Income Tax Appellate Tribunal - Cochin
M/S.Cochin Shipyard Ltd, Cochin vs Department Of Income Tax on 10 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S. GANESAN, JM & CHANDRA POOJARI, AM ITA No.358/Coch/2014 (Asst Year 2005-06 ) The Dy Commr of Income Tax Circle 4(2), Kochi Vs M/s Cochin Shipyard Ltd Perumanoor Kochi 15 ( Appellant) (Respondent) PAN No. AAACC 6905B Assessee By Shri Satyanarayana Revenue By Smt Latha V Kumar, Jr DR Date of Hearing 24th Sept 2014 Date of pronouncement 10th Oct 2014 ORDER PER CHANDRA POOJARI, AM:
This appeal by the revenue is directed against the order dated 20.3.2014 of the CIT(A) for the AY 2005-06.
2 The grievance of the revenue in this appeal is with regard to allow depreciation at 30% on loose tools when there is no specific rate allowed as such under the I T Rule 1962.
3 The brief facts of the case are that the AO made disallowance by observing that in ship building/ship repair industry the exact quantity of items required for building/repair of a ship cannot be ascertained in advance. Hence, a margin of 2% to 5% excess quantity will be procured for smooth flow of production and to avail the benefit of economics in scale. According to the AO, these items most of which are imported and held in customs bond even though not used will be held in the stock for years. He further observed that the realizable value on these items will be very less since these items cannot be used for another type of vessel. In such cases a provision for items which have not moved for years, will be made in the accounts and those items will either be drawn subsequently for consumption if usable or written off as obsolete items which when sold will fetch meager value. The AO further observed that the amount represents the accumulated provisions made in earlier years and these provisions are disallowed in the statement of total income itself by the assessee company in the year of provision. According to the AO, the amount of Rs. 4.88 crores was an amount accumulated over many years and all the provisions were disallowed and added back to the income in the respective years of provision by the assessee itself. The AO noticed that in the Financial Year 2004-05 Rs. 13,71,000/- excess provision for non moving inventory written back was included in the P&L account under the head 'other income' as excess provisions written back, which was claimed as allowable expenditure in the statement of total income for the FY 2004-05 since the same was disallowed in the earlier years. Accordingly, no further adjustment was made. Further, on verification of the working of the non moving items for the subsequent years, the AO noticed that the non usable items represent loose tools, which, according to the AO was capital in nature but with very short period of use. By writing off Rs. 95,65,385/-, the assessee has actually claimed a depreciation of 30% on the loose tools in use of Rs. 3,18,86,135/-. According to the AO, since it was grouped under 'inventories', it has not come under the fixed assets and no depreciation was claimed in the depreciation table. According to the AO, depreciation can be allowed only at the rates prescribed by the Rules. Since no specific rate was prescribed for loose tools, it comes under the general category and depreciation @ 15% alone can be allowed. Accordingly, the excess claim being Rs. 47,82,693/- was disallowed.
3.1 On appeal, the CIT(A) after considering the submissions of the assessee and the relevant material on record observed that the assessee has claimed loss on revaluation of non usable loose tools at 30% of book value which were treated as inventories under the current assets. According to the CIT(A), it was a case of revaluation of stock; but the AO by treating the same as part of plant & machinery took another view and only allowed 15% depreciation on the same. Before the CIT(A), it was submitted by the assessee that the loose tools are not independent machineries and they are not fixed to any particular plant and machinery and continuously move around based on requirement and hence face a heavy wear and tear. Accordingly, the CIT(A) observed that the tools are of small value and they certainly cannot be categorized as plant and machinery and hence they cannot be treated as capital in nature and be allowed 15% depreciation. Accordingly, the CIT(A) accepted the treatment adopted by the assessee of revaluing the inventories as per earlier assessment years and deleted the addition made by the AO. Aggrieved, the revenue is in appeal before us.
4 The ld DR submitted that there is no provision under the I T Rules to allow deprecation at 30% on loose tools and 15% can be allowed. He relied on the order of the AO.
4.1 On the other hand, the ld AR submitted that the assessee had not claimed any depreciation. The assessee actually revalued the loose tools every year considering the life of the loose tools of 3 to 4 years and considered 1/3rd of the value of the loose tools as correct and accordingly charged to P&L account. It was further submitted that the assessee has not claimed any depreciation on the loose tools year to year and this is the method followed consistently by the assessee. In support of his contention, the ld AR relied on the order of the Hon'ble Kerala High Court in the case of Commissioner of Agricultural Income-tax v. Midland Rubber and Produce Co. Ltd reported in 182 ITR 493. He also relied on the order of the Tribunal in the case of Bharat Heavy Electricals Ltd vs DCIT reported I 98 TTJ 565 (Del).
5 We have heard the parties and perused the material on record. The assessee company having followed consistent policy of claiming of depreciation on loose tools every year below Rs. 10,000/- by charging to P&L account and the same is allowable as deduction. In the assessment year under consideration the assessee quantified the total loose tools at Rs. 3,30,09,993/-. Out of this, the tools which cannot be traceable or lost, which works out to Rs. 95,65,385/- and the same was charged to P&L account. Accordingly, the ld AR pleaded before us that this method has been following consistently and it is not claiming the deprecation rather revalued the stock at the end of each year and it has followed the same method of valuing the stock at market price or cost whichever is less as the loose tools are stock-in-trade. In our considered opinion the method followed by the assessee is correct considering the actual stock of loose tools as stock-in-trade, which is acceptable method in accordance with accounting Policies. Accordingly, we do not find any reason to interfere with the order of the CIT(A), which is confirmed.
6 In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open Court on this 10th day of Oct 2014.
Sd/- Sd/- (N.R.S. GANESAN) (CHANDRA POOJARI) Judicial Member Accountant Member Cochin: Dated 10th Oct 2014 Raj* Copy to: Appellant - Respondent - CIT(A) CIT, DR Guard File By order Assistant Registrar ITAT, COCHIN TA No. 358/Coch/2014 7