2012 (4) TMI 215 - AT - Income Tax

Appeal by assessee profit on sale of ships is not an income derived from the activities of a tonnage tax company referred to in Section 115 V and not to be include in the Book Profit and to be excluded in determining the Book Profits u/s 115JB of Income Tax Act - Assessee contented that assessee company was carrying on only one activity of operation of ships and therefore entire income relating to ships as recorded in the profit & loss account was to be taken as profit derived from the activities of tonnage tax company and the same was to be reduced from the book profit for the purpose of sec.115JB Held that - assessee has contended that the profits on sale of old ships are covered by clause (i) of sub-section (2) of section 115VI which is liable to be rejected as the profits from core activities as referred to in sub-section (2) forms part of a shipping income of a tonnage tax company and as per clause (i) of sub-section (2) of section 115VI, core activities of a tonnage tax company mean, inter alia, its activities from operating qualifying ships. In our opinion, the activity of sale of old ships cannot be regarded as an activity from operating qualifying ships - against assessee. income from sale of ship is not a capital receipt which has to be included while computing the book profit u/s 115JB as per decision of ITAT Mumbai Bench in the case of ITO v. Frigsales (India) Ltd. 2005 4 SOT 376 (MUM). - assessee submitted that profits on a sale of old ship are nothing but a capital receipt in the hands of the assessee and since the profit from such sale is chargeable to tax as capital gains u/s 50, the provisions of section 115JB are not attracted to such profit revenue contented that what is to be excluded for the purpose of computing book profit u/s 115JB has been specifically provided in Explanation 1 to section 115JB(2) and the same does not cover capital gain or capital receipt relied on the decision of Hyderabad Special Bench of the Tribunal in the case of Rain Commodities Ltd. v. Dy. CIT- 2010 - TMI - 203366 - ITAT HYDERABAD Held that - the decision of Special Bench of the Tribunal at Hyderabad in the case of Rain Commodities Ltd. (supra) that the provisions of section 115JB have an overriding effect upon other provisions of the Act and, therefore, the method of computation of book profit provided in the Explanation to section 115JB should be followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable in favour of revenue.

Summary

Issues Involved:
1. Addition of Rs. 17,22,750/- as unexplained investment under Section 69 of the Income-tax Act, 1961.
2. Deletion of Rs. 24,20,100/- addition on account of Long Term Capital Gain.
3. Deletion of Rs. 26,35,000/- addition on account of unexplained deposits.
4. Allowing claim of indexation under Section 49 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 17,22,750/- as Unexplained Investment (Section 69):
The assessee argued that the gold ornaments were acquired over the last forty years through marriage and other family events. The assessee provided evidence of sale through invoices and cheques, which were doubted due to lapses on the buyer's part. Additionally, wealth tax returns for A.Y. 2007-08 and 2008-09 declared such ornaments. The ornaments were not reflected in the balance sheet as they were acquired as gifts and had no cost to the appellant. The Assessing Officer (AO) did not accept the capital gain shown on the sale of gold jewellery, treating the sale proceeds as unexplained investments. The CIT(A) confirmed the AO's addition. However, the Tribunal noted the assessee's community and family background, acknowledging the tradition of receiving jewellery as gifts. The Tribunal directed the AO to recompute capital gains after allowing the benefit of indexation for 50% of the jewellery claimed as gifts.

2. Deletion of Rs. 24,20,100/- Addition on Account of Long Term Capital Gain:
The AO made an addition of Rs. 24,20,100/- on account of Long Term Capital Gain, arguing that the indexation should be from the date the property was transferred to the assessee on 2.4.2007, not from 1.4.1981. The CIT(A) deleted this addition, allowing the claim of indexation from 1.4.1981. The Tribunal upheld the CIT(A)'s decision, referencing Section 49(1)(i) and the ITAT Special Bench decision in Dy. CIT v. Manjula J. Shah, which supports indexation from the year the previous owner first held the asset. The Tribunal found no infirmity in the CIT(A)'s order, confirming the cost of acquisition and indexation from 1st April 1981.

3. Deletion of Rs. 26,35,000/- Addition on Account of Unexplained Deposits:
The AO added Rs. 26.35 lakhs, suspecting it as unexplained deposits in the assessee's bank account. The CIT(A) deleted this addition, clarifying that the amount was part of the sale consideration of a property sold for Rs. 31 lakhs. The cheque issued by LIC Housing Finance Limited was part of the sale consideration, not a loan. The Tribunal found that the sale consideration was duly accounted for as income and deposited in the bank account. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the addition.

4. Allowing Claim of Indexation (Section 49):
The AO argued that the indexation should be from the date the property was transferred to the assessee on 2.4.2007. The CIT(A) allowed indexation from 1.4.1981, considering the property was acquired by the HUF before the partition. The Tribunal upheld the CIT(A)'s decision, referencing Section 49(1)(i) and the ITAT Special Bench decision in Dy. CIT v. Manjula J. Shah, supporting indexation from the year the previous owner first held the asset. The Tribunal confirmed the cost of acquisition and indexation from 1st April 1981, dismissing the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal in part, directing the AO to recompute capital gains with indexation benefits for 50% of the jewellery claimed as gifts.