-1- IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD Before S/Shri Bhavnesh Saini, JM and D.C.Agrawal, AM ITA Nos.2114 & 2115/Ahd/2002 Asst. Years : 1996-97 & 97-98 Joshi Technologies V/s. Income-tax Officer, International Inc., Ward 1(2), Ahmedabad. Karaka Building No.2, Ashram Road, Ahmedabad. PAN No.25-J/SR-2 (Appellant) .. (Respondent) Appellant by :- Shri S. N. Soparkar, AR Respondent by:- Shri P. Oram, Sr.DR ORDER PER Bhavnesh Saini, Judicial Member. Both appeals by assessee are directed against different orders of ld. CIT(A) VIII, Ahmedabad, dtd.20.03.2002 for Assessment years 1996-97 & 1997-98. 2. These appeals were filed on several grounds of appeal and both appeals of assessee were disposed of by ITAT, Ahmedabad vide order dated 6th June, 2008. assessee preferred Misc. Application Nos.7 & 8 of 2009 against order of Tribunal. Misc. Applications were disposed of vide order dated 21st August, 2009. It is noted in above order on Misc. Applications that order of Tribunal is to be recalled for purpose of deciding assessee s alternate claim of depreciation in both appeals. It is also noted that in ITA No.2114 of 2002 ground No.2 with regard to disallowance for payment of application fees for mining lease is not adjudicated upon, therefore, on above points, earlier order of Tribunal was recalled. Registry has accordingly fixed both appeals for purpose of disposal of issues which were recalled by Tribunal after allowing Misc. Applications vide order dated 21st August, 2009. 3. We have heard ld. Representatives of both parties on above points/issues which have been recalled by Tribunal as noted above. 4. first issue with regard to alternate claim of assessee for depreciation is arising in both appeals. In Assessment year 1996-97 such issue is arising in ground No.1.3 and in Assessment year 1997-98 same ground is arising in ground No.1.2. It is stated in assessment orders that assessee is foreign company, NRI and has been working in joint venture agreement with Larsen & Toubro Ltd. for extraction of oil wells at Dholka and Wavel Oilfields in Gujarat. assessee has claimed deduction of Rs.93,58,100/- under head signature/production bonus on account of payment made to ONGC. Assessing Officer treated same to be capital expenditure. findings of Assessing Officer were confirmed by CIT(A). Tribunal considering same issue confirmed orders of authorities below and upheld orders of CIT(A) that expenditure incurred by assessee was of capital nature. Coming to assessee s alternate claim of depreciation it was opined that assessee having not acquired any tangible asset, claim of depreciation was also rejected. While considering Misc. 2 Applications recalled such findings for purpose of deciding assessee s alternate claim of depreciation. 5. Ld. Counsel for assessee submitted that assessee is in mining business for extraction of oil well in Gujarat. Oil wells were originally held by somebody else and assessee acquired same by making payments by way of signature/production expenses (bonus). He has submitted that signature bonus was paid accordingly for acquiring wells which is ultimately held to be capital expenditure. Ld. Counsel for assessee referred to para 4.4 of ld. CIT(A) s order in which ld. CIT(A) has held as under :- 4.4 Having held that expenditure is of capital nature appellant took alternative plea for allowing depreciation. For purpose of working out depreciation appellant submitted chart allocating cost to various assets mentioned in Annexure-1 of agreement of October 1995. It is seen that appellant also acquired assets for consideration as per Annexure-2 of agreement. A.O. is directed to allow depreciation on assets acquired as per Annexure-1 except Wells of value of Rs.91.08 lacs at rate applicable and taking guidance from claim of depreciation on assets acquired as per Annexure-2 made by appellant in return. In my opinion, cost allocated to Wells and claim of depreciation thereon @ 100% is misleading. In fact this is cost of acquiring of mining lease right and exploitation right of field developed by ONGC. Therefore, cost attributable to wells is incorrect. Further, even if any cost is attributed to wells, no depreciation is allowable under I.T. Act. Ld. Counsel for assessee submitted that ld. CIT(A) allowed alternate claim of depreciation of assessee partly but depreciation was not allowed on cost of wells amounting to Rs.91.08 lacs in Assessment year 1996-97 on which ground No.1.3 was raised and similarly same claim was not allowed in Assessment year 1997-98 on which ground No.1.2 was raised. Ld. Counsel for assessee referred to 3 PB 127 which is letter of Energy & Petrochemicals Department regarding grant of exploration licence and mining lease and also referred to PB 4 which is agreement between Government of India and Larsen & Toubro Ltd. And assessee through which wells have been acquired by assessee. He has referred to PB 121 which is agreement of handing over Dholka Field to assessee through which assessee acquired wells. He has also referred PB 123 which is Annexure-1 to agreement to show that assessee acquired wells. He has also referred to PB-II 27 which is Annexure to balance sheet to show assets in Dholka Field to prove that assessee acquired wells as asset for which assessee has spent Rs.93,48,266/-. Ld. Counsel for assessee submitted that since assessee acquired tangible assets in form of wells as shown, same as assets in books of accounts, therefore, alternate claim of assessee should have been allowed for depreciation because same expenditure was treated as capital in nature by authorities below and now confirmed by Tribunal as well. Ld. Counsel for assessee also referred to Income-tax Rules in which in notes it is provided that buildings include wells, tube-wells also. Ld. Counsel for assessee therefore, submitted that depreciation to assessee on tangible assets as per rules on building may be allowed. 6. On other hand, ld. Departmental Representative relied on orders of authorities below and submitted that assessee is not entitled for depreciation. 7. We have considered rival submissions and perused material available on record. It is not disputed that assessee paid this amount in shape of signature bonus for acquiring wells. same amount as 4 paid by assessee was treated as capital expenditure. findings of authorities below to that extent have also been confirmed by Tribunal in earlier order dated 6th June, 2008. Ld. CIT(A) directed Assessing Officer to allow depreciation on assets acquired as per Annexure 1 (PB 123) except wells of value of Rs.91.08 lacs. ld. CIT(A) noted in impugned order that in fact this is not cost of acquiring mining lease rent and exploitation right of field developed by ONGC. Tribunal earlier did not accept claim of assessee because assessee has not acquired any tangible asset. copy of letter of Petroleum Ministry, agreement with assessee and agreement of handing over Dholka Field along with Annexure and balance sheet of assessee clearly prove that assessee acquired wells as asset through valid agreement for which assessee has paid amounts in question. Section 32(1) of IT Act provides allowing of depreciation in respect of building etc. being tangible assets, if same are owned and used by assessee for purpose of business or profession. Income-tax Rules Appendix 1 provides definition of tangible assets being building and notes to same further provides that building includes wells and tube-wells. Since under Income-tax Act and Income-tax Rules building is considered as tangible asset and wells are part of building, therefore, authorities below should have considered case of assessee from that angle instead of refusing depreciation to assessee. Ld. CIT(A) failed to note that assessee paid for cost of acquiring wells in question on which ld. CIT(A) treated same to be capital expenditure for acquiring capital asset. Ld. CIT(A) has also failed to consider agreement executed with assessee and balance sheet of assessee as are referred to in this order. Considering facts and circumstances noted above, we are of view that ld. CIT(A) was not justified in refusing grant of depreciation to 5 assessee on cost of wells. Since above documents and material is not considered by ld. CIT(A) for purpose of deciding alternate claim of assessee for grant of depreciation, we are of view that matter requires reconsideration at level of ld. CIT(A). We accordingly set aside both orders of ld. CIT(A) on issue of alternate claim of depreciation of wells and restore this issue to file of ld. CIT(A). We direct to redecide alternate claim of assessee in light of material and evidences available on record and in light of observations given in this order by giving reasonable sufficient opportunity of being heard to assessee. 8. As result, both appeals of assessee on this alternate claim of depreciation are allowed for statistical purposes. 9. other issue recalled by Tribunal is in Assessment year 1996-97 on ground no.2 in which assessee challenged upholding of disallowance for payment of application fees for mining lease by treating same as capital expenditure. In alternate claim, assessee claimed depreciation on application fees which is treated as capital expenditure. Ld. CIT(A) in para 5 of impugned order noted that above payment is made by way of application fees to Energy and Petrochemical Department being statutory payment for transferring mining rights relinquished by ONGC. On same reasons with regard to claim of production bonus application fees was also held as payments towards acquiring of right of exploitation giving benefit of enduring nature. depreciation was not allowed as there being no tangible assets acquired by assessee. 6 10. Ld. Counsel for assessee in view of findings of Tribunal on signature/production bonus treating to be capital expenditure did not press main ground of appeal claiming it to be revenue nature. Ld. Counsel for assessee however, submitted that alternate claim of assessee may be allowed for depreciation. He has referred to PB II 28 which is letter of Energy and Petrochemical Department for grant of mining lease for Dholka area and submitted that on such acquiring of rights assessee acquired tangible assets. He has relied upon decision of Hon ble Supreme Court in case of Scientific Engineering House P. Ltd. Vs. CIT (1986) 157 ITR 86 (SC) in which it was held capital asset acquired by appellant, viz., technical know-how in shape of drawings, designs, charts, plans, processing data and other literature, fell within definition of plant and was, therefore, depreciable asset. 11. On other hand ld. Departmental Representative relied upon orders of authorities below. 12. Considering above facts, we are of view that alternate claim of assessee for depreciation on application fees to Energy & Petrochemical Department is liable to be restored to file of ld. CIT(A) because ld. CIT(A) has not given any specific finding on this issue. Ld. Counsel for assessee did not press for treating same expenditure to be revenue expenditure, therefore, ground No.2.0 of appeal of assessee is dismissed. However, ground No.2.1 on which alternate claim is raised for depreciation on this issue is restored to file of ld. CIT(A) by setting aside his findings. Ld. CIT(A) is directed to redecide this issue by giving reasonable and sufficient opportunity of being heard to assessee. As result, part of this ground of appeal of assessee is allowed for statistical purposes. 7 13. As result, both appeals of assessee on above recalled issues/points are allowed for statistical purposes. 14. No other point is argued or pressed by both parties. Order pronounced in Open Court on 08/01/2010 Sd/- Sd/- (D.C.Agrawal) (Bhavnesh Saini) (Accountant Member) Judicial Member Ahmedabad, Dated : 08/01/2010 Mahata/- Copy of Order forwarded to:- 1. Appellant. 2. Respondent. 3. CIT(Appeals)- 4. CIT concerns. 5. DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Ahmedabad 8 M/s Joshi Technologies International Ind v. ITO Wd-1(2)