ITAT rejects FCCB premium deduction under Tonnage Tax Scheme citing section 115VG(6) complete provisions

The ITAT Hyderabad ruled against the assessee's claim for deduction of pro-rata premium on Foreign Currency Convertible Bonds (FCCB) under the Tonnage Tax Scheme. The tribunal held that section 115VG(6) provides complete provisions, and once an assessee opts for the Tonnage Tax Scheme, they cannot claim deductions for other expenditures under different provisions of the Income Tax Act. The argument regarding availability of free funds was rejected as it lacked merit and wasn't presented before the CIT(A). However, the tribunal allowed depreciation on UPS at 60% rate for computers, following the precedent in Ushodaya case.

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Issues:
1. Disallowance of pro-rata premium on Foreign Currency Convertible Bonds (FCCB)
2. Disallowance of differential amount of depreciation on UPS
3. Applicability of Tonnage Tax Scheme on deduction claims
4. Depreciation on computer equipment

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) regarding the disallowance of the pro-rata premium on FCCB. The assessee argued that the entire premium should be allowed as expenditure since FCCBs were issued for general business purposes. However, both the Assessing Officer and the CIT(A) upheld the disallowance, stating that the premium related to acquisition of shipping assets and fell under the Tonnage Tax Scheme, disallowing the proportionate amount of Rs. 65,04,518. The tribunal agreed with the authorities, emphasizing that once the Tonnage Tax Scheme is opted, no separate interest claim is allowable, leading to the dismissal of the appeal on this ground.

2. The second issue pertained to the disallowance of differential depreciation on UPS. The Assessing Officer disallowed Rs. 9,88,343 as excess depreciation, which the assessee contested, claiming entitlement to 60% depreciation. The tribunal ruled in favor of the assessee, citing precedents where similar issues were decided in favor of the taxpayer, allowing the appeal on this ground.

3. The third issue revolved around the applicability of the Tonnage Tax Scheme on deduction claims. The tribunal analyzed Section 115VG of the Income Tax Act, which prohibits deductions once the Tonnage Tax Scheme is opted. The assessee's argument that investments were made from free funds was dismissed, and the tribunal held that the assessee cannot claim deductions against Tonnage income, leading to the dismissal of the appeal on this ground.

4. The final issue concerned depreciation on computer equipment. The tribunal relied on precedent judgments in favor of the assessee, allowing the depreciation claim on computer equipment, and consequently, partly allowing the appeal.

In conclusion, the tribunal partly allowed the assessee's appeal, upholding the disallowance of the premium on FCCB and deductions under the Tonnage Tax Scheme while allowing the depreciation claim on UPS and computer equipment.

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