IN THE ITAT MUMBAI BENCH ‘B’
Deputy Commissioner of Income-tax
Mercator Lines Ltd.
IT Appeal No. 7379 (Mum.) of 2011
[Assessment year 2003-04]
OCTOBER 17, 2012
B.R. Jain, Accountant Member
This appeal by revenue against the order dated 19-8-2011 of leaned CIT(A)-9, Mumbai, raises following grounds :-
“Whether on the facts and the circumstances of the case and in law, the learned CIT(A) has erred in directing the Assessing Officer to allow deduction u/s. 33AC on the amount of insurance claim at Rs. 1,29,09,141/- without appreciating the fact that the assessee company has reduced the repair charges on account of insurance claim receivable during the year ?
The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO be restored.”
2. Briefly stated the facts of the case are that the assessee company received insurance claim amounting to Rs. 1,29,09,141/- from M/s Oriental Insurance Company towards repairs carried out in respect of vessel “MT Bhuvani” in the immediately preceding year. The amount of insurance claim received during the year stood set off against the repairs and maintenance of the year under consideration and the assessee company computed deduction under Section 33AC of the Act on the enhanced income to that extent. In order to verify the correctness of the claim, the assessee was given a show cause notice as to why the claim to the extent of Rs. 1,29,09,141/- should not be disallowed. In response thereto, the assessee vide his letter dated 29-11-2010, placed reliance on the Appellate Tribunal order dated 25-6-2007 for the assessment year 1997-98. The Assessing Officer after perusing the said order, found that the Appellate Tribunal did not allow the deduction but it had only remitted the matter back for re-adjudication as to whether the insurance claim, so received, is in the course of the business of shipping operations of the assessee and if it is so, then the deduction be allowed or otherwise, it would be treated as “income from other sources”. The Assessing Officer thereafter recorded a finding that despite opportunity having been afforded to the assessee, the assessee has not discharged the onus cast upon him of producing any evidence to prove that the insurance receipt is his business receipt. He, therefore, recorded a finding that such insurance receipt cannot be taken to be assessee’s business income and, therefore, the same was not eligible for deduction under Section 33AC of the Act. He, thus, proceeded to disallow an amount of Rs. 1,29,09,141/- and computed the assessee’s income at Rs. 1,61,72,690/- as against returned income of Rs. 22,17,305/-.
3. Learned CIT(A) after considering the assessee’s arguments found that the insurance claim was received towards the repairs of the ship which has reduced the expenditure of the assessee and making reference to the Tribunal order for assessment year 1997-98 & 2002-03, as has also been reproduced in the impugned order, he stated that “it is clear from the aforesaid two decisions of the ITAT, Mumbai that the insurance claim received and subsidy received have reduced the expenditure of the appellant and the repair expenditure was fully reduced from the eligible amount of profit that later receipt for insurance claim against that expenditure will call for inclusion of eligible amount of profit for deduction”. In this view of the matter, he directed the Assessing Authority to allow the deduction under Section 33AC of the Act on the amount received from insurance company for repairs of the ship.
4. Learned departmental representative assailing the impugned order, contends that the learned CIT(A) has erred in construing that the earlier Tribunal has found that the insurance claim received for carrying out repairs or repair expenses incurred on the ship are assessee’s income from the business of operation of ships. He, thus, is not justified in directing the learned Assessing Authority to allow deduction under Section 33AC of the Act, in as much as in assessment year 1997-98, the earlier Tribunal merely remitted the matter back to the Assessing Authority to re-adjudicate the issue and record specific finding as to whether the insurance claim has been received during the course of the business of operations of ships of the assessee, and if so, deduction be allowed or otherwise, it would be treated as “income from other sources.” That besides, the assessee maintains his accounts on mercantile basis and the receipt of income as such is of the income of the assessee that accrued to him in the immediately preceding year.
5. On the other hand, learned counsel for the assessee contends that both the authorities below have found that the insurance claim received by the assessee is in respect of vessel “MT Bhuvani”. Since, this vessel is a business asset of the assessee, it has to be understood that the insurance claim received for repairs carried out in the immediately preceding year, shall also partake the character of income from business from operations of the ship of the assessee. It was clarified that in the immediately preceding year, the assessee did not claim any deduction under Section 33AC of the Act, in view of the fact that after incurring repair expenses on the ship, it had no such eligible income on which deduction under Section 33AC could have been claimed. The assessee, therefore, did not claim any deduction under Section 33AC of the Act in the immediately preceding year. In these circumstances, the matter need not be remanded back to the Assessing Authority but the decision taken by the learned CIT(A) being reasoned decision, needs to be upheld.
6. We have heard parties with reference to material on record. The assessment order reveals that the Assessing Authority has recorded a finding of fact at internal page 3 of his order that the assessee did not discharge the onus that lay upon him for producing evidence to prove that such insurance receipt is his business receipt. He also recorded a finding that such insurance receipt is not assessee’s business income and, thus, the same does not qualify for deduction under Section 33AC of the Act. This finding of fact is not shown to have been challenged by the assessee in appeal before the learned CIT(A) as he raised following two grounds only in appeal before him on this issue. The same are reproduced below :-
“3. That the ld. Dy CIT erred in disallowing deduction u/s 33AC to the extent of Rs. 1,29,09,141/- on insurance claim received from Oriental Insurance Co. towards repairs of ship M.T. Bhuvani.
4. That on the facts and circumstances of the case the ld. Dy. CIT failed to appreciate the fact that the claim was received for repairs to ship used in the assessee’s business of operation of ships and hence was entitled to deduction u/s 33AC.”
6.1 Learned CIT(A) is also found to have misconstrued the order of the earlier Tribunal. In that case, the issue was restored to the file of the Assessing Officer to re-adjudicate the same in terms of the order reproduced at para 3.2 of the impugned order. The Appellate Tribunal has categorically stated that, in case the Assessing Officer comes to the conclusion that the insurance claim was received during the course of business of shipping operations of the assessee, deduction be allowed; otherwise, it would be treated as “income from other sources”. The Assessing Authority in the impugned year has not accepted the claim that the income from insurance claim is his income from business. Such a finding of fact though acquires finality, yet it does not meet out the direction given in clear terms by the earlier Tribunal to find out as to whether the insurance claim was assessee’s profits derived from business of operation of ships or otherwise, it was assessee’s “income from other sources”. Furthermore, none of the authorities have recorded their satisfaction that the assessee has created adequate reserve and the same does not exceed twice the aggregate of the amount of share capital and assessee having satisfied of conditions as laid down under Section 33AC of the Act, is eligible for deduction in that section. In this view of the matter, we consider it proper to remit the matter back to the Assessing Authority for recording a finding of fact as to whether the insurance claim received by the assessee is his profit derived from the business of operation of ships and the same is assessable under the head profits or gains of business or profession or otherwise, it was his other income assessable under the head “income from other sources”. In case, the same is found as assessee’s profits derived from business operation of ships, the amount so received, shall be taken as an eligible profit for the purpose of creating reserve and allowing deduction in terms of provision of Section 33AC of the Act after satisfying himself that all other conditions as have been laid down in that section are duly satisfied and that such a receipt was his income that can be said to have accrued to him in the year under consideration. Needless to add, the assessee shall have to be afforded reasonable and effective opportunity of being heard before taking decision in accordance with law.
7. In the result, appeal by the revenue stands allowed for statistical purposes.