TOLANI SHIPPING CO. P. LTD.,MUMBAI vs. ACIT, CC- 17&18, MUMBAI

This appeal by the assessee is directed against order dated 28/07/2020 passed by the Ld. Commissioner of Income-tax (Appeals)-58, Mumbai [in short the Ld. CIT(A)] for assessment year 2007-08, raising following grounds: “1. The Learned CIT(A) erred in dismissing the grounds raised against the Order giving effect to CIT(A)‟s Order without providing an opportunity to furnish submissions and therefore the same is against the principles of natural justice and is therefore bad in law, illegal and invalid and therefore the same should be quashed.

The Learned CIT(A) has erred in confirming disallowance of sum of Rs.75,87 317/a/s.14A on account of expenditure incurred in connection with investment for earning tax-free income, overlooking that Company has not incurred any direct or indirect expenditure to earn the said exempt income and when no expenses have been claimed in Computation of Income under Tonnage Tax provisions the question of disallowing expenses does not arise. (Refer Varun Shipping Co. Ltd vs. ACIT, 47 SOT 112 (Mumbai ITAT) Para 7 wherein it is held that when a Company is taxed „under the provisions of Tonnage Tax no addition can be made u/s.14A of the Act.) 8. The Learned CIT(A) has erred in not considering that while disallowing expenditure of Rs.75,87,317/including interest w/s. 14A, expenditure can be disallowed if the same have been claimed by the Assessee in computing Taxable Income but in the case of Appellant Company the profit is computed under Tonnage Tax scheme on the loading capacity of the ship and not on freight earned or expenses incurred and when no expenses or interest have been claimed as deduction the question of disallowing expenses and interest w/s.14A does not arise.

The Learned CIT(A) has erred in not considering the judgement of Hon‟ble Mumbai ITAT in the case of Varus Shipping Co. Ltd. 17 ITR (Trib) 587 wherein it has been held that the provisions of Section 14A 4 Assessment Year: 2007-08 are not applicable to Tonnage Tax companies computing tax under Chapter XIIG of the Act, which provisions are applicable to Appellant Company and therefore Section 14A is not applicable to Appellant Company.

The Learned CIT(A) has erred confirming charging interest of Rs.22,75,608/u/s.234B and Rs.16,28,485/w/s.234D.

The Learned CIT(A) has erred in charging interest of Rs.11,36,956/w/s.220(2) overlooking that original amount of tax payable amounting to Rs.50,56,908/.. (Rs.4,82,19,713/less Rs.4,31,62,805/-) was adjusted against refunds of Rs.5,91,53,202/and therefore the Appellant was not. entitled to pay interest w/s.220(2) and further erred in overlooking that no interest was charged u/s 220(2) in the original assessment order and therefore the same cannot be charged in the Order giving appeal effect.

The Learned CIT(A) has erred in adjusting demand for Assessment Year 2008-09 without providing the date of adjustment ¢ and not supplying the challan for the said adjustment since if the adjustment is delayed the Appellant is entitled to interest u/s.244A upto the date of adjustment.”

Briefly stated facts of the case are the assessee company was engaged in shipping business i.e. chattering of vessels. For the year under consideration, the assessee filed return of income on 31/10/2007 declaring total income of ₹ 8,70,91,919/-, which was further revised on 20/08/2008, however the total income declared remained same. The assessee declared income from shipping business under ‘Tonnage Tax scheme’ provided in Chapter XIIG of the Act, where in income is determined on the basis of the tonnage capacity of the ships chartered by an assessee. The return of income filed by the assessee was 5 Assessment Year: 2007-08 selected for the scrutiny assessment. In the assessment order dated 20/12/2010 under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) for the year under consideration i.e. assessment year 2007-08, the Assessing Officer computed income under the regular provisions of the Act at ₹ 20,69,32,100/- and computed book profit u/s 115JB of the Act (Minimum Alternative Tax or for short ‘MAT’) at ₹ 42,97,65,711/-. Under regular provisions, the assessing officer made following additions: a) transfer pricing addition of ₹ 11, 52, 47, 762/- b) section 14A disallowance of ₹ 75, 87, 317/- c) disallowance under section 94(7) of the act of ₹ 1, 13, 497/-

Under MAT provisions, the Assessing Officer made following two additions: a) profit on sale of vessel of Rs. 35, 75, 80, 351/- b) section 14A disallowance of ₹ 75, 87, 317/-

The Assessing Officer held that tax liability computed under the normal provisions of the Act being greater than tax liability computed under MAT, the taxability was determined under normal provisions of the Act. The assessee preferred appeal before the Ld. First Appellate Authority, without agitating the disallowances made under the ‘MAT’ provisions, as according to the assessee income was determined under the normal provisions of the Act. The Ld. First Appellate Authority vide order dated 9/1/2012 deleted additions of transfer pricing and disallowance under section 14A of the Act made under regular provisions of the Act. The Assessing Officer, in order giving effect to the order 6 Assessment Year: 2007-08 of the Ld. First Appellate Authority, gave relief allowed by the Ld. First Appellate Authority in respect of income under regular provisions of the Act. Since, there the additions made under the MAT provisions were not challenged by the assessee before the Ld. First Appellate Authority, therefore, he retained the income computed under MAT provisions in the assessment order. Aggrieved by the order dated 27/02/2012 of the Assessing Officer giving effect to the order of the Ld. First Appellate Authority, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the grounds taken in the appeal filed before him on the ground that same do not arise from the order dated 27/02/ 2012 of the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under: “………………..From the above, it can be seen that the computation of income u/s. 115JB was part of original Assessment Order. As the same was not challenged in the appeal filed against the assessment order. The same attained finality. In the current order giving effect to CIT Appeal‟s order. Assessing Officer computed tax on normal income as it was less than the tax computed u/s 115JB in the original Assessment Order. The Assessing Officer issued demand notice as per the provisions of section 115JB. As stated above, the income computation u/s 115JB has already attained finality the same cannot be adjudicating in the current proceedings. This ground of appeal is, therefore, dismissed.”

Before us, the parties appeared through videoconferencing facility. The assessee filed a paperbook containing pages 1 to 63, which included orders of 7 Assessment Year: 2007-08 the Income- tax Appellate Tribunal in the case of the assessee for earlier years as well as in the assessment year concerned i.e. arising from the order dated 9/01/2012 of the Ld. First Appellate Authority passed in quantum proceeding. 7. We have heard rival submission of the parties on the issue in dispute. Before us assessee has only pressed for grounds relating to addition of profit on sale of the vessel and disallowance under section 14A of the Act. It is undisputed that the grounds challenging addition made under MAT provisions of the Act consisting of profit on sale of vessels and disallowance under section 14A of the Act were not challenged before the Ld. First Appellate Authority in quantum proceedings, and therefore the Ld. Assessing Officer did not give any relief on said additions. The additions under MAT provisions have been raised for first time before us. The assessee in ground No. 2 (two) of the appeal has raised the issue that Ld. CIT(A) has not considered those ground as additional ground and not considered the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd Vs CIT reported 229 ITR 383(SC). The Ld. Counsel accordingly prayed orally for admitting the grounds challenging the additions as additional grounds. The Ld. departmental representative did not object for the oral plea of the assessee for admitting those grounds as additional ground. 8. We find that Hon’ble Supreme Court in the case of National thermal Power Co Ltd vs CIT (supra) has held as under: “ Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest 8 Assessment Year: 2007-08 possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal. Undoubtedly, the. Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. During the assessment year 1978-79, the assessee had deposited its funds which were not immediately required on short-term deposits with banks. Interest received on such deposits during the previous year relevant to the assessment year 1978-79 amounted to Rs.22,84,994. This was offered by the assessee for assessment and the assessment was completed on that basis. Before the Commissioner of Income-tax (Appeals), a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of this amount of Rs. 22,84,994 was neither challenged by the assessee nor considered by the Commissioner of Income-tax (Appeals). From the order of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Tribunal. The inclusion of the said amount of Rs.22,84,994 was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, by a forwarding letter dated July 16, 1983, the following additional grounds were sought to be raised by the assessee: (1) that the sum of Rs. 22,84,994 deducted from "Statement of expenditure during construction" could not be included in the total income; (2) that on admission (erroneous), no income (the sum of Rs.