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2018 (10) TMI 497 - AT - Income TaxTonnage Tax Scheme - income as computed at specified rates based on net tonnage of a ship under section 115VG - addition relating to the liquidated damages assessed as separate income other than the core income - Held that - This Tribunal has decided the identical issue for the assessment year 2009-10 to 2011-12 2017 (11) TMI 58 - ITAT VISAKHAPATNAM in assessee s own case dated 25.10.2017 and upheld the addition made by the AO with regard to the receipt of liquidated damages. Provision for bad and doubtful debts - Held that - AR did not place any material to support the claim of Provisions for bad and doubtful debts and the provisions written back are related to the core activity of the assessee which was already offered as income in the tonnage tax, but not related to the income other than the tonnage tax scheme. the revenue also failed to establish the same with relevant information. Any reason to interfere with the order of the Ld.CIT(A). Accordingly, we uphold the order of the Ld.CIT(A) and remit the matter back to the file of the AO to verify whether the provisions are created in relation to the core activity transaction or not. If the provisions are related to the income from core activity which was already included in tonnage income in the earlier years the same are required to be excluded from the non-core income. Accordingly, the AO is directed to verify the facts and reconsider the issue on merits after giving opportunity to the assessee Damages from IHC Holland for deficiency in the Dredger supplied - Held that - For the said deficiencies, the assessee had received the damages from IHC Holland which are directly relatable to the core activity of the assessee. Therefore, required to be assessed as core income. The assessee s activity is dredging operations. The damages received from the IHC Holland were for compensation of the deficiencies in the dredger. The receipt was neither from dredging activity nor from any other operational activity of shipping of the assessee. The receipts are similar to that of liquidated damages and the receipt should fit into the definition of the shipping activity as specified in section 115VI of the Act r.w.Rule 11R to treat the same as core income. In the instant case, the receipt was neither from the shipping activity nor from the operational activity, therefore, the receipt cannot be held to be from core activity. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee on this issue. Damages as received to compensate the deficiencies for receipt of the dredger supplied with deficiencies - whether the said receipts should be treated as capital receipt or revenue receipt? - Held that - The CIT(A) has examined this issue in detail and given a finding that the assessee did not furnish any details with relation to the losses suffered by the assessee. The compromise agreement was not filed before the CIT(A) and the assessee did not furnish any information as to alleged repairs undertaken by it for rectifying the deficiencies. During the appeal hearing also for a query from the bench, the AR submitted that the expenditure for repairs was debited to the Profit & Loss account and no details were available with regard to the incurring of expenditure. The assessee did not furnish any break-up of the details with regard to the date of purchase of ship, date of operation of the ship, whether it was purchased after tonnage tax scheme introduced or before the introduction of tonnage tax scheme. In the absence of any details, we are unable to accept the contention of the assessee that the expenditure was capital expenditure. Accordingly, the argument raised by the AR to treat the receipt as a capital receipt is unacceptable. Addition treating the some receipts as receipts not relating to core activity - Recovery towards leased quarters to employees, Staff car recoveries, Fee for right to information, Sale of Tender documents, Rent for hiring of the quarter/office, Late attendance receipt, Recovery of tower rent from Bharti Airtel, Training fee and Financing & Storage charges recoveries - Held that - imilar issue has come up before this Tribunal in the assessee s own case with regard to the above nature of receipts including miscellaneous income. This Tribunal held that the income from the above receipts cannot be considered to be connected with the dredging activity. EMD and SD forfeiture - Held that - Since the receipts of EMD and SD amounts are of the same nature, we hold that the receipts are not connected to dredging activity and cannot be held to be core income for the purpose of tonnage tax scheme. Accordingly, the receipts of EMD and SD are one step away from the dredging activity and would not be eligible for tonnage tax scheme. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the appeal of the assessee. Deduction of expenses in respect of incomes considered as not forming part of core activity - Held that - This Tribunal in the assessee s own case for the assessment year 2012-13 the assessee did not demonstrate that it had incurred the expenditure separately over and above the expenditure debited to the Profit & Loss Account. No separate books of accounts are maintained for non core income and core income and this issue is squarely covered by the decision of this Tribunal cited supra. Therefore, following the order of this Tribunal, we dismiss the appeal of the assessee on this ground. Receipts on account of sale of scrap, sale of empties, sale of condemned stores and spares and sale of waste oil, sale of assets and exchange difference - AO treated the receipts from the above activity as non core receipts and accordingly brought to tax other than the income from tonnage tax scheme - Held that - As decided in assessee s own case the receipts by way of sale of scrap, exchange difference, insurance claim are having direct nexus with the dredging activity and such receipts are required to be considered as income from core activity. CIT(A) followed the order of this Tribunal in assessee s own case for the assessment year 2006-07 to 2008-09 supra. The Ld.CIT(A) also applied the ratio of the decision of Hon ble Apex Court in the case of Pandian Chemicals Ltd. Vs. CIT 2003 (4) TMI 3 - SUPREME COURT .
Issues Involved:
1. Classification of liquidated damages as core or non-core income. 2. Treatment of provisions for bad and doubtful debts, provisions no longer required, and provisions for expenses written back. 3. Classification of damages received for deficiency in dredger supplied as core income or capital receipt. 4. Classification of miscellaneous receipts as core or non-core income. 5. Deduction of expenses in respect of incomes considered as not forming part of core activity. 6. Classification of receipts from sale of scrap, empties, condemned stores, waste oil, condemned assets, and exchange differences as core or non-core income. Issue-Wise Detailed Analysis: 1. Classification of Liquidated Damages as Core or Non-Core Income: The assessee received liquidated damages of ?9,03,93,437/-, which were included in the tonnage tax scheme. The AO excluded this from core income, holding that liquidated damages do not fall under the definition of core income as per section 115VI r.w. Rule 11R of the Income Tax Rules. The CIT(A) upheld the AO's decision, following the Tribunal's order in the assessee's own case for previous assessment years. The Tribunal reaffirmed this stance, citing that liquidated damages are compensatory payments for failure to execute contract works and not from the activity of shipping. Thus, they do not form part of core income for tonnage tax purposes. 2. Treatment of Provisions for Bad and Doubtful Debts, Provisions No Longer Required, and Provisions for Expenses Written Back: The AO assessed these provisions as non-core income. The CIT(A) remitted the issue back to the AO for verification of whether these provisions were created in relation to core transactions. The Tribunal upheld the CIT(A)'s decision, directing the AO to verify if the provisions were related to core activities and to exclude them from non-core income if they were already included in tonnage income in earlier years. 3. Classification of Damages Received for Deficiency in Dredger Supplied as Core Income or Capital Receipt: The assessee argued that damages of ?6,24,00,000/- received from IHC Holland for deficiency in dredger supplied should be treated as core income or alternatively as a capital receipt. The AO and CIT(A) treated it as non-core income. The Tribunal upheld this view, stating that the receipt was compensatory and not directly from dredging activity. The Tribunal also rejected the argument to treat it as a capital receipt due to lack of evidence regarding losses suffered or expenditure incurred for rectifying deficiencies. 4. Classification of Miscellaneous Receipts as Core or Non-Core Income: The AO classified various miscellaneous receipts (e.g., recovery towards leased quarters, staff car recoveries, sale of tender documents, etc.) as non-core income. The CIT(A) confirmed this, following the Tribunal's order in the assessee's own case for previous years. The Tribunal upheld the CIT(A)'s decision, reiterating that these receipts are from independent sources and not connected with the dredging activity. 5. Deduction of Expenses in Respect of Incomes Considered as Not Forming Part of Core Activity: The assessee claimed that if certain receipts are not considered core income, the related expenses should be deducted. The CIT(A) dismissed this claim, following the Tribunal's earlier order. The Tribunal upheld this decision, stating that allowing such a claim would result in double deduction of the same expenditure, which is not permitted under the Act. 6. Classification of Receipts from Sale of Scrap, Empties, Condemned Stores, Waste Oil, Condemned Assets, and Exchange Differences as Core or Non-Core Income: The AO treated these receipts as non-core income. The CIT(A) held that these receipts have a direct nexus with the dredging activity and should be considered core income, following the Tribunal's order in the assessee's own case for previous years. The Tribunal upheld the CIT(A)'s decision, citing that the income from these receipts is directly related to the activity of operating qualifying ships. Conclusion: The Tribunal dismissed the appeals of both the assessee and the revenue, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 5th October, 2018.
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