DCIT 5(1), MUMBAI V. ESSAR OIL LTD, MUMBAI

ITA 1001/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4334 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 14-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 13-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H J LAL
• Keywords: Depreciation; Question of law; Wholly owned subsidiary; Revenue expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND AND SHRI. R.K. PANDA (A.M.) I.T.A. NO.1001/MUM/2009 ASSESSMENT YEAR : 2006-2007 DY. COMMISSIONER OF INCOME TAX- 5 (1) R.NO.568/525, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. ESSAR OIL LTD. ESSAR HOUSE, 11 K.K. MARG, MUMBAI 400 034 P.A. NO: AAACE0890P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. H. J. LAL RESPONDENT BY: SHRI. VIJAY MEHTA O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 15.12.2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMEN T YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONTRACT DRILLING, OFFSHORE CO NSTRUCTION, EXPLORATION OF MINERAL OIL AND GASES ETC., FILED RETURN DECLARING LOSS OF RS.1,32,58,02,789/-. DURING THE COURSE OF ASSESSMENT PRECEDING IT WAS INTERALIA OBS ERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE IN THE COMPUTATION OF INC OME HAS CLAIMED A DEDUCTION OF RS.5,76,42,862/- BEING EXPENSES INCURRED DURING THE YEAR WHICH HAVE BEEN CAPITALISED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AS CAPITAL WORK IN PROGRESS. ON BEING ASKED, IT WAS EXPLAINED BY THE ASSESSEE TH AT THE ASSESSEE IS IN INCURRING EXPENSES FOR BIDDING OF VARIOUS CONTRACTS , EXPENSES ON SITE EXPLORATION, EXPENSES ON TRAVELLING OF PERSONNEL IN CONNECTION W ITH THESE ACTIVITIES. THE ASSESSEE FURTHER SUBMITTED THAT SINCE THE EXPENSES ARE INCURRED IN CONNECTION WITH THE ONGOING BUSINESS AND ARE REVENUE IN NATURE , THE SAME ARE ALLOWABLE AS DEDUCTION. THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER 2 DECISION OF THE ITAT IN ITS CASE FOR THE ASSESSMENT YEAR 1998-97, WHEREIN ITAT ALLOWED THE EXPENSES OF SIMILAR NATURE INCURRED IN THAT YEAR. FURTHER THE ASSESSEE RELIED ON THE DECISION OF THE CIT(A) FOR TH E ASSESSMENT YEAR 2004-05 IN WHICH HE ALLOWED THE CLAIM OF THE ASSESSEE. THE ASSE SSING OFFICER FOUND THE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE. ACCO RDING TO THE ASSESSING OFFICER, THESE EXPENSES ARE INCURRED BY THE ASSESSE E FOR THE NEW DIVISION AND ALSO INCURRED TO IDENTIFY NEW AREAS WHICH CAN BE EX PLORED FOR THE PURPOSE OF PRODUCTION OF OIL AND GAS. ACCORDING TO THE ASSESSIN G OFFICER, THE EXPENSES OF THE ASSESSEE ARE IN THE NATURE OF PRELIMINARY EXPENSES AND ARE NOT RELATED TO ANY BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. THE AS SESSING OFFICER, HOWEVER, ADMITTED THAT THE FACTS FOR THE CURRENT YEAR ARE TH E SAME AS WERE IN THE ASSESSMENT YEAR 2004-05. ACCORDING TO THE ASSESSING OFFICER, EVEN THOUGH THE CIT(A) HAS DELETED THE ADDITION IN THAT YEAR BUT APP EAL OF THE DEPARTMENT ON THE SAME ISSUE IS PENDING BEFORE THE ITAT. THUS THE ASSES SING OFFICER MADE THE DISALLOWANCE IN THE YEAR UNDER CONSIDERATION. THE L D. CIT(A) FOLLOWING THE ORDERS OF THE TRIBUNAL AND KEEPING IN VIEW THAT THE APPEAL OF THE DEPARTMENT ON THIS ISSUE HAS BEEN DISMISSED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 16.10.208 IN ITA 921 OF 2006 HOLDING THAT NO QUESTIO N OF LAW ARISES IN THE PRESENT CASE, HELD THAT THE ISSUE IN APPEAL IS COVE RED IN FAVOUR OF ASSESSEE BY THE DECISIONS OF HIGHER APPELLATE AUTHORITIES AND A CCORDINGLY HE ALLOWED THE CLAIM OF THE ASSESSEE. 3. APART FROM THIS THE ASSESSING OFFICER FURTHER OBS ERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.2,47,99,964/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE DEPRECIATION CLAIM OF THE ASSESSEE IS REQUIRED TO BE MODIFIED ON THE BASIS OF FINDING GIVEN IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1993-94 AND ACCORDINGLY HE COMPUTED THE DEPRECIATION AT RS. 2,47,45,864/- AS AGAINST CLAIM OF THE ASSESSEE RS.2,47,99,964/-. THE ASSESSI NG OFFICER AFTER MAKING SOME OTHER DISALLOWANCE COMPUTED THE ASSESSEE'S TOT AL INCOME AT A LOSS OF RS.1,26,65,33,302/- AND BOOK PROFIT U/S.115JB AT RS . NIL, VIDE ORDER DATED 10.6.2008 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1 961(THE ACT.). ON APPEAL THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL F OR ASSESSMENT YEAR 1993-94 DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION . 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) TH E REVENUE IS IN APPEAL BEFORE US. 3 5. GROUND NO.1 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING T HE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF RS.5,76,42,862/ - INCURRED BY THE ASSESSEE FOR EXPLORATION AND PRODUCTION OF OIL AND GASES AS REVENUE EXPENDITURE. 6. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE OR DER OF THE ASSESSING OFFICER. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL AND ALSO BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEE'S OWN CASE ( SUPRA), WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS DISMISSED THE REVENUE S APPEAL ON THE SAME ISSUE. HE ALSO PLACED ON RECORD THE COPY OF THE ORDER OF T HE TRIBUNAL AND JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT. 8. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THERE IS NO DISPUTE THAT THE IMPUGNED ISSUE IS COVERED AGAINST THE REVENUE AND I N FAVOUR OF THE ASSESSEE BY THE CONSISTENT VIEW OF THE TRIBUNAL, CONFIRMED BY T HE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA). THE HON'BLE JURISDICTIONAL HIGH COUR T ON QUESTION NO.(B) HAS OBSERVED AND HELD VIDE PARA-2 OF ITS JUDGMENT AS UN DER :- AS REGARDS THE SECOND QUESTION IS CONCERNED, THE F INDING RECORDED BY THE TRIBUNAL IS THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF OPERATION OF RIGS FOR EXTRACTION OF OIL AND UNDERTAKING OTHER OIL RELATED ACTIVITIES. IT IS FURTHER RECORDE D BY THE TRIBUNAL THAT IN THE INTEREST OF ASSESSEES BUSINESS AND IN CONTINUATION OF THE BUSINESS CARRIED ON BY IT, THE ASSESSEE HAD TO EXPLORE THE CHANCES OF DEVELOPMENT IN THE FIELD OF OIL EXPLORAT ION FOR WHICH IT HAD TO SUBMIT ITSELF FOR BIDDING AND TENDERS. THE T RIBUNAL HAS HELD THAT SUBMITTING TENDERS AND BIDS IN THE FIELD OF OI L EXPLORATION IS A HIGHLY SOPHISTICATED TECHNICAL TASK FOR WHICH THE A SSESSEE COMPANY HAD TO INCUR SUBSTANTIAL AMOUNT OF EXPENDITURE HAD TO INCUR SUBSTANTIAL AMOUNT OF EXPENDITURE BEFORE SUBMITTING ITS BID IF THE ASSESSEE IS NOT SUCCESSFUL IN OBTAINING BID, SUCH E XPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. THE TRIBUNAL HAS HELD THAT MERELY BECAUSE THE ASSESSEE FAILED TO SECURE A BID, THE EXPENDITURE CANNOT BE DISALLOWED. THE FINDING RECORDED BY THE T RIBUNAL IS FINDING OF FACT. NO QUESTION OF LAW ARISES. APPEAL IS DISMI SSED. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF TH E TRIBUNAL AND THE DECISION OF 4 THE HON'BLE JURISDICTIONAL HIGH COURT DECLINE TO IN TERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT AND ACCORDINGLY TH E GROUND TAKEN BY THE REVENUE IS REJECTED. 9. GROUND NO.2 READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING T HE A.O. TO ALLOW THE ASSESSEES CLAIM OF DEPRECIATION WITHOUT APPREC IATING THE FACT THAT THE STATUS OF ASSESSEE COMPANY AS ON THE DATE OF TRANSFER OF THE ASSET IS 100% SUBSIDIARY COMPANY OF M/S. ESSAR GUJARAT LTD. 10. THE LD. DR SUBMITS THAT FOR THE REASONS MENTION ED IN THE ASSESSMENT ORDER THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING R ELIEF TO THE ASSESSEE. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER BE RESTORED. 11. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE SUPPORTS THE ORDER OF THE LD. CIT(A). 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE DEPRECIATION IS TO BE ALLOWED FOLLOWING THE TRIBUNAL ORDER FOR THE ASSESSM ENT YEAR 1993-94 IN ASSESSEE'S OWN CASE WHEREIN THE CLAIM OF THE ASSESS EE WAS DECIDED IN THE FAVOUR OF THE ASSESSEE. THE LD. CIT(A) FOLLOWING THE SAID ORDER OF THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE DEPRECIATION IN THE LIGHT OF THE ORDER OF THE TRIBUNAL SUPRA. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE WE DO NOT FIND ANY ERROR IN THE ORDER O F THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE DEPRECIATION AND ALLOW THE SAME. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED . 13. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22.10.2010. SD/- SD/- ( R.K. PANDA ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.10.2010. JV. 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.