Aban Offshore Ltd., CHENNAI V. ACIT, CHENNAI

MA 96/CHNY/2016

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4448 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 22-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2016
• Court: TRIBUNAL
• Department Lawyers: DURAI
• Keywords: Transactions in derivatives; Speculation loss
• Section: 90

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' . #$ , & '( ) [ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] M.A.NO.95 & 96/MDS/2016 [IN I.T.A.NO.1159 & 1343/MDS/2012] ASSESSMENT YEAR : 2008 - 09 M/S ABAN OFFSHORE LTD 113, PANTHEON ROAD EGMORE, JANPRIYA CHEST CHENNAI 600 008 VS. THE DY. COMMISSIONER OF INCOME TAX COMPANY RANGE I CHENNAI [PAN AAACA 3012 H ] ( PETITIONER ) (RESPONDENT) PETITIONER BY : SHRI MURALI MOHAN RAO RESPONDENT BY : SHRI DURAIPANDIAN, JCIT / DATE OF HEARING : 22 - 07 - 201 6 / DATE OF PRONOUNCEMENT : 29 - 0 7 - 2016 1 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER BY THESE MISCELLANEOUS PETITIONS, THE ASSESS EE SEEKS RECTIFICATION OF THE ORDER OF THE TRIBUNAL DATED 31 .12.2015 IN I.T.A.NOS. 1159/MDS/2012 AND 1343/MDS/2012. M.P.NO.95/MDS/2016 2. THE AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSE E CAME IN APPEAL IN I.T.A.NO.1159/MDS/2012 CHALLENGING THE ACTION OF THE MP NOS.95 & 96/16 :- 2 -: CIT(A) IN RESTRICTING THE ASSESSEES CLAIM OF RELI EF U/S 90 OF THE ACT OF ` 224,67,411/- TO THE EXTENT OF TAX PAYABLE IN INDIA ON NET INCOME OF ` 516,93,732/- I.E DIFFERENCE BETWEEN INTEREST EARNED FROM M/S AHPL AND INTEREST PAID ON BORROWINGS MADE FOR ADVANCING THE LOANS TO M/S AHPL. THE TRIBUNAL WHILE ADJUDICATING THE GROUNDS, PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF BANK OF BA RODA VS CIT IN I.T.A.NO.2927/MDS/2011 DATED 25.7.2014 WHEREIN THE TRIBUNAL HAS GIVEN A DIRECTION THAT THE INCOME OF THE BRANCHES O F THE ASSESSEE SHALL ALSO TAXABLE IN INDIA I.E IT WOLD BE INCLUDED IN TH E RETURN OF INCOME FILED BY THE ASSESSEE IN INDIA AND WHATEVER TAXES HAVE BEEN PAID BY THE BRANCHES IN THE OTHER CONTRACTING STATES I.E T HE SOURCE COUNTRY, CREDIT OF SUCH TAXES SHALL BE GIVEN. THEREAFTER, T HE TRIBUNAL IN THIS CASE REMITTED THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE AFRESH IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBU NAL IN THE CASE OF BANK OF BARODA(SUPRA). ACCORDING TO THE LD. AR, TH E DIRECTION GIVEN BY THE TRIBUNAL IS NOT APPROPRIATE. SINCE THE ASSESS EE HAS NO INCOME FROM ANY BRANCHES IN SINGAPORE, THAT DECISION CANNO T BE APPLIED TO THE ASSESSEES CASE. 3. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER O F THE TRIBUNAL. MP NOS.95 & 96/16 :- 3 -: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE INTERPRETA TION OF THE ORDER OF THE TRIBUNAL BY THE LD. AR IS MISCONCEIVED. THE TR IBUNAL WAS OF THE OPINION THAT IF THE INCOME FROM FOREIGN COUNTRY IS OFFERED TO TAX BY THE ASSESSEE BY WHATEVER MEANS, THE ASSESSEE HAS TO GE T TAX CREDIT TO THE EXTENT THE TAX WAS PAID IN FOREIGN COUNTRY. IN OTHER WORDS, ONCE THE INCOME IS INCLUDED EITHER IN THE PROFIT & LOSS ACCOUNT OR IN THE RETURN OF INCOME, THE CORRESPONDING TAX CREDIT ON T HE SAME INCOME HAS TO BE GIVEN. ACCORDINGLY, WE ARE OF THE OPINION TH AT THERE IS NO NEED OF APPREHENSION FOR THE ASSESSEE THAT THE ASSESSIN G OFFICER WILL MISINTERPRET THE ORDER OF THE TRIBUNAL. THEREFORE, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD. AR. ACCORDINGLY, THE MISCELLANEOUS PETITION IS DISMISSED. M.P.NO.96/MDS/2016 5. THE LD. AR SUBMITTED THAT THE REVENUE CAME IN APPEA L IN I.T.A.NO.1343/MDS/2012 WITH REGARD TO DELETION OF A DDITION TOWARDS LOSS ON FOREIGN EXCHANGE DERIVATIVES TRANSACTION. WHILE DISPOSING OF THIS GROUND, THE TRIBUNAL REMITTED THE ISSUE BACK T O THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRESH IN THE LIGHT OF THE ORDER OF THE CO- ORDINATE BENCH IN THE CASE OF DCIT VS ASVINI FISHER IES P. LTD. IN I.T.A.NO.2246/MDS/2014 DATED 18.12.2015. ACCORDING TO THE LD. AR, ALL THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE WITH A VIEW TO MP NOS.95 & 96/16 :- 4 -: HEDGE AGAINST LOSSES ARISING FROM FOREIGN EXCHANGE FLUCTUATIONS IN THE COURSE OF BUSINESS TRANSACTIONS. AS SUCH, RELIANCE PLACED BY THE TRIBUNAL IN THE CASE OF ARASKA DIAMOND P. LTD VS AC IT, 152 ITD 203, HAS NO APPLICATION. ACCORDINGLY, THE LD. AR SUBMIT TED THAT IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF WO ODWARD GOVERNOR INDIA LTD, 312 ITR 254, THE LOSS HAS CRYSTALLIZED A S ON THE LAST DAY OF THE PREVIOUS YEAR, HENCE, HE PRAYED THE TRIBUNAL TO RECTIFY THE ORDER OF THE TRIBUNAL AND TO ALLOW DEDUCTION OF ` 6.96 CRORES AS BUSINESS LOSS. 6. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER O F THE TRIBUNAL. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE TRIBUNAL WHILE HOLDING THA T THE LOSS ARISING OUT OF HEDGING CONTRACTS ENTERED INTO BY THE ASSESSEE IN THE COURSE OF BUSINESS HAS TO BE ALLOWED AS BUSINESS LOSS AND NOT TO BE CONSIDERED AS SPECULATION LOSS. WHILE HOLDING SO, THE TRIBUNA L HAS PLACED RELIANCE ON VARIOUS DECISIONS OF CO-ORDINATE BENCH INCLUDING THE DECISION IN THE CASE OF M/S MAJESTIC EXPORTS VS JCIT IN I.T.A.NOS.1 336 & 3072/MS/2014, DATED 24.7.2015. BEFORE US ALSO, THE LD. AR PLACED HIS RELIANCE ON THE DECISION IN THE CASE OF MAJESTIC EX PORTS (SUPRA) AND REQUESTED FOR DIRECTION AS GIVEN IN THE ABOVE CASE. IN OUR OPINION, THE TRIBUNAL HAS REMITTED THE ISSUE OBSERVING THAT THE ISSUE IS COVERED BY VARIOUS JUDGMENTS INCLUDING MAJESTIC EXPORTS (SUPRA ). BEING SO, AT THIS MP NOS.95 & 96/16 :- 5 -: STAGE, THE ASSESSEE CANNOT HAVE ANY GRIEVANCE. TH E ASSESSING OFFICER WOULD LOOK INTO ALL THE JUDGMENTS CITED IN THE ORDE R (SUPRA). ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ARGUME NT OF THE LD. AR. 8. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF P REFERENCE SHARE EXPENSES U/S 35D OF THE ACT. 9. THE LD. AR SUBMITTED THAT THE REVENUE CAME BEFORE T HE TRIBUNAL CHALLENGING THAT THE CIT(A) ERRED IN HOLDI NG THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 35D IN RESPECT OF T OTAL EXPENDITURE INCURRED TOWARDS SHARE ISSUE. THE TRIBUNAL WHILE D ISPOSING OF THIS GROUND, FOLLOWED ITS ORDER FOR ASSESSMENT YEAR 2006 -07 IN I.T.A.NO. 1382/MDS/2010 DATED 15.7.2011 INSTEAD OF THE LATEST ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IN I.T.A.N O. 90/MDS/2012 DATED 26.6.2015. ACCORDING TO THE LD. DR, THE ORDE R OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IS SQUARELY APPLICABLE TO THE ISSUE IN DISPUTE FOR THE ASSESSMENT YEAR 2008-09. AS THE TR IBUNAL HAS GIVEN A CATEGORICAL FINDING IN PARA 11 WHILE CONFIRMING THE CIT(A)S ORDER THAT SALE OF UNDERTAKING SUBSEQUENTLY TO A DIFFERENT COM PANY WOULD NOT BLOT OUT THE FACTUM OF COMPLETION OF EXTENSION OF T HE INDUSTRIAL UNDERTAKING OF THE APPELLANT. ACCORDING TO THE LD. AR THIS OBSERVATION OF THE TRIBUNAL IN PARA 11 & 12 OF ITS ORDER FOR AS SESSMENT YEAR 2007- 08 IS VERY CRUCIAL AND THE CLAIM OF THE ASSESSEE U/S 35D HAS TO BE ALLOWED. MP NOS.95 & 96/16 :- 6 -: 10. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER O F THE TRIBUNAL. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL IN I.T.A.NO.90/MDS/2012, DATED 26.6.2015 F OR ASSESSMENT YEAR 2007-08. IN OUR OPINION, THERE IS A MISTAKE IN THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008-09 ON THE BASIS O F ITAT ORDER FOR ASSESSMENT YEAR 2007-08. AS SUCH, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 35D FOR ASSESSMENT YEAR 2008-09. AC CORDINGLY, WE RECTIFY PARA 23 AND 24 THE ORDER DATED 31.12.2015 AS FOLLOWS BY FOLLOWING THE ITAT ORDER FOR ASSESSMENT YEAR 2007-0 8 AND IT IS TO BE READ AS FOLLOWS: 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE ISSUE CAME UP BEFORE THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN CASE IN I.T.A.NO.90 /MDS/2012, DATED 26.6.2015 WHEREIN THE TRIBUNAL HAS OBSERVED A S UNDER: 11. BRINGING OUR ATTENTION TO PARA 10.2 OF THE CI T(A)S ORDER, BOTH THE PARTIES CONCURRED ON THE FACT THAT SIMILAR ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO. 1382/MDS/2010 FOR ASSESSMENT YEAR 2006-07 . WE REPRODUCE PARA 10.2 OF THE CIT(A)S ORDER AS UNDER : 10.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSION OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND AR. SIMILAR ISSUE HAD COME UP FOR CONSIDERATION IN APPELLANT'S OWN CASE FOR A.Y. 2006-07. AFTER CONSIDERING THE FACTS AND RIVAL SUBMISSIONS, IT WAS HELD IN ITA NO.573/0809/A.1I1 DATED 23.06.2010 FOR A.Y . MP NOS.95 & 96/16 :- 7 -: 2006- 07 THAT THE EXPENDITURE ON ISSUE OF SHARES IS NOT DEDUCTIBLE BECAUSE IT IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. THE DISALLOWANCE OF THE AO WAS SUSTAINED. HOWEVER, SINC E THE APPELLANT IS ENGAGE IN THE BUSINESS OF HIRING R IGS AS WELL AS THE BUSINESS OF DRILLING AND OTHER OIL FIEL D SERVICES, HYDROCARBON EXPLORATION AND PRODUCTION, I T WAS HELD THAT THESE ACTIVITIES WOULD FALL WITHIN TH E AMBIT OF 'MINING' UNDER CLAUSE (AA) (IV) OF SUB-SEC TION (7) OF SECTION 72A OF THE ACT WHICH DEFINES 'INDUST RIAL UNDERTAKING'. HAVING DECIDED THAT THE APPELLANT QUALIFIES AS AN INDUSTRIAL UNDERTAKING, IT WAS FURT HER EXAMINE AS TO WHETHER IT SATISFIES THE CONDITIONS L AID DOWN IN SECTION 350 OF THE ACT. SINCE THE APPELLANT HAD ONLY PURCHASED THE OIL RIG BUT HAD NOT PUT IT TO US E DURING THE YEAR AND HAD CLASSIFIED IT AS 'CAPITAL W ORK-IN- PROGRESS' IN ITS BOOK, THE EXTENSION OF THE INDUSTR IAL UNDERTAKING WAS HELD TO BE IN-COMPLETE. ACCORDINGLY , THE CONTENTION OF THE ID. AR THAT EXTENSION OF THE INDUSTRIAL UNDERTAKING WAS COMPLETED ON PURCHASE OF THE OIL RIG WAS NOT ACCEPTED AND THE GROUND WAS DISMISSED LN ASSESSMENT YEAR 2006-07. ON FURTHER APPEAL, THE HON'BLE ITAT HAS CONFIRMED THE FINDING OF THE CIT(A) FOR A.Y.2006-07 IN ITA NO.1382/MDS/10 DATED 15.07.2011. IT HELD AS UNDER: . IN VIEW OF THE ABOVE DECISION OF THE HON'BLE ITAT, IT IS CLEAR THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DE DUCTION U/S 35D FOR A.Y 2006-07. HOWEVER, THE APPELLANT HAS COMPLETED THE REFURBISHMENT AND INSTALLATION WORKS DURING THE PREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR. IN FACT, THE RIG WAS SURVEYED BY T HE AMERICAN BUREAU OF SHIPPING ON 27.05.2006 AND CERTIFICATE OF CLASSIFICATION WAS ALSO ISSUED ON 26.06.2006. HENCE, THE APPELLANT IS ELIGIBLE FOR DEDUCTION IN RESPECT OF THE RIG ABAN VII WHICH IS COMPLETE IN ALL RESPECTS. THE APPELLANT HAD ALSO BE EN AWARDED A CONTRACT TO DRILL IN THE EAST COAST OF IN DIA BY HINDUSTAN OIL EXPLORATION LTD. ACCORDINGLY, THE APP ELLANT MP NOS.95 & 96/16 :- 8 -: GOT THE RIG MOVING FROM TEXAS SHIPYARD TOWARDS INDI A. THE FACT THAT IT WAS SOLD SUBSEQUENTLY TO A DIFFERE NT COMPANY WOULD NOT BLOT OUT THE FACTUM OF COMPLETION OF EXTENSION OF THE INDUSTRIAL UNDERTAKING OF THE APPE LLANT. HENCE, I AM OF THE CONSIDERED OPINION THAT THE APPE LLANT IS ELIGIBLE FOR DEDUCTION U/S 35D IN RESPECT OF THE TOTAL EXPENDITURE INCURRED TOWARDS SHARE ISSUE. IN THE RESULT, THE GROUND TO ALLOW THE ENTIRE ISSUE IS DISMISSED. HOWEVER, THE APPELLANT IS ENTITLED TO CL AIM DEDUCTION U/S 35D. THE GROUND IS PARTLY ALLOWED. 12. AFTER HEARING BOTH THE PARTIES AND GOING TH ROUGH THE SAID PARAGRAPH OF THE CIT(A)S ORDER AND FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 24. IN VIEW OF THE ABOVE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. HOWEVER, THERE IS NO CHANGE IN THE FINAL RESULT OF REVENUES APPEAL IN I.T.A.NO.1343/MDS/2012. 12. IN THE RESULT, M.P.NO.95/MDS/2016 IS DISMISSED WHER EAS M.P.NO.96/MDS/2016 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2016, AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( DUVVURU RL REDDY ) & / JUDICIAL MEMBER ( ) ( CHANDRA POOJARI ) / ACCOUNTANT MEMBER !'# / CHENNAI $%& / DATED: 29 TH JULY, 2016 RD MP NOS.95 & 96/16 :- 9 -: '%'( )*+,-. /0'- / COPY TO: 1 . /.1,23 / APPELLANT 4. '4 '4 5 / CIT 2. )6423 / RESPONDENT 5. -7814 )**9: / DR 3. '4 '4 5 (/.1,) / CIT(A) 6. 8=> ?, / GF