The ADIT(Intl.Taxn.), Ahmedabad V. M/s. Dalma Energy LLC, Baroda

ITA 2519/AHD/2011

• Counselvise Citation: 251920514 RSA 2011
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Depreciation; Corroborative evidences; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ADIT, (INTL. TAXN.) AHMEDABAD, 4 TH FLOOR, NATURE VIEW BUILDING, ASHRAM ROAD , AHMEDABAD (APPELLANT) VS DALMA ENERGY LLC, 102, PLEASURE TERRACE, 18, VISHWAS COLONY, OFF. - R.C. DUTT ROAD, ALKAPURI, BARODA - 390007 PAN: AABCD8102E (RESPONDENT) REVENUE BY : S H RI DINESH SINGH , SR. D . R. ASSESSEE BY: S H RI MILIN MEHTA , A.R. DATE OF HEARING : 10 - 08 - 2 015 DATE OF PRONOUNC EMENT : 14 - 08 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS R EVENUE S APP EAL FOR ASSESSMENT YEAR 2007 - 08 AR ISES FROM ORDER OF THE CIT(A), GANDHINAGAR, AHMEDABAD DATED 19 - 07 - 2011 IN APPEAL NO. CIT(A)/GNR/188/INTL. TAXN./2010 - 11 , IN PROCEEDINGS UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2519 / A HD/20 11 A SSESSMENT YEAR 200 7 - 08 I.T.A NO. 2519/ AHD/20 11 A.Y. 20 0 7 - 08 PAGE NO THE ADIT(INTL. TAXN) AHMEDABAD VS. DALMA ENERGY LLC 2 2. THE REVENUE S SOLE SUBSTANTIVE GROUND SEEKS TO RESTORE THE ASSESSING OFFICER S ACTION HOLDING EXPENSES OF RS. 1,12,41,443/ - CLAIMED UNDER THE HEAD MAJOR REPAIRS AND MAINTENANCE AS CAPITAL EXPENDIT URE INSTEAD OF THAT BEING TREAT ED REVENUE EXPENDITURE IN THE CIT(A) S ORDER UNDER CHALLENGE. 3. THE ASSESSEE - COMPANY DERIVES INCOME FROM BUSINESS OF PROVIDIN G RIGS FOR OIL DRILLING. IT CLAIMED THE IMPUGNED MAJOR REPAIR AND MAINTENANCE SUM OF RS. 1,21,5 9,043/ - ALONG WITH ROUTINE AND MINO R ONES AMOUNTING TO RS. 33,22,448/ - AND RS. 2,56,196/ - ; RESPECTIVELY. IT PLEADED TO HAVE CARRIED OUT THE IMPUGNED MAJOR REPAIRS ON GENERAL RUNNING OF OIL RIGS AND AUXILIARY EQUIPMENT WITH UPKEEP AND SERVICING THEREOF. T HE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 09 - 02 - 2011 VIEWED THESE MAJOR REPAIRS AS CAPITAL E XPENDITURE. HE WENT ON TO DRAW MUCH A LENGTHY DISCUSSION ON CAPITAL AND REVENUE EXPENDITURE ALONG WITH DISTINGUISHING FEATURES THEREIN. AND OBSERVED THAT THE IMPUGNED MAJOR REPAIRS WHICH A RIG UNDERGOES RESULTS IN INCREASE IN ITS EARNING CAPACITY HAVING ENDURING BENEFITS. ALL THIS RESULTED IN THE IMPUGNED DISALLOWANCE OF ASSESSEE S CLAIM TO THE TUNE OF RS. 1,12,41,443/ - OUT OF THE TOTAL SUM OF RS. 1,21,59,043 / - . 4. THE ASSESS EE PREFERRED APPEAL. THE CIT(A ) HAS ACCEPTED ITS CONTENTION AS UNDER - 4. GROUND NO. 1 IS WITH REGARD TO THE DISALLO W ANCE OF THE CLAIM OF REPAIRS & MAINTENANCE EXPENDITURE OF RS. 1, 12,41,4437 - . 4.1 THE AO IN HIS ORDER HAS DISCUSSED MAI NLY THE LEGAL POSITION WITHOUT DISCUSSING THE PARTICULAR EXPENSES CLAIMED AND WHY THESE ARE NOT IN THE NATURE OF REVENUE EXPENDITURE. I.T.A NO. 2519/ AHD/20 11 A.Y. 20 0 7 - 08 PAGE NO THE ADIT(INTL. TAXN) AHMEDABAD VS. DALMA ENERGY LLC 3 4.2 BEFORE THE AO IT WAS CLEARLY POINTED OUT BY THE ASSESSEE THAT THE REPAIR & MAINTENANCE EXPENSES AR E OF BASICALLY THREE NATURES - (A) ROUTINE PAINTING OF EQUIPMENTS , THE EXPENSES ON OXYGEN, NITROGEN ETC., FOR WELDING PURPOSE AND SIMILAR EXPENSES; (B) MAJOR RE - THREADING AND STRENGTHENING OF DRILL PIPES, DRILL COLLARS, OVERHAULING OF ENGINES, GENERATORS ETC. (C) C AMP INCLUDE EXPENSES ON CAMP DEPLOYED FOR RIG MEN FOR ACCOMMODATION ETC., THE EXPENSE WAS NOT OF SUCH A NATURE THAT IT RESULTED IN A NEW ASSET OR INCREASES IN EFFICIENCY THAN THE ORIGI NAL ASSET OR EVEN RESULTED IN SUBSTANTIAL REPLACEMENT OF THE EQUIPMENT. THE AO HAS ALSO NOT POINTED OUT ANY SUCH EXPENSES IN PARTICULAR TO JUSTIFY HIS DISALLOWANCE. THE ISSUE WAS CONSIDERED IN DETAIL, IN THE APPELLATE PROCEEDINGS FOR AY 2004 - 05, AY 2005 - 06 & 2006 - 07 WHERE SIMILAR EXPENSES WERE DISALLOWED BY THE AO. IN THE EARLIER ASSESSMENT YEARS, IT WAS HELD THAT THERE IS NOT A SINGLE INSTANCE WHERE THE EXPENDITURE IS CAPITAL IN NATURE. SAME IS THE CASE IN THE CURRENT YEAR , THEREFORE, THE CLAIM OF THE APPE LLANT IS ALLOWED HOLDING IT TO BE REVENUE EXPENDITURE. THE AO HAD CAPITALIZED THESE EXPENSES AND ALLOWED DEPRECIATION ON IT. CONSEQUENT TO THE ABOVE DECISION, THE ADDITIONAL ALLOWANCE OF DEPRECIATION IS DIRECTED TO BE WITHDRAWN. 5. HEARD BOTH SIDES. R ECORDS PERUSED. THE ASSESSEE HAS FILED A PAPER BOOK. PAGES 4 0 TO 100 THEREOF CONTAIN ALL DETAILS OF THESE EXPENSES INCURRED ON REPAIRS AND MAINTENANCE OF THE RIGS ALONG WITH SERVICING. ALL NECESSARY PARTICULARS REGARDING NATURE OF THE JOB AND LIST OF P AYEES DULY FIND MENTION. THE REVENUE DRAWS OUR ATTENTION TO THE FACT THAT 10 OUT OF 12 PAYMENTS HAVE BEEN MADE AT THE FAG END OF THE YEAR I.E. FROM 21 ST MARCH, TO 31 ST MARCH 2007 SO AS TO CAST DOUBTS ON THE GENUINENESS OF THE ASSESSEE S CLAIM. WE ARE NO T IMPRESSED WITH THIS ARGUMENT. THE FACT REMAINS THAT THE ASSESSING OFFICER HIMSELF TREATED THE IMPUGNED I.T.A NO. 2519/ AHD/20 11 A.Y. 20 0 7 - 08 PAGE NO THE ADIT(INTL. TAXN) AHMEDABAD VS. DALMA ENERGY LLC 4 EXPENDITURE TO BE CAPITAL IN NATURE. WE OBSERVE IN THESE FACTS THAT THIS ALONE IN ABSENCE OF ANY OTHER SUPPORTING EVIDENCE DOES NOT LEAD US TO DOUBT THE EXPENDITURE IN QUESTION. WE ALSO FIND THAT THE CIT(A) HAS FOLLOWED HIS ORDERS PASSED IN EARLIER ASSESSMENT DEALING WITH THE SAME ISSUE. ONE OF THEM CAME TO THE TRIBUNAL AS WELL. A CO - ORDINATE BENCH IN ADIT VS. DALMA ENERGY LLC (2012) 136 ITD 208 (AH D) IN ASSESSEE S OWN CASE FOR A.Y. 2005 - 06 AND 2006 - 07 REJECTED IDENTICAL ARGUMENTS OF THE REVENUE FOR HOLDING THAT THE SUMS IN QUESTION SPENT ON UPKEEPING, SERVICING AND AUXILIARY EQUIPMENT INSTALLATION IN RIGS HAVE TO BE TREATED AS REVENUE EXPENDITURE . THE REVENUE FAILS TO POINT OUT ANY DISTINCTION ON FACTS . ITS SOLE SUBSTANTIVE GROUND ACCORDINGLY FAILS. 6. THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 14 - 08 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 14 /08 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,