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2023 (5) TMI 1003 - AT - Income TaxDisallowance u/s. 42 - plant and machinery (including oil-well) installed during the year under consideration - AO rejected the assessee s claim on the ground that as per the section 42 of the Act only those deductions are allowable which are specifically provided in the agreement entered into between the assessee and the Central Government - HELD THAT - Hon ble Supreme Court 2015 (11) TMI 1685 - SC ORDER dismissed the petition filed by the assessee and held that Product Sharing Contracts (PSCs) entered into between the assessee and the Government of India did not include a clause pertaining to section 42 and therefore deduction under this section could not be allowed to the assessee. Based on the aforesaid decision passed by Hon ble Supreme Court the ITAT dismissed the appeal filed by the assessee for assessment years 2005- 06 assessment year 2001-02 and assessment year 2002-03. Depreciation at higher rate - Depreciation on oil wells be allowed as plant and machinery OR building u/s. 32 - HELD THAT - As relying on own case assessment year 2006-07 2022 (3) TMI 1524 - ITAT AHMEDABAD oil wells are eligible for depreciation as plant and machinery . Accordingly the Assessing Officer is directed to re-compute the depreciation on oil wells on opening WDV. With respect to additions made during the year the A.O. may call for necessary details from the assessee to ascertain the nature of additions made and allow depreciation as per the above directions. Oil field equipment eligible for depreciation @ 60% being plant and machinery - HELD THAT - As respectfully following the decision in assessee s own case for assessment year 2006-07 2022 (3) TMI 1524 - ITAT AHMEDABAD we hold that the assessee is eligible to claim depreciation on oil field equipment @ 60%. Additional depreciation u/s. 32(1)(iia) - HELD THAT - As in the assessee s own case for assessment year 2006-07 2022 (3) TMI 1524 - ITAT AHMEDABAD which has held that extraction of mineral oil which would amount to production of articles or things we hold that the assessee is eligible to claim additional depreciation u/s. 32(1)(iia) of the Act. The matter is being restored to the file of the Assessing Officer to allow additional depreciation on oil well and oil field equipment capitalized during the year he may need to carry out the necessary verification that the conditions of section 32(1)(iia) have been satisfied i.e. the plant and machinery before its installation was not used within or outside Indian by any other person and also satisfy himself that any other conditions as mentioned in section 32(1)(iia) of the Act have been duly satisfied at the time of allowing the assessee s claim for additional depreciation. Unrealized foreign exchange gain reduced from block of assets u/s. 43A - HELD THAT - As in the instant facts we observe that the AO and DRP have given a categorical finding that the assessee has not been able to demonstrate whether the aforesaid foreign exchange gains on account of restatement of payables for capital asset at the end of the year is realized or unrealized capital gains. Accordingly this issue is restored to the file of Assessing Officer to verify whether the foreign exchange gains are realized or unrealized in the instant set of facts and then allow the claim of the assessee in accordance with law. Disallowance of deduction u/s. 80IB(9) for Wavel Oil Field and Dholka Oil Field - HELD THAT - Since the issue whether the Explanation to section 80IB(9) would operate retrospectively or not is pending adjudication before the Hon ble Supreme Court following the decision of the assessee s own case for assessment year 2001-02 2002-3 and 2005-06 at this juncture we are refraining from adjudicating ground and restore the matter back to the file of Assessing Officer to decide the issue in accordance with the directions of the Hon ble Supreme Court decision 2015 (11) TMI 1685 - SC ORDER Disallowance of deduction of technical service charges paid to head office - HELD THAT - We are in agreement with the proposition that merely by providing services in the form of reports etc does not lead to the inference that technology has been made available to the assessee and therefore in our considered view since the Department has not been able to bring anything conclusive to prove that services have made available knowledge and technology in a manner that the assessee shall not require such services from the head office for the purpose of conducting its business in India in the future - in the instant facts make available clause has not been satisfied and therefore the services do not qualify as fee for included services under Article 12 of the India-US Tax Treaty. Further it is also a settled preposition that technical services do not fall within the embargo provided u/s. 44C of the Act. In the case of John Wyeth Brothers Ltd. 2012 (12) TMI 406 - ITAT MUMBAI held that where the assessee a branch office of foreign company claimed deduction of laboratory expenses in view of the fact that said expenses did not include expenses incurred on executive or general administration as indicated in different clauses of section 44C of the Act the assessee s claim was to be allowed - we are of the considered view that the assessee is eligible to claim deduction of technical service charges paid to the head office. Assessee appeal allowed. Nature of expenses - Disallowance of preliminary drilling expenditure as capital expenditure - HELD THAT - Looking into the nature of expenses incurred by the assessee coupled with the fact that the Department has not brought anything on record to show that any capital asset of enduring nature was brought into existence the claim of the assessee on expenses incurred on preliminary drilling expenditure is hereby allowed. Renovation expenses in the Leased Premises - renovation expenditure or capital expenditure - HELD THAT - The aforesaid expenditure qualifies as revenue expenditure and hence may be allowed as revenue expenditure. Assessee has incurred a sum towards other sundry expenses may also be allowed as revenue expenditure since no capital asset of enduring nature was brought into existence by way of aforesaid expenditure and hence the same may be allowed to the assessee as revenue expenditure. Expenses towards purchase of furniture and fixture and another payment to Dishnet Wireless Ltd. for purchase of asset and payment towards purchase of furniture and fixture for new office have been incurred for purchase of furniture and fixture and other capital assets and hence are in the nature of capital expenses. Accordingly the same cannot in our view be allowed as revenue expenditure in the hands of the assessee. However the AO is directed to allow depreciation on such fixed asset in accordance with law after carrying out the necessary verification. Non granting depreciation u/s. 32 if expenditure is held as capital expenditure - HELD THAT - Looking into the nature of expenses since the same have been incurred for creation of a capital asset the same are of capital account and hence are not allowable as revenue expenditure. We are in agreement with the contention of the assessee that in case the expenses are held to be of capital nature and have been incurred for creation of new capital asset then the assessee is entitled to claim depreciation on such expenses. Accordingly we direct the Assessing Officer to allow depreciation on the aforesaid expenditure in accordance with law after carrying out the necessary verifications. Disallowance u/s. 40A(3) - assessee incurred payment on sweets during the festive season and payment was made in cash - HELD THAT - Since the assessee has not been able to adduce any evidence whatsoever with respect to incurring of the aforesaid expenditure in cash towards purchase of sweets we find no infirmity in the order of DRP so as to call for any interference. Decided against assessee. Disallowance u/s. 40(a)(ia) - short deduction of tax - assessee submitted that the aforesaid short deduction on the total payment was on account of inadvertent exclusion of surcharge while deducting taxes at source on the aforesaid payment - HELD THAT - We observe that this issue has been decided in favour of the assessee by case of Future First Info Services Pvt. Ltd. 2022 (7) TMI 748 - DELHI HIGH COURT as held that where the AO made disallowance u/s. 40(a)(ia) on the ground that assessee company had made short deduction of tax and thus was in violation of section 97(1) since for cases of short deduction of TDS the correct course of action is proceeding under section 201 of the Act thus impugned disallowance u/s. 40(a)(ia) was to be deleted - this issue stands decided in favour of the assessee on account of aforesaid short deduction of tax. Depreciation on goodwill or as depreciation of any other commercial right or intangible asset u/s. 32 - amount shown under the head goodwill is the amount paid by the company in respect of value of assets acquired by it along with interest in joint venture from L T - HELD THAT - As in the interest of justice this issue is being restored to the file of Assessing Officer to examine firstly whether or not depreciation is allowable on the aforesaid asset and under which category the assessee is claiming depreciation on the same i.e. as depreciation on goodwill or as depreciation of any other commercial right or intangible asset u/s. 32 of the Act. Secondly the Assessing Officer may also examine that the necessary supporting documents in justification for assessee s claim of depreciation. Accordingly this issue is aside to the file of ld. Assessing Officer with the aforesaid directions. Nature of expenses - repairs and maintenance expenditure as capital expenditure - HELD THAT - As the assessee already identified and capitalized the relevant expenditure and assessee only claimed the balance expenditure as Revenue expenditure we are of the considered view that the assessee is eligible to claim aforesaid expenditure as revenue expenditure. Further the assessee s facts are supported by the case of Madras Auto Services 1998 (8) TMI 1 - SUPREME COURT and also by the case of Modi Spinning and Weaving Mills 1992 (10) TMI 76 - DELHI HIGH COURT in which it was held that expenditure of alteration is capital if incurred by owner but revenue if incurred by the tenant.
Issues Involved:
1. Disallowance of claim under section 42. 2. Treatment of oil wells as "Plant & Machinery" vs. "Building" for depreciation. 3. Depreciation on oil field equipment. 4. Additional depreciation under section 32(1)(iia). 5. Unrealized foreign exchange gain adjustment under section 43A. 6. Deduction under section 80IB(9) for Wavel and Dholka oil fields. 7. Disallowance of technical service charges paid to the head office. 8. Preliminary drilling expenditure as capital or revenue expenditure. 9. Depreciation on plant and machinery. 10. Renovation and repairs expenditure as capital or revenue. 11. Disallowance under section 40A(3). 12. Disallowance under section 40(a)(ia). 13. Depreciation on goodwill and intangible assets. 14. Non-grant of deduction under section 80G. 15. Depreciation on expenditure capitalized in the previous year. Summary: Ground No. 2 (Disallowance of claim u/s. 42): The assessee's claim for deduction under section 42 was disallowed as the Product Sharing Contracts (PSCs) with the Government did not include a clause pertaining to section 42. The Supreme Court upheld this view, and ITAT dismissed the appeal based on this precedent. Ground No. 2.1 (Depreciation on oil wells): The ITAT held that oil wells qualify as "Plant and Machinery" and not "Building" for depreciation purposes, following the Gujarat High Court decision in Niko Resources Ltd. The Assessing Officer was directed to re-compute depreciation on oil wells accordingly. Ground No. 2.2 (Depreciation on oil field equipment): The ITAT allowed the claim for depreciation on oil field equipment at 60%, treating them as part of oil wells, consistent with the decision in the assessee's own case for the previous assessment year. Ground No. 2.3 (Additional depreciation u/s. 32(1)(iia)): The ITAT allowed additional depreciation under section 32(1)(iia), considering the extraction of mineral oil as production of articles or things, following the Supreme Court's decision in Sesa Goa Ltd. The matter was remanded to the Assessing Officer for verification. Ground No. 3 (Unrealized foreign exchange gain adjustment): The issue was remanded to the Assessing Officer for verification of whether the foreign exchange gains were realized or unrealized, as the assessee failed to provide appropriate details. Ground Nos. 4 and 5 (Deduction u/s. 80IB(9) for Wavel and Dholka Oil Fields): The ITAT refrained from adjudicating on the eligibility of each well as a separate undertaking for deduction under section 80IB(9) due to the pending Supreme Court judgment on the retrospective application of the Explanation to section 80IB(9). The matter was remanded to the Assessing Officer. Ground No. 6 (Technical service charges paid to head office): The ITAT allowed the deduction for technical service charges paid to the head office, as the "make available" clause was not satisfied, and the services did not qualify as "fee for included services" under the India-US Tax Treaty. Ground No. 7 (Preliminary drilling expenditure): The ITAT allowed the preliminary drilling expenditure as revenue expenditure, as no new asset of enduring nature was brought into existence. Ground No. 8 (Depreciation on plant and machinery): The ITAT allowed the claim for depreciation on plant and machinery at 60%, consistent with the decision in the assessee's own case for the previous assessment year. Ground Nos. 9 and 9.1 (Renovation and repairs expenditure): The ITAT allowed part of the renovation expenditure as revenue expenditure and directed the Assessing Officer to allow depreciation on the capitalized portion. Ground Nos. 10 and 10.1 (Repairs and maintenance expenditure): The ITAT upheld the treatment of repairs and maintenance expenditure as capital expenditure but directed the Assessing Officer to allow depreciation on such expenses. Ground No. 11 (Disallowance u/s. 40A(3)): The ITAT upheld the disallowance of Rs. 5,400 under section 40A(3) due to the absence of supporting evidence for the cash payment. Ground No. 12 (Disallowance u/s. 40(a)(ia)): The ITAT allowed the appeal, holding that short deduction of TDS does not warrant disallowance under section 40(a)(ia), following the Delhi High Court's decision in Future First Info Services Pvt. Ltd. Ground Nos. 13 and 13.1 (Depreciation on goodwill and intangible assets): The ITAT remanded the issue to the Assessing Officer to examine the eligibility of depreciation on the asset, whether as goodwill or any other intangible asset, and to verify the necessary supporting documents. Ground No. 9 (Non-grant of deduction u/s. 80G): The ITAT remanded the issue to the Assessing Officer to allow the deduction under section 80G after necessary verification. Ground No. 10 (Depreciation on expenditure capitalized in the previous year): The ITAT noted that this ground is consequential to the appeal for the previous assessment year and does not require specific adjudication. Conclusion: The assessee's appeals were partly allowed for both assessment years 2007-08 and 2008-09. The ITAT provided specific directions to the Assessing Officer for re-computation, verification, and fresh adjudication on various grounds.
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