TaxTMI 
TaxTMI 
2021 (4) TMI 530
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.... the first appeal in the Order dated 18.02.2005 by the Learned CIT(A) and therefore disallowance without giving any opportunity to the Assessee is invalid under the Income-tax Act, 1961. 2. The Learned CIT(A) has erred in not considering that the shares are held under DEMAT and dividend is credited directly to the bank account of the Company and therefore Company does not incur any expenditure for earning dividend income and therefore disallowance of amount @ 0.5% of average of investments is not valid. 3. The Learned CIT(A) has erred in not considering that Hon'ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. 349 ITR 449reversed the judgment of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 194 Taxmann 203 and held that no disallowance can be made under Section 14A for expenses incurred for investments yielding tax-free income if the same was not disallowed in earlier years on the PRINCIPLES OF CONSISTENCY as held by Hon'ble Supreme Court in the case of RADHASOAMI SATSANG VS. CIT 193 ITR 321. 4. Brief facts on this issue are that the assessee has earned dividend income of Rs. 39,68,141/- which was claimed exempt ....
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....he assessee. He has deleted the addition u/r. 8D(2)(ii). He has only directed disallowance u/r. 8D(2)(iii) amounting to half percent of assessee's investment which earned exempt income. We find that there is no infirmity in the above direction of learned CIT(A). Assessee's claim that this limb of disallowance u/r. 8D(2)(iii) was not invoked by the Assessing Officer is not at all sustainable. The Assessing Officer had made disallowance of Rs. 2,29,93,962/- under section 14A. Learned CIT(A) had deleted that and directed for a disallowance of 0.5% of the average value of investment under rule 8D(2)(iii) after necessary verification by the Assessing Officer. We find that the disallowance sustained by learned CIT(A) in effect is much less than that by the Assessing Officer. Even if investment have been made out of available interest free fund the same by no stretch of imagination goes on to the prove that no disallowance under rule 8D(2)(iii) is required. We are not at all convinced by the assessee's contention that due to technicality there is infirmity in the direction of learned CIT(A) as the Assessing Officer initially has not proposed any such disallowance . Hence, we u....
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....e Book Profits u/s. 115JB erred in considering deduction u/s. 33AC amounting to Rs. 40,19,96,248 as against the amount of Rs. 46,00,00,000 carried to 33AC reserve in the Profit and Loss Account." Apropos ground No. 1, 2 & 3:- 10. Brief facts are that the assessee company is engaged in the business of shipping. The assessee had filed a return of income for A.Y. 2004-05 on 01.11.2004, declaring total income at Rs. 4,11,91,919/-. The return was processed u/s. 143(1) of the Act on 07.01.2005 and subsequently selected for scrutiny. Thereafter, the assessee company revised the taxable income to Rs. 3,33,45,240/- by filing a revised statement of income along with letter dated 25.09.2006. An assessment u/s. 143(3) of the Act determining the total income of, Rs. 61,35,50,490/- was concluded on 29.12.2006. Aggrieved, the assessee filed an appeal before the CIT (A) on 25.01.2007. 11. Thereafter, on application of the assessee u/s. 154, the AO passed a rectification order on 09/02/2007 u/s. 154, re-computing the deduction allowable u/s. 33AC of the Act, at Rs. 46,00,00,000/- and reducing the assessed income to Rs. 47,67,42,540/-. In both these orders, unabsorbed depreciation was not a....
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....d taxes paid by the assessee. 15. Pursuant to the directions issued by the CIT(A) the Assessing Officer has passed an order dated 24/02/2014. Aggrieved, with this order of the Assessing Officer the assessee has filed the appeal before learned CIT(A). Further, the Assessing Officer also passed another order u/s. 154 of the act on 20.11.2015 and relying on the provisions of section 115JAA, the Assessing Officer restricted the credit for tax paid under MAT to the extent of Rs. 19,65,076/- pertaining to A.Y. 1999-2000 and 2000-01 for set off in A.Y. 2004-05 as against set-off of Rs. 1,99,46,785/- allowed earlier on the ground that MAT credit from A.Y. 2001-02 to 2005-06 is not allowable as deduction as per provisions of section 115JAA. Assessee also filed appeal against the this order to the learned CIT(A). The learned CIT(A) has noted for adjudication the ground raised by the assessee against both the orders of Assessing Officer. After noting grounds raised against both the assessment order the learned CIT(A) proceeded to treat and adjudicate the ground as arising in a single appeal. 16. Thereafter the learned CIT(A) as regards the impugned ground noted that the assessee has cha....
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....ore he found no error on the order of the Assessing Officer on this issue. 18. Against this order assessee has filed the appeal before us. 19. We have heard both the counsel and perused the records. In this regard submission of assessee's counsel are as under:- "The Learned CIT(A) has erred in not considering the ground against reduction of sum of Rs. 9,81,23,493/- representing 19.62% of the profit earned on account of freight paid to subsidiary company overlooking that the freight was paid at the same rates which was received by the Appellant Company and therefore the Appellant Company has not earned any profit on the same and therefore the same cannot be reduced from shipping business income for the purpose of computation of deduction u/s. 33AC and Hon'ble ITAT is entitled to consider the same as information is available with the Department as under and as the Hon'ble ITAT is the final facts finding body. Sr. No. Voyage No. Rate of freight received from Govt. Concerns on the voyage (USD) Rate of freight paid to the subsidiary company on the voyage (USD) a) PG01 11.45 11.45 b) PG02 14.85 14.85 c) PG 10 20.00 ....
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.....O. wherein dividend income, interest earned, management fee and profit on sale of assets which were already deducted in the computation of income but again reduced by the A.O. have been added back and deduction u/s. 33AC has been increased to the extent of reserve created of Rs. 46,00,00,000/-. Hence the appellant is not entitled to any further deduction." but the Learned A.O. has reduced the deduction u/s. 33AC to Rs. 40,19,96,24/- vide Order dated 24.02.2014 instead of deduction u/s. 33AC 46,00,00,000/-. The Hon'ble ITAT is entitled to consider the same as information is available in the records of the Department and Hon'ble ITAT is final fact finding body." 22. Furthermore, learned Counsel of the assessee contended that this issue is squarely covered by the following case laws:- * Mercator Lines Ltd. vs. DCIT 17 SOT 54 (Mum) * Dolphin Offshore vs. ACIT 38 SOT 404 (Mum) * GAL Offshore vs. CIT 175 Taxmann 485 (Bom) * Shipping Corporation of India Ltd. vs. Ad din CIT 15 Taxmann.com 141 (Mum) * DCIT vs. Mercator Lines Ltd. 28 Taxmann.com 256 (Mum) * Dredging Corporation of India Ltd. vs. ACIT 13 Taxmann.com 37 (Vish.)....
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....: (i) ownership issue; and (ii) the activity of operation of running and maintaining the barges. [Para 11] The owning a ship/barge is different from the application of the earning of the business of operation of ships/barges. The provisions of section 33AC(1) refer to the conditions of: (i) status; (ii) object of the business of the company; (iii) eligibility of profits and the application of the same; and (iv) credit to the shipping reserve account. These conditions do not refer to the ownership of the ships/barges. What is needed is the 'carrying on the business of operation of ships' and not the 'owning of the ships/barges' and the intention of deduction may be to generate internal resources to augment the fleet, which the assessee in any case would be doing by complying with the conditions (iii) and (iv) above. Under these circumstances, the owning the ships/barges is not a condition for availing of the benefits of section 33AC. In other words, the ships/barges owned by the third party, i.e., JNPT in the instant case when they were operated in the assessee's business, the assessee was entitled to the deduction." 26. Similarly in the case of Siriu....
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....ownership of ship a precondition at the threshold level for claiming deduction under section 33AC. Even in the circulars issued by the Central Board of Direct Taxes, namely, Circular No. 554 of February 13, 1990, and No. 636 of August 31, 1992, wherein certain amendments of section 33AC have been explained, the Board has been silent about the ownership of ship by the assesses at the threshold level. Unlike in section 36(I)(viii), in section 33AC there is a licence given to the assessee to utilise the amount credited to the reserve for the general purpose of the business till the assessee acquires a ship. There is no restriction in section 33AC to the number of assessees who could claim such deduction and further the deduction under section 33AC is with reference to the profit or income of each and every assessee and not linked to any particular turnover like in section 80HHC. (iii) That the phrase "running and maintenance" is nothing but "operation of ships", as envisaged by section 33AC. The nomenclature found in the agreement, namely "technical manager", could not change the nature of the business done by the assessee-company in the operation of ships. So long as the ass....
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....ation of ships and does not confine only for operation of ships and sales of scrap by the assessee was certainly generated during course of business of operation of ships and as such eligible for deduction under section 33AC of the Act. In the case of Dolphin Offshore Vs. ACIT (38 sot 404), it was held that:- "the assessee, a public company, was owner of a shipping vessel-during relevant assessment years, assessee earned income from shipping operations-assessee's claim for deduction under section 33AC was rejected by revenue authorities on ground that shipping was not core business of assessee - On instant appeal, it was seen that no other activity had been done by assessee except operations of ships and income earned from said operation had been shown as charter hire fees - It was also noted that reserve account had been maintained by assessee and surplus amount, as per conditions of section 33AC, had been transferred to reserve account-Whether, on facts, revenue authorities were not justified in rejecting assessee's claim - held Yes. In the case of Gal Offshore Services Ltd. Vs. CIT (175 Taxman 485), Hon'ble Bombay High Court has held that:- Se....
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....I. Section 115VA, read with section 45, of the Income-tax Act, 1961-Shipping business-Computation of profits and gains from business of operating qualifying ships - Assessment year 2007-08 - Assessee earned certain income from sale of ships - Revenue authorities brought to tax said income under head 'capital gains' - It was undisputed that even though income was from core activity nevertheless, it was taxable under head 'Capital Gains' and did not fall within ambit of sections 28 to 43C - Whether in view of above, receipt in question could not be considered as turnover as per provisions of section 115VA and, thus, it was out of purview of Chapter-XII-G of Act - Held, yes - Whether, consequently, authorities below were justified in making separate addition in respect of income arising from sale of ships - Held, yes [In favour of revenue] In the case of DCIT Vs. Mercator Lines Ltd. (28 taxmann.com 256) it was held by the Tribunal that:- Section 33AC of the Income-tax Act, 1961 - Shipping Business - Reserves for-Computation of deduction - Assessment year 2003-04 - Assessee claimed deduction under section 33AC on insurance claim amount received towards repai....
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....ting qualifying ships' - Held, yes [Partly in favour of assessee] 30. Thus it is amply evident that these items rejected by the Assessing Officer have been considered and accepted as business income for the purpose of determining deduction allowable under section 33AC of the Act in the above case laws. 31. Respectfully following the precedents, we set aside the order of learned CIT(A) and decide this issue in favour of the assessee. Apropos ground No. 4 32. In this regard we note that learned CIT(A) was considering the assessee's challenge to ground relating to allowability of interest under section 244A of the Act on the excess amount of tax paid by the assessee. Learned CIT(A) directed that the Assessing Officer should grant interest under section 244A of the Act as provided under the Act. In the absence of any further detail furnished by the assessee, we find that there is no infirmity in the direction to grant interest under section 244A of the Act as per provisions of the Act. We find that learned CIT(A) has already directed the Assessing Officer to follow the prescription of the Act. Hence, no separate adjudication is required. Hence, we uphold the order o....
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....t year sold its meters and transformers on which it had claimed depreciation. On sale, the respondent assessee claimed long term capital gains and sought to set off the same against its carried forward long term capital loss in terms of Section 74 of the Income Tax Act, 1961. The assessing officer disallowed the claim and held that in view of Section 50 of the Act, the gain is in the nature of short term capital gain. 3. On further appeal, the Tribunal by the impugned order has allowed the claim of the respondent assessee to set off its long term losses in terms of Section 74 of the Act against the long term capital gains on sale of transformers and meters. In the case of Ace Builders Limited, this Court held that by virtue of Section 50 of the Act only the capital gains is to be computed in terms thereof and be deemed to be short term capital gains. This deeming fiction is restricted only for the purposes of Section 50 of the Act and the benefit under Section 54E of the Act which is available only to long term capital gains was extended. Further, an identical issue with regard to set off against long term capital loss arose in an appeal filed by the Revenue in the matter ....
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....efore the same cannot be considered u/s. 154 as mistake apparent on record." 38. Upon hearing both the parties and perusing the records, we find that learned CIT(A) has adjudicated the issue by elaborately referring to the scheme of the Act and explanatory note. He has decided the issue as under:- "Tax credit in respect of tax paid on deemed income relating to certain companies. (i) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section. (1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section. 7.6 The relevant para of Explanatory Notes to the Finance Act, 2005, (Circular No. 003 of 2006 dt. 27th February, 2006) which explains the intention behind the insertion of the new provision, reads as follow; ....
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.... jurisdiction allowed u/s. 154 of the Act. In view of the aforesaid, the above grounds of appeal are rejected." 40. Upon careful consideration, we find that learned CIT(A) has passed reasonable order and it does not require any interference from our part. Hence, we uphold the order of learned CIT(A). This ground raised by the assessee stands dismissed. Apropos additional ground:- 41. Additional grounds raised read as under:- "In the Profit and Loss Account the Appellant created reserve u/s. 33AC amounting to Rs. 46,00,00,000. However, in the Rectification Order passed u/s. 154 dated 20.11.2015 and the Order dated 24.02.2014 giving effect to CIT(A)'s Order, the Learned A.O. has while computing the Book Profit u/s. 115JB has considered deduction u/s. 33AC amounting to Rs. 40,19,96,248 instead of the amount credited to reserve u/s. 33AC and debited to Profit and Loss Account amounting to Rs. 46,00,00,000. In the original appeal filed before CIT(A) and the Hon'ble ITAT the above grounds of appeal remained to be included. The Appellant therefore has filed the additional grounds of appeal raising the above ground. As the facts of the case and d....