PROCYON OFFSHORE SERVICES P. LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 347/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3672 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 14-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Depreciation
• Section: 5(2); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.347/MUM/2010 : ASST.YEAR 2005-2006 M/S.PROCYON OFFSHORE SERVICES PVT.LTD. LIC BUILDING, PLOT NO.54, SECTOR-II CBD BELAPUR 400 614. PA NO.AAACP2682G. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 5(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.SUBRAMANIAN RESPONDENT BY : SHRI GOLI SRINIVAS RAO O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 06.11.2009 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE ONLY ISSUE RAISED THROUGH VARIOUS GROUNDS IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF EXPENSES AMOUNTING TO RS.83,26,789 U/S.43(1), RS.10,11,645 U/S.37(1), DOCUMENTATION CHARGES OF RS.4,60,800 AND DEPRECIATION U/S.32(1) AMOUNTING TO RS.6,89,848. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE T HAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RENDERING SHIPPING SERVICES IN THE RELE VANT YEAR. IT HAD A FLEET OF 8 VESSELS. ON BEING CALLED UPON TO FURNISH VESSEL-WIS E DETAILS OF INCOME EARNED AND EXPENSES INCURRED, THE ASSESSEE FURNISHED THE SAME. ON THE PERUSAL OF SUCH DETAILS IT WAS NOTICED BY THE A.O. THAT ONE VESSEL KAMRUP HA D NOT EARNED ANY INCOME FOR THE YEAR BUT EXPENSES WERE CLAIMED INCLUDING DOCUME NTATION FEES AND DEPRECIATION. IN SUPPORT OF THE CLAIM OF EXPENSES, THE ASSESSEE STATED THAT THE SAID VESSEL M.V.KAMRUP WAS ACQUIRED FROM AUSTRALIAN SEL LER ADSTEAM OFFSHORE PTY LTD. IN FEBRUARY 2005 AND THE POSSESSION WAS TAKEN IN AUSTRALIA. IT WAS STATED THAT ITA NO.347/MUM/2010 M/S.PROCYON OFFSHORE SERVICES PVT.LTD. 2 THE VESSEL HAD TO BE DRY-DOCKED WHICH WAS EQUIVALEN T OF A `FITNESS TEST, WHICH WAS GOT DONE IN SINGAPORE, AS IT WAS COST BENEFICI AL IN COMPARISON TO THE DRY DOCKING IN INDIA. IN SUPPORT OF OTHER EXPENSES, IT WAS STATED THAT THE ASSESSEE WAS ALREADY IN THE BUSINESS OF RENDERING SHIPPING SERVI CES AND IT WAS NOT THE CASE OF SETTING UP OF BUSINESS WITH THE PURCHASE OF THIS VE SSEL I.E. KAMRUP. CERTAIN DECISIONS WERE RELIED ON IN SUPPORT OF THE DEDUCTIO N FOR EXPENSES. THE ASSESSING OFFICER DISALLOWED THE EXPENSES U/S.43(1) AMOUNTING TO RS.83.36 LAKHS, U/S.37(1) AMOUNTING TO RS.10.11 LAKHS, DOCUMENTATION CHARGES OF RS.4.60 LAKHS AND DEPRECIATION AMOUNTING TO RS.6.89 LAKHS ON THE GROU ND THAT THESE EXPENSES WERE INCURRED PRIOR TO PUTTING INTO USE THE VESSEL. NO R ELIEF WAS ALLOWED IN THE FIRST APPEAL. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE ASSESSEE, ALREADY IN THE BUSIN ESS OF RENDERING SHIPPING SERVICES, HAD A FLEET OF 8 VESSELS INCLUDING THE ONE WHICH WA S ACQUIRED BY THE ASSESSEE IN FEBRUARY 2005. DRY DOCKING WAS DONE FOR THE SAME AN D OTHER INCIDENTAL EXPENSES WERE INCURRED INCLUDING INSURANCE, CREW JOINING REP ATRIATION AGENCY AND PORT CHARGES SURVEY AND OTHER RELATED EXPENSES ETC. IT I S BORNE OUT FROM THE RECORD THAT THE ASSESSEE ENTERED INTO A CHARTER PARTY AGREEMENT DATED 8.4.2005 WITH MODEST INFRASTRUCTURE PRIVATE LIMITED FOR A PERIOD OF 30 D AYS COMMENCING ON 11 TH APRIL, 2005. IT, THEREFORE, INDICATES THAT THIS VESSEL WAS PUT INTO USE FOR THE FIRST TIME AFTER THE CLOSE OF THE YEAR. 5. FROM THE DETAIL OF EXPENSES IT IS NOTICE D THAT THESE EXPENSES WERE INCURRED AFTER ITS ACQUISITION. AS THE ASSESSEE WAS ALREADY IN THE SAME BUSINESS AND THIS VESSEL WAS TO AUGMENT THE INCOME FROM THE SAME ACTI VITY, THE EXPENSES WHICH ARE OTHERWISE OF THE REVENUE NATURE, CANNOT BE CAPITALI ZED, WHICH WERE INCURRED AFTER ITS ACQUISITON. WE, THEREFORE, OVERTURN THE IMPUGNE D ORDER ON THIS ISSUE AND ORDER ITA NO.347/MUM/2010 M/S.PROCYON OFFSHORE SERVICES PVT.LTD. 3 FOR THE DELETION OF THE EXPENSES DISALLOWED U/S.43( 1), 37(1) AND DOCUMENTATION CHARGES. 6. INSOFAR AS THE CLAIM FOR DEPRECIATION U/S .32(1) AMOUNTING TO RS.6.89 LAKHS IS CONCERNED, WE FIND THAT THE ASSESSEE PUT TO USE TH IS VESSEL FOR THE FIRST TIME IN THE NEXT YEAR. IN SUCH A SITUATION, THERE CANNOT BE AN Y QUESTION OF PASSIVE USER OF SUCH VESSEL. IT WAS ONLY FOR THE FIRST TIME THAT THE ASS ESSEE ACQUIRED THIS VESSEL AND AFTER MAKING IT FIT FOR USE PUT IT INTO OPERATION IN THE NEXT YEAR. AS SUCH THE CONDITION OF PUTTING THE ASSETS INTO USE, AS A PRE-REQUISITE FO R GRANT OF CLAIM OF DEPRECIATION U/S.32(1), REMAINED UNCOMPLIED WITH. IN SUCH A SIT UATION WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT OF DEPRECIATION WAS RIGHTLY NOT ALLOWED BY THE LEARNED CIT(A). THE IMPUGNED ORDER IS UPHELD TO THIS EXTENT . 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 10 TH DAY OF DECEMBER, 2010. SD/- SD/- ( VIJAY PAL RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 10 TH DECEMBER, 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - IX, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. ITA NO.347/MUM/2010 M/S.PROCYON OFFSHORE SERVICES PVT.LTD. 4 TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.