TaxTMI 
TaxTMI 
2019 (12) TMI 818
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the jurisdictional pre-conditions necessary for invoking the jurisdiction under sections 147 to 151 of the Act, had not been fulfilled in the present case and therefore the re assessment order passed by the Assessing officer (hereafter referred to as A.O.) was illegal and bad in law. Ground no 2: Income under the head Prior Period Adjustments: The CIT (A) erred in upholding the action of the A.O. in assessing the prior period income of Rs. 30,75,08,600 & Rs. 41,188 He failed to appreciate that the prior period. income constituted profits from core activities and that could not be brought to tax under The Act. Ground No 3: Additions under Sundry Receipts; 3.1 The CIT (A) has erred in holding that 'sundry receipts Rs. 10.51 crore were lot arising out of the core activity of operation of qualifying ships and the provisions of Tonnage Tax scheme was not applicable to these receipts. 3.2 In the alternative and without prejudice to the above since the sundry receipts are assessed to tax as business income, The CIT (A) ought to have granted deduction in respect of expenditure laid out or expended wholly and exclusively for the purpose o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income. 3. Without prejudice to the above, it is also seen that before A.Y.2005-08, assessee was assessed under normal provisions of the I.T. Act. During A.Y. 2006-07, prior period income of R. 572 lakhs, sundry credit balances written back of Rs. 47 lakhs, excess provisions written back of Rs. 2394 lakhs and sundry income of Rs. 1111 lakhs was received and/or written back as income in its books of accounts. Since, all these incomes may have been derived in the assessment years before tonnage tax scheme; assessee should have included the same under normal provisions of the I.T. Act, 1961. However, assessee failed to disclose these facts in its return of income and also during the assessment proceedings u/s 143(2). 4. Due to the above mentioned reasons, there has been a failure on part of assesse to disclose the facts fully and truly necessary for its assessment. The above mentioned facts have given rise to estimated escapement of income of about 71,46,13,492/- and estimated tax thereon of Rs. 24,05,38,901/- as per the annexure to these reasons." 5. On perusal of the reasons, it is revealed that the proceedings under section 147 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....back amounting to Rs. 23.94 crores were also furnished during the assessment proceedings. In this regard the learned AR drew our attention on page 143 to 147 and 151, 158 & 162 , 174 of the paper book where the reply of the assessee filed before the AO during the original assessment proceedings was placed. 10.1 Similarly, the learned AR submitted that the details of the items as mentioned in reason No. 2 were duly furnished by the assessee which was verified by the AO during the assessment proceedings. In this regard, the learned AR also drew our attention on page 137 of the paper book where the details sought by the AO during the original assessment under section 143(3) of the Act about different components of core shipping activities and the turnover declared in the financial statements, was placed. The reply of the assessee was placed on page 140 and 151, 158 & 159 and 174, 176, 177 and 178 of the paper book. 10.2 The learned AR also claimed that all the details of the items as discussed above were duly disclosed in the financial statements as evident from the page 74 of the PB. 10.3 The learned AR in view of the above claimed that the initiation of proceedings under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... change of opinion. Assessment reopened validly. Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd. v. Dy. CIT reported in [2012] 20 taxmann.com 5 (SC)/[2012] 206 Taxman 33 (SC)(MAG)/[2012] 340ITR 64 (SC)/[2012] 247 CTR 316 (SC) has observed as under: Assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income u/s 14A there was omission and failure on its part to disclose fully and truly material facts and hence reopening of assessment was justified. Delhi High Court in the case of Honda Siel Power Products Ltd. v. Dy. CIT reported in [2011] 10 taxmann.com2 (Delhi)/[2011] 197 Taxman 415 (Delhi)/[2012] 340 ITR 53 (Delhi)/[2012]247 CTR 322 (Delhi) has observed as under: Assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income u/s 14A there was omission and failure on its part to disclose fully and truly material facts and hence reopening of assessment was justified. Bombay High Court in the case of Devi Electronics Pvt. Ltd. vs. ITO reported in 2017-TOIL-92-HC-MUM-IT has observed as under: the likelihoo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct can be verified from the schedule 18 and 19 attached with the financial statement of the assessee and reproduced for the sake of clarity as under: SCHEDULE '18' EXCESS PROVISIONS WRITTEN BACK 2005-06 Rupees In lakhs 2004-05 Rupees In lakhs Direct Operating Expenses 806 435 Freight & Charter hire 103 700 Wages, Bonus and other expenses on floating staff 86 Nil Insurance, P&l, Cargo claims & P&I Club fees 13 Nil Provision for Doubtful Debts & Advances 736 64 Foreign Taxation 72 150 Provision for Offhire 1 102 Establishment Charges 43 Nil Ship Repairs, Stores and Maintenance 319 Nil Shore staff expenses 174 Nil Staff canteen expenses 40 Nil Others 1 54 TOTAL 2,394 1,505 SCHEDULE '19' OTHER INCOME 2005-06 Rupees In lakhs 2004-05 Rupees In lakhs Sundry Receipt - Crore shipping activities 1,111 1,175 - Incidental activities 354 578 1,465 1,753 Profit on sale of Fixed Assets (other than Ships) 29 2 Dividend on tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e paper book. The relevant extract is reproduced as under: "It is evident that while working out the turnover from core shipping activities, the following incomes have been included:- (in Rs.) (i) Profit on Sale of Ship 1 2,10,00,000 (ii) Excess Provision written back 23,94,00,000 (iii) Sundry Receipts - core shipping 11,11,00,000 (iv) Profit on Sale of Fixed Assets (other than Ships) 29,00,000 (v) Sundry Credit balance written back 47,00,000 (vi) Reimbursement from Managed Vessels 25,61,00,000 73,52,00,000 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX "(ii) Excess Provision written back & Sundry Balance Written back:- These represent various expenses/ provisions which were disallowed in earlier years or expenses claimed in earlier years which were received back subsequently. From details furnished by the assessee, it is seen that excess provision written back constitutes write back of such expenses as Direct Operating Expenses, Freight & Charter hire, Provision for Doubtful Debts & Advances, Foreign Taxation, Ship Repairs, Staff Canteen expenses etc. It is the assessee's claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities 52,546/ Excess of Incidental Activities 9.95.30,047/- * *" 17. The AO during the original assessment proceeding has questioned about the different components of core shipping activities and the turnover vide notice dated 1st September, 2008 under section 142(1) of the Act. The relevant query/question raised by the AO, placed on page 137 of the paper book, reads as under: 5. To identify the different components of core shipping activities and substantiate the turnover shown. 18. The assessee in response to such notice has made a reply vide letter dated 30th September, 2008 as detailed under: "5. Reg identifying the different component of core shipping activities and substantiate the turnover shown: The SCI is engaged fully in the shipping business. It has no other mojor activity. However the incomes viz: interest on deposits, dividend from the companies is considered as income from other sources. Accordingly while calculating the tonnage activity the income of these nature are suo moto considered as not forming core shipping activity. In addition as per Rule 11R following activities are notified as incidental activities for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer." Hon'ble Bombay High Court in the case of Idea Cellular Ltd. v/s DCIT reported in 301 ITR 407 wherein it was held as under; "Where the assessee's assessment was reopened on the ground that since the assessee had failed to disclose the income accruing on amalgamation, provisions of section 147 were applicable. Held that this was not a case where it could be said that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment in the relevant assessment year. The accounting entry for the amount of Rs. 9,984.15 lakhs was mentioned in the returns for the relevant year. The queries raised were replied to by the assessee. There was a full and true disclosure of all material facts placed before the Assessing Officer and thus there was no suppression of any material from the assessment officer. Therefore, all materials were placed before the Assessing Officer when he passed the order. Therefore, the pre-requisite condition contained in the proviso to section 147 to enable the reassessme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bombay High Court in the case of CIT-II v/s Jet Speed Audio Pvt. Ltd reported in 372 ITR 762 wherein it was held as under: "10. Mr. Chhotaray, learned Counsel for the Revenue urged on merits of the Revenue's case to charge Rs. 1.34 crores allowed as bad debts, has to be appropriately brought to tax as capital loss. We pointed out to Mr. Chhotaray, learned Counsel for the Revenue that the scope of the present proceedings is only with regard to reopening notice under Section 148 of the Act and we are not dealing with the merits of the assessibility of the income alleged to have escaped assessment. On this Mr. Chhotaray submitted that the issue which he seeks to urge is that merely because the Assessing Officer has been careless in bringing to tax a particular amount which is chargeable to tax, the Revenue should not be precluded from issuing notice under Section 148 of the Act. This submission of Mr. Chhotaray overlooks the facts that power to reopen is not a power to review an assessment order. At the time of passing assessment order, it expected of the Assessing Officer that he will apply mind and pass an order. An assessment order is not a mere scrap of paper.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 38. In this context, we may recall that as held by the Apex Court in the case of (1) Kelvinator of India Ltd. (supra), even after 1.4.1989, reopening of an assessment previously framed after scrutiny would not be permissible on a mere change of opinion and that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax has escaped assessment. The concept of change of opinion is not done away with in the newly amended section 147 of the Act." 24. We also note that the similar issue was decided by this tribunal in the own case of the assessee involving identical facts and circumstances in ITA No. 145/Mum/2011 vide order dated 29th July, 2011 wherein it was held as under: "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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e opinion that the argument of the assessee should succeed. 30. With the introduction of chapter-XII-G, the entire methodology of taxing income from the business of operating qualifying ships has changed and recourse to the normal provisions of the Act in a peace-meal manner is not authorised by law. Though the assessee has computed other income while filing its return of income, in our opinion, the income arising from section 41(1), cannot be classified as, either income from other sources or income from incidental activities. When all the ships of the assessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our opinion, a third category of other business income cannot be created. As pointed out by the learned Sr. Counsel, if such introduction is allowed then, a claim of the assessee of deduction under section 43B i.e., deduction only on actual payment would be required through the expenditure actually belongs to pre-tonnage period, to be allowed. The Assessing Officer cannot take recourse to sections 28 to 43C, when there is no other activity or business carried on by the company, other than business of op....