TaxTMI 
TaxTMI 
2022 (2) TMI 74
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....iness of shipping and storage. It filed its return of income declaring income of Rs. 2,17,49,610/- under normal provisions of the I.T. Act, 1961 and at book profit at Rs. 64,93,03,889/- under section 115JB of the I.T. Act, 1961. During the course of assessment proceedings, the A.O. observed that Assessee-company has given interest free loans to its subsidiary company M/s Jagson Airline Ltd. amounting to Rs. 56,64,204/-. He, therefore, asked the assessee to explain as to why proportionate interest should not be disallowed as the assessee-company has incurred financial cost of Rs. 34,84,37,412/-,on secured/unsecured loans. He further noted that similar addition was made in the last assessment year and assessee during the proceedings had stated that advance was given to sister concern M/s Jagsons Airlines with which assessee has close business relation and it holds more than 2/3rd share. Since the assessee could not explain commercial expediency for advancing these interest free loans to this concern the A.O. observed that there is no business exigency for advancing these loans. The A.O. in the absence of any satisfactory reply from the assessee, disallowed the interest of Rs. 6,79,70....
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.... similar addition was made in the A.Y. 2011-12. Therefore, on the basis of the order of his predecessor for the A.Y.2011-12, the A.O. made disallowance of Rs. 8,11,25,986/-. 2.4. During the course of assessment proceedings the A.O. asked the assessee to furnish details on TDS deducted on payment of Rs. 2,14,08,343/- made to M/s Noble Denton Middle East. On being asked by the A.O, it was explained that assessee-company does not have any Permanent Establishment ["PE"] in India and assessed to tax in UAE with whom there is DTAA and so no tax is deductible. However, the A.O. was not satisfied with the explanation given by the assessee. He referred to provision of Section 9 (1) (vii) of the Income Tax Act, 1961 and Explanation thereto and noted that a conjoint reading of the above provisions clearly brings out the amount paid to Noble Denton Middle East, UAE was subject matter of TDS. Since the assessee failed to deduct tax on payment of Rs. 2,14,08,344/- as per provision of Section 195 read with Section 9 (1) (vii) of the I.T. Act, 1961, the A.O. held that the amount so paid is chargeable to tax in India and accordingly disallowed the same as per provision of Section 40 (a) (ia) of ....
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....funds and business interest of the assessee-firm. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee-firm and working solely in the interest of the assessee-firm/ company, would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advances when the assessee-firm/company itself is borrowing funds for running its business". 3.2.1. Thus, following three conditions are sine qua non for allowance of a claim for deduction of interest under this provision: (i) The money, that is capital, must have been borrowed by the assessee. (ii) It must have been borrowed for the purpose of business. iii) The assessee must have paid interest on the borrowed amount i.e. he has shown the same as an item of expenditure. 3.2.2. The main argument of the A/R is that the loans and advances are for business activities, the appellant being a major share holder in Jagsun Airlines with long term business relationship. The aircraft belonging to the appellant company were being run by the said ....
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.... 5. Satish Katta vs. Asstt. CIT 13 DTR 237 (Jp 'A') 6. Madhu Industries Ltd. vs. ITO 43 DTR 23 (Ahd D') 3.2.4. In a recent decision in the case of Hero Cycles Pvt. Ltd.(Civil Appeal No.514/2008 dated 5.11.2015) the Supreme Court has held that, so long as there is nexus between the expenditure incurred and the purpose of the business of the subsidiary company (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm chair of the business man or in the position of the board of directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case, in the said decision, the Hon'ble Supreme Court approved of the view taken by Delhi High Court in Dalmia Cement Pvt. Ltd. (254 ITR 377) and disapproved of the Punjab & Haryana High Court decision in the case of Abhishek Industries (286 ITR). Incidentally in the case of Hero Cycles, it was found that the interest liability of the assessee towards the bank on borrowings made had no bearings on the issue as otherwise, the assessee had sufficient funds of its own to advance the ....
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....e under the tonnage scheme. I find that the CIT(A) for the A.Y. 2007-08 in appeal no. 119/2009-10 has relied on the Delhi High Court's decision in the case of Sh. Ram Pistons and Rings Ltd. in giving direction to the AO while sustaining the addition made u/s 14A, that the benefit of tonnage tax scheme may be given on the finally determined income. The department, as per the appellant, has not challenged this particular finding of the CIT(A) before ITAT. For the A.Y. 2008-09 also, the disallowance u/s 14A has been upheld. On the other hand the Ld. CIT(A) for the A.Y. 2009-10 to 2011-12 has taken the view that since the appellant gets the benefit of tonnage tax u/s 115VP read with section 115 VR, the disallowance u/s 14A is not warranted. 4.3. Perusal of the financial statement show that while no tax free dividends were received during assessment year 2012-13, a sum of Rs. 1,32,83,957 has been received in A.Y 2013-14. The appellant has made investment in sister companies and carried out activities in mutual fund, income from which is exempt u/s 10(38). These facts has been mentioned by the AO in the impugned assessments and it is noted that no suo-motu disallowance has b....
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....s 32, the judicial views on the subject, the facts of the assessee's case etc. to reach the conclusion that depreciation on aircraft is fully allowable. The relevant observations of the CIT(A) for A.Y. 2009-10 in this regard are reproduced herein under: "7.1. I have carefully considered the written submission on behalf of the appellant and finding of the assessing officer in assessment order. I find that section 32 of the Act deals 'with depreciation. There is requirement that the assets should be owned and used for the wholly or partly by the assessee for the purpose of the business or profession. This section 32 was substituted by the Finance (No 2) Act, 1998 w.e.f. 01-04-1999. However, the concept of Block of asset was introduced w.e.f. 01-04-1988. This concept was discussed in detail in the case of CIT \/s Oswal Agro Mills Ltd (Supra) by the Hon'ble Delhi High Court. The use of the asset in the block of assets method the first year of its business is sufficient to allow depreciation from year to year. Once the asset is used by the assessee for the purpose of its business and the asset is owned by the assessee depreciation has to be allowed to it from year t....
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.... find force in the contention of the appellant that the asset is under "Block of Assets" and was used in earlier years, its subsequent use has no relevance under amended law under IT provisions. Since AO himself in AY 2005-06 has found that the asset was used and allowed the depreciation on the direction of the Hon'ble High Court. I do not find any reason for making this disallowance from year to year once the issue has been examined by the AO himself. The subsequent AO should not agitate the issue again and again once their predecessor has decided the issue as per directions of the Hon'ble Delhi High Court. 7.3. In view of the above discussion the AO is directed to allow the entire depreciation on aircraft as claimed by the appellant. In the result this around of appeal stands allowed." 5.2. Keeping in view the jurisdictional High Court decision in the case of Oswal Agro Mills Ltd. (supra) since the asset was used in the earlier years even if subsequent user is not there, the depreciation is to be allowed. I also find that no addition has been made by the AO on this issue for the A.Y. 2013-14 which is under appeal and which is being adjudicated as part of....
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....sessee. Once claim has been made by the assessee but not accepted by the party i.e. ONGC as per contract only such payment would be treated as income unless disputed. The assessee company once accepted the deductions and did not dispute the same, it can claim these deductions as an expenditure and so it is required to be allowed as deduction for computing the income. 8.3. In the result ground no 5 is allowed and AO is directed to allow Rs. 4,95,74,440/- claimed as unpaid operational charges." 6.3.1. I also find that the AO has not made any addition on this account in the A.Y. 2013-14. In view of the factual finding that the corresponding operational income relating to unpaid operational charges debited to ONGC account correctly reflects the accounting treatment in respect of income not actually received, the action on the part of the AO in disallowing the unpaid operational charges to ONGC cannot be sustained. Ground no. 4 for A.Y. 2012-13 is thus allowed." 3.5. So far as disallowance of Rs. 2,14,08,344/- under section 40 (a) (ia) of the I.T. Act, 1961 is concerned, the Ld. CIT(A) deleted the same by observing as under : "7.3. I have given careful cons....
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....ndia. As seen from the definition of 'PE' as given under article 5, sub-article (2)(i) includes furnishing of services including consultancy services, by an enterprise of one of the Contracting States through employees or other personnel in the other Contracting State, provide that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. Perusal of the invoices of Noble Denton Middle East revels that the professionals rendered services ranging from period between 10 to 27 days. Accordingly even under sub-article (2)(i) of Article 5, The services rendered by the foreign consultants cannot be said to amount to a permanent establishment or a fixed place for a business through which the foreign enterprise carries out its business in India, wholly and partly. It is also seen that during the appellate proceedings relating to A.Y. 2011- 12 my Ld. Predecessor considered the letter issued by Nobel Denton Middle East Ltd. clarifying that they did not have a permanent establishment in India as per Article 5 of the DTAA and were assessed to tax in the UAE. I also find from the tax audit rep....
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.... 2008-09 to 2011-12, and I have allowed the appeals on this issue for the impugned years. Section 115VO clearly provides that the book profits derived by the tonnage tax company shall be excluded from the book profits of the company for the purposes of section 115JB. Accordingly the AO is directed to exclude the income derived from shipping activities from the computation of book profits for both the years. Ground nos. 8 & 10 for 2012-13 & 2013-14 respectively are allowed". 4. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds : 1. That the order of the learned CIT (Appeals) is erroneous & contrary to facts & law. 2. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs. 6,79,704/- made by AO on account of that the assessee has given interest free loans to its subsidiary company without substantiating commercial expediency. 3. That whether on the facts and in law, the Ld. CIT(A) was right in deleting the disallowance of Rs. 53,40,288/- made by the AO on account of Section 14A r.w. rule 8Dby ignoring fact that as per the CBDT's Instruction....
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..... Further the assessee company has income from shipping unit of Rs. 62,55,82,919/-. No loan has been given during the year and in fact M/s. Jagsons Airlines has returned balance amount of Rs. 31,05,05,994/- during the year out of the total amount of Rs. 31,61,70,197.53. We find identical issue had come-up before the Tribunal in assessee's own case for the A.Y. 2010-11 and 2011-12 wherein the Tribunal decided the issue in favour of the assessee. 6.2. We find the Tribunal in assessee's own case for the A.Y. 2011-12 vide ITA.No.4769/Del./2014 order dated 17.08.2018 has decided the issue in favour of the assessee by observing as under : 12. We have considered the rival submissions and have gone through the entire material available on record and we find that most of the issues involved in this appeal are covered in favour of the assessee by various decisions of Tribunal and Delhi High Court. 13. As far as the first issue regarding disallowance of notional interest on interest free loans given to subsidiary company, we find that this issue has been settled by the Tribunal in assessee's own case for the assessment year 2010-11 vide order dated 11th May, 2018. The rel....
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....ing as under :- "3.3 I have gone through the assessment order, written & oral submission of the appellant and materials available on record. In the instant case, during the year assessee advanced Rs. 5,21,27,291.3 as interest free advance to its sister concern namely, M/s. Jagson Airlines Ltd. My attention was also drawn on the fact that prior to taking loan for the purchase of vessel the assessee company had already advanced Rs. 21,17,41,988.5 to the Jagson Airlines Ltd. In support of his contention the appellant has enclosed Annexure 'A' in its paper book showing last 10 years transaction between the two companies. From the chart it is also clear that M/s Jagson International Ltd has also taken advance from Jagson Airlines Ltd for the business purposes whenever required. M/s. Jagson Airlines Ltd has never charged any interest on such advances. Further, it is also not in dispute that the assessee has incurred financial charges of Rs. 2,53,61,633/- during the year under consideration. It is also seen from the Annexure 'B' that more than 69% shares in Jagson Airlines Ltd belong to the assessee company and assessee company also given its Aircrafts to M/s Jagson Airlines Ltd ....
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....ad sufficient interest free funds to advance the money to its sister concern. 3.6 For the reasons given above I am of the considered opinion that disallowance made is not sustainable in the eyes of the law. As a result this ground of appeal is allowed." 12.4 Aggrieved with such order of the learned CIT (Appeals) the Revenue is in appeal before the Tribunal. 12.5 The learned Departmental Representative strongly objected to the order of the learned CIT (Appeals). He submitted that the Hon'ble Supreme Court in the case of Addl. CIT Vs. M/s. Tulip Star Hotels Ltd. vide order dated 30th April, 2012 has held that the decision in the case of S.A. Builders Ltd. Vs. CIT reported in 288 ITR 1 needs reconsideration. Referring to the decision of Hon'ble Delhi High Court in the case of Punjab Stainless Steel Ltd. Vs. CIT reported in 324 ITR 396 (Del.) he submitted that the onus is on the assessee to establish the commercial expediency. He submitted that the learned CIT (Appeals) in para 4.4 of his order has shifted this onus to the Assessing Officer regarding the establishment of nexus between interest free funds and amount of advance which is not correct. Without pre....
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....ccepted the decision of the Tribunal on this issue. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of notional interest, the reasons of which have already been reproduced in the preceding paragraph. Ground of appeal number.2 raised by the Revenue on this issue is accordingly dismissed. 7. So far as disallowance of Rs. 53,40,288/- made by the A.O. on account of Section 14A read with Rule 8D is concerned, it is an admitted fact that no exempt income has been received by the assessee during the year. Therefore, in view of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Limited vs., CIT [2009] 317 ITR 86 (Del.) the order of the Ld. CIT(A) does not suffer from any infirmity. Accordingly, the grounds of appeal number.3 raised by the Revenue on this issue is dismissed. 8. Grounds of appeal number.4 of the Revenue relates to disallowance of Rs. 9,51,432/- made by the A.O. on account of depreciation claimed being 40% on Aircraft which was not in use. 8.1. After hearing both the sides, we find an identical issue had come-up before the Tribunal in assessee's own case for the A.Y. 2009-10 in ITA.No.5916/ Del.....
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....harges of Rs. 4,95,74,440/-, we find that the assessee has filed the copy of ledger account of the said expenses debited to the profit and loss account, but the same have not been verified either by the AO or by the ld. CIT(A) so as to ascertain as to why ONGC has paid lesser amount as compared to the bills raised by the assessee. The AO has also observed that some payment might have related for the previous year, but it has been debited to the current year's profit and loss account. The assessee has not furnished any bill-wise reconciliation statement clarifying as to for how much amount the bills were raised and how much was actually received by the assessee from ONGC. It was also not explained, if there was any agreement with ONGC for payments lesser than the bill amounts. All these facts were to be examined by the ld. CIT(A) before deleting the addition, which has not been done. Accordingly, we think it appropriate to restore the issue to the file of AO for deciding the same afresh after ascertaining and verifying the above facts, mentioned in earlier part of this order. The assessee is also directed to furnish all the necessary evidence in support of its claim and as required ....
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....eral oil only 10% income is taxable and tax thereon would be only 4% applicable on foreign companies. However, after obtaining certificate from Revenue authorities/CA no tax was payable due to DTAA and foreign payments were made only thereafter. 10.3. Further, the Ld. CIT(A) while deleting the addition has followed his order for the A.Y. 2011-12 and no appeal has been filed by the Revenue on this issue before the Tribunal although Revenue had filed an appeal against other issues where the Ld. CIT(A) had given relief to the assessee. Under these circumstances and in view of the detailed discussion made by the Ld. CIT(A) on this issue, we do not find any infirmity in his order and the same is, therefore, upheld. Grounds of appeal number.6 raised by the Revenue is dismissed. 11. Grounds of appeal number.7 (a) (b) and (c) relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs. 62,55,82,919/- made by the A.O. by disallowing the claim of exemption in tonnage tax system. 11.1. After hearing both the sides, we find that identical issue had come-up before the Tribunal in assessee's own case in A.Y. 2008-09. We find the Tribunal vide ITA.No.4392/Del./2011 order da....
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....gh Court, therefore, in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of Rs. 62,55,82,919/- made by the A.O. by disallowing the claim of exemption under tonnage tax system. Grounds of appeal numbers. 7(a) (b) and (c) of the Revenue on this issue is accordingly dismissed. 12. Grounds of appeal number.8 by the Revenue relates to order of the Ld. CIT(A) in deleting the disallowance of Rs. 62,55,82,919/- made in computation of income under section 115JB of the I.T. Act, 1961. 12.1. Since we have already upheld the order of the Ld. CIT(A) in deleting the disallowance of Rs. 62,55,82,919/- made by the A.O. and since the provisions of Section 115JB of the I.T. Act, 1961 clearly provides that the profit derived by the tonnage tax company shall be excluded from the book profits of the company for the purpose of Section 115JB of the I.T. Act, 1961, therefore, we do not find any infirmity in the order of the Ld. CIT(A) in directing the A.O. to exclude the income derived from shipping activities from the computation of book profits. Accordingly, grounds of appeal number.8 rai....
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....he grounds of appeal number.2 of the Revenue is dismissed. 17. Grounds of appeal No.3 relates to the order of the Ld. CIT(A) in confirming the disallowance of Rs. 74,20,053/- made by the AO on account of expenses disallowed under section 40(a)(ia) of the I.T. Act, 1961. 17.1. After hearing both the sides, we find the issue is identical to Grounds of appeal number.6 in ITA.No.1001/ Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal number.3 of the Revenue is dismissed. 18. Grounds of appeal numbers. 4 (a) (b) (c) relates to the order of the Ld. CIT(A) in deleting the disallowance of Rs. 81,49,94,195/- made by the A.O. by disallowing the claim of exemption in tonnage tax system. 18.1. After hearing both the sides, we find the issue is identical to Grounds of appeal numbers. 7 (a) (b) and (c) in ITA.No.1001/Del./2016 for the A.Y. 2012-13. We have already decided the issue and the ground raised by the Revenue on this issue has been dismissed. Following the similar reasonings, the grounds of appeal numbers. 4 (a) (b) (c) of the Revenue....