER OPTING OUT OF THE SCHEME,THEN THE AO IS ALSO BARRED BY MAKING ANY DISALLOWANCE FOR INCURRING OF EXPENDITURE.LEGIS LATURE,IN ITS WISDOM,HAS ALLOWED THE ASSESSEES FOR OPTING FOR THE SAID SCHEM E AND WITH A SPECIFIC PURPOSE.THEREFORE,WHILE COMUPTING THE INCOME OF THE ASSESSEE U/S. 115VP,THE AO HAS TO PUT ON BLINKERS AND ASSESS THE INCOME AS SUGGESTED BY THE PARLIAMENT.THERE IS NO SCOPE FOR TINKERING WITH THE PROVISIONS OF SECTION 115 VP OF THE ACT.HE HAS TO FOLLOW THE SIMPLE RULE THAT NO DEDUCTION IS TO BE ALLOWED OR NO DISALLOWANCE IS TO BE MADE UNDER ANY OF THE NORMAL PROVISIONS OF THE ACT, ONCE IT IS FOUND THAT AN ASSESSEE IS TO BE ASSESSED AS PER THE PROVISIONS OF CHAPTER XIIG OF THE ACT.SECTION 14A IS NOT AN EX CEPTION TO THE TTS.RATHER THE SCHEME IS AN EXCEPTION TO THE NORMAL COMPUTATIO N PROVISIONS,INCLUDING THE SECTION 14A.THEREFORE,IT CANNOT BE SAID THAT WHEN T HE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPERATING SHIPS WAS COMPUTED U NDER THE SPECIAL PROVISIONS OF CHAPTER XII-G,EXPENDITURE OTHER THAN THE EXPENDI TURE INCURRED FOR THE PURPOSE OF THE BUSINESS HAD BEEN ALLOWED.CONSIDERIN G THE TWIN FACTORS I.E. NOT CLAIMING ANY EXPENDITURE AGAINST THE NON-SHIPPING B USINESS INCOME BY THE ASSESSEE AND OPTING FOR TTS FOR SHIPPING BUSINESS, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. THEREFORE, CONFIRMING HIS ORDER, WE DECIDE THE EFFE CTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . 7406/MUM/2014(SHREYAS SHIPPING) 5 . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST ,2016. !'#$%&&&'( 3 ) ,2016 !* SD/- SD/- ( . . +, / C.N. PRASAD ) ( %- / RAJENDRA ) %&& ,)& / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 03 .08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.