HINDUSTAN OIL EXPLORATION COMPANY LTD, MUMBAI V. ITO 9(2)-1, MUMBAI

ITA 1047/MUM/2009

• Counselvise Citation: 104719914 RSA 2009
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SRIVASTAVA
• Keywords: Business income; Rule of consistency; Earning of tax free income; Cost of acquisition; Assessment record
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS.1047 AND 955/MUM/2009 ASSESSMENT YEAR : 2005-06 & 2006-07 M/S. HINDUSTAN OIL EXPLORATION CO. LTD. ANAND HOUSE, KHATWARI DURBAR RD., OFF LINKING ROAD, KHAR(W) MUMBAI-400 052. PAN NO.AAACH 1407 P VS. INCOME TAX OFFICER WARD 9(2)(1) MUMBAI-400 020. (APPELLANT) (RESPONDENT) ITA NOS.752 & 753/MUM/2011 ASSESSMENT YEAR : 2005-06 & 2006-07 INCOME TAX OFFICER WARD 9(2)(1) AAYAKAR BHAVAN, ROOM NO.225 2 ND FLOOR, M.K. ROAD MUMBAI-400 020. VS. M/S. HINDUSTAN OIL EXPLORATION CO. LTD. ANAND HOUSE, 13 TH ROAD OPP. LINKING ROAD, KHAR(W) MUMBAI-400 052. PAN NO.AAACH 1407 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SRIRAM SESHADRI REVENUE BY : SHRI S.C. SRIVASTAVA DATE OF HEARING : 04/09/2013 DATE OF PRONOUNCEMENT : 17 / 0 9 /2013 O R D E R PER B. RAMAKOTAIAH, AM: ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 2 THESE FOUR APPEALS ARE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 BY ASSESSEE AND REVENUE. APPEALS OF THE ASSESSEE IN ITA NO.1047/M/09 AND ITA NO.955/M/09 ARE ON ORDERS UNDER SECTION 143 (3) AS CONFIRMED BY THE CIT(A)-IX, MUMBAI VIDE HIS ORDERS DATED 19.1 1.2008 IN RESPECT OF ASSESSMENT YEARS 2005-06 AND 2006-07. ITA NO.752/ MUM/2011 AND ITA NO.753/MUM/2011 ARE APPEALS BY REVENUE AGAINST THE ORDERS UNDER SECTION 271(1)(C) LEVYING PENALTY BY THE AO BUT DEL ETED BY THE CIT(A)-20, MUMBAI VIDE ORDERS DATED 19.11.2010. THESE ARE HEAR D TOGETHER. WE HAVE HEARD THE LD. COUNSEL AND THE LD. DR. ITA NO.1047/MUM/2009 (AY: 2005-06): 2. IN THIS APPEAL, ASSESSEE HAS RAISED TWENTY-TWO G ROUNDS ON VARIOUS ISSUES. GROUND NO. 1 IS GENERAL IN NATURE. 2.1 GROUNDS NOT PRESSED : GROUND NOS. 7 TO 18 PERT AINING TO QUANTUM OF DEDUCTION UNDER SECTION 80IB(9) ARE NOT PRESSED. LIKEWISE GROUND NOS. 21 AND 22 ON THE DISALLOWANCE OF LOSS ON SALE OF INVESTMENTS WERE ALSO NOT PRESSED. ACCORDINGLY, THEY ARE TREATED AS WITHDRAWN. 2.2 GROUND NOS. 2 TO 6 PERTAIN TO THE ISSUE OF DI SALLOWANCE UNDER SECTION 80IB(9). THE ASSESSEE COMPANY IS AN OIL EX PLORING COMPANY EXTRACTING OIL FROM P.Y3 BLOCK FIELD IN THE CAUVERY OIL SHORE AREA AND ASJOL OILFIELD IN GUJARAT. THE ASSESSEE CLAIMED DED UCTION U/S 80IB ON THE PROFIT ARISING FROM THE SALE OF THE OIL. THE ASSESS ING OFFICER DOUBTED WHETHER DEDUCTION U/S 8OLB IS ALLOWABLE FOR EXTRACT ING OF OIL. THE ASSESSING OFFICER NOTED THAT THE CRUDE OIL EXTRACTE D BY THE ASSESSEE FROM THESE FIELDS IS SOLD TO M/S CHENNAI PETROLEUM CORPO RATION LTD AND INDIAN OIL CORPORATION LTD. THE ASSESSING OFFICER R AISED A QUESTION WHETHER EXTRACTION OF OIL TANTAMOUNT TO MANUFACTURE OR PRODUCTION OF MINERAL OIL OR NOT. ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 3 2.3 AFTER CONSIDERING THE DICTIONARY MEANING OF WO RD EXTRACTION MEANS REMOVAL WITHDRAWAL TALKING OUT, PULLING OUT ORIGIN AND MINING, THE ASSESSING OFFICER PRIMA FACIE FOUND THAT THE LITERA L MEANING OF THESE WORD IS NEITHER MANUFACTURE NOR PRODUCTION AND ACCORDING LY ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM U/S 80IB. 2.4 THE ASSESSEE CONTENDED, BEFORE THE ASSESSING OF FICER THAT THE ASSESSEE IS ENGAGED IN THE EXPLORATION, DEVELOPMEN T AND PRODUCTION OF NATURAL OIL & GAS. AS THIS ACTIVITY REQUIRES HUGE I NVESTMENT AND INVOLVES HIGH RISK, THE ASSESSEE INVARIABLY DOES SUCH EXPLOR ATION, DEVELOPMENT AND PRODUCTION BY FORMING OR JOINING CONSORTIUM OR UNINCORPORATED JOINT VENTURE WITH FOREIGN OR INDIAN COMPANIES OR BOTH. T HE ASSESSEE RELIED UPON VARIOUS DECISIONS OF HONBLE SUPREME COURT AS WELL AS HONBLE HIGH COURTS ON THE POINT OF INTERPRETATION OF THE WORD/T ERMS PRODUCTION AND SUBMITTED THAT THE WORD PRODUCTION HAS A WIDER CONN OTATION THAN THE WORD MANUFACTURE. THE ASSESSEE CLAIMED THE ACTIVITY OF EXPLORING AND EXTRACTING MINERAL OIL IS CERTAINLY PRODUCTION. 