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TMI Blog2020 (4) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... from operating ships. We find that in the instant case the interest income on fixed deposits with the banks arises because of bank guarantee that the assessee has given to its clients, including Performance guarantees, bid bond guarantees etc. If the assessee was not undertaking the business of operating ships, it would not have received the interest on fixed deposits kept as guarantees - fixed deposits made in pursuance of guarantee which lead to interest income is directly related to the activity of the assessee of operating ships - these bank guarantees pertain to qualifying as well as non qualifying ships and in the absence of clear bifurcation between the guarantees, the interest income has to be apportioned at 36.44% to determine the part of the relevant shipping income for the assessee. The assessee has claimed 36.44% of the total receipt from insurance claim amounting to ₹ 29.74 lakhs as exempt income. In the instant case, the sums pertaining to insurance claim are amounts expended for the repair of the vessel parts and regular maintenance of the vessels. These vessels are deployed for the business of the assessee of operating ships. As the insurance claim are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the Act ). 2. The grounds of appeal filed by the assessee read as under: 1) The learned CIT (A) erred in confirming the reopening of the completed assessment u/s 148 by the AO, as the AO had no jurisdiction to issue such notice after the relevant matter of allocation of other income had been duly considered, examined in detail thereafter accepted by the then AO while completing the assessment u/s 143(3) on 28.12.2011. The fact that the AO had then examined and applied her mind to the computation of tonnage income and allocation of 36.4403% of other income towards exempt tonnage income is clear from perusal of the response of the appellant to notice u/s 142(1) dt. 15/12/2011 issued prior to completion of the original assessment. a The learned CIT (A) erred in observing that : This point was never a matter of discussion during the course of original assessment proceedings despite the fact that it was specifically brought to his notice during Appellate proceedings that the assessee has submitted the relevant information in the form of a statement in response to Notice u/s 142(1) dated 15.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) erred in confirming the stand of the AO that the other incomes amounting to ₹ 5,03,07,943/- are not derived either from the core or incidental activities of the Appellant, and consequently erred in holding that the proportionate amount of ₹ 1,83,32,362/-cannot be allocated u/s 115VI(1) towards exempt Tonnage Income. (a) The learned CIT(A) erred in not appreciating the fact that an amount of ₹ 3,75,65,113/-, being part of the gross amount of other income of ₹ 5,03,07,943/-, comprised of 'Exchange Rate Difference' on Foreign Currency Term Loans obtained for acquisition of ships, and therefore represented an item of income derived from the core activities of shipping of the Appellant company. (b) The Learned CIT(A) erred in not appreciating the fact that an amount of ₹ 20,32,448/-, being part of the gross amount of other income of ₹ 5,03,07,943/-, comprised of Bank Interest on FDRs compulsorily deposited in banks for obtaining Bank Guarantees submitted to ONGC as Performance Guarantee, Bid Bond Guarantee, etc. for tendering the appellant s ships on hire to ONGC Ltd. Thus the interest income is derived from FDRs which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income for the assessment year (AY) 2009-10 on 30.09.2009 declaring total income at ₹ 30,19,62,010/-. The nature of business of the appellant is charter hiring of ship and offshore services. For the impugned assessment year, the assessee had furnished its return of income declaring ₹ 30,19,62,010/- as its total income excluding the income from qualifying ships. It also offered ₹ 2,01,480/- as tonnage income computed in accordance with section 115VG of the Act. As it had opted to offer for tax its tonnage income under Chapter XIIG of the Act, it claimed exemption of ₹ 21,57,22,468/- being its relevant shipping income. The income from qualifying ships forms 36.44% of the total income of the assessee for the impugned assessment year. This percentage is arrived based on the hire charges receipts earned by the assessee. The computation is as under : Hire Charges income Amount Percentage of total income Income from qualifying ships ₹ 36,79,00,741 36.44% Income from non-qualifying ships ₹ 64,16,97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r income, as this is the exchange gain on the repayment/closure of loans pertaining the vessels. Further it was stated that the amount considered under tonnage tax is ₹ 1,36,87,634/- ; amount included in the taxable income and tax fully paid on ₹ 2,38,74,479/- ; therefore, refund is due to the company as tax is not payable on the above amount of ₹ 2,38,74,479/- due to being capital receipt. Further, it was stated before the AO that the assessee has filed revised return claiming refund of ₹ 1,10,62,830/-. However, the AO was not convinced with the above explanation of the assessee for the reason that while computing the non-taxable shipping income u/s 115VI(1), the assessee has taken into consideration an amount of ₹ 1,83,32,362/- which represents a portion (0.364403 x 5,03,07,943) of the other income amounting to ₹ 5,03,07,943/- credited to the P L account as shown in Schedule J , thereto comprising of interest on FDR and other investments, insurance claim and miscellaneous income etc. In response to a query raised by the AO to explain that the above income is derived either from the core or from the incidental activities as per section 115VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained during the course of reassessment proceedings as there was no escapement of income. Further it will lead to refund by pushing the income below the returned income. I'm in full agreement with the decision of the AO. Firstly, as the AO has rightly pointed out that during the course of reassessment proceedings only the issues related to escapement of income should be looked into. The claim of the appellant do not fit into escapement of income. Even though such claim could be entertained during the course of regular assessment proceedings under section 143(3) but not during the course of reassessment proceedings, especially when there is no escapement of income from the point of view of the AO. Secondly, it is the satisfaction of the AO which matters for the reassessment proceedings. The claim of a refund by the appellant is not a point of satisfaction of the AO. The reassessment proceedings will start only with the satisfaction of the AO. Since the AO has not satisfied with the claim of the appellant he has rightly denied to entertain the appellant's plea during the course of reassessment proceedings. Thirdly, the facility of reassessment proceedings are exclusively av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shipping of the appellant-company and are incidental to the shipping activities and hence part of such income has been rightly allocated towards exempt tonnage income u/s 115VI(1) of the Act. In the statement of facts filed before the Tribunal, the Ld. counsel submits that on receipt of notice u/s 148 dated 18.03.2014, the assessee realized that it had wrongly offered the entire amount of exchange rate difference of ₹ 3,75,65,113/- as income in the books of accounts as well as while computing taxable income under the Act, whereas, the same was eligible for being capitalized u/s 43A of the Act. Since, the exchange rate difference was the very item of income which was now being alleged by the AO to have escaped taxation, the assessee sought to revise the original income by capitalizing the above amount. Accordingly, in the return filed in response to notice u/s 148, the assessee reduced the returned income. The Ld. counsel explains that during appellate proceedings before the Ld. CIT(A), it was submitted that even though the return filed in response to notice u/s 148 shows lower income than the originally returned income, the Ld. CIT(A) may give directions to the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO reopened the assessment by issuing notice u/s 148 dated 18.03.2014. We are of the considered view that the AO has rightly issued notice u/s 148 as the assessee, while computing the non taxable relevant shipping income u/s 115VI(1), had taken into consideration an amount of ₹ 1,83,32,362/- which represents a portion of the other income amounting to ₹ 5,03,07,943/- credited to the P L account. The notice u/s 148 has been issued by the AO in the instant case, within a period of four years from the end of the relevant assessment year. As the AO formed an opinion that the above income is not derived either from the core or from the incidental activities as envisaged u/s 115VI, he has rightly issued notice u/s 148 of the Act. Thus, we dismiss the grounds of appeal raised by the assessee against the reopening made by the AO. However, we find that the gains from exchange rate pertain to the activity of operating the qualifying ships; this is because the loan in foreign currency was obtained to acquire the vessels which were utilized in the core activities of operating ships. Further, the assessee does not carry any other business that involves foreign currency transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is found that certain expenditure incurred towards repairs and maintenance of vessels and other core activities relating to operation of ships was no longer required to be paid which lead to writing back of the creditors. As it pertains to qualifying as well as non-qualifying ships, the portion pertaining to relevant shipping income had to be appropriated on 36.44% basis. The writing back of sundry creditors or debtors give rise to income arising due to the activity of operating ships and, therefore, the receipts due to writing back has to be considered when determining profits arrived from core activities u/s 115VI of the Act. As mentioned earlier, the assessee had obtained loan in the foreign currency, the repayment of which lead to accrual of gain due to fluctuation in foreign exchange rate and the loan had been taken by the assessee for acquiring vessels which are its business asset. Hence, the gain being a capital receipt is not chargeable to tax. 7.1 At this moment we refer to the decisions relied on by the Ld. counsel. In CIT vs. Caixa Economica De Goa (1994) 210 ITR 719 (Bom.), it is held that : In reassessment proceedings, the assessee cannot reagitate claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pping Corporation of India vs. ACIT (2011) 133 ITD 290 (Mum), it is held that writing back of credit balances in the books of assessee operating ships is his income from core activity. In view of the above factual matrix and the ratio laid down in the above decisions, we set aside the order of the Ld. CIT(A) and delete the addition of excess allowance of income from tonnage tax of ₹ 1,83,32,362/- made by the AO. We further hold that in view of the ratio laid down in the above decisions, the assessee is entitled to claim of refund, which is subject to its contentions as stated in the Statement of Facts dated 13.05.2016 filed before the Tribunal that however, during appellate proceedings before the learned CIT(A), it was submitted that even though the return filed in response to notice u/s 148 shows a lower income than the originally returned income, the learned CIT(A) may give directions to the effect that the assessed income after giving effect to his order can in no case go below the originally returned income, to which proposition the appellant is fully agreeable to and direct the AO to work it out. 8. In the result, the appeal is partly allowed. Order pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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