DCIT CIR 3(1), MUMBAI v. DOLPHIN OFFSHORE ENTERPRISES ()I) LTD, MUMBAI

ITA 2811/MUM/2010 | 1998-1999
Pronouncement Date: 17-03-2011 | Result: Dismissed

Appeal Details

RSA Number 281119914 RSA 2010
Assessee PAN AAACD0622D
Bench Mumbai
Appeal Number ITA 2811/MUM/2010
Duration Of Justice 11 month(s) 7 day(s)
Appellant DCIT CIR 3(1), MUMBAI
Respondent DOLPHIN OFFSHORE ENTERPRISES ()I) LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 17-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 17-03-2011
Assessment Year 1998-1999
Appeal Filed On 09-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI T.R.SOO D (A.M) ITA NO.2811/MUM/2010(A.Y.1998-1999) ITA NO.2812/MUM/2010(A.Y. 1999-2000) ITA NO.2813/MUM/2010(A.Y.2000-2001) ITA NO.2814/MUM/2010(A.Y. 2001-2002) ITA NO.2815/MUM/2010(A.Y.2002-2003) ITA NO.2816/MUM/2010(A.Y. 2003-2004) ITA NO.2817/MUM/2010(A.Y. 2004-2005) THE DCIT CIR. 3(1) ROOM NO.607 6 TH FLOOR AAYKAR BHAVAN MUMBAI -20. (APPELLANT) VS. M/S. DOLPHIN OFFSHORE ENTERPRISES (I) LTD. 1001 RAHEJA CENTRE 214 NARIMAN POINT MUMBAI 400 021. PAN: AAACD 0622D (RESPONDENT) APPELLANT BY : SHRI JITENDRA YADAV RESPONDENT BY : SHRI M.SUBRAMANIAN ORDER PER BENCH THESE ARE APPEALS BY THE REVENUE AGAINST THE FOLLO WING ORDERS OF CIT(A)-7 MUMBAI. ITA NO. A.Y. CIT(A) NO. DATE F OF ORDER. --------- ------ ------------ --------------- --- ITA NO.2811/M/2010 1998-2000 CIT(A)-7 11/1/2010 ITA NO.2812/M/2010 1999-2000 CIT(A)-7 11/1/2010 ITA NO.2813/M/2010 2000-2001 CIT(A)-7 12/1/2010 ITA NO.2814/M/2010 2001-2002 CIT(A) -7 12/1/2010 ITA NO.2815/M/2010 2002-2003 CIT(A)-7 14/1/2010 ITA NO.2816/M/2010 2003-2004 CIT(A) -7 14/1/2010 ITA NO.2817/M/2010 2004-2004 CIT(A)-7 14/1/2010 ITA NO.1739/MUM/2010(A.Y. 2006-07) 2 IN ALL THESE APPEALS THE REVENUE HAS CHALLENGED THE ORDERS OF CIT(A) WHEREBY THE CIT(A) CANCELLED THE ORDER OF THE AO I MPOSING PENALTY ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT 1961(THE ACT). 2. THE FACTS UNDER WHICH THE PENALTY UNDER SECTION 271(1)(C) WAS IMPOSED ON THE ASSESSEE BY THE AO ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF PROVIDING OFFSHORE SERVICES. THE ISSUE THAT WAS CO NSIDERED BY THE AO IN ALL THESE ASSESSMENT YEARS IS AS TO WHETHER THE ASSESSE E WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 33AC OF THE ACT. THE SAID PROVISIONS IN SO FAR AS IT IS RELEVANT FOR THE PRESENT APPEAL READS AS FOLLOWS : 33AC. (1) [IN THE CASE OF AN ASSESSEE BEING A GOVERNMENT COM PANY OR A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WI TH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF OPERATION OF SHIPS THE RE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE A LLOWED A DEDUCTION OF AN AMOUNT NOT EXCEEDING FIFTY PER CENT OF PROFITS DERI VED FROM THE BUSINESS OF OPERATION OF SHIPS (COMPUTED UNDER THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION AND BEFORE MAKING ANY DEDUCTION UNDER THIS SECTION) AS IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE PREV IOUS YEAR IN RESPECT OF WHICH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A R ESERVE ACCOUNT TO BE UTILISED IN THE MANNER LAID DOWN IN SUB-SECTION (2) ACCORDING TO THE AO THE MAIN BUSINESS OF THE ASSESS EE WAS NOT OPERATION OF SHIPS AND THEREFORE THE DEDUCTION UNDER SECTION 3 3AC WAS NOT TO BE ALLOWED. IN COMING TO THE CONCLUSION THE AO PRIMAR ILY PLACED RELIANCE ON THE FACT THAT INCOME RECEIVED FROM ACTIVITIES OTHER THA N SHIPPING CONSTITUTE MAJOR PORTION OF THE ASSESSEES INCOME. THUS THE D EDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 33AC OF THE ACT WAS NOT ALL OWED BY THE AO. IN RESPECT OF THE CLAIM MADE BY THE ASSESSEE FOR DEDUC TION UNDER SECTION 33AC OF THE ACT WHICH WAS REJECTED THE AO HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME AND IMPOSED PENALT Y. THE CIT(A) HOWEVER CANCELLED THE PENALTY IMPOSED FOR THE REASON THAT T HE CLAIM MADE BY THE ITA NO.1739/MUM/2010(A.Y. 2006-07) 3 ASSESSEE WAS BONAFIDE AND THE ISSUE AS TO WHETHER T HE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 33AC OF THE ACT WAS DEBATABLE ISSUE ON WHICH THERE CAN BE TWO VIEWS. 3. AGGRIEVED BY THE ORDERS OF THE CIT(A) CANCELING PENALTY THE REVENUE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUN AL. 4. AT THE TIME OF HEARING OF THESE APPEALS IT WAS B ROUGHT TO OUR NOTICE THAT AS AGAINST THE DISALLOWANCE OF CLAIM FOR DEDUC TION UNDER SECTION 33AC OF THE ACT FOR ALL THE AFORESAID ASSESSMENT YEARS THE ASSESSEE HAD FILED APPEALS BEFORE THE ITAT IN ITA NOS. 4699 TO 4705/M/ 07 FOR A.Y 1998-99 TO 2004-05. THIS TRIBUNAL VIDE COMMON ORDER DATED 25/ 3/2010 WAS PLEASED TO HOLD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UN DER SECTION 33AC OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATION O F THE TRIBUNAL: 8 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THEM CAREFULLY. THE GROUNDS IN ALL THE APPEALS ARE DISPO SED OFF TOGETHER AS THE ISSUES ARE COMMON. THE PROVISIONS OF SEC. 33AC OF THE ACT IS APPLICABLE TO A PUBLIC COMPANY WHICH HAS BEEN FORME D AND REGISTERED IN INDIA WITH THE MAIN OBJECTS OF CARRYING ON BUSIN ESS OF OPERATION OF SHIPS. THE ASSESSEE COMPANY QUALIFIES THE CRITERIA AS THE ASSESSEE IS PUBLIC COMPANY AND REGISTERED WITH THE REGISTRAR OF COMPANIES. THE ASSESSEE IS AN OWNER OF A SHIPPING VESSEL NAMED GA NGA DOLPHIN. THE INCOME EARNED BY SHIPPING OPERATIONS HAS BEEN SHOWN AS CHARTER HIRE FEES. THE ASSESSEE COMPANY HAS ALSO ENTERED INTO A N O&M (OPERATIONS AND MAINTENANCE) CONTACT WITH ONGC TO OPERATE ANYWH ERE IN OFFSHORE INDIA AT ANY DEPTH AND UNDERTAKE VOYAGES AS REQUIRE D TO PROCEED TO SUCH AREA OF OPERATION AS DIRECTED BY ONGC. THE ASS ESSEE COMPANY WAS RESPONSIBLE FOR MANNING VICTUALLING OPERATION MAINTENANCE REPAIRS OF THE VESSEL FROM SUCH PORTS WITHOUT ANY E XTRA COSTS TO ONGC THE OWNER OF THE VESSEL. 8.1 THE VESSEL WAS USED TO PROVIDE LOGISTIC SUPPORT TO OFFSHORE OIL AND GAS EXPLORATION EXPLOITATION AND PROCESSING IN STALLATIONS AND OTHER UNITS UNDER THE CONTROL OF THE OWNER IN THE O FFSHORE INDIA WATERS ALL LAWFUL DUTIES AS DIRECTED BY THE OWNER. VARIOUS ACTIVITIES DONE BY THE ASSESSEE HAVE BEEN EXPLAINED IN THE ORDER OF TH E CIT(A) AT PAGES 2 & 3. THE AGREEMENT EXECUTED BY THE ASSESSEE WITH ON GC WITH REFERENCE TO THE OPERATION AND MAINTENANCE OF THE S HIPS OWNED BY THE ITA NO.1739/MUM/2010(A.Y. 2006-07) 4 ONGC WERE ALSO FILED. IT WAS POINTED OUT THAT THE S AID AGREEMENT GOES TO SHOW THAT THE ASSESSEE HAD SUFFICIENT EXPERIENCE AND IS FULLY QUALIFIED TO PROVIDE SERVICES SUCH AS HIRE MANNING RUNNING OPERATIONS VICTUALLING AND MAINTENANCE SERVICES FO R OFFSHORE SUPPLY VESSELS BELONGING TO ONGC. VARIOUS CLAUSES TERMS A ND CONDITIONS OF THE AGREEMENT WERE EXPLAINED BEFORE THE AO AND THE CIT(A). 8.2 IT WAS ALSO EXPLAINED THAT FOR CLAIMING DEDUCTI ON U/S 33AC THE ASSESSEE NEED NOT BE THE OWNER OF THE SHIP. AS EVEN THE CONTRACTUAL REVENUES ARE ALSO TO BE TREATED AS INCOME FROM OPER ATION OF SHIPS AND IN SUCH A SITUATION THE SHIPPING INCOME OF THE ASSE SSEE COMPANY WOULD PERCENTAGE-WISE ALSO BE CATEGORIZED AS A SHIP PING COMPANY. RELIANCE WAS PLACED ON THE DECISION OF THE MADRAS H IGH COURT IN THE CASE OF SIRIUS SHIPPING CO LTD IN 257 ITR 38. THE ELIGIBILITY CONDITIONS WERE EXPLAINED BEFORE THE AO AS WELL AS CIT(A). 9 AFTER CONSIDERING THE SUBMISSIONS AND PERUSING TH E RELEVANT MATERIAL ON RECORD THE AO NOTED THAT THE ASSESSEE IS DOING BUSINESS OF OFFSHORE SERVICES. THE AO NOTED THAT IN THE RETURN THE ASSESSEE HAS CLAIMED DEDUCTION U/S 33AC OF RS. 80 LACS WHICH WAS NOT IN ORDER. THE COMPANY HAS CLAIMED AND WAS ALLOWED THE DEDUCT ION U/S 33AC CONSIDERING IT AS A SHIPPING COMPANY BUT ON GOING T HROUGH THE RETURN OF INCOME IT WAS FOUND THAT THE INCOME RECEIVED FR OM ACTIVITIES OTHER THAN SHIPPING CONSTITUTED MAJOR PORTION OF THE ASSE SSEES INCOME. THE AO OBSERVED THAT THE ASSESSEE WAS OPERATING ONLY ON E SHIP BY NAME GANGA DOLPHIN AND MAJOR INCOME WAS RECEIVED ON C ONTRACT SHIPPING WAS NOT THE CORE BUSINESS OF THE ASSESSEE AS OUT OF TOTAL RECEIPT OF RS. 6.22 CRORES ONLY RS. 4.36 CRORE WAS INCOME FROM CH ARTER HIRE OF VESSELS. THE ASSESSEES MAIN INCOME IS FROM CONTRAC TS FROM ONGC BUT NOT FROM SHIPPING. ACCORDINGLY THE AO HELD THAT TH E MAIN OBJECT OF THE ASSESSEE IS NOT OPERATION OF SHIP ACTIVITIES; THERE FORE THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 33AC. RELIANCE WAS PLACED BY THE AO IN THE CASE OF TCI REPORTED IN 84 ITD 183. THE AO HA S ALSO OBSERVED THAT SHIPPING IS NOT THE CORE BUSINESS OF THE ASSES SEE AND THEREFORE TO THAT EXTENT THE ASSESSEE IS NOT FULFILLING THE COND ITIONS. THE CONDITIONS RAISED THAT THE DEDUCTION IS LIMITED TO THE PROFIT DERIVED OUT OF THE INCOME FROM CHARACTER OF VESSEL DOES NOT DESERVE ME RIT AS THE BASIC CONDITION OF ELIGIBILITY IS NOT FULFILLED. IN VIEW OF THIS THE CLAIM OF THE ASSESSEE U/S 33AC MADE IN THE RETURN OF INCOME WAS WITHDRAWN BY THE AO WHILE PASSING ASSESSMENT U/S 143(3) FOR AY 2 000-01. 9.1 BEFORE THE CIT(A) IT WAS STATED THAT THE AO WA S WRONG IN HOLDING THAT THE CORE BUSINESS OF THE ASSESSEE IS N OT OF SHIPPING. THE AO HAD ERRED IN HOLDING THAT SINCE THE INCOME OF TH E ASSESSEE COMPANY FROM OPERATION OF SHIP WAS LESS AS COMPARED TO THE INCOME FROM OTHER ACTIVITIES; THE ASSESSEE COMPANYS MAIN OBJECT WAS NOT OPERATION OF SHIPS. THE METHOD OF PERCENTAGE OF REC EIPTS ADOPTED BY ITA NO.1739/MUM/2010(A.Y. 2006-07) 5 THE AO WAS WRONG. IT WAS SUBMITTED THAT THE ASSESS EE IS A REGISTERED PUBLIC LIMITED COMPANY AND THE MAIN OBJECT OF THE C OMPANY AS MENTIONED IN THE MOA IS THAT OF SHIPPING BUSINESS. AS SHIPPING BUSINESS IS MENTIONED AS ITS MAIN OBJECT IN MOA IT IS ENOUGH FOR IT TO FULFIL THE CONDITION AS ENVISAGED U/S 33AC AS THAT OF CARRYING ON THE BUSINESS OF SHIPPING OPERATIONS. 9.2 AFTER CONSIDERING THE SUBMISSIONS AND OTHER MAT ERIAL ON RECORD THE CIT(A) FOUND THAT THE AO WAS JUSTIFIED IN REJEC TING THE CLAIM OF THE ASSESSEE U/S 33AC. VARIOUS OBJECTIONS RAISED BY TH E AO IN HIS ORDER HAVE BEEN DISCUSSED BY THE CIT(A) AT PAGES 6 TO 9 O F HIS ORDER FOR AY 2000-01. 10 AFTER CONSIDERING THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF BOTH PARTIES WE FIND THAT BOTH THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REFUSING THE CLAI M OF DEDUCTION U/S 33AC OF THE ACT. THE AO AND THE CIT(A) HAVE DENIED THE CLAIM FOR THE MAIN REASON THAT THE RECEIPTS RECEIVED DIRECTLY ON ACCOUNT OF SHIPPING OPERATIONS IS ONLY 6.65% AND THEREFORE THESE RECEI PTS CANNOT BE TREATED ON ACCOUNT OF MAIN ACTIVITY OF SHIPPING OPE RATIONS OF THE ASSESSEE. BOTH THE AUTHORITIES HAVE NOT TAKEN INTO CONSIDERATION THAT NO OTHER ACTIVITY HAS BEEN DONE BY THE ASSESSEE EXC EPT THE OPERATIONS OF SHIPPING. THE ASSESSEE HAS ITS OWN VESSELS IN T HE NAME OF GANGA DOLPHIN. THE INCOME EARNED FROM SHIPPING OPERATION HAS BEEN SHOWN AS CHARTER HIRE FEES. RESERVE ACCOUNT HAS BEEN MAIN TAINED BY THE ASSESSEE AND THE SURPLUS AMOUNT AS PER CONDITIONS OF SEC.33AC HAS BEEN TRANSFERRED TO THE RESERVE ACCOUNT. THE ASSESS EE HAS ALSO ENTERED INTO AGREEMENT WITH ONGC FOR OPERATIONS AND MAINTEN ANCE ACTIVITIES. FROM THE ACTIVITIES DONE BY THE ASSESSEE IT IS PROV ED THAT OPERATIONS OF SHIPPING HAVE BEEN DONE BY THE ASSESSEE. THE ASSESS EE HAS MAINTAINED SEPARATE ACCOUNTS ON ACCOUNT OF ITS OWN VESSELS AND THE VESSELS RELATED TO ONGC. DEDUCTION U/S 33AC HAS BEE N CLAIMED ONLY ON THE AMOUNT EARNED ON ACCOUNT OF ITS OWN VESSELS. 10.1 VARIOUS BENCHES OF THE TRIBUNAL HAVE HELD THAT IT IS NOT NECESSARY TO OWN A SHIP BUT WHAT IS NECESSARY THAT OPERATION OF SHIPPING. THERE IS NO DISPUTE THAT THE ASSESSEE IS DOING ACTIVITIES OF OPERATIONS OF SHIPS EITHER ON ACCOUNT OF ITS OWN VE SSEL NAMELY GANGA DOLPHIN OR ON ACCOUNT OF CONTRACT ENTERED WITH ONG C ON ACCOUNT OF OPERATIONS AND MAINTENANCE. IN VIEW OF THE ABOVE F ACTS EVEN THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 33AC ON ACCO UNT OF RECEIPTS EARNED OUT OF CONTRACT BETWEEN THE ASSESSEE AND ONG C. HOWEVER THE ASSESSEE CLAIMED DEDUCTION U/S 33AC ONLY ON ACCOUNT OF THE RECEIPTS OF VESSELS OWNED BY IT. 10.2 THE MAIN OBJECT OF THE COMPANY IS OPERATIONS O F SHIPPING. HOW THE MAIN ACTIVITY OF THE ASSESSEE IS NOT OPERATION OF SHIPPING IS NOT ITA NO.1739/MUM/2010(A.Y. 2006-07) 6 EXPLAINED EITHER BY THE AO OR BY THE CIT(A). BOTH T HE AUTHORITIES HAVE JUST STATED THAT THE RECEIPTS ON ACCOUNT OF OPERATI ONS OF SHIPS ARE LESS AND OTHER RECEIPTS ARE MORE. HOWEVER THE NATURE OF THE OTHER RECEIPTS HAS NOT TAKEN INTO CONSIDERATION WHICH ARE ONLY O N ACCOUNT OF OPERATION OF SHIPS AS NO OTHER ACTIVITY HAS BEEN DO NE BY THE ASSESSEE EXCEPT OPERATION OF SHIPS. IN OUR CONSIDERED VIEW THE OBJECTIONS OF THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REJECTING T HE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 33AC. 11 VARIOUS DECISIONS RELIED UPON BY THE LD COUNSEL ARE IN SUPPORT OF THE CASE OF THE ASSESSEE. THEREFORE IN VIEW OF THE ABOVE DISCUSSIONS AND IN VIEW OF VARIOUS CASE LAWS WHICH ARE IN SUPPO RT OF THE CASE OF THE ASSESSEE WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 33AC. 12 THE GROUND RAISED BY THE ASSESSEE IN OTHER APPEA LS IS SIMILAR FOR OTHER YEARS ALSO. THEREFORE FOR THE SAME REASONING THE CLAIM OF THE ASSESSEE IS ALLOWED FOR DEDUCTION U/A 33AC FOR OTHE R YEARS ALSO. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT THE VE RY BASIS ON WHICH THE PENALTY WAS IMPOSED BY THE AO NO LONGER SURVIVES. FOR THE REASONS STATED ABOVE WE DO NOT FIND ANY MERIT IN THESE APPEALS BY THE REVENUE AND THEY ARE DISMISSED. 5. IN THE RESULT ALL THE APPEALS FILED BY THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 1 7TH DAY OF MARCH 2011. SD/- SD/- (T.R.SOOD) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 17 TH MARCH 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RD BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.1739/MUM/2010(A.Y. 2006-07) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER