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TMI Blog2014 (12) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange gain or loss has to be in relation to the shipping income - There is no basis for separately taxing it as some other kind of business activity – thus, the order of the CIT(A) is upheld – Decided in favour of assessee. Disallowance u/s 14A – Held that:- The interpretation of the AO that sub–section (3) independently provides that in case no claim of expenditure has been made by the assessee than also the disallowance u/s 14A has to be made, is completely misplaced and is legally not tenable - only when the precedent conditions of sub–section (1) are satisfied, then only provisions of sub–section (2) and (3) will come into foreplay, for the purpose of determination of quantum of disallowance - no disallowance u/s 14A is warranted when the assessee has not claimed any expenditure, towards taxable income i.e., it has not claimed any deduction of expenditure debited in the Profit & Loss account while computing the total income – Decided in favour of assessee. - ITA no. 710/Mum./2011, ITA no. 1184/Mum./2011 - - - Dated:- 8-8-2014 - SHRI SANJAY ARORA AND SHRI AMIT SHUKLA, JJ. For The Respondent : Shri Pitambar Das For The Appellant : Ms. Rachna Agarwal ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy translation gain of ₹ 26,06,402, which has not been included in the computation of total income and the same should also have been offered for tax. Accordingly, he added the said amount in the total income of the assessee. The reason he held that the foreign currency translaction gain is though arising in the course of business of the assessee but not out of shipping activity to which section 115VA applies. Therefore, the assessee should have offered this amount separately under the head business . 4. Thereafter, the Assessing Officer proceeded to make disallowance under section 14A, on the dividend income earned by the assessee on investments. He held that such an income cannot be held to be part of income declared from shipping activity. Any other income would not qualify for application of section 115VA and the same will have to be considered and treated separately. Thus, he worked out the disallowance under section 14A, after taking 0.5% of the average investment and thereby disallowing sum of ₹ 11,45,445, as per the working given at Page 6 of the assessment order. 5. Before the learned Commissioner (Appeals), insofar as the first issue is concerned, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w taken by the Assessing Officer and the learned Commissioner (Appeals) that it has to be taken as separate business income is wholly erroneous. In support of her contention, she relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Ambar Exports, [2001] 326 ITR 455 (Bom.), wherein in the context of deduction under section 80HHC on the exchange rate difference pertaining to exports, the Hon'ble Jurisdictional High Court held that the same is a part of export business only and has to be included in the turnover for computing the deduction under section 80HHC. She further relied upon the decision of the Karnataka High Court in CIT v/s Infosys Technologies Ltd., [2012] 349 ITR 606 (Kar.), wherein it was held that the fluctuation in the valuation of currency has a direct nexus to the export of software and cannot be included as income from other sources. Thus, she submitted that the gain in foreign exchange cannot be segregated with the shipping business. 7. Regarding disallowance under section 14A, the learned counsel submitted that the assessee has not claimed any expenditure which were debited to the Profit Loss account and the entire basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure which have been debited can be said to be attributable for earning of such income. He thus, strongly relied upon the reasoning given by the Assessing Officer and the learned Commissioner (Appeals). 10. We have heard the rival contentions, perused the relevant findings of the authorities below and the material available on record. Insofar as the first issue is concerned, that is the addition of ₹ 26,06,402, on account of foreign currency translation gain, we find that both the authorities have held that such a gain is not out of shipping activity but it has to be considered as separate business income. At the same time, it is undisputed from the material on record that the only business activity which is being carried out by the assessee is shipping business i.e., operation of ships, which is its core activity. The foreign exchange gain has arisen to the assessee on account of sundry creditors and debtors which were in the course of shipping business only. This is evident from the details filed by the assessee from where it is seen that the nature of transactions are charter hire income, charter hire deposits and insurance during the course of transaction of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., shipping income at ₹ 31,35,90,840 and other income at ₹ 30,71,697. As against this, the assessee has debited expenditure of fleet operating expenses at ₹ 11,82,99,500, and establishment and other expenses of ₹ 22,73,35,488. The other income also includes gross dividend of ₹ 37,21,710. However, in the return of income, the assessee has not made the Profit Loss account as the basis of computing tax liability or its shipping income and instead chosen deeming provisions under Chapter XIIG, which is Tonnage Tax scheme for the shipping income. Once the assessee has offered its income under Tonnage Tax scheme, then none of the expenses which have been debited in the Profit Loss account, has been considered or claimed. In other words, the Profit Loss account is completely ignored for the purpose of computation of income under Chapter IV of the Act. Accordingly, the assessee has not claimed any expenditure as deduction in the computation of total income filed along with the return of income. Insofar as the dividend income is concerned, the assessee had shown the income on gross basis and the entire dividend has been claimed as exempt. It is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to the exempt income or is attributable to earning of such income. Sub section (2) provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure incurred in relation to the exempt income, then the Assessing Officer has to determine the amount of expenditure attributable to such exempt income i.e., if the assessee has claimed that it has incurred X amount for the purpose of earning exempt income and the Assessing Officer is not satisfied with such a claim, then he has to determine the amount of expenditure as prescribed under rule 8D, after taking into account various factors and nature of expenditure vis a vis the amount debited and claimed as expenditure. Sub section (3) further provides that such a determination by the Assessing Officer under sub section (2) will also apply where the assessee claims that he has not incurred any expenditure for the purpose of earning exempt income. In other words, it envisages a situation when the assessee has incurred the expenditure during the course of earning exempt income and claims that such an expenditure has not been incurred or can be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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