DREDGING CORPORATION OF INDIA LIMITED,VISAKHAPATNAM vs. ACIT, CIRCLE-3(1), VISAKHAPATNAM

आदेश / ORDER

PER OMKARESHWAR CHIDARA, ACCOUNTANT MEMBER:

In the above cited appeals of M/s. Dredging Corporation of India Limited, since the issues are common, inter-linked and most of the issues are covered by the earlier ITAT Orders in the assessee’s own case, all the appeals were clubbed and heard. Accordingly, a consolidated order for all the appeals is being passed as under:

ITA No. 635/VIZ/2025 (A.Y2016-17)

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 14.08.2025 passed under section 250 of Income Tax Act, 1961 (hereinafter in short “the Act”) for the Assessment Year 2016-17.

S.No. Particulars Amount (Rs.) 1. Sale of tender documents 3,22,981/- 2. Rec. For liquidated damages 1,54,89,693/- 3. Recovery towards leased quarter 6,98,555/- 4. Training fees 1,00,000/- 5. Other operating income 70,87,112/- Total 2,36,98,341/-

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED incidental activity for the relevant shipping income was clearly defined by the Act and the incomes

earned as above do not fall under these categories, the assessee is not entitled for the exemption as

claimed by the assessee-company. Ld.AO has further held that, receipts are not exclusive and unique

to the assessee’s line of business as they are all general nature and commonly occur in any other

business activity of manufacturing, mining, transportation or generation of power. Finally, Ld.AO

held that these receipts did not fall under the purview of Tonnage Tax as per the provisions of Chapter

XII-G and the same was added as income from non-core activity of dredging operations. Ld.AO has

also mentioned in the assessment order that in the earlier years also, the Department took a similar

view and hence the same was disallowed and added to the taxable income of non-core activity. Thus,

the entire amount of “Other Operating Revenue” of Rs.2.36 crores was added while completing the

assessment.

it is aggrieved by the additions made by the Ld.AO. The Ld.CIT(A) has confirmed all these additions

made by the Ld.AO for the reasons mentioned in his order dated 14.08.2025.

escalated to ITAT. Before the ITAT, the Learned Authorized Representative (hereinafter in short

“Ld.AR”) of the appellant has filed a paper book containing a copy of Acknowledgement of Return

of Income, copy of Computation of Income, copy of Annual Report, copy of Note filed before the

Ld.AO with regard to “Other Operating Revenue” and a copy of written submission filed before the

Ld.CIT(A). During the proceedings before the ITAT, the Ld.AR of the assessee-company has fairly

admitted that all these issues were adjudicated against the assessee-company in the earlier years and

they have filed an appeal before the Hon’ble High Court of Andhra Pradesh where the adjudication

is pending. For the sake of convenience of the Bench, Ld.AR of the assessee-company has prepared

a chart showing the reference to previous orders of ITAT on each issue. Since the arguments of the

assessee-company and the Department are same on the similar issues, this Bench follows the decision

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED taken by the earlier Bench, especially because the assessee-company did not agree with the order of

the earlier ITAT and filed an appeal before the Hon’ble High Court where the issues are pending.

Revenue” not entitled for exemption as discussed by the earlier Bench in Para No. 6.1 to 6.3 order

dated 25.10.2017 at Page Nos. 23 & 24. During the appeal hearing, Ld.AR did not demonstrate as to

how the above receipts are from the shipping activity within the meaning of section 115V-I and Rule

11R of I.T. Rules. Hence the Bench holds a view that the above receipts do not fall under the Tonnage

Tax Scheme and the Tribunal in assessee’s own case expressed the same view while deciding the

similar issue for the A.Ys. 2010-11 & A.Y. 2011-12. Hence the appeal of assessee-company is

dismissed on this ground.

Damages” to the extent of Rs.1.54 Crores was discussed in assessment order at Para No. 6 & 7 and

Para No. 2.1 to 2.4 of the Ld.CIT(A) order. This issue was also discussed by the ITAT in the

assessee’s own case in ITA No. 211/VIZ/2020 for the A.Y. 2015-16 dated 09.09.2022 where it was

held that this receipt cannot be treated as core activity or incidental activity of the assessee-company

and hence the assessee is not entitled for exemption. This issue of “Liquidated Damages” was

discussed at length in this order from Pages No. 4 to 13 of the above order. By relying on the decision

of the Coordinate Bench of the Tribunal in assessee’s own case of earlier years. For the sake of

clarity, the operative portion of ITAT order for the A.Y. 2015-16 is reproduced as under: -

“With respect to ground No.2(d) regarding receipt of an amount of Rs.2,21,31,709/- towards ‘Liquidated Damages’, the Ld.CIT(A) relied on the decision of the coordinate bench of the Tribunal in assessee’s own case in I.T.A.No.437/Viz/2017 for the A.Y.2012-13 and dismissed the appeal of the assessee. For the sake of clarity and convenience, we extract relevant part of the order of the ITAT as under : “8. We have considered the submissions made by both the parties and perused the material placed on record. This Tribunal has decided the identical issue for the assessment year 2009-10 to 2011-12 in I.T.A. Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016 in assessee’s own case dated 25.10.2017 and upheld the addition made by the AO with regard to the receipt of liquidated damages. For the sake of clarify and

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED convenience, we extract relevant part of the order of this Tribunal in para Nos. 4.3. to 4.4 which reads as under : “4.3 We have heard both the parties and perused the material placed on record. In the earlier order the coordinate bench interpreted the word used in shipping income u/s 115VI ‘Income from’ holding that it is akin to the term derived from since both the Ld. A.R. and the Ld. D.R. agreed that the term derived from is akin to ‘Income from’. However, in the present appeals, the Ld. D.R. vehemently opposed and argued that there is no reason to interpret the ‘Income from’ since the shipping income and the incidental income is clearly defined in section 115 VI and Rule 11R. We have carefully considered the argument of the Ld. D.R. and the Ld. A.R. and also gone through the orders of the Hon’ble ITAT. Since the Ld. D.R. disagreed, we are of the considered view that section 115VI and Rule 11R defined the income from shipping and incidental activities very clearly and there is no ambiguity in the Act and there is no need for separate interpretation using the word ‘derived from’. Accordingly, we decide the issue whether liquidated damages forms part of core income or not? The liquidated damages are collected from the various contractors as compensatory payment for failure to execute the contract works within the stipulated time. Those are the receipts compensatory in nature but not from the activity of shipping. The income from shipping activity for the purpose of computation of tonnage tax is defined in section 115VI as under: Relevant shipping income. 115VI. (1) For the purposes of this Chapter, the relevant shipping income of a tonnage tax company means— (i) its profits from core activities referred to in sub-section (2); (ii) its profits from incidental activities referred to in sub-section (5): Provided that where the aggregate of all such incomes specified in clause (ii) exceeds one-fourth per cent of the turnover from core activities referred to in sub-section (2), such excess shall not form part of the relevant shipping income for the purposes of this Chapter and shall be taxable under the other provisions of this Act. (2) The core activities of a tonnage tax company shall be— (i) its activities from operating qualifying ships; and (ii) other ship-related activities mentioned as under:— (A) shipping contracts in respect of— (i) earning from pooling arrangements; (ii) contracts of affreightment. Explanation.—For the purposes of this sub-clause,— (a) "pooling arrangement" means an agreement between two or more persons for providing services through a pool or operating one or more ships and sharing earnings or operating profits on the basis of mutually agreed terms; (b) "contract of affreightment" means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period; (B) specific shipping trades, being— (i) on-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board;

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED (ii) slot charters, space charters, joint charters, feeder services, container box leasing of container shipping. (3) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, exclude any activity referred to in clause (ii) of sub-section (2) or prescribe the limit up to which such activities shall be included in the core activities for the purposes of this section. (4) Every notification issued under this Chapter shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification. (5) The incidental activities shall be the activities which are incidental to the core activities and which may be prescribed4 for the purpose. (6) Where a tonnage tax company operates any ship, which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed in accordance with the other provisions of this Act. (7) Where any goods or services held for the purposes of tonnage tax business are transferred to any other business carried on by a tonnage tax company, or where any goods or services held for the purposes of any other business carried on by such tonnage tax company are transferred to the tonnage tax business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the tonnage tax business does not correspond to the market value of such goods or services as on the date of the transfer, then, the relevant shipping income under this section shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the relevant shipping income in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such income on such reasonable basis as he may deem fit. Explanation.—For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch on sale in the open market. (8) Where it appears to the Assessing Officer that, owing to the close connection between the tonnage tax company and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the tonnage tax company more than the ordinary profits which might be expected to arise in the tonnage tax business, the Assessing Officer shall, in computing the relevant shipping income of the tonnage tax company for the purposes of this Chapter, take the amount of income as may reasonably be deemed to have been derived therefrom. Explanation.—For the purposes of this Chapter, in case the relevant shipping income of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of computing tonnage income. 4. See rule 11R. Similarly, profits from incidental activities are defined in Rule 11R as under : Incidental activities for purposes of relevant shipping income. 6

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 11R. The incidental activities (details given in Note 5 appearing after the corresponding Form No. 66) referred to in sub-section (5) of section 115V-I shall be the following, 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. 4.4. The liquidated damages collected from various contractors do not cover any of the receipts in section 115VI or within the scope of Rule 11R of I.T. Act. There is no dispute that the assessee had opted for tonnage tax scheme and the income has to be computed as per section 115VI and Rule 11R of I.T. Act. Under the tonnage tax scheme, only the receipts from core activities and receipts from incidental activities are included, which means that core activities and incidental activities should be the source of profit to be included under tonnage scheme. As regards the liquidated damages the source of such income is payment for failure to execute the contract works within the stipulated time and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not the profit from core activities or incidental activities which have been defined in the Act. They are not directly received from the shipping activity but are compensatory in nature collected from the contractors for failure to execute contract. Therefore, liquidated damages cannot be held to be from the core activity of the shipping and does not form part for computation in tonnage tax. The reliance placed by the Ld.AR in the case of Prakash Oils Ltd of Hon’ble High Court of Madhya Pradesh is related to the computation of profits and gains derived from industrial undertaking u/s 80IA but not related to the tonnage tax u/s 115VI of I.T. Act. Profits and gains for the purpose of industrial undertaking required to be computed as per the provisions of section 28 to 43C of I.T. Act and the deduction required to be allowed u/s 80IA of I.T. Act from the business income. Whereas in the case of tonnage tax as provided u/s 115VI, the income required to be computed as per Chapter XIIG of I.T. Act at the option of the assessee. Once, the assessee opts tonnage tax scheme, the income of the assessee from shipping company required to be computed as provided in Chapter XIIG .Therefore, the decision relied upon by the Ld.AR is distinguishable and not applicable in the assessee’s case. Accordingly, we hold that Ld.CIT has rightly confirmed the addition and dismissed the appeal of the assessee on this ground. 8.1. Since the issue involved in this appeal is identical, respectfully following the view taken by the Coordinate Bench of this Tribunal, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee on this ground. On careful examination of the orders of the lower authorities and the decision of the coordinate bench of the Tribunal, it is evident that the income received and claimed by the assessee as exempt income, do not fall under the purview of Tonnage Tax either in core activity or incidental activity of shipping as per the provisions of Chapter XII-G and the same is to be added as income from non- core activity of dredging operations. As regards the liquidated damages the source of such income is payment for failure to execute the contract works within the stipulated time and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not the profit from core activities or incidental activities which have been defined in the Act. They are not directly received from the shipping activity but are compensatory in nature collected from the contractors 7

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED for failure to execute contract. Therefore, liquidated damages cannot be held to be from the core activity of the shipping and does not form part for computation in tonnage tax. We, therefore, find no infirmity in the orders passed by the lower authorities and respectfully following the decision laid down by the Hon’ble Tribunal in assessee’s own case for the previous relevant assessment years, we uphold the order of the lower authorities and dismiss the appeal of the assessee on this ground.”

was claimed as exemption under the Tonnage Tax Scheme by the assessee-company and the Ld.AO

has disallowed the exemption stating that this is not the revenue from core dredging services and

hence disallowed the exemption. Ld.CIT(A) confirmed the order of Ld.AO. This issue was discussed

by the ITAT in assessee’s own case in the A.Y. 2015-16 at Para No. 6 to 10, Page No. 4-13 and the

Coordinate Bench has held that the addition made by the Ld.AO is correct because this income does

not directly come under the purview of core income of the assessee-company. Following the principle

of consistency, this Bench also concurs with the view of the Coordinate Bench and the issue is decided

against the assessee for the reasons mentioned in that order.

issue also was decided against the assessee by the Coordinate Bench for the A.Y. 2012-13 at Page

Nos. 18 to 20. Since the receipt of “Training fee” cannot be considered as connecting to the core

dredging activity, the exemption claimed by the assessee-company was denied and the ITAT

confirmed the addition made by the Ld.AO. Following the same, in this year also the Bench hold

that the assessee is not entitled for exemption on the receipt of “Training fee” and the assessee’s

appeal was dismissed on this issue.

Operating Income” to the extent of Rs.70.87 lakhs. This issue also was discussed at length by the

Coordinate Bench while passing the order in assessee’s own case for the A.Y. 2015-16. The Bench

has discussed this issue against the assessee which can be referred from Para Nos. 6 to 10 of the order

of ITAT in ITA No. 211/VIZ/2020 vide Para No. 6 to 10 of the order dated 09.09.2022. The

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED Coordinate Bench has held that this “Other Operating Income” is not directly received from the

shipping activity and it was held as income from non-core activity of dredging operations.

Ld.AO/Ld.CIT(A) and the order of ITAT for earlier years, where it was held that the assessee-

company is not entitled for exemption on the above-mentioned activities as the same are neither from

core activities nor incidental activities of the dredging operations of the assessee-company. Ld.DR

pleaded that the order of the earlier Bench may be followed especially in view of the fact that the

assessee-company has filed an appeal before the Hon’ble High Court of Andhra Pradesh where the

issues are pending for adjudication.

as discussed above, the appeal of the assessee-company is dismissed and the additions made by the

Ld.AO are confirmed. In view of the fact that similar issues were held against assessee company and

in favour of Revenue for the reasons mentioned in this Order as above and also in view of o-ordinate

Bench’s decision of earlier year in assessee’s own case, the Bench decides to confirm the additions

made by Ld.AO in the assessement order and dismiss the appeal of assessee company.

ITA No. 637/VIZ/2025 (A.Y. 2017-18)

by disallowing the various claims made by the assessee-company as exempt incomes. Ld.AO has

mentioned that the assessee-company clubbed the “Other Operating Revenue” earned to the extent of

Rs.27.70 Crs. along with the revenue from core dredging services. The assessee-company is

following the Tonnage Tax Scheme and claimed the following incomes as “Other Operating

Revenue” as exempt because the same is from the core activity of dredging operations of the assessee-

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED company. Ld.AO did not agree with the contention of the assessee-company and added back the following “Other Operating Revenue” to the taxable income which is tabulated below: -

S.No. Particulars Amount (Rs.) 1. Sale of Scrap 1,73,29,001/- 2. Sale of empties 66,470/- 3. Sale of tender documents 3,49,418/- 4. Exchange difference 72,34,822/- 5. Rec. For liquidated damages 20,32,670/- 6. Service Charges 900/- 7. Recoveries of salaries from resigned 4,63,201/ employees 8. Insurance claims 1,34,71,379/ 9. Excessive provision of expenditure no 23,61,01,121 longer required to written back Total 27,70,47,831/-

Department and hence these amounts were added back to the taxable income of the assessee-company stating that these incomes are not directly or indirectly related to the dredging operations of the assessee-company.

the Ld.CIT(A) for the A.Y. 2017-18. Ld.AR relied upon the order of the ITAT in assessee’s own case for earlier years and filed the same. 10

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 19. During the hearing proceedings before the ITAT, Ld.AR of the appellant has stated that first

issue relating to “sale of scrap” was covered by the ITAT order in assessee’s own case and the Bench

has passed an order in their favour which was dealt in Para No. 15 & 16 and Page Nos. 14 to17 of the

ITAT order dated 09.09.2022 for the A.Y. 2015-16. For the sake of clarity and convenience the

relevant part of the Tribunal order is reproduced as under: -

“14. Aggrieved by the order of the Ld.CIT(A), the revenue preferred an appeal before the Tribunal and submitted that the Ld.CIT(A) erred in holding that the income from sale of scrap, sale of empties, sale of waste oil, exchange difference and machinery scrap sales as part of income from core business, as they are not falling in the purview of provision of incidental to the core business. Therefore, the Ld.DR pleaded to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue on this ground. 15 We have heard both the parties and perused the material placed on record. It is evident that the Tribunal in assessee’s own case in I.T.A. No.464/Viz/2017 decided the issue against the revenue on the same issue for the A.Y.2012-13, relying on the assessee’s own case for the A.Y.2009-10 to 2011-12 in I.T.A.No.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in I.T.A.No.464/Viz/2017 which reads as under: “24. Ground Nos. 2 and 3 are related to the receipts on account of sale of scrap, sale of empties, sale of condemned stores and spares and sale of waste oil, sale of assets and exchange difference. The AO treated the receipts from the above activity as non core receipts and accordingly brought to tax other than the income from tonnage tax scheme. On appeal before the CIT(A), the Ld.CIT(A) held that the receipts by way of sale of scrap, exchange difference, insurance claim are having direct nexus with the dredging activity and such receipts are required to be considered as income from core activity. The Ld.CIT(A) followed the order of this Tribunal in assessee’s own case for the assessment year 2006-07 to 200809 supra. The Ld.CIT(A) also applied the ratio of the decision of Hon’ble Apex Court in the case of Pandian Chemicals Ltd. Vs. CIT(2003) (262 ITR 278). Against the order of theLd.CIT(A), the revenue has filed appeal before this Tribunal. We have heard both the parties and perused the material placed on record. The issue is squarely covered against the revenue in the assessee’s own case for the assessment year 2009-10 to 2011-12 in I.T.A. Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016. For the sake of clarity, we extract para No.12 of the order which reads as under : 12. We have heard both the parties and perused material placed on record. The Hon’ble ITAT, Visakhapatnam in ITA No. 6 to 8 and 15 to 17/Vizag/2011 dated 25.7.2007 in assessee’s own case allowed the appeal of the assessee holding that the income from the above receipts forms part of the income from the core activity of operating the qualifying ships. For ready reference, we reproduce Para No.9 of the ITAT’s order supra which reads as under: 9. In the case of Dy. CIT v. Core Healthcare Ltd. [2009] 308 ITR 263 (Guj.), the question whether the income generated from the sale of empty containers can be treated as income derived from industrial undertakings was raised before the High Court. The question was answered in affirmative and for the sake of convenience, we extract below the relevant head note: "Held that it was an accepted position that the empty containers, which were sold, were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the purchase price which went to make up the total cost of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking. The income generated on sale of such empty containers could be set off against the purchase cost, in other words bringing down the purchase price of raw material, or it could be treated as income directly relatable to the activity of industrial undertaking. The net result would be the same-either the cost of raw material gets reduced and thus increases profits of manufactured products on

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED sale or the sale price of containers is directly added to swell the total profits. Therefore, in the light of the decision of this High Court in the case of Dy.CIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785 , there was no infirmity in the impugned order of the Tribunal". Applying the above said ratio, the income received by the assessee on sale of scraps and sale of assets could be treated as income directly relatable to the activity of operating qualifying ships. Accordingly, we affirm the order of Learned CIT(A) on these two types of income. 9.1 The amount received on insurance claim was held to be derived from industrial undertaking by Hon'ble Delhi High Court in the case of CIT v. Sportking India Ltd . [2010] 324 ITR 283/[2009] 183 Taxman 312. By following the ratio of the said decision, we uphold the decision of Learned CIT(A) on this issue. The Ld. D.R did not controvert or bring any other order to support that the income was from non core activity. Therefore respectfully following the order of this Tribunal we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue for the above assessment years.” 28. Since the facts are identical, respectfully following the view taken by the coordinate bench of this Tribunal, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.” On careful perusal of the orders of the lower authorities and the decision of the Tribunal in assessee’s own case, we find no infirmity in the order passed by the Ld.CIT(A) and therefore uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue on this ground.”

the assessee-company with regard to the income received from “sale of empties” and taxed the same.

This issue was dealt by the Coordinate Bench vide ITA No. 211/VIZ/2020 & ITA No. 54/VIZ/2021

dated 09.09.2022 at Page Nos. 14 to 17 vide Para Nos. 15 & 16. This issue was decided against the

Revenue on the same issue for the A.Y. 2012-13 by stating that “sale of empties” is directly relatable

to the activity of operating qualifying ships. Following the decision of the Coordinate Bench of this

Tribunal this issue is decided in favor of assessee and against the Revenue.

the order of Ld.AO and dismissed the appeal of the assessee stating that the income received from

“sale of tender documents” cannot be termed as direct or indirect income from dredging operations.

Following the decision of Coordinate Bench of earlier order, for the reasons recorded in that order,

the order of Ld.AO is upheld by ITAT and assessee’s appeal was dismissed on this ground.

Bench at Page No. 14 to 17, Para No. 15 & 16 of the order dated 09.09.2022. Following the above

order, the Bench decides to uphold the contentions of the assessee-company and allow the appeal of

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED assessee on this ground, because this income is directly relatable to sales/exports of goods sold by

assessee company. Hence, this income is related to the core activities of dredging operations of

assessee company.

damages”. The Ld.AO has treated this income as non-core activity and denied the exemption claimed

by the assessee-company. This issue was discussed at length by the Coordinate Bench in ITA No.

211/VIZ/2020 & ITA No. 54/VIZ/2021 dated 09.09.2022 for the A.Y. 2015-16 at Para No. 6 to 10,

Page Nos. 4 to 13. Ld.AR of the appellant has brought to the notice of the Bench that the issue was

held against the assessee-company in the above cited order. Following the above order, the Bench

dismisses the appeal of assessee on this ground.

also treated as non-exempt by the Ld.AO. As the amount is too small, Ld.AR of the assessee-

company has stated that the Bench may take a decision. As these service charges related to dredging

operation of the assessee-company, the same should be exempt from taxation. This issue is decided

in favor of assessee and against the Department.

dealt at Para No. 6 to 10 of the order dated 09-09-2022 of the ITAT at Page Nos. 4 to 13 at length.

For the reasons mentioned by the Tribunal in that order, this particular head of income was held to be

not directly related to the dredging operations of the assessee-company and hence the order of Ld.AO

is upheld and the appeal of the assessee is dismissed on this ground.

Bench dated 25.10.2017 at Para No. 11 & 12 at Page Nos. 32 to 34 for the A.Y. 2009-10 to 2011-12.

The Hon’ble ITAT, Visakhapatnam held that the “Insurance receipts” directly related to the core

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED activity of operating the qualifying ships. The relevant portion of the ITAT order is extracted as

under: -

“12. We have heard both the parties and perused material placed on record. The Hon’ble ITAT, Visakhapatnam in ITA No. 6 to 8 and 15 to 17/Vizag/2011 dated 25.7.2007 in assessee’s own case allowed the appeal of the assessee holding that the income from the above receipts forms part of the income from the core activity of operating the qualifying ships. For ready reference, we reproduce Para No.9 of the ITAT’s order supra which reads as under:

"Held that it was an accepted position that the empty containers, which were sold, were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the purchase price which went to make up the total cost of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking. The income generated on sale of such empty containers could be set off against the purchase cost, in other words bringing down the purchase price of raw material, or it could be treated as income directly relatable to the activity of industrial undertaking. The net result would be the same-either the cost of raw material gets reduced and thus increases profits of manufactured products on sale or the sale price of containers is directly added to swell the total profits. Therefore, in the light of the decision of this High Court in the case of Dy.CIT v. HarjivandasJuthabhaiZaveri [2002] 258 ITR 785 , there was no infirmity in the impugned order of the Tribunal".

Applying the above said ratio, the income received by the assessee on sale of scraps and sale of assets could be treated as income directly relatable to the activity of operating qualifying ships. Accordingly, we affirm the order of Learned CIT(A) on these two types of income.

9.1 The amount received on insurance claim was held to be derived from industrial undertaking by Hon'ble Delhi High Court in the case of CIT v. Sportking India Ltd . [2010] 324 ITR 283/[2009] 183 Taxman 312 . By following the ratio of the said decision, we uphold the decision of Learned CIT(A) on this issue.

The Ld. D.R did not controvert or bring any other order to support that the income was from non core activity. Therefore respectfully following the order of this Tribunal we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue for the above assessment years.”

succeeds on this issue.

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 28. The ninth and last issue to be adjudicated in this appeal relates to “excess provision of expenditure no longer required written back” and this issue was dealt by the ITAT in the order vide

ITA No. 555 & 603/VIZ/2013 and others dated 25.10.2017, at Para no. 13 & 14, Page Nos. 34 to 36. This issue was decided by the ITAT in the above said order against the Revenue and in favor of appellant-company. The relevant operative portion is reproduced as under: -

“14. We have heard both the parties and perused the material placed on record. The provisions were debited to the Profit & Loss account in the assessment year. earlier years in which it was created. The provisions are not allowed as deduction as per the act while computing the income of the corresponding However, the expenditure debited to Profit & Loss account has no relevance for computation of the income under tonnage tax, as the income is computed as per Section 115VG of the Act and the expenditure is not allowed as deduction irrespective of the expenditure debited to the Profit & Loss account. Therefore, debiting of expenditure to the Profit & Loss account and reversal of expenditure has no relevance in computation of income under tonnage tax scheme when the income is being determined under the special provisions applicable to the assessee. Therefore, there is no case for excluding the items or provison written back from the core income and to tax separately. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld.”

this issue is decided against the Revenue for the reasons mentioned in that ITAT order.

ITA NO. 638/VIZ/2025 (A.Y. 2018-19)

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 33. In the above cited appeal, for the A.Y. 2018-19, the Ld.AO made an addition of Rs.51,13,98,173/-. Since the assessee-company was filing return of income under Tonnage Tax

Scheme as per provisions of chapter XIIG of the Act, Ld.AO disallowed the claim of exemption of “Other Operating Revenue” and the details of “Other Operating Revenue” are tabulated below: -

Amount (Rs.) S.No. Particulars (in lakhs) 1. Sale of Scrap 993.00 2. LD recovery 978.00 3. Provision written Back 1,631.00 4. Sale of empties 0.13 5. Sale of waste oil 0.35 6. Sale of tender documents 2.27 7. Service Charges 0.12- 8. Training fee 4.00 9. Right of Information - others 0.01 10. Insurance claims 1,505.09 Total 51,13,98,173

income from the core activities and incidental activities. Hence the exemption was denied and the Ld.AO computed the income under the Tonnage Tax Scheme as enumerated under section 115VE of the Act after disallowing the other operating income as tabulated above.

and cannot be considered to be connected with dredging activity. Secondly, regarding the issue of recovery of liquidated damages, Ld.AO held that the contention of the assessee-company is not acceptable as the amount represents compensation received on account of delay by the vendors in execution of the jobs given to the contractors and hence this amount does not relate to the core dredging activity. Thirdly, with regard to “service charges” received by the assessee-company, it was

held by the Ld.AO that the assessee-company did not bring any material on record the source from

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED which the amount was received and hence the exemption was denied. Fourthly, with regard to the

provision written back, the assessee-company did not submit any details with regard to which year

the provision actually pertains and why the said provision was added back etc., hence the claim of

assessee-company that the provision which is added back does not form part of core income, the

Ld.AO has mentioned in the assessment order. Fifthly, the other receipts which were marked in the

above tabular form were also held to be not relating to the core activity of dredging operation of

assessee-company and hence the exemption was denied. Ld.CIT(A) concurred with the additions

made by the Ld.AO and upheld the additions made.

before the ITAT stating that all these receipts have close and intimate connection to the core or

incidental activities of the dredging operations which are being conducted by the assessee-company

and hence the exemption was properly claimed and the Ld.AO is not correct in denying the exemption

claimed by the assessee-company.

containing the ITAT orders of earlier years in assessee’s own case. It was argued that all the issues

which were raised by the Ld.AO in the assessment year for the year under consideration were covered

by the decision of ITAT and accordingly relevant copies of ITAT order of earlier years are filed

before the Bench. Ld.AR of the appellant drew the attention of the Bench to the orders of ITAT of

earlier years with respect to each issue because certain issues are covered in a particular year of ITAT

order and other issues are covered in a different assessment year of ITAT order.

the ITAT order for the A.Y. 2015-16 in ITA No. 211/VIZ/2020 for the A.Y. 2015-16 dated

09.09.2022 vide Para No. 15-16 at pages 14-17. It was brought to the notice of the Bench that the

Tribunal has decided this issue against the Revenue by holding that this income increases the profits

of manufactured products on sale and directly added to swell the total profits by relying on the

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED decision of DCIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785 and DCIT v. Core Healthcare

Ltd., [2009] 308 ITR 263 (Guj.).

length by the Coordinate Bench in the above ITAT order at Page Nos. 4 to 13 and Para Nos. 6 to 10

and finally held that this receipt not directly relate to the core activities of dredging operation of

assessee-company and hence assessee is not entitled to claim exemption. This issue is decided in

favor of Revenue and against the assessee. The Coordinate Bench in the above order for the earlier

year in assessee’s own case held that the liquidated damages are received for payment for failure to

execute the contract works within the stipulated time and there is no shipping activities either core or

incidental and hence it was held that the addition made by the Ld.AO is correct in this regard.

that this issue was covered in the order of Coordinate Bench vide ITA No. 555 & 603/VIZ/2013 at

Para No. 13 & 14, Pages Nos. 34 to 36. The Coordinate Bench has held that there is no infirmity in

the order of Ld.AO and Ld.CIT(A) and hence the same was upheld by stating that the provisions were

debited to the P&L Account in the earlier years in which it was created. These provisions are not

allowed as deduction as per the Act while computing the income of the corresponding assessment

year. Hence debiting of expenditure to P&L account and reversal of expenditure has no relevance in

computation of income under Tonnage Tax Scheme when the income is being determined under the

special provisions appliable to the assessee-company. Accordingly, the addition made by the Ld.AO

is hereby deleted.

and this issue was discussed by the Coordinate Bench in ITA No. 211/VIZ/2020 for the A.Y. 2015-

16 dated 09.09.2022 at Para No. 15 & 16, Page Nos. 14 to 17. As the receipt from “sale of empties”

has gone to increase the profits of manufactured products and added to swell the total profits, it is

directly connected to the dredging operation of the assessee-company and hence the assessee-

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED company is eligible for claiming the exemption and hence the addition made by the Ld.AO is deleted. Following the decision of earlier order of co-ordinate Bench, the addition with respect to “sale of

empties” is deleted.

to 13. It was held that the “sale of tender documents” is not connected in any way with the core dredging operation of assessee-company, this receipt is not eligible for claiming the exemption and the action of the Ld.AO was upheld. Accordingly, in this year also, the addition made by Ld.AO is upheld.

any correlation with the core dredging activity, and hence, the Coordinate Bench in the earlier year held that the assessee-company is not eligible for exemption and the Coordinate Bench upheld the additions made by the Ld.AO. Following the same, the addition made by Ld.AO is upheld and assessee’s appeal is dismissed on this ground.

was allowed to be related to the core activities of dredging operation and hence allowed the appeal of

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED the assessee on this issue. Following the decision of co-ordinate Bench in earlier years, this addition

made by Ld.AO is deleted and assessee company succeeds on this ground.

the additions made by the Ld.AO are confirmed.

company because there is no change in facts and circumstances. For the reasons mentioned in the

ITAT order of earlier years, as mentioned in the respective paragraphs of this order, the issues relating

to sale of scrap, sale of empties, provisions written back, insurance claims are held in favour of

assessee and the issues of recovery of liquidated damages, sale of tender documents, service charges,

training fees are held in favour of Department and against the assessee company. Apart from that, the

Ld.AR of the appellant has stated that the certain issues where the assessee-company did not win the

appeal are being contested in Hon’ble High Court of the Andhra Pradesh. Accordingly, some of the

issues are held in favor of the assessee and some are held against the assessee as mentioned in the

above paragraphs of this order.

ITA No. 636/VIZ/2021 (A.Y. 2016-17)

order of Pr.CIT under section 263 of the Act. While completing the assessment for the A.Y.2016-17,

the Ld.AO has accepted the deduction claim of Rs.2.03 crores which is debited as “donations” in the

P&L Account, without verifying the details, rendered the assessment as erroneous and prejudicial to

the interest of the Revenue. So, the assessment order of the Ld.AO was set-aside for the limited

purpose of verification of the issue of “donations” to cause proper verification of the nature of

expenses after obtaining the necessary evidences in supports of assessee’s claim of deduction of

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED Rs.2.03 cores which is debited to the P&L Account. The Ld.AO was directed to afford an opportunity

to the assessee before passing the consequential orders.

scrutiny and issued notice under section 143(2) of the Act and notice under section 142(1) of the Act.

Subsequently, a show cause notice was given to the assessee-company in which it was mentioned that

Rs.2.03 crore was debited towards donations given to Maritime India Summit, 2016 and the same is

not eligible for deduction under donations. In response to this show cause notice, the assessee

furnished reply stating that the during the year under consideration the assessee-company

M/s.Dredging Corporation of India Limited has stated that, the Hon’ble Prime Minister of India came

up with a major campaign of the initiative “Make in India” launched in September, 2014 to encourage

companies to manufacture in India and incentivize dedicated investments in to manufacturing as the

flagship initiative of the Government of India. In this initiative, the Government has stated that Ports

and Shipping is one of the major thrust areas focused by the Government of India under “Make in

India” initiative to promote indigenous ports to meet the enhanced demand of 3300+ Million tonnes

per annum from the present volumes of 2400 Million tonnes per annum. The Summit also focused

on investment opportunities in India in the areas where the assessee-company was also in area of

manufacturing. The project profiles of many connected Public Sector Undertakings including the

assessee-company M/s.Dredging Corporation of India Limited are show cased in the event to make

them visible in the global markets with a goal of attracting the global investments into India. For this

particular summit, the Managing Director of the assessee-company, Mr. Rajive Kumar, who is

Secretary of Ministry of Shipping gave a clear instruction to contribute Rs. 2 Crores as Platinum

Sponsorship for the event. Thus Ld.AR of the assessee-company has stated before the Ld.AO that

this expenditure incurred by the assessee-company on account of sponsorship of the event was purely

an expenditure for marketing and business promotion and it was mentioned as “donation” for the

purposes of accounting. In view of the same the assessee’s representative requested the Ld.AO to

treat the same as business promotion expenditure and allow the same as deduction under section 37

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED of the Act which is a residuary section for allowing the business expenditure. The Ld.AR of the

appellant-company has also relied on the decision of the ITAT Ahmedabad Bench in the case of Surat

Electricity Co. Ltd., v. ACIT in ITA No. 2152/AHD/2024 wherein the Tribunal formed an opinion

that the man’s business may be benefitted in a number of ways. One of them maybe promoting of

business relations with this whom he has to deal with “in the course of his business”. In this case,

Hon’ble Tribunal has allowed the expenditure claimed by the assessee-company where the

expenditure was incurred by them in response to the appeal of the Government of Gujarat and

imminently pass through the tests of commercial expediency and having been incurred for the

purposes of business. It was held that the expenditure claimed should be allowed under section 37(1)

of the Act. Ld.AR of the assessee-company has produced necessary documents relation to the

payment of contribution for Maritime India Summit, 2016 and submitted that the relevant expenditure

though stated as “donation”, still remains as the deductible business expenditure as held by the ITAT

Ahmadabad Bench. After the perusal of the documents submitted by the assessee-company, the

Ld.AO was not satisfied with the arguments of assessee-company and held that the assessee could

not prove genuineness of the commercial expediency and the same was not spent “wholly and

exclusively” for the purposes of its business. Accordingly, it was held that there is no nexus between

the said contribution and business promotion specific to the assessee’s line of business with reference

to the documentary evidences submitted. Since the expenditure does not relate to the core activity of

the dredging operation of the assessee-company, the Ld.AO finally held that the expenditure was not

allowable and added back to the total income for the A.Y. 2016-17.

Ld.CIT(A). The Ld.CIT(A) passed order under section 250 of the Act stating that the assessee has

just stated that these expenses are incurred for business promotion but had not produced any evidences

in support these expenditures, and hence, not incurred for wholly and exclusively for the purposes of

business. Since the assessee could not produce any nexus between the said contribution and the

business promotion specific to the assessee’s line of business along with documentary evidences, the

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED Ld.CIT(A) held that it is a mere “donation” which does not have any relevance to the assessee’s

business and confirmed the addition made by the Ld.AO.

company before the ITAT.

this summit is an initiative of Hon’ble Prime Minister of India with a major campaign initiative of

“Make in India” to encourage the companies to manufacture in India and incentivize dedicated

investments in to manufacturing basis of the country. Since the Ports and shipping is one of the major

thrust areas focused by the Government of India to enhance the demand of the volumes of the

business, the assessee-company has participated in this summit. At the time of summit, the authorities

who are sponsoring this event have mentioned the assessee-company’s sponsorship would be

highlighted during the summit and they can exchange views with global companies who are

participating in the vent. The summit is focused on the investment opportunities in India in the areas

mentioned by inviting the investors, policy planners, experts, industry association and corporates

relating to the global and domestic maritime, thus amount of Rs.2.03 crores was paid to the Ministry

of Shipping. Moreover, this amount was paid for the mega event and all other Government PSUs

like Cochin Shipyard Ltd., Sagarmala Development Authority etc., which come under the Ministry

of Shipping took a lead role to show-cased their activities to the global investors who are attending

the summit. Since the activities of the assessee-company are highlighted to the global investors who

are participating in the summit, the expenditure incurred should be treated as allowable expenditure.

The Ld.AR of the appellant company has relied on the decision of Coordinate Bench of Ahmadabad

in the case of Surat Electricity Co. Ltd. v. ACIT (Supra) for the proposition that if the expenditure is

not to be allowed as donation, still the same can be deducted under the head business expenditure

under section 37 of the Act.

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 55. Ld.DR has relied on the order of Ld.Pr.CIT and Ld.AO and argued that there is no close

connection between the payment to the Ministry of shipping and to the core-activities of dredging

operations of assessee-company. Since there is neither business connection nor commercial

expediency to spend this amount the expenditure cannot be allowed as business expenditure and the

orders of the Ld. Pr.CIT / Ld.AO are correct.

the following reasons: -

a. There is no dispute with regard to the payment of expenditure through banking channels and that too to the Ministry of Shipping which comes under the Cabinet Ministry of Central Government which takes policy decisions relating to the activities of appellant-company.

b. There is no dispute that the assessee-company’s activities were show-cased before the global investors who have participated in the Maritime India Summit-2016. It was clearly mentioned that the purpose of summit is to enhance the capacities of ports to increase the Tonnage capacity to 3300+ Million tonnes per annum from the present volumes of 2400 Million tonnes per annum.

c. The policy decisions taken at this summit will have a direct bearing and increase the capacity of Ports where the assessee-company transacts its business and hence there is a direct link between amount paid by the assessee-company to the Ministry of Shipping because it enhances the production capacity of the assessee-company in the future.

d. In similar facts and circumstances, the ITAT, Ahmadabad Bench in the case of Surat Electricity Co. Ltd. v. ACIT (supra) held that the expenditure is deductible under section 37 of the Act, even though the same was categorized under the head “donation”. The relevant portion of the decision of Coordinate Bench of Ahmadabad is reproduced for clarity as under: -

“11. In view of the above facts of the case, the case laws of Hon'ble Apex Court as well as of Hon'ble High Courts relied on both the sides and after considering the arguments, it is seen that one should not take abstract or academic view of what is proper expenditure laid out or expanded wholly and 24

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED exclusively for the purposes of one's business. One has got to take into consideration the question of commercial expediency and the principle of ordinary commercial trading and the main consideration that has got to way with the authority is whether the expenditure was a part of the process of profit making. The expenditure must be incidental to the business and must be necessitated or justified by the commercial expediency. It must be directly and intimately connected with the business and there must be as directed and intimated connection between the business and the expenditure. An expenditure made by businessman by way of commercial expediency must be an expenditure, which has been incurred in the expectation that such payment should directly or indirectly benefit the business of the assessee or facilitate the carrying on the assessee's business. A man's business may be benefited in a number of ways. One of them may be promoting of business relations with this whom he has to deal with in the course of his business. In the present case, before us the facts are very clear and taking into consideration the peculiarity of the assessee's business the impugned expenditure which the assessee has admittedly incurred in response to an appeal of the GOG, imminently pass through the tests of commercial expediency and having been incurred for the purpose of business, it is to be allowed u/s.37(1) of the Act. Accordingly, we are of the view that this allowable expenditure and we allow the same. The orders of the lower authorities are reversed and the appeal of the assessee is allowed.”

e. Even assuming that the donation is not qualified as expenditure, still there would be no impact on the assessment of the assessee-company for the impugned year 2016-17 because the assessee-company had been computing their income under Tonnage Tax Scheme under section 115V to section 115VZC of the Income Tax Act. The assessee- company is a qualifying company as defined under section 115VC of the Act and the income is computed according to the methodology specified under section 115VE at such rates notified under section 115VG of the Act and in view of the same the expenditure debited to the P&L account in the year under consideration does not have any impact on the computation of taxable profit and accordingly the specific disallowance of the expenditure will not change the taxable profit. In other words, even if the expenditure is disallowed, the assessee-company will not have any liability to pay the tax. But as a matter of principle, the assessee-company has established the live link between the amount paid to the Ministry of Shipping and the commercial expedience relating to the operations of assessee-company. Hence the Bench decides to allow the appeal of the assessee-company.

ITA 635 to 638/VIZ/2025 DREDGING CORPORATION OF INDIA LIMITED 58. To sum-up, appeals filed by the assessee are decided as below:-

Sl.No. ITA No. & A.Y. Result 1. ITA No. 635/VIZ/2025 (A.Y. 2016-17) Dismissed. 2. ITA No. 636/VIZ/2025 (A.Y. 2016-17) Allowed. 3. ITA No. 637/VIZ/2025 (A.Y. 2017-18) Partly Allowed. 4. ITA No. 638/VIZ/2025 (A.Y. 2018-19) Partly Allowed.

Order pronounced in the open court on 15.07.2026.

Sd/- Sd/- RAVISH SOOD OMKARESHWAR CHIDARA JUDICIAL MEMBER ACCOUNTANT MEMBER

Visakhapatnam Dated: 15.07.2026 Giridhar, Sr.PS Copy to: DREDGING CORPORATION OF INDIA LIMITED, DREDGE HOUSE, HB COLONY, 1 MAIN ROAD, SEETHAMMADHARA, VISAKHAPATNAM-530022, ANDHRA PRADESH ACIT, CIRCLE-3(1), INFINITY TOWERS, SHANKARMATAM ROAD, SANTHIPURAM, 2 VISAKHAPATNAM-530016, ANDHRA PRADESH 3 THE PCIT / CIT, Visakhapatnam 4 THE D.R., ITAT, VISAKHAPATNAM BENCH 5 GUARD FILE