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TMI Blog2023 (5) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in disallowing claim of deduction under section 42 of the Act of Rs.21,83,64,955. It is submitted that in the facts and circumstances of the case, the appellant is entitled to deduction under section 42 of the Act. It is submitted that it be so held now. 2.1 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in considering an oil-well as 'Building' instead of 'Plant & Machinery' for the purpose of allowance of depreciation u/s. 32 of the Act. It be so held now. 2.2 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in not granting depreciation allowance at 60% on the plants used by the appellant in the field operations (including oil-well) as per Entry III(8)(xii) of Appendix I to the Income Tax Rules, 1962. It is submitted that it be so held now. 2.3 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in not granting additional depreciation u/s. 32(l)(iia) of the Act in respect of plant and machinery (incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld now. 9 The learned Assessing Officer has erred considering renovation expenditure of Rs. 18,36,641 as capital expenditure. In the facts and circumstances, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now. 9.1 Without prejudice to Ground No. 8, the learned Assessing Officer has erred in not granting depreciation u/s. 32 of the Act in event of considering renovation expenditure as capital expenditure. It be so held now. 10 The learned Assessing Officer has erred considering repairs and maintenance expenditure of Rs. 17,48,561 as capital expenditure. In the facts and circumstances, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now 10.1 Without prejudice to Ground No. 9, the learned Assessing Officer has erred in not granting depreciation u/s. 32 of the Act in event of considering repairs and maintenance expenditure as capital expenditure. It be so held now. 11 The learned Assessing Officer has erred in making disallowance of Rs. 5,400 u/s. 40A(3) of the Act. It be so held now. 12 The learned Assessing Officer has erred in making disallowance of Rs. 65,610 u/s. 40(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's claim for deduction u/s. 42 of the Act 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 and in the agreement entered into by the assessee with the Government, no such provision has been made to allow any deduction falling within the domain of section 42 of the Act. 5.1 Before us, the counsel of for the assessee submitted that the Hon'ble Supreme Court 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. 5.2 Accordingly, the counsel for the assessee submitted that this ground of appeal may accordingly be decided against the assessee. 5.3 In the result, ground no. 2 of assessee's appeal is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the materials available on record. Admittedly, the ITAT was pleased to allow the depreciation to the assessee after making reference to the order of the ITAT in ITA No.3988/And/2018 for the Assessment Hear 2005-06 vide order dated 31/12/2019 in the own case of the assessee. But due to the mistake, the ITAT has directed the AO to delete the addition made by him, though there was not any addition made by the AO during the assessment proceedings. Thus the question of deleting the addition made by the AO does not arise. Accordingly, we rectify the para 26.1 of the order of the ITAT as detailed under: Accordingly we direct the AO to allow depreciation at the rate of 60% on the oil well and oil field equipment as plant & machinery as provided Entry U(8)(xii) as Appendix I to the Income Tax Rules, 1962. 5.1 Hence, the ground raised in the MA filed by the assessee is allowed." 6.4 It would also be useful to reproduce the relevant extracts of Ahmedabad ITAT order in assessee's own case in ITA Nos. 3988/Ahd/2008, 904, 905/Ahd/2010 and 51/Ahd/2009 for assessment years 2001-12, 2002- 03 and 2005-06, where the ITAT had allowed the assessee's appeal. The relevant extracts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT in assessee's own case has allowed depreciation on oil field equipment in assessment year 2006-07 in ITA No. 2389/Ahd/2015 r.w. M.A. No. 149/Ahd/2021 8.2 Accordingly, respectfully following the decision in assessee's own case for assessment year 2006-07, we hold that the assessee is eligible to claim depreciation on oil field equipment @ 60% (the relevant extracts of the aforesaid decision have been reproduced in the earlier part of the ruling while discussing the ground no. 2.1 of assessee's appeal) 8.3 Accordingly, the Assessing Officer is directed to re-compute the depreciation on "oil field equipment" 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. 9. In the result, ground no. 2.2 of assessee's appeal is allowed with the above directions to the Assessing Officer. Ground No. 2.3 (additional depreciation u/s. 32(1)(iia)) 10. The brief facts in relation to this ground of appeal are that the assessee claimed additional depreciation u/s. 32(1)(iia) of the Act on the ground that the assessee is engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct; a product of human activity or effort". From the wide definition of the word "production", it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word "production" since ore is "a thing", which is the result of human activity or effort. It has also been held by this Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 4122 (SC) that the word "production" is much wider than the word "manufacture". It was said: The word 'product/on' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products intermediate products and residual products which emerge in the course of manufacture of goods." (p. 415) 14.1 Thus in view of the above observation of Hon'ble Supreme Court we hold that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation claim on the said WDV of the relevant block of assets. 13. Before us, the counsel for the assessee submitted that foreign exchange gains is "unrealized" in nature on account of restatement of payables for capital asset at the end of the year and therefore, cannot be reduced from the block of asset u/s. 43A of the Act. However, in the instant facts, we observe that the Assessing Officer 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. 14. In the result, the ground no. 3 of the assessee's appeal is allowed for statistical purposes. Ground Nos. 4 and 5 (Disallowance of deduction u/s. 80IB(9) for Wavel Oil Field and Dholka Oil Field) 15. The issue for consideration in relation to this ground of appeal is whether each well operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is retrospectively applicable. The ITAT in assessee's own case set aside the issue to the file of the Assessing Officer for fresh adjudication in accordance with the judgment of the Hon'ble Supreme Court which is pending adjudication. In the aforesaid decision, the ITAT directed the Assessing Officer to wait for the verdict of the Hon'ble Supreme Court and thereafter decide the issue accordingly in the light of the judgment of the Hon'ble Supreme Court. Therefore, since the issue whether each "well" would constitute a separate undertaking and hence eligible for deduction u/s. 80IB(9) is dependent on whether the Explanation inserted to section 80IB(9) would operate from retrospective effect or not. 15.4 Accordingly, 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 nos. 3 & 4 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alify as "fee for included services/fee for technical services" under the India-US Treaty and hence there is no requirement to withhold taxes on such payments. Further, the counsel for the assessee relied on certain judicial precedents on the subject that only by furnishing of reports, "make available" clause does not get satisfied. Further, the counsel for the assessee placed reliance on several cases which have held payment towards technical services are not covered within the purview of section 44C of the Act. In response, the ld. Departmental Representative placed reliance on the observations made by the DRP in its order. 19. In the instant facts, we observe that the DRP in the immediately succeeding year assessment year 2008-09 has allowed the assessee's appeal on identical set of facts in favour of the assessee. However, the distinguishing factor between assessment year 2007-08 and 2008-09 is that in the succeeding year, the assessee has deducted taxes on the aforesaid payments and the DRP allowed assessee's claim on two grounds, firstly, the head office and the permanent establishment are distinct entities and hence the assessee is eligible for claiming deduction in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical service charges of Rs. 1,16,06,364/- paid to the head office. 20. In the result, ground no. 6 of assessee's appeal is allowed. Ground No. 7 (Disallowance of preliminary drilling expenditure of Rs. 12,14,580/- as capital expenditure) 21. The brief facts in relation to this ground of appeal are that the Assessing Officer disallowed a sum of Rs. 12,14,580/- debited to the profit and loss account on account of preliminary drilling expenses by treating the same as capital expenditure. In appeal, the DRP upheld the order of Assessing Officer by observing that the preliminary drilling expense have been incurred by the assessee on account of fees, studies and other consultancy charges with regard to creation of new assets and therefore the aforesaid expenditure is capital in nature. 22. Before us, the counsel for the assessee submitted that the aforesaid expenditure has been incurred on revenue account to analyse the feasibility of drilling of production wells. The expenses include consultancy charges, food and lodging relating to consultancy and drilling expenses. The counsel for the assessee submitted that these expenses have been incurred as revenue expenditure as part of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are small structural changes which have been made by the assessee and cannot be construed as creation of a capital asset since no new asset has come into existence with enduring benefit. 27. We observe that on perusal of break-up of the expenses a sum of Rs. 5,68,990/- was paid to one Mr. Jitendra S. Bhimani on account of office renovation expenses towards dismantling old wells excavation, sand filling, brick work for partition etc. In our view, the aforesaid expenditure qualifies as revenue expenditure and hence may be allowed as revenue expenditure. Further, the assessee has incurred a sum of Rs. 1,16,918/- 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. However, expenses towards purchase of furniture and fixture Rs. 2,09,679/-, and another payment to Dishnet Wireless Ltd. for purchase of asset Rs. 8,55,500/- and payment of Rs. 85,554/- towards purchase of furniture and fixture for new office have been incurred for purchase of furniture and fixture and other capital assets and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. In the result, ground no. 10 of the assessee's appeal is dismissed and ground no. 10.1 of assessee's appeal is allowed for statistical purposes. Ground No. 11 (Disallowance of Rs. 5400 u/s. 40A(3) 32. The brief facts of this issue are that the assessee incurred payment of Rs. 27,000/- on sweets during the festive season. The aforesaid payment of Rs. 27,000/- was made in cash and accordingly, the Assessing Officer disallowed 20% of the aforesaid payment amounting to Rs. 5400/- under section 40A(3) r.w.r. 6D. The assessee submitted that the said payment was made in cash as the shop refused to accept the payment through account payee cheque and only accepted cash. However, despite being provided an opportunity, the assessee could not furnish any supporting evidence of having made the aforesaid payment for the purchase of sweets. Accordingly, in absence of any evidence whatsoever, the Assessing Officer and DRP disallowed 20% of the aforesaid payment in cash amounting to Rs.5400/- 33. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, the assessee vide letter dated 18-12-2019 submitted that the 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. However, the Assessing Officer disallowed the claim of the assessee by placing reliance on the Bombay High Court decision in the case of CIT vs. Techno Shares and Stock Ltd. in ITA No. 971 of 2006 dated 11-09-2009 in which the Bombay High Court held that u/s. 32(1)(ii) of the Act depreciation is not allowed on all capital assets but is allowable on capital assets which fall in any one of the categories enumerated in the section. Accordingly, the Assessing Officer by relying on the aforesaid decision held that depreciation of goodwill is not admissible to the assessee as goodwill does not fall in any categories of intangible assets as prescribed in section 32(1)(ii) of the Act. 37.1 Before the DRP, the assessee submitted that firstly the facts of assessee's case and the facts of the case of CIT vs. Techno Shares supra are distinguishable. Further, the assessee submitted that since no payment was made during the year and there was no addition to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets on which the depreciation has been allowed for various years, then, in view of various judicial precedents on the subject which have held that once depreciation has been allowed to the assessee on an asset forming part of block of asset, then, even if such asset has not been put to use in the subsequent years, the assessee would still be eligible to claim depreciation on such block of assets. Therefore, depreciation cannot be disturbed in the impugned assessment, since depreciation has been allowed on the "block of assets", of which this asset has been a part of, for past many years. In response, ld. Departmental Representative placed reliance on the observations made by the DRP in its order. 38. We have heard the rival contention and perused the material on record. We are however, unable to agree with the contentions put forward by the ld. counsel for the assessee. Firstly, the we are of the considered view that simply because the depreciation has been allowed to the assessee on a block of assets of which this particular asset is a part thereof, would not suo moto entitle the assessee to claim depreciation, even if, it is late, found that the assessee's claim for depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst acquired by the assessee. The third contention of the counsel for the assessee was that since the decision of Techno Shares and Stocks supra (on which reliance was placed by DRP) has since been reversed by the Supreme Court in favour of the assessee, then the claim of depreciation may accordingly be allowed in favour of the assessee. However, we observe that the decision of DRP was not based exclusively on the decision of Techno Shares and Stocks supra alone which was on the issue whether right of membership conferred upon a member of BSE was a business or commercial right and hence eligible for depreciation u/s. 32(1)(ii) of the Act. The DRP has dealt with several aspects while disallowing the assessee's claim of depreciation and the decision of DRP is not based on the case of Techno Shares and Stocks alone. We further observe that while the assessee in the return of income has claimed that the depreciation is allowable on such asset as "goodwill", however, during the course of proceedings before the Department, the assessee submitted that the aforesaid amount paid towards excess of consideration paid for assets and liabilities as goodwill, essentially represents amounts paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3195/Ahd/2011 A.Y. 2008-09 40. The assessee has taken the following grounds of appeal:- "Your Appellant being dissatisfied with the order passed by the Learned Asst. Director of Income Tax (International Tax), Ahmedabad, u/s 143(3) r.w.s. 144C of the Income Tax Act ("the Act"), presents this appeal against the same on the following amongst other grounds of appeal which are without prejudice to each other. 1 The order passed by the learned Asst. Director of Income Tax ("Assessing Officer") u/s 143(3), in persuance of the order of Dispute Resolution Panel ("DRP") u/s 144C, is erroneous and requires to be modified. It is submitted that it be so held now. 2 The learned Assessing Officer has erred in law and facts in disallowing claim of deduction under section 42 of the Act of Rs. 46,13,54,315. It is submitted that in the facts and circumstances of the case, the appellant is entitled to deduction under section 42 of the Act. It is submitted that it be so held now. 2.1 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in considering an oil-well as 'Building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as revenue expenditure. It be so held now. 8 The learned Assessing Officer has erred in not allowing depreciation of Rs. 10,75,308 on amount paid for acquiring participating interest in Joint Venture which is business or commercial right of similar nature as envisaged u/s 32 of the Act. It is submitted that it be so held now. 9 The learned assessing officer has erred in not granting deduction u/s 80G of Rs. 2,00,000, which was previously not claimed by the appellant as the total returned income was Nil. 10 The learned assessing officer has erred in not allowing depreciation on the opening written down value of such expenditure which was capitalized during AY 2007-08 in the Assessment Proceedings. Your appellant prays for leave to add to alter and/or to amend any of the grounds before the final hearing of the appeal." Ground No. 2 41. We observe that ground no. 2 of assessee's appeal for assessment year 2008-09 is identical to Ground No. 2 of assessee's appeal for assessment year 2007-08. Accordingly, ground no. 2 of assessee's appeal is dismissed in view of the observations made in assessment year 2007-08. Ground No. 2.1 42. We observe that ground no. 2.1 is identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenditure as revenue expenditure. Further, the assessee's facts are supported by the case of CIT vs. Madras Auto Services 232 ITR 468 (SC) and also by the case of Modi Spinnig and Weaving Mills Vs. ITO 200 ITR 544 (Delhi) in which it was held that expenditure of alteration is capital, if incurred by owner but revenue if incurred by the tenant. 49. Accordingly, ground no. 7 of assessee's appeal is allowed. Ground No. 9 (Non grant of deduction u/s. 80G of the Act) 50. With respect to this ground of appeal, the counsel for the assessee submitted that the assessee claimed deduction u/s. 80G of the Act in the return of income, but the same has not been allowed to the assessee. Accordingly, a proper direction may be given, to consider the above omission on the part of the ld. Assessing Officer. 50.1 Looking into the facts of the instant case, this issue is set aside to the file of ld. Assessing Officer to allow the assessee's claim of deduction u/s. 80G of the Act as per law, after carrying out the necessary verifications. 51. In the result, ground no. 9 of the assessee's appeal is allowed for statistical purposes. Ground No. 10 (Assessing Officer erred in not allowing deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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