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TMI Blog2024 (1) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in pursuance 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 Assessing Officer has erred in law and facts in disallowing claim of deduction under section 42 of the Act of Rs. 41,427,366/-. 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 While disallowing appellant's claim for deduction under section 42, the Assessing Officer has erred, 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 While disallowing appellant's claim for deduction under section 42, the Assessing Officer has erred, in not granting depreciation at 60% together with additional depreciation 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. 3 The Assessing Officer has erred in holding that the appellant is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed deduction u/s. 42 of the Act. In the draft assessment year, the Assessing Officer rejected the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed by the DRP. 6.2 Before us, the counsel for the assessee submitted that DRP has erred in facts and in law in holding that to be eligible for claim for deduction the asset should be used for "distribution", whereas the aforesaid entry in appendix-1 does not mandate any such requirement. Further, the counsel for the assessee submitted that relying on the decision of Gujarat High Court in the case of Niko Resources Ltd. in Tax Appeal No. 1193 of 2009 vide order dated 20-07-2016, the High Court held that minerals oil wells will form part of "plant and machinery" and not "building". Accordingly, the ITAT Ahmedabad in assessee's own case for assessment year 2005-06, assessment year 2001-02 and assessment year 2002-03 allowed depreciation at higher rate to the assessee. Further, the above order of ITAT has also been followed by ITAT in assessment year 2006-07 in assessee's own case in ITA No. 2389/Ahd/2015 read with MA No. 149/Ahd/2021. The copies of the aforesaid orders have been placed before us for our perusal. 6.3 We observe that this issue has been decided in favour of the assessee for assessment year 2006-07 and the relevant extracts of the ITAT order are reproduced for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed in the case of Niko Resources Ltd (supra) are identical, therefore, respectfully following the order of the jurisdictional High Court as discussed above, we hold that the oil well is part of the plant and machinery. Hence, the ground of appeal raised by the assessee is allowed." 6.5 Accordingly, respectfully following the aforesaid decisions, we hold that the oil wells are eligible for depreciation as "plant and machinery". 6.6 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. 7. In the result, ground no. 2.1 of the assessee's appeal is allowed with the above directions to the Assessing Officer. Ground No. 2.2 (Oil field equipment are eligible for depreciation @ 60% being plant and machinery) 8. In ground no. 2.2, the assessee's contention is that oil field equipment used for field operation should also be considered to be a part of oil well and depreciation should be allowed on oil field equipment @ 60% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09. 13. It would be useful to reproduce the relevant extracts of the ITAT ruling in assessee's own case for A.Ys. 2007-08 and 2008-08, with respect to this ground of appeal for ready reference:- "15. The issue for consideration in relation to this ground of appeal is whether each well operated by the assessee is a separate "undertaking" eligible for deduction u/s. 80IB(9) of the Act. Before us, the counsel for the assessee submitted that the ITAT in assessee's own case for A.Y. 2005-06, A.Y. 2001-02 and A.Y. 2002-03 has decided this issue in favour of the assessee by relying on the Gujarat High Court decision in the case of Niko Resources supra. Further, the counsel for the assessee submitted that the above order has also been followed by the ITAT in assessee's own case for A.Y. 2006-07. 15.1 We observe that the benefit of deduction u/s. 80IB(9) given to undertakings engaged in commercial production of natural gas was sought to be removed retrospectively by explanation 11 to the said provision. However, the retrospective insertion of explanation was held to be unconstitutional by the Gujarat High Court in the case of Niko Resources Ltd. vs. Union of India 274 ITR 369 since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision in CC NO. 18370 of 2015 as referred to above. 16. In the result, issues raised vide ground nos. 4 & 5 of assessee's appeal are set aside to the file of Assessing Officer for fresh adjudication in the light of order of Hon'ble Supreme Court of India. " 14. Accordingly, in light of the above observation made by ITAT in assessee's own case for A.Ys. 2007-08 and 2008-09, Ground No. 3 of the assessee's appeal is set-aside to the file of Assessing Officer for fresh adjudication in light of order of Hon'ble Supreme Court of India. Ground No.4:- Depreciation on goodwill (Rs. 8,06,481/-) 15. Before us, at the outset, Ld. Counsel for the assessee submitted that on identical set of facts, ITAT Ahmedabad in assessee's own case has set- aside the issue to the Assessing Officer for carrying out necessary verification in their order for A.Y. 2007-08. Accordingly, it was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture, and is not in the nature of goodwill, even then, rights acquired by the assessee do not fall in any of the categories of "intangible assets" as prescribed by section 32(1)(ii) of the Act and hence depreciation is not admissible. Thirdly, the DRP held that the contention of the assessee that since the block of assets was decided in assessment year 2003-04, the same cannot be changed in the subsequent year is not acceptable. The DRP held that if an error has been committed in the earlier assessment year, it would not prevent the Income Tax Authorities from taking the correct legal view in the subsequent year. Accordingly, the DRP upheld that disallowance of depreciation of Rs. 14,33,744/- on the said amount. 37.2 Before us, the contention of the counsel for the assessee was two fold. Firstly, that DRP had disallowed the claim of depreciation by placing reliance in the case of Techno Shares and Stocks case passed by the Bombay High Court, however, the aforesaid decision has been reversed and decided in favour of the assessee by the Hon'ble Supreme Court in the case of Techno Shares and Stocks Ltd. vs. CIT 193 taxman 248. Accordingly, since the aforesaid case has since been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets "including the assets" which is eligible for deprecation @ 15%, for the reason that the Assessing Officer failed to examine the claim of depreciation during the course of assessment, then in such a case, in our considered view such incorrect claim can be re-examined by the Department in the subsequent years. In such circumstances, the assessee does not get a vested right to a higher claim of depreciation simply on the ground that an asset has been placed in another block of assets on which depreciation has been inadvertently allowed to the assessee in the earlier assessment years. Therefore, the above contention of the assessee cannot be accepted that simply because the assessee has been allowed depreciation on a block of assets, albeit incorrectly, this would give a vested right to the assessee to claim depreciation on such asset which has been mistakenly/inadvertently granted by the Department in the earlier years. Secondly, we are also not in agreement with the argument for the assessee that the claim of depreciation can be examined by the Department only in the first year when the asset was acquired and the Department is precluded from examining claim of depreciation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity, falls within the purview of "intangible assets" and is eligible for depreciation u/s. 32 of the Act. Therefore, as per the above submissions of the assessee, while assessee has debited the aforesaid asset as "goodwill" in its books of accounts, however, during the course of proceedings before the Department, the assessee itself submitted that the nomenclature in the books of accounts is not representative of the true character of asset and the assessee is eligible for claiming depreciation on the aforesaid asset as "intangible assets" u/s. 32 of the Act. However, we observe that the eligibility of assessee's claim of depreciation has not been examined in detail by the Assessing Officer during the course of assessment proceedings, i.e. whether the assessee is eligible to claim depreciation as "goodwill" as per assessee's books as "intangible assets" u/s 32 of the Act, as per assessee's submissions before the Department. Accordingly, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DRP directed the AO to examine whether payment was made to individuals or corporate and directed that if the payment was made to individuals then Article related to "independent personal services" would be attracted and the DRP directed the AO to examine whether any tax was payable in India as per the said Article. However, the AO did not examine this specific direction given by the DRP and asked the assessee to furnish the "tax residency certificate" of the above mentioned consultants. The assessee was however, only able to produce self-declaration of those individuals as proof of residency. However, the AO did not accept the self- declaration furnished by those individuals as proof of tax residency and accordingly held that the provisions of the India-USA Tax Treaty cannot be applied in the present case. Accordingly, the Assessing Officer disallowed the aforesaid payments under Section 40(a)(ia) of the Act for non-deduction of tax at source under Section 195 of the Act. 22. We observe that in the aforesaid case, the AO do not comply with the direction given by DRP and has not examined whether Article 12 of the Tax Treaty or Article 15 relating to "independent personal service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f furniture and fixture. The assessee submitted that these office renovation expenses are on leased premises and hence are allowable as revenue expenditure. Further, the assessee submitted that looking into the nature of expenses, these 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 paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to grant relief to the assessee, in accordance with law. Ground No.2:- DRP erred in deleting addition of preliminary drilling expenses (Rs. 19,30,216/-) 33. Before us, at the outset, the Counsel for the assessee submitted that the ITAT in assessee's own case for A.Ys. 2007-08 and 2008-09 has allowed the appeal of the assessee on this issue. Accordingly, this issue needs to be decided in favour of the assessee. 34. It would be useful to reproduce the relevant extracts of the ITAT in assessee's own case for A.Y. 2007-08 for ready reference:- "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 expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted on the aforesaid payments and accordingly, the Assessing Officer disallowed the aforesaid payments under Section 40(a)(ia) of the Act. 37. In appeal, the DRP held that subscription to a data base is not technical service made available as per DTAA and accordingly, directed the Assessing Officer to delete the disallowance. 38. Department is in appeal before us against the aforesaid relief granted by DRP. Before us, the Ld. DRP placed reliance on the observation made by the AO in the draft assessment order. In response, the Ld. Counsel for the assessee placed reliance on the observation made by the DRP and argued that DRP after considering the facts of the instant case has correctly observed that subscription to data base is not payment for technical services as per the DTAA. 39. We have heard the rival contentions and perused the material on record. We observe that the ITAT in various cases have held that payments towards subscription fees for access to specified online data base could not be considered as "fees for technical services", support may be drawn from the following judicial precedents which have upheld the above proposition of law:- (i) Elsevier Information Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e file of AO to give detailed findings as to the nature of expenses and the assessee is also directed to file necessary details and also provide break-up as payment in support of its contention that the aforesaid payment do not qualify as fee for technical services under the Income Tax Act read with the DTAA. 44. In the result, Ground No. 4 of the Department's appeal is allowed for statistical purposes. Now we shall take up the assessee's appeal in ITA No. 766/Ahd/2014 for A.Y. 2010-11 Ground No.1:- Not allowing depreciation on opening WDV of amount of claim made under Section 42 45. In light of our observation with respect to Ground No. 2.2 of assessee's appeal for A.Y. 2009-10 Ground No. 1 of the assessee's appeal is allowed for A.Y. 2010-11. Ground No.2:- Disallowance of deduction under Section 80IB(9) of the Act 46. In light of our observation with respect to Ground No. 3 of assessee's appeal for A.Y. 2009-10 Ground No. 2 of the assessee's appeal is restored to the file of Ld. AO with similar directions as for A.Y. 2009-10. Ground No.3:- Disallowance of depreciation of Rs. 6,04,861/- on intangible asset 47. In light of our observation with respect to Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and additional depreciation on certain assets at 60% being Plant & Machinery 53. In light of our observation with respect to Ground No. 2.2 of assessee's appeal for A.Y. 2009-10 Ground No. 5 of the assessee's appeal is allowed for A.Y. 2010-11 for statistical purposes. Ground No.6:- Not allowed depreciation on expenditure capitalized in AY 2007-08 assessment. 54. In light of our observation with respect to Ground No. 7 of assessee's appeal for A.Y. 2009-10 Ground No. 6 of the assessee's appeal is allowed for A.Y. 2010-11. 55. Ground No. 7 of the assessee's appeal is general in nature hence does not require any specific adjudication. Now we shall come to Department's appeal for A.Y. 2010-11(ITA No. 739/Ahd/2014) Ground No.1:- Erred in law and facts in directing AO that if the Hon'ble High Court allows writ petition, AO should allow assessee to submit Form 10CCB and allow the claim u/s 80IB(9) of the Act. 56. We observe that while adjudicating on Ground No. 3 of assessee's appeal, for A.Y. 2009-10 with respect to deduction under Section 80IB(9) of the Act the matter was restored to the file of Assessing Officer to allow the assessee's claim of deduction under Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment that RPS, USA has a permanent establishment or fixed placed of business in India so that the income erred by RPS USA should be taxable under Article 7 of the India-USA Tax Treaty as business profits in India. Further, in the case of ACIT vs. BSR and Company 70 taxmann.com 69 (Mumbai Tribunal), the ITAT held that different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer-pricing, information technology, background checks, etc would be independent personal services; since these overseas companies had no fixed base or PE in India, payment made to them would not be chargeable to tax in India. 61. Accordingly, in light of the facts of the instant case, we find no infirmity in the order of DRP so as to call for any interference. 62. In the result, Ground No. 3 of the Department's appeal is dismissed. Now we shall take up the assessee's appeal in ITA No. 242/Ahd/2014 for A.Y. 2011-12 63. Ground No. 1 is general in nature and does not require any specific adjudication. Ground No.2:- Disallowance of deduction under Section 80IB(9) of the Act. 64. In light of our observation with respe ..... 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