2022 (2) TMI 74 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on tax issues, including interest-free loans, Section 14A, and depreciation.

The Dy. CIT, Circle–13 (1), New Delhi Versus M/s. Jagson International Ltd.

The Tribunal dismissed all three appeals of the Revenue, upholding the CIT(A)'s deletions and directions across various issues, including disallowance of ... Disallowance on account of interest free loans to its subsidiary companies - CIT-A delete the addition - HELD THAT:- As decided in own case [2018 (8) TMI 1136 - ITAT DELHI] findings given by the learned CIT (Appeals) that the interest free funds available with the company were sufficient to advance interest free advance could not be controverted by the learned Departmental Representative.if the interest free funds are sufficient to make the investment the presumption would arise that investment would be out of interest free funds generated or available with the company if the funds are both interest free and interest bearing funds. It is also an admitted fact that the assessee company had already advanced ₹ 21,17,41,988.5 prior to taking loan for purchase of vessels and assessee company has advanced interest free loan of ₹ 5,21,27,291/- during the year whereas it has earned profit of ₹ 38,97,52,337/- during the year - Therefore no infirmity in the order of the Ld. CIT(A) in deleting the disallowance of notional interest - Decided in favour of assessee. Depreciation claimed being 40% on Aircraft which was not in use - HELD THAT:- As decided in own case [2018 (5) TMI 1761 - ITAT DELHI] allowing depreciation on the aircraft which is ready for use, but has not earned any income during the year. The ground raised by the Revenue is accordingly dismissed - Decided in favour of assessee. Disallowance of unpaid operational charges to ONGC - HELD THAT:- As decided in own case [2018 (8) TMI 1136 - ITAT DELHI] CIT(A) in the instant case while deleting the addition has followed his order for the A.Y. 2011-12 and the Tribunal has restored the issue to the file of the A.O. for adjudication of the issue afresh. Therefore, we deem it proper to restore this issue to the file of the A.O. with a direction to adjudicate the issue in the light of direction of the Tribunal in assessee’s own case for the A.Y. 2011-12. Grounds of appeal number.5 raised by the Revenue is accordingly allowed for statistical purposes. TDS u/s 195 - Disallowance of expenses u/s 40 (a) (ia) - assessee has not deducted TDS on payment made to M/s. Noble Denton Middle East as per the provisions of Section 9(1)(vii) - CIT-A deleted the addition - HELD THAT:- We find merit in the submissions of the Learned Counsel for the Assessee that as per DTAA with UAE business profits are taxable in the country of origin i.e. UAE as services were provided by the Company registered in UAE and no independent professional has provided services. Even otherwise tax involved was much low as per section 44RR on non-resident engaged in the business of providing services or facilities to be used in exploration of mineral oil only 10% income is taxable and tax thereon would be only 4% applicable on foreign companies. However, after obtaining certificate from Revenue authorities/CA no tax was payable due to DTAA and foreign payments were made only thereafter. CIT(A) while deleting the addition has followed his order for the A.Y. 2011-12 and no appeal has been filed by the Revenue on this issue before the Tribunal although Revenue had filed an appeal against other issues where the Ld. CIT(A) had given relief to the assessee. Under these circumstances and in view of the detailed discussion made by the Ld. CIT(A) on this issue, we do not find any infirmity in his order and the same is, therefore, upheld. Grounds of appeal number.6 raised by the Revenue is dismissed. Disallowing the claim of exemption in tonnage tax system - HELD THAT:- As decided in own case [2018 (5) TMI 1761 - ITAT DELHI] we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of Revenue on this issue is accordingly dismissed. Disallowance in computation of income under section 115JB - HELD THAT:- Since we have already upheld the order of the Ld. CIT(A) in deleting the disallowance made by the A.O. and since the provisions of Section 115JB of the I.T. Act, 1961 clearly provides that the profit derived by the tonnage tax company shall be excluded from the book profits of the company for the purpose of Section 115JB of the I.T. Act, 1961, therefore, we do not find any infirmity in the order of the Ld. CIT(A) in directing the A.O. to exclude the income derived from shipping activities from the computation of book profits. Accordingly, grounds of appeal raised by the Revenue on this issue is dismissed. Issues Involved:1. Disallowance of interest-free loans to subsidiary companies.2. Disallowance under Section 14A read with Rule 8D.3. Disallowance of depreciation on aircraft.4. Disallowance of unpaid operational charges to ONGC.5. Disallowance under Section 40(a)(ia) for non-deduction of TDS.6. Rejection of exemption claim under the Tonnage Tax Scheme.7. Computation of book profit under Section 115JB.Detailed Analysis:1. Disallowance of Interest-Free Loans to Subsidiary CompaniesThe Assessing Officer (A.O.) disallowed Rs. 6,79,704 on account of notional interest for interest-free loans given to the subsidiary, M/s Jagson Airlines Ltd. The CIT(A) deleted the addition, citing that the loans were for business purposes and the assessee had sufficient interest-free funds. The Tribunal upheld this view, referencing the Supreme Court's decision in S.A. Builders Ltd. v. CIT and the Delhi High Court's decision in CIT v. Reliance Utilities & Power Ltd., confirming the commercial expediency and adequate interest-free funds.2. Disallowance under Section 14A Read with Rule 8DThe A.O. disallowed Rs. 53,40,288 under Section 14A read with Rule 8D. The CIT(A) deleted the disallowance for A.Y. 2012-13, noting no exempt income was earned, aligning with the Delhi High Court's decision in Cheminvest Ltd. v. CIT. For A.Y. 2013-14, the disallowance was sustained but allowed under the tonnage tax scheme. The Tribunal upheld the CIT(A)'s decision.3. Disallowance of Depreciation on AircraftThe A.O. disallowed Rs. 9,51,432 in depreciation on the aircraft, claiming it was not in use. The CIT(A) deleted the disallowance, referencing the Delhi High Court's decision in CIT v. Oswal Agro Mills Ltd., which held that depreciation is allowable if the asset is part of the block of assets, regardless of its use during the year. The Tribunal upheld this view.4. Disallowance of Unpaid Operational Charges to ONGCThe A.O. disallowed Rs. 8,11,25,986, claiming the expenses were not incurred in the previous year. The CIT(A) deleted the disallowance, explaining that the unpaid operational charges were deductions made by ONGC and correctly reflected in the accounting. The Tribunal restored the issue to the A.O. for verification, aligning with its decision in A.Y. 2011-12.5. Disallowance under Section 40(a)(ia) for Non-Deduction of TDSThe A.O. disallowed Rs. 2,14,08,343 for non-deduction of TDS on payments to Noble Denton Middle East. The CIT(A) deleted the disallowance, citing the DTAA with UAE, which exempts such payments from TDS as the foreign entity did not have a Permanent Establishment in India. The Tribunal upheld this view, noting no appeal was filed by the Revenue on this issue for A.Y. 2011-12.6. Rejection of Exemption Claim under the Tonnage Tax SchemeThe A.O. disallowed Rs. 62,55,82,919, rejecting the claim under the Tonnage Tax Scheme, arguing the vessel was an offshore installation. The CIT(A) allowed the claim, referencing the Delhi High Court's decision that the assessee's vessels qualify as ships under Section 115VD. The Tribunal upheld this view, citing consistent decisions in previous years.7. Computation of Book Profit under Section 115JBThe A.O. included Rs. 62,55,82,919 in the book profit computation under Section 115JB. The CIT(A) directed the exclusion of income derived from shipping activities, aligning with Section 115VO. The Tribunal upheld this decision, confirming that profits from tonnage tax companies are excluded from book profits under Section 115JB.ConclusionThe Tribunal dismissed all three appeals of the Revenue, upholding the CIT(A)'s deletions and directions across the issues of interest-free loans, Section 14A disallowance, depreciation on aircraft, unpaid operational charges, Section 40(a)(ia) disallowance, tonnage tax exemption, and book profit computation under Section 115JB.