2015 (7) TMI 598 - AT - Income Tax

Tribunal decision: Revenue appeal dismissed, assessee appeal partly allowed. Adjustments directed for book profit computation.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. It affirmed the deletion of the disallowance under Section 14A and ... Disallowance u/s. 14A r.w. Rule 8d - CIT(A) deleted addition - assessee into shipping business - Held that:- In view of the precedent dated 30.11.2011 [2011 (11) TMI 370 - ITAT MUMBAI ], we find that the impugned disallowance made by the Assessing Officer has been rightly deleted by the CIT(A) wherein held that if at all the assessee has claimed any such expenditure in computation of profit of business of shipping, the same are to be taken as disallowed when the income of the said business is finally computed in accordance with the provisions of Chapter XIIG and no separate disallowance on account of such expenditure u/s 14A can be made. We, therefore, delete the disallowance made by the AO u/s 14A and confirmed by the CIT(Appeals). - Decided in favour of assessee. Addition of Impairment loss on certain ships to the book profit of the Appellant u/s l15JB - Held that:- Quite clearly, the impugned addition of Impairment loss on certain ships by the Assessing Officer for the purposes of determining the Book Profit of the assessee company u/s 115JB of the Act related to the activities of a tonnage tax company and it is also not disputed by the Revenue that such amount was reduced by the assessee while computing the ‘Book Profits’ from the activities of a tonnage tax company. Therefore, if the stand of the Assessing Officer is to be upheld then similar amount ought to be added back for the purposes of computing Book Profits derived from the activities of a tonnage tax company, because such book profit from the activities of a tonnage tax company are liable for exclusion from the ‘Book Profits’ for the purposes of section 115JB of the Act, in view of the specific enactment contained in section 115VO of the Act. Therefore, we find it expedient to set aside the impugned order of CIT(A) on this aspect and direct the Assessing Officer to make adjustment for the Impairment loss in the Book Profit derived from the activities of a tonnage tax company also; and the so computed book profit shall be liable to be excluded from the Book Profits of the assessee company for the purposes of section 115JB of the Act, in view of section 115VO of the Act. - Decided in favour of assessee. Enhancing the Book Profit u/s 115JB on account of the disallowance made u/s 14A - Held that:- The amount disallowed u/s 14A of the Act cannot be considered while computing the book profit u/s 115JB of the Act. In the absence of any decision to the contrary brought out by the Revenue, we decide the issue in favour of the assessee following the aforesaid precedent. i.e Goetze (India) Pvt. Ltd. [2009 (5) TMI 615 - ITAT DELHI ] and M/s Bengal Finance & Investments Vs. The Asstt. Commissioner of Income-tax [2013 (5) TMI 117 - ITAT MUMBAI] - Decided in favour of assessee. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Addition of Impairment loss to book profit under Section 115JB.3. Adjustment of shipping profit under Section 115VO while computing book profit under Section 115JB.Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The Revenue's appeal questioned the deletion of Rs. 38,58,497/- disallowed by the Assessing Officer (AO) under Section 14A read with Rule 8D, which pertains to expenses related to earning exempt income. The assessee, a company engaged in shipping operations, argued that its income was assessed on a presumptive basis under the tonnage tax scheme, making Section 14A inapplicable. The AO, however, disallowed the amount, which was later deleted by the CIT(A) based on a precedent from the Tribunal in the assessee's own case for the assessment year 2008-09. The Tribunal upheld the CIT(A)'s decision, affirming that under the tonnage tax scheme, only expenses related to shipping operations are considered, and no separate disallowance under Section 14A is warranted.2. Addition of Impairment loss to book profit under Section 115JB:The assessee's appeal contested the addition of Rs. 9,38,22,000/- as impairment loss to the book profit under Section 115JB. The AO added this amount, viewing it as a provision for diminution in asset value, which should be added back while computing book profit. The CIT(A) upheld this addition. The assessee argued that this impairment loss, recognized as per Accounting Standard (AS) -28, should be excluded from book profit computation under Section 115JB and also from shipping profit under Section 115VO. The Tribunal found merit in the assessee's argument, noting that the impairment loss related to shipping activities should be adjusted in the book profit of shipping activities and excluded from the overall book profit under Section 115JB, as per Section 115VO. Thus, the Tribunal directed the AO to adjust the impairment loss accordingly and upheld the assessee's claim.3. Adjustment of shipping profit under Section 115VO while computing book profit under Section 115JB:The assessee also challenged the enhancement of book profit by Rs. 38,58,497/- due to the disallowance under Section 14A, arguing that no expenditure related to exempt income was claimed. The Tribunal referred to various precedents, including the Delhi Bench's decision in Goetze (India) Pvt. Ltd. and Mumbai Bench's decision in M/s Bengal Finance & Investments, which held that disallowances under Section 14A should not be added to book profit under Section 115JB. Consequently, the Tribunal ruled in favor of the assessee, stating that the disallowance under Section 14A should not affect the computation of book profit under Section 115JB.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, affirming the deletion of the Section 14A disallowance and directing adjustments for impairment loss in computing book profit under Sections 115JB and 115VO. The order was pronounced on June 30, 2015.