TaxTMI 
TaxTMI 
2017 (4) TMI 1145
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.... the Act by the Ld AO on 31/3/2014 incorporating therein adjustments in terms of order passed u/s 92 CA (3) of the Act on 30/1/2013 by the learned Transfer Pricing Officer [ hereinafter referred to as the Ld TPO] for the Assessment Year 2010-11, raising following grounds of appeal. "The appellant objects to the order dated 29 January 2015 passed by the Joint Commissioner of Income Tax (International Taxation), Dehradun ("the AO') for the assessment year 2010-11, pursuant to the directions dated 17 December 2014 issued by the Dispute Resolution Panel ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act') on the following among other grounds. "Ground No. 1: Provision of support services 1.1 The learned AO / the Transfer Pricing Officer / the DRP has erred in making an upward adjustment of Rs, 8,018,048 to the total income of the appellant by holding that the international transactions relating to the provision of business support services provided by the appellant to its associated enterprise is not at an arm's length. 1.2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the sub....
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....lobal IT & T expenditure as revenue expenditure allowable under section 37(1) of the Act. Ground No. 6: Disallowance of exploration cost 6.1 The learned AO / DRP erred in law and in facts in disallowing under section 37(1) of the Act, the exploration cost of Rs. 460,313,788 incurred by the appellant. 6.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the appellant's business in India. Ground No. 7: Short credit for Tax deducted at source 7.1 The learned AO erred in not granting credit of tax deducted at source to the extent of Rs. 52,358,137. Ground No, 8: Short credit for self-assessment tax paid 8.1 The learned AO erred in not granting credit of self-assessment tax paid to the extent of Rs. 63,128,093. Ground No. 9: Levy of interest under sections 234B of the Act: 9.1 The learned AO has erred in law and in fact, in levying interest under sections 234B of the Act disregarding the fact that the appellant is a non-resident whose income is subject to tax deduction at source. Ground No. 10: Levy of interest under section 234D of the Act: 10.1 The learned AO has erred i....
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....s incorrect that the transactions were so closely linked to each other that it was not possible to benchmark them separately. 1.5 The Hon'ble DRP has erred in not appreciating the finding of the AO/TPO that the Comparable Uncontrolled Price (CUP) method was the most appropriate method in this case and that the ALP as determined by the economic analysis conducted by the Assessee was inappropriate as: i) The Assessee has not been able to establish as how these transactions are intrinsically linked with the other international transactions undertaken by the Assessee (e.g. payment on interest on loan, sale of gas, unsecured loans, re-imbursements etc.) and there is no link with the transactions under consideration and the other international transactions. ii) It is only when the international transactions are so closely linked that they cannot be benchmarked that a combined approach can be adopted as per Rule 10A(d) of the Income Tax Rules. iii) Given the discrete nature of the transactions, each transaction has to be benchmarked separately and not under TNMM. iv) Most of the services were duplicate in nature or relating to the headquarters to protect the interest of....
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....ntra-group services at NIL f) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as these are based on ad-hoc factors like head-counts & hourly rates etc. and prepared by the external consultants on the basis of the inputs (on such ad-hoc factors) given by the AEs themselves. g) No comparable independent enterprises would have paid for the services in comparable circumstances. h) Without prejudice to the findings regarding the actual rendering of services and the Non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement (JOA), all the costs are shared among the Joint Venture Partners in ratio of their participating interest and that the two oth....
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....siness of exploration and extraction of Mineral Oils in terms of production sharing contracts signed with the Government of India. Assessee filed its return of income on 12/10/2010 showing income of Rs. 14610630540/- which was subsequently revised on 28/3/2012 at income of Rs. 14880049136/- . 4. The Business of the Assessee is that it has entered into production sharing contracts and joint operating agreements on 22/12/1994. Further amended in January 2005 for Panna Mukta and mid and South Tapti oil and gas fields PSC dated 2nd March 2007 for Contract Area KG-OSN-2004/1; Form in agreement dated February 18, 2008 for contract area MN-DWN-2002/2, approved by Mo PNG on November 21. 2008; Form in agreement dated February 18, 2008 for contract area KG-DWN-2009/1, as a partner of the respective "unincorporated joint ventures" for prospecting, exploring and producing oil and gas from the contracted areas. To execute such PSCs and carry out its obligations under the PSCs as a joint operator, Assessee has set up a Project Office (―PO") in India. It has a participating interest in 5 production sharing contracts as under :- (a) For Panna/Mukta and Mid and South Tapti oil and gas f....
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.... 1,130,776 Therefore, the Ld. Assessing Officer referred to Ld. Transfer Pricing Officer for determination of arm's length price of the above transactions. According to the transfer pricing documentation submitted by the Assessee in form number 3CEB along with its return of income, it applied various methods to its international transactions as under and held that they are at arm's length :- S. No. Name of Associated Enterprises Nature of Transactions Method Amount (in INR) 1 BG International Limited Joint acquisition and development of IT infrastructure and software TNMM 801,326,641 2 BG India Energy Solutions Private Limited Provision of support services TNMM 71,045,995 3 BG Asia Pacific Pte Limited Interest paid on loan CUP 1,059,412 Unsecured loan NA 28,878,224 4 BG International Limited Management Service Unit Charge TNMM 1,102,791,317 IM Recharge and Typewriting Charges 670376028 5 BG India Energy Solutions Pvt. Ltd. Mgmt Ser. Unit Charge TNMM 14,506,572 6 Gujarat Gas Company Reimbursement ....
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.... BG Asia-Pacific PTE Ltd as external commercial borrowing of US dollar 500 million until 2020, as unsecured loan for financing its oil and gas operation in India in terms of agreement dated 01/06/2005 at the interest rate of US dollar Libor +2%. On 21/10/2009 the interest rate is been increased at the rate of 6.18% as an amendment to the existing loan facility agreement. Consequently, for the period from 01/04/2009 to 21/10/2009 the Assessee has paid interest to its associated enterprise at the rate of interest of Libor +200 basis point amounting to Rs. 373570237/- and for the period from 22/10/2009 to 31/03/2010 at the rate of 6.18% amounting to Rs. 685842085/- totaling to Rs. 1059412322/-. Thereby, according to the Ld. Assessing Officer, the interest paid by the Assessee for the period 22nd of October 2009 to 31/03/2010 at the rate of 6.18% is excessive. He therefore determined the effective rate at 2.33% (interest at the rate paid by the Assessee from 01/04/2009 to 21/10/2009) as arm's length rate of interest and held that Assessee has paid excess interest to the associated enterprise of Rs. 427264082/- and made adjustment under section 92CA of the act. iii) During the year A....
