Deputy Commissioner of Income Tax, Circle - 2, Dibrugarh V. M/s. Assam Gas Company Ltd., Dibrugarh

ITA 54/GTY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6433 (ITAT-GUWAHATI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 1997-1998
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP SENGUPTA
• Keywords: Depreciation; Opportunity of being heard; Capital expenditure; Set aside
• Section: 143(3); 133A; 32; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL GUWAHATI BENCH, GUWAHATI BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 46 TO 54 / GAU / 2018 ASSESSMENT YEARS:1988-89 TO 1997-98 DCIT, CIRCLE-2, PUSHKARA HOUSE, N.H. 37,NATUNGAON, P.O. MOHANGHAT, DIBRUGARH- 768008 V/S . M/S ASSAM GAS COMPANY LTD. DULIAJAN, DIBRUGARH, ASSAM-786602 [ PAN NO. AABCT 5235 G ] /APPELLANT .. / RESPONDENT /BY ASSESSEE NONE /BY RESPONDENT SHRI SANDEEP SENGUPTA, DR /DATE OF HEARING 09-07-2019 /DATE OF PRONOUNCEMENT 31-07-2019 / O R D E R PER BENCH:- THESE REVENUES NINE APPEALS FOR ASSESSMENT YEAR(S ) 1988-99 TO 1997-98 ARISE AGAINST THE SEPARATE ORDERS OF COMMIS SIONER OF INCOME TAX(APPEALS) DIBRUGARH ALL DATED 12.12.2017 PASSED IN CASE NO.13- 21/DIB/2006-2007, INVOLVING PROCEEDINGS U/S 143(3) R.W.S 251 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. CASE(S) CALLED TWICE. NONE APPEARS AT THE ASSESSEE S BEHEST. AN ADJOURNMENT PETITION DATED 26.04.2019 FILED AT THE ASSESSEES BEHEST FORMS PART OF RECORDS BEFORE US SEEKING POSTPONEMEN T OF TODAYS HEARING. THERE IS NOBODY TO PURSUE THE SAME. WE THE REFORE DECLINE THE ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 2 INSTANT ADJOURNMENT AND PROCEED TO ADJUDICATE UPON THE INSTANT LIS WITH THE ABLE ASSISTANCE OF REVENUES SENIOR DEPARTMENTA L REPRESENTATIVE SHRI SANDEEP SENGUPTA. 2. IT EMERGES THAT REVENUES LAST THREE APPEALS IN ITA NO. 52 TO 54/GAU/2018 SUFFER FROM 27 DAYS DELAY IN FILING STA TED TO BE ATTRIBUTABLE TO VARIOUS PROCEDURAL FORMALITIES. WE CONDONE THE SAME GOING BY THE REVENUES SOLEMN AVERMENTS IN THE RESPECTIVE PETITIONS. 3. LEARNED DEPARTMENT REPRESENTATIVE STATES THAT AT THE OUTSET THAT THE REVENUE HAS RAISED TWO IDENTICAL SUBSTANTIVE GROUND S IN ALL THESE CASES SEEKING TO REVIVE THE ASSESSING OFFICERS ACTION TR EATING VARYING AMOUNTS KEPT IN SUSPENSE ACCOUNT AT THE ASSESSEES BEHEST AS ITS TAXABLE INCOME TAXES AS PER ACCRUED SYSTEM IN ALL ASSESSMENT YEARS. TAKE FO R INSTANCE, THE FIRST ASSESSMENT YEAR HEREIN IS 1989-89 WHICH INVOLVES SU SPENSE ACCOUNT FIGURE OF RS. 13,30,887/-. THIS APPEARS TO BE SECOND ROUND OF LITIGATION BETWEEN THE PARTIES. THIS TRIBUNALS EARLIER CO-ORDINATE BENCH HAD RESTORED THE ISSUE BACK TO THE FILE TO THE LOWER AUTHORITIES ON ACCOUNT OF FAC T THAT THEY HAD NOT TAKEN INTO CONSIDERATION ARBITRATION PROCEEDINGS BETWEEN THE T AXPAYER AND THE PAYEE IN QUESTION. THE CIT(A) HAS TAKEN NOTE OF THE ENTIRE F ACTS ON RECORD AS WELL AS THE TRIBUNALS EARLIER REMAND DIRECTIONS WHILST DEC IDING THE INSTANT FIRST ISSUE IN ASSESSEES FAVOUR AS UNDER: - 3. ADDITION OF RS. 13,30,887/- (GROUND NO. 2). THIS MATTER WAS AGITATED BY THE ASSESSEE IN GROUND NO. 2 OF APPEAL FILED ON 2702.1998. 3.1 IN THE AUDITED ACCOUNTS, TOTAL RECEIVABLE IN TH E SUSPENSE ACCOUNT SHOWN WAS RS.1,51,78,080/-. OUT OF THAT, RS.13,30,887/- PERTA INED TO THE AY UNDER CONSIDERATION. THE SAID AMOUNT WAS RECEIVABLE' FROM FOLLOWING PARTIES. (I) ASEB, NAMRUP RS. 6,18,706/- (II) HFCL, NAMRUP RS. 7,12,181/- RS. 13,30,887/- ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 3 AMOUNT WAS NOT OFFERED FOR TAXATION. IN NOT SHOWIN G THE SAME AS INCOME, ASSESSEE RELIED ON DECISION IN CASE OF CIT VS. NADI AD ELECTRIC SUPPLY CO. LTD. 80 ITR 650 (1971). THE AO STATED THAT HE WAS / NOT IN POSITION TO ACCEPT ASSESSEE'S CONTENTION AS THE CASE LAW RELIED UPOLT WAS TOO OLD . ACCORDING TO THE AO, THE HON'BLE SUPREME COURT, IN CASE OF K S KRISHNA RAO VS CIT (S C) 181 ITR 408 & RANA BAI & OTHER VS. CIT 181 ITR 400 (SC) AND THE HON'BLE GAHA TI H/C IN CASE OF CIT VS. U.M. KIDWAI 219 ITR 130 (GAU) HAD HELD THAT INTEREST ON DELAYED PAYMENT HAD TO BE ASSESSED ON ACCRUAL BASIS NOTWITHSTANDING THE CASH METHOD OF ACCOUNTING BEING FOLLOWED BY ASSESSEE. AO ALSO STATED THAT THE BILLS WERE RAISED AGAINST TWO ONGOING GOVT. CONCERNS WHOSE PAYING CAPACITY WAS NOT IN DOU BT. THE AO ACCORDINGLY ADDED RS. 13,30,887/- TO INCOME OF ASSESSEE. THE ADDITION WAS DELETED IN FIRST APPEAL. THE THEN CIT(A) TOOK THE VIEW THAT THE CASE LAWS RELIED UPON BY THE AO HAD NO BEARING ON THE FACTS OF CASE IN HAND. RELYING IN DECISIONS OF HON'BLE DELHI H/C IN CASE OF. CIT VS. R.G. GOVAN & CO. (1985) 156 ITR 875 (DELHI) AND THAT OF HON'BLE CALCUTTA H/C IN CASE OF CIT VS. BHARAT PETROLEUM CORPORATION LTD. ( 1993) 202 TTR 492 (CAL), THE ADDITIONS MADE WERE DELETED. IN SECOND APPEAL, HON' BLE TRIBUNAL, RELYING ON ITS DECISION FOR AYS 1984-85 TO 1987-88 SET ASIDE THE I SSUE TO THE MATTER FOR RECONSIDERATION WITH A DIRECTION TO GIVE OPPORTUNIT Y OF BEING HEARD TO THE AO. 3.2 BEFORE ME ALSO, THE APPELLANT HEAVILY RELIED ON DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF NADIAD ELECTRIC SUPPLY CO. LT D. (SUPRA) - FOLLOWING NOTES SUBMITTED REGARDING SUBSEQUENT HISTORY OF SUSPENSE RECOVERABLE IS REPRODUCED BELOW: 'ON THIS GROUND OF APPEAL, THE HON'BLE MEMBERS OF T HE INCOME TAX APPELLATE TRIBUNAL, GAUHATI BENCH, GANHATI IN PARA 2 OF ITS O RDER DATED 27.07.2006, IN APPEAL NUMBERS 107, 106, 109, 110, 111, 112, 113, 1 14 AND 115/GAU/2001 REFERRED TO ITS ORDERS DATED 31.07.2001 AND 23.05.2 003 IN ITA NOS. 74/GAU/1993 AND ITA NO. 403. TO 407/GAU/1996 FOR A. YS 1981-82 AND 1984- 85 TO 1987-88 RESPECTIVELY. ON REFERRING THE AFORES AID TWO ORDERS, S, IT HAS BEEN FOUND THAT THE MEMBERS OF THE HON'BLE ITAT, AF TER GOING THROUGH THE RECORDS AVAILABLE WITH THEM, ACCEPTED/ACKNOWLEDGED THAT THERE WERE SOME DITES BETWEEN THE ~ASSESSEE COMPANY AND THE RESPECT IVE DEBTORS ON SUSPENSE RECEIVABLE BILLS RAISED ON PARTIES AS DETA ILED BELOW:- ASEB, NAMRUP RS. 6,18,706.8 1 HFCL, NAMRUP RS. 7,12,181.08 TOTAL: RS. 13,30,887.89 THE HON'BLE TRIBUNAL, INTER ALIA, WHILE REFERRING T O THE ABOVE TWO PARTIES IN ITS ORDER DATED 31.07.2001 FURTHER QUOTED AS DETAILED BELOW:- 'IT APPEARS THAT THE MATTER HAS BEEN REFERRED TO PL ANNING AND DEVELOPMENT COMMISSIONER IN THE CASE OF ASEB AND THE REVISED BI LL ALSO APPEARS TO BE SUBMITTED IN THE OF ASSAM PETROCHEMICAL LIMITED. RECORD FURTH ER SLOWS THAT AN ARBITRATION PROCEEDINGS WAS ALSO INITIATED IN THE CASE OF HINDN STAN FERTILIZER CORPORATION LIMITED. SINCE ADMITTEDLY SOME DISPUTES ARE GOING ON BETWEEN THE ASSESSEE AND THE DEBTOR THE MERE RIGHT TO CLAIM CANNOT BE THE BASIS FOR TAX ING THE INCOME'. FURTHER TO THIS, THE HON'BLE MEMBERS OF THE TRIBUNA L REFERRED TO THE JUDGMENT OF THE BOMBAY HIGH COURT, IN THE CASE OF CIT VS NADIAD ELE CTRIC SUPPLY CO LTD (1971) 80 ITR 650, BOMBAY PAGE NO 652 W1UCH MEADS AS UNDER:- ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 4 'THE MERE SENDING OF BILLS DOES NOT CREATE A LEGAL ENFORCEABLE RIGHT IN THE ASSESSEE COMPANY, NOR A CORRESPONDING LEGAL ENFORCEABLE OBLI GATION ON THE MUNICIPALITY. THERE WOULD BE ENFORCEABLE CLAIM OR OBLIGATION ONLY IF TH ERE WAS AN AGREEMENT, EXPRESS OR IMPLIED, IN THAT BEHALF OR THERE WAS SOME STATUTORY OR SIMILAR RIGHT OR OBLIGATION'. NOW, IN THE CASE OF THE ASSESSEE COMPANY A SUM OF R S. 13,30,887/-, ABOVE REFERRED, WAS CREDITED IN THE SUSPENSE RECEIVABLE ACCOUNT. TH ESE CLAIMS WERE NOT ACKNOWLEDGED BY THE DEBTOR PARTIES AS THEIR RESPECT IVE LIABILITIES AND, THEREFORE, THE ASSESSEE CONSIDERED THE SAME DOUBTFUL OF RECOVERY A ND PRUDENTLY DID NOT RECOGNIZE THE SAME AS INCOME OF THE RELEVANT YEAR. THE HON'BLE MEMBERS OF THE GAUHATI BENCH OF THE TRI BUNAL IN ITS ORDER DATED 31.07.2001 WHILE REFERRING TO ABOVE LASTLY, CONCLUD ED THAT 'IT BECOMES NECESSARY TO ASCERTAIN THAT WHAT IS THE ACTUAL AMOUNT THE ASSESS EE IS ENTITLED TO LEGALLY RECEIVE'........SO THAT THE ACTUAL TAX LIABILITY ON INCOME CAN BE DETERMINED. NOW TO CONCLUDE, FACTUALLY, NO LEGALLY ENFORCEABLE DUES AGAINST THE SUSPENSE RECEIVABLE RS. 13,30,887/- WAS ASCERTAINED AND IN T HE LIGHT OF THE SAME, THE RELIEF ALLOWED MAY KINDLY BE CONFIRMED. HOWEVER, IN THE MEANTIME THE ASSESSEE COMPANY COMMI TS THAT AS AND WHEN THE RELEVANT DISPUTES ARE SETTLED WITH THE CONCERNED PA RTIES AND THE SUSPENSE RECEIVABLE TURNS INTO ACTUAL RECEIVABLES AFTER QUAN TUM DETERMINATION THE SAME WILL BE/WAS OFFERED FOR TAXATION. THE FACTS SUBMITTED HE REIN BELOW ARE RELEVANT IN THE MATTER. RELEVANT NOTES THE ASSESSEE COMPANY REFERS TO ANNEXURE B TO THE AUDITORS REPORT (PAGE NO. 11 UNDER THE HEAD CURRENT LIABILITIES & PROVISIONS RS . 45,15,17,945.32) OF THE ANNUAL REPORT 2000-01 WHEREIN IN PARA D THE BIFURCATION OF SUSPENSE RECEIVABLE AMOUNTING TO RS. 19,97,92,122/16 AS ON 3 1.03.2001 HAS BEEN GIVEN WHICH ARE AS UNDER: - HFC LIMITED RS. 16,94,78,249.44 ASEB NAMRUP RS. 2,26,87,524.46 ASEB, MAIBELA RS. 75,49,738.09 APL, NAMRUP RS. 76,610.17 REALIZATION AGAINST ABOVE:- HFCL LIMITED FY. 2000-01 RS. 1,00,00,000.00 FY 2000-02 RS. 8,88,89,852.00 RS. 9,98,89,852.00 FY 2001-02 RS. 20,000.00 9,88,69,852.00 ASEB NAMRUP FY 2003-04 RS. 2,26,87,524.46 ASEB, MAIBELA (FY 2002-03) NIL APL, NAMRUP (FY 2002-03) RS. 12,16,33,986.6 ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 5 THE RELEVANT REALIZATIONS, AS ABOVE, WERE DULY CONS IDERED AS INCOME DURING THE RELEVANT ACCOUNTING YEARS OF REALIZATION UNDER THE HEAD OPERATING INCOME (TRANSMISSION CHARGES) AS DETAILED BELOW AND OFFERE D FOR TAXATION: OPERATING INCOME (TC) NAME OF DEBTORS AMOUNT (RS. ) 1. FY 01.04.00 TO 31.03.01 (EY ADJT.) HFCL 99,80,000 2. FY 01.04.01 TO 31.03.202 HFCL 8,88,89,852.00 3. FY 01.04.02 TO 31.03.203 APL, NAMRUP 76 ,610.17 4. FY 01.04.03 TO 31.03.04 ASEB, NAMRUP 2,26,87,52 4.46 IN VIEW OF ABOVE, THE RELIEF CONSIDERED UNDER THE H EAD SUSPENSE RECEIVABLE AMOUNTING TO RS. 13,30,887/- WAS RIGHTLY ALLOWED BY THE THEN LD. CIT(APPEALS) AND NEED NOT BE CONSIDERED FOR INCOME DURING THE YEAR. IN PARA 10 (A) AT PAGE NO. 19 OF ANNUAL REPORT FOR FINANCIAL YEAR 2000-01, THE MANAGEMENT'S REPLY ON THE OBSERVATIONS OF THE STATU TORY AUDITORS IN THEIR REPORT, IT HAS BEEN CONFIRMED THAT AN AMOUNT OF RS 1 CRORE WAS RECEIVED FROM HFCL AND CONSIDERED AS INCOME DURING 2000-01 DULY INCLUDED I N EARLIER YEAR ADJUSTMENT ACCOUNT AND AS REPORTED THE BALANCE AMOUNT WAS TO B E TREATED AS INCOME IN THE RELEVANT YEAR OF RECEIPT. MOREOVER, IN PARA (A)(II) UNDER THE HEAD ' PROFIT & LOSS A/C ' AT PAGE NO. 12 OF THE ANNUAL REPORT FOR 200001, THE STATUTORY AUDITOR HAS COMMENTED THAT EARLIER YEAR ADJUSTMENT HAS BEEN OVERSTATED BY RS.1 CRORE WHICH CONFIRMS THE FACT THAT THE EARLIER YEAR ADJUSTMENT A/C AMOUNTING TO RS. 1,17,26,487.59 (CREDIT) SHOWN IN PROFIT & LOSS A/C INCLUDED RS. 1 CRORE RECEIVED FROM HFCL. PLEA OF ASSESSEE IS THAT THE SUMS CREDITED IN SUSPE NSE ACCOUNT WERE OFFERED TO TAX WHEN THE SAME WERE ACTUALLY ASCERTAINED BY B EING REALIZED. 3.2.1 IN HIS COUNTER COMMENT, THE AO REPORTED AS UN DER:- 'THE SUSPENSE RECEIVABLE BILLS OF RS.6,18,706,81/- AND RS 7,12,181/- RAISED ON ASEB AND HFCL RESPECTIVELY SHOULD HAVE BEEN CONS IDERED AS INCOME BY THE ASSESSEE. THE ISSUE WAS DEALT WITH BY THE AO'S PER LAW AND THE EXPLANATION OFFERED BY THE ASSESSEE THAT THE BILLS THOUGH RAISED WAS NOT ACCEPTED BY THE PARTIES IS NOT TENABLE ON THE GROUN D THAT ONCE THE BILL IS RAISED IT SHOULD HAVE BEEN CONSIDERED AS INCOME AND THE PARTIES INVOLVED SHOULD HAVE BEEN RECOGNIZED AS SUNDRY DEBTORS WHICH THE ASSESSEE FAILED TO DO SO. THE ASSESSEE COMPANY HAS TAKEN THE PLEA OF R ECEIPT OF RS. 1 CRORE FROM HFCL AND ITS SUBSEQUENT DISCLOSURE IN THE RETU RN OF AU 2001-02 TO SUPPORT ITS CLAIM BUT COULD NOT SUBSTANTIATE IT BY FURNISHING THE REQUIRED COPIES OF PAYMENT CHALLAN AND PROOF OF ITS CREDIT IN THE A /C OF THE ASSESSEE CO.' 3.3 I HAVE CAREFULLY CONSIDERED THE MATTER. ASSESSE E HAD CERTAIN CLAIMS AGAINST TWO PARTIES VIZ. ASEB, NAMRUP AND HFCL, NAMRUP. BILLS RAISED AGAINST THE PARTIES WERE DISPUTED. SINCE THE CLAIMS WERE NOT CERTAIN OF BEING REALIZED , ASSESSEE HAD NOT OFFERED THEM FOR TAXATION. EVEN ARBITRATION PROCEEDING WAS GOING IN CASE OF ONE OF THE PARTIES. SUBSEQUENTLY, WHEN PARTS OF THE CLAIMS WERE FINALLY RECEIVED AT A MUCH LATER DATE, ASSESSEE HAD OFFERED THE SAME FOR TAXATION. IN SUPP ORT OF ITS CLAIM, ASSESSEE RELIED IN ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 6 DECISIONS IN CASES OF NADIAD ELECTRIC SUPPLY CO. LT D. (SUPRA) AND CIT VS. BHAAT PETROLEUM CORPORATION LTD. (1993) 202 ITR 492. WHER EAS, THE AO, IN SUPPORT OF ITS DECISION, RELIED ON THE DECISIONS IN CASE OF KS. KR ISHNA RAO (SUPRA), RAMA BAI & OTHER (SUPRA) & U.M. KIDWAI (SUPRA). CASE LAWS RELI ED UPON BY THE AO PERTAINED TO TAXABILITY OF INTEREST ON ENHANCED COMPENSATION. SI N THE CASE LAWS RELIED UPON BY THE AO, HON'BLE COURTS WERE CONCERNED ABOUT TAXABILITY OF INTEREST WHEN THE SAME WAS ACTUALLY RECEIVED/AWARDED. HON'BLE COURT TOOK THE V IEW THAT INTERESTS ACCRUING OVER THE YEAR COULD NOT BE TAXED AT ONE INSTANCE. IT HAD TO BE SPREAD OVER THE YEARS. SO, THE CASE RELIED UPON BY THE AO IS CLEARLY NOT APPLI CABLE HERE. IN THE CASE OF BHARAT PETROLEUM CORPORATION (SUPRA), EXCESS CLAIMS WAS MA DE BY ASSESSEE. HOWEVER, ITS CLAIM WAS NOT CLEARED BY THIS GOVERNMENT. IN SUCH A SITUATION, IT WAS HELD THAT ASSESSEE HAD NO LEGAL RIGHT TO ENFORCE ITS CLAIM AN D INCOME WAS HELD NOT TO ACCRUE DURING THE YEAR WHEN EXCESS CLAIM WAS MADE. RESPECT FULLY FOLLOWING THE DECISIONS OF HON'BLE COURTS IN CASES OF NADIAD ELECTRIC SUPPLY C O. LTD. (SUPRA) & BHARAT PETROLEUM CORPORATION LTD.( SUPRA), IT IS HELD THAT INCOME CANNOT BE SAID TO HAVE ARISEN TO ASSESSEE MERELY ON ACCOUNT OF ENTRIES MAD E IN SUSPENSE ACCOUNT. THE ISSUE SET ASIDE IN RESPECT OF ADDITION OF RS. 13,30 ,887/- IS DECIDED IN FAVOUR OF ASSESSEE. GROUND NO.2 OF THE APPEAL IS ALLOWED. 4. MR. SANDEEP SENGUPTA STRONGLY ARGUES IN FAVOUR O F ASSESSING OFFICERS FINDINGS THAT THE IMPUGNED SUM(S) KEPT IN SUSPENSE ACCOUNT AT THE ASSESSEES BEHEST OUGHT TO BE TREATED AS INCOME OF THE RELEVAN T PREVIOUS YEAR. WE MAKE IT CLEAR THAT THE CLINCHING FACT OF ARBITRATION PRO CEEDINGS IN EARLIER ASSESSMENT YEARS BETWEEN ASSESSEE AND THE PAYER CONCERNED QUA THE VERY ISSUE HAS GONE UNREBUTTED. MR. SENGUPTA, SOUGHT TO CARVE OUT A DISTINCTION THAT ALTHOUGH THE ISSUE IS THE SAME, THOSE PROCEEDINGS DO NOT PER TAIN TO THE ASSESSMENT YEARS BEFORE US. WE FIND NO MERIT IN THESE REVENUE S CONTENTIONS. THE FACT REMAINS THAT THE ASSESSEE (RECIPIENT) AND ITS PAYER S HAVE BEEN LOCKED IN AN ARBITRATION CASE IS NOT IN ISSUE. THE QUESTION AS T O WHETHER SUCH AN INCOME KEPT IN SUSPENSE ACCOUNT FORMING SUBJECT-MATTER OF LITIGATION COULD BE RECORDED IN THE BOOKS OF ACCOUNT GOING BY ACCRUAL S YSTEM OF ACCOUNTING COME UP BEFORE THEIR LORDSHIPS IN CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) HOLDS THAT THE PRINCIPLES OF CONSERVATION AND BUSINESS PRUDENCE IN ACCORDING REQUIRE THAT NO ANTICIPATED PROFITS BE TR EATED AS INCOME TILL THEY ARE REALIZED, THE SAME IS HOWEVER NOT THE CASE ABOUT AN TICIPATED LOSSES WHICH CAN BE BOOKED AT THE FIRST SIGHT OF REASONABLE PROBABIL ITY. HON'BLE APEX COURTS DETAILED DISCUSSION TO THIS EFFECT READS AS UNDER:- ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 7 . THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOL D STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUN T AT THE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOSS A CTUALLY REALIZED ON THE YEARS TRADING. AS POINTED OUT IN PARAGRAPH 8 OF THE REPOR T OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDING OF TRADING STOCKS, 1919, S THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED WHICH HAVE NOT BEEN SOLD, IT SHOULD NECES SARILY REPRESENT THE COST OF THE GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN TH E EFFECT IS TO STATE THE PROFIT ON THE GOODS WHICH ACTUALLY HAVE BEEN SOLD AT THE INCORREC T FIGURE. FROM, THIS RIGID DOCTRINE ONE EXCEPTION IS VERY GENERALLY RECOGNIZED ON PRUDENTIAL GROUNDS AND IS NOW FULLY SANCTIONED BY CUSTOM, VIZ., THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF THAT VALUE IS LESS, THAN COST. IT I S OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON THOSE GOODS IN THE FOLLOWING YE AR, AND MAY EVEN HAVE THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEARS RESULTS A GREATER AMOUNT OF PROFIT THAN THE DIFFERENCE BETWEEN THE AC TUAL SALE PRICE AND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION. EXTRACTED IN PARAG RAPH 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFITS PRESEN TED TO BRITISH PARLIAMENT IN APRIL, 1951). WHILE ANTICIPATED LOSS IS THUS TAKEN INTO AC COUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALIZATION. THIS IS THE THEORY UNDERLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNT ANCY. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTE DIN CONFORMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS OF COURSE, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED LEGISLATIVE ENACTMENTS, UNREALIZED PROFITS. IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF AN ACCOUNTING YEAR A ND CARRIED OVER O THE FOLLOWING YEARS ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRACTICE , THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REA LIZED. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) WE CONCLUDE IN THIS LEGAL AND TECHNICAL BACKDROP TH AT THE CIT(A) HAS RIGHTLY REVERSED THE ASSESSING OFFICERS ACTION TREATING AS SESSEES SUSPENSE ACCOUNT FIGURES AS INCOME SINCE THEY SAVE COULD NOT HAVE BE EN TREATED AS INCOME TILL THE TIME THE ARBITRATES PROCEEDINGS (SUPRA) DID NOT ATTAIN FINALITY. THIS FIRST ISSUE IS DECIDED IN ASSESSEES FAVOUR. 5. NEXT COMES THE SECOND COMMON ISSUE OF MINIMUM DE MAND CHARGES (MDC) INCOME ADDITION OF RS. 41,97,860/- IN ( FIRST LEAD AY 1998-99 ). THE FACTUAL POSITION IS NOT DIFFERENT IN QUA THIS SECOND ISSUE AS WELL WHEREIN MR. SENGUPTA HAS STATED THAT THE PARTIES HAD BEEN FACIN G LITIGATION QUA THIS INSTANT ISSUE QUA THIS MINIMUM DEMAND CHARGES AS A WHOLE. W E THEREFORE APPLY THE ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 8 ABOVE REFERRED HONBLE APEX COURT DECISION HEREIN A S WELL TO CONCLUDE THAT THE ASSESSEE WAS RIGHT IN NOT RECORDING THE SAID MINIMU M DEMAND CHARGES AS INCOME DURING THE PENDENCY OF THE DISPUTE TO THIS E FFECT. WE ACCORDINGLY AFFIRM THE CIT(A)S FINDINGS QUA THIS SECOND ISSUE AS WELL. 6. MR. SENGUPTA, AT THIS STAGE POINTS OUT THAT REVE NUES APPEALS FROM AY 1990-91 ONWARDS INVOLVED YET ANOTHER ISSUE ON HIGH RATE OF DEPRECIATION ON ASSESSEES PIPELINE AT THE RATE OF 100%. HE TAKES U S TO THE CIT(A)S DETAILED DISCUSSION QUA THIS HIGHER DEPRECIATION DISALLOWANCE IN ITA NO. 48/GAU/2018 READING AS FOLLOWS: - 3. CLAIM OF DEPRECIATION @ 100% ON PLANT AND MACHIN ERY: 3.1 ASSESSEE IS AN UNDERTAKING OF GOVERNMENT OF ASS AM. IT OBTAINED GAS FROM OIL LTD., DULIAJAN AND ONGC, NAZIRA. THE SAME WAS SUPPLIED TO ASEB, AFCL, NEPCO, DLP POWER, TEA GARDENS AND ALSO TO DOM ESTIC CONSUMERS. IT CLAIMED ITSELF TO BE A 'MINA1 OIL CONCERN' (MOC IN SHORT). ON BEING ASKED TO SUBSTANTIATE ITS CLAIM OF BEING A ' MOC ' IT WAS SUBMITTED BEFORE THE AO THAT IT HAD BEEN CONSISTENTLY CLAIMING ITSELF TO BE AN 'MOC ' AND THAT ITS ENTIRE PLANT, BOTH ABOVE AND BELOW GROUND LEVELS WERE COVERED UND ER RELEVANT ITEMS OF APPENDIX I TO I T RULES, 1962 IT WAS STATED THAT TH E ASSESSEE'S CASE ON THE MATTER FOR AY 1974-75 HAD TRAVELLED UP TO HON'BLE I TAT. THE HON'BLE TRIBUNAL, IN ITS ORDER DATED 19.11.1988 HAD SET ASIDE THE ISS UE BACK TO THE TABLE OF THE AO BECAUSE THE SUBMISSIONS MADE BY ASSESSEE WERE NO T PROPERLY APPRECIATED BY THE LOWER AUTHORITIES. DETAILED ACTI VITIES REGARDING THE ASSESSEE COMPANY WERE SUBMITTED BEFORE THE AO. 3.1.1 IN ORDER TO COME OUT WITH THE CORRECT FACT, SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AGAINST THE ASSESSEE. AS A RESULT O F THE SURVEY PROCEEDING, IT TRANSPIRED THAT ASSESSEE WAS FOUND NOT TO BE PRODUC ING OR EXTRACTING GAS. IT ONLY RECEIVED GAS FROM OIL AND ONGC AND TRANSPORTED THE SAME TO CUSTOMERS. GAS WAS ALLOCATED TO IT BY ORDER OF MINI STRY OF PETROLEUM AND NATURAL GAS FROM OIL & ONGC. IN VIEW OF THIS, THE A O TOOK THE VIEW THAT ASSESSEE WAS NOT A MINERAL OIL CONCERN, LIKE OIL OR ONGC. 3.1.2 THE AO ALSO CONSIDERED THE ISSUE AS TO WHETHE R ASSESSEE WAS PROCESSING GAS OR TO SAY, WHETHER IT WAS A MANUFACT URING CONCERN. ACCORDING TO THE AO, PER MEMORANDUM OF ASSOCIATION, THE ASSES SEE HAS TO TREAT, REFINE AND THEREBY PROCESS THE GAS RECEIVED FROM THE SELLE R. FACTS EMANATING FROM 133A PROCEEDINGS GO TO SHOW THAT ASSESSEE WAS SUPPL YING COMPRESSED GAS AS WELL AS NON-COMPRESSED GAS TO CONSUMERS. AO'S FI NDING AS APPEARING AT PAGE (7) OF HIS ORDER IS EXTRACTED BELOW: '7. ON PROCESSING OF GAS: AS PER THE COPY OF THE MEMORANDUM OF ASSOCIATION OF ASSAM GAS COMPANY LIMITED, THE COMPANY HAS TO TREAT, REFINE AND THERE BY PROCESS THE GAS RECEIVED FROM THE SELLER BEFORE TRANSPORTING TO THE DELIVERY POINT OF THE ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 9 CONSUMERS. A DETAILED ENQUIRY WAS MADE IN THIS CONN ECTION TO BRING TO RECORDS THE ACTUAL FACTS AND METHOD, HOW THE GAS IS DISTRIBUTED TO DIFFERENT CONSUMERS. THE PROCESSES ARE AS FOLLOWS: I. SUPPLY OF COMPRESSED GAS: GAS RECEIVED FROM OIL IS PASSED THROUGH COMPUTERIZED AS WELL AS MECHANICAL MEASURING METRES OF OIL AS WELL AS AGOI ON ENTERING TO THE COMPRESSURE AREA. ONE PART OF THE GAS IS DIRECTLY SENT TO HFC, ASEB, APCL OF NAMRUP WITHOUT COMPRESS. THE OTHER PART RECEIVED @ 10.54KG/CM SQUARE IS FIRST ENTERED INTO THE SUCTION SCABBER WHERE THE HEAVY PARTICLES, LIQUIDS, CRUDES, CONTAMI NATES MIXED WITH GAS ARE DROPPED DOWN AT THE BOTTOM DUE TO SEDIMENTATION AND THEFT GAS ENTERS INTO THE CORN PRESSURE WHERE THE SAME IS CORNPRESSED TO 17.5KG/CM SQUARE AND SENT TO ASEB, HFC, ETC. OF NAMRUP AREAS AS PER THEI R REQUIREMENT. THE LIQUIDE 'AND CRUDES DEPOSITED FOR SEDIMENTATION AT THE SCABBER BOTTOM HAVE TO BE DRAINED OUT FROM TIME TO TIME MECHANICALLY OR AUTOMATICALLY TO CREATE ROOM FOR FURTHER DEPOSITS. THERE IS NO BYE-PRODUCT OUT OF SUCH ACTION OF COMPRESS. II. SUPPLY OF GAS OTHER THAN COMPRESSED GAS TO CONS UMERS: THE COMPANY RECEIVES GAS FROM OIL AND ONGCL (GAIL AT PRESENT) A T DIFFERENT POINTS AS DELIVERED BY THE SELLER. THE PRESSURE OF THE GAS AT RECEIVED POINT RANGE FROM 2 KG TO 21 KG/CM SQUARE. THE COMPANY REGULATES THE PR ESSURE AS PER REQUIREMENT OF THE CONSUMERS WITH THE HELP OF PRESS URE REDUCING VALVE FITTED ON THE PIPE LINES AT DIFFERENT POINTS WHERE NECESSA RY. THE MAIN GAS PIPE IS PROVIDED WITH DRAIN -POT TO COLLECT LIQUIDS AND OTH ER PARTICLES MIXED WITH THE GAS DUE TO SEDIMENTATION. THE DRAIN POTS HAVE TO BE CLEANED REGULARLY AND OCCASIONALLY TO CREATE MORE ROOM FOR FURTHER DEPOSI TS. AT THE OFF TAKE POINTS THERE ARE MEASURING METRES OF THE SELLER AS WELL AS THE BUYER, THE ASSESSEE TO MEASURE THE GAS SUPPLIED. EXCEPT THE DRAIN POTS THE RE IS NO OTHER SYSTEM OF CLEANING GAS. III. I HAVE GONE THROUGH THE FORM 3CD OF THE AUDITO R REPORT AND FOUND THAT ALL THE ITEMS OF THE SI. 12 (IN CASE OF MANUFACTURING C ONCERNS) OF THE REPORT ARE LEFT BLANK WITH A NOTE 'NOT APPLICABLE IV. IF WE GO FOR DICTIONARY MEANING OF THE WORD ' PROCESS ' WE FIND THE FOLLOWING: ACCORDING TO OXFORD ILLUSTRATED DICTIONA RY BY BAY BOOKS THE WORD ' PROCESS ' MEANS 'METHOD OF OPERATION IN MANUFACTURE /NATURA L OR INVOLUNTARY OPERATION ' ACCORDING TO WEBSTER'S DICTIONARY BY LEXICON THE WO RD 'PROCESS' MEANS 'A SERIES OF ACTS OF CHANGES PROCEEDING FROM ONE TO TH E NEXT 1A METHOD OF MANUFACTURING OR CONDITIONING SOMETHING'. CONSIDERING THE ABOVE IT IS FOUND THAT THE ASSESSEE IS NOT A MANUFACTURING CONCERN FOR THE PURPOSE OF INCOME-TAX ACT OR OTHERW ISE. IT IS SIMPLY A TRANSPORTER OF GAS FROM RECEIPT POINTS OF SELLER TO THE CONSUMERS' POINT. ON BASIS OF ABOVE FINDING, THE AO CONCLUDED THAT AS SESSEE WAS NOT A MINERAL OIL CONCERN. IT WAS ALSO NOT A MANUFACTURING CONCER N. IT WAS FOUND TO BE MERELY TRANSPORTING GAS SUPPLIED BY OTHER PARTIES. CLAIM OF HIGHER DEPRECIATION WAS DENIED. 3.2 WHEN THE MATTER WENT IN 1 ST APPEAL, THE CLAIM, OF ASSESSEE WAS CONSIDERED AND DEPRECIATION AT HIGHER RATE WAS ALLO WED. HOWEVER, HON'BLE ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 10 TRIBUNAL, IN LINE WITH ITS ORDER FOR AY 1974-75 SET ASIDE THE ORDER OF CIT(A) FOR FRESH ADJUDICATION. DURING THE COURSE OF PROCEEDING BEFORE ME, ASSESSEE REITERATED THE SUBMISSION GIVEN TO THE AO AT THE TI ME OF ASSESSMENT. FOLLOWING SUBMISSION WAS GIVEN: 'THE MATTER OF HOLDING THE COMPANY AS A MINERAL OIL CONCERN WAS RAISED FOR A.Y. 1974-75 WHICH WENT UPTO THE INCOME TAX APPELLA TE TRIBUNAL AND THE HON'BLE MEMBERS OF THE ITAT GAUHATI BENCH VIDE ITS CONSOLIDATED ORDER DATED 19.11.1998 IN APPEAL NO. 230/GAU/1988 AND OTHERS AT PAGE NO. 6 PARA 8 OBSERVED/COMMENTED AS UNDER:- 8. 'ON CAREFUL CONSIDERATION OF THE CLAIM OF THE AS SESSEE, THE ORDERS OF THE AUTHORITIES BELOW AND THE ARGUMENTS/SUBMISSIONS ADV ANCED BY THE LD. COUNSEL AS WELL AS THE PAPER BOOK FILLED BY HIM AND THE VARIOUS JUDICIAL DECISIONS CITED IN SUPPORT OF HIS ARGUMENT, WE FIND THAT THE CLAIM OF THE ASSESSEE HAS NOT BEEN EXHAUSTIVELY CONSIDERED BY TH E AUTHORITIES BELOW. THE ONLY REASON AS TO WHY THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE AUTHORITIES BELOW ARE THAT THE ASSESSEE COMPANY WAS NOT ENGAGED IN EXTRACTION OF GAS BUT IT WAS ENGAGED ONLY IN TRANSP ORTATION OF GAS THROUGH PIPE-LINES TO THE, CONSUMERS. IT, THEREFORE, DEALT WITH THE BY-PRODUCTS FOR MINERAL OIL. THE SUBMISSIONS MADE BY THE LD. COUNSE L OF THE ASSESSEE BEFORE US AND THE PAPER BOOK FILED BY HIM IN SUPPOR T OF HIS ARGUMENTS AS WELL AS THE VARIOUS JUDICIAL DECISIONS CITED AND RELIED ON BY HIM WERE NOT CONSIDERED BY THE AUTHORITIES BELOW. IN ORDER TO CO RRECTLY APPRECIATE THE CLAIM OF THE ASSESSEE AND TO DO JUSTICE IN THE MATTER, IT IS NECESSARY THAT THE ISSUE SHOULD GO BACK TO THE AO FOR PROPER CONSIDERATION O F THE ASSESSEE'S CLAIM AND FOR PASSING NECESSARY ORDERS AFRESH IN ACCORDAN CE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. FOR THE ABOVE PURPOSE, THE ORDER OF THE FIRST APPELLATE AUTHORITY IS SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE AO WITH DIRECTION TO EX AMINE THE CLAIM OF THE ASSESSEE BY GIVING REASONABLE OPPORTUNITY OF BEING HEARD AND TO PASS ORDER AFRESH AND IN ACCORDANCE WITH LAW.' IN THE LIGHT OF THE ABOVE STAND TAKEN BY THE HON'BL E ITAT BENCH GAUHATI WE SUBMIT AS UNDER:- PETROLEUM IS AN INFLAMMABLE LIQUID OCCURRING NATURA LLY AS CRUDE OIL. IT CONTAINS HYDROCARBONS AS PARAFFIN, CYCLOPARAFFIN, NAPTHENE A ND AROMATIC COMPOUNDS, CRUDE PETROLEUM IS OBTAINED FROM BENEATH THE EARTH' S SURFACE BY DRILLING WELLS. LIKE CRUDE PETROLEUM, NATURAL GAS IS ALSO VALUABLE RESOURCE THAT REMAIN HIDDEN IN THE BELLY OF THE EARTH. NATURAL GAS IS FOUND IN POROUS ROCKS OF THE EARTH'S CRUST- WITH OR NEAR ACCUMULATION OF CRUDE OIL. THE TYPICAL GAS CONSISTS OF HYDROCARBON HAVING A VERY LOW MELTING POINT. NATURAL GAS COMES IN TWO FO RMS, I.E. ASSOCIATED GAS AND FREE GAS. THE FIRST ONE REMAINS, MIXED WITH CRU DE PETROLEUM AND THE SECOND ONE IS FOUND IN A NATURAL STATE. THE GAS IS CLEAN, CONVENIENT AND ODOURLESS COMBUSTIBLE GASEOUS FUEL WHICH CAN BE USE D FOR CARBON BLACK, NATURAL GASOLINE, CERTAIN CHEMICALS AND LIQUEFIED P ETROLEUM GAS. NATURAL GAS IS IN DEMAND AFTER PETROLEUM AS A SO.WC E OF ENERGY AND FOR A NUMBER OF PETRO-CHEMICAL PRODUCTS. ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 11 NATURAL GAS REMAINS FIXED WITH CRUDE OIL. A TONE OF CRUDE PETROLEUM CONTAINS 190 TO 240 CUBIC METERS GAS. IN OIL AND ONGC OILFI ELDS, THERE IS PRODUCTION OF NEARLY 34TO365 MILLION CUBIC METERS OF THE GAS ASSAM GAS COMPANY LIMITED (AGCL) WAS FORMED IN 1961 IN ORDER TO UTILIZE THE NATURAL GAS PRODUCED FROM MORAN AND NAHARKATIA OIL FIELDS. THE COMPANY SUPPLIED THE REQUIRED GAS TO NFF (NAMRUP FERTILIZER FACTORY) AND NTP (NAMRUP THERMAL PROJECT). AGCL ALSO POPULARIZED UTI LIZATION OF GAS FOR HOUSEHOLD USE IN TOWNS OF UPPER ASSAM. SUBSTANTIAL QUANTITY OF GAS WAS ALSO SUPPLIED TO A NUMBER OF TEA GARDENS. AGCL RECEIVES ITS SUPPLIES OF NATURAL GAS FROM DIFFERENT FIELDS- NAHARKATIA-DULIAJAN- MOR C:Z - KUCHIJAN, LALWA, SANTI AND KATHALGURI. NOW, KEEPING ABOVE IN MIND, THE COMPANY MIS. ASSAM GAS COMPANY LIMITED WAS ESTABLISHED TO PURSUE FOLLOWING MAIN OBJECTS AS PER ITS MEMORANDUM AND ARTICLES OF ASSOCIATION:- 1. (A) TO PURCHASE OR OTHERWISE ACQUIRE NATURAL GAS ASSOCIATED WITH PETROLEUM OR OTHER CRUDE OIL OR NON ASSOCIATED NATU RAL GAS AND TO COLLECT , TREAT, REFINE, STORE, HOLD, TRANSPORT, DISTRIBUTE, USE, MARKET, EXCHANGE, SUPPLY, SELL OR OTHERWISE DISPOSE OF, IMPORT, EXPORT, TRADE AND GENERALLY DEAL IN ANY OR ALL KINDS OF NATURAL GAS IS, OR COULD BE, USED. (B) TO PURCHASE EITHER DIRECTLY OR THROUGH AGENTS O R OTHERWISE ACQUIRE LIQUEFIED PETROLEUM GAS AND EITHER DIRECTLY OR THRO UGH AGENTS TO COLLECT, TREAT, REFINE, STORE, HOLD, EXHIBIT, PACKAGE, DISTRIBUTE, USE, MARKET, EXCHANGE, SUPPLY, SELL OR OTHERWISE DISPOSE OFF, IMPORT, EXPORT, TRAD E AND GENERALLY DEAL IN ANY OR ALL KINDS OF IT FOR ANY PURPOSE FOR WHICH LIQUEFIED PETROLEUM GAS IS, OR COULD BE USED. 2. TO TARRY ON IN INDIA ALL KINDS OF BUSINESS RELAT ING TO:- (A) UTILIZATION AND PROCESSING OF NATURAL GAS IN EV ERY WAY, AND TO TREAT AND TURN TO ACCOUNT IN ANY MANNER BY SUCH MEANS AS THE COMPANY MAY DEEM SUITABLE AND TO ACQUIRE AND PROVIDE ANY RAW MATERIA L AND SERVICES IN CONNECTION THEREWITH. (B) FRACTIONISATION OR STRIPPING OF NATURAL GAS, AN D TRANSMISSION, DISTRIBUTION, SUPPLY AND SALE OF SUCH FRACTIONIZED OR STRIPPED NA TURAL GAS AND BY-PRODUCTS OF NATURAL GAS IN OULK OR OTHERWISE FOR DISTRIBUTIO N BY OTHER PARTIES, AND IN BULK AND RETAIL FOR INDUSTRIES, FACTORIES, MINES, LIGHTI NG STREETS, MARKETS, PUBLIC PLACES, PUBLIC OR PRIVATE BUILDINGS, RAILWAYS AND O THER PLACES OR THINGS. (C) FRACTIONISATION OF NATURAL GAS FOR PRODUCTION O F METHANE, ETHANE, PROPANE ISO- BUTANE, N. BUTANE, N. PETANE, ISO-PETANE, HEXA NE PLUS, CARBON-DI-OXIDE, STORAGE, DISTRIBUTION, SUPPLY AND SALE OF INDUSTRIA L AND DOMESTIC FUEL AND BY- PRODUCT OF ALL KINDS. (D) (I.) UTILIZATION OR PROCESSING OF LIQUEFIED PET ROLEUM GAS IN EVERY WAY AND TO TREAT AND TURN TO ACCOUNT IN ANY MANNER BY SUCH MEA NS AS THE COMPANY MAY DEEM SUITABLE AND TO ACQUIRE AND PROVIDE ANY RAW MA TERIAL AND SERVICES IN CONNECTION THEREWITH. (II) MANUFACTURE AND/OR DEAL IN ALL EQUIPMENTS RELA TING TO THE USE OF LIQUEFIED PETROLEUM GAS. ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 12 3. TO CONSTRUCT, BUILD, SET UP, EQUIP AND OPERATE F RACTIONATING PLANTS FOR FRACTIONIZING NATURAL GAS AND TO CARRY ON BUSINESS AS A PROPRIETORS OF SUCH PLANT. 4 TO CARRY ON THE BUSINESS OF A GAS COMPANY IN ALL THE BRANCHES AND IN PARTICULAR TO CONSTRUCT, MAINTAIN, LAY DOWN, ESTABL ISH, FIX AND TO CARRY OUT ALL NECESSARY PIPE-LINES, POWER STATIONS, SUB-STATIONS, COMPRESSORS, TRANSFORMERS, APPLIANCES AND WORKS AND SUPPLY AND S ELL NATURAL GAS AND SOLID, LIQUID AND GASEOUS HYDROCARBON AND THEIR PRODUCTS A ND BY-PRODUCTS FOR ALL PURPOSE, BOTH PUBLIC AND PRIVATE. 5. TO LAY DOWN PIPES, CONSTRUCT, MAINTAIN AND IMPRO VE ANY PIPE-LINES, GAS RESERVOIRS, WAREHOUSES, BOOSTING STATIONS, PUMPING STATIONS AND OTHER BUILDINGS AND WORKS CALCULATED DIRECTLY OR INDIRECT LY TO ADVANCE THE INTERESTS OF THE COMPANY AND TO PAY OR CONTRIBUTE TO 'THE EXPENS ES OF CONSTRUCTING, MAINTAINING AND IMPROVING ANY SUCH WORKS. - THE WORDS ' MINERAL OILS ' OR ' MINERAL OIL ' ARE FREQUENTLY USED IN VARIOUS ACTS PARTICULARLY IN THE OIL FIELDS (REGULATION & DEVELOPMENT) ACT, 1948(NO. 53 OF 1948) OR THE OIL FIELDS, (REGULATION & DEVELOPMENT) AMENDMENT ACT, 1969 (NO. 39 OF 1969) AND IN INCOME TAX ACT, 1961. SECTION 3(C) OF THE OIL FIELDS (REGULATION AND DEVE LOPMENT) AMENDMENT ACT, 1969 DEFINES THE MINERAL OILS ' TO INCLUDE NATURAL GAS AND PETROLEUM AND EXPLANATIONS TO SECTIONS 42,44BB AND SECTION 293A O F THE IT ACT, 1961 DEFINE 'MINERAL OIL' AS UNDER:- SECTION 42 EXPLANATION - FOR THE PURPOSE OF THIS SECTION 'MINE RAL OIL' INCLUDES PETROLEUM AND NATURAL GAS. SECTION 44BB EXPLANATION (II) - 'MINERAL OIL' INCLUDES PETROLEUM AND NATURAL GAS. SECTION 293A EXPLANATION (A) - 'MINERAL OIL' INCLUDES PETROLEUM AND GAS. NOW, ON REFERRING TO TABLE OF RATES AT WHICH DEPREC IATION IS ADMISSIBLE VIDE OLD APPENDIX. I (APPLICABLE FOR A. Y. 1988-89 TO 2002-031 OF INCO ME TAX RULES, 1962 WE FIND THAT ITEM ILL (3)(IX) RELATED TO DEPRECIATION ALLOWABLE ON PLANT & MACHINERY OF A MINERAL OIL CONCERN READS AS FOLLOWS:- ITEM III(MIX) MINERAL OIL CONCERNS (A) PLANT USED INFIELD OPERATIONS(ABOVE GROUND) DISTRIBUTION- RTURNABLE PACKAGES 100' ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 13 (B) PLANT USED INFIELD OPERATIONS(BELOW GROUND), BUT NOT INCLUDING KERBSIDE PUMPS INCLUDING UNDERGROUND TANKS AND FITTINGS USED IN' FIELD OPERATIONS(DISTRIBUTION) BY MINERAL OIL CONCERNS IN COURSE OF FINALIZATION OF ASSESSMENT FOR THE A.Y . 1990-91 OUR CLAIM FOR 100% DEPRECIATION WAS DENIED ON THE GROUND THAT THE ASSESSEE COMPANY IS NOT A MINERAL OIL CONCERN. HOWEVER, AT THE SAME TIM E IT WAS ACKNOWLEDGED BY THE LD. AO THAT THE RAW GAS RECEIVED WAS ALLOWED TO ENTER SUCTION SCABBER FOR CERTAIN PROCESSING ACTIVITIES TO REMOVE HEAVY PARTICLES, LIQUIDS, CRUDES, CONTAMINATES MIXED WITH GAS THROUGH SEDIMEN TATION AND THEN THE PURIFIED GAS WAS ALLOWED TO ENTER THE COMPRESSORS W HERE THE SAME WAS COMPRESSED UPTO 17.5KG/CM (RECEIVED AT 10.54KG/CM) AND DELIVERED TO ASEB, HFCL ETC. OF NAMRUP AREA AS PER THEIR REQUIRE MENT. THE RELEVANT EXTRACT FROM THE ORDER OF THE AO ARE QUOTED BELOW:- 'I. SUPPLY OF COMPRESSED GAS: GAS RECEIVED FROM OIL IS PASSED THROUGH COMPUTERIZED AS WELL AS MECHANICAL MEASURING METERS OF OIL AS WELL AS AGCL ON ENTERING TO THE COMPRESSOR AREA. ONE PART O F THE GAS IS DIRECTLY SENT TO HFC, ASEB,APCL OF NAMRUP WITHOUT COMPRESS. THE O THER PART RECEIVED @ 10.54KG/TM SQUARE IS FIRST ENTERED INTO THE SUCTION SCABBER WHERE THE HEAVY PARTICLES, LIQUIDS, CRUDES, CONTAMINATES MIXED WITH GAS ARE DROPPED DOWN AT THE BOTTOM DUE TO SEDIMENTATION AND THEN GAS ENTERS INTO THE COMPRESSOR WHERE THE SAME IS COMPRESSED TO 17.5KG/CM SQUARE. A ND SENT TO ASEB, HFC ETC OF NAMRUP AREAS AS PER THEIR REQUIREMENT. THE L IQUID AND CRUDES DEPOSITED FOR SEDIMENTATION AT THE SCABBER BOTTOM H AVE TO BE DRAINED OUT FROM TIME TO TIME MECHANICALLY OR AUTOMATICALLY TO CREATE ROOM FOR FURTHER DEPOSITS. THERE IS NO BY-PRODUCT OUT OF SUCH ACTION OF COMPRESS.' 'II. SUPPLY OF GAS OTHER THAN COMPRESSED GAS TO CON SUMER; THE COMPANY RECEIVES GAS FROM OIL AND ONGC (GAIL AT PRESENT) AT DIFFERENT POINTS AS DELIVERED BY THE SELLER. THE PRESSURE OF THE GAS AT RECEIVED POINT RANGE FROM 2KG TO 21KG/CM SQUARE. THE COMPANY REGULATES THE PR ESSURE AS PER REQUIREMENT OF THE CONSUMERS WITH THE HELP OF PRESS URE REDUCING VALVE FITTED ON THE PIPE-LINES AT DIFFERENT POINTS WHERE NECESSA RY. THE MAIN GAS PIPE IS PROVIDED WITH DRAIN POT TO COLLECT LIQUIDS AND OTHE R PARTICLES MIXED WITH THE GAS DUE TO SEDIMENTATION. THE DRAIN POTS HAVE TO BE CLEANED REGULARLY AND OCCASIONALLY TO CREATE MORE ROOM FOR FURTHER DEPOSI TS. AT THE OFF TAKE POINTS THERE ARE MEASURING METERS OF THE SELLERS AS WELL A S THE BUYER, THE ASSESSEE TO MEASURE THE GAS SUPPLIED. EXCEPT THE DRAIN THERE IS NO OTHER SYSTEM OF CLEANING GAS.' THE ABOVE PROCESS, ALTHOUGH SEEMED VERY EASY IN THE PART OF THE AO BUT THE SAME ARE NOT THAT EASY AND, REQUIRES HUNDREDS OF TE CHNICALLY SKILLED STAFF TO BE ENGAGED TO MONITOR, CONTROL AND ADMINISTRATE THE EN TIRE MECHANISM SO THAT THE NATURAL GAS IS PROPERLY RECEIVED AT THE RECEIVI NG END FROM OIL, ONGC AND GAIL ETC. AND, THEREAFTER, THE SAME IS RELEASED SAT ISFACTORILY AT DULY REGULATED/ADMINISTRATED COMPRESSED LEVEL FOR USE BY THE CONSUMERS LIKE HFCL, ASEB, VARIOUS GARDENS AND DOMESTIC CONSUMERS. HAVING SUBMITTED HEREIN ABOVE, FURTHER TO CONFIRM T HAT OURS IS A MINERAL OIL CONCERN ENTITLED FOR 10010 DEPRECIATION. ON PLANT & MACHINERY AS PER PARA ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 14 II1('3)(IX) OF OLD APPENDIX I, APPLICABLE FOR ASSES SMENT YEARS 1988-89 TO 2002- 03, OF INCOME TAX RULES, 1962 THE ASSESSEE COMPANY REFERS AND RELIES ON JUDGMENTS OF HON'BLE SUPREME COURT AND VARIOUS HIGH COURTS, WHICH IF CONSTRUED IN RIGHT EARNEST, CONFIRMS VIEWS/STAND TA KEN BY THE ASSESSEE COMPANY. FIRST OF ALL WE REFER TO THE DECISION OF HON'BLE CA LCUTTA HIGH COURT IN COMMISSIONER OF INCOME TAX(CENTRAL), CALCUTTA VS BU RMAH - SHELL OIL STORAGE AND DISTRIBUTION COMPANY OF INDIA LIMITED ( BOMBAY)(115 ITR 891). IN THIS CASE 'THE ASSESSEE COMPANY WAS A DISTRIBUTO R OF PETROLEUM PRODUCTS INCLUDING GAS FOR COOKING. THE GAS WAS SUPPLIED TO THE COMPANY BY A REFINERY AND THE COMPANY HAD PURCHASED MANY SPECIALLY MADE C YLINDERS FOR THE PURPOSE OF DISTRIBUTING GAS TO THE CUSTOMERS. THE C USTOMERS RETURNED THE CYLINDERS TO THE COMPANY AFTER THE GAS WAS EXHAUSTE D AND THEY WERE REFILLED AGAIN AND SUPPLIED TO THE CUSTOMERS.' 'THE COMPANY SOLD THE CYLINDERS TO THE REFINERY IN THE ACCOUNTING YEAR FOR RS. 82,19,947/- AGAINST THEIR ORIGINAL COST OF RS. 1,09 ,63,754/- .' NOW, 'ON THE QUESTION, WHETHER THE LOSS OF RS. 27,4 3,8071- ON THE SALE OF THE CYLINDERS BY THE COMPANY WAS ALLOWABLE AS REVENUE E XPENDITURE U/R 5 OF THE IT RLES,1962 READ WITH ITEM M2)(2)('D,(1) OF PT I O F APPENDIX I TO THE SAID RULE, PETROLEUM IS A MINERAL OIL AND PETROLEUM GAS IS A P RODUCT OF PETROLEUM OIL. THE EXPRESSION ' MINERAL OIL CONCERNS ' INCLUDES THE CONCERNS DEALING IN MINERAL OIL AND ITS BY-PRODUCTS AND THE PURPOSE FOR WHICH T HE MINERAL OIL OR ITS BY- PRODUCTS IS SOLD OR DISTRIBUTED IS WHOLLY AN IRRELE VANT CONSIDERATION. THE COMPANY, AS THE OWNER OF THE CYLINDERS, HAS USED TH EM AS A 'MINERAL OIL CONCERN' IN ITS MINERAL OIL BUSINESS.' THE HON'BLE HIGH COURT FURTHER OBSERVED 'AS REGARDS THE APPLICABILITY OF SECTION 32(1)(III) THIS PROVISION CANNOT APPLY TO T HESE CYLINDERS BECAUSE THEY ARE RETURNABLE PACKAGES AND ARE GOVERNED BY THE SPE CIAL PROVISIONS OF ITEM M (2) (2) (D) (1). MOREOVER, THERE CANNOT BE ANY WRIT TEN DOWN VALUE OF RETURNABLE PACKAGES IN VIEW OF THE AFORESAID ITEMS. SECTION 32(1)(III) CANNOT, THEREFORE, APPLY TO RETURNABLE PACKAGES.' THE HON'BLE HIGH COURT FURTHER OPINED AS UNDER:- 'AT THE OUTSET WE REJECT THE CONTENTION OF MR. PAUL , LD. SENIOR OF MR. SENGUPTA, THAT THE CYLINDERS ARE NOT PACKAGES. THE FINDING OF THE TRIBUNAL, NAMELY, THAT THE CYLINDERS ARE, RETURNABLE PACKAGES IS A PURE QUESTION OFF ACT.' 'SINCE THE COMPANY HAS USED THE CYLINDERS FOR DISTR IBUTION OF PETROLEUM GAS FOR COOKING PURPOSES, MR. PAUL URGES THAT IT CANNOT BE SAID THAT THE COMPANY HAS USED THE CYLINDERS IN ITS BUSINESS AS A MINERAL OIL CONCERN AND AS SUCH HAS FAILED TO COMPLY WITH THE CONDITIONS OF SECTION 32(1) OF THE ACT. BUT WE DO NOT AGREE WITH HIM.' 'PETROLEUM IS A MINERAL OIL. PETROLEUM GAS IS A PRO DUCT OF PETROLEUM OIL. IN OUR OPINION, THE EXPRESSION 'MINERAL OIL CONCERNS' INCL UDES THE CONCERNS DEALING IN MINERAL OIL AND ITS BY-PRODUCTS AND THAT THE PURPOS E FOR WHICH THE MINERAL OIL OR ITS BY-PRODUCTS IS SOLD OR DISTRIBUTED IS WHOLLY AN IRRELEVANT CONSIDERATION UNDER THIS ITEM.' ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 15 FURTHER TO SUPPORT THE ABOVE VIEW TAKEN BY THE HON' BLE CALCUTTA HIGH COURT THE APPELLANT COMPANY NOW TURNS TO THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN ADDITIONAL COMMISSIONER OF INCOME TAX, DEL HI-II VS DISTILLERS TRADING CORPORATION LIMITED. IN THE CASE UNDER REFERENCE TH E MATTER REGARDING ALLOWABILITY OF HIGHER RATE OF DEPRECIATION TREATIN G THE COMPANY AS MINERAL OIL CONCERN CAME UP FOR CONSIDERATION AND THE HON'BLE C OURT DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE AFORESAID CASE ARE:- 'THE ASSESSEE COMPANY CARRIED ON BUSINESS IN PURCHA SE OF ETHYL ALCOHOL EXTRACTED FROM MOLASSES AND STORAGE AND EXPORT OF T HE SAME OUT OF INDIA. IN THE ORIGINAL ASSESSMENTS FOR THE ASSESSMENT YEARS 1 962-63 AND 1963-64, THE ASSESSEE CLAIMED DEPRECIATION AT 10% ON ITS DISTILL ERS AND STORAGE TANKS AND THE CLAIM WAS ALLOWED. THEREAFTER, THE REVENUE AUDI T EXPRESSED AN OPINION THAT DEPRECIATION SHOULD HAVE BEEN GRANTED AT THE G ENERAL RATE OF 7% APPLICABLE TO MACHINERY AND PLANT UNDER PARA (I) OF PT III OF APP. I TO THE IT RULES, 1962 AND THE ITO SOUGHT TO REDUCE THE DEPREC IATION ALLOWANCE FROM 10% TO 7% BY INITIATING RECTIFICATION PROCEEDINGS U NDER SECTION 154 OF THE IT ACT, 1961. THE ASSESSEE CLAIMED THAT IT WAS A 'MINE RAL OIL CONCERN' WITHIN THE MEANING OF ITEM M(2) OF PARA (III) AND THAT DEPRECI ATION WAS PROPERLY GRANTED AT 10%.' THE HON'BLE DELHI HIGH COURT OBSERVED AT PAGE NO. 9 04/905 OF ITR 137 AS UNDER:- 'THE ONLY REQUIREMENT TO BE FULFILLED TO HAVE ELIGI BILITY FOR THE LARGER PERCENTAGE OF DEPRECIATION IS THAT THE CONCERN SHOULD BE DEALI NG IN MINERAL OIL AND THE ONLY QIESTION THAT COULD ARISE THEN WOULD BE WHETHE R ETHYL ALCOHOL CAN BE SAID TO BE A MINERAL OIL. IF ETHYL ALCOHOL CAN BE OBTAIN ED BY VARIOUS PROCESSES AND ONE OF SUCH PROCESSES IS BY REFINING, DISTILLING OR CRACKING UP PETROLEUM THEN IT IS POSSIBLE TO HOLD THAT ETHYL ALCOHOL IS A MINERAL OIL, IF ETHYL ALCOHOL IS THUS A MINERAL OIL AND THE ASSESSEE IS A CONCERN DEALING I N ETHYL ALCOHOL, THEN IT CAN BE SAID THAT THE ASSESSEE IS A MINERAL OIL CONCERN WITHIN THE MEANING OF THE ENTRY IN THE SCHEDULE WHICH HAS ALREADY BEEN SET OU T NOT WITHSTANDING THAT THE ETHYL ALCOHOL PURCHASED BY IT IS DERIVED BY SOME OT HER PROCESS.' IN THIS CONNECTION, THEIR LORDSHIP HELD, 'AFFIRMING THE DECISION OF THE TRIBUNAL, (I) THAT THE EXPRESSION ' MINERAL OIL CONCERNS ' UNDER ITEM M(2) OF PARA (III) OF PT I OF APP. I TO THE RULES WAS INTENDED TO COVER N OT ONLY CONCERNS WHICH PRODUCED, REFINED OR MANUFACTURED MINERAL OILS BUT ALSO TO CONCERNS WHICH ONLY DEALT WITH OR DISTRIBUTED THEM.' THE ASSESSEE COMPANY FURTHER RELIES ON A PARA QUOTE D BY THE HON'BLE JUDGES OF THE APEX COURT IN MYSORE MINERALS LIMITED VS CIT 239 ITR 775(SC) AT PAGE NO. 778 AS FOLLOWS:- 'SECTION 32 OF THE INCOME TAX ACT CONFERS A BENEFIT ON THE ASSESSEE. THE PROVISION SHOULD BE SO INTERPRETED AND THE WORDS US ED THEREIN SHOULD BE ASSIGNED SUCH MEANING AS WOULD ENABLE THE ASSESSEE SECURING THE BENEFIT INTENDED TO BE GIVEN BY THE LEGISLATURE TO THE ASSE SSEE. IT IS ALSO WELL SETTLED THAT WHERE THERE ARE TWO POSSIBLE INTERPRETATIONS O F A TAXING PROVISION THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE PREFE RRED.' ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 16 TO ENDORSE THE ABOVE VIEW TAKEN BY THE APEX COURT T HE ASSESSEE COMPANY FURTHER REFERS TO THE JUDGMENT OF THE HON'BLE SUPRE ME COURT OF INDIA IN COMMISSIONER OF INCOME TAX VS GWALIOR RAYON SILK MA NUFACTURING CO. LTD. (AND OTHER APPEALS) 196 ITR 149. IN THE SAID JUDGME NT THE HON'BLE APEX COURT OBSERVED THAT ' A PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOU LD BE CONSTRUED REASONABLY AND IN FAVOR OF THE ASSESSE E. ' IN THE SAID JUDGMENT THE HON'BLE COURT HELD AS UNDER:- 'ROADS WITHIN FACTORY PREMISES AS LINKS OR PROVIDIN G APPROACH TO THE BUILDINGS TO CARRY ON THE BUSINESS ACTIVITY OF THE ASSESSEE A RE ' BUILDINGS ' WITHIN THE MEANING OF SECTION 32 OF THE IT ACT, 1961. DEPRECIA TION IS ADMISSIBLE ON THE CAPITAL EXPENDITURE INCURRED THEREON AS ' BUILDING '. EQUALLY, DRAINS ALSO WOULD BE AN INTEGRAL PART OF THE BUILDING FOR CONVENIENT ENJOYMENT OF THE FACTORY. DEPRECIATION WOULD BE AVAILABLE IN THE SAME MANNER ON EXPENDITURE INCURRED IN LAYING DRAINS.' THE ASSESSEE COMPANY ALSO QUOTES THE JUDGMENT OF JU RISDICTIONAL HON'BLE HIGH COURT OF GAUHATI IN COMMISSIONER OF INCOME TAX VS INDIA CARBON LTD.(NO.1). THE FACTS OF THE CASE ARE AS UNDER:- 'THE ASSESSEE, A PUBLIC LIMITED COMPANY, FOR THE AS SESSMENT YEAR 1985-86 CLAIMED DEPRECIATION OF RS.1,14,997/- IN RESPECT OF A TEMPLE CONSTRUCTED WITHIN THE FACTORY PREMISES. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT IT WAS A NON-FACTORY BUILDING AND THE T EMPLE HAD NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE-COMPANY. THE ASSE SSEE BEING AGGRIEVED TOOK UP THE MATTER IN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX(APPEALS). THE COMMISSIONER OF INCOME TAX(APPEAL S) HELD THAT THE TEMPLE WAS FOR THE WELFARE OF THE STAFF OF THE ASSE SSEE-COMPANY AND IT WAS HAVING A DIRECT LINK OR ATTRIBUTABLE ASPECT WITH TH E BUSINESS ACTIVITIES OF THE ASSESSEE. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED DEPRECIATION. BEING AGGRIEVED THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL FOLLOWING THE DECISION IN AT LAS CYCLE INDUSTRIES LTD VS CIT (1982) 134 ITR 458 (P & H) UPHELD THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS).' IN COURSE OF ARGUMENT IT WAS BROUGHT TO THE NOTICE OF THEIR LORDSHIP THAT THE CASE WAS COVERED BY THE DECISION OF THE SAME COURT IN CIT VS ASSOCIATED FLOUR MILLS PVT. LTD. (1996) 220 ITR 123. IN THEIR OPINION THE QUESTION REFERRED WAS SQUARELY COVERED BY THE SAID DECISION. ACCORDIN GLY, THEY ANSWERED THE QUESTION IN THE AFFIRMATIVE, IN FAVOR OF THE ASSESS EE AND AGAINST THE REVENUE. IT IS ALSO WORTH MENTIONING THAT A SURVEY WAS ALSO CONDUCTED U/S 133A OF THE IT ACT, 1961 TO VERIFY ALL ASPECTS OF THE CASE. IN ADDITION TO OTHER DETAILS COLLECTED, THE INSPECTORS DEPUTED RECORDED STATEMEN TS ON OATH FROM (A) MANAGING DIRECTOR OF THE COMPANY, (B) ASSISTANT GEN ERAL MANAGER (O & M) AND (C) ASSISTANT GEN. MANAGER (TECHNICAL SERVICES) . WE UNDERSTAND THAT THE SURVEY REPORT UNDER REFERENCE ALSO CONCLUSIVELY END ORSES THE STAND TAKEN BY US HEREIN ABOVE IN THE DETAILED SUBMISSION. IN VIEW OF WHATEVER SUBMITTED HEREIN ABOVE, IT IS C LEAR THAT A PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE CONSTRUED REASONABLY AND IN FAVOR OF THE ASSESSEE AND THEREFORE, THE STATUS OF THE ASSES SEE COMPANY NEEDS TO BE CONSIDERED AS MINERAL OIL CONCERN AND DEPRECIATION AT THE RATE OF 100% BE ALLOWED ON PLANT & MACHINERY. ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 17 3.2.1 IN HIS REPORT, THE AO REITERATED THAT CONCLUS IONS MADE IN THE ASSESSMENT ORDER AND STATED THAT ASSESSEE WAS NOT A MINERAL OI L CONCERN. 3.3 I HAVE CAREFULLY CONSIDERED THE MATTER.'THE AO HAD GONE AT GREAT LENGTH TO SHOW THAT ASSESSEE IS NOT A MINERAL OIL C ONCERN. ACCORDING TO THE AO, ASSESSEE CANNOT BE TREATED LIKE OIL LTD. OR ONG C WHICH WERE ENGAGED IN EXPLORATION AND PRODUCTION OF GAS. HE HAD TAKEN THE VIEW THAT ASSESSEE WAS ONLY TRANSPORTING GAS AND AS SUCH, NOT ELIGIBLE FOR 100% DEPRECIATION. MINERAL OIL CONCERN (MOC) IS NOT DEFINED IN THE ACT . BUT THE TERMS MINERAL OIL FINDS PLACES AT FEW SECTIONS OF THE ACT. IN SECTION 42, WHICH IS A PROVISION FOR DEDUCTION IN CASES OF PROSPECTING ETC., FOR MINERAL OIL, PETROLEUM AND NATURAL GAS WERE INCLUDED IN DEFINITION OF MINERAL OIL. SIM ILAR IS THE DEFINITION OF MINERAL OIL IN SECTIONS 44BB AND 293A OF THE ACT. I N ALL THE THREE SECTIONS, THE SPECIAL PROVISIONS ARE MEANT FOR ASSESSEE ENGAGED I N PROSPECTING EXTRACTION OR PRODUCTION OF MINERAL OIL. A POSSIBLE INFERENCE COULD BE DRAWN THAT FOR AN ASSESSEE, TO BE TREATED AS A ' MINERAL OIL CONCERN ', IT SHOULD BE DOING PROSPECTING, EXTRACTING OR PRODUCTION OF MINERAL OI L, INCLUDING GAS. SINCE PRESENT ASSESSEE WAS NOT IN ACTIVITIES OF PROSPECTI NG, EXTRACTING OR PRODUCTION OF GAS, INFERENCE MAY BE DRAWN THAT IT WAS NOT A MI NERAL OIL CONCERN. I HAVE GONE IN GREAT DETAILS THROUGH THE CONTENTIONS OF TH E AO AS WELL AS THAT OF APPELLANT. IN, ONE OF THE CASE LAWS RELIED UPON BY ASSESSEE, I.E. BURMAH SHELL OIL STORAGE AND DISTRIBUTIONS CO. OF INDIA (SUPRA), ASSESSEE WAS DISTRIBUTING PETROLEUM GAS FOR COOKING PURPOSES. PETROLEUM GAS W AS SUPPLIED BY A REFINERY. THE COMPANY PURCHASED CYLINDERS AND THOSE GAS-FILLED CYLINDERS WERE GIVEN TO CONSUMERS AND THE SAME WERE RETURNED AS AND WHEN THE GAS IN THE CYLINDER GOT EXHAUSTED. GAS WAS NOT PRODUCED BY ASSESSEE. IN THAT CASE, THE HON'BLE HIGH COURT OF CALCUTTA HELD AS UNDER: 'PETROLEUM IS A MINERAL OIL. PETROLEUM GAS IS A PRO DUCT OF PETROLEUM OIL. IN OUR OPINION, THE EXPRESSION 'MINERAL OIL CO NCERNS' INCLUDES THE CONCERNS DEALING IN MINERAL OIL AND ITS BY-PRODUCTS AND THAT THE PURPOSE FOR WHICH THE MINERAL OIL OR ITS BY-PRODUCT S IS SOLD OR DISTRIBUTED IS WHOLLY AN IRRELEVANT CONSIDERATION U NDER THIS ITEM.' I HAVE NOT COME ACROSS ANY DECISION CONTRARY TO THE CASE MENTIONED ABOVE. IN ABSENCE OF CONTRARY OPINION, THE DECISION IN THE ABOVE-MENTIONED CASE IS BINDING ON ME. IN VIEW OF THE BINDING DECISION, IT IS HELD THAT ASSESSEE IS A ' MINERAL OIL CONCERN '. GROUND NOS. 1 TO 8 ARE TREATED AS ALLOWED . 7. MR. SENGUPTA VEHEMENTLY CONTENDS THAT NEITHER T HE ASSESSEE CAN BE HELD A MINERAL OIL CONCERN NOR THE ASSETS ARE IN THE NATURE OF GAS PIPES AS PER THE RELEVANT DEPRECATION SCHEDULE AT SERIAL NO. 9 APPENDIX-1(I) IN THE INCOME TAX RULES. WE FIND NO SUBSISTENCE IN THE REV ENUES INSTANT GRIEVANCE. IT HAS COME ON RECORD THAT THIS ISSUE IS ENGAGED IN NATURAL GAS BUSINESS. WE THUS, CONCLUDE THAT THE CIT(A) HAS RIG HTLY FOLLOWED THE FOREGOING LEGAL PRECEDENTS IN HOLDING THAT SUCH AN ACTIVITY ALSO AMOUNTS TO MINERAL OIL CONCERN. COMING TO REVENUES LATER PLEA THAT THE ASSESSEES PIPELINES HAVE BEEN WRONGLY TAKEN AS RETURNABLE PAC KAGES UNLIKE ITA NO.46-54/GAU/2018 A.YS 88-89 TO 97-9 8 DCIT CIR-2, DIBRUGARH VS. M/S ASSAM GAS CO. LTD . PAGE 18 CYLINDERS, WE CONCLUDE THAT SUCH PIPELINES ALTHOUGH LOOK NOT RETURNABLE AT THE FIRST INSTANCE FROM A LAYMENS PERSPECTIVE, CAN BE VERY WELL TAKEN ON RETURNABLE ASSETS BY WAY OF DISMANTLING OR WONDING UP GOING BY ORDINARY PRUDENCE. WE ACCORDINGLY AFFIRM THE CIT(A)S FINDIN GS QUA THIS THIRD ISSUE AS WELL. NO OTHER GROUNDS AGITATED BEFORE US AT THE REVENUES BEHEST. 8. THESE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN ACCORDANCE WITH RULE 34(3) OF T HE ITAT RULES BY PUTTING ON NOTICE BOARD 31/07/2019 SD/- SD/- ( ) (&' ) ( A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) GUWAHATI, *DKP (- 31 / 07 /201 9 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S ASSAM GAS CO. LEARNED. DULIAJAN, DIBR UGARH, ASSAM-786602 2. /REVENUE-DCIT, CIRI-2, PUSHKARA HOUSE, N.H.37, NATU NGAON, P.O. MOHANGHAT, DIBRUGARH-768008 3. 3 4 9 / CONCERNED CIT GUWAHATI 4. 4- / CIT (A) GUWAHATI 5. < ''3, 3, 9 / DR, ITAT, GUWAHATI 6. B / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY (ON TOUR) 3,