CROWN MARITIME CO.(I) lTD., MUMBAI v. ACIT 9(1), MUMBAI

ITA 4393/MUM/2008 | 2004-2005
Pronouncement Date: 19-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 439319914 RSA 2008
Assessee PAN AABCC2460J
Bench Mumbai
Appeal Number ITA 4393/MUM/2008
Duration Of Justice 1 year(s) 6 month(s) 24 day(s)
Appellant CROWN MARITIME CO.(I) lTD., MUMBAI
Respondent ACIT 9(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 19-01-2010
Date Of Final Hearing 24-11-2009
Next Hearing Date 24-11-2009
Assessment Year 2004-2005
Appeal Filed On 25-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI. BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER. I.T.A.NO. 4393/MUM/2008 ASSESSMENT YEAR : 2004-05. CROWN MARITIME CO. (I) LTD. ASSTT. COMMISSIONER OF B-201 GOKUL CONCORDE VS. INCOME TAX-9(1) CO HSG. SOCIETY THAKUR VILLAGE M UMBAI. KANDIVALI (W) MUMBAI. PAN AABCC2460J. APPELLANT RESPONDENT I.T.A. NO. 4 227/MUM/2008 ASSESSMENT YE AR : 2000-01 ASSTT. COMMISSIONER OF CROWN MARITIME CO.(I) LTD. INCOME TAX 9(1) VS. MUMBAI. MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI BHUPENDRA SHAH. DEPARTMENT BY : SHRI YESHWANT U. CHAVAN & SHRI AARSI PRASAD. O R D E R PER J. SUDHAKAR REDDY A.M. THESE ARE APPEALS DIRECTED AGAINST THE SEPARATE O RDERS OF THE CIT(APPEALS)-IX MUMBAI DATED 14-03-2008 AND 07-03- 2008. 2. THE FACTS ARE BROUGHT AT PARA 2 PAGE 2 OF THE C IT(APPEALS) ORDER WHICH ARE EXTRACTED BELOW FOR READY REFERENCE : THE ASSESSEE COMPANY IS A CLOSELY HELD COMPANY EN GAGED IN THE BUSINESS OF DREDGING OFF-SHORE MARINE AND PORT DEVELOPMENT. IT 2 FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE ACTIVI TY INVOLVES UNDERTAKING OF DREDGING CONTRACTS (MAINTENANCE AND CAPITAL) USING NUMBER OF DIFFERENT TYPES OF DREDGERS. SOME OF THE ACTIVITIES ARE EXCAVATION OF MATERIAL FROM UNDER WATER FOR DEEPENI NG OF RIVER LAKE HARBOUR SEA ETC. FOR NAVIGATIONAL PURPOSES . IN THIS CASE SPECIAL AUDIT U/S. 142(2A) WAS DIRECTED TO BE CARRI ED OUT VIDE LETTER DTD. 20-11-2006. THE SPECIAL AUDIT REPORT WA S SUBMITTED BY THE AUDITORS ON 07-06-2007 TO THE AO. THE ASSESSMEN T WAS COMPLETED U/S 143(3) R.W.S. 142(2A) DETERMINING THE TOTAL INCOME OF RS.6 96 53 174/- AS AGAINST RETURNED INCOME OF R S.79 10 840/-. 3. THE AO INTER ALIA MADE DISALLOWANCES U/S 40A( 3) ADHOC DISALLOWANCES OF VARIOUS EXPENDITURE AND ALSO DISAL LOWANCE U/S 40A(I) OF THE ACT. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. ON THE ISS UES WHICH WERE DECIDED AGAINST THE ASSESSEE BY THE FIRST APPELLATE AUTHORI TY THE ASSESSEE HAS FILED THE APPEAL AND ON THE ISSUES WHICH WERE DECIDED IN FAVOUR OF THE ASSESSEE BY THE FIRST APPELLATE AUTHORITY THE REVENUE HAS FILED AN APPEAL. 4. WE HAVE HEARD MR. BHUPENDRA SHAH LEARNED COUNS EL FOR THE ASSESSEE AND SHRI YESHWANT U. CHAVAN ALONG WITH MR. AARSI PRASAD THE LEARNED DR. 5. WE FIRST TAKE REVENUES APPEAL IN ITA NO. 4227/ MUM/2008. THE SOLE GROUND OF APPEAL IS AS FOLLOWS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING RS.23 86 124/- BEING D RY DOCKING EXPENSES AS REVENUE EXPENSES. THE LD. CIT(A) FAILED TO APPRECIATE THAT IN THE YEAR A.Y. 2003-04 THE ASSESSEE HAD TRE ATED THESE EXPENSES AS DEFERRED REVENUE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND A PERUSAL OF THE CASE LAWS CITED WE F IND THAT THE ISSUE WHETHER DRY DOCKING EXPENSES HAS TO BE ALLOWED AS R EVENUE EXPENDITURE 3 INCURRED DURING THE YEAR OR NOT IS COVERED IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE BY A JUDGMENT OF THE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. CHOUGULE & CO. P. LTD. REPORTED IN 214 ITR 523 AND THE DECISION OF HYDERABAD B-BENCH OF THE TRIBUNAL IN T HE CASE OF AMAR RAJA BATTERIES LTD. VS. ACIT REPORTED IN 91 ITD 280 . RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE FINDING OF THE FI RST APPELLATE AUTHORITY THAT EXPENDITURE IN QUESTION IS IN THE REVENUE FIEL D. THUS WE UPHOLD THE ORDER OF CIT(APPEALS) AND DISMISS THE REVENUES APP EAL. 7. WE NOW TAKE UP THE ASSESSEES APPEAL IN ITA NO. 4394/MUM/2008 8. AFTER HEARING THE RIVAL CONTENTIONS WE HOLD AS FOLLOWS . 9. GROUND NO. 1 AND 2 ARE GENERAL IN NATURE AND RE QUIRE NO SPECIFIC ADJUDICATION. 10. GROUND NO. 3 IS ON THE ISSUE OF DISALLOWANCE M ADE U/S 40A(3). THE ASSESSEE HAD INCURRED EXPENDITURE IN CA SH AMOUNTING TO RS.12 14 924/-. THE AO APPLIED SECTION 40A(3) AND D ISALLOWED 20% OF THIS EXPENDITURE WHICH AMOUNTED TO RS.2 43 385/-. O N APPEAL THE FIRST APPELLATE AUTHORITY CONSIDERED RULE 6DD(J) AND DIRE CTED THE AO TO DELETE THE DISALLOWANCES IN RESPECT OF PAYMENTS IN CASH MA DE TO EMPLOYEES WHO ARE ON A SHIP FOR MORE THAN 15 DAYS. AS REGARDS THE OTHER EXPENDITURE THE FIRST APPELLATE AUTHORITY EXTRACTED SECTION 40A(3) AND THEREAFTER APPLIED THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PADMA TEA CO. LTD. 251 ITR 640 AND UPHELD THE DISALLOWANC E IN QUESTION. AGGRIEVED THE ASSESSEE IS IN APPEAL. 11. AFTER HEARING RIVAL CONTENTIONS WE ARE OF THE CONSIDERED OPINION THAT THIS GROUND HAS TO BE DISMISSED. IN OU R HUMBLE OPINION THE 4 FIRST APPELLATE AUTHORITY HAS RIGHTLY CONSIDERED CL AUSE J(A) OF RULE 6DD AND HELD THAT WHEN SALARY OF EMPLOYEES ON SHIPS HAS PAID IN CASH NO DISALLOWANCE CAN BE MADE U/S 40A(3) IF THE CONDITIO NS OF THE EMPLOYEE BEING POSTED FOR A CONTINUOUS PERIOD OF 15 DAYS OR MORE THAN IN A PLACE OTHER THAN HIS NORMAL PLACE OF DUTY OR ON A SHIP IS FULFILLED. AS REGARDS THE BALANCE OF THE EXPENDITURE THE ASSESSEE HAS NOT BR OUGHT OUT ANY EXCEPTIONAL CIRCUMSTANCES WHICH CAN BE SAID TO BE COVERED UNDER RULE 6DD. UNDER THESE CIRCUMSTANCES WE UPHOLD THE FINDI NGS OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE ASSESSEE. 12. GROUND NO. 4 IS ON THE ISSUE OF ADHOC DISALLOW ANCE OF 20% OF THE EXPENDITURE CLAIMED FOR THE REASON THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE. THE ASSESSEE SUBMITS THAT THE RELEVANT VOUCHERS HAVE BEEN DAMAGED OR DESTROYED BY WHITE ANTS AND T HE ALLOWANCE SHOULD BE MADE BASED ON THE COPIES OF THE VOUCHERS WHICH W ERE SHOWN TO THE AO. WE ARE UNABLE TO AGREE WITH THESE SUBMISSIONS O F THE ASSESSEE. THE FIRST APPELLATE AUTHORITY HAS RIGHTLY OBSERVED THAT IT IS TRITE THAT ONUS LIES ON THE ASSESSEE TO PROVE ITS CLAIM. IN THE ABSENCE OF SUCH MATERIAL EVIDENCE BROUGHT ON RECORD TO JUSTIFY SUCH CLAIM THE AO IS JUSTIFIED IN MAKING AN ADHOC DISALLOWANCE. ACCORDINGLY WE UPHOL D THE FINDINGS OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE AND DIS MISS GROUND NO. 4 OF THE ASSESSEE. 13. GROUND NO. 5 IS AGAINST AN ADDITION OF INTERES T EARNED ON FDR. THE ADDITION HAS BEEN MADE ON THE GROUND THAT CERTAIN INTEREST HAS ACCRUED TO THE ASSESSEE ON FDRS AND UNDER THE MERCA NTILE SYSTEM OF ACCOUNTING THE ASSESSEE WAS REQUIRED TO OFFER THE SAME AS INCOME AND AS HE FAILED TO DO SO THE ADDITION HAS BEEN MADE. 5 13.1 DURING THE COURSE OF ARGUMENTS THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE ARE CERTAIN CALCULATI ON MISTAKE MADE BY THE AO IN THIS REGARD AND THAT THE ASSESSEE HAS MOVED A N APPLICATION FOR RECTIFICATION U/S 154 WHICH WAS FILED ON 1-11-2007 AND THE AO HAS NOT DISPOSED OF THE APPLICATION. AS PER THE LEARNED COU NSEL THE COMPUTATION OF INTEREST WAS WRONGLY MADE BY THE REVENUE. 13.2 IN VIEW OF THE ABOVE SUBMISSIONS WE ARE OF T HE CONSIDERED OPINION THAT THE ISSUE SHOULD BE SET ASIDE TO THE F ILE OF THE AO FOR FRESH ADJUDICATION. THE AO HAS NOT DISPOSED OF THE APPLIC ATION MADE U/S 154. IN THE SET ASIDE PROCEEDINGS THE AO SHALL AFFORD A DEQUATE OPPORTUNITY TO THE ASSESSEE AND ENSURE THAT THE COMPUTATION OF INC OME ACCRUED OR DUE ON FDRS IS PROPERLY MADE. 13.3 IN THE RESULT GROUND NO. 5 IS ALLOWED FOR ST ATISTICAL PURPOSES. 14. THE NEXT ISSUE IS ON THE DISALLOWANCE OF PRIOR PERIOD EXPENDITURE. THE ASSESSEES CASE IS THAT THE EXPEND ITURE IS UTILISED DURING THE YEAR AND HAS NOT BEEN CLAIMED TWICE AND THAT IT SHOULD HAVE BEEN ALLOWED THIS YEAR. 14.1 AFTER HEARING THE RIVAL CONTENTIONS WE FIND THAT THE ASSESSEE SUBMITTED BEFORE THE AO THAT DUE TO NON AVAILABILIT Y OF COMPETENT STAFF AT SITE SOMETIMES THE EXPENSES PERTAINING TO ONE YEAR ARE NOT ACCOUNTED FOR IN THE SAME YEAR AND SOMETIMES THE CORRESPONDENCE VOUCHERS ETC. ARE RECEIVED LATE AND THEREFORE THE AUDIT HAS TO BE C OMPLETED BEFORE THAT AND THUS THEY HAVE BEEN ACCOUNTED IN THE SUBSEQUENT YEA R. THE FIRST APPELLATE AUTHORITY CONSIDERED THE SUBMISSIONS AND IN PARA 7. 4 REJECTED THE CLAIM OF THE ASSESSEE. 6 14.2 WE FULLY AGREE WITH THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. THE EXPENDITURE IN QUESTION DOES NOT PER TAIN TO THE CURRENT YEAR AND CANNOT BE DEBITED TO THE CURRENT YEAR. THE ASSE SSEE HAS ALSO NOT MADE ANY PROVISIONS FOR SUCH EXPENDITURE IN ITS ACCOUNTS EITHER IN THE EARLIER YEARS OR IN THE LATER YEARS. THUS WE DISMISS GROUND NO. 6 OF THE ASSESSEE. 15. THE NEXT GROUND IS ON THE DISALLOWANCE OF RS.4 8 000/- ON THE GROUND THAT IT IS CAPITAL EXPENSE. DUE TO THE SMALL NESS OF THE AMOUNT THE LEARNED COUNSEL FOR THE ASSESSEE HAD NOT PRESSED TH IS ISSUE. THUS WE DISMISS THIS GROUND AS NOT PRESSED. 16. THE NEXT GROUND IS ON THE ISSUE OF NEGATIVE CA SH BALANCE. THE ASSESSEE SUBMITS THAT THE ASSESSEE MAINTAINS CA SH BOOK IN THREE DIFFERENT PLACES. THE ASSESSEES CASE IS THAT THE N EGATIVE BALANCE IS ONLY DUE TO ACCOUNTING ERROR BECAUSE BASICALLY THE ASSES SEE MAINTAINED BOOKS OF ACCOUNT AT GOA PEEPAVAR AND MANELIKAR AS WELL A S BOMBAY AND THAT THE CONSOLIDATION IS DONE ONLY AT THE TIME OF FINAL ISATION OF ACCOUNTS. HE SUBMITS THAT THE NEGATIVE BALANCE IN THE BOOKS OF A CCOUNT AT GOA AND PEEPAVAR SITE APPEARS ONLY BECAUSE THE FACT THAT TH E TRANSFER OF CASH BETWEEN TWO SITES IS NOT ACCOUNTED FOR ON CORRECT T RIPS. BUT THIS NEGATIVE CASH BALANCE IN ONE SITE GET NULLIFIES AFTER CONSOL IDATION OF BOTH THE BOOKS. THE FIRST APPELLATE AUTHORITY HELD THAT THE ANSWER IS VAGUE AND NO SPECIFIC ERROR HAS BEEN POINTED OUT BY THE ASSESSEE AND THUS HE CONFIRMED THE ADDITION. 16.1 AFTER HEARING RIVAL CONTENTIONS WE ARE OF TH E CONSIDERED OPINION THAT THE ISSUE SHOULD BE SET ASIDE TO THE F ILE OF THE AO FOR FRESH ADJUDICATION. THE ASSESSEE SHALL DRAW UP A RECONCIL IATION STATEMENT AND POINT OUT HOW THE NEGATIVE CASH BALANCES IN THE BOO KS OF ACCOUNT MAINTAINED AT GOA AS WELL AS PEEPAVAR GET NULLIFIED ON TAKING INTO ACCOUNT 7 ENTRIES TRANSFERRING OF CASH ON CORRECT DATES. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO. 9 IS DISMISSED AS NOT PRESSED. THE ASSESSEES COUNSEL SUBMITTED THAT IN VIEW OF SMALLNESS OF THE AMOUNT HE IS NOT PRESSING THIS GROUND. 18. GROUND NO. 10 IS ON THE ISSUE OF DISALLOWANCE OF RS.5 70 800/- ON ACCOUNT OF TECHNICAL FEE U/S 40A(I ). THE ASSESSEES CASE IS THAT IT WAS OF A CONSIDERED OPINION AND UNDER A BONAFIE BELIEF THAT NO TAX NEED BE DEDUCTED AT SOURCE AS THE PAYMENT IN Q UESTION IS NOT PAYMENT FOR TECHNICAL FEES. THE FIRST APPELLATE AUTHORITY O BSERVED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE IN SUPPORT OF HIS CON TENTION THAT THE INCOME HAS ACCRUED OUTSIDE INDIA AND THAT THE RESPO NDENT IS NOT LIABLE TO TAX. IN THIS CASE THE ASSESSEE HAS ALSO NOT APPLIED TO THE AO U/S 195(2). THE UNDISPUTED FACT IS THAT THE ASSESSEE WAS REQUIR ED TO DEDUCT TAX AT SOURCE AND HAS NOT DONE SO. UNDER THESE CIRCUMSTANC ES THE DISALLOWANCE NEED TO BE MADE U/S 40A(I). THUS WE CONFIRM THIS DI SALLOWANCE AND DISMISS GROUND NO. 10 OF THE ASSESSEE. 19. GROUND NO. 11 IS ON THE ISSUE OF DISALLOWANCE OF RS.30 83 482/- ON ACCOUNT OF WANT OF BILLS. AFTER H EARING RIVAL SUBMISSIONS WE FIND THAT THE ASSESSEE IS UNABLE TO PRODUCE ANY SUPPORTING BILLS EITHER TO THE SPECIAL AUDITORS OR BEFORE THE AO TO SUBSTANTIATE HIS CLAIM FOR EXPENSES. THE DISALLOWANCE WAS MADE BY TH E AO BASED ON THE REPORT OF THE SPECIAL AUDITORS. THE ONLY DEFENCE OF THE ASSESSEE IS THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS. NO OTH ER EVIDENCE OF ANY NATURE WHATSOEVER HAS BEEN PRODUCED. UNDER THESE CI RCUMSTANCES WE HAVE NO OTHER ALTERNATIVE BUT TO UPHOLD THE ORDER O F THE FIST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE ASSESSEE. 8 20. GROUND NO. 12 IS DISMISSED AS NOT PRESSED. 21. GROUND NO. 13 IS ON THE DISALLOWANCE OF RS.2 8 2 38 018/- U/S 40A(I). THE AOS OBSERVATION AND SUBMISSIONS OF THE ASSESSEE ARE BROUGHT OUT AT PARA 6.1 AND 6.2 OF THE CIT(APPEALS) ORDER WHICH IS EXTRACTED BELOW FOR READY REFERENCE : 6.1 THE AO OBSERVED AS UNDER : AS PER ANNEXURE F TO AUDITORS REPORT TDS DEDU CTED BUT PAID LATE ON RS.1 98 49 143/- TDS NOT DEDUCED ON R S.15 55 018/- AND TDS DEDUCTED BUT NOT DEPOSITED TO CENTRAL GOVER NMENT ON RS.68 33 857/- HAVE BEEN REPORTED. THE ASSESSEE WAS CONFRONTED WITH THIS ISSUE DURING THE COURSE OF HEARING SINCE THERE WAS NO SPECIFIC REPLY FROM ITS SIDE IN ITS LETTER OF 28/06 /2007. IN THIS REGARD THE DETAILED DISCUSSION HAS BEEN MADE IN A. Y. 1999-2000 & 2000-01 AND BASED ON THIS THE ASSESSEES EXPLANATIO N ON THIS ISSUE IS REJECTED AND RS.2 82 38 018/- IS DISALLOWED U/S 40A(I) AS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 6.2 THE LD. COUNSEL OF THE APPELLANT SUBMITTED AS UNDER : A) THE APPELLANT TOOK ON HIRE A CUTTER SHELIAM DREDGE R FROM M/S CROWN MARITIME CO. WLL WHICH IS A FOREIGN COMP ANY BASED AT BAHRAIN. 51% OF THEIR SHARES ARE HELD BY T HE LOCAL OWNERS OF BAHRAIN AS PER THEIR LAWS PREVAILING OVER THERE. B) THESE DREDGERS IS BEING USED BY THE SAID M/S CROWN MARTIME CO. WLL ALL OVER THE WORLD WHERE THEY GET THE CONTRACTS. C) IN THIS CONNECTION THE APPELLANT HAS GIVEN DETAILED SUBMISSION VIDE LETTER DATED 28.6.2007 WHICH IS REP RODUCED AT PARA NO. 15 OF THE ASSESSMENT ORDER. D) THE APPELLANT DULY RECEIVED THE APPROVAL OF RBI DAT ED 29 TH AUG. FOR REMITTANCE OF THE HIRE CHARGES. E) THE APPELLANT ALSO RECEIVED THE NOC OF THE ASSESSIN G OFFICER FOR REMITTING THE SAID HIRE CHARGES AND DED UCT THE TAX AT THE RATES PRESCRIBED. THE COPY OF THE APPLICATIO N DATED 31 ST AUG. AND CERTIFICATE OF THE ASSESSING OFFICER DATED 10TH 9 SEPT. 98 WERE DULY FURNISHED TO THE PRESENT ASSESSI NG OFFICER. F) RECENTLY IN THE CASE OF DCIT V. RELIANCE INDUSTRIES LTD. 81 TTJ 787 (MUM.) IT WAS HELD THAT IN THE CASE OF PA YMENT OF HIRE CHARGES TO NON RESIDENT SHIP OWNERS DOES NOT A TTRACT TDS BECAUSE INCOME CANNOT BE SAID TO HAVE ACCRUED O R ARISEN IN INDIA AS THE SHIP IS REGISTERED UNDER THE FLAG OF FOREIGN COUNTRY. THE TRIBUNAL THEREFORE OBSERVED TH AT THERE WAS NO ASSET OR SOURCE OF INCOME IN INDIA. G) FOLLOWING THE RATIO OF ABOVE JUDGMENT THAT THE HIRE CHARGES ARE PAID FOR USE OF DREDGER AND NOT PAYMENT OF FREIGHT . IT IS THEREFORE VEHEMENTLY CONTENDED THAT THE PLACE OF ACCRUAL OF SUCH PAYMENT IS NOT IN INDIA. THEREFORE THE CASE OF THE APPELLANT IS COVERED BY THE INSTRUCTION NO. 1934 DA TED 14.2.1996 AND F.NO.4380/8/83/FID DATED 12.4.1981 ACCORDINGLY THE HIRE CHARGES DO NOT ATTRACT PROVISI ONS OF SECTION 195 AND REMITTANCE OF HIRE CHARGES WITHOUT TDS DOES NOT ATTRACT DISALLOWANCE UNDER 40A(I) AS IS WRONGLY DONE BY THE ASSESSING OFFICER. 21.1 THE ASSESSEE REITERATED HIS SUBMISSIONS. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. 21.2 AFTER HEARING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSEE HAS TAKEN ON HIRE A FOREIGN FLAG DREDGER/SHIP ON CH ARTERED AGREEMENT. THE DOCUMENT WAS SUBMITTED TO DIRECTOR GENERAL OF SHIPP ING AND LICENCE WAS OBTAINED FOR OPERATING THE DREDGER/SHIP IN INDIAN C OAST AS PER THE MERCHANT SHIPPING ACT. THE DREDGER IN QUESTION IS A CUTTER SUCTION DREDGER. AS IT OPERATES ALONG WITH INDIAN COAST IT OBTAINS PERMISSION FROM THE DIRECTOR GENERAL OF SHIPPING. THE ASSESSEE S ARGUMENT THAT THE CHARTER HIRE CHARGES FOR THE FOREIGN FLAG DREDGER/S HIP IS REMITTED THROUGH THE CONCERNED BANK AS PER THE CHARTER PARTY AGREEM ENT IS NOT THE SUBJECT TO ANY DEDUCTION OF TDS IS DEVOID OF MERIT. WE ARE UNABLE TO APPRECIATE THE ARGUMENT THAT TDS IS NOT APPLICABLE TO TAX HIRE CHARGES PAID TO NON RESIDENT OWNERS ACCOUNT IN THE FOREIGN COMPANY. HER E IS A CASE WHETHER THE DREDGER IN QUESTION IS OPERATING IN INDIAN WATE RS AND THE INCOME OF 10 THE SAID DREDGERS/SHIP HAS ACCRUED AND ARISEN IN IN DIA. EVEN GOING BY THE CORRESPONDENCE FILED BEFORE US THE PAYMENT IN QUES TION IS US 90 SENT PER CUBIC METER OR 2000 US $ PER DAY WHICHEVER IS L OWER. THE PAYMENT IS MADE ON THE BASIS OF CUBIC METERS OF DREDGING MATTE R AND THIS TANTAMOUNT TO PAYMENTS FOR A WORK S CONTRACTS. THE APPROVALS F ROM DIRECTOR GENERAL OF SHIPPING AS WELL AS RESERVE BANK OF INDIA SUGGES T THAT THIS PAYMENT IS NOT MERELY FOR HIRING A DREDGER. IT IS FOR WORK EXE CUTED BY THE DREDGER AT THE INDIAN COAST. COMING TO THE DECISION OF THE MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. 87 TTJ (MUM) 787 THE FACTS WERE DIFFERENT AS THE SHIP WAS NOT PLYING IN INDIAN WATERS. IN THAT CASE THE TRIBUNAL HELD THAT INCOME CANNOT BE SAID T O HAVE ACCRUED OR ARISING IN INDIA THROUGH OR FROM ANY BUSINESS CONNE CTION IN INDIA OR THROUGH OR FROM ANY PROPERTY IN INDIA AS THE SHIP IS REGISTERED UNDER A FOREIGN FLAG AND AS THERE WAS NO ASSET OR SOURCE IN INDIA. IN THAT CASE AS PER THE CHARTER AGREEMENT THE ASSESSEE CAN TAKE TH E SHIP ANY WHERE IN THE WORLD AND THE SHIP MAY NOT COME TO INDIA. THE HIRE CHARGES WERE NOT PAID ON ACCOUNT CARRIAGE OF GOODS BUT TO ENTITLE THE CH ARTER TO USE THE SHIP. THE FACTS IN THE PRESENT CASE ARE DIFFERENT AS THE CHA RTER AGREEMENT IS MORE IN THE NATURE OF WORKS CONTRACT AND THE SHIPS WORKS IN INDIA AND EARNS INCOME. MOREOVER AS RIGHTLY POINTED OUT BY THE FIR ST APPELLATE AUTHORITY THE AO ON AN APPLICATION MADE BY THE ASSESSEE FOR N OC HAS NOT PERMITTED THE ASSESSEE TO REMIT THE MONEY WITHOUT D EDUCTION OF TAX. THE FIRST APPELLATE AUTHORITY AT PARA 6.3 HELD AS FOLLO WS : 6.3 I HAVE GONE THROUGH THE CONTENTION OF THE APPE LLANT AS WELL AS THAT OF THE AO. ACCORDING TO THE AO THE APPELLA NT HAD EXPLAINED THAT IT HAS OBTAINED PERMISSION OF NON DE DUCTION OF TAX AT SOURCE. HOWEVER ON PERUSAL OF THE DOCUMENT GIVEN DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE SAME DID NOT S PECIFY ANY WHERE THAT NO TAX WAS TO BE DEDUCTED. BUT THE THEN OFFICER HAD STATED THAT TAX SHOULD BE DEDUCTED AT SOURCE TAKING INTO ACCOUNTS 11 THE PROVISIONS OF SECTION 44B. THUS ACCORDING TO TH E AO THE APPELLANT HAD NOT DISCHARGED THE ONUS LIED ON IT W HEREAS DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS STATED THAT NO DEDUCTION WAS REQUIRED IN TERMS OF INSTRUCTION 1934 DATED 14. 2.1996. ON THE FACTS OF THE CASE IT IS SEEN THAT THE APPELLANT HA D PAID HIRE CHARGES IN RESPECT OF DREDGERS ENGAGED IN ACTIVITIES IN IND IA AND THEREFORE THE SOURCE OF THE INCOME WAS ACCRUED IN INDIA AND I N TERMS OF SECTION 5(2) AND SECTION 9 THE SAME WOULD BE LIABLE TO TAX IN INDIA SINCE THE INCOME FROM HIRE CHARGES WAS LIABLE TO TA X IN INDIA THE TDS SHOULD HAVE BEEN DEDUCTED BY THE APPELLANT COMP ANY ON SUCH PAYMENT. HOWEVER HAVING NOT DONE SO THE APPELLANT HAS CLEARLY VIOLATED THE PROVISIONS OF SECTION 40A(I) AND THERE FORE THE AMOUNT IN QUESTION WAS LIABLE TO BE DISALLOWED. HOWEVER WH ERE THE SHIP IS HIRED TO PLY IN SHIPPING BUSINESS WHICH ORDINARILY TRAVELLING IN OCEAN FROM ONE PLACE TO OTHER WHERE INCOME MAY ACCR UE FROM SOURCE NOT SITUATED IN INDIA THEN IN THAT CASE SIT US OF THE INCOME MAY NOT BE FROM INDIA AND HENCE NO TAX COULD HAVE B EEN CHARGED ON SUCH INCOME AND ACCORDINGLY THE TDS AS HAS BEEN HELD IN CASE OF RELIANCE INDUSTRIES (SUPRA) RELIED ON BY THE APP ELLANT COMPANY. HOWEVER THE INSTANT CASE THE APPELLANT HAD NEITHER OBTAINED ANY CERTIFICATE TO THE EFFECT THAT NO TAX DEDUCTIBLE ON SUCH INCOME AND THEREFORE CONSIDERING THE OVERALL FACTS OF THE CASE ADDITION MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL STANDS D ISMISSED. 21.3 WE AGREE WITH THESE FINDINGS OF THE FIRST APP ELLATE AUTHORITY AND UPHOLD THE SAME. 21.4 IN THE RESULT WE UPHOLD THE DISALLOWANCE OF RS.2 82 38 018 MADE U/S 40A(I) AND DISMISS GROUND NO. 13 OF THE AS SESSEE. 22. GROUND NO. 14 IS DISMISSED AS NOT PRESSED. 23. GROUND NO. 15 IS GENERAL IN NATURE. 24. GROUND NO. 16 IS AGAINST THE LEVY OF PENALTY U /S 234A AND 234B WHICH IS DISMISSED AS LEVY OF INTEREST IS CONS EQUENTIAL AND MANDATORY. THE CHALLENGE FOR LEVY OF PENALTY U/S 27 1(1)(C) CANNOT BE MADE IN QUANTUM APPEAL AND HENCE THIS PLEA IS ALSO DISMISSED. 12 25. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 19 TH DAY OF JANUARY 2010. SD/- SD/- (R.K. GUPTA) (J. SUDHAKARY REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 19 TH JANUARY 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR C-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT MUMBAI BENCHES