RAJ SHIPPIING AGENCIES PRIVATE LIMITED,MUMBAI vs. DY. CIT-CC-5|(3)(1), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

M/s. Raj Shipping Agencies Pvt. Ltd.,

3.1. The assessee has received dividend income of Rs.3,10,91,777/- which was claimed as exempt u/s.10(35) of the Act. The assessee had not disallowed any expenditure u/s.14A of the Act as attributable to earning of the said exempt income. The ld. AO during the course of assessment proceedings directed the assessee to explain as to why the disallowance u/s.14A of the Act should not be computed in accordance with computation mechanism provided under Rule 8D(2) of the Income Tax Rules. The assessee vide letter dated 18/02/2015 filed detailed written submissions before the ld. AO which is also reproduced in pages 2 & 3 of the assessment order.

3.2. From the perusal of the said reply, we find that assessee had made submissions on two counts - (i) it has got sufficient own funds in its kitty which would cover its investments and hence, no disallowance of interest in terms of Rule 8D(2)(ii) of the Rules would be warranted ; (ii) since assessee is paying tax under the tonnage tax scheme, the disallowance of expenditure u/s.14A of the Act would not be applicable in terms of decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Varun Shipping Co. Ltd., vs. Addl. CIT in dated

M/s. Raj Shipping Agencies Pvt. Ltd., 30/11/2011. From the perusal of the said reply, we find that no explanation was offered by the assessee with regard to disallowance of indirect expenses contemplated under Rule 8D(2)(iii) of the Rules. The ld AO directly proceeded to make disallowance u/s.14A of the Act r.w.r. 8D(2)(iii) of the Rules in the sum of Rs.16,75,334/-.

3.3. Before the ld. CIT(A), the assessee had furnished the complete details of Revenue as per profit and loss account and allocation of expenses as directly attributable to shipping income and also furnishing the details of common expenses. The same is reproduced hereunder:-

M/s. Raj Shipping Agencies Pvt. Ltd., 3.4. The ld. CIT(A) in principle agreed with the contentions of the assessee and held that in A.Y.2009-10, a sum of Rs.20,000/- was disallowed which was upheld up to the Tribunal. Further the ld. CIT(A) sought to add 0.5% of fresh investments made during the year u/s.14A of the Act. In other words, the ld. CIT(A) directed the ld. AO to make disallowance u/s.14A of the Act by considering Rs.20,000/- + 0.5% of fresh investments made during the year. Aggrieved, the assessee is in appeal before us.

3.5. At the outset, we find that the ld. AO had not recorded its satisfaction on the claim of the assessee that no expenses were incurred for earning exempt income in the assessment order. It is the duty of the ld. AO to record objective satisfaction having regard to the accounts of the assessee which has admittedly not been done in the instant case. Hence, no disallowance could be made by applying the computation mechanism provided in Rule 8D(2) of the Rules.

3.6. We find that assessee had duly furnished the details of various streams of income and the common expenses incurred thereon. On perusal of various streams of income which has already tabulated hereinabove, we find that assessee is in receipt of both shipping as well as non-shipping income. The shipping income would be covered under tonnage tax scheme wherein the expenses directly attributable to the said shipping income would be deemed to be allowed to the assessee. In respect of common expenses incurred by the assessee, the same requires to be attributable for the purpose of earning non-shipping income which includes dividend income claimed as exempt. Hence the reliance placed by the assessee on the decision of this Tribunal in the case of Varun Shipping referred to supra , would not come to the rescue of the M/s. Raj Shipping Agencies Pvt. Ltd., assessee. We find that the ratio of dividend income to the total income works out to 7.90%. Hence, it would be just and fair to apportion the common expenses in the ratio of 7.90%. However, considering the total income of Rs.3,10,91,777/- ; the total disallowance made by the ld. AO in the sum of Rs.16,75,334/- by considering the total indirect expenses for earning shipping as well as non- shipping income and considering the fact that the common expenses incurred by the assessee in non-shipping activity alone need to be considered for the purpose of disallowance, we hold that adhoc disallowance of Rs.1,00,000/- would meet the ends of justice in the peculiar facts and circumstances of the instant case. We would like to make it clear that the addition contemplated herein shall not stand as a binding precedent for other assessment years in the case of the assessee. The ld. AO is directed to disallow only Rs.1,00,000/- u/s.14A of the Act. Accordingly, the grounds raised by the assessee are partly allowed.