DCIT 9(1), MUMBAI V. BOKSKALIS DREDGING INDIA P. LTD, MUMBAI

ITA 8638/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88055 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMANAND J
• Keywords: Depreciation; Business expenditure
• Section: 143(3); 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, M UMBAI BEFORE S/SHRI D. KARUNAKAR RAO, (AM) AND AMIT SHUKLA, (JM) . , , ./I.T.A. NO8638/MUM/2010 ( ! / ASSESSMENT YEAR :2005-06) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 9(1), ROOM NO.223, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S BOSKALIS DREDGING INDIA PVT. LTD. 23, SANGEETA, TAGORE ROAD, SANTACRUZ (W), MUMBI-400054 ( '# / APPELLANT) .. ( $%'# / RESPONDENT) ' ./ &' ./PAN/GIR NO. :AAACN2566R '# ( / REVENUE BY SHRI PARMANAND J $%'# ) ( / ASSESSEES BY SHRI M P LOHIA * ) + / DATE OF HEARING : 1.12.2014 ,-! ) + /DATE OF PRONOUNCEMENT : 14.01.2015 / O R D E R PER AMIT SHUKLA, (JM) THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST ORDER DATED 16.9.2010, PASSED BY THE LD. CIT(A)-19, MUMB AI, UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT ) FOR THE ASSESSMENT YEAR 2006-07, ONLY ON FOLLOWING GROUND : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO ALLOW THE LAY-UP EXPENSES OF RS.20,67,340/- U/S 37(1) OF THE IT ACT, 1961 IGN ORING THE FINDING OF THE AO THAT THE EXPENDITURE WAS CAPITAL IN NATURE AND FURTHER, WAS INCURRED IN RELATION TO ASSES WHICH W ERE NOT USED FOR THE PURPOSE OF BUSINESS DURING RELEVANT PREVIOU S YEAR. I.T.A. NO.8638/MUM/2010 2 2. BRIEF FACTS OF THE ISSUE INVOLVED ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF UNDERTAKING C APITAL AND MAINTENANCE DREDGING PROJECTS INVOLVING CONNECTION WITH CONSTRUCTION OF HARBORING FACILITIES FOR SHIPS IN PORTS AND MAIN TENANCE DREDGING INVOLVING HARBORING FACILITIES FOR MAINTAINING THE REQUIRED DEPTHS. FOR THE HARBORING OF SHIPS. THE AO NOTED THAT THE ASS ESSEE HAS NOT EXECUTED ANY WORK OF HIRE OF VESSELS OR DREDGING C ONTRACTS IN THIS YEAR. THE INCOME OF THE YEAR MAINLY COMPRISES OF HI RING OF PERSONNEL, MANAGEMENT FEES AND EMPLOYEES COST RECOVERED BESIDE S MISCELLANEOUS INCOME ETC. FROM THE PERUSAL OF THE DETAILS OF EXPENDITURES BOOKED BY THE ASSESSEE, HE NOTED THAT THE ASSESSEE HAS INCURRED OPERATING COST OF RS.46,94,168/- WHIC H INCLUDES LAY UP COSTS ON THE DREDGER GEMINI OF RS.20,07,340/-. T HE AO WAS OF THE OPINION THAT, SINCE THE ASSESSEE HAS NOT CARRIED O UT ANY ACTIVITY OF DREDGING, SUCH AS EXPENSES ARE NOT ALLOWABLE, WHICH WERE AS UNDER: PARTICULARS AMOUNT IN RS. EQUIPMENT AND PERSONNEL HIRE CHARGES 132,998 TRAVEL AND ACCOMMODATION EXPENSES 1,503,299 REPAIRS AND MAINTENANCE EXPENSES 93,725 TRANSPORT AND CAR HIRE CHARGES 277,318 TOTAL 20,07,340 I.T.A. NO.8638/MUM/2010 3 IN SUPPORT OF HIS PROPOSITION, HE HAS REFERRED TO C ATENA OF DECISIONS WHICH HAS BEEN INCORPORATED BY HIM AT PAGES 3 TO 6 OF HIS ORDER. THUS, HE DISALLOWED THE AFORESAID EXPENSES. 3. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT IT HAD INCURRED VARIOUS OPERATING COSTS TO KEEP ITS DREDGE R IN A READY- TO - USE STATE. IT HAS NOT STOPPED ITS BUSINESS ACTIVIT IES AND WAS CONTINUOUSLY BIDDING FOR CONTRACTS FOR DREDGING RE LATED WORK. IN ORDER TO SUBSTANTIATE ITS CLAIM THAT IT HAS BEEN BIDDIN G FOR VARIOUS CONTRACTS FOR DREDGING ACTIVITIES, THE ASSESSEE FILED COPIES OF CORRESPONDENCE TO VARIOUS PARTIES. ON THE PERUSAL OF ENTIRE RECORDS, THE LD.CIT(A) HELD THAT THE ASSESSEE HAS PRODUCED RELEVANT MATERIAL AN D EVIDENCE TO PROVE THAT IT HAD NOT ABANDONED OR STOPPED ITS BUSI NESS ACTIVITIES OF DREDGING, BUT DUE TO CERTAIN FACTORS, THE DREDGING OPERATION COULD NOT BE CARRIED OUT BY THE ASSESSEE. THUS, THE ASSESSEE WAS UNDER EXPECTATION THAT DREDGING WORK WOULD COME TO THE AS SESSEE AND THEREFORE, IT HAD TO INCURR LAY-UP COST ON THE DRED GER WHICH WAS IN THE NATURE OF MAINTENANCE, EQUIPMENT AND PERSONNEL HIRE CHARGES AGGREGATING TO RS.20,07,340/-. ACCORDINGLY, HE DELE TED THE SAID ADDITION ON THE GROUND THAT THE SAID EXPENDITURE I S REVENUE IN NATURE AND FOR THE BUSINESS PURPOSES. I.T.A. NO.8638/MUM/2010 4 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2005- 06. 5. ON THE CONTRARY, THE LD DR RELIED ON THE ORDER OF AO. 6. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND ALSO THE RELEVANT FINDING OF THE AO AS WELL AS LD. CIT(A ) AND THE ORDER OF THE TRIBUNAL, WE FIND THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL FOR CONSIDERATION IN ASSESSEES OWN CASE IN ITA NO.6251/MUM/2010 (AY2005-06) DATED 11.5.2012. THE RELEVANT FACTS AS NOTED BY THE TRIBUNAL ARE AS UNDER : 2. THE BRIEF FACTS IN APROPOS THESE GROUNDS ARE THAT T HE ASSESSEE, BOSKALIS DREDGING INDIA P.LTD, IS A COMPA NY INCORPORATED IN INDIA ON 5TH JANUARY,1996. IT IS EN GAGED IN THE BUSINESS OF UNDERTAKING INTER ALIA CAPITAL AND MAIN TENANCE DREDGING PROJECTS AND PROVIDING TECHNICAL RELATED S ERVICES IN DREDGING. HOWEVER, DURING THE RELEVANT YEAR, THE IN COME WAS EARNED FROM HIRE OF PERSONNEL, HIRE OF EQUIPMENT AN D SERVICES RENDERED TO GROUP COMPANIES AND NOT FROM DREDGING C ONTRACTS. THE ASSESSEE HAD LEASED DREDGER GEMINI AND MULTICAT COBY TO ASSOCIATE ENTERPRISE, BOSKALIS INTERNATIONAL BV (B IBV) SINCE1997, UNDER THE STANDARD BAREBOAT CHARTER AGRE EMENT. SINCE THE PROJECT FOR WHICH THE DREDGER WAS TO BE U SED DID NOT MATERIALIZED, THEREFORE, THE SAID CONTRACT FOR DRED GER GEMINI WAS TERMINATED W.E.F. 1ST JANUARY, 2003 AND THE CON TRACT FOR DREDGER MULTICAT COBY WAS TERMINATED W.E.F. 17TH AU GUST, 2003. IN THE RETURN OF INCOME, HOWEVER, THE ASSESSEE CLAI MED DEPRECIATION ON DREDGER GEMINI AND MULTICAT COBY FO R SUM OF RS.89,06,708/- AND LAY OF COST OF RS.21,86,686/-. T HE ASSESSING OFFICER OBSERVED THAT SINCE THE DREDGERS WERE NOT USED FOR THE PURPOSE OF BUSINESS RIGHT FROM THE ASS ESSMENT I.T.A. NO.8638/MUM/2010 5 YEAR 2003-2004, HE, THEREFORE, REQUIRED THE ASSESSE E TO JUSTIFY ITS CLAIM FOR DEPRECIATION AND LAY UP COST AS ALLOW ABLE DEDUCTION. THE ASSESSEES CONTENTION WAS THAT THESE ASSETS WERE KEPT READY FOR USE AS IT WAS LOOKING FOR FURTH ER CONTRACTS WITH OTHER PARTIES AND THE SAME SHOULD BE TREATED A S IN PASSIVE USE ENTITLING FOR DEPRECIATION AND ALLOWANCE OF LAY COST. THE ASSESSING OFFICER DID NOT AGREE WITH THE PLEA OF TH E ASSESSEE AND HELD THAT THE ASSETS WERE NOT USED FOR THE PURP OSE OF BUSINESS DURING THE RELEVANT YEAR AND THERE IS NO P ROFIT EARN FROM THESE ASSETS WHICH IS ASSESSABLE TO TAX IN THI S YEAR AND ACCORDINGLY DISALLOWED THE ENTIRE DEPRECIATION CLAI MED AT RS.89,06,708/- AND EXPENSES INCURRED ON LAY UP COST FOR SUM OF RS.21,86,686/-. THE DETAIL REASONING FOR NOT ACCEPT ING THE ASSESSEES CLAIM HAS BEEN DEALT WITH BY THE ASSESSI NG OFFICER AT PAGES 6 TO 10 OF THE ASSESSMENT ORDER. THE RELEVANT CONCLUSION AS GIVEN IN PARA 9 OF THE O RDER READS AS UNDER : 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 GIV EN ABOVE. NOTHING HAS BEEN BROUGHT ON THE RECORD THAT THE ASS ESSEE HAS COMPLETELY ABANDONED OR HAS CLOSED THE BUSINESS FOR EVER. RATHER THE ASSESSEES CASE IS THAT, IT WAS UNABLE T O 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 ASS ETS, SO THAT IT IS READY FOR USE AT ANY TIME, OTHERWISE SUCH AN EXP ENSIVE ASSET WILL GO DOWN WASTE. THERE MAY BE LULL IN THE BUSINE SS OF AN ASSESSEE, HOWEVER, IT WAS A ONGOING CONCERN AND THE ASSESSEE HAD TO MAINTAIN AND UPKEEP ITS ASSET SO THAT AS AND WHEN THE BUSINESS COMES, IT CAN USE IT. THUS, INCURRING OF E XPENDITURE FOR LAY UP COST ON SUCH ASSETS ARE ALLOWABLE DEDUCTION. THIS VIEW IS ALSO FORTIFIED BY THE DECISION RELIED UPON BY THE L EARNED AR IN THE FOLLOWING CASES : I) L VE. VAIRVAVAN CHETTIAR VS. CIT, 72 ITR114 (MAD ); II) UNITED LINER AGENCY OF INDIA (P) LTD. VS. CIT, (1992) 108 CTR (CAL) 390. I.T.A. NO.8638/MUM/2010 6 IN THE AFORESAID DECISIONS, IT HAS BEEN HELD THAT T HE EXPENDITURE WHICH HAS BEEN INCURRED ON MAINTENANCE OF PLANT AND MACHINERY OR ASSET SO THAT IT IS READY FOR USE, CANNOT BE DIS ALLOWED ON THE GROUND THAT NO BUSINESS WAS ACTUALLY DONE AND NO IN COME HAS BEEN EARNED. SUCH AN EXPENDITURE HAS TO BE TREATED AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THUS, DISALLOWANCE OF RS.21,86,686/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF LAY UP COST INCURRED ON DREDGER GEMINI AND MULTICAT COBY ARE ALLOWABLE DEDUCTION . 7. SINCE SIMILAR FACTS ARE PERMEATING IN THIS YEA R ALSO, THEREFORE, CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEAR, WE HOLD THAT THE LAY- UP COSTS INCURRED ON DREDGER IS ALLOWABLE BUSINESS EXPENDITURE U/S 37(1). THUS, GROUND RAISED BY THE REVENUE IS DISMIS SED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14TH JAN, 2015 . ,-! . /0 14TH JAN, 2015 - ) 1* 2 SD SD ( . / D. KARUNAKAR RAO) ( / AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER * MUMBAI: 14TH JAN,2015. . . ./ SRL , SR. PS ' # $%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 561 $7 , + 7 , * / DR, ITAT, MUMBAI CONCERNED 6. 1 8* / GUARD FILE. / BY ORDER, TRUE COPY 9 & (ASSTT. REGISTRAR) + 7 , * /ITAT, MUMBAI