DCIT, New Delhi V. M/s Jubilant Oil & Gas Pvt. Ltd., New Delhi

ITA 3227/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74156 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 15-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH VERMA
• Assessee Lawyers: PAWAN KUMAR PI YUSH CHAWLA; SILVIA RAJPAL
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI G. D. AGARWAL, HONBLE VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER I TA NO. 3227 /DEL/ 2011 (ASSESSMENT YEAR: 2008 - 09) DCIT CIRCLE - 4(1), ROOM NO. 407, 4 TH FLOOR, C.R. BUILDING, IP ESTATE, NEW DELHI VS. JUBILANT OIL & GAS PVT., LTD. 1517, 15 TH FLOOR, DEVIKA TOWER, NEHRU PLACE, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI YOGESH VERMA, CIT DR RESPONDENT BY: PAWAN KUMAR, PI YUSH CHAWLA & MS. SILVIA RAJPAL, CA O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - VII , NEW DELHI DATED 20.04.2011 , FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS FOLLOWS: - 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT ( APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 14,75,04,720/ - MADE ON ACCOUNT OF PRE - OPERATIVE EXPENSES. 2.1 THE LD CIT(A) IGNORED THE FINDING RECORDED BY THE ASSESSING OFFICER AND THE FACT THAT THE ASSESSEE HAD NOT STARTED ITS BUSINESS DURING THE YEA R. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RA ISED ABOVE THE TIME OF HEARING. 3. APROPOS DELETION OF ADDITION OF RS. 14,75,04,720 / - MADE ON ACCOUNT OF PRE - OPERATIVE EXPENSES WHEN THE ASSESSEE HAD NOT STARTED ITS BUSINESS DURING THE RELEVANT YEAR. 4. BOTH THE GROUNDS ARE TAKEN TOGETHER BECAUSE BOTH ARE INTER - CONNECTED. PAGE NO. 2 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 , WHICH IS ENGAGED INTER - A LIA IN THE BUSINESS OF EXPLORATION AND PRODUCTION OF OIL AND GAS. FOR THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING A LOSS OF RS. 7,58,10,380/ - . THE RETURN OF INCOME WAS THEREAFTER PROCESSED U/S 143(1) OF THE INCOME - TAX ACT 1961 (HEREINAFTER THE ACT). THE RETURN OF INCOME WAS SUBSEQUENTLY SELECTED FOR SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, WHICH WAS COMPLETED ON 23.12.2010 DETERMINING THE TOTAL INCOME AT RS. 7,15,94,340/ - ; AFTER MAKING DISALLOWANCE IN RESPECT OF PRE - OPERATIVE EXPENSES AND DEPRECIATION TO THE EXTENT OF RS. 14,7 5 ,04,720/ - . 6. THE LD DR TOOK OUR ATTENTION TO ANNEXURE - I AT PAGE 43 OF THE PAPER BOOK WHICH SHOWS PARTICULARS OF DEPRECIATION ALLOWABLE AS PER THE ACT IN WHICH THE FOLLOWING PARTICULARS WERE ENUMERATED ( I ) GENERAL PURPOSE - PLANT & MACHINERY ( II ) FURNITURES & FIXTURES ( III ) COMPUTERS ( IV ) COMPUTER SOFTWARE ( V ) VEHICLE ( VII ) BUILDING; TO POINT OUT THAT THERE WAS NO COMMENCEMENT OF BUSINESS AND WONDERED AS TO WHAT WAS ON RECORD OF THE ASSESSEE TO SHOW THAT BUSINESS HAS COMMEN CED TO CLAIM THE EXPENDITURE AND DEPRECIATION. THE LD DR SUBMITTED THAT THE ASSESSEE COMPANY HAVE NOT COMMENCED ITS PRODUCTION FOR THE PURPOSE OF COMMERCIAL TRANSACTION AND THEREFORE, THEN ONLY IT CAN BE SAID T O HAVE COMMENCE D ITS BUSINESS . ACCORDING TO THE LD DR, THIS COMPANY IS STILL IN ITS NASCENT STATE OF BUSINESS AND BY ANY STRETCH OF IMAGINATION CAN IT BE SAID TO HAVE COMMEN CED ITS BUSINESS . AS PER HIM , THE COMPANY HAS ONLY CARRIED OUT PRELIMINARY EXPLORATION WORK THEREFORE, ASSESSING OFFICER WAS RIGHT TO HOLD THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS NOT SET UP AND THEREFORE THE EXPENSES INCURRED PRIOR TO SETTING UP OF A BUSINESS WAS NOT ALLOWABLE. ON THE OTHER HAND , THE LD AR SUBMITTED THAT FO R THE PRECEDING ASSESSMENT YEAR 2006 - 07 , SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(1) OF THE ACT AND CERTAIN DISALLOWANCES/ ADDITIONS AMOUNTING TO RS. 66,84,042/ - ON SIMILAR GROUNDS WERE MADE AGAINST THE ASSESSEE , WHO HAD PREFERRED AN APPEAL BEFORE THE LD CIT(A) AND THE LD CIT(A) ALLOWED THE DELETION OF THE SAID ADDITION VIDE ORDER DATED 25.10.2010. AGAIN IN THE PREVIOUS ASSESSMENT YEAR 2007 - 08 , THE ASSESSEES RETURNED INCOME WAS ACCEPTED BY THE ASSESSING OFFICER A ND THIS VERY CLEARLY STRENGTHENS THE INFERENCE THAT THE CLAIM REGARDING IDENTICAL EXPENDITURE WAS ALLOWED BY THE ASSESSING OFFICER I N THE PRECEDING ASSESSMENT YEARS . THEREFORE IT IS CONTENDED BY THE LD AR THAT IN THE ABSENCE OF ANY CHANGE EITHER IN FACT OR IN LAW , PRINCIPLES OF PAGE NO. 3 CONSISTENCY ALONE CAN BE MADE A BASIS TO UPHOLD THE CLAIM OF THE ASSESSEE COMPANY. TO SUPPORT HIS SAID CONTENTION HE CITED THE FOLLOWING CITATION BEFORE US: - RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC), CIT VS. RAJEEV GRINDING MILLS (2005) 279 ITR 86 (DELHI), COMMISSIONER OF INCOME - TAX VS. NEO POLY PACK (P) LTD (2000) 245 ITR 492 (DEL), CWT VS. RKKR INTERNATIONAL (P) LTD (2005) 145 TAXMAN 322 (DELHI), APEX COURT IN UNION OF INDIA VS. SATISH PANNALAL SHAH (2001) 249 ITR 221 (SC), BERGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 (SC). 7 . THE LD AR TOOK OUR ATTENTION TO PAGE 9 OF THE PAPER BOOK, WHEREIN, A PERUSAL OF THE ASSESSEES BALANCE SHEET AS ON 31.03.2008 , REVEALS THAT UNDER THE HEADING APPLICATION OF FUND , CAPITA L WORK IN PROGRESS FOR EXPLORATION COST HAS BEEN SHOWN IN SCHEDULE VI AND AN AMOUNT OF RS. 1,32 , 04 , 91,530 / - (RS. 132 CRORES) IS REFLECTED AS EXPENDITURE ; THIS WAS POINTED OUT BY THE LD AR TO BUTTRESS THE FACT THAT THE ASSESSEE COMPANY HAS ALREADY INCURRED HUGE EXPENDITURE FOR EXPLORATION COST FOR THEIR BUSINESS AND PRODUCTION OF OIL AND GAS. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD AND HAS GONE THROUGH THE JUDGMENTS REFERRED BY THE RESPECTIVE PARTIES. IT IS A WELL SETTLED LAW THAT IN THE ABSENCE OF ANY CHANGE EITHER IN FACT OR IN LAW, PRINCIPLES OF CONSISTENCY ITSELF CAN BE MADE A BASIS TO UPHOLD THE CLAIM OF THE ASSESSEE COMPANY. IT HAS BEEN OBSERVED BY THE APEX COURT IN RADHASOAMI SATSANG (SUPRA) THAT T HOUGH THE PRINCIPLES OF RES - JUD ICATA DO NOT APPLY TO INCOME - TAX PROCEEDINGS, PARTICULARLY WHEN EACH ASSESSMENT YEAR IS AN INDEPENDENT UNIT, BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALL OWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. SIMILAR VIEW HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RAJEEV GRINDING MILLS (2005) 279 ITR 86 (DELHI ). SIMILAR VIEW WAS EXPRESSED BY THE APEX COURT IN UNION OF INDIA VS. SATISH PANNALAL SHAH (2001) 249 ITR 221 (SC). WE FIND THAT IN THE ASSESSEES OWN CASE, FOR THE ASSESSMENT YEAR 2006 - 07, THE LD CIT(A) HAS DELETED THE ADDIT ION MADE BY THE ASSESSING OFFICER; AND THE ASSESSING OFFICER, HIMSELF ACCEPTED THE RETURNED INCOME FOR THE ASSESSMENT YEAR 2007 - 08 . THESE FACTS COULD NOT DISPUTED BY THE LD DR FOR THE REVENUE. PAGE NO. 4 9 . IT WAS ALSO RIGHTLY TAKEN NOTE BY THE LD CIT(A) THAT THE BUSINESS ACTIVITY OF THE ASSESSEE CONSISTS OF THREE STAGES: - THE FIRST STAGE RELATES TO THE EXPLORATION; THE SECOND STAGE ACTIVITY RELATES TO THE DEVELOPMENT; AND THE THIRD STAGE RELATES TO THE COMMERCIAL PRODUCTION. THE FIRST IN POINT OF TIME LAYS THE FOUNDATION FOR THE SECOND ACTIVITY AND THE SECOND ACTIVITY WHEN COMPLETED LAYS THE FOUNDATION FOR THE THIRD ACTIVITY. IT IS TO BE NOTED THAT THE APPELLANT IS IN THE BUSINESS OF EXPLORATION, PRODUCTION AND DEALING IN MINE RALS, OILS, GAS AND OTHER RELATED BY - PRODUCTS OF OIL AND GAS IN INDIA OR ELSEWHERE. IT IS ALSO TO BE NOTED THAT THE THREE ACTIVITIES COMBINED TOGETHER CONSTITUTED THE BUSINESS OF THE ASSESSEE. EACH ONE OF THE ACTIVITIES WAS AS MUCH ESSENTIAL FOR THE PURPOS E OF CARRYING OUT BUSINESS OF THE ASSESSEE. EACH ONE OF THE ACTIVITY CONSTITUTES AN INTEGRAL PART OF THE BUSINESS OF THE ASSESSEE. THE BUSINESS CONSISTED OF A CONTINUOUS PROCESS OF THESE THREE ACTIVITIES AND WHEN THE FIRST ACTIVITY WAS STARTED WITH A VIEW TO EMBARKING UPON THE SECOND AND THEN THE THIRD ACTIVITIES, IT CLEARLY AMOUNTED TO COMMENCEMENT OF THE BUSINESS. BUSINESS IS NOTHING MORE THAN A CONTINUOUS COURSE OF ACTIVITIES AND ALL THE ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS NEED NOT BE STARTED SIM ULTANEOUSLY IN ORDER THAT THE BUSINESS MAY COMMENCE. THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDES THE OTHER ACTIVITIES IS STARTED AS HELD BY HONBLE JUSTICE P. N. BHAGWATI IN THE CASE OF CIT VS. SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. 91 ITR 170 (GUJRAT HIGH COURT) . THE SAID DECISION OF THE HONBLE GUJRAT HIGH COURT WAS ALSO AFFIRMED BY THE APEX COURT IN THE CASE OF CIT VS. SARABHAI MANAGEMENT CORPORATION LTD. (1992) 102 CTR (SC) 1 64 AND THE SAID DECISION HAS RECENTLY BEEN FOLLOWED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CIT VS. ASPENTECH INDIA (P) LTD. 187 TAXMANN 25 (DELHI) . 10. IN THE INSTANT CASE WE FIND THAT ONE OF THE ESSENTIAL ACTIVITY NAMELY LICENSE/ RIGHT TO EXP LORE THE BLOCKS HAS BEEN GRANTED AND EXPLORATION OF BLOCKS HAS ALREADY BEEN STARTED WITHOUT WHICH NO PRODUCTION CAN TAKE PLACE. HENCE BUSINESS HAD COMMENCED AT THE STAGE WHEN LICENCE TO EXPLORE THE RESPECTIVE BLOCKS WAS GRA N TED BY THE GOVT. OF INDIA TO ASS ESSEE. 11. IT IS TO BE NOTED THAT THE EXPLORATION ACTIVITIES COMMENCED AFTER PROSPECTING, BIDDING AND ASSIGNMENT OF RIGHTS TO EXPLORE WERE GRANTED TO THE ASSESSEE BY THE GOVT. OF INDIA FOR DIFFERENT BLOCKS. HENCE, THE EXPENDITURE INCURRED AFTER COMMENCEMENT OF PAGE NO. 5 BUSINE SS SHOULD BE ALLOWED AS BUSINESS EXPENDITURE IRRESPECTIVE OF THE FACT THAT THE ACTUAL COMMERCIAL PRODUCTION HAS NOT BEEN COMMENCED. CONSIDERING THE NATURE, DURATION AND COST OF THE BUSINESS OF THE APPELLANT , THE LD CIT(A) HAS RIGHTLY MADE A FINDING THAT TH E ASSESSEE HAVE COMMENCED ITS BUSINESS , WHEN THE APPELLANT HAS CARRIED THE FIRST ACTIVITY BEING ASSIGNMENT OF THE RIGHT TO EXPLORE THE BLOCK AWARDED IN THE NEW EXPLORATION AND LICENSING POLICY (NELP) AND COMMENCEMENT OF EXPLORATION ACTIVITIES THEREAFTER IN CURR ED AN EXPENSE OF MORE THAN RS. 132 CRORES. THUS THE LD CIT(A) RIGHTLY REASONS THAT THE EXPENDITURE INCURRED FOR CARRYING ON ANY OF THESE INCLUDING THE FIRST ACTIVITY IS ALSO DEDUCTIBLE IN COMPUTING THE PROFITS AND GAINS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR WHEN THE ACTIVITY IS UNDERTAKEN. 12. MOREOVER A PERUSAL OF THE AUDITED STATEMENTS REVEALS THAT THE ASSESSEE HAS CLAIMED DEDUCTION ONLY IN RESPECT OF EXPENSES OF REVENUE NATURE . THESE VARIOUS ADMINISTRATIVE AND GENERAL EXPENSES AND THE INT EREST EXPENDITURE INCURRED BY THE ASSESSEE DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE EXPENDITURE OF REVENUE NATURE. IT IS ALSO NOTED THAT ALL DIRECT EXPENDITURE INCURRED FOR COMMISSIONING OF SPECIFIC PROJECTS HAVE BEEN CAPITALIZED BY THE ASSESSEE AND SHOWN UNDER THE HEAD CAPITAL WORK IN PROGRESS ON THE ASSET SIDE OF THE BALANCE SHEET. MOREOVER THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT OF SUCH EXPENDI TURE CAPITALIZED BY THEM AND SHOWN IN THE BALANCE SHEET. SINCE THE ASSESSEE HAS CLAIMED DEDUCTION ONLY IN RELATION TO THE EXPENDITURE OF REVENUE NATURE IN THE PROFIT AND LOSS ACCOUNT, WE FIND NO INFIRMITY IN THE REASONED ORDER OF THE LD CIT(A) , THEREFORE, WE CONFIRM THE FINDING OF THE LD CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 13 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 . 01 . 2014 . S D / - S D / - ( G. D. AGARWAL) (A. T. VARKEY) HONBLE VICE PRESIDENT JUDICIAL MEMBER DATED 3 1 / 01 / 2014 A K KEOT COPY FORWARDED TO PAGE NO. 6 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI