Director of Income Tax vs B.G. Exploration and Production India Ltd.

Barin Ghosh, C.J.—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 u/s 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 Commissioner of Income Tax, Dehradun and Another Vs. Enron Oil and Gas India Ltd., 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 u/s 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. 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.