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Income Tax Appellate Tribunal - Rajkot

The Acit, Circle,, Gandhidham vs M/S. Jaisu Shipping Co. Pvt. Ltd.,, ... on 26 November, 2018

      ACIT-Gandhidham v. Jaisu Shipping Company P. Ltd. -I.T.A.No. 226/RJT/2012/A.Y. 07-08   Page 1 of 5


    INCOM TAX APPELLATE TRIBUNAL-RAJKOT-BENCH-RAJKOT
             BEFORE C .M. GARG, JUDICIAL MEMBER
            AND O. P. MEENA, ACCOUNTANT MEMBER
       I.T.A No. 226/RJT/2012 Assessment Year: 2007-08
Appellant                      V. Respondent
Assistant Commissioner of          M/s. Jaisu Shipping Company
Income Tax, Gandhidham             (P) Ltd.
Circle- Gandhidham-Kutch           8- Sindu Society, Adipur
                                   PAN:AAACJ 6998H


Assessee by                                   None
Revenue by                                    Shri Praveen Verma, Sr. D.R.


Date of hearing                                                               22.11.2018
Date of pronouncement                                                         26.11.2018
                                                   ORDER
 PER O. P. MEENA, AM

1. This appeal filed by the Revenue is directed against the order of learned Commissioner of Income tax (Appeals)-XX, Ahmedabad dated 07.02. 2012 pertaining to Assessment Year 2007-08.

2. Ground no. 1 states that the CIT (A) has erred in restricting addition to Rs.2,56,843 out of Rs.1,01,94,234 made by the AO on account of miscellaneous receipts.

3. The AO found that the assessee has credited miscellaneous receipts of Rs. 1,01,94,234 and interest of Rs. 19,06,309 on which the assessee has availed the benefit under the Tonnage Tax Scheme. The AO asked the assessee to show cause as to why these receipts be taxed under other than the special provision of shipping companies. It was explained that the receipts of Rs.76,25,792 were on account of bills raised to Cochin Port Trust and these bills were raised like ACIT-Gandhidham v. Jaisu Shipping Company P. Ltd. -I.T.A.No. 226/RJT/2012/A.Y. 07-08 Page 2 of 5 any other normal dredging activity and as per terms of Dredging is considered as core activity and receipts of Rs.12,87,500 raised to Mormguaoa Port Trust for removing of underwater obstruction. Therefore, it was contended that same should be considered as not falling under the definition of core activity. Further, the receipts of Rs.1,62,589 is receipts from transportation receipts. However, the AO observed that the assessee failed to establish that how miscellaneous receipts for transportation of FO and or LDO by Trucks are covered under section 115V-I(2) of the Act i.e. core activities of tonnage tax company. Hence, the AO has taxed the miscellaneous receipts of Rs.1,01,94,234 and Rs.1,62,589 transportation receipts as per normal provisions of the Act.

4. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). However, CIT (A) after considering the details and supporting evidence filed by the assessee and explanation offered found that an amount of Rs. 76,25,798 included in miscellaneous receipts of Rs. 1,01,94,234 was received towards escalation of diesel and labour charges, as per the agreement with Cochin Port Trust. These receipts are directly relatable to the activity of the appellant of dredging, which activity was held to be eligible for claiming benefit under the "Tonnage scheme" by the CIT (A) in A.Y. 2006-07 in his order dtd. 31.03.2010. Thus, the actual miscellaneous receipts work outs to Rs. 25,68,436 [ 1,01,94,234- 76,25,798]. Therefore, following said order, the CIT (A) has estimated 10% of miscellaneous receipts as taxable net profit . Accordingly, addition of Rs. 2,56,843 was confirmed and balance addition was deleted.

5. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. Sr. D.R. relied on the order of the AO. The ld. Sr. D.R. submitted that receipts of charter hire and bunker qualify under the definition of core activity but miscellaneous receipts cannot be treated as part of core activity. Therefore, CIT (A) was not justified in estimating income and reducing the same.

6. There was none present for and on behalf of the assessee.

7. We have heard the ld. Sr. D.R. and perused the relevant material on record. On going through the details of receipts of Rs. 76,25,798 mentioned at Page No. 7 of appellate order, We find that these receipts are relating to filing area by dredging and pumping of oil activities and fuel escalation and labour escalation as per agreement entered in to with Cochin Port Trust. Therefore, We are of the view that the CIT (A) has rightly treated the same as related to core activities of shipping. With regard to balance miscellaneous receipts of Rs. 25,68,436, we are of the view the entire miscellaneous receipts cannot be treated as income of the assessee as the deduction on account of expenses has to be and therefore, considering the net profit rate of the assessee which was at 5.87% in A.Y. 2005-06, the CIT (A) was quite justified by taking 10% of net profit of such miscellaneous receipts. In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground of Revenue is therefore, dismissed.

8. Ground No. 2 relates to restricting addition to Rs.16,258 out of Rs. 1,62,589.

9. We have heard the ld. Sr. D.R. and find that CIT (A) has considered 10% of such transportation receipt as taxable income on the basis of finding given in respect of miscellaneous receipts as discussed in ground no. 1 above. Therefore, for the reasons given in respect of ground no. 1 above, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Therefore, this grounds of appeal is dismissed.

10. Ground No. 3 relates deleting addition of Rs.19,06,309 addition made on account of interest income.

11. Facts apropos of this ground are that the assessee is engaged in shipping business. The assessee has credited interest income of Rs. 19,06,309 from fixed deposits. The AO asked as to why this should not be treated as income from other source. It was explained that the assessee has to keep FDR for getting bank guarantee for various dredging contracts and therefore, earning interest income on fixed deposits is normal business income. However, the AO was not satisfied with explanation and placing reliance in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC) : 129 Taxman 539 (SC) treated the same as income from other source and assessed accordingly.

12. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The CIT (A) observed that the assessee has credited interest income and also debited interest expenses in Profit & Loss Account and therefore, net interest income is negative. He also observed that similar issue was allowed in A.Y. 2005-06 by the CIT (A). The CIT (A) observed that the assessee has received interest income of Rs.

19,06,309 and incurred interest expenses of Rs. 2,20,33,986 resulting into netting of interest expenditure. Further, the CIT (A) followed the order of CIT (A) in A.Y. 2005-06 in which it was held that there is direct nexus between interest income and interest expenses. Therefore, netting of interest income has to be disallowed. In view of this, the disallowance made by the AO was deleted.

13. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. Sr. D.R. relied on the order of the AO.

14. We have heard the ld. Sr. D.R. and find that there is direct nexus between earning of interest income and interest expenses which were incurred on mobilization of funds and port charges. Therefore, CIT (A) has rightly allowed netting of interest income with expenditure and the interest income is being negative, no addition is required to be made on this account. In view of these facts, this ground of appeal Revenue is dismissed.

15. In the result, the appeal of the Revenue is dismissed.

16. The order pronounced in the open court on 26.11.2018.

              Sd/-                             Sd/-
          (C.M. GARG)                     (O. P. MEENA)
       JUDICIAL MEMBER               ACCOUNTANT MEMBER
Rajkot: Dated:26 November 2018 /opm

Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.

By order / / TRUE COPY / / Assistant Registrar, Rajkot