TaxTMI 
TaxTMI 
2022 (3) TMI 1333
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appreciating the facts that the assessee is not in the business of drilling operation in oil field of mineral oil, but actually is in the business of providing plant and machinery on hire only (c) by incorrectly relying on the decision of CIT Vs. HLS India Ltd. The facts of which are not squarely applicable in the instant case of the assessee company. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,40,72,898/- on account of repair and maintenance charges capitalization without appreciating the fact that expenditure incurred was for improving the capacity of assets which bestowed upon the assessee a benefit of enduring nature." 2. When the matter was called for hearing, ld. counsel for the Revenue defended the action of the Assessing Officer and submitted that ld. CIT(A) proceeded on a mistaken belief of facts and law. It was contended that the assessee has been merely providing services to oil and gas industry for the purposes of exploration and extraction of mineral oil which cannot be equated with plant and machinery used in mineral oil exploration as per entry at Part A-III-(8)(xii) of Appendix-I of the Incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....claiming higher rate of depreciation on the basis of clause 8(xii) of part A-III of depreciation table. As per this clause the appellant: 1. should be a mineral oil concern and 2. the plant & machinery must be of a specific category. 6.4. The AO did not discuss the issue of the specific plant & machinery. However, the AO discussed the issue whether the appellant was mineral oil concern or not. The AO stated that the business of the appellant was only to give on hire plant & machinery. The appellant was by itself not a mineral oil concern. The AO cited several case laws which defined what was a mineral oii concern. The AO finally concluded that the appellant was not a mineral oil concern. Therefore the appellant did not fulfill one of the basic conditions which entitled it to claim depreciation at 60%. 6.5. The AO also held that the appellant had quoted the decision of the Hon'ble Delhi High Court in the case of CIT vs. HLS India Ltd. But the AO was not following the decision as the SLP had been filed before the Hon'ble Supreme Court. 6.6. The appellant claimed that there was no doubt that the appellant was eligible to claim depreciation on the assets as it owned t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wn the decision of the Hon'ble Delhi High Court in the case of CIT vs. HLS India Ltd. by the appellant. The observations of the Hon'ble court are as under: "43. Now the question before us in this regard is as to whether the assessee can be termed as a -mineral oil concern so as to put it in a position from where it can be entitled to claim depreciation & 100% under the Item III (3) (ix) (b) in Appendix-I to the Income Tax Rules, 1962; and further, even if the assessee is not a mineral oil concern, can it be given benefit of the aforesaid provision on the basis of nature of operation of its high-tech wireline logging and perforation equipments. 44. At this point, it would be interesting to note that while the appeal against the order of the ITA T dated 10.01.2002, whereby it has upheld the action of the CIT(A) to reverse the fresh assessment order passed by the AO in pursuance of the direction of the ITA T dated 10.10.1998 to do so is filed in this court in the year 2002 [listed before us as ITA 208/2002], however, the appeal against the original order of the ITAT dated 10.10.1998 whereby it had reverted the matter back to the table of the AO was filed by the revenue in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eral oil concerns as the assessee's equipments are mobile in nature while the equipments used by ONGC and OIL are permanently affixed down the hole. Hence, it is not entitled to 100 per cent depreciation. As opposed to this Mr. Vohra, though admitting that assessee is not a mineral oil concern, has submitted that even if it is not producing any oil nor has been engaged in the ITA Nos. 194/2005, 208/2002 & Ors. Connected Matters Page 47 of 52 activity of oil drilling, even then it is lawfully entitled to depreciation allowance in respect of the plant and equipment owned and used by it in carrying out wire-line logging operations below the ground in the oil wells of mineral oil concerns at the rate of 100 per cent of the actual cost/written down value thereof as prescribed in item III(3)(ix)(b) of the table of rates of depreciation in Appendix-I to the IT Rules, 1962. 46. After hearing learned counsels for the parties at length on this issue, we are of the opinion that the Revenue's stand on this issue lacks substance. Sec. 32(1) of the Act provides for a deduction in the computation of business income, on account of depreciation of buildings, machinery, plant or furniture ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich it is used. When the OIL has certified in this regard, that the wireline logging d perforation equipments/tools which are used by the assessee are similar to those equipments/tools owned and used by mineral oil concerns and when there is no shadow is casted over the fact that the similar assets would qualify for a depreciation & 100% under the said entry if these are owned by a mineral oil concern like OIL, we do not find any substance in the department's approach to deny the same to the assessee on the ground that the owner of the similar assets, we are concerned with, will not be so entitled. Mentioning of the fact, in the letter of OIL dated 13 Nov 1998 that these equipments/tools are meant only for use in underground oil field operations for wireline logging d perforation leaves no iota of doubt that the nature of assessee's equipments and its user is similar to those equipments which are owned by the mineral oil concerns and eligible for depreciation under the aforesaid entry. The artificial distinction regarding the mobile nature of the assessee's equipments, which has been created and relied upon by the department, is of no use because even if such a distinc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing terms. "19. We have heard both the parties and perused the material available on record. In the instant case of the assessee, both the conditions are duly satisfied since the oil rigs being plant of 'specific category' are owned by the assessee and further it is used in drilling operations for the purpose of exploration & extraction of mineral oil in the field of mineral oil concerns. The assessee claimed depreciation @ 60% on Oil rigs which has been used for drilling operations in the oil field of mineral oil concerns as per entry at Part A-III-(8) (xii) of New Appendix I, applicable from Assessment Year 2006-07 onwards. The same is evident from Annexure B to the Tax Audit Report for relevant assessment year. The Hon'ble jurisdictional High Court in case of CIT vs. HLS India Ltd. (2011) 335 ITR 292 held that: "Depreciation allowance is a kind of tax benefit which is given to the business concerns for promotion of business activities in any particular field of business. In the instant case depreciation is allowable to mineral oil concerns @ 100% on the equipments used below the earth surface. If the same depreciation is not allowed to other business concerns ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epairs & maintenance. 8.1 The AO has treated Rs. 2,40,72,898/- out of Rs. 2,77,85,775/- as capital expenditure. However, the AO has not given details of which items were considered to be capital in nature. 8.2. The appellant stated that the expenditure was incurred for buying MS Plates Spares, Steel wires, overhauling charges and labour charges. I shall now discuss whether the expenses are of capital or revenue nature. 8.3. The main issue here is that by incurring the expenditure the appellant is not able to gain a benefit of an enduring nature. The expenditure would not bring an advantage for the enduring benefit of trade. The expenditure is also of a recurring nature. The expenditure incurred is not of a capital nature but it is revenue in nature. 8.5 The observation of the Hon. ITAT, Delhi in the case of ITO, Ward-33(2) vs. M/s. Gokal Chand Hari Chand are as under: "7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that the said expenditure ITA No. 5031/Del/2011 7 is a revenue and not a capital in nature. Such expenditure has been incurred by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that during the financial year relevant to assessment year under consideration, the assessee debited an amount of Rs. 3.65 crore towards 'repair and maintenance' of machinery out of the sum of Rs. 2.77 crore were incurred towards repair and maintenance (equipment) given on hire by the assessee. These expenses were incurred towards procurement of M.S. Plates, channels, angles, repair kit, spares and repair of drill pipe testing, repair of fuel injection pumps, repairing bunk house, etc. as reflected in page 76-82 of paper book. It was submitted that the assessee was engaged in the business of providing mobile drilling rigs, equipment and other related services to oil and gas industry. Details of contracts in operation, as placed in the paper book, would show that the assessee was under contractual obligation to provide at its own cost, any items of equipment, spare parts, supplies and materials, etc. as required for normal operations. In the process, the assessee has generated revenue of Rs. 34.80 crore from such operations. The expenses incurred bore nexus of first degree to perform the contract in ordinary course. It was thus contended that the expenditure incurred towards....