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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI MANOJ KUMAR AGGARWAL
Per D.T. Garasia, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 04.07.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2006-07.
The short facts of the case are as under: The assessee company Hindustan Oil Exploration Company is engaged in the business of exploration, development and commercial production of oil and natural gas and has participating interests in several oil and gas fields in India, which are at different stages of exploration and production like cycle. In this regard, company has entered into production sharing contract with Government of India for exploration and commercial production of oil and gas
2 M/s. Hindustan Oil Exploration Company Ltd. resources. For the year under consideration, the AO has completed the assessment under section 143(3) of the Act and made several additions.
During the assessment year 2006-07, the assessee incurred expenses amounting to Rs.19,38,57,540/- under section 42 of the Act, in respect of drilling and exploration activities carried out in four blocks. The project wise break-up of the expenses along with specific amounts disallowed by the AO and confirmed by the Ld. CIT(A) is provided below:
Name of the Block Claim u/s. 42 in Claim u/s. 42 in Position taken by respect of respect of drilling Ld AO and CIT(A) exploration activities or activities or services (in Rs) services (in Rs) PY-3 (CY-OS- 4,13,81,661 - Disallowed 90/1 block) North Balol 1,61,86,697 - Disallowed Asjol 21,48,768 - Disallowed Palej 5,06,97,054 8,34,43,360 Partly allowed Total claim u/s 42 11,04,14,180 8,34,43,360 (in Rs) GRAND TOTAL 19,38,57,540 These drilling and exploration activities were carried out by the assessee in accordance with the PSC entered into by the assessee, along with the concerned joint venture partners, with the Government of India. Pursuant to section 42 of the Act, read with the terms of the PSC, the assessee claimed the above mentioned expenses incurred in respect of drilling and exploration operations as a deduction under sub-clause (b) of section 42(1) of the Act. The AO did not dispute the fact that the assessee has incurred the aforesaid expenses in four blocks in respect of drilling operations undertaken by the assessee and the same is evident from the impugned Reassessment Order itself. However, the AO rejected the claim for the reason that the activity does not fall within the head ‘exploration' and accordingly concluded that it did not fall within the purview of section 42(1)(b) of the Act.
3 M/s. Hindustan Oil Exploration Company Ltd.
On appeal before the Ld. CIT(A), although the CIT(A) appreciated that the order dated February 7, 2013, of the ITAT in the assessee’s own case for A.Y. 2007-08, clarified the requirement of drilling expenditure either before or after commercial production, and that expenditure has to be allowed for drilling activities undertaken before or after beginning of commercial production, the Ld. CIT(A) disallowed the deduction of Rs.11,04,14,180 under section 42 of the Act.
During the course of hearing, the Ld. A.R. submitted that issue in controversy is covered by the decision of the Tribunal in the assessee’s own case for A.Y. 2009-10 wherein the Tribunal has decided assessee’s appeal and has restored it to AO with a direction to decide the matter afresh. Therefore, this appeal should be decided accordingly. The Ld. D.R. has no objection.
We have heard the rival contentions of both the parties. We find that the identical issue has been decided by the Tribunal in the own case of the assessee for A.Y. 2009-10 in & 6424/M/2014 decided on 15.02.2017 wherein assessee’s as well as Revenue’s appeals were restored to AO. For the sake of convenience, the relevant paragraphs from the said order are reproduced as under:
“10. The Ld A.R also explained the methodology followed in entering into the existing well. He submitted that the said methodology resulting in drilling activity at a new place. He further submitted that the expenditure incurred after commencement of production is fully allowable. Alternatively he submitted that the expenditure should have been allowed under normal provisions of the Act.
Thus, we notice that the assessee has made many new submissions and they have not been considered by the AO. We notice that the assessee’s claim that the assessee’s share of expenditure was part of common expenditure incurred by all joint venture parties, has escaped the attention of the AO. The methodology explained by the Ld A.R was also not considered by the assessing officer. Further the AO has also not addressed the alternative contentions of the assessee. Under these set of facts, we are of the view that this issue requires fresh consideration at the end of the AO in the light of discussions made supra. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the same afresh in the light of discussions made supra.”
Hence, respectfully following the decision of the Tribunal in the own case of the assessee for earlier years, we restore this matter to the file of the AO for decision afresh.
In the result, appeal of the assessee is treated as allowed.
Order pronounced in the open court on 23.06. 2017.