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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE&
IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “A” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 1266/AHD/2012 (A.Y: 2008-09) & ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited v. DCIT – Circle – 1(1) 7th Floor, B-wing Aayakar Bhavan Manubhai Tower, Sayajigunj Race Course Baroda – 390020, Gujarat Baroda-390007, Gujarat PAN: AABCA7958F (Appellant) (Respondent) Assessee by : Shri Dharmesh Shah Department by : Shri Brajendra Kumar
Date of Hearing : 05.02.2021 Date of Pronouncement : 17.02.2021
O R D E R PER C.N. PRASAD (JM)
This appeal is filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)–I, Baroda, [hereinafter in short “Ld.CIT(A)”] dated 07.03.2012 and 18.10.2012 for the A.Y.2008-09 and A.Y. 2009-10 respectively.
2 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 2. Brief background of the case for the A.Y. 2008-09, assessment order was passed u/s 143(3) of the Act dated 15.09.2010, interalia, making disallowance of depreciation of ₹.2,97,97,467/-. The Ld.CIT(A) confirmed the aforesaid disallowance vide his order dated 07.03.2012. Against the said order, the assessee had filed this appeal before Hon'ble Tribunal in ITA No. 1266/Mum/201 raising the following grounds of appeal: - "1. (i) The learned CJT(A) has erred in sustaining the action of the Learned A.O. in denying depreciation of Rs.2,12,79,355/- in respect of all the equipment’s amounting to Rs. 7,09,31,184/- in question which were put to use during the year for ONGC and OIL India Ltd project by holding that the same were not put to use during the year. (ii) The learned A.O. as well as CIT(A) failed to appreciate that there were enough evidences including the certificates from the ONGC and Oil India Ltd about the assets having been installed and put to use before 31st March, 2008 and also about receipt of income from them on account of use of these assets and hence the claim of the appellant for depreciation was fully justified. It is submitted that it be so held now, (iii) Without prejudice to foregoing, the learned CIT(A) failed to appreciate that the dispute about the claim of clearance by custom authorities in respect of bill of entry was only in respect of assets meant for project of Oil India Ltd and not for ONGC project and as such at least in respect of assets installed and put to use for ONGC projects amounting to Rs.2,62,55,307/-, the depreciation as claimed by the appellant should have been granted to it. 2. Without prejudice to above, the learned CIT(A) also erred in denying depreciation @ 60% by holding the equipments in question, which are highly sophisticated, electronic and fully automated seismic survey equipments which work as computers to be general plant and machinery eligible for depreciation @15% and thus granting depreciation thereon @15% as against 60% claimed by the appellant considering them as computers.
3 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 3. The learned CIT(A) further erred in not allowing additional depreciation in respect of plant & machineries installed and put to use during the year under consideration. 4. Without prejudice to above, the learned CIT(A) has erred in not allowing alternative claim of depreciation @60% together with the additional depreciation on the above items of Plant & Machinery ignoring the claim of the appellant that it is a mineral oil concern, 5. The learned CIT(A) erred in denying depreciation @ 60 % in respect of geophone stings and seismic cables which are essential parts of highly sophisticated, electronic and fully automated seismic survey equipments which work as computers by holding the same to be general plant and machinery eligible for depreciation @15% as against 60% claimed by the appellant considering them as computers and thus reducing the allowable amount of depreciation from Rs.1,13,57,482/- to Rs,28,39,370/-, 5.1 The learned CIT(A) has further erred in not allowing additional depreciation on the above items installed and put to use during the year under consideration, 5.2 Without prejudice to above, learned CIT(A) erred in not allowing alternative claim of depreciation g 60% together with the additional depreciation on the above items ignoring the claim of the appellant that it is a mineral oil concern. 6. The Learned CIT(A) erred in holding that Rs.3,61,255/- of gain made by the appellant on sale of shares /securities is liable to be taxed as business income and not as short term capital gain."
The appeal was heard by the Ahmedabad Bench of the Tribunal on 12.09.2017 and the order was pronounced on 08.12.2017 wherein part of the aforesaid grounds of appeal were decided against the assessee. However, since some of the grounds were left to be adjudicated in the said order, the assessee moved a Miscellaneous Application before Hon'ble Tribunal in MA No. 114/Ahd/2018. In the meantime, the
4 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited jurisdiction of the assessee was transferred from Ahmedabad to Mumbai and accordingly the Miscellaneous Application was disposed off by the Mumbai Bench of the Tribunal on 03.12.2020 recalling the appeal to decide the grounds of appeal which were left to be decided earlier and the relevant portion of the order is as under: - “4. On a perusal of the material on record, we find that the assessee applicant had filed certain written submissions which have not been dealt with by the Tribunal. Accordingly, those facets of the matter have remained undisposed of, and it was inadvertently noted by the Tribunal that "no other issue was pressed before us." Accordingly, we deem it fit and proper to recall the matter for the limited purpose of disposing of these grounds of appeal - namely grounds nos. 1(iii), 3, 4 and 5. Ordered, accordingly. Registry is directed to fix the appeal for the limited purposes as above, on 30th December, 2020, issue notice.”
Similar is the situation for the A.Y: 2009-10 as the Tribunal recalled its order in ITA.No. 144/AHD/2013 in M.A. No. 115/AHD/2013 dated 03.12.2020 to decide the following Ground Nos. 2 and 3. “2. The learned CIT(A) further erred in not allowing additional depreciation in respect of plant & machineries installed and put to use during the year under consideration. 3. Without prejudice to above, the learned CIT(A) has erred in not allowing alternative claim of depreciation @60% together with the additional depreciation on the above items of Plant & Machinery in Ground No. 2, ignoring the claim of the appellant that it is a mineral oil concern, and hence entitled to such higher rate of depreciation along with additional depreciation.”
Accordingly, these matters have been re-fixed for hearing before us.
5 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited A.Y. 2008-09
The grounds of appeal which have been recalled to be adjudicated afresh on merits are Ground No. 1(iii), 3,4 and 5. In ground No. 1(iii), the assessee has challenged the action of the Assessing Officer in denying depreciation on assets used for ONGC project on assets costing ₹.2,62,55,307/- on the ground that the same were not put to use during the relevant assessment year.
