M/s. HINDUSTAN OIL EXPLORATION CO. LTD., MUMBAI V. ACIT CIR. -9(2), MUMBAI

ITA 179/MUM/2007

• Counselvise Citation: 17919914 RSA 2007
• Duration Of Justice: 4 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 25-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 08-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rule of consistency
• Section: 234B; 80IB

Judgement Text

2 HINDUSTAN OIL EXPLORATION CO LTD 3.1 THE ASSESSEE COMPANY IS AN OIL EXPLORING COMPAN Y EXTRACTING OIL FROM P.Y- 3 BLOCK FIELD IN THE CAUVERY OIL SHORE AREA AND ASJ OL OILFIELD IN GUJARAT. THE ASSESSEE CLAIMED DEDUCTION U/S 80IB ON THE PROFIT A RISING FROM THE SALE OF THESE OIL. THE ASSESSING OFFICER DOUBTED WHETHER DEDUCTIO N U/S 80IB IS ALLOWABLE FOR EXTRACTING OF OIL. THE ASSESSING OFFICER NOTED TH AT THE CRUDE OIL EXTRACTED BY THE ASSESSEE FROM THESE FIELDS IS SOLD TO M/S CHENNAI P ETROLEUM CORPORATION LTD AND INDIAN OIL CORPORATION LTD.. THE ASSESSEE COMPANY I S EXTRACTING CRUDE OIL IN JOINT VENTURE WITH GOVT. OF INDIA. THE ASSESSING OFFICER RAISED A QUESTION WHETHER EXTRACTION OF OIL TENTAMOUNTS TO MANUFACTURE OR PRO DUCTION OF MINERAL OIL OR NOT. 3.2 AFTER CONSIDERING THE DICTIONARY MEANING OF WO RD EXTRACTION MEANS REMOVAL WITHDRAWAL TALKING OUT, PULLING OUT ORIGIN AND MINNING, THE ASSESSING OFFICER PRIMA FACIE FOUND THAT THE LITERA L MEANING OF THESE WORD IS NEITHER MANUFACTURE NOR PRODUCTION AND ACCORDINGLY ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM U/S 80IB. 3.3 THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFF ICER THAT THE ASSESSEE IS ENGAGED IN THE EXPLORATION, DEVELOPMENT AND PRODUCT ION OF NATURAL OIL & GAS. AS THIS ACTIVITY REQUIRES HUGE INVESTMENT AND INVOLVES HIGH RISK, THE ASSESSEE INVARIABLY DOES SUCH EXPLORATION, DEVELOPMENT AND P RODUCTION BY FORMING OR JOINING CONSORTIUM OR UNINCORPORATED JOINT VENTURE WITH FOREIGN OR INDIAN COMPANIES OR BOTH. THE ASSESSEE RELIED UPON VARIOU S DECISIONS OF HONBLE SUPREME COURT AS WELL AS HONBLE HIGH COURTS ON THE POINT OF INTERPRETATION OF THE WORD/TERMS PRODUCTION AND SUBMITTED THAT THE WORD PRODUCTION HAS A WIDER CONNOTATION THEN THE WORD MANUFACTURE. THE ASSESS EE CLAIMED THE ACTIVITY OF EXPLORING AND EXTRACTING MINERAL OIL IS CERTAINLY P RODUCTION. 3.4 THE ASSESSING OFFICER DID NOT AGREE WITH THE CO NTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS NOT CARRYING OUT ANY PROCESS BY WHICH BRINGS INTO 4 HINDUSTAN OIL EXPLORATION CO LTD 6.1 THE LD SR COUNSEL HAS POINTED OUT THAT IN THE C ASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD (SUPRA) ONE OF THE ISSUES BEFORE THE HONBLE GUJARAT HIGH COURT WAS WHETHER THE REVENUE WAS JUSTIFIED TO WITHDRAW THE ASSESSEES CLAIM U/S 80J FOR THE YEAR UNDER REFERENCE WHEN SUC H CLAIM HAD BEEN ACCEPTED IN THE EARLIER ASSESSMENT YEAR, WHICH ASSESSMENT HAD N OT BEEN DISTURBED. THE LD SR COUNSEL HAS REFERRED PARA 6 OF THE DECISION OF T HE HONBLE HIGH COURT AND SUBMITTED THAT THE ISSUE WAS DECIDED IN FAVOUR OF T HE ASSESSEE AND THE HONBLE HIGH COURT HAS OBSERVED THAT WITHOUT DISTURBING THE RELIEF GRANTED FOR THE INITIAL YEAR, THE ITO CANNOT EXAMINE THE QUESTION AGAIN AND DECIDE TO WITHHOLD OR WITHDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRA NTED. THE LD SR COUNSEL HAS FURTHER SUBMITTED THAT FOLLOWING THE DECISION OF TH E HONBLE GUJARAT HIGH COURT, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F PAUL BROTHERS (SUPRA) HAS ALSO TAKEN A SIMILAR VIEW. THUS, IT WAS CONTENDED THAT T HE ISSUE CAN BE DECIDED EVEN ON THIS SOLE POINT THAT THE ASSESSING OFFICER CANNO T WITHDRAW THE DEDUCTION U/S 80IB WHEN THE SAME WAS GRANTED FOR THE AY 2001-02 A ND THE ASSESSMENT HAS NOT BEEN DISTURBED. 7 ON MERITS, THE LD SR COUNSEL HAS SUBMITTED THA T THE WORD PRODUCTION HAS BEEN DISCUSSED AND INTERPRETED IN THE SERIES OF DECISIONS OF HONBLE SUPREME COURT AS WELL AS HONBLE HIGH COURTS. HE HAS RELIE F UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CHRESTIEN MICA INDUSTRIES LTD VS THE STATE BIHAR & ORS REPORTED IN 12 STC 150 WHEREIN IT HAS B EEN HELD THAT THE PROCESS, WHICH IS USED BY THE ASSESSEE ON MICA MINING OPERAT IONS BY WHICH CRUDE MICA IS TAKEN OUT OF THE MINE AND PROCESSED INTO SPLIT MICA WHICH IS A COMMERCIAL COMMODITY. HE HAS THEN REFERRED THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT, PANAJI BENCH, IN THE CASE OF CIT VS SESA GO A LTD., REPORTED IN 266 ITR 126(BOM) AND SUBMITTED THAT THE ORE EXTRACTED OR RA ISED FROM THE EARTH AND BROUGHT TO THE SURFACE IS SOMETHING NEW WHICH COMES INTO EXISTENCE, AS AN 6 HINDUSTAN OIL EXPLORATION CO LTD CRUDE OIL THEN STORE TO THE STORAGE FACILITY FOR T RANSPORTATION. THUS, THE WELL FLUID EXTRACTED BY THE ASSESSEE DOES UNDERGO THE PROCESS OF SEPARATING FROM GAS AND WATER CONTENTS AND FINALLY CRUDE OIL IS STORED AND TRANSPORTED TO THE REFINERIES. THE LD SR COUNSEL HAS FILED A CHART/DIAGRAM SHOWING THE PROCESS THROUGH WHICH FLUID PASSES BEFORE ITS IS STORED AND SENT TO THE L OADING FACILITIES. 7.3 THE LD SR COUNSEL THEN REFERRED THE CLAUSE (II) AN (III) OF SEC. 80IB (9) AND SUBMITTED THAT COMMERCIAL PRODUCTION OF MINERAL OIL AND REFINING OF MINERAL OIL ARE TWO SEPARATE ACTIVITIES AND IF THE ASSESSEE IS NOT ENTITLED FOR THE DEDUCTION THEN WHO ELSE AND WHAT OTHER ACTIVITY WILL FALL UND ER CLAUSE (II) AND (III) OF SEC. 80IB. HE HAS FURTHER SUBMITTED THAT WHEN THE DEDUCT ION U/S 35(E) HAS BEEN ALLOWED TO THE ASSESSEE FOR THE SAME ACTIVITY THEN, THE DEDUCTION U/S 80IB CANNOT BE DENIED. 7.4 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT PRINCIPLES OF RES-JUDICATE IS NOT APPLICABLE IN THE TAX MATTERS AND EACH ASSES SMENT YEAR IS SEPARATE UNIT. THE ASSESSING OFFICER HAS TO EVALUATE THE ELIGIBILI TY OF THE ASSESSEE FOR THE CLAIM U/S 80IB FOR EACH AND EVERY ASSESSMENT YEAR INDEPEN DENTLY. HE HAS FURTHER SUBMITTED THAT ANY OF THE DECISION RELIED UPON BY T HE ASSESSEE; THE OPERATION CARRIED OUT BY THE ASSESSEE INVOLVES VARIOUS PROCES SES FROM EXTRACTING A PARTICULAR THING OR ARTICLE TO SELL IT. HE HAS REF ERRED PARA 6 OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS SESA GOA LTD (SUPRA) AND SUBMITTED THAT THE MINING OPERATIONS UNDERTAKEN B Y THE ASSESSEE OF IRON ORE INVOLVES THE PROCESS OF (I) EXTRACTING FROM THE MINE; (II) CONVEYING THE ORE TO THE DRESSING PLANT; (III) WASHING, SCREENING AND DR ESSING THE ORE; (IV) CONVEYING OF THE ORE FROM THE MINE SITE TO THE RIVERSIDE; (V) TRANSPORT OF THE ORE FROM THE RIVER SIDE TO THE HARBOUR BY MEANS OF BARGES; (VI) STACKING OF THE ORE AT THE HARBOUR IN DIFFERENT STOCK PILES ACCORDING TO NITS PHYSICAL AND CHEMICAL 8 HINDUSTAN OIL EXPLORATION CO LTD THEREFORE, THE SAID ISSUE ATTAIN THE FINALITY AT THE STAGE OF CIT(A) ORDER. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R ON SIMILAR LINES AND MAINLY ON THE GROUND THAT WHAT IS EXTRACTED AND TRANSPORTE D BY THE ASSESSEE IS NOTHING BUT CRUDE OIL WHICH REMAINS AS IT IS WITHOUT UNDERG O ANY CHANGE OR ANY PROCESS. THE CIT(A) WAS OF THE VIEW THAT SOME DISTILLATION P ROCESS WOULD NOT RENDER THE PRODUCT DIFFERENT THAN THE ONE EXTRACTED I.E. THE CRUDE OIL ITSELF. 8.1 IT IS TO BE NOTED THAT THE TERM USED IN SECTION 80IB(9) IS PRODUCTION AND MORE SPECIFIC, THE PRODUCTION OF MINERAL OIL AND N OT THE MINERAL. THEREFORE, THE ISSUE IS RELATED WITH THE PRODUCTION AND NOT MIN ERAL. IT IS SETTLED PROPOSITION OF LAW AS LAID DOWN BY THE HONBLE SUPREME COURT THAT THE WORD PRODUCTION AS USED IN SEC. 80IB OF THE I T ACT HAS A WIDER CONN OTATION AS COMPARED TO THE WORD MANUFACTURE. IN ALL THE CASES, ON WHICH RELIA NCE HAS BEEN PLACED BY THE LD SR COUNSEL FOR THE ASSESSEE, SOME AMOUNT OF PROCESS AT VARIOUS STAGES WAS INVOLVED AND IN THAT VIEW OF THE MATTER, THE HONBL E SUPREME COURT AS WELL AS HONBLE HIGH COURTS 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 HON BLE SUPREME COURT HAD AN OCCASION TO CONSIDER MINING OF ORE PRODUCTION. IT WAS NOTED THAT THE ASSESSEE IN THE EXTRACTING PROCESS OF IRON ORE, THE HIGH COURT CAME TO THE CONCLUSION THAT EXTRACTION OF IRON ORE AND THE VARIOUS PROCESS WOUL D INVOLVE PRODUCTION WITHIN THE MEANING OF SEC 32A(2)((B)(III) OF THE I T ACT A ND CONSEQUENTLY, THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF INVESTMENT ALLOWANCE UNDER SEC. 32A. THE VIEW EXPRESSED BY THE HIGH COURT THAT THE ACTIVITY OF EX TRACTION AND PROCESSING OF IRON ORE CONSTITUTE PRODUCTION HAS BEEN AFFIRMED BY TH E HONBLE SUPREME COURT. IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE WORD PRODUCTION HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. IT WAS FUR THER OBSERVED THAT EVERY 10 HINDUSTAN OIL EXPLORATION CO LTD CARRIED OUT THE PRODUCTION OF MINERAL OIL. THIS ASP ECT WILL NOT HELP THE ASSESSEES CLAIM. 10 THE DEFINITION OF MINERAL OIL HAS NOT BEEN GIVEN IN SEC. 80IB; HOWEVER, U/S 42 WHERE THE DEDUCTION IN CASE OF BUSINESS FOR PRO SPECTING ETC., FOR MINERAL OIL THE TERMS MINERAL OIL HAS BEEN EXPLAINED IN THE E XPLANATION AS UNDER: [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 30 TH DEC 1994, THE DEFINITION OF CRUDE OIL IS GIVEN UNDER C LAUSE 1.27 AS UNDER: CRUDE OIL MEANS CRUDE MINERAL OIL, ASPHALT, OZOK ERITE AND ALL KINDS OF HYDROCARBONS AND BITUMENS, BOTH IN SOLID AND IN LIQ UID FORM, IN THEIR NATURAL STATE OR OBTAINED FROM NATURAL GAS BY CONDE NSATION OR EXTRACTION, INCLUDING DISTILLATE AND CONDENSATE WHE N COMMINGLED WITH THE HEAVIER HYDROCARBONS AND DELIVERED AS A BLEND A T THE DELIVERY POINT BUT EXCLUDING VERIFIED NATURAL GAS. 11.1 THE TERM OIL AS UNDERSTOOD BY PARTIES I.E. GOVERNMENT OF INDIA AND OTHER COMPANIES INCLUDING THE ASSESSEE AS CRUDE OIL AS PER CLAUSE 1.58 OF THE SAID CONTRACT AND CRUDE OIL MEANS CRUDE MINERAL OIL ALO NG WITH THE OTHER CONTENTS AS GIVEN IN CLAUSE 1.27 OF THE CONTRACT. THEREFORE, OI L, CRUDE OIL, PETROLEUM ARE CONSIDERED AS SYNONYMOUS TO EACH OTHER. 11.2 AS PER CLAUSE 1.65 PETROLEUM MEANS CRUDE OIL AND NATURAL GAS EXISTING IN THEIR NATURAL CONDITION. THEREFORE, THE TERM COMMER CIAL PRODUCTION OF MINERAL OIL HAS TO BE UNDERSTOOD IN THE CONTEXT OF ACTIVITY OF PETROLEUM OPERATIONS OR PRODUCTION OPERATION INVOLVED IN EXTRACTING THE CR UDE OIL. 12 HINDUSTAN OIL EXPLORATION CO LTD 12.2 EVEN OTHERWISE, AS PER PRODUCTION SHARING CONT RACT, THE ASSESSEE AND OTHER JOINT VENTURES HAVE TO EXPLORE, DEVELOP, EXTR ACT AND DELIVER THE CRUDE OIL. THIS PROCESS INCLUDES DISTILLATION AND SEPARATION O F VERIFIED NATURAL GAS. THEREFORE, AS PER THE AGREEMENT, THE ASSESSEE IS BO UND TO PERFORM ITS PART AND ONCE THE ASSESSEE IS CARRIED ITS OPERATION IN ACCOR DANCE WITH THE TERMS AND CONDITIONS OF THE SAID AGREEMENT WITH THE GOVT. THE BENEFIT OF THE DEDUCTION U/S 80IB IS ALLOWABLE TO THE ASSESSEE. 13 SINCE WE HAVE ALLOWED THE CLAIMED OF THE ASSESSE E ON MERIT, THEREFORE, THE ISSUE OF RULE OF CONSISTENCY HAS BECOME ONLY AC ADEMIC IN NATURE AND DOES NOT REQUIRE ANY FINDING. 14 THOUGH THE ISSUE OF PRODUCTION OF MINERAL OIL HA S BEEN DECIDED ON PRINCIPLE IN FAVOUR OF THE ASSESSEE; HOWEVER, IT IS TRANSPIRED FROM THE ASSESSMENT ORDER, AS THE ASSESSING OFFICER HAS RECORDED IN PAR A 2 AT PAGE 1 OF THE ASSESSMENT FOR THE AY 2003-04 THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB IN RESPECT OF SALE OF OIL FROM PY-3 BLOCK FIELD IN THE CAUVERY OFFSHORE AREA AND ASJOL OIL FIELD IN GUJARAT. A SPECIFIC QUERY WAS P UT TO THE PARTIES FOR CLARIFICATION VIDE ORDER DATED 16.11.2011 AND THE PARTIES WERE AS KED TO CLARIFY AND PRODUCE THE RELEVANT RECORDS TO EXPLAIN THE SAID FACTS RECO RDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER INCLUDING THE YEAR OF COMMENCE MENT OF THE COMMERCIAL PRODUCTION OF THE RESPECTIVE 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 DECEMBER 30, 1994. A COPY OF THE PRODUCTION SHARING CONTRACT FORMS PART OF THE PAPER BOOK FILED BEFORE YOUR HONOURS (REFER PAGE 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 IOCC B ISSUED BY THE 14 HINDUSTAN OIL EXPLORATION CO LTD FIELD AND THE DISCREPANCY BETWEEN THE AMOUNTS MENTI ONED IN THE TAX AUDIT REPORT AND ASSESSMENT ORDER. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO WORKOUT THE DEDUCTION AFTER VERIFICATION OF THESE F ACTS. 18 THE NEXT EFFECTIVE GROUND READS AS UNDER: WITHOUT PREJUDICE TO THE ABOVE GROUND, THE CIT(A) ERRED IN NOT ADJUDICATING AND ERRED IN DISMISSING GROUND NO.4 OF THE APPELLANT THAT INTEREST ON DEPOSIT HAD A DIRECT AND IMMEDIATE NEXU S WITH THE JOINT VENTURE OPERATION OF CY-OS-90/1 (P-Y03) UNIT AND WA S CORRECTLY CONSIDERED FOR THE PURPOSE OF DEDUCTION ADMISSIBLE U/S 80IB. 19 WE HAVE HEARD THE LD SR COUNSEL OF THE ASSESSEE AND THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS DISPUTED THE AM OUNT OF INTEREST ON THE DEPOSIT DISALLOWED BY THE ASSESSING OFFICER WHICH R EQUIRES TO BE VERIFIED. HE HAS REFERRED PAGE 20 OF THE PAPER BOOK. WE NOTE THAT T HE CIT(A) HAS NOT ADJUDICATED UPON THIS ISSUE SEPARATELY BECAUSE THE MAIN ISSUE R ELATING TO DEDUCTION U/S 80IB WAS DECIDED AGAINST THE ASSESSEE. THEREFORE, IN VIE W OF THE CIT(A), THE ISSUE RELATING TO THE OTHER INCOME HAS BECOME ACADEMIC AN D NEED NOT TO BE COMMENTED UPON. SINCE SE HAVE DECIDED THE MAIN ISSU E OF ELIGIBILITY OF THE CLAIM U/S 80IB IN FAVOUR OF THE ASSESSEE; THEREFORE, THIS ISSUE IS REMANDED TO THE RECORD OF THE CIT(A) FOR ADJUDICATION ON MERIT. 20 LAST ISSUE REGARDING LEVY OF INTEREST U/S 234B I S CONSEQUENTIAL IN NATURE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW CONS EQUENTIAL RELIEF TO THE ASSESSEE, IF ANY IN RESPECT OF THIS CLAIM.