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/2255/2010                                   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. 2255 of 2010

                                                           With
                                                R/TAX APPEAL NO. 2258 of 2010

                      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
                                                                                          ✓
                      ==========================================================
                                DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)
                                                     Versus
                                              NIKO RESOURCES LTD
                      ==========================================================
                      Appearance:
                      MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
                      MS VINISHA JAIN FOR M/S WADIAGHANDY AND CO(5679) 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

Mr. Varun K. Patel for the appellant and

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learned advocate Ms. Vinisha Jain for M/s.

Wadia Ghandy and Co. for the respondent.

2. These two appeals are filed against

the common judgment and order dated

30.04.2010 passed by the Income Tax

Appellate Tribunal, Ahmedabad, Bench-D

(For short "the Tribunal") in cross

appeals filed by the assessee and Revenue

being ITA No. 2476/Ahd/2008 and ITA

NO.2718/Ahd/2008 for Assessment Year

2002-2003 respectively.

3. The Tax Appeals were admitted vide

order dated 11.06.2012 for consideration

of the following substantial question of

law:

"Whether the Appellate Tribunal is right in law and on facts in correctly appreciating the facts

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on record and law so as to cancel the penalty levied under section 271(1)(c) of the Act ?

4. 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.

5. 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 Company was permitted to set

up a project office in India with effect

from 14.08.1994.

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6. The assesse company filed its return

of income for the year under consideration

at Rs.63,14,97,010/-. The Assessing

Officer framed the assessment under

section 143(3) of the Act vide order dated

28.02.2005 determining the total income

at Rs.77,14,83,380/- wherein he also

initiated the penalty proceedings under

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

furnishing inaccurate particulars of

income. These penalty proceedings were

kept in abeyance till the Commissioner of

Income Tax (Appeals) decide the quantum

appeal. In the quantum appeal vide order

dated 30.11.2006, the CIT(Appeals)

confirmed the following

additions/disallowances :

i) Addition by way of disallowance of

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expenditure incurred on exploration

and drilling activities amounting to

Rs.13,65,14,009/- under section 42 of

the Act.

ii) Disallowance of depreciation on land

based drilling platform at the rate of

10% instead of 25% claimed by the

assessee.

iii) Addition in respect of

depreciation claimed in respect of

cost of pipe lines amounting to

Rs.2,14,19,917/-

iv) Disallowance of claim of deduction

under section 80IB(9) made by the

assessee company.

7. Subsequently, the Assessing Officer

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vide order dated 27.06.2007 levied the

penalty under section 271(1)(c) of the Act

of Rs.3,17,14,898/- being 100% of tax

sought to be evaded in respect of all

additions/disallowances.

8. The assessee preferred an appeal

before the CIT(Appeals) who confirmed the

penalty in respect of addition made on

deduction claimed under section 42 of the

Act and disallowance of depreciation on

land based platform which was restricted

from 25% to 10% however deleted the

penalty in respect of disallowance of

depreciation claimed on cost of pipe

lines.

9. The cross appeals were filed before

the Tribunal challenging the order dated

25.07.2007 passed by CIT(Appeals) who

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partly confirmed the penalty levied by the

Assessing Officer under section 271(1)(c)

of the Act.

10. The Tribunal by the impugned order

deleted 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:

"11. Having heard both the sides. We have carefully gone through the orders of authorities below. The reasoning given by the Learned Commissioner of Income Tax (Appeals) in the impugned order on page 18 for cancelling the penalty in respect of disallowance of depreciation claimed on 36" 14 kms. Hazira - Mora Pipelines amounting to Rs. 2,14,19,917/- is as under:-

"In so far as disallowance of depreciation on 36" 14 km. Hazira- Mora Pipeline and levy of penalty

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thereon is concerned, it is noted from the order of the Assessing Officer that there is a joint venture of Niko- GSPCL and GSPCL transferred the pipeline to its subsidiary, Gujarat State Petronet Limited (GSPL) who made the pipeline operational during the F.Y. 2000-01 without the consent of the appellant. The appellant is of the opinion that it has a legal title to this property and accordingly did not accept the transfer of the pipeline to GSPL by GSPCL. The matter is before the arbitrator as agreed upon by GSPCL and the appellant and the decision of the arbitrator is awaited and in view of that the Assessing Officer did not allow the claim of the appellant regarding depreciation. The depreciation was disallowed by the Assesseing Officer and has also been confirmed by the CIT (A) holding that these can be revisited after the decision is final. As is evident from the above facts, narrated in briefly that the claim of the appellant is debatable which is also in the knowledge of the department. Therefore to levy penalty on a debatable claim is not justified. I therefore, direct the Assessing Officer to delete the penalty levied on the disallowance made on account of depreciation on this 36 14 km

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Hazira Mora pipeline

12. From the reasoning given by the Learned Commissioner of the Income Tax (Appeals), we are convinced that the depreciation claimed by the assessee on 36"

14km. Hazira-Mora Pipeline was bonafide. The same has been disallowed on difference of opinion or for want of decision of arbitrator which was awaited. The Hon'ble Supreme Court recently in the case of CIT-vs. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) held that "no opinion given in the return found to be incorrect, making of incorrect claim does not amount to concealment of particular of income and penalty under section 271 (1)(c) is not leviable". The head-notes of the said judgment read 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

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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 is strictly covered by the provision, the penalty provision 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 only document where the assessee can furnish the particulars of 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, not 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 o a claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate

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particulars.

Decision of the Gujarat High Court affirmed".

13. In our considered opinion, the decision of the Hon'ble vs. Reliance Supreme Court in the case of CIT Petroproducts Pvt. Ltd. (supra) is squarely applicable to the facts of assessee's case. It is therefore, incline to uphold the order of Learned Commissioner of Income Tax (Appeals) and reject the grounds of appeal to the Revenue."

11. The Tribunal after considering the

decision of Hon'ble Apex Court in case of

Reliance Petroproducts Pvt. Ltd (supra)

has rightly concluded that no penalty

could have been levied upon the appellant

in absence of any finding that any details

supplied by the appellant in the return

were found to be incorrect, erroneous or

false. Similarly so far as the claim of

depreciation on land based drilling

platform is concerned, this Court in case

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