TaxTMI 
TaxTMI 
2019 (12) TMI 818
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....ng 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 of its business and earning such income. 3.3 The CIT A failed to appreciate that (i....
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....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 Act were initiated for escapement of income mainly on account of two reasons as discussed below: i. The amount of provision written back amounting to Rs. 23.94 crores has n....
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....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 section 147 of the Act is based on the same set of documents which were available during the original assessment proceedings which was completed by the AO after due application of his mind. Accordingly, the learned A....
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....nder: 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 likelihood of a different view when materials exist of forming a reasonable belief of escaped income, will not debar the AO from exercising his jurisdiction to assess the assessee on reopening notice Delhi High Court in the case of Amsa India Pvt. Ltd. vs. CIT reported in 2017-TOIL-603-HC-DEL-IT has observe....
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....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 trade Investments 201 372 Sundry Credit Balances written back - Core shipping activities 47 1,237 TOTAL 1,742 3,364 15. The detail of the prior period adjustments was also disclosed in the notes on accounts being part of schedule 25 of the financial statements which is reproduced as under: "7. Prior year's adjustments (Net) amounting to Rs. 572 lakhs (cr.) [Previous year Rs. 2715 lakhs (Cr.)] includes income of Rs....
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....0 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 that these expenses, forming inherent part of core shipping activities, should be considered to be turnover from core shipping activities in the year in which they are Written back". XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX "The aforesaid contention of the assessee is, however, not acceptable. The function of selling ships & other fixed assets cannot be equated with the business of operating ships. The former fall into a different domain which cannot be linked with core activities within the definition of Section 115VI(2) of the Income-tax Act. As regards Excess Provisions & Sundry Credit balances ....
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....g 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 the purposes of relevant shipping income. In view of this rule income from these activities are separately shown under income from incidental activities namely:- i) maritime consultancy charges; ii) income from loading or unloading of cargo; iii) ship management fees or remuneration received for managed vessels; and iv) maritime education or recruitment fees." 19. Similarly, the assessee also furnished the details of the excess provisions written back vide letter dated 10th October 2008 along with the submission that it is engaged fully in the business of shipping and no other business activity is carried on by it. The income has been offered to t....
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.....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 reassessment to be opened after period of 4 years had elapsed had not been met. This was a case in which the Assessing Officer raised specific queries on several occasions and all the queries were answered. Once all the material was before the Assessing Officer and he chose not to deal with the several contentions raised by the petitioner in his final assessment order, it could not be said that he had not applied his mind." Hon'ble Bombay High Court in the case of Asian Paints Ltd. v/s DCIT reported in 308 ITR 195 wherein it was held as under; "8. In the order rejecting the objection filed by the petitioner to the notice under section 148, respondent No. 1 has observed "verification of assessment record rev....
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....as 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. To accept the submission of Mr. Chhotaray, would mean to negate the well settled position in law as stated by the Supreme Court in the case "CIT v. Kelvinator of India Ltd. [2002] 123 Taxman 433 (Delhi) (FB)"that the concept of 'change of opinion' brought in so as to have in built test to check abuse of power. In view of the above, we find no substance in the submissions raised by Mr. Chhotaray." 22. We also draw support and guidance from the judgment of Hon'ble Bombay High Court in the case of State Bank of India (Mumbai) v/s ACIT writ petition no. 271 of 2018 wherein it was held as under wherein it was held as under; "5. As against the above, it is the case of the Revenue that the re-opening notices should not be i....
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....ion 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 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, wri....
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....ed 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 operating qualifying ships. In view of the above discussion, we allow ground no.1 of the assessee." 25. The argument of the ld. DR for the Revenue that the assessee is getting double benefit has been duly considered by the Tribunal as discussed above. 26. We also note that the ld. DR has referred to certain Judgments as discussed above but we do not find any reason to recapitulate all of them but suffice to say that these are based on different proposition and do not apply in the present facts of the cases. 27. Thus, in view of the above we hold that the reopening of the impugned case under section 147 of the Act in itself is invalid and against the laws settled by the Hon'ble Supreme Court/ High Courts in the cases cited above. 28. The learned DR at the tim....