AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 264
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....ty Director of Income Tax ("Assessing Officer") u/s 143(3), in pursuance 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 Assessing Officer has erred in law and facts in disallowing claim of deduction under section 42 of the Act of Rs. 41,427,366/-. 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 While disallowing appellant's claim for deduction under section 42, the Assessing Officer has erred, 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 While disallowing appellant's claim for deduction under section 42, the Assessing Officer has erred, in not granting depreciation at 60% together with additional depreciation 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 no....
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....ence:- "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, assessmen....
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....placing reliance on the ITAT Ahmedabad decision in the Niko Resources Ltd. in ITA No. 661/Ahd/2005-06. The assessee is in appeal before us against the aforesaid addition confirmed by the DRP. 6.2 Before us, the counsel for the assessee submitted that DRP has erred in facts and in law in holding that to be eligible for claim for deduction the asset should be used for "distribution", whereas the aforesaid entry in appendix-1 does not mandate any such requirement. Further, the counsel for the assessee submitted that relying on the decision of Gujarat High Court in the case of Niko Resources Ltd. in Tax Appeal No. 1193 of 2009 vide order dated 20-07-2016, the High Court held that minerals oil wells will form part of "plant and machinery" and not "building". Accordingly, the ITAT Ahmedabad in assessee's own case for assessment year 2005-06, assessment 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 ou....
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.... Hence, the issue raised in this Appeal is answered in favour of the assessee and against the Department. The Appeal stands disposed of accordingly. 23.1 As the facts in the case on hand and the facts of the case as discussed in the case of Niko Resources Ltd (supra) are identical, therefore, respectfully following the order of the jurisdictional High Court as discussed above, we hold that the oil well is part of the plant and machinery. Hence, the ground of appeal raised by the assessee is allowed." 6.5 Accordingly, respectfully following the aforesaid decisions, we hold that the oil wells are eligible for depreciation as "plant and machinery". 6.6 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. 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 @....
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.... the issue in accordance with the direction of Hon'ble Supreme Court in CC No. 18380 of 2015. Accordingly, it was submitted before us that the matter may be restored to the file of Ld. Assessing Officer with similar directions as given by ITAT in assessee's own case for A.Ys. 2007-08 and 2008-09. 13. It would be useful to reproduce the relevant extracts of the ITAT ruling in assessee's own case for A.Ys. 2007-08 and 2008-08, with respect to this ground of appeal for ready reference:- "15. The issue for consideration in relation to this ground of appeal is whether each well operated by the assessee is a separate "undertaking" eligible for deduction u/s. 80IB(9) of the Act. Before us, the counsel for the assessee submitted that the ITAT in assessee's own case for A.Y. 2005-06, A.Y. 2001-02 and A.Y. 2002-03 has decided this issue in favour of the assessee by relying on the Gujarat High Court decision in the case of Niko Resources supra. Further, the counsel for the assessee submitted that the above order has also been followed by the ITAT in assessee's own case for A.Y. 2006-07. 15.1 We observe that the benefit of deduction u/s. 80IB(9) given to undertakings engag....
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....or 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 own case for assessment year 2001-02, 2002-3 and 2005-06 at this juncture, we are refraining from adjudicating ground nos. 3 & 4 and restore the matter back to the file of Assessing Officer to decide the issue in accordance with the directions of the Hon'ble Supreme Court decision in CC NO. 18370 of 2015 as referred to above. 16. In the result, issues raised vide ground nos. 4 & 5 of assessee's appeal are set aside to the file of Assessing Officer for fresh adjudication in the light of order of Hon'ble Supreme Court of India. " 14. Accordingly, in light of the above observation made by ITAT in assessee's own case for A.Ys. 2007-08 and 2008-09, Ground No. 3 of the assessee's appeal is set-aside to the file of Assessing Officer for fresh adjudication in light of order of Hon'ble Supreme Court of India. Gro....
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....int venture from L & T and the said amount was shown by the assessee itself as "goodwill" in its books of account. Accordingly, the claim of the assessee that this amount does not represent goodwill cannot be accepted. Secondly, even if the claim of the assessee is accepted that the aforesaid payment was made for acquiring participating interest in the joint venture, and is not in the nature of goodwill, even then, rights acquired by the assessee do not fall in any of the categories of "intangible assets" as prescribed by section 32(1)(ii) of the Act and hence depreciation is not admissible. Thirdly, the DRP held that the contention of the assessee that since the block of assets was decided in assessment year 2003-04, the same cannot be changed in the subsequent year is not acceptable. The DRP held that if an error has been committed in the earlier assessment year, it would not prevent the Income Tax Authorities from taking the correct legal view in the subsequent year. Accordingly, the DRP upheld that disallowance of depreciation of Rs. 14,33,744/- on the said amount. 37.2 Before us, the contention of the counsel for the assessee was two fold. Firstly, that DRP had disall....
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....siness of the assessee or for any other reason whatsoever. However, the above principle would not apply if the depreciation which was allowed to the assessee is per-se incorrect. For instance, if, an asset eligible for depreciation @ 15% has been formed part of the block assets eligible for deprecation @ 60% and the depreciation was allowed to the assessee on such block of assets "including the assets" which is eligible for deprecation @ 15%, for the reason that the Assessing Officer failed to examine the claim of depreciation during the course of assessment, then in such a case, in our considered view such incorrect claim can be re-examined by the Department in the subsequent years. In such circumstances, the assessee does not get a vested right to a higher claim of depreciation simply on the ground that an asset has been placed in another block of assets on which depreciation has been inadvertently allowed to the assessee in the earlier assessment years. Therefore, the above contention of the assessee cannot be accepted that simply because the assessee has been allowed depreciation on a block of assets, albeit incorrectly, this would give a vested right to the assessee to claim d....
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.... any "goodwill". Further, the assessee submitted that even though the amount paid for acquiring the participating interest is debited as "goodwill", it is a settled law that nomenclature in books would not determine the nature of asset. Therefore, the amount paid to L & T towards purchasing or acquiring statutory right which entitles the company to carry out its business activity, falls within the purview of "intangible assets" and is eligible for depreciation u/s. 32 of the Act. Therefore, as per the above submissions of the assessee, while assessee has debited the aforesaid asset as "goodwill" in its books of accounts, however, during the course of proceedings before the Department, the assessee itself submitted that the nomenclature in the books of accounts is not representative of the true character of asset and the assessee is eligible for claiming depreciation on the aforesaid asset as "intangible assets" u/s. 32 of the Act. However, we observe that the eligibility of assessee's claim of depreciation has not been examined in detail by the Assessing Officer during the course of assessment proceedings, i.e. whether the assessee is eligible to claim depreciation as "goodwill" as....
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....f Rs. 1,44,67,504/- under Section 40(a)(ia) of the Act on account of non-deduction of tax at source. 21. The brief facts in relation to this ground of appeal are that the assessee made payment of Rs. 1,44,67,504/- as reimbursement of expenses to Head Office towards geological mapping and production engineering paid by Head Office to third party individual consultants on behalf of the assessee. The DRP directed the AO to examine whether payment was made to individuals or corporate and directed that if the payment was made to individuals then Article related to "independent personal services" would be attracted and the DRP directed the AO to examine whether any tax was payable in India as per the said Article. However, the AO did not examine this specific direction given by the DRP and asked the assessee to furnish the "tax residency certificate" of the above mentioned consultants. The assessee was however, only able to produce self-declaration of those individuals as proof of residency. However, the AO did not accept the self- declaration furnished by those individuals as proof of tax residency and accordingly held that the provisions of the India-USA Tax Treaty cannot be applied....
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....hich was held to be capital in nature. While passing the order, ITAT in assessee's own case for A.Y. 2007-08 made the following observations:- "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 hence may be allo....
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....09-10 with respect to deduction under Section 80IB(9) of the Act the matter was restored to the file of Assessing Officer to allow the assessee's claim of deduction under Section 80IB(9) of the Act in line with the directions given by Hon'ble Supreme Court, with whom the present issue is pending. 32. Accordingly, in light of observations made in assessee's appeal in Ground No. 3 for A.Y. 2009-10, the matter is being restored to the file of the Assessing Officer to grant relief to the assessee, in accordance with law. Ground No.2:- DRP erred in deleting addition of preliminary drilling expenses (Rs. 19,30,216/-) 33. Before us, at the outset, the Counsel for the assessee submitted that the ITAT in assessee's own case for A.Ys. 2007-08 and 2008-09 has allowed the appeal of the assessee on this issue. Accordingly, this issue needs to be decided in favour of the assessee. 34. It would be useful to reproduce the relevant extracts of the ITAT in assessee's own case for A.Y. 2007-08 for ready reference:- "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 accou....
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....uring the year under consideration, the assessee made payment of Rs. 5,04,591/- for subscribing to pool of data which is available to the public at large and accordingly, the assessee was of the view that the payment do not qualify as fee for technical services. The Assessing Officer was of the view that the aforesaid payment was made by the assessee for getting access to a data base which is not publicly available. Accordingly, the Assessing Officer was of the view that TDS was required to be deducted on the aforesaid payments and accordingly, the Assessing Officer disallowed the aforesaid payments under Section 40(a)(ia) of the Act. 37. In appeal, the DRP held that subscription to a data base is not technical service made available as per DTAA and accordingly, directed the Assessing Officer to delete the disallowance. 38. Department is in appeal before us against the aforesaid relief granted by DRP. Before us, the Ld. DRP placed reliance on the observation made by the AO in the draft assessment order. In response, the Ld. Counsel for the assessee placed reliance on the observation made by the DRP and argued that DRP after considering the facts of the instant case has correc....
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....fy as "technical services" in terms of the Act or the DTAA. 43. On going through the facts of the instant case, on a preliminary perusal of the expenses (training expenses), the same prima facie seem to qualify as payment for "technical services". Further, we observe that the DRP, while allowing the appeal of the assessee has not given in specific finding on merits as to why payment for providing training services do not qualify as "fee for technical services" under the Act read with the Treaty. Accordingly, in the interest of justice, the matter is being restored to the file of AO to give detailed findings as to the nature of expenses and the assessee is also directed to file necessary details and also provide break-up as payment in support of its contention that the aforesaid payment do not qualify as fee for technical services under the Income Tax Act read with the DTAA. 44. In the result, Ground No. 4 of the Department's appeal is allowed for statistical purposes. Now we shall take up the assessee's appeal in ITA No. 766/Ahd/2014 for A.Y. 2010-11 Ground No.1:- Not allowing depreciation on opening WDV of amount of claim made under Section 42 45. In lig....
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....still pending for disposal. 51. In light of the above facts, in the interest of justice, the DRP is directed to give a finding as to whether the aforesaid services qualify as "fee for technical services" under the Income Tax Act read with India-USA Tax Treaty, since from perusal of the contents of the order passed by DRP, no specific findings has been given by DRP on this issue. Accordingly, the matter is being restored to the file of DRP with the aforesaid directions. 52. In the result, Ground No. 4 of the assessee's appeal is allowed for statistical purposes. Ground No.5:- Disallowance of claim of depreciation and additional depreciation on certain assets at 60% being Plant & Machinery 53. In light of our observation with respect to Ground No. 2.2 of assessee's appeal for A.Y. 2009-10 Ground No. 5 of the assessee's appeal is allowed for A.Y. 2010-11 for statistical purposes. Ground No.6:- Not allowed depreciation on expenditure capitalized in AY 2007-08 assessment. 54. In light of our observation with respect to Ground No. 7 of assessee's appeal for A.Y. 2009-10 Ground No. 6 of the assessee's appeal is allowed for A.Y. 2010-11. 55. Ground No. 7 of....
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....n the instant case, no technology has been "made available" to the assessee during the course of providing of aforesaid "audit services", which is a mandate of Article 12 of the India-USA DTAA for any services to qualify as "fee for technical services / fee for included services" under the India-USA Tax Treaty. In our considered view, DRP has correctly observed that looking into the instant facts and nature of services for which payment was made by the assessee viz. audit services, there can be no inference that any technology was "made available" to the assessee, looking into the nature of services availed by the assessee. Further, it is also not the allegation of the Department that RPS, USA has a permanent establishment or fixed placed of business in India so that the income erred by RPS USA should be taxable under Article 7 of the India-USA Tax Treaty as business profits in India. Further, in the case of ACIT vs. BSR and Company 70 taxmann.com 69 (Mumbai Tribunal), the ITAT held that different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer-pricing, information technology, background check....