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2023 (3) TMI 1146 - AT - Income TaxDisallowance of higher depreciation on Oil drilling rigs given on hire - AO disallowed the excess on the ground that the assessee is not a mineral oil concern - CIT-A deleted the addition - HELD THAT - In the instant case, both the conditions are duly satisfied since the oil rigs being plant of specific category are owned by the assessee and further it is used in drilling operations for the purpose of exploration and extraction of mineral oil in the field of mineral oil concerns. As relying on M/S. HLS INDIA LTD. 2011 (5) TMI 322 - DELHI HIGH COURT as confirmed by SC 2012 (2) TMI 669 - SC ORDER as held that depreciation is allowable to mineral oil concerns @ 100% on the equipments used below the earth surface. If the same depreciation is not allowed to other business concerns on the ground that the owner of these equipments is not a mineral oil concern but it is just providing an assistance or leasing these equipments to a mineral oil concern then definitely this other concern will charge more for these services and consequently the mineral oil concerns will be commercially forced not to outsource wireline logging activities to other companies but to do it themselves - Accordingly, we dismissed the ground no. 1 of the Revenue. Disallowance of leave encashment claimed on provisional basis - HELD THAT - Since the Hon ble Apex Court in the case of CIT Vs. HLS India Ltd. 2012 (2) TMI 669 - SC ORDER decided against the Revenue, the Ld. DR has withdrawn the Ground No. 2. Accordingly, Ground No. 2 is dismissed as withdrawn. TDS u/s 194C - disallowance of mobilization expenses u/s 40(a)(ia) - Addition on the ground that the payment debited to profit and loss account of mobilization charges are not covered under the provisions of section 194C(6) of the Act as the payment are not made to contracts for playing, hiring or leasing goods carriages - HELD THAT - PAN of the parties have been submitted before the AO and the assessee had duly submitted TDS returns giving the details of the payments made to transporters on which no TDS was deducted and a statement showing expenses not in the nature of transportation expenses vide reply dated 01.03.2016. Even if there is violation of provisions of Sec. 194C(7), disallowance u/s 40(a)(ia) does not arise, if assessee had complied with the provision of Sec. 194C(6). In the instant case, the assessee had obtained PAN of the transporters and duly complied with the provisions of Sec. 194C(6) -TDS was not required to be deducted by the assessee. Hon ble Kolkata Tribunal in the case of Rani Ghosh 2018 (6) TMI 1812 - CALCUTTA HIGH COURT held that if the assessee compliance with provision of section 194C(6), the disallowance u/s 40(a)(ia) of the Act does not arise just because there is a violation of provision of section 194C(7) of the Act. The section 194C(6), 94C(7) and section 194C(7) of the Act are independent of each other and cannot be read together to attract disallowance u/s 40(a)(ia) of the Act read with section 194C. No error in the order of the CIT(A) in deleting the disallowance of mobilization expenses - Ground No. 3 of the Revenue is dismissed. Disallowance of repair and maintenance (equipment expenses) - HELD THAT - The above issue has also been decided in favour of the assessee on earlier years by the Tribunal 2022 (3) TMI 1333 - ITAT DELHI as held AO has merely proceeded on a hypothesis of such expenditure being capital in nature without showing any justifiable grounds for doing so. AO has capitalized such expenditure without showing any reasonable grounds. On the contrary, we find merit in the conclusion drawn by the CIT(A) holding the same to be revenue expenditure on the face of such tell-tale facts. - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of excess depreciation on oil rigs. 2. Deletion of disallowance of unpaid provisions of leave encashment under Section 43B of the Income Tax Act. 3. Deletion of disallowance of mobilization expenses under Section 40(a)(ia) of the Income Tax Act. 4. Deletion of disallowance of capital expenditure on M.S. Plates for bunk house. Summary: Issue 1: Deletion of disallowance of excess depreciation on oil rigs The Revenue argued that the assessee, being in the business of hiring plant and machinery to mineral oil concerns and not being a mineral oil concern itself, was not eligible for higher depreciation as claimed under Part A-III 8(xii) of the new Appendix-I to the Income Tax Rules, 1962. The assessee had claimed depreciation of Rs. 4,02,38,373 at 60% on oil drilling rigs. The A.O. disallowed the excess of Rs. 3,01,78,780 on the ground that the assessee is not a mineral oil concern. The CIT(A) deleted the addition by relying on the decision of the Hon'ble Delhi High Court in CIT vs. HLS India Ltd. (2011) 335 ITR 292 (Del.), which was upheld by the Hon'ble Supreme Court. The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's ground. Issue 2: Deletion of disallowance of unpaid provisions of leave encashment under Section 43B The Revenue's ground regarding the disallowance of Rs. 7,53,447 on account of unpaid provisions of leave encashment under Section 43B was withdrawn by the Ld. DR, as the Hon'ble Apex Court in CIT Vs. HLS India Ltd. had decided against the Revenue. Accordingly, this ground was dismissed as withdrawn. Issue 3: Deletion of disallowance of mobilization expenses under Section 40(a)(ia) The A.O. disallowed Rs. 4,77,50,400 on the ground that the mobilization expenses were not covered under Section 194C(6) of the Act. The CIT(A) deleted the addition after verifying the details of mobilization expenses, agreements with customers, and TDS returns. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had complied with the provisions of Section 194C(6) by obtaining PAN from the transporters, and therefore, TDS was not required. The Tribunal cited various judicial precedents supporting that compliance with Section 194C(6) negates the requirement for disallowance under Section 40(a)(ia), even if there is a violation of Section 194C(7). Hence, this ground was dismissed. Issue 4: Deletion of disallowance of capital expenditure on M.S. Plates for bunk house The A.O. had disallowed Rs. 5,02,90,513 as capital expenditure, arguing that the expenditure on M.S. Plates for bunk house resulted in an enduring benefit. The CIT(A) deleted the addition, and the Tribunal upheld this decision, referencing earlier years' Tribunal decisions in the assessee's favor. The Tribunal noted that the expenses were integral to the execution of the contract and did not create a new asset or enduring benefit. Therefore, this ground was dismissed. Conclusion: The appeal of the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s deletions of the disallowances on all grounds.
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