DCIT (OSD) CIR 2(2), MUMBAI vs. NHAVA SHEVA INTERNATIONAL CONTAINER TERMINAL P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI

BEFORE SHRI SHAMIM YAHYA, AM AND SHRI PAWAN SINGH, JM I.T.A. No. 2935/Mum/2012 (Assessment Year: 2008-09) ACIT, Circle-2(2), M/s. NhavaSheva International Aayakar Bhavan, Room No. 577, Container Terminal Pvt. Ltd. 5th Floor, M. K. Road, Vs. Darabsha House, Level 1, Mumbai-400 020 N. M. Road, Ballard Estate, Mumbai-400 001 PAN/GIR No. AABCN 0185 H (Revenue) (Assessee) :

I.T.A. No. 3093/Mum/2012 (Assessment Year: 2008-09) M/s. NhavaSheva International Dy. CIT, Range (OSD), Mumbai-400 001 Vs. 2(2), Aayakar Bhavan, M. K. Road, Mumbai-400 020 PAN/GIR No. AABCN 0185 H (Assessee) (Revenue) :

Revenue by : Shri Kiran Unavekar Assessee by : Shri Girish Dave

Date of Hearing : 24.09.2018 Date of Pronouncement : 28.09.2018

O R D E R Per Shamim Yahya, A. M.: These are cross-appeals by the Revenue and the assessee arising out of order of the

ld. CIT(A) dated 24.02.2012 and pertains to assessment year 2008 – 09.

Revenues appeal 2. The grounds of appeal read as under: 1. The order of the CIT(A) is opposed to law and facts of the case. 2. "On the facts and circumstances of the case and in law, the Id CIT (A) erred in giving general directions for restricting disallowance of technical services for

2 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. the year concerned provided by the Associated Enterprises (AE) to 50% of amount claimed by the appellant, without giving any specific finding on the issue contrary to the finding given by the TPO that services rendered were only for three aspects of agreement?" 3. For these and other grounds that may be urged at the-time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored.

service and had international transaction with the associated enterprise which was its

principal named M/s. D.P. World Australia Limited, in Australia. The assessee had

incurred expenditure of Rs.3,46,50,000/- on account of technical services provided by the

associated provided. The Assessing Officer (A.O. for short) referred the matter to the

transfer pricing officer who determined the arm's length price of the technical service.The

assessing officer therefore made an adjustment of Rs.2,15,41,247/-.

decided earlier by the ld. CIT(A) and the arm's-length price of the said transaction of

technical service was directed to be taken at 50% of the amount claimed by the assessee.

The ld. CIT(A) further noted that for assessment year 2003-04 and 2004-05 the order of

the ld. CIT(A) was confirmed by the ITAT. It was further noted that the Revenue had not

challenged decision of ITAT before the Hon’ble High Court. Accordingly, the ld. CIT(A)

directed that price of the transaction of technical service fee be taken at 50% of the

amount claimed by the assessee.

3 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. 6. We have heard both the counsel and perused the records. Both the counsel fairly

agreed that the issue has been dealt with by the ITAT for assessment year 2003-04 and

2004-05 wherein the tribunal had confirmed the order of ld. CIT(A) and the Revenue has

not challenged the said order before the ITAT.

4 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. 4. We have heard the learned Departmental Representative and perused the relevant material on record. There is no appearance from the side of the assesse despite notice. At the very outset, the learned Departmental Representative conceded that the issue in question is covered against the Revenue by virtue of the order passed by the Bangalore Bench of the tribunal in the case of M/s.Gemplus India Pvt. Ltd. Vs. ACIT in ITA No.352/Bang/2009 for assessment year 2003- 2004. In the light of this order dated 21.10.2010, the learned Departmental Representative was fair enough to accept that the decision taken by the learned CIT(A) accords with the view taken by the Bangalore Bench of the Tribunal in the afore-noted case. In such circumstances, we are left with no choice but to uphold the impugned order on this issue and to this extent. 9. Accordingly respectfully following the precedent as above, we do not find any

infirmity in the order of ld. CIT(A). Accordingly we uphold the same.

