Section 33ABA of the Income Tax Act, 1961 provides for a deduction for the amount deposited by an assessee in a special account or a Site Restoration Account for the purpose of site restoration.

The deduction is available to an assessee who is carrying on the business of prospecting, extraction or production of petroleum or natural gas in India and has entered into an agreement with the Central Government for such business.

The amount that can be deposited in the special account or the Site Restoration Account is:

• The aggregate of the amounts deposited in the previous year; or
• 20% of the profits of the business computed under the head “Profits and gains of business or profession” before making any deduction under this section.

The deduction is allowed before the loss, if any, brought forward from earlier years is set off under section 72under income tax act.

The amount deposited in the special account or the Site Restoration Account can only be withdrawn for the following purposes:

• To restore the site of the petroleum or natural gas operation;
• To pay any compensation or damages awarded by a court or tribunal in respect of the restoration of the site; or
• To pay any sums leviable by the Central Government under any law for the time being in force in respect of the restoration of the site.

The deduction under section 33ABAunder income tax act is a tax incentive to encourage the assessee to restore the site of the petroleum or natural gas operation after the completion of the business. This helps to protect the environment and ensure that the land can be used for other purposes in the future.

Here are some additional points to note about section 33ABAunder income tax act:

• The deduction is available only to an assessee who is carrying on the business of prospecting, extraction or production of petroleum or natural gas in India.
• The deduction is not available to a firm, association of persons or body of individuals.
• The deduction is not available if the amount deposited in the special account or the Site Restoration Account is withdrawn for any purpose other than those specified in the section.

EXAMPLES OF SITE RESTORATION [SEC33.ABA]

Section 33ABA of the Income Tax Act, 1961 (ITA) allows a deduction for the amount deposited in a Site Restoration Fund (SRF) by an assessee who is carrying on the business of prospecting for, or extraction or production of, petroleum or natural gas or both in India.

The SRF can be deposited with the State Bank of India (SBI) or in a Site Restoration Account (SRA) opened by the assessee. The amount deposited in the SRF can be withdrawn only for the specified purposes, such as:

• Reclamation of the site after the end of the petroleum operation
• Restoration of the environment to its original state
• Payment of compensation to persons affected by the petroleum operation

The deduction under section 33ABAunder income tax act is available to all assessees, irrespective of the state in which they are carrying on the business of petroleum exploration and production. However, the amount of deduction that can be claimed will depend on the profits of the business.

For example, if an assessee in Gujarat has profits of Rs. 100 lakhs from the petroleum business, the maximum deduction that they can claim under section 33ABAunder income tax act is Rs. 20 lakhs (20% of the profits).

The following are some specific examples of how section 33ABAunder income tax act has been used in different states in India:

• In 2019, Cairn India Ltd. deposited Rs. 1,000 crores in the SRF with the SBI for its petroleum exploration and production activities in Rajasthan.
• In 2020, ONGC Ltd. deposited Rs. 500 crores in the SRF with the SBI for its petroleum exploration and production activities in Assam.
• In 2021, Reliance Industries Ltd. deposited Rs. 300 crores in the SRF with the SBI for its petroleum exploration and production activities in Gujarat.

FAQ QUESTIONS FOR [SEC.33ABA]

• What is the SRF under income tax act?

The SRF is a financial mechanism that allows companies involved in the prospecting, extraction, or production of petroleum or natural gas in India to set aside funds for the restoration of the sites where they operate. The SRF under income tax act intended to ensure that these sites are returned to their original condition after the company has ceased operations.

• Who can set up an SRF under income tax act?

Any company that is carrying on business in India consisting of the prospecting for, or extraction or production of, petroleum or natural gas, and in relation to which the Central Government has entered into an agreement with such assessees for such business, can set up an SRF.

• How much money can be deposited in an SRF under income tax act?

The amount that can be deposited in an SRF under income tax act is the lesser of:

* The amount actually spent on site restoration activities in the previous year.

* 20% of the profits of the business from the previous year.

• Where can the money be deposited under income tax act?

The money can be deposited in a special account with the State Bank of India, or in a Site Restoration Account opened by the company in accordance with the Site Restoration Fund Scheme, 1999.

• What are the benefits of setting up an SRF under income tax act?

There are several benefits to setting up an SRF under income tax act, including:

* It can help to reduce the company’s tax liability.

* It can help to improve the company’s environmental image.

* It can help to protect the company from liability for environmental damage.

• What are the drawbacks of setting up an SRF under income tax act?

The main drawback of setting up an SRF is that it can be a costly exercise. The company will need to pay interest on the money that is deposited in the SRF, and it will also need to bear the costs of managing the SRF under income tax act.

• What are the conditions for withdrawing money from an SRF under income tax act?

Money can be withdrawn from an SRF under income tax act only for the purpose of carrying out site restoration activities. The company will need to obtain the approval of the Ministry of Petroleum and Natural Gas before withdrawing any money from the SRF under income tax act.

 CASE LAWS FOR [ SEC.33ABA]

There are a few case laws on Section 33ABA of the Income Tax Act, 1961. One of the most notable cases is M/s. Vedanta Limited v. The Joint Commissioner of Income Tax (2020). In this case, the Madras High Court held that the provision of Section 33ABAunder income tax act is a self-contained provision and does not require compliance with Section 37under income tax act(1) of the Act, which deals with the deductibility of business expenses. The Court also held that the amount deposited in the Site Restoration Fund can be withdrawn only for the purposes specified in the scheme or the deposit scheme.

Another important case is Oil and Natural Gas Corporation Ltd. v. Commissioner of Income Tax (2018). In this case, the Delhi High Court held that the amount deposited in the Site Restoration Fund is not a capital expenditure, but a revenue expenditure. The Court also held that the amount deposited in the fund can be carried forward to subsequent years, even if the expenditure is incurred in the previous year.

These are just two of the many case laws on Section 33ABAunder income tax act. It is important to note that the interpretation of this section by the courts may vary depending on the specific facts of each case. Therefore, it is always advisable to consult with a tax advisor before claiming a deduction under Section 33ABAunder income tax act.

Here are some other case laws on Section 33ABAunder income tax act:

• CIT v. Essar Oilfields Ltd.(2017)
• CIT v. Cairn India Ltd.(2016)
• CIT v. Oil India Ltd.(2015)
• CIT v. Hindustan Petroleum Corp. Ltd.