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2015 (6) TMI 104

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..... . The maintenance of these vessels and rigs is a sine-qua-non for carrying on its business of exploration and production of oil. In the case of the appellant, expenditure was claimed as revenue. Therefore, the AO was not right in disallowing the expenditure as capital expenditure. - Decided against revenue. - Income Tax Appeal No. 19 of 2010, Income Tax Appeal No. 20 of 2010, Income Tax Appeal No. 21 of 2010, Income Tax Appeal No. 22 of 2010 - - - Dated:- 14-5-2015 - K. M. Joseph, CJ And V. K. Bist,JJ. For the Appellant : Mr. H.M. Bhatia, Adv For the Respondent : Mr. Rupesh Jain, Adv JUDGMENT K. M. Joseph,C. J. (Oral) These matters being interconnected, they are being disposed of by this common judgment. 2. The .....

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..... the assessee. In Asstt. Year 2001-02, the assessee has explained the expenses on the basis that these are in the nature of repairs and maintenance and to fulfil the requirements of American Bureau Standards (ABS), for which, various surveys are to be undertaken, some of which are to be taken yearly, some are to be undertaken two and half yearly and remaining are to be undertaken five yearly. It has been pointed out that it is obligatory on the part of ONGC to carry out surveys as per ABS for insurance and other purposes like requirement of mandatory authorities and hence, these expenses are revenue expenditure in the nature of repairs and maintenance but still in that year, the issue was decided by the AO against the assessee by stating tha .....

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..... e assessment order for Asstt. Year 2004-05 says that the assessee has incurred an expenditure of ₹ 111.62 crores and claimed the same as deduction on account of Dry Docking expenses in the computation of income but this is not clear as to whether this amount of ₹ 111.62 crores is the total amount of such expenses or whether a part of the total amount has already been debited in the P L account on the basis of amortization of expenditure and this amount of ₹ 111.62 crores is remaining part of the total expenditure. This is also not clear as to whether the expenses debited in the present year to the P L account with regard to earlier years has been added back in the computation of the assessee or not, as submitted by assesse .....

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..... tially, that this is a case, where the respondent / assessee, in his own accounts, has not laid the foundation by debiting the profit and loss account by the amount allegedly spent towards maintenance of the rig and it was claimed to be capital expenditure and, in fact, the Assessing Officer was pleased to accept the claim and even provided depreciation at the rate of 25 per cent and only the balance amount has been disallowed being treated as capital expenditure.7. Per contra, the learned counsel for the respondent / assessee would submit that there is an alternate claim of depreciation and the main claim was that it is a revenue expenditure; but, he does admit that, in the accounts, the amount claimed as spent towards maintenance was not .....

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..... Calcutta v. Commissioner of Income Tax, WB-III, Calcutta (1999) 8 SCC 338.] 8. There are well known tests for determining whether expenditure fulfills the requirement of Section 37 of the Act and would amount to revenue expenditure or capital expenditure. In fact, the Assessing Officer proceeded on the basis that the Dry Docking expenses were held to be capital expenditure in nature by the Commissioner of Income Tax in deciding the assessment for the year 2001-2002 and the same are treated as capital expenditure. Though a large body of case-law was cited, the Assessing Officer proceeded to hold that the cases are quite distinguishable from the facts of the assessee s case under consideration, inasmuch as, none of the cases related to th .....

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..... ar to year. If the expenditure is to bring into existence or advantage for the enduring profit of the business, then expenditure may be capital in the nature but where the expenditure has direct nexus, connection or relation to the carrying on or conducting the business of the assessee, it must be recorded as an integral part of profit making process and hence revenue in nature. The maintenance of these vessels and rigs is a sine-qua-non for carrying on its business of exploration and production of oil. In the case of the appellant, expenditure to the extent of ₹ 139,20,54,819/- was claimed as revenue. I am, therefore, of the opinion that AO was not right in disallowing the expenditure as capital expenditure. Appellant gets relief of .....

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