Assessee's appeal:

Ground 1: Additions made under Section 115JB of the Act - Rs 77,305,970 The CIT(A) erred in treating amount of Rs 77,305,970 as unascertained liability thereby confirming the addition to the book profit computed the income under Section 115JB of the Act. The CIT(A) failed to appreciate the fact that such accrued liability was determined on the basis of the agreement entered into with various vendors. Your Appellant prays that the AO be directed to treat the provision of Rs 77,305,970 as provision towards an ascertained liability. Accordingly, the addition made to the book profit computed under Section 115JB of the Act be deleted. Ground 2: Additions made under Section 115JB of the Act on account of disputed claims - Rs 13,560,000 The CIT(A) erred in treating the provision of Rs 13,560,000 as contingent in nature thereby confirming the addition to the book profit computed under Section 115JB of the Act. The C1T(A) erred in holding that the basis of creating the provision and quantification thereof is disputed. The CIT(A) failed to appreciate the fact that the. liability was determined on the basis of the concession agreement entered into with Jawaharlal Nehru Port Trust ('JNPT') and hence is an ascertained liability. Further the above ascertained liability was not paid by your Appellant pending the receipt of copies of invoices/other supporting documents from JNPT.

5 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. Your Appellant prays that the AO be directed to treat the provision of Rs 13,560,000 as provision towards an ascertained liability. Accordingly, the addition made to the book profit computed under Section 115JB of the Act be deleted. Ground 3: Deduction under Section 80-IA of the Act for other income-Rs 60,536,836 The CIT (A) erred in not allowing deduction, under Section 80-IA of the Act, in respect of the following income earned by your Appellant Particulars of other 'income Amount in Rs.

Rent recovery 495,000 Sundry revenue 4,411,000 Interest income 58,154,000 Total 60,536,836 The CIT(A) failed to appreciate that the other income earned by your Appellant is derived from the business of operating and maintaining the container terminal. The CIT(A) failed to appreciate the fact that the said income would not have been received by your Appellant, had your Appellant not been carrying on its business of operating and maintaining the container terminal. Without prejudice to the above, the CIT (A) erred in not observing the principles of judicial consistency of allowing deduction under Section 80-IA of the Act in respect of scrap sales and miscellaneous income allowed by the Commissioner of Income-Tax (Appeals) in AY 2004-05. Your Appellant prays that the AO be directed to allow deduction under Section 80-IA of the Act for other income earned by your Appellant.

Apropos ground no.1: 11. Brief facts of the case are as under:

In computation of income, the assessee has added disallowance u/s 40(a) of the

Act amounting lo Rs.7,73,05,970/-. The details of which were as under:

Nature of Expenses Amount debited in P&L account Operating Expenses - Security Expenses 722370 - Repairs and Maintenance 3749548 - Miscellaneous expenses 40000 - Lashing charges 1102666 - Supervision charges 964000

6 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. Administrative Expenses - Audit fees 535000 - Hardware maintenance 45000 - Hire charges 23268390 - Miscellaneous expenses 358702 - Professional fees 2191462 - Software maintenance 7417474 - Technical service fees 34650079 - Transportation expenses 1461279 Personnel expenses - Canteen expenses 800000 Total 77305970 These were also reported in the Tax Audit report.

ii. The AO asked the assessee whether interest u/s 201(1 A) of the Act was paid, the

company submitted that the provisions being on estimate basis, were reversed in the next

financial year and no TDS was deducted on the above provision in the next financial year

and therefore question of interest on delayed payment did not anse.

iii. The AO observed that since the provisions has been made on an estimate has,is, it

being not an ascertained liability, the provisions fall in category of amount set aside

under explanation 1 (c) of section 115JB , Accordingly the appellant was asked why the

provision of Rs. 7,73,05,970/- may not be held as unascertained liability and further

added back to the book profit for computation u/s 1 55JB of the Act.

iv. The appellant made its submission which was not found lo be acceptable by the

AO. The assessee’s submission inter alia were as under:

• The provisions of Section J15JB override the other provisions in the Act. • Computation of book profit is governed by the provisions of Section 11 5 JB of the Act. Accordingly specific additions and deductions to the net profit appearing in the profit and loss account to compute the book profit.

7 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. • The Company invites attention of your goodself in the case of Apollo Tyres Ltd. v CIT (2002) 255 ITR 273 wherein the Hon'ble Supreme Court has held: "the Assessing Officer while computing the income under Section 115JB has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided in Explanation I to Section 115JB. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account to the extent mentioned in Explanation 1 to Section 1I5JB" In view of the above decision, it is submitted that the Company has computed book profits after making specific adjustments to the net profit appearing in the audited financial statements prepared in accordance with the provisions of Schedule VI of the Companies Act, 1956. Further, the specific adjustments do not require any disallowance under Section 40(a) of the Act, therefore the same has not be considered for the purpose of computing the book profits under Section 115JB of the Act. • The Company craves leave to rely on the decision of the Hon 'ble Bombay High Court in the case of CIT v Echjay Forgings (P.) Ltd (2001) 116 Taxman 322 wherein it has held that: " if a sum is debited to the profit and loss account under the provisions of the Companies Act, it will not be added to compute book profit, even if the same is disallowed under Section 37 or under arty other provision of the Income -tax Act" In view of the above, the Company humbly submits that the expenditure amounting to Rs 77,305,970 disallowed under Section 40(a) of the Act is not required to be considered for computing the book profits for the purposes of 'MAT Computation."

The AO observed that if the expenses were ascertained then the same should not

have been reversed and the assessee should have made TDS party wise which it did not.

The AO further observed that the tax was deducted only after ascertaining the party wise

liability later on in the F.Y. 2008-09 and TDS was deducted only at that time.

The A.O. did not dealt with the case law from Hon’ble Apex Court and Hon'ble

Bombay High Court referred by the assessee.

8 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. v. The AO applying the rationale of the decision of the Hon'ble High Court in the case

of New Victoria Mills Co Ltd v CIT (61 1TH 395) held that the provision created ir, the

books is made towards an unascertained liability which is to be added back to compute

the book profit under Section 115JB of the Act.

vi. Further the A.O. did not accept the assessee’s submission to allow the sum of

Rs.6,84,02,962/- which was added back as unascertained liability in A.Y. 2007-08.

A.O. However, he granted part relief and directed the A.O. to allow the deduction of

provision which was added back for arriving at the book profit.

has made provision for outstanding liabilities of revenue nature in its accounts. The

estimated provisions were reversed in subsequent year. This has been the consistent

practice of the assessee. The amounts debited were based upon past pattern of

expenditure. However, since TDS had not been deducted by the assessee as individual

parties were not identified, the sums were disallowed in normal computation by the

assessee. The A.O. had made the disallowance under section 115JB on the ground that

these were ascertained liability and TDS were not deducted.

practice. The accounts were duly certified by the auditors. In such scenario, ratio of

9 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. Hon’ble Apex Court decision in the case of Bharat Earth Movers Limited vs. CIT [2000]

245 ITR 428 (SC) supports the case of the assessee. In this case, it was held as under:

“if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one.”

[2002] 255 ITR 273 (SC) has held as under:

“the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.

In view of the above decision, it is submitted that the Company has computed book pro/its after making specific adjustments to the net profit appearing in the audited financial statements prepared in accordance with the provisions of Schedule VI of the Companies Act, 1956.

Further, the specific adjustments do not require any disallowance under Section 40(a) of the Act, therefore the same has not bee considered for the purpose of computing the book profits under Section 115JB of the Act.

(P.) Ltd. [2001] 116 Taxman 322 (Bom) has held as under:

" if a sum is debited to the profit and loss account under the provisions of the Companies Act, it will not be added to compute book profit, even if the same is disallowed under Section 37 or under any other provision of the Income -tax Act"

10 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. 18. In the background of the above decision and precedent, we are of the considered

opinion that the authorities below have erred in adding back the impugned amounts u/s.

115JB. Hence, we direct for these deletion.

Apropos ground no.2:

claim amounting to Rs.1,35,60,000/-. The amount in question was a provision for the sum

towards security charges payable to Jawaharlal Nehru Port Trust as per the concession

agreement. The A.O. was not satisfied with the assessee’s response. He was of the

opinion that the claims were in the nature of dispute and were not ascertainable as to

whether the actual amount came could be spent. Hence, he added back the same holding

them to be contingent in nature. Before the ld. CIT(A), the assessee’s submissions were

as under:

That during the year under consideration, the Appellant had made (\ provision of Rs 13,560,000 towards security charges payable to Jawaharlal Nehru Port Trust ('JNPT’) as per the Concession agreement ('the Agreement'). Such provision is characterised as 'provision for disputed claims' under the head provisions in the audited financial statements for the year ended 31 March 2008. ii. That as per the terms of the Agreement, the Appellant should abide by the security regulations / procedures as stipulated by JNPT from time to time. The deployment of Central Industrial Security Force ('CISF') staff was compulsory at the port premises and services of the CISF staff should be shared facility between JNPT and the Appellant. The appellant had to bear expenditure of deployment of CISF staff at the container terminal to the extent of forty percent of the actual relevant expenses incurred by JNPT. iii. That JNPT had invoiced certain amounts in respect of above mentioned security charges in the past years. Appellant had made a provision for security charges in the year under consideration on the basis of the invoices received in the past years. However, this ascertained liability was not discharged pending receipt of original invoices along with the copies of supporting documents from JNPT. It had accepted the liability and accordingly provided for the same in the books of