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....porting working. It was further submitted by the Assessee that the production sharing contract was approved by the government of India and any services received by the Assessee from its associated enterprise is required to be remunerated on cost and thus on that basis the services received by the Assessee are at arm's length. The Ld. Transfer Pricing Officer stated that:- i) The IT infrastructure asset was acquired by BGIL and is owned by BGIL. All rights to use and allow others for using the asset created/ acquired vest with BGIL. BGIL may use the asset at present or future as per its own decision. There is no agreement between the Assessee and BGIL regarding the rights and ownership of the IT asset. ii) It is not clear what was the need and inevitability for the Assessee to share the cost of acquisition of the property, which was to be owned by the parent company. iii) Assessee also did not submit any need and inevitability analysis for acquisition of the IT infrastructure. iv) Assessee failed to submit any documents such as third parry invoices and basis for computation of total cost as claimed was correctly computed. v) No third part....
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....dent party would have paid for such services. The Assessee submitted copy of the global allocation policy as well as report issued by M/s Price Waterhouse Coopers LLC, UK and other independent consultants. The Assessee submitted that it has received services with respect to federal Green charges of Rs. 38136209/- and technology recharge of Rs. 113499961/- along with other management and unit charges of Rs. 1278031174/-, which included the services with respect to IT, HR, accounting, insurance, taxation, cost control, recovery, planning and budgeting, legal, service tax and others. The Assessee explained each of the services and their allocation methodology. With respect to Management service unit expenses, The Ld. transfer pricing noted as under:- 1. The Assessee company did not conduct/submit any need /inevitability study before obtaining these services from the parent company. 2. There is no benchmarking of these services and determination of its arm's length price even if these services are considered to be necessary. 3. Even if these services are considered to the necessary, and cost paid by the Assessee company seems to be excessively high. ....
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....the Assessee company has not provided-any detail regarding obtaining insurance guidance services which may be worth Rs. 4,59,56,102/ From Profit and Loss Account of Assessee it has been noted that the Assessee has paid insurance expenses amounting to Rs. 17,26,00,174/-. It may also be mentioned that the Assessee continues to operate in two contract areas i.e. Panna- Mukta and KG- OSN since last many years and no new location have been included neither there is any significant increase in the assets. Out of the total addition in assets amounting to Rs. 68.34 crores, Rs. 66.16 crore pertains to joint acquisition of IT infrastructure for which payment have been made to BGIL itself. Regarding insurance of employees etc in the form of medi claim policies etc. I do not think payment of Rs. 4.59 crore is justified only, for consultancy, which is more than 25% of the insurance amount. 8. Assessee has claimed to have paid Rs. 9,18,12,0231- crore for taxation support and Rs. 4,59,06,012/- for legal support to its parent company. It is claimed that the Assessee has received consultancy regarding tax compliance and advisory support from personnel employed by the BGJL. No description o....
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....t may be mentioned that on IT and computer related assets as on 01.04.2009 was approximately Rs. 72.29 crore on W.D. V basis. For maintenance and management of this assets. The Assessee company has incurred Rs. 74.05 crore out of which 70.22 crore has been paid to the parent company, which is excessively high. Assessee has not benchmarked his expense with industry standard. The Assessee also seems to have delayed submission with an intention to move the proceeding towards time barring date source TPO is not left sufficient time to investigate independently. The Assessee is asked to come out with reasonable working on its support expenditure. 14. From various email communications which have been submitted by the Assessee company it appears that the employees of the Assessee company have sought some IT related guidance which are in the nature of AMC or after sales service. Normally for AMC of any software network no one charges more than 10% of the IT network and software cost. With respect to technology recharge it was submitted that this is the cost in lieu of services and rendered in relation to identification, development and implementation of new and enhanced techniq....
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....not submitted, and further the notices sent to the JV partners under section 133 (6) to ONGC and reliance seeking the above information was also not received. Therefore, the Ld. Transfer Pricing Officer determined the ALP in respect of the amount paid by the Assessee to its AE for various services amounting to Rs. 3329766244/- as nil. With respect to the joint acquisition of IT infrastructure and software cost of Rs. 801326641/- the Ld. Transfer Pricing Officer noted that there was no specific contract in this regard and the Assessee has failed to submit any documentary evidence regarding need and further whether such expenses have been shared by the joint-venture partners or not. With respect to other management service unit charge it was noted by the Ld. Transfer Pricing Officer that Assessee has not been able to demonstrate the services under the head with the writ is been actually received and utilized by the Assessee or not. Accordingly, the Ld. Transfer Pricing Officer made the following adjustment under section 92CA, on account of arms length price of the international transaction, amounting in all to Rs. 3 765048374/- International Transactions Amou....
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....drilling or exploration activities of services. Assessee further relied upon the relevant portion of the production-sharing contract wherein it has been provided that capital and revenue expenditure are allowable to the Assessee. However, the Ld. Assessing Officer noted that these are the expenditure in respect of development operations and production operations which would be governed by the provisions of the Income Tax Act and only those expenditure which are related to the exploration operations and drilling operations are allowed deduction at the rate of hundred percent. Therefore according to him the wellhead platforms are neither part of the exploration operations nor drilling operations and therefore the Assessee is not entitled to depreciation at the rate of hundred percent on these expenditure. Consequently, the Ld. Assessing Officer made disallowance of Rs. 815097333/- allowing depreciation on the total cost of Rs. 9 5893 8038/- of Rs. 14384 0705/- only. 10. It was noted that Assessee has debited addition to the fixed assets under the head global IT and IT projects, amounting to Rs. 666113450/- and claimed depreciation on these assets amounting to Rs. 33305673/-. The L....
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....ssessee cannot undertake any exploration and production activity, and expenditure incurred by the Assessee under the head exploration cost is in respect of future business which has not yet commenced and nor any production sharing contract has been signed. He further held that as Assessee has not provided the complete details of these expenses amounting to Rs. 460313788/- the same are disallowed and further expenses for new business opportunities are capital in nature. 12. Assessee has also incurred the expenditure of Rs. 6059882/- with respect to the club expenditure for the employees of the company and according to the Ld. Assessing Officer they are not laid out or expended wholly for the purpose of the business of the Assessee and therefore they were disallowed. 13. On raising objections before the Ld. Dispute Resolution Panel, in its direction dated 17/12/2014 :- i) With respect to Intra Group services of Rs. 3329766244/- at Para No. 4.6 It was stated that the Assessee has established the fact that it has received the services and it is a useful services which it is has received. With respect to the separate benchmarking of the international transaction and the most ap....
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....t directed the Ld. Assessing Officer to consider the additional evidence filed by the Assessee before the Ld. Dispute Resolution Panel and to modify the disallowance accordingly based on evidence on record. vi) With respect to the disallowance of expenditure on wellhead platform the Ld. Dispute Resolution Panel directed the Ld. Assessing Officer to allow depreciation under section 42 (1) of the act, subject to the fulfillment of the necessary condition. vii) With respect to the disallowance of depreciation on the global infrastructure on information technology projects of Rs. 33005673/- the Ld. Dispute Resolution Panel upheld the depreciation disallowance holding that amendment to section 32 of the Income Tax Act, which now provides for the word "used' and Assessee could not substantiate the user f these assets. On the ownership it rejected finding of the ld AO/ TPO that Assessee fails ownership test. viii) With respect to the disallowance of Rs. 460313788/- of exploration cost, the Ld. Dispute Resolution Panel upheld the same. ix) With respect to the disallowance of club expenditure, The Ld. DRP directed the Ld. Assessing Officer to allow the club expenditure as deduct....
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....ement, ONGC being the operator prepares budget for the proposed drilling program and presents it to the joint operating board of the joint venture which agree for certain expenses deemed appropriate for the purpose of the operation. For the assessment year 2010-11 the total expenditure amounting to Rs. 2433667947/- pertaining to that block included well related expenses amounting to Rs. 2 307379612/- out of which the applicant share is Rs. 692213884/-. The applicant had not accepted its share of the expenditure and therefore has not claimed deduction of the said amount of the expenditure while computing its taxable income. Accordingly, now the applicant claimed deduction of Rs. 3788 6501/- only being its share of expenses out of total expenditure of Rs. 100336783/- incurred in relation to the above block allocated by the joint venture and accepted by the applicant. The facts related to the above claim were stated before the Ld. Dispute Resolution Panel and are part of the record. By virtue of this ground the applicant is raising a legal claim which does not require any fresh investigation into the facts and omission to raise the aforesaid ground of appeal was neither willful nor in....
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....these expenditure cannot be allowed to the Assessee, if it satisfies the basic condition that it is incurred wholly and exclusively for the purpose of the business and it falls under the provisions of section 42 as well as provisions of section 28 to section 44 of the Income Tax Act. Undeniably, ground is also legal in nature, which can be raised at any time during the course of pendency of appeal. The Hon'ble Supreme Court in case of National Thermal Power Co. Ltd versus CIT [ 229 ITR 383] has held that :- "The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj) [FB]). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. However, where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not ....
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....his, the Ld. Transfer Pricing Officer rejected 16 comparables selected by the Assessee. Thereafter applying the relevant filters the Ld. Transfer Pricing Officer selected 17 comparables and applied the profit level indicator of operating profit to operating cost and average PLI of the comparable was determined at 24.64 percentage and thereafter computed the arm's length price of services at Rs. 79064042/- compared to the actual value of the transactions of Rs. 71025995/- computed the adjustment under section 92CA of the Income Tax Act of Rs. 8018048/- . Assessee objected to the comparables before the Ld. Dispute Resolution Panel, however, the contention of the Assessee was rejected holding that the Ld. Transfer Pricing Officer has considered them as functionally comparable by giving detailed reasons, which are valid, and the functional differences pointed out by the Assessee are not sufficient to reject those comparables. Therefore, the Assessee is in appeal before us on this ground. 18. the Ld. authorized representative contested 10 comparables before us and submitted with respect to each of them as under:- S. No. Company Name Arguments of the Assessee that this compar....
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....-10. * Existence of significant R&D Cost - IB1 Chematur's R&D cost to sales ratio for the FY 2009-10 is 5.41%. * Reliance in this regard is placed on the decision of Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon'ble ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. Refer notes to accounts & P/L of the annual report (refer page 104,109, 110 of PB) 4. Quippo Valuers * Broad classification - High-end technical and engineering services. * Functional grounds - The company is engaged in asset management services which includes asset disposal services of professional valuation, appraisals and auctioning of assets and lender service consultancy, which are not similar to services provided by the Assessee. * The company's significant achievements during the year were of sale of earthmoving equipment by innovative disposal methodologies and signing of long term contracts with financial institutions for valuation services. * The future outlook and key challenges noted down during the year were also similar to the above-mentioned asset manage....
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.... power & water engineering and utility engineering & project management, which are not similar to the support services provided by the Assessee. * Non availability of segmental Information - Few services provided by the company are akin to the services provided by the Assessee. But due to non-availability of segmental information such services could not be benchmarked. 9. Mahindra Consulting Engineers Limited * Broad classification - High end technical and engineering services * Functional grounds - The company provides consultancy services particularly in infrastructure sector like sector development, conception & feasibility, project design & engineering and project management, which are not similar to services provided by the Assessee. Refer page 114 of AR (refer page 305 of PB) 10. Asian Business Exhibition &Conferences Ltd. * Abnormally high profit company - 58.11% * Extraordinary events - During the year the company has acquired a wholly owned subsidiary namely Oil Asia Publications Pvt. Ltd. * Reliance in this regard is placed on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ITA 5766/Del/2011 ....
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....margins of the comparables it was submitted by him that such correction is not pointed out by the Assessee as to how the error has crept in to in the computation by the Ld. Transfer Pricing Officer. He submitted that had it been pointed out to the Ld. Transfer Pricing Officer and if the objection of the Assessee is correct, same would have been recomputed by the Ld. Transfer Pricing Officer. However, he submitted that revenue does not have an objection if the computation, if erroneous, may be rectified by the Ld. Transfer Pricing Officer. 21. We have carefully considered the rival contentions and stated the facts relating to the functions performed by the Assessee. There is no dispute about the functions performed, risk assumed and assets employed to generate the revenue of support services. With reference to the error in the computation of margin of the comparable companies, in view of the argument of the both the parties and no objection from the side of the Ld. Departmental Representative, we direct the Ld. Transfer Pricing Officer to verify the computation of the margins of the comparable and also give an opportunity to the Assessee to point out, if there is any error, and r....
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....e company is engaged in skilled allotment, asset reconstruction and management services and it has a very small segment of tourism and research studies. Further the nature of the cluster development activities in which the company is mainly engaged are not at all comparable with the functions performed by the Assessee. Further, the company's major operating expenses are also for skill development and cluster development. However, we do not agree with the contention of the Ld. Authorized Representative that this company has abnormal profit and therefore should be excluded. On perusal of the balance sheet and the profit and loss account of the company, We could not find that there is any abnormality in the business model of the company which could result in to an abnormal profit which is not comparable. No abnormality was also brought to our notice, we have also perused the profit and loss account and it shows that on the turnover of Rs. 114571147/- for the year ended on 31st of March 2009, comparable company has earned the profit of Rs. 34180513/- and for the current year, on a turnover of Rs. 160911080/- it has earned profit of Rs. 50550951/-. However, on the functional dissimilari....
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....ssimilarity of this comparable. Furthermore, regarding the argument of the Assessee that it is a government company, therefore it should be excluded as a comparable. Decision of Coordinate bench cited before us in Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013) is considered where the government companies are excluded as a comparable not for the reasons only that they are government owned companies but because of their functional dissimilarity. We reject the argument of the Ld. Authorised Representative. Firstly for the reason that it is not a government company as only the specified percentage of the shareholding is held by EXIM bank and therefore only the provisions with respect to the appointment of the auditors are regulated and secondly it does not have any impact on the business model of the company. In any way the government companies, which are mostly public sector undertakings also operate with similar functions, risks and assets employed, therefore it cannot be said that merely a company is a government company; it should be excluded from comparability analysis. Many times Government companies are better business propositions/ models then private entrepreneu....
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.... year. It has incurred research and development expenditure of Rs. 11699720/- which was not there in the earlier year. Further, the company is also planning to use Smart plant foundation for integration of other smart plant tools. In view of this we agree with the argument of the Ld. Authorised Representative that this company is engaged in the business of high-end engineering services which is based and supported by the use of a specific technologies and huge research and development expenditure along with an R&D centre. In view of this, the functions performed by this comparable company are not comparable with the Assessee's functions. For this reason only, we direct the Ld. Transfer Pricing Officer/AO, rejecting this comparable, to exclude the same for the comparability analysis. iv) Quippo Valuers This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in the business of advisory of sale of construction and earthmoving equipment on auctions and also by means of innovative disposal methodologies, and execution of live auctions for financial institution in the eastern part of the country, provision of valuation services to a number of clients ....
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....functions performed by the comparable as both are rendering support services in procurement and sales. Hence, we are of the opinion that Ld. TPO/DRP is correct in including the above company as comparable for comparability analysis. v) TS R Darshwa Limited This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in 3 segments such as registrar and transfer agent activity, records management activity and pay roll and trust fund activity. According to the Ld. Transfer Pricing Officer and Ld. Dispute Resolution Panel, this is a good comparable. However, the Ld. Authorised Representative submitted that this company is engaged in Share Registry Services and other support services. Further as per annual report of the company, it is primarily engaged in provision of share registry and related financial services and therefore, cannot be compared with the Assessee, a captive market support service provider. It is also contended that company has earned a high profit margin of 41.86% during the FY 2009-10. The Ld. Authorised Representative placed reliance in this regard on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ....
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....ue or by Assessee and therefore we set aside this comparable to the file of the ld TPO for examining it from this perspective and then decide the issues. In the result, we direct the Ld. Transfer Pricing Officer to reconsider this comparable. vii) Dalkia Energy services Limited This comparable selected by the Ld. Transfer Pricing Officer is engaged in the business of service in the area of energy manner and developing energy efficiency and energy projects with focus on reducing the energy cost and deriving of consequent environment benefiting the various sectors of economy in India and abroad. The comparable company adopts a multiproject approach when the individual customer defines the scope and structure of the services beginning with relatively simple projects, depending on the comfort level of the client, the scope and complexity of the service is expanded to multitier product package. The Ld. Authorised Representative objected to the inclusion of the above company as comparable for the simple reason that it did not have the financial available in the public domain. Neither the Ld. Transfer Pricing Officer nor the Ld. DRP has considered this aspect that when the financial....
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....eject this comparable due to inadequate information available before us. ix) Mahindra Consulting engineers Limited This company is selected by the Ld. Transfer Pricing Officer and the functional profile of the company is stated to be providing consultancy services in the areas of special economic zones, water supply and 7H, solid waste management, urban infrastructure, agree and for cultural infrastructure, social infrastructure, ports and harbor off shore etc. The Ld. Authorised Representative has stated that the functional profile of the company is not comparable. We have carefully perused annual report of the company submitted by the Assessee at page No. 305 - 323 of the paper book wherein it is clearly demonstrated that the Assessee is engaging the consulting services and it is only a reportable segment of consultancy services. Looking at the functional profile of the Assessee as well as the comparable company, it is apparent that both are engaged in the consultancy services area. Merely because they are providing consultancy in a different field, it does not make their functional profile dissimilar, unless there are vast differences in the functions performed. In view of....
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....e with respect to comparables and to take corrected margins in case of any error. 23. With respect to Ground No 2 of the appeal of the Assessee facts are that appellant had taken an unsecured foreign currency loan amounting to USD 500 million from its associated enterprise, BG Asia Pacific Pte. Ltd., Singapore ("BGAP') on May 31, 2005 for a period of 15 years. The loan was taken at an interest rate of London Inter-Bank Offer Rate (―LIBOR") plus 2 percent per annum payable annually. As a result of subprime crisis in the year 2008, there was lack of availability of funds in the global financial markets which indicated towards a possible increase in the interest rates in the near future and prevailing uncertainty, the proportion of borrowers borrowing funds at fixed rate of interest also increased. In order to fund the operations, the appellant, on October 22, 2009, availed additional loan amounting to USD 300 million and the interest rate was changed to a fixed rate of 6.18% (being Libor USD Swap rate +350 bps) for succeeding five years. The said loan from the AE was an unsecured loan, since the financial position of the appellant did not permit obtaining secured loan on fav....
