2019 (9) TMI 97 - AT - Income Tax

Tribunal Confirms Taxpayer's Eligibility for Deductions, Recognizing Oil Wells as New Industrial Undertakings.

ACIT, Circle-2, Assam Versus Oil India Ltd., Duliajan Dist. Dibrugarh, Assam And (Vice-Versa)

ACIT, Circle-2, Assam Versus Oil India Ltd., Duliajan Dist. Dibrugarh, Assam And (Vice-Versa) - TMI Issues Involved:1. Eligibility to claim deductions under Section 80IB and 80IC of the Income Tax Act.2. Compliance with Rule 18BBB(2) of the Income Tax Rules, 1962.3. Treatment of oil wells as new industrial undertakings.4. Filing of Form 10CCB auditor’s report along with the return of income.5. Interpretation of 'mineral based industry' and 'manufacture or production' under Section 80IC.Detailed Analysis:1. Eligibility to Claim Deductions Under Section 80IB and 80IC:The primary issue was whether the assessee was eligible for deductions under Sections 80IB and 80IC. The Revenue contended that the taxpayer’s oil wells were not new industrial undertakings and did not comply with the necessary conditions, including the submission of a separate audit report and maintaining separate books of accounts. The CIT(A) reversed the Assessing Officer’s disallowance, stating that each oil well was a distinct, separate, and integrated unit with separately accounted capital and expenses, thus satisfying the conditions for claiming deductions under Sections 80IB and 80IC.2. Compliance with Rule 18BBB(2) of the Income Tax Rules, 1962:The Assessing Officer argued that the taxpayer violated Rule 18BBB(2) by not filing a separate audit report for each oil well. The CIT(A) and the tribunal held that the law does not require maintaining separate accounts as if the undertaking itself is a distinct business. Instead, it requires the accounts of the undertaking to be maintained, which the taxpayer had done. This interpretation was supported by various judicial precedents, including decisions by the Gauhati High Court.3. Treatment of Oil Wells as New Industrial Undertakings:The Revenue argued that oil wells were not new undertakings as they used previously used machinery and did not comply with the conditions under Section 80IC(4). However, the tribunal found that the taxpayer had used new plant and machinery for each oil well, and the use of drilling rigs and other equipment for exploration did not constitute the formation of new undertakings by the transfer of old machinery. The tribunal cited the Supreme Court’s judgment in Bajaj Tempo Ltd., which clarified that the formation of a new undertaking should not be dominated by the use of old machinery.4. Filing of Form 10CCB Auditor’s Report Along with the Return of Income:The Revenue contended that the taxpayer did not file Form 10CCB along with the return of income. However, the tribunal noted that the Assessing Officer had acknowledged the submission of the audit report during the assessment proceedings. The tribunal held that the submission of the required documents during the course of hearing is sufficient compliance with the provisions of the Act.5. Interpretation of 'Mineral Based Industry' and 'Manufacture or Production' Under Section 80IC:The Revenue argued that crude oil exploration did not amount to a 'mineral based industry' as per Item No. 16 in the 14th Schedule of the Act and that the activity did not constitute 'manufacture or production.' The tribunal referred to various statutory definitions and judicial interpretations, concluding that crude oil exploration is indeed a mineral-based industry and amounts to production. The tribunal rejected the Revenue’s argument, holding that the taxpayer’s activity of crude oil exploration through its oil wells qualifies for deductions under Section 80IC.Conclusion:The tribunal upheld the CIT(A)’s decision, allowing the taxpayer’s deductions under Sections 80IB and 80IC for the relevant assessment years. The Revenue’s appeals were dismissed, and the assessee’s appeals were allowed, confirming the eligibility for deductions and compliance with the necessary conditions. The tribunal’s decision was based on a thorough analysis of statutory provisions, judicial precedents, and the specific facts of the case.