TaxTMI 
TaxTMI 
2012 (8) TMI 447
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....rned was not actually used for the purpose of business during the relevant previous year. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that lay up costs of Rs. 21,86,686/- incurred on the dredger Gemini and Multicat Coby are allowable as deduction, overlooking the fact that these represent capital expenditure incurred and are inadmissible u/s.37(1) of the Income-tax Act, 1961." 2. The brief facts in apropos these grounds are that the assessee, Boskalis Dredging India (P.) Ltd, is a company incorporated in India on 5th January,1996. It is engaged in the business of undertaking inter alia capital and maintenance dredging projects and providing technical related services in dredging. However, during the relevant year, the income was earned from hire of personnel, hire of equipment and services rendered to group companies and not from dredging contracts. The assessee had leased dredger Gemini and Multicat Coby to associate enterprise, Boskalis International BV ('BIBV') since 1997, under the Standard Bareboat Charter Agreement. Since the project for which the dredger was to be used did not materialized, therefore, the said c....
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.... from using the machinery on account of want of work. It is explained that dredger Gemini was being used for the Gorai river project in Bangladesh but on account of the delay in commencement of the fourth phase of the Gorai river project, the charter hire agreement for lease of Gemini was terminated and Gemini was idle from April, 2002 to December, 2002. It is further explained that though Gemini was lying idle, the appellant had to keep it ready for use as it was bidding for projects/contracts during the year under consideration. The user of the asset comprises passive as well as active use. The appellant has relied on the following decision:- (i) CIT v. G.N. Agrawal, 217 ITR 250 (Mumbai) (ii) CIT, Mumbai v. Viswanath Bhaskar Sathe, 5 ITR 621 (Mumbai) (iii) CIT v. Premier Industries (India) Ltd. (170 Taxman 407) (MP) (iv) CIT v. Vayithri Plantations Ltd., 128 ITR 675 (Mad) (v) Multican Builders Ltd. v. CIT 278 ITR 142 (Cal) (vi) Capital Bus Service (P) Ltd. v. CIT, 123 ITR 404 (Delhi) (vii) CIT v. Dalmia Cement Ltd., 13 ITR 415 (Pat.) (viii) CIT v. Geo Tech Construction Corporation, 244 ITR 452 (Ker.) (ix) CIT v. Refrigeration & Allied Industries Ltd. (247 ITR 12....
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...., repairs and maintenance, travel and accommodation expenses etc. have been mainly incurred on the two dredger Gemini and Multicat Coby to keep the same in working and ready to be used condition as and when contracts were awarded. 5.3 A finding has already given while adjudicating ground 2 that the two dredgers Gemini and Multicat Coby were kept in a state of "passive use" so as to be put to use when contracts were awarded. Merely because the appellant was not successful in getting contracts, it does not mean that no business activity was carried out. In fact expenses have been incurred in the form of lay up costs was for the purpose of carrying on business and was dictated by commercial expediency. Hence, it is held that the said expenses are allowable u/s 37(1) of the I.T. Act. This ground of appeal is allowed in favour of the appellant." 5. Learned CIT DR submitted that for allowing depreciation on an asset, it is essential that it should be used for the business purposes which, herein this case is an accepted fact that the assessee had not used dredger Gemini and Multicat Coby since assessment year 2003-2004 and therefore, the finding and the reasoning given by the Assessi....
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....re that : (i) the depreciable asset is owned wholly or partly by the assessee; (ii) it is used for the purpose of assessee's business or profession; and (iii) depreciation shall be allowed in the case of any block of asset at such percentage on the written down value thereof as may be prescribed. There is no dispute regarding the fact that the assets in question were owned by the assessee and that it was used for the purpose of assessee's business in the earlier years and are forming part of 'block of assets', except for the fact that it was not used for last few years. It is also not the case of the revenue that the assessee had ceased to carry on the business of leasing of dredger Gemini and Multicat Coby or it did not make effort to revive this particular business. 7.2 The "block of asset" as is defined under Section 2(11) means, a group of assets falling within the class of assets being buildings, machinery, plant or furniture, in respect of which same percentage of depreciation is prescribed. The concept of "block of asset" has been brought in the statute w.e.f. 1-4-1988. Henceforth, the depreciation is to be allowed on "block of assets" and not on indi....
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..... The individual asset looses its identity and for allowing depreciation the entire block has to be considered. The ownership and the user of 'block of assets' are the criteria for claim for depreciation. The user criteria gets fulfilled at the time when the assets form part of the block of asset and once the assets are part of block of asset, it looses its individual cost or written value. The depreciation is allowable in the entire block of asset. 8. The depreciation is an allowance towards wear and tear of plant and machinery and it spreads over to a useable life for which depreciation rate have been provided under the rules. Once the asset have been purchased and is ready for use, the same is entitled for depreciation. This aspect of the matter does not need any elaborate discussion as it has been subject matter of judicial scrutiny in many cases. For instance, Punjab and Haryana High Court in the case of CIT v. Nahar Exports Ltd. [2008] 296 ITR 419/[2007] 163 Taxman 518, has held that where the machinery is kept ready for use but could not be put to use for non-receipt of orders, the assessee would be entitled to depreciation. In the decision of G.R. Shipping Ltd. (su....
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....isdictional High Court vide judgment dated 28-7-2009 passed in ITA No.598/2009 after relying upon the judgment of Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 (Bom.) and in the case of CIT v. G.N. Agrawal [1996] 217 ITR 250/[1994] 75 Taxman 30 (Bom.). Thus, respectfully following the aforesaid decisions, and on the facts and circumstances of the case, we hold that the depreciation on dredger Gemini and Multicat Coby is allowable to the assessee. 9. The next issue is disallowance of lay up cost of Rs. 21,86,686/-incurred on dredger Gemini and Multicat Coby. This issue also gets covered in view of the logic and reasoning given above. Nothing has been brought on the record that the assessee has completely abandoned or has closed the business for ever. Rather the assessee's case is that, it was unable to get a contract or a business after the agreement was terminated in the year 2003. It was its endeavour to sustain its business that it had incurred lay up cost for maintenance of such an assets, so that it is ready for use at any time, otherwise such an expensive asset will go down waste. There may be lull in the business of an assessee, however, it was a ongoing concern and the....
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.... these grounds are similar, therefore, the finding given above in the aforesaid appeal applies mutatis mutandis, herein this appeal also and accordingly grounds No.2 & 3 raised by the department are dismissed. 13. So far as the ground No.1, is concerned, learned AR on behalf of the assessee submitted that this issue had come up for consideration before the ITAT in the assessment year 2003-2004, wherein the matter was set aside to the Transfer Pricing Officer (TPO) and in pursuance thereof, TPO has passed the order under Section 92A (3) and held that no addition has to be made on lease rental of dredger Gemini and Multicat Coby. Learned CIT DR has not disputed this fact. 14. We have heard the rival contention on this score and also the findings given by the CIT(A). In the appellate order, the learned CIT(A) has discussed the entire facts relating to transfer pricing adjustment on account of lease rental of dredger Gemini and Multicat Coby for including maintenance and repair cost. After considering the entire submissions and the facts which are dealt in para 4.2, 4.3, 4.4 and 4.5, which for sake of appreciation of facts and ready reference are reproduced hereunder :- "4.2 The le....
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.... valuation norms are as follows : * Technical services department (overhead) * Staff costs except those specified above; * Supplies to personnel; * Lubricants, fuels and water; * Laying up and idle time; * Insurance premiums; * Franchise in respect of damage; * Additional wear to dredging components; * Spare parts in addition to the standard set on board; * Mobilization and demobilization; * Modifications and special facilities for a particular job; * Freight costs for transport of spare parts abroad; free along ship (f.a.s.); and * Travelling expenses and subsistence costs for technical specialists working abroad. 4.4 The repair expenses incurred by BDIPL fall within the above category and are thus to be incurred by the Owner of the asset and not the Charter. Based on the above, the M+R component has not been factored in the valuation of the lease rentals for Multicat Coby. A working of the same is as follows : Sl. No Particulars As per in the agreement As per the VG Bouw valuation certificate 1 A+R (Depreciation and Interest) 4,619 4,619 2 M+R (Maintenance and Repairs) - 3,676 3 Insurance 373 980 Total 4,992 9,275 4.5 I....