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2019 (4) TMI 62 - HC - Income TaxDeduction u/s 42 - business of prospecting for or extraction or production of mineral oils - expenditure by way of infructuous or abortive-exploration expenses - non surrender of right to carry on oil exploration - assessee requested for an extension of project but DGHC rejected - HELD THAT:- For the applicability of clause (a) of subsection (1), the elements vital are that the expenditure should be infructuous or abortive exploration expenses and that the area should be surrendered prior to beginning of the commercial production by the assessee. In other words, as long as these two requirements are satisfied, the expenditure in question would be recognized as a deduction. The emphasis of this provision is of infructuous or abortive exploration expenses and that there is surrender prior to the beginning of the commercial production. The term ‘surrender’ in this clause, therefore, has to be appreciated in light of these essential requirements of the deduction clause. The revenue in our opinion has put unnecessary stress on the term ‘surrender’ while the main focus of the clause is on infructuous or abortive exploration expenditure in respect of area surrendered prior to the beginning of the commercial production. As long as the commercial production has not begun and the expenditure is abortive or infructuous exploration expenditure, the deduction would be allowed. The term ‘surrender’ itself is flexible one and does not always connote the meaning of voluntarily surrender. As in the present case, the surrender can also take place under compulsion. The assessee had no choice but to surrender the oil blocks, because the Government of India refused to extend the validity period of the contract. Nevertheless, the act of the assessee to hand over the oil blocks before the commencement of commercial production would as well be covered within the expression; “any area surrendered prior to the beginning of commercial production by the assessee.” The revenue does not dispute that the expenditure was infructuous or abortive exploration expenditure - Appeal of revenue dismissed
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