TaxTMI 
TaxTMI 
2019 (6) TMI 1451
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....e lien on shares held by the appellant. 4. The CIT(A) erred in confirming the addition made by the Assessing Officer towards transfer pricing adjustments of Rs. 63,21,564/- on account of hire charges payable in respect of ships. 5. The CIT(A) erred in confirming the addition made by the Assessing Officer towards transfer pricing adjustments of Rs. 9,96,696/- on account of ship management income. 6. The CIT(A) erred in confirming the addition made by the Assessing Officer towards transfer pricing adjustments of Rs. 30,09,798/- on account of interest on ship acquisition on BBCD basis. 7. The CIT (A) erred in confirming the disallowance made by the Assessing Officer (A.O) of a sum of Rs. 158,17,57,198/- u/s 14A of the Act r.w.r.8D of I.T. Rules. 8. The A.O and CIT(A) failed to appreciate that the appellant had already disallowed a sum of Rs. 36,10,49,722/- in the returned income, and thereby erred in making further addition to income to the extent of Rs. 36,10,49,722/- u/s 14A of the Act. 9. The CIT (A) ought to have directed the Assessing Officer that no transfer pricing adjustment in respect of shipping operations can be made since the appellant offered its income ....
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....ered under chapter XII-G of the Act also challenged disallowance under section14A. The assessee also urged that option of TTS was exercised since AY 2005-06 till Ay 2014-15. Accordingly the assessee is liable to be assessed on the Tonnage scheme. The assessee has not avail any deduction i.e separate interest or depriciation benefits for taxation purpose. The plea of the assessee was not accepted by ld CIT(A). The ld. CIT(A) confirmed the adjustment suggested by TPO as well as addition under section 14A made by Assessing Officer. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. 6. We have heard the submissions of the ld. Authorized representative (AR) for the assessee and the ld. departmental representative (DR) for the revenue and also perused the record of the case. The assessee vide its application dated 03.01.2019 has filed an application for admitting additional ground of appeal. In the application the assessee stated that no new facts are required to be brought on record. The additional grounds are purely question of law, which was omitted due to inadvertent error. In support of its contention the assessee has relied on....
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....d the option of offering its income to tax on a presumptive basis under the Tonnage Tax Scheme covered under chapter XII-G of the Act. The option was exercised since AY 2005-06 till Ay 201415. This fact is not disputed by ld. DR for the revenue as well as by the lower authorities. We have noted that on similar set of facts the coordinate bench of this Tribunal in Van Oord India Private Ltd. vs. ACIT (supra) held as under : "6. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around the applicability of transfer pricing provisions to the income that is covered by Chapter XII-G of the Act i.e. Tonnage Tax Scheme. The TTS was introduced in the Finance (No. 2) Act, 2004, with the intention of increasing foreign direct investment in the Indian shipping industry and making it globally competitive. The income of a tonnage tax company depends on the tonnage capacity of the qualifying ships and the number of days for which it has been held. A reading of the provisions of TTS in Chapter XII-G suggest....
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....ed as per the arm's length principle under section 92(1) of the Act would thus be relevant to compute business profits as provided for in sections 28 to 43C of the Act. The Assessee has opted to be governed by TTS, thus the provisions of section 115VA would override section 28 to section 43C and hence income has to be calculated with reference to the registered tonnage of the ships and not on basis of net profits depicted in the financial statements or as per the profits adjusted in terms of Chapter-X. In fact, the related party transactions are not relevant for computing income chargeable to tax as per Chapter-XII G of the Act and therefore, the arm's length price determined under transfer pricing provisions would be of no relevance. In other words, determination of income/ expense having regard to arm's length price would not alter the computation of income and the taxability of tonnage income of an assessee covered by TTS. 8. Further, tonnage income is based on the weight of the vessel and not on "arm's length price". Section 92C prescribes methods for computation of arm's length price. None of the methods prescribed can have any application to computation....
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....he Parliament. There is no scope for tinkering with the provisions of section 115 VP of the Act. He has to follow the simple rule that no deduction is to be allowed or no disallowance is to be made under any of the normal provisions of the Act, once it is found that an assessee is to be assessed as per the provisions of chapter XIIG of the Act. Section 14A is not an exception to the TTS. Rather the scheme is an exception to the normal computation provisions, including the section 14A.Therefore,it cannot be said that when the income of the assessee from the business of operating ships was computed under the special provisions of Chapter XII-G, expenditure other than the expenditure incurred for the purpose of the business had been allowed. Considering the twin factors i.e. not claiming any expenditure against the nonshipping business income by the assessee and opting for TTS for shipping business, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Therefore, confirming his order, we decide the effective ground of appeal against the AO." (underlined for emphasis by us) 10. On yet another occasion, our co-ordinate bench in the cas....
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....ovision relates to the computation of profits and gains of the shipping business. Tonnage tax was intended to make the industry internationally competitive and also to induce more ships to fly the Indian flag. As the whole of FEFG is covered by the provisions of chapter XII-G of the Act, there is no justification in computing it under a different chapter or section." (underlined for emphasis by us) 12. Before parting, we also think it apposite to refer to the judgment rendered by the Hon'ble Supreme Court in the case of Trans Asian Shipping Services Pvt Ltd (supra). In the said case, the Supreme Court observed that ".......It may be stated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by ra....
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....Hon'ble Bombay High court in the case of Vodafone Services Pvt.ltd. vs. UOI ( 2015) 53 Taxman.com 286 (Bom), wherein after referring to an earlier judgment dated 10th October, 2014 in the case of same assessee reported in 50 taxmann.com 300 (Bom) interalia , held that chapter X does not contain any charging provision but is a machinery provision to arrive at an arm's length price of a transaction between associated enterprises. 16. In the final analysis, it is seen that in the instant case, the provisions of chapter X have been invoked to alter an expenditure, namely the mobilisation and demobilisation charges paid for a qualifying ship, an item which has no bearing on the income as computed under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. 17. In view of the aforesaid discussion, in our considered view, the transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS." 11. Considering the decision of coordinate bench of the Tribunal as refer....