The Central Board of Direct Taxes (CBDT) has clarified that ‘farm in’ expenditure incurred by oil exploration and production (E&P) companies would be treated as an ‘intangible asset’ and would be eligible for claim of depreciation.
A ‘farm in’ expenditure is incurred when an entity in the oil and gas business acquires a participating interest (PI) from another entity in oil/gas block (s) and becomes part of the production sharing agreement (PSC) entered into with the Central government.
Over the life cycle of an oil and gas block, E&P companies generally buy (farm in) and sell (farm out) their PI in the PSC.
