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TMI Blog2018 (11) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Madhur Aggrwal For the Respondent : Shri Ajay Kumar, CIT-DR ORDER PER MAHAVIR SINGH, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(LTU)-Mumbai, revising the assessment u/s. 263 of the Income Tax Act, 1961 [herein after referred to as 'Act'] for the AY. 2010-11, order dated 31-03-2015. The assessment was framed by the Addl.CIT(LTU), Mumbai, u/s. 143(3) read with section 144C(3) of the Act for the AY. 2010-11 vide order dt. 25-03-2013. 2. At the outset, Ld. Counsel for the assessee stated that the assessee has raised nine grounds but now he stated that the assessee wants to withdraw Ground Nos. 1 to 6 and Ground Nos. 8 & 9. Ld. Counsel for the assessee stated that he has instructions from the assessee and a letter in this respect was filed dated 12-11-2018, wherein it was stated as under: "The above appeal has been fixed for hearing on 13.11.2018 before your honour. In this regard, we respectfully submit that we wish to withdraw ground number 1 to 6 and ground number 8 of the above appeal. We regret for the inconvenience caused due to the aforesaid request". 2.1. In view of the above, Ld. Counsel st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, wherein the Tribunal vide paras 9.3 to 108, allowed the claim of assessee on merits after considering in detail, which is as under: "93. We have noticed earlier that the AO had held that the expenses relating to unsuccessful exploration in contract areas covered by other contracts also should be deducted from the aggregate value of Petroleum allocable to the Company from any field(s) in the Contract area. Accordingly the AO held that the deduction of expenses relating to unsuccessful exploration (also known as "Aborted blocks") claimed by the assessee u/s 42(1)(a) is not correct. The AO also held that the accumulation of expenses relating to successful exploration under the head "Intangible assets" is also not correct. Accordingly, the AO proceeded to recast the "Profit and Loss Account" of KG basin undertakings in accordance with the view taken by him, which is discussed by us in paragraph 88 (supra) for both the financial years relevant to AY 2010-11 and 2011-12. In this process, (a) the AO disallowed the depreciation claimed by the assessee on "Intangible assets" discussed above. (b) the AO also deducted the expenses relating to Aborted blocks or unsuccessful exploratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d placed reliance on the decision rendered by Ahmedabad bench of Tribunal in the case of NIKO Resources Limited vs. DCIT (22 DTR 225), wherein it was held that mineral oil would include natural gas also. The AO, however, refused to follow the same by observing that the Income tax Department has not accepted the decision rendered by the Tribunal by filing appeal before the High Court by the revenue. 96. Accordingly, the AO took the view that the assessee is not entitled for deduction u/s 80IB(9) of the Act in respect of profit arising from sale of "natural gas". He took the view that the "Crude oil" alone falls under the definition of "mineral oil" used in sec.80IB(9) of the Act. Accordingly the AO held that the profit relating to sale of crude oil alone is entitled for deduction u/s 80IB(9) of the Act. Since the crude oil constituted 19.11% of the total turnover, the AO computed the profit arising on sale of crude oil (mineral oil) @ 19.11% of the total profit from the undertaking, i.e., 19.11% of ₹ 2672.16 crores, which worked out to ₹ 510.72 crores. Accordingly, he restricted the deduction u/s 80IB(9) of the Act to ₹ 510.72 crores. 97. In the appellate proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is permitted under the provisions of the Act read with the PSC. The only contention of the assessee is that the AO has allowed depreciation in AY 2010-11 on intangible assets. However, the Ld D.R has submitted that the assessment order passed for AY 2010-11 has since been revised by Ld Pr. CIT us 263 of the Act. In any case, the principle of Res-judicata shall not apply to the income tax proceedings. Since the assessee is required to claim expenses in accordance with the clauses of PSC, in our view, the tax authorities are justified in rejecting the claim of "Intangible assets" and consequently rejecting the depreciation claimed thereon. Accordingly we uphold the order passed by Ld CIT(A) on this issue. 101. We would like to prefer to dispose of the Ground No.6 and 7 urged by the Revenue at this stage, as the facts relating to those grounds have been discussed in the preceding paragraphs. In Ground no.6, the revenue is challenging the decision of Ld CIT(A) in holding that the expenses relating to aborted blocks need not be reduced from the profit from sale of mineral oils for computing deduction u/s 80IB(9) of the Act, since the deduction is allowable for each "undertaking". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has begun or begins commercial production of mineral oil on or after the 1st day of April, 1997: [Provided that the provisions of this clause shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. 0- 19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner;] (iii)......];" The assessee submitted that on perusal of section 80-IB(9J, it can be observed that this sub-section provides for granting deduction on the profits and gains derived from "such - undertaking",it is clear pointer for granting deduction in respect of profit earned by each of such eligible undertakings separately. According to the assessee in light of the provisions of section 80- IB(9) r.w.s 80-IA(5) of the Act, there is no warrant for reducing the loss of one eligible undertaking from the profit of the other eligible undertaking. Such an interpretation would violate the unambiguous language of section, which otherwise talks of granting deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of the eligible undertaking i.e. contract area KGD. The assessee has claimed deduction in respect of abortive blocks u/s 42(l)(a) of the Act The plain reading of section 42(1) implies following conditions to be satisfied for the purpose of allowing deduction/allowance in addition to the allowance admissible in other sections of the Act a. There should be an agreement of the person with Central Government (and agreement should be laid on the table of each house of the Parliament) b. Only such allowance are allowed which are specified in the PSC c. Such specified allowance should be in relation to various specific natures as mentioned in sub-clause (a) (b) and (c). d. Such allowances shall be computed and made in the manner specified in the PSC. The AO while computing deduction u/s.80lB(9) of the Act in respect of KGD undertaking has reduced the amount of ₹ 2042.69 crores being the abortive cost of wells incurred in contract areas other than KGD undertaking. In doing so he has relied upon the provisions of Article 17 of the PSC signed by the assessee with the Central Government which deals with the computation of profits and gains for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not be reduced while computing the profits of the undertaking viz: KGD which is eligible for deduction u/s 801B(9)." 104 After analysing the facts of the case and after considering the contentions of the assessee, the Ld CIT(A) decided this issue in favour of the assessee by holding that the expenses relating to aborted blocks need not be reduced from the profits for the purpose of computing deduction u/s 80IB(9) of the Act. The revenue is aggrieved by this decision rendered by Ld CIT(A). 105. The Ld D.R submitted that the "Production Sharing Contract" shall override the provisions of Income tax Act in terms of sec.42 of the Act. This is so held by Hon'ble Supreme Court in the case of Enron Oil & Gas India Ltd (2008)(305 ITR 75). He submitted that the Article/clause 17.2.2 of the PSC provided for deduction of expenses relating to Abortive blocks against the profit from sale of mineral oil. Accordingly he submitted that the AO has rightly deducted ₹ 2042.69 crores relating to Abortive blocks from the profit in order compute the deduction u/s 80IB(9) of the Act. 106. The Ld A.R, on the contrary, submitted that the clause/article 17.2.2 of PSC provides the manner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate production sharing contracts (PSC) signed with the Government of India. The above contract areas were awarded on bidding in separate auction for each contract area. There is no dispute that for the purpose of claiming deduction u/s.80IB [9) of the Act each contract area constituted an independent undertaking. Since the assessee had complied with the conditions specified u/s 80IB(9) of the Act, it claimed deduction of the profits and gains of KGD undertaking u/s 80-IB(9) of the Act. While computing the profits and gains of KGD undertaking for the purpose of claiming deduction under the section 80IB(9) of the Act, the provisions of section 80IA(5) are applicable, which provide that for the purposes of determining the quantum of deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee. Accordingly, the assessee has correctly not reduced the unsuccessful exploration cost incurred in contract area other than KGD, which has been made in the computation of income u/s 42(l)(a) against the entire income of the assessee company while computing the business income. The AO has however, reje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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