Briefly stated the facts are that, assessee is engaged in the business of providing geographical and seismic data survey required for carrying out mineral oil extraction activity. Assessee had acquired assets for it's projects for seismic survey and data acquisition awarded by the following companies: a. OIL India Ltd. ('OIL') at site Aizawal at Mizoram b. ONGC Ltd. ('ONGC') at site Dimapur at Nagaland
While project of OIL was to be executed at Mizoram, the project of ONGC was to be executed at Nagaland. The assets for the purpose of both the projects were acquired separately from Aram Systems Ltd.,
6 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Canada for the respective sites. The details of the assets acquired are given below: - Project OOC date Project for Sale order Sr.No awarded in BE for Amount which it was Location Number by HC purchased 1 OIL India 08.04.2008 209904/07024 $ 10,94,186 Contract Of Mizoram Ltd Award dated 2 04.02.2008 209904/07024 $ 23,314 16.11.2007 3 ONGC Ltd 06.02.2008 209905/07036 $ 6,28,686 Contract of Dimapur, Award dated Nagaland 26.11.2007 4 04.02.2008 209905/7036 $ 18,985 Total ($) $ 17,65,171 Total (₹.) ₹.6,99,74,541 Other incidental expenses ₹.9,56,643 Total ₹.7,09,31,184
The assessee had claimed depreciation at 60% on the aforesaid assets. The Assessing Officer disallowed the claim of depreciation on aforesaid assets on the ground that one of the consignment with equipment valuing $ 10,94,186/- (Sr. No. 1 above) was cleared for home consumption vide Bill of Entry ('BOE') allegedly dated 08.04.2008. Based on the same, the Assessing Officer concluded that depreciation was to be disallowed on all assets as they all are connected with each other. The said issue as to whether the assets valuing $10,94,186/- were put to use after the year end was raised vide ground no. 1(i) and 1(ii) of the impugned appeal which have been decided against the assessee.
7 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Ld.CIT(A) sustained the order of the Assessing Officer in denying the depreciation.
Before us, Learned Counsel for the assessee submitted that the consignment which was cleared allegedly on 08.04.2008 contained assets used for the project at Mizoram for OIL and not for the project at Nagaland for ONGC. Hence, the conclusion drawn in respect of the said assets cannot be applied to the assets used for project of ONGC at Nagaland as the said project was independent and distinct. Ld. Counsel for the assessee submitted that copy of invoice and Bill of Entry for Home Consumption of all the above equipments are filed in the paper book at page nos. 69-76, 77-80, 137-142 and 143-146 of Paper Book. Ld. Counsel for the assessee submits that the he Assessing Officer has not made any specific observations or disputed the date of assets put to use for ONGC Project at Nagaland site. It is submitted that the assets used at Nagaland site were undisputedly cleared by Customs Authority in February' 2008. Further, these equipments were airlifted from Delhi to project site and were put to use at project site by assessee before the year end. In order to demonstrate that the assets purchased for ONGC project at Nagaland site were installed and put to use during the relevant assessment year.
8 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Ld. Counsel for the assessee referred to the bills from M/s. Aram Systems Ltd., Canada, at Page Nos. 137 and 138, bill of entry for home consumption at page Nos. 139 to 142 of the Paper Book. Bills issued by Custom House agents namely PSB Logistics Pvt. Ltd., for import of goods at page Nos. 147 to 149. Bills from Laxmi Air Services and Indian Cargo for the transport of cargo from Delhi to Dimapur (Nagaland) at page Nos. 150 to 153. Correspondence of assessee with ONGC confirming that assets are installed and used at Site Page Nos 154 to 167 of the Paper Book.
Learned Counsel for the assessee submitted that the evidences referred to in Paper Book show that the assets purchased at Sr. No. 3 and 4 of the Table at Para 6 above were for Nagaland Project of ONGC Ltd and that the same have been installed and put to use during the year. Ld. Counsel for the assessee submits that similar details and evidences have been filed by the assessee for the assets installed at Mizoram site relating to contract with OIL [Page 20-97 of Paper Book] which clearly proves that the assets used for ONGC project at Nagaland site were completely different from assets used for OIL project at Mizoram site and that the assets for ONGC undisputedly were put to use before 31.03.2008.
9 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Accordingly, it is submitted that depreciation on assets put to use for ONGC site be kindly allowed to the assessee and disallowance made by the Assessing Officer may kindly be deleted.
Ld. DR vehemently supported the orders of the authorities below. Ld. DR argued that the assets acquired by the assessee are not proved to have been used for the ONGC project. Ld. DR submitted that there is no reference to the project of ONGC or OIL in the invoices raised by Aram Systems Ltd., Canada while exporting the equipments and Airway Bills also do not mention whether the assets have been transported to Nagaland or Mizoram for the projects awarded by ONGC or OIL, respectively. Ld. DR further submitted that the letters filed before the ONGC are not stamped and that the letter dated 13.03.2008 from ONGC does not confirm that the equipments have been installed by the assessee and were ready to put to use. He therefore submitted that the assessee has not proved that the assets were put to use for the ONGC project. It is further submitted by Ld. DR that the airway bills also do not reflect the place of transportation and therefore the assessee’s claim that some of the equipments were transported to Nagaland is not proved.
10 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 13. In reply Learned Counsel for the assessee submits that, M/s. Aram Systems Ltd., Canada is not concerned as to the location and the project for which the assets are expected to be used. It is admitted position that all the assets were acquired by way of different consignments. The details of these consignments have been tabulated by the Assessing Officer in his order at page 3. The 2nd table on the said page 3 of the assessment order clearly shows that there were 4 consignments bearing different BOE. It has already been explained in the various evidences filed in the paper book as well as in the foregoing Paras that 2 of the consignments were meant for the OIL project at Mizoram and the other 2 consignments were meant for the project of ONGC at Nagaland. Since, according to the Assessing Officer, one of the consignments sent to Mizoram was received on 08.04.2008, i.e. after the year end, the depreciation was not allowable to the assesse. It is submitted that the Ld. DR has not controverted to any of these evidences filed before Bench to prove that the 2 consignments could not reach the ONGC project at Nagaland.
Ld. DR has submitted that the letters addressed to ONGC have not been stamped and therefore they cannot be considered to establish that the equipments were installed and put to use.
11 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 15. In reply, Ld. Counsel for the assessee submitted that the letters have been addressed to ONGC [Page 154-167 of paper book] giving regular updates about the process of installation and taking the 1st regular short. Thereafter, vide letter dated 13.03.2008, ONGC has confirmed that the 1st regular shot has been taken successfully [Page 168 of paper book]. The conjoint reading of the various letters addressed by the assessee to ONGC and the reply of ONGC clearly proves that the assessee have been acquired and installed and put to use. In light of the above, Ld. Counsel for the assessee submits that the contentions raised by Ld. DR are devoid of merits. The assessee therefore prays that the asset with kindly be considered to have been put to use for the purpose of allowing depreciation.
We have heard the rival submissions, perused the orders of the authorities below and the evidences furnished before us. Assessee is engaged in the business of providing geographical and seismic data survey required for carrying out mineral oil extraction activity. Assessee had acquired assets for its projects for seismic survey and data acquisition awarded by OIL India Ltd. ('OIL') at site Aizawal at Mizoram and ONGC Ltd. ('ONGC') at Dimapur site at Nagaland. These assets were acquired
12 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited by the assessee from M/s. Aram Systems Ltd., Canada and the details of the assets acquired were already tabulated by the Assessing Officer in the Assessment Order. The assessee had claimed depreciation at 60% on the aforesaid assets. The Assessing Officer disallowed the claim of depreciation on aforesaid assets on the ground that one of the consignment in invoice no. 209904 with bill of entry (BOE) No. 890529 is dated 08.04.2008. Therefore, Assessing Officer was of the view that since the bill of entry is dated 08.04.2008 the assessee had not put to use any of these assets during the A.Y. 2008-09. Accordingly, depreciation on all the assets was denied and the Ld.CIT(A) sustained the same.
In the normal circumstances we would have restored the issue back to the file of the Assessing Officer as the Assessing Officer denied depreciation on the basis that BOE of one consignment is dated 08.04.2008 and without verifying the assets of other consignments whether they were put to use or not during the year. Since these appeals are related to A.Y. 2008-09 and A.Y: 2009-10 and ten years have passed in our view no purpose would serve if the matter is remitted to the Assessing Officer. Thus, we are inclined to decide the issue based on the evidences furnished before us.
13 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 18. Ld. Counsel for the assessee in order to demonstrate that assets were put to use for ONGC project at Nagaland site, invited our attention to the following documents placed in the Paper Book: - a). Bills from Aram Systems Ltd., Canada for assets of $ 6,28,6861- (SrNo. 3 above) showing description of assets imported [Pg. 137-138 of PAPER BOOK] along with copy of BOE for home consumption dated 06.02.2008. [Pg. 139-142 of paper book] b). Bills from Aram Systems Ltd., Canada for assets of $ 18,985/- (Sr No. 4 above) [Pg. 143 of PAPER BOOK] along with copy of bill of entry for home consumption dated 06.02.2008. [Pg. 143-146 of paper book] c). Bills issued by Custom House Agents namely PSB Logistics Pvt. Ltd. for import of goods [Pg. 147-149 of paper book] d). Bills from Laxmi Air Services and Indian Cargo evidencing the transportation of Cargo from Delhi to Dimapur (Nagaland) [page 150-153 of paper book]. e). Correspondences of assessee with ONGC confirming that assets are installed and used at the site [Pg. 154-167 of paper book]
Learned Counsel for the assessee submitted that the mobilization of the equipment had to be carried out by assessee within specified time and reference is drawn to the contract executed with ONGC which is placed at page Nos. 113-114 of Paper Book, wherein, at clause 3.2 of the contract, the mobilization activity has been explained which clearly shows that mobilization is said to be complete when all the equipments were put to use for the said activity. We also observed that mobilization was completed and completion certificate dated 13.03.2008 was also issued
14 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited by ONGC stating that impugned assets were installed and put to use on 13.03.2008. [page 168 of paper book]. The extract of the said certificate is reproduced below: - "M/s Asian Oil Services Ltd has taken first regular production shot with optimized acquisition parameter after completion of experimental survey on 13-03-08. They have also mobilized requisite men &material to the site as per tender condition."
Further, as the contract was time bound, the assessee had to complete the mobilization activity in 80 days from date of award of contract being 26.11.2007. As per clause 3.2.4 contract the mobilization period was expended till 13.03.2008 and assessee had to suffer liquidated damages at 0.5% per week of delay on contract value as per the Contract with ONGC and the details of working of the same is given at Page 254 of Paper Book. We also notice that the assessee had also raised a bill on ONGC dated 21.03.2008 in respect of such mobilization activity carried out as per the contract.
Further, we observed that the airway bills pertaining to the ONGC project and placed at Page 151-153 of Paper Book clearly show that the goods were transported from Delhi to Dimapur (which falls in Nagaland). The transport invoice of M/s. Laxmi Air Service dated 11.02.2008 enclosed
15 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited at Page 150 of paper book also refers to the station Dimapur. As against the same, the airway bills enclosed at Page 86-89 of Paper Book as well as the transport invoice enclosed at Page 85 of Paper Book shows that the equipments were transported to Aizawal District which falls in Mizoram. Similarly, another airway bill enclosed at Page 90 of Paper Book and the transport invoice enclosed at Page 89 of Paper Book also shows the transportation of equipments to Aizawal. These evidences therefore prove that there was clear demarcation of the place at which various equipments were transported.
We further noticed that, vide letter dated 13.03.2008, ONGC had confirmed that the 1st regular production shot with optimized acquisition parameter after completion of experimental survey was completed by the assessee. They have also confirmed that the assessee has mobilized requisite man and material at the site. Reading the aforesaid letter along with the relevant terms of contract at Page 114 of Paper Book, Para 3.2.2 and 3.2.3 with respect to the process of mobilization of equipment proves that the assets were installed and put to use by 13.03.2008. The conjoint reading of various letters addressed by the assessee to ONGC and the reply of ONGC and various evidences goes to prove that the assessee has
16 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited acquired and installed and put to use the assets in ONGC Project at Dimapur site at Nagaland. In view of the above, we hold that the assessee purchased installed and had put to use the equipment at Dimapur site in Nagaland for the ONGC Project Limited. Therefore, assessee is entitled for depreciation on those assets other than the assets which arrived with BOE dated 08.04.2008 for the A.Y.2008-09. Thus, we direct the Assessing Officer to allow depreciation on the assets installed at Dimapur site in Nagaland.
Coming to Ground No. 3, the assessee has challenged the action of the Ld.CIT(A) in not allowing additional depreciation on the impugned assets in terms of s. 32(1)(iia) of the Act.
Ld. Counsel for the assessee submitted that the assessee is engaged in to the primary process of identifying and analyzing the availability of the oil reservoir beneath the surface of the earth. It is only upon identifying existence of the oil reservoir, its probable quantity and the depth at which the same is available beneath the surface of the earth, the process of excavation of land and extraction of oil would begin. In order to carry out the said survey, the assessee lays down the geophones and
17 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited stings on the stretch of land in the designated area and with the help of controlled explosions, the vibrations are created underground through these geophones and strings. These vibrations are then recorded by various equipments and the data is gathered, generated and analysed. Once the data so gathered and analysed by the assessee shows the results feasible for extraction of oil, the companies like ONGC and OIL carries out the extraction process. The aforesaid activity clearly shows that the primary raw material in the form of information obtained from seismic survey is processed by the assessee and the final product in the form of analysed report is generated. Undisputedly the said report is different from the raw information and data gathered by the assessee. This clearly shows that the assessee was into the business of manufacture and production of the article or thing in the form of final reports made out of the raw information and data. The said process therefore fulfils the condition provided u/s. 32(1)(iia) of the Act and therefore the assessee was rightly eligible for additional depreciation on the impugned machinery and plant used for the purpose of the business.
Ld. Counsel for the assessee submitted that the issue is squarely covered by the decision of Hon'ble Delhi high Court in the case of CIT v.
18 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited HLS India Ltd. [335 ITR 292] and confirmed by Hon'ble Supreme Court in SLID CC No. 2661/2012] dated 13.02.2012 wherein it has been held that mineral oil activity can be said to be 'production and manufacture of an article or thing' and hence eligible for additional allowance.
Similarly, reliance was placed on the following decisions wherein the claim of additional depreciation is allowed to the mineral oil concerns: - (i). Oil Field Instrumentation Pvt. Ltd. v. ACIT [ITA.No. No. 2233/Mum/2016] dated 28.02.2018. [Pg. 96-113 of PAPER BOOK 2] (ii). Oil Field Instrumentation Pvt. Ltd. v. ACIT [ITA.No. No. 6661/Mum/2017] dated 31.07.2019. [Pg. 114-125 of PAPER BOOK 2] (iii). ACIT v. Oil India Ltd. [108 Taxmann.com 588] [Pg. 126-139 of PAPER BOOK 2]
In view of the above, Ld. Counsel for the assessee submitted that assessee was eligible for additional depreciation u/s. 32(1)(iia) of the Act in respect of the impugned plant and machinery used for the mineral oil concern activity.
