ITAT Allows Section 80IB(9) Deduction Well-wise; Grants Higher Depreciation on Oil Assets

Joshi Technologies International Inc., India Projects, engaged in oil exploration and production under a Production Sharing Contract (PSC) with the Government of India, appealed before the ITAT for AYs 2017-18 to 2019-20 against disallowances made by the Assessing Officer pursuant to DRP directions.

The disputed issues included denial of Section 80IB(9) deduction on a well-wise basis, restriction of depreciation (including goodwill and oil-field equipment), denial of additional depreciation, disallowance of PSC-based overhead charges through ALP adjustment, denial of weighted deduction under Section 35(1)(ii), and non-grant of MAT and TDS credits.

Issue Before Tribunal: Whether the assessee was entitled to well-wise deduction under Section 80IB(9), higher and additional depreciation on oil-field assets.

Tribunal Ruled: The ITAT allowed the assessee’s appeals substantially. It held that deduction under Section 80IB(9) is allowable on a well-wise basis, following binding decisions of the Gujarat High Court and earlier ITAT orders in the assessee’s own case, and that the Explanation to Section 80IB(9) could not be applied retrospectively. Depreciation on goodwill under Section 32 was allowed in line with Smifs Securities Ltd., as well as higher depreciation and additional depreciation on oil-field and well equipment, holding that the extraction of mineral oil constitutes “production”.

The Tribunal deleted the transfer pricing adjustment on PSC-based overhead charges, holding that such expenses were contractually permissible, earlier accepted by the Revenue, did not fall within Section 44C, and that the TPO had exceeded jurisdiction by determining ALP at NIL without following any prescribed method. MAT credit was directed to be allowed, and full TDS credit was ordered to be granted as per Form 26AS.

However, the deduction for donations to Shri Arvindo Institute of Applied Scientific Research was disallowed, as the institution lacked valid approval. For AY 2019-20, the issue of deduction under Section 42 was remanded to the Assessing Officer for fresh adjudication in accordance with DRP directions.

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