Tax Tribunal Decision: Deductible Demurrage Charges, Depreciation Rules, Section 80-IB(9) Deduction, Business Expenses Disallowed

Assistant Commissioner Of Income-Tax. Versus Niko Resources Limited.

Assistant Commissioner Of Income-Tax. Versus Niko Resources Limited. - [2009] 123 TTJ 310 Issues Involved:

1. Deletion of demurrage paid by the assessee company.
2. Restriction of disallowance made by the AO on various expenses.
3. Allowance of depreciation on wells at 100% treating them as 'plant'.
4. Allowance of depreciation on gas separator and flood light mast treating them as 'plant and machinery'.
5. Allowance of deduction u/s 80-IB(9) of the IT Act.
6. Consideration of well Nos. 6 and 7 as separate undertakings for deduction u/s 80-IB(9).
7. Inclusion of 'natural gas' under the term 'mineral oil' for the purpose of s. 80-IB(9).
8. Disallowance of business promotion expenses.
9. Disallowance of expenditure incurred for providing residential accommodation to expatriate employees.
10. Disallowance of administrative expenses.
11. Disallowance of expenditure claimed u/s 42 of the Act.
12. Allowance of depreciation on unproductive wells.
13. Allowance of depreciation on causeway and escape bridge.
14. Deduction for head office expenses u/s 44C.
15. Interest levied u/s 234B.
16. Interest levied u/s 234C.

Summary:

1. Deletion of Demurrage Paid by the Assessee Company:
The Tribunal upheld the CIT(A)'s decision to allow the demurrage charges of Rs. 3,56,051 as deductible revenue expenditure. It was held that demurrage is a charge by way of compensation for the use of port facilities beyond the free period allowed under the rules and not a fine for any criminal act.

2. Restriction of Disallowance Made by the AO on Various Expenses:
The CIT(A) reduced the disallowance of Rs. 10,00,000 made by the AO to Rs. 5,00,000. The Tribunal upheld this decision, noting that the assessee could not produce complete vouchers and details for the expenses, making it difficult to verify the business purpose of the expenditures.

3. Allowance of Depreciation on Wells at 100% Treating Them as 'Plant':
The Tribunal held that oil wells are to be treated as 'building' as per the definition in the IT Rules, 1962, and allowed depreciation at 10% instead of 100%. The Tribunal rejected the assessee's claim that wells should be treated as 'plant'.

4. Allowance of Depreciation on Gas Separator and Flood Light Mast Treating Them as 'Plant and Machinery':
The Tribunal upheld the CIT(A)'s decision to allow depreciation at 25% on gas separator and flood light mast, treating them as 'plant and machinery' rather than 'building'.

5. Allowance of Deduction u/s 80-IB(9) of the IT Act:
The Tribunal upheld the CIT(A)'s decision to allow the deduction u/s 80-IB(9) for the profits derived from undertaking H2, which began commercial production after 1st April, 1997. The Tribunal also held that 'mineral oil' includes 'natural gas' for the purpose of s. 80-IB(9).

6. Consideration of Well Nos. 6 and 7 as Separate Undertakings for Deduction u/s 80-IB(9):
The Tribunal agreed with the CIT(A) that well Nos. 6 and 7 constitute a separate undertaking (H2) and are eligible for deduction u/s 80-IB(9).

7. Inclusion of 'Natural Gas' Under the Term 'Mineral Oil' for the Purpose of s. 80-IB(9):
The Tribunal held that 'mineral oil' includes 'natural gas' for the purpose of s. 80-IB(9), based on various statutes and judicial interpretations.

8. Disallowance of Business Promotion Expenses:
The Tribunal upheld the CIT(A)'s decision to disallow Rs. 50,000 paid to the Canadian Embassy and allowed 50% of the remaining Rs. 78,110 spent on organizing lunch/dinner meetings with business associates.

9. Disallowance of Expenditure Incurred for Providing Residential Accommodation to Expatriate Employees:
The Tribunal deleted the disallowance of Rs. 70,000, holding that the expenditure was wholly for the purposes of the business of the assessee.

10. Disallowance of Administrative Expenses:
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to Rs. 5,00,000, noting the difficulty in verifying the business purpose of the expenditures due to incomplete vouchers.

11. Disallowance of Expenditure Claimed u/s 42 of the Act: