TaxTMI 
TaxTMI 
2015 (12) TMI 1112
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....ent of income of shipping companies. It is not in dispute that the income from business declared by the Assessee being a sum of Rs. 1,18,57,063/- was income from the business of operating ships which had to be determined in terms of Chapter XII G of the Act. The income as declared by the Assessee under the head income from business was accepted in the assessment completed u/s.143(3) of the Act by order dated 26.12.2007. In the said order an addition was made to the total income consequent to addition made under the head income from other sources. The Assessee filed appeal against such addition and the CIT(A) dismissed the appeal of the Assessee by his order dated 10.2.2009. 3. The CIT in exercise of his powers u/s.263 of the Act was of the view that the order dated 26.12.2007 passed by the AO u/s.143(3) of the Act for AY 2005-06 was erroneous and prejudicial to the interest of the revenue in as much as the AO while determining the income of the Assessee from the business of shipping did not consider the issue of creation of correct amount of Tonnage Tax Reserve. Sec.115VT of the Act provides for Transfer of profits to Tonnage Tax Reserve Account. It provides as follows: (1) A to....
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....assing of an order which is prejudicial to the interest of revenue. In view of the above the order passed is prejudicial to the interests of revenue and is therefore set aside with a direction to compute the tax liability of the assessee as per law after considering the issue of creation of the correct amount of Tonnage Tax Reserve." 5. The AO passed an order dated 2.12.2010 giving effect to the aforesaid directions of the CIT in the order u/s.263 of the Act. Before passing such order the AO issued a show cause notice to the Assessee dated 15/16.11.2010. In the show cause notice the AO wanted explanation regarding the following issues: "(i) Creation of Tonnage tax Reserve u/s 115VT, and (ii) Calculation of Book Profit for charging of MAT u/s 115JB read with section 115VO of the Act. The assessee was specifically requested to furnish the auditor's report in Form 29B for calculation of MAT u/s 115JB read with section 115VO of the Act. It was also requested to explain whether the book profit computed here included the profit on sale of ship amounting to Rs. 52,25,39,585/- credited to the profit & loss account." The explanation with regard to creation of Tonnage Tax reserve u/s....
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....s Relating To Certain Companies as per Chapter XlI-Bfor payment of Minimum Alternative Tax on Book Pro/its are not applicable to the Company - is not correct in view of the specific provisions of section 115VO of the Act. For the sake of convenience, the provisions of Section 115VO of the Act is reproduced below: "The book profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1) of section 1l5V-I, shall be excluded from the book profit of the company for the purposes of section 115 JB. " In other words, in computing the book profit u/s.115J8, the book profit from the shipping activities as referred to in section 115V -I en was to be excluded from the net profit as per audited accounts to arrive at the Book Profit. The provision of section 115VW of the Act required the assessee to submit the Tax Audit Report in Form-66 which was duly filed by the assessee along with the return of income. Said Form-66 revealed the relevant shipping income u/s. 115V -I e 1) of the Act at Rs.l ,55,18,591/- only whereas the net profit as per the audited accounts for the year ending 31.03.2005 was Rs. 57.15,88,402/-. Hence, according to the provisions of sec....
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....sponse to show cause notice u/s.154 of the Act. The CIT(A) held that the order u/s.263 of the Act passed by the CIT had the effect of annulling the entire assessment order originally passed by the AO dated 26.12.2007 and therefore the order u/s/154 of the Act revising the said non-existent order was also a nullity. In view of the aforesaid conclusion, the CIT(A) did not adjudicate on the other objections raised by the Assessee before him. The following were the relevant observations of the CIT(A) in the impugned order: "5. I have perused the relevant orders and the material placed on record. I find merit in the submission that the assessment order dated 26-12-2007 was not in existence as the same had already been set aside by the CIT vide his order u/s 263. The operational portion of the order u/s 263 reads: In view of the above the order passed is prejudicial to the interests of revenue and is therefore set aside with a direction to compute the tax liability of the assessee as per law after considering the issue of creation of the correct amount of Tonnage Tax Reserve". The language used in the order u/s 263 clearly suggests that the entire assessment order dated 26-12-2007 was ....