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TMI Blog2018 (11) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2006-07 shall apply mutatis mutandis to the appeal filed by the assessee for AY 2005-06. 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") for AY 2006-07 , read as under:- "1. The learned Commissioner of Income Tax (Appeals), Mumbai -1 ['the ld. CIT(A)'] has erred in law and on facts in upholding the action of the learned Assessing Officer ('the Id. AO') of levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 ('the Act') on (i) disallowance of claim of Rs. 12,10,00,000/- and Rs. 29,00,000/- in respect of profit on sale of ships and profit on sale of fixed assets respectively as turnover of core activities while computing income from incidental activities in excess of 0.25% of turnover from core activities and (ii) disallowance of claim of deduction of Rs. 6,35,13,110/- as proportionate cost against interest and dividend income on the alleged ground that the appellant had furnished inaccurate particulars of the income and explanation offered by the appellant was not bonafide. The ld. CIT(A) ought to have appreciated the following: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus cash/unutilized amount standing to the credit of statutory reserves while waiting for opportune time to acquire the assets. It was submitted that the interest generated needs to be treated as core shipping income. It was submitted that the said income from interest on deposits and dividend from companies are suo moto considered by the assessee as „income from other sources' while computing taxable income under tonnage tax scheme. It was submitted that a tonnage tax company is guided by provisions of Chapter XIIG which incorporates special provisions relating to income of shipping companies. The assessee drew attention of the AO to provision of Section 115VJ of the 1961 Act as to treatment of common costs where tonnage tax companies also carries on any business activity other than tonnage tax business. The assessee had allocated common costs being administrative costs on the basis of turnover. It was submitted that interest income is emerging because of temporary parking of funds in deposits , which are earned out of core shipping activities. It was submitted that administrative expenses were incurred for entire activities , which include core shipping activities and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back nor it filed inaccurate particulars of income. It was claimed that deductible expenses were claimed under bonafide belief and these was no mensrea It was also submitted that the issues are debatable and there are more than one plausible view on these issues and hence under these circumstances as stated above , no penalty is exigible within the framework of provisions of Section 271(1)(c) of the Act. 3.6 The AO referred to provisions of Section 115VJ of the Act as under: " 115VJ(1) Where a tonnage tax company also carried on any business or activity other that the tonnage tax business, common costs attributable to the tonnage tax business shall be determined on a reasonable basis. (2) Where any asset, other than a qualifying ship, is not exclusively used for the tonnage business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for purpose of the tonnage tax business and for the other business." 3.7 It was observed by the AO that tonnage tax scheme is a presumptive tax scheme under which no dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cers." 3.8 Thus in nut shell it was observed by the AO that earning interest by parking funds with banks or earning dividend income does not constitute income from incidental activity to the business of shipping income/tonnage income. The AO observed that common costs has to be related to businesses or other activities . It was observed that if any activity does not involve costs, then the question of common cots will not arise. It was observed by the AO that except for some possible small costs towards portfolio management services, no other costs could remotely be assigned to earning of interest or dividend income in the instant case. It was observed by the AO that provisions of Chapter XII-G are special provision related to income of shipping companies and they do not have over-riding effect over Section 56 and 57 of the Act,. Thus , it was observed by the AO that no costs which is not allowed to be deducted within provisions of Section 57(iii) of the 1961 Act can be deducted from „income from other sources'. Thus the contention of the assessee that interest earned from placement of deposits and earning dividend income from its operations in a J.V. company were integral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, between designated loading and discharging ports over a specified period; (B) Specific shipping trades, being - (i) On-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board; (ii) Slot charters, space charters, joint charters, feeder services, container box leasing of container shipping." The AO while referring to Section 115VI(2) of the 1961 Act observed that selling of ships and fixed asset does not fall within the purview of core shipping business activities and there is no scope for interpreting anything else than what is laid down by law and there could not be any scope for having different opinion in this regard. The AO observed that the claim of the assessee is inadmissible in law and malafide which is not sustainable in law. The assessee relied upon judgment of Hon'ble Supreme Court in the case Reliance Petroproducts Private Ltd., 322 ITR 158 (SC) which stood rejected by the AO. The AO relied upon following case laws to hold against assessee, as under 1. CIT v.. Escort Finance Ltd. (2009) 183 Taxman 453 (Delhi) 2. Commissioner of Income-tax v. Zoom Communication (P.) Ltd 3. Electrical Agencies Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action that there was a concealment or filing of inaccurate particulars to be liable for penalty u/s. 271(i)(c). In this regard it is mentioned that on pages 10, 16 and 17 of the assessment order dated 5 December 2008, the AO has initiated the penalty proceedings, Further in the last paragraph, Assessing officer has clearly mentioned "initiate penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 for furnishing inaccurate particulars of income. ''Further, in a recent judgement, in case of CIT v. Bansal Iron Scrap Co (2014)45 taxmann.com 92, Hon'ble Punjab and Haryana High Court have held that in view of sub-section (IB) of section 271, direction given by Assessing Officer during course of assessment proceedings for initiation of penalty proceedings under section 271(i)(c) would be deemed to be a valid satisfaction recorded for initiating said proceedings. In view of this legal position and also, contention of the appellant being factually incorrect, same is not acceptable. iii. The addition made by the AO has been upheld by Hon. ITAT who is the highest fact finding authority vide order dated 21.03.2014. In paragraph 7 of the order (in the part quoted from A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aware since the same was claimed in the return of income under the head income from other sources. Thus there is no force in contention of the appellant that it was a case of mere disallowance/rejection of legal claim which is not acceptable. v. Further, on the basis of above observations of Hon'ble ITAT, it is noted that claim of the appellant was also was not bonafide and hence explanation 1 to section 271(i)(c) is also applicable. In the case of MAK Data P. Ltd vs. CIT 358 JTR 593, Hon'ble Supreme Court have upheld penalty under section 271(i)(c)observing that where explanation offered was not bonafide, penalty was rightly imposed by assessing officer. Similar observations have been made by Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Lalchand Tiratram 225 ITR 675. vi. Even otherwise, in the case of CIT Vs. Zoom Communication Pvt. Ltd (327 ITR 510), the Hon'ble Delhi High Court, after considering the decision of the Hon'ble Supreme Court in Reliance Petroproducts Ltd. (supra.), have upheld the penalty u/s.271(i)(c) even on wrong claim made, observing as under:- "lf one takes the view that a claim which is wholly untenable in law and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the AO has imposed penalty on these issues also. However, while computing the penalty in, paragraph 9, the penalty has been levied with reference to the amount of Rs. 6,28,82,589/- only. Similarly in paragraph 2.1 of the penalty order the AO has referred to the administrative expenses of Rs. 7,33,346/-relatable to dividend income but while computing the penalty this amount appears not to have been included. This fact was brought to the knowledge of the AR. In response the AR vide letter dated 10.3.2016 submitted that due to difference of opinion the AO might not have imposed penalty on these items. This contention of the appellant is not acceptable since apparently there is mistake in calculation only while in the main order the assessing officer has discussed and intended to impose penalty on these amounts also. The assessing officer, after verifying the facts and figures on record, is directed to recalculate the correct amount of penalty imposable." 5. Aggrieved by the appellate order dated 16.03.2016 passed by learned CIT(A), the assessee has come in an appeal before the tribunal. The Ld. Counsel for the assessee at the outset submitted that the assessee is a public sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 by the Assessing Officer, in our opinion, is reasonable. Coming to reliance placed by the learned Sr. Counsel, on the decision of Hon'ble Jurisdictional High Court Chinai And Co. Pvt. Ltd. (supra), we are of the opinion that these are factual matters and the same cannot be taken as a binding precedent. In view of the above discussion, we uphold the finding of the Commissioner (Appeals) and dismiss ground no.7, raised by the assessee." 8. At the time of hearing before us, the ld. Counsel for the assessee has submitted that the investment in fixed deposits was made by the assessee company out of its income from shipping business and interest earned thereon thus very much formed part of core shipping business of the assessee. He submitted that similarly the dividend income was earned by the assessee on the investment made in the shares of other shipping company and the same therefore was also covered within the core shipping business of the assessee. He has contended that the assessee therefore was entitled to claim deduction on account of common costs attributable to the tonnage tax business on a reasonable basis as per section 115 VJ of the Act. In support of this contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e itself had originally offered the said income under the head "income from other sources". As regards the decision of Hon'ble Bombay High Court in the case of Punit Commercial Ltd. (supra) cited by the ld. Counsel for the assessee, it is observed that the same was rendered in the context of section 80HHC(3)(a) of the Act and the ratio of the said decision therefore cannot be applied in the present case which involves the issue in the context of section 115 VJ of the Act. In the case of Indo Swiss Jewels Ltd. and Other (supra) cited by the ld. Counsel for the assessee, the facts involved were different from the present case inasmuch as inter-corporate deposits were made by the assessee from the surplus funds that were kept apart for payment for imported machinery and the interest earned on such short term deposits of the money kept apart for the purpose of business was held to be business income of the assessee by the Hon'ble Bombay High Court. The case laws cited by the ld. Counsel for the assessee thus are not applicable in the present case. On the other hand, a similar issue involving identical facts and circumstances has already been decided by the Tribunal in assessee's own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute on this aspect. Section 115VE mandates that profits from business of a company engaged in the business of operating qualifying ships shall be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term "relevant shipping income" has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expenses can be considered as income from core activities of a tonnage tax company. In our opinion, write back of these items is to be considered as income from core activity. In a going concern, such write backs and making of supplementary provisions takes place. The Assessing Officer as well as the Commissioner (Appeals) have treated the very same income which is taxable under section 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . is directed to include the said income in the turnover of core shipping. As regards item No. 3 (sundry receipts from core shipping) and item No. 6 (reimbursement from managed vessels), the ld. Counsel for the assessee has submitted that neither the A.O. nor the ld. CIT(A) has examined the relevant details placed at 157 of the paper book and urged that the matter may be sent back to the A.O. for deciding the same afresh after verifying the said detail. As the ld. D.R. has no objection in this regard, the issue relating to inclusion or exclusion of item No. 3 & 6 is restored to the file of the A.O. for deciding the same afresh after verifying the said details. Ground No. 5 of the assessee's appeal for A.Y. 2006-07 is thus partly allowed." The Ld. Counsel for the assessee further submitted that Hon'ble Bombay High Court in ITA no. 1013 of 2015 vide orders dated 20.2.2018 was pleased to admit substantial question of law which arose from the appeal decided by the tribunal against the assessee in ITA no. 2945/Mum/2010 for AY 2006-07, by holding as under: "1. Heard. Appeal relates to Assessment Year 200607. 2. Appeal admitted on the following substantial questions of law: 1) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin a period of 8 years . It was submitted that the acquisition of new ships is highly capital intensive and funds are to be kept available in deposits to finance acquisition of new ships as contemplated u/s 115VT within stipulated period of 8 years, on which interest income arose and hence there is a direct nexus of the interest income with the shipping business and such activity is to be described an activity which is incidental to core shipping business. It was also submitted that the investments were made in shipping companies mainly JV in Iran from which dividend arose and such dividend income was taxable. It was submitted that income from dividend was received from foreign company based in Iran namely Irano Hind Shipping Co. Ltd. and hence the same was taxable . It was claimed that the assessee claimed deduction of administrative expenses being common cost against the aforesaid dividend income earned from said foreign company based in Iran engaged in shipping business to be income from incidental activities connected with shipping business. It was submitted that the assessee has also considered income from sale of ships and other fixed assets to be income from core activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee submitted that even for assessment year 2009-10 in the case of the assessee, the said expenses stood disallowed by the tribunal in cross appeals in ITA no. 3117/Mum/2013 and 3546/Mum/2013 , vide common order dated 19.08.2015. The issue was also decided against the assessee by tribunal for AY 2007-08 in ITA no. 145/Mum/2011. The assessee relied upon the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts P. Ltd., (2010) 189 Taxmann 322(SC), and decision of Kolkatta-tribunal in the case of Surendra Overseas Ltd v. DCIT in ITA no. 824/Kol/2009, vide orders dated 17.02.2012, and submitted that penalty u/s 271(1)(c) of the 1961 Act is not exigible in the instant case as merely because a claim is filed which stood rejected by Revenue authorities will not make assessee liable to penalty within provisions of the 1961 Act. It was submitted that special reserves are to be created u/s. 115VT(formerly under Section 33AC) which was deposited in FDR's for the purpose of buying new ship within a period of 8 years. The learned counsel for the assessee relied upon provisions of Section 57(iii) of the Act and submitted that these interest income is inextri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 73 and 74 of the paper book , wherein notice dated 05.12.2008 issued by the AO for AY 2006-07 u/s. 274 r.w.s. 271(1)(c) of the 1961 Act was placed and it was submitted that the AO initiated penalty u/s. 271(1)(c) for furnishing of inaccurate particulars of income in the assessment order dated 05.12.2008 passed u/s 143(3) of the 1961 Act , but appropriate column in the said penalty notice dated 05.12.2008 issued u/s 271(1)(c) was not struck off . Hon'ble Karnataka High Court decision in the case of CIT v. SSA's Emerald Meadows in ITA no. 380 of 2015 dated 23.11.2015 was relied upon by learned counsel for the assessee to contend that since the AO has not struck off relevant limb under which the penalty provisions u/s 271(1)(c) was invoked for furnishing of inaccurate particulars of income or for concealment of income, no penalty is exigible and the said notice dated 5.12.2008 ought to have been quashed . It was submitted that SLP filed by Revenue against the aforesaid decision of Hon'ble Karnataka High Court stood dismissed by Hon'ble Supreme Court in SLP(C) CC 11485/ 2016 vide orders dated 05.08.2016. It was submitted that profit on sale of ship was not considered as core activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dealing with Special provisions relating to chargeability to tax income of shipping companies. The assessee opted for tonnage tax scheme as is provided under Chapter XII-G for the first time for AY 2005-06 i.e. from the very first year of inception when the scheme was introduced by Finance Act, 2004 . This assessment year viz. AY 2006-07 is the second year of availement of tonnage tax scheme by the assessee. Undisputedly, the assessee was entitled and eligible to opt for the tonnage tax scheme as it met all the conditions of the scheme and the assessee in-fact opted and availed the new scheme as provided under the 1961 Act. The assessee has also furnished all necessary reports and certificates which are required under this scheme to avail the tonnage tax scheme. The assessee declared income under tonnage tax scheme defined in Section 115V of the 1961 Act and tonnage income was computed in accordance with provisions of Section 115VG of the 1961 Act. The assessee apart from the tonnage income declared income from incidental activities in terms of proviso to sub-section 1 of Section 115VI of the 1961 Act. The assessee offered in addition to tonnage income , including income from in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis, as is provided u/s 115VJ of the 1961 Act. All the authorities below viz. AO , learned CIT(A) and also Mumbai-tribunal has concurrently held against assessee by holding that these incomes consisting of interest income as well dividend income cannot be classified as income from an activity incidental to the shipping business and had held that the assessee could not have adjusted administrative expenses against these incomes arising from interest on deposits or dividend income from the foreign company. The relevant extract of the tribunal order which is a common order in ITA no. 2944 & 2945/Mum/2010 for AY 2005-06 and 2006-07 , dated 21.03.2014 dismissing the contention of the assessee is reproduced as hereunder :- " 7. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee's own case for A.Y. 2007-08 and the co-ordinate Bench of this Tribunal decided the same against the assessee vide para 36 & 37 of its order dated 29th July, 2011 passed in ITA No. 145/Mum/2011 which read as under:- "Ground no.7, is on allocation of administrative expenditure to income, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso covered within the core shipping business of the assessee. He has contended that the assessee therefore was entitled to claim deduction on account of common costs attributable to the tonnage tax business on a reasonable basis as per section 115 VJ of the Act. In support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Punit Commercial Ltd. [2000] 245 ITR 550 (Bom.) and in the case of CIT vs. Indo Swiss Jewels Ltd. and Other [2006] 284 ITR 389 (Bom). 