MINERAL EXPLORATION CORPORATION LTD, Nagpur V. ACIT-CIRCLE-2, Nagpur

ITA 94/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1604 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: J M RANADE
• Keywords: Depreciation
• Section: 27

Judgement Text

1 ITA NOS.94 TO 98/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. S.NO. I.T.A. NO. ASSTT.YEAR. 1. 94 NAG/2014 2003 - 04 2. 95/NAG/2014 2006 - 07 3. 96 /NAG/2014 2007 - 08 4. 97/NAG/2014 2008 - 09 5. 98/NAG/2014 2010 - 11 MINERAL EXPLORATION CORPORATION LTD., ASSTT. COMMISSIONER OF NAGPUR. VS. INCOME - TAX, CIRCLE - 2, NAGPUR. A PPELLANT. RESPONDENT. APPELLANT BY : SHRI J.M. RANADE. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 21 - 10 - 2015. DATE OF PRONOUNCEMENT : 18 TH NOV., 2015. O R D E R PER BENCH: THESE APPEALS BY THE ASSESSEE EMANATE OUT OF COMMON ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 31 - 12 - 2013 FOR THE CONCERNED ASSESSMENT YEARS. 2. THE COMMON ISSUE IN THIS CASE IS WHETHER THE ASSESSEE COMPANY CAN CLAIM 100% DEPRECIATION ON DRILLING AND MINING ACCESSORIES. 3. THE AO HAS ALLOWED DEPRECIATION AT THE RATE OF 25% ON THE GROUND THAT THE ACCESSORIES FALL UNDER GENERAL CATEGORY OF DEPRECIATION UNDER PLANT AND MACHINERY. IN ASSESSMENT YEAR 2003 - 04, THE APPEAL OF THE ASSESSEE ON IDENTICAL 2 ITA NOS.94 TO 98/NAG/2014 ISSUE WAS DECIDED IN FAVOUR OF THE DEPARTMENT BY THE CIT(APPEALS). ON FURTHER APPE AL AGAINST THE ORDER OF THE CIT, ITAT HAS GIVEN DIRECTION TO DECIDE THE ISSUE WHETHER DRILL RODS, PIPE CASINGS, ETC. WOULD CONSTITUTE THE ACCESSORIES OR NOT. THE TRIBUNAL FOUND THAT THE FIRST APPELLATE AUTHORITY HAS NOT DEALT WITH THE ISSUE WHETHER DRILL RODS AND PIPE CASINGS ARE ACCESSORIES OR NOT, THEREFORE, RESTORED THE MATTER BACK TO TH E FILE OF THE CIT(APPEALS) TO DECIDE THE ISSUE AFRESH. IN ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09, THE APPEAL OF THE ASSESSEE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE CIT(APPEALS) AND ON FURTHER APPEAL BY THE DEPARTMENT, THE ITAT RESTORED BACK TH E MATTER TO THE FILE OF THE CIT(APPEALS) FOR DECIDING THE ISSUE AS TO WHETHER ITEMS USED BY THE ASSESSEE COMPANY WERE SAME AS MENTIONED IN THE APPENDIX - I, RULE 5. THE CIT(APPEALS) BY A COMMON ORDER FOR ALL THESE YEARS HAS DECIDED THE ISSUE AGAINST THE ASS ESSEE BY HOLDING AS UNDER : 5.1 IT IS THUS SEEN FROM THE ABOVE FINDING THAT THE CIT(A) IN AY 2006 - 07 TO 2008 - 09 HAS TREATED THE SAND STOWING PIPES MENTIONED IN THE APPENDIX I AT ITEM NO. X, AS REPRODUCED ABOVE, SIMILAR TO THE DRILL RODS AND PIPE CASI NGS. IT, HOWEVER, IS SEEN THAT THE ITEM MENTIONED IN APPENDIX - I AT CLAUSE - X SPEAKS ABOUT THE SAND STOWING PIPES AND DOES NOT MENTION THE DRILL RODS AND PIPE CASINGS AS PART OF SAND STOWING PIPES. IT IS, THEREFORE, DO NOT KNOWN AS TO ON WHAT BASIS THE SAND STOWING PIPES MENTIONED IN APPENDIX - I HAS BEEN TREATED AS DRILL RODS AND PIPE CASINGS BY THE LD. CIT(A). FURTHER THAT THE SWAID STOWING PIPES, AS MENTIONED IN OLD APPENDIX - I, IS APPLICABLE TILL AY 2002 - 03 AND THE NEW APPENDIX - I WAS APPLICABLE TILL AY 2005 - 06, AND THE SAME BEING NOT APPLICABLE TO AYS 2006 - 07, 2007 - 08 & 2008 - 09, THE CLAIM OF THE APPELLANT FOR 100% DEPRECIATION IS NOT COVERED WITHIN THE SCOPE OF ITEMS MENTIONED IN CLAUSE - X TO APPENDIX - I, AS THE SAME IS APPLICABLE TILL 2005 - 06 ON LY. 5.2 THEREFORE, TO MY CONSIDERED OPINION, THE CLAIM OF THE APPELLANT FOR 100% DEPRECIATION ON DRILL RODS AND PIPE CASINS DOES NOT SURVIVE IN THE EYES OF LAW FOR AY 2006 - 07, 2007 - 08, 2008 - 09 AND 2010 - 11. 5.3 FURTHER THAT, IT IS PERUSED FROM THE COPY OF BILL/ISSUE VOUCHER DATED 18.10.2006 THAT THE APPELLANT COMPANY HAS PURCHASED QUANTITY OF 400 DRILL RODS @ RS.8,661/ - PER ROD. THEREFORE, THE CONTENTION THAT EACH ITEM 3 ITA NOS.94 TO 98/NAG/2014 OF DRILL ROD AND CASING PIPE IS COSTING BELOW RS.5,000/ - GETS REFUTED ON MERITS. 5.4 THE MATTER HAS BEEN EXAMINED, KEEPING IN VIEW OF THE DIRECTIONS OF THE HONBLE ITAT , E BENCH, NAGPUR, THAT, WHETHER THE DRILL RODS AND PIPE CASINGS CONSTITUTES THE ACCESSORIES. THE APPELLANT HAS NOT BEEN ABLE TO ADDUCE ANY SORT OF PROOF TO DEMONSTRAT E THAT THE DRILL RODS AND PIPE CASINGS ARE PART OF SAND STOWING PIPES, AS MENTIONED IN ITEM - X OF APPENDIX - I (OLD AS WELL AS NEW APPENDIX). I, THEREFORE, DECLINE TO INTERFERE WITH THE ORDERS OF THE AO AND CONFIRM THE STAND OF THE AO TO TREAT THE DR ILL RODS AND PIPE CASINGS AS PART OF PLANT AND MACHINERY, AND ALLOWING THE DEPRECIATION AT THE RATES APPLICABLE TO PLANT AND MACHINERY, AND NOT AT THE RATE APPLICABLE TO SAND STOWING PIPES. THUS, THE CLAIM OF THE APPELLANT FOR 100% DEPRECIATION ON DRI LL RODS AND PIPE CASINGS IN ALL THE YEARS OF APPEAL I.E. AYS 2003 - 04, 2006 - 07, 2007 - 08, 2008 - 09, RESTORED BY THE HONBLE ITAT AND AY 2010 - 11, IS RESTRICTED TO THE RATE OF DEPRECIATION APPLICABLE TO PLANT AND MACHINERY, AS THE CASE OF THE APPLICANT NEITH ER FALLS UNDER APPENDIX - I NOR SUCH ITEMS CONSTITUTES ACCESSORIES, COUPLED WITH THE FACT THAT EACH ITEM COSTS MORE THAN RS.5,000/ - , AS PER RANDOM VERIFICATION OF BILLS PRODUCED BY THE APPELLANT. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BE FORE US. 4 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE M/S MINERAL EXPLORATION CORPORATION LTD. HAS BEEN CAR VED OUT OF GEOLOGICAL SURVEY OF INDIA. IN THIS REGARD LEARNED COUNSEL OF T HE ASSESSEE REFERRED TO THE STANDARD OPERATING PROCEDURE FOR DRILLING PREPARED BY ENGINEERING DIVISION OF GEOLOGICAL SURVEY OF INDIA: 1. GEOLOGICAL SURVEY OF INDIA ENGINEERING DIVISION DRAFT STANDARD OPERATING PROCEDURE FOR DRILLING OPERATION PREPARED BY ENGINEERING DIVISION 4 ITA NOS.94 TO 98/NAG/2014 CONTENTS PAGE NO. I. INTRODUCTION 3 II. SOP - I: DRILLING PROPOSAL FOR PROJECT INITIATION 3 III. SOP - 2: SELECTION OF DRILLING TECHNIQUE, EQUIPMENT ACCESSORIES 6 III. SOP - 3: RESOURCE PLANNING 15 IV. SOP - 4: MOBILISATION (CAMP ESTABLISHMENT & SITE PREPARATION) 20 V. SOP - 5: DRILLING AND SAFETY PROCEDURE 22 VI. SOP - 6: DRILLING FLUIDS 33 VII. SOP - 7: CORE RECOVERY AND PRESERVATION 38 VIII. SOP - 8: POST DRILLING ACTIVITY (SPT) 40 ANNEXURES : IA DRILLING REQUISITION PROPOSAL 43 IB GEO - TECHNICAL PLAN 44 II - PROFORMA FOR BIT RECORD 45 IIIA KIT ALLOWANCE 46 IIIB - INVENTORY REQUIRED FOR A BOREHOLE 47 IV AGREED STAFFING NORMS. 48 V - PEER REVIEW REPORT OF SOP 50. INTRODUCTI O N : DRILLING OF H OLE IN THE EA RTH C RU S T I S TH E M OS T EFFECTIVE MEAN S OF PR OS PE C TING FOR E X PLORATI O N O F MINERAL DEP OSIT S . DRI LL ING IS EQ U A LL Y IMP O RTANT F O R E NGIN E ERING GE O L OGY, GEOCHEMICAL AND GE O - TECHNICAL IN VE S T I GA T IONS. THE M A IN A C T I IT I E S O F G E O L OG I CA L SURV EY O F INDIA ARE - I . GE O L O GICAL MAP P I N G. 2 . MI NERAL AND E N E R GY RE SO URCE ASSESSMENT WHICH IN C LUDES FERROUS AND N O NF E RR O U S 5 ITA NOS.94 TO 98/NAG/2014 M I N E R ALS BASE MET A L S LIKE LEAD , ZINC, PRECIOUS METALS E . G G O LD /S ILVER / DIAMOND ' COAL AND LI G N ITE ET C . 3. E N GINEER I NG GEO L O G Y , G EO CHEMICAL AND GEE - TECHNI C AL INV ES TIGATION S. 4. GE OLOGICAL HAZA RD S TUDI ES LIKE LAND S LIDES, EARTHQUAKE S, AR S ENIC AND FLUORIDE CONTAMINATI O N IN WATER ETC IT IS NOT EWO RT H Y THA T DR I LLIN G DIVI S I O N (NOW CALLED ENGINEERING DIVISION) IS CATEGORIZED AS S PECIAL FUN C T I O N DIVISIO N A ND I S INTEGRAL PART OF SURVEY WORK DONE BY G .S . L ENGINEER I NG D IV I SIO N OF G SI I S ENGAGED IN PRIMARILY CORE DRILLING ACTIVITIES WITH VARIOUS GRAVITY FEED , H Y DR A U LIC FEED AN D H Y DR OS TATIC DRILL S IN DIFFERENT PART S O F THE C OUNTRY . THE ADVANTAGE OF CORE DRILL ING I S THE R ECO VE R Y OF R E PRE S ENTAT I VE S AMPLE IN THE F O RM O F C O RE . THE EXPLORATOR Y HOLE S CAN BE MAPPIN G HOLES , RECON NAI S SANCE HOL ES , EXPLORATION H O L ES F O R MINERAL RE S ERVE S , STRATIGRAPHI C H O LE S ETC . TO UN DE R T A KE DEE PER DRILLING BEYOND 900 MT S O F DEPTH GSI WOULD REQUIRE ADDITIONAL TRAIN E D TECHNICAL PE R S O NNEL , S UPERVI SO RY O FFICER S, MODERN EQUIPMENT S AND CONTINUOU S AND ADEQUATE FLOW O F FUND . I N VIE W O F T HE LIBER A LI Z ATI O N A ND THE EXPERTI SE AV A ILABLE WITH G S / . IT M A Y HAVE TO TAKE UP COMMER CIAL PR O JEC T S FOR EXPL O RATION OF MINERAL AND PRECI O U S METAL S . THE COMMERCIAL PROJECT S E S PECIALL Y IN TH E FIELD OF GE O - TECHNICAL INVE S TIGATI O N S A ND IR O N O RE EXPL O RATI O N H A VE HU G E POTENTI A L AN D GS I C AN BENEFIT A A L O T BY TAKING UP THE S E PR O JE C T S . INVESTI GA TI O N B Y DRILLING I S A PRELIMINARY PREREQUI S ITE AND PRE C I S E METHOD F O R GEOL OG I CA L AS S ES S MENT O F THE O RE DEPOSIT . IT I S U S UALLY RE S ORTED TO O NL Y WHEN PRELIMINARY GEOLOGI C AL S TUDIE S LIKE MAPPING, GEOPHYSICAL SURVE YS ET C. INDICATE PROBABILIT Y O F DEPO S IT S IN A PARTICULAR AREA . THE ACCUR ACY O F DATA GENERATED BY DRI 11 IN G I S THE MO S T IMPORTANT FACTOR IN PREDICTING THE RESERVE S CORRECTL Y . DRILLING IS A FIELD BA S ED ACTIV I T Y AND I S CARRIED O UT THR O UGH O UT THE YEAR . THE SET UP OF A DRILLIN G CA MP I S QUITE LARGE DUE T O LARGE AMOUNT O F S TORE S / MACHIN E RIE S/ VEHICLES THAT ARE REQUIRED TO BE KEPT IN FIELD FOR SM OOTH DRILLING OPERATION. THE C AMP O FFICE MAINTAINED IN THE FIELD KEEP S TRACK OF ALL THE RECORDS AND AL S O COMMUNICATE S WITH HQ . THE PURPO S E OF THIS SOP (08 FOR COMPLETE DRILLING OPERATION) IS TO ENSURE ACCEPTABLE CON S I S TENT DRILLING PROCEDURE FOR COLLECTI NG CORE S O BT A INED DURING DRILLING ACTIVITY . THE SOP PROCEDURE A PPLIE S TO THE DRILLING DONE BY GEOL OG I CA L S URV EY OF INDIA . S.O.P - L :'DRILLING PROPOSAL' FOR PROJECT INITIATION MINER A L EXPLORATIO N BEIN G D O NE B Y G E O LOGI C AL SURVE Y O F INDIA F O R A S CERTAINING THE RE S ERVE S OF THE MIN ERA L S I S O N R EG I O N A L B AS I S . F O LLOWING THE S URFACE G EOLO G ICAL WORK OF MAPPING AND GE O LOG ICAL, GE O P H Y S I CA L A N D GEOC HEMI C AL INPUTS WHEREIN PR O MI S IN G MINERAL OCCURRENCES ARE ANTICIP A T ED , A DRIL LIN G PR OG R AM I S IN I TIATED T O GAIN KN O WL E DGE O N THE CONTINUITY OF ORE AND TO ESTABLI S H TH E QU A LIT Y OF MIN E R A L DEP OS IT . DRILLIN G BEC O ME S N EC ES S AR Y F O R DETAILED EXPLORATION . BA S ED O N TH E A B OVE INPU TS, A F A IR GEO L OG I CA L M A P DEPICTIN G LITHOL OG Y , STRUCTURE, ALTITUDE THE PR O GRAM OF DRILL I N G IN A N A R EA I S FIN A LI Z ED B Y THE G EO L OG I S T WITH QUANTUM O F DRILLING , NUMBER O F H O LE S, L OCA TI O N A ND T H E TENT A TI VE D E PTH S OF TH E B O REH O L E. THE B AS I C INF O RM A TI O N A B O UT TH E AREA A ND TH E T E NTATIVE LITH O L O G I S REQUIRED WHICH MAY B E S UBMITT E D B Y TH E AREA GE O L OG I S T T O THE E X E C UTIN G DIV IS I O N. TH E ' DRILLIN G REQUI S ITION PROPOSAL' M AY B E S UBMITTED IN THE PR O F O RM A AS PER ANNEX - LA. T HI S PR OV IDE S BA S I C I N FORMA TI O N AB O UT T H E A R EA, I T S A CCESS IBI LI T Y, TENT A TI VE LITH O L OG , DRILLIN G / CO R I N G R E QU I R E M E NT S, B ORE H OLE CO - O RDIN A T ES M L HEI G HT S E T C . BA S ED O N THE A B OV E D A T A THE DR I LLIN G DI V I SIO N H AS T O ASSESS TH E FEASIBILITY OF O PER AT I VI S - A V I S THE RE SO URCE S IT HA S AND HA S T O PREPAR E A T E NT A TIV E G E O T E C HNI CA L PLAN ( GT P ) FO R E A B O R E H O L E O F TH E PR O JE C T . T H E T E NT A TI VE G E O T E C HN ICA L PL A N (GT P ) IS TO BE PREPA R E D IN PR O F O RM A AS PER ANNEXURE - IB . H O WE VE R , S IN CE THE DRIL LI N G UNDERT A KEN B Y GSI INV O LVES UNKN O - F O RM A TI O N S IN V IRGIN ARE AS, TH E G T P CA N B E M O DIFI E D AS A ND W H E N R EQ U IRED DEPE ND I N G U FO R M AT IO N S E N CO UNTERED AND THE DR I LL ING CON D I T IO N . THE STANDARDIZATION OF DRILLING ACCESSORIES IS VERY IMPORTANT . TH E IMP O RT ANCE OF STA NDARDIZ AT I C AN BE S UMMARIZED A S F O LL O W S . 6 ITA NOS.94 TO 98/NAG/2014 \ . INTERCHANG E ABILIT Y O F DIFFERENT CO MP O N E N T OF AN ASSE MBL Y . 2.U NDER S TANDIN G THE COMMON LAN G UA GE B ETWEEN T H E M A NU FAC TUR E R A ND THE U SE R 3. T O FA C ILITATE THE PRODUCER S T O MANU F A CT UR E THE EQ U I PM E NT I N A D VA N CE T O E N AB L E T H E M T O S U PP L Y _ O N DEMAND. 4 . RATIONALI S ATI O N OF INVENTORIES TO GET OVE R A L L ECONO M Y. 5. DEVELOPMENT OF MUTUAL TRADE BETW E EN D IF F ERENT CO UNTRI ES . DIFFERENT S TANDARD S PREVAILIN G IN THE INT ERNATI O NA L MARKET ARE : 1 D C DMA (( DI A M O ND CORE DRILLIN G MANUFACTURER S A SSOCIATIO N ) 2. BSI(BRITI S H STANDARD IN S TITUTI O N ) 3 .C DDA( C ANADIAN DIAMOND DRILL ERS ASSOCIAT IO N ) 4 . ADDA ( AU S TRALIAN DIAM O ND DRIL LE R S AS SOC IAT IO N ) 5 . SAC DA (SO UTH A F RICAN CO R E DR I LL ERS A SSOCI AT ION) TH E A B O V E S T A ND A RD S MER G ED T OGE TH E R AND BR O U G HT OUT AS A O MMON STAN DARD FO R D IA M O ND C O R E DRILLIN G E QUIPMENT KN O WN A S A) INTERNATI O NAL STA N DARD ISO I DI S/355 1 / 1 S Y STEM ' A ' P A RT - I THE ACCESSORIES THAT ARE USED IN GSI ARE - DRILL RODS AW ( 43 . 6MM ) B W(53.9MM ) N W ( 6 6 . 6MM ) HW ( 88 . 9MM) CASING(FLUSH AX B X NX HX PX COUPLED) (57 . 1 MM) (73 .0 MM ) (88 . 9 MM) ( 114 .3 MM ) (138 . 6 MM) CORE BARREL (G SERIE S ) AWG BW G NWG HW G (M SERIE S) AWM BW M NWM HWM ( 46 . 0MM) (57 . 9 MM) ( 7 3.8 MM) (9 7 .9 MM ) ( T SERIE S) AWT BW T N W T HWT ( 46 . 3) (5 8 . 7) ( 7 3 . 8 ) ( 96 . 8) B ) INTERN A TI O NAL STANDARD IS O / DI S / 355 I I I SYS TEM ' B ' P A RT - I (C R A EL I U S M E TRI C S T A ND A RD D EVE L O P E D B Y M E R GI N G S WE DI S H AND O TH E R E U RO P EAN CO UNT R I ES S T A ND A RD S ) THE ACCE S SORIES THAT ARE USED IN GSI ARE - DRILL RODS 4 2 MM 50 MM 6 0 MM CASING 7 4 MM 84 MM 98 MM 11 3 MM 1 28 M M CORE BARREL 76 MM 8 6 MM 1 0 1 MM 11 6 MM 1 3 1 MM 4 A G ENER A L C HART S H O WIN G TH E BROA D G UIDELIN ES F O R SE L EC TI O N O F S URFA C E S ET DI A M O ND BIT S I S GIVEN B ELO W. S I NO TY P E OF FO RM AT I ON D I A M O N D MA TR IX SIZE(S P C) I . V E R Y SOF T - T A L C, B A U XI T E 4 1 7 H ARD 2 . SOFT - GY P S UM , COA L ETC 1 0 / 25 H A R D 3 . M E DIUM HARD - D O L O MIT E 1 5 / 25 H A RD F L O URIT E 7 ITA NOS.94 TO 98/NAG/2014 4 . H A RD - A P A T I T E , SOFT G R ANITE 25 / 40 H A R D 5 . HARD ( S O LID ) - FI N E G N EISS 40/60 H A RD 6 . VER Y H A RD( SO LID ) - QU A RT Z 60/80 H A RD 7 . VER Y H A RD(BR O K E N ) 8 0/ 11 0 H A RD NO W A D AY'S S Y NTHETIC DI A M O ND BIT S AND P O L Y C R YS T A LLIN E DIAMOND BIT S WHICH G IVE B E TT E R ME T E RAG E A T REL A TIVEL Y L O WER BIT COS T A R E B E IN G EX T E N S I VE L Y U SE D IN PLAC E O F S URF AC E SE T BIT S B Y O THER O RGANIZATIONS . IN GSI A L SO S UCH BIT S A RE B E IN G INTR OD U CE D O N E X P E RIM E NTAL B AS I S . I T I S IMP E R A TIVE THAT FOR BETT E R PR O DU C TI V IT Y CO R E BI T / R EA M E R S H E LL L B A RREL S H O ULD B E O F O N E S T A ND A RD S E RI ES . THI S ALS O S T A BIL IZ E S TH E B O R E H O L E. S ELECTION OF CORE BARREL - SELECTION OF PROPER CORE BARREL IS THE MOST IMPORTANT FACTOR IN ACHIEVING GOOD CORE RECOVERY WHICH IS THE ULTIMATE AIM OF CORE DRILLING . T HE CO R E BA RR E L IN I TS V A RI O U S FO RM S I S A T U BUL A R PIECE OF EQUI PM ENT W H IC H HOUSE S THE CO RE AS IT I S C UT A N D H O LD S IT TIL L THE S TRIN G IS RE T RAC T E D F R O M TH E H O L E FOR R E M OVA L A N D STORAGE OF CO R E. WH E N DRILLIN G TH E BAR R EL IS L O CATE D D IR EC TL Y AB OVE TH E CO R E BIT AND R EAMER S HE L L . ROTATION AND FEED A R E APPLIED FROM THE MAC HIN E T HR O U G H TH E DR I LL ST R I N G, B AR R E L A N D REAMER S H E L L TO THE BIT . IN GEO L OG I CA L S UR VEY OF IN DIA DC DM A A ND S WED I S H STA ND AR D CO R E B ARRE L S A R E MOST L Y USED . SING L E TU BE A ND D O UBL E TUB E CO R E BA RR E L A R E GE N E R A LL Y USED . I N H AR D CO MP ACT FO RM A TI ON SI N G L E TUBE B A RR E L P E R FO RM S WE LL . I T I S S TRON G AND CAN WITH S TAND THE HEAVY FEE D PR ESS U RE R E QU I R E D TO PE N ET R ATE H A RD FO RM A TI O N S. I T OFFERS GOOD CO R E R ECOVERY AND T R O U B L E FREE O P E R AT I O N . T H E D O U B L E TUB E S WIV E L T Y P E CO R E B A RR E L H AS T WO T U BES , O N E I NN E R A ND O TH E R O U TE R TUB E . T H E I NN E R T U BE I S S U S PEND E D F R O M TH E BA RREL H EA D B Y B EAR IN GS. T H E DRILLIN G F LUID P ASSES B E T W E E N T H E T WO T UBE S L E AVIN G TH E CORE UN - E X P OS ED T O TH E DRILL I N G F LU ID EXCEP T FO R TH E FEW CE NTIMET E R S AS IT P ASSES T HR O U G H THE REAMER S HELL AND THE BIT . SE L EC TI O N O F DRILL ROD & O THER E GUIPM E NT - R E QU IR E M E NT OF DI F F E R E NT S I Z E S O F DRILL ROD DEPEND S O N T H E S I ZE OF C O RE BARREL U S ED A ND TH E REF O R E S I Z E OF TH E BORE H O L E T O B E DRILLED . F O R A L A R GE R S I ZE BO R E H O L E U SE OF BI GG ER S I ZE R O D IS RECO MM E N DE D T O R EDUCE VIBRATIO N , M A INT A IN STA BILIT Y OF D R I L L S T R I N G, B E TT E R WE IGHT DI S TRIBUTI O N O N B I T A ND T O A T TA IN O PT I MUM R . P . M F O R M AX IMUM DRILLIN G R A T E. SIX S I ZES OF DRILL R O D A R E I N U SE IN GS I R A N G IN G I N S I ZE FRO M 2 7 . 8 MM T O 89 . 1 MM OD . TWO DES I G N S OF DR I LL R O D A RE IN U SE ( I ) P A R A L LE L WA LL (2) U P SE T E N D AN D FO R GE D . FOR S M A LL ER S I ZE S ( R W T O A W ) W H E R E T ORQ U E T R A N SMISSION REQ U IREME NT IS LOW, B O TH P A R A LL EL WALL A ND U PSET E ND RO D S A R E U SE D WHE R EA S FO R SIZES FROM BW TO H W O NL Y UP S ET E N D RO D S A R E RECO M MENDE D AS TH E END S A R E ST R E N G TH ENE D BY FO R G IN G T O WIT H S T A N D HIG H ER TO R Q U E T R A N SM I SS I ON AND AVOID FAI LURE OF JO INT S . H OWEVER , BW PARA LL EL WALL RODS ARE N OW BE I NG PUT I NT O U SE C O N SI D ERING COS T A ND EASY AVA IL AB IL I T Y . T H E DR I L L RODS A R E M A D E F R O M EN - 8 GRADE OF STEE L AND ARE CO L D D R AWN SEA ML ESS TUB ING TO ENS U RE S MOO TH S UR FACE FI N IS H AND C L OSE DI M E N SIONAL TO L ERANCES, UNIFO RM M E T A LL U R GICAL STR U CT UR E THRO U G H O U T T HE CROSS SEC TI O N . T H E R OD CO U P L ING S ARE MADE FROM E N - 1 9 TO PROV I DE BET T E R S TR E N G TH 5 . REFERRING TO THE SAID OPERATING PROCEDURE, LEARNED COUNSEL REFERRED TO THE STANDARDISION OF DRILLING ACCESSORIES THEREIN. FROM THE SAID MANUAL HE POINTED OUT THAT THE ACCESSORIES USED FOR DRILLING OPERATIONS WERE MENTIONED AS DRILLI NG RODS CASING, COAR BARREL. FROM THIS REFERENCE LEARNED COUNSEL SUBMITTED T HAT THE ACCESSORIES REFERRED TO IN THE PRESENT CASE VIZ. DRILLING RODS AND PIPE CASINGS 8 ITA NOS.94 TO 98/NAG/2014 DULY FALL UNDER ACCESSORIES USED IN DRILLING OPERATIONS. HE REFERRED THE NEW APPENDIX - I EFF ECTIVE FROM ASSESSMENT YEAR 2006 - 07 ONWARDS IN RELATION TO THE DEPRECIATION TABLE AND POINTED OUT VIDE ITEM 8(4) VIZ. MINES AND QUARRIES ; TUBS, WINDING ROPES, HAULAGE ROPES AND SAND STOWING PIPES WHICH WILL CATEGORISE FOR 100% DEPRECIATION. SIMILARLY REF ERRING TO THE OLD APPENDIX - I APPLICABLE FOR ASSESSMENT YEARS 2003 - 04 TO 2005 - 06 HE POINTED OUT THAT VIDE PARA 8(4) THAT MINES AND QUARRIES , TUBS, WINDING ROPES AND SAND STOWING PIPES WERE ELIGIBLE FOR 100% DEPRECIATION. REFERRING TO THESE DEFINITIONS LE ARNED COUNSEL SUBMITTED THAT DRILLING RODS AND PIPE CASING IN THE PRESENT CASE WOULD FALL UNDER THE CATEGORY OF TUBS, WINDING ROPES, HAULAGE ROPES AND SAND STOWING PIPES AS MENTIONED IN THE DEPRECIATION TABLE. FURTHER MORE LEARNED COUNSEL OF THE ASSESSEE S UBMITTED THAT THERE IS NO DOUBT THAT THE ITEMS BEING CONSIDERED IN THIS CASE ARE ACCESSORIES OF DRILLING OPERATIONS. TH IS HE SUBMITTED THAT IT IS CRYSTAL CLEAR BY REFERENCE TO THE DRILLING OPERATION PROCEDURE OF THE GEOLOGICAL SURVEY OF INDIA. LEARNED COUNSEL SUBMITTED THAT THE TRIBUNAL IN ITS ORDER HAS MENTIONED AS UNDER : WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL REFERRED TO. IT IS FOUND THAT APPENDIX - I TO SCHEDULE GOVERNS THE QUESTION TO BE ANSWERED. THE BASIC ISSUE TO BE DECIDED IN THE APPEAL UNDER CONSIDERATION IS WHETHER THE DRILL RODS AND PIPE CASINGS WOULD CONSTITUTE ACCESSORIES OR NOT? WE FIND THAT THE SAID QUESTION HAS NOT BEEN DEALT WITH BY THE FAA. IN THESE CIRCUMSTANCES IN THE INTEREST OF JUSTICE, WE WANT TO RESTORE BACK THE MATTER TO THE FILE OF THE FAA TO DECIDE THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSE SSEE. BY REFERENCE TO THE ABOVE HE MENTIONED THAT THE TRIBUNAL HAS REMITTED THE MATTER TO EXAMINE THAT THE DRILLING RODS AND PIPE CASINGS WOULD CONSTITUTE ACCESSORIES OR NOT. THUS HE SUBMITTED THAT THESE ARE CLEARLY ACCESSORIES AND FALL UNDER THE CATEGORY OF EQUIPMENTS. HE SUBMITTED THAT THESE ITEMS ARE LOWER ED BEN EATH THE EARTH. THE EQUIPMENTS COST AROUND RS.7 000 TO 8000/ - AND THEIR LIFE IS LESS THAN ONE YEAR. HENCE LEARNED COUNSEL SUBMITTED THAT THESE ITEMS ALSO 9 ITA NOS.94 TO 98/NAG/2014 QUALIFY FOR DEDUCTION AS EXPENDITURE ON ACCOUNT OF STORES AND EQUIPMENTS CONSUMED. 6 . PER CONTRA LEARNED D.R. SUBMITTED THAT THE ITEMS MENTIONED THEREIN DO NOT FIND PLACE IN THE DEPRECIATION TABLE QUALIFYING FOR 100% DEPRECIATION. HENCE HE CLAIMED THAT LEARNED CIT(APPEALS) HAS RIGHTLY HELD THAT DEPRECIATION IS ALLOWABLE ONLY AS THAT APPLICABLE FOR PLANT AND MACHINERY. 7 . WE HAVE CAREFULLY HEARD THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IN ASSESSMENT YEAR 2003 - 04 AS PER THE AOS ORDER, 100% DEPRECIATION WAS CLAIMED ON DRILLING AND MI NING ACCESSORIES AND TENTAGES. THE ASSESSEE HAS EXPLAINED THAT DRILLING AND MINING ACCESSORIES CONSISTS OF DRILLING RODS, PIPE CASINGS ETC. THE EXPLOITERY DRILLING AND MINING IS DONE WITH THE HELP OF MACHINES CALLED DRIGS. RODS, PIPES ETC. IN QUESTION AR E USED AT THE TIME OF DRILLING FOR LOWERING INTO BORE HOLES. THESE ITEMS ARE REQUIRED IN LARGE QUANTITIES D EPENDING UPON THE DEPTH AND SIZ E OF BO REHOLE . THESE RODS ETC. ARE LOWERED INTO BO REHOLE ALMOST UPTO THE DEPTH OF 800 TO 1200 . BELOW THE EARTH THES E RODS AND CASINGS BECOME UNUSEFUL WITHIN A PERIOD OF 8 TO 10 MONTHS AND THEIR CONDITION WARRANTS THEM TO BE REPLACED FREQUENTLY AND AS SUCH THE LIFE OF SUCH ITEM IS ALWAYS LESS THAN ONE YEAR. THE ASSESSEE HAD PLEADED THAT SINCE THE COMPANYS WORK IS PRE PARATORY TO MINING ACTIVITIES AND SINCE THERE IS A SPECIFIC ITEM SAND STOWING PIPES UNDER SUB HEADING MINES AND QUERIES UNDER THE HEAD PLANT AND MACHINERY, THESE ACCESSORIES WHICH CLOSELY RESEMBLE SUCH PIPES AND HAVE RIGHTLY BEING CLASSIFIED AS SAND STOWING PIPES WHICH CARRIES 100% DEPRECIATION. NOW THE LEARNED CIT(APPEALS) HAS DECLINED TO AGREE WITH THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO ADDUCE ANY SORT OF PROOF TO DEMONSTRATE THAT THE DRILLING RODS AND PIPE CASINGS ARE PART OF SAND STOWING PIPES AS MENTIONED IN ITEM 10 OF APPENDIX I. 10 ITA NOS.94 TO 98/NAG/2014 8 . UPON CAREFUL CONSIDERATION WE FIND THAT THERE IS CONSIDERABLE COGENCY IN THE ASSESSEES SUBMISSION THAT THE IMPUGNED ITEMS DESERVE 100% WRITE OFF. THE NATURE OF THESE ACCESSORIES HAS BEE N DULY DETAILED AS ABOVE. THEIR LIFE IS LESS THAN ONE YEAR. THEY ARE USED BENEATH THE EARTH. THE FACTUAL ASPECT OF THE NATURE AND THEIR USES HAS NOT AT ALL BEEN DISPUTED BY THE REVENUE. THE CIT(APPEALS) HAS ALSO HELD THAT AS PER RANDOM VERIFICATION HE HAS FOUND THAT THESE ACCESSORIES COST AROUND RS.8000/ - . NOW THE UNDISPUTED FACT OF THE ISSUE IS THAT THE ITEMS INVOLVED ARE ACCESSORIES USED IN DRILLING AND MINING. THEIR LIFE IS LESS THAN ONE YEAR. THE COST AROUND RS.8000/ - . THEY ARE USED BENEATH THE EARTH AT THE TIME OF DRILLING FOR LOWERING INTO BORE HOLES ALMOST UP TO THE DEPTH OF 800 TO 1200 METERS. WITH THESE UNDISPUTED FACTS IT IS CLEAR THAT THESE DRILLING RODS AND PIPE CASINGS DO CONSTITUTE ACCESSORIES. THEY ARE AT BEST CONSUMABLE STO R ES AND THEY ARE ELIGIBLE FOR 100% WRITE OFF. HENCE WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND HOLD THAT THE ASSESSEE IS ENTITLED TO WRITE OFF OF THESE ITEMS. 9 . IN THE RESULT, THESE APPEALS FILED BY THE ASSESSEE STAND ALLOWED. ORDER PRONOUNCED IN THE O PEN COURT ON THIS 18 TH DAY OF NOV., 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 18 TH NOV., 201 5. 11 ITA NOS.94 TO 98/NAG/2014 COPY FORWARDED TO : 1. MINERAL EXPLORATION CORPORATION LTD., DR. AMBEDKAR BHAWAN, HIGH LAND DRIVE ROAD, SEMINARY HILLS, NA GPUR - 440006. 2. ACIT, CIRCLE - 2 , NAGPUR. 3. C.I.T., CONCERNED 4. CIT(APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR