Special provision for deductions in the case of business for prospecting, etc., for mineral oil-In order to come within section 42(1), assessee has to show that he has entered into an agreement with the Central Government of the nature mentioned in section 42(1) and that under that agreement he has been authorized to incur certain expenditures and those expenditures fall within either Clause (a) or Clause (b) or Clause (c) of section 42 (1) which was not shown by assessee, hence matter remitted back to AO

HIGH COURT OF UTTARAKHAND

IT Appeal No. 25 of 2009

Director of Income-tax.....................................................................................Appellant.
v.
BG Exploration & Production India Ltd. ..........................................................Respondent

BARIN GHOSH, CJ.
AND SERVESH KUMAR GUPTA, J.

Date :DECEMBER 18, 2013

Appearances

H.M. Bhatia for the Appellant.
Saubhagya Agrawal for the Respondent.

Section 42 of the Income Tax Act, 1961 — Income from Business and profession — Special provision for deductions in the case of business for prospecting, etc., for mineral oil — In order to come within section 42(1), assessee has to show that he has entered into an agreement with the Central Government of the nature mentioned in section 42(1) and that under that agreement he has been authorized to incur certain expenditures and those expenditures fall within either Clause (a) or Clause (b) or Clause (c) of section 42 (1) which was not shown by assessee, hence matter remitted back to AO —

FACTS:

Certain expenditures were claimed by assessee to be covered by section 42(1). This was not accepted by AO. CIT (A) held in favour of assessee. Tribunal affirmed the order of CIT (A). Being aggrieved, Revenue went on appeal before High Court.

HELD,

that in order to come within section 42(1) or in other words if the assessee seeks exemption of any expenditure u/s 42(1), he has to show that he has entered into an agreement with the Central Government of the nature mentioned in section 42(1) and that under that agreement, he has been authorized to incur certain expenditures and those expenditures fall within either Clause (a) or Clause (b) or Clause (c) of section 42 (1). No attempt has been made by the assessee to establish before any of the Authorities that expenditures incurred under the agreement entered into by the assessee with the Central Government fell in any of the Clauses of section 42(1). Order of Tribunal and CIT(A) was set aside and matter was remitted back the matter to CIT(A) with a direction upon him to ascertain, whether the expenditure, being the subject matter of dispute, falls under Clause (a) or Clause (b) or Clause (c) of section 42(1)and if so to proceed in accordance with the mandate contained in section 42(1) and if not to give an opportunity to the assessee to claim such expenses to be covered by section 44C . In the result, matter was remanded.

ORDER

Barin Ghosh, CJ. - Certain expenditures were claimed by the respondent assessee to be covered by Section 42(1) of the Income Tax Act, 1961. This was not accepted by the Assessing Officer. Assessee took the matter before the Appellate Authority successfully. Having had lost before the Tribunal, appellant is before us. The Appellate Authority as well as the Tribunal passed their orders without taking note of the provisions of Section 42 (1) of the Act. They felt that whatever expenditure incurred under the Production Sharing Contract, tabled before each house of the Parliament, is exempted under Section 42 (1) of the Act; whereas Section 42(1) of the Act exempts only those expenditure, which fall either under Clause (a) or under Clause (b) or under Clause (c) of Section 42(1) of the Act. The Tribunal has placed reliance upon a judgment of the Hon'ble Supreme Court rendered in the case of CIT v. Enron Oil and Gas India Ltd. [2008] 305 ITR 75/173 Taxman 346 and, in particular, on Pages 84 and 85, placitum 22 thereof. A look on these observations would make it amply clear that the Hon'ble Supreme Court was not making any observation contrary to what has been provided in Section 42(1) of the Act. According to us, in order to come within Section 42(1) of the Act, in other words if the assessee seeks exemption of any expenditure under Section 42(1) of the Act, he has to show that he has entered into an agreement with the Central Government of the nature mentioned in Section 42(1) of the Act and that, under that agreement, he has been authorized to incur certain expenditures and those expenditures fall within either Clause (a) or Clause (b) or Clause (c) of Section 42 (1) of the Act.

2. In the instant case, no attempt has been made by the assessee to establish before any of the Authorities that expenditures incurred under the agreement entered into by the assessee with the Central Government fell in any of the Clauses of Section 42(1) of the Act. We, accordingly, interfere; set aside the judgment of the Tribunal as well as the judgment of the Commissioner (Appeals) and remit back the matter to the Commissioner (Appeals) with a direction upon him to ascertain, whether the expenditure, being the subject matter of dispute, falls under Clause (a) or Clause (b) or Clause (c) of Section 42(1) of the Act and, if so, to proceed in accordance with the mandate contained in Section 42(1) of the Act and, if not, to give an opportunity to the assessee to claim such expenses to be covered by Section 44C of the Act.