TaxTMI 
TaxTMI 
2010 (4) TMI 1248
X X X X Extracts X X X X
X X X X Extracts X X X X
....resident of Canada and is eligible for the benefits of the agreement between the Government of India and the Government of Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital. The assessee-company entered into a joint venture with Gujarat State Petroleum Corporation Limited (in short 'GSPCL') for the exploration and development of natural gas and oil fields in India. The Niko-GSPCL joint venture entered into production sharing contracts (in short 'PSC') with the Government of India on 23.09.1994 for the exploration and development of five designated natural gas and oil fields in Gujarat (in short 'Niko-GSPC block'_. The assessee-company was permitted by the Reserve Bank of India to set up a project office in India w.e.f. 14.08.1994. For the assessment year under appeal, the assessee-company filed its return of income on 27.11.2000 declaring income of Rs.1,37,99,468/-. Since the total income computed under normal provisions of Income Tax Act fell short of 30% of the book profit therefore, it returned its income at Rs. 2,25,77,576/- u/s. 115JA of I.T. Act, 1961. The Assessing Officer framed the assessment und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....basis of which the claim was made was a part of record for the assessment proceedings. (c) It is well settled law that if the assessee makes a bonafide claim for deduction, which is negative, does not justify the imposition of penalty. In support of this, reliance was placed on the following decisions :- (i) Burmah Shell Oil Storage Distributing Co. of India Ltd. -vs.- ITO [112 ITR 592 (Cal.); (ii) CIT -vs.- Mehta Engineers [300 ITR 308]; (iii) CIT -vs.- Oriental Power Castle Ltd. [303 ITR 49]; (iv) Mahavir irrigation Pvt. Ltd. -vs.- CIT [314 ITR 150 (AT)]; (v) CIT -vs.- Haryana Warehousing Corporation [314 ITR 214]; (vi) India Petroleum Pvt. Ltd. -vs.- JCIT [315 ITR 40 (AT)]; (vii) Gujarat Credit Corporation Ltd. -vs.- ACIT [113 ITD133 (SB)]; (viii) ACIT -vs.- Mahindra Shabhlab Services Ltd. [315 ITR 361]; (ix) ACIT -vs.-VIP Industries Ltd. [122 TTJ 289]. (d) The facts that claim of the assessee was bonafide is borne out by - (i) the Assessing Officer has himself allowed the deduction under section 42 as claimed from assessment years 1996-97 to assessment year 2000-01 in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee's letter to the Assessing Officer dated 25th February, 2005 wherein the assessee requested the Assessing Officer that even if the claim under section 42 is disallowed, a deduction for depreciation in terms of section 32 should be allowed as a deduction. It is submitted that the imposition of penalty in respect of an issue which was raised as an alternative contention is without any basis. (ix) Without prejudice to the above the computation of the penalty on the basis of the difference between the tax payable on the income assessed as a consequence of giving effect to the order of the Learned Commissioner of Income Tax(Appeals) as well as the tax payable on the income declared in the return is erroneous. This is so because the tax payable determined as a consequence of the order giving effect to the Learned Commissioner of Income Tax(Appeals) is worked out at Rs.6,72,90,300/- which is even higher than the deduction under section 42 of Rs.4,58,84,791/- that was claimed and disallowed. The main reason for the differential is on account of the fact that the set off of the brought forward loss of Rs.13,21,37,659/- which was allowed in the reassessment was not allowed wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal confirming the disallowance of expenditure on exploration and drilling activities amounting to Rs.4,58.84,791/- claimed under section 42 of the Income Tax Act, 1961. Therefore, in respect of disallowance of bonafide expenditure/ deduction claimed in the return of income, penalty under section 271(1)(c) is not leviable. For this, reliance was placed on the decision of ITAT, Ahmedabad (Third Member) in the case of Rupam Mercantile Ltd. -vs.- DCIT [91 ITD (Ahd.) (TM) 237]. With regard to penalty levied by the A.O. restricting the depreciation to 10% as against 25% claimed by the assessee on expenditure on land based drilling platform, the ld. counsel of the assessee submitted that the said issue is highly debatable for which no penalty under section 271(1)(c) is leviable. Both the claims made by the assessee are bonafide which is evident from the fact that in the original assessment framed under section 143(3) on 26.02.2003, these were allowed by the A.O. On this ground alone, penalty levied by the Assessing Officer under section 271(1)(c) in respect of these two additions/ disallowances deserve to be deleted. 7. Having heard both the sides, we have carefully gone throug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce to hold that the judgment of the Hon'ble Supreme Court in the case of CIT -vs.- Reliance Petroproducts Pvt. Ltd. (supra) is squarely applicable to the facts of assessee's case. The appeal of the assessee against non-allowance of claim under section 42 of the I.T. Act has been admitted by the Hon'ble Gujarat High Court under section 260A of the Income Tax Act, 1961. Whether land based drilling platform is to be treated as part and parcel of plant and machinery or not is a debatable issue. Admittedly, the case of the assessee does not fall within the mischief of main provision of section 271(1)(c) of the Income Tax Act, 1961 because mere rejection of assessee's claim would not be sufficient to hold the assessee to be guilty of concealment. The Hon'ble Gujarat High Court in the case of Sarabhai Chemical (P) Ltd. [2002] 257 ITR 355 (Guj.) held as under :- "The deeming fiction that the added/ disallowed amounts represent the income in respect of which particulars have been concealed contained in Explanation 1 will not apply if the explanation that was given by the assessee in the quantum proceedings which he could not substantiate in those proceedings was (i) bon....