TMI Blog2024 (2) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by the judgment of South Indian Bank Ltd [ 2021 (9) TMI 566 - SUPREME COURT] Accordingly, disallowance made by the ld.AO under Rule 8D(2) is deleted. AO has disallowed a further sum under clause 2(iii) of Rule 8D, being the amount computed 0.5% of the average value of investments held by the assessee - However, the actual expenditure claimed of the Treasury Division based on the divisional Profit Loss Account was only Rs 22,54,612/- The administrative expenditure under clause 2(i) 2(ii) of Rule 8D cannot exceed the actual expenditure incurred by the Treasury Division - This issue is also decided by the Tribunal in assessee s own case for the earlier years. Thus, the enhancement made by the ld. AO over and above the disallowance made by the assessee is uncalled so the same is directed to be deleted. Disallowance u/s. 14A while computing the book profit u/s. 115JB - This issue now stands covered in the favour of the assessee by the decision of assessee s own case in the earlier years whereas the Tribunal has followed the decision of the Special Bench in the case of Vireet Investments Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] Foreign exchange gain written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral average claims - insurance claims received on account of damages to ships which were insured, which were reflected under Miscellaneous Operating Income in the audited Profit Loss Account - AO stated that the said income, in the normal course, would have been liable to tax under Section 41(1) of the Act - HELD THAT:- Any loss which is brought forward from a non- tonnage tax year must be set off against the tonnage tax income, even if the shipping company has opted for the tonnage tax scheme. As a corollary thereof, any income which has resulted from any expenditure claimed in an earlier year and which has accrued as the income for the year to which the tonnage tax scheme applies would also most certainly have to be considered as part of the tonnage tax income accordingly. In any case, this issue is covered in favour of the assessee by the Tribunal in assessee s own case for A.Y.2006-07, 2007-08 and 2008-09, respectfully following the same, this issue is passed against the department. - SHRI AMIT SHUKLA, JUDICIAL MEMBER SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER For the Appellant : Shri Jeet Kamdar For the Respondent : Shri Rajesh Pardeshi ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowed by the assessee in the Return of Income have also been excluded. The interest payable on the borrowings utilized for the investment in Greatship (India) Ltd. of Rs. 1,46,69,996/- has been excluded when computing the indirect interest expenditure disallowed in accordance with the provisions of Rule 8D(2)(ii), as such interest expenditure has already been considered as a direct expenditure under Rule 8D(2)(1). The assessee has further reduced the net interest expenditure on borrowings which were fully utilized for investment in growth schemes of Mutual Fund units aggregating to Rs. 45,11,45,621/-, whereby the net interest expenditure attributable to the earning of exempt dividend income was Rs. 1,34,16,234/-. The disallowance of such indirect interest expenditure has therefore been computed at Rs. 36,63,224/- in accordance with the formula prescribed under Rule 8D(2)(ii). Further, as the actual administrative expenditure was disallowed by the assessee under sub-clause (1), no further disallowance was warranted under sub-clause (iii) of clause (2) of Rule 8D. Hence, the aggregate disallowance under Section 14A was computed at Rs. 1,17,99,604. The assessee filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the total interest expenditure exceeds the total interest expenditure claimed against the non-tonnage income, the interest expenditure liable for disallowance has been restricted to the total expenditure by way of interest claimed against the non-tonnage income only, whereby the ld. AO has computed the disallowance under Rule 8D(2)(ii) at Rs 1,34,16,234/-, Further, the learned DRP has directed the ld. AO to compute the amount liable for disallowance under clause 2(i) of Rule 8D at Rs. 81,36,380/- and has confirmed the disallowance under clause 2(iii) of Rule 8D of Rs. 12,01,70,250/-. Hence, the aggregate disallowance under Section 14A was computed by the ld.AO at Rs. 14,17,22,864/- 7. Before us ld. Counsel for the assessee submitted that this precise issue is covered by the decision of the Tribunal in assessee s own case for A.Y.2008-09 and 2009-10. It has been again followed in the subsequent assessment years from 2010-11 to 2014-15. Besides this, ld. Counsel has also made submission on merits whereas ld. DR relied upon the order of the authorities below. 8. After considering the relevant finding given in the impugned orders as well as material referred to before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Out of the aforesaid interest expenses of Rs. 145,25,78,710/-, the interest expenditure pertaining to the Tonnage tax activities amounting to Rs. 90,80,28,977/- has been excluded and disallowed as part of the tonnage tax income while computing the total income of the assessee. We find that both ld. AO and ld. DRP have considered the total interest expenditure of the assessee company aggregating Rs 145,25,78,710/-, which includes the interest expenditure of the tonnage tax business of the assessee of Rs. 90,80,28,977/- for computing the disallowance under Rule 8D(2)(ii), without appreciating the fact that such interest expenditure was directly attributable to the tonnage tax activities and was therefore, already excluded from the total income pursuant to which such interest expenditure was not claimed against the exempt income. Hence, interest expenditure directly attributable to the tonnage tax business cannot be considered as part of the indirect interest expenditure for computing the amount liable for disallowance under Rule 8D(2)(ii). In any case, we find that this issue is covered in favour of the assessee by the Tribunal in assessee s own case for A.Y.2008-09 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Treasury Division of Rs 22,54,612/-. Since, assessee has disallowed s.9,93,218/- in Rule 8D(2)(1), the balance amount of Rs. 12,61,934/- at the most can be considered under Rule 8D(2)(iii). Thus, as against the actual aggregate administrative expenditure of Rs. 22,54,612/- incurred by the Treasury Division of the assessee company and claimed accordingly, the ld. AO has disallowed notional expenditure aggregating to Rs. 12,01,70,250/-under clause 2(iii) of Rule 8D, which is completely erroneous and unwarranted. This issue is also decided by the Tribunal in assessee s own case for the earlier years. Thus, the enhancement made by the ld. AO over and above the disallowance made by the assessee is uncalled so the same is directed to be deleted. 14. Coming to the disallowance u/s. 14A while computing the book profit u/s. 115JB, this issue now stands covered in the favour of the assessee by the decision of the Tribunal in assessee s own case in the earlier years whereas the Tribunal has followed the decision of the Special Bench in the case of Vireet Investments Pvt. Ltd. reported in 82 taxmann.com 415. 15. In ground No.10 assessee has raised the issue of foreign exchange gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. The said exchange difference was excluded by the assessee while computing the total income for the previous year under consideration being capital in nature. vi) The stage payments made to the shipyard were not refunded to the assessee but were adjusted towards the construction of other vessels. Such refund adjustment has no impact on the Profit and Loss Account for the year under consideration vii) The cancellation of the contracts on capital account for construction of the vessels ie capital assets, cannot be an event so as to change the nature of the transaction. If the contracts for the construction of the vessels had not been cancelled, the exchange gain on revaluation of foreign currency loans would have been credited in the books of account as a capital receipt i.e. the exchange gain on repayment of foreign currency loans for acquisition of vessels would have been added to the cost of ships in the block of assets in accordance with the provisions of Section 43A of the Act. viii) It may also be noted that if there was an exchange loss, the same would never have been allowed as a deduction on revenue account. That being so, such exchange gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is in the business of operation of ships and not in the business of constructing or buying / selling ships. Further, it speaks about value or benefit or perquisite whether convertible into money or not, arising from business and therefore, the benefit or perquisite arising in cash would be outside the purview of the said section. This has been held so by the Hon ble Supreme Court in the case of Mahindra Mahindra Ltd reported in 93 taxmann.com 32 wherein the Hon ble Supreme Court held that waiver of loan for acquiring capital assets cannot be taxed as a perquisite u/s. 28(iv) of the Act as receipt in the hands of the assessee are in the form of cash / money and further, the same cannot be taxed as a remission of liability u/s. 41(1) of the Act as waiver of loan does not amount to cessation of trading liability. Thus, we hold that foreign exchange gain written back on cancellation of vessel construction contract which were earlier capitalised in the vessels as capital receipt and outside the purview of chargeability u/s. 28(iv) of the Act. Accordingly, this ground of assessee is allowed. 22. In ground No.12 assessee has raised short grant of TDS credit stating that ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antee, the purchaser (GGES/AE) shall novate the vessel construction agreement to the assessee and the shipyard agrees to this arrangement. Para 4.11 states that upon invocation of the performance guarantee, the assessee will be substituted as the purchaser in place of GGES and the parties shall follow all the procedures and execute the necessary documents for the transfer of the vessel under construction to the assessee. 26. In other words, if the performance guarantee given by the assessee to the shipyard is invoked, the assessee will step into the shoes of its AE, become the owner of the vessel, take delivery of the vessel and deploy the vessel. The situation is akin to the assessee itself placing an order for construction of a vessel and taking delivery of the same. 27. Therefore, neither did the assessee charge any guarantee commission from its AE, nor did it make any suo moto TP adjustment, in respect of the performance guarantee given on behalf of its AE as the assessee contended that the transaction of giving performance guarantee to the shipyard on behalf of its AE was a risk-free transaction. 28. The ld. TPO benchmarked the transaction of performance guarantee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision by the Coordinate Bench, we hold that no adjustment is warranted on account of performance guarantee. The assessee succeeds on ground no 19 to 20 of the appeal. 32. Subsequently, the Tribunal vide its order dated 13/09/2023 for A.Y.2009-10 set aside the issue to the file of ld. AO / ld. TPO by holding that a) The performance guarantee given by the assessee is in the nature of financial guarantee with risk mitigation b) The performance guarantee needs to be benchmarked. c) Since the assessee has adequate security, therefore, the benchmarking of the performance guarantee needs to be substantially lower than pure financial guarantee. Therefore, the Tribunal rejected the rate of 1% p.a. adopted by the DRP and held that it is exorbitant, high and without any basis (Here, it is pertinent to note that in AY 2009-2010, the assessee had given performance guarantees to shipyards and financial guarantees to banks on behalf of its AEs, whereas in the current financial year 2010-2011, the assessee has given only one performance guarantee to shipyard and there are no financial guarantees given to banks on behalf of its AE). 33. In A.Y.2010-11 and 2012-13, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has held that performance guarantee needs to be benchmarked and therefore, we set aside this issue to the file of the ld. AO / ld. TPO holding that; firstly, 1% per annum cannot be applied as it is too high and without any basis; Secondly, assessee has adequate security and therefore, benchmarking of the performance guarantee needs to be substantially lower than the pure financial guarantee; Thirdly, the assessee has entered into contract on 16/01/2011 with Lamprell Energy Ltd., to construct this. It has given performance guarantee to the said company on 28/02/2011. Thus, the performance guarantee was in existence only for one month during the F.Y.2010-11 and therefore, if at all any transfer pricing adjustment it should be made only for the period of one month. With this direction, this ground of appeal is treated as partly allowed for statistical purposes. Accordingly, assessee s appeal is partly allowed. 38. Now, we will take up cross appeal for A.Y.2013-14. Assessee s appeal in ground No.1-6 and additional ground No.1 2 relates to disallowance u/s. 14A made by the ld. AO. Here in this year also while filing the return of income, the assessee has computed the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or disallowance under clause 2(i) of Rule D at Rs. 16,92,25,210/- as computed by the assessee. However, the AO has considered the total interest expenditure of the tonnage and non-tonnage business of the assessee of Rs 2,09,12,43,717/- as reduced by interest on delayed payment of taxes suo moto disallowed by the assessee in the Return of Income of Rs. 10,875/- The ld.AO has also reduced the interest payable on the borrowings utilized for the investment in Greatship (India) Ltd. of Rs. 16,57,59,189/-. The ld.AO has therefore considered the interest expenditure at Rs. 1,92,54,73,653/-, as against the net interest expenditure attributable to the non-tonnage tax activities of Rs. Nil considered by the assessee while applying clause 2(ii) of Rule 8D and has computed the disallowance under Rule 8D(2)(ii) at Rs. 50,95,67,732/-. The AO also disallowed a further notional amount of Rs. 12,99,65,500/- as indirect administrative expenditure under clause 2(iii) of Rule 8D, being the amount computed @0.5% of the average value of investments held by the assessee. Hence, the aggregate disallowance under Section 14A computed by the ld.AO was Rs. 80,87,58,442/-. 44. The ld. CIT (A) has directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Assessing Officer in considering the interest expenditure of the tonnage tax business of the assessee amounting to Rs. 1, 17,72,81,805/-. 3. The Ld.CIT(A) has erred in not allowing the decision of the Assessing Officer wherein the Assessing Officer has not reduced interest expenditure of Rs. 52,24,40,103/- from the non-tonnage tax interest expenditure. 48. In Revenue s appeal, ground No.1 relates to interest expenditure between tonnage and non-tonnage activities. The relevant qua this issue are that- i) The statement giving the details of the loan-wise interest expenditure pertaining non-tonnage tax activities for the year ended March 31, 2013, was submitted to the to the ld.AO during the course of the assessment proceedings. The said statement gives the details of the loan, the loan amount outstanding, the purpose of the loan, the rate of interest, the amount of interest paid and the reason for treating such interest expenditure as part of the non-tonnage tax activities of the Company. ii) The actual interest expenditure has been claimed, based on the utilization of the loan funds and there is no allocation of interest expenditure between tonnage and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under Miscellaneous Operating Income in the audited Profit Loss Account. 50. The ld. AO has excluded an amount of Rs. 83,18,599/- forming part of the general average claims received during the year, since the corresponding expenditure for which the claim was received, was incurred in an earlier year when the tonnage tax scheme was not in existence. The AO has further stated that the said income, in the normal course, would have been liable to tax under Section 41(1) of the Act. 51. After considering the relevant finding of the ld. AO, the submissions made before us it is seen that Section 115VL clearly states that Section 30 to 43B shall apply as if every loss, allowance, or deduction referred to therein and relating to or allowable for any of the relevant previous years, had been given full effect to for that previous year itself. The AO stated that the provisions of Section 41(1) would have applied to the claims received and such claim receipts are clearly covered under the provisions of Section 41(1) of the Act and in any event, the said section would have been applied to tax such income. Based on Section 115VL, the said section shall also apply while computing the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able thereto of Rs. 12,68,054/-, have also been considered as direct expenditure when computing the disallowance under Rule 8D(2)(i). Hence, the total disallowance under Rule 8D(2)(i) was computed by the assessee at Rs. 19,04,37,434/-. As regards the disallowance under Rule 8D(2)(ii), The assessee has considered the interest expenditure of the non- tonnage tax business at Rs. 70,84,87,169/- as reduced by interest on delayed payment of taxes suo moto disallowed by the Appellant in the Return of Income of Rs. 2,87,543/- The interest payable on the borrowings utilized for the investment in Greatship (India) Ltd. of Rs. 18,57,59,523/-, has been excluded when computing the indirect interest expenditure disallowed in accordance with the provisions of Rule 8D(2)(ii), as such interest expenditure has already been considered as a direct expenditure under Rule 8D(2)(i). The assessee has further reduced the interest expenditure on borrowings which were fully utilized for investment in growth schemes of Mutual Fund units aggregating to Rs. 52,24,40,103/-, whereby the net interest expenditure attributable to the earning of exempt dividend income was Rs. Nil. The disallowance of such indir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-tonnage income only. The learned CIT(A) has also directed the ld.AO to exclude the interest expenditure on Non Convertible Debentures, fully utilized for investment in growth schemes of Mutual Fund units aggregating to Rs. 52,24,40, 103/-, when computing the disallowance under clause 2(ii) of Rule 8D. Since the disallowance computed considering the total interest expenditure exceeds the total interest expenditure claimed against the non-tonnage income, the interest expenditure liable for disallowance has been restricted to the total expenditure by way of interest claimed against the non-tonnage income only, whereby the ld.AO has computed the disallowance under Rule 8D(2)(ii) at Rs Nil. Further, the learned CIT(A) has directed the Assessing Officer to compute the amount liable for disallowance under clause 2(i) of Rule 8D at Rs. 19,04,37,434/- and has confirmed the disallowance under clause 2(iii) of Rule 8D of Rs. 9,87,35,619/-. Hence, the aggregate disallowance under Section 14A will be Rs. 28,91,73,053/-. 55. Since the same issue is involved, therefore, our finding given in the aforesaid years will apply equally and accordingly, the addition / disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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