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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Hon’ble Sri Waseem Ahmed, AM]
Per Shri N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 02.01.2014 of CIT(A)- Central-I, Kolkata, relating to A.Y.2005-06.
The facts and circumstances under which the above appeal of the revenue arises for consideration are as follows: The Assessee is a company. During the previous year its source of income was from providing services to the shippers/receivers/charterers by operating and maintaining a fleet of dry bulk carriers of various sizes. For AY 2005-06, the Assessee filed return of income declaring total income of Rs.3,33,95,577/- consisting of business income of Rs.1,18,57,063 and income from other sources of Rs.2,46,55,784/-. As we have already seen, the Assessee is engaged in the business of ships. Chapter XII G of the Act in sec.115V to 115 VZC provides a scheme for assessment of income of shipping companies. It is not in dispute that the income from business declared by the Assessee being a sum of Rs.1,18,57,063/- was income from the business of operating ships which had to be determined in terms of Chapter XII G of the Act. The income as 2 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 declared by the Assessee under the head income from business was accepted in the assessment completed u/s.143(3) of the Act by order dated 26.12.2007. In the said order an addition was made to the total income consequent to addition made under the head income from other sources. The Assessee filed appeal against such addition and the CIT(A) dismissed the appeal of the Assessee by his order dated 10.2.2009.
The CIT in exercise of his powers u/s.263 of the Act was of the view that the order dated 26.12.2007 passed by the AO u/s.143(3) of the Act for AY 2005-06 was erroneous and prejudicial to the interest of the revenue in as much as the AO while determining the income of the Assessee from the business of shipping did not consider the issue of creation of correct amount of Tonnage Tax Reserve. Sec.115VT of the Act provides for Transfer of profits to Tonnage Tax Reserve Account. It provides as follows: (1) A tonnage tax company shall, subject to and in accordance with the provisions of this section, be required to credit to a reserve account (hereafter in this section referred to as the Tonnage Tax Reserve Account) an amount not less than twenty per cent of the book profit derived from the activities referred to in clauses (i) and (ii) of sub-section (1) of section 115V-I in each previous year to be utilised in the manner laid down in sub-section (3): Provided that a tonnage tax company may transfer a sum in excess of twenty per cent of the book profit and such excess sum transferred shall also be utilised in the manner laid down in sub-section (3). Explanation : For the purposes of this section, "book profit" shall have the same meaning as in the Explanation to sub-section (2) of section 115JB so far as it relates to the income derived from the activities referred to in clauses (i) and (ii) of sub-section (1) of section 115V-I.
A show cause notice u/s.263 of the Act was issued by the CIT. The CIT passed an order dated 21.1.2010 setting aside the order passed u/s.143(3) of the Act with the following direction: “I have considered the oral as well as written submission made by Shri Manish Tewari. It is fact that the issue of Tonnage Tax liability of the assessee has been considered by the Assessing Officer. However, no questions are seen to have been raised at the time of hearing regarding the issue under consideration i.e. the adequateness of the creation of the 2
3 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 Tonnage Tax Reserve. It is also not the assessee's case that such a question has been raised. The adjustment to be made under S. 115JB, which also applies to the assessee in computing its book profit for working out the Tonnage Tax, has been the matter of substantial litigation but now bought to a conclusion by the Supreme Court's decision in Apollo Tyres case. It therefore appears that the adjustment by the assessee in reducing profit arising from sale of ship is not as per the prescribed scheme or the decision of the Supreme Court. Accordingly the income computed is erroneous and prejudicial to the interests of revenue. Further, the Assessing Officer has also not gone into the issues of the amount of Tonnage Tax to be considered in relation to which the Tonnage Tax Reserve is to be created. This action of the Assessing Officer in not going into a very relevant issue has also led to the passing of an order which is prejudicial to the interest of revenue. In view of the above the order passed is prejudicial to the interests of revenue and is therefore set aside with a direction to compute the tax liability of the assessee as per law after considering the issue of creation of the correct amount of Tonnage Tax Reserve.”
The AO passed an order dated 2.12.2010 giving effect to the aforesaid directions of the CIT in the order u/s.263 of the Act. Before passing such order the AO issued a show cause notice to the Assessee dated 15/16.11.2010. In the show cause notice the AO wanted explanation regarding the following issues: “(i ) Creation of Tonnage tax Reserve u/s 115VT, and (ii) Calculation of Book Profit for charging of MAT u/s 115JB read with section 115VO of the Act. The assessee was specifically requested to furnish the auditor’s report in Form 29B for calculation of MAT u/s 115JB read with section 115VO of the Act. It was also requested to explain whether the book profit computed here included the profit on sale of ship amounting to Rs.52,25,39,585/- credited to the profit & loss account.”
The explanation with regard to creation of Tonnage Tax reserve u/s.115VT of the Act given by the Assessee was accepted by the AO and the income as determined in the original order of assessment dated 26.12.2007 was accepted.
With regard to the explanation regarding calculation of book profit for charging of MAT u/s.115JB of Act read with Sec.115VO of the Act, the Assessee took the following stand: “6.1. In regard to calculation of Book Profit u/s. 115 .JB read with 115VO of the l.T. Act, 1961, the Ld. A/R in his written argument dated 24.11.2010 submitted as under:
4 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 "The Audit report u/s. 115JB of the Income Tax Act, /961 was not obtained as the Company opted for computation of Income from the Shipping Business under Chapter X11 - G- "Special provisions relating to Income 0/ Shipping Companies" introduced for the first time in the Act from this Assessment year. The Company is under the bonafide belie/ that "Special provisions Relating To Certain Companies" as per Chapter XII-B for payment of Minimum Alternative Tax on Book Profits are not applicable to the Company. " The Ld. A/R further argued that the Ld. CIT, Central-I , Kolkata, et aside the order u/s. 143(3) with a specific direction to compute the tax liability of the assessee after considering the issue of creation of the correct amount of Tonnage Tax Reserve only. It was also contended that the calculation of Book Profit for charging of MAT u/s. 115J B did not emanate from the order passed u/s. 263 on 21.01.2010. Hence, it was concluded that the issue of levy of MAT u/s. 115.1B read with section 115VO could not be considered under the present proceeding of giving effect to the order u/s. 263 passed by the Ld. CIT. 6.2. The above submissions in respect of levy of MAT u/s.l ] 5JB read with section 115VO of the Act been carefully considered but the same was not found tenable in the eyes of law. The assessee carried on the business of operating of ships and it had opted for Tonnage Tax System w.e.f. 01/04/2005 for a period of 10-years. The approval was granted to this effect by virtue of the order dt. 19/01/2005 passed u/s.l15VP(3)(i) of the IT Act, 1961, by the Joint Commissioner of Income Tax, Range-I(Central), Kolkata. Therefore, computation of income under the head of business was required to be made as per the special provisions contained in Sections 115V to 115VZC of the Income Tax Act 1961. 6.3. The Ld. A/R's argument - that the Special provisions Relating To Certain Companies as per Chapter XlI-Bfor payment of Minimum Alternative Tax on Book Pro/its are not applicable to the Company - is not correct in view of the specific provisions of section 115VO of the Act. For the sake of convenience, the provisions of Section 115VO of the Act is reproduced below:
"The book profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1) of section 1l5V-I, shall be excluded from the book profit of the company for the purposes of section 115 JB. "
In other words, in computing the book profit u/s.115J8, the book profit from the shipping activities as referred to in section 115V -I en was to be excluded from the net profit as per audited accounts to arrive at the Book Profit. The provision of section 115VW of the Act required the assessee to submit the Tax Audit Report in Form-66 which was duly filed by the assessee along with the return of income. Said Form-66 revealed the relevant shipping income u/s. 115V -I e 1) of the Act at Rs.l ,55,18,591/- only whereas the net profit as per the audited accounts for the year ending 31.03.2005 was Rs.57.15,88,402/-. Hence, according to the provisions of section 115VO the assessee was indeed liable to pay MAT u/s. 115J8.
6.4. In spite of the clear finding given above regarding applicability of MAT u/s. 115JB, the second argument of the Ld. A/R - that the calculation of Book Profit for charging of 4 5 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 MAT u/s 115JB did not Emanate from the order passed u/s. 263 on 21.01.2010 - is taken into consideration. It is a fact that the issue of levying MAT u/s. 115JB did not emerge out of the order passed u/s. 263 by the Ld. CIT. Therefore, the Assessing Officer is precluded from considering the same in the present proceeding of giving effect to the order of Ld. CIT. Accordingly, the Book Profit/MAT is not computed for technical reasons. However, proceeding u/s. 154 of the LT Act, 1961 is initiated separately.”
The AO thereafter issued a notice dated 30.11.2010 u/s.154 of the Act to the Assessee for the purpose of determination of total income of the Assessee u/s.115JB of the Act. In response to the said notice the Assessee submitted a reply contending as follows: (i) “That non application of section 115JB in the order u/.s 143(3) presupposes that tax payable on total income is higher and hence the detailed working was not spelt out. (ii) That Book profit u/s 115JB was not computed as the company opted for Tonnage Tax Scheme, that there is no reference to computation of Book Profit in the assessment order. (iii) Determination of fresh facts cannot be applied in course of proceedings u/s 154. (iv) The Notice u/s 154 has been issued without proper application of facts. (v) The assessment order u/s 14393) dated 26.12.2007 does not exist because it was set aside by order u/s 263.”
The AO however held that the objections were without any merit. In particular the AO held that the issue raised in Sec.263 of the Act did not relate to determination of books profits u/s.115JB of the Act and it was in respect of some other issue unconnected with the issue of determination of books profits u/s.115JB of the Act. The AO ultimately determined book profit u/s.115JB of the Act in substitution to the income determined under Chapter XIIG of the Act as the tax payable on book profit u/s.115JB of the Act was more. The AO passed the order u/s.154 of the Act on 28.2.2011.
