2011 (3) TMI 965 - AT - Income Tax

Penalty u/s 271(1)(c) - Deduction u/s 33AC - The main object of the company is operations of shipping - How the main activity of the assessee is not operation of shipping is not explained either by the AO or by the CIT(A) - Both the authorities have just stated that the receipts on account of operations of ships are less and other receipts are more - However, the nature of the other receipts has not taken into consideration, which are only on account of operation of ships as no other activity has been done by the assessee except operation of ships - Held that the Tribunal have held that it is not necessary to own a ship but what is necessary that operation of shipping - There is no dispute that the assessee is doing activities of operations of ships either on account of its own vessel namely Ganga Dolphin or on account of contract entered with ONGC on account of operations and maintenance - Even the assessee is entitled for deduction u/s 33AC on account of receipts earned out of contract between the assessee and ONGC. However, the assessee claimed deduction u/s 33AC only on account of the receipts of vessels owned by it - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A) orders canceling penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of deduction under section 33AC.

Detailed Analysis:

1. Issue of Disallowance of Deduction under Section 33AC:
The AO disallowed the deduction under section 33AC for the assessee, a company engaged in offshore services, as the main business was not deemed to be the operation of ships. The AO relied on the fact that income from activities other than shipping constituted a significant portion of the total income. Consequently, the penalty under section 271(1)(c) was imposed for furnishing inaccurate particulars of income. However, the CIT(A) canceled the penalty, considering the claim made by the assessee as bonafide and a debatable issue with two possible views.

2. Aggrieved Appeal by Revenue:
The revenue filed appeals against the CIT(A) orders canceling the penalty, challenging the disallowance of deduction under section 33AC. The Tribunal noted that the assessee had filed appeals previously where it was held entitled to the deduction under section 33AC. The Tribunal emphasized the activities of the assessee, such as owning a shipping vessel, entering into OandM contracts with ONGC, and providing logistic support for offshore operations, as qualifying for the deduction.

3. Tribunal's Decision and Reasoning:
The Tribunal found that the AO and CIT(A) were unjustified in denying the deduction under section 33AC based on the percentage of receipts from shipping operations. It highlighted that the assessee's main activity was the operation of shipping, supported by owning vessels, maintaining separate accounts, and engaging in shipping-related contracts. The Tribunal cited precedents and case laws to support the assessee's entitlement to the deduction. Consequently, the Tribunal dismissed the revenue's appeals, stating that the penalty basis no longer existed due to the assessee's eligibility for the deduction under section 33AC.

In conclusion, the Tribunal upheld the assessee's entitlement to the deduction under section 33AC, emphasizing the nature of the assessee's operations and contracts in the shipping industry. The decision highlighted the importance of the main business activity in determining eligibility for tax deductions and penalties under the Income Tax Act, 1961.