"" Û
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
^ .. , ^ [, Û ¢
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
/.ITA No.609/Mum/2010
[ [/Assessment Year: 2005-06
M/s. Dighi Port Ltd., ITO, Range2(1)(2),
/
New Excelsior, 6th Floor, Income Tax Office
A.K. Nayak Marg, Fort, Vs. Aayakar Bhavan,
Mumbai-400 001 Mumbai.
(/ Appellant) (× / Respondent)
Permanent Account No. :-AABCD 2607 A
/.ITA No.893/Mum/2010
[ [/Assessment Year: 2005-06
ITO 2(1)(2), M/s. Dighi Port Ltd.,
/
Income Tax Office 1st Floor, Botawala Building,
Aayakar Bhavan, Vs. 73, Bombay Samachar Marg,
Mumbai-400 020 Mumbai-400 023
(/ Appellant) (× / Respondent)
[ / Assessee by : Shri Sunil Nahta, A.R.
/ Revenue by : Shri Om Prakash Meena, D.R.
/ Date of hearing : 12.05.2014
/ Date of Pronouncement : 16 .07.2014
/ O R D E R
PER SANJAY GARG, JUDICIAL MEMBER:
The above noticed cross appeals, one preferred by the assessee and other
by the Revenue, are directed against the order of the Commissioner of Income
Tax (Appeals)-4 [hereinafter referred to as the CIT(A)], Mumbai dated
ITA Nos.609&893/Mum/2010
2 M/s. Dighi Port Ltd.
30.11.2009 relevant to the Assessment Year 2005-06 and the same are being
disposed off with this common order.
2. First we take up the assessee's appeal i.e. ITA No.609/M/2010.
ITA No.609/M/2010:
3. The brief facts of the case are that the Assessing Officer (hereinafter
referred to as the AO) during the assessment proceedings noticed that the
assessee had claimed wharfage expenses/port dues of Rs.1.23 crores as
compared to the last year expenditure at Rs.0.08 crores. When called for an
explanation in this aspect, the assessee company submitted that it had entered
into an agreement with Maharashtra Maritime Board (MMB) on 17.3.02.
Pursuant to the said agreement, the assessee company started operation from
one berth at Dighi Port. As per the said agreement, the assessee company had to
pay the royalty to MMB for cargo handling at Dighi Port. The said expenditure
claimed was thus relating to the whafage/port dues paid/payable by the assessee
company to MMB.
The AO however observed that the said agreement was between the
Maharashtra Maritime Board (MMB) and Balaji Leasing & Industries Co. Ltd.
a group concern of the assessee's company (hereinafter referred to as the
BLICL). As per the agreement, BLICL was to design, finance, construct,
operate, maintain and manage a multi-purpose, common user port at Dighi. The
MMB had agreed to grant license for 50 years to BLICL to build a multipurpose
common user port on Build, Own, Operate, Share and Transfer (BOOST) basis
on the terms and conditions contained therein. Since the license was given to
BLICL, the assessee company was not required to pay any dues in the nature of
wharege/port dues to MMB as the agreement was between MMB and BLICL.
The A.O. further noted that MMB was a Statutory Body incorporated under the
Maharashtra Maritime Board Act, 1996. Hence any dues payable to MMB were
ITA Nos.609&893/Mum/2010
3 M/s. Dighi Port Ltd.
statutory dues and were covered u/s. 43B. Hence, the provision made for the
dues not paid to MMB because of any dispute of liability could not be allowed
in the hands of the assessee. He therefore disallowed the expenditure of
Rs.82,92,783/- which was claimed to be payable by the assessee to MMB.
Aggrieved against the order of the AO, assessee preferred appeal before the ld.
CIT(A).
4. Before the ld. CIT(A) it was submitted by the assessee that the
agreement dated 17.3.2002 entered in between MMB `the licensor' and BLICL
`the licensee' contained a clause `corporate structure in 11.1' wherein it had
been provided that the project would be developed through a new Special
Purpose Vehicle (SPV or Project Company) which would be registered under
the Companies Act, 1956. This SPV would be the licensee under the
agreement. Thereafter a Novation of Concession Agreement was signed in
favour of Dighi Port Ltd. being SPV for the purpose of designing, developing,
constructing, operating, maintaining and managing Dighi Port. It was also
provided in the agreement that all the obligations and responsibilities which
form part of original concession agreement and amended concession agreement
would be effective from the date of concession agreement signed i.e. 17.3.02.
Accordingly, all the liabilities had been vested in the assessee from the very
beginning i.e. from the time when Concession Agreement of 17.3.02 was
executed. Further that the MMB had entered into agreement wherein the tariff
rates had been fixed at Rs.3/-, but the same was increased to Rs.30/-. Hence
the assessee, having disputed the said increase in rates, was perforce required to
make provision in accounts for the balance amount and therefore the said
amount was liable to be allowed as deduction.
The ld. CIT(A) after consideration of facts observed that the A.O. had not
considered the novation agreement between the assessee MMB and BIPL, vide
which it had been agreed that Dighi Port would step into the shoes of BLICL
ITA Nos.609&893/Mum/2010
4 M/s. Dighi Port Ltd.
and discharge all rights and obligations of BLICL. Hence it could not be said
that Dighi Port had no locus-standi in wharfage/port dues payable of
Rs.82,92,783/-. However, he did not agree with submissions of the assessee that
MMB was not a statutory body. He held that MMB was a Government
organization, hence, the payment of wharfage/port dues was covered u/s. 43B of
the Income Tax Act (hereinafter referred to as the Act). He further observed
that the assessee has not paid wharfage/port dues but made a provision in the
profit and loss A/c. which was disallowable u/s. 43B. He therefore confirmed
the disallowance. The assessee thus is in appeal before us with the following
grounds of appeal:
"1. Whether on facts and circumstances of the case and in law, the
CIT(A)-4 was justified in disallowance of wharfage/port dues amounting
to Rs.82,92,783/-. He erred in coming to the conclusion that
wharfage/port dues are covered u/s.43B and that a provision was made
since admittedly the said amount was disputed and is subject matter of
violation of the contract.
2. Whether on facts and circumstances of the case and in law, the CIT(A)-
4 was justified in making an addition of Rs.3,00,000/- to total income of
assessee on the ground that there was no reconciliation in the TDS
certificate.
3. The appellant craves leave to alter, amend, withdraw or substitute any
ground or grounds or to add any ground or grounds of appeal."
5. We have heard the ld. representatives of the parties and have also gone
through the records. The assessee vide ground No.1 of the appeal has agitated
the action of the ld. CIT(A) for confirmation of the disallowance under section
43B of the Act holding that the assessee had made only a provision in the profit
& loss account about the said wharfage/port dues, however, the same were not
actually paid during the year. The ld. A.R. has brought our attention to the
observation of the Hon'ble Supreme Court made in the case of "CIT vs.
McDowell & Co. Ltd." (2009) 180 Taxman 514, wherein the Hon'ble Supreme
ITA Nos.609&893/Mum/2010
5 M/s. Dighi Port Ltd.
Court while interpreting the provisions of section 43B(a) of the Act has held as
under:
"10. It would be pertinent to note that the expression now used in Section
43B (i)(a) is "Tax, Duty, Cess or fee or by whatever name called". It
denotes that items enumerated constitute species of the same genus and
the expression 'by whatever name called' which follows preceding words
'Tax', 'Duty', 'Cess' or 'fee' has been used ejusdem generis to confine the
application of the provisions not on the basis of mere nomenclatures, but
notwithstanding name, they must fall within the genus 'taxation' to which
expression 'Tax', 'Duty', 'Cess' or 'Fee' as a. group of its specie belong
vis. compulsory exaction in the exercise of State's power of taxation
where levy and collection is duly authorised by law as distinct from
amount chargeable on principle as consideration payable under
contract."
6. The Hon'ble Supreme Court after detailed discussion of the matter held
in the above mentioned case that the bottling fees for acquiring a right of
bottling of IMFL which was determined under the Excise Act and Rule 69 of
the Rules was payable by the assessee as consideration for acquiring the
exclusive privilege. It was neither fee nor tax but the consideration for grant of
approval by the Government as per terms of contract in exercise of its rights to
enter a contract in respect of the exclusive right to deal in bottling liquor in all
its manifestations. It was therefore held that since the said bottling fees was not
the amount payable by way of any tax or duty or fee or cess, hence the same did
not fall within the purview of section 43B.
Similarly the Hon'ble Andhra Pradesh High Court in the case of "CIT vs.
Andhra Ferro Alloys (P.) Ltd." (2013) 213 Taxman 408 has held that the
electricity charges were in the nature of statutory liability and the unpaid
disputed electricity charges could not be disallowed by invoking provisions of
section 43B of the Act as the same were not payable by way of any tax or duty
or fee or cess, but as a consideration for the use of electricity.
ITA Nos.609&893/Mum/2010
6 M/s. Dighi Port Ltd.
7. The disallowance in question in this case is relating to wharfage/port dues
which were in the shape of consideration payable by the assessee to the MMB
as royalty for cargo handling at Dighi Port as per the contract between the
parties. The said dues were not payable by way of tax, duty, cess or fee and
hence as per the law laid down by the Hon'ble Supreme Court in the case of
"CIT vs. McDowell & Co. Ltd." (supra) as well as by the Hon'ble Andhra
Pradesh High Court in the case of "CIT vs. Andhra Ferro Alloys (P.) Ltd."
(supra), the section 43B of the Act is not attracted in this case. Hence, the
disallowance made/confirmed in this case by the lower authorities under section
43B of the Act was not called for and thus the finding of the ld. CIT(A) in this
respect is set aside and therefore ground No.1 of the assessee's appeal is
allowed.
8. Vide ground No.2, the assessee has agitated the confirmation of
disallowance of Rs.3 lakh on account of non reconciliation in the TDS
certificate. During the assessment proceedings, the AO noticed that the assessee
had credited a sum of Rs.85,65,512/- towards port rent received from Ashapura
Minechem Ltd. The A.O. noted that the assessee had credited a sum of
Rs.85,65,512/- towards port rent received from Ashapura Minechem Ltd.
However, from the TDS certificate it revealed that the amount of rent paid was
Rs.88,68,551/-. Since the assessee could not give any satisfactory explanation
for this discrepancy, the A.O. added a sum of Rs.3 lakh to the total income of
the assessee.
The ld. CIT(A) confirmed the said disallowance holding that the assessee had
failed to reconcile the difference.
9. The ld. A.R., before us, has submitted that the only difference between
the TDS certificate and the books of account was due to the fact that Dighi Port
had booked the income on receipt basis whereas in Ashapura's books, the TDS
ITA Nos.609&893/Mum/2010
7 M/s. Dighi Port Ltd.
was deducted on the basis of payments made. He has further submitted that the
excess amount on which TDS was deducted could not be regarded as income of
the assessee as this was only a difference in the books of accounts of the parties.
On the other hand, the ld. DR has relied upon the authorities below.
10. We have considered the respective submissions of the ld. representatives
of the parties. The assessee, neither before the AO nor before the ld. CIT(A),
had been able to reconcile the amounts relating to the rent received from
Ashapura Minechem Ltd. We do not find any force in the contention of the ld.
A.R. that the excess amount received by the assessee cannot be assessed as
income of the assessee especially when the Ashapura Minechem Ltd. has
debited the same in its accounts on account of rent paid to the assessee and TDS
deducted thereupon. Accordingly, ground No.2 of the appeal of the assessee is
dismissed.
11. Ground No.3 of the assessee's appeal is general in nature and does not
require any adjudication.
12. Now we take up the Revenue's appeal i.e. ITA No.893/M/2010.
ITA No.893/M/2010:
13. The Revenue has taken the following grounds of appeal:
"On the facts and in the circumstances of the case and in law,
the learned ClT(A) has erred in allowing relief to the assessee to
the extent impugned in the grounds enumerated below:
1. The order of the CIT(A) is opposed to law and facts of
the case.
2. On the facts and in the circumstances of the case and in
law, CIT(A) erred in deleting the addition of
Rs.10,12,500/- on account of unexplained investment in
plant and machinery u/s.69 without establishing the
genuineness of purchase.
ITA Nos.609&893/Mum/2010
8 M/s. Dighi Port Ltd.
3. On the facts and in the circumstances of the case and in
law, CIT(A) erred in allowing the depreciation on plant
and machinery valued at Rs.10,12,500/- without
establishing the genuineness of purchase of plant and
machinery and its use by the assessee.
4. On the facts and in the circumstances of the case and in
law, CIT(A) erred in deleting disallowance of
Rs.1,00,955/- without appreciating the fact that the
assessee had not produced complete documentary
evidence before the A.O. during the assessment
proceedings.
5. For these and other grounds that may be urged at the
time of hearing, the decision of the CIT(A) may be set
aside and that of the AO restored."
14. Apart from the above grounds of appeal, Revenue has also taken further
additional grounds as under:
"On the facts and in the circumstances of the case and in law, the
learned CIT(A) has erred in allowing relief to the assessee to the
extent impugned in the grounds enumerated below:
1. The order of the CIT(A) is opposed to law and facts of the
case.
2. On the facts and in the circumstances of the case and in
law, whether the Ld. CIT(A) was correct in holding that in
the previous year corresponding to the A.Y. 2005-06, M/s
Dighi Port Ltd. had a locus standi in wharfage payment of
Rs.82,92,783/- and thereby implicity upholding assessee's
claim u/s 37(1) in spite of confirming disallowance of the
same u/s 43B?
3. For these and other grounds that may be urged at the time of
hearing, the decision of the CIT(A) may be set aside and that of the
AO restored."
ITA Nos.609&893/Mum/2010
9 M/s. Dighi Port Ltd.
15. First we take up the additional grounds of appeal as the decision on the
other grounds of appeal of the Revenue, by and large, is dependent upon the
adjudication/findings in respect of additional grounds of appeal.
16. The Revenue vide its additional grounds of appeal has agitated against
the finding of the ld. CIT(A) holding that in fact it was the liability of the
assessee to pay wharfage/port dues and not of the BLICL as held by the AO
17. The ld. CIT(A), as observed in paras above, after consideration of the
facts held that the assessee Dighi Port Ltd. had stepped into the shoes of BLICL
and was liable to discharge all rights and obligations of said BLICL. While
holding so, he relied upon the novation agreement dated 07.12.06 between the
assessee, MMB and BLICL. The contention of the ld. D.R. has been that the
said novation agreement was not produced by the assessee before the AO. Even
the said novation agreement was executed after the due date of filing of return
by the assessee for the relevant year.
On the other hand, the ld. A.R. has contended that the said novation agreement
as well as the other documents have been duly considered by the ld. CIT(A) and
after appreciation of the same, he has rightly held that the assessee in fact had
been operating at the Dighi Port and thus was liable to pay wharfage/port dues.
18. We have considered the respective submissions of the ld. representatives
and have also gone through the records. Assessee has placed on record the copy
of memorandum of understanding between BLICL and assessee dated
04.03.2002, copy of agreement between MMB and BLICL dated 22.10.02,
copy of Concession agreement between assessee company, BLICL and MMB
dated 17.03.02, copy of Novation agreement dated 07.12.06.
As per clause 11 of the agreement dated 17.03.02 made between MMB and
BLICL, the project at Dighi Port was agreed to be developed through a SPV.
Further, as per the memorandum of understanding between the assessee and
ITA Nos.609&893/Mum/2010
10 M/s. Dighi Port Ltd.
BLICL dated 04.03.02, it was agreed that the assessee would be the SPV being
promoted by the BLICL and mange the Dighi Port and it was further agreed that
the assessee company would be responsible for the financial and other
commitments made to manage and start the operations at Dighi Port, in
pursuance of the letter of intent received from MMT for the said purpose.
Further, the perusal of the novation agreement dated 07.12.06 reveals that vide
the said novation agreement, it was provided that the assessee would be the SPV
to develop, manage and operate the Dighi Port. Though, the said novation
agreement was executed later on, however it was specifically provided that the
said novated agreement would be in force from the date of concession
agreement ab initio i.e. from the date of inception of the agreement.
We have also gone through the various letters and correspondence produced by
the assessee company on the file. A perusal of copy of minutes of meeting held
with the MMT as recorded vide letter No.MMB/Plan-2/Minutes (Dighi )/ 215
dated 22.07.04 reveals that in the meeting held on 29.07.04, it was agreed that
the assessee was the SPV for construction, operation and management at Dighi
Port and all the future correspondence relevant to the development of Dighi Port
was to be addressed to the addressee.
Further, the assessee has brought our attention to the letter dated 25.03.08 of the
Income Tax Officer to the Director Revenue Audit relating to the audit
objection, in case of assessee about the liability of the assessee to pay the port
dues, wherein, it has been pointed out by the Income Tax Officer that the case
of the assessee was surveyed under section 133A on 29.10.06 and all the
information about the modus operandi was collected. It has been further
mentioned that it was the assessee who had shown the income from port rent
and cargo handling charges and not the BLICL. Since the income was assessed
in the hands of the assessee, so the corresponding expenditure was also the
liability of the assessee. Thus the audit objection was not accepted by the
Income Tax Officer.
ITA Nos.609&893/Mum/2010
11 M/s. Dighi Port Ltd.
19. After perusal of the entire record, we are of the view that the ld. CIT(A)
was right in holding that it was the assessee who as SPV was constructing,
operating and managing the port and was also having income from cargo
handling and thus was liable to claim corresponding expenditure relating to the
said income in the shape of wharfage/port dues expenditure payable as royalty
to the MMB.
20. Moreover, the assessee had made only a provision for the said
wharfage/port dues of Rs.82,92,783/- claimed to be payable to the MMB but the
same were not actually paid because the assessee had disputed the quantum of
the amount. Ld. A.R. has brought our attention to the various letters on the file
showing that there was a dispute between the assessee and the MMB about the
rate at which the said wharfage/port dues were payable by the assessee to the
MMB and the assessee had made representations that the assessee was liable to
pay the said wharfage/port dues as per the agreement between the parties and
not as per the prevalent rates fixed by the government. The ld. A.R. has further
submitted that, in fact, the dispute by the time has been settled and the MMB
has accepted the claim of the assessee regarding the rate at which the said
wharfage/port dues were payable and after settlement of the dispute, the
assessee has offered an amount of Rs.82,92,784/- as its income in its return of
income for assessment year 2008-09. He has produced before us the copy of
form No.36A as well as copy of grounds/cross Objections in relation to ITA No.
287/Mum/2012, relevant to assessment year 2008-09 pending before this
Tribunal, wherein the assessee, vide ground No.7, has claimed that the assessee
is not liable to pay tax on the amount of Rs.82,92,784/- on account of
wharfage/port dues which have been written back and credited to the profit and
loss account but the deduction in respect of the same has been disallowed under
section 43B for the relevant assessment year 2005-06.
ITA Nos.609&893/Mum/2010
12 M/s. Dighi Port Ltd.
21. Since it was the assessee who was entitled to develop, manage and
operate the Dighi Port and the assessee has also offered income from the cargo
handling at Dighi Port and even the disputed dues, for which the provision was
made, have been offered as income in the subsequent assessment year after the
settlement of dispute, hence we hold that it was the assessee who was liable to
pay the port dues and the expenditure was rightly claimed by the assessee in its
return of income. However, we direct the AO to verify as to whether the
assessee has offered the said expenditure as mentioned above as its income in
the assessment year 2008-09 after the settlement of the dispute, and if found
correct, then no disallowance be made for the relevant assessment year 2005-06
on this account. Subject to our above observations, the additional grounds taken
by the Revenue in its appeal are thus dismissed.
22. Now we take up the other/original grounds of Revenue's appeal.
23. Ground No. 1 is general in nature.
24. Through Ground No.2 of its appeal, the Revenue has agitated the
deletion of disallowance of Rs.10,12,500/- made by the AO as unexplained
investments and vide Ground No.3, the Revenue has agitated the deletion
disallowance by the ld. CIT(A) which was made by the AO in respect of claim
of depreciation on plant and machinery.
25. During the assessment proceedings, the A.O. noticed that the assessee
had purchased new plant and machinery for Rs.10,12,500/- and claimed
depreciation of Rs.29,341/-. On further verification, the A.O. noted that MMB
had written a letter to BLICL for payment of Rs.10,12,500/- for purchase of
radar based AIS equipment from electronic lab. The A.O. thus concluded that
the plant and machinery belonged to BLICL and not to the assessee. The
assessee had simply brought the asset in balance-sheet and claimed depreciation
ITA Nos.609&893/Mum/2010
13 M/s. Dighi Port Ltd.
which was not allowable. Accordingly, he has treated the amount of
Rs.10,12,500/- as unexplained investment u/s. 69 and added it to the total
income of the assessee. He also disallowed the claim of depreciation on the said
plant and machinery.
26. The ld. CIT(A), as observed above, held that the assessee had stepped
into the shoes of BLICL. The assessee had made the payment of the said plant
& machinery and had included this plant in the balance-sheet and explained the
sources thereof also. He therefore held that no addition was called for u/s. 69
and accordingly deleted the same.
27. We have already upheld the findings of the ld. CIT(A), as per our
discussion in the paras above, that it was the assessee who as SPV was
constructing, operating and managing the port. We do not find any infirmity in
the order of the ld. CIT(A) holding that the plant and machinery belonged to
the assessee, therefore, the disallowance on this account was rightly deleted by
the CIT(A).
28. Vide Ground No.4, the Revenue has agitated the deletion of disallowance
of general expenses amounting to Rs.1,00,955/-.
In the assessment order, the A.O. noted that the assessee had claimed general
expenses of Rs. Rs.1,70,926/- , Misc. Expenses of Rs.4,83,949/- and Traveling &
conveyance expenses of Rs.3,54,677/- totalling Rs. Rs.10,09,552/-.
The A.O. observed that the assessee had not filed any documentary evidence in
support of the claim. Hence, he disallowed 10% of the above expenses and added to
the total income of the assessee.
29. The ld. CIT(A) observed that the A.O. had disallowed the above mentioned
expenses on adhoc basis without looking into documentary evidence available with
the assessee. He therefore directed the A.O. to delete this addition.
ITA Nos.609&893/Mum/2010
14 M/s. Dighi Port Ltd.
30. The ld. DR has submitted before us that the details of the expenses were
submitted before the ld. CIT(A) which were required to be verified by the AO.
Whereas the ld. AR has contended that the claim has been rightly allowed by
the CIT(A).
31. We may observe that the assessee, during the appellate proceedings
before the ld. CIT(A), had produced all the details and supporting evidence in
respect of general expenses claimed by it. The same requires verification by the
AO. Accordingly, we remand the issue to the file of the AO with a direction to
verify the details and evidences submitted by the assessee in this respect and
decide the claim accordingly.
32. Ground No. 5 is general in nature and does not require any adjudication.
33. In the result, subject to the observations made above, the appeal of the
assessee is partly allowed and whereas, the appeal of the Revenue is treated as
dismissed.
Û 16 .07. 2014
Order pronounced in the open court on this 16th day of July, 2014.
Sd/- Sd/-
(P.M. JAGTAP) (SANJAY GARG)
/ ACCOUNTANT MEMBER Û / JUDICIAL MEMBER
/Mumbai, /Dated: .07.2014.
Sr.P.S. *Kishore
ITA Nos.609&893/Mum/2010
15 M/s. Dighi Port Ltd.
Copy to: /The Appellant
× / The Respondent
/The CIT, Concerned, Mumbai
/ The CIT(A) Concerned, Mumbai
/The DR "D" Bench
[ / Guard file.
× //True Copy//
/ By Order
/ Dy/Asstt. Registrar,
, /ITAT, Mumbai.
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