Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals) – 3, Hyderabad dt.28.08.2014 for the AY 2009-10. 2. The assessee has raised the following grounds : “1. The order of the learned Commissioner of Income tax(Appeals)-III, Hyd. in CIT(A)-III/20 11-12 dt. 28-8-2014 to the extent to which the claims of the appellant are not allowed is contrary to law and facts.
2 It is contended that the disallowance of Rs.65,04,578 being pro- rata premium on Foreign Currency Convertible Bonds (FCCB) is erroneous and arbitrary. In the facts and circumstances of the case, the entire premium is allowable as expenditure as FCCB's were issued for obtaining finance for general purposes of the entire appellant's business and the proceeds were used for all the business activities.
3. In any event it cannot be said that the premium on 6.19 crores utilized for acquisition of shipping assets is disallowable under any of the provisions of the Income-tax Act on the ground that it is a borrowal. 4 It is contended that the appellant is entitled to depreciation on UPS at 60% and the Assessing Officer was in error in allowing the depreciation at the general rate of 15%. Consequently, the disallowance of differential amount of depreciation of Rs.9,88,343/- is erroneous.
Facts of the case, in brief, are that the assessee company deriving income from Express Cargo Distribution and Warehousing, filed its return of income for the A.Y. 2009-10 on 29.09.2009, declaring loss of Rs.47,99,12,037/- from EDSE Division, income of Rs.17,15,990/- from CTC Division, income from house property of Rs.7,53,941/- and short term capital gains of Rs.18,15,36,931/-. After setting off the losses, the company admitted net loss of Rs.34,23,21,170/-. Subsequently, the assessee has filed revised return of income on 28.01.2011, declaring net loss of Rs.29,76,21,170/-, after disallowing notional loss of Rs.4,47,00,000/-. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act was issued and served on the assessee. Thereafter, notices u/s 143(2) and 142(1) of the Act were issued along with questionnaire. In response, the assessee submitted information from time to time. After verifying the information submitted, Assessing Officer completed the assessment by making disallowance of Rs.65,04,518/- towards interest on FCCB, Rs.27,10,61,790/- towards Hedging loss, Rs.30,09,100/- towards expenditure as per provisions of Section 14A of the Act and Rs.9,88,343/- towards excess depreciation on UPS and passed assessment order u/s 143(3) of the Act dt.30.12.2011 reducing the loss to Rs.1,57,77,520/-.
Feeling aggrieved by the assessment order, assessee carried the matter before the ld.CIT(A), who granted part relief to the assessee.
Feeling aggrieved with the order of ld.CIT(A), assessee is now in appeal before us.
Before us, ld.AR submitted that in respect to ground no.2 first ground, it is the contention of the Assessing Officer that the Assessing Officer had disallowed the expenditure claimed by the assessee to the extent of Rs.65,04,578/- as the assessee has opted for Tonnage Tax Scheme in the provisions of the Act. For the above said purposes, the ld. AR has drawn our attention to the order of the Assessing Officer.
Feeling aggrieved such assessment order, the assessee filed the appeal before the ld.CIT(A). The ld.CIT(A) has also confirmed the view taken by the Assessing Officer by holding as under :
“5.6. The appellant explanation that the bond are issued for general purposes for appellant’s entire business cannot be accepted when it is an admitted position that to the extent of Rs.6.19 crore the funds are utilized on acquisition of assets pertaining to shipping business. Having opted to be taxed under Tonnage Tax Scheme falling under Chapter XII-G for its shipping business, the appellant company cannot once again claim expenditure by way of premium on redemption or interest (by whatever name called) as expenditure and deduct the same from its other income. The Assessing Officer in his remand report has aptly objected to the allowance at para 3.3 of the remand report as under : “Since tonnage income scheme takes care of every allowable item of expenditure, no separate interest claim (on funds utilized for purchase of new vessels) in the computation is allowable. The submissions of the assessee in this regard are very general and contrary to facts involved. Therefore, the proportionate disallowance of interest of Rs.69.04 lakhs made in the assessment needs to be upheld.” 5.7 I find that the Assessing Officer is justified in the disallowance of proportionate premium. It is not the case of appellant that the assets of the shipping business amounting to Rs.6.19 crores or any portion thereof is acquired not out of the borrowed funds but were acquired out of its own funds without any cost of borrowing. Hence, the disallowance made of the proportionate amount of Rs.65,04,518/- is justified. The decision of the Assessing Officer on this ground is hence upheld.”
Now the contention of the assessee before us are two folds that the assessee was having surplus fund and therefore, the investment made by the assessee for acquisition of vessels is not assessable to the funds taken by the assessee under FCCD. Secondly, it was submitted that during the financial year 2007- 08, the part of the FCCD have been repeated and the funds were available with the assessee. Therefore, the disallowance made by the assessee on a prorate basis for the whole amount of 20 Million USD is not permissible as after requiring only 15 Million of FCCD were available. Thirdly the ld. AR had relied upon the decisions of Hon'ble Supreme Court in the case of CIT Vs. Reliance Utilities and Power Limited (2009) 313 ITR 340 and South Indian Bank [2021] 130 taxmann.com 178 (SC) to buttress his arguments. In the case of South Indian Bank (supra), the Hon'ble Supreme Court has held as under :
“26. Reverting back to the situation here, the Revenue does not contend that the Assessee Banks had held the securities for maintaining the Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this position, when there is no finding that the investments of the Assessee are of the related category, tax implication would not arise against the appellants, from the said circular.
The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under section 14A of Income Tax Act for investments made in tax-free bonds/securities which yield tax-free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.”
Per contra, ld. DR has submitted that the assessee has settled the issue arising in the appeal of the Revenue under Vivad se Vishwas Scheme and the issue under consideration is same as that of ground no.3 raised by the Revenue before the Tribunal which was subsequently settled under Vivad se Vishwas Scheme.
On merit, it was submitted that once the assessee has opted for the Tonnage Tax Scheme as applicable for section 115VG(6) of the Act, then no deduction, then no deduction is allowable. The ld. DR had drawn our attention to the provisions of Section 115 VG of the Income Tax Act, 191, which provides as under : “Computation of tonnage income. 115VG. (1) The tonnage income of a tonnage tax company for a previous year shall be the aggregate of the tonnage income of each qualifying ship computed in accordance with the provisions of sub-sections (2) and (3). (2) For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be the daily tonnage income of each such ship multiplied by— (a) the number of days in the previous year; or (b) the number of days in part of the previous year in case the ship is operated by the company as a qualifying ship for only part of the previous year, as the case may be. (3) For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column (1) of the Table below shall be the amount specified in the corresponding entry in column (2) of the Table: TABLE Qualifying ship having net Amount of daily tonnage income tonnage (1) (2) up to 1,000 Rs. 46 for each 100 tons exceeding 1,000 but not more Rs. 460 plus Rs. 35 for each 100 than 10,000 tons exceeding 1,000 tons
exceeding 10,000 but not more Rs. 3,610 plus Rs. 28 for each than 25,000 100 tons exceeding 10,000 tons exceeding 25,000 Rs. 7,810 plus Rs. 19 for each 100 tons exceeding 25,000 tons. 4) For the purposes of this Chapter, the tonnage shall mean the tonnage of a ship indicated in the certificate referred to in section 115VX and includes the deemed tonnage computed in the prescribed manner44.
Explanation.—For the purposes of this sub-section, "deemed tonnage" shall be the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel.
(5) The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and thereafter if such tonnage is not a multiple of hundred, then, if the last figure in that amount is fifty tons or more, the tonnage shall be increased to the next higher tonnage which is a multiple of hundred and if the last figure is less than fifty tons, the tonnage shall be reduced to the next lower tonnage which is a multiple of hundred; and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section.
(6) Notwithstanding anything contained in any other provision of this Act, no deduction or set off shall be allowed in computing the tonnage income under this Chapter.”
Heard both the parties and perused the material available on record. From the reading of provisions of Section 115VG of the Act, reproduced hereinabove, it is abundantly clear that once the assessee opts for a Tonnage Tax Scheme, then Tonnage income cannot be set off against any deduction provided under the Act. In the present case, it is admitted that the assessee has opted for Tonnage Income Tax which has been accepted by the Assessing Officer and ld.CIT(A).
11.1 Therefore, the question must be considered whether, after opting for the Tonnage Tax Scheme, the assessee can claim the deduction in derogation of the provision of the Act provided under section 115VG(6) of the Act. In our view, the law is clear and unambiguous, which provides that once specified provisions deal with the subject and have been accepted by the assessee, the assessee is precluded from taking the deduction of any other expenditure under any other provisions of the Act against the Tonnage income. In our view, the provisions of section 115 VG of the Income Tax Act, 1961 are complete, and once the assessee opts for the Tonnage Tax Scheme, the assessee cannot take the shield of taking the deduction of any other expenditure. Hence, we are of the opinion that the assessee is not entitled to deduction as claimed by the assessee towards interest paid being the pro rata term paid on FCCD.
11.2 The argument of the assessee is that the assessee was having free funds is devoid of any merit, as it was not a case before the ld.CIT(A) that the investments were made out of free funds available within it on account of liquidation of the part of the FCCD Bonds. Further, once the specific provision which prohibits the assessee from claiming any deduction, then the question of allowing the deduction of interest on the pretext of availability of mixed funds does not arise. In so far as the case laws relied upon by the assessee, those case laws are not applicable to the present case, as they are on different facts. In light of the above, the ground Nos.2 and 3 raised by the assessee are dismissed.
With respect to ground no.4, the ld. AR has submitted that the issue is covered in favour of the assessee by virtue of the judgments of hon’ble Delhi High Court in the case of CIT Vs. Orient Ceramics and Industries and CIT Vs. BSE Yamuna Powers Limited. The identical issue has also been decided in favour of the assessee by the hon’ble Tribunal in the case of Ushodaya Enterprises Ltd. Vs. ACIT, Hyderabad,
Per contra, ld. DR relied upon the orders of both the parties.
Heard both the parties and perused the material on record. In the present case, with respect to depreciation on computer is clearly covered in favour of the assessee by the decision of co-ordinate Bench of the Tribunal in the case of Ushodaya Enterprises Ltd. Vs. ACIT, Hyderabad, wherein the Tribunal has already decided the issue in faovur of the assessee. Therefore, respectfully, following the decision, we allow the grounds of appeal filed by the assessee. Therefore, the appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.