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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
PER SAKTIJIT DEY, J.M.
This bunch consists of six appeals challenging separate orders passed by the learned Commissioner (Appeals), Mumbai. While appeals relating to assessment year 1996–97 and 1997–98 are preferred by the assessee only, there are cross appeals for assessment year 1998–99 and 1999–2000.
Since, the issues raised in these appeals are more or less common and appeals relate to the same assessee, as a matter of convenience, these appeals are being disposed off by way of this consolidated order.
ITA no.942/Mum./2015 Assessee’s Appeal – A.Y. 1996–97
Grounds no.1 and 3 are not pressed, hence, dismissed.
In ground no.2,the assessee has challenged disallowance of exploration expenses of ` 1,90,63,501, pertaining to Pranhita Godavari (PG) Block.
Brief facts are, the assessee is a company engaged in the business of exploration and extraction of crude oil and gas. The assessee was awarded a contract for exploration of oil and natural gas
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in PG Block by the Government of India, Ministry of Petroleum andOil and Natural Gas Corporation Ltd. and the assessee’s share in the said block is to the extent of 75%. In the return of income filed for the impugned assessment year, the assessee claimed deduction of ` 1,90,63,501, towards exploration expenses of PG Block in terms of Article–16 of Product Sharing Contract (PSC) r/w section 42(1)(a) of the Income Tax Act, 1961 (for short “the Act”). The Assessing Officer while completing the assessment under section 143(3) of the Act disallowed the exploration expenses claimed by the assessee which was confirmed by the learned Commissioner (Appeals) on the reasoning that similar expenditure claimed by the assessee in the earlier assessment years were also disallowed. Being aggrieved of the order passed by the learned Commissioner (Appeals), assessee went in further appeal before the Tribunal. The Tribunal, while deciding assessee’s appeal in ITA no.6890/Mum./2002, dated 16th March 2009, restored the issue to the Assessing Officer to decide afresh after properly examining the facts relating to the impugned assessment year. In the fresh assessment proceedings, in pursuance to the direction of the Tribunal, the Assessing Officer called upon the assessee to justify the claim of exploration expenses. It was submitted by the assessee that the expenditure claimed was on account of unsuccessful exploration of PG Block which was ultimately relinquished
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/ surrendered in the relevant previous year. It was submitted that the expenditure was claimed in terms with Article–16 of the PSC r. w. s 42 of the Act. In support of such claim, the assessee furnished various documentary evidences. The Assessing Officer, however, did not find merit in the submissions of the assessee. The Assessing Officer observed, from the details filed by the assessee it does not appear that PG Block was relinquished / surrendered in the relevant previous year as there is no such information coming out of the Director’s Report presented before the Annual General Body Meeting. Further, the Assessing Officer observed, the Government of India, Ministry of Petroleum and Natural Gas, New Delhi, vide letter dated 22nd March 1996, had informed the assessee that it can only relinquish its right subject to the condition that it performs minimum work program as envisaged in Article–4.2 and other Articles of the PSC during Phase–1 of the operation even after surrender of the proposed area. The Assessing Officer observed, the correspondences between the assessee and the Government does not prove actual surrender of PG Block during the previous year relevant to the impugned assessment year. Thus, he disallowed assessee’s claim of unsuccessful exploration expenses. Being aggrieved, assessee challenged the aforesaid disallowance before the first appellate authority. However, the learned
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Commissioner (Appeals) also sustained the disallowance made by the Assessing Officer.
The learned Authorised Representative contesting the disallowance made by the Assessing Officer and sustained by the learned Commissioner (Appeals) submitted, various documentary evidences were submitted before the Departmental Authorities to prove that in the relevant previous year, assessee had surrendered / relinquished 7,300 sq.km. area in PG Block. In this context, he drew our attention to the letter dated 26th December 1995 written to the Ministry of Petroleum and Natural Gas offering to relinquish 7,300 sq.kms. of area in PG Block. He submitted, the Ministry vide letter dated 22nd March 1996, accepted the relinquishment / surrender of 7,300 sq.kms. of area in PG Block. In this context, he drew our attention to the said letter of the Ministry of Petroleum and Natural Gas placed at Page–137 of the paper book. Thus, he submitted, the relinquishment / surrender of a part of PG Block actually happened in the previous year relevant to the assessment year under dispute. Therefore, he submitted, the Department’s claim that the assessee has not relinquished / surrendered a part of the PG Block is without any basis. The learned Authorised Representative submitted, as for clause– 16 of the PSC r/w section 42(1)(a) of the Act, the assessee is entitled to claim deduction in respect of unsuccessful exploration expenses
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even prior to beginning of commercial production, if such expenditure is provided in the agreement. He submitted, in the impugned assessment year the assessee has also commenced commercial production, hence, it is eligible to claim deduction under section 41(1)(b) of the Act. Thus, he submitted, disallowance made by the Departmental Authorities is in violation of the provision of section 42(1)(a) of the Act. In support of his contention he relied upon a decision of the Tribunal, Mumbai Bench, in its own case for assessment year 2008–09, in ITA no.4042/Mum./2012, dated 19th February 2016.
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.
We have considered rival submissions and perused materials on record. In the original assessment order, the Assessing Officer disallowed the unsuccessful exploration expenses simply for the reason that similar disallowance was made in the earlier assessment years.However, in the second round of proceedings, the Assessing Officer has disallowed assessee’s claim on the ground that the assessee has not relinquished any area in the PG Block. The learned Commissioner (Appeals) has also endorsed the aforesaid view of the Assessing Officer. On a perusal of the material placed before us, we
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find that the assessee vide letter dated 28th December 1995, informed the Ministry of Petroleum and Natural Gas about relinquishment of 7,300 sq.kms. area of PG Block. It is also seen, vide letter dated 22nd March 1996, the Dy. Secretary to the Government of India, Ministry of Petroleum and Natural Gas, informed the assessee about the consent of the Government to the relinquishment of 7,300 sq.mtrs. of PG Block. Thus, it is evident, in the previous year relevant to the assessment year under dispute, the assessee’s relinquishment of 7,300 sq.kms. area in PG Block was accepted by the Government. Therefore, the finding of the Assessing Officer and the learned Commissioner (Appeals) that the assessee has failed to prove relinquishment of any area in PG Block is contrary to the material on record. Further, a perusal of Article–16 of the PSC, as placed in the paper book, indicates that the assessee is to be allowed deduction of expenses in terms of section 42 of the Act. Therefore, the unsuccessful oil exploration expenses is allowable under section 42(1)(a) of the Act. The Co–ordinate Bench of the Tribunal, Mumbai Benches, has also expressed similar view while deciding identical issue in assessee’s own case in assessment year 2008–09 in ITA no.4042 and 3489/Mum./2012, dated 19th February 2016. In view of the above, we delete the disallowance made by the Assessing Officer and sustained by the learned Commissioner (Appeals). Grounds raised are allowed.
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In ground no.4, the assessee has challenged disallowance of set– off of exploration expenses against interest income of ` 20,060.
The learned Authorised Representative fairly submitted that the issue has to be decided against the assessee. In view of the aforesaid submissions made by the learned Authorised Representative, we dismiss the ground raised by the assessee.
In ground no.5, the assessee has challenged short credit of TDS.
The learned Authorised Representative submitted, while the assessee has claimed credit for TDS amounting to ` 1,22,24,341, the Assessing Officer has given credit for ` 1,14,85,146. Thus, he submitted, the Assessing Officer may be directed to grant actual credit of TDS claimed by the assessee.
The learned Departmental Representative submitted, since the learned Commissioner (Appeals) has directed the Assessing Officer to give proper credit of TDS, no further direction is necessary.
Having considered rival submissions, we direct the Assessing Officer to consider assessee’s claim in the context of facts and material available on record and grant proper credit of TDS. Ground raised is allowed for statistical purposes.
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Ground no.6, relating to levy of interest under section 220(2).
This ground being consequential does not require adjudication at this stage.
In the result, assessees appeal is allowed for statistical purposes. ITA no.5534/Mum./2003 Assessee’s Appeal – A.Y. 1997–98
In ground no.1, the assessee has challenged the decision of the Departmental Authorities in rejecting the revised return of income filed by the assessee.
Brief facts are, for the impugned assessment year, the assessee filed its return of income on 28th November 1997, declaring income of ` 1,09,02,889. Subsequently, on 30th March 1999, the assessee filed a revised return of income declaring income of `57.69 lakh. During the assessment proceedings, the Assessing Officer noticing that in the revised return of income the assessee has claimed various deductions, including exploration expenses in respect of some Blocks, observed that as per section 139(5) of the Act the assessee can file a revised return of income only for the purpose of correcting obvious omissions / mistakes. Hence, it cannot be use to make entirely a new claim. Accordingly, he rejected the revised return of income filed by the
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assessee. Of–course, he also observed that the claim made in the revised return of income is also not allowable on merit. Being aggrieved of the assessment order so passed, the assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) also accepted the decision of the Assessing Officer.
The learned Authorised Representative submitted, the assessee has filed the revised return of income within the time prescribed under section 139(5) of the Act. He submitted, there is nothing in the provision of section 139(5) of the Act to suggest that the assessee cannot make a fresh claim in the revised return of income if per mistake he has failed to do so in the original return of income. Thus, he submitted, the reasoning of the Departmental Authorities in rejecting the revised return of income filed by the assessee is against the mandate of law. In support of such contention, he relied upon the following decisions:–
i) Dhampur Sugar Mills Ltd. v/s CIT, [1972] 90 ITR 236 (All.); ii) CIT v/s Himgiri Foods Ltd., [2011] 333 ITR 508 (Guj.);
iii) CIT v/s Gold Tex Furnishing Industries, [2002] 276 ITR 164 (Del.); iv) CIT v/s P.R. Prabhakar, [2004] 276 ITR 176;
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v) Goetz India Ltd. v/s CIT, [2006] 284 ITR 323 (SC); and vi) CIT v/s Pruthvi Brokers And Shareholders Pvt. Ltd. [2012] 349 ITR 336 (Bom.).
Thus, the learned Authorised Representative submitted, the Assessing Officer may be directed to consider the revised return of income filed by the assessee and decide the claim made in the revised return of income.
The learned Departmental Representative, though, relied upon the observations of the Departmental Authorities, however, he submitted that the Assessing Officer may be directed to consider the revised return of income filed by the assessee on merit.
We have considered rival submissions and perused materials on record. Undisputedly, the assessee has filed the revised return of income within the time prescribed under section 139(5) of the Act. A reading of the said provision makes it clear that, in case, the assessee discovers any omission or any wrong statement in the original return of income he can file a revised return of income in the prescribed time limit. There is nothing in the said provision to suggest that the assessee cannot make a fresh claim in the revised return of income to be filed under section 139(5) of the Act. Only requirement of law is, it must be filed within the time limit prescribed under section 139(5) of
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the Act. As regards the allegation of the learned Commissioner (Appeals) that the assessee filed the revised return of income to reduce the taxable income by making jugglery in the accounts, we must observe, nothing prevents the Assessing Officer to disallow on merits the claim made by the assessee in the revised return of income after properly examining such claim in the context of books of account maintained by the assessee as well as other facts and material on record. Merely on presumption and surmises assessee’s revised return of income cannot be rejected if such return of income has been filed in accordance with the statutory provision. Therefore, we restore this issue to the Assessing Officer for fresh adjudication after considering assessee’s claim made in the revised return of income. Since, we are directing the Assessing Officer to consider assessee’s claim made in the revised return of income, the grounds raised on merits need not be adjudicated at this stage, hence, are restored to the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. Suffice to say, while deciding the issue relating to unsuccessful exploration expenses of ` 9,21,556, in respect of Pranhita Godavari P.G. Block, the Assessing Officer must keep in view our decision in ground no.2 of ITA no.942/Mum./2015, herein above. Grounds are allowed for statistical purposes.
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In the result, assessee’s appeal is allowed for statistical purposes.
ITA no.8068/Mum./2004 Assessee’s Appeal – A.Y. 1998–99
Ground no.2, is not pressed, hence, dismissed.
In ground no.1, the assessee has challenged disallowance of unsuccessful exploration expenses of ` 4,98,547, in respect of Pranhita Godavari (PG) Block. 28. This ground is identical to ground no.2, of ITA no.942/Mum./ 2015. Following our decision therein, we allow assessee’s claim. This ground is allowed.
In ground no.3, assessee has challenged disallowance of ` 7,39,985 under section 14A of the Act.
Briefly the facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee in the relevant previous year has received exempt income by way of dividend amounting to ` 15.12 lakh and interest on tax free bonds amounting to ` 34,21,233, called upon the assessee to explain why disallowance under section 14A of the Act should not be made. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejecting the claim of the assessee disallowed an amount of ` 7,39,985 under
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section 14A of the Act. Being aggrieved of such disallowance assessee preferred appeal before the first appellate authority. However, the learned Commissioner (Appeals) upheld the disallowance made by the Assessing Officer on the reasoning that the assessee has utilised borrowed funds for earning dividend income. Hence, he upheld the disallowance made by the Assessing Officer.
The learned Authorised Representative submitted, before disallowing expenditure under section 14A of the Act, the Assessing Officer has not recorded any satisfaction that the claim of the assessee is incorrect. He submitted, the assessee is not in share trading business. Therefore, no expenditure is incurred by the assessee for such activity.
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.
We have considered rival submissions and perused materials on record. In the assessment order, the Assessing Officer has given a clear cut finding that the loan burden of the assessee is negligible, hence, it cannot be said that loan bearing funds are invested in tax free securities. Having held so, the Assessing Officer disallowed 15% of the exempt income earned towards administrative expenditure.
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Whereas, the learned Commissioner (Appeals) without properly examining the facts has upheld the disallowance with the observation that the assessee has used borrowed funds for earning dividend income. Be that as it may, disallowance on account of administrative cost @ 15% of the exempt income, in our view, is on the higher side. Therefore, we restrict such disallowance to 10% of the dividend income. Ground raised is partly allowed.
In the result, assessee’s appeal is partly allowed.
ITA no.8933/Mum./2004 Revenue’s Appeal – A.Y. 1998–99
Grounds no.1 to 5, are in respect of allowance of unsuccessful exploration expenses of ` 86,73,991.
Brief facts are, for the impugned assessment year, the assessee had filed its original return of income on 27th November 1998, declaring loss of ` 44,41,28,450. Subsequently, the assessee filed a revised return of income on 28th December 1999, wherein, assessee declared loss of ` 44,98,93,905. During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed unsuccessful exploration expenses of ` 8,34,74,879, in respect of KG Block in terms of Article–16 of PSC r/w section 42(1)(a) of the Act. On verifying the details, the Assessing Officer found that the amount of
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unsuccessful exploration expenses claimed by the assessee included expenditure of ` 66,39,361 incurred in the subsequent assessment year i.e., A.Y. 1999–2000 and an amount of ` 86,73,991 pertaining to the preceding assessment year i.e., A.Y. 1997–98. Therefore, after excluding the aforesaid two amounts, since, they did not pertain to the impugned assessment year, the Assessing Officer allowed expenditure to the tune of ` 6,81,61,527. Being aggrieved of part disallowance of the expenditure claimed, the assessee preferred appeal before the first appellate authority.
After considering the submissions of the assessee, the learned Commissioner (Appeals) found that, though, the expenditure of ` 86,73,991, pertained to assessment year 1997–98, however, the block in respect of which such expenditure was incurred was surrendered in the impugned assessment year. Noticing that the Assessing Officer has accepted in principle that unsuccessful exploration expenses are to be allowed in the year of surrender of the block, the learned Commissioner (Appeals) allowed assessee’s claim.
The learned Departmental Representative submitted, the assessee has not claimed the aforesaid expenditure in the original return of income. He submitted, such expenditure was claimed in the revised return of income. He submitted, allowance of such expenditure
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claimed in the revised return of income has resulted in increase of loss, which cannot be allowed to be carried forward as per the provisions of section 80 of the Act.
The learned Authorised Representative strongly relied upon the observations of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. Undisputedly, in the original return of income filed within the due date as prescribed under section 139(1) of the Act, the assessee has claimed loss. It is also a fact on record that while completing the assessment, the Assessing Officer has also determined loss and allowed carry forward of such loss. Therefore, there is no dispute that the assessee has fulfilled the conditions of section 80 of the Act. Therefore, any change in quantum of loss due to the direction of the appellate authority would not disentitle the assessee from claiming carry forward of loss ultimately determined while giving effect to the direction of the learned Commissioner (Appeals), because, the difference is only with regard to the quantum of loss to be carried forward. In any case of the matter, there is no dispute that the assessee has filed the revised return of income within the prescribed time limit as per section 139(5) of the Act. Therefore, the contention of the learned Departmental Representative that the loss claimed in
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the revised return of income cannot be carried forward is not acceptable. As regards the allowability of expenditure claimed, the Revenue has failed to controvert the factual finding of the learned Commissioner (Appeals) that, though, the expenditure pertained to the preceding assessment year, however, in view of the Assessing Officer’s own decision, such expenditure is allowable in the assessment year wherein the block is surrendered. In view of the aforesaid, we do not find any infirmity in the order of the learned Commissioner (Appeals). Grounds are dismissed.
In grounds no.6 to 12, the Revenue has challenged allowance of expenditure claimed of ` 86,87,332, in respect of PY–3 Block.
Brief facts are, during the assessment proceedings, the Assessing Officer found that the assessee has claimed development cost of ` 47,41,48,350 in respect of PY–3 and Asjol Block. After verifying the details furnished by the assessee, the Assessing Officer was of the view that out of development cost of ` 46,54,60,518, claimed for PY–3 Block an amount of ` 41,93,35,902, represent drilling expenses whereas an amount of ` 4,28,81,399, represent non–drilling revenue expenditure. He further observed that an amount of ` 6,38,95,332, represents non–drilling capital expenditure. Similarly, he observed that in respect of Asjol Block the amount of ` 86,87,332, represent non–
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drilling capital expenditure. The Assessing Officer observed, non– drilling revenue expenditure cannot be allowed under section 37(1) of the Act but has to be considered as pre–operative and spread over the assets for allowance of depreciation. Further, he held that the prior year capital expenditure would be eligible for depreciation. Accordingly, he reduced the expenditure claimed by the assessee. Being aggrieved of the disallowance of expenditure claimed, the assessee preferred appeal before the first appellate authority.
After considering the submissions of the assessee in the context of the facts and material on record, the learned Commissioner (Appeals) observed that both PY–3 Block and Asjol Block have commenced production of oil during the relevant previous year. Therefore, he held that the expenditure which has been incurred on land scaping, pipe laying and producing property is allowable as revenue expenditure under section 42(1)(b) of the Act r/w PSC. Without prejudice to the aforesaid finding, the learned Commissioner (Appeals) observed that as per the depreciation schedule provided in the Income Tax Rules, 1962, 100% depreciation is allowable on plant used in field operation. Therefore, even if the expenditure is treated as capital in nature, still the assessee would be eligible to claim 100% deduction on account of the expenditure towards depreciation.
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The learned Departmental Representative relied upon the observations of the Assessing Officer. Whereas, the learned Authorised Representative strongly relied upon the finding of the learned Commissioner (Appeals).
We have considered rival submissions and perused materials on record. As could be seen from the facts on record, the Assessing Officer has disallowed a part of the drilling expenditure incurred for PY–3 and Asjol Block on the reasoning that either they are non–drilling revenue expenditure or non–drilling capital expenditure. However, the learned Commissioner (Appeals) has held that the expenditure incurred by the assessee is allowable as drilling expenditure under section 42(1)(b) of the Act, since, the assessee has commenced commercial production and such expenditures are in terms of the PSC. On a reading of section 42(1)(b) of the Act, it becomes clear that after commencement of commercial production, expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except, those assets on which depreciation is allowable under section 32 of the Act are allowable as deduction if such expenditure is allowable as per the terms of the agreement with the Government. Undisputedly, the Assessing Officer has not doubted the fact that the assessee has incurred such expenditure or the assessee has commenced commercial production.
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He has also not doubted that such claim is not provided in the PSC. That being the case, assessee’s claim of expenditure is allowable under section 42(1)(b) of the Act. Even otherwise also, as rightly observed by the learned Commissioner (Appeals), the assessee is entitled to claim 100% depreciation on assets used in the field operation. In view of the aforesaid, we do not find any reason to interfere with the decision of the learned Commissioner (Appeals). Grounds are dismissed.
In the result, Revenue’s appeal is dismissed.
ITA no.8069/Mum./2004 Assessee’s Appeal – A.Y. 1999–2000
The only effective ground raised by the assessee relates to disallowance of unsuccessful exploration expenses of ` 3,90,845, in respect of PG Block.
This ground is identical to ground no.2, of ITA no.942/Mum./ 2015. Following our decision therein, we allow assessee’s claim of expenditure.
In the result, assessee’s appeal is allowed.
Hindustan Oil Exploration Co. Ltd.
ITA no.8934/Mum./2004 Revenue’s Appeal – A.Y. 1999–2000
The grounds raised by the Revenue are identical to ground no.6 to 12, of ITA no.8933/Mum./2004. Following our decision therein, we uphold the decision of the learned Commissioner (Appeals). Grounds raised are dismissed.
In the result, Revenue’s appeal is dismissed.
To sum up, ITA no.8068/Mum./2004 and ITA no.942/Mum./2015 are partly allowed; ITA no.8069/Mum./2004 is allowed; ITA no.5534/ Mum./2003 is allowed for statistical purposes; ITA no.8933/Mum./ 2004 and ITA no.8934/Mum./2004 are dismissed. Order pronounced in the open Court on 12.10.2018
Sd/- Sd/- MANOJ KUMAR AGGARWAL SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 12.10.2018 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Sr. Private Secretary) ITAT, Mumbai
Hindustan Oil Exploration Co. Ltd.
Date Initial 1. Draft dictated on 08–09.10.2018 Sr.PS 2. Draft placed before author 10.10.2018 Sr.PS Draft proposed & placed 3. before the second – – JM/AM member Draft discussed/approved 4. – – JM/AM by Second Member Approved Draft comes to 5. Sr.PS 12.10.2018 the Sr.PS/PS 6. Date of pronouncement 12.10.2018 Sr.PS File sent to the Bench 7. 12.10.2018 Sr.PS Clerk Date on which file goes to 8. the Head Clerk 9. Date of dispatch of Order