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2018 (11) TMI 390
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....n appeal for AY 2005-06, our decision for AY 2006-07 shall apply mutatis mutandis to the appeal filed by the assessee for AY 2005-06. 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") for AY 2006-07 , read as under:- "1. The learned Commissioner of Income Tax (Appeals), Mumbai -1 ['the ld. CIT(A)'] has erred in law and on facts in upholding the action of the learned Assessing Officer ('the Id. AO') of levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 ('the Act') on (i) disallowance of claim of Rs. 12,10,00,000/- and Rs. 29,00,000/- in respect of profit on sale of ships and profit on sale of fixed assets respectively as turnover of core activities while computing income from incidental activities in excess of 0.25% of turnover from core activities and (ii) disallowance of claim of deduction of Rs. 6,35,13,110/- as proportionate cost against interest and dividend income on the alleged ground that the appellant had furnished inaccurate particulars of the income and explanation offered by the appellant was no....
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....was submitted that during the course of business, interest is earned on funds deployed out of surplus cash/unutilized amount standing to the credit of statutory reserves while waiting for opportune time to acquire the assets. It was submitted that the interest generated needs to be treated as core shipping income. It was submitted that the said income from interest on deposits and dividend from companies are suo moto considered by the assessee as „income from other sources' while computing taxable income under tonnage tax scheme. It was submitted that a tonnage tax company is guided by provisions of Chapter XIIG which incorporates special provisions relating to income of shipping companies. The assessee drew attention of the AO to provision of Section 115VJ of the 1961 Act as to treatment of common costs where tonnage tax companies also carries on any business activity other than tonnage tax business. The assessee had allocated common costs being administrative costs on the basis of turnover. It was submitted that interest income is emerging because of temporary parking of funds in deposits , which are earned out of core shipping activities. It was submitted that administrati....
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....ee apportioned the expenses as per Section 115VJ of the Act. It was also submitted by the assessee that no information was held back nor it filed inaccurate particulars of income. It was claimed that deductible expenses were claimed under bonafide belief and these was no mensrea It was also submitted that the issues are debatable and there are more than one plausible view on these issues and hence under these circumstances as stated above , no penalty is exigible within the framework of provisions of Section 271(1)(c) of the Act. 3.6 The AO referred to provisions of Section 115VJ of the Act as under: " 115VJ(1) Where a tonnage tax company also carried on any business or activity other that the tonnage tax business, common costs attributable to the tonnage tax business shall be determined on a reasonable basis. (2) Where any asset, other than a qualifying ship, is not exclusively used for the tonnage business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for purpose of the tonnage tax ....
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....aining facility to other personnel in the shipping industry and fees earned from foreign ship owners for rendering services by way of screening, interviewing, short-listing and recruitment of floating staff and officers." 3.8 Thus in nut shell it was observed by the AO that earning interest by parking funds with banks or earning dividend income does not constitute income from incidental activity to the business of shipping income/tonnage income. The AO observed that common costs has to be related to businesses or other activities . It was observed that if any activity does not involve costs, then the question of common cots will not arise. It was observed by the AO that except for some possible small costs towards portfolio management services, no other costs could remotely be assigned to earning of interest or dividend income in the instant case. It was observed by the AO that provisions of Chapter XII-G are special provision related to income of shipping companies and they do not have over-riding effect over Section 56 and 57 of the Act,. Thus , it was observed by the AO that no costs which is not allowed to be deducted within provisions of Section 57(iii) of the 1961 Act can ....
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....ating one or more ships and sharing earnings or operating profits on the basis of mutually agreed terms; (b) "contract of affreightment" means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period; (B) Specific shipping trades, being - (i) On-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board; (ii) Slot charters, space charters, joint charters, feeder services, container box leasing of container shipping." The AO while referring to Section 115VI(2) of the 1961 Act observed that selling of ships and fixed asset does not fall within the purview of core shipping business activities and there is no scope for interpreting anything else than what is laid down by law and there could not be any scope for having different opinion in this regard. The AO observed that the claim of the assessee is inadmissible in law and malafide which is not sustainable in law. The assessee relied upon judgment of Hon'ble Supreme Court in the case Reliance Petr....
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....l liability and willful concealment is not an essential ingredient for attracting civil liability. Accordingly the assessing officer is under no obligation to prove mensrea before imposing penalty u/s, 271(i)(c). Contention of the appellant is therefore not acceptable. ii. The appellant stated that the AO in the assessment order has not recorded satisfaction that there was a concealment or filing of inaccurate particulars to be liable for penalty u/s. 271(i)(c). In this regard it is mentioned that on pages 10, 16 and 17 of the assessment order dated 5 December 2008, the AO has initiated the penalty proceedings, Further in the last paragraph, Assessing officer has clearly mentioned "initiate penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 for furnishing inaccurate particulars of income. ''Further, in a recent judgement, in case of CIT v. Bansal Iron Scrap Co (2014)45 taxmann.com 92, Hon'ble Punjab and Haryana High Court have held that in view of sub-section (IB) of section 271, direction given by Assessing Officer during course of assessment proceedings for initiation of penalty proceedings under section 271(i)(c) would be deemed to be a valid ....
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.... held by the authorities below and even the assesses itself had originally offered the said income under the head "income from other sources". From the above observations of Hon'ble ITAT it is quite clear that appellant has claimed deduction fully knowing that interest income and dividend income are not business income but income from other sources which the appellant was well aware since the same was claimed in the return of income under the head income from other sources. Thus there is no force in contention of the appellant that it was a case of mere disallowance/rejection of legal claim which is not acceptable. v. Further, on the basis of above observations of Hon'ble ITAT, it is noted that claim of the appellant was also was not bonafide and hence explanation 1 to section 271(i)(c) is also applicable. In the case of MAK Data P. Ltd vs. CIT 358 JTR 593, Hon'ble Supreme Court have upheld penalty under section 271(i)(c)observing that where explanation offered was not bonafide, penalty was rightly imposed by assessing officer. Similar observations have been made by Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Lalchand Tiratram 225 IT....
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....of the appellant is therefore rejected. viii. During the course of appellate proceedings it was noted that in paragraph 6 of the penalty order, the AO has discussed the issue of reduction of an amount of Rs. 12.10 crores being profit on sale of ships and Rs. 29 lakhs being profit on sale of fixed assets (non ships). As evident from the discussion in succeeding paragraphs (particularly paragraph 8 of the penalty order), the AO has imposed penalty on these issues also. However, while computing the penalty in, paragraph 9, the penalty has been levied with reference to the amount of Rs. 6,28,82,589/- only. Similarly in paragraph 2.1 of the penalty order the AO has referred to the administrative expenses of Rs. 7,33,346/-relatable to dividend income but while computing the penalty this amount appears not to have been included. This fact was brought to the knowledge of the AR. In response the AR vide letter dated 10.3.2016 submitted that due to difference of opinion the AO might not have imposed penalty on these items. This contention of the appellant is not acceptable since apparently there is mistake in calculation only while in the main order the assessing officer has discuss....
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....urpose of making or earning such income." As the expenditure being claim by the assessee cannot be said to have been laid down or expended wholly and exclusively for the purpose of making or earning such income, we uphold the finding of the Revenue authorities in this regard. In our opinion, the Assessing Officer has rightly held that the assessee would not have incurred the expenditure claimed for earning income. The estimation of Rs. 1,00,000 by the Assessing Officer, in our opinion, is reasonable. Coming to reliance placed by the learned Sr. Counsel, on the decision of Hon'ble Jurisdictional High Court Chinai And Co. Pvt. Ltd. (supra), we are of the opinion that these are factual matters and the same cannot be taken as a binding precedent. In view of the above discussion, we uphold the finding of the Commissioner (Appeals) and dismiss ground no.7, raised by the assessee." 8. At the time of hearing before us, the ld. Counsel for the assessee has submitted that the investment in fixed deposits was made by the assessee company out of its income from shipping business and interest earned thereon thus very much formed part of core shipping business of the assess....
