2019 (9) TMI 97 - AT - Income Tax

Disallowance 80IB / 80IC - Manufacturing or production activity or not - crude oil production - AO disallowed the benefit on the ground that, assessee s oil wells for which the claim is made, is not an new industrial undertaking or enterprise; though there is no dispute that these are plants - assessee was supposed to furnish a separate audit report as prescribed under IT Rules in case of an eligible undertaking or enterprise claiming sec. 80IB deduction to be further accompanied by the relevant profit and loss account / balance-sheet as if the undertaking is a distinct entity. HELD THAT - Section 80IB(13) imports sec. 80IA(5) and (7) to (12) to be applicable to the eligible business carried out by the eligible undertaking in question. We notice in this backdrop that the clinching legislative s expression 80IA(7) is accounts of the undertaking than a complete set off separate books of account. And sec. 80HH(5), 80I(7), sec. 80IA(7) as well as sec. 80IB(13) also use the very statutory expression accounts of the undertaking . We hold in this backdrop that the CIT(A) has rightly followed the hon'ble jurisdictional high court s decision in taxpayer s favour. Same is the fate of the Revenue s next argument that assessee s each oil well ought not to be treated as a separate eligible undertaking. Hon'ble Gujarat high court s and this tribunal decision in Nicco Laboratories Ltd. 2015 (3) TMI 986 - GUJARAT HIGH COURT decided the very issue in assessee s favour that each oil well can indeed be treated as a separate eligible undertaking Reliance of the revenue on hon'ble Calcutta high court s judgment in assessee s case 1991 (6) TMI 17 - CALCUTTA HIGH COURT treating the oil wells as a composite plant for sec. 32(2A) investment allowance deduction does not apply so far as sec. 80IB deduction claim is concerned. Assessee had used its machines or plant for other purposes as per page-6 of the assessment order dated 30.11.2005 also does not carry merit. We notice first of all that the Assessing Officer had nowhere indicated as to what kind of plant and machinery had been used for other purposes. Be that as it may, hon'ble apex court s judgment in Bajaj Tempo Ltd. 1992 (4) TMI 4 - SUPREME COURT held long back that the legislative expression form alongwith a pre-fix negative covenant has to be interpreted discussion. We conclude in these facts that the assessee s oil wells had come into existence after earth digging through rigs. There is thus no violation of the legislative condition of use of old machinery for formation of the undertaking / oil wells. The assessee is therefore held to have used its oil rigs, equipments and tools for bringing into existence the new oil well / eligible undertaking than having formed the same through the old plant and machinery. Assessee had not filed its Form- 10CCB audit report alongwith return or during assessment fails to invoke our concurrence since the Assessing Officer had himself noted that the said report stood duly submitted as per the CIT(A) s detailed discussion Assessee s impugned deduction claim u/s 80IB(9) had not sec.80IB(4) - The above former provision grants deduction for seven consecutive assessment years in case of an undertaking located in north eastern region commencing its commercial production as per the due dates prescribed. We wish to reiterate here as per page 214 in the paper book that the assessee s Form 10CCB had specifically raised sec. 80IB(4) deduction claim for ten assessment years. Pages 226 is the very Form-10CCB report for assessment year 2004-05 in identical manner. We therefore reject the Revenue s instant grievance which turns out to be against the facts on record. We make it clear that Form 10CCB is a specific document prescribed for claiming the impugned deduction. The Revenue s above stated arguments that the assessee had not expressly made it clear in its computation about the impugned deduction claim raised u/s. 80IB(4) of the Act is declined. Assessee is engaged in a mineral based industry as per the foregoing clinching expression employed as in 14th Schedule. The Revenue s case that this crude oil production does not amount to mineral based industry as per item No.16 in 14th Schedule of the Act carries no substance since the above stated expression has to be construed in ordinary connotation without having regard the further classification of minerals i.e. ferrous or nonferrous and metallic or non-metallic etc. We also wish to make it clear that there is further no dispute about the impugned statutory provision requiring in assessee to maintain its books of account qua each undertaking to be treated as separate unit in sec. 80IC(7) of the Act incorporating the very legislative intent as is there in sec. 80IB(13) Assessee s oil exploration activity cannot be taken manufacture or production as prescribed in sec. 80IC(2)(b) - Hon'ble apex court s landmark judgment in CIT vs. N.C.Budharaja and Co. and Another 1993 (9) TMI 6 - SUPREME COURT held long back that the statutory expression produce has wider connotation than the word manufacture . The former; when used in juxtaposition with the latter, brings into existence new goods by a process which may or may not amount to manufacture. And that the same also includes in all the by products; intermediary or residuary hon'ble Delhi high court s decision in HLS India Ltd. 2011 (5) TMI 322 - DELHI HIGH COURT also holds that whether or not any particular business activity amounts to manufacture or production for the purpose of various incentives schemes under the Act is required to be examined in the light of facts and circumstances in each case. These can be no denial of the fact that crude oil contains hydrocarbons as paraffin, cycloparaffin, napthene and araomatic comprcands which is obtained from beneath the earth s surface. We reiterate that this assessee admittedly drills / explores crude oil for the purpose of refining the same to various by-products - assessee s crude oil exploration very much amounts to production going by the relevant facts in the light of the preceding legal position. The Revenue s instant last argument is also rejected. CIT(A) has rightly granted sec. 80IC(2)(b) deduction to the taxpayer - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility to claim deductions under Section 80IB and 80IC of the Income Tax Act.
2. Compliance with Rule 18BBB(2) of the Income Tax Rules, 1962.
3. Treatment of oil wells as new industrial undertakings.
4. Filing of Form 10CCB auditor’s report along with the return of income.
5. Interpretation of "mineral based industry" and "manufacture or production" under Section 80IC.

Detailed Analysis:

1. Eligibility to Claim Deductions Under Section 80IB and 80IC:
The primary issue was whether the assessee was eligible for deductions under Sections 80IB and 80IC. The Revenue contended that the taxpayer’s oil wells were not new industrial undertakings and did not comply with the necessary conditions, including the submission of a separate audit report and maintaining separate books of accounts. The CIT(A) reversed the Assessing Officer’s disallowance, stating that each oil well was a distinct, separate, and integrated unit with separately accounted capital and expenses, thus satisfying the conditions for claiming deductions under Sections 80IB and 80IC.

2. Compliance with Rule 18BBB(2) of the Income Tax Rules, 1962:
The Assessing Officer argued that the taxpayer violated Rule 18BBB(2) by not filing a separate audit report for each oil well. The CIT(A) and the tribunal held that the law does not require maintaining separate accounts as if the undertaking itself is a distinct business. Instead, it requires the accounts of the undertaking to be maintained, which the taxpayer had done. This interpretation was supported by various judicial precedents, including decisions by the Gauhati High Court.

3. Treatment of Oil Wells as New Industrial Undertakings:
The Revenue argued that oil wells were not new undertakings as they used previously used machinery and did not comply with the conditions under Section 80IC(4). However, the tribunal found that the taxpayer had used new plant and machinery for each oil well, and the use of drilling rigs and other equipment for exploration did not constitute the formation of new undertakings by the transfer of old machinery. The tribunal cited the Supreme Court’s judgment in Bajaj Tempo Ltd., which clarified that the formation of a new undertaking should not be dominated by the use of old machinery.

4. Filing of Form 10CCB Auditor’s Report Along with the Return of Income:
The Revenue contended that the taxpayer did not file Form 10CCB along with the return of income. However, the tribunal noted that the Assessing Officer had acknowledged the submission of the audit report during the assessment proceedings. The tribunal held that the submission of the required documents during the course of hearing is sufficient compliance with the provisions of the Act.

5. Interpretation of "Mineral Based Industry" and "Manufacture or Production" Under Section 80IC:
The Revenue argued that crude oil exploration did not amount to a "mineral based industry" as per Item No. 16 in the 14th Schedule of the Act and that the activity did not constitute "manufacture or production." The tribunal referred to various statutory definitions and judicial interpretations, concluding that crude oil exploration is indeed a mineral-based industry and amounts to production. The tribunal rejected the Revenue’s argument, holding that the taxpayer’s activity of crude oil exploration through its oil wells qualifies for deductions under Section 80IC.

Conclusion:
The tribunal upheld the CIT(A)’s decision, allowing the taxpayer’s deductions under Sections 80IB and 80IC for the relevant assessment years. The Revenue’s appeals were dismissed, and the assessee’s appeals were allowed, confirming the eligibility for deductions and compliance with the necessary conditions. The tribunal’s decision was based on a thorough analysis of statutory provisions, judicial precedents, and the specific facts of the case.