TMI Blog2018 (11) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : Shri Ajay Kumar, CIT-DR ORDER PER MAHAVIR SINGH, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(LTU)-Mumbai, revising the assessment u/s. 263 of the Income Tax Act, 1961 [herein after referred to as Act ] for the AY. 2010-11, order dated 31-03-2015. The assessment was framed by the Addl.CIT(LTU), Mumbai, u/s. 143(3) read with section 144C(3) of the Act for the AY. 2010-11 vide order dt. 25-03-2013. 2. At the outset, Ld. Counsel for the assessee stated that the assessee has raised nine grounds but now he stated that the assessee wants to withdraw Ground Nos. 1 to 6 and Ground Nos. 8 9. Ld. Counsel for the assessee stated that he has instructions from the assessee and a letter in this respect was filed dated 12-11-2018, wherein it was stated as under: The above appeal has been fixed for hearing on 13.11.2018 before your honour. In this regard, we respectfully submit that we wish to withdraw ground number 1 to 6 and ground number 8 of the above appeal. We regret for the inconvenience caused due to the aforesaid request . 2.1. In view of the above, Ld. Counsel stated that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other blocks 1010521671.00 2.3. Ld.Counsel took us through the Tribunal s order in assessee s own case in IT(TP)A Nos. 1547/Mum/2016 (AY. 2010- 11); 2733/Mum/2017 (AY. 2011-12) and 5842/Mum/2017 (AY. 2012-13), dated 28-09-2018, wherein the Tribunal vide paras 9.3 to 108, allowed the claim of assessee on merits after considering in detail, which is as under: 93. We have noticed earlier that the AO had held that the expenses relating to unsuccessful exploration in contract areas covered by other contracts also should be deducted from the aggregate value of Petroleum allocable to the Company from any field(s) in the Contract area. Accordingly the AO held that the deduction of expenses relating to unsuccessful exploration (also known as Aborted blocks ) claimed by the assessee u/s 42(1)(a) is not correct. The AO also held that the accumulation of expenses relating to successful exploration under the head Intangible assets is also not correct. Accordingly, the AO proceeded to recast the Profit and Loss Account of KG basin undertakings in accordance with the view taken by him, which is discussed by us in paragraph 88 (supra) f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amendment in 2008 and left the question as to whether the term mineral oil would include petroleum and natural gas or not to the wisdom of courts. 95. The AO took the view that the underlying intent of the Government is that the term Mineral Oil should not include natural gas. Further the natural gas was included in the definition of mineral oil subsequently for those new participants who are prospecting mineral oil under VIII round of bidding for award of exploration contracts. The assessee had placed reliance on the decision rendered by Ahmedabad bench of Tribunal in the case of NIKO Resources Limited vs. DCIT (22 DTR 225), wherein it was held that mineral oil would include natural gas also. The AO, however, refused to follow the same by observing that the Income tax Department has not accepted the decision rendered by the Tribunal by filing appeal before the High Court by the revenue. 96. Accordingly, the AO took the view that the assessee is not entitled for deduction u/s 80IB(9) of the Act in respect of profit arising from sale of natural gas . He took the view that the Crude oil alone falls under the definition of mineral oil used in sec.80IB(9) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under PSC. Hence the Ld CIT(A) has taken the view that the assessee s accounting practice is not in accordance with the method prescribed in PSC and the AO was justified in disregarding the same and in disallowing the depreciation claimed on the Intangible assets. We have earlier examined the reasoning given by the assessing officer for disallowing the claim of depreciation. Before us, the assessee could not show how the method of accounting of accumulating expenses under the head Intangible Assets followed by the assessee is permitted under the provisions of the Act read with the PSC. The only contention of the assessee is that the AO has allowed depreciation in AY 2010-11 on intangible assets. However, the Ld D.R has submitted that the assessment order passed for AY 2010-11 has since been revised by Ld Pr. CIT us 263 of the Act. In any case, the principle of Res-judicata shall not apply to the income tax proceedings. Since the assessee is required to claim expenses in accordance with the clauses of PSC, in our view, the tax authorities are justified in rejecting the claim of Intangible assets and consequently rejecting the depreciation claimed thereon. Accordingly we uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. Section 801B(9) reads as under: (9) The amount of deduction to an undertakingshall be hundred per cent of the profits for a period of seven consecutive assessment years, including the initial assessment year, if such undertakingfulfils any of the following, namely:- (i) . (ii) is located in any part of India and has begun or begins commercial production of mineral oil on or after the 1st day of April, 1997: [Provided that the provisions of this clause shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. 0- 19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner;] (iii)......]; The assessee submitted that on perusal of section 80-IB(9J, it can be observed that this sub-section provides for granting de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that while computing deduction u/s.80IB(9) of the IT Act, the provisions of section 80IA(5) are applicable, which provide that for the purposes of determining the quantum of deduction, the profits and gains of the eligible business shall be computed as if such eligible business were the only source of income of the assessee. The term eligible business here would means, profits and gains from contract area KGD. Therefore, the losses in respect of unsuccessful exploration of other blocks are not be reduced while working out profits and gains of the eligible undertaking i.e. contract area KGD. The assessee has claimed deduction in respect of abortive blocks u/s 42(l)(a) of the Act The plain reading of section 42(1) implies following conditions to be satisfied for the purpose of allowing deduction/allowance in addition to the allowance admissible in other sections of the Act a. There should be an agreement of the person with Central Government (and agreement should be laid on the table of each house of the Parliament) b. Only such allowance are allowed which are specified in the PSC c. Such specified allowance should be in relation to various spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be computed as if such eligible business were the only source of income of the assessee. Thus while computing the profits of an 'Undertaking', the same shall be computed as if, such Undertaking were the only source of income of the assessee and hence losses of other Undertaking should not be adjusted/considered while working out the income from such Undertaking. Thus, in light of the provisions of section 80-IB(9) r.w.s 80-1A(5) of the Act, it was submitted by the assessee that deduction u/s 42(l)(a) in respect of abortive/unsuccessful blocks are not be reduced while computing the profits of the undertaking viz: KGD which is eligible for deduction u/s 801B(9). 104 After analysing the facts of the case and after considering the contentions of the assessee, the Ld CIT(A) decided this issue in favour of the assessee by holding that the expenses relating to aborted blocks need not be reduced from the profits for the purpose of computing deduction u/s 80IB(9) of the Act. The revenue is aggrieved by this decision rendered by Ld CIT(A). 105. The Ld D.R submitted that the Production Sharing Contract shall override the provisions of Income tax Act in terms of sec.42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) on this issue are extracted below:- 49. Decision: I have considered the facts of the case and the submissions made by the assessee. The issue for consideration is whether cost of abortive/unsuccessful blocks (other independent undertakings) are be reduced while computing the profits of a successful block (KGD in the assessee's case which is independent undertaking) for the purpose of claiming deduction u/s 80-IB(9). The assessee was engaged in the business of exploration and production of mineral oil. The assessee was awarded 31 contract areas under separate production sharing contracts (PSC) signed with the Government of India. The above contract areas were awarded on bidding in separate auction for each contract area. There is no dispute that for the purpose of claiming deduction u/s.80IB [9) of the Act each contract area constituted an independent undertaking. Since the assessee had complied with the conditions specified u/s 80IB(9) of the Act, it claimed deduction of the profits and gains of KGD undertaking u/s 80-IB(9) of the Act. While computing the profits and gains of KGD undertaking for the purpose of claiming deduction under the section 80IB(9) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l apply. Hence the deduction u/s 80IB(9) of the Act has to be computed in terms of sec.80IB of the Act. Sec. 80IB(13) of the Act provides that the provisions of sec. 80IA(5) shall apply and under the provisions of sec.80IA(5) of the Act, the profits and gains of eligible business, for the purposes of sec. 80IB, shall be computed as if such eligible business were the only source of income of the assessee. In view of these provisions, the deduction u/s 80IB(9) has to be computed after ascertaining profits and gains of eligible business in terms of sec 80IA(5) of the Act. Hence there is no scope to adjust expenses relating to other undertakings while computing deduction u/s 80IB(9) of the Act. Hence, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference and accordingly we uphold the same . 2.4. When this was confronted to Ld. CIT-Departmental Representative, he fairly agreed that on merits, the issue is covered in assessee s own case cited supra. As the Revenue could not point out anything, we are of the view that the issue on merits is exactly covered on facts. Hence, taking the consistent view and respectfully following the Tribunal s or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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