9. The ld. D.R., on the other hand, has submitted that a similar issue involving identical facts and circumstances has already been decided by the Tribunal in favour of the Revenue in assessee's own case for A.Y. 2007-08 and there is no justifiable reason to deviate from the view already taken by the Tribunal on a similar issue. He has contended that the interest income earned by the assessee on investment out of surplus funds as well as dividend income earned by it was chargeable to tax under the head "income from other sources" and even the assessee company itself had offered the same in the return of income as "income from other sources". He has contended that the core activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by the Hon'ble Bombay High Court. The case laws cited by the ld. Counsel for the assessee thus are not applicable in the present case. On the other hand, a similar issue involving identical facts and circumstances has already been decided by the Tribunal in assessee's own case for A.Y. 2007-08 vide its order dated 29th July, 2011 (supra) and respectfully following the said decision of the co-ordinate Bench of this Tribunal in assessee's own case, we uphold the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on account of assessee's claim for deduction from interest and dividend income on account of common costs attributable to the tonnage tax business as per the provisions of section 115VJ of the Act. Ground No. 3 & 4 of the assessee's appeal for A.Y. 2005-06 are accordingly dismissed. The assessee in our considered view, however , had made due disclosure in the return of income filed vide computation of income as well in its submissions before the AO during the course of assessment proceedings . The assessee has drawn our attention to page no. 24-25/paper book as well page 43-45 of paper book to support its contentions that due discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt was pleased to admit substantial question of law in ITA no. 1013 of 2015 vide orders dated 20.02.2018 , by holding as under: "1. Heard. Appeal relates to Assessment Year 200607. 2. Appeal admitted on the following substantial questions of law: 1) Whether on the facts and in the circumstances of the case and in law, the Tribunal ought to have held that interest and dividend income forms part of the core activity and cannot be separately assessed to tax as income from other sources? 2) Whether on the facts and in the circumstances of the case and in law, the Tribunal ought to have held that administrative expenses of Rs. 6,36,13,111/should be allowed as deduction while computing the interest and dividend income? 3) Whether on the facts and in the circumstances of the case and in law, the Tribunal ought to have held that profits from sale of ships and other related assets should qualify as total turnover from core activity for the purposes of proviso to Section 115VI(1) of the Income Tax Act, 1961? 3. Registry is directed to communicate copy of this order to the Tribunal. This would enable the Tribunal to keep papers and proceedings relating to the present appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law by Hon'ble High Court will not however lead to the conclusion as a universal rule that no penalty is exigible as laid down by Hon'ble Bombay High Court in the case of Shree Gopal Housing and Plantation Corporation(supra) but the belief as was held by assessee in the instant appeal to come to the conclusion that these incomes from interest and dividend are from activities incidental to or connected to core shipping activities was not without any basis altogether , albeit the said belief does not found favour with all the three authorities including tribunal concurrently . The decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Private Ltd.(supra) is directly applicable to factual matrix of the case and the aforesaid explanation in our considered view had arisen from a bonafide belief which has taken the assessee out of clutches of penalty provisions as are contained in Section 271(1)(c) of the 1961 Act as it could not be said that the explanation offered by the assessee was ex-facie illegal and it could also not be said that completely a bogus /sham claim of deduction was set out by the assessee to defraud Revenue. It is another matter that the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Chapter XII-G which has taken the assessee out of clutches of penalty provisions as were contained in Section 271(1)(c) of the 1961 Act and hence we have no hesitation in deleting the penalty as levied by the AO u/s 271(1)(c) and confirmed by learned CIT(A) with respect to the claim of the assessee for deduction of administrative expenses against income from interest on deposits and dividend income. The assessee succeeds on these two issues on which penalty was levied by AO and as was confirmed by learned CIT(A). We order accordingly Coming next to the issue of treating profit on sale of ships as well as profits on sale of other fixed assets being treated as income from core shipping activities by the assessee was also decided against the assessee by all the three authorities concurrently i.e. AO, learned CIT(A) and the tribunal .The assessee is a Public Sector Undertaking mainly engaged in the business of shipping wherein it is operating large number of qualifying ships of which details are placed in paper book/page 26 onwards . The assessee has treated profit on sale of ships as well profit on sale of other assets to be income from core shipping businesses. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term "relevant shipping income" has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expenses can be considered as income from core activities of a tonnage tax company. In our opinion, write back of these items is to be considered as income from core activity. In a going concern, such write backs and making of supplementary provisions takes place. The Assessing Officer as well as the Commissioner (Appeals) have treated the very same income which is taxable under section 41(1) differently. The first being expenditure claimed in pre-tonnage tax scheme assessment years and the second being expenditure claimed in post tonna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (reimbursement from managed vessels), the ld. Counsel for the assessee has submitted that neither the A.O. nor the ld. CIT(A) has examined the relevant details placed at 157 of the paper book and urged that the matter may be sent back to the A.O. for deciding the same afresh after verifying the said detail. As the ld. D.R. has no objection in this regard, the issue relating to inclusion or exclusion of item No. 3 & 6 is restored to the file of the A.O. for deciding the same afresh after verifying the said details. Ground No. 5 of the assessee's appeal for A.Y. 2006-07 is thus partly allowed." The assessee has now filed an appeal with Hon'ble Bombay High court challenging the order of the tribunal in quantum.The Hon'ble Bombay High Court has admitted substantial question of law arising from the tribunal decision holding against the assessee, which decision was reproduced by us in preceding para's of this order. The special provisions relating to shipping companies as are contained in Chapter XII-G were newly inserted provisions by Finance Act, 2004 w.e.f. 01.04.2005 and this chapter is a code in itself for bringing to tax income of shipping companies eligible to opt for this sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1961 Act is that if the assessee offers an explanation which is bonafide which the assessee is able to substantiate and that all the facts relating to the same and material to computation of income have been disclosed, then the assessee is out of clutches of penalty provisions as are contained u/s 271(1)(c) of the 1961 Act. The assessee's view that profit arising on sale of ships and other fixed assets have nexus with the core shipping business of the assessee as it is exclusively engaged in the shipping business was one of the plausible and bonafide belief and cannot be treated as an ex-facie illegal belief nor a fraudulent claim was set up by the assessee with an intent to defraud Revenue.It is another matter that the claim set up by the assessee by treating income from sale of fixed assets as well income from sale of other assets did not found favour with all the authorities including Mumbai-tribunal and the issues in quantum were decided against the assessee. The decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Private Ltd.(supra) is directly applicable to factual matrix of the case and the aforesaid explanation in our considered view had arisen from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning as set out above , we are of the considered view that penalty u/s 271(1)(c) of the 1961 Act in the instant case before us is not exigible as explanations as were submitted by the assessee were bonafide explanations which has taken it out of clutches of penalty provisions as were contained in Section 271(1)(c) of the 1961 Act and hence we have no hesitation in deleting the penalty as levied by the AO u/s 271(1)(c) and confirmed by learned CIT(A) with respect to the claim of the assessee for treating income from sale of fixed assets as well income by way of profit from sale of other fixed assets to be income from core shipping activities albeit the said claim stood rejected by all the authorities concurrently including Mumbai-tribunal in assessee's own case for impugned assessment year 2006-07. The assessee succeeds on these two issues also on which penalty was levied by Revenue. We order deletion of penalty u/s 271(1)(c). We order accordingly. 8. In the result appeal of the assessee in ITA no.3870/Mum/2016 for AY 2006-07 is allowed. 9. We have observed that facts in ITA no.3871/Mum/2016 for AY 2005-06 are similar and our aforesaid decision in ITA no. 3870/Mum/2016 for AY 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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