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/2257/2010                                   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. 2257 of 2010

                                                           With
                                                R/TAX APPEAL NO. 2259 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 Tax Appeals are filed by the

Revenue under section 260A of the Income

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

arising out of common order dated

30.04.2010 passed by the Income Tax

Appellate Tribunal, Ahmedabad, Bench-D,

(For short "the Tribunal") in ITA

No.2719/Ahd/2008 and in ITA

No.2477/Ahd/2008 for Assessment Year 2003-

2004 respectively.

3. This Court has admitted the appeals

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

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correctly appreciating the facts 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

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from 14.08.1994.

6. The assessee company filed its return

of income for the year under consideration

declaring income of Rs.25,57,03,870/-.

The Assessing Officer framed the

assessment under section 143(3) of the Act

vide order dated 07.03.2006 determining

total income at Rs.1,58,29,79,355/-

wherein the Assessing Officer also

initiated the penalty proceedings under

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

furnishing inaccurate particulars of

income.

7. These penalty proceedings were kept in

abeyance till the Commissioner of Income

Tax (Appeals) decide the quantum appeal on

29.11.2006. In the quantum appeal, the

CIT(Appeals) confirmed the following

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additions/disallowances :

i) Addition by way of disallowance of

expenditure incurred on exploration

and drilling activities amounting to

Rs.25,81,55,828/- under section 42 of

the Act.

ii) Disallowance of expenditure incurred

on exploration and drilling activities

amounting to Rs.1,06,48,81,736/- under

section 42 of the Act.

iii) Deduction of Rs.25,57,03,871/-

made in revised return in respect of

profit and gains for the production of

mineral oil.

iv) Addition by disallowance of

depreciation claimed on the cost of

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pipeline amounting to

Rs.1,60,64,938/-.

8. Subsequently, the Assessing Officer

vide order dated 28.06.2007 levied the

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

of Rs. 60,63,10,000/-

9. The assessee preferred an appeal

before the CIT(Appeals) who confirmed the

penalty levied by the Assessing Officer.

10. The cross appeals were filed before

the Tribunal challenging the order dated

14.05.2008 passed by CIT(Appeals) who

partly confirmed the penalty levied by the

Assessing Officer under section 271(1)(c)

of the Act.

11. The Tribunal by the impugned order

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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:

"9. Having heard both the sides, we have carefully gone through the orders of authorities below. It is pertinent to note that these cross appeal were heard alongwith the assessee's appeal being ITA No 2475/AHD/2008 for 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 under 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 2000-10. The reasoning given by Tribunal in that order contained in paras 7,8,89 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.

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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 provision 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 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 field by the assessee, because that is the only document where the assessee can furnish the

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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."

8. It is true that 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.

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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 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 substantiat3 in those

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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 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

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Commissioner of Iricome Tax (Appeals) in 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 & 2718/AHD/2008, we have cancelled the penalty, which is confirmed by the Learned Commissioner of Income Tax( Appeals) 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 Learned Commissioner of Income Tax (Appeals) cancelling the penalty on account of disallowance of depreciation claimed on cost of 36"14 Km. pipeline was also rejected. The factual matrix and reasoning given by the Learned Commissioner of Income Tax (Appeals) for party confirming the penalty in assessment year under appeals are same as given in the assessment year 2002-03. For this year also, we found considerable force in the submissions made by the Learned Commissioner of Income Tax (Appeals) that all the deductions/ exemption claimed by the assessee were bonafide 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

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ITR158(SC).

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

(c) of the Income Tax Act 1961, in this case, is leviable because ultimate tax liability was determined under section 115JB of Income Tax Act, 1961. In the return of income, the assessee has declared income under section 115JB and paid the taxes thereon. The Learned Commissioner of Income Tax (Appeals) - 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 Rs10,29,18,109/- (after giving appeal effect to the order of CIT (A.)/ ITAT in quantum appeal). The view taken by the Learned Commissioner of Income Tax (Appeals) is supported by the judgment of the Hon'ble Rajasthan High Court in the case of CIT-vs.- Harshavardhan Chemicals & Minerals Ltd. 259 ITR (Raj. HC- Jaipur Bench).

12. We, therefore, hold that the Learned Commissioner of Income Tax (Appeals) 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%.

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Further, in our opinion, the Learned Commissioner of Income Tax (Appeals) ought to have cancelled the penalty in respect of deduction under section 42 in respect Bheema Field/ Surat block and depreciation for claim on the cost of 36" 14 Km. pipelines. Consequently, the order of Learned Commissioner of Income Tax (Appeals) party cancelling the penalty is upheld. Further the penalty confirmed by the Learned Commissioner of Income Tax (Appeals) against which the assessee is in appeal is also cancelled.

13. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed."

12. 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

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