TaxTMI 
TaxTMI 
2012 (12) TMI 821
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....rest expenditure to the extent of Rs.11,32,79,905/- was claimed by the assessee as deduction against income from non-tonnage activities. During the course of assessment proceedings, the assessee was called upon by the AO to furnish a fund flow statement, details of the loans taken and the interest expenditure incurred on such loans. The assessee vide its letter dated 05-12-2008 furnished the details required by the AO including particulars of loan-wise interest expenditure incurred, the purpose for which the loan was availed, the rate and amount of interest paid and the reasons for treating such interest expenditure as part of the non-tonnage activities. On verification of these details furnished by the assessee, the AO was of the opinion that out of interest expenditure of Rs.11,32,79,905/- claimed by the assessee as deduction against the income from non-tonnage activities, an amount of Rs.4,52,88,241/- was attributable to tonnage tax activities i.e. shipping of the assessee company. The reasons given by him for coming to this conclusion are extracted below from page No. 3 and 4 of the assessment order : Loan Amount as on 31/3/2006 Interest (In Rs.) Observations. Rs.14,60,90,3....
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..../- as claimed by the assessee. Accordingly, he held that the assessee was entitled to claim deduction on account of interest expenditure against the income from non-tonnage activities only to the extent of Rs.6,79,97,654/- and disallowed the balance amount of Rs.4,52,84,241/- claimed by the assessee on this issue in the assessment completed u/s 143(3) vide an order dated 31-12-2008. 4. Against the order passed by the AO u/s 143(3), an appeal was preferred by the assessee before the learned CIT(Appeals) and various submissions were made on behalf of the assessee in support of its case on this issue before the learned CIT(Appeals) which as summarized by the latter in his impugned order, are extracted below : a) The statement giving the complete details of the loans utilized for non-tonnage tax activities, giving the details of each individual loan amount outstanding, the purpose for which the loan was availed, the rate of interest, the amount of interest paid and the reasons for treating such interest expenditure as part of the non-tonnage tax activities of the Appellant, were furnished. b) Further thereto, during the course of assessment proc....
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....d any further details to substantiate the claim of the Appellant would have been furnished." On the basis of above submissions, it was contended on behalf of the assessee before the learned CIT(Appeals) that interest expenditure against income from non-tonnage activities was claimed on actual basis and it was not a case of allocation of interest expenditure between tonnage and non-tonnage activities. It was contended that actual utilization of borrowed funds was taken into account while claiming such interest expenditure and there was no justification in the disallowance made by the AO out of such interest expenditure. 5. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee on this issue and deleted the disallowance made by the AO out of interest expenditure for the following reasons given in paragraph No. 2.8 of his impugned order : " I have carefully considered the facts of the case. The Appellant has furnished complete details of the loans utilized for non-tonnage tax activities, the loan amount outstanding, the purpose for which the loan was availed, the rate of interest, the amount of interest paid and the reasons for tre....
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....d CIT(Appeals) and has simply relied on the order of the AO in support of the Revenue's case on this issue. Further, as noted by the learned CIT(Appeals) in his impugned order, the AO himself has stated in the assessment order that the loans availed by the assessee for shipping activities had been diverted to non-tonnage tax activities. As rightly held by the learned CIT(Appeals), if this was the position as admitted by the AO himself, interest expenditure incurred on such loans should be treated as incurred for the purpose of non-tonnage tax activities as claimed by the assessee. As such, considering all the facts of the case, we find no infirmity in the impugned order of the learned CIT(Appeals) deleting the disallowance of Rs.4.35 crores made by the AO out of interest expenditure after having found on verification of the relevant details that the said interest expenditure was incurred wholly and exclusively for the purpose of non-tonnage tax activities. The impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue is accordingly upheld and the ground as raised originally by the Revenue in this appeal is dismissed. 7. During the course of appellate p....
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....e treasury receipts pertained to tax free receipts and 88.16% pertained to taxable receipts of the Appellant. Consequent thereto, the administrative and interest expenses were attributed in such proportion while computing the disallowance under section 14A of the Act. (c) The Assessing Officer has, while determining the amount liable for disallowance under Clause 2(i) of Rule 8D, considered the aggregate expenditure incurred by the Treasury Department at Rs.69.58 lakhs and has disallowed the same as incurred only for earning tax free dividend income. (d) This implies that the said Treasury Division has carried out activities only for earning dividend income (tax free income) and there is no expenditure incurred for earning any taxable income. (e) Thereafter, the Assessing Officer has once again disallowed a further amount under Clause 2(iii) of Rule 8D, being the amount computed @ 0.5% of the average investments held by the Appellant. Hence, a further adhoc amount of Rs.60.83 lakhs has been disallowed by the Assessing Officer under the said sub-clause. Consequently, as against th....
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.... the Assessing Officer is only Rs.17.91 lakhs. Hence, even if the provisions of Rule 8D were relied upon, the total disallowance computed under the said Rule8D works out to Rs.87.49 lakhs. 4.8 However, as held by the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. referred above, the provisions of Rule 8D are applicable from Assessment Year 2008-09 and cannot be applied retrospectively and are not applicable to the current Assessment Year. Hence, the method of computing the disallowance under Rule 8D as adopted by the Assessing Officer cannot be sustained and the disallowance computed by the Assessing Officer on this basis is therefore deleted. The Appellant Company has adopted a reasonable basis by computing the disallowance under section 14A by considering the administrative and interest expenditure and allocating the aggregate expenditure in the proportion of exempt receipts to the total receipts earned by the Company on the investment activities. In this manner, all the expenses are allocated to both streams of income in an equitable manner based on the gross receipts of the said investment activities for the year under consideration. Based on ....
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....ormity the action of the Assessing Officer in disallowing the contribution paid by the Appellant Company towards the major repair fund aggregating to Rs.1,89,975/-. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance is unwarranted and requires to be deleted. 2) The learned Commissioner of Income Tax (Appeals) erred in conformity the action of the Assessing Officer in excluding the bad debts recovered of Rs.1,30,116/- and crude oil refund of Rs.4,80,262/- from the tonnage income of the Appellant. Having regard to the facts and circumstances of the case, the Appellant submits that said items are to be treated as forming part of the tonnage income as claimed by the Appellant in its Return of Income. 3) The learned Commissioner of Income Tax (Appeals) erred in conformity the action of the Assessing Officer in excluding general average claims received aggregating to Rs.1,43,58,796/- from the tonnage income of the Appellant. Having regard to the facts and circumstances of the case, the Appellant submits that the said items are to be treated as forming part of the tonnage income as claimed by the Ap....
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....ng income" has be endefined in section 115V1. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expenses can be considered as income from core activities of a tonnage tax company. In our opinion, write back of these items is to be considered as income from core activity. In a going concern, such write backs and making of supplementary provisions takes place. The Assessing Officer as well as the Commissioner (Appeals) have treated the very same income which is taxable under section 41(1) differently. The first being expenditure claimed in pre-tonnage tax scheme assessment years and the second being expenditure claimed in post tonnage tax scheme assessment years. Such a segregation is not permissible under the Act. Both the incomes are incomes from core activity and just because tax rates different, they cannot be treated as non-business income. The Assessing Officer as well as the Commissioner (Appeals) seem to have been influenced by the fact that....