Vedanta Limited Vs ADIT (Madras High Court)
The Madras High Court allowed T.C.A. Nos. 1299 to 1301 of 2010 filed by the assessee-company concerning deduction of site restoration costs for AYs 1999-2000, 2000-01 and 2001-02. The ITAT had held that the provision was not deductible under the normal provisions of the Income-tax Act, though it could be considered while computing income under Section 115-JA.
The assessee was engaged in petroleum operations under a Production Sharing Contract (PSC) with the Government of India and ONGC. The PSC required restoration of the site after cessation of petroleum operations. The assessee had made provision for site restoration in its profit and loss account.
The assessee contended that site restoration formed part of exploration, development and production operations and that Section 33-ABA, relating to a site restoration fund, did not prevent deduction under the general provision of Section 37(1). The Revenue supported the ITAT’s order.
The High Court noted that Articles 13.9 and 1.77 of the PSC imposed a contractual obligation to undertake site restoration. It held that the contractual obligation arose independently and that Section 33-ABA was an incentive provision requiring compliance with specified conditions, including deposit into a fund. It did not override Section 37(1).
