AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 1003
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....g 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 compliance 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 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 t....
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....ome Tax Rules, 1962 and thereby disallowing Rs. 5,70,657. It is submitted that it be so held now. 8.1 Without prejudice to above, the learned Assessing Officer has erred in making disallowance of Rs. 5,70,657 instead of Rs. 2,97,057. It is submitted that the appellant has claimed depreciation 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 sa....
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.... Officer made certain disallowances against which the assessee further filed objections before DRP. The ground wise appeal of the assessee against the order passed by DRP is discussed below in succeeding paragraphs. 4. Ground No 1 is general and does not require any adjudication. Ground No. 2 (Disallowance of claim u/s. 42 of Rs. 21,83,64,955/-) 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 be....
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....ssment year 2001-02 and assessment year 2002-03 allowed depreciation at higher rate to the assessee. Further, the above order of ITAT has also been followed by ITAT in assessment year 2006-07 in assessee's own case in ITA No. 2389/Ahd/2015 read with MA No. 149/Ahd/2021. The copies of the aforesaid orders have been placed before us for our perusal. 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 de....
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....om the assessee to ascertain the nature of additions made and allow depreciation as per the above directions. 7. In the result, ground no. 2.1 of the assessee's appeal is allowed with the above directions to the Assessing Officer. Ground No. 2.2 (Oil field equipment are eligible for depreciation @ 60% being plant and machinery) 8. In ground no. 2.2, the assessee'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 Offi....
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....;ble Supreme court in case of CIT vs. Sesa Goa Ltd reported in 271 ITR 331 where the Hon'ble court held as under: 9. The reasoning given by the High Courts, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This Court had, as early as in 1961, in Chrestien Mica Industries Ltd, v. State of Bihar[1961] 12 STC 150 defined the word "product/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 connotatio....
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.... assessee failed to give appropriate details of its claim of foreign exchange gain into "realized" and "unrealized" gains and therefore the same is required to be reduced from the written down value "WDV" of the relevant block of asset before allowing depreciation as per the provisions of section 43A of the Act. The assessee filed objection before DRP who upheld the order 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....
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....urces Foundation vs. Union of India 416 ITR 485 (SC) refused to read-down the amendment in such a manner. In the aforesaid case, the Hon'ble Supreme Court held that constitutional validity of any provision and specially taxing provision cannot be struck down on a plea based on equity or/and hardship in a taxing statute and same is not legally sustainable. 15.3 Accordingly, 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 he....
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....y prohibited by the DTAA unless the same is in the nature of reimbursement. 18. Before us, the counsel for the assessee submitted that in the immediately succeeding year i.e. assessment year 2008-09, the DRP has allowed this issue in favour of the assessee. Therefore, it was submitted that since the Department itself in the immediately succeeding year has allowed this 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. Departm....
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....e and Indian Branch towards UK head office does not fall in the nature of head office expenses and hence could not be disallowed u/s. 44C of the Act. In the case of John Wyeth & Brothers Ltd. 26 taxman 106, the ITAT 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. 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 Ass....
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....ure) Ground No. 9.1 (Assessing Officer erred in not granting depreciation u/s. 32 of the Act in the event of considering renovation expenditure as capital expenditure) 26. Before us, the counsel for the assessee submitted that during the impugned assessment year, the assessee incurred certain expenditure relating to office renovation expenses 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 he....
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.... has capitalized the expenditure of purchase of water injections). Accordingly, looking into the nature of expenses since the same have been incurred for creation of a capital asset, the same are of capital account and hence are not allowable as revenue expenditure. 30.1 However we are in agreement with the contention of the assessee 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 sectio....
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.... of action is proceeding under section 201 of the Act, thus, impugned disallowance u/s. 40(a)(ia) was to be deleted. Respectfully following the aforesaid decision, we are of the considered view that this issue stands decided in favour of the assessee and accordingly, no disallowance is called for on account of aforesaid short 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 ....
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.... however, the aforesaid decision has been reversed and decided in favour of the assessee by the Hon'ble Supreme Court in the case of Techno Shares and Stocks Ltd. vs. CIT 193 taxman 248. Accordingly, since the aforesaid case has since been decided by the Supreme Court in favour of the assessee and since the issue was decided 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, sinc....
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.... not in agreement with the argument for the assessee that the claim of depreciation can be examined by the Department only in the first year when the asset was acquired and the Department is precluded from examining claim of depreciation in the subsequent assessment years. In our considered view, if the Department omitted 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....
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....e interest of justice, this issue is being restored to the file of Assessing Officer to examine firstly, whether or not depreciation is allowable on the aforesaid asset and under which category the assessee is claiming depreciation on the same i.e. as depreciation on goodwill or as depreciation of "any other commercial 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. Di....
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....ces, the learned Assessing Officer ought to have allowed the same as revenue expenditure. It be so held now. 6 The learned Assessing Officer has erred in granting depreciation allowance at 15% instead of 60% on various plants used by the appellant in the field operations as per Entry III(8)(xii) of Appendix I to the Income Tax Rules, 1962. 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,....
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....er as per directions given in ground no. 13 of assessee's appeal for assessment year 2007-08 Ground No. 7 (Assessing Officer erred in considering repairs and maintenance expenditure of Rs. 91,904/- as capital expenditure 48. In respect of the above ground, the counsel for the assessee submitted that the expenditure relates to dismantling 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,....