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/2256/2010                                   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. 2256 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. This Tax Appeal is filed by the

Revenue under section 260A of the Income

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

arising out of order dated 30.04.2010

passed by the Income Tax Appellate

Tribunal, Ahmedabad, Bench-D, (For short

"the Tribunal") in ITA No.2475/Ahd/2008

for Assessment Year 2000-2001.

3. This Court has admitted the appeal

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

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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 assessee company filed its return

of income for the year under consideration

on 27.11.2000 declaring income of

Rs.1,37,99,468/-. Since the total income

computed under normal provisions of the

Act fell short of 30% of the book profit,

the book profit was computed at Rs.

2,25,77,576/- under section 115JA of the

Act. The Assessing Officer framed the

assessment under section 143(3) of the Act

vide order dated 26.02.2003 determining

income of Rs.1,47,26,220/-. The Assessing

Officer also computed 30% of book profit

under section 115JA at Rs. 2,25,77,576/-.

Since 30% of book profit was more, the

Assessing Officer framed the assessment

under section 115JA at 30% of book profit

at Rs.2,25,77,576/-. Thereafter the

Assessing officer framed the assessment

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under section 147 read with section 143(3)

of the Act wherein he assessed the total

income at Rs.5,60,05,517/-. In the

assessment order, the Assessing officer

disallowed the expenditure incurred on

exploration and drilling activities

amounting to Rs.4,58,84,791/- claimed

under section 42 of the Act and disallowed

excessive depreciation on land based

frilling platform by allowing it at 10%

instead of 25%. The Assessing Officer also

levied the penalty under section 271(1)(c)

of the Act amounting to Rs.5,64,53,064/-.

7. The CIT(Appeals) in the appeal

preferred by the assessee confirmed the

penalty levied by the Assessing Officer.

Being aggrieved, the assessee preferred

appeal before the Tribunal.

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8. The Tribunal deleted the penalty by

the impugned order observing as under:

"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 Pvt. Ltd. [2010] 322 ITR 158 (SC) held that making incorrect claim does not 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 "used in section 271 (1) (c) would embrace the detail 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 is strictly

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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 cn be no dispute that everything would depend upon the return field 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 of 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 particulars.

Decision of the Gujarat High Court affirmed."

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8. It is true in quantum proceeding, disallowance of expenditure claimed under section 42 as well as disallowance of excess depreciation on land based drilling platform is confirmed right up to Tribunal. In the original assessment framed by the Assessing Officer under section 143 (3) on 26.02.2003, both the claims of the assessee we allowed. This, in our opinion, is suffice 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 fact 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 260 A 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

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the income in respect of which particulars have been concealed contained in Explanation I will not apply if the explanation that was given by the assessee in the quantum proceedings which he could not substantiat3 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 proceeding."

9. In the present case, the assessee has disclosed all the material facts. It is not only bona fide but the assess has also substantiated the same by the fact that 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

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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 Learned Commissioner of Income Tax (Appeals) in respect of both the items of additions/ disallowances is hereby deleted."

9. The Tribunal after considering the

decision of Hon'ble Apex Court in case of

Reliance Petroproducts Pvt. Ltd (supra)

has rightly come to the conclusion 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 of Niko Resources Ltd. reported