Joshi Technologies International Inc., Ahmedabad V. The Asstt. DIT, (Intl. Taxn.), Ahmedabad

ITA 2388/AHD/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2294 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 11-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Difference of opinion; Reason to believe; Change of opinion; Capital expenditure; Set aside
• Section: 143(3); 142(1); 234B; 80IB; 250; 251; 13; 22; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NOS.2388-2389/AHD/2015 / ASSTT. YEARS: 2004-2005 & 2006-07 JOSHI TECHNOLOGIES INTERNATIONAL INC., PRAHALADNAGAR GARDEN, 701 PARSHWANATH E SQUARE, NEAR TITANIUM, BUILDING SATELLITE, AHMEDABAD-380015. PAN: AAACJ9592P VS. A.D.I.T(INTERNATIONAL TAX), AHMEDABAD. AND ./ ITA NO.2258/AHD/2015 / ASSTT. YEAR: 2006-07 D.C.I.T(INTERNATIONAL TAXATION), AHMEDABAD. VS. JOSHI TECHNOLOGIES INTERNATIONAL INC., PRAHALADNAGAR GARDEN, 701 PARSHWANATH E SQUARE, NEAR TITANIUM, BUILDING SATELLITE, AHMEDABAD-380015. PAN: AAACJ9592P (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI YOGESH SHAH, A.R REVENUE BY : SHRI MOHD. USMAN, CIT.D.R /DATE OF HEARING : 04/08/2021 /DATE OF PRONOUNCEMENT: 25/10/2021 ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 2 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED THREE APPEALS HAVE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AND REVENUE. THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPEALS AGAINST THE COMMON ORDER OF THE LD.CIT(A) DATED 29/05/2015 ARSING IN THE MATTER OF ASSESSMENT ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2006-2007. THE ASSESSEE IS ALSO IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A) DATED 29/05/2015 ARSING IN THE MATTER OF ASSESSMENT ORDER PASSED U/S.143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2004- 2005. 2. FIRST WE TAKE APPEAL OF THE ASSESSEE BEARING ITA NO.2388/AHD/2015 FOR A.Y. 2004-05 FOR THE PURPOSE OF ADJUDICATION. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-13, AHMEDABAD, (HEREINAFTER REFERRED TO AS CIT(A) U/S 250 OF THE INCOME TAX ACT (''THE ACT'), PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS OF APPEAL WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. 1. THE ORDER PASSED BY THE LEARNED CIT(A) UPHOLDING THE REASSESSMENT IS BAD IN LAW AND REQUIRES TO BE QUASHED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE REASSESSMENT ON THE GROUND THAT ASSESSING OFFICER HAS OMITTED TO ENQUIRE ON DEDUCTION U/S. 42 WHEN IN-FACT THE REOPENING IS BASED ON CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER SHE INCOME TAX LAW. IT IS SUBMITTED IT BE SO HELD NOW. 3. THE LEARNED CI1(A) HAS ERRED IN HOLDING OIL WELL AS PART OF THE BUILDING WITHIN THE EXTENDED MEANING OF THE TERM BUILDING GIVEN IN THE APPENDIX 1 TO THE INCOME TAX RULES AND HENCE CONFIRMING THE DEPRECIATION ALLOWANCE AT 10% INSTEAD OF 80% AS PER ENTRY III(8)(XII) OF APPENDIX I TO THE INCOME TAX RULES I %2 ON OIL WELLS USED AS PLANT & MACHINERY IN THE FIELD OPERATIONS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 4. WHILE UPHOLDING THE DISALLOWANCE U/S 42 THE LEARNED C1T(A) ERRED, IN NOT DIRECTING AO TO GRANT DEPRECIATION OIL FIELD EQUIPMENTS / PLANTS INCLUDED IN THE CLAIM UNDER SECTION 42/ AND ENTITLED TO DEPRECIATION @ 80% AS PER ENTRY 111(8 )(XII) OF APPENDIX I TO THE INCOME TAX RULES, 1962. IT IS SUBMITTED THAT IT BE SO HELD NOW. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 3 5. THE LEARNED CIT(A) ERRED HOLDING THAT INTEREST UNDER SECTION 234B WAS MANDATORILY AND CONSEQUENTIAL. IT IS SUBMITTED IT BE SO HELD NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD TO ALTER AND/OR TO AMEND ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF THE APPEAL. 3. THE ASSESSEE IN GROUND NUMBER 1 AND 2 HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT FRAMED UNDER SECTION 147 READ WITH SECTION 143(3) OF THE ACT. 4. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DECLARING LOSS OF RS 3,48,88,910/- WHICH WAS ACCEPTED IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31 ST MAY 2006. 4.1 SUBSEQUENTLY, THE AO FOUND THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT AND FOR THIS PURPOSE HE RECORDED THE REASONS FOR INITIATING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT. IT WAS POINTED OUT IN THE REASONS RECORDED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 42 OF THE ACT AMOUNTING TO RS. 4,24,67,907/- FOR WHICH THE ASSESSEE WAS NOT ELIGIBLE. AS PER THE AO SUCH DEDUCTION UNDER SECTION 42 OF THE ACT CAN BE MADE AVAILABLE TO THE ASSESSEE IF IT IS SPECIFICALLY PROVIDED IN THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE GOVERNMENT OF INDIA. BUT THE ASSESSEE WAS ALLOWED THE DEDUCTION UNDER SECTION 42 OF THE ACT IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT DESPITE THE FACT THAT THERE WAS NO PROVISION IN THE AGREEMENT FOR THE DEDUCTION TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT. 4.2 BASED ON THE ABOVE REASONS THE AO INITIATED THE PROCEEDINGS UNDER SECTION 147 OF THE ACT BY ISSUING A SHOW CAUSE NOTICE UNDER SECTION 148 OF THE ACT DATED 1 ST MAY 2008. 4.3 THE ASSESSEE VIDE LETTER DATED 11 TH JUNE 2008 OBJECTED ON THE INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE ACT BY CONTENDING THAT THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT HAS SOUGHT CLARIFICATION VIDE NOTICE DATED 9 TH MAY 2006 ISSUED UNDER SECTION 142(1) OF THE ACT WITH RESPECT ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 4 TO THE DEDUCTION CLAIMED BY IT (THE ASSESSEE) UNDER SECTION 42 OF THE ACT. IN RESPONSE TO SUCH NOTICE IT HAS MADE A REPLY DATED 26 TH OF SEPTEMBER 2006 JUSTIFYING ITS CLAIM FOR THE DEDUCTION UNDER SECTION 42 OF THE ACT. 4.4 IN VIEW OF THE ABOVE THE ASSESSEE CONTENDED THAT THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT HAS FORMED OPINION WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 42 OF THE ACT WHICH WAS SUBSEQUENTLY ALLOWED. THUS, THE INITIATION OF THE PROCEEDINGS UNDER SECTION 148 OF THE ACT IS BASED ON THE CHANGE OF OPINION WHICH IS NOT PERMITTED UNDER THE PROVISIONS OF LAW. 4.5 HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT IT IS ONE OF THE PREREQUISITE FOR CLAIMING THE DEDUCTION UNDER SECTION 42 OF THE ACT THAT THERE HAS TO BE NECESSARY CLAUSES IN THE AGREEMENT ALLOWING THE DEDUCTION UNDER SECTION 42 OF THE ACT. NEVERTHELESS, THE AO IN THE CASE ON HAND WITHOUT EXAMINING THE NECESSARY DETAILS HAS ALLOWED THE DEDUCTION TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT. THUS, ONCE PRIMARY DOCUMENT HAS NOT BEEN EXAMINED BY THE AO, THEN THE QUESTION OF FORMING OF THE OPINION DOES NOT ARISE AND CONSEQUENTLY THE ISSUE OF CHANGING THE OPINION BECOMES REDUNDANT. THE AO ALSO OBSERVED THAT THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT IS SILENT WITH RESPECT TO THE DEDUCTION ALLOWED TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT. ACCORDINGLY THE AO WAS OF THE VIEW THAT NO OPINION HAS BEEN FORMED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. THE AO IN HOLDING SO RELIED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT WHICH ARE REPRODUCED IN HIS ORDER. THUS THE AO REJECTED THE CLAIM OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT THERE WAS NO DISCUSSION WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 42 OF THE ACT IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31 ST MAY 2006. CONSEQUENTLY, THE AO HAS NOT EXPRESSED ANY OPINION ON THE ISSUE UNDER ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 5 CONSIDERATION. AS SUCH, THE AO OMITTED TO CONSIDER THE ALLOWABILITY OF DEDUCTION UNDER SECTION 42 OF THE ACT DURING THE ASSESSMENT PROCEEDINGS. FURTHERMORE THE ACTION HAS BEEN INITIATED UNDER SECTION 148 OF THE ACT WITHIN 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS. IN VIEW OF THE ABOVE THE LEARNED CIT (A) HELD THAT THERE WAS NO OPINION FORMED BY THE AO DURING THE ASSESSMENT PROCEEDINGS WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT AND CONSEQUENTLY THERE IS NO QUESTION OF CHANGE IN OPINION ARISES. HENCE, THE LEARNED CIT (A) UPHELD THE VALIDITY OF THE ASSESSMENT FRAMED UNDER SECTION 147 READ WITH SECTION 143(3) OF THE ACT. 6. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 251 AND SUBMITTED THAT THE AO DURING THE ASSESSMENT PROCEEDINGS HAVE MADE ENQUIRIES BY ISSUING NOTICE UNDER SECTION 142(1) OF THE ACT DATED 9 TH MAY 2006 WITH RESPECT TO THE DEDUCTION CLAIMED UNDER SECTION 42 OF THE ACT. THE RELEVANT ENQUIRIES RAISED BY THE AO DURING THE ASSESSMENT PROCEEDINGS ARE PLACED ON PAGES 5 TO 6 OF THE PAPER BOOK. THE QUERIES RAISED BY THE AO WERE DULY ANSWERED BY THE ASSESSEE AS VIDE LETTER DATED 26 TH MAY 2006 EVIDENT FROM THE DETAILS PLACED ON PAGES 9 TO 13 OF THE PAPER BOOK. THUS THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT HAS FORMED THE OPINION WITH RESPECT TO THE DEDUCTION CLAIMED UNDER SECTION 42 OF THE ACT. ACCORDINGLY, IT WAS CONTENDED BY THE ASSESSEE THAT INITIATION OF PRESENT PROCEEDINGS UNDER SECTION 147 OF THE ACT IS BASED ON THE CHANGE OF OPINION WHICH IS UNWARRANTED UNDER THE PROVISIONS OF LAW. 8. ON THE CONTRARY, THE LEARNED DR CONTENDED THAT THE PRODUCTION SHARING CONTRACT BETWEEN THE ASSESSEE AND THE GOVERNMENT OF INDIA WHICH IS THE BASIS FOR ALLOWING THE DEDUCTION UNDER SECTION 42 OF THE ACT WAS NOT AVAILABLE BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. AS PER THE LEARNED DR THE PRODUCTION SHARING CONTRACT WAS THE BASIS OF DECIDING THE ISSUE FOR ALLOWING OR DISALLOWING THE DEDUCTION ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 6 UNDER SECTION 42 OF THE ACT. THUS IN THE ABSENCE OF SUCH DOCUMENT, THERE REMAINS NO AMBIGUITY THAT NO OPINION HAS BEEN FORMED BY THE THEN AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT. THE LEARNED DR IN SUPPORT OF HIS CONTENTION RELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. USHA INTERNATIONAL LTD. REPORTED 25 TAXMANN.COM 200, HONBLE BOMBAY HIGH COURT IN CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. VS. ACIT REPORTED 30 TAXMANN.COM 211, HONBLE JURISDICTIONAL HIGH COURT IN CASE OF GUJARAT CORPN. LTD. REPORTED 26 TAXMANN.COM 51. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE WORDS AND PHRASES 'MERE CHANGE OF OPINION' DO NOT APPEAR IN THE PROVISION. AS SUCH CHANGE OF OPINION' POSTULATES FORMATION OF OPINION AND THEN CHANGE THEREOF. THE FORMATION OF OPINION IS POSSIBLE ONLY AFTER EXAMINING THE FACTS AND APPLICATION OF MIND. IF PARTICULAR DEDUCTION CLAIM BY THE ASSESSEE NOT EXAMINED BY AO IN ORIGINAL ASSESSMENT UNDER SECTION 143(3), IT IS A CASE OF 'NO OPINION. THUS QUESTION OF 'CHANGE OF OPINION' DOES NOT ARISE. 9.1 IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561 / 187 TAXMAN 312 (SC), HONBLE J. KAPADIA HELD THAT THE CONCEPT OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER AND THAT THE REASONS MUST HAVE A LIVE LINK WITH FORMATION OF BELIEF. IMPORTANT EXCERPT OF THE DECISION IS REPRODUCED HEREUNDER: 'HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE', FAILING WHICH SECTION147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. ONE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS, BUT THE REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRE-CONDITIONS AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 7 9.2 IN THE LIGHT OF THE ABOVE DISCUSSION, WE HAVE TO SEE WHETHER ANY OPINION WAS FORMED BY THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. FOR THIS PURPOSE, WE REFER THE NOTICE ISSUED BY THE AO UNDER SECTION 142(1) OF THE ACT DATED 9 TH MAY 2006 RAISING THE FOLLOWING QUESTIONS RELATING TO THE DEDUCTION CLAIMED UNDER SECTION 42 OF THE ACT. PLEASE REFER TO THE STATEMENT OF TOTAL INCOME ATTACHED WITH YOUR ROI. PLEASE JUSTIFY YOUR CLAIM OF DEDUCTION U/S.42 AND EXPLAIN HOW IT IS ADMISSIBLE. 9.3 THE ABOVE QUERIES WERE ANSWERED BY THE ASSESSEE IN THE MANNER AS DETAILED BELOW: DURING- THE YEAR UNDER CONSIDERATION WE HAVE SPENT RS.4,24,67,907 ON THE EXPLORATION ACTIVITIES AND THE SAME WAS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME FILED IN ACCORDANCE WITH PROVISIONS OF SECTION 42 OF THE INCOME TAX ACT,, 1961. A SPECIFIC NOTE WAS APPENDED TO (HE RETURN OF INCOME. THE SAME IS REPRODUCED HEREUNDER FOR YOUR GOODSELFS READY REFERENCE: 3. STATED ABOVE ASSESSEE COMPANY IS EXTRACTING OIL AS PER THE AGREEMENT ''WITH CENTRAL GOVERNMENT AND THEREFORE, ENTITLED FOR DEDUCTION UNDER SECTION 42 OF THE INCOME TAX ACT AND THE SAME IS CLAIMED AS DEDUCTION . NO DEPRECIATION HAS BEEN CLAIMED IN RESPECT OF SUCH EXPENDITURE. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX THUS, AS SHOWN ABOVE IN VIEW OF THE PROVISIONS OF SECTION 42{1)(B) OF THE INCOME TAX ACT, 1961 ANY CAPITAL EXPENDITURE INCURRED FOR THE EXPLORATION ACTIVITIES ARE ADMISSIBLE AS DEDUCTION. WE ARE ENCLOSING HEREWITH THE DETAILS OF THE EXPENDITURE INCURRED MARKED AS ANNEXURE - A. FROM THE DETAILS FILED YOUR GOODSELF WILL APPRECIATE THAT ALL THE EXPENSES ARE INCURRED FOR THE PURPOSE OF ACQUISITION OF ASSET7 WELL FOR THE EXPLORATION ACTIVITIES' AND THEREFORE, THE SAME ARE ADMISSIBLE AS DEDUCTION. WE WOULD LIKE TO STATE THAT AS ALL THE CONDITIONS PRESCRIBED IN SECTION 42 ARE COMPLIED WITH THE CLAIM WAS RIGHTLY MADE AND NO DISALLOWANCE IS REQUIRED TO BE MADE WHILE FINALIZING THE ASSESSMENT. WE WOULD LIKE TO STATE THAT ASSESSEE IS INVOLVED ONLY ON THE EXPLORATION ACTIVITIES AND COMPANY IS NOT CARRYING ANY OTHER ACTIVITY. EXPENSES ARE INCURRED ON THE ACQUISITION OF ASSETS WHICH ARE USED ONLY FOR THE EXPLORATION ACTIVITIES ONLY AND THUS DEDUCTION IS ADMISSIBLE U/S 42 OF THE ACT. FURTHER, WE WOULD LIKE TO STALE THAT WE HAVE NOT CLAIMED ANY DEPRECIATION ON THE ASSETS WHICH ARE CLAIMED AS DEDUCTION U/S 42 OF THE INCOME TAX ACT, 1961. FURTHER, WE WOULD LIKE TO STATE THAT IN THE IMMEDIATELY PRECEDING YEAR THE CLAIM IS ALLOWED AS DEDUCTION IN THE REGULAR ASSESSMENT. IN VIEW OF ABOVE WE WOULD LIKE TO SUBMIT THAT DEDUCTION U/S 42 IS RIGHTLY CLAIMED IN THE RETURN OF INCOME AND NO DISALLOWANCE IS REQUIRED TO BE MADE WHILE FINALIZING THE ASSESSMENT. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 8 9.4 FROM THE PRECEDING DISCUSSION, IT IS TRANSPIRED THAT THE AO HAS APPLIED HIS MIND DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT AND THEREAFTER REACHED TO THE CONCLUSION BY ALLOWING THE DEDUCTION TO THE ASSESSEE UNDER SECTION 42 OF THE ACT. THE QUESTION WHETHER THE AO HAS CORRECTLY OR WRONGLY GIVEN THE DEDUCTION UNDER SECTION 42 OF THE ACT BECOMES IRRELEVANT. IT IS FOR THE REASON THAT THE AO BEING ONE OF THE AUTHORITY UNDER THE INCOME TAX ACT HAS EXAMINED THE ISSUE AND ALLOWED THE DEDUCTION TO THE ASSESSEE. THUS THE VIEW WAS FORMED BY THE AO. SUBSEQUENTLY CHANGING THE OPINION ON THE SAME ISSUE BY ISSUING A NOTICE UNDER SECTION 147 OF THE ACT WILL AMOUNT TO REVIEW OF THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT. SUCH, PROPOSITION IS NOT WARRANTED UNDER THE ACT AS HELD BY THE HONBLE COURTS AS DISCUSSED ABOVE. 9.5 IT IS A FACT ON RECORD THAT THE PROCEEDINGS IN THE PRESENT CASE WERE INITIATED WITHIN THE PERIOD OF 4 YEARS BUT THE SAME CANNOT ALTER THE PRINCIPLES LAID DOWN BY THE HONBLE COURTS. IN OTHER WORDS, THERE IS NO POWER GRANTED TO THE AO UNDER THE STATUTE TO REVIEW THE ORDER IN THE GARB OF INITIATING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT. ACCORDINGLY WE HOLD THAT, THERE WILL NOT BE ANY DIFFERENCE WHETHER THE PROCEEDINGS WERE INITIATED WITHIN 4 YEARS OR BEYOND THE 4 YEARS AS FAR AS CHANGE OF OPINION IS CONCERNED. 9.6 ON PERUSAL OF THE ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE ACT, IT IS NOT DISCERNIBLE WHETHER AO HAS APPLIED HIS MIND WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT. THE ORDER OF THE AO UNDER SECTION 143(3) OF THE ACT SILENT ON THIS ASPECT. THUS THE QUESTION ARISES WHETHER THE AO HAS FORMED ANY OPINION DURING THE ASSESSMENT PROCEEDINGS WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 42 OF THE ACT. IN THIS REGARD WE NOTE THAT IS NOT NECESSARY FOR THE AO TO RECORD HIS FINDING IN HIS ASSESSMENT ORDER WITH RESPECT TO THE MATTERS WHERE HE WAS SATISFIED AFTER NECESSARY VERIFICATION THAT NO ADDITION/DISALLOWANCES IS WARRANTED. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 9 9.7 IT IS ALSO PERTINENT TO NOTE THAT THE AUTHORITIES BELOW AND THE LEARNED DR HAS MADE REFERENCES TO VARIOUS JUDICIAL PRECEDENTS IN SUPPORT OF THE CONTENTION THAT THERE WAS NO OPINION FORMED BY THE AO DURING THE ASSESSMENT PROCEEDINGS WITH RESPECT TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 42 OF THE ACT. ONE OF THE BONE OF CONTENTION WAS THAT THE PRODUCTION SHARING AGREEMENT WHICH IS THE BASIS OF GIVING RIGHT TO THE ASSESSEE FOR CLAIMING THE IMPUGNED DEDUCTION WAS NOT AVAILABLE DURING THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT WHICH WAS PREREQUISITE FOR CLAIMING THE DEDUCTION UNDER SECTION 42 OF THE ACT. AS PER THE LEARNED DR, IN THE ABSENCE OF SUCH CRUCIAL PIECE OF EVIDENCE, IT CANNOT BE SAID THAT THE AO HAS MADE HIS OPINION CONSCIOUSLY. HOWEVER WE DISAGREE WITH THE OBSERVATIONS OF THE LEARNED AUTHORITIES BELOW AS WELL AS LEARNED DR. IT IS FOR THE REASON THAT THOUGH THE DOCUMENT BEING PRODUCTION SHARING CONTRACTS WAS ESSENTIAL FOR CLAIMING THE DEDUCTION UNDER SECTION 42 OF THE ACT BUT WHAT IS INFERRED THE GIVEN FACTS AND CIRCUMSTANCES IS THIS THAT THE AO HAS APPLIED HIS MIND BY RAISING THE QUERIES WHICH WERE DULY ANSWERED BY THE ASSESSEE. THUS IT SEEMS TO US THAT THE AO HAS TAKEN A CONSCIOUS DECISION BY ALLOWING THE DEDUCTION UNDER SECTION 42 OF THE ACT. SUCH OPINION OF THE AO MAY BE RIGHT OR MAY BE WRONG UNDER THE PROVISIONS OF LAW BUT THAT DOES NOT GIVE THE AUTHORITY TO THE AO TO INITIATE THE PROCEEDINGS UNDER SECTION 147 OF THE ACT OTHERWISE IT WOULD LEAD TO REVIEW OF THE ORDER WHICH IS NOT IN THE JURISDICTION OF AO. 9.8 ADMITTEDLY, THE PRODUCTION SHARING CONTRACT WAS NOT AVAILABLE BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT WHICH WAS NECESSARY TO REACH TO THE CONCLUSION WHETHER THE ASSESSEE WAS ENTITLED FOR THE DEDUCTION UNDER SECTION 42 OF THE ACT. BUT THE AO WITHOUT HAVING SUCH CONTRACT IN HIS HANDS HAS ALLOWED THE DEDUCTION UNDER SECTION 42 OF THE ACT AFTER CONDUCTING THE NECESSARY VERIFICATION WHICH HAS ALREADY BEEN DISCUSSED IN THE PRECEDING PARAGRAPH. NOW THE REFERENCE TO THE PRODUCTION SHARING CONTRACT BECOMES REDUNDANT IN VIEW OF THE FACT THAT THE AO HAS TAKEN SOME VIEW AFTER THE APPLICATION OF MIND. THAT APPLICATION OF MIND WHETHER RIGHT OR WRONG CANNOT BE SUBJECT MATTER OF DISPUTE IN THE PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 10 9.9 IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE NOT IMPRESSED WITH THE FINDING OF THE AUTHORITIES BELOW ON THIS TECHNICAL ISSUE. ACCORDINGLY, WE SET ASIDE THE FINDING OF THE LEARNED CIT (A) BY HOLDING THAT THE ASSESSMENT FRAMED UNDER SECTION 147 READ WITH SECTION 143(3) OF THE ACT IS BAD IN LAW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9.10 AS THE PRELIMINARY ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY QUASHING THE PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT, WE ARE NOT INCLINED TO DECIDE THE ISSUES ON MERIT. AS SUCH, THE ISSUES RAISED ON MERIT BECOME INFRUCTUOUS. THUS THE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 9.11 IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. COMING TO THE ITA NO. 2298AHD/2015 OF REVENUE PERTAINING TO AY 2006- 07 10. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL 1) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/S.80IB(9) OF THE ACT AS CLAIMED BY THE ASSESSEE AND TO COMPUTE THE DEDUCTION U/S.80IB(9) OF THE ACT ON THE INCOME OF 'EACH WELL/CLUSTER OF WELLS' CONSIDERING AS SEPARATE UNDERTAKINGS, WITHOUT APPRECIATING THE FACT THAT THE ENTIRE DEVELOPMENT CONTRACT AREA ALLOTTED UNDER A SINGLE PRODUCTION SHARING CONTRACT FOR EXPLORATION, DISCOVERY AND COMMERCIAL PRODUCTION CONSTITUTES ONE UNDERTAKING. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3) IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. 4) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 11. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CIT (A) ERRED IN ALLOWING THE DEDUCTION UNDER SECTION 80IB OF THE ACT WITH RESPECT TO EACH OIL WELL/CLUSTER OF WELLS TREATING THEM AS SEPARATE UNDERTAKING. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 11 12. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED DEDUCTION UNDER SECTION 80IB(9) OF THE ACT TREATING ITSELF AS AN ELIGIBLE UNDERTAKING. AS SUCH THE ASSESSEE IS THE OWNER OF THREE OIL WELLS NAMELY DK 20, DK 21, DK 22 AND ONE WELL AT WAVEL. AS PER THE ASSESSEE, EACH WELL IS A SEPARATE UNDERTAKING. ACCORDINGLY THE ASSESSEE FILED THE SEPARATE CERTIFICATES ISSUED BY THE CHARTERED ACCOUNTANT FOR CLAIMING THE DEDUCTION UNDER SECTION 80IB(9) OF THE ACT WITH RESPECT TO EACH WELL. 12.1 THE ASSESSEE CLAIMED EACH WELL AS SEPARATE UNDERTAKING FOR THE FOLLOWING REASONS: I. EACH WELL HAS A SEPARATE BOUNDARY. THE ASSESSEE IN SUPPORT OF HIS CONTENTION FILED THE DIAGRAM OF DK-20 WELL IN PICTORIAL VIEW. II. THE PRODUCTION FROM ONE WELL IS INDEPENDENT TO OTHER WELL. III. SEPARATE PRODUCTION RECORDS WERE MAINTAINED FOR THE OIL PRODUCED FROM THE RESPECTIVE WELL. IV. THE OIL WELL AT WAVEL WAS LOCATED IN A DIFFERENT GEOGRAPHICAL AREA. 12.2 HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNTS WITH RESPECT TO EACH WELL. THE OBSERVATION OF THE AO WAS BASED ON THE REASONS AS DETAILED UNDER: I. THERE WAS NO SEPARATE DETAIL OF SALES/BILLING FOR EACH WELL. AS SUCH, THERE WAS NOT AVAILABLE ANY DETAIL DEPICTING THE WELL WISE DISTRIBUTION AND PROCESSING PLANT. II. THERE WAS NO DETAIL MAINTAINED ABOUT THE NUMBER OF WORKERS/EMPLOYEES ENGAGED IN ANY PARTICULAR WELL. III. THERE WERE NOT MAINTAINED SEPARATE BANK ACCOUNTS FOR EACH WELL. IV. THERE WAS THE SINGLE CONTRACT WITH THE GOVERNMENT OF INDIA FOR PRODUCTION SHARING OF THE MATERIAL PRODUCED. V. THERE WERE NOT MAINTAINED SEPARATE STOCK REGISTERS, OPENING STOCK INVENTORY OR CLOSING STOCK INVENTORY FOR EACH WELL. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 12 VI. THERE WAS NOT SEPARATE EXCISE AND SALES TAX REGISTRATION NUMBERS FOR EACH WELL. 12.3 IN ADDITION TO THE ABOVE, THE AO ALSO OBSERVED THAT THE AUDIT REPORT WASNT FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME BUT THE SAME WAS FILED DATED 26 DECEMBER 2007 DURING THE ASSESSMENT PROCEEDINGS. 12.4 IN VIEW OF THE ABOVE, THE AO HELD THAT THE ASSESSEE IS NOT AN INDUSTRIAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(9) OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. 13. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT (A) WHO ALLOWED THE APPEAL OF THE ASSESSEE. 14. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 15. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 16. ON THE CONTRARY, THE LEARNED AR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT-A. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 3988/AHD/2008 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 31 ST DECEMBER 2019, INVOLVING IDENTICAL ISSUE HAS DECIDED THE MATTER IN FAVOR OF THE ASSESSEE FOR STATISTICAL PURPOSES. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE REGARDING THE FACTS OF THE CASE WHICH HAVE BEEN ELABORATELY DISCUSSED IN THE PRECEDING PARAGRAPH, THEREFORE WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 13 SAKE OF BREVITY. FROM THE PRECEDING DISCUSSION, THE FOLLOWING ISSUES ARISE FOR OUR CONSIDERATION AND ADJUDICATION: I. WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(9) OF THE ACT WITH RESPECT TO THE EXPLORATION OF NATURAL GAS. II. WHETHER EACH WELL IS A SEPARATE UNDERTAKING FOR COMPUTING THE DEDUCTION UNDER SECTION 80 IB(9) OF THE ACT. III. WHETHER THE EXPLANATION INSERTED BY WAY OF AMENDMENT UNDER SECTION 80 IB(9) OF THE ACT IS RETROSPECTIVELY APPLICABLE. IV. WHETHER THE CONDITIONS AS SPECIFIED UNDER SECTION 80 IB(2) OF THE ACT ARE APPLICABLE WHILE CALCULATING THE DEDUCTION UNDER SECTION 80 IB(9) OF THE ACT. 16.1. REGARDING THE QUESTION NO.1 IS DISCUSSED ABOVE, WE NOTE THAT THE PROVISIONS OF SECTION 80 IB(9) OF THE ACT ALSO PROVIDES THE DEDUCTION ON ACCOUNT OF EXPLORATION OF GAS. THE RELEVANT PROVISIONS OF SECTION 80 IB(9) OF THE ACT READS AS UNDER: [ (9) THE AMOUNT OF DEDUCTION TO AN UNDERTAKING SHALL BE HUNDRED PER CENT OF THE PROFITS FOR A PERIOD OF SEVEN CONSECUTIVE ASSESSMENT YEARS, INCLUDING THE INITIAL ASSESSMENT YEAR, IF SUCH UNDERTAKING FULFILS ANY OF THE FOLLOWING, NAMELY: (I ) IS LOCATED IN NORTH-EASTERN REGION AND HAS BEGUN OR BEGINS COMMERCIAL PRODUCTION OF MINERAL OIL BEFORE THE 1ST DAY OF APRIL, 1997; (II ) IS LOCATED IN ANY PART OF INDIA AND HAS BEGUN OR BEGINS COMMERCIAL PRODUCTION OF MINERAL OIL ON OR AFTER THE 1ST DAY OF APRIL, 1997; (III ) IS ENGAGED IN REFINING OF MINERAL OIL AND BEGINS SUCH REFINING ON OR AFTER THE 1ST DAY OF OCTOBER, 1998 5A [ BUT NOT LATER THAN THE 31ST DAY OF MARCH, 2012 ] . THE FOLLOWING CLAUSES (IV) AND (V) SHALL BE INSERTED AFTER CLAUSE (III) OF SUB-SECTION (9) OF SECTION 80-IB BY THE FINANCE (NO. 2) ACT, 2009, W.E.F. 1-4-2010: (IV ) IS ENGAGED IN COMMERCIAL PRODUCTION OF NATURAL GAS IN BLOCKS LICENSED UNDER THE VIII ROUND OF BIDDING FOR AWARD OF EXPLORATION CONTRACTS (HEREAFTER REFERRED TO AS 'NELP-VIII') UNDER THE NEW EXPLORATION LICENCING POLICY ANNOUNCED BY THE GOVERNMENT OF INDIA VIDE RESOLUTION NO. O-19018/22/95-ONG.DO.VL, DATED 10TH FEBRUARY, 1999 AND BEGINS COMMERCIAL PRODUCTION OF NATURAL GAS ON OR AFTER THE 1ST DAY OF APRIL, 2009; ( V) IS ENGAGED IN COMMERCIAL PRODUCTION OF NATURAL GAS IN BLOCKS LICENSED UNDER THE IV ROUND OF BIDDING FOR AWARD OF EXPLORATION CONTRACTS FOR COAL BED METHANE BLOCKS AND BEGINS COMMERCIAL PRODUCTION OF NATURAL GAS ON OR AFTER THE 1ST DAY OF APRIL, 2009. EXPLANATION.FOR THE PURPOSES OF CLAIMING DEDUCTION UNDER THIS SUB-SECTION, ALL BLOCKS LICENSED UNDER A SINGLE CONTRACT, WHICH HAS BEEN AWARDED UNDER THE NEW EXPLORATION LICENCING POLICY ANNOUNCED BY THE GOVERNMENT OF INDIA VIDE RESOLUTION NO. O-19018/22/95-ONG.DO.VL, DATED 10TH FEBRUARY, 1999 OR HAS BEEN AWARDED IN PURSUANCE OF ANY LAW FOR THE TIME BEING IN FORCE OR HAS BEEN AWARDED BY CENTRAL OR A STATE GOVERNMENT IN ANY OTHER MANNER, SHALL BE TREATED AS A SINGLE 'UNDERTAKING'. ] 16.2 FROM THE PLAIN READING OF THE ABOVE PROVISION, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION UNDER SECTION 80 IB(9) OF THE ACT FOR THE EXPLORATION OF NATURAL GAS BY THE AMENDED PROVISIONS AS DISCUSSED ABOVE. BUT SUCH AMENDMENT WAS BROUGHT UNDER THE STATUTE BY THE ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 14 FINANCE (NO. 2) ACT 2009 W.E.F. 1-4-2010 WHEREAS THE YEAR UNDER CONSIDERATION BEFORE US PERTAINS TO THE AY 2005-06. THUS THE QUESTION ARISES WHETHER SUCH AMENDMENT IS RETROSPECTIVELY APPLICABLE. THE ANSWER STANDS IN FAVOUR OF THE ASSESSEE IN VIEW THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF NIKO RESOURCES LIMITED VS. UNION OF INDIA REPORTED IN 374 ITR 369 WHEREIN IT WAS HELD AS UNDER: 35.7 THE APEX COURT IN UNEQUIVOCAL TERMS HAS HELD THAT, 'NATURAL GAS IN RAW AND LIQUEFIED FORM IS A PETROLEUM PRODUCT AND PART OF MINERAL OIL RESOURCES.' IN LIGHT OF THE ABOVE JUDGMENT, AND IN ABSENCE OF ANY SPECIFIC DEFINITION OF MINERAL OIL UNDER SECTION 80-IB OF THE ACT, ANY REFERENCE TO MINERAL OIL IN ITS NATURAL, COMMERCIAL AND TECHNICAL SENSE WILL INCLUDE PETROLEUM PRODUCTS AND NATURAL GAS. THE DECISION RENDERED BY THE APEX COURT IN ASSOCIATION OF NATURAL GAS CASE WOULD SQUARELY APPLY. IN THE ABSENCE OF THE DEFINITION UNDER SECTION 80-IB OF THE ACT, IF RELIANCE HAS TO BE PLACED ON ALLIED ENACTMENTS PASSED BY PARLIAMENT, THIS WOULD ALSO LEAD TO A CLEAR CONCLUSION THAT MINERAL OIL INCLUDES NATURAL GAS. 17. COMING TO THE QUESTION NO. 2, WE NOTE THAT EACH WELL BEEN TREATED AS A SEPARATE UNDERTAKING IN THE CASE OF NIKO RESOURCES LIMITED VS. UNION OF INDIA REPORTED IN 374 ITR 369. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: THE EXPRESSION 'UNDERTAKING' HAS NOT BEEN DEFINED UNDER THE ACT, IT HAS ACQUIRED A WELL DEFINED MEANING THROUGH CONSISTENT JUDICIAL DECISIONS COMMENCING FROM TEXTILE MACHINERY CASE. THE EXPRESSION 'UNDERTAKING' IS USED IN VARIOUS PROVISIONS OF THE ACT, WHILE CONFERRING THE BENEFITS UNDER DIFFERENT SCHEMES. IT IS CLEAR THAT COMMERCIAL PRODUCTION OF MINERAL OIL HAPPENS FROM EVERY DEVELOPMENT AREA/FIELD CONSISTING OF A WELL OR CLUSTER OF WELLS WITH A DEVELOPMENT PLAN BEING APPROVED FOR EVERY DEVELOPMENT AREA/FIELD THEREBY MAKING EVERY DEVELOPMENT AREA/FIELD AS AN INDEPENDENT ECONOMIC UNIT. EVERY DEVELOPMENT AREA/FIELD IS THUS AN 'UNDERTAKING'. 17.1. IN VIEW OF THE ABOVE, WE HOLD THAT EACH WELL MAINTAINED BY THE ASSESSEE REPRESENTS THE SEPARATE UNDERTAKING AND THEREFORE THE PROFIT OF EACH UNDERTAKING IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB(9) OF THE ACT. 17.2. REGARDING THE QUESTION NO. 3, WE NOTE THAT SUCH EXPLANATION HAS BEEN HELD AS UNCONSTITUTIONAL BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIKO RESOURCES LIMITED VS. UNION OF INDIA REPORTED IN 374 ITR 369. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 62. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE AMENDMENT MADE IN SECTION 80-IB(9) BY ADDING AN EXPLANATION WAS NOT CLARIFICATORY, DECLARATORY, CURATIVE OR MADE 'SMALL REPAIR' IN THE ACT, BUT ON THE CONTRARY TAKES AWAY THE ACCRUED AND VESTED RIGHT OF THE PETITIONER WHICH HAD MATURED AFTER THE JUDGMENTS OF ITAT, THEREFORE, THE EXPLANATION ADDED BY FINANCE (NO.2) 2009 WAS A SUBSTANTIVE LAW. WE HAVE NO HESITATION TO HOLD THAT THE EXPLANATION ADDED TO SECTION 80-IB(9) BY FINANCE ACT (NO.2) OF 2009 IS CLEARLY UNCONSTITUTIONAL, VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION OF INDIA AND IS LIABLE TO BE STRUCK DOWN. BEFORE PARTING, IT IS VERY PERTINENT TO NOTE THAT THE ABOVE FINDINGS IN QUESTION NOS. 1 TO 3 OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIKO RESOURCES LTD. HAS BEEN STAYED BY THE HONBLE SUPREME COURT WHILE ADMITTING THE SLP IN (CC) NO. 18370 OF 2015. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: AS WE ARE ENTERTAINING THE MATTER, THE HIGH COURT(S) WHERE THE APPEALS ARE PENDING SHALL NOT FINALISE THE SAME TILL THE MATTER IS DEALT WITH BY THIS COURT.' 17.3. IN VIEW OF THE ABOVE, WE HOLD THAT THE QUESTIONS AS DISCUSSED ABOVE ARE PENDING ADJUDICATION BEFORE THE HONBLE APEX COURT. ACCORDINGLY, WE REFRAIN OURSELVES FROM ADJUDICATING THE SAME. HOWEVER, WE SET ASIDE THE IMPUGNED ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE TO THE JUDGMENT OF THE HONBLE SUPREME COURT WHICH IS PENDING FOR ADJUDICATION. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 15 AS SUCH, THE AO IS DIRECTED TO WAIT FOR THE VERDICT OF HONBLE SUPREME COURT AND THEREAFTER DECIDE THE ISSUE ACCORDINGLY IN THE LIGHT OF JUDGMENT OF HONBLE SUPREME COURT. HENCE, THE IMPUGNED ISSUES RAISED IN QUESTIONS BEFORE US AS DISCUSSED ABOVE ARE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF THE ABOVE STATED DISCUSSION. 17.4 REGARDING THE QUESTION NO. 4, WE NOTE THAT THE CONDITIONS AS SPECIFIED UNDER SECTION 80IB (2) OF THE ACT ARE NOT APPLICABLE TO THE PROVISIONS OF SECTION 80 IB(9) OF THE ACT. THUS WE HOLD THAT THE CONDITION PRESCRIBED THEREIN (SECTION 80 IB(9) OF THE ACT) REQUIRES THE ASSESSEE TO BE AN UNDERTAKING WHICH COMMENCES ITS PRODUCTION ON OR AFTER 1 APRIL 1997. HENCE, WE HOLD THAT THE CONDITIONS/RESTRICTIONS SPECIFIED UNDER SECTION 80 IB(2) OF THE ACT CANNOT BE IMPORTED WHILE DETERMINING THE DEDUCTION UNDER SECTION 80IB(9) OF THE ACT. 17.5. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES AND GROUNDS OF APPEAL OF THE REVENUE ARE PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. 17.1 THE LEARNED DR AT THE TIME OF HEARING HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE ITAT, AS DISCUSSED ABOVE, SUGGESTING THAT THERE WAS ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OR UNDER THE PROVISIONS OF LAW. HENCE, THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES VIZ A VIZ UNDER THE PROVISIONS OF LAW, WE SET ASIDE THE ISSUE TO FILE OF AO FOR FRESH ADJUDICATION IN THE LIGHT OF DIRECTION GIVEN IN THE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE (SUPRA) . HENCE THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES COMING TO THE ITA NO. 2389/AHD/2015 OF ASSESSEE PERTAINING TO AYS 2006-07 19. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-13. AHMEDABAD. (HEREINAFTER REFERRED TO AS CIT(A)) U/S 250 OF THE INCOME TAX ACT ('THE ACT'), PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS OF APPEAL WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS ERRONEOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CASE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED CIT(A) HAS ERRED IN HOLDING OIL WELL AS PART OF THE BUILDING WITHIN THE EXTENDED MEANING OF THE TERM BUILDING GIVEN IN THE APPENDIX 1 TO THE INCOME TAX RULES AND HENCE CONFIRMING THE DEPRECIATION ALLOWANCE AT 10% INSTEAD OF 60% AS PER ENTRY III(8)(XII) OF APPENDIX I TO THE INCOME TAX RULES 1962 ON OIL WELLS USED AS PLANT & MACHINERY IN THE FIELD OPERATIONS. IT IS SUBMITTED THAT IT BE SO HELD NOW. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 16 3. WHILE UPHOLDING THE DISALLOWANCE U/S 42 THE LEARNED CIT(A) HAS ERRED, IN NOT DIRECTING THE AO TO GRANT DEPRECIATION AT 60% ON THE OIL FIELD EQUIPMENTS / PLANTS INCLUDED IN THE CLAIM UNDER SECTION 42 AND ENTITLED TO DEPRECATION PER ENTRY III(8)(XII) OF APPENDIX I TO THE INCOME TAX RULES, 1962 TOGETHER WITH ADDITIONAL DEPRECIATION U/S 32(L)(IIA) OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT INTEREST UNDER SECTION 234B WAS MANDATORILY AND CONSEQUENTIAL. IT IS SUBMITTED THAT IT IS TO BE HELD NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD TO ALTER AND/OR TO AMEND ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF THE APPEAL. 20. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 TO 3 IS THAT THE LEARNED CIT- A ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE OIL WELL AS PART OF THE BUILDING. 21. THE ASSESSEE DURING THE YEAR CLAIMED DEPRECIATION @ 80% ON OIL WELLS TREATING THE SAME AS PLANT AND MACHINERY IN PURSUANT TO THE ENTRY 8(XII) OF DEPRECIATION TABLE OF INCOME TAX RULE. 21.1 HOWEVER, THE AO HELD THAT THERE WAS NO MACHINERY INSTALLED INSIDE OIL WELLS AND THESE WERE MADE UP OF CEMENTED WELLS. ACCORDINGLY THE AO HELD THAT OIL WELLS DRILLED FOR PRODUCTION OF OIL AND GAS IS NOT A PLANT & MACHINERY AND THUS ALLOWED DEPRECIATION @ 10 % ONLY INSTEAD OF @ 80% AS CLAIMED BY THE ASSESSEE, TREATING THE SAME AS PART OF BUILDING. 22. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A) WHO IN TURN BY FOLLOWING THE DECISION OF HONBLE ITAT AHMADABAD IN CASE OF NIKO RESOURCES LTD (SUPRA) CONFIRMED THE ORDER OF THE AO. 23. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 24. THE LEARNED AR BEFORE US SUBMITTED THAT OIL WELL IS PLANT AND MACHINERY. THEREFORE, THE SAME IS ELIGIBLE FOR DEPRECIATION AS PLANT AND MACHINERY. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 17 25. ON THE CONTRARY, THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 3988/AHD/2008 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 31 ST DECEMBER 2019, INVOLVING IDENTICAL ISSUE HAS DECIDED THE MATTER IN FAVOR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 23. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN CASE OF NIKO RESOURCES LTD. REPORTED IN 88 TAXMANN.COM 691 HAS HELD THAT THE OIL WELLS ARE PLANT & MACHINERIES AND NOT PART OF BUILDING. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED HERE UNDER: 5. WE HAVE HEARD LEARNED COUNSEL APPEARING FOR THE RESPECTIVE PARTIES. IN LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SCIENTIFIC ENGG. HOUSE (P.) LTD. (SUPRA), WE ARE OF THE VIEW THAT THE REASONING WHICH WAS ADOPTED BY THE TRIBUNAL HOLDING THAT THE WELL WOULD NOT FORM A PART OF THE PLANT AND MACHINERY FOR DRILLING OF OIL IS NOT POSSIBLE. IN THAT VIEW OF THE MATTER, THE VIEW TAKEN BY CIT (APPEALS) IS RESTORED AND THE FINDINGS OF THE TRIBUNAL ARE REVERSED. HENCE, THE ISSUE RAISED IN THIS APPEAL IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. THE APPEAL STANDS DISPOSED OF ACCORDINGLY. 23.1. AS THE FACTS IN THE CASE ON HAND AND THE FACTS OF THE CASE AS DISCUSSED IN THE CASE OF NIKO RESOURCES LTD (SUPRA) ARE IDENTICAL, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE JURISDICTIONAL HIGH COURT AS DISCUSSED ABOVE, WE HOLD THAT THE OIL WELL IS PART OF THE PLANT AND MACHINERY. HENCE, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 26.1 THE LEARNED DR AT THE TIME OF HEARING HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE ITAT, AS DISCUSSED ABOVE, SUGGESTING THAT THERE WAS THE CHANGE IN THE FACTS AND CIRCUMSTANCES OR UNDER THE PROVISIONS OF LAW. HENCE, THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES VIZ A VIZ UNDER THE PROVISIONS OF LAW, WE SET ASIDE THE ORDER OF THE LD. CIT-A IN VIEW OF THE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE (SUPRA) . ACCORDINGLY WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 27. THE NEXT ISSUES RAISED BY THE ASSESSEE IS CONSEQUENTIAL AND DO NOT REQUIRE ANY SEPARATE ADJUDICATION. THEREFORE WE DISMISS THE SAME AS INFRUCTUOUS. ITA NOS.2388/AHD/2015 & TWO OTHERS ASSTT. YEAR 2004-05 18 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 29. IN THE COMBINED RESULTS, THE TWO APPEALS OF THE ASSESSEE BEARING ITA NO.2388/AHD/2015 FOR A.Y 2004-05 AND ITA NO.2389/AHD/2015 FOR A.Y. 2006-07 ARE PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE BEARING ITA NO.2258/AHD/2015 FOR AY 2006-07 IS ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 25/10/2021 AT AHMEDABAD. SD/- SD/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 25/10/2021 MANISH