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....increase in the borrowers who were borrowing funds at fixed rate of interest. For funding the operations of the company Assessee availed further loan and the interest rate was changed from floating rate of interest to a fixed rate of interest of 6.18% for 5 years. This funding from associated enterprise was unsecured because the financial position of the appellant did not permit obtaining secured loan on favourable rate of interest from unrelated parties. In view of this facts., He submitted that that the action of the Ld. Transfer Pricing Officer as well as Ld. Dispute Resolution Panel are inconsistent in view of the surrounding business circumstances as well as the transfer pricing principles for following reasons:- (i) Commercial rationale for shifting from floating to fixed rate of interest It is submitted that during the year 2008-09 due to additional borrowings and higher interest costs, the interest coverage position of the appellant along with other key financial ratios deteriorated significantly which led to deterioration in the credit profile of the appellant. Under such circumstances, any independent lender would have either revised the existing interest rates or d....
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....st 31, 2009) In view of the aforesaid, he submitted that in the post crisis period, in order to avoid uncertainty associated with floating interest rates, even independent borrowers preferred to borrow funds at fixed rate of interest. In order to obtain certainty with respect to future interest obligations, the appellant decided to convert the floating rate loan into fixed rate loan. It would be appreciated that by shifting to fixed interest rate structure, the risk associated with uncertainty/fluctuations in the interest rate movements was shifted to the associated enterprise and the appellant became immune from any adverse movement in the interest rates. It would be appreciated that the decision of the appellant to shift from floating to fixed rate of interest was based on commercial considerations and to protect the business operations of the appellant from any adverse movements in floating interest rates. He submitted, that the Assessee is free to conduct business in the manner that Assessee deems fit and the commercial or business expediency of incurring any expenditure is to be seen from the Assessee's point of view. Attention in this regard is invited to the following dec....
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....bitrarily re-structured the transaction of fixed interest rate borrowing to floating interest rate borrowing. He submitted that such re-characterization/re-structuring of the transactions is not permissible under the transfer pricing legislation. Reliance in this regard is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs EKL Appliances (ITA No 1068/2011 & 1070/2011) wherein the Hon'ble High Court held that the revenue authorities cannot restructure/re-characterize the legitimate transaction. The Hon'ble High Court held as under: "17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is tha....
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....rcially rational manner. The aforesaid observations were recorded in the light of the fact in the case of L.G. Electronics (supra). Commenting on the factual matrix of L.G. Electronics case (supra) would be beyond our domain; however, we do not find any factual finding to this effect by the TPO or the Tribunal in any of the present cases. However, in L.G. Electronics decision (supra), it is observed that if the AMP expenses and when such expenses are beyond the bright line, the transaction viewed in their totality would differ from one, which would have been adopted by an independent enterprise behaving in a commercially rational manner. No reason or ground for holding or the ratio, is indicated or stated. There is no material or justification to hold that no independent party would incur the AMP expenses beyond the bright line AMP expenses. Free market conditions would indicate and suggest that an independent third party would be willing to incur heavy and substantial AMP expenses, if he presumes this is beneficial, and he is adequately compensated. The compensation or the rate of return would depend upon whether it is a case of long-term or short-term association and market condi....
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....l the commercial freedom, nor do they bar or prohibit a legitimate transaction. They permit transfer pricing adjustment so as to bring to tax what would have been paid for the transaction in the same or similar comparable circumstances by an independent third party. XXX Transfer pricing rules treat the domestic AE and the foreign AE as two separate entities and profit centres, and the test applied is whether the compensation paid for the products and services is at arm„s length, but it does not ignore that the two entities have a business and a commercial relationship. The terms and conditions of the commercial business relationship as agreed and undertaken are not to be rewritten or obliterated. XXX 23. This ratio and rationale, when applied to the facts of the present case, would mean that the transfer pricing determination would decide what an independent distributor and marketer, on the same contractual terms and having the same relationship, would have earned/paid as interest on the loan in question. What an independent party would have paid under the same or identical circumstances would be the arm„s length price or rate of interest. What t....
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....into the loan agreement with the associated enterprise in 2005 was 3.8632%. Accordingly, the effective rate of interest in the comparable companies at 6.33% (3.8632%+2.4633%) of the comparable companies is higher than the effective interest rate of the appellant at 3.8632%, the international transaction of payment of interest is at arm's length. (b) Quotations provided by Barclays Bank It is further submitted that the fixed rate of 6.18% was agreed on the basis of quotation provided by the Barclays Bank wherein the bank provided a rate of Libor +325 to 375 bps for a five year tenure. The fixed rate of 6.18% was equivalent to the Libor + 350 bps and the loan was converted from floating to fixed rate of interest by substituting Libor with 5 year SWAP rates. The SWAP rates represents the rates which is required to be paid for converting/swapping the floating interest rate to fixed rate of interest. The 5 year US swap rate prevailing at the time of conversion was 2.70%. Therefore, the arm's length rate of interest can be computed as under: Particulars Rate of interest 5 year SWAP rate (A) 2.70% Spread over swap rate as per the quotation provided by Barclays bank (B....
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.... have converted the loan from floating rate of interest to fixed rate of interest. It is submitted that the conversion from floating to fixed rate of interest was done considering the business and financial exigencies of the appellant and the TPO was unjustified in holding that no independent person would agreed for such conversion. He submitted that the TPO has disregarded the aforesaid analysis conducted by the appellant and arbitrarily made the adjustment on account of payment of interest by the appellant to the associated enterprise. In view of the previously mentioned, too, he submitted that that the adjustment made by the TPO is unsustainable and is liable to be deleted. 25. Against this Ld. Departmental Representative vehemently contested that that Assessee has claimed deduction of interest expenditure amounting to Rs. 1 0 5.94 crores. Assessee has changed during the rate of Interest from effectively 2.33% to 6.18% for certain period of the year when Assessee had availability of this loan at the rate of interest of 2.33% for 20 years, in terms of agreement dated 01/06/2005, there was no need to convert this loan in fixed-rate at 6.18%. He further submitted that according ....
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....s USD LIBOR +350 unless the parties agree otherwise. On conjoint readings of this 2 agreements it is apparent that during the year there is a change in the interest rate of the above loan, which was earlier at US dollar LIBOR +2% to 6.18%. For part of the year i.e. from 01/04/2009 2 21/10/2009, the rate of interest on the above loan was 2.33% and from 22/10/2009 to 31/03/2010 the rate of interest of the same loan without any change in the terms and condition of agreement except interest was @ 6.18%. Further, Vide letter dated 21/10/2009 the AE has agreed to offer an additional unsecured loan of US dollars 300 million until 2020 to the appellant wherein terms of clause 1 and 3 of the terms and conditions are as under:- "1 Definition :- "interest" means the interest or advance at the fixed rate of 6.18% (being the 5 years, US Libor swept rate +350 ) for a period of 1st 5 years from the date of execution of this agreement and thereafter at variable rate of 6 months USD LIBOR +350 unless parties mutually agree otherwise in writing" "3 . Interest 3.1 interest shall accrue on the amount of the advance on a day-to-day basis in respect of amounts outstanding under the facility ....
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.... rate of interest. Therefore, the decision of the appellant to shift from floating rate to fixed rate of interest was based on commercial consideration and to protect the business operation of the appellant from any adverse movement in floating interest rates and that only businessmen can decide. It may sound illogical to the Ld. Transfer Pricing Officer, but it is beyond his authority to question the wisdom of Assessee. It is not the prerogative of revenue to direct Assessee to conduct its business in a particular manner. It is also not proper to ask and Assessee to conduct its business in a manner which is understood by the revenue , despite heavy business risk, and further in a manner that will lead to higher revenue to the coffers of the tax gatherers. Various decisions relied upon by the Ld. Authorised Representative also support the above view expressed by us. According to the provisions of section 92 CA of the Income Tax Act, authority envisaged with the Ld. Transfer Pricing Officer is to serve a notice on the Assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the Assessee may rely in support of the computation ....
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....cording to clause No. 7, the interest is required to be paid on the interest payment date, which is 31st May each year, , the taxes on interest, shall be on the account of the borrower according to clause 9 of the agreement. Further, according to clause 5 of the agreement the cancellation of the facility is at the sole discretion of the lender, therefore there was no right of prepayment with the Assessee. With respect to the 2nd transaction of loan of US dollar 300 million there are also the clauses of repayment and prepayment in clause No. 4, there is also an agreement vide clause No. 3 of rewriting the interest rate for a period of 5 years, the amount of repayment on prepayment shall be of at least 100000 US$ , there is no reference of the currency in which the amount is required to be repaid. On the reading of agreement dated 21st of October 2009 and 31st of May 2005, it is apparent that there are certain different terms and conditions in both the agreements. Therefore it is not proper to benchmark both the transactions of payment of interest with respect to two different loans which are governed by two different agreements which has different terms and conditions as "one transa....
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....re partners though they are obliged to share the same in the ratio of their participating interest as per the joint operating agreement dated 19/02/2004. The Assessee submitted the total cost incurred by the Assessee of Rs. 494452392/- which included the tanker and related cost, tugboat cost, safety, environment and materials and technical and engineering services. Assessee further submitted that expenditure under the technical and engineering services is Rs. 316786095/- and out of this sum of Rs. 237932251/- has been received from BG international Ltd that has not been shared by any other production sharing partners. It was further, the contention of the Assessee that out of this sum of Rs. 237932251/- received by the Assessee, ld TPO has already disallowed, there cannot be a double disallowance of the same. The Ld. Assessing Officer was of the view that out of the total production cost of Rs. 316786095/- which is borne exclusively by the Assessee therefore, it cannot be said that these are incurred wholly and exclusively incurred for the purpose of the business of Assessee. Ld. Assessing Officer was further of the view that being the production cost had the same were incurred for....
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....tes (such as analysis on risks, analysis of insurance, information management related services, HR international support, accounting support, insurance support, taxation support, marketing of oil and gas support, and cost control and finance service function); or 2. It is in relation to support functions (such as HR, legal, accounts and finance, etc.) which are inevitable for carrying on its business and incurred based on the commercial expediency determined by ASSESSEE (but not accepted by the Operator Board based on commercial expediency determined by them); 3. It is incurred to enable ASSESSEE to perform operations under the PSC, sustain its activities and maintain its standard of operations, based on the commercial expediency determined by ASSESSEE (but not accepted by the Operator Board based on commercial expediency determined by them). It is pertinent to point out that in case of points "2' and "3' above, there could be occasions where ASSESSEE deems it necessary and expedient to incur certain expenditure for its business, whereas, the other JV partners have a different point of view in the matter. In such case, some cost may not be shared by the JV. He further subm....
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....Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) vi) S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) vii) CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) viii) CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann 268 (Del) ix) CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P&H) (FB) 29. The Ld. Departmental Representative strongly relied on the orders of the lower authorities to state that when the joint venture partners and not agreed to share the above expenditure, it is apparent that the expenditure have not been incurred by the Assessee for the purposes of its business. He vehemently submitted that provision of section 42 of the act does not grant allowability of these expenses. He relied vehemently on the decision of Hon Supreme court in Joshi technologies international Inc. V UOI [ 57 taxmann.com 290 (SC) and submitted that if the deduction are not mentioned in the PSC same cannot be allowed to the Assessee. As the JV partners have not shared the expenses, these are not covered under PSC and hence disallowance is rightly made. 30. We have carefully considered the rival contentions and also perused the orders of the lower authorities by disallowing the above expendit....
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....e and allowances "in lieu of' the existing allowances available to the Assessee. iv) The Assessee may also be granted deduction "in addition to' the existing deduction and allowance allowable to the Assessee. v) Such deduction can only be with respect to nature of deduction / allowances specified in section 42 (1) only. vi) Naturally the expenditure specified u/s 42 (1) are not expressly allowed under the other provision of the act vii) Assessee may claim the deduction allowable to the Assessee u/s 28 to 44 other than 42 if it satisfies the conditions contained in the respective sections. viii) For the purposes of specified deduction/ allowance u/s 42 (1), the agreement shall specify the manners of computation and other aspects of that deduction/ allowance. ix) For claim of deduction / allowances specified in the agreement as per provision of section 42 (1), if there is any contrary provision in any other provision of the act, such other provision shall be deemed to have been modified to that extent. Meaning thereby, the allowances, / deduction specified shall be allowable to the Assessee despite any contrary provision in any other section of the act. Decision ....
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....ed by the Assessee based on the commercial expediency. The Assessee has stated that in relation to the support functions, which are innovatively inevitable for carrying on its business and incurred based on the commercial expediency are expenses belonging to the Assessee which cannot be accepted by the operating board. Further, there may be certain expenditure which are required to be incurred to enable the Assessee to perform its operation under the production sharing contract sustaining its activities and maintaining its standard of operations. It is irrelevant whether the joint operator board has approved such expenditure or not because there may be several other reasons for joint-venture partners to not to share the expenditure. The Ld. Assessing Officer as well as the Ld. Dispute Resolution Panel, despite having the necessary details of the expenditure did not point out the single instance that these expenditure are not incurred by the Assessee for the purposes of its business. Merely making references to the various judicial precedents without putting to the facts on record about incurring of the expenditure by the Assessee or non-business purposes disallowance made by the Ld....
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....oices on sample basis; (iii) TDS Certificates issued to the respective parties on sample basis. The appellant filed, by way of additional evidence, detail (including supporting invoices) of following legal and professional charges before the DRP. The DRP directed the AO to consider the additional evidence and modify the disallowance accordingly. Subsequently, the AO passed the final assessment order wherein he disallowed the expense amounting to Rs. 2,49,36,767/- which was computed as follows: The amount of Rs. 1,64,18,464 (which pertains to payments made to BGIL) disallowed by the TPO, has been allowed by the DRP, therefore, the same is to be disallowed. The appellant has submitted detail of more than 60% of the expenditure on legal and professional charges on sample basis. It may not be feasible to provide detail of each of the numerous transactions entered into by the appellant. In the directions issued by the DRP for the assessment year 2009-10, DRP has observed that it is impossible for any auditor or TPO or DRP to check each and every invoice. It is a time honoured practice of audit to test check. Accordingly, the addition based on the non-furnishing of all the details is not....
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....d. Assessing Officer with a direction to examine the details furnished by the Assessee and call for such further evidence as it is required for him for such examination and then to decide the issue on merit. In view of this ground No. 4 of the appeal of the Assessee is allowed accordingly. 37. Ground No. 5 of the appeal of the Assessee is against disallowance of depreciation on global information technology expenditure amounting to Rs. 33005676/- as under: Ground No. 5: Disallowance of depreciation on global IT & T expenditure 5.1 The learned AO / DRP erred in law and in facts in disallowing depreciation on global IT & T expenditure of Rs. 33,005,676. 5.2 Without prejudice, the learned DRP erred in not treating the global IT & T expenditure as revenue expenditure allowable under section 37(1) of the Act. 38. The brief facts leading to the disallowance is that during the year Assessee has claimed addition of assets under the head global information technology projects amounting to Rs. 666113450/- and claim depreciation of Rs. 33305673/- Assessee was asked to justify the claim of depreciation along with documentary evidence of ownership and user of those assets. The As....
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..... The qualitative aspects and benefits of the IT infrastructure procured are very high and carry a significant element of being non-figurative. However, the global IT & T cost had been incurred centrally and infrastructure implemented after due deliberations and discussions with the appellant. Further, the cost has been allocated to the appellant based on a detailed cost allocation methodology. Hence, the disallowance in respect of deduction should be deleted. Assessee submitted alternatively that, without prejudice to the above, if it is considered that the appellant is not eligible to deduction on account of not being the registered owner of the assets, the appellant submits that the entire expenditure should be allowed to it as revenue expenditure under section 37(1) of the Act, the same having been incurred wholly and exclusively for the purpose of the business. Reliance may be placed on the decision of the Supreme Court in the case of CIT vs. Madras Auto Service (P.) Ltd. 233 ITR 468 wherein it was held that In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view . To the same....
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....icipating in such a huge production sharing contract, It is too naïve to think that production database management system and SAP, training programs, simulations programme and email facilities have not been used by the Assessee. Issues have also been examined at the time of determining Arm's length price of these expense. The actual cost of these assets are not doubted by the Ld. Assessing Officer. In view of this we are of the opinion that these assets are beneficially owned by the Assessee and are used for the purposes of the business of the Assessee, therefore entitles Assessee to claim the depreciation on these assets. In view of this ground No. 5 of the appeal of the Assessee is allowed. 42. Ground No. 6 of appeal is against disallowance of exploration cost of Rs. 460313788/- as under:- Ground No. 6: Disallowance of exploration cost 6.1 The learned AO / DRP erred in law and in facts in disallowing under section 37(1) of the Act, the exploration cost of Rs. 460,313,788 incurred by the appellant. 6.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the appellant's business in Indi....
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....sessee is in appeal before us. 44. Ld. Authorised Representative submitted before us that the amount disallowed by the AO includes expenses aggregating to Rs. 239,330,493 which relate to blocks KG-OSN-2004/1, MN-DWN-2002/2 and KG-DWN-98/4 in respect of which he has allowed a deduction of Rs. 47,15,05,233. The balance cost of Rs. 220,983,295 is primarily in respect of seismic data purchase for new opportunities, which relate to development of the appellant's existing business of prospecting for, exploration and production of crude oil and natural gas. With respect to expenses recorded in books of accounts and claimed by Assessee for tax purposes, It was submitted that detail of expenses shows relevance of the said expenditure to its business of prospecting for, exploration and production of crude oil and natural gas. Further, the details of cost shared by JV partners and Assessee resultant share therein are provided below: Classification Claimed by ASSESSEE in tax return / financial statements JV cost incurred ASSESSEE's share in JV cost, allowed as a deduction by the AO Other cost of ASSESSEE (disallowed by the AO - Refer Notes 2 and 3) (A) (B) (C) = B * ....
