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DCIT, Circle-4 (1) , New Delhi Versus M/s Jubilant Offshore Pvt. Ltd

2015 (12) TMI 374 - ITAT DELHI

Addition on account of preoperative expenses - CIT(A) deleted the addition - Held that:- As decided in assessee's own case [2014 (12) TMI 64 - DELHI HIGH COURT] none of the expenses mentioned therein are of personal in nature; and the said expenses are of revenue in nature. Even otherwise, the assessee has capitalized all the exploration cost and the same have been reflected as "capital work for progress" in the balance-sheet. The assessee has only claimed deduction of the expenses which have be .....

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N. K. Saini, AM For The Assessee : Sh. Rohit Garg & Smt. Tejasvi Jain, CAs For The Revenue : Sh. Ved Prakash Mishra, Sr. DR ORDER This is an appeal by the department against the order dated 11.07.2014 of ld. CIT(A)-VIII, New Delhi. 2. Following grounds have been raised in this appeal: 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of ₹ 22,35,42,346/- on account of preoperative expenses? 2. That the order of the Ld. CIT .....

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case was selected for scrutiny. In response to the notices, the ld. AR of the assessee attended the proceedings from time to time and furnished written replies to the questionnaire and produced requisitioned documents including books of accounts, bills and vouchers, bank statements which were put to test checks. The AO asked to show-cause as to why the expenses claimed by the assessee should not be disallowed as it had not commenced its business operations. The AO considered the submissions of t .....

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d that in the relevant previous year 2007-08, the assessee had only carried out exploration work, therefore, the business of the assessee was not set up and the expenditure incurred prior to setting up of a business was not allowable. In view of the above discussion, expenses including depreciation amounting to ₹ 22,35,42,346/- was treated as preoperative expenses and hence disallowed and added back to the total income. 4. Being aggrieved the assessee carried the matter to the ld. CIT(A) w .....

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reas, the appellant had submitted that production from oil wells are not relevant and the business of the appellant was set up when the appellant started bidding. I find considerable force in the argument of the appellant that in such a business carried on by the appellant, exploration is an essential activity which precedes the stage of drilling and production. The exploration activities are undertaken first in point of time which may result in actual production. There may be no actual producti .....

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10 is ₹ 6,58,90,22,194 which is to be allowed in the year of Revenue Generation on operation of Oil wells. The appellant is only claiming deduction of the routine expenditure necessary for carrying out the business activities. In my view, the assessing officer cannot today turnaround and say that business of the appellant has not been set up more so when the issue relating to setting up of the business as specifically gone into by the assessing officer while passing the assessment order fo .....

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ty relates to the development; and the third stage relates to the commercial production. The first in point of time lays the foundation for the second activity and the second activity when completed lays the foundation for the third activity. It is to be noted that the appellant is in the business of exploration, production and dealing in minerals, oils, gas and other related by-products of oil and gas in India or elsewhere. It is also to be noted that the three activities combined together cons .....

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a continuous course of activities and all the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precedes the other activities is started as held by Hon'ble Justice P. N. Bhagwati in the case of CIT Vs. Saurashtra Cement and Chemical Industries Ltd. 91 ITR 170 (Gujarat High Court). The said decision of the Hon'ble Gu .....

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can take place. Hence business had commenced at the stage when licence to explore the respective blocks was granted by the Govt. of India to Assessee Company. 11. It is to be noted that the exploration activities commenced after prospecting, bidding and assignment of rights to explore were granted to the assessee by the Govt. of India for different blocks. Hence, the expenditure incurred after commencement of business should be allowed as business expenditure irrespective of the fact that the a .....

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) reasons that the expenditure incurred for carrying on any of these including the first activity is also deductible in computing the profits and gains of the assessee for the relevant Assessment Year when the activity is undertaken. 12. A perusal of the table depicting the expenses claimed by the assessee which is reflected in Page 12 of the ld CIT(A) order shows that none of the expenses mentioned therein are of personal in nature; and the said expenses are of revenue in nature. Even otherwise .....

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