TMI Blog2014 (6) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... t fall within the category of asset falling u/s 32(1)(ii) of the Act - the assessee had acquired business and commercial right and license by making payment of Rs.1559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation u/s 32(1)(ii) of the IT Act as the expenditure is treated as capital in nature the same is eligible for claim of depreciation at the rates prescribed for the assets falling u/s 32(1)(ii) of the Act Decided against Revenue. Allowability of expenses - Evaluating existing business opportunities relating to products pending for final evaluation Held that:- Following CIT Vs. Essar Oil Ltd. [2008 (10) TMI 387 - Bombay High Court] - If the assessee is not successful in obtaining bid, such expenditure is allowable as revenue expenditure - As the assessee was continuously in the business of exploration and production of oil, the expenditure so incurred was in the normal course of its business, such expenditure being revenue in nature incurred for the purpose of existing exploration and production business was required to be allowed u/s 37(1) of the IT Act thus, the order of the FAA is upheld Decided against Revenue. Claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, the assessee would be entitled to capitalize the same - The assessee has spent the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire asset of enduring nature - the expenditure was of revenue nature and the Tribunal has rightly treated the same as of revenue nature - depreciation @ 60% on UPS shall be allowed Decided against Revenue. - ITA No. 5054/Del/2010, ITA No. 1140/Del/2011, Cross Objection No.104/Del/2011 - - - Dated:- 21-5-2014 - Shri J. Sudhakar Reddy, AM And Shri Rajpal Yadav, JM,JJ. For the Petitioner : Sh. Gunjan Prasad, CIT, D.R For the Respondent : Shri C. S. Aggarwal, Adv. Shri Ravisharma, Adv. And Ms. Anusha Singh, Adv. ORDER Per J. Sudhakar Reddy, AM Both these appeals are filed by the Revenue and the Cross Objection is filed by the assessee for the Assessment Year 2005-06. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and disposed of by way of this common order. 2. We shall first take up ITA 5054/Del/2010 which is an appeal filed by the Revenue against the order of the Ld.CIT(Appeals)-XVIII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the fact that any expense is incurred by the appellant to safeguard its business interest is an allowable expense as the destruction of its interest would have a direct impact on its goodwill; and (c) any expense incurred on the principle of commercial expediency relatable to the line business of the appellant is allowable. 8. That on the facts and circumstances of the case the Ld. CIT(A) erred in ignoring the fact that since the investment in Sudan was not made by the assessee company but by its subsidiary company, which is a separate and independent identity. Since the business in Sudan was done only by the subsidiary company of the assessee and not by the assessee, the claim of expenses cannot be claimed by the assessee. 9. That on the facts and circumstances of the case the Ld. CIT(A) erred in directing the AO to verify the GAS Sales Purchase Agreement and the exact year-wise figures of advance received and sale of gas made nad deleted the addition in respect of the advance received during the year for which sale of gas has not taken place during the year. 10. That on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the amount receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 has allowed the claim of the assessee by holding as follows. 7. With the assistance of learned representatives, we have gone through the records carefully. We find that there is no disparity on facts. This very PSA was considered by the ITAT and treated as a intangible rights which qualify for depreciation. The discussion made by the ITAT reads as under: 10. We have considered the rival contentions of both the parties and perused the material placed on record. From the record, we found that on 5th May, 1965 assessee company was registered as Hydrocarbons India Private Limited to take over the rights and interest of its parent company i.e., the ITA Nos.472-546-2008 erstwhile Oil and Natural Gas Commission to formalize the following agreements so as to explore and develop oil fields in Iran: a) the agreement made and entered into on 26thAugust, 1964, by and between A.G.I.P., S.p.A., an Italian Corporation, Phillips Petroleum Company, a Delaware USA Corporation and Oil and Natural Gas Commission, read with the agreement made and entered on the 30th July, 1964 by and between the said Phillips Petroleum Company and the A.G.I.P., S.p.A.; and b) the agreement made and entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hydrocarbons, granted rights to the assessee company along with license for carrying on hydrocarbons operations. The business rights in the license are owned by the assessee entering into PCA and such right and license can be assigned and transferred to other parties subject to the terms and conditions of the PCA and approval of the government. The assessee by virtue of acquisition of 20% participating interest became the member of the consortium and acquired proportionate share in rights and licenses granted by the Russian state for Sakhalin Block. By acquiring these business rights and production licenses, the assessee became entitled to carry on hydrocarbon operations in the Sakhalin project. The statutory expression of the provision granting depreciation on intangible asset is that know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1-4-1988. 13. A reading of the above statutory expression brings home the point that the law has specified items of intangible assets eligible for epreciation in the following categories:- (i) Know-how (ii) Paten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht which is in the nature of commercial right of carrying on of business of exploration and production of mineral oil. It also cannot be said that the right so acquired was not an asset. If it is an asset being the right then it is obvious that same is commercial right, therefore in the nature of asset in the form of license. This right had been granted to the assessee by way of license and the assessee became owner of such right i.e. license to have an access and to carry on of business of exploration and development of mineral oil. Accordingly, as per our considered view such an asset fall within the category of asset falling u/s 32(1)(ii) of the Act. Accordingly, we are inclined to agree with the learned senior counsel that the assessee had 15 acquired business and commercial right and license by making payment of Rs.1559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation u/s 32(1)(ii) of the IT Act. 14A. In view of the above discussion assessee s claim for allowing deduction of entire expenditure of Rs. 1559.10 crores is declined. The stand of CIT(A) in treating the alleged expenditure as deferred revenue expenditure and directing the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue expenses. The expenditure incurred for this purpose was in the nature of travel cost, meeting and conference expenses, delegation, salaries and professional fees etc. These expenditure were claimed by the assessee in its return of income in the year of its incurrence. The issue under consideration is covered in favour of the assessee by the order of Bombay High Court in the case of CIT Vs. Essar Oil Ltd. 2008 TIOL 530 wherein the High Court has observed that submitting tenders and bids in the field of oil exploration is a highly sophisticated technical task for which the assessee company had to incur substantial amount of expenditure before submitting its bid. If the assessee is not successful in obtaining bid, such expenditure is allowable as revenue expenditure. As the assessee was continuously in the business of exploration and production of oil, the expenditure so incurred was in the normal course of its business, such expenditure being revenue in nature incurred for the purpose of existing exploration and production business was required to be allowed u/s 37(1) of the IT Act. Similar claim was also made by the assessee in earlier years. Accordingly, we direct the AO to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich it had acquired the share in the joint venture in the Greater Nile Oil Project for exploration, development, production and marketing of petroleum resources. The basic purpose of the insurance was to safeguard the appellant's business decision to invest in Sudan, the appellant incurred the expenditure towards insurance premium by taking an insurance policy to safeguard its equity investment. In light of these facts once an expense has been incurred by the assessee in the course of its business to safeguard its business asset, it is a business expenditure. 8.2.2 It is also pointed out by the Id. AR that the appellant had earned an income of Rs.3,279,680,000/- from its investment in its subsidiary M/s ONGBV on which tax of Rs.327,968,000/- was withheld. The AO in his order while making the disallowance had held that such an expenditure is not a business expenditure of the appellant. It is argued that this reasoning of the AO is incorrect because the appellant has earned substantial income from its investment so made which has been subjected to tax as business income for the current year and credit for the tax withheld was allowed. In view of this, I find force in the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble expense; (b)the fact that any expense is incurred by the appellant to safeguard its business interest is an allowable expense as the destruction of its interest would have a direct impact on its goodwill; and (c) any expense incurred on the principle of commercial expediency relatable to the line business of the appellant is allowable. Under the facts and circumstances as discussed above, the Ld. AR's contention is found to be correct. Under the facts and circumstances of the case and the judicial pronouncements as discussed above, the impugned disallowance made by the AO cannot be legally sustained. The same is, therefore, deleted. 5.3.3. We find no infirmity in these findings of the First Appellate Authority. The policy itself has been take at the specific directions given by the Govt. of India. The expenditure in question has been laid down wholly and exclusively for the purpose of the assessee s business. In the result these grounds of the Revenue are dismissed. 5.4. Ground nos. 9 to 12 are on the issue of taxability of amounts received in advance on the quantity of gas sold by the assessee. The submissions of the assessee were that the agreement for sale and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off, of quantity of gas by the buyer and not on the basis of advance payment received by the seller. I also find force in the argument of the Id. AR that under the concept of Sale of Goods, an agreement to sell becomes a sale only when in terms of the understanding between the parties i.e. the buyer and the seller, the property in the goods is transferred to the buyer, which in the present case is at the time of delivery by the seller to the buyer at the sales point. If the actual quantity of gas delivered or taken by the buyer is less than for which the advance has been received, then the seller is obliged to deliver, free of any payment, Make-Up gas to the buyer in subsequent years. Therefore, in such case till the time delivery of the gas is not taken by the buyer, the sale is not complete, despite the payment made in advance. It was further submitted that even under mercantile system of accounting, a sale would crystallise when the buyer takes the delivery of goods and title/risk to such goods gets transferred from the seller to the buyer. It is settled law that even under the mercantile system of accounting, a transaction of sale or purchase is complete only on the pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verify the gas sales and purchase agreement and the exact year wise figures of advance received and sale of gas made and delete the addition in respect of the advance received during the year for which sale of gas has not taken place during the year. 5.4.2. The Ld.D.R. could not controvert these factual findings of the First Appellate Authority. In the result the findings of the First Appellate Authority on this issue are upheld, and these grounds of the Revenue are dismissed. 6. Now we take up ITA No.1140/Del/2011 for the Assessment Year 2005-06. 6.1. Ground nos. 1 and 2 are similar to ground nos. 1 to 3 for the Assessment Year 2004-05. These grounds pertain to the claim of depreciation u/s 32(1)(ii) of the Act. This issue was dealt by us for the Assessment Year 2004-05 at para 5 to 5.1 above, and consistent with the view taken therein, we dismiss these grounds of the Revenue. 6.2. Ground no.3 is on the issue of allowability of expenditure incurred on evaluation of existing business. This ground is similar to ground nos. 4 and 5 of the appeal for the Assessment Year 2004-05. Consistent with the finding given therein at paras 5.2 to 5.2.2, we uphold the order of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
