Geo Enpro Petroleum Limited vs Deputy Commissioner Of Income Tax
2009 Latest Caselaw 1831 Del

*               THE HIGH COURT OF DELHI AT NEW DELHI

%                                 Judgment delivered on : 04.05.2009

                        ITA 1070/2007, 1071/2007,
                          1072/2007 & 1073/2007

GEO ENPRO PETROLEUM LTD.                        ..... Appellant

                                    versus

DY. COMMISSIONER OF INCOME TAX                   ..... Respondent

Advocates who appeared in this case:

For the Petitioner : Mr S. Ganesh, Sr. Advocate with Mr H.

Raghavendra Rao, Advocate.

For the Respondent : Ms Prem Lata Bansal, Sr. Standing Counsel with Mr Sanjeev Rajpal, Mr Mohan Prasad Gupta & Ms Anshul Sharma, Advocates

CORAM :-

HON'BLE MR JUSTICE VIKRAMAJIT SEN HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may be allowed to see the judgment ? Yes

2. To be referred to Reporters or not ? Yes

3. Whether the judgment should be reported in the Digest ? Yes

RAJIV SHAKDHER, J

1. The above captioned appeals have been preferred by the

assessee under Section 260A of the Income Tax Act,

1961(hereinafter referred to as the „Act‟) against a common

judgment dated 04.05.2007 passed by the Income Tax Appellate

Tribunal (hereinafter referred to as the „Tribunal‟) in ITA No.

3240/Del/05 and ITA No. 3551/Del/05 in respect of the assessment

years 2000-01 and 2001-02 respectively filed by the assessee and

ITA No. 3634/Del/06 and ITA No. 3635/Del/06 in respect of

assessment years 2003-04 and 2004-05 respectively filed by the

Revenue.

2. The only issue which arises for our consideration is whether

the Tribunal erred in coming to the conclusion that the commercial

production, in the case of the assessee, had commenced in the

assessment year 1996-1997 for the purposes of deduction under

Section 80-IB(9) of the Act . The assessee‟s case before us was that

the commercial production had commenced in the assessment year

1999-2000. In order to dispose of these appeals the following facts

require to be noticed.

2.1 The Government of India had issued a Notice Inviting Tender

(in short „NIT‟) for developing certain oil fields which included the

Kharsang oil field in the state of Arunachal Pradesh. The assessee

at the relevant time was a member of a consortium which

responded to the NIT. The consortium‟s bid was successful and

consequently it entered into a Production Sharing Contract (in

short „PSC‟) with the Government of India dated 16.06.1995. Under

the PSC, the Government of India handed over 36 oil wells which

had already been drilled alongwith 10 new oil wells. It is important

to notice at this stage that the assessee was incorporated only on

13.04.1994.

2.2 The Government of Arunachal Pradesh executed a lease in

favour of the consortium for carrying out the mining operations in

respect of the Kharsang oil fields. It is important to note that the

lease was granted with retrospective effect, that is, 16.06.1995

(being the date on which PSC was executed) for a period of 20

years. During the financial year 1995-96, relevant to assessment

year 1996-97, the consortium produced crude oil to the extent of

9430 metric tons. Since the assessee‟s share was 10% of the total

production of the consortium; the assessee‟s production share was

pegged at 943.20 metric tons. In the subsequent two years the

total production of the consortium was 11,990 metric tons and

11,170 metric tons. Accordingly, as in the preceding period the

assessee‟s share was 10% of the said total production of the

consortium.

2.3 The assessee‟s stand before us is that it commenced work-

over operations (the learned counsel for the appellant prefers to

refer to it as make-over operations) on the oil wells from January,

1998. The delay in commencing work-over operations, as explained

by the assessee to the authorities, was on account of the delay in

execution of the mining lease. It is the claim of the assessee that

the work-over operations took almost one year three months and

thus, according to the assessee the work-over operations were

completed in April, 1999. It was also stated by the assessee before

the authorities below that commercially feasible quantities were

produced by the assessee in the financial year relevant to

assessment year 2000-01. The assessee‟s claim was that prior to

the work-over operations the production of the crude oil was

approximately between 31 to 37 metric tons per day and after the

work-over operations were completed the commercial production in

the previous year 1998-99 relevant to assessment year 1999-2000

was in the range of 134 metric tons per day to 167 metric tons per

day.

3. The Assessing Officer for the assessment year 2000-01

disagreed with the stand adopted by the assessee. The Assessing

Officer was of the view that the "initial assessment year" for the

purposes of Section 80-IB(9) of the Act would be assessment year

1996-97.

4. The assessee being aggrieved carried the matter in appeal to

the Commissioner of Income Tax (Appeals) - X, New Delhi

[hereinafter referred to as the "CIT(A)-1"). The CIT(A)-1 reversed

the order of the Assessing Officer and came to the conclusion that

the initial assessment year for the purposes of Section 80-IB(9) of

the Act would be assessment year 1999-2000 which according to

her was the year in which the assessee had commenced commercial

production. The same situation obtained for assessment year 2001-

02. Following her earlier order CIT(A)-1 reiterated that the initial

assessment year for the purposes of Section 80-IB(9) of the Act

would be assessment year 1999-2000.

5. The Revenue being aggrieved by the said orders of CIT(A)-1

preferred an appeal to the Tribunal in respect of assessment year

2000-01 and 2001-02 being ITA nos. 3240/Del/05 and

3551/Del/2005 respectively.

5.1 The issue as to what was the initial assessment year for the

purposes of Section 80-IB(9) of the Act also came up for

consideration before the Assessing Officer in assessment years

2003-04 and 2004-05. The Assessing Officer in respect of the said

assessment years similarly concluded that since initial assessment

year for the purposes of Section 80-IB(9) of the Act was assessment

year 1996-97 the deduction under Section 80-IB of the Act being

available only for a period of seven years from the date of initial

assessment year the relevant period expired in the previous year

relevant to assessment year 2002-03 and hence the deduction was

not available in the assessment years 2003-04 and 2004-05.

5.2 It seems that the Assessing Officer also took note of the

proviso to Section 80-IB(9) of the Act based on which he took the

view that since the undertaking of the assessee was located in the

North-Eastern region the production had to commence before the

1st day of April, 1997 and since that was not the case, even

according to the assessee, the assessee was not entitled to a

deduction any way in assessment years 2003-04 and 2004-05.

6. The assessee being aggrieved by the order of the Assessing

Officer in respect of assessment years 2003-04 and 2004-05

preferred appeals once again to the Commissioner of Income Tax

(Appeals)- XV, New Delhi [hereinafter referred to as the "CIT(A)-2"].

The CIT(A)-2 after considering the matter at length, including in

particular, the Director‟s Report of the assessee for the year ending

31.03.1996 returned a finding that commercial production had

commenced in respect of the assessee in assessment year 1996-97

and hence the said assessment year had to be taken as initial

assessment year for the purposes of Section 80-IB(9). What is

important is that the CIT(A)-2 returned a finding of fact that in the

previous year relevant to the assessment year 1996-97 the

consortium had extracted crude oil equivalent to 9430 metric tons.

7. Aggrieved by the order of the CIT(A)-2 in respect of

assessment years 2003-04 and 2004-05 the assessee preferred an

appeal to the Tribunal.

8. As indicated hereinabove, the Tribunal by the impugned

judgment disposed of the appeals of the Revenue for assessment

years 2000-01 and 2001-02 and that of the assessee for assessment

year 2003-04 and 2004-05. The Tribunal in the impugned

judgment, as indicated above, has returned following findings of

fact:

(i) In the financial year 1995-96 relevant to assessment year

1996-97 the consortium produced crude oil equivalent to 9430

metric tons. The assessee‟s share being 10% of the total production

came to 943.20 metric tons.

(ii) In the subsequent two years, that is, financial year 1996-97

and 1997-98 the consortium produced crude oil was 11,990 metric

tons and 11,170 metric tons respectively. Once again the

assessee‟s share was 10% of the total production.

(iii) The total production before the work-over operations

commenced was 10,000 metric tons and the production after the

commencement of the work-over operations was 44,630 metric

tons.

(iv) It was observed that the exploration carried out by the Oil

India Limited led to discovery of petroleum in commercial quantities

in the contract area.

(v) The Government desired that petroleum resources in the

contract area be exploited expeditiously which is why the

Government had invited bids from interested persons for

development of resources in the contract area. It was pursuant to

this that the consortium was granted rights to exploit petroleum

resources in the contract area. Importantly the finding is that oil in

commercial quantity was available and some oil was already

flowing. The consortium started production of crude oil soon

after the agreement was made. In order to ensure that

production was carried out in an efficient manner work-over

operations were carried out to improve the quality of the wells.

9. In the context of the aforesaid findings we have heard the

arguments advanced by both the counsels, Mr S. Ganesh, learned

Senior Advocate instructed by Mr H. Raghavender as well as Ms

Prem Lata Bansal, learned counsel for the Revenue. It was

submitted by the learned counsel for the assessee that the Tribunal

had committed serious error in taking the initial assessment year in

terms of Section 80-IB(9) to be assessment year 1996-97 for the

following reasons:

9.1 The PSC, that is, the contract between the assessee and the

consortium was executed only on 16.06.1995 and that there is no

dispute that under the contract the consortium of which the

assessee was a part took over 36 oil wells out of which 27 oil wells

were abandoned and 9 produced negligible output. It was

contended that apart from the 36 oil wells the assessee had also

been given 10 new oil wells. The fact that the majority of the oil

wells were those which had either been abandoned or produced

negligible output and hence required a make-over was lost sight of

by the Tribunal. The learned counsel also submitted that the

commencement of make-over operations was delayed on account of

the fact that the mining lease for the area was executed in favour of

the consortium by the State Government of Arunachal Pradesh only

on 21.10.1997. Consequently, the make-over operations could

begin only in January, 1998. It was contended that before the

make-over operations commenced the oil wells at an average were

producing equivalent to 30 metric tons per day. The make-over

operations, according to the learned counsel ended in March, 1999

when the per day production of crude oil reached 170 metric tons

per day. The learned counsel submits that in view of these facts

and circumstances, which cannot be disputed, the only conclusion

that the authorities below could have arrived at was that the initial

year of assessment at the earliest would be pegged as assessment

year 1999-2000.

9.2 It is important to point out at this stage that the learned

counsel for the assessee did not pursue the argument taken in his

appeal before the Tribunal that the initial assessment year was

assessment year 2000-01 when, according to the assessee, a

substantial commercial production took place.

9.3 Continuing his submission the learned counsel for the

assessee submitted that it is not the case of the department that the

assessee is not entitled to a deduction under the provisions of

Section 80-IB. If that be the case, some meaning would have to be

given to the provisions of Section 80-IB(9) read with section 80-

IB(14)(c)(iii). He submits that a plain reading of the provisions

would show that the assessee is entitled to a deduction for seven

consecutive assessment years commencing from the year in which

the commercial production took place. There is no denying that the

assessee was required to carry on make-over operations to enhance

the production of the oil wells. The learned counsel thus submits

that the Revenue could not have taken into account the make-over

period. It is only after the make-over operations were completed

that the commercial production in terms of Section 80-IB(9) read

with Section 80-IB(14)(c)(iii) of the Act could said to have

commenced.

10. As against this the learned counsel for the Revenue Ms Prem

Lata Bansal submitted that the issue raised by the assessee in the

appeal is a pure question of fact. The authorities below have

returned a finding of fact against the assessee and hence this court

need not look any further. The learned counsel for the Revenue in

order to drive home the point relied upon extracts from the balance

sheet of the assessee to demonstrate that the assessee itself had

taken the stand that it was entitled to a claim of deduction under

Section 80-1A (the provision as its stood prior to it being substituted

by 80-IB), however, chose not to claim the deduction only on the

ground that profits were not available. In this regard, the learned

counsel for the Revenue placed heavy reliance on the Director‟s

Report for the year ending 31.03.1996, 31.03.1997, 31.03.1998 &

31.03.1999. The learned counsel significantly referred to the

following extract from the document which is not disputed:-

GEO ENPRO PETROLEUM LIMITED ASSESSMENT YEAR 1999-2000 "NOTES ATTACHED TO THE STATEMENT OF TOTAL INCOME The assessee has entered into a Production Sharing Contract (PSC) with the Government of India on 16th June, 1995. In respect of the Kharsang Oil Field, the PSC has been placed before the parliament in accordance with the provisions of Section 42 of the Income Tax Act, 1961. The assessee has also been appointed as the Joint Operator under the PSC. After discovery of the petroleum in commercial quantities, the Government of India invited bids for the exploration and development of the said fields. The Kharsang Oil Field was awarded to the assessee together with other partners and workover was done

by the Joint Operator. Due to the workover, commercial production of crude oil was started by the Joint Venture during the Financial year 1997-98. According to the provisions of Section 80IB, the assessee is entitled for a tax holiday for a period of 7 consecutive years beginning with the year in which commercial production begins."

10.1 Based on the aforesaid the learned counsel for the Revenue

submitted that the assessee has been making inconsistent

statements. She submitted that the inconsistency in the financial

statement for assessment year 1999-2000 (extracted above)

becomes starkly obvious. When compared to assertions made in

financial year ending 31.03.1996 relevant to assessment year 1996-

97 where it is stated that it was entitled to a deduction under

Section 80-IA now Section 80-IB of the Act and that it had not been

so claimed only on account of absence of profit. She submits that

what makes it worse is that despite the statement made in

assessment year 1999-2000 that commercial production had

commenced in the financial year 1997-98 the appellant continues to

argue that commercial production commenced as on 1st April, 1999

and thus the initial assessment year would be 1999-2000. She

submitted that as a matter of fact before the Assessing Officer

contrary to its own financial statements the assessee had contended

that the initial year of assessment for the purposes of Section 80-IB

ought to have been assessment year 2000-01. It was, therefore, the

submission of the learned counsel for the Revenue that the shifting

stands of the assessee are a clear pointer to the fact that what the

assessee had indicated in its financial statement for the year ending

31.03.1996 was correct and that only to get out of the said situation

the assessee as the years progressed chose to shift the initial

assessment year with a view to claim a deductions for a longer

period, which is not available to it.

11. Having heard the learned counsel for the parties, it is relevant

to note that the following facts which have emerged and which

cannot be disputed are as follows:

11.1 The financial statement of the assessee for the assessment

years 1996-97, 1998-99 and 1999-2000 bear the following noting:

"GEO ENPRO PETROLEUM LIMITED

Assessment Year 1996-97

Accounting Year 1995-96

Computation of Business Income

Loss as per Profit & Loss Account xxxx

xxxx xxxx

xxxx xxxx

xxxx xxxx

NOTES:

(i) The Company alongwith other Consortium Members had entered into Production Sharing Contract dated 16th June 1995 with Government of India for Exploration, Development and Production of Crude Oil.

(ii) The Production Sharing Contract has been placed the Parliament pursuant to Section 42 of the Income Tax Act, 1961 (copy of notification enclosed).

(iii) In (the) absence of Profit, claim u/s 801A has not been made"

"GEO ENPRO PETROLEUM LIMITED

Assessment Year 1998-99

Accounting Year 1997-98

Computation of Business Income

Loss as per Profit & Loss Account xxxx

xxxx xxxx

xxxx xxxx

xxxx xxxx

NOTES:

(i) The company alongwith other Consortium Members had entered into Production Sharing Contract dated 16th June 1995 with Government of India for Exploration, Development and Production of Crude Oil.

(ii) The Production Sharing Contract has been placed the Parliament pursuant to Section 42 of the Income Tax Act, 1961.

(iii) In (the) absence of Profit, claim u/s 801A has not been made"

"GEO ENPRO PETROLEUM LIMITED

Assessment Year 1999-00

Accounting Year 1998-99

Computation of Business Income

Loss as per Profit & Loss Account xxxx

xxxx xxxx

xxxx xxxx

xxxx xxxx

NOTES:

(i) The Company alongwith other Consortium Members had entered into Production Sharing Contract dated 16th June 1995 with Government of India for Exploration, Development and Production of Crude Oil.

(ii) The Production Sharing Contract has been placed before the Parliament pursuant to Section 42 of the Income Tax Act, 1961.

(iii) In absence of Profit, claim u/s 80 1A has not been made.

(iv) The claim of Development Expenditure (u/s 42) includes Provision for Abandonment Sinking Fund amounting to Rs 2,71,200/- made in accordance with Production Sharing Contract provisions.

(v) Tax Credits in respect of Tax Paid under Sub Section (1) of Section 115JA carried forward as per provisions of Section 115JAA is Rs. 3,31,073/- as per given below:"

12. What is also not disputed is that in the notes attached to the

statement of total income filed by the assessee for assessment year

1999-2000 (which has been extracted hereinabove) it has taken the

stand that commercial production was started during the financial

year 1997-98. It is also not disputed that before the authorities

below the assessee chose to shift its stand by claiming that since

the commercial production commenced in the financial year

relevant for assessment year 2000-01, that should be taken as the

initial year for the purposes of deduction under Section 80-IB.

These documents which undisputedly have been generated by the

assessee and the statements made therein were put to the learned

senior counsel for the assessee Mr. S. Ganesh. Mr Ganesh in

fairness submitted that while he would find it hard to get out of the

statements made therein, he would, therefore, seek the indulgence

of this Court that the matter be remanded to the Tribunal to decide

the matter de novo so as to enable it determine as a matter of fact

as to when commercial production commenced for the purposes of

fixing the initial assessment year for the purposes of the assessee‟s

claim for deduction under Section 80-IB of the Act.

13. Having given a careful thought to the suggestion made by the

learned senior counsel for the assessee we are of the opinion that

the remand is not called for, in view of the fact that these very

documents have been specifically considered by the Tribunal

whereupon it has returned a categorical finding of fact that

commercial production commenced in the year relevant for

assessment year 1996-97. In our view this finding is a pure finding

of fact. If that be so, according to us, no question of law, much less

a substantial question of law arises for our consideration. These

appeals are thus dismissed.

                                              RAJIV SHAKDHER, J




May 04, 2009                                  VIKRAMAJIT SEN, J
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