Gujarat High Court

Director Of Income Tax (International ... vs Niko Resources Ltd on 13 November, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                        C/TAXAP/256/2012                                      CAV JUDGMENT DATED: 13/11/2025

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                                                                            Reserved On   : 15/10/2025
                                                                            Pronounced On : 13/11/2025

                                   IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                                 R/TAX APPEAL NO. 256 of 2012
                                                            With
                                                 R/TAX APPEAL NO. 279 of 2012
                                                            With
                                                 R/TAX APPEAL NO. 280 of 2012
                                                            With
                                                 R/TAX APPEAL NO. 281 of 2012

                      FOR APPROVAL AND SIGNATURE:


                      HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                      and
                      HONOURABLE MR. JUSTICE PRANAV TRIVEDI

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                                  Approved for Reporting                      Yes            No
                                                                                             ✓
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                                DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)
                                                     Versus
                                              NIKO RESOURCES LTD
                      ==========================================================
                      Appearance:
                      MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
                      MR B S SOPARKAR(6851) for the Opponent(s) No. 1
                      ==========================================================

                         CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                               and
                               HONOURABLE MR. JUSTICE PRANAV TRIVEDI


                                                           CAV JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned Senior Standing Counsel

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Mr. Varun K. Patel for the appellant and

learned advocate Mr. B.S. Soparkar for

the respondent.

2. Tax Appeal No.256 of 2012 is filed by

the Revenue under section 260A of the

Income Tax Act, 1961 (For short "the Act")

arising out of order dated 25.11.2011 in

ITA No.1608/Ahd/2009 for the Assessment

Year 2004-2005 and Tax Appeal Nos. 279 of

2012, 280 of 2012 and 281 of 2012 arises

out of common order dated 31.10.2011 in

ITA Nos.1605 to 1607/Ahd/2009 for

Assessment Years 2000-2001, 2002-2003 and

2003-2004 respectively passed by the

Income Tax Appellate Tribunal, Ahmedabad,

Bench-D, (For short "the Tribunal").

3. Tax Appeal No. 256 of 2012 is admitted

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vide order dated 09.08.2012 for

consideration of the following substantial

questions of law:

"1. Whether the Appellate Tribunal has substantially erred in confirming the order passed by the CIT(A) in cancelling the penalty of Rs. 27,17,33,613/- levied under section 271(1)(c)of the I.T.Act, 1961 ?

2. Whether the Appellate Tribunal has substantially erred in confirming the order of the CIT(A) in holding that no penalty should be levied under section 271(1)(c) if the tax liability as per the return of income and order giving effect to CIT(A)/ITAT remains the same due to provisions of MAT ?"

4. Tax Appeal Nos. 279, 280 and 281 of

2012 are admitted vide common order dated

09.08.2012 on the following substantial

questions of law:

"1. Whether the Appellate Tribunal has substantially erred in

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confirming the order passed by the CIT(A) in cancelling the penalty levied under section 271(1) (c) read with section 275(1A) of the I.T.Act, 1961

2. Whether the Appellate Tribunal has substantially erred in confirming the order of the CIT(A) in holding that no penalty should be levied under section 271(1)(c) if the tax liability as per the return of income and order giving effect to CIT(A)/ITAT remains the same due to provisions of MAT ?"

5. Since the issue involved in all these

tax appeals are identical, they have been

heard together and would be disposed of by

this common judgment.

6. For the sake of convenience, Tax

Appeal No.256 of 2012 is treated as lead

case. Brief facts of the case are that the

assessee company which is incorporated in

Canada is engaged in the business of

natural gas and oil exploration.

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7. The assessee company entered into a

joint venture with the Gujarat State

Petroleum Corporation Ltd. (GSPCL) for the

exploration and development of natural gas

and oil fields located in India. The joint

venture resulted in entering into

production sharing contracts with the

Government of India on 23.09.1994 for

exploration and development of five

designated natural gas and oil fields in

Gujarat. The assessee company also entered

into production sharing contracts on

17.07.2001 with the Government of India

for exploration and extraction of oil and

natural gas from Cambay Onshore India in

Surat District, Gujarat.

8. The assessee company filed its return

of income for the year under consideration

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on 01.11.2004 declaring a total income of

Rs. Nil. The return was processed under

section 143(1) of the Act on 21.03.2005.

9. Case of the assessee was selected for

scrutiny by the Assessing Officer. The

Assessing Officer framed the assessment

under section 143(3) of the Act vide order

dated 26.12.2006 determining total income

at Rs.180,28,35,714/- after making the

following additions/ disallowances:

i) Disallowance under section 42 of the

Act amounting to Rs.11,58,92,939/- for

Hazira and Bhandut block

ii) Disallowance under section 42 of the

Act amounting to Rs.54,39,72,612/- for

Surat Block

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iii) Disallowance of deduction under

section 80IB(9) of the Act amounting to

Rs.115,35,54,283/-

iv) Alternative claim of depreciation

restricted to 10% on drilling wells

amounting to Rs.2,62,24,500/-

v) Addition on account of school building

expenses treating it as capital

expenditure amounting to Rs.36,04,177/-

vi) Disallowance of claim of depreciation

on pipelines amounting to Rs.1,20,48,703/-

10. The Assessing Officer also initiated

the penalty proceedings under section

271(1)(c) of the Act for furnishing

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inaccurate particulars of income.

11. Being aggrieved by the assessment

order, the assessee preferred an appeal

before the CIT(Appeals). The penalty

proceedings were kept in abeyance till the

Commissioner of Income Tax (Appeals)

decided the quantum appeal.

12. CIT(Appeals) partly allowed the

quantum appeal vide order dated 26.07.2007

confirming the disallowance made by the

Assessing Officer insofar as deduction

under section 42 of the Act for Hazira and

Bhandut block, and Surat block, deduction

under section 80IB(9) of the Act and

claim of depreciation on pipelines.

CIT(Appeals) however allowed depreciation

at the rate of 80% on drilling Well

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instead of 10% restricted by the Assessing

Officer and allowed the expenses on school

building over a period of 10 years.

13. Being aggrieved by the order passed by

CIT(Appeals), both the assessee and

Revenue preferred cross appeals before the

Tribunal. The tribunal, vide order dated

19.03.2008 upheld the decision of

CIT(Appeals) insofar as disallowance of

deduction under section 42 of the Act for

Hazira and Bhandut block and Surat block,

deduction under section 80IB(9) of the Act

and granting claim of depreciation on

pipelines. Based on the decision of the

Tribunal, income was redetermined and the

quantum of penalty was recomputed at Rs.

66,27,64,909/- and minimum penalty of Rs.

27,17,33,613/- was levied on the assessee

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for furnishing inaccurate particulars of

income by the Assessing Officer.

14. Being aggrieved by the penalty order,

the assessee preferred an appeal before

the CIT(Appeals) who vide order dated

02.02.2009 allowed the appeal of the

assessee deleting the levy of penalty.

15. The Revenue therefore, preferred an

appeal before the Tribunal. The Tribunal

by the impugned order upheld the deletion

of the penalty levied in the facts of the

case relying upon the decision of Hon'ble

Supreme Court in case of CIT v. Reliance

Petroproducts Pvt. Ltd reported in (2010)

322 ITR 158 (SC) by observing as under:

"7. After hearing both the parties and perusing the record, we find that the Hon'ble Tribunal vide its order in ITA No.2477/Ahd/2008

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Asst. Year 2003-04 & ITA No.2719/Ahd/2008 Asst. Year 2003- 04 has confirmed the order of the Ld. CIT(A) deleting the penalty by observing as under :-

"9. Having heard both the sides, we have carefully gone through, the orders of authorities below. It is pertinent to note that these cross appeals were heard along- with the assessee's appeal being ITA No.2475/Ahd/2008 the assessment year 2000-01. In that assessment year, we have cancelled the penalty under section 271(1)

(c) in respect of disallowance of deduction wader section 42 of the Income Tax Act, 1961 in relation to Niko-GSPC block and disallowance of depreciation on land based platform which was restricted from 25% to 10% for the assessment year 2000-01. The reasoning given by the Tribunal in that order is contained in paras 7,8 & 9 which is re-produced hereunder :-

"7. Having heard both the sides, we have carefully gone through the orders of authorities below. Recently, the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) held that making incorrect claim does not

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amount to concealment of "particulars of income". The head notes of the said decision reads as under :-

'A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case if strictly covered by the provision, the penalty provisions cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the

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only document where the assessee can furnish the particulars on his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, no according to the truth or erroneous.

Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)

(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to10. In the assessment year 2002-03 in cross ap furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.'

8. It is true that in quantum proceedings, disallowance of expenditure claimed under section 42 as well as disallowance of excess depreciation on land based

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drilling platform is confirmed right upto Tribunal. In the original assessment framed by the Assessing Officer under section 143(3) on 26.02.2003, both the claim of the assessee were allowed. This, is our opinion, is suffice to hold that the judgment of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (supra) is squarely applicable to the faces of assessee's case. The appeal of the assessee against non-allowance of claim under section 42 of the IT 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 here 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 :-

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'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) bona fide and (ii) if he had disclosed all the facts relating to the same and material to the computation of his total income. In cases where explanation was offered, but was rejected as it could not be substantiated by the assessee, there would arise, no presumption of concealment of the particulars of income that was added or disallowed and such assessee can show that the said explanation offered by him was a bona fide one' and that he had disclosed all facts relating to such explanation and material to the computation of his total income during the quantum proceedings.'

9. In the present case, the assessee has disclosed all the material facts. It is also furnished the explanation,

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which is not only bona fide but the assessee has also substantiated the same by the fact in original assessment, deduction under section 42 as well as depreciation claim was allowed. Moreover, the appeal of assessee on disallowance claimed under section 42 of Rs.4,58,84,791/- is admitted by the Hon'ble Gujarat High Court under section 260A. In this view of the matter, in our opinion it is not a fit case to levy the penalty under section 271(1)(c). Therefore, penalty confirmed by the Id.CIT(A) is respect of both the items of additions/disallowances is hereby deleted."

10. In the assessment year 2002-03 in cross appeal being No. 2476/Ahd/2008 & 2618/Ahd/2008 we have cancelled the penalty, which is confirmed by the Id.CIT(A) in respect of disallowance of deduction claimed under section 42 and in respect of claim of depreciation on land based platform, which was restricted from 25% to 10%. Further in that order, the appeal of the Revenue against the order of Id. CIT(A) canceling the penalty on account of disallowance of depreciation claimed on cost of 36"14 km pipeline was also rejected. The

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factual matrix and reasoning given by the Id.CIT(A) for partly confirming the penalty in assessment year under appeal are same as given in the assessment year 2003-04. For this year also, we found considerable force in the submissions made by the Id.CIT(A) that all the deductions/exemption claimed by the assessee were bona fide for which penalty under section 271(1)(c) is not leviable.

In support of this, reliance can be placed on the latest judgment of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC).

11. Without prejudice to above, Explanation 4(c) to section 271(1)

(c) of the Income Tax Act, 1961 in this case, no penalty is leviable because ultimate tax liability was determined under section 15JB of Income tax Act, 1961. In the return of income, the assessee has declared income under section 1,15JB and paid the taxes thereon. The Ld.CIT(A)-XXI, Ahmedabad in assessee's own case for the assessment year 2003-04 vide order dated 17-12-2008 cancelled the penalty, which was finally re- determined at Rs. 10,29,18,109/- (after giving appeal effect to the order of the CIT(A)/ITAT in quantum appeal). The view taken by

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the Ld. CIT(A) is supported by the judgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Harshvardhan Chemicals & Minerals Ltd. 259 ITR 212 (Raj. HC-Jaipur Bench).

12. We, therefore, hold that the Ld.CIT(A) is fully justified for cancelling the penalty in respect of disallowance of deduction claimed under section 42 and disallowance of depreciation on land based platform, which was restricted from 25% to 10%.

Further, in our considered opinion, the Ld.CIT(A) ought to have cancelled the penalty in respect of deduction under section 42 in respect of Bhemma Field/Surat block and depreciation for claim on the cost of 36"14 km. pipeline. Consequently, the order of Ld.CIT(A) partly canceling the penalty is upheld. Further part penalty confirmed by the Ld.CIT(A) against which the assessee is in appeal is also cancelled."

8. In view of the above, we find no merit in the argument advanced by the Ld. D.R. and respectfully following the above order of the Tribunal we confirm the order of Ld. CIT(A) in deleting the penalty in respect of disallowance of deduction, claimed u/s.42, disallowance of depreciation on land based drilling platform,

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disallowance of depreciation on 36" 14 km. pipeline. We also confirm the order of the Ld. CIT(A) in holding that no penalty should be levied u/s.271(1)(c) if the tax liability as per the return of income and order giving effect to CIT(A)/ITAT remains the same due to provisions of MAT. As far the penalty imposed on disallowance on School building is concerned, we find that since the assessee has made bonafide claim in the return of income, the Ld.CIT(A) has rightly deleted the penalty on this disallowance also. We therefore, find no infirmity in the order passed by the Ld.CIT(A) and the same is confirmed."

16. Tax Appeal Nos. 279, 280 and 281 of

2012 are also filed challenging the

penalty proceedings under section 271(1)

separate facts are not recorded as the

issue involved in all the appeals is the

same.

17. Learned advocate Mr. B.S. Soparkar

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submitted that as the Assessing Officer

has invoked the provisions of Minimum