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....on investment made in the shares of other company and having regard to all the facts of the case, we are of the view that the same cannot be said to have earned by the assessee by carrying on any separate business activity other than the tonnage tax business as envisaged in section 115 VJ of the Act. The said income was chargeable to tax in the hands of the assessee under the head "income from other sources" as rightly held by the authorities below and even the assessee itself had originally offered the said income under the head "income from other sources". As regards the decision of Hon'ble Bombay High Court in the case of Punit Commercial Ltd. (supra) cited by the ld. Counsel for the assessee, it is observed that the same was rendered in the context of section 80HHC(3)(a) of the Act and the ratio of the said decision therefore cannot be applied in the present case which involves the issue in the context of section 115 VJ of the Act. In the case of Indo Swiss Jewels Ltd. and Other (supra) cited by the ld. Counsel for the assessee, the facts involved were different from the present case inasmuch as inter-corporate deposits were made by the assessee from the surplus funds that were....
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....edit balances written back) in favour of the assessee and item No. 1 (profit on sale of ships) and item No. 5 (profit on sale of fixed ships (non ship) against the assessee for the following reasons given in para 29 and 39 of its order:- "29. Provisions of section 115VA provides that the income from business of operating qualifying ships may be computed in accordance with the provisions of chapter XII-G, and that the income so computed shall be deemed to be the profits and Income from qualifying ships are defined in section 115VC, and there is no dispute on this aspect. Section 115VE mandates that profits from business of a company engaged in the business of operating qualifying ships shall be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term "relevant shipping income" has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits....
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.... and consequently out of the purview of Chapter-XII-G. In view of the above discussion, we uphold the finding of the Assessing Officer in this regard." 22. Respectfully following the Tribunal's order dated 29th July, 2011 (supra) in assessee's own case for A.Y. 2007-08, we uphold the action of the authorities below in reducing the profit on sale of ships and fixed ships from the turnover of core shipping. The action of the authorities below in reducing the excess provision written back and sundry credit balances written back, however, is set aside and the A.O. is directed to include the said income in the turnover of core shipping. As regards item No. 3 (sundry receipts from core shipping) and item No. 6 (reimbursement from managed vessels), the ld. Counsel for the assessee has submitted that neither the A.O. nor the ld. CIT(A) has examined the relevant details placed at 157 of the paper book and urged that the matter may be sent back to the A.O. for deciding the same afresh after verifying the said detail. As the ld. D.R. has no objection in this regard, the issue relating to inclusion or exclusion of item No. 3 & 6 is restored to the file of the A.O. for deciding the sam....
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.... taken consistent stand against the assessee. It was submitted that for AY 2007-08 also , the tribunal has decided the issue against the assessee in ITA no. 145/Mum/2011. It was submitted that deposits were made keeping in view requirements of creating tonnage tax reserves account for purchasing new ships from which interest income arose, as contemplated u/s 115VT of the 1961 Act. It was submitted that the assessee is statutorily required to invest surplus funds to the tune of 20% of Book Profits as provided under Section 115VT towards tonnage tax reserves which is to be utilised for making investments in new ships within a period of 8 years . It was submitted that the acquisition of new ships is highly capital intensive and funds are to be kept available in deposits to finance acquisition of new ships as contemplated u/s 115VT within stipulated period of 8 years, on which interest income arose and hence there is a direct nexus of the interest income with the shipping business and such activity is to be described an activity which is incidental to core shipping business. It was also submitted that the investments were made in shipping companies mainly JV in Iran from which dividend....
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....lars of income and it was claimed that complete disclosures were made by the assessee. Our attention was drawn to para 4.1.2 of the penalty order dated 14.11.2014 passed u/s 271(1)(c) of the 1961 Act , wherein the AO observed that the assessee has not filed complete details and information before the AO and claiming of the said administrative expenses against interest income and dividend income was held to be against the provisions of the 1961 Act which amounted to furnishing of inaccurate particulars of income for which penalty is justifiably leviable within mandate of Section 271(1)(c) of the 1961 Act. The learned counsel for the assessee submitted that even for assessment year 2009-10 in the case of the assessee, the said expenses stood disallowed by the tribunal in cross appeals in ITA no. 3117/Mum/2013 and 3546/Mum/2013 , vide common order dated 19.08.2015. The issue was also decided against the assessee by tribunal for AY 2007-08 in ITA no. 145/Mum/2011. The assessee relied upon the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts P. Ltd., (2010) 189 Taxmann 322(SC), and decision of Kolkatta-tribunal in the case of Surendra Overseas Ltd v. DCIT in ITA n....
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....mposing a penalty by the Tribunal would have to be considered in relation to the facts arising therein and also in the quantum proceedings. It cannot be said as a matter of rule that in case where this Court admits an appeal relating to quantum proceedings ipso facto i.e. without anything more, the penalty order get vitiated. Thus, the question of entertaining an appeal from an order imposing / deleting penalty would have to be decided on a case to case basis. There can be no universal rule to the effect that no penalty, if quantum appeal is admitted on a substantial question of law." Our attention was also drawn to page no. 73 and 74 of the paper book , wherein notice dated 05.12.2008 issued by the AO for AY 2006-07 u/s. 274 r.w.s. 271(1)(c) of the 1961 Act was placed and it was submitted that the AO initiated penalty u/s. 271(1)(c) for furnishing of inaccurate particulars of income in the assessment order dated 05.12.2008 passed u/s 143(3) of the 1961 Act , but appropriate column in the said penalty notice dated 05.12.2008 issued u/s 271(1)(c) was not struck off . Hon'ble Karnataka High Court decision in the case of CIT v. SSA's Emerald Meadows in ITA no. 380 of 2015 dated 23.....
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....t orders of the authorities, paper book filed by the assessee and cited case laws. We have observed that the assessee is a Public Sector Undertaking engaged mainly in the business of shipping . The gross turnover of the assessee was to the tune of Rs. 3677.56 crores (pb/page 47). The assessee opted for tonnage tax scheme as is contained in newly inserted Chapter XII-G of the 1961 Act for bringing to tax its income arising from shipping business .The tonnage tax scheme was introduced by Finance Act, 2004 w.e.f. 01.04.2005 by insertion of Chapter XII-G in the 1961 statute , wherein Section 115V to 115VZC of the 1961 Act were inserted dealing with Special provisions relating to chargeability to tax income of shipping companies. The assessee opted for tonnage tax scheme as is provided under Chapter XII-G for the first time for AY 2005-06 i.e. from the very first year of inception when the scheme was introduced by Finance Act, 2004 . This assessment year viz. AY 2006-07 is the second year of availement of tonnage tax scheme by the assessee. Undisputedly, the assessee was entitled and eligible to opt for the tonnage tax scheme as it met all the conditions of the scheme and the assessee i....
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.... The interest income has arisen to the assessee from investments of surplus fund in deposits while dividend income arose to the assessee from investments in shipping company mainly JV company in Iran namely Irono Hind Shipping Company Limited, Tehran. The said dividend income is taxable under the 1961 Act as it has been received from foreign company. The assessee initially offered to tax income from interest from deposits as well income from dividend under the head „income from other sources' but claimed deduction of administrative expenses being common costs allocated on turnover basis which is considered to be a reasonable basis, as is provided u/s 115VJ of the 1961 Act. All the authorities below viz. AO , learned CIT(A) and also Mumbai-tribunal has concurrently held against assessee by holding that these incomes consisting of interest income as well dividend income cannot be classified as income from an activity incidental to the shipping business and had held that the assessee could not have adjusted administrative expenses against these incomes arising from interest on deposits or dividend income from the foreign company. The relevant extract of the tribunal order which ....
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....al matters and the same cannot be taken as a binding precedent. In view of the above discussion, we uphold the finding of the Commissioner (Appeals) and dismiss ground no.7, raised by the assessee." 8. At the time of hearing before us, the ld. Counsel for the assessee has submitted that the investment in fixed deposits was made by the assessee company out of its income from shipping business and interest earned thereon thus very much formed part of core shipping business of the assessee. He submitted that similarly the dividend income was earned by the assessee on the investment made in the shares of other shipping company and the same therefore was also covered within the core shipping business of the assessee. He has contended that the assessee therefore was entitled to claim deduction on account of common costs attributable to the tonnage tax business on a reasonable basis as per section 115 VJ of the Act. In support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Punit Commercial Ltd. [2000] 245 ITR 550 (Bom.) and in the case of CIT vs. Indo Swiss Jewels Ltd. and Other [2006] 284 ITR 389 (Bom). 9. The ld. D.R.,....
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....ee, it is observed that the same was rendered in the context of section 80HHC(3)(a) of the Act and the ratio of the said decision therefore cannot be applied in the present case which involves the issue in the context of section 115 VJ of the Act. In the case of Indo Swiss Jewels Ltd. and Other (supra) cited by the ld. Counsel for the assessee, the facts involved were different from the present case inasmuch as inter-corporate deposits were made by the assessee from the surplus funds that were kept apart for payment for imported machinery and the interest earned on such short term deposits of the money kept apart for the purpose of business was held to be business income of the assessee by the Hon'ble Bombay High Court. The case laws cited by the ld. Counsel for the assessee thus are not applicable in the present case. On the other hand, a similar issue involving identical facts and circumstances has already been decided by the Tribunal in assessee's own case for A.Y. 2007-08 vide its order dated 29th July, 2011 (supra) and respectfully following the said decision of the co-ordinate Bench of this Tribunal in assessee's own case, we uphold the impugned order of the ld. CIT(A) confir....
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....dministrative expenses claimed to be set off against interest income and dividend income were altogether bogus or sham expenses which were never incurred by the assessee and an attempt was made by the assessee to perpetrate fraud on revenue. The assessee had made an legal claim of deduction of administrative expenses against interest and dividend income based on interpretation of provisions of newly inserted chapter XII-G under the 1961 Act which claim of the assessee did not found favour with any of the authorities including Mumbai-tribunal. The matter in quantum has now reached the doors of Hon'ble Bombay High Court at the behest of the assessee and Hon'ble Bombay High Court was pleased to admit substantial question of law in ITA no. 1013 of 2015 vide orders dated 20.02.2018 , by holding as under: "1. Heard. Appeal relates to Assessment Year 200607. 2. Appeal admitted on the following substantial questions of law: 1) Whether on the facts and in the circumstances of the case and in law, the Tribunal ought to have held that interest and dividend income forms part of the core activity and cannot be separately assessed to tax as income from other sources? ....
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....nt in an Iranian JV company engaged in shipping business namely „Irano Hind Shipping Company Limited', Tehran Iran. The said belief that these aforesaid income(s) are from incidental activity or activity related to core shipping activities was not completely without any basis more-so the entire scheme under Chapter XII-G was newly inserted scheme in the statute albeit the said claim of deduction of administrative expenses was rejected by tribunal also. The Hon'ble Bombay High Court has also admitted substantial question of law in an appeal filed by assessee arising from decision of the tribunal wherein the issue's were decided by the tribunal against the assessee.We are also aware that mere admission of substantial question of law by Hon'ble High Court will not however lead to the conclusion as a universal rule that no penalty is exigible as laid down by Hon'ble Bombay High Court in the case of Shree Gopal Housing and Plantation Corporation(supra) but the belief as was held by assessee in the instant appeal to come to the conclusion that these incomes from interest and dividend are from activities incidental to or connected to core shipping activities was not without any basi....
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.... of entertaining an appeal from an order imposing / deleting penalty would have to be decided on a case to case basis. There can be no universal rule to the effect that no penalty, if quantum appeal is admitted on a substantial question of law." Thus , due to detailed reasoning as set out above , we are of the considered view that penalty u/s 271(1)(c) of the 1961 Act in the instant case before us is not exigible with respect to the claim of the assessee for deduction of administrative expenses against income from interest on deposits and dividend income as explanations as were submitted by the assessee were bonafide explanations as to interpretation of a newly inserted special scheme of taxation for shipping companies as are contained in Chapter XII-G which has taken the assessee out of clutches of penalty provisions as were contained in Section 271(1)(c) of the 1961 Act and hence we have no hesitation in deleting the penalty as levied by the AO u/s 271(1)(c) and confirmed by learned CIT(A) with respect to the claim of the assessee for deduction of administrative expenses against income from interest on deposits and dividend income. The assessee succeeds on these two issues on ....
