TaxTMI 
TaxTMI 
2011 (11) TMI 370
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....end income of Rs. 90,64,409/- received during the year under consideration which was claimed to be exempt u/s 10(34). No disallowance on account of expenditure incurred in relation to the said exempt income, however, was made by the assessee as required by the provisions of section 14A. The AO, therefore, worked out such expenditure incurred by the assessee in relation to earning of exempt dividend income at Rs. 44,07,875/- as per Rule 8D of Income Tax Rules and the said amount was disallowed by him u/s 14A and added to the income of shipping business declared by the assessee as per tonnage tax scheme. 4. The matter was carried before the learned CIT(Appeals) and it was submitted on behalf of the assessee before him that the income from shipping business having been declared and assessed as per tonnage tax scheme, no addition to the said income on account of disallowance u/s 14A could be made in respect of any expenditure incurred in relation to earning of exempt dividend income. The learned CIT(Appeals) did not accept this stand of the assessee and proceeded to confirm the disallowance made by the AO u/s 14A for the following reasons given in paragraph No. 3.1 of his impugned ord....
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....make a disallowance when the income of shipping business is computed as per tonnage tax scheme provided under Chapter XIIG. He contended that the provisions of section 115VA relating to computation of profits and gains from the business of operating ships as contained in Chapter XIIG are overriding provisions and since they exclude the applicability of section 28 to 43C, the disallowance u/s 14A cannot be made when income is computed under the provisions of section 115VA. 6. The learned DR, on the other hand, read out and relied on paragraph No. 3.1 of the learned CIT(Appeals)' impugned order in support of Revenue's case on this issue. 7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee is mainly engaged in the business of operation of ships and its income from the said business was declared and assessed as per the special provisions contained in Chapter XIIG which lay down tonnage tax scheme. As per the provisions of section 115VA contained in Chapter XIIG, the income from the business of operating qualifying ships can be computed at the option of the assessee in accordance with the provisions of Chapter ....
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....tion, the assessee had debited a sum of Rs. 50 crores on account of provision for exchange rate variation. Before the AO, it was submitted by the assessee that the said provision has been made as a matter of prudence and abundant caution keeping in view the wide fluctuations in US Dollars to Indian rupee exchange rate which might prevail at the time of repayment of foreign currency loan taken for acquisition of ships. According to the AO, the amount of Rs. 50 crores thus was clearly set aside by the assessee as a provision for meeting a liability, other than ascertained liability and the same was liable to be added back in computing book profit of the assessee u/s 115JB as per Explanation 1 thereto. The assessee company had also debited a sum of Rs. 12,62,29,000/- in its profit & loss account on account of impairment loss on certain ships due to exchange rate variation. It was submitted before the AO that the said loss was recognized during the year under consideration in respect of certain ships in accordance with the Accounting Standard 28 consequent to fall in the valuation of the said assets due to fluctuation in foreign currency rate. It was contended that the book value of th....
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....cording to which Book Profit u/s. 115JB includes any amount set aside as provision for meeting liabilities, other than ascertained liabilities. It also includes amount set aside as provision for diminution in the value of asset. Deduction of Rs. 5 crores has been claimed by the appellant in its P & L Account on account for provision for exchange rate variation. It is also argued that this provision has been made as a matter of prudence and abundant caution considering the wide fluctuation in US Doller to Indian Rupee exchange rate parity which may prevail at the time of the payment of repayment of foreign currency loans taken for acquisition of ships. So this amount is clearly an amount set aside as provision for meeting a liability which is not ascertained liability and actual liability. The appellant has opted on probabilities as precautionary measure. However, only those provisions are allowable which are made for ascertained liabilities but that is not the situation in this case. Similar are the facts about the deduction of Rs. 12,62,29,000/- which has been claimed by the appellant due to exchange rate valuation in the P & L Account. This claim is also an amount set aside as pr....
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.... He contended that when the said adjustments were admittedly related to the shipping business of the assessee company, the same should have been made while computing book profit of the shipping business u/s 115VO which was liable to be excluded from the book profit of the assessee company for the purposes of section 115JB. 12. The learned DR, on the other hand, strongly relied on the orders of the authorities below in support of the Revenue's case on this issue. He contended that the provisions of section 115JB are overriding provisions and since the book profit derived from the shipping business, which is liable to be excluded from the book profit of the assessee company for the purposes of section 115JB, was computed by the Auditors in the report furnished in the prescribed form No. 29B as per the provisions of sub-section (4) of section 115JB, there was no scope of any further adjustment to be made to the said profit as sought by the assessee. 13. We have considered the rival submissions and also perused the relevant material on record. It is observed that the expression "book profit" for the purposes of section 115JB has been defined in Explanation 1 to section 115JB as the n....
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....JB, every company to which section 115JB applies is required to furnish a report in the prescribed form No. 29B from the Auditors certifying that the book profit has been computed in accordance with the provisions of section 115JB. The said report has to be furnished with the return of income filed under sub-section (1) of section 139 or along with the return of income filed in response to notice issued u/s 142(1)(i). The Auditors thus are required to certify that the book profit declared by the assessee company in its return of income has been computed in accordance with the provisions of section 115JB. However, if the book profit so computed by the assessee is found to be not in accordance with the provisions of section 115JB, the AO is duly empowered or rather is duty bound to make the adjustment so as to compute the book profit of the assessee company in accordance with the provisions of section 115JB. In the present case, such adjustments indeed have been made by the AO to the book profit computed by the assessee and certified by the Auditors after having found that the book profit so computed and certified by the Auditors was not in accordance with the provisions of section 1....