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TMI Blog2016 (2) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... . 09. 2008, declaring total income at Rs. Nil. The AO completed the assessment, u/s 143(3) of the Act, on 22. 12. 2010, determining the income of the assessee at Rs. 51. 13 crores. ITA/3486/Mum/2012: 2. Effective ground of appeal filed by the AO is regarding the above claim made by the assessee u/s. 42(1)(a) of the Act. During the assessment proceedings the AO found that assessee had claimed a deduction of Rs. 99. 96 Crores u/s 42 of the Act. He directed the assessee to justify the allowability of the claim. After considering submission of the assessee made vide letter dated 15. 11. 2010, the AO held that deduction of expenses sue to depletion of producing properties in respect of exploration activities could be claimed under certain circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority(FAA). Before him, it was argued that the AO had placed undue stress on the require -ment of surrender for the purposes of allowing the deduction that the section provided that the deduction in terms of the PSC should be allowed in lieu of /in addition to what was allowed under the Act, that the agreement would prevail over the provisions of the Act, that the AO had not questioned the expenses claimed u/s 42 of the Act pertaining to exploration and drilling cost, that the assessee had surrendered the oil fields, that the section did not prescribe voluntary surrender / surrender by compulsion, that the assessee's case was a clear case of relinquishment of the block pursuant to the end of the stipulated 7 year exploration under the PSC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was nothing on record to suggest that a termination notice was sent to the assessee that the DGHC passed any termination order. Finally, he allowed the appeal filed by the assessee. 4. Before us, the Departmental Representative(DR)contended that Sec. 42 was a special section, that provisions of sub-sec. (1a)dealt with surrender of oil fields, that expenses could be allowed only if there was surrender, that assessee was not granted extension, that the letter of DG dated was as good as termination. Authorised Representative(AR)stated that the assessee had started the exploration job as per the PSC, that the wells did not yield results, that it informed the Bombay Stock Exchange about not finding oil in the wells, that it had requested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was brought on statute with a very specific purpose- to encourage oil exploration. Purpose to introduce it was to tide over the ever increasing import bill of petroleum products. PSC is the testimony of the efforts and intention of the government to deal with the oil crisis. To encourage the oil exploration area incentive in form of introduction of section 42(1)was given to the assessees. As an exception capital expenditure and other expenditure are fully allowed, under section 42(1)(a)of the Act, even when the exploration of oil results in failure. Such expenditure is not being amortised or not is being allowed partially year after year-it has to be allowed in full. If the background of the legislation is considered it becomes c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle -4 and not of Article- 30 of the PSC. Clearly, the case of the assessee does not fall in the category of termination. Considering the above, we are of the opinion that the order of the FAA does not suffer from any legal or factual information. So, confirming his order, we decide effective ground of appeal against the AO. ITA/4042/Mum/2012: 6. The first effective ground of appeal(Ground No. 2-6), raised by the assessee is about claim for deduction made u /s. 42 (1) (b)of the Act amounting to Rs. 4. 77 crores. During the assessment proceedings, the AO disallowed the claim made by the assessee, without deliberating upon the submissions made by it. 7. Before the FAA, the assessee argued that as per the provisions of section 42(1)(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts of expenditure had been maintained by the assessee, that the expenditure was fungible and could not be objectively allocated u/s. 42(1)(a) and 42(1)(b) of the Act, that the identical issue was decided against the assessee by the FAA, while deciding the appeal for A. Y. 2007-08, that the then FAA held that the expenditure was development and not drilling, that all the four blocks were operational and had commenced commercial production by 2005. 8. Before us, the AR contended that the Tribunal, vide its order 07. 2. 2014(ITA 61/Mum/2011-AY. 07-08), had sent back the issue to the file of the AO for further verification. The DR left the issue to the discretion of the bench. We find that the Tribunal in its order for the AY. 07-08 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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