Ld. DR vehemently supported the orders of the authorities below. Ld. DR during the course of hearing, submitted that the claim of additional depreciation was not made by the assessee either in the return filed or in the proceedings before the Assessing Officer. Therefore, the said claim
19 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited cannot be considered at this stage. Ld.DR further submitted that the assessee company is engaged in the business of providing seismic data acquisition and processing services and is not in the manufacture of any article or thing. Additional depreciation u/s 32(1)(iia) is available to an assessee engaged in the business of manufacture or production of any article or thing. The case laws relied upon by the assessee are in the context of 32A, 80IA or 44AB. In the decision of Hon'ble Delhi High Court in the case of CIT v. HLS India Ltd (335 ITR 292) relied upon by the assessee was in the context of section 32A and 80IA and not on section 32(1)(iia). In the case of Oil Field Instrumentation (I) Pvt. Ltd, relied upon by the assessee at page 96 to 113 of case laws book, the assessee has a factory in Navi Mumbai and it is in the business of Manufacturing of Mud Logging Units, therefore the facts are distinguishable from the facts of the case. Ld.DR submitted that, since the assessee company is not engaged in the business of manufacture or production of any article or thing, the ground raised by the assessee has no merit.
In reply, Learned Counsel for the assessee submitted that even if the claim is not made either in the return of income or during the assessment proceedings before Assessing Officer, the same can be made
20 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited for the 1st time before the Appellate Authority if no new facts are to be brought on record. The said issue is settled in favour of the assessee by the decision of CIT v. Pruthvi Brokers & Shareholders [349 ITR 336 (Bom)]. In view of the same, it is submitted that the assessee ought to be allowed to claim the additional depreciation as the said issue was not only raised before the Ld. CIT(A), but also merely constitute legal issue for which no new facts have to be brought on record.
We have heard the rival submissions, perused the orders of the authorities below, submissions of the assessee and the case laws relied on. The claim for additional depreciation u/s. 32(1)(iia) of the Act was made before the Ld.CIT(A) for the first time. Ld.CIT(A) denied the claim for additional depreciation on the ground that assessee engaged in providing seismic data acquisition and processing services and not in the manufacture of any article or thing. Thus, the claim was rejected by the Ld.CIT(A). Learned Counsel for the assessee submitted that the assessee is engaged into the primary process of identifying and analyzing the availability of the oil reservoir beneath the surface of the earth. It is only upon identifying existence of the oil reservoir, its probable quantity and the depth at which the same is available beneath the surface of the earth,
21 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited the process of excavation of land and extraction of oil would begin. In order to carry out the said survey, the assessee lays down the geophones and stings on the stretch of land in the designated area and with the help of controlled explosions, the vibrations are created underground through these geophones and strings. These vibrations are then recorded by various equipments and the data is gathered, generated and analysed. Once the data so gathered and analysed by the assessee shows the results feasible for extraction of oil, the companies like ONGC and OIL carries out the extraction process. The aforesaid activity clearly shows that the primary raw material in the form of information obtained from seismic survey is processed by the assessee and the final product in the form of analysed report is generated. Undisputedly the said report is different from the raw information and data gathered by the assessee. This clearly shows that the assessee was into the business of manufacture and production of the article or thing in the form of final reports made out of the raw information and data. The said process therefore fulfils the condition provided u/s. 32(1)(iia) of the Act and therefore the assessee was rightly eligible for additional depreciation on the impugned machinery and plant used for the purpose of the business.
22 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 31. The relevant provisions of section 32(1)(iia) of the Act are reproduced for ready reference: - "(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)"
A perusal of aforesaid provisions shows that following conditions have to be fulfilled to be eligible for additional depreciation: a). The assessee has acquired new machinery and plant b). The said machinery and plant has been acquired and installed after 31.03.2005 c). The assessee is engaged in the business of manufacture or production of any article or thing
It is undisputed fact that the assets acquired by the assessee were in the nature of machinery and plant. Further, admittedly the said machinery and plant was acquired and installed after 31.03.2005. Hence, these conditions stands satisfied in case of the assessee. As regards the condition of manufacture or production of article or thing, it is submitted that the activity of the assessee is providing Oil-field related services which is akin to any other industrial activity and that the assessee is said to be involved in /production and manufacture of an article or thing' as required u/s 32(iia) of the Act.
23 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 34. The Hon'ble Delhi High Court in the case of CIT v. HLS India Ltd. [335 ITR 292] held that mineral oil activity can be said to be 'production and manufacture of an article or thing' and hence eligible for additional allowance. While holding so it has been held as under: - "31. Having analyzed the submissions of learned counsel of both the parties and the material available for our perusal and the cited case law, we find force in the submissions of Mr. Vohra, learned counsel for the assessee. No doubt, the raw material i.e., the primary Input in the impugned activity is the 'information' but can we equate this 'Information' with something which is being copied from there in toto. Whether the characteristics regarding which the information is being sent back to computers on surface from logging tools working inside the down hole can be compared to a characteristic which is available and readable without conducting highly technical scientific tests and calculations down inside the borehole. Even after the geophysical and petro-chemical properties of the rocks have been measured, further scientific processing is required to be done by dedicated softwares on the computers. It is only after the above said process, the readable and usable data in the form of logs is provided to technical experts to determine the potentiality and other technical and commercial characteristics of the oil well. Can we say, when a latent physical property of the rocks, which was otherwise unreadable and thus unusable, has been changed by way of sophisticated scientific tests and calculations into scientific data which subsequently has been further changed into logs printed on the papers or recorded on the magnetic tapes, that the character and identity of end product and final product is not distinct. We are unable to uphold such a proposition. It is a clear case where the legal proposition that "If an operation/process renders a commodity or article fit for use for which It is otherwise not fit, the operation/process falls within the meaning of the word "manufacture" applies. At this juncture, we reemphasize on the observations made by His Lordship S.H. Kapadia, I. (as His Lordship was then) in Oracle Software India Ltd. 's case (supra) that the Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day.
24 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 32. Even from another perspective, which forms the second limb of the assessee's argument, the case tilts in the favour of assessee. Mr. Vohra has tried to draw an analogy between the production of logs by using wireline logging equipments on the one hand and the production of X-Ray and ultrasound report sheets using X-Ray and Ultrasound machines on the other hand which have been held to be eligible for investment allowance under section 32A in various judicial pronouncements. Aforesaid second limb of the argument of Mr. Vohra is of vital importance because the Assessing Officer itself, while framing the assessment order dated 23-3-1995 for the assessment year 1992-93 had relied upon the same analogy to come to sharply opposite conclusions. The same can be reproduced as under.- "Can we say X-Ray machine is manufacturing X-Ray? Obviously no. Because it is only taking the information of the human body and by radiation having a graph on an X- Ray. But, it is not manufacturing X-Ray." 33. Various High Courts of India have held that X-Ray machine is qualified for investment allowance under sect/on 32A. In the case of CITy. Dr. S. Surender Reddy [2000] 243 ITR 1101120021 123 Taxman 166 the Andhra Pradesh High Court has categorically observed as under: "9. Next comes the equipment used for purposes of X-ray. By putting the X-ray film in to the X-ray machine a different article is produced. It is a different article from the film which is produced from the X-ray machine and, therefore, it is a thing within the meaning of section 32/1(2) (b) (ii). Therefore, the Tribunal is right in its view that when X-ray films are produced the assessee produces a thing and, therefore, he is entitled for investment allowance. As regards the equipment used for conducting the pathological tests the assessee is not qualified to claim investment allowance under section 32/1 of the Act. The assessee is also entitled for investment allowance on stabilizer, electric fans, scanner and air-conditioner used to keep the analytical systems, as they are necessary for purposes of production of an article or a thing." 34. Similar view has been expressed by the Gauhati High Court in CIT v. Down Town Hospital (P.) Ltd. [2004] 267 ITR 439/139
25 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Taxman 247, Kerala High Court in CIT v, Upasana Hospital [1997] 225 ITR 845/12 996] 89 Taxman 525. The issue, which we are concerned with, is a fiscal issue which is concerned with a central statute. It is desirable that in such a matter there should be uniformity of the judicial opinion. Even on merits, the analogy has some substance. We, therefore, in the light of aforestated, decide this issue in the favour of the assessee and against the revenue."
SLP filed by the revenue against this Judgement in SLP No. 2661/2012 was rejected by the Hon'ble Supreme Court by order dated 13.02.2012.
More or less similar view was taken by the Mumbai bench in the case of Oil Field Instrumentation Pvt. Ltd. v. ACIT in ITA.No. 6661/Mum/2017 dated 31.07.2019 wherein it has been held as under: “6. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Co- ordinate Bench, in assessee’s own case for AY 2011-12 in ITA.No. 2233/Mum/2016, where it has recorded categorical findings, in light of various judicial precedents that the assessee is involved in the activity of manufacturing MLU’s and for this purpose, it has set up a manufacturing facilities, therefore depreciation has been rightly claimed on plant and machinery. The relevant findings of the Tribunal are as under: 8. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the AO has disallowed the claim of additional depreciation on the ground that assessee is not a manufacturer or production of any article or thing and the Mud Logging Units manufactured by the assessee are for captive use and not for sale in the open market.
26 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited We have also gone through the legal proposition in the case of CIT Vrs. HLS India Ltd. (2011) 335 ITR 292 (Delhi) wherein on identical facts, it was held that the production of mud logging reports and analysis given the process involved tantamount to 'Manufacture or production of article or thing' as held by the High Court of Delhi observed as under:- Having analyzed the submissions of/earned counsel of both the parties and the material available for our perusal and the cited case law, we find force in the submissions of Mr. Vohra, learned counsel for the assessee. No doubt, the raw material i.e., the primary input in the impugned activity is the 'information' but can we equate this 'information' with something which is being copied from there in tow. Whether the characteristics regarding which the information is being sent back to computers on surface from logging tools working inside the down hole can he compared to a characteristic which is available and readable without conducting highly technical scientific tests and calculations clown inside the borehole. Even after the geophysical and petro-chemical properties of the rocks have been measured, further scientific processing is required to be done by dedicated software on the computers. It is only after the above said process, the readable and usable data in the form of logs is provided to technical experts to determine the potentiality and other technical and commercial characteristics of the oil well in we say. when ci latent physical property of the rocks, which was otherwise unreadable and thus unusable, has been changed by way of sophisticated scientific tests and calculations into scientific data which subsequently has been further changed into logs p/in/ed on the papers or recorded on the magnetic tapes, that the character andidentity of end product and final product is not distinct. We are unable to uphold such a proposition. It is a clear case where the legal proposition that "If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word "manufacture" applies." "Even from another perspective, which forms the second limb of the assessee 's argument, the case tilts in the favour of assessee. Mr. Vohra has tried to draw an analogy between the production of logs by using wireline
27 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited logging equipments on the one hand and the production of X-Ray and ultrasound report sheets using X-Ray and Ultrasound machines on the other hand which have been held to be eligible for investment allowance under section 32A in various judicial pronouncements. Various High Courts of india have held that X-Ray machine is qualified for investment allowance under section The Hon'ble Delhi High Court relied upon the case of CIT v. Dr. S. Surender Reddy [2000] 243 ITR 110 (AP)(HC),Gauhati High Court in UT v. Down Town Hospital (P.) Ltd. [2004] 267 ITR 439 and Kerala High Court in CIT v. Upasana Hospital [19971 225 ITR 845. Considering these Judgements, the Hon'ble Court held that 'The issue, which we are concerned with, is a fiscal issue which is concerned with a central statute. It is desirable that in such a matter there should be uniformity of the judicial opinion. Even on merits, the analogy has some substance. We, therefore, in the light of aforestated, decide this issue in the favour of the assessee and against the revenue." 9. On the above proposition, we have also considered the orders passed by the Coordinate Delhi Bench of Hon’ble ITAT in the case of Triveni Sperry Sun Ltd. Vrs. ACIT wherein it has been held that the activity of the assessee namely, production of the mud- logging reports, after processing of the data collected by the Mud Logging Units, constituted article or thing as per the statutory requirement for grant of deduction u/s 80-I. 10. We have also considered the judgment cited by Ld. DR in the case of Shiva Cargo Movers Ltd. Vrs. DCIT (2012) 82 DTR 246 (Chennai Trib) and Clover Developers Pvt. Ltd. Vrs. ACIT (ITA No. 6422/Mum/2011) (ITAT Mumbai). However, the facts contained in both the judgments are different from the facts contained in the present case. In the case of Shiva Cargo Movers Ltd, wherein the assessee was engaged in the business of transport of spirit and molasses and it acquired a new windmill in the year and had claimed additional depreciation. So far as the case Clover Developers Pvt. Ltd is concerned, wherein, the assessee was engaged in the business of construction. Hence, in both case, assessee was not engaged in the business of manufacture or production and
28 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited had set a new lines of manufacturing /production. However, in the present case, assessee was already in the line of producing mud logging for the purpose of oil exploration. Considering the facts and circumstances of the present case, discussions as well as judgments cited above, we hold that the activities of the assessee is mainly production of mud logging reports after processing of the data collected by the mud logging units and thus constitutes an ‘article or thing’ as per the statutory requirement for grant of deduction u/s 80-I of the I.T. Act. As per the facts of the present case, the assessee has processed the data collected and the report prepared by the technical personnel amounts to production of an article or thing. We fortify our conclusion on the basis of decision rendered by the Coordinate Delhi Bench of Hon’ble Tribunal in the case of CIT Vrs. HLS India Ltd. (2011) 335 ITR 292 (Delhi), wherein on identical facts, the similar findings have been recorded by the Tribunal. Hence we direct the AO to allow additional depreciation to the assessee. Resultantly, these ground raised by the assessee stands allowed. 7. In this view of the matter and consistent with view taken by the Co-ordinate Bench, we direct the AO to allow additional deprecation on plant and machinery as claimed by the assessee.”
In view of the above, we hold that assessee is eligible for additional depreciation u/s. 32(1)(iia) of the Act in respect of plant and machinery used for the mineral oil concern activity.
Coming to Ground No. 4, the assessee has challenged the action of Ld.CIT(A) in not allowing depreciation @ 60% eligible in respect of the assets used by ignoring the fact that the activity of the assessee was akin to that of a mineral oil concern and that the impugned plant and
29 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited machinery were installed for the purpose of activity relating to mineral oil extraction.
Ld. Counsel for the assessee invited our attention to the relevant entry under which the assessee claims the depreciation @60% is reproduced below for ready reference: "(xii) Mineral oil concerns: (a) Plant used in field operations (above ground) distribution returnable packages. (b) Plant used in field operations (below ground), but not including kerbside pumps including under-ground tanks and fittings used in field operations (distribution) by mineral oil concerns."
Ld. Counsel for the assessee submits that the assessee is engaged in the business of providing Seismic data survey to identify the availability of the mineral oil reservoir beneath the surface of the earth in the designated area. It is submitted that in the present case, these activities have been provided by the assessee to companies like OIL and ONGC as per the contract entered with them and the details of activities are mentioned in the contract with OIL and ONGC at page 24 and 100 of Paper Book respectively.
Learned Counsel for the assessee submitted that the activity is of primary importance without which other appraisal and development
30 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited activities like drilling, excavation and extraction of oil, etc., cannot be undertaken. As the activity provided by the assessee is one of the primary and vital activity carried out for mineral oil extraction, the assessee can be said to be mineral oil concern and the assets so purchased are said to have been used for activity of mineral oil concern. It is submitted that detailed use of such assets in the mineral oil extraction activity is given at Page 190-193 of Paper Book. Ld. Counsel for the assessee submits that these evidences clearly show that the assets used in mineral oil extraction activities are falling in clause (xii) of Schedule of depreciation and eligible for special rate of depreciation at 60%. Learned Counsel for the assessee submitted that the depreciation should be allowed to the assessee treating the assessee as mineral oil concern, more particularly because the nature of assessee’s equipments and its user is similar to those equipments which are owned by the mineral oil concerns and eligible for depreciation under the aforesaid entry. In this connection, the assessee relied on the decision in the case of Oil and Natural Gas Corporation Ltd. v. CIT [376 ITR 306 (SC)] wherein the Hon'ble Supreme Court had referred to and recognized the activity of "Drilling of exploration wells and carrying out seismic surveys for exploratory drilling" as inextricably connected with prospecting, extraction or production of mineral oil. Ld. Counsel for the
31 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited assessee further submits that identical issue was involved in the case of CIT v. HLS India Ltd [335 ITR 292] wherein in respect of the equipment in the nature of high-tech wireline logging & perforation equipments, it was held that the assessee was eligible for higher depreciation treating the same as mineral oil concern activity. Ld. Counsel for the assessee further submitted that the aforesaid decision of Hon'ble Delhi High Court has also been affirmed by Hon'ble Supreme Court in CIT v. HLS India Ltd [SLP CC No. 2661/2012] dated 13.02.2012.
Learned Counsel for the assessee submitted that the aforesaid decision of the Hon'ble High Court as affirmed by the Hon'ble Supreme Court squarely applies to the facts of the present case. Even in the present case, the activities involved are inextricably linked with the extraction of mineral oil, and hence the assets can rightly be said to have been used for the purpose of mineral oil concern activity. In light of the above, the assessee humbly prays that the depreciation in respect of the impugned assets may kindly be allowed @ 60%.
Ld. Counsel for the assessee submitted that identical view was also rendered in the following cases: -
32 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited (i). Decision of Hon'ble Authority for Advance Rulings in case of JSC SMNG-Center, Russia [74 taxmann.com 248]. (ii). Decision of Hon'ble Authority for Advance Rulings in case of Global Geophysical Services Ltd [332 ITR 4181] (iii). Decision of Hon'ble Delhi Tribunal in case of DOT v. Gearhert India Ltd [64 TTJ 631. (iv). Order of Hon'ble Mumbai Tribunal in the case of Quippo Oil and Gas Infra Ltd. v. Add CIT [ITA No. 5634/Del/2014] dated 03.04.2019. 43. Ld. DR vehemently supported the orders of the authorities below. Ld. DR further submitted that the assessee company is engaged in the business of providing seismic data acquisition and processing services and is not a mineral oil concern. The depreciation @60% is allowable only to the Mineral Oil Concerns. Ld. DR submitted that since assessee Company is not a Mineral Oil Concern, the ground raised by the assessee has no merit.
Ld. DR submitted that the decisions cited by the assessee were on the issue other than section. 32 of the Act, and therefore the same cannot be considered for the purpose of deciding the impugned issue of rate of depreciation.
In reply, Learned Counsel for the assessee submitted that the decisions of the Hon'ble Tribunal referred to above are on the issue of
33 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited section 32 itself which have been rendered after considering the legal position analyzed by the Hon'ble Delhi High Court in the case of CIT v. HLS India (Supra).
We have heard the rival submissions, perused the orders of the authorities below, submissions of the assessee and case laws relied on. Assessee claimed depreciation at 60% in respect of geographical seismic data survey equipment treating them as equipment falling under computer. The Ld.CIT(A) denied depreciation at 60% and upheld the action of the Assessing Officer in allowing depreciation at 15% as normal plant and machinery. Before us, assessee contended that the seismic data survey equipment used by the assessee is entitled for depreciation at 60% under the head under clause (xii) of depreciation schedule relating to “Mineral oil concerns”. It is contended that assessee engaged in the business of providing Seismic data survey to identify the availability of the mineral oil reservoir beneath the surface of the earth in the designated area and the activities have been provided by the assessee to companies like OIL and ONGC as per the contract entered with them are for the purpose of exploration of minerals oils. Therefore, seismic system used
34 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited by the assessee qualified for special rate of depreciation at 60% under clause(xii) of the depreciation schedule relating to mineral oil concerns.
The Hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. v. CIT [376 ITR 306] held as under: - “13. The Income Tax Act does not define the expressions “mines” or “minerals”. The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation i.e. Oil Fields (Regulation and Development) Act, 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions “mining projects” or “like projects” occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for
35 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct. The said details are set out below. Civil Appeal Work covered under the S. No. No. contract 1. 4321 Drilling of exploration wells and carrying out seismic surveys for exploratory drilling. 2. 740 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 3. 731 Drilling, furnishing personnel for manning, maintenance and operation of drilling rig and training of personnel. 4. 1722 Furnishing supervisory staff with expertise in operation and management of Drilling unit. 5. 729 Capping including subduing of well, fire fighting. 6. 738 Capping including subduing of well, fire fighting. 7. 1528 Analysis of data to prepare job design, procedure for execution and details regarding monitoring. 8. 1532 Study for selection of enhanced Oil Recovery processes and conceptual design of Pilot Tests. 9. 1520 Engineering and technical support to ONGC in implementation of Cyclic Steam Stimulation in Heavy Oil Wells. 10. 2794 Assessment and processing of seismic data along with engineering and
36 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited technical support in implementation of Cyclic Steam Stimulation. 11. 1524 Conducting reservoir stimulation studies in association with personnel of ONGC. 12. 1535 Laboratory testing under simulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of Coal Bed Methane. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18 7227 Opinion on hydrocarbon resources and foreseeable potential. 19. 7230 Opinion on hydrocarbon resources and foreseeable potential. 20. 6016 Opinion on hydrocarbon resources and foreseeable potential. 21. 6008 Evaluation of ultimate resource potential and presentations outside India in connection with promotional activities for Joint Venture Exploration program. 22. 1531 Review of sub-surface well data, provide repair plan of wells and supervise repairs. 23. 733 Repair of gas turbine, gas control system and inspection of gas turbine and generator. 24. 741 Repair and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. 26. 736 Inspection, engine performance evaluation, instrument calibration and inspection of far turbines. 27. 1522 Replacement of choke and kill consoles on drilling rigs.
37 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 28. 1521 Inspection of gas generators. 29. 1515 Inspection of rigs. 30. 2012 Inspection of generator. 31. 1240 Inspection of existing control system and deputing engineer to attend to any problem arising in the machines. 32. 1529 Inspection of drilling rig and verification of reliability of control systems in the drilling rig. 33. 2008 Expert advice on the device to clean insides of a pipeline. 34. 2795 Feasibility study of rig to assess its remaining useful life and to carry out structural alterations. 35. 925 Engineering analysis of rig. 36. 1519 Imparting training on cased hold production log evaluation and analysis. 37. 1533 Training on well control. 38. 1518 Training on implementation of Six Sigma concepts. 39. 1516 Training on implementation of Six Sigma concepts. 40. 6023 Training on Drilling project management. 41. 2796 Training in Safety Rating System and assistance in development and audit of Safety Management System. 42. 1239 To develop technical specification for 3D Seismic API modules of work and to prepare bid packages. 43. 1527 Supply supervision and installation of software which is used for analysis of flow rate of mineral oil to determine reservoir conditions. 44. 1523 Supply, installation and familiarization of software for processing seismic data. The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no
38 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited hesitation in holding that the payments made by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of Section 44BB and not Section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal”
As could be seen from the above Hon'ble Supreme Court held that Income Tax Act does not define the expressions “mines” or “minerals”. Further, on examining the provisions of section 2(j) and 2(jj) of the Mines Act, 1952 which defines Mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948, the Hon'ble Supreme Court recognized that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. In the process it has been held that drilling of exploration wells and carrying out seismic surveys for exploratory drilling is a mining activity/mining operation.
The Delhi High Court in the case of CIT v. HLS India Ltd [335 ITR 292] held as under: - "43. Now the question before us in this regard is as to whether the assessee can be termed as a 'mineral oil concern' so as to put it in a position from where it can be entitled to claim depreciation at the rate of 100 per cent under the Item III(3)(ix) (b) in Appendix-1 to the Income-tax Rules, 1962; and further, even if the assessee is not a mineral oil concern, can it be given benefit of the aforesaid
39 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited provision on the basis of nature of operation of its high-tech wireline logging & perforation equipments. 44. At this point, it would be interesting to note that while the appeal against the order of the ITAT dated 10-1-2002, whereby it has upheld the action of the CIT(A) to reverse the fresh assessment order passed by the Assessing Officer in pursuance of the direction of the ITAT dated 10-10-1998 to do so is filed in this court in the year 2002 [listed before us as ITA 20812002], however, the appeal against the original order of the ITA T dated 10-10-1998 whereby it had reverted the matter back to the table of the Assessing Officer was filed by the revenue in the year 2005 only [listed before us as ITA 194120051. It is not hard to understand that filing of the appeal, though at a delayed stage of the case, against the original order of the ITAT is an act of prudence on the part of the Department. The reason being is that had not there been this appeal against the order dated 1010-1998 as passed by the ITAT it would have been taken by assessee as acceptance of the approach, as adopted by the ITA T on the part of the revenue that if the public Oil giants are able to give a technical certificate to the assessee regarding the similarity of the equipments and the nature of operations then the matter would become a subject of technical interpretation of the real world operations of the equipments in question rather a question which is to be determined by way of giving judicial Interpretation to the statutory pro visions and in case if the certification thing comes in favour of the assessee then the entire genesis of the arguments as build by the revenue in order to push forward its case, would start crumbling on its feet. 45. This takes us to the order of the ITAT dated 10-10-1998 to revert the matter back to the table of the Assessing Officer to reexamine the matter after verification as required under the said order. The arguments, which Ms. Bansal, the learned senior counsel for revenue has advanced to destroy the case of the assessee have been, more or less, similar through-out the prolong history of the instant dispute. These arguments have been evolving and revolving around the department's position that the depreciation under ltem- II1(3), (/X)(a) and (b), in the schedule of rates of depreciation in Appendix I to the Income-tax Rules, 1962 is allowable to the mineral oil concerns only as the words 'plant used in field operation (below ground)' is required to qualify the term 'mineral oil concerns' as found in the aforesaid provision and therefore the assessee, having not being engaged In drilling or oil production, cannot be given a status of a mineral oil concern. The learned senior counsel Ms. Bansal has vehemently contended before us that the
40 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited business of the assessee is that of leasing and the equipments so leased by the assessee, only supplies the data to OIL and ONGC which are mineral oil concern. It is also submitted by her that the nature of the assessee's equipments is different from those used by state run mineral oil concerns as the assessee's equipments are mobile in nature while the equipments used by ONGC and OIL are permanently affixed down the hole. Hence, it is not entitled to 100 per cent depreciation. As opposed to this Mr. Vohra, though admitting that assessee is not a mineral oil concern, has submitted that even if it is not producing any oil nor has been engaged in the activity of oil drilling, even then It is lawfully entitled to depreciation allowance in respect of the plant and equipment owned and used by it in carrying out wire-line logging operations below the ground in the oil wells of mineral oil concerns at the rate of 100 per cent of the actual cost/written down value thereof as prescribed in item 111(3) (ix) (b) of the table of rates of depreciation in Appendix-I to the Income-tax Rules, 1962. 46. After hearing learned counsels for the parties at length on this issue, we are of the opinion that the revenue's stand on this issue lacks substance. Section 32(1) of the Act provides for a deduct/on in the computation of business income, on account of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. This provision reads as under: “32. Depreciation.—(1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights 0/ similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—] (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;
41 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:" 47. Rule 5 of the Income-tax Rules, 1962 provides that the depreciation allowable under section 32(1)(11) of the Act in respect of any block of assets shall be calculated at the percentages specified in the II column of the table of rates of depreciation in Appendix I to the Rules, on the written down value of such block of assets as are used for the purpose of the business or profession of the assessee at any time during the previous year. The concerned entry in the Appendix I is Part 1, lll(ix). This entry reads as under. "(ix) Mineral oil concerns; (a) Plant used in field operations (above ground) distribution returnable packages. (b) Plant used in field operations (be/ow ground), but not including kerbside pumps including under-ground tanks and fittings used in field operations (distribution) by mineral oil concerns." Column 2 corresponding to the above entry provides depreciation at the rate of 100 per cent for the items described in the said entry. 48. The table of rates of depreciation in Appendix I to the Rules prescribes a single rate of depreciation for the assets falling within a particular block of assets. It does not prescribe differential rates of depreciation with reference to the ownership of the asset. It would be pertinent to note here that the special rate of depreciation for the main item "11/- Machinery and Plant" have been prescribed with reference to the nature of the particular asset and the character of its user including the types of business and the environmental conditions in which it is used. When the OIL has certified in this regard, that the wirelinene logging & perforation equipments/tools which are used by the assessee are similar to those equipments/tools owned and used by mineral oil concerns and when there is no shadow is casted over the fact that the similar assets would qualify for a depreciation at the rate of 100 per cent under the said entry if these are owned by a mineral oil concern like OIL, we do not find any substance in the department's approach to deny the same to the assessee on the ground that the owner of the similar assets, we are concerned with, will not be so entitled. Mentioning of the fact, in the letter of OIL dated 13-11-1998 that these equipments/tools are
42 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited meant only for use in underground oil field operations for wireline logging & perforation leaves no iota of doubt that the nature of assessee's equipments and its user is similar to those equipments which are owned by the mineral oil concerns and eligible for depreciation under the aforesaid entry. The artificial distinction regarding the mobile nature of the assessee 'S equipments, which has been created and relied upon by the department, is of no use because even if such a distinct/on exists it would neither alter the nature of the assessee ‘s equipments nor the character of its user. We, therefore, are of the considered opinion that the assessee's wireline logging and perforation equipments are eligible for a higher depreciation at the rate of 100 per cent under clause (ii) of section 32(1) of the Act, r/w item III(3)(ix)(b) of the Schedule of rates of depreciation in Appendix I to the Income-tax Rules, 1962. 49. Having decided the issue in the aforesaid terms, we may take liberty to look into this issue from a different point of view. Depreciation allowance is a kind of tax benefit which is given to the business concerns for promotion of business activities in any particular field of business. In the instant case depreciation is allowable to mineral oil concerns at the rate of 100 per cent on the equipments used below the earth surface. If the same depreciation is not allowed to other business concerns on the ground that the owner of these equipments is not a mineral oil concern but it is just providing an assistance or leasing these equipments to a mineral oil concern then definitely this 'other concern' will charge more for these services and consequently the mineral oil concerns will be commercially forced not to outsource wireline logging activities to other companies but to do it themselves. However, practically this is not a viable option because oil companies are facing immense pressure to increase the output to meet the energy needs of our growing economy and this has resulted in extra work load. 50. From the above discussion, both the legal issues, as formulated by us in para (7) above are found to be in favour of the assessee. Accordingly, all substantial question of law involved in the instant batch of appeals are decided in the favour of the assessee and against the revenue. Consequently, all the appeals are dismissed.”
The Hon'ble Delhi High Court considered whether the equipment leased by the assessee to OIL and ONGC was supplies the data to OIL
43 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited and ONGC whether eligible for higher special rate of depreciation and held that no substantial question of law involved in the appeal of the Revenue where the Hon'ble Tribunal allowed special rate of depreciation on its high-tech wireline logging and perforation equipments leased out to OIL and ONGC. In view of the above decisions we hold that seismic survey equipment used in the project of exploration of mineral oils by OIL and ONGC is eligible for special rate of depreciation at 60% falling under clause (xii) of Depreciation Schedule relating to “Mineral oil concerns”. We order accordingly.
Coming to Ground No. 5, the assessee has challenged the action of the Ld.CIT(A) in disallowing depreciation of ₹.85,18,112/- on purchase of assets of ₹.3,78,58,272/- from HGS India Ltd. The Assessing Officer had disallowed the same on the ground that these equipments were similar to other assets wherein depreciation has been restricted at 15% which was sustained by the Ld.CIT(A).
Ld. Counsel for the assessee submitted that the assessee is a mineral oil concern (as explained above) and hence eligible for higher rate of depreciation. The assets purchased were in the nature of geophone
44 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited strings and cables which are ancillary to the main assets purchased referred supra. These cables and strings are laid on the surface of land on the entire designated area and the ends of cables and strings have to be connected with the main asset to capture the vibrations beneath the surface of the earth. These geostrings, cables etc., cannot be used independently and the main asset being seismic survey equipment also cannot be used without these cables and strings. The details of purchases like bills and description of assets is filed at Page 208-213 of Paper Book. In fact, even the Assessing Officer has accepted that the said equipments are similar to other assets and hence the depreciation applicable to these other assets should also be applied on these assets. In view of the above, the Ld. Counsel for the assessee request for relief be granted to the assessee and that the appeal of the assessee be allowed. Ld. Counsel for the assessee further prays that directions be issued to the Assessing Officer to given consequential effect to written down value of these assets and depreciation on the same.
Ld. DR vehemently supported the orders of the authorities below
45 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 54. This ground is akin to Ground No. 4 of grounds of appeal which is in respect of the claim for special rate depreciation at 60% on the seismic survey equipment. For the reasoning given above, we hold that assessee is entitled to claim for special rate of depreciation on the equipments on the geophone strings and cables which are ancillary to the seismic survey equipment. The decision given therein shall apply mutatis-mutandis for this ground also. We order accordingly.
In the result, appeal of the assessee for the A.Y. 2008-09 is partly allowed as indicated above.
A.Y: 2009-10
Ground No. 2 of grounds of appeal to be adjudicated for this year is in respect of additional depreciation in respect of plant and machinery installed and put to use during the year is identical to the Ground No. 3 of grounds of appeal of the assessee for the A.Y. 2008-09. Facts being the same, the decision taken therein shall apply mutatis-mutandis for this assessment year also. We order accordingly.
46 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited 57. Ground No. 3 of grounds of appeal to be adjudicated for this year is in respect of the Ld.CIT(A) erred in not allowing alternative claim of depreciation @60% together with the additional depreciation on the items of Plant and Machinery in Ground No. 2, ignoring the claim of the assessee that it is a mineral oil concern, is identical to the Ground No. 4 of grounds of appeal of the assessee for the A.Y. 2008-09. Facts being the same, the decision taken therein shall apply mutatis-mutandis for this assessment year also. We order accordingly.
In the result, appeals of the assessee are partly allowed as indicated above.
Order pronounced on 17.02.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.
Sd/- Sd/- (N.K. PRADHAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 17/02/2021 Giridhar, Sr.PS
47 ITA NO. 1266/AHD/2012 (A.Y: 2008-09) ITA.No. 144/AHD/2013 (A.Y: 2009-10) Asian Oilfield Services Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum