2022 (9) TMI 351 - AT - Income Tax

Deprecation on acquisition cost of participating interests in various blocks - whether the payment made for acquisition cost of participating interests in various blocks would qualify for intangible assets? - whether the expression licences used in section 32(1)(ii) of the Act applies to licences that are relatable to intellectual properties only and not relatable to all type of licences? - HELD THAT - We find that the issue is squarely covered in favour of the assessee by a series of decisions of ITAT in assessee s own case and the matter has already been travelled to Hon ble High Court and Revenue s appeal has been dismissed. Ld. DR s plea that ITAT s order is suffering from infirmity is not at all tenable. We are bound by the coordinate Bench decision which has also been upheld by Hon ble High Court. In this view of the matter, we do not find any infirmity in the order of the ld. CIT (A) and we uphold the same. Accordingly, grounds no.1, 2 3 are decided against the Revenue. Disallowance to depreciation on support equipment under section 32 (1)(ii) - HELD THAT - We find that depreciation on these support equipment has already been allowed in earlier year. There is no change in facts or law in this year. Hence, there is no reason why Revenue should change its stand and disallowed depreciation. The case laws referred by ld. CIT (A) as well as the ld. counsel of assessee are germane and support the case of assessee. Hence, the order of ld.CIT (A) is upheld. Disallowance of claim of expenses pending settlement of EPC contract - HELD THAT - We find that the ITAT has already decided this issue in AY 2006-07 2019 (7) TMI 1577 - ITAT DELHI wherein the claim of expenditure was disallowed as well as the addition of income was also deleted. For the present year, ld. CIT (A) has given a finding that these do not pertain to this year. However, Revenue s ground is on merits. We are of the considered opinion that this aspect has already been dealt with by ITAT and same ratio should follow. Accordingly, the AO is directed to consider the issue afresh in the light of the ITAT order as referred above. Pre-acquisition of expenses - AO held that the claim of pre-acquisition expenses u/s 37(1) is not proper as the same is eligible u/s 42 as per the terms of the agreement - HELD THAT - Since the issue is covered by Hon ble Delhi High Court in assessee s own case, reference to case laws of M/s. Enron Oil and Gas India Ltd. 2008 (9) TMI 3 - SUPREME COURT by ld. DR is not applicable on the facts here. Hence, the order of ld. CIT (A) is upheld on this issue. Excess depreciation claimed on UPS @ 60% u/s 32(1)(ii) - HELD THAT - Pursuant to the AO s disallowance in this regard, ld. CIT (A) has decide the issue in favour of the assessee by placing reliance on the decision of Hon ble Delhi High Court in case of BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT wherein it has been held that depreciation on UPS shall be allowed @ 30%. Allowability of expenses incurred on exploration activities u/s 37 of the Act carried out in Farsi block, Iran under a service contract - CIT-A allowed the claim - HELD THAT - CIT (A) has taken a correct view of the matter. It is certainly settled law that allowability of expenses is not contingent upon earning of income. It has been duly incurred and no doubt has been expressed about the veracity of the expenditure. When no income has accrued in this regard, the expenditure cannot be disallowed on the plank that since income has not been earned expenditure is to be disallowed. In our considered opinion, the order of ld. CIT (A) and the case laws referred by him are germane and duly support the case of the assessee. Hence, we uphold the order of the ld. CIT(A) on this issue. The mere reference to section 42 and the decision of the Hon ble Supreme Court by the Ld. DR does not fructify the case of the Revenue in absence of details submitted as to how they are affecting the issue here. Addition on account of disallowance of prior period income - CIT-A deleted the addition - HELD THAT - We find that ld. DR is not disputing the findings of the ld. CIT (A) on this issue but only wants the matter to be remitted to AO for verification. We find that the matter has already been examined by ld. CIT(A) and has passed a cogent order. No infirmity therein has been pointed out to persuade us to remit the matter to AO, hence we uphold the order of ld. CIT (A). Revision of opening and closing stock - CIT (A) has dealt with the assessee s request that since the value of closing stock has been increased in AY 2008-09, in AY 2009-10 the value of opening stock should also increase - HELD THAT - We find that ld. DR has not disputed the CIT (A) s finding and he is only submitting that this is a factual issue and may be remitted to AO. We find that this is exactly what ld. CIT (A) has done. The CIT (A) has noted the assessee s submissions and held that AO may consider the same. Hence, Revenue s ground in this regard is misplaced and hence dismissed. Contribution to abandonment account - claim was an expense which was to be allowed in future years and was a claim which was not acceptable in view of the decision of M/s. Goetze India 2006 (3) TMI 75 - SUPREME COURT - HELD THAT - We find that ld. CIT (A) has duly examined the additional evidences and given a proper finding that the expenditure is allowable u/s 57. The ld. CIT (A) s order is well reasoned. The ld. CIT (A) has already found that the assessee cannot get back any amount from the fund. Hence, Revenue s plea that ld. CIT (A) has not decided whether the amount paid is provisional or not is not at all sustainable. Hence, we uphold the order of the ld. CIT (A). TP adjustment - appellant had advanced foreign currency loan from its own funds to its indirect subsidiary ONGC Caspian carrying a rate of interest of 2.5% - bridge loan was advanced by the Appellant to ONGC and short term loan for less than 6 months and was borrowed to bridge the short term gap between the requirement of funds and inflow of funds - HELD THAT - We agree with the ld. CIT (A) that the TPO has applied erroneous and non-comparable search to benchmark the loan transaction. Further assessee has also submitted additional benchmarking analysis using the loan connector database which also compared well with the rate of interest arrived by the assessee. The TPO has used the data regarding loans which pertains to earlier years where the loan was for a period of 3 years. As the loan given by the assessee was a bridge loan for less than 6 months and has been repaid during the financial year itself, we find that the adjustment made by the TPO has rightly been set aside by the ld. CIT (A). Accordingly, we uphold the order of ld. CIT (A) on this issue. TP adjustment on loan provided to Jarpeno - Jarpeno acquired Imperial Energy Corporation Plc., UK ( Imperial ) in January 2009, for which consideration was advanced by the Appellant to Jarpeno - HELD THAT - We find that identical issues were decided by the ld. CIT(A) in assessee s own case for earlier AYs i.e. 2010-11 2012-13 wherein addition on similar basis by adopting SBI rates was rejected relying upon the decision of Hon ble Cotton Naturals (I) Pvt. Ltd. 2015 (3) TMI 1031 - DELHI HIGH COURT We find that ld. CIT (A) has analysed the issue in proper perspective and taken a correct view of the matter, hence we uphold the same. TP adjustment qua interest on these loans to AE - HELD THAT - We find that Ld. CIT(A) has passed a reasonable order stating that on the basis of facts available on record, the AO/TPO is directed to benchmark the loan transaction of the appellant with ONGC Nile Ganga at 6 months LIBOR 4%. The AO/TPO is also directed to verify the value of LIBOR after taking the contention of the appellant into consideration. In view of the order of the CIT(A) in AYs 2012-13 and 2013-14, the AO/TPO is also directed to apply 6 months LIBOR rate for benchmarking receipt of interest from ONGC Nile Ganga. Appeal of revenue dismissed.

Summary

Issues Involved:
1. Depreciation on acquisition cost of participating interests in various blocks.
2. Depreciation on support equipment and assets of venture.
3. Claim of expenses pending settlement of EPC contract.
4. Pre-acquisition expenses.
5. Excess depreciation claimed on UPS.
6. Expenses on Farsi Block Iran.
7. Disallowance of prior period income.
8. Revision of opening and closing stock.
9. Contribution to abandonment account.
10. Transfer pricing adjustments on loans to associated enterprises.

Detailed Analysis:

1. Depreciation on Acquisition Cost of Participating Interests in Various Blocks:
The Revenue challenged the deletion of disallowance of Rs. 174,52,34,343/- related to acquisition costs of participating interests in various blocks. The Assessing Officer (AO) disallowed the depreciation claim, asserting that the licenses mentioned in Section 32(1)(ii) of the Income Tax Act pertain only to intellectual properties. The CIT(A) followed the ITAT's decision from AY 2002-03, which allowed such depreciation, and the ITAT upheld this view, noting that the issue was already settled in favor of the assessee by the Hon'ble Delhi High Court.

2. Depreciation on Support Equipment and Assets of Venture:
The AO disallowed depreciation of Rs. 95,36,850/- on support equipment, arguing that these projects were still in the exploration stage. The CIT(A) allowed the depreciation, stating that the expenses were for the expansion of the existing business and not for setting up a new business. The ITAT upheld this decision, citing consistency and previous years' allowances.

3. Claim of Expenses Pending Settlement of EPC Contract:
The AO added Rs. 145,33,10,000/- to the income, arguing that the corresponding revenue should have been recognized. The CIT(A) deleted the addition, stating that the issue pertained to AY 2006-07 and was already decided. The ITAT directed the AO to reconsider the issue in light of its previous order for AY 2006-07.

4. Pre-acquisition Expenses:
The AO disallowed Rs. 79,18,87,613/- under Section 37, arguing that these expenses should be considered under Section 42. The CIT(A) allowed the expenses as revenue expenditure under Section 37, following the ITAT's decision from AY 2002-03. The ITAT upheld this decision, noting that the issue was already settled in favor of the assessee by the Hon'ble Delhi High Court.

5. Excess Depreciation Claimed on UPS:
The AO disallowed excess depreciation on UPS, arguing it was not an integral part of the computer system. The CIT(A) allowed the depreciation, relying on the Hon'ble Delhi High Court's decision in BSES Yamuna Powers Ltd. The ITAT upheld this decision, noting that the issue was already settled in favor of the assessee in AY 2005-06.

6. Expenses on Farsi Block Iran:
The AO added Rs. 121,38,27,143/- to the income, arguing that the expenses were capital in nature. The CIT(A) allowed the expenses as revenue expenditure, stating that the allowability of an expense is not contingent on earning income. The ITAT upheld this decision, noting that the expenditure was incurred wholly and exclusively for business purposes.

7. Disallowance of Prior Period Income:
The AO added Rs. 33,47,65,000/- to the income, arguing that no evidence of the revised return for AY 2006-07 was furnished. The CIT(A) deleted the addition, stating that the revised return was accepted by the AO. The ITAT upheld this decision, noting that the matter was already examined by the CIT(A).

8. Revision of Opening and Closing Stock:
The CIT(A) directed the AO to allow the benefit of revised opening stock for AY 2009-10, following the increase in closing stock for AY 2008-09. The ITAT upheld this decision, noting that the matter was already examined by the CIT(A).

9. Contribution to Abandonment Account:
The AO disallowed the contribution, arguing that it was provisional. The CIT(A) allowed the deduction, stating that the expenditure was for business purposes and incurred during the year. The ITAT upheld this decision, noting that the expenditure was allowable under Section 37.

10. Transfer Pricing Adjustments on Loans to Associated Enterprises:
The TPO made adjustments on loans to associated enterprises, applying higher interest rates. The CIT(A) deleted these adjustments, relying on previous years' decisions and the Hon'ble Delhi High Court's ruling in CIT vs. Cotton Naturals (I) Pvt. Ltd. The ITAT upheld these decisions, noting that the TPO's application of interest rates was erroneous.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on all issues, dismissing the Revenue's appeals. The judgments were based on consistency, previous rulings, and adherence to legal principles and precedents.