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TMI Blog2018 (6) TMI 1785X X X X Extracts X X X X X X X X Extracts X X X X ..... osed by the assessee, it does not mean that it should be brought to tax over looking the actual provisions of income tax. Therefore, the profit on sale of vessels of the division tonnage is not taxable as the provisions of section 50(1) 50(2) are not attracted. Therefore, the addition made by the AO is deleted. Deduction u/s 80IA - deduction denied with regard to Karaikal Port, for which the CIT(A) in AY 2010-11 rejected the claim of assessee due to non submission of certificate - HELD THAT:- Since the assessee has submitted a certificate from the port authority certifying that they have entered into an agreement with the assessee for O M of the port in AY 2009-10 itself, we set aside the order of CIT(A) and direct the AO to allow deduction u/s 80IA to Karaikal port also. Disallowance u/ 14A r.w.r. 8D - HELD THAT:- It is clear that we have to include those investments which has generated income and exclude those investments, which have not generated income. AO had taken the total investment instead of those investments, which have generated income. Accordingly, we direct the AO to calculate the disallowance of interest with prescribed formula. The main reason is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter on 02.04.2013 stating that the revised return filed may be treated as the return filed with reference to notice u/s.148 of the Income-tax. Consequently, a notice u/s 143(2) was issued on 23.07.2013, posting the case on 02.08.2013. In response to the notice, Authorized Representative of the assessee company filed the information on 05.11.2013 in support of its return of income. After examining the information, the assessment u/s.143(3) r.w.s.147 of the I.T. Act, was completed as under: 2.2 During the course of assessment, on verification of books it was found that the assessee has declared other income of ₹ 5,43,03,629 in tonnage income (which is not taxable). Further, details showed that this is the other income under tonnage which is primarily profit on the sale of fixed assets and other income. The AO observed that subsection (i) and (ii) of section 115V-I have exhaustive meaning of relevant shipping income of tonnage tax from core activities and incidental activities, and hence other income shall not constitute exempted tonnage income. As per section 115VN any profit arising from transfer of capital asset shall be computed in accordance with provision of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g profits division wise, is only an accounting exercise. The amount so credited to the Profit Loss account of the Tonnage division is only profit on sale of asset , and does not represent the amount chargeable to tax as capital gains. It is settled law and practice that capital gains is to be computed as provided in section 45 to 51, and that there is no relationship to the amount credited in the Profit Loss account/Books of accounts as profit on sale of asset. In the present case while the profit on sale of the vessel relating to Tonnage division, is ₹ 5,43,03,629/- the corresponding amount chargeable as capital gains is Rs. Nil, as per the computation envisaged u/s.50. (G) The observation that the amount of Rs, 5,43,03,629/- is not exempt Tonnage income and hence the income is non Tonnage income and taxes payable thereon is incorrect and without any basis. There is no provision of law which converts a Tonnage division income into non Tonnage income. The reference to income from core activities is not relevant and extraneous to the issue on hand. The present case is that profit on sale of a Tonnage asset is credited to the Profit Loss account, while the capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit on sale of vessel pertains to Tonnage tax division of the assessee and hence is not liable to tax. 2. The learned CIT(Appeals) has completely erred in law in confirming the said amount of profit on sale of assets as income from other sources. The learned CIT(Appeals) ought to have appreciated that the Assessing Officer having held that the provisions of Section 50(1) or 50(2) of the Act are not invoked has no reason, basis or authority of law to treat the same as income from other sources. 3. The learned CIT(Appeals) ought to have noted that a receipt can fall under only one head of income, and in this case the it is Capital Gains which is exempt consequently, there is no authority to treat the same under any other head of income including income from other sources. The CIT(Appeals) ought to have also noted that unless a receipt is chargeable to tax it cannot be taxed under the head income from other sources, that too by merely observing that the income does not constitute income exempted under TonnagelNontonnage income. 4. The CIT(Appeals) having held that the amount of ₹ 5,43,03,629/- pertains to Tonnage Tax Division, has erred completely in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (-)₹ 41,61,449 9,22,78,483 Profit on sale ₹ 5,36,29,517 For the purpose of Income-tax, assessee has followed the depreciation schedule as per concept of Block assets as per section 2(11) of the Act. Since the above assets are depreciable and fall under Block I of assets in the depreciation schedule of income as followed by assessee, which is reproduced below: Block I Ships: tonnage Written down value as on 01/04/2007 641,981,602 Less: Sales during the year 145,908,000 496,073,602 Add: Transfer from non tonnage ships 54,829,921 Add: Additions during the year [More than 180 days] 1,052,349,396 1,603,252,919 Less: Depreciation @20% 320,650,584 1,282,602,335 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets. From the above, it is clear that in one of the situation, the value of such transfer is more than the value of block of assets, the excess is chargeable to tax under the head capital gains . In the given case, the excess i.e. profit is reduced from the block of assets and Block continue to have assets value and both situations highlighted in section 50(1) 50(2) are not attracted. Therefore, as per Income Tax Act, this transaction has not generated any capital gains. 7.2 Therefore, income has to be determined strictly as per the provisions of I.T. Act and not as per Companies Act/Book profit. Only in specific situation book profit is considered for only determining the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to clarify with retrospective effect that the benefit under section 80IA(4) will not be available in the case of a works contract awarded by any person and executed by an undertaking or enterprise referred to in section 80IA(1). He, therefore, concluded that as the assessee s nature of activity is execution of contract works, assessee is not eligible for claiming deduction u/s 80IA of the Act. 10. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A), who by following the decision of ITAT in AY 2009-10 and 2010-11 in assessee s own case, directed the AO to allow deduction u/s 80IA with regard to Jamnagar, Kakinada and Dahej Ports and disallow 80IA deduction with regard to Karaikal Port, for which the CIT(A) in AY 2010-11 rejected the claim of assessee due to non submission of certificate. 11. Aggrieved, the assessee is in appeal before us. 12. Considered the rival submissions and perused the material on record. This issue is squarely covered by the decision of the coordinate bench of ITAT in assessee s own case for AYs 2009-10 and 2010-11 (Revenue s appeals) in ITA Nos. 1615 1624/Hyd/2014 vide order dated 08/07/2015 wherein the coordinate be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly reading the rule 8D(2)(ii), the formula given are: A X B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year: B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; In particular, the notes for B clearly states that the average value of investment, income from which does not or shall not form part of the total income. It is clear that we have to include those investments which has generated income and exclude those investments, which have not generated income. In the present case, AO had taken the total investment instead of those investments, which have generated income. Accordingly, we direct the AO to calculate the disallowance of interest as below ( as per rule 8D): Interest X Investment( which generated income) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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