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....011 has decided the same in respect of item No. 2 (excess provision written back) and item No. 4 sundry credit balances written back) in favour of the assessee and item No. 1 (profit on sale of ships) and item No. 5 (profit on sale of fixed ships (non ship) against the assessee for the following reasons given in para 29 and 39 of its order:- "29. Provisions of section 115VA provides that the income from business of operating qualifying ships may be computed in accordance with the provisions of chapter XII-G, and that the income so computed shall be deemed to be the profits and Income from qualifying ships are defined in section 115VC, and there is no dispute on this aspect. Section 115VE mandates that profits from business of a company engaged in the business of operating qualifying ships shall be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term "relevant shipping income" has been defined in section 115VI. It is basically ....
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....s 28 to 43C. Thus, the receipt cannot be considered as turnover in view of the provisions of section 115VA and consequently out of the purview of Chapter-XII-G. In view of the above discussion, we uphold the finding of the Assessing Officer in this regard." 22. Respectfully following the Tribunal's order dated 29th July, 2011 (supra) in assessee's own case for A.Y. 2007-08, we uphold the action of the authorities below in reducing the profit on sale of ships and fixed ships from the turnover of core shipping. The action of the authorities below in reducing the excess provision written back and sundry credit balances written back, however, is set aside and the A.O. is directed to include the said income in the turnover of core shipping. As regards item No. 3 (sundry receipts from core shipping) and item No. 6 (reimbursement from managed vessels), the ld. Counsel for the assessee has submitted that neither the A.O. nor the ld. CIT(A) has examined the relevant details placed at 157 of the paper book and urged that the matter may be sent back to the A.O. for deciding the same afresh after verifying the said detail. As the ld. D.R. has no objection in this regard, the issue rel....
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.... 2004 w.e.f. 01.04.2005 and the year under consideration is AY 2006-07. The assessee in our considered view, however , had made due disclosure in the return of income filed vide computation of income as well in its submissions before the AO during the course of assessment proceedings . The assessee has drawn our attention to page no. 24-25/paper book as well page 43-45 of paper book to support its contentions that due disclosures were made and nothing was concealed from Revenue. Section 271(1)(c) of the 1961 Act provide for levying of penalty for furnishing of inaccurate particulars of income or for concealment of income. The AO had invoked limb concerning filing of inaccurate particulars of income by the assessee for levying penalty u/s 271(1)(c) of the 1961 Act. The effect of Explanation 1 to Section 271(1)(c) of the 1961 Act is that if the assessee offers an explanation which is bonafide which the assessee is able to substantiate and that all the facts relating to the same and material to computation of income have been disclosed, then the assessee is out of clutches of penalty provisions as are contained u/s 271(1)(c) of the 1961 Act. The assessee's view that profit arising on ....
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....Thus, the question of entertaining an appeal from an order imposing / deleting penalty would have to be decided on a case to case basis. There can be no universal rule to the effect that no penalty, if quantum appeal is admitted on a substantial question of law." In-fact Visakhapatnam-tribunal in the case of the tax-payer M/s Dredging Corporation of India Limited(supra) has held these issues in favour of the tax-payer by holding these income arising from sale of assets to be from core shipping activities. This also indicates issue being debatable involving interpretation of legal provisions of a newly inserted special scheme of taxation of shipping companies and the explanations offered by the assessee to that effect cannot be termed as not bonafide albeit rejected even by tribunal in quantum. Thus , due to detailed reasoning as set out above , we are of the considered view that penalty u/s 271(1)(c) of the 1961 Act in the instant case before us is not exigible as explanations as were submitted by the assessee were bonafide explanations which has taken it out of clutches of penalty provisions as were contained in Section 271(1)(c) of the 1961 Act and hence we have no hesitation ....