2.5 THE ASSESSING OFFICER DID NOT AGREE WITH THE C ONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS NOT CARRYING OUT ANY PROCESS BY WHICH BRINGS INTO EXISTENCE NEW GOODS OR A BRINGS C HANGES OR SERIES OF CHANGES WHICH TAKES THE COMMODITY TO THE POINT WHER E COMMERCIALLY IT CAN NOT LONGER BE REGARD AS ORIGINAL COMMODITY. ACC ORDINGLY, THE ASSESSING OFFICER HELD THAT EXTRACTION OF OIL FROM OIL FIELD CANNOT BE TERMED AS PRODUCTION OR REFINING OF MINERAL OIL AND HENCE, NO DEDUCTION U/S 801B(9) OF THE I T ACT. 3. ON APPEAL THE CIT(A) ON THE ISSUE WHETHER THE ACTIVITY OF EXPLORATION/EXTRACTION OF OIL AMOUNTS TO MANUFACTUR E OR PRODUCTION OF MINERAL OIL, AGREED WITH THE VIEW OF THE ASSESSING OFFICER FOLLOWING THE ORDER IN EARLIER YEAR. ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 4 4. AT THE OUTSET THE LD. COUNSEL SUBMITTED THAT THIS I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSMENT YEARS 2003-04 AND 2004-05 IN ITA NO.179/M/2007 AND 1711/M /2008 DATED 28.12.2011 WHERE IN THIS WAS CONSIDERED AS UNDER :- 7.6 WE HAVE CONSIDERED THE RIVAL CONTENTION AND C AREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFI CER DENIED THE DEDUCTION ON THE GROUND THAT THE ASSESSEE IS NOT CA RRYING OUT ANY PROCESS BY WHICH BRINGS INTO EXISTENCE NEW GOODS OR BRINGS SERIES OF CHANGES WHICH TAKES THE COMMODITY TO THE POINT WHER E COMMERCIALLY IT CAN NO LONGER BE REGARDED AS ORIGINAL COMMODITY. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DOES NOT UNDERTA KE ANY PROCESS WHICH GIVES CRUDE OIL NEW FORM, QUALITIES OR COMBIN ATION. THOUGH, THE ASSESSING OFFICER HAS ALSO DENIED DEDUCTION FOR WANT OF 1OCCB REPORT AS IT WAS NOT FILED AT THE TIME OF SUBMISSIO N OF THE RETURN; BUT, SINCE THE CIT(A) HAS DECIDED THE ISSUE OF FILING OF 1OCCB REPORT SUBSEQUENT TO THE FILING OF THE RETURN IN FAVOUR OF THE ASSESSEE AND THE REVENUE IS NOT IN APPEAL BEFORE US; THEREFORE, THE SAID ISSUE ATTAIN THE FINALITY AT THE STAGE OF CIT(A) ORDER. T HE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON SIMILAR LINE S AND MAINLY ON THE GROUND THAT WHAT IS EXTRACTED AND TRANSPORTED BY TH E ASSESSEE IS NOTHING BUT CRUDE OIL WHICH REMAINS AS IT IS WITHOU T UNDERGO ANY CHANGE OR ANY PROCESS. THE CIT(A) WAS OF THE VIEW T HAT SOME DISTILLATION PROCESS WOULD NOT RENDER THE PRODUCT D IFFERENT THAN THE ONE EXTRACTED I.E. THE CRUDE OIL ITSELF. 8.1 IT IS TO BE NOTED THAT THE TERM USED IN SECTION 801B(9) IS PRODUCTION AND MORE SPECIFIC, THE PRODUCTION OF MIN ERAL OIL AND NOT THE MINERAL. THEREFORE, THE ISSUE IS RELATED WITH T HE PRODUCTION AND NOT MINERAL. IT IS SETTLED PROPOSITION OF LAW AS LAID DOWN BY THE HONBLE SUPREME COURT THAT THE WORD PRODUCTION AS U SED IN SEC. 801B OF THE I T ACT HAS A WIDER CONNOTATION AS COMP ARED TO THE )RD MANUFACTURE. IN ALL THE CASES, ON WHICH RELIANCE HA S BEEN PLACED BY THE LD. SR. COUNSEL FOR THE ASSESSEE, SOME AMOUNT OF PROCESS AT VARIOUS STAGES WAS INVOLVED AND IN THAT VIEW OF TH E MATTER, THE HONBLE SUPREME COURT AS WELL AS HONBLE HIGH COUR TS HAVE HELD THAT THERE CERTAINLY AN ACTIVITY WHICH GIVES IN THE CHARACTER OF PRODUCTION. 8.2 IN THE CASE OF CIT VS SESA GOA LTD , THE HONBL E SUPREME COURT HAD AN OCCASION TO CONSIDER MINING OF ORE PRODUCTIO N. IT WAS NOTED THAT THE ASSESSEE IN THE EXTRACTING PROCESS OF IRON ORE, THE HIGH COURT CAME TO THE CONCLUSION THAT EXTRACTION OF IRO N ORE AND THE VARIOUS PROCESS WOULD INVOLVE PRODUCTION WITHIN T HE MEANING OF SEC ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 5 32A(2)(B)(III) OF THE I.T ACT AND CONSEQUENTLY, THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF INVESTMENT ALLOWANCE UND ER SEC. 32A. THE VIEW EXPRESSED BY THE HIGH COURT THAT THE ACTIVITY OF EXTRACTION AND PROCESSING OF IRON ORE CONSTITUTE PRODUCTION HAS BE EN AFFIRMED BY THE HONBLE SUPREME COURT. IT WAS HELD BY THE HONBLE S UPREME COURT THAT THE WORD PRODUCTION HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. IT WAS FURTHER OBSERVED THAT EVERY MA NUFACTURER CAN BE CHARACTERIZED AS PRODUCTION, EVERY PRODUCTION NE ED NOT AMOUNT TO MANUFACTURE. 8.3 IN THE CASE OF COMMISSIONER OF INCOME-TAX V. BU DHARAJA (N.C.) AND CO.(SUPRA), THE HONBLE SUPREME COURT HAS HELD THAT THE WARD MANUFACTURE AND PRODUCTION HAVE RECEIVED EXTENS IVE JUDICIAL ATTENTION BOTH UNDER SALES TAX AND CENTRAL SALES TA X ACTS. THE HONBLE SUPREME COURT HAS OBSERVED THAT FOR DETERMI NING WHETHER THE MANUFACTURE CAN BE SAID TO HAVE BEEN TAKEN PLAC E IS WHETHER THE COMMODITY WHICH IS SUBJECT TO THE PROCESS CAN N O LONGER BE REGARDED AS ORIGINAL COMMODITY. THE WORD PRODUCTIO N WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TAKES IN BRINING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY N OT AMOUNT TO MANUFACTURE. THUS, IT IS CLEAR THAT IF THE ACTIVI TY WHICH IS SOMETHING MANUFACTURES AND WHICH BRINGS A NET PRODUCT INTO EXISTENCE THEN THE ACTIVITY CONSTITUTES PRODUCTION. 9. IN THE CASE IN HAND, WE ARE CONCERNED WITH THE CLAUSE (II) OF SUB.SEC. (9) OF SEC.80IB. IT IS NOT THE CASE OF MA NUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING U/S 8018, DEDUCT ION IS ALLOWED FOR COMMERCIAL PRODUCTION OF MINERAL OIL.THEREFORE, SUB .SEC (9) STIPULATES PRODUCTION OF SPECIFIC PRODUCT I.E. MINERAL OIL. AS FAR AS THE CONTENTION OF THE ASSESSEE THAT WHEN THE ASSESSEE W AS ALLOWED DEDUCTION U/S 35E FOR PRODUCTION OF MINERAL OIL CAN NOT BE DENIED U/S 8018. DEDUCTION U/ 35E WOULD NOT CONCLUSIVELY PROVE THAT THE ASSESSEE HAS CARRIED OUT THE ACTIVITY OF PRODUCTION OF MINERAL OIL BECAUSE AS PER SEC 35E (1), A DEDUCTION OF EXPENDIT URE IS ALLOWED WHERE AN ASSESSEE IS ENGAGED IN ANY OPERATIONS RELA TING TO PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF ANY MINERAL. THUS, DEDUCTION U/S 35E IS ALLOWABLE, IF THE ASSESSEE IS ENGAGED IN ANY OF THE ACTIVITY RELATING TO PROSPECTING FOR OR EXTRACT ION OR PRODUCTION AND THEREFORE, IF A DEDUCTION U/S 35E IS ALLOWED, THAT WOULD NOT ESTABLISH THAT THE ASSESSEE HAS CARRIED OUT THE PRO DUCTION OF MINERAL OIL. THIS ASPECT WILL NOT HELP THE ASSESSEES CLAIM . 10 THE DEFINITION OF MINERAL OIL HAS NOT BEEN GIVEN IN SEC. 8018; HOWEVER. U/S.42 WHERE THE DEDUCTION IN CASE OF BUSI NESS FOR PROSPECTING ETC.. FOR MINERAL OIL THE TERMS MINERA L OIL HAS BEEN EXPLAINED IN THE EXPLANATION AS UNDER: ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 6 [EXPLANATION.FOR THE PURPOSES OF THIS SECTION, MI NERAL OIL INCLUDES PETROLEUM AND NATURAL GAS.] WE FURTHER NOTE THAT U/S 293A, THE MEANING OF MINER AL OIL HAS BEEN GIVEN AS UNDER: MINERAL OIL INCLUDES PETROLEUM AND NATURAL GAS - NOTIFICATION NO. GSR 645(E) DATED 6.7.1987. 11. WE FURTHER NOTE THAT AS PER PRODUCTION SHARING CONTRACT DATED 30TH DEC 1994, THE DEFINITION OF CRUDE OIL IS GIVEN UNDER CLAUSE 1.27 AS UNDER: CRUDE OIL MEANS CRUDE MINERAL OIL, ASPHALT, OZOKE RITE AND ALL KINDS OF HYDROCARBONS AND BITUMENS, BOTH IN SOLID A ND IN LIQUID FORM, IN THEIR NATURAL STATE OR OBTAINED FRO M NATURAL GAS BY CONDENSATION OR EXTRACTION, INCLUDING DISTILLATE AND CONDENSATE WHEN COMMINGLED WITH THE HEAVIER HYDROCA RBONS AND DELIVERED AS A BLEND AT THE DELIVERY POINT BUT EXCLUDING VERIFIED NATURAL GAS. V 11.1 THE TERM OIL AS UNDERSTOOD BY PARTIES I.E. GOVERNMENT OF INDIA AND OTHER COMPANIES INCLUDING THE ASSESSEE AS CRUD E OIL AS PER CLAUSE 1.58 OF THE SAID CONTRACT AND CRUDE OIL MEA NS CRUDE MINERAL OIL ALONG WITH THE OTHER CONTENTS AS GIVEN IN CLAUS E 1.27 OF THE CONTRACT. THEREFORE, OIL, CRUDE OIL, PETROLEUM ARE CONSIDERED AS SYNONYMOUS TO EACH OTHER. 11.2 AS PER CLAUSE 1.65 PETROLEUM MEANS CRUDE OI L AND NATURAL GAS EXISTING IN THEIR NATURAL CONDITION. THEREFORE, THE TERM COMMERCIAL PRODUCTION OF MINERAL OIL HAS TO BE UNDE RSTOOD IN THE CONTEXT OF ACTIVITY OF PETROLEUM OPERATIONS V OR PR ODUCTION OPERATION INVOLVED IN EXTRACTING THE CRUDE OIL. 11.2 WHEN THE MINERAL OIL DOES NOT REQUIRE TO UNDE RGO ANY PROCESS EXCEPT SEPARATION OF NATURAL GAS AND OTHER SEDIMENT S ELEMENTS BY PROCESS OF DISTILLATION AND FILTERING THEN THE EXPR ESS PRODUCTION OF MINERAL OIL AS USED IN SEC. 80IB(9) HAS TO BE UNDER STOOD AS THE OIL EXTRACT FROM UNDERNEATH THE SURFACE AND NOTHING MOR E. WHEN THE MINERAL OIL ITSELF IS TAKEN AS RAW CRUDE OIL AS EXT RACTED FROM THE EARTH THEN THE CONSEQUENT STEPS REQUIRES TO BE TAKE N ARE ONLY TO ENSURE THE STORAGE AND TRANSPORTATION OF THE COMMER CIAL COMMODITY CALLED AS CRUDE OIL OR MINERAL OIL ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 7 12 IN THE CASE OF CIT VS SINGARENI COLLIERIES CO LTD (SUPRA) THE HONBLE ANDHRA PRADESH HIGH COURT HAS OBSERVED AS U NDER: THUS, THE EXPRESSION PRODUCTION OF MINERAL IS US ED IN THE ALLIED PROVISIONS, OF THE ACT ITSELF AND IT IS DEFI NITE POINT THAT PARLIAMENT EMPLOYED THE EXPRESSION PRODUCTION TO THE MINERALS EXTRACTED FROM UNDERNEATH THE SURFACE AS W ELL AS JUST AS THE LEGISLATURE HISTORY TAKEN INTO ACCOUNT BY THE SUPREME COURT, THE INTERNAL AID TO INTERPRETATION F URNISHED BY A COGNATE PROVISION CAN BE ULTIMATELY TAKEN INTO AC COUNT. VIEWED FROM ANY ANGLE, WE ARE OF THE VIEW THAT THE BENEFIT OF SEC 32A IS AVAILABLE TO THE RESPONDENT ASSESSEE THE CORRECT LEGAL POSITION REGARDING DEDUCTION OF INVESTMENT AL LOWANCE SHOULD NOT BE LEFT IN DOUBT AND AN UNCERTAINTY CREA TED IN THE MIND OF THE RESPONDENT ASSESSEE WHICH IS A PUBLIC S ECTOR UNDERTAKING IN THE GUISE OF RAISING A QUESTION AS T O INTERPRETATION OF A PROVISION WHICH ADMITS OF NO DO UBT. WE, THEREFORE, DECLINE REFERENCE ON THE SECOND QUESTION . 12.1 THEREFORE, MEANING FOR THE DEFINITION GIVEN IN EXPLANATION TO SEC. 42, SECTION. 293A AS WELL AS IN VARIOUS CLAUSE S OF PRODUCTION SHARING CONTRACT FT DOES NOT REQUIRE TO UNDERGO ANY PROCESS OF ANY PHYSICAL OR COMPOSITION CHANGE BUT AFTER THE PROCES S OF SEPARATION OF GAS, WATER AND OTHER SEDIMENTARY ELEMENTS BECOME CO MMERCIAL COMMODITY. THEREFORE, COMMERCIAL PRODUCTION OF MINE RAL OIL AS PER. SEC. 8OIB(9) INVOLVES THE ACTIVITY OF EXTRACTING OI L FROM UNDERNEATH OF SURFACE AND TRANSPORT IT FOR SALE AND NOTHING ELSE. 12.2 EVEN OTHERWISE, AS PER PRODUCTION SHARING CONT RACT, THE ASSESSEE AND OTHER JOINT VENTURES HAVE TO EXPLORE, DEVELOP, EXTRACT AND DELIVER THE CRUDE OIL. THIS PROCESS INCLUDES DI STILLATION AND SEPARATION OF VERIFIED NATURAL GAS. THEREFORE, AS P ER THE AGREEMENT, THE ASSESSEE IS BOUND TO PERFORM ITS PART AND ONCE THE ASSESSEE IS CARRIED ITS OPERATION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE SAID AGREEMENT WITH THE GOVT. THE BENEFIT OF TH E DEDUCTION U/S 801B IS ALLOWABLE TO THE ASSESSEE: 13 SINCE WE HAVE ALLOWED, THE CLIME OF THE ASSESSSE E ON MERIT, THEREFORE, THE ISSUE OF RULE OF CONSISTENCY HAS BEC OME ONLY ACADEMIC IN NATURE AND DOES NOT REQUIRE ANY FINDING . 14. THOUGH THE ISSUE OF PRODUCTION OF MINERAL OIL H AS BEEN DECIDED ON PRINCIPLE IN FAVOUR OF THE ASSESSEE; HOWEVER, IT IS TRANSPIRED FROM THE ASSESSMENT ORDER AS THE ASSESSING OFFICER HAS RECORDED IN PARE 2 AT PAGE 1 OF ASSESSMENT THE FOR THE AY 2003-04 T HAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80LB IN RESPECT OF SALE OF OIL FROM PY-3 ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 8 BLOCK FIELD IN THE CAUVERY OFFSHORE AREA AND ASJOL OIL FIELD IN GUJARAT. A SPECIFIC QUERY WAS PUT TO THE PARTIES FOR CLARIFI CATION VIDE ORDER DATED 16.11.2011 AND THE PARTIES WERE ASKED TO CLAR IFY AND PRODUCE THE RELEVANT RECORDS TO EXPLAIN THE SAID FACTS RECO RDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER INCLUDIN G THE YEAR OF COMMENCEMENT OF THE COMMERCIAL PRODUCTION OF THE RE SPECTIVE OIL FIELDS. 15 THE ASSESSEE HAS FILED A LETTER DATED 29.11.2011 AND EXPLAINED AS UNDER: THE PRODUCTION SHARING CONTRACT ENTERED INTO BY TH E APPELLANT WITH RESPECT TO THE PY-3 BLOCK WAS EXECUTED ON DECE MBER 30, 1994. A COPY OF THE PRODUCTION SHARING CONTRACT FOR MS PART OF THE PAPER BOOK FILED BEFORE YOUR HANOURS (REFER PAG E 1-190 OF THE PAPER BOOK). THE COMMERCIAL PRODUCTION ON THE PY-3 BLOCK COMMENC ED ON JULY 27, 1997, AS STATED IN THE CERTIFICATE IN FORM IOCCB ISSUED BY THE CHARTERED ACCOUNTANT AND FILED AS PA RT OF THE PAPER BOOK BEFORE YOUR HONOURS (QUERY 8 ON REFER PA GE .796 OF THE PAPER BOOK). THIS IS ALSO EVIDENCED BY THE N OTES TO THE ACCOUNTS FORMING PART OF THE AUDITED FINANCIAL STAT EMENTS FOR THE JOINT VENTURE OPERATIONS PERTAINING TO THE PY-3 BLOCK (ALSO REFERRED TO AS CYOS-90/1 BLOCK) FOR THE FINANCIAL Y EAR 1997-98 (REFER PARA 5 IN PAGE 9 OF ANNEXURE A). THESE FINAN CIAL STATEMENTS WERE DULY SUBMITTED BY THE APPELLANT DUR ING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1998 -99. 15.1 ON THE OTHER HAND, THE ID DR HAS PRODUCED THE ASSESSMENT RECORDS FOR THE ASSESSMENT YEAR 1997-98 AND SUBMITT ED THAT THE COMMERCIAL PRODUCTION FROM ASJOL OIL FIELD WAS COMM ENCED PRIOR TO APRIL 1998 THEREFORE, THE DEDUCTION U/S.80IB IS NOT ALLOWABLE IN RESPECT OF THE SALE OF OIL FROM ASJOI OIL FIELD. 16 WE HAVE CONSIDERED THE RIVAL CONTENTION AND OTHE R RELEVANT MATERIAL ON RECORDS PRODUCED BEFORE US IN RESPECT O F OUR QUERY. THE ASSESSEE HAS NOT DISPUTED THE FACT THAT COMMERCIAL PRODUCTION FROM ASJOI OIL FIELD WAS COMMENCED PRIOR TO APRIL 1997 B UT HAS SUBMITTED THAT NO SUCH CLAIM U/S 801B HAS BEEN IN RESPECT OF THE SALE OF OIL FROM ASJOL OIL FIELD. 16.1 FROM THE RECORDS AVAILABLE BEFORE US, IT IS NO T POSSIBLE TO ASCERTAIN THE TURNOVER AND INCOME OF SALE OF OIL FR OM ASJOI OIL FIELD. THEREFORE, IT IS NOT CLEAR WHETHER THE DEDUCTION CL AIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALSO INCL UDES HE SALE OF OIL FROM ASJOL OIL FIELD. ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 9 16.2 EVEN OTHERWISE, THERE IS A DISCREPANCY IN THE AMOUNT OF DEDUCTION MENTIONED IN THE ASSESSMENT ORDER VIZ-A-V IS THE AMOUNT MENTIONED IN THE TAX AUDIT REPORT. THIS ASPECT IS R EQUIRED TO BE VERIFIED. 17. IN VIEW OF THE ABOVE DISCUSSION, THE ISSUE IS R EMANDED BACK TO THE RECORDS OF THE ASSESSING OFFICER FOR THE LIMITE D PURPOSE TO VERIFY WHETHER THE CLAIM OF DEDUCTION U/S 8OLB ALSO INCLUD ES THE TURN OVER AND INCOME FROM SALE OF ASJOL OIL FIELD AND THE DIS CREPANCY BETWEEN THE AMOUNTS MENTIONED IN THE TAX AUDIT REPORT AND A SSESSMENT ORDER. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO WORK OUT THE DEDUCTION AFTER VERIFICATION OF THESE FACTS. 4.1 SINCE THE ISSUES WERE ELABORATELY DISCUSSED IN THE CO-ORDINATE BENCH ORDER IN ASSESSEES OWN CASE, WE UPHOLD ASSES SEES CONTENTION AND DIRECT THE AO TO ALLOW DEDUCTION UNDER SECTION 80IB AFTER EXAMINATION OF FACTS AS DIRECTED IN EARLIER YEARS. GROUNDS ARE CONSIDERED ALLOWED. 5. GROUND NOS.19 AND 20:- THESE GROUNDS PERTAIN TO DISALLOWANCE UNDER SECTION 14A. THE ASSESSEE HAS EXEMPT INCOME A ND AO AND CIT(A) DISALLOWED THE AMOUNT INVOKING RULE 8D. IT IS CLEAR LY ADMITTED THAT THIS ISSUE HAS TO GO BACK TO THE AO FOR CONSIDERING DISA LLOWANCE, KEEPING IN MIND THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81(BOM). ACCORDINGLY THE AO IS DIRECTED TO DETERMINE REASONABLE AMOUNT F OR DISALLOWANCE UNDER SECTION 14A, AS RULE 8D IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. THE MATTER IS RESTORED TO THE FILE OF AO. GROUNDS CONSIDERED ALLOWED. 6. IN THE RESULT, APPEAL ALLOWED FOR STATISTICA L PURPOSES. ITA NO.955/MUM/2009 (AY: 2006-07): 7. IN THIS APPEAL, ASSESSEE RAISED TWENTY-THREE GR OUNDS. GROUND NO.1 IS GENERAL IN NATURE AND ASSESSEE HAS NOT PRES SED GROUND NO.8 TO ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 10 16 ON THE ISSUE OF QUANTUM OF DEDUCTION UNDER SECTI ON 80IB(9). IN ADDITION ASSESSEE ALSO DID NOT PRESS GROUND NO.21 A ND 22 ON THE DISALLOWANCE OF DATA ACQUISITION CHARGES. ACCORDING LY THE SAME ARE TREATED AS WITHDRAWN. 8. GROUND NO.2 TO 7 PERTAIN TO THE ISSUE OF DEDUCTI ON UNDER SECTION 80IB. THIS ISSUE WAS DISCUSSED ABOVE IN ITA NO.1047 /M/09 AGAINST GROUND NO.2 TO 6. THIS ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE VIDE ORDERS OF THE ITAT IN ASSESSMENT YEAR 2003-04 AND 2 004-05 WHICH ARE EXTRACTED ABOVE. AS PER THE DIRECTIONS GIVEN THEREI N, THE AO IS DIRECTED TO COMPUTE DEDUCTION UNDER SECTION 80IB AFTER DUE VERI FICATION AS IN ASSESSMENT YEAR 2003-04 AND 2004-05 AND ALLOW DEDUC TION ACCORDINGLY. GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURP OSES. 9. GROUND NO.17 AND 18:- THESE GROUNDS PERTAIN TO D ISALLOWANCE UNDER SECTION 14A. THE ASSESSEE HAS EXEMPT INCOME A ND AO AND CIT(A) DISALLOWED THE AMOUNT INVOKING RULE 8D. IT IS CLEAR LY ADMITTED THAT THIS ISSUE HAS TO GO BACK TO THE AO TO CONSIDERING DISAL LOWANCE KEEPING IN MIND THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81(BOM). ACCORDINGLY THE AO IS DIRECTED TO DETERMINE REASONABLE AMOUNT F OR DISALLOWANCE UNDER SECTION 14A, AS RULE 8D IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. THE MATTER IS RESTORED TO THE FILE OF AO. GROUNDS CONSIDERED ALLOWED. 10. GROUND NO.19 AND 20: THESE GROUNDS ARE ON THE D ISALLOWANCE OF LOSS DUE TO CYCLONE. IT WAS CONTENDED THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE LOSS CLAIMED BY THE ASSESSEE. HE ME RELY SETTLED THE YEAR IN WHICH TAX INCIDENCE ARISES BY VIRTUE OF HIS DECI SION IN THE EARLIER YEAR. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE CLA IMED SHORT TERM CAPITAL LOSS OF RS.10,58,70,627/- IN THE COMPUTATION OF TOT AL INCOME FOR THE YEAR. IT WAS MENTIONED THAT SHORT TERM CAPITAL LOSS WAS D IFFERENCE BETWEEN COST ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 11 OF ACQUISITION OF WELL WHICH WAS LOST IN A CYCLONE AND INSURANCE CLAIM RECEIVED . IN THE INSURANCE CLAIM ASSESSEE CLAIMED TOTAL COST OF PD-3 WELL AT RS.17,03,82,590/-. AS THE WELL WAS LOST IN CYCLONE, ASSESSEE MADE INSURANCE CLAIM IN ASSESSMENT YEAR 2004-05 WHICH WA S BROUGHT TO TAX IN THAT YEAR ON ACCRUAL BASIS BY AO. HOWEVER, THE ASS ESSEE RECEIVED THE INSURANCE CLAIM SETTLED BY THE INSURANCE COMPANY AT RS.6,41,36,100/- DURING THE YEAR AND AFTER SETTLING THIS AMOUNT AGAI NST TOTAL COST, ARRIVED AT A NET LOSS OF RS.10,62,46,490/-. SINCE THERE WA S GAIN OF RS.3,75,863/- ON OTHER ITEM, THE NET CAPITAL LOSS W AS CLAIMED IN THE COMPUTATION OF INCOME. THE AO EXTRACTED THE DETAILS IN PAGE -23 OF THE ORDER, BUT ON THE REASON THAT ASSESSEE HAS NOT FURN ISHED FULL AND COMPLETE DETAILS OF WORKING AND SUPPORTING DOCUMENT S IN RESPECT OF COST OF ACQUISITION AT RS.17,07,82,590/-, HE DID NOT ACC EPT THE COST OF SALE AND FURTHER, SINCE INSURANCE CLAIM WAS RECEIVED DUR ING THE YEAR HE BROUGHT TO TAX THE RECEIPT OF INSURANCE ON A PROTEC TIVE BASIS. WHEN THE ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A), TO T HE EXTENT OF ASSESSING INSURANCE CLAIM WAS CONFIRMED ON SUBSTANTIVE BASIS, FOLLOWING THE ORDERS FOR THE ASSESSMENT YEAR 2005-06. THEREFORE, ASSESSE E IS AGGRIEVED THAT LD. CIT(A) HAS NOT ADJUDICATED ON THE LOSS CLAIMED WHILE CONFIRMING THE INSURANCE AMOUNT RECEIVED. 11. WE HAVE CONSIDERED THE ISSUE AND NOTICED THAT L D. CIT(A) HAS NOT ADJUDICATED THE LOSS CLAIMED. WE ARE ALSO OF THE VI EW THAT AO HIMSELF DID NOT UNDERSTAND THE CLAIM ITSELF. AFTER EXTRACTING T HE DETAILS OF THE WELL IN PG-22 AS WELL AS ON PG-23 AND NOTING THAT ASSESSEE SHARE BEING 21% WAS EQUIVALENT AT RS.17,03,82,590/-, HE DID NOT ACCEPT COST OF ACQUISITION. WE ARE UNABLE TO UNDERSTAND WHAT FURTHER DETAILS HE WANTED AS HE HIMSELF EXTRACTED THE DETAILS IN THE ORDER AT PAGE- 23. SINCE AMOUNT OF RECEIPT WAS CONFIRMED TO BE TAXED IN THIS YEAR, BEI NG INSURANCE AMOUNT RECEIVED FROM UNITED INSURANCE CO., THE LOSS IS RE QUIRED TO BE ALLOWED TO THE ASSESSEE. SINCE AO ALSO DID NOT EXAMINE THE ISS UE IN ITS CORRECT ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 12 PERSPECTIVE, INSTEAD OF REMITTING THE MATTER TO THE LD. CIT(A), WE CONSIDER IT APPROPRIATE TO REMIT THE MATTER TO THE FILE OF A O TO EXAMINE THE ISSUE AND ALLOW LOSS. THE ASSESSEE SHOULD BE GIVEN DUE OP PORTUNITY TO MAKE SUBMISSIONS IN THIS REGARD. GROUNDS CONSIDERED ALLO WED FOR STATISTICAL PURPOSES. 12. GROUND NO.23 IS DISALLOWANCE OF SITE RESTORATIO N FUND. THE AO RESTRICTED THE DEDUCTION CLAIMED UNDER SECTION 33AB A OF THE ACT AT 20% OF THE PROFITS AND GAINS FROM BUSINESS AS COMPUTED BY ASSESSEE. IT WAS THE CONTENTION THAT THE AO MADE CERTAIN ADDITIONS W HICH ARE TREATED AS BUSINESS INCOME, THEREFORE, CORRESPONDING DEDUCTION UNDER SECTION 33ABA HAS TO BE ALLOWED. LD. CIT(A) IN HIS ORDER HO WEVER REJECTED THE CLAIM THAT THE ASSESSEE MERELY RAISED THIS GROUND, WITHOUT PROVING THAT ALL CONDITIONS LAID DOWN HAVE BEEN FULFILLED. 13. WE ARE UNABLE TO UNDERSTAND THE REASONING OF THE LD. CIT(A). THE AO HIMSELF ALLOWED THE DEDUCTION ON BEING SATISFIED ABOUT FULFILLMENT OF THE CONDITIONS ON THE ASSESSEES RETURNED INCOME, W HEREAS THAT RETURNED INCOME HAS VARIED IN THE COURSE OF ASSESSMENT. IT W AS SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE NECESSARY REPORT OF THE AUDITOR AND REFERRED TO PAGE-6 OF THE PAPER BOOK TO SUBMIT THAT THE ASSE SSEE HAS INVESTED TO THE EXTENT OF RS.1143 MILLION. THEREFORE, IT IS ELI GIBLE FOR DEDUCTION ON THE ASSESSED INCOME. SINCE THIS ASPECT WAS NOT NOTI CED BY THE LD. CIT(A) CORRECTLY AND AO ALSO AFTER MAKING ADDITIONS TO THE INCOME FROM BUSINESS DID NOT REVISE THE CLAIM, WE DIRECT THE AO TO EXAMINE THE ISSUE AND WHATEVER PROFITS ARE DETERMINED, DEDUCTION UNDE R SECTION 33ABA HAS TO BE ALLOWED AS PER THE PROVISIONS I.E. SUM EQUAL TO 20% OF THE PROFITS OF SUCH BUSINESS OR SOME EQUAL TO AMOUNT THAT WAS DEP OSITED AS PER PROVISIONS, WHICH EVER IS LESS. THIS ASPECT IS REST ORED TO THE FILE OF THE AO FOR NECESSARY COMPUTATION AFTER GIVING DUE OPPORTUN ITY TO ASSESSEE. GROUND 23 IS TREATED AS ALLOWED. 14. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 13 ITA NOS.752 & 753/MUM/2011: 15. THESE ARE APPEALS BY REVENUE AGAINST THE DELETI ON OF PENALTY U/S 271(1)(C) ON THE DISALLOWANCES MADE BY THE AO IN TH E ASSESSMENT ORDER. SINCE MANY OF THE ADDITIONS MADE WERE CONFIRMED BY CIT(A), AO FINALIZED THE PENALTY AT RS.22.65 CRORE FOR THE ASSESSMENT YE AR 2005-06 AND RS.25.45 CRORE FOR THE ASSESSMENT YEAR 2006-07. LD. CIT(A) AFTER CONSIDERING NATURE OF DISALLOWANCES, MAINLY COMPRIS ING OF DISALLOWANCE OF CLAIM UNDER SECTION 80IB, DELETED THE PENALTY . HIS ORDER AT PARA-9 FOR ASSESSMENT YEAR 2005-06 IS AS UNDER :- IN THE INSTANT CASE THE APPELLANT HAD NOT CONCEALE D ANY INCOME. IT IS SEEN THAT TWO DIFFERENT AOS TOOK TWO DIFFERENT V IEWS ON THE SAME SETS OF FACTS CONCERNING THE CLAIM OF DEDUCTION U/S . 80IB. THUS IT IS AO WHO MADE THE CLAIM OF DEDUCTION DEBATABLE AND CO NTENTIOUS. IN THESE CIRCUMSTANCES, NO FAULT CAN BE FOUND WITH THE APPELLANT IF IT CLAIMED THE DEDUCTION IN THE CURRENT YEAR AS WELL. FURTHER NO MALAFIDE CAN BE ATTRIBUTED TO THE APPELLANT IF IT CLAIMED THAT NO EXPENSES WERE INCURRED IN RELATION TO EXEMPT INCOME COVERED BY SECTION 14A. IT IS NOT THE CASE OF AO THAT THE APPE LLANT CLAIMED IMPUGNED EXPENSES WHICH WERE FOUND TO BE INACCURATE OR FALSE. IN BOTH THE CASES, THE APPELLANT HAD MADE CLAIMS WHICH WERE HELD NOT SUSTAINABLE IN LAW. THE PARTICULARS OF CLAIM WERE N OT FOUND TO BE INACCURATE, INCORRECT OR FALSE AND ONLY THE CLAIMS WERE SAID TO BE NOT PERMISSIBLE UNDER THE LAW. AS HELD IN THE CASE OF R ELIANCE PETRO (SUPRA), A MERE MAKING OF THE CLAIM WHICH IS NOT SU STAINABLE IN LAW WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULAR S OF INCOME, THE CONDITIONS PRESCRIBED IN SECTION 271(1)(C) DO NOT E XIST. I, THEREFORE, CANCEL THE PENALTY IMPOSED OF RS.22,65,81,290/-. 15.1 SIMILARLY, FOR ASSESSMENT YEAR 2006-07 ALSO, L D.CIT(A) DELETED THE PENALTY. 16. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE CIT(A ). IN FACT, PENALTY WAS MAINLY LEVIED ON QUANTUM DISALLOWANCE ON CLAIM OF S ECTION 80IB, WHICH WAS IN FACT HELD IN FAVOUR OF THE ASSESSEE IN ITS A PPEALS, NOT ONLY THIS YEAR BUT ALSO IN EARLIER YEARS. THEREFORE, ON MERE DISALLOWANCE OF A CLAIM ITA NO.1047,955/09 & 752 &753/11 A.Y.05-06, 06-07 M/ S. HINDUSTAN OIL EXPLORATION CO. LTD. 14 THERE CAN NOT BE ANY PENALTY, EITHER AS CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. AS RIG HTLY HELD BY THE LD. CIT(A), THE CONDITIONS PRESCRIBED IN SECTION 271(1) (C) DOES NOT EXIST ON THE FACTS OF THE CASE. THEREFORE, WE CONFIRM THE OR DERS AND REJECT THE REVENUES CONTENTIONS. BOTH APPEALS ARE DISMISSED. 14. IN THE RESULT, ASSESSEES APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND REVENUE APPEALS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2013. SD/- SD/- (DR. S.T.M. PAVALAN) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 17/09/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.