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.... 59,298,636 Total 460,313,788 134,974,631 Break up of time-writing charges for KG-OSN-2004/1 forming part of Exploration Cost (Amounts in Rs.) Department charging time to the project Amount Commercial 36,337,036 Drilling and subsurface inputs and analysis 163,833 Executive 2,456,900 Finance 11,662,701 HR and HSSE 149,690 Legal and PCA 3,827,443 Total 54,646,471 Break up of time-writing charges for MN-DWN-2002/2 forming part of Exploration Cost Department charging time to the project Amount Commercial 12,086,900 Drilling and subsurface inputs and analysis 2,236,674 Executive 1,059,009 Finance 3,665,648 HR and HSSE 47,834 Legal and PCA 1,933,460 Total 21,029,524 Break up of time-writing charges for KG-DWN-98/4 forming part of Exploration Cost Department charging time to the project Amount Commercial 48,508,663 Drilling and subsurface inputs and analysis 538,245 Executive 2,654,514 Finance 4,150,630 HR and HSSE 5,803 Legal and PCA 3,440,781 Total 59,298,636 46. I....
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....313,788 49. Regarding the cost of purchase of seismic data he submitted that Government announced NELP-VIII in 2009 in term of which bids were invited for the eighth offer of blocks under the National Exploration Licensing Policy. In terms of NELP-VIII, the bidders had to purchase seismic data from the Directorate General of Hydrocarbons prior to bidding. A copy of the notice inviting offers including the price-list of the seismic-data was submitted to the AO. In this connection, assessee purchased seismic data. Evidences aggregating to Rs. 14,040,703/- were submitted to the AO on sample basis 50. With respect to General and administrative expenses in connection with proposed NELP-VIII, he submitted that Under this sub-head, the costs include staff costs such as salaries of expats and other employees and their travel cost in relation to evaluation of opportunities under NELP-VIII. In this connection, cost is also incurred for project management consultancy services and assistance received from BGIL. A break-down providing the description of expense and corresponding amounts was submitted to the AO 51. With respect to the Staff costs and projec....
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....at the necessary conditions are not satisfied, deduction can still be allowed as per the other provisions of the Act He also relied up on following decisions wherein it has been held that expenses incurred towards extension of business, which was subsequently abandoned, are allowable as deduction: i) CIT vs. Vardhman Spinning and General Mills : 176 Taxman 157 (P&H) ii) Indo Rama Synthetics Ltd.: 333 ITR 18 (Del.) iii) CIT v. Priya Village Roadshows Ltd.: 332 ITR 594 (Del.) iv) CIT v. Euro India Ltd.: [2014] 223 Taxman 97 (Del.) v) Hindustan Aluminium Corporation Ltd. vs. CIT: 159 ITR 673 (Cal.) vi) Asiatic Oxygen Ltd. vs. CIT (Cal.) vii) CIT vs. Graphite India Ltd.: 221 ITR 420 (Cal.) viii) Binani Cement Ltd. v. CIT: 277 CTR 49 (Cal.) ix) DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.: 57 taxmann.com (Guj.) 53. Against this, the Ld. Departmental Representative relied upon the orders of the lower authorities submitted that Assessee is engaged in the business of exploration and the expenditure required to be governed by the production sharing contract. He further submitted that no expenditure ot....
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....iture incurred of Rs. 931819021/- the Ld. Assessing Officer has allowed the expenditure of Rs. 471505233/- which is the cost of respective PSC and shared with JV partners. The balance cost which is not shared by the JV partners amounting to Rs. 460313788/- was disallowed for the reason that these cost have not been shared by the JV partners and therefore it is not incurred for the purposes of the business of the Assessee and hence disallowable. Further sum of Rs. 220983295/- included in the disallowance of Rs. 460313788/- was pertaining to the purchase of seismic data for exploring new opportunities in the business of the company under the pretext that these are with respect to the future businesses which has not yet commenced. Therefore, primary the disallowances of Rs. 460313788/- includes a sum of Rs. 22098 3295/- for purchase of seismic data and balance amount primarily with respect to time writing cost and development expenses. The time writing charges as it is explained by the Assessee are for the purpose of drilling and subsurface inputs, analysis and administrative expenses with respect to executive, finance, human resources, legal, commercial, etc the detailed breakup of t....
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....o delete the disallowance made with respect to about 3 items. 56. Now coming to the claim of the deduction of expenditure of Rs. 22098 3295/- on account of purchase of seismic data and general and administrative expenses in connection with the proposed NELP VIII, It is submitted by the Assessee that these were the expenses incurred by the Assessee with respect to the offers which were invited for the 8th offer of blocks for national exploration licensing policy for which the Assessee has to purchase the data for the bidding purposes. The other expenses which are the necessary general and administrative expenses were incurred for project management, consultancy services, etc and also staff cost and project management expenses were incurred. These expenses were disallowed by Ld. Assessing Officer holding that these are expenses for the future projects of the Assessee for which even the PSC is not executed. The Ld. Authorised Representative has submitted that this issue of allowability of this expenditure is covered in its favour by the decision of ONGC Videsh Ltd versus DCIT [37 SOT 97] wherein it has been held as under:- "15. With regard to disallowing claim of expenses of Rs.....
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....course of business of exploration and production of oil, being revenue in nature, is liable to be allowed as a deduction. Similar claim was also made by the Assessee in the earlier year. We, therefore, direct the Assessing Officer to allow the same as revenue expenditure. As we have allowed ground Nos. 3 to 3.2, the alternate ground No. 3.3 as taken by the Assessee become infructuous." [Extracted Taxmann.com][underline supplied by us] Neither the Ld. Assessing Officer nor the Ld. Departmental Representative could press any other judicial precedent which shows that amount spent by the assessing is not allowable as revenue expenditure under section 37 (1) of the act. It is also not the argument of the revenue that such expenditure incurred by the Assessee is capital in nature. Furthermore, the Ld. AR has also pressed into several decisions which say that that expenses incurred towards extension of business which was subsequently abandon or did not fructify, are allowable. Therefore in view of the above decisions wherein it is been held that the expenses for purchase of this kind of data is unnecessary revenue expenditure required to be incurred by the Assessee for the purpose o....
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....on of payment of advance tax in subsequent levy of interest under section 234B of the Income Tax Act does not arise at all. He further submitted that a person would be liable to pay interest under section 234B of the act only when he is liable to pay advance tax under the provisions of section 208 of the Income Tax Act. He further referred to the provisions of section 208 to say that if the income of the Assessee is liable to tax deduction at source then no advance tax is payable. He further submitted that according to section 195 of the Income Tax Act income of a non-resident Assessee, such as appellant, is liable for tax deduction at source and therefore they are not supposed to pay advance tax under the provisions of section 208 of the Income Tax Act. In nutshell, There cannