2011 (6) TMI 919 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on pre-operative expenses declared under VDIS.
2. Deduction of expenditure on wellhead platforms under Section 42(1)(b).
3. Addition of provision for doubtful debts to book profit under Section 115JA.
4. Depreciation on opening WDV of assets for subsequent years.
5. Deduction of depreciation on infrastructure profits under Section 80IA for computing book profits under Section 115JA.

Detailed Analysis:

1. Depreciation on Pre-operative Expenses Declared Under VDIS:
The first issue concerns the deletion by the CIT(A) of an addition of Rs. 2613.46 lakhs, being depreciation claimed on Rs. 10453.83 lakhs declared under the Voluntary Disclosure of Income Scheme (VDIS). The assessee claimed depreciation on capitalized pre-operative expenses, which were initially reduced by interest income but later offered for tax under VDIS. The AO disallowed this claim, arguing that the amount declared was not credited in the books and that interest earned during the construction period is income from other sources. The CIT(A) allowed the claim, stating that the pre-operative expenses should be increased by the interest income taxed under VDIS, thus enhancing the actual cost of assets and allowing for corresponding depreciation. The Tribunal upheld the CIT(A)'s decision, agreeing that the cost of acquisition should be enhanced once the pre-operative income is taxed separately.

2. Deduction of Expenditure on Wellhead Platforms Under Section 42(1)(b):
The second issue involves the CIT(A) allowing an expenditure of Rs. 2500.99 lakhs towards wellhead platforms under Section 42(1)(b). The AO disallowed this claim, arguing that the expenditure on production facilities is not related to drilling and exploration activities. The CIT(A) accepted the assessee's contention, noting that wellhead platforms are integral to drilling and exploration activities. The Tribunal upheld the CIT(A)'s decision, agreeing that wellhead platforms are necessary for drilling and exploration and thus qualify for deduction under Section 42(1)(b).

3. Addition of Provision for Doubtful Debts to Book Profit Under Section 115JA:
The third issue is the addition of Rs. 391,17,724/- being the provision for doubtful debts to book profit under Section 115JA. The AO added this provision to the book profit, treating it as an unascertained liability. The CIT(A) deleted the addition, stating that the provision for doubtful debts represents a diminution in the value of assets. However, the Tribunal reversed this decision, citing the retrospective amendment to Section 115JA by the Finance Act No.2 of 2009, which requires any provision for diminution in the value of assets to be added back in computing book profits.

4. Depreciation on Opening WDV of Assets for Subsequent Years:
The fourth issue pertains to the AO not allowing depreciation of Rs. 87,70,401/- on the opening WDV of Rs. 3,50,81,605/-. The CIT(A) allowed the claim, stating that the depreciation is consequential to the effect given to the order of the CIT(A) for the preceding year. The Tribunal upheld the CIT(A)'s decision, reiterating that the assessee is entitled to depreciation on the enhanced cost of acquisition without reducing the pre-operative income.

5. Deduction of Depreciation on Infrastructure Profits Under Section 80IA for Computing Book Profits Under Section 115JA:
The fifth issue involves the AO's adjustment of depreciation on infrastructure profits while computing book profits under Section 115JA. The AO reduced the infrastructure profit by depreciation not claimed by the assessee, resulting in an addition to the book profit. The CIT(A) allowed the assessee's claim, stating that depreciation cannot be thrust upon the assessee if not claimed. The Tribunal upheld the CIT(A)'s decision, noting that the assessee could not have claimed depreciation on the SBM unit as it was to be handed over to the Gujarat Maritime Board.

Conclusion:
The Tribunal's decisions resulted in a mix of outcomes for the revenue and the assessee. The appeals by the revenue were partly allowed, with the Tribunal upholding some of the CIT(A)'s decisions and reversing others based on legal provisions and retrospective amendments. The detailed analysis of each issue provides clarity on the application of tax laws and the interpretation of specific sections of the Income Tax Act.