VEDANTA LIMITED vs THE ASSISTANT DIRECTOR OF

T.C.A.Nos.1299 to 1301 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Judgment Reserved on: 17.04.2026
Judgment Delivered on: 02.06.2026
Coram:
THE HONOURABLE Dr.JUSTICE G.JAYACHANDRAN
and
THE HONOURABLE MR.JUSTICE R.SAKTHIVEL
T.C.A.Nos.1299 to 1301 of 2010
T.C.A.No 1299 . of 2010
M/s.Vedanta Limited,
(Successor in Interest to Cairn India Limited),
ASF Center, Tower B, 362-363,
Jwala Mill Road, Phase IV, Udyog Vihar,
Gurugram, Haryana-122 016. … Appellant
Cause title amended vide court order dated 13.03.2026 made in CMP.No.1071/2025 in TCA.No.1299/2010
(GJJ and SSAJ)
vs.
The Assistant Director of Income Tax,
(International Taxation),
121, Nungambakkam High Road,
Chennai - 600 034. … Respondent
Prayer: Tax Case (Appeal) filed under Section 260-A of the Income Tax
Act, 1961, pleased to set aside the order of the Income Tax Appellate Tribunal,
Chennai ‘A’ Bench made in ITA.No.863/Mds/2006 for the Assessment Year 1999-
2000 dated 04.06.2010 and allow the Tax Appeal.
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T.C.A.Nos.1299 to 1301 of 2010
T.C.A.No 1300 . of 2010
M/s.Vedanta Limited,
(Successor in Interest to Cairn India Limited)
ASF Center, Tower B, 362-363,
Jwala Mill Road, Phase IV, Udyog Vihar,
Gurugram, Haryana-122 016. … Appellant
Cause title amended vide court order dated 13.03.2026 made in CMP.No.1004/2025 in TCA.No.1300/2010
(GJJ and SSAJ)
vs.
The Assistant Director of Income Tax,
(International Taxation),
121, Nungambakkam High Road,
Chennai - 600 034. … Respondent
Prayer: Tax Case (Appeal) filed under Section 260-A of the Income Tax Act, 1961,
pleased to set aside the order of the Income Tax Appellate Tribunal, Chennai ‘A’
Bench made in ITA.No.864/Mds/2006 for the Assessment Year 2001-2002 dated
04.06.2010 and allow the Tax Appeal.
T.C.A.No 1301 . of 2010
M/s.Vedanta Limited,
(Successor in Interest to Cairn India Limited)
ASF Center, Tower B, 362-363,
Jwala Mill Road, Phase IV, Udyog Vihar,
Gurugram, Haryana-122 016. … Appellant
Cause title amended vide court order dated 13.03.2026 made in CMP.No.990/2025 in TCA.No.1301/2010
(GJJ and SSAJ)
vs.
The Assistant Director of Income Tax,
(International Taxation),
121, Nungambakkam High Road,
Chennai - 600 034. … Respondent
Prayer: Tax Case (Appeal) filed under Section 260-A of the Income Tax Act, 1961,
pleased to set aside the order of the Income Tax Appellate Tribunal, Chennai ‘A’
Bench made in ITA.No.1181/Mds/2006 for the Assessment Year 2000-2001 dated
04.06.2010 and allow the Tax Appeal.
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T.C.A.Nos.1299 to 1301 of 2010
T.C.A.Nos.1299 to 1301 of 2010
For Appellant : Mr.Srinath Sridevan, Senior Counsel
for M/s.M.V.Swaroop, Gayathri,
B.Devadharshini, Hredai,
Thivakkaran Rajagopalan, Sankar
For Respondent : Mr.B.Ramana Kumar,
Senior Standing Counsel for Income Tax
and Mr.Avinash Krishnan Ravi,
Junior Standing Counsel.
COMMON JUDGMENT
Dr.G.JAYACHANDRAN, J
The Income Tax Appellate Tribunal (ITAT) partly allowed the appeals
filed by the Revenue through common order dated 04/06/2010. Being aggrieved, the
assessee is before us in this batch of appeals.
2. T.C.A.No.1299 of 2010 filed under Section 260-A of the Income Tax
Act, 1961 against the order of the Income Tax Appellate Tribunal, “A” Bench,
Chennai, dated 04.06.2010 in I.T.A.No.863/Mds/2006 for Assessment Year 1999-
2000. T.C.A.No.1300 of 2010 filed under Section 260-A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal “A” Bench, Chennai,
dated 04.06.2010 in I.T.A.No.864/Mds/2006 for AY 2001-2002. T.C.A.No.1301 of
2010 filed under Section 260-A of the Income Tax Act, 1961, against the order of the
Income Tax Appellate Tribunal “A” Bench, Chennai, dated 04.06.2010 in
I.T.A.No.1181/Mds/2004 for AY 2000-2001.
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T.C.A.Nos.1299 to 1301 of 2010
3. Brief Facts leading to the appeals:
3.1 The company “Cairn Energy India Pty. Limited (CEIL)” is a non-
resident Company incorporated in New South Wales, Australia and engaged in
prospecting and production of mineral oil and in some cases, gas also, in India
through its Project Office is located at Chennai. The said Company is wholly owned
subsidiary of Cairn Energy Asia Limited (CEAL), which is a company incorporated
and registered in Australia.
3.2 The Assessing Officer held that under the Production Sharing Contract,
there is no express provision to allow the provisions for site restoration cost as
admissible deduction under Section 42 of the Income Tax Act, 1961 (for short, ‘the
Act’), and the expenses incurred before or after the commercial production in respect
of drilling or exploration activities alone, are eligible for deduction. After insertion of
Section 33-ABA of the Act, with effect from 01.04.1999, the special benefit is not in
addition to the normal business deduction available under Section 37(1) of the Act.
3.3 Though the assessee is under obligation to restore the site to its original
position, as per the terms of the production sharing contract, the accounting
procedure as agreed by the parties, shall not be prejudicial to the computation of
income tax under applicable provisions of the Act. Therefore, the Assessing Officer
held that, since the assessee has not incurred any expenditure towards site restoration
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T.C.A.Nos.1299 to 1301 of 2010
during the period under assessment, the same is un-ascertainable, which can be
ascertained only when commercial production from the Well is over. Therefore, the
assessing officer disallowed the claim of provisional expenditure for site restoration
under Section 37(1) of the Act. The expenses are adjusted while computing the book
profit under Explanation to Section 115-A of the Act.
3.4 The assessee-Company being aggrieved, preferred appeal before the
Commissioner of Income Tax (Appeals), who, following the order passed by his
predecessor for the previous assessment years – 1996-97 to 1998-99, held that the
assessee-Company is eligible to claim deduction in respect of the expenditure
incurred for site restoration under Section 37 of the Act and also while computing the
book profits under Section 115 of the Act, allowed the appeal of the assessee.
Assailing the order of the appellate authority, the Revenue has filed appeal before the
Tribunal, in which, the Tribunal partly allowed the Revenue’s appeals with certain
observations, and the relevant portion of which is extracted hereunder:
“11. It is thus held that, since in the appeals filed by
the revenue for A.Y. 96-97 to 98-99, there was no issue
regarding provision for site restoration cost, while making
adjustment u/s 115JA of the Act, the said order cannot be made
a precedent for deciding the issue under consideration.
12. Even other-wise, to what we have held above, we
find that, section 115JA of the Act starts with a non-obstante
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T.C.A.Nos.1299 to 1301 of 2010
clause and, reads as “notwithstanding anything in any other
provisions of this Act”. In other words, it overrides all other
provisions of the Act and, therefore any adjudication in terms of
section 37(1) of the Act cannot be applied to decide the claim
regarding section 115-JA of the Act. It is thus held that, section
115JA of the Act is a separate Code by itself and overrides all
other provisions contained in the Act. Thus, expenditure though
may not be strictly allowable under section 37(1) of the Act yet
be a liability which is ascertained liability and, does not warrant
any adjustment under section 115-JA of the Act.
13. … …
14.The undisputed facts as emerging from the
material on record are, the assessee company in each of the
assessment years was engaged in carrying out petroleum
operations in Ravva oil filed under the PSC with joint venture
partners namely M/s.Videocon Petroleum Ltd., Ravva oil
(Singapore) Pvt. Ltd., ONGC and Govt. of India. Article 1.65 of
PSC defines the expression “petroleum operations” as under:
“Petroleum operations” means, as the
context may require, exploration operations,
development operations or production operations
or any combination of two or more of such
operations, including construction, operation and,
maintenance of all necessary facilities, plugging
and, abandonment of wells, environmental
protection, transportation, storage, sale or
disposition of petroleum to the delivery point, site
restoration and all other incidental operations or
activities, as may be necessary.”
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T.C.A.Nos.1299 to 1301 of 2010
15. From the aforesaid definition, it is seen that,
petroleum operations include construction, operation and
maintenance of all necessary facilities, plugging and
abandonment of wells, environmental protection, transportation,
storage, sale or disposition of petroleum to the delivery point,
site restoration and all other incidental operations or activities as
may be necessary. In other words, under Article 1.65 of PSC,
site restoration is part and parcel of petroleum operations
namely exploration, development or production operations. It is
not in dispute that provision for site restoration cost has been
debited in the Profit & Loss Account prepared by the assessee
company in accordance with part II and III of Schedule of the
Companies Act, 1956 and, certified by statutory auditors. It is
also not in dispute that such Profit & Loss Account has not been
found to be rejected by Registrar of companies. In such
circumstances, in terms of the judgment of the Apex Court in
the case of Appollo Tyre v CIT reported in 255 ITR 273, there is
no justification to warrant any adjustment under section 115-JA
of the Act unless it is covered by adjustments provided in
Explanation to section 115-JA. In coming to the above
conclusion, we derive support from the judgment of Hon’ble
jurisdictional High Court in the case of CIT v Kovai Maruthi
paper and Board (P) Ltd reported in 294 ITR 57, wherein
following the judgment of Apollo Tyres (supra), it has been held
as under:
“We have heard Mr.N.Muralikumaran,
learned senior standing counsel appearing for the
Revenue. The issue raised in this appeal is not res
integra as it has been clearly covered by the
decision of the apex court in the case of Apollo
Tyres Ltd. v. CIR (2002) 255 ITR 273. In that
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T.C.A.Nos.1299 to 1301 of 2010
case, the apex court in fact considered the question
as to whether the Assessing Officer while
assessing a company for income tax under section
115-J of the Act could question the correctness of
the profit and loss account prepared by the
assessee-company and certified by the statutory
auditors of the company, as having been prepared
in accordance with the requirements of Parts II and
III of Schedule VI to the Companies Act. The apex
court considered that once the profit and loss
account prepared by the assessee-company is
certified by the statutory auditors of the company
as having been prepared in accordance with the
requirement of the principles of the Companies
Act, then there is no scope for the Assessing
Officer while computing the income under
section 115-J to find out as to whether the said
profit and loss account was in fact prepared
and properly maintained in accordance with
the Companies Act or not. In fact, we may quote
the following paragraph in the said apex court
judgment:
“Therefore, we are of the opinion, the
Assessing Officer while computing the income
under section 115-J has only the power of
examining whether the books of account are
certified by the authorities under the Companies
Act as having been properly maintained in
accordance with the Companies Act. The
Assessing Officer thereafter has the limited power
of making increases and reductions as provided for
in the Explanation to the said section. To put it
differently, the Assessing Officer does not have
the jurisdiction to go behind the net profit shown
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T.C.A.Nos.1299 to 1301 of 2010
in the profit and loss account except to the extent
provided in the Explanation to section 115-J”.
From a perusal of the above, it can be inferred
that once the profit and loss account prepared by the
assessee is certified by the authorities under the Companies
Act, as having been properly maintained in accordance with
the Companies Act the Assessing Officer has only the limited
power of making increases and reductions as provided for in
the Explanation to the said section, and he does not have the
jurisdiction to go behind the net profit shown in the profit
and loss account except to the extent provided in the
Explanation to section 115-J.
......
19. It is thus held that, provision for site restoration
arose as a result of the PSC with the Government of India and, is
an ascertained liability and, therefore clause (c) of Explanation
to section 115-JA is inapplicable to the facts of the assessee
company. The contention of the revenue that, site restoration is
part of petroleum operations and, not exploration is evidently
misplaced as petroleum operations include exploration activities.
In fact, the Apex Court in the case of CIT v Enron Oil and Gas
Co. Ltd reported in 305 ITR 75 has held that, any expenditure
incurred by the assessee, whether capital or revenue, so long the
same is in accordance with the PSC, the same is eligible for
deduction. Further, Rajasthan High Court in the case of Udaipur
Mineral Development Syndicate (P) Ltd. vs. DCIT & Anr.
Reported in 261 ITR 706, wherein it has been held as under:
“as far as possible the lessee shall
restore the surface land so used to its original
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T.C.A.Nos.1299 to 1301 of 2010
condition, the moment the assessee digs pits, he is
bound under the agreement to fill those pits and
the liability does accrue on the date when the pits
are dug. Therefore, in our view, the Tribunal has
committed an error in disallowing the claim of the
assessee in the year in hand, i.e. 1991-92. We
agree with the view taken by the Commissioner of
Income-tax (Appeals) that the moment the
assessee digs the pits, the liability does arise and it
is entitled for deduction of the expenses which it is
supposed to incur for filling those pits, as the
assessee is following the mercantile system of
accounting. It can claim the expenses incur as
soon as it digs the pits.”
20. In the light of the above, it is held that the
provision for site restoration is not an eligible deduction under
section 37(1) of the Act but the same will be considered while
computing income under section 115-JA of the Act.”
4. Being aggrieved by the above order of the Tribunal, upholding the dis-
allowance of the provisions of site restoration cost, as it is not an allowable deduction
under the normal provisions of the Act, the assessee-company is before this Court.
5. The respective Tax Case Appeals were admitted on the following
substantial questions of law:
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T.C.A.Nos.1299 to 1301 of 2010
T.C.A.No.1299 of 2010 was admitted by this Court on 20.12.2010 on
the following substantial question of law:
Whether on the facts and circumstances of the
case, the Income Tax Appellate Tribunal was justified in
law in holding that the amount of Rs.27,898,804/- debited
in the profit and loss amount towards provision for site
restoration cost was not an allowable deduction under the
normal provisions of the Act ?
T.C.A.No.1300 of 2010 was admitted by this Court on 20.12.2010 on
the following substantial question of law:
Whether on the facts and circumstances of the
case, the Income Tax Appellate Tribunal was justified in
law in holding that the amount of Rs.5,59,96,863/- debited
in the profit and loss amount towards provision for site
restoration cost was not an allowable deduction under the
normal provisions of the Act ?
T.C.A.No.1301 of 2010 was admitted by this Court on 20.12.2010 on
the following substantial question of law:
Whether on the facts and circumstances of the
case, the Income Tax Appellate Tribunal was justified in
law in holding that the amount of Rs.4,49,82,635/- debited
in the profit and loss amount towards provision for site
restoration cost was not an allowable deduction under the
normal provisions of the Act ?
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T.C.A.Nos.1299 to 1301 of 2010
6. In respect of the Tribunal’s finding that the site restoration expenditure is
an ascertained liability, and therefore, Clause (c) of Explanation to Section 115-JA of
the Income Tax Act, is inapplicable to the facts of the assessee-company. It is under
challenge by the Revenue in T.C.A.Nos.1483 to 1485 of 2010. The substantial
questions of law framed in those appeals are dealt separately by us.
7. The learned Senior Counsel appearing for the Appellant-Assessee-
Company submitted that the site restoration expenditure is part and parcel of the
exploration, development and production of operations and thus, it is eligible
expenditure under the Production sharing contract and liable for assessment
according to the accounting guidelines and statutory provisions of law. If the said
expenditure is dis-allowed, it will result in gross mis-match of the expenditure. The
allowance under Section 115 of the Act, is an additional incentive, besides normal
deduction under Section 37(1) of the Act. The introduction of Section 33-ABA of the
Act, has not been taken away by the existing right to claim deduction under the
normal provision.
8. ITAT having held that the site restoration expenditure towards site
restoration is an ascertainable liability, contrary to the settled principles of law, the
Tribunal dis-allowed the claim of the assessee in respect of the provisions made for
site restoration. Section 33-ABA of the Income Tax Act, is not a bar to claim
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T.C.A.Nos.1299 to 1301 of 2010
deduction under Section 37 of the Act. The marginal note to the provisions of Section
33-ABA of the Act, is site restoration fund. Circular No.772, dated 23.12.1998
explains that the provisions of Section 33-ABA was inserted as an incentive and the
provision for site restoration fund is optimal, whereas, the expenditure for site
restoration being part of the contractual obligation, forms part of the cost of
operation, and therefore, the profits and gains of a business can be computed under
Section 28(i) of the Act, only after giving due deduction towards the cost of
production, which includes site restoration expenditure also.
9. The contention of the assessee is that Section 33-ABA is introduced as a
tax incentive to the petroleum and natural gas sector, and it is akin to the other
incentive provisions in Sections 80-HH, 80-HHA, 80-HHB, 80-HHBA, 80-HHC and
80-IAC of the Income Tax Act. Such incentive is always in addition to the
allowance/deduction as per the statute and contractual obligations.
10. In support of his submissions, learned Senior Counsel appearing for the
appellant/assessee/company, relied on the judgment in the case of Commissioner of
Income Tax Vs. High Land Produce Co. Ltd., reported in 1976 (102) ITR 803
(Kerala High Court) for the proposition that the deductions are permissible even
though the liability in question may be only a contingent. It was further observed by
the Kerala High Court that Section 37(1) of the Income Tax Act only is residuary in
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T.C.A.Nos.1299 to 1301 of 2010
nature and introduction of the words “not being expenditure of the nature described in
Sections 30 to 36.We have to remember that those words do not preclude certain
species of liability, but only exclude consideration of liabilities, which would fall
under any of those Sections.
11. The other judgment relied on by the learned Senior Counsel for the
appellant, is the case of Bharat Earth Mover Vs. Commissioner of Income-Tax,
reported in 2000 (112) Taxman 61 (SC) , in which, it was held as follows:
“4. The law is settled: if a business liability has
definitely arisen in the accounting year, the deduction should be
allowed although the liability may have to be quantified and
discharged at a future date. What should be certain is the
incurring of the liability. It should also be capable of being
estimated with reasonable certainty though the actual
quantification may not be possible. If these requirements are
satisfied, the liability is not a contingent one. The liability is in
praesenti though it will be discharged at a future date. It does
not make any difference if the future date on which the liability
shall have to be discharged is not certain.
5. In Metal Box Co. of India Ltd. Vs. Their Workmen
(1969) 73 ITR 53 (SC), the appellate-Company estimated its
liability under two gratuity schemes framed by the company and
the amount of liability was deducted from the gross receipts in
the profit and loss account. The company had worked out on an
actuarial valuation its estimated liability and made provision
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T.C.A.Nos.1299 to 1301 of 2010
for such liability not all at once but spread over a number of
years. The practice followed by the company was that every
year the company worked out the additional liability incurred
by it on the employees putting in every additional year of
service. The gratuity was payable on the termination of an
employee’s service either due to retirement, death or
termination of service – the exact time of occurrence of the
latter two events being not determinable with exactitude before
hand. A few principles were laid down by this Court, the
relevant of which for our purpose are extracted and reproduced
as under:
(i) For an assessee maintaining his accounts on
mercantile system, a liability already accrued, though to be
discharged at a future date, would be a proper deduction while
working out the profits and gains of his business, regard being
had to be the accepted principles of commercial practice and
accountancy. It is not as if such deduction is permissible only in
case of amounts actually expended or paid;
(ii)Just as receipts, though not actual receipts but
accrued due are brought in for the income-tax assessment, so
also liabilities accrued due would be taken into account while
working out the profits and gains of the business;
(iii)A condition subsequent, the fulfilment of which
may result in the reduction or even extinction of the liability,
would not have the effect of converting that liability into a
contingent liability; and
(iv)A trader computing his taxable profits for a
particular year may properly deduct not only the payments
actually made to his employees but also the present value of any
payments in respect of their services in that year to be made in a
subsequent year if it can be satisfactorily estimated.
6. So is the view taken in Calcutta Co. Ltd. Vs. CIT
(1959) 37 ITR 1, wherein this Court has held that the liability
on the assessee having been imported, the liability would be an
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T.C.A.Nos.1299 to 1301 of 2010
accrued liability and would not convert into a conditional one
merely because the liability was to be discharged at a future
date. There may be some difficulty in the estimation thereof but
that would not convert the accrued liability into a conditional
one; it was always open to the tax authorities concerned to
arrive at a proper estimate of the liability having regard to all
the circumstances of the case......”
12. Heard the arguments on behalf of the assessee assailing the ITAT Order
disallowing site restoration expenses and the arguments of the Department made in
support of the ITAT Order.
13. It is pertinent to note that the Income Tax Act deals with business for
prospects, etc., for the mineral oil as a “sui generis” class and special provisions have
been provided for assessment of Tax liability. Especially, the Income Tax Act deals
with the deductions and procedures for computing profit or gain of any business
consisting of the prospects for or for extraction or production of mineral oil, in
relation to which the Central Government has entered into agreement with any person
for association of participation of the Central Government. Section 42(1) of the Act
reads as below. Section 42(1) of the Act commences as “For the purpose of
computing the profits or gains of any business…..”.
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T.C.A.Nos.1299 to 1301 of 2010
Chapter IV-D (Sections 28 to 44DB) deals with
profits and gains of Business and profession. Under the
caption “Special provision for deductions in the case of
business for prospecting, etc., for mineral oil” under which,
the Section 42 (1) reads as below:-
Section 42(1): For the purpose of computing the
profits or gains of any business consisting of the prospecting for
or extraction or production of mineral oils in relation to which
the Central Government has entered into an agreement with any
person for the association or participation of the Central
Government (substituted for ‘in such business of the Central
Government” by Finance Act, 1981, with effect from
01.04.1981) or any person authorised by it in such business
which agreement has been laid on the Table of each House of
Parliament, there shall be made in lieu of, or in addition to, the
allowances admissible under this Act, such allowances as are
specified in the agreement in relation -
(a) to expenditure by way of infructuous or abortive
exploration expenses in respect of any area surrendered prior to
the beginning of commercial production by the assessee;
(b) after the beginning of commercial production, to
expenditure incurred by the asssessee, whether before or after
such commercial production, in respect of drilling or
exploration activities or services or in respect of physical assets
used in that connection, except assets on which allowance for
depreciation is admissible under section 32:
…..(word “and” omitted – substituted for “in such business of
the Central Government” by the Finance Act, 1981, with effect
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T.C.A.Nos.1299 to 1301 of 2010
from 01.04.1981)
Provided that in relation to any agreement entered
st
into after the 31 day of March, 1981, this clause shall have
effect subject to the modification that the words and figures
“except assets on which allowance for depreciation is
admissible under section 32” had been omitted; and
(c) to the depletion of mineral oil in the mining area
in respect of the assessment year relevant to the previous year
in which commercial production is begun and for such
succeeding year or years as may be specified in the agreement;
and such allowances shall be computed and made in the manner
specified in the agreement, the other provisions of this Act being
deemed for this purpose to have been modified to the extent
necessary to give effect to the terms of the agreement.”
14. The contractual obligation as to restoration of site is pursuant to the
PSC (production sharing contract) entered into with the Government of India. Article
13.9 reads as follows:
Article 13.9 of the CB-OS/2 PSC:
Obligation on account of Site Restoration:
On expiry or termination of this Contract or
relinquishment of part of the Contract Area, the Contractor
shall:
(a) subject to Article 27, and to the extent the
Contractor retain full title, ownership and/or possession,
remove all its equipment and installations in its possession from
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T.C.A.Nos.1299 to 1301 of 2010
the relinquished area or former Contract Area in a manner
agreed with the Government pursuant to an abandonment plan,
and perform all necessary Site Restoration in accordance with
good international petroleum industry practice and take all
other action necessary to prevent hazards to human life or to
property of others or the environment.
Article 1.77 of the PSC:
Definition of ‘Site Restoration’:
“Site Restoration” shall mean all activities
required to return a site to its natural state or to render a
site compatible with its intended after-use (to the extent
reasonable having regard to its former use, if any, and
state) after cessation of Petroleum Operations in relation
thereto and shall include, where appropriate, proper
abandonment of Wells or other facilities, removal of
equipment, structures and debris, establishment of
compatible contours and drainage, replacement of top soil,
revegetation, slope stabilisation, infilling of excavations or
any other appropriate actions in the circumstances.”
15. The Production Sharing Contract (PSC) between the consortium of
private parties with the Government of India and ONGC under Articles 13.9 and 1.77
(extracted above) casts an obligation on the assessee to restore the site after
exploration of the site is abandoned or the Well, closed after exploitation.
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T.C.A.Nos.1299 to 1301 of 2010
16. In respect of the assessee who is carrying on business consisting of
prospects, for or extraction or provision of petroleum or natural gas or both in India
and in relation to it, the Central Government has entered into an agreement with such
assessee for such business. The said contract is prior to the introduction of Section
42, wherein the assessee had agreed to restore the site as per the terms of the contract.
The introduction of Section 42 has no bearing, insofar as the deduction is claimed
under the residuary clause/residuary provisions of Section 37(1) of the Act.
17. Introduction of Section 32 of the Act, which is in respect of creation of
fund, is no substitute to Section 37(1) of the Act, or it has any over-riding effect.
Any deduction eligible under Section 37(1) of the Act, will not become ineligible,
merely because of Section 33-ABA of the Income Tax Act. For invoking Section 33-
ABA of the Act, the assessee has to comply with certain mandatory pre-conditions.
Primarily, he has to make deposit towards the fund. The said Section is in the nature
of scheme to ensure restoration of the site after exploration.
18. In the case on hand, the assessee-Company, in compliance of the
contractual obligations, had made provision for site restoration and having held that
the said provision, is ascertainable and quantifiable, the dis-allowance of the claim
for the reasons stated by the ITAT in the order impugned, is unsustainable.
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T.C.A.Nos.1299 to 1301 of 2010
19. While Section 33-ABA of the Act is incentive in nature and pre-deposit
is required to claim the benefits of the incentive, it is optional to the assessee to claim
the said incentive. Whereas, the “site restoration” is a mandatory requirement under
the contract and for such expenditure, the assessee is eligible to claim deduction
under Section 37(1) of the Act, it being the residuary clause, besides explicit
deductions provided under the Act.
20. For the above reasons, we are of the view that the impugned order of
the Income Tax Appellate Tribunal, upholding the Assessment Order of dis-
allowance claimed by the assessee in respect of the site restoration, has to be set
aside. Accordingly, the same is set aside.
21. The substantial question of law is answered as below:
“The dis-allowance of deduction under the
normal provisions of the Income Tax Act in respect of the
amount provided towards the site restoration costs and
debited in the profit and loss account, is legally
permissible.”
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T.C.A.Nos.1299 to 1301 of 2010
22. In the result, T.C.A.Nos.1299 to 1301 of 2010, filed by the assessee-
Company, are allowed. There shall be no order as to costs.
(Dr. G.J., J) (R.S.V., J)
02.06.2026
Index : Yes.
Speaking Order : Yes/no.
Neutral Case Citation : Yes/no.
cs
To
1. The Assistant Director of Income Tax,
(International Taxation),
121, Nungambakkam High Road,
Chennai-600 034.
2. Director of Income Tax (International Taxation),
Chennai.
3. The Commissioner of Income Tax, Chennai.
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T.C.A.Nos.1299 to 1301 of 2010
Dr.G.JAYACHANDRAN, J
and
R.SAKTHIVEL, J
cs/bsm
Pre-delivery judgment
in T.C.A.Nos.1299 to 1301 of 2010
Judgment delivered
on 02.06.2026
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