2014 (12) TMI 478 - HC - Income Tax

Validity of deduction u/s 80IB(9) assessee engaged on exploration activities carried by assessee - Whether the assessee was engaged in commercial production and refining of mineral oil or not Extraction of oil amounts to result in any new product or commodity or not Held that - The Tribunal rightly held that there was a consortium of such Corporations, of which the present Assessee was a part - the activity of extraction could very well fall within the term production in Commissioner of Income-tax v/s. Sesa Goa Ltd. 2004 (11) TMI 14 - SUPREME Court it has been held that from the definition of the word production , it has to follow that mining activity for the purpose of mineral oil would come into within the ambit of the word production , since ore is a thing , which is the result of human activity or effort - extraction and processing of iron ore amounts to production within the meaning of the word in section 32-A(2)(b)(iii) and consequently the Assessee was entitled to benefit of section 32-A(I) - If the consortium partner was undertaking an identical activity, and was allowed the deduction, the Tribunal s order is upheld. Site restoration expenses or abandonment cost treated as an ascertained liability Held that - The site restoration expenses or abandonment cost was treated as an ascertained liability it was deleted from the computation of book profit u/s 115JB - as per the terms and conditions of a Production sharing contract, it is under obligation that on expiry or termination of the contract to remove all its equipments and installations from the contract area as well as perform the necessary site restoration, operation or process -This is in accordance with the International Petroleum Practices - Such explanation of the Assessee was supported by independent finding and carried out by Institute of Oil and Gas Production Technology thus, no substantial question of law arises for consideration Decided against revenue.

Summary

Issues:
- Appeal challenging the order of the Income Tax Appellate Tribunal
- Deduction claim under section 80IB(9) of the Income Tax Act
- Treatment of site restoration expenses under section 115JB

Analysis:
1. The appeal before the Bombay High Court involved challenging the order of the Income Tax Appellate Tribunal regarding two Assessment Years, 2002-03 and 2004-05. The dispute arose from the Assessee's claim for deduction under section 80IB(9) of the Income Tax Act, 1961, related to exploration activities. The Revenue argued that the Assessee was not engaged in commercial production or refining of mineral oil, thus not eligible for the deduction.

2. The Tribunal, in rejecting the Revenue's argument, upheld the Commissioner's order, drawing parallels with a similar case involving Hindustan Oil Exploration Co. Ltd. The Tribunal referred to a Supreme Court judgment stating that mining activities for mineral oil fall under the definition of 'production.' Since the Assessee's activities were identical to Hindustan Oil Exploration, the Tribunal upheld the deduction claim based on established legal precedents.

3. Additionally, the issue of site restoration expenses under section 115JB was addressed. The Tribunal considered the Assessee's explanation, supported by the Institute of Oil and Gas Production Technology and Chartered Accountants of India guidelines, regarding the contractual obligation for site restoration. The Tribunal upheld the Commissioner's decision on this matter as well.

4. The High Court expressed surprise at the Revenue's challenge, deeming it unnecessary and detrimental to public interest due to frivolous litigations. The Court highlighted the need for the Revenue officials to reconsider their approach to avoid burdening the public exchequer with fruitless appeals. Despite refraining from imposing costs in this instance, the Court warned of future consequences if such behavior persists, emphasizing the need for a change in the Revenue Department's litigation strategy.

5. Ultimately, the High Court dismissed the appeal, emphasizing that the questions raised were not substantial legal issues. The Court's decision aimed to draw attention to the Revenue officials' actions in the Bombay area and urged for a more prudent approach to litigation. The Court's ruling served as a reminder to the Revenue Department to avoid unnecessary appeals and to act in the best interest of the public and efficient tax administration.