Dredging Corporation of India Ltd., Visakhapatnam V. THE DCIT, CIRCLE - 3(1), Visakhapatnam

ITA 79/VIZ/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6577 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R GOVINDARAJAN
• Keywords: Business income; Search and seizure; Source of fund; Cost of acquisition; Bad and doubtful debts
• Section: 43B; 143(3); 32; 37; 28; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 555 /VIZ/ 201 3 ( / ASSESSMENT YEAR: 20 09 - 1 0 ) ./ I.T.A.NO. 602 /VIZ/201 3 ( / ASSESSMENT YEAR:20 10 - 11 ) ./ I.T.A.NO S . 78 - 80 /VIZ/201 4 ( / ASSESSMENT YEAR:20 06 - 07, 2007 - 08 AND 2008 - 09 ) ./ I.T.A.NO. 167 /VIZ/201 6 ( / ASSESSMENT YEAR:20 11 - 12 ) M/S DREDGING C ORPORATION OF INDIA LTD. VS. ACIT, RANGE - 3, VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) ./ I.T.A.NO. 557 /VIZ/201 3 ( / ASSESSMENT YEAR:20 09 - 10 ) ./ I.T.A.NO. 603 /VIZ/201 3 ( / ASSESSMENT YEAR:20 1 0 - 1 1 ) ./ I.T.A.NO. 165 & 16 6 /VIZ/201 6 ( / ASSESSMENT YEAR:20 09 - 10 AND 2011 - 12 ) DCIT, CIRCLE - 3, VISAKHAPATNAM VS. M/S DREDGING C ORPORATION OF INDIA LTD ( / APPELLANT) ( / RESPONDENT) CROSS OBJECTION NOS.155/VIZ/2013 & 156/VIZ/2013 ARISING OUT OF ITA NOS.557/VIZ/2013 AND 603/VIZ/2013 M/S DREDGING C ORPORATION OF INDIA LTD VS. DCIT, CIRCLE - 3, VISAKHAPATNAM / REVENUE BY : SHRI R.GOVINDARAJAN, DR / ASSESSEE BY : SHRI G.V.N.HARI , AR / DATE OF HEARING : 12 . 10 .2017 / DATE OF PRONOUNCEMENT : 25 .10 .2017 2 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM / O R D E R P ER BENCH 1. THESE APPEAL S ARE FILED BY THE ASSESSE E AND THE REVENUE AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX ( APPEALS ) [CIT (A)] , VISAKHAPATNAM FOR THE ASSESSMENT YEAR S 20 09 - 1 0 TO 2011 - 12 AND 2006 - 07 TO 2009 - 10. SINCE THE COMMON ISSUES ARE INVOLVED, ALL THE APPEALS ARE CLUBBED , H EARD TOGETHER AND DISPOSED OFF IN A COMMON ORDER FOR THE SAKE OF CONVENIENCE AS UNDER: ASSESSEES APPEALS ITA N O.555/ VIZAG/2013 , ITA NO.602/ VIZAG/2013 AND ITA NO.167/ VIZAG/2016 A.Y. 2009 - 10, 2010 - 11 AND 2011 - 12 2. THE ASSES S EE IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN THE ACTIVITY OF DREDGING OPERATIONS. NORMALLY THE BUSINESS INCOME OF THE ASSESSEE HAS TO BE COMPUTED UNDER THE PROVISIONS OF SECTIONS 28 TO 43C OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') . HOWEVER, THE RESIDENT ASSESSEE S ENGAGED IN THE BUSINESS OF DREDGING/OPERATION OF SHIPS HA VE THE OPTION TO DECLARE THE INCOME UNDER TONNAGE SCHEME UNDER THE PROVISIONS OF SECTION 115V TO 115VZC OF CHAPTER XII - G OF THE ACT . THIS IS KNOWN AS TONNAGE TAX SCHEME UNDER WHICH THE INCOME IS COMPUTED AT SPECIFIED RATE S BASED ON NET TONNAGE OF A SHIP UNDER SECTION 115VG OF THE ACT . THERE IS NO DISPUTE 3 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM THAT THE ASSESSEE HAD OPTED FOR THIS SCHEME AND THE SAME HA S BEEN ACCEPTED BY THE DEPARTMENT. 2.1 FOR THE SAKE OF CONVENIENCE THE FACTS ARE EXTRACTED FROM THE ASSESSMENT YEAR 2009 - 10. FOR THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE FILED THE RETURN OF INCOME ON 23.09.2009 DECLARING T OTAL INCOME OF RS.41,51,34,970/ . THE ASSESSING OFFICER ASSESSED THE FOLLOWING INCOME AS NON CORE INCOME AND TAKEN OUT OF THE SCOPE OF TONNAGE TAX AND ASSESSED THE PROFITS SEPARATELY . (RS. IN LAKHS) 1) INTEREST EARNED ON HOUSE BUILDING AND OTHER A DVANCES 35.78 2) SUNDRY RECEIPTS I) SALE OF SCRAP ETC. 25.00 II) EXCHANGE DIFFERENCE, LIQUIDATED DAMAGES 1.25% COMMISSION ON CHARTERING SERVICE CHARGERS 12.00 III) INSURANCE CLAIMS 492.00 IV) INTEREST ON ARBITRATION AWARDS A) BALARI BAR B) ESSAR 900.00 94.00 1558.78 ADDITION RS.15,58,78,000 / - 2.2 FURTHER, THE ASSESSING OFFICER TREATED THE INTEREST ON ARBITRATION AWARD RECEIVED FROM LINK ROAD PROJECT KOCHI AMOUNTING TO RS.54 LAKHS AND FROM ESSAR STEELS AMOUNTING TO RS.77.62 LAKHS AS NON CORE INCOME AND 4 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM BROU GHT TO TAX SEPARATELY . THE ASSESSING OFFICER HAS TREATED THE INSURANCE CLAIM ALSO OUT OF THE SCOPE OF TONNAGE TAX AN D ADDED BACK TO INCOME SEPARATE LY . 2.3 AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE FOLLOWING RECEIPTS AS INCOME FROM NON CORE ACTIVITY AND ACCORDINGLY DIRECTED THE AO TO ASSESS THE RECEIPTS SEPARATELY OUTSIDE THE PURVIEW OF TONNAGE TAX SCHEME. (A) INTEREST ON HBA (B) LIQUIDATED DAMAGES (C) INTEREST ON ARBITRATION AWARD LINK ROAD PROJECT KOCHI (D) INTEREST ON ARBITRATION AWARD ESSAR STEEL LTD. THE LD.CIT(A) HELD THE FOLLOWING RECEIPTS ARE FROM THE CORE ACTIVITY AND ACCORDINGLY DIRECTED TO INCLUDE THE RECEIPTS FOR TONNAGE TAX SCHEME. (E) SALE OF SCRAP (F) INSURANCE CLAIM (G) FOREIGN EXCHANGE WHILE RENDERING THE DECISION THE LD.CIT(A) FOLLOWED THE ORDERS OF THIS TRIBUNAL ORDERS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 5 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 07 TO 2008 - 0 9 IN APPEAL N O. ITA NOS. 6 TO 8 AND 15 TO 17/VIZAG/2011 DATED 25 TH JULY, 2011 . AGGRIEVED BY THE ORDER OF THE LD.CIT( A) BOTH THE REVENUE AND ASSESSEE HAVE FILED CROSS APPEALS AND THE ASSESSEE ALSO FILED CROSS OBJECTION IN SUPPORT OF THE LD.CIT(A) ORDER. 3 . THE FIRST ISSUE IN THESE APPEALS IS RELATED TO THE ADDITION OF RS.35.87 LAKHS RELATING TO INTEREST ON HOUSE BUILDING AND OTHER ADVANCE S. THIS ISSUE IS INVOLVED IN THE ASSESSMENT YEARS 2009 - 10, 2010 - 11 AND 2011 - 12. THE AMOUNTS SEPARATELY ASSESSED W ERE R S. 3 5 . 87 LAKHS FOR THE A.Y. 2009 - 10, RS. 29.74 LAKHS FOR THE A.Y. 2010 - 11 AND RS. 18.01 LAKHS FOR THE A.Y. 2011 - 12 . THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HA D INCLUDED THE INTEREST EARNED ON HOUSE BUILDING ADVANCE AMOUNTING TO RS.35.78 LAKHS IN THE CORE ACTIVITY OF DREDGING AND COMPUTED THE INCOME AS PER THE PROVISIONS OF SECTION 115 VG OF I.T. ACT, BUT NOT OFFERED THE SAME SEPARATELY TO TAX. THE ASSESSING OFFICER VIEWED TH AT THE INTEREST ON HOUSE BUILDING ADVANCE IS NOT FROM THE CORE ACTIVITY OF DREDGING AND REQUIRED TO BE ASSESSED AS INCOME OTHER THAN CORE ACTIVITY. THEREFORE, THE RECEIPTS ON ACCOUNT OF INTEREST EARNED ON HOUSE BUILDING ADVANCES HAD BEEN REDUCED FROM THE TONNAGE TAX RECEIPTS AND ASSESSED SEPARATELY AS RECEIPTS FROM NON CORE ACTIVITIES. AGGRIEVED BY THE ORDER OF THE ASSESSING 6 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND THE LD.CIT (A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOLLOWING THE I TATS ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R 2006 - 07 TO 2008 - 09 IN APPEAL N O. ITA NOS. 6 TO 8 AND 15 TO 17/VIZAG/2011 . DURING THE APPEAL HEARING T HE LD. AR DID NOT BRING ANY OTHER DECISION SUPPORTING THE SUBJECT RECEIPT AS THE RECEIPT FROM T HE CORE ACTIVITY. THE SOURCE OF RECEIPT IS THE INTEREST ON HOUSE BUILDING ADVANCES GIVE N BY THE ASSESSE E AND NOT FROM THE DREDGING OPERATIONS CARRIED ON BY THE ASSESSE E . THE INCOME FROM SHIPPING IS DEFINED IN SECTION 115VI AND THE INCIDENTAL ACTIVITY IN RULE 11R OF INCOME TAX RUL ES AND THE RECEIPT OF INTEREST FROM THE HOUSE BUILDING ADVANCE IS NOT COVERED BY THE SECTION 115VI AND RULE 11R. T HE LD. CIT(A) HAS CONFIRMED THE ADDITION FOLLOWING THE ORDER OF THIS TRIBUNAL . AS DISCUSSED ABOVE THE RECEIPTS AR E NOT FROM THE CORE ACTIVITY OF SHIPPING OPERATION BUT FROM THE INTEREST ON HOUSE BUILDING AND OTHER ADVANCES . HENCE WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUND OF THE ASSESSEE ON THIS ISSUE. ACCORDINGLY, THE ASSESSEES APPEAL ON THIS G ROUND FOR THE ASSESSMENT YEAR 2009 - 10, 2010 - 11 AND 2011 - 12 ARE DISMISSED. 4 . THE NEXT ISS UE IS RELATED TO THE LIQUIDATED DAM AGES COLLECTED FROM VARIOUS CONTRACT PARTIES AS COMPENSATORY PAYMENT FOR FAILURE TO EXECUTE 7 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM CONTRACT WORK WITHIN THE STIPULATED TIME. THIS ISSUE ALSO INVOLVED FOR THE ASSESSMENT YEAR S 2010 - 11 RS.968.95 LAKHS AND FOR A.Y. 2011 - 12 RS.3059.32 LACS . THE ASS ES SEE HAD INCLUDED THE LIQUIDATED DAMAGES RECOVERED FROM THE VENDORS IN QUALIFYING SHIPPING RECEIPTS FOR COMPUTING TONNAGE TAX A S CORE INCOME. THE ASSESSING OFFICER HELD THAT THE LIQUIDAT ED DAMAGES HAS NO CORRELATION WITH THE SHIPPING INCOME EITHER FROM CORE ACTIVITIES OR FROM THE INCIDENTAL ACTIVITIES AS PROVIDED IN SECTION 115VI AND RULE 11 R AND ACCORDINGLY BROUGHT TO TAX SEPARA TELY. THE LD.CIT(A) CONFIRMED THE ADDITION FOLLOWING THE ORDER OF THIS TRIBUNAL CITED SUPRA. 4 .1 APPEARING FOR THE ASSESSEE, LD.AR ARGUED THAT THE HONBLE ITAT IN THE EARLIER YEARS DECIDED THE ISSUE FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. , BY INTERPRETING THE TERM DERIVED FROM HOLDING THAT INCOME FROM SHIPPING IN SECTION 115VI OF THE ACT IS AKIN TO THE TERM DERIVED FROM. THE LD. A. R ARGUED THAT THE HONBLE ITAT UPHELD THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. REPORTED [262 ITR 278] IN THE ASSESSEES CASE FOLLOWING THE REASONING THAT LIQUIDAT ED DAMAGES ARE NOT FO R M ING PART OF THE CORE ACTIVITY OF SHIPPING. SUBSEQUENTLY, HONBLE HIGH COURT OF MANDHYA PRADESH INDORE BENCH IN THE CASE OF CIT VS. PRAKASH OILS LTD. 8 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM (2011) [ 58 DTR 0279 ] HELD IN CONNECTION WITH COMPUTING THE PROFITS U/S 80IA LIQUIDAT ED DAMAGES ARE DIRECTLY DERIVED FROM INDUSTRIAL UNDERTAKING AND ELIGIBLE FOR DEDUCTION U/S 80IA. THEREFORE, FOLLOWING THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT, LD.AR VEHEMENTLY ARGUED THAT THE LIQUID ATED DAMAGES REQUIRED TO BE INCLUDED IN THE CORE INCOME AND S HOULD NOT BE ASSESSED SEPARATELY AS INCOME OTHER THAN CORE INCOME. 4 .2 ON THE OTHER HAND, LD. DR ARGUED THAT CHAPTER XII - G RELATING TO INCOME FROM SHIPPING COMPANIES IS SEPARATE CODE BY ITSELF. THE SECTION PROVIDES FOR WHAT IS CORE INCOME U/S 115VI AND WHAT IS THE INCOME INCIDENTAL TO SHIPPING ACTIVITY IN RULE11R OF I.T. ACT. THE COMPLETE MEANING OF INCOME FROM T HE SHIPPING ACTIVITY AND INCIDENTAL ACTIVITY ARE GIVEN IN SECTION 115VI AND RULE 11R AND THE METHOD OF COMPUTATION OF INCOME IS PROVIDED FOR IN SECTION 115VG. LD. D R TAKEN OUR ATTENTION TO SECTION 115VA, 115VG AND 115VI AND RULE 11R AND ARGUED THAT THERE IS NO AMBIGUITY IN THE SECTION TO IDENTIFY THE CORE INCOME AND NON CORE INCOME. W HEN THERE IS NO AMBIGUITY IN SECTION WITH REGARD TO THE INCOME FROM SHIPPING AND INCIDENTAL ACTIVITIES, THERE IS NO REQUIREMENT TO INTERPRET THE LAW. THE LD. DR ARGUED THAT THE ASPECT OF C OMPLETE MEANING, IDENTIFICATION AND DEFINITION OF CORE INCOME AND NON CORE INCOME GIVEN IN THE SECTION AND THE 9 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM RULES WAS NOT CONSI DERED BY THE HONBLE ITAT WHILE RENDERING THE DECISION IN ITA NO.6 TO 8/VIZ/2011 HENCE INTERPRETED THE WORD INCOME FROM . FURTHER, LD. DR ALSO ARGUED THAT THE HONBLE ITAT HAS GIVEN A RULING ON CONSENS U S REACHED BY BOTH THE PARTIES THAT THE TERM INCOME FROM USE D IN SECTION 115VI OF THE ACT IS AKIN TO THE TE RM DERIVED FROM. LD. DR SUBMITTED THAT SINCE THE INCOME FROM SHIPPING ACTIVITY AND THE INCOME FROM INCIDENTAL ACTIVITIES ARE DEFINED IN SECTION 115VI AND RULE 11R , HE DECLINED TO AGREE WITH HIS PRE DECESSOR DR TO HOLD THAT THE INCOME FROM IN 115VI IS AKIN TO THE TERM DERIVED FROM. ACCORDINGLY, THE LD. DR ARGUED THAT LIQUIDAT ED DAMAGES IS A STEP AWAY FROM THE CORE ACTIVITY, BUT NOT FROM THE SHIPPING ACTIVITY. THE DECISION RELIED UPON BY THE LD.A R IS RELATABLE TO THE DEDUCTION SECTION 80IA , WHEREIN PROFITS AND GAINS DERIVED FROM IN DUSTRIA L UNDERTAKING REQUIRED BE COMPUTED AS PER THE PROVISIONS OF SECTION 28 TO 43 C OF I.T. ACT, WHEREAS, THE TONNAGE TAX REQUIRED TO BE COMPUTED NOT WITHSTANDING ANY OTH ER PROVISIONS CONTAINED IN SECTION 28 TO 43C OF I.T. ACT A S PROVIDED IN CHAPTER XII - G OF I.T. ACT. THEREFORE, LD.DR VEHEMENTLY OPPOSED THAT THE LIQUIDAT ED DAMAGES ARE NOT FORMING PART OF THE INCOME FROM SHIPPING ACTIVITIES AND REQUIRED TO BE EXCLUDED FROM THE RECEIPTS OF TURNOVER OF TONNAGE TAX AND TO BE ASSESSED SEPARATELY. 10 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 4 .3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE EARLIER ORDER THE COORDINATE BENCH INTERPRETED THE WORD USED IN SHIPPING INCOME U/S 115VI INCOME FROM HOLDING THAT IT IS AKIN TO THE TERM DERIVED FROM SINCE BOTH THE LD. A.R. AND THE LD. D.R. AG RE ED THAT THE TERM DERIVED FROM IS AKIN TO I NCOME F ROM. HOWEVER, IN THE PRESENT APPEALS, THE LD. D.R. VEHEMENTLY OPPOSED AND ARGUED THAT THERE IS NO REASON TO INTERPRET THE I NCOME FROM SINCE THE SHIPPING INCOME AND THE INCIDENTAL INCOME IS CLEARLY DEFINED IN SECTION 115 VI AND RULE 11R. WE HAVE CAREFU LLY CONSIDERED THE ARGUMENT OF THE LD. D.R. AND THE LD. A.R. AND ALSO GONE THROUGH THE ORDERS OF THE HONBLE ITAT. SINCE THE LD. D.R. DISAGREED , WE ARE OF THE CONSIDERED VIEW THAT SECTION 115VI AND RULE 11R DEFINED THE INCOME FROM SHIPPING AND INCIDENTAL ACTIVITIES VERY CLEARLY AND THERE IS NO AMBIGUITY IN THE ACT AND THERE IS NO NEED FOR SEPARATE INTERPRETATION USING THE WORD DERIVED FROM . ACCORDINGLY, WE DECIDE THE ISSUE WHETHER LIQUIDATED DAMAGES FORMS PART OF CORE INCOME OR NOT ? THE LIQUIDATED DAMAGES ARE COLLECTED FROM THE VARIOUS CONTRACTORS AS COMPENSATORY PAYMENT FOR FAILURE TO EXECUTE THE CONTRACT WORKS WITHIN THE STIPULATED TIME. THOSE ARE THE RECEIPTS COMPENSATORY IN NATURE BUT NOT FROM THE ACTIVITY OF SHIPPING. THE INCOME FROM SHIPPIN G ACTIVITY FOR THE PURPOSE OF COMPUTATION OF TONNAGE TAX IS DEFINED IN SECTION 115VI AS UNDER : 11 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM RELEVANT SHIPPING INCOME. 115VI. (1) FOR THE PURPOSES OF THIS CHAPTER, THE RELEVANT SHIPPING INCOME OF A TONNAGE TAX COMPANY MEANS ( I ) ITS PROFITS FROM CORE ACTIVITIES REFERRED TO IN SUB - SECTION (2); ( II ) ITS PROFITS FROM INCIDENTAL ACTIVITIES REFERRED TO IN SUB - SECTION (5): PROVIDED THAT WHERE THE AGGREGATE OF ALL SUCH INCOMES SPECIFIED IN CLAUSE ( II ) EXCEEDS ONE - FOURTH PER CENT OF THE TURNOVER FROM CORE ACT IVITIES REFERRED TO IN SUB - SECTION (2), SUCH EXCESS SHALL NOT FORM PART OF THE RELEVANT SHIPPING INCOME FOR THE PURPOSES OF THIS CHAPTER AND SHALL BE TAXABLE UNDER THE OTHER PROVISIONS OF THIS ACT. (2) THE CORE ACTIVITIES OF A TONNAGE TAX COMPANY SHALL BE ( I ) ITS ACTIVITIES FROM OPERATING QUALIFYING SHIPS; AND ( II ) OTHER SHIP - RELATED ACTIVITIES MENTIONED AS UNDER: ( A ) SHIPPING CONTRACTS IN RESPECT OF ( I ) EARNING FROM POOLING ARRANGEMENTS; ( II ) CONTRACTS OF AFFREIGHTMENT. EXPLANATION. FOR THE PURPOSES OF THIS SUB - CLAUSE, ( A ) 'POOLING ARRANGEMENT' MEANS AN AGREEMENT BETWEEN TWO OR MORE PERSONS FOR PROVIDING SERVICES THROUGH A POOL OR OPERATING ONE OR MORE SHIPS AND SHARING EARNINGS OR OPERATING PROFITS ON THE BASIS OF MUTUALLY AGREED TERMS; ( B ) 'CONTRACT OF AFFREIGHTMENT' MEANS A SERVICE CONTRACT UNDER WHICH A TONNAGE TAX COMPANY AGREES TO TRANSPORT A SPECIFIED QUANTITY OF SPECIFIED PRODUCTS AT A SPECIFIED RATE, BETWEEN DESIGNATED LOADING AND DISCHARGING PORTS OVER A SPECIFIED PERIOD; ( B ) SPE CIFIC SHIPPING TRADES, BEING ( I ) ON - BOARD OR ON - SHORE ACTIVITIES OF PASSENGER SHIPS COMPRISING OF FARES AND FOOD AND BEVERAGES CONSUMED ON BOARD; ( II ) SLOT CHARTERS, SPACE CHARTERS, JOINT CHARTERS, FEEDER SERVICES, CONTAINER BOX LEASING OF CONTAINER SH IPPING. (3) THE CENTRAL GOVERNMENT, IF IT CONSIDERS NECESSARY OR EXPEDIENT SO TO DO, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, EXCLUDE ANY ACTIVITY REFERRED TO IN CLAUSE ( II ) OF SUB - SECTION (2) OR PRESCRIBE THE LIMIT UP TO WHICH SUCH ACTIVITIES SHALL B E INCLUDED IN THE CORE ACTIVITIES FOR THE PURPOSES OF THIS SECTION. 12 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM (4) EVERY NOTIFICATION ISSUED UNDER THIS CHAPTER SHALL BE LAID, AS SOON AS MAY BE AFTER IT IS ISSUED, BEFORE EACH HOUSE OF PARLIAMENT, WHILE IT IS IN SESSION FOR A TOTAL PERIOD OF THIRTY DAYS WHICH MAY BE COMPRISED IN ONE SESSION OR IN TWO OR MORE SUCCESSIVE SESSIONS, AND IF, BEFORE THE EXPIRY OF THE SESSION IMMEDIATELY FOLLOWING THE SESSION OR THE SUCCESSIVE SESSIONS AFORESAID, BOTH HOUSES AGREE IN MAKING ANY MODIFICATION IN THE NOTIFICAT ION, OR BOTH HOUSES AGREE THAT THE NOTIFICATION SHOULD NOT BE ISSUED, THE NOTIFICATION SHALL THEREAFTER HAVE EFFECT ONLY IN SUCH MODIFIED FORM OR BE OF NO EFFECT, AS THE CASE MAY BE; SO, HOWEVER, THAT ANY SUCH MODIFICATION OR ANNULMENT SHALL BE WITHOUT PRE JUDICE TO THE VALIDITY OF ANYTHING PREVIOUSLY DONE UNDER THAT NOTIFICATION. (5) THE INCIDENTAL ACTIVITIES SHALL BE THE ACTIVITIES WHICH ARE INCIDENTAL TO THE CORE ACTIVITIES AND WHICH MAY BE PRESCRIBED 4 FOR THE PURPOSE. (6) WHERE A TONNAGE TAX COMPANY OPERATES ANY SHIP, WHICH IS NOT A QUALIFYING SHIP, THE INCOME ATTRIBUTABLE TO OPERATING SUCH NON - QUALIFYING SHIP SHALL BE COMPUTED IN ACCORDANCE WITH THE OTHER PROVISIONS OF THIS ACT. (7) WHERE ANY GO ODS OR SERVICES HELD FOR THE PURPOSES OF TONNAGE TAX BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY A TONNAGE TAX COMPANY, OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY SUCH TONNAGE TAX COMPANY ARE T RANSFERRED TO THE TONNAGE TAX BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE TONNAGE TAX BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSFE R, THEN, THE RELEVANT SHIPPING INCOME UNDER THIS SECTION SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE: PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE CO MPUTATION OF THE RELEVANT SHIPPING INCOME IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH INCOME ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION. FOR THE PURPOSES OF THIS SUB - SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET. (8) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE TONNAGE TAX C OMPANY AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE TONNAGE TAX COMPANY MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN THE TO NNAGE TAX BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE RELEVANT SHIPPING INCOME OF THE TONNAGE TAX COMPANY FOR THE PURPOSES OF THIS CHAPTER, TAKE THE AMOUNT OF INCOME AS MAY REASONABLY BE DEEMED TO HAVE BEEN DERIVED THEREFROM. 13 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM EXPLANATION. FOR T HE PURPOSES OF THIS CHAPTER, IN CASE THE RELEVANT SHIPPING INCOME OF A TONNAGE TAX COMPANY IS A LOSS, THEN, SUCH LOSS SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING TONNAGE INCOME. 4. SEE RULE 11R. SIMILARLY, PROFITS FROM INCIDENTAL ACTIVITIES ARE DEFINED IN RULE 11R AS UNDER : INCIDENTAL ACTIVITIES FOR PURPOSES OF RELEVANT SHIPPING INCOME. 11R. THE INCIDENTAL ACTIVITIES (DETAILS GIVEN IN NOTE 5 APPEARING AFTER THE CORRESPONDING FORM NO. 66) REFERRED TO IN SUB - SECTION (5) OF SECTION 115V - I SHALL BE THE FOLLOWING, NAMELY : ( I ) MARITIME CONSULTANCY CHARGES; ( II ) INCOME FROM LOADING OR UNLOADING OF CARGO; ( III ) SHIP MANAGEMENT FEES OR REMUNERATION RECEIVED FOR MANAGED VESSELS; AND ( IV ) MARITIME EDUCATION OR RECRUITMENT FEES. 4.4 THE LIQUIDATED DAMAGES COLLECT ED FROM VARIOUS CONTRACTORS DO NOT COVER ANY OF THE RECEIPTS IN SECTION 115VI OR WITHIN THE SCOPE OF RULE 11R OF I.T. ACT. THERE IS NO DISPUTE THAT THE ASSESSEE HAD OPTED FOR TON NAGE TAX SCHEME AND THE INCOME HAS TO BE COMPUTED A S PER SECTION 115VI AND RULE 11R OF I.T. ACT. U NDER THE TONNAGE TAX SCHEME, ONLY THE RECEIPTS FROM CORE ACTIVITIES AND RECEIPTS FROM INCIDENTAL ACTIVITIES ARE INCLUDED, WHICH MEANS THAT CORE ACTIVITIES AND INCIDENTAL ACTIVITIES SHOULD BE THE SOURCE OF PROF IT TO BE INCLUDED UNDER TONNAGE SCHEME. AS REGARDS THE LIQUIDAT ED DAMAGES THE SOURCE OF SUCH INCOME IS PAYMENT FOR FAILURE TO EXECUTE THE CONTRACT WORKS 14 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM WITHIN THE STIPULATED TIME AND NOT THE SHIPPING ACTIVITY EITHER CORE OR INCIDENTAL. THOUGH THE LIQUIDAT ED DAMAGES MAY BE INCIDENTAL BUSINESS INCOME BUT THE SAME IS NOT PROFIT FROM CORE ACTIVITIES OR INCIDENTAL ACTIVITIES WHICH HAVE BEEN DEFINED IN THE ACT. THEY ARE NOT DIRECTLY RECEIVED FROM THE SHIPPING ACTIVITY BUT ARE COMPENSATORY IN NATURE COLLECTED FRO M THE CONTRACTORS FOR FAILURE TO EXECUTE CONTRACT. THEREFORE, LIQUID ATED DAMAGES CANNOT BE HELD TO BE FROM THE CORE ACTIVITY OF THE SHIPPING AND DOES NOT FORM PART FOR COMPUTATION IN TONNAGE TAX. THE RELIANCE PLACED BY THE LD.AR IN THE CASE OF PRAKASH OI LS LTD OF HONBLE HIGH COURT OF MADHYA PRADESH IS RELATED TO THE COMPUTATION OF PROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING U/S 80IA BUT NOT RELATED TO THE TONNAGE TAX U/S 115VI OF I.T. ACT. PROFITS A ND GAINS FOR THE PURPOSE OF INDUSTRIAL UNDERT AKING REQUIRED TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 28 TO 43C OF I.T. ACT AND THE DEDUCTION REQUIRED TO BE ALLOWED U/S 80IA OF I.T. ACT FROM THE BUSINESS INCOME . W HEREAS IN THE CASE OF TONNAGE TAX AS PROVIDED U/S 115VI, THE INCOME REQUIRED TO B E COMPUTED AS PER CHAPTER XII G OF I.T. ACT AT THE OPTION OF THE ASSESSEE. ONCE, THE ASSESSEE OPTS TONNAGE TAX SCHEME , THE INCOME OF THE ASSESSEE FROM SHIPPING COMPANY REQUIRED TO BE COMPUTED AS PROVIDED IN CHAPTER XII G . THEREFORE, THE DECISION RELIED UPON BY THE LD.AR IS DISTINGUISHABLE AND NOT APPLICABLE IN THE ASSESSEES CASE. 15 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM ACCORDINGLY, WE HOLD THAT LD.CIT HAS RIGHTLY CONFIRMED THE ADDITION AND DISMISS THE APPEAL OF THE ASSESSEE ON THIS GROUND. 5 . NEXT ISSUE IS RELAT ED TO THE INTEREST ON ARBITRATION AWARD FOR L INK R OAD P ROJECT, KOCHI AND ESSAR STEEL PROJECTS LTD. THIS ISSUE IS INVOLVED FOR THE A.YS 2009 - 10 AND 2008 - 09 AS UNDER: 2008 - 09 2009 - 10 LINK ROAD PROJECT KOCHI 916.00 LAKHS 54.00 LAKHS THE ASSESSING OFFICER ASSESSED THE ABOVE RECEIPTS AS NON CORE INCOME AND BROUGHT TO TAX SEPARATELY. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. THE FACTS OF THE ISSUE ARE DISCUSSED IN DETAIL IN THE LD. CIT(A) S ORDER, WHICH ARE EXTRACTED AS UNDER: 6.6.2. LINK ROAD PROJECT WITH COCHIN PORT TRUST 6.6.2.1. THE APPELLANT HAD DISPUTES AND DIFFERENCES ON THE LINK ROAD PROJECT WITH THE COCHIN PORT TRUST, WHICH WAS RESOLVED BY THE ARBITRATOR. THE ARBITRATOR PASSED AN AWARD DATED 31 ST JANUARY, 2008, IN WHICH MOST OF THE CLAIMS PREFERRED BEFORE THE ARBITRATOR WAS ALLOWED IN FAVOUR OF THE APPELLANT. THE APPELLANT'S CLAIM FOR INTEREST WAS ALSO ALLOWED AS FOLLOWS, IN THE ARBITRATION AWA RD: - AWARD : IT IS APPARENT FROM THE CLAIMANTS LETTER D A T E D 19.06.2001 THAT THE CLAIM AMOUNT WAS REQUIRED TO BE PAID BY 01.07.1993 BUT THE AMOUNT HAS NOT BEEN PAID BY THE RESPONDENTS, THEREFORE, THE CLAIMANT; ARE CLAIMING THE INTEREST @ 18% PER ANNUM FROM 01.07.1993. 16 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM IT IS A FACT THAT THE RESPONDENTS HAVE NOT PAID THE ENTIRE AMOUNT DEMANDED BY THE CLAIMANTS BY WAY OF SUBMITTING THE BILLS VIDE THEIR LETTER D A T E D 05 05.1993. THE BALANCE AMOUNT OF THE BILLS AND THE AMOUNTS CLAIMED BY THE CLAIMANTS BY WAY OF RAISIN IG T HE AFORESAID CLAIMS ARE LYING WITH THE RESPONDENT; AND THE RESPONDENTS MIGHT HAVE UTILIZED THE AMOUNT AND HAVE ENJOYED THE YIELD OF THE UTILIZATION AND ON THE OTHER HAND HAVE DEPRIVED THE CLAIMANTS FROM THE LAWFUL USE OF THEIR MONEY. THE YIELD OF THE AMOUN T ' REQUIRED TO BE RETURNED TO THE CLAIMANTS. THE CLAIMANTS CLAIM HAVE BEEN ALLOWED AS DESCRIBED ABOVE. THE RESPONDENTS ARE LIABLE TO PAY THE CLAIM AMOUNT WITH INTEREST AT THE RATE OF 15% PER ANNUM (THE RATE OF INTEREST VIZ., 18% PER ANNUAL AS CLAIMED BY T HE CLAIMANTS IS APPARENTLY ON THE HIGHER SIDE) FROM 1.7.1993 TILL THE DATE OF PAYMENT OR 15.5.2008 WHICHEVER IS EARLIER. THE RESPONDENTS WILL BE LIABLE TO PAY THE CLAIM AMOUNT WITH INTEREST @18% PER ANNUM FROM 1.7.1993 TILL THE DATE OF PAYMENT IF THE CLAIM ED AMOUNT WITH INTEREST @15% PER ANNUM IS NOT PAID BY 15.05.2008. 6.6.2.2. FROM THE PERUSAL OF THE AWARD IT COULD BE SEEN THAT THE COCHIN PORT TRUST HAS NOT SETTLED THE BILLS RAISED BY THIS APPELLANT WITHIN THE AGREED TIME FRAME. HENCE THE ARBITRATOR HAS ACCEPTED THE APPELLANT'S CLAIM FOR INTEREST AND HAS DIRECTED COCHIN PORT TRUST TO PAY INTEREST AT 15% LATEST BY 15.05.2008, AND IN THE EVENT OF FAILURE TO PAY BY 15.05.2008 TO PAY HIGHER INTEREST AT 18% PER ANNUM - THUS IT IS EVIDENT THAT THE APPELLANTS R IGHT TO RECEIVE INTEREST AT 15% OR 18% FROM THE COCHIN PORT TRUST ARISES AWARD. THE RIGHT TO RECEIVE INTEREST ON THE UNSETTLED AMOUNTS, TO THE APPELLANT BY VIRTUE OF THE ARBITRATION AWARD. HENCE IT CANNOT BE CONSIDERED TO BE A RECEIPT CONSIDERS TO BE A RECEIPT DERIVED FROM DREDGING ACTIVITY. IT ALSO NEEDS TO BE NOTED THAT THE IMMEDIATE SOURCE GIVING RISE TO THE INTEREST INCOME IS NOT THE DREDGING ACTIVITY BUT COMPENSATORY - RIGHT - ACQUIRED - IN REFERENCE TO THE LONG DEFAULT COMMITTED BY THE OTHER PARTY, AND WHICH RIGHT WAS CRYSTALIZED AND CONCRETIZED IN FAVOUR OF THE APPELLANT BY THE ARBITRATION AWARD, . HENCE I AM OF THE VIEW THAT T HE INTEREST - RECEIPTS ARE NOT THE DIRECT OUTCOME OF THE APPELLANT'S DREDGING ACTIVITY AND DO NOT HAVE IMMED IATE NEXUS WITH THE APPELLANT'S DREDGING ACTIVITY. IT 1S ;SO PERTINENT TO NOTE THAT THE HON BLE ITAT J VISAKHAPATNAM FOLLOWED THE RATIO RAID - DOWN BY THE HONBLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS WHILE DECIDING THE CRITERIA AS TO WHAT WOULD CONSTI TUTE RECEIPTS DERIVED FROM CORE SHIPPING ACTIVITY. FOLLOWING THE SAME PRINCIPLE, IT COULD BE CONCLUDED THAT AS THE APPELLANT BECAME ENTITLED TO INTEREST ON THE UNSETTLED AMOUNTS ON THE BASIS OF THE ARBITRATION AWARD, WHICH IS A STEP REMOVED FROM THE DREDGI NG ACTIVITY, SUCH INTEREST INCOME CANNOT BE CONSIDERED TO BE DERIVED FROM CORE SHIPPING ACTIVITY. HENCE IT IS HELD THAT THE INTEREST I NCOME EARNED F ROM KOL KATA PORT TRUST AS PER THE ARBITRATION AWARD IS LIABLE FOR TAXATION AS RECEIPT FROM NON - CORE ACTIVITY . 6.6.2.3 THE APPELLANT IN ITS ANNUAL REPORT FOR FX.2007 - 08 HAS REPORTED THAT 'DURING THE YEAR THE ARBITRATION IN RESPECT OF LINK ROAD PROJECT, COCHIN HAS BEEN ADJUDICATED IN FAVOUR OF THE COMPANY AWARDING PRINCIPAL AMOUNT OF RS . 289 LAKHS PLUS INTEREST AMOUNTING TO RS .801/ - LAKHS UPTO 31.03.2008. HOWEVER, COCHIN PORT TRUST HAS 17 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM NOT PAID ANY AMOUNT. IN VIEW OF THE UNCERTAINTY IN REALIZATION OF THE AMOUNT INCOME THERETO HAS NOT BEEN CONSIDERED IN THE ACCOUNTS'. THE AO SUBJECTED TO THE AMOUNT OF RS.801 LAKHS VIDE HIS ASSESSMENT PASSED U/S.143(3) D A T E D 29.06.2010. ON THE APPELLANTS APPEAL, THE HON B L E I TAT VISAKHAPATNAM BENCH HAS HELD THAT THE INTEREST INCOME IS ASSESSABLE ON ACCRUAL BASIS AND DIRECTED THE AO TO VERIFY THE NATURE OF INTEREST AND IF IT IS DERI VED FROM NON - CORE ACTIVITY, THE SAME MAY BE SUBJECTED TO TAX. THE AO IN HIS ORDER GIVING EFFECT TO THE ITATS ORDER HAS SUBJECTED INTEREST INCOME OF RS.801 / - LAKHS TO ASSESSMENT. 6.6.2.4. THE ARS FURTHER CLARIFIED THAT AS COCHIN PORT DID NOT PAY INTEREST WITHIN THE STIPULATED TIME, INTEREST WAS COMPUTED AT 18% WHICH RESULTED IN THE ADDITIONAL AMOUNT OF RS . 54 LAKHSDURING THIS RELEVANT YEAR. IT MAY BE NOTED THAT THE PROVISION MADE FOR F.Y200 7 - 08 WAS RS.801 LAKHS AND FOR FY .2008 - 09 WAS RS.855 LAKHS. AS IT IS SEEN THAT THE AO VIDE HIS ORDER DTD.28.032013 HAD ALREADY ASSESSED THE INTER EST INCOME OF RS,801 LAKHS IN AY . 2008 - 09, THE ADDITIONAL INTEREST INCOME ACCRUED T O THE - APPELLANT OF RS.54 LAKLHS DURING THE YEAR ONLY NEED TO BE ASSESSED FOR THIS YEAR. ACCORDIN GLY THE ADDITION MADE TO THE EXTENT OF RS.54 LAKHS IS CONFIRMED, AND THE ADDITION MADE TO THE EXTENT OF RS.801 LAKHS FBR THIS YEAR IS DELETED AS IT HAS ALREADY BEEN SUBJECTED TO ASSESSMENT IN A.Y.2008 - 09. 6.6.3 TRANSACTION WITH ESSAR STEEL LTD 6.6.3.1. I T MAY BE NOTED THAT THE AO HAD MADE AN ADDITION OF RS.94 LAKHS BEING THE INTEREST INCOME EARNED FROM ESSAR STEELS LTD. SHOWN UNDER SUNDRY RECEIPTS FROM CORE ACTIVITY. THE ARS HOWEVER CLARIFIED VIDE LETTER DATED 29.05.2013 THAT THE TOTAL INTEREST INCOME SHOWN UNDER SUNDRY RECEIPTS WAS RS.900 LAKHS FROM BALARI BAR ARBITRATION AND RS.94 LAKHS FROM ESSAR STEEL LTD., BUT, THE CORRECT AMOUNT WAS RS.9,16,14,901/ - FROM BALARI BAR PROJECT AND RS.77,62,902/ - FROM ESSAR STEEL LTD. IT WAS ALSO REPRESENTED THAT THE A PPELLANT HAD ACTUALLY RECEIVED THE INTEREST AMOUNT OF RS.77,62,902/ - DURING THE RELEVANT FINANCIAL YEAR 2008 - 09 A S PER THE SETTLEMENT AGREEMENT ENTERED WITH ESSER STEEL LTD 22.07.2OO8. A COPY OF THE SETTLEMENT AGREEMENT WAS ALSO FILED, I FIND FROM THE SETTLEMENT AGREEMENT WITH ESSAR STEEL LTD THAT THERE WERE DISPUTES AND DIFFERENCES IN RESPECT OF RELEASE OF PAYMENTS TO THIS APPELLANT. ESSAR STEEL LTD AGREED TO PAY THE PRINCIPAL AMOUNT OF RS.1,67,70,000/ - . IN FULL AND FINAL SETTLEMENT DURING THE CONC ILIATORY MEETING HELD ON 18.03.1996. AS THE COMMITMENT WAS NOT HONOURED BY ESSAR STEEL LTD, THE APPELLANT FILED SUIT BEFORE HIGH COURT OF MUMBA I FOR AN AMOUNT, OF RS2,09,93,26J - WHICH INCLUDED CLAIM OF INTEREST AMOUNT OF RS.42,23,268/ - APART FROM THE ADMIT TED PRINCIPAL AMOUNT OF RS.1,67,70,000/ - . SUBSEQUENTLY ON THE DECREE OF THE COURT, ESSAR STEEL LTD PAID THE PRINCIPAL AMOUNT OF RS.1,67,70,000/ - ON 3101.2004 THE APPELLANT'S C L AM FOR INTEREST WAS PENDING BEFORE THE COURT. SUBSEQUENTLY AFTER VARIOUS ROUNDS OF DISCUSSION, ESS A R STEEL LTD AGREED TO PAY INTE R EST OF RS.77,62,902/ - AS INTEREST IN FULL AND FINAL SETTLEMENT OF THE DISPUTE ON INTEREST VIDE AGREEMENT DTD22 - 07 - 2008, THE RECITALS IN THE SETTLEMENT AGREEMENT DEARLY SHOW THAT THE DISPUTE RELATED TO PAYME NT OF INTEREST, AND SUCH INTEREST RECEIPT WAS NOT DERIVED FROM THE DREDGING ACTIVITY. AS COULD BE SEEN THAT THE ASSESSEE'S CLAIM FOR INTEREST WAS NOT IMMEDIATELY DECREED - BY THE COURT IT WAS ONLY AFTER SEVERAL ROUNDS OF DISCUSSION, THE ESSAR STEEL LTD AGREE D TO PAY INTEREST TO THE APPELLANT. THE RIGHT TO INTEREST ACCRUED TO THE APPELLANT ONLY AFTER THE 18 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM SIGNING OF THE SETTLEMENT AGREEMENT. HENCE IT CANNOT BE CONSIDERED TO BE A RECEIPT DERIVED FROM DREDGING ACTIVITY. IT ALSO NEEDS TO BE NOTED THAT THE IMMEDIAT E SOURCE GIVING RISE TO THE INTEREST INCOME IS NOT THE DREDGING ACTIVITY BUT A COMPENSATORY RIGHT ACQUIRED IN REFERENCE TO THE LONG DEFAU LT COMMITTED BY THE OTHER PART AND WHICH RIGHT WAS CRYSTALLIZED AND CONCRETIZED IN FAVOUR OF THE APPELLANT BY THE SETTL EMENT AGREEMENT . HENCE, I AM OF THE VIEW THAT THE INTEREST RECEIPTS ARE NOT THE DIRECT OUTCOME OF THE APPELLANTS DREDGING ACTIVITY AND DO NOT HAVE IMMEDIATE NEXUS WITH TH E APPELLANT'S DREDGING ACTIVITY. IT IS AL SO PERTINENT TO NOTE THAT THE H ON BLE ITAT, VISAKHAPATNAM FOLLOWED THE RATIO LAID DOWN BY THE H ON'B L E APEX COURT IN THE EASE OF PANDI AN CHEMICALS WHILE DECIDING THE CRITERIA AS TO WHAT WOULD CONSTITUTE RECEIPTS DERIVED FROM CORE SHIPPING ACTIVITY. FOLLOWING THE SAME PRINCIPLE, IT COULD BE CONCLUDED THAT AS THE APPELLANT BECAME ENTITLED TO INTEREST ON THE UNSETTLED AMOUNTS ON THE BASIS OF THE SETTLEMENT AGREEMENT, WHICH I S A STEP REMOVED FROM THE DREDGING ACTIVITY, SUCH INTEREST INCOME CANNOT BE CONSIDERED TO BE DERIVED FROM CORE SHIPPING AC TIVITY. HENCE IT IS HELD THAT THE INTEREST INCOME EARNED FROM ESSAR STEEL LTD AS PER THE SETTLEMENT IS LIABLE FOR TAXATION AS RECEIPT FROM NON - CORE ACTIVITY. ADMITTEDLY THE AMOUNT WAS RECEIVED DURING THE YEAR, AND THERE IS NO DISPUTE REGARDING THE YEAR OF ASSESSMENT. HOWEVER, IN VIEW OF THE CLARIFICATION GIVEN VIDE LETTER DATED 29.05.2013 AND ALSO WITH REFERENCE TO THE AMOUNT RECORDED IN THE SETTLEMENT AGREEMENT, THE INTEREST INCOME EARNED CAN BE CONSIDERED TO BE ONLY RS77,62,902/ - FROM ESSAR STEEL LTD AND NOT RS.94 LAKHS WHICH WAS SUBJECTED TO ASSESSMENT. HENCE THE ADDITION MADE TO THE EXTENT OF RS.77,62,902/ - IS CONFIRMED. AGGRIEVED BY THE ORDER OF THE LD. CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL 5 .1 THIS ISSUE IS CONSIDERED BY THE HONBLE ITAT IN ITS ORDER 6 TO 8 & 15 TO 17 /VIZAG/2011 AND SET ASIDE THE ISSUE TO THE FILE O F THE AO FOR THE A.Y.2008 - 09 WITH A DIRECTION TO EXAMINE THE ISSUE SINCE THE DETAILS WERE NOT FURNISHED TO ASCERTAIN WHETHER THE SA ME FORM S INCOME FROM CORE ACTIVITY OF SHIPPING OR NOT. . THE , LD.AR ARGUED THAT THE RECEIPT WAS DIRECTLY FROM SHIPPING AND THE SAME SHOULD BE CONSIDERED AS RECEIPT FROM OPERATING THE QUALIFYING SHIPS AND TO BE INCLUDED IN TONNAGE TAX. THE LD.AR RELIED ON THE ORDERS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. JINDAL 19 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM POLYSTERS [ 105 DTR 253 ] , JT. CIT VS. MOHINDER SINGH [ 33 CCH 0508 ] , CIT VS. UNIVERSAL PIPES LTD. [ 254 CTR 0311 ] , CIT VS. GOVIND A CHOUDHURY & SONS [ 116 CTR 0661 ] . LD.A R ARGUED THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE IN ARBITRATION AWARD HAS DIRECT NEXUS FOR THE SHIPPING ACTIVITIES, HENCE, THE SAME SHOULD BE TREATED AS THE SHIPPING INCOME FOR COMPUTATION OF TONNAGE TAX AS PER SECTION 115 VI OF I.T. ACT. 5 . 2 ON THE OTHER HAND, LD. DR REITERATED THE SUBMISSIONS MADE WHILE ARGUING THE LIQUIDATED DAMAGES IN PARA NO.4 OF THIS ORDER AND ARGUED THAT THE RECEIPTS ARE NOT FROM THE SHIPPING ACTIVITY AND THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE RECEIPTS SEPARA TELY NOT FORMING PART OF CORE INCOME. 5 .3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. AT THE OUT SET , IMPUGNED RECEIPTS OF ARBITRATION AWARD WAS RELATED TO THE WORKS CARRIED ON BY THE ASSESSE E COMPANY PRIOR TO INT RODUCTION OF TONNAGE TAX SCHEME AND THE CORRESPONDING EXPENDITURE SHOULD HAVE BEEN CLAIMED BY THE ASSESSE E IN THE RESPECTIVE A.Y. UNDER NORMAL PROVISIONS. THE INTEREST ON ARBITRATION AWARD WAS ALSO RELATED TO THE ACTIVITY BEFORE THE INTRODUCTION OF TONNAGE TAX SCHEME. I . E . PRIOR TO THE 20 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM A.Y 2004 - 05 WHICH SHOULD BE TAXED UNDER NORMAL PROVISIONS. THE CORRESPONDING EXPENDITURE SHOULD HAVE BEEN CLAIMED BY THE ASSESSE E IN THE RESPECTIVE A.Y. UNDER NORMAL PROVISIONS. THIS IS NOT THE RECEIPT AFTER INTRODUCTION OF T ONNAGE TAX SCHEME AND NOT RELATED TO THE YEAR UNDER CONSIDERATION. THEREFORE THIS RECEIPT CANNOT BE I NCLUDED FOR TONNAGE TAX PURPOSE AND SHOULD BE TAXED SEPARATELY IN ADDITION TO THE PROFITS UNDER TONNAGE TAX SCHEME. 5 .4 THE ASSESSEE HAD RECEIVED THE ARBITRATION AWARD IN CONNECTION WITH LINK ROAD PROJECT KOCHI FOR DELAY IN SETTLEMENT OF BILLS. THE ASSESSEE SUBMITTED THE BI LLS , BUT DUE TO DELAY IN SETTLEMENT, T HE ARBITRATOR HAS AWARDED THE INTEREST FOR THE DELAYED PERIOD O F UNSETTLED AMOUNTS. THE INCOME FROM THE ARBITRATION AWARD ON PRINCIPAL AMOUNT IS THE CORE INCOME. THE INTEREST ON ARBITRATION AWARD IS NOT DIRECTLY FROM THE SHIPPING ACTIVITY BUT IS COMPENSATORY IN NATURE AKIN TO THE INTEREST ON DEPOSITS. THIS IS ONE S TEP AWAY FROM THE SHIPPING ACTIVITY AND IS NOT COVERED FOR THE PURPOSE OF CORE INCOME WITHIN THE MEANING OF SECTION 115VI OR RULE 11R OF I.T. RULES. AS DISCUSSED EARLIER IN PARA NO. 4 IN LIQUIDATED DAMAGES, CHAPTER XII G IS A COMPLETE CODE BY ITSELF AND THE INCOME FROM SHIPPING ACTIVITY IS DEFINED IN SECTION 115VI OF I.T. ACT AND THE INCIDENTAL ACTIVITY IS DEFINED IN RULE 11R OF 21 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM I.T. RULES . THERE IS NO AMBIGUITY IN IDENTIFICATION OF DIRECT SOURCES OF INCOME SINCE IT IS PROVIDED IN RELEVANT SECTIONS AND RULE S AS DISCUSSED EARLIER. SINCE THERE IS NO AMBIGUITY IN THE SOURCES OF INCOME , T HE INTEREST ON ARBIT RATION AWARD DOES NOT SPRING DIRECTLY FROM THE SHIPPING ACTIVITY AND IS ONE STEP AWAY FROM THE SHIPPING ACTIVITY, THEREFORE, WE HOLD THAT THE INTEREST ON AR BITRATION AWARD IS NOT FROM THE SHIPPING ACTIVITY. THE LD.AR RELIED ON THE DECISION OF HON B LE SUPREME COURT IN THE CASE OF CIT VS. GOVIND CHOUDARY & SONS, WHEREIN THE HONBLE APEX COURT HELD THAT THE INTEREST CANNOT BE SEPARATED AND TREATED AS INCOME FROM OTHER SOURCES AND HELD THAT THE INCOME REQUIRED TO BE ASSESSED AS BUSINESS INCOME. THE DECISION IS RENDERED IN CONNECTION WITH THE COMPUTATION OF BUSINESS INCOME IN NORMAL PROVISIONS U/S 28 TO 43 C OF I.T. ACT. WHEREAS , THE QUESTION IS WHETHER THE I NTEREST CAN BE INCLUDED IN THE INCOME FROM QUALIFYING SHIPPING OPERATION U/S 115VI OF THE I.T. ACT ? . THE DECISION OF HONBLE SUPREME COURT HAS NOT RENDERED THE JUDGEMENT IN CONNECTION WITH THE COMPUTATION OF IN COME U/S 115VI OF I.T. ACT. U/S 115VI OF I.T. ACT, R.W. RULE 11R THE INCOME FROM SHIPPING AND INCIDENTAL TO SHIPPING ACTIVITY IS DEFINED AND NO OTHER RECEIPT COULD BE BROUGHT UNDER THE TONNAGE TAX SCHEME . HENCE THE DECISION OF HONBLE SUPREME COURT IS DISTINGUISHABLE ON FACTS AND NOT APPLICABLE IN A SSESSEES CASE. . THE LD.AR RELIED ON THE 22 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM DECISION OF HONBLE HIGH COURT OF G AU HATI IN THE CASE OF CIT VS. UNIVERSAL PIPES LTD. W HICH IS RELATED TO THE DEDUCTION U/S 80IA WHICH IS AGAIN COMPUTATION OF INCOME U/S 28 TO 43C. SIMILARLY IN THE CASE OF MOHI NDE R SINGH AND COMPANY CITED SUPRA WAS ALSO RELATED TO THE COMPUTATION OF INCOME U/S 28 TO 43C AND THE DECISION OF HONBLE HIGH COURT OF ALLAHABAD IN THE CASE OF JINDAL POLYSTER AND STEEL LTD. IS WITH REGARD TO DEDUCTION U/S 80HH AND 80 I. THE DECISION S RELIED UPON BY THE ASSESSEE OF HONBLE HIGH COURTS DID NOT CONSIDER THE TERM INCOME FROM SHIPPING OPERATION WITH REFERENCE TO THE PROVISIONS OF 115VI OF I.T. ACT. HENCE, THE CASE LAWS RELIED UPON BY THE LD. A.R. ARE DISTINGUISHABLE AND NOT APPLICABLE IN ASSESSEES CASE. SINCE THE INCOME FROM SHIP PING ACTIVITY IS CLEARLY SPELT OUT IN SECTION 115VI AND RULE 11R, WE HOLD THAT THE INTEREST ON ARBITRATION AWARD IS NOT FROM THE CORE ACTIVITY AND SHOULD BE SEPARATED FROM THE CORE ACTIVITY AND TO BE TAXED SEPAR ATELY. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE ASSESSEES APPEA L . THIS ISSUE IS INVOLVED FOR THE ASSESSMENT YEAR 2009 - 10 AND 2008 - 09. THE ASSESSEES APPEAL S FOR BOTH THE YEARS ARE DISMISSED . 23 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 6 . THE NEXT ISSUE IS RELATED TO THE FOLLOWING RECEIPTS. THESE ISSUES ARE INVOLVED FOR THE ASSESSMENT YEAR 2010 - 11 AND 2011 - 12 AS PER THE DETAILS GIVEN UNDER: 2010 - 11 2011 - 12 (A) RECOVERY TOWARDS LEASE QUARTERS 1.13 8.84 (B) STAFF CAR RECOVERIES 0.12 0.25 (C) FEE FOR RTI 0.04 0.02 (D) SALE OF TENDER DOCUMENTS 1.54 1.67 (E) MESS CHARGES - 0.01 (F) RENT FOR HIRING QUARTERS / OFFICES 1.46 1.64 (G) LATE ATTENDANCE RECEIPTS 0.62 0.66 6 .1 THE LD.AR ARGUED THAT THE ABOVE RECEIPTS FORM PART OF INCOME FROM SHIPPING AND REQU IRED TO BE INCLUDED IN TONNAGE TAX. THE LD. D.R. RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 6 .2 LD.CIT( A ) CONFIRMED THE ADDITION FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE DATED 25.11.2011 IN ITA 6 TO 8 AND 15 TO 17/VIZAG/2011 FOR THE ASSESSMENT YEAR 2006 - 07 TO 2008 - 09 . 6 .3 WE HAVE HEARD BOTH THE PARTIES AND FIND THAT THE ABOVE RECEIPTS DO NOT FORM PART OF INCOME FROM SHIPPING WITHIN THE MEANING OF SECTION 115VI AND RUL E 11R AS DISCUSSED ABOVE. DURING THE APPEAL HEARING, LD.AR DID NOT 24 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM DEMONSTRATE HOW THE ABOVE RECEIPTS ARE FROM THE SHIPPING WITHIN THE MEANING OF SECTION 115VI AND RULE 11R OF I.T.ACT. THE ISSUE WITH REGARD TO SHIPPING FOR TONNAGE TAX SCHEME WAS DISCUSSED IN DETAIL IN PARA NO. 4 IN LIQUIDATED DAMAGES. THE ABOVE RECEIPTS DO NOT FALL UNDER THE TONNAGE TAX SCHEME AS ENVISAGED IN SECTION 115V I AND RULE 11R OF I.T. RULES . THIS TRIBUNAL IN ASSESSEES OWN CASE EXPRESSED THE SAME VIEW IN THE CASE CITED ( SUPRA ) . AC CORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12. 7 . THE NEXT ISSUE IN ASSESSEES APPEAL FOR THE A.YS 2010 - 11 AND 2011 - 12 IS MISCELLANEOUS INCOME . FOR THE A.Y 2010 - 11 THE MISCELLANEOUS RECEIPT WAS RS.135 63 LACS AND THE LD.CIT(A) HAS REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE NATURE OF RECEIPTS AND DECIDE WHETHER THE SAME ARE FROM QUALIFYING SHIP PING INCOME FOR TON NAGE TAX PURPOSE OR NOT. FOR THE A.Y.2011 - 12 THE AMOUNT WAS RS.40.46 LA KHS AND THE LD.CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESS EE . IN BOTH THE YEARS THE ASSESSE E HAS NOT FURNISHED THE DETAILS TO ASCERTAIN WHETHER THE RECEIPTS QUALIFY FOR TONNAGE TAX OR NOT. B OTH THE LD. DR AND LD. AR AGREED TO REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE NATURE OF RECEIPTS AND TO DECIDE THE ISSUE ON MERITS. T HEREFORE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO 25 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM WITH A DIRECTION TO EXAMINE THE ISSUE AND DECIDE THE ISSUE AFRESH ON MERIT S. THE ASSESSEES APPEAL ON THIS GROUND FOR THE 20 10 - 11, 2011 - 12 ARE ALLOWED FOR STATISTICAL PURPOSE. 8 . THE NEXT ISSUE IS RELATED TO THE CLAIM OF EXPENSES. THE LD.AR RAISED THE GROUND THAT IF THE ASSESSEES CONTENTION THAT THE ABOVE RECEIPT CONSTITUTE AS A CORE INCOME IS NOT ACCEPTED THE INCOME SHOULD BE COMPUTED AS PER SECTION 28 TO 43 C OF I.T. ACT AND ALLOW THE DEDUCTION TOWARDS THE EXPENDITURE FOR EARNING THE ABOVE RECEIPTS OF NON CORE INCOME. THE LD. CIT (A) HAS DISMISSED THIS GROUND OF THE ASSESSEE FOLLOWING THE ORDER OF THIS TRIBUNAL IN ITA 6 TO 8 AND 15 TO 17/VIZAG/2011 CITED SUPRA. THE HONBLE ITAT IN THE ASSESSEES OWN CASE CITED SUPRA DECIDED THE ISSUE AGAINST THE ASSESSEE AS UNDER : 10.1 THE ASSESSEE HAS ALSO TAKEN A STAND THAT IF ANY ITEM OF RECEIPTS IS NOT CONSIDERED AS RECEIPTS RELATING TO THE CORE ACTIVITY OF DREDGING, THEN THE DEDUCTION TOWARDS THE EXPENDITURE INCURRED TOWARDS EARNING SUCH RECEIPTS SHOULD BE ALLOWED AS A DEDUCTION AND ACCORDINGLY ONLY NET INCOME SHOULD BE CHARGED TO TAX. THE TAX AUTHORITIES HAVE POINTED OUT THAT ALL THE EXPENSES INCURRED BY THE ASSESSEE SHALL BE DEEMED TO HAVE BEEN ALLOWED WHILE COMPUTING THE INCOME OF THE ASSESSEE UNDER THE SPECIAL PROVISIONS OF THE ACT, CITED ABOVE A ND HENCE THERE CANNOT BE ANY FURTHER DEDUCTION OF THE SAME EXPENDITURE. WE AGREE WITH THE OBSERVATIONS OF TAX AUTHORITIES IN THIS REGARD. IF THE CLAIM OF THE ASSESSEE IS ALLOWED, THEN IT WOULD AMOUNT TO DOUBLE DEDUCTION OF THE SAME EXPENDITURE, WHICH IS NO T PERMITTED UNDER THE ACT. ACCORDINGLY WE DISMISS THIS GROUND OF THE ASSESSEE. 26 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM IN THIS CASE, THE ASSESSEE DID NOT DEMONSTRATE THAT IT HAD INCURRED THE EXPENDITURE SEPARATELY OVER AND ABOVE THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT. N O SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED FOR NO N CORE INCOME AND CORE INCOME AND THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL CITED SUPRA. THEREFORE, FOLLOWING THE ORDER OF THIS TRIBUNAL, WE DISMISS THE APPEAL OF THE ASSESSEE ON THIS GROUND FO R THE ASSESSMENT YEAR 2009 - 10 TO 2011 - 12 AND 2006 - 07, 2007 - 08 AND 2008 - 09 . ITA NOS.78 TO 80 /VIZAG/2014 9. THESE APPEALS ARE FILED BY THE ASSESSE E AGAINST THE ORDER OF THE LD. CIT(A), VISAKHAPATNAM DATED 28.01.2014 FOR THE ASSESSMENT YEARS 2006 - 07 TO 2008 - 09. 9.1 FIRST ISSUE IS RELATED TO THE OTHER INCOME WHICH WAS NOT INCLUDED BY THE ASSESSING OFFICER IN THE CORE INCOME FOR THE PURPOSE OF TONNAGE TAX AS PER THE DETAILS GIVEN HEREUNDER : SL.NO. ISSUE INVOLVED A.Y.2006 - 07 (RS.) A.Y.2007 - 08 (RS.) A.Y.2008 - 09 (RS.) 1. MAJOR CREDITS INTEREST IN FOREIGN EXCHANGE 83,33,048/ - 4,74,337/ - 27 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 2. MINOR CREDITS RECRUITMENT FEE 39,600/ - 2,62,243/ - 1,24,595/ - COST OF NEW IDENTITY CARD RECOVERED 500/ - 400/ - CANCELLATION CHEQUES/DD (UNCLAIMED) 53,052/ - SEMINAR REGISTRATION FEE 40,500/ - EXCESS PF REFUNDED BY THE EMPLOYEE 3,004/ - - 8,040/ - EMD FORFEITED - 4,000/ - 2,99,814/ - VENDOR REGISTRATION FORM/TENDER FORM - 16,700/ - 2,400/ - REIMBURSEMENT OF TAXI HIRE CHARGES /CRANE HIRE CHARGES - 1,844/ - 8,333/ - PROVISION FOR EXPENSES BOOKED NOW REVERSED - - 4,50,000/ - TRANSPORTATION OF PIPELINE GUARANTEE AMOUNT FORFEITED - 1,00,000/ - - 3. MISCELLANEOUS RECEIPTS (BIFURCATION UNDER PROCESS) 67,500/ - 1,57,148/ - 1,21,478/ - 9.2 THE ASSESSEE HA D INCLUDED THE ABOVE RECEIPTS IN THE CORE INCOME IN THE ORIGINAL ASSESSMENTS MADE U/S 143(3) OF THE I.T. ACT. THE ABOVE 28 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM RECEIPTS WERE CATEGORIZED UNDER THE HEAD OTHER INCOME . THE ISSUE HAS TRAVELLED TO THE TRIBUNAL AND THE ITAT IN ITS EARLIER ORDER IN APPEAL NOS.6 TO 8/VIZAG/2011 AND 15 TO 18/VIZAG/2011 DATED 25.7.2011 REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER , S INCE THE ASSESSEE HAS NOT FURNISHED THE DE TAILS TO ASCERTAIN THE TRUE NATURE OF RECEIPTS . T HE ITAT HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE THE NATURE OF RECEIPTS AND DECIDE THE ISSUE ON MERITS. THE ASSESSING OFFICER EXAMINED THE ISSUE AND HELD THAT NATURE OF RECEIPTS ARE SUCH THAT THEY ARE NOT DIRECTLY FORM THE ACTIVITY OF SHIPPING AS DEFINED IN SEC TION 115VI OF I.T. ACT AND RULE 11R OF IT RULES. ALL THE RECEIPTS ARE ONE STEP AWAY FROM THE MAIN ACTIVITY OF INCOME. FOR E X. INTEREST ON FOREIGN EXCHANGE THE SOURCE OF RECEIPT IS THE INTEREST FOR DELAY IN PAYMENTS WHICH IS COMPENSATORY IN NATURE BUT NOT FROM THE MAIN ACTIVITY OF INCOME. SIMILARLY, OTHER RECEIPTS ARE FROM ALLIED ACTIVITIES OF COMPANY BUT NOT FROM THE MAIN ACTIVITY OF OPERATION OF SHIPPING, THEREFORE, THE ASSESSING OFFICER HELD THAT THE ABOVE RECEIPTS CANNOT BE INCLUDED IN THE SHIPPING ACTIVITY WITHIN THE MEANING OF 115VI AND RULE 11R OF IT RULES , A CCORDINGLY , BROUGHT TO TAX SEPARATELY AS THE INCOME OTHER THAN TONNAGE TAX. THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD .CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE RECEIPTS ARE NOT FORMING PART OF OPERATION OF THE QUALIFYING SHIPS. FOR THE SAKE OF 29 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM CONVENIENCE, WE EXTRACT THE RELEVANT PARAGRAPHS OF THE ORDER OF THE LD. CIT(A) WHICH READS AS UNDER: . 9.3. I HAVE CONSIDERED THE SUBMISSIONS MADE. THE AR DURING THE COURSE OF APPELLATE PROCEEDINGS RELIED ON THE DECISION OF THE HONBLE ITAT MUMBAI IN THE CASE OF SHIPPING CORPORATION OF INDIA LTD. VS. ADDL.CIT AND REPRESENTED THAT AS THE ASSESSEE HAS OPTE D FOR TONNAGE TAX SCHEME, NONE OF THESE ADDITIONS ARE WARRANTED. I HAVE CONSIDERED THE PLEA RAISED. AT THE OUTSET, IT IS TO BE NOTED THAT THE IMPUGNED ORDERS ARE PASSED CONSEQUENT TO THE DIRECTION OF THE HONBLE ITAT IN THE ASSESSEES CASE WHEREIN CATEGO RICAL DECISION WAS TAKEN AS TO WHAT RECEIPTS WOULD COME WITHIN THE PURVIEW OF CORE ACTIVITY OR INCIDENTAL ACTIVITY FOR THE PURPOSE OF TONNAGE TAX SCHEME AND IT WAS ALSO HELD THAT RECEIPTS WHICH ARE NOT FROM THE ACTIVITY OF OPERATING OF QUALIFYING SHIPS WOULD BE TAXABLE AND WOULD NOT FALL WITHIN THE PURVIEW OF TONNAGE TAX SCHEME. THE HONBLE ITAT HAS DECIDED THE AO TO EXAMINE THE NATURE OF RECEIPTS SHOWN UNDER THE CATEGORY OTHER SOURCES AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. THE HONBL E ITAT HAS ALREADY LAID DOWN THE LEGAL PRINCIPLE FOR TAXATION OF RECEIPTS OTHER THAN FROM OPERATION OF QUALIFYING SHIPS IN THE ASSESSEES OWN CASE WHICH WOULD BE BINDING ON THE AO AND THE APPELLATE AUTHORITY. ACCORDINGLY, THE PLEA RAISED BY THE AR IS REJE CTED AS WITHOUT MERITS. 10. INTEREST ON FOREIGN EXCHANGE RS.83,33,048/ - FOR A.Y.2006 - 07 AND RS.4,74,337/ - FOR A.Y.2007 - 08 10.1. THE AO NOTED THAT THE ASSESSEE HAD ENTERED INTO DREDGING AGREEMENT WITH M/S GANAH BAHRAIN, AS PER WHICH THE ASSESSEE IS ENTITLED TO INTEREST IF THE PAYMENT WAS NOT MADE BY THE PARTY WITHIN THE STIPULATED TIME. THE AO NOTED THAT THE IMPUGNED RECEIPTS ARE ONLY IN THE NATURE OF COMPENSATORY PAYMENT FOR THE BREACH COMMITTED BY M/S.AIGANAH BAHRAIN AND IS NOT RELATED TO THE CORE SHIPPING ACTIVITY OF THE ASSESSEE, AND HENCE MADE THE IMPUGNED ADDITION. IN THIS REGARD THE ASSESSEE MADE THE FOLLOWING WRITTEN SUBMISSIONS. UNDER THIS GROUND, THE ISSUE URGED IS REGARDING ADDITION TO TOTAL INCOME ON ACCOUNT OF INTEREST RECEIVED FROM A CUSTOMER FOR DELAYED PAYMENT FOR SERVICES RENDERED BY THE APPELLANT. THE APPELLANT HAD DREDGING AGREEMENT WITH M/S AI GANAH BAHRAIN. THERE WAS A DELAY IN MAKING PAYMENTS FOR THE DREDGING SERVICES RENDERED AND AS PER THE TERMS OF AGREEMENT, THE CUSTOMER HAS TO PAY INTEREST FOR DELAYED PAYMENTS. THUS THE SAID INTEREST IS RECEIVED ONLY DURING CARRYING OUT OF CORE ACTIVITIES OF THE COMPANY, WHICH IS OTHERWISE NOT RECEIVABLE. IT HAS A DIRECT NEXUS WITH THE CORE ACTIVITY. IF NO DREDGING SERVICES RENDERED, INTEREST WOULD NOT HAVE BEEN RECEIVED. WE AGREE THAT IT IS A COMPENSATORY CHARGE FOR THE BREACH OF COMMITMENT BY THE CUSTOMER, BUT THE COMMITMENT WAS IN 30 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM CONNECTION WITH CORE ACTIVITY, COMPENSATION FOR BREACH OF SAID COMMITMENT IS ALSO FOR CORE ACTIVITY ON LY. IT IS URGED THAT THE SAID RECEIPT BEING IN THE NATURE OF INCOME FROM OPERATIONS, THAT IT SHOULD ONLY BE CONSIDERED AS INCOME FROM CORE ACTIVITY BUT NOT AS INCOME OTHER THAN FROM CORE ACTIVITY. COMPENSATION FOR BREACH OF AGREEMENT IS WITH RESPECT TO C ORE ACTIVITIES CARRIED OUT BY THE APPELLANT AND THUS THE INTEREST RECEIVED UNDER THE AGREEMENT FOR DREDGING IS HAVING DIRECT NEXUS WITH THE CORE ACTIVITY. IN VIEW OF ABOVE SUBMISSIONS MADE AND DECISIONS RELIED UPON, WE SUBMIT THAT THE APPELLANT IS CARRYI NG ON SHIPPING ACTIVITIES ONLY AND WHATEVER INCOME EARNED IS ONLY ON ACCOUNT OF SAID ACTIVITIES AND ACCORDINGLY ELIGIBLE FOR TONNAGE TAX AND THE SAID INCOME SHOULD NOT BE SEPARATELY TAXED AS INCOME OTHER THAN INCOME FROM BUSINESS. 10.2. THE ASSESSEE ALSO FILED A COPY OF THE AGREEMENT WITH AI GANAH BAHRAIN. IT IS NOTED THAT AS PER THE AGREEMENT, THE ASSESSEE IS ENTITLED TO CHARGE INTEREST IF THE PAYMENT IS NOT RECEIVED WITHIN 5 DAYS FROM THE DUE DATE AGREED FOR PAYMENT. THUS THE ASSESSEES RIGHT TO INTER EST ACCRUES ON ACCOUNT OF THE AGREEMENT OT CHARGE INTEREST. HENCE, I FIND THAT THE VIEW TAKEN BY THE AO THAT SUCH RECEIPTS ARE NOT FORM CORE ACTIVITY IS JUSTIFIED. ACCORDINGLY THE IMPUGNED ADDITION MADE IS CONFIRMED. 10.3. OTHER ADDITIONS : (UNDER THE C ATEGORY MINOR CREDITS) 10.3.1. T HE AO MADE ADDITION IN RESPECT OF RECRUITMENT FEE, COST OF NEW ID CARD, MISCELLANEOUS RECEIPTS, EMD FORFEITED SALE OF ASSETS ETC. I HAVE GONE THROUGH THE SUBMISSION AND CONTENTIONS RAISED BY THE ASSESSEE AGAINST THESE ADDIT IONS. I AM OF THE VIEW THAT THE FOLLOWING ADDITIONS : (I) RECRUITMENT FEE (II) CANCELLATION OF DD (III) SEMINAR REGISTRATION FEE (IV) EXCESS PF REFUNDED (V) EMD FORFEITED/TRANSPORTATION OF PIPELINE (VI) VENDOR REGISTRATION (VII) MISCELLANEOUS RECEIPTS (VI II) PROVISION FOR EXPENSES REVERSED ARE IN ACCORDANCE WITH THE DIRECTIONS AND DECISION RENDERED BY THE HONBLE ITAT IN ITA NO.6 TO 8/VIZAG/2011 AND ITAT NOS.17/VIZAG/2011 AND ACCORDINGLY THESE ADDITIONS ARE UPHELD. 31 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 9.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. WHILE DECIDING THE I SSUE WITH REGARD TO THE LIQUIDATED DAMAGES AND ARBITRATION AWARD, WE HAVE ELABORATELY DISCUSSED THE ISSUE WHAT CONSTITUTES CORE INCOME. THE ASSESSEE HAS OPTED FOR TONNAGE T AX SCHEME UNDER THE PROVISIONS OF 115V I UNDER CHAPTER XIIG OF I.T. ACT. THIS IS KNOWN AN TONNAGE TAX SCHEME UNDER WHICH THE INCOME IS COMPUTED AT SPECIFIED RATE, NET TONNAGE OF THE SHIP UNDER SECTION 115VG. THE DEFINITION OF CORE ACTIVITIES HAS BEEN DEFINED AS ACTIVITIES F ROM OPERATING QUALIFYING SHIPS AND OTHER SHIPPING RELATED ACTIVITIES. THEREFORE, THE INTEREST RECEIVED ON DELAYED PAYMENTS AND OTHER MISCELLANEOUS RECEIPTS SUCH AS RECRUITMENT FEE, CANCELLATION OF DD, SEMINAR EXPENSES, EMD FORFEITED, VENDER REGISTRATION F ORM/TENDER FORM, TRANSPORTATION OF PIPELINE GUARANTEE AMOUNT FORFEITED AND MISCELLANEOUS RECEIPTS (BIFURCATION UNDER PROCESS) CANNOT BE HELD TO BE RECEIVED FROM THE SHIPPING ACTIVITIES. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A ) AND THE APPEALS OF THE ASSESSEE ARE DISMISSED. 10 . T HE NEXT ISSUE IN APPEAL NO.80/V/2014 FOR THE A.Y 2006 - 09 IS THE INTEREST ON ARBITRATION AWARD (LINK ROAD PROJECT ,KOCHI) AND ESSAR STEELS WHICH WAS DECIDED AGAINST THE ASSESSE E IN THIS ORDER IN APPEA L 32 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM NO.555/V/2013 FOR THE A.Y.2009 - 10. ACCORDINGLY THE APPEAL OF THE ASSESSE E ON THIS GROUND IS DISMISSED. ACCORDINGLY, THE APPEALS OF THE ASSESSEE FOR A.Y. 2006 - 07 TO 2008 - 09 ARE DISMISSED. DEPARTMENT APPEAL S FOR AY 2009 - 10 TO 2011 - 12 , 557/VIZ/2013 , 603/ VIZ/2013 AND 167/VIZ/2016 11 . THE ASSESSING OFFICER TREATED THE RECEIPTS ON ACCOUNT OF SALE OF SCRAP, INSURANCE AND FOREIGN EXCHANGE AS NON CORE INCOME AND SEPARATELY COMPUTED THE PROFITS. THE LD.CIT(A) FOLLOWING THE ORDER OF THIS TRIBUNAL HELD THAT THE INCOME FROM THE ABOVE RECEIPTS AS CORE INCOME AND ALLOWED THE APPEAL OF THE ASSESSEE. THIS ISSUE IS INVOLVED FOR THE ASSESSMENT FROM 2009 - 10 TO 2011 - 12. AGAINST THE ORDER OF THE LD.CIT(A) THE RE VENUE HAS FILED THE APPEALS BEFORE THIS TRIBUNAL. 12 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL PLACED ON RECORD. THE HONBLE ITAT, VISAKHAPATNAM IN ITA NO. 6 TO 8 AND 15 TO 17/VIZAG/2011 DATED 25.7.2007 IN ASSESSEES OWN CASE ALLOWED THE APP EAL OF THE ASSESSEE HOLDING THAT THE INCOME FROM THE ABOVE RECEIPTS FORMS PART OF THE INCOME FROM THE CORE A CTIVITY OF OPERATING THE QUALIFYING SHIPS. FOR 33 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM READY REFERENCE, WE REPRODUCE P ARA NO. 9 OF THE ITATS ORDER SUPRA WHICH READS AS UNDER: 9. IN THE CASE OF DY. CIT V. CORE HEALTHCARE LTD. [2009] 308 ITR 263 (GUJ.) , THE QUESTION WHETHER THE INCOME GENERATED FROM THE SALE OF EMPTY CONTAINERS CAN BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKINGS WAS RAISED BEFORE THE HIGH COURT. THE QUESTION WAS ANSWERED IN AFFIRMATIVE AND FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT HEAD NOTE: 'HELD THAT IT WAS AN ACCEPTED POSITION THAT THE EMPTY CONTAINERS, WHICH WERE SOLD, WERE CONTAINERS IN WHICH RAW MATERIAL IN BULK HAD BEEN PURCHASED BY THE ASSESSEE. THE COST OF THE CONTAINERS WAS PART OF THE PURCHASE PRICE WHICH WENT TO MAKE UP THE TOTAL COST OF THE MANUFACTURED PRODUCT AND WAS THUS DIRECTLY RELATABLE TO THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING. THE INCOME GENERATED ON SALE OF SUCH EMPTY CONTAINERS COULD BE SET OFF AGAINST THE PURCHASE COST, IN OTHER WORDS BRINGING DOWN THE PURCHASE PRICE OF RAW MATERIAL, OR IT COULD BE TREATED AS INCOME D IRECTLY RELATABLE TO THE ACTIVITY OF INDUSTRIAL UNDERTAKING. THE NET RESULT WOULD BE THE SAME - EITHER THE COST OF RAW MATERIAL GETS REDUCED AND THUS INCREASES PROFITS OF MANUFACTURED PRODUCTS ON SALE OR THE SALE PRICE OF CONTAINERS IS DIRECTLY ADDED TO SWEL L THE TOTAL PROFITS. THEREFORE, IN THE LIGHT OF THE DECISION OF THIS HIGH COURT IN THE CASE OF DY.CIT V. HARJIVANDASJUTHABHAIZAVERI [2002] 258 ITR 785 , THERE WAS NO INFI RMITY IN THE IMPUGNED ORDER OF THE TRIBUNAL'. APPLYING THE ABOVE SAID RATIO, THE INCOME RECEIVED BY THE ASSESSEE ON SALE OF SCRAPS AND SALE OF ASSETS COULD BE TREATED AS INCOME DIRECTLY RELATABLE TO THE ACTIVITY OF OPERATING QUALIFYING SHIPS. ACCORDINGLY, WE AFFIRM THE ORDER OF LEARNED CIT(A) ON THESE TWO TYPES OF INCOME. 9.1 THE AMOUNT RECEIVED ON INSURANCE CLAIM WAS HELD TO BE DERIVED FROM INDUSTRIAL UNDERTAKING BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. SPORTKING INDIA LTD . [2010] 324 ITR 283/[2009] 183 TAXMAN 312 . BY FOLLOWING THE RATIO OF THE SAID DECISION, WE UPHOLD THE DECISION OF LEARNED CIT(A) ON THIS ISSUE. 34 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM THE LD. D.R DID NOT CONTROVERT OR BRING ANY OTHER ORDER TO SUPPORT THAT THE INCOME WAS FROM NON CORE ACTIVITY. THEREFORE R ESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNAL WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE FOR THE ABOVE ASSESSMENT YEARS. 13. THE NEXT ISS UE I N GROUND NOS. 6 TO 8, OF REVENUE APPEAL FOR THE A.Y 2011 - 12 IS PROVISIONS WRITTEN BACK . THE ASSESSEE HAS WRITTEN BACK THE PROVISIONS REPRESENTING BAD DEBTS, IMPAIRMENT OF LOSS, LEAVE ENCASHMENT, SPARES ETC.. AMOUNTING TO RS.834.55 LAKHS SINCE THEY WE R E NO LONGER REQUIRED. THESE ITEMS WERE RELATED TO THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT IN THE EARLIER YEARS WHICH IS RE VERSED BY THE ASSESSEE. THIS PROVISION WAS NOT CREATED OR DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CON SIDERATION. THE PROVISIONS WERE ALREADY CREATED AND OUTSTANDING, SINCE THE PROVISIONS WERE NO LONGER REQUIRED, THEY WERE REVERSED BY THE COMPANY AND INCLUDED IN THE RECEIPTS OF THE CORE ACTIVITY. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND BROUGHT THE RECEIPTS TO TAX SEPARATELY FROM THE SHIPPING ACTIVITY . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND THE LD. C IT (A) DELETED THE ADDITIONS OBSERVING THAT ITEM OF CREDIT WAS ONLY A REVERSAL OF DEBIT MADE EARLIER AND THE SAME CANNOT BE 35 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM CONSIDERED AS AN ITEM OF INCOME. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE REPRODUCE THE RELEVANT PARAGRAPHS OF THE ORDER OF THE LD. C IT(A) WHICH READS AS UNDER : I HAVE CONSIDERED THE ABOVE SUBMISSIONS. I FIND THAT AN ITEM OF CREDIT WHICH IS ONLY A REVERSAL OF DEBIT MADE EARLIER AND WHEN SUCH DEBIT IS NOT AN ALLOWABLE ITEM, THE SAME CANNOT BE CONSIDERED AS AN ITEM OF INCOME WHEN INCOME IS BEING DETERMINED UNDER SPECIAL PROVISIONS APPLICABLE TO THE ASSESSEE. IN FACT, THE SAME ISSUE CAME UP IN THE ASSESSEE'S OWN CASE FOR THE ASST. YR. 2010 - I1. THE THEN CIT(APPEALS) IN HIS ORDER IN ITA N O283112 - 13/ADDL. CIT, R 3 !VSP!2 013 - 14 , DATED 3172013, AFTER CAREFULLY EXAMINING THE MATTER HAS ALLOWED THE ASSESSEE'S APPEAL ON THIS GROUND. I AM ALSO OF THE VIEW THAT THE STAND TAKEN BY THE THEN LD . CIT(A) IS CORRECT. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE TOWARDS PROVISIONS WRITTEN 14 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE PROVISIONS WERE DEBITED TO THE PROFIT & LOSS ACCOUNT IN T HE EARLIER YEAR S IN WHICH IT WAS CREATED . THE PROVISIONS ARE NOT ALLOWED AS DEDUCTION AS PER THE ACT WHILE COMPUTING THE INCOME OF THE CORRESPONDING ASSESSMENT YEAR. HOWEVER, THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT HAS NO RELEVANCE FOR COMPUTATION OF THE INCOME UNDER TONNAGE TAX , AS THE INCOME IS COMPUTED AS PER SECTION 115VG OF THE ACT AND THE EXPENDITURE IS NO T ALLOWED AS DEDUCTION IRRESPECTIVE OF THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT. THEREFORE, DEBITING OF EXPENDITURE TO THE PROFIT & LOSS ACCOUNT AND REVERSAL OF EXPENDITURE HAS NO RELEVANCE IN COMPUTATION OF INCOME UNDER TONNAGE TAX SCHEME WHE N THE INCOME IS BEING DETERMINED UNDER THE SPECIAL PROVISIONS APPLICABLE TO THE ASSESSEE. 36 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM THEREFORE, THERE IS NO CASE FOR EXCLUDING THE ITEMS OR PROVISON WRITTEN BACK FROM THE CORE INCOME AND TO TAX SEPARATELY. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. 15 . THE NEXT ISSUE IN GROUND NOS. 9 TO 11 IN THE A.Y 2011 - 12 IS THE EMPLOYEES CONTRIBUTION TO PF. THE ASSESSING OFFICER MADE THE ADDITION OF RS.3,16,363/ - U/S 36(1)(VA) OF I.T. ACT. LD. CIT(A) DELETE D THE ADDITION AS UNDER : 9.2. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS. THE ISSUE TO BE RESOLVED IS WHETHER THE ASSESSEE WOULD BE ENTITLED TO CL A I M DEDUCTION FOR THE EMPLOYEES CONTRIBUTION TO PF PAID AFTER THE DUE DATE PRESCRIBED UNDER THE PF ACT BUT BEFORE THE DUE DATE PRESCRIBED FOR FILING OF INCOME TAX RETURN IN THE LIGHT OF THE PROVISIONS CONTAINED I N SEC.36(1)(VA) AND SEC 43B OF THE I.T . ACT. 9.2.1 IN THE CASE OF ESSETERAOKA (P) LTD. VS. DCIT 43 TAXMANN 33, THE HON'BLE KARNATAKA HIGH COURT TOOK THE VIEW THAT THE WORD CONTRIBUTION OCCURRING IN SEC.43B OF THE I.T. ACT WOULD INCLUDE EMPLOYEES CONTRIBUTION TO PF ACT .IN THE LIGHT OF THE DEFINITION OF THE WORD, 'CONTRIBUTION' BY SEC2 (C) OF P.F. ACT , AS PER WHICH CONTRIBUTION WOULD MEAN BOTH THEEMPOYERS CONTRIBUTION AND EMPLOYEES' CONTRIBUTION. ACCORDINGLY, IT WAS 'HELD THAT THE PROVISIONS OF SEC . 43B OF THE I. T. ACT FOR ALLOWING DEDUCTION FOR PAYMENT MADE BEFORE THE FILING OF THE INCOME TAX RETURN C ANNOT BE IGNORED. 9.2.2 IN THE CASE OF CIT VS. KICHHA SUG AR CO. LTD. 35 TAXMANN 54, THE H ON' BE HIGH COURT OF UTTARAKHAND HEL D THAT THE DUE DATE REFERRED IN SEC.36(V)(A) SHOULD BE READ IN CONJUNCTION WITH SEC.43B(B) OF THE I.T. ACT AND THAT DEDUCTION SHOULD PAYMENT MADE BEFORE THE DUE DATE FOR FILING OF THE RETURN OF INCOME. 37 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 9.2.3. IN THE CASE OF CIT VS UDAIPUR DUGDHUTPADAK SAHAKARI SANGH LTD. 35 TAXMANN 616, THE HON'BLE HIGH COURT & RAJASTHAN AFTER REFERRING TO THE APEX COURT DECISION IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (319 ITR 306) HELD THAT THE DEDUCTION SHOULD BE ALLOWED IF THE PAYMENT OF EMPLOYEES CONTRIBUTION IS MADE INTO THE PF FUND BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. SIMILARLY IN THE CASE OF CIT VS. STATE B ANK OF BIKANER, THE HON'BLE RAJASTHAN HIGH COURT HEL D THAT THE P.F. CONTRIBUTION PAID AFTER THE DUE DATE UNDER THE RESPECTIVE ACT BUT BEFORE FILING OF THE RETURN OF INCOME U/S.13 9(1) CANNOT BE DISALLOWED U/S 43B OR U/S.36(1)(V)(A) OF THE I.T. ACT. SIMILAR VIEWS WERE TAKEN BY THE HON'BLE CALCUTTA HIGH COURT (IN THE CASE OF CIT VS. VIJAY SHREE LTD. 43 TAXMANN 396), THE HON'BLE DELHI HIGH COURT IN THE CASE OF (CIT VS. DHARMENDR A SHARMA 297 ITR 328) AND THE HON'BL E MADRAS HIGH COURT IN THE CASE OF CIT VS. NEXUS COMPUTER PVT . LTD. 313 FIR 144. 9.2.4 IN THE CASE OF CIT VS. GHATGE PATH TRANSPORTS LTD., THE HON'BLE BOMBAY HIGH COURT HELD THAT BOTH EMPLOYEES' AND EMPLOYER'S CONTRIBUTIONS WERE COVERED UNDER AMENDMENT TO S.43B. RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. ALOM EXTRUSIONS LTD. (319 ITR 306), THE HON'BLE BOMBAY HIGH COURT IN THE ABOVE MENTIONED CASE HAS HELD AS UNDER : IN THIS MANNER, THE AMENDMENT PROVIDED BY FINANCE ACT, 2003 PUT ON PAR THE BENEFIT OF DEDUCTION OF TAX, D UTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES WELFARE FUNDS ON THE OTHER. ALL THIS CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. THE TRIBUNAL IN THE CASE AT HAND RELIED UPON TH E SAID JUDGEMENT. THERE IS NO REASON TO FAULT THE ORDER PASSED BY THE TRIBUNAL. WE ARE OF THE VIEW THAT THE DECISION OF THE SUPREME COURT IN ALOM EXTRUSIONS LTD. APPLIES TO EMPLOYEES CONTRIBUTION AS WELL AS EMPLOYERS CONTRIBUTION. QUESTION NOS.2, 3 & 4 ARE ACCORDINGLY ANSWERED IN FAOVUR OF THE ASSESSEE AND AGAINST THE REVENUE. 38 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 9.2.5 IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENTS, I HOLD THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF THE EMPLOYEES CONTRIBUTION OF PF MADE BEFORE THE DUE DATE F OR FILING OF THE RETURN OF INCOME U/S.139(1) OF THE I.TACT. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO DELETE THE IMPUGNED ADDITION. SINCE THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWING THE DECISIONS OF HONBLE HIGH COURTS CITED SUPRA, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 1 6. IN THE RESULT, THE APPEALS OF THE REVENUE FOR THE A.Y. 2009 - 10 TO 2011 - 12 ARE DISMISSED. ITA 165/VIZ/2016 A.Y. 2009 - 10 1 7. TH IS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, [CIT(A)], VISAKHAPATNAM VIDE ITA NO.1145/2014 - 15/DCIT C - 3(1), VSP/2015 - 16 DATED 29.01.2016 FOR THE ASSESSMENT YEAR 2009 - 10. THE ASSES SING OFFICER PASSED T HE ORDERS U/S 143(3) R.W.S. 263 TAXING THE PROVISIONS SEPARATELY EXCLUDING FROM THE SHIPPING RECEIPTS. THE LD.CIT(A) DELETED THE ADDITION HOLDING THAT IN 39 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM COMPUTING THE INCOME UNDER TONNAGE TAX SCHEME THE EXPENSES DEBITED IN PROFIT AND LOSS ACCOUNT HAS NO RELEVANCE. 1 8 . THE SAME ISSUE HAS BEEN CONSIDERED BY US IN ITA NO.166/VIZ/2016 AND HELD THAT THIS IS AN ITEM OF CREDIT WHICH IS ONLY REVERSAL OF DEBIT MADE EARLIER. WHEN IT WAS DEBITED TO PROFIT & LOSS ACCOUNT , IT WAS ADDED BACK IN THE COMPUTA TION OF INCOME WHEN SUCH ITEM WAS NOT ALLOWED/CLAIMED AS DEDUCTION WHILE COMPUTING THE INCOME , THE SAME CANNOT BE CONSIDERED AS AN ITEM OF INCOME. FURTHER WHEN THE ASSESSEE HAS OPTED FOR TONNAGE TAX SCHEME, THE AMOUNTS DEBI TED TO PROFIT & LOSS ACCOUNT HAS NO RELEVANCE IN COMPUTATION OF TONNAGE INCOME. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS UPHELD. THE APPEAL OF THE REVENUE IS DISMISSED. CROSS OBJECTION NOS.155/VIZ/2013 AND 156/ VIZ/2013 1 9 . THE ASSESSE E HAD FILED THE CROSS OBJECTIONS IN SUPPORT OF THE LD.CIT(A) FOR THE A.Y. 2009 - 10 AND 2010 - 11 IN RESPECT OF THE RECE I PTS OF SALE OF SCRAP AND THE INSURANCE CLAIM. IN REVENUES APPEAL WE HAVE UPHELD THE ORDER OF THE LD. CIT(A) AND DISMISSED THE APPEAL OF THE REVENUE HENCE THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED. 40 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM 20 . I N THE RESULT THE APPEALS OF THE ASSESSE E IN ITA NOS.555/VIZ/2013 FOR THE A.Y. 2009 - 10 IS DISMISSED , IN ITA NOS. 602/VIZ/2013 AND 167/VIZ/2016 FOR A.YS. 2010 - 11 AND 201 1 - 1 2 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND IN ITA NOS.78 - 80/VIZ/2014 FOR THE A.YS. 2006 - 07, 2007 - 08 AND 2008 - 09 ARE DISMISSED AND CROSS OBJECTIONS IN CO NOS. 155& 156/VIZ/2013 ARE ALLOWED. THE APPEAL S OF THE REVENUE IN ITA NO.557/VIZ/2013 FOR THE A.Y. 2009 - 10, IN ITA NO.603/VIZ/2013 FOR THE A.Y .2010 - 11 AND IN ITA NOS.165 & 166/VIZ/2016 FOR THE A.Y.S 2009 - 10 AND 2011 - 12 ARE DISMISSED. T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25 TH OCT 20 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 25 . 10 .2017 L. RAMA, SPS 41 ITA NO S . 555/VIZ/2013, 602/VIZ/2013, 78 - 80/VIZ/2014, 167/VIZ/2016 557/VIZ/2013, 603/VIZ/2013, 165 & 166/VIZ/2016, CO NOS.155 & 156/VIZ/2016 M/S DREDGING CORPORATION OF INDIA LTD., VISAKHAPATNAM /COPY OF THE ORDER FORWARDED TO: - 1. / THE APPELLANT DREDGING CORPORATION OF INDIA LTD. DREDGE HOUSE, PORT AREA, VISAKHAPATNAM530 035 2 . / THE RESPONDENT ACIT, RANGE - 3,VISAKHAPATNAM 3 . THE COMMISSIONER OF INCOME TAX - 1, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) , VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM