Gujarat High Court
Niko Resources Ltd vs Assistant Commissioner Of Income Tax - ... on 13 November, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/248/2012 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. 248 of 2012
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
✓
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NIKO RESOURCES LTD
Versus
ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE - 6
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Appearance:
MR BS SOPARKAR FOR MRS SWATI SOPARKAR(870) for the Appellant(s)
No. 1
KARAN G SANGHANI(7945) for the Opponent(s) No. 1
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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 advocate Mr. B.S. Soparkar for the appellant and learned Senior Standing Counsel Mr. Karan G. Page 1 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined Sanghani for the respondent.
2. This appeal is filed under section 260A of the Income Tax Act, 1961 (For short "the Act") arising out of order dated 25.11.2011 passed by the Income Tax Appellate Tribunal, Ahmedabad (For short "the Tribunal") in ITA No.93/AHD/2007 for Assessment Year 1998-1999.
3. The appeal is admitted vide order dated 3.12.2012 for consideration of the following substantial questions of law:
"1) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the action of the Assessing Officer of re-opening of the assessment under Section 147 of the Income-tax Act, 1961?
2) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the special Page 2 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined deduction under section 42 of the Income-tax Act, 1961 to the assessee for the years under consideration?"
4. Brief facts of the case are that the appellant assessee filed return of income for the Assessment Year 1998-1999 declaring total loss of Rs.10,92,27,877/-
on 30.11.1998. Same was processed under section 143(1) of the Act on 15.03.2000.
Thereafter revised return was submitted by the appellant on 16.03.2000 declaring loss of Rs.4,09,24,063/-. Case of the appellant assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 27.09.1999 which was served on assessee on 4.10.1999. The assessment order under section 143(3) of the Act was finalised on 29.03.2001 with assessed loss of Rs.4,08,35,802/-.
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5. Thereafter case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act on 24.03.2005.
6. The appellant assessee by letter dated 07.06.2005 raised preliminary objections against the reopening of the case which was disposed of by order dated 05.09.2005.
Reasons recorded for reopening are as under:
"In this case, assessment was made u/s. 143(3) of the I.T.Act on 29.3.2001 determining total loss of Rs. 4,08,35,802/- In the revised return filed by the assessee on 16/3/2000, it has claimed deduction w/s. 42 of the I.T.Act of Rs. 8,37,15,984/-. The deduction claimed u/s. 42 included claim of deduction in respect of expenditure of Rs.195,26,261/-in respect of Bhandut, Hazira, Cambay and Baroda and Surat.
2. During the course of assessment proceedings for the subsequent Page 4 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined assessment years it is held that the assessee is not entitled to deduction u/s. 42(1) of the I.T.Act, as it was not specified in the agreement entered into by the assessee with the Central Government. In view of the provisions of Section 42(1) of the I.T.Act, the expenditure incurred by the assessee in respect of drilling and exploration activities or for services or in respect of physical asset used in that connection is allowable only if such allowance is specified in the agreement entered into by the assessee with the Central Government. The assessee has not submitted copy of the agreement with the Central Government either in the return of income filed or during the course of assessment proceedings. This makes it clear that the assessee has sought to avail of the deduction wrongfully by not disclosing full facts necessary for the entitlement for the deduction. Though the assessee has made passing reference of the agreement in the note attached to the financial statement along with return what was specified in the agreement is not mentioned. The assessee has claimed deduction u/s 42 without disclosing some of the expenditure specified in the agreement. The income has therefore escaped assessment for Page 5 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined failure on the part of the assessee to disclose fully & truly all material facts necessary for the purpose of its assessment.
3. From the plain reading of Section 42, it can be seen that there are two basic conditions which should be fulfilled, firstly there should be an agreement of the assesee with the Central Government. The second condition is that only those allowances are allowable which are specified in the agreement and these allowances should be in relation to various specific nature as mentioned in Sub Clause (a), (b) and (c) of Section 42(1). Out of these allowances, allowances which are specified in the agreement only those allowances are to be allowed under Sub Clause (b) which are in respect of drilling or exploration activities or services.
4. As no such allowance has been specified in the agreement and in absence of any allowance being specified in the agreement, no additional allowance can be allowed to be deducted by virtue of Section 42 over and above the normal allowance allowable under the other section of the Act. This point further gets fortified from the fact that not only these allowances should be specified in Page 6 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the agreement but even the computation of such allowance has to be made in the manner specified in the agreement. It is undisputed fact that nowhere in the agreement, computation of such allowance has been specified, no such allowance u/s 42 can be computed in absence of manner of computation being specified in the agreement.
5. Therefore, the assessee's claim for deduction u/s. 42 of the I.T.Act in respect of expenditure incurred at Bhandut, Hazira, Cambay, Baroda and Surat of Rs. 1,95,26,260/- is not allowable. As the deduction w/s. 42 of the I.T.Act claimed by the assessee amounting to Rs.1,95,26,260/- is not allowable in view of the reason that the same is not specified in the agreement entered into by the assessee with the Government of India, the deduction u/s. 42 of the I.T.Act has been wrongly allowed which has resulted in the under assessment of income within the meaning of Section 147 of the I.T.Act. The assessee has not produced the copy of the agreement with the Government of India for the exploration of oil at Cambay, Bhandup and Hazira field. Though, the assessee has mentioned in the note appended with the financial statement about Page 7 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the agreement, no copy of the same was furnished along with the return of income. Further as mentioned above, deduction under section 42(1) can be allowed only if the same is mentioned in the agreement entered into by the assessee with the Central Government. The assessee has not disclosed whether such allowance under section 42(1) was mentioned the agreement entered into by the assessee with the Central Government. The income has escaped assessment for failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of its assessment.
6. I have therefore reason to believe that the deduction claimed u/s. 42(1) of the I.T.Act in respect of expenses for various gas field like Bhandut, Hazira, Cambay and for Baroda and Surat has been wrongly claimed u/s. 42(1) of the I.T.Act which has resulted in the under assessment of income within the meaning of Section 147 of the I.T.Act. The deduction claimed and allowed u/s. 42 of the I.T.Act of Rs.
1,95,26,260 requires to be withdrawn."
7. The Assessing Officer considering the Page 8 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined objections of the appellant assessee held that reopening was justified in view of fulfillment of two conditions mentioned in the first proviso to section 147 of the Act because according to the Assessing Officer, the appellant assessee failed to fully and truly disclose all material facts necessary for assessment. The Assessing Officer thereafter, disallowed the claim under section 42 of the Act by reducing the loss by framing the assessment order dated 17.02.2006.
8. Being aggrieved, the appellant assessee preferred an appeal before the CIT (Appeals). CIT(Appeals) confirmed the disallowance of the deduction of claim under section 42 of the Act.
9. The appellant preferred an appeal Page 9 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined before the Tribunal mainly challenging the reopening of the assessment under section 147 of the Act to be treated as invalid.
10. The Tribunal confirmed the order of CIT(Appeals) holding as under:
"15. It is clear from the above that claim of deduction under section 42 is allowable if the following three conditions are fulfilled:-
(i) There should be an agreement of the assessee with the Central Government.
(ii) Only those allowances which are specified in relation to various specific nature as mentioned in sub-clauses (a), (b) & (c) of section 42 are allowable.
Such allowances shall be computed and made in the manner specified in the agreement.
There is no dispute about the fact that the agreement between assessee and Central Government was neither filed by the assessee along with the return of income nor during the original assessment Page 10 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined proceedings. This fact was admitted by Ld. Counsel of the assessee during the course of hearing before us, when specific query was raised by the Bench in this respect. In view of the admitted failure on the part of the assessee to file the primary requirement of filing of agreement between assessee and Central Government to claim deduction u/s.42 of the Act, it cannot be said that there was full and true disclosure of all material facts in relation to deduction claimed u/s. 42 of the Act. We further find that in the original assessment order claim u/s.42 was not discussed and the assessment was completed by making routine disallowances. Therefore, the action of the AO in reopening the assessment of the assessee u/s. 147 of the Act is valid in our considered opinion. This view of ours get support from the decision of the Hon'ble Gujarat High Court in the case of Shri Praful Chinubhai Patel vs. Shri M.J.Makwana, ACIT 236 ITR 832 wherein Hon'ble Gujarat High Court held as under:-
"In cases where the Assessing Officer had overlooked something at the first assessment, there can, in our opinion be no question of any change of opinion when the Page 11 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to an error committed at the first assessment."
We further find that in view of the above mentioned peculiar facts of the case the ratio as laid down in the case laws relied by Ld. Counsel of the assessee is not applicable to the facts of the present case.
16. In view of the above discussion, we have no hesitation in holding that the Ld. CIT (A) has rightly upheld the action of the AO., in reopening the assessment of the assessee u/s. 147 of the Act. Therefore, this ground of the assessee is dismissed."
11. Learned advocate Mr. B.S. Soparkar for the appellant submitted that the Tribunal has erred in law in holding that the reopening of the assessment was valid though there is no failure on part of the appellant to disclose fully and truly all material facts. It was submitted that Page 12 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined merely because the copy of agreement with the Central Government was not submitted along with the return of income or during the original assessment proceedings, cannot be considered as a non-disclosure.
It was submitted that all primary facts relating to deduction under section 42 of the Act were available at the time of original assessment and merely due to non-
filing of the agreement, the Tribunal could not have held that there was no full and true disclosure on part of the appellant to claim deduction under section 42 of the Act.
12. Learned advocate Mr. Soparkar for the appellant invited the attention of the Court to para no. 4.2 of the order of the CIT(Appeals) wherein the submission of the appellant is recorded to the effect that Page 13 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined appellant has disclosed fully and truly all material facts necessary for assessment. It was submitted that there is no requirement to furnish the details of agreement entered into by the appellant and therefore, the reopening of the assessment under section 147 of the Act is invalid in view of proviso to section 147 of the Act. It was submitted that reopening is merely based on the change of opinion of the Assessing Officer which is not permissible.
13. Learned advocate Mr. Soparkar for the appellant assessee submitted that deduction under section 42 of the Act was claimed by the appellant assessee for previous year 1998-1999 of Rs.195,26,261/-
in respect of projects at five places. It Page 14 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined was submitted that reassessment was made on the basis of the disallowance of deduction under section 42 of the Act for the subsequent years in absence of any failure on part of the petitioner to fully and truly disclose all material facts. In support of his submissions, reliance was placed on the following decisions:
1) Parshuram Pottery Works Co. Ltd. v.
Income Tax Officer reported in 106 ITR 1 (SC).
2) Sheth Brothers v. Joint Commissioner of Income Tax reported in 251 ITR 270 (Guj)
3) Gujarat Flourochemicals Ltd. v. Deputy Commissioner of Income Tax reported in 319 ITR 282 (Guj.)
4) Vodafone Idea Ltd. v. Assistant Page 15 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined Commissioner of Income-tax, Mumbai reported in (2022) 135 taxmann.com 169 (Bombay).
5) Niko Resources Ltd. v. Assistant Director of Income-tax reported in (2014) 51 taxmann.com 568 (Gujarat) wherein this Court quashed and set aside the notice for reopening for Assessment Year 2005-2006 on the similar reasons recorded for reopening regarding allowance of depreciation.
6) Jivraj Tea ltd. v. Assistant Commissioner of Income-tax reported in (2013) 34 taxmann.com 199 (Gujarat)
7) Peter Vaz v. Commissioner of Income Tax Central Circle, Bangalore reported in (2021) 128 taxmann.com 180 (Bombay) Page 16 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined
14. Referring to the above decisions, it was submitted that in the facts of the case, the appellant assessee has challenged the reopening of the assessment before the Assessing Officer as there was no failure on part of the appellant to disclose fully and truly all material facts, however, the Tribunal referring to the provisions of section 42 of the Act held that agreement between the assessee and Central Government was not filed along with return of income or during the original assessment proceedings in support of deduction under section 42 of the Act. It was submitted that there is no requirement under the law to submit the documents relevant for claiming deduction, more particularly, the agreement between Page 17 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the appellant assessee and the Central Government and therefore, it cannot be considered as a non-disclosure on part of the assessee.
15. It was submitted that in similar facts, this Court in assessee's own case for Assessment Year 2005-2006, quashed and set aside the notice for reopening holding that the assessee had replied to the clarification sought by the Assessing Officer during the original assessment proceedings regarding the description of the items purchased and put to use to claim the depreciation for off-shore platform.
16. It was therefore, prayed that assessment proceedings may be held to be invalid in view of change of opinion by Page 18 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the Assessing Officer.
17. On the other hand learned Senior Standing Counsel Mr.Karan Sanghani appearing for the respondent submitted that as per the provisions of section 42, agreement between the appellant assessee and the Central Government is primary fact for claiming deduction. It was therefore, submitted that the appellant assessee has admittedly not produced such agreement along with return or before the Assessing Officer at the time of original assessment proceedings to process the claim of deduction under section 42 of the Act and its bifurcation.
18. Learned Senior Standing Counsel Mr. Sanghani also referred to relied upon the orders of CIT(Appeals) as well as Page 19 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined Tribunal, wherein findings of facts are recorded to the effect that the appellant assessee did not produce any agreement between the assessee and the Central Government. It was also pointed out that as per audit report in Form-3CD expenditure incurred for drilling of KG block was included on the basis of certification given by the Head Office and not upon the agreement with the Central Government. It was therefore, submitted that the Tribunal has rightly held that in absence of agreement, there is no full and true disclosure made by the appellant assessee so as to hold that the reassessment proceedings is based on change of opinion and to be declared as invalid.
19. In support of his submissions reliance Page 20 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined was placed on the following decisions:
1) Indi-Aden Salt Mfg. & Trading Co.(P) Ltd. v. Commissioner of Income-tax reported in (1986) 159 ITR 624 (SC) wherein the Hon'ble Supreme Court has held that when the assessee did not disclose either by valuation report or by statement before the Assessing Officer as to what portion of assets consisted of earth work and what portion consisted of masonry work, for the purpose of calculating depreciation that indubitably was a material fact and therefore, the assessment proceedings were held to be valid.
2) Garden Finance Ltd. v.Page 21 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025
NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined Additional Commissioner of Income tax reported in (2002) 257 ITR 481(Guj.), wherein this Court held that non-disclosure of date of acquisition of shares in amalgamating company by showing 1989-1990 as year of acquisition of shareholding in question, the assessee failed to make true and full disclosure of all the material facts necessary for assessment during the concluded assessment proceedings for Assessment Year 1994-1995.
20. Referring to the facts of the case, it was submitted that deduction under section 42 of the Act is available only when there is an agreement between the assessee and the Central Government for exploration of Page 22 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined oil.
21. It was submitted that in view of the concurrent findings of fact recorded by both the authorities below that the assessee has failed to file agreement with the Central Government and therefore, there is failure to disclose fully and truly all material facts necessary for assessment, it cannot be said that reopening was not valid.
22. It was further submitted that the issue of disallowance was not at all considered or inquired or processed at the time of original assessment in absence of agreement with the Central Government and therefore, there is no question of change of opinion.
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23. Having heard the learned advocates for the respective parties and considering the facts of the case it appears that during the course of original assessment proceedings, the issue of deduction under section 42 of the Act was not considered or inquired by the Assessing Officer.
While disposing of the objections raised by the appellant assessee, the Assessing Officer has categorically held that the case was reopened due to failure on part of the appellant assessee to fully and truly disclose all material facts pertaining to deduction under section 42 of the Act.
24. On perusal of the reasons recorded, it is discernible that the Assessing Officer has categorically recorded that the assessee has not disclosed whether Page 24 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined deduction under section 42(1) of the Act was mentioned in the agreement entered into with the Central Government and therefore, has rightly formed the reason to believe that income has escaped assessment for failure on part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. CIT(Appeals) and the Tribunal have recorded concurrent finding of facts for failure on part of the assessee to disclose fully and truly all material facts.
25. In view of concurrent finding of facts, the decisions relied upon on behalf of the appellant assessee are not applicable in the facts of the case as the findings of fact recorded by the Tribunal is to be accepted and cannot be ignored Page 25 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined unless the same is shown to be perverse.
The Tribunal has referred to and relied upon section 42 of the Act which provides that deduction under said section is allowable only if three conditions are fulfilled namely, "1) There should be an agreement of the assessee with the Central Government.
2) Only those allowances which are specified in relation to various specific nature as mentioned in sub-clauses (a), (b) and (c) of section 42 are allowable.
3) Such allowances shall be computed and made in the manner specified in the agreement."
26. Admittedly, the appellant assessee has not placed on record the agreement, and therefore, computation of deduction under section 42 of the Act could not have been made by the Assessing Officer in the Page 26 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined original assessment proceedings and therefore, there is clear failure on part of the assessee to disclose fully and truly all material facts necessary for assessment.
27. The Hon'ble Apex Court in case of Indi-Aden Salt Mfg. & Trading Co.(P) Ltd.
(supra) held as under:
"2. The real question, therefore, is whether there were facts from which it could be believed that there was failure or omission to disclose fully and truly all material facts necessary for the assessment as a result of which income has escaped assessment. The assessment was sought to be reopened for the years 1955-56 to 1962-63 (for failure to disclose fully and truly all material facts). It is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts - Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). There must be, therefore, (a) full disclosure,
(b) true disclosure of all material facts. What facts are Page 27 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined material for a particular case would depend upon the facts and circumstances of each case, and
(c) there must be escapement of tax or under assessment due to such failure or omission.
3. In this case the reason for the belief of the ITO was that the assessee had obtained depreciation at 6 per cent on the assets which were masonry works but the assets really consisted of earth work wholly or substantially If that was the position then the assessee was not entitled to depreciation as was granted. The question is, whether the assessee had disclosed the nature of the masonry work and whether the nature of the asset had been fully and truly disclosed.
Xxx
5. The only question, therefore, is, whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and further whether such income escaped assessment and whether such' escapement or underassessment has been caused as a result of the failure or omission on the part of the assessee to disclose fully and truly all material facts. What Page 28 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined facts are material facts would depend upon the facts and circumstances of a particular case. This follows from the scheme of the section and is well settled by the authorities of this Court.
6. It is the admitted position that the assessee had not disclosed either by valuation report or by statement before the ITO as to what portion or what proportion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation that indubitably was a material fact. If over depreciation has been allowed on that basis, ie., that the entirety of the work consisted of masonry work, income might have escaped assessments or might have been underassessed. The ITO can reasonably be said to have material to form that belief. That position is also well settled by the scheme of the section, and concluded by the authorities of this Court.
7. The assessee's contention is that the ITO could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. The Explanation 2 to section 147 of the Act makes Page 29 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the position abundantly clear. The principles have also been well settled and reiterated in numerous decisions of this Court Hazi Amir Mohd. Mir Ahmed v. CIT [1977] 110 ITR 630 (Punj. & Har.) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). Hidayatullah, J. as the learned Chief Justice then was, observed in Calcutta Discount Co. Ltd.'s case (supra) that mere production of evidence before the ITO was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts, the assessing authority might not. In respect of the material failure, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. It is sufficient to refer to the decision of this Court in Calcutta Discount Co. Ltd.'s case (supra) where it had been held that if there are some primary facts from which reasonable belief could be formed Page 30 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined that there was some non-disclosure or failure to disclose fully and truly all material facts, the ITO has jurisdiction to reopen the assessment. This position was again reiterated by this Court in Malegaon Electricity Co. (P.) Ltd. v. CIT [1970] 78 ITR 466."
28. This Court in case of Garden Finance Ltd. (supra) in facts of the said case held as under:
"14. It is thus clear that the petitioner had all along computed the capital loss on the basis of the market price of the shares of the amalgamated Company as on 31.3.1988 and had not computed the same on the basis of acquisition of shares in amalgamating Company (Vareli Textiles) on 6.4.1987 which was the date on which the petitioner had purchased the shares of Vareli Textiles which subsequently was amalgamated into Garden Silk with conversion ratio of 2:1.
15. We entirely agree with the submission of Mr Joshi for the revenue that this was not a case where two views were possible, the Assessing Officer took one view Page 31 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined and the Revenue has issued a notice under Section 148 of the Act for taking another view. A perusal of the provisions of Section 49(2) are too crystal clear to admit of any doubt. No Assessing Officer acting honestly and bona fide would have ever assessed the capital loss suffered by the petitioner on the basis of the market price of the shares in the amalgamated Company (Garden Silk) as on 31.3.1988 - the basis for computation of capital loss all along adopted by the petitioner. We are unable to accept the contention urged on behalf of the assessee that whatever may be the reasons which might have weighed with the Assessing Officer in accepting the computation made by the petitioner for computing the capital loss at Rs.1.07 Crores (approx.) as against Rs. 5.6 lacs (approx.) which is the capital loss proposed to be assessed by the respondent in the impugned notice under Section 148 of the Act, this Court must interfere with the impugned notice under Section 148 of the Act only on the ground that in one of the statements sent by the petitioner to the Assessing Officer during the scrutiny assessment under Section 143(3) of the Act, the assessee had indicated that the shares in the Page 32 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined amalgamating Company were acquired at a cost of Rs.75,40,515/-. In paragraphs 9 to 11 we have already dealt with this submission.
16. In Phool Chand Bajrang vs. ITO, 203 ITR 456, the Apex Court had an occasion to frown upon such tendency on the part of the assessee.
"an Income-tax Officer ... ... ... may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts.
In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, Page 33 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and further whether that material has any rational connection or a live link for the formation of the requisite belief.... .... ... ...
We are not persuaded to accept the argument of Mr Sharma that the question the truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of sections 147(a) and 148 of the Act and is against the settled law laid down by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands Page 34 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined are tied and you can do nothing". It would be a travesty of justice to allow the assessee that latitude."(emphasis supplied) In our view, these observations are clearly applicable to the facts of the instant case and in exercise of its extraordinary prerogative and discretionary writ jurisdiction under Article 226 of the Constitution, this Court would be loath to interfere with the impugned notice under Section 148 of the Act when the assessee had all along adopted the market price of the shares of the amalgamated Company (Garden Silk) for working out the capital loss at Rs.1.07 Crores (approx.), as against the capital loss which could have been worked out at only Rs.5.6 lacs (approx.) on the basis of the cost of acquisition of shares in the amalgamating Company (Vareli Textiles) as on 6.4.1987 (which date was not disclosed earlier) as per the provisions of Section 49(2) of the Act, which computation made by the assessee could never have been accepted by any officer acting bona fide.
Page 35 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined We are of the view that from the material presently available on record with the respondent, the respondent could form a belief that by not disclosing 6.4.1987 as the date of acquisition of 3,75,150 shares in Vareli Textiles (amalgamating Company) and by showing 1989- 90 as the year of acquisition of the said shareholding in question, the petitioner had failed to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings for assessment year 1994-95 and that by such failure income to the tune of more than Rs. One Crore has escaped assessment and that the material has reasonable connection with the formation of the belief as aforesaid. The assessee has failed to establish that there in fact exists no belief or that the belief is not at all a bona fide one or is based on vague, irrelevant or non-specific information.
17. As regards the reliance placed by the learned counsel for the petitioner on the decision of the Page 36 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined Apex Court in Calcutta Discount Co. Ltd. vs. ITO, 41 ITR 191, it is pertinent to note that the Apex Court justified the issuance of a writ of prohibition in fit cases in order to prevent harassment of the assessee and made the following observations :-
"Though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari and prohibition can issue against Income Tax Officer acting without jurisdiction under S. 34 of the 1922 Act equivalent to Section 141 of the 1961 Act."(emphasis supplied)
18. We do not think that this is a fit case for exercise of our writ jurisdiction. In the facts and circumstances of the case, we do Page 37 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined not think that the petitioner being required to file the return under Section 148 read with Section 147 of the Act amounts to, any unnecessary harassment as alleged. On the contrary, we are of the view that in the facts and circumstances of the case the revenue is justified in invoking the following observations made by the Apex Court in the Calcutta Discount Co. Ltd. (Supra) :-
"The duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation. His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment."
Nor will he be able to contend Page 38 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed."
19. As already stated hereinabove, there is nothing on record to show that the assessee had indicated that the shares in the amalgamating Company were acquired by the petitioner on 6.4.1987. On the contrary, an attempt was made to show that the petitioner has acquired the shares in question in the year 1989-90 i.e. after the date of amalgamation of the Vareli Textiles (the amalgamating Company) into the Garden Silks (the amalgamated Company). Therefore, there was omission to disclose fully and truly all material facts necessary for the assessment as pointed out in paragraphs 8 to 11 hereinabove.
xxxx
27. In light of this position, it is not possible to state with certainty that there was no omission or failure on part of the petitioner, especially in light of provision of Section 49(2) r.w.s. 47(vii) of the Act.
Page 39 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined The settled legal position is that the assumption of jurisdiction under Section 147 of the Act has to be ascertained with reference to the reasons recorded, and it is not permissible to the respondent to improve upon the reasons recorded by referring to the affidavit-in-reply. Any challenge to the assumption of jurisdiction under Section 147 of the Act has to be tested on the anvil of the reasons recorded. In this context, the submissions of Mr. Mihir Joshi, learned counsel for the revenue, as recorded by my learned brother in paragraphs 6 and 10 of his judgement were not warranted. The contention in paragraph 6, that the assessee had deliberately supplied erroneous computation of capital loss; the contention in paragraph 10, that the assessee mislead the revenue so brazenly by relying on the market price, are not borne out as per reasons recorded and cannot be countenanced.
Before parting I may refer to the observations made by the Supreme Court in the case of Phool Chand Bajrang Lal and another Vs. Income-Tax Officer and another, 203 ITR 456, wherein the Court has stated at page 478 as follows :
Page 40 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined " . . . . .We would like to clarify that nothing said by us hereinabove should be construed as any expression of opinion on the merits of the reassessment since we have referred to various facts and law only with a view to determine whether or not the Income-tax Officer, Azamgarh, was justified in law in initiating the reassessment proceedings under sections 147(a) and 148 of the Income- tax Act, 1961, in the facts and circumstances of this case."
29. Reliance placed on behalf of the appellant assessee on the decision in case of Vodafone Idea Ltd. (supra) and judgment of this Court in case of assessee's own case i.e. Niko Resources Ltd. (supra) would also not be applicable more particularly, in view of the findings of fact recorded by the Tribunal that the assessee has not submitted the agreement with the Central Government which is the basis for claiming deduction under section Page 41 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined 42 of the Act. Merely disclosing the claim of deduction in the audit report and the return of income would not be sufficient, more particularly, when the provision of the Act provides for deduction on the basis of agreement with the Central Government.
30. In view of the foregoing reasons, we are of the opinion that the Tribunal was justified in upholding the orders of the Assessing Officer and CIT(Appeals) wherein the reassessment proceedings were held to be valid.
31. So far as issue of deduction under section 42 of the Act is concerned, the same is not allowable to the assessee in view of decision in case of assessee's own case for subsequent year in Tax Appeal Page 42 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined No.270 of 2009 wherein it is held as under:
"18. Having heard the learned advocates for the respective parties and considering the facts of the case, so far as question no.1 is concerned, i.e. whether the assessee is entitled for special deduction under section 42 of the Act for the year under consideration or not, same is no more res integra in view of decision of Hon'ble Apex Court in case of Joshi Technologies International Inc reported in (2015) 57 taxmann.com 290 (SC) wherein Hon'ble Apex Court regarding the issue of deduction under section 42 of the Act has held as under:
"35. From the reading of the writ petition filed in the High Court, the impugned judgment rendered by the High Court thereupon, and also having regard to the arguments advanced before us which have already been taken note of, it is apparent that the fulcrum of the issue, which has to be focused and to be answered, pertains to the benefit of the deductions permissible under Section 42 of the Act. In fact, as is clear from the prayers made by the appellant in the writ petition, the very first direction which the appellant sought was to declare that the Page 43 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined appellant is entitled to such deductions in terms of the two PSCs dated 20-02-1995. Incidental issues, while deciding the aforesaid primary issue, which arises relate to the construction of the terms of the said PSCs and also the nature of the contracts which the parties intended to. Another issue relates to the jurisdiction of the High Court under Article 226 of the Constitution to pass Mandamus for amending the PSCs. All these issues are formulated in the precise form hereunder:
(i) Whether in terms of the provisions contained in two Production Sharing Contracts (PSCs) dated 20-02-1995 executed between the appellant and the Central Government, appellant is entitled to the special allowances stipulated under Section 42 of the Act?
(ii) Whether Model Production Sharing Contract (MPSC) can be read as part of and incorporated in the PSCs?
(iii) Whether there was any intention between the contracting parties, namely, the MoPNG and the appellant for giving benefit of deductions under Section 42 of Page 44 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined the Act?
(iv) If so, whether non-
inclusion of such a provision in the contract can be treated as accidental and unintentional omission.
(v) If the answer to question no. (iv) is in the affirmative, whether mandamus can be issued by the Court to the parties to amend the contract and incorporate provisions to this effect?
36. We would now proceed to answer these questions seriatum.
37. Answer to question No.(i) - First and foremost aspect which has to be kept in mind while answering this issue is that the Income Tax Authorities while making assessment of income of any assessee have to apply the provisions of the Income Tax Act and make assessment accordingly. Translating this as general proposition contextually, what we intend to convey is that the Assessing Officer is supposed to focus on Section 42 of the Act on the basis of which he is to decide as to whether deductions mentioned in the said provision are admissible to the assessee who is claiming those deductions.
Page 45 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined In other words, the Assessing Officer is supposed to find out as to whether the assessee fulfills the eligibility conditions in the said provision to be entitled to such deductions. We have already reproduced the language of Section 42, which deals with special provisions of deductions in the case of business for prospecting, etc. for mineral oil. Since, the appellant herein, in its income tax returns for the assessment year in question, i.e., Assessment Year 2005-06, had claimed the deductions mentioned in Section 42(1)(b) and
(c) of the Act, we should take note of the nature of these deductions. Section 42(1)(b) provides for deductions of expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except for those assets on which allowance for depreciation is admissible under Section 32. Section 42(1)
(c) speaks of allowances pertaining to the depletion of mineral oil in the mining area. In order to be eligible to the deductions, certain conditions are stipulated in this very section which have to be satisfied by the assessees. As is Page 46 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined clear from the reading of this Section, these conditions are as under:
(a) it grants such special allowances to those assessees who carry on business in association with the Central Government or with any person authorized by it;
(b) business should relate to prospecting for, extracting or producing mineral oils, petroleum or natural gas;
(c) there has to be an agreement in writing between the Central Government and the assessees in this behalf;
(d) it is also a requirement that such an agreement has been laid on the Table of each House of Parliament;
(e) the allowances which are claimed are to be necessarily specified in the agreement entered into between the two contracting parties; and
(f) allowances are to be computed and made in the manner specified in the agreement.
38. From the nature of allowances Page 47 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined specified in this provision, it is clear that such allowances are otherwise inadmissible on general principles, for e.g. allowances relating to diminution or exhaustion of wasting capital assets or allowances in respect of expenditure which would be regarded as on capital account on the ground that it brings an asset of enduring benefit into existence or constitutes initial expenditure incurred in setting up the profit earning machinery in motion.
39. It is for this reason this Section itself clarifies that the provisions of this Act would be deemed to have been modified to the extent necessary to give effect to the terms of the agreement, as otherwise, the other provisions of the Act specifically deny such deductions. A fortiorari, the PSC entered into between the parties becomes an independent accounting regime and its provisions prevail over generally accepted principles of accounting that are used for ascertaining taxable income (See - Commissioner of Income Tax, Dehradun & Anr. v.
Enron Oil and Gas India Limited(Supra).
40. In the present case, it is an Page 48 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined admitted fact that conditions mentioned in Section 42 of the Act are not fulfilled. In the two PSCs, no provision is made for making admissible the aforesaid allowances to the assessee. It is obvious that the Assessing Officer could not have granted these allowances/deductions to the assessee in the absence of such stipulations, a mandatory requirement, in the PSCs.
41. The appellant is conscious of this position. It is for this reason the attempt of the appellant was to read the provisions of MPSC into the agreement. That bring us to the second issue.
42. Answer to question no.(ii) - Endeavour of Mr. Ganesh, on this aspect, was to show that the bids were invited on the basis of terms stated in the MPSC which specifically mentioned about deductions under Section 42 of the Act. He also endeavored to demonstrate that the appellant had submitted its bid keeping in view such a categorical stipulation in the MPSC. He also pointed out that on MPSC, opinion of Law Ministry was solicited vide Memo dated 22-06-1992 and that the Ministry of Law gave its opinion dated 21-07- 1997 opining Page 49 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined that benefit of both Sections 293(A) and Section 42 of the Act should be extended to the foreign companies in order to make their participation in these oil fields viable. As per the appellant, it was also made abundantly clear by the Ministry of Law that it was in relation to "foreign companies to be engaged in exploration, development and production of oil ion small sized oil and gas fields under the proposed Production Sharing Contract", thus, drawing no distinction between fields to be explored and those already discovered and also making specific reference to the MPSC. Taking sustenance from the aforesaid material, a passionate plea was made by Mr. Ganesh to read the provisions of Section 42 contained in MPSC, as opined by the Ministry of Law, into the PSCs which were ultimately signed between the parties.
43. In order to appreciate this argument, we shall have to traverse through the PSCs dated 20-02-1995 which were ultimately signed between the Government and the appellant. We would like to mention here that when this argument was being advanced by the learned senior counsel for the appellant the Court asked him to produce the copy of PSCs, Page 50 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined which were otherwise not brought on the record as the Court wanted to find out as to whether there was any such intention expressed in the agreement, namely, to incorporate the provisions of MPSC or the correspondence exchanged between the parties earlier to the signing of this agreement:
"(5) The Government has agreed to enter into this Contract with the Companies with respect to the area referred to in Appendices A & B of this Contract on the terms and conditions herein set forth.
Article 1 - In this Contract, unless the context requires otherwise, the following terms shall have the meaning ascribed to the then hereunder:
xxx xxx xxx Article 1.18 "Contract" means this agreement and the Appendices mentioned herein and attached hereto and made an integral part hereof and any amendments made thereto pursuant to the terms hereof.
Article 32 - ENTIRE AGREEMENT, AMENDMENTS, WAIVER AND Page 51 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined MISCELLANEOUS 32.1 This Contract supersedes and replaces any previous agreement of understanding between the Parties, whether oral or written, on the subject matter hereof, prior to the Effective Date of this Contract.
32.2 This Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the Parties, which shall state the date upon which the amendment or modification shall become effective.
32.3 No waiver by any Party of any one or more obligations or defaults by any other Party in the performance of this Contract shall operate or be construed as a waiver of any other obligations or defaults whether of a like or of a different character.
32.4 The provisions of this Contract shall inure to the benefit of and be binding upon the Parties and their permitted assigns and successors in interest.Page 52 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025
NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined 32.5 In the event of any conflict between any provisions in the main body of this Contract and any provision in the Appendices, the provision in the main body shall prevail.
32.6 The headings of this Contract are for convenience of reference only and shall not be taken into account in interpreting the terms of this Contract."
44. Intention behind the aforesaid clauses is more than apparent, namely, not to look into any other document or correspondence which took place between the parties prior to the signing of this agreement. Not only this, even the so-called "understanding" between the parties is to be ignored as well. It is, therefore, impermissible for the appellant to take the aid of MPSC or the clauses contained therein while construing the terms of PSCs. Therefore, it was not even open to the Income Tax Authorities to go beyond the stipulations contained in the PSCs while making the assessment and had to exclusively remain within the provisions of the Agreement. On that touchstone, the Assessing Officer had no Page 53 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025 NEUTRAL CITATION C/TAXAP/248/2012 CAV JUDGMENT DATED: 13/11/2025 undefined option but to deny the benefit of deductions/allowances claimed by the appellant in its income tax returns filed for the Assessment Year 2005-06. This bring us to the next question.
45. Answer to question no.(iii) - We have already noted that Article 32.2 categorically provides that this Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the parties, which shall state the date upon which the amendment or modification shall become effective. In continuation to what has been observed by us while answering point no.(ii) above, it becomes apparent that the question of any intention to the contrary between the parties does not arise. It is because of the reason that Article 32 of the Agreement specifically supersedes any understanding between the parties prior to the effective date of this contract."
19. In view of above dictum of law which is squarely applicable to the facts of the case regarding deduction under section 42 of the Act, question is answered in favour of the Revenue and against the assessee."
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32. In view of above, Questions of law are answered in favour of the Revenue and against the assessee. The appeal is accordingly dismissed.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 55 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Mon Nov 17 2025 Downloaded on : Mon Nov 17 22:12:24 IST 2025