Aggrieved by the said order dated 28.2.2011, the Assessee preferred appeal before the CIT(A) reiterating the objections that were made before the AO in response to show cause notice u/s.154 of the Act. The CIT(A) held that the order u/s.263 of the Act passed by the CIT had the effect of annulling the entire assessment order originally passed by the AO dated 26.12.2007 and therefore the order u/s/154 of the Act revising 5
6 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 the said non-existent order was also a nullity. In view of the aforesaid conclusion, the CIT(A) did not adjudicate on the other objections raised by the Assessee before him. The following were the relevant observations of the CIT(A) in the impugned order: “5. I have perused the relevant orders and the material placed on record. I find merit in the submission that the assessment order dated 26-12-2007 was not in existence as the same had already been set aside by the CIT vide his order u/s 263. The operational portion of the order u/s 263 reads: In view of the above the order passed is prejudicial to the interests of revenue and is therefore set aside with a direction to compute the tax liability of the assessee as per law after considering the issue of creation of the correct amount of Tonnage Tax Reserve". The language used in the order u/s 263 clearly suggests that the entire assessment order dated 26-12-2007 was set aside by the CIT; and consequently, the said assessment order did not survive. I therefore find substance in the contention that since the assessment order was no longer in existence, the same could not be rectified u/s 154. I do not find merit in the finding of the AO that the order u/ s 263 was issue based, and so, the assessment order dated 26-12-2007 could be rectified u/s 154. The order u/s 263 no doubt directed the AO to compute the tax liability of the assessee as per law after considering the issue of creation of the correct amount of Tonnage Tax Reserve. But then, it cannot be said that the assessment order was set aside for limited purpose of deciding a particular issue. On the contrary, the entire assessment order was set aside u/s 263 and the AO was directed to compute the tax liability of the assessee as per law; however, the order u/s 263 contained specific direction for the AO to consider the issue of creation of the correct amount of Tonnage Tax Reserve. The very language of the order u/s 263 clearly shows that the entire assessment order was set aside by the CIT. Under the circumstances, the assessment order dated 26-12-2007 was no longer in existence; and so, the same could not be rectified ix] s 154 by the AO. I am therefore of the considered view that the order u/s 154 passed by the AO is not sustainable in law. Ground no 1 is allowed. In ground no 2, the assessee has contended that the issue was beyond the scope of section 154. Ground no 3 relates to the merit of the issue. As the appeal has been allowed on technical ground, I am not inclined to adjudicate these grounds. Ground no 4 relates to the charging of interest u/s 234B which is consequential. Ground no 5 is general in nature.”
Aggrieved by the order of the CIT(A) the revenue is in appeal before the Tribunal. We have heard the rival submissions. The learned DR brought to our notice the stand of the Assessee in the proceedings before the AO while passing the order giving effect to the directions of the CIT in the order u/s.263 of the Act wherein the Assessee had categorically stated that the order u/s.263 of the Act did not deal with the question of determination of book profits u/s.115JB of the Act. He also highlighted the fact that the AO has very specifically accepted this stand of the Assessee and has thereafter resorted to proceedings u/s.154 of the Act. He therefore submitted that the order of the AO is 6
7 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 erroneous and deserves to be set aside. The learned AR relied on the order of the CIT(A).
After considering the rival submissions, we are of the view that in the order u/s.263 of the Act the issue that was considered was the question of reserve u/s.115VT of the Act. It had nothing to do with the determination of book profits u/s.115JB of the Act. The directions in the order u/s.263 of the Act had the effect of obliterating the order of the AO dated 26.12.2007 only to the extent of determination of book profits u/s.115JB of the Act and not the entire order dated 26.12.2007. In other words the order dated 26.12.2007 remained intact in respect of all other matters not considered either in the appeal before CIT(A) or in the proceedings u/s.263 of the Act. Those aspects which remained intact were capable of being rectified provided the other conditions for exercise of power u/s.154 of the Act are satisfied. We find that the CIT(A) has not expressed any opinion on the other question whether in the facts and circumstances of the case jurisdiction u/s.154 of the Act could have been exercised. We are of the view that the conclusion of the CIT(A) in the impugned order that the order of assessment dated 26.12.2007 was set aside in entirety in the order u/s.263 of the Act is not correct and accordingly the order of the CIT(A) is set aside. The other issues with regard to the other objections raised by the assessee with regard to exercise of power u/s.154 of the Act in the facts and circumstances of the case, are remanded to the CIT(A) for fresh consideration, as the CIT(A) has not considered those aspects in the impugned order. For statistical purposes the appeal of the revenue is allowed.
8 I.T.A.No.631/Kol/2014 M/s.Apeejay Shipping Ltd.., A.Yr.2005-06 13. In the result, the appeal of the revenue is allowed for statistical purposes.
Order pronounced in the Court on 02.12.2015.