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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Amarjit Singh
Revenue by: Shri L.P. Jain, Sr. D.R. Assessee by: Shri Karan Shah, A.R. Date of hearing : 03-09-2019 Date of pronouncement : 17-09-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This assessee’s appeal for A.Y. 2010-11, arises from order of the CIT(A)-7, Ahmedabad dated 03-04-2017, in proceedings under section 143(3) r.w.s.154 of the Income Tax Act, 1961; in short “the Act”.
The solitary ground of appeal
of the assessee is against the decision of ld. CIT(A) in confirming the addition of Rs. 7,26,213/- made by the assessing officer on account of upset premium paid by the assessee company Page No 2. VMS Industries Ltd. (Formerly known as Varun Management Services Pvt. Ltd.) vs. DCIT(OSD) to Gujarat Maritime Board for allotment of plot for carrying out ship breaking activity.
3. The fact in brief is that assessee has filed return of income declaring income of Rs. 1,54,22,229/- on 21st Jan, 2011. The return of income was processed u/s. 143(1) of the act. Subsequently, during the course of appellate proceedings u/s. 147 of the act, the assessing officer has noticed that assessee had debited amount of Rs. 18,17,553/- in the P & L account being upset premium paid to Gujarat Maritime Board. The assessing officer has further noticed that assessee has written off the aforesaid premium in three years while allotment was for five years and thus the premium had to be written off in five years. On query, the assessee explained that the allotted plot was not developed and it took two years to develop the said plot for the purpose of ship breaking activity and the first ship breaking activity was carried out by the assessee company in F.Y. 2009-10. Accordingly, the assessee company has written off the upset premium of plot over the period of three years and not for a period of five year. The assessing officer has not accepted the contention of the assessee and stated that the premium was paid by the assessee for five years starting from F.Y. 2007-08 and the business of the assessee was started from F.Y. 2009-10. Therefore, the assessing officer was of the view that premium paid in respect of prior period to F.Y. 2009-10 was in the nature of prior period expenditure cannot be allowed. Therefore, the amount of upset premium to the extent of Rs. 7,26,213/- was disallowed and added to the total income of the assessee.
Page No 3 VMS Industries Ltd. (Formerly known as Varun Management Services Pvt. Ltd.) vs. DCIT(OSD)
The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that she was agreed with the action of the assessing officer that the upset premium had been paid for five years and therefore should have been claimed in five years as against three years.
5. During the course of appellate proceedings before us, the ld. counsel has submitted paper book comprising detail and copies of documents etc. furnished before the assessing officer and CIT(A) at the time of hearing. The ld. counsel has referred page no. 61 of the paper book pertaining to schedule O of Administrative expenditure part of profit and loss account for F.Y. 2009-10 reflecting upset premium for GMB port to the amount of Rs. 18,17,553/- as 1/3 of the total upset premium. He has also referred page no. 156 of the paper book of document filed by the assessee company with Gujarat Maritime Board for permission to utilize ship breaking plot at Allang Sosiya Ship Breaking Yard, Dist: Bhavnagar. He has also referred page no. 199 pertaining to conversion of smaller plot into bigger size of Allang Sosiya Ship Breaking Yard vide order dated 10th May, 2007 of Gujarat Maritime Board and at page no. 201 it is stated that plot allotted to the assessee was converted into bigger size. By referring the above document, the assessee has contended that it has requested for allotment of bigger plot, therefore, the operation was started in F.Y. 2009-10 after allotment of bigger plot therefore the upset premium was written off for a period of three years. The ld. counsel has also referred page no. 177 of the paper book and stated that Allang Sosiya Ship Breaking plot was specifically pertained to the ship recycling activity and ship recycling activity was Page No 4 VMS Industries Ltd. (Formerly known as Varun Management Services Pvt. Ltd.) vs. DCIT(OSD) started in F.Y. 2009-10 and not in F.Y. 2008-09. On the other hand, the ld. departmental representative has referred page no. 56 of the paper book stating that income from business was also shown income from business operation in F.Y. 2008-09 and contended that claim of the assessee that income from business operation was earned in F.Y. 2009-10 was not correct. In this regard, the ld. counsel has referred schedule No. J giving the detail of income from business operation at page 60 of the paper book which shows that asessee has income from ship recycling activity only during the F.Y. 2009-10 and there was no any income from ship recycling activity in F.Y. 2008-09.
We have heard both the sides and perused the material on record. During the course of assessment, the assessing officer has noticed that assessee had debited amount of Rs. 18,17,553/- in the P & L account being upset premium paid to Gujarat Maritime Board on the ground that assessee has written off the premium in three years while the allotment was for five years, therefore, the same had to be written off in five year. On perusal of material on record, it is clear that assessee has paid the premium for five years starting from F.Y. 2007-08 and the business of the assesse has stared from F.Y. 2009-10 only. The assessee has not written off the upset premium in assessment year 2007-08 and 2008-09 on the ground that the allotted plot was not developed and the first ship breaking activity was carried out by the assessee company in F.Y. 2009-10 relevant to assessment year 2010-11 and there was no ship breaking income in F.Y. 2008-09, therefore, the assessee company had written off the upset premium of plot for a period of three years and not for a period of five years. There was no ship breaking activity Page No 5 VMS Industries Ltd. (Formerly known as Varun Management Services Pvt. Ltd.) vs. DCIT(OSD) in F.Y. 2007-08 and F.Y. 2008-09 as the allotted plot was not operationalized for the ship breaking activity due to the small size of the plot. Under the above circumstances, Hon’ble Supreme Court has directed GMB to convert the said plot into 60M*45M instead of what was allotted 30M*45M, therefore, the Gujarat Maritime Board has finally allotted the plot no. 159 to the assessee by the order of Hon’ble Supreme court as well as by the order of Hon’ble Jurisdictional High Court and finally the assessee has become eligible to start the said activity of ship breaking on 5th June, 2009 because the large plot was allotted during 2008 and agreement for utilization of merged plot i.e. 160M was executed on 3rd December, 2008. After considering the above facts and the relevant supporting material contended by the ld. counsel in his submission referring to the different pages of paper book, it is observed that assessee has not written off upset premium in the first two years in F.Y. 2008-09 and F.Y. 2009-10 because of pending claim of the assessee for allotment of large size plot as it was not possible to carry out the ship recycling activity on the small size of the plot which was allotted to the assessee. This material fact is also demonstrated from the copy of order of allotment of the Gujarat Maritime Board and other material as referred above in this order, therefore, we find merit in the appeal of the assessee. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 17-09-2019