11 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. account, however the same would be discharged on receipt of original invoices along with the copies of supporting documents from JNPT. In view of the above facts appellant submitted that the provision pertains to an ascertained liability which would be discharged in subsequent years on receipt of the original invoices along with the copies of supporting documents.

the ld. CIT(A) was not satisfied. He noted that the assessee has submitted that such

claims was in respect of past years. He noted that the A.O. has mentioned that assessee

had accepted the claim but it is still mentioned in the books of account as the provision of

the disputed claims. He also noted that even during the instant proceedings, it has not

been mentioned as to what eventually happened to such provision. The ld. CIT(A) upheld

the action of the A.O.

law that it is the substance that counts and not the nomenclature given to it. In the present

case, the assessee has received invoices from JNPT toward security charges. These were

on account of deployment of CISF Personal. The payment for which was compulsory.

The assessee accepted the liability but awaiting supporting documents made the debit in

the name of disputed liability. As mentioned above, the name given by the parities is not

determinative of the character of the transaction but it is the substance that counts.

and Hon'ble Bombay High Court is germane. However, we also note that the ld. CIT(A)

has noted that what was the ultimate fate of the liability has not been submitted before

12 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. him. Even before us, the ld. Counsel of the assessee has not given details of the present

position of this liability. In our considered opinion this aspect is crucial for proper

adjudication of this issue. Hence, we remit this issue to the file of the A.O. to consider the

issue afresh after ascertaining the present fate of the liability.

Apropos ground no. 3:

following income:

Particulars of other income Amount (in Rs.) Rent recovery 4,95,000 Sundry revenue 4,411,000 Interest income 58,154,000 Total 60,536,836

pressing for the disallowance on account of a rent recovered and sundry revenue. Hence,

these grounds are dismissed as not pressed. However, as regards the claim of the interest

income, the following u/s.80IA, the ld. Counsel of the assessee placed reliance upon the

recent decision of the Hon'ble jurisdictional High Court in the case of M/s. Tema

Exchangers Manufacturers Pvt. Ltd. vs. The Asst. CIT (in ITA NO.415 of 2004 vide

order dated 18.07.2018), wherein the question was as under:

(a) On the facts and in the circumstances of the case, whether the Income-tax Appellate Tribunal was right in law in reversing the order of the CIT(A) and restoring that of the Respondent No.1 and thereby denying the appellant the benefit of Section 80IA of the I.T. Act in respect of interest income of Rs.6,69,573/-?

13 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. 26. The Hon'ble jurisdictional High Court has decided the issue in favour of the

assessee by holding as under:

14 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. ct for the compensation received for nonsupply of spare parts. Thus, the issue sta nds concluded in favour of the appellant assessee by the decision of this Court in Jagdishprasad M. Joshi (supra). 7.Mr. Tejveer Singh, learned Counsel for the Revenue is unable topoints out why t he aforesaid decision in the case of Jagdishprasad M.Joshi (supra) would not apply to the present facts. 8. In the above view, both the questions of law are answered in the negative i.e. in favour of the appellant assessee and against the respondent Revenue. 9. Accordingly, the appeal is allowed.

cannot qualify for deduction u/s. 80IA. For this, he referred to the decision of the

Hon’ble Apex Court in the case of Liberty India vs. CIT [2009] 317 ITR 218 (SC) vide

order dated 31.08.2009 and CIT vs. Dilip Kumar vide order dated 30.07.2018.

jurisdictional High Court has decided the issue in favour of the assessee following the

judicial precedent, we uphold the order of the ld. CIT(A).

allowed.

Order pronounced in the open court on 28.09.2018

Sd/- Sd/-

(Pawan Singh) (Shamim Yahya) Judicial Member Accountant Member Mumbai; Dated : 28.09.2018 Roshani, Sr. PS

15 ITA Nos. 2935 & 3093/Mum/2012 M/s. NhavaSheva International Container Terminal Pvt. Ltd. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai