TMI Blog2023 (5) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... . Depreciation at higher rate - Depreciation on oil wells be allowed as plant and machinery OR building u/s. 32 - HELD THAT:- As relying on own case assessment year 2006-07 [ 2022 (3) TMI 1524 - ITAT AHMEDABAD] oil wells are eligible for depreciation as plant and machinery . Accordingly, the Assessing Officer is directed to re-compute the depreciation on oil wells on opening WDV. With respect to additions made during the year, the A.O. may call for necessary details from the assessee to ascertain the nature of additions made and allow depreciation as per the above directions. Oil field equipment eligible for depreciation @ 60% being plant and machinery - HELD THAT:- As respectfully following the decision in assessee s own case for assessment year 2006-07 [ 2022 (3) TMI 1524 - ITAT AHMEDABAD] we hold that the assessee is eligible to claim depreciation on oil field equipment @ 60%. Additional depreciation u/s. 32(1)(iia) - HELD THAT:- As in the assessee s own case for assessment year 2006-07 [ 2022 (3) TMI 1524 - ITAT AHMEDABAD] which has held that extraction of mineral oil which would amount to production of articles or things , we hold that the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equire such services from the head office for the purpose of conducting its business in India in the future - in the instant facts, make available clause has not been satisfied and therefore the services do not qualify as fee for included services under Article 12 of the India-US Tax Treaty. Further, it is also a settled preposition that technical services do not fall within the embargo provided u/s. 44C of the Act. In the case of John Wyeth Brothers Ltd. [ 2012 (12) TMI 406 - ITAT MUMBAI] held that where the assessee, a branch office of foreign company, claimed deduction of laboratory expenses, in view of the fact that said expenses did not include expenses incurred on executive or general administration as indicated in different clauses of section 44C of the Act, the assessee s claim was to be allowed - we are of the considered view that the assessee is eligible to claim deduction of technical service charges paid to the head office. Assessee appeal allowed. Nature of expenses - Disallowance of preliminary drilling expenditure as capital expenditure - HELD THAT:- Looking into the nature of expenses incurred by the assessee coupled with the fact that the Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 40(a)(ia) - short deduction of tax - assessee submitted that the aforesaid short deduction on the total payment was on account of inadvertent exclusion of surcharge while deducting taxes at source on the aforesaid payment - HELD THAT:- We observe that this issue has been decided in favour of the assessee by case of Future First Info Services Pvt. Ltd. [ 2022 (7) TMI 748 - DELHI HIGH COURT] as held that where the AO made disallowance u/s. 40(a)(ia) on the ground that assessee company had made short deduction of tax and thus was in violation of section 97(1), since for cases of short deduction of TDS the correct course of action is proceeding under section 201 of the Act, thus, impugned disallowance u/s. 40(a)(ia) was to be deleted - this issue stands decided in favour of the assessee on account of aforesaid short deduction of tax. Depreciation on goodwill or as depreciation of any other commercial right or intangible asset u/s. 32 - amount shown under the head goodwill is the amount paid by the company in respect of value of assets acquired by it along with interest in joint venture from L T - HELD THAT:- As in the interest of justice, this issue is being restored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and requires to be modified. It is submitted that it be so done now. 2 The learned Assessing Officer has erred in law and facts in disallowing claim of deduction under section 42 of the Act of Rs.21,83,64,955. It is submitted that in the facts and circumstances of the case, the appellant is entitled to deduction under section 42 of the Act. It is submitted that it be so held now. 2.1 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in considering an oil-well as 'Building' instead of 'Plant Machinery' for the purpose of allowance of depreciation u/s. 32 of the Act. It be so held now. 2.2 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disallowance of expenditure u/s. 42 of the Act, in not granting depreciation allowance at 60% on the plants used by the appellant in the field operations (including oil-well) as per Entry III(8)(xii) of Appendix I to the Income Tax Rules, 1962. It is submitted that it be so held now. 2.3 Without prejudice to Ground No. 2, the learned Assessing Officer has erred, in event of disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 4,10,400 and the depreciation allowable as per the learned Assessing Officer is Rs. 1,13,343 and therefore only differential amount can be disallowed. It be so held now. 9 The learned Assessing Officer has erred considering renovation expenditure of Rs. 18,36,641 as capital expenditure. In the facts and circumstances, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now. 9.1 Without prejudice to Ground No. 8, the learned Assessing Officer has erred in not granting depreciation u/s. 32 of the Act in event of considering renovation expenditure as capital expenditure. It be so held now. 10 The learned Assessing Officer has erred considering repairs and maintenance expenditure of Rs. 17,48,561 as capital expenditure. In the facts and circumstances, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now 10.1 Without prejudice to Ground No. 9, the learned Assessing Officer has erred in not granting depreciation u/s. 32 of the Act in event of considering repairs and maintenance expenditure as capital expenditure. It be so held now. 11 The learned Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 5. The brief facts in relation to this ground of appeal are that during the year under consideration, the assessee claimed deduction u/s. 42 of the Act. In the draft assessment year, the Assessing Officer rejected the assessee s claim for deduction u/s. 42 of the Act on the ground that as per the section 42 of the Act, only those deductions are allowable which are specifically provided in the agreement entered into between the assessee and the Central Government and in the agreement entered into by the assessee with the Government, no such provision has been made to allow any deduction falling within the domain of section 42 of the Act. 5.1 Before us, the counsel of for the assessee submitted that the Hon ble Supreme Court dismissed the petition filed by the assessee and held that Product Sharing Contracts (PSCs) entered into between the assessee and the Government of India did not include a clause pertaining to section 42 and therefore deduction under this section could not be allowed to the assessee. Based on the aforesaid decision passed by Hon ble Supreme Court, the ITAT dismissed the appeal filed by the assessee for assessment years 2005- 06, assessment year 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. 6.3 We observe that this issue has been decided in favour of the assessee for assessment year 2006-07 and the relevant extracts of the ITAT order are reproduced for reference: 5. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the ITAT was pleased to allow the depreciation to the assessee after making reference to the order of the ITAT in ITA No.3988/And/2018 for the Assessment Hear 2005-06 vide order dated 31/12/2019 in the own case of the assessee. But due to the mistake, the ITAT has directed the AO to delete the addition made by him, though there was not any addition made by the AO during the assessment proceedings. Thus the question of deleting the addition made by the AO does not arise. Accordingly, we rectify the para 26.1 of the order of the ITAT as detailed under: Accordingly we direct the AO to allow depreciation at the rate of 60% on the oil well and oil field equipment as plant machinery as provided Entry U(8)(xii) as Appendix I to the Income Tax Rules, 1962. 5.1 Hence, the ground raised in the MA filed by the assessee is allowed. 6.4 It would also be useful to reproduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s contention is that oil field equipment used for field operation should also be considered to be a part of oil well and depreciation should be allowed on oil field equipment @ 60% as is applicable to mineral oil concern as per Entry 8 of Appendix-I. 8.1 We observe that ITAT in assessee s own case has allowed depreciation on oil field equipment in assessment year 2006-07 in ITA No. 2389/Ahd/2015 r.w. M.A. No. 149/Ahd/2021 8.2 Accordingly, respectfully following the decision in assessee s own case for assessment year 2006-07, we hold that the assessee is eligible to claim depreciation on oil field equipment @ 60% (the relevant extracts of the aforesaid decision have been reproduced in the earlier part of the ruling while discussing the ground no. 2.1 of assessee s appeal) 8.3 Accordingly, the Assessing Officer is directed to re-compute the depreciation on oil field equipment on opening WDV. With respect to additions made during the year, the A.O. may call for necessary details from the assessee to ascertain the nature of additions made and allow depreciation as per the above directions. 9. In the result, ground no. 2.2 of assessee s appeal is allowed with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct/on , albeit, in connection which the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced; a thing that results from any action, process or of fort, a product; a product of human activity or effort . From the wide definition of the word production , it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word production since ore is a thing , which is the result of human activity or effort. It has also been held by this Court in CIT v. N.C. Budharaja Co. [1993] 204 ITR 4122 (SC) that the word production is much wider than the word manufacture . It was said: The word 'product/on' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Assessing Officer and directed the Assessing Officer to exclude the foreign exchange gain of Rs. 77,67,233/- from the total income of the assessee and also reduced the same from the WDV of the relevant block of asset and directed to allow the depreciation claim on the said WDV of the relevant block of assets. 13. Before us, the counsel for the assessee submitted that foreign exchange gains is unrealized in nature on account of restatement of payables for capital asset at the end of the year and therefore, cannot be reduced from the block of asset u/s. 43A of the Act. However, in the instant facts, we observe that the Assessing Officer and DRP have given a categorical finding that the assessee has not been able to demonstrate whether the aforesaid foreign exchange gains on account of restatement of payables for capital asset at the end of the year is realized or unrealized capital gains. Accordingly, this issue is restored to the file of Assessing Officer to verify whether the foreign exchange gains are realized or unrealized in the instant set of facts and then allow the claim of the assessee in accordance with law. 14. In the result, the ground no. 3 of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the matter has been stayed by the Hon ble Supreme Court and the ITAT in assessee s own case for assessment year 2001-02, 2002-03 and 2005-06 has refrained from adjudicating on the issue whether or not the Explanation inserted by way of amendment u/s. 80IB(9) of the Act is retrospectively applicable. The ITAT in assessee s own case set aside the issue to the file of the Assessing Officer for fresh adjudication in accordance with the judgment of the Hon ble Supreme Court which is pending adjudication. In the aforesaid decision, the ITAT directed the Assessing Officer to wait for the verdict of the Hon ble Supreme Court and thereafter decide the issue accordingly in the light of the judgment of the Hon ble Supreme Court. Therefore, since the issue whether each well would constitute a separate undertaking and hence eligible for deduction u/s. 80IB(9) is dependent on whether the Explanation inserted to section 80IB(9) would operate from retrospective effect or not. 15.4 Accordingly, since the issue whether the Explanation to section 80IB(9) would operate retrospectively or not is pending adjudication before the Hon ble Supreme Court, following the decision of the assessee s ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his issue in favour of the assessee, this ground of appeal should allowed in favour of the assessee. Further, the counsel for the assessee relied on various judicial precedents on this subject to the effect that if make available clause is not satisfied then the payments do not qualify as fee for included services/fee for technical services under the India-US Treaty and hence there is no requirement to withhold taxes on such payments. Further, the counsel for the assessee relied on certain judicial precedents on the subject that only by furnishing of reports, make available clause does not get satisfied. Further, the counsel for the assessee placed reliance on several cases which have held payment towards technical services are not covered within the purview of section 44C of the Act. In response, the ld. Departmental Representative placed reliance on the observations made by the DRP in its order. 19. In the instant facts, we observe that the DRP in the immediately succeeding year assessment year 2008-09 has allowed the assessee s appeal on identical set of facts in favour of the assessee. However, the distinguishing factor between assessment year 2007-08 and 2008-09 is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not include expenses incurred on executive or general administration as indicated in different clauses of section 44C of the Act, the assessee s claim was to be allowed. In view of the above observations, we are of the considered view that the assessee is eligible to claim deduction of technical service charges of Rs. 1,16,06,364/- paid to the head office. 20. In the result, ground no. 6 of assessee s appeal is allowed. Ground No. 7 (Disallowance of preliminary drilling expenditure of Rs. 12,14,580/- as capital expenditure) 21. The brief facts in relation to this ground of appeal are that the Assessing Officer disallowed a sum of Rs. 12,14,580/- debited to the profit and loss account on account of preliminary drilling expenses by treating the same as capital expenditure. In appeal, the DRP upheld the order of Assessing Officer by observing that the preliminary drilling expense have been incurred by the assessee on account of fees, studies and other consultancy charges with regard to creation of new assets and therefore the aforesaid expenditure is capital in nature. 22. Before us, the counsel for the assessee submitted that the aforesaid expenditure has been incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses like dismantling wells, sand filling, excavation, cementing, plastering etc. and on purchase of furniture and fixture. The assessee submitted that these office renovation expenses are on leased premises and hence are allowable as revenue expenditure. Further, the assessee submitted that looking into the nature of expenses, these are small structural changes which have been made by the assessee and cannot be construed as creation of a capital asset since no new asset has come into existence with enduring benefit. 27. We observe that on perusal of break-up of the expenses a sum of Rs. 5,68,990/- was paid to one Mr. Jitendra S. Bhimani on account of office renovation expenses towards dismantling old wells excavation, sand filling, brick work for partition etc. In our view, the aforesaid expenditure qualifies as revenue expenditure and hence may be allowed as revenue expenditure. Further, the assessee has incurred a sum of Rs. 1,16,918/- towards other sundry expenses, may also be allowed as revenue expenditure since no capital asset of enduring nature was brought into existence by way of aforesaid expenditure and hence the same may be allowed to the assessee as revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in case the expenses are held to be of capital nature and have been incurred for creation of new capital asset, then, the assessee is entitled to claim depreciation on such expenses. Accordingly, we direct the Assessing Officer to allow depreciation on the aforesaid expenditure in accordance with law after carrying out the necessary verifications. 31. In the result, ground no. 10 of the assessee s appeal is dismissed and ground no. 10.1 of assessee s appeal is allowed for statistical purposes. Ground No. 11 (Disallowance of Rs. 5400 u/s. 40A(3) 32. The brief facts of this issue are that the assessee incurred payment of Rs. 27,000/- on sweets during the festive season. The aforesaid payment of Rs. 27,000/- was made in cash and accordingly, the Assessing Officer disallowed 20% of the aforesaid payment amounting to Rs. 5400/- under section 40A(3) r.w.r. 6D. The assessee submitted that the said payment was made in cash as the shop refused to accept the payment through account payee cheque and only accepted cash. However, despite being provided an opportunity, the assessee could not furnish any supporting evidence of having made the aforesaid payment for the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of tax. 36. In the result, ground no. 12 of assessee s appeal is allowed. Ground No. 13 and 13.1 (disallowance of depreciation of Rs. 14,33,745/- u/s. 32 of the Act) 37. The brief facts in relation to this ground of appeal are that the assessee company in its return of income has claimed an amount of Rs. 14,33,745/- as depreciation on goodwill. During the course of assessment, the assessee vide letter dated 18-12-2019 submitted that the amount shown under the head goodwill is the amount paid by the company in respect of value of assets acquired by it along with interest in joint venture from L T. However, the Assessing Officer disallowed the claim of the assessee by placing reliance on the Bombay High Court decision in the case of CIT vs. Techno Shares and Stock Ltd. in ITA No. 971 of 2006 dated 11-09-2009 in which the Bombay High Court held that u/s. 32(1)(ii) of the Act depreciation is not allowed on all capital assets but is allowable on capital assets which fall in any one of the categories enumerated in the section. Accordingly, the Assessing Officer by relying on the aforesaid decision held that depreciation of goodwill is not admissible to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the DRP against the assessee on the basis of aforesaid case, which has since been reversed by the Supreme Court, the depreciation should be allowed to the assessee. The second contention raised by the counsel for the assessee is that since depreciation on the aforesaid asset has already been allowed to the assessee in the earlier years and the aforesaid asset was forming part of block of assets on which the depreciation has been allowed for various years, then, in view of various judicial precedents on the subject which have held that once depreciation has been allowed to the assessee on an asset forming part of block of asset, then, even if such asset has not been put to use in the subsequent years, the assessee would still be eligible to claim depreciation on such block of assets. Therefore, depreciation cannot be disturbed in the impugned assessment, since depreciation has been allowed on the block of assets , of which this asset has been a part of, for past many years. In response, ld. Departmental Representative placed reliance on the observations made by the DRP in its order. 38. We have heard the rival contention and perused the material on record. We are however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to examine the claim of the assessee in earlier assessment years or if Department is of the view that such claim of depreciation has been incorrectly allowed to the assessee in the previous assessment years, then, nothing precludes the Department from examining the claim of the assessee simply on the reasoning that the claim of depreciation can be examined only in the year when the asset was first acquired by the assessee. The third contention of the counsel for the assessee was that since the decision of Techno Shares and Stocks supra (on which reliance was placed by DRP) has since been reversed by the Supreme Court in favour of the assessee, then the claim of depreciation may accordingly be allowed in favour of the assessee. However, we observe that the decision of DRP was not based exclusively on the decision of Techno Shares and Stocks supra alone which was on the issue whether right of membership conferred upon a member of BSE was a business or commercial right and hence eligible for depreciation u/s. 32(1)(ii) of the Act. The DRP has dealt with several aspects while disallowing the assessee s claim of depreciation and the decision of DRP is not based on the case of Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al right or intangible asset u/s. 32 of the Act. Secondly, the Assessing Officer may also examine that the necessary supporting documents in justification for assessee s claim of depreciation. Accordingly, this issue is aside to the file of ld. Assessing Officer with the aforesaid directions. 39. In the result, ground no. 13 13.1 of assessee s appeal are allowed for statistical purposes. ITA No. 3195/Ahd/2011 A.Y. 2008-09 40. The assessee has taken the following grounds of appeal:- Your Appellant being dissatisfied with the order passed by the Learned Asst. Director of Income Tax (International Tax), Ahmedabad, u/s 143(3) r.w.s. 144C of the Income Tax Act ( the Act ), presents this appeal against the same on the following amongst other grounds of appeal which are without prejudice to each other. 1 The order passed by the learned Asst. Director of Income Tax ( Assessing Officer ) u/s 143(3), in persuance of the order of Dispute Resolution Panel ( DRP ) u/s 144C, is erroneous and requires to be modified. It is submitted that it be so held now. 2 The learned Assessing Officer has erred in law and facts in disallowing claim of deduction under section 42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is submitted that due to the same, the learned Assessing Officer has allowed depreciation of Rs. 52,495 instead of depreciation of Rs. 2,39,794. It is submitted that it be so held now. 7 The learned Assessing Officer has erred considering repairs and maintenance expenditure of Rs. 91,904 as capital expenditure. In the facts and circumstances, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now. 8 The learned Assessing Officer has erred in not allowing depreciation of Rs. 10,75,308 on amount paid for acquiring participating interest in Joint Venture which is business or commercial right of similar nature as envisaged u/s 32 of the Act. It is submitted that it be so held now. 9 The learned assessing officer has erred in not granting deduction u/s 80G of Rs. 2,00,000, which was previously not claimed by the appellant as the total returned income was Nil. 10 The learned assessing officer has erred in not allowing depreciation on the opening written down value of such expenditure which was capitalized during AY 2007-08 in the Assessment Proceedings. Your appellant prays for leave to add to alter and/or to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smantling and construction of toilet block at Dholka. Accordingly, no new asset came into existence with enduring benefit. 48.1 Accordingly, looking into the facts of the instant case and submission of the assessee to the effect that out of the aforesaid expenditure, the assessee already identified and capitalized the relevant expenditure and assessee only claimed the balance expenditure as Revenue expenditure, we are of the considered view that the assessee is eligible to claim aforesaid expenditure as revenue expenditure. Further, the assessee s facts are supported by the case of CIT vs. Madras Auto Services 232 ITR 468 (SC) and also by the case of Modi Spinnig and Weaving Mills Vs. ITO 200 ITR 544 (Delhi) in which it was held that expenditure of alteration is capital, if incurred by owner but revenue if incurred by the tenant. 49. Accordingly, ground no. 7 of assessee s appeal is allowed. Ground No. 9 (Non grant of deduction u/s. 80G of the Act) 50. With respect to this ground of appeal, the counsel for the assessee submitted that the assessee claimed deduction u/s. 80G of the Act in the return of income, but the same has not been allowed to the assessee. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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