HINDUSTAN OIL EXPLORATION COMPANY LTD, MUMBAI V. ITO 9(2)(1), MUMBAI

ITA 6425/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0103 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R AHUL RAMAN
• Assessee Lawyers: V CHANDRASEKHAR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.6425/M/2014 ASSESSMENT YEAR: 2006-07 M/S. HINDUSTAN OIL EXPLORATION COMPANY LTD., ANAND HOUSE, KHATWARI DARBAR ROAD OFF LINKING ROAD, KHAR (W), MUMBAI 400 052 PAN: AAACH 1407P VS. INCOME TAX OFFICER-9(2)(1), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI V. CHANDRASEKHAR, A.R. REVENUE BY : SHRI RAHUL RAMAN, D.R. DATE OF HEARING : 12.04.2017 DATE OF PRONOUNCEMENT : 23.06.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 04.07.2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2006-07. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE COMPANY HINDUSTAN OIL EXPLORATION COM PANY IS ENGAGED IN THE BUSINESS OF EXPLORATION, DEVELOPMENT AND COM MERCIAL PRODUCTION OF OIL AND NATURAL GAS AND HAS PARTICIPATING INTERESTS IN SEVERAL OIL AND GAS FIELDS IN INDIA, WHICH ARE AT DIFFERENT STAGES OF EXPLORATION AND PRODUCTION LIKE CYCLE. IN THIS REGARD, COMPANY HAS ENTERED INTO PRODUCTION SH ARING CONTRACT WITH GOVERNMENT OF INDIA FOR EXPLORATION AND COMMERCIAL PRODUCTION OF OIL AND GAS ITA NO.6425/M/2014 M/S. HINDUSTAN OIL EXPLORATION COMPANY LTD. 2 RESOURCES. FOR THE YEAR UNDER CONSIDERATION, THE A O HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT AND MADE SEVERAL ADDITIONS. 3. DURING THE ASSESSMENT YEAR 2006-07, THE ASSESSEE INCURRED EXPENSES AMOUNTING TO RS.19,38,57,540/- UNDER SECTION 42 OF THE ACT, IN RESPECT OF DRILLING AND EXPLORATION ACTIVITIES CARRIED OUT IN FOUR BLOCKS. THE PROJECT WISE BREAK-UP OF THE EXPENSES ALONG WITH SPECIFIC AMOUNT S DISALLOWED BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS PROVIDED BELOW: NAME OF THE BLOCK CLAIM U/S. 42 IN RESPECT OF EXPLORATION ACTIVITIES OR SERVICES (IN RS) CLAIM U/S. 42 IN RESPECT OF DRILLING ACTIVITIES OR SERVICES (IN RS) POSITION TAKEN BY LD AO AND CIT(A) PY - 3 ( CY - OS - 90/1 BLOCK) 4,13,81,661 - DISALLOWED NORTH BALOL 1,61,86,697 - DISALLOWED ASJOL 21,48,768 - DISALLOWED PALEJ 5,06,97,054 8,34,43,360 PARTLY ALLOWED TOTAL CLAIM U/S 42 (IN RS) 11,04,14,180 8,34,43,360 GRAND TOTAL 19,38,57,540 THESE DRILLING AND EXPLORATION ACTIVITIES WERE CARR IED OUT BY THE ASSESSEE IN ACCORDANCE WITH THE PSC ENTERED INTO BY THE ASSESSE E, ALONG WITH THE CONCERNED JOINT VENTURE PARTNERS, WITH THE GOVERNME NT OF INDIA. PURSUANT TO SECTION 42 OF THE ACT, READ WITH THE TERMS OF THE P SC, THE ASSESSEE CLAIMED THE ABOVE MENTIONED EXPENSES INCURRED IN RESPECT OF DRI LLING AND EXPLORATION OPERATIONS AS A DEDUCTION UNDER SUB-CLAUSE (B) OF S ECTION 42(1) OF THE ACT. THE AO DID NOT DISPUTE THE FACT THAT THE ASSESSEE HAS I NCURRED THE AFORESAID EXPENSES IN FOUR BLOCKS IN RESPECT OF DRILLING OPER ATIONS UNDERTAKEN BY THE ASSESSEE AND THE SAME IS EVIDENT FROM THE IMPUGNED REASSESSMENT ORDER ITSELF. HOWEVER, THE AO REJECTED THE CLAIM FOR THE REASON T HAT THE ACTIVITY DOES NOT FALL WITHIN THE HEAD EXPLORATION' AND ACCORDINGLY CONCLUDED THAT IT DID NOT FALL WITHIN THE PURVIEW OF SECTION 42(1)(B) OF THE ACT. ITA NO.6425/M/2014 M/S. HINDUSTAN OIL EXPLORATION COMPANY LTD. 3 4. ON APPEAL BEFORE THE LD. CIT(A), ALTHOUGH THE CI T(A) APPRECIATED THAT THE ORDER DATED FEBRUARY 7, 2013, OF THE ITAT IN TH E ASSESSEES OWN CASE FOR A.Y. 2007-08, CLARIFIED THE REQUIREMENT OF DRILLING EXPENDITURE EITHER BEFORE OR AFTER COMMERCIAL PRODUCTION, AND THAT EXPENDITURE H AS TO BE ALLOWED FOR DRILLING ACTIVITIES UNDERTAKEN BEFORE OR AFTER BEGI NNING OF COMMERCIAL PRODUCTION, THE LD. CIT(A) DISALLOWED THE DEDUCTION OF RS.11,04,14,180 UNDER SECTION 42 OF THE ACT. 5. DURING THE COURSE OF HEARING, THE LD. A.R. SUBMI TTED THAT ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR A.Y. 2009-10 WHEREIN THE TRIBUNAL HAS DECI DED ASSESSEES APPEAL AND HAS RESTORED IT TO AO WITH A DIRECTION TO DECIDE TH E MATTER AFRESH. THEREFORE, THIS APPEAL SHOULD BE DECIDED ACCORDINGLY. THE LD. D.R. HAS NO OBJECTION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2009-10 IN ITA NOS.6118/M/2014 & 6424/M/20 14 DECIDED ON 15.02.2017 WHEREIN ASSESSEES AS WELL AS REVENUES APPEALS WERE RESTORED TO AO. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PARA GRAPHS FROM THE SAID ORDER ARE REPRODUCED AS UNDER: 10. THE LD A.R ALSO EXPLAINED THE METHODOLOGY FOLLO WED IN ENTERING INTO THE EXISTING WELL. HE SUBMITTED THAT THE SAID METHODOLO GY RESULTING IN DRILLING ACTIVITY AT A NEW PLACE. HE FURTHER SUBMITTED THAT THE EXPENDIT URE INCURRED AFTER COMMENCEMENT OF PRODUCTION IS FULLY ALLOWABLE. ALTERNATIVELY HE SUBMITTED THAT THE EXPENDITURE SHOULD HAVE BEEN ALLOWED UNDER NORMAL PROVISIONS OF THE ACT. 11. THUS, WE NOTICE THAT THE ASSESSEE HAS MADE MANY NEW SUBMISSIONS AND THEY HAVE NOT BEEN CONSIDERED BY THE AO. WE NOTICE THAT THE A SSESSEES CLAIM THAT THE ASSESSEES SHARE OF EXPENDITURE WAS PART OF COMMON EXPENDITURE INCURRED BY ALL JOINT VENTURE PARTIES, HAS ESCAPED THE ATTENTION OF THE A O. THE METHODOLOGY EXPLAINED BY THE LD A.R WAS ALSO NOT CONSIDERED BY THE ASSESSING OFFICER. FURTHER THE AO HAS ALSO NOT ADDRESSED THE ALTERNATIVE CONTENTIONS OF THE AS SESSEE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH CONS IDERATION AT THE END OF THE AO IN THE LIGHT OF DISCUSSIONS MADE SUPRA. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAME AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA. ITA NO.6425/M/2014 M/S. HINDUSTAN OIL EXPLORATION COMPANY LTD. 4 HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR EARLIER YEARS, WE RESTORE THIS MATTER TO THE FILE OF THE AO FOR DECISION AFRESH. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.06. 2017. SD/- SD/- (MANOJ KUMAR AGGARWAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23.06.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.