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TMI Blog2015 (7) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act related to the activities of a tonnage tax company and it is also not disputed by the Revenue that such amount was reduced by the assessee while computing the ‘Book Profits’ from the activities of a tonnage tax company. Therefore, if the stand of the Assessing Officer is to be upheld then similar amount ought to be added back for the purposes of computing Book Profits derived from the activities of a tonnage tax company, because such book profit from the activities of a tonnage tax company are liable for exclusion from the ‘Book Profits’ for the purposes of section 115JB of the Act, in view of the specific enactment contained in section 115VO of the Act. Therefore, we find it expedient to set aside the impugned order of CIT(A) on this aspect and direct the Assessing Officer to make adjustment for the Impairment loss in the Book Profit derived from the activities of a tonnage tax company also; and the so computed book profit shall be liable to be excluded from the Book Profits of the assessee company for the purposes of section 115JB of the Act, in view of section 115VO of the Act. - Decided in favour of assessee. Enhancing the Book Profit u/s 115JB on account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the business operation of qualifying ships is computed in accordance with the provisions of subsections (2) and (3) of section 115VG of the Act. Notably, in terms of the said scheme of taxation, the income from operation of the qualifying ships is deduced ignoring the actual Profit Loss Account that may be prepared by an assessee. 4. In the course of assessment proceedings, the Assessing Officer noted that assessee had received a dividend income of ₹ 1,03,65,433/- which was exempt u/s 10(34) of the Act. The Assessing Officer required the assessee to show-cause as to why the income in relation to such exempt income should not be disallowed u/s 14A of the Act, r.w.r 8D of the Income Tax Rules, 1962. The stand of the assessee was that the disallowance envisaged u/s 14A of the Act had no relevance in the present case as assessee s income was assessable on a presumptive basis under the tonnage tax scheme. However, the Assessing Officer did not accept the plea of the assessee and instead he computed the disallowance u/s 14A of the Act at ₹ 38,58,497/- and added the said amount to the returned income. The CIT(A), however, accepted the plea of the assessee by fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee for earning income of the said business are deemed to be allowed and nothing else. It, therefore, cannot be said that when the income of the assessee from the business of operating ships is computed as per the special provisions of Chapter XIIG, any expenditure other than the expenditure incurred for the purpose of the said business has been allowed and consequently no addition to income so computed can be made by way of disallowance u/s 14A on account of expenditure incurred by the assessee in relation to earning of exempt dividend income. We, therefore, find merit in the contention of the learned counsel for the assessee that the income of the assessee from the business of operating ships having been computed in accordance with the provisions of Chapter XIIG, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance u/s 14A on account of any expenditure incurred in relation to earning of exempt dividend income. In our opinion, if at all the assessee has claimed any such expenditure in computation of profit of business of shipping, the same are to be taken as disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 115JB to mean the net profit as shown in the Profit Loss Account for the relevant previous year prepared under sub-section (2) as increased and reduced by adjustments specified in the said Explanation. In the context of the present controversy, it would also be relevant to observe that in terms of section 115VO of the Act, the Book Profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1) of section 115V-I, is liable to be excluded from the Book Profit of the company for the purposes of section 115JB of the Act. Insofar as the applicability of aforesaid two provisions to the instant case are concerned, there is no dispute. 10. In the course of assessment proceedings, the Assessing Officer noted that while computing the Book Profits for the purposes of section 115JB of the Act, the assessee had not disallowed a sum of ₹ 9,38,22,000/- debited in its Profit Loss Account. Notably, in its P L Account, assessee had debited a sum of ₹ 9,38,22,000/- which represented an impairment loss on certain ships. As per the Assessing Officer, the said debit in the Profit Loss Account was a mere Provision for diminution in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for diminution in the value of the asset, which could not be reduced in order to compute the Book Profits for the purposes of section 115JB of the Act. 13. Having considered the rival submissions, we find that the income tax authorities have grossly mis-directed themselves in enhancing the Book-Profit u/s 115JB of the Act. Infact, there can be no dispute that insofar as the adjustment of Provision for impairment loss is concerned, the same is well founded in terms of clause (i) of Explanation 1 to section 115JB of the Act. So however, the pertinent point which is missed out by the income tax authorities is that the impugned adjustment relates to the activities of a tonnage tax company and, therefore, similar adjustment ought to have been made in computation of Book Profit derived from such activity also as the same relates to the shipping business. Section 115VO of the Act, prescribes that the Book Profit derived from the activities of a tonnage tax company shall be excluded from the Book Profit of the assessee company for the purposes of section 115JB of the Act. The effect of the action of the Assessing Officer is that the Book Profit of the assessee company has been incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after having found that the book profit so computed and certified by the Auditors was not in accordance with the provisions of section 115JB. The AO thus has not gone by the Auditor s report furnished in form No. 29B for the purpose of computation of book profit of the assessee company u/s 115JB and has made the adjustment by adding back two amounts in question to the book profit declared by the assessee u/s 115JB and certified by the Auditors in their report furnished in form No. 29B. However, while computing the book profit derived from the activities of a tonnage tax company which is eligible for exclusion from the book profit for the purpose of section 115JB, he has declined to make the said adjustments despite the fact that both the amounts in question added back by him for the purpose of computing book profit u/s 115JB were related to the activities of a tonnage tax company on the ground that the book profit of the said activities as declared by the assessee was duly certified by the Auditors in the report furnished in form No. 29B. This stand taken by the AO, in our opinion, is self contradictory and inconsistent which cannot be upheld. 15. Quite clearly, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The controversy with regard to the adjustment relating to the amount of disallowance computed u/s 14A of the Act while computing the book profit u/s 115JB of the Act, has been a subject matter of consideration by various Co-ordinate Benches of the Tribunal. The Delhi Bench of the Tribunal in the case of Goetze (India) Pvt. Ltd. [32 SOT 101] (del) held that for the purposes of computation of book profit, the provisions of section 14A of the Act cannot be imported into clause (f) of the Explanation 1 to section 115JB of the Act. The Mumbai Bench of the Tribunal in the case of M/s Bengal Finance Investments Vs. The Asstt. Commissioner of Income-tax In ITA No. 5620/Mum/2010 dated 31.07.2012 has also taken a similar view, and the relevant discussion is as follows:- 5. We have heard the rival submissions and perused the relevant material on record. It is observed that the Assessing Officer added the amount disallowed by him u/s 14A to the tune of `78.84 lakh to the book profit computed u/s 115JB. The learned CIT(A) ordered for the deletion of this amount. The learned AR has placed on record a copy of the order passed by the Mumbai Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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