2010 (10) TMI 562 - AT - Income Tax

Disallowed - Exploration and production of oil and gases expenditure - the assessee is engaged in the business of operation of rigs for extraction of oil and undertaking other oil related activities - It is further recorded by the Tribunal that in the interest of assessee s business and in continuation of the business carried on by it, the assessee had to explore the chances of development in the field of oil exploration for which it had to submit itself for bidding and tenders - The tribunal has held that submitting tenders and bids in the field of oil exploration is a highly sophisticated technical task for which the assessee company had to incur substantial amount of expenditure had to incur substantial amount of expenditure before submitting its bid if the assessee is not successful in obtaining bid, such expenditure is allowable as revenue expenditure - The Tribunal has held that merely because the assessee failed to secure a bid, the expenditure cannot be disallowed - Decided in favour of assessee. Depreciation - the status of assessee company as on the date of transfer of the asset is 100% subsidiary company of M/s. Essar Gujarat Ltd - Tribunal order for the Assessment Year 1993-94 in assessee s own case wherein the claim of the assessee was decided in the favour of the assessee - The ld. CIT(A) following the said order of the Tribunal directed the Assessing Officer to re-compute the depreciation in the light of the order of the Tribunal - Decided in favpor of assessee.

Summary

Issues:
1. Allowability of expenses incurred for exploration and production of oil and gases as revenue expenditure.
2. Allowance of depreciation to the assessee.

Issue 1: Allowability of expenses for exploration and production of oil and gases:
The appeal by the revenue challenged the order of the ld. CIT(A) regarding the deduction claimed by the assessee for expenses incurred in exploration and production of oil and gases. The Assessing Officer disallowed the deduction, considering the expenses as preliminary in nature. However, the ld. CIT(A) allowed the claim, citing previous decisions by the ITAT and the Hon'ble Bombay High Court. The Tribunal upheld the decision of the ld. CIT(A), emphasizing that the expenses were revenue in nature and essential for the business activities of the assessee. The Tribunal noted that the expenses were allowable even if the bids were unsuccessful, as they were crucial for the assessee's business operations. The consistent view of the Tribunal and the decision of the Hon'ble Jurisdictional High Court supported the allowance of the claim. Therefore, the Tribunal rejected the revenue's appeal on this issue.

Issue 2: Allowance of depreciation to the assessee:
The revenue also contested the direction of the ld. CIT(A) to allow the assessee's claim for depreciation, arguing that the status of the assessee company as a subsidiary should impact the allowance. However, the Tribunal found that the allowance of depreciation was in line with the Tribunal's previous order for the Assessment Year 1993-94 in the assessee's case. The ld. CIT(A) had correctly directed the Assessing Officer to re-compute the depreciation based on the Tribunal's earlier decision. As the revenue failed to provide any contrary evidence, the Tribunal upheld the ld. CIT(A)'s decision to allow the depreciation claim. Consequently, the Tribunal dismissed the revenue's appeal on this issue.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the decisions of the ld. CIT(A) regarding the allowance of expenses for exploration and production of oil and gases as revenue expenditure and the allowance of depreciation to the assessee based on previous Tribunal orders.