Gujarat High Court
Gujarat State Petroleum Corporation ... vs Joint Commissioner Of Income Tax on 13 November, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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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. 270 of 2009
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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GUJARAT STATE PETROLEUM CORPORATION LIMITED
Versus
JOINT COMMISSIONER OF INCOME TAX
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Appearance:
MR BS SOPARKAR FOR MRS SWATI SOPARKAR(870) for the Appellant(s)
No. 1
MS MAITHILI D MEHTA(3206) for the Opponent(s) No. 1
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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 advocate Mr. B.S.
Soparkar for the petitioner and learned
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Senior Standing Counsel Ms. Maithili D.
Mehta for the respondent.
2. This Tax Appeal is filed by the
appellant assesse under section 260A of
the Income Tax Act, 1961 (For short "the
Act") arising out of order passed by
Income Tax Appellate Tribunal (For short
"the Tribunal") in ITA No.124/Ahd/2006
dated 17.10.2008 for Assessment Year 1997-
1998.
3. The appeal is admitted vide order
dated 11.10.2010 for consideration of the
following substantial questions of law:
"(i) Whether, in the facts and
circumstances of the case, the
Income Tax Appellate Tribunal was
right in law in not allowing the
appellant deduction of
Rs.4,89,22,831/- u/s 42 of the
Act?
(ii) Whether, in the facts and
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circumstances of the case, the
Income Tax Appellate Tribunal was
right in law in not allowing the
appellant to raise the additional
issue for challenging the re-
opening of assessment for the A.Y.
1997-98?"
4. The appellant is a Government company
engaged in exploration and drilling of
mineral oil and natural gas.
5. The appellant assessee filed return of
income on 30.11.1997 declaring total loss
of Rs. 1,00,85,620/-. Case of the assessee
was selected for scrutiny and assessment
order under section 143(3) of the Act
dated 21.03.2000 was passed accepting the
returned loss. The Assessing Officer took
the book profit as per Profit and Loss
Account at Rs. 3,25,85,894/- and 30%
thereof being Rs.97,75,768/- was worked
out as Book Profit under section 115JA of
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the Act.
6. The appellant assessee also claimed
deduction under section 42 of the Act of
Rs.4,89,22,831/-. The Assessing Officer
disallowed the claim of Rs.4,87,90,561/-
in view of provisions of section 42(1) of
the Act which provides that for the
purpose of computing the profit and gains
of any business consisting of the
prospecting for or extraction for
production of mineral oil in relation to
which the Central Government has entered
into agreement with any person or the
association for participation of the
Central Government or any person
authorised by any such business, there
shall be made in view of or in addition to
the allowance admissible under this Act,
such allowance as specified in the
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agreement.
7. The Assessing Officer considering the
provisions of section 42 allowed only the
expenses in relation to drilling and
exploration and not the production of
mineral oil.
8. Being aggrieved, the assessee
preferred an appeal before the CIT
(Appeals) who allowed the claim of the
assessee by following decision in appeal
for Assessment Year 2001-2002 and 2002-
2003.
9. Being aggrieved, the Revenue preferred
an appeal before the Tribunal. The
Tribunal following its order dated
29.02.2008 in case of Niko Resources and
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held that the appellant assessee was not
entitled to deduction under section 42 of
the Act. However, the Tribunal while
reversing the order of CIT(Appeals)
directed the Assessing Officer to consider
the claim of the appellant assessee for
depreciation under section 32 of the Act
in view of observations made in the order
dated 29.02.2008 of the Tribunal.
10. The Tribunal also rejected the
contention of the assessee challenging
invocation of section 147 for reopening
being not in accordance with law on the
ground that the issue was neither being
raised before the Assessing Officer nor
before the CIT(Appeals) and accordingly,
the same was not considered by the
Tribunal being raised under the guise of
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Rule 26 of the Income Tax Rules, 1962
which only authorises the respondent to
support the order of CIT(Appeals) on the
issue which has been decided.
11. The Tribunal, therefore, held that
when there is no issue decided by the
CIT(Appeals), the assessee cannot be
allowed to raise such issue for the first
time in the appeal filed by the Revenue.
12. Learned advocate Mr. B.S. Soparkar
for the appellant submitted that the
Tribunal ought to have allowed the
assessee to raise the issue of reopening
which was not in accordance with law.
13. It was submitted that the Tribunal
merely followed the decision in case of
Niko Resources as the appellant was in
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joint venture with the said concern and
denied the appellant to raise additional
issue for challenging reopening for the
year under consideration. It was
therefore, submitted that the impugned
order may be quashed and set aside and the
matter may be remanded to the Tribunal for
considering the additional issue of
reopening.
14. Learned advocate Mr. Soparkar also
referred to and relied upon the paper book
to show that the Assessing Officer after
considering the reply filed by the
petitioner has discussed in detail the
applicability of section 42 of the Act
while invoking the provisions of section
115JA for applying Minimum Alternate
Tax(MAT) on the Book Profit.
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15. Learned advocate Mr. Soparkar also
referred to the decision of CIT(Appeals)
wherein also it was recorded that the
Assessing Officer vide letter dated
20.12.1999 issued a show cause notice as
to why deduction under section 42 of the
Act should be not allowed while working
out book profit as per provisions of
section 115JA of the Act because no such
deduction has been provided by debiting
Profit and Loss Account. It was therefore,
submitted that issue of deduction under
section 42 of the Act was already
considered during the original assessment
and therefore, reopening of the assessment
was nothing but a mere change of opinion
and if the assessee would have been
allowed to raise the contention, the
impugned assessment order would have been
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quashed and set aside only on the ground
of invalid reopening of assessment.
16. It was candidly submitted that on
merits, in view of decision of Hon'ble
Apex Court in case of Joshi Technologies
International Inc v. Union of India
(SC), deduction under section 42 of the
Act, is not allowable. It was further
submitted that this Court in case of Niko
Resources Ltd. V. Assistant Commissioner
of Income-tax (Order dated 11.02.2025
passed in Tax Appeal No.1965 of 2008 and
allied matters) has followed the decision
of Hon'ble Apex Court in case of Joshi
Technologies International Inc (supra) and
the appeals have been dismissed by
answering the question in favour of the
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Revenue and against the assessee on
merits.
17. Per contra, learned Senior Standing
Counsel Ms. Maithili D. Mehta for the
respondent Revenue submitted that issue of
deduction under section 42 of the Act is
squarely covered in favour of the Revenue
in view of decision of Hon'ble Apex Court
in case of Joshi Technologies
International Inc (supra) which is already
considered by this Court while disposing
the appeals in case of Niko Resources Ltd.
(supra). It was further submitted that
issue regarding claim under section 42 of
the Act was never discussed or considered
during the original assessment proceedings
and reliance placed by the appellant
assessee on the assessment order and order
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of CIT(Appeals) wherein reference to
section 42 of the Act is made, is only in
respect of applying MAT provisions and not
with regard to the merits of the deduction
under section 42 of the Act. It was
therefore, submitted that the substantial
questions of law may be answered in favour
of the Revenue.
18. Having heard the learned advocates
for the respective parties and considering
the facts of the case, so far as question
no.1 is concerned, i.e. whether the
assessee is entitled for special deduction
under section 42 of the Act for the year
under consideration or not, same is no
more res integra in view of decision of
Hon'ble Apex Court in case of Joshi
Technologies International Inc reported in
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(2015) 57 taxmann.com 290 (SC) wherein
Hon'ble Apex Court regarding the issue of
deduction under section 42 of the Act has
held as under:
"35. From the reading of the writ
petition filed in the High Court,
the impugned judgment rendered by
the High Court thereupon, and also
having regard to the arguments
advanced before us which have
already been taken note of, it is
apparent that the fulcrum of the
issue, which has to be focused and
to be answered, pertains to the
benefit of the deductions
permissible under Section 42 of
the Act. In fact, as is clear from
the prayers made by the appellant
in the writ petition, the very
first direction which the
appellant sought was to declare
that the appellant is entitled to
such deductions in terms of the
two PSCs dated 20-02-1995.
Incidental issues, while deciding
the aforesaid primary issue, which
arises relate to the construction
of the terms of the said PSCs and
also the nature of the contracts
which the parties intended to.
Another issue relates to the
jurisdiction of the High Court
under Article 226 of the
Constitution to pass Mandamus for
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amending the PSCs. All these
issues are formulated in the
precise form hereunder:
(i) Whether in terms of the
provisions contained in two
Production Sharing Contracts
(PSCs) dated 20-02-1995 executed
between the appellant and the
Central Government, appellant is
entitled to the special allowances
stipulated under Section 42 of the
Act?
(ii) Whether Model Production
Sharing Contract (MPSC) can be
read as part of and incorporated
in the PSCs?
(iii) Whether there was any
intention between the contracting
parties, namely, the MoPNG and the
appellant for giving benefit of
deductions under Section 42 of the
Act?
(iv) If so, whether non-inclusion
of such a provision in the
contract can be treated as
accidental and unintentional
omission.
(v) If the answer to question no.
(iv) is in the affirmative,
whether mandamus can be issued by
the Court to the parties to amend
the contract and incorporate
provisions to this effect?
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36. We would now proceed to answer
these questions seriatum.
37. Answer to question No.(i) -
First and foremost aspect which
has to be kept in mind while
answering this issue is that the
Income Tax Authorities while
making assessment of income of any
assessee have to apply the
provisions of the Income Tax Act
and make assessment accordingly.
Translating this as general
proposition contextually, what we
intend to convey is that the
Assessing Officer is supposed to
focus on Section 42 of the Act on
the basis of which he is to decide
as to whether deductions mentioned
in the said provision are
admissible to the assessee who is
claiming those deductions. In
other words, the Assessing Officer
is supposed to find out as to
whether the assessee fulfills the
eligibility conditions in the said
provision to be entitled to such
deductions. We have already
reproduced the language of Section
42, which deals with special
provisions of deductions in the
case of business for prospecting,
etc. for mineral oil. Since, the
appellant herein, in its income
tax returns for the assessment
year in question, i.e., Assessment
Year 2005-06, had claimed the
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deductions mentioned in Section
42(1)(b) and (c) of the Act, we
should take note of the nature of
these deductions. Section 42(1)(b)
provides for deductions of
expenditure incurred in respect of
drilling or exploration activities
or services or in respect of
physical assets used in that
connection, except for those
assets on which allowance for
depreciation is admissible under
Section 32. Section 42(1)(c)
speaks of allowances pertaining to
the depletion of mineral oil in
the mining area. In order to be
eligible to the deductions,
certain conditions are stipulated
in this very section which have to
be satisfied by the assessees. As
is clear from the reading of this
Section, these conditions are as
under:
(a) it grants such special
allowances to those assessees who
carry on business in association
with the Central Government or
with any person authorized by it;
(b) business should relate to
prospecting for, extracting or
producing mineral oils, petroleum
or natural gas;
(c) there has to be an agreement
in writing between the Central
Government and the assessees in
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this behalf;
(d) it is also a requirement that
such an agreement has been laid on
the Table of each House of
Parliament;
(e) the allowances which are
claimed are to be necessarily
specified in the agreement entered
into between the two contracting
parties; and
(f) allowances are to be computed
and made in the manner specified
in the agreement.
38. From the nature of allowances
specified in this provision, it is
clear that such allowances are
otherwise inadmissible on general
principles, for e.g. allowances
relating to diminution or
exhaustion of wasting capital
assets or allowances in respect of
expenditure which would be
regarded as on capital account on
the ground that it brings an asset
of enduring benefit into existence
or constitutes initial expenditure
incurred in setting up the profit
earning machinery in motion.
39. It is for this reason this
Section itself clarifies that the
provisions of this Act would be
deemed to have been modified to
the extent necessary to give
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effect to the terms of the
agreement, as otherwise, the other
provisions of the Act specifically
deny such deductions. A
fortiorari, the PSC entered into
between the parties becomes an
independent accounting regime and
its provisions prevail over
generally accepted principles of
accounting that are used for
ascertaining taxable income (See -
Commissioner of Income Tax,
Dehradun & Anr. v. Enron Oil and
Gas India Limited(Supra).
40. In the present case, it is an
admitted fact that conditions
mentioned in Section 42 of the Act
are not fulfilled. In the two
PSCs, no provision is made for
making admissible the aforesaid
allowances to the assessee. It is
obvious that the Assessing Officer
could not have granted these
allowances/deductions to the
assessee in the absence of such
stipulations, a mandatory
requirement, in the PSCs.
41. The appellant is conscious of
this position. It is for this
reason the attempt of the
appellant was to read the
provisions of MPSC into the
agreement. That bring us to the
second issue.
42. Answer to question no.(ii) -
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Endeavour of Mr. Ganesh, on this
aspect, was to show that the bids
were invited on the basis of terms
stated in the MPSC which
specifically mentioned about
deductions under Section 42 of the
Act. He also endeavored to
demonstrate that the appellant had
submitted its bid keeping in view
such a categorical stipulation in
the MPSC. He also pointed out that
on MPSC, opinion of Law Ministry
was solicited vide Memo dated 22-
06-1992 and that the Ministry of
Law gave its opinion dated 21-07-
1997 opining that benefit of both
Sections 293(A) and Section 42 of
the Act should be extended to the
foreign companies in order to make
their participation in these oil
fields viable. As per the
appellant, it was also made
abundantly clear by the Ministry
of Law that it was in relation to
"foreign companies to be engaged
in exploration, development and
production of oil ion small sized
oil and gas fields under the
proposed Production Sharing
Contract", thus, drawing no
distinction between fields to be
explored and those already
discovered and also making
specific reference to the MPSC.
Taking sustenance from the
aforesaid material, a passionate
plea was made by Mr. Ganesh to
read the provisions of Section 42
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contained in MPSC, as opined by
the Ministry of Law, into the PSCs
which were ultimately signed
between the parties.
43. In order to appreciate this
argument, we shall have to
traverse through the PSCs dated
20-02-1995 which were ultimately
signed between the Government and
the appellant. We would like to
mention here that when this
argument was being advanced by the
learned senior counsel for the
appellant the Court asked him to
produce the copy of PSCs, which
were otherwise not brought on the
record as the Court wanted to find
out as to whether there was any
such intention expressed in the
agreement, namely, to incorporate
the provisions of MPSC or the
correspondence exchanged between
the parties earlier to the signing
of this agreement:
"(5) The Government has agreed to
enter into this Contract with the
Companies with respect to the area
referred to in Appendices A & B of
this Contract on the terms and
conditions herein set forth.
Article 1 - In this Contract,
unless the context requires
otherwise, the following terms
shall have the meaning ascribed to
the then hereunder:
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xxx xxx xxx
Article 1.18 "Contract" means this
agreement and the Appendices
mentioned herein and attached
hereto and made an integral part
hereof and any amendments made
thereto pursuant to the terms
hereof.
Article 32 - ENTIRE AGREEMENT,
AMENDMENTS, WAIVER AND
MISCELLANEOUS
32.1 This Contract supersedes and
replaces any previous agreement of
understanding between the Parties,
whether oral or written, on the
subject matter hereof, prior to
the Effective Date of this
Contract.
32.2 This Contract shall not be
amended, modified, varied or
supplemented in any respect except
by an instrument in writing signed
by all the Parties, which shall
state the date upon which the
amendment or modification shall
become effective.
32.3 No waiver by any Party of any
one or more obligations or
defaults by any other Party in the
performance of this Contract shall
operate or be construed as a
waiver of any other obligations or
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defaults whether of a like or of a
different character.
32.4 The provisions of this
Contract shall inure to the
benefit of and be binding upon the
Parties and their permitted
assigns and successors in
interest.
32.5 In the event of any conflict
between any provisions in the main
body of this Contract and any
provision in the Appendices, the
provision in the main body shall
prevail.
32.6 The headings of this Contract
are for convenience of reference
only and shall not be taken into
account in interpreting the terms
of this Contract."
44. Intention behind the aforesaid
clauses is more than apparent,
namely, not to look into any other
document or correspondence which
took place between the parties
prior to the signing of this
agreement. Not only this, even the
so-called "understanding" between
the parties is to be ignored as
well. It is, therefore,
impermissible for the appellant to
take the aid of MPSC or the
clauses contained therein while
construing the terms of PSCs.
Therefore, it was not even open to
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the Income Tax Authorities to go
beyond the stipulations contained
in the PSCs while making the
assessment and had to exclusively
remain within the provisions of
the Agreement. On that touchstone,
the Assessing Officer had no
option but to deny the benefit of
deductions/allowances claimed by
the appellant in its income tax
returns filed for the Assessment
Year 2005-06. This bring us to the
next question.
45. Answer to question no.(iii) -
We have already noted that Article
32.2 categorically provides that
this Contract shall not be
amended, modified, varied or
supplemented in any respect except
by an instrument in writing signed
by all the parties, which shall
state the date upon which the
amendment or modification shall
become effective. In continuation
to what has been observed by us
while answering point no.(ii)
above, it becomes apparent that
the question of any intention to
the contrary between the parties
does not arise. It is because of
the reason that Article 32 of the
Agreement specifically supersedes
any understanding between the
parties prior to the effective
date of this contract."
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19. In view of above dictum of law which
is squarely applicable to the facts of the
case regarding deduction under section 42
of the Act, question is answered in favour
of the Revenue and against the assessee.
20. So far as question no.2 regarding not
allowing the appellant to raise additional
issue for challenging the reopening of the
assessment is concerned, we have examined
the contention of the assessee for
challenging the reassessment proceedings
on merits by permitting the appellant
assessee to make submissions on the issue
of reopening.
21. After perusal of the paper book filed
by the appellant assessee containing the
assessment order dated 21.03.2000 passed
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under section 143(3) of the Act as well as
order dated 11.09.2000 passed by the
Commissioner of Income Tax (Appeals) and
the notices and the replies filed by the
appellant assessee, it is found that
during the course of original assessment
proceedings, the Assessing Officer has not
considered the issue of claim made under
section 42 of the Act. The Assessing
officer has issued the show cause notice
for disallowing the claim under section 42
of the Act while working out the Book
Profit under the provisions of section
115JA of the Act. If the Assessing Officer
had issued notice for disallowing the
claim under section 42 of the Act, then
applying MAT provision under the Act would
not arise. Therefore, when the Assessing
Officer has applied the MAT provision, it
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is clear that deduction under section 42
of the Act was not under consideration
during the original assessment
proceedings. Therefore, contention of the
appellant assessee that reopening of the
assessment was due to mere change of
opinion is not tenable and the reopening
was rightly made by the Assessing Officer.
22. In view of such facts, we are of the
opinion that though the reasons assigned
by the Tribunal in not permitting the
assessee to raise the additional issue for
challenging the reopening may not be
tenable, however, in the facts of the
case, even if it is held that the assessee
was entitled to raise the issue of
challenge to reopening, such contention
cannot be accepted on merits, therefore,
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to remand the matter to the Tribunal would
be an empty formality as we have already
examined the contention of challenge to
reopening on merits and are of the opinion
that in the facts of the case, the
reopening is valid as it cannot be said to
be mere change of opinion in absence of
any scrutiny and examination by the
Assessing Officer on merits of deduction
under section 42 of the Act. We,
therefore, decline to answer the question
no.2 in the facts of the case. Appeal is
accordingly disposed of.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
RAGHUNATH R NAIR
