2023 (5) TMI 1003 - AT - Income Tax

Disallowance 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.