2024 (8) TMI 348 - AT - Income Tax

Disallowance being pro-rata premium on Foreign Currency Convertible Bonds (FCCB) - assessee has opted for the Tonnage Tax Scheme as applicable for section 115VG(6) - as argued 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 - HELD THAT - 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. 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 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. Depreciation on UPS - @ 60% or 15% - HELD THAT - In the present case, with respect to depreciation on computer is clearly covered in favour of the assessee by the decision of Ushodaya 2014 (12) TMI 7 - ITAT HYDERABAD wherein depreciation on UPS at 60% allowed.

Summary

Issues:
1. Disallowance of pro-rata premium on Foreign Currency Convertible Bonds (FCCB)
2. Disallowance of differential amount of depreciation on UPS
3. Applicability of Tonnage Tax Scheme on deduction claims
4. Depreciation on computer equipment

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) regarding the disallowance of the pro-rata premium on FCCB. The assessee argued that the entire premium should be allowed as expenditure since FCCBs were issued for general business purposes. However, both the Assessing Officer and the CIT(A) upheld the disallowance, stating that the premium related to acquisition of shipping assets and fell under the Tonnage Tax Scheme, disallowing the proportionate amount of Rs. 65,04,518. The tribunal agreed with the authorities, emphasizing that once the Tonnage Tax Scheme is opted, no separate interest claim is allowable, leading to the dismissal of the appeal on this ground.

2. The second issue pertained to the disallowance of differential depreciation on UPS. The Assessing Officer disallowed Rs. 9,88,343 as excess depreciation, which the assessee contested, claiming entitlement to 60% depreciation. The tribunal ruled in favor of the assessee, citing precedents where similar issues were decided in favor of the taxpayer, allowing the appeal on this ground.

3. The third issue revolved around the applicability of the Tonnage Tax Scheme on deduction claims. The tribunal analyzed Section 115VG of the Income Tax Act, which prohibits deductions once the Tonnage Tax Scheme is opted. The assessee's argument that investments were made from free funds was dismissed, and the tribunal held that the assessee cannot claim deductions against Tonnage income, leading to the dismissal of the appeal on this ground.

4. The final issue concerned depreciation on computer equipment. The tribunal relied on precedent judgments in favor of the assessee, allowing the depreciation claim on computer equipment, and consequently, partly allowing the appeal.

In conclusion, the tribunal partly allowed the assessee's appeal, upholding the disallowance of the premium on FCCB and deductions under the Tonnage Tax Scheme while allowing the depreciation claim on UPS and computer equipment.