JOSHI TECHNOLOGIES INTERNATIONAL INC,AHMEDABAD vs. THE DY.CIT, CIRCLE (INT.TAXN.)-1, AHMEDABAD

The learned AO erred in not allowing deduction of Rs. 1,44,67,504/- reimbursed to Head office and disallowed under Section 40(a)(ia) of the Act for non-deduction of tax at source.

The learned AO erred in disallowing claim of deduction under Section 80IB amounting to INR 2,90,65,555 without taking proper cognizance of the order of the Gujarat High Court and on the ground that Department has filed appeal to the Supreme Court.

The learned AO erred in not granting depreciation an oil fields and oil well equipment at appropriate rate.

The learned assessing officer ought to have allowed depreciation on the opening written down value of expenditure held to be of capital nature in the Assessment Proceedings of AY 2007-08. 6. The learned Assessing Officer erred in levying interest u/s 234B of the Act, if depreciation at appropriate rate is allowed, appellant would not be liable to interest u/s 234B.

The learned Assessing Officer erred in levying interest u/s 234D of the Act at Rs.35,21,807 when the same would not applicable to the appellant’s case.”

The brief facts of the case are that the assessee is engaged in the business of oil exploration and production. For the year under consideration, the assessee filed its original return of income on 30.09.2009 declaring total income of Rs.16,50,75,438/-. Subsequently, a revised return was filed on 30.03.2011 declaring total income of Rs.12,54,62,564/-. The assessment was originally completed under section 143(3) of the Act on 15.01.2014, pursuant to the directions of the Dispute Resolution Panel (“DRP”) dated 26.12.2013. 4. Aggrieved by the original assessment, cross appeals were preferred before the Tribunal. The Tribunal, vide its order dated 27.10.2023 passed in ITA No.767/Ahd/2014 and ITA No.738/Ahd/2014, and subsequently vide order dated 24.01.2025 passed in the Miscellaneous Application, restored certain issues to the file of the Assessing Officer for fresh adjudication. The issues so restored included are as follows: (i) deduction under section 80IB(9) in respect of Dholka Oil Field; (ii) depreciation on goodwill amounting to Rs.8,06,481/-; (iii) disallowance of Rs.1,44,67,504/- under section 40(a)(ia) in respect of reimbursement of expenses to Head Office; and (iv) disallowance of training expenses of Rs.4,49,147/- paid to Head Office.

Pursuant to the aforesaid directions, the Assessing Officer called for the requisite details from the assessee and thereafter passed a draft assessment order. The assessee filed objections before the DRP. The DRP, vide directions dated 05.12.2025, rejected the objections in respect of the disputed variation. Consequently, the Assessing Officer passed the impugned final assessment order dated 29.12.2025 determining the total income at Rs.37,78,30,090/-. The additions/disallowances retained in the impugned order principally comprised the disallowance of Rs.1,44,67,504/- under section 40(a)(ia), while relief was granted in respect of depreciation on goodwill of Rs.8,06,481/- and traveling expenses of Rs.4,49,147/-.

We have heard the rival submissions and carefully perused the material available on record, including the assessment order, the directions of the DRP, the submissions of the assessee and the orders of the Tribunal passed in the earlier round. We shall deal with the grounds issue-wise.

The assessee has challenged the disallowance of Rs.1,44,67,504/- representing reimbursement of expenses to its Head Office towards geological mapping and production engineering services. The undisputed position is that the payments to the consultants, namely Mr. Victor R. Lahti (Consulting Geologist) and Mr. Clayton Evans (Petroleum Engineer), were initially made by the assessee’s Head Office in the USA and the corresponding expenditure was thereafter reimbursed by the Indian project office to the Head Office. The assessee has consistently contended that the reimbursement was on a cost-to- cost basis and contained no profit element. The earlier order of the Tribunal had restored the matter to the Assessing Officer specifically for examining the correct Article of the India-USA DTAA applicable to the payments, namely Article 12 relating to Fees for Included Services or Article 15 relating to Independent Personal Services, and for examining the relevant factual aspects. For the sake - 4– of reference, the relevant findings of the Tribunal in ITA No. 767/Ahd/2014 are reproduced hereunder:-

The brief facts in relation to this ground of appeal are that the assessee made payment of Rs. 1,44,67,504/- as reimbursement of expenses to Head Office towards geological mapping and production engineering paid by Head Office to third party individual consultants on behalf of the assessee. The DRP directed the AO to examine whether payment was made to individuals or corporate and directed that if the payment was made to individuals then Article related to "independent personal services" would be attracted and the DRP directed the AO to examine whether any tax was payable in India as per the said Article. However, the AO did not examine this specific direction given by the DRP and asked the assessee to furnish the "tax residency certificate" of the above mentioned consultants. The assessee was however, only able to produce self-declaration of those individuals as proof of residency. However, the AO did not accept the self- declaration furnished by those individuals as proof of tax residency and accordingly held that the provisions of the India-USA Tax Treaty cannot be applied in the present case. Accordingly, the Assessing Officer disallowed the aforesaid payments under Section 40(a)(ia) of the Act for non-deduction of tax at source under Section 195 of the Act.

We observe that in the aforesaid case, the AO do not comply with the direction given by DRP and has not examined whether Article 12 of the Tax Treaty or Article 15 relating to "independent personal services" would be attracted in the instant set of facts. Further, we observe that even the assessee apart from furnishing self-declaration filed by the individual consultants to whom the payments were disbursed by the JTI Head Office on behalf of the assessee, did not furnish any conclusive evidence to show that the individual consultants were "tax residents" of USA.

Accordingly, looking into the above facts, in the interest of justice the matter being restored to the file of the Assessing Officer to examine whether the correct Article to be applied in the instant facts should be Article 12 relating to "fee for technical services / fee for included services" or Article 15 relating to "independent personal services" of the DTAA between India and USA. Further, we are also of the considered view that merely filing of self-declaration by the individual consultants is not adequate proof of residency and accordingly, the assessee is directed to file necessary supporting documents to prove the tax residency of the individual residency - 5– of the individual consultants to whom the payments were made by JIT Head Office on behalf of the assessee.

In the result, Ground No.6 and 6.1 of the assessee's appeal are restored to the file of the AO with the aforesaid directions.”

In the second round, the Assessing Officer treated the reimbursement as consideration for technical services and denied treaty benefit principally on the ground that the assessee had not furnished the requisite documents establishing the tax residency of the consultants.

Before us, the Ld. AR has pointed out that, apart from the declarations of tax residency and absence of permanent establishment already furnished, additional documentary evidence, including the self-declaration of Tax Residency and confirmation of no Permanent Establishment (PE) status before the AO/DRP. It was further submitted that the services did not make available any technical knowledge to the assessee and, alternatively, that the payments were covered by Article 15 of the India-USA DTAA. The Ld. AR also submitted that additional evidence, including the TRC of Mr. Clayton Evans and Tax Return of Mr. Victor R. Lahti were produced before the Assessing Officer. The Ld. AR further submitted that the impugned payments are in the nature of reimbursements and, therefore, not subject to TDS. Without prejudice, it was also submitted that the payments are covered under Article 15 of the India-US DTAA and are not taxable in India, as the consultants neither visited nor stayed in India more than 90 days. The Ld. AR, alternatively, submitted that even under Article 12, the services do not "make available" technical knowledge and hence are not taxable in India; accordingly, no obligation to deduct tax under section 195 arises, and the disallowance under section 40(a)(ia) is unwarranted. In support of his contentions, the Ld. AR relied on following judgements:- • Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 708 (SC); • DCIT vs. Flipkart Internet P. Ltd. 171 taxmann.com 693 (Karnataka);

The Ld. DR, on the other hand, supported the orders of the lower authorities.

We have heard the rival contentions and perused the material available on record. In the present case, in our view, the Assessing Officer has not undertaken a proper examination of the underlying invoices/payment records, the exact nature of the reimbursement, the absence or otherwise of any mark- up, and the documents subsequently furnished by the assessee establishing the residential status of the consultants. The DRP has also proceeded primarily on the basis that the requisite documentary substantiation was not available. In our considered view, since the matter had been specifically restored by the Tribunal for a fresh examination, the issue ought to have been adjudicated on the basis of the complete material available on record. The additional documents stated to have been furnished by the assessee, including the TRC of Mr. Clayton Evans and the tax return of Mr. Victor R. Lahti, have a direct bearing upon the question of treaty entitlement and, consequently, upon the chargeability of the payment to tax in India. Hence, considering the period of stay of the consultants in India, TRC and provisions of the Treaty – especially Article 15 of India-US DTAA and keeping in view the fact that the consultants do not have any fixed base in India, we hold that no disallowance is called for.

The assessee has claimed deduction of Rs.2,90,65,555/- under section 80IB(9) in respect of the Dholka Oil Field. The assessee submitted that production at the Dholka Oil Field had commenced prior to 1997, whereas several wells were drilled subsequently. According to the assessee, each such well constituted a separate undertaking eligible for deduction under section 80IB(9). For computing the eligible profits, the assessee charged expenses directly attributable to each well on an actual basis and allocated common expenses in proportion to production. The claim was supported by the Accountant’s Report in Form No.10CCB.

The assessee further submitted that section 80IB(9) does not require maintenance of separate books of account for each eligible undertaking and relied upon judicial precedents in support thereof. It was also submitted that the retrospective amendment to section 80IB(9), whereby blocks licensed under a single contract were sought to be treated as one undertaking, had been held to be inapplicable by the Hon’ble Gujarat High Court in the assessee’s own case. The assessee also relied upon the decisions of the Tribunal in its own case for earlier assessment years, wherein each well was held to constitute a separate undertaking.

We have heard the arguments of both the parties and perused the material available on record. We note that, in the earlier round of proceedings, the Tribunal had restored this issue to the file of the Assessing Officer for fresh adjudication in the light of the proceedings pending before the Hon’ble Supreme Court, having dairy No. 30258 of 2024. The Assessing Officer, in the assessment order, has noted that the matter is still pending before the Hon’ble Supreme Court and, therefore, has kept the original view on the issue alive, subject to the final outcome of the proceedings before the Hon’ble Supreme Court. The DRP has affirmed the said approach. Having regard to the specific directions issued - 8– by the Tribunal in the earlier round, we do not find it appropriate to finally adjudicate the claim at this stage. The issue concerning the applicability of the amendment to section 80IB(9) and the consequent eligibility of the assessee for deduction is dependent upon the final decision of the Hon’ble Supreme Court.

Accordingly, the Assessing Officer is directed to adjudicate the assessee’s claim under section 80IB(9) in accordance with the final decision of the Hon’ble Supreme Court and the binding judicial precedents applicable to the assessee’s case, after verifying the eligible profits and fulfilment of the statutory conditions.

The assessee has challenged the depreciation allowed on oil field and oil well equipment at a rate lower than the rate claimed by it. It is the contention of the assessee that, being engaged in the extraction/production of mineral oil, the relevant plant and machinery is eligible for depreciation at the rate prescribed under Appendix I to the Income-tax Rules. The assessee has relied upon several decisions in its own case, including the decision of the Tribunal for AY 2006-07 in ITA No. 2389/Ahd/2015, which was upheld by the Hon’ble Gujarat High Court and thereafter by the Hon’ble Supreme Court.

The Ld. AR submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in the assessee’s own case for AY 2006- 07 in ITA No.2389/Ahd/2015. It was submitted that the said decision was challenged by the Department before the Hon’ble Gujarat High Court and the further proceedings before the Hon’ble Supreme Court also stood decided in favour of the assessee. Reliance was further placed on the decisions of the Tribunal in the assessee’s own case for AYs 2001-02, 2002-03, 2005-06, 2007- 08, 2008-09, 2009-10 and 2011-12, wherein the assessee’s claim regarding the Joshi Technologies Int. Inc. Vs. DCIT - 9– applicable rate of depreciation on oil field equipment has been consistently accepted.

We have considered the rival submissions and perused the material available on record. We find that the issue relating to the applicable rate of depreciation on oil field and oil well equipment is no longer res integra. The Tribunal has consistently taken a view in favour of the assessee in its own case for various assessment years. More importantly, the assessee has brought on record the decision rendered in its own case for AY 2006-07, which was carried further in appeal by the Department and the decision in favour of the assessee has attained finality. The observation of the Hon’ble High Court of Gujarat in assessee’s own case in Tax Appeal No. 514 of 2022 [153 taxmann.com 710], which has been upheld by the Hon’ble Apex Court, are as under:

In view of the aforesaid consistent judicial position in the assessee’s own case and respectfully following the binding judicial precedents, we hold that the eligible oil field and oil well equipment is entitled to depreciation at the rate already determined by the Tribunal. Accordingly, the Assessing Officer is directed to recompute the depreciation on the opening written down value of the eligible oil field equipment at the applicable rate. In respect of disallowance made during the year, the Assessing Officer shall allow depreciation in accordance with the aforesaid directions.

The assessee claimed depreciation of Rs.93,209/- on the opening WDV of renovation expenditure of Rs.11,50,733/-, which had been treated as capital expenditure by the Tribunal in AY 2007-08 and on which depreciation was allowed in the preceding years. The assessee contends that depreciation on the resultant WDV should also be allowed for the year under consideration.

We have considered the submissions of the assessee. The expenditure of Rs.11,50,733/- was held to be capital in nature by the Tribunal in AY 2007-08, - 11– with a direction to allow depreciation thereon. Depreciation was accordingly allowed in AYs. 2007-08 and 2008-09. The assessee has claimed depreciation of Rs.93,209/- on the resultant opening WDV for the year under consideration. Since the capitalisation and allowance of depreciation in the preceding years are undisputed, the assessee is entitled to depreciation on the opening WDV in accordance with law. The Assessing Officer is accordingly directed to verify the computation and allow depreciation of Rs.93,209/- as claimed.

The levy of interest under section 234B/234D is consequential in nature.

In the result, the appeal of the assessee is allowed for statistical purposes as indicated above.