TMI Blog2012 (8) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... re which has been incurred on maintenance of plant and machinery or asset so that it is ready for use, cannot be disallowed on the ground that no business was actually done and no income has been earned. Such an expenditure has to be treated as incurred wholly and exclusively for the purpose of business - IT APPEAL NOS. 6251 AND 7152 (MUM.) OF 2010 - - - Dated:- 11-5-2012 - G. E. Veerabhadrappa And Amit Shukla, JJ. Pravin Varma for the Appellant M. P. Lohia for the Respondent ORDER Amit Shukla, Judicial Member - The revenue has directed these two appeals i.e. ITA No.6251/Mum/2010 (for the assessment year 2005-2006) against order dated 17-5-2010, passed by the CIT (A)-19, Mumbai and ITA No.7152/Mum/2010 (for the assessment year 2004-2005) against the order dated 24-8-2010, passed by the CIT(A)-15, Mumbai. Since most of the grounds in the both the aforesaid appeals are similar, therefore, these appeals are being disposed of by a consolidated order. ITA No.6251/Mum/2010(A.Y. 2005-2006) : This appeal has been filed on the following grounds :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable to tax in this year and accordingly disallowed the entire depreciation claimed at ₹ 89,06,708/- and expenses incurred on lay up cost for sum of ₹ 21,86,686/-. The detail reasoning for not accepting the assessee's claim has been dealt with by the Assessing Officer at pages 6 to 10 of the assessment order. 3. Before the CIT(A) , the assessee reiterated the same contention that the two dredgers had to be kept ready for use as it was bidding for project/contracts from other parties, hence, it should be treated as in passive use, eligible for claiming depreciation. The submissions of the appellant as has been incorporated in the appellate order is being reproduced herein below for sake of ready reference :- 4.2 The appellant has made very detailed submissions in respect of this ground. It is the basic submission of the appellant that user of the asset should be understood in a wide sense so as to comprise passive as well as active user. Further, if a machine is kept ready for use at any moment, from which taxable profits can be earned, such machinery can be said to be 'used' for the purpose of the business, although the machinery is not worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant that it had kept dredger Gemini and Multicat Coby ready for any contract that may be awarded to it. In fact as per direction, the appellant has furnished before me copies of various correspondence entered into by it with other entities with regard to work related enquiries. As directed appellant has also furnished evidence regarding its participation in tender as entered into various entities, that can be found in the paper book dated 8 February, 2009 which have been filed and placed on record. From this it is evident that appellant was actively involved in bidding for tenders for contract work. Thus the business was alive, though no tenders were actually awarded to it during the year under consideration. Merely because no work was awarded to it cannot be used as a ground to disallow depreciation on the dredgers. In fact the dredgers were kept ready for use as is evident from the facts as existing in this case. Hence, it is held that appellant is entitled to depreciation on dredger Gemini and Multicat Coby as they were kept ready for use and this is corroborated by the fact that the appellant was actually bidding for tenders in the hope that fresh contracts would be aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dy. CIT [ITA No. 1722/M/2005 vide order dated 17-7-2008]. He further brought to our notice that the said decision of the ITAT has been affirmed by the Hon'ble Bombay High Court vide judgment dated 28-7-2009 in ITA No.598/2009 in the case of CIT v. G.R. Shipping Ltd. 7. We have carefully considered the rival submissions of the parties and also gone through the findings given by the Assessing Officer as well as the CIT(A). From the facts and material on record, it is evident that the assessee had leased dredger Gemini and Multicat Coby to Boskalis International BV in the year 1997 under an agreement. Such an asset was leased out for a considerable time till the agreement was terminated in the year 2003 due to delay in commencement of Gorai River Project in Bangladesh. During termination of this agreement, the assets of the assessee were forced to kept idle. Thereafter the assessee was making sincere efforts for getting a contract from other entities so that its asset can be leased. In the interregnum period, the assessee had to maintain these assets and incur the lay up cost so that these assets can be ready for use at any time. It is also apparent from the record that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, that the amount of such reduction does not exceed the written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). Thus, from 1-4-1988 i.e. from the assessment year 1988-1989, the written down value of any block of asset shall be the aggregate of the W.D.V. of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustment has to be made for the increase or reduction of the block of assets during the year under consideration. Thus asset which has been purchased by the assessee and has been used for the purpose of business and the same has been included in the block of asset , then depreciation has to be allowed as per the W.D.V. 7.4 Here in this case all such conditions stands fulfilled. Now, the issue is, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing of depreciation, only the block of assets has to be considered. If a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore, the test of user has to be applied upon the block as a whole instead of upon an individual asset. 11. The above principle has been laid down in the following decisions relied upon by the ld. Counsel for the assessee namely; (A) Notco Exports v. DCIT, 86 ITD 445 (Hyd.), (B) ACIT v. SRF Ltd., Vol. 21 SOT 122 (Del.), (C) Unitex products Ltd. v. ITO, Vol.22 SOT 429 (Mum). 12. The ld. DR however submitted the user was a condition for allowing depreciation and in this regard relied to the decision of the Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal v. CIT 267 ITR 768 (Bom). We have perused the aforesaid decision and are of the view that the same is not applicable to the facts of the present case. In the present case, the assessee has already used the asset for the purpose of business. The asset has already entered the block of assets. In the case before the Hon'ble Bombay High Court, the asset in question was not at all put to use. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of ₹ 21,86,686/- made by the Assessing Officer on account of lay up cost incurred on dredger Gemini and Multicat Coby are allowable deduction. 10. In the result both the grounds of the Department are dismissed. ITA No.7152/Mum/2010(A.Y. 2004-2005) 11. In this appeal, the department has raised the following grounds of appeal :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the transfer pricing adjustment of ₹ 5,30,580/- vis- -vis the lease rentals on the dredger Multicat Coby', despite material available on record which shows that repairs and maintenance expenditure incurred had to be borne by the charter of the dredger and not the owner. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that depreciation of ₹ 64,61,791/- is admissible on the dredger 'Gemini , overlooking the fact that the asset was not actually used for the purpose of business during the relevant previous year. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance ₹ 1,88,43,179/- being la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epairs for the dredger Gemini wherein it is bearing the repairs and does not charge the Charterer for the same, whereas for Multicat Coby it is contending that the repairs are on account of the Charterer and hence justifying a lower rate. 4.3 In the course of the appellate proceedings before me the assessee made detailed submission. The assessee submitted that maintenance and repair ('M+R') are defined as per VG Bouw valuation norms as all activities which are carried out with the aim of maintaining a system in the technical state necessary for the system to perform properly in respect of the type and extent of its designated functions. The following costs are included in the M+R cost component that is factored in the lease rental calculation as per the VG Bouw valuation norms : Maintenance and repair on the site; Spare parts, including consumables for the dredging installation; Technical consumables and cleaning items; All cables; The costs of repairs at a wharf; Freight costs in respect of spare parts required for repairs at a wharf; and Directly attributable staff costs in respect of M+R during repair periods (no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular job and costs pertaining to technical specialist working abroad for the purpose of carrying out such repairs and maintenance shall be for the account of the Owner'. The Learned CIT(A) has deleted the addition and has given the following findings :- 4.6 Moreover in AY 2003-2004, in which the Transfer Pricing Officer ('TPO') vide order passed under section 92CA(3) read with section 254 of the Act in consequence of ITAT order while dealing with the same issue held that no addition is to be made on lease rentals of dredger Multicat Coby. 4.7 Taking all the facts and circumstances it is obvious that the agreement is very clear that expenses which not included in M+R, are on the account of character and accordingly, same not recovered from the Charterer by the way of lease rentals. That being the case, there should be no transfer pricing adjustment in this respect and the lease rentals charged for Multicat Coby should be considered at Eur 4,992 per week instead of Eur 9,275. 15. In view of the above, we do not find any infirmity in the order of the CIT(A) as it is based on transfer pricing adjustment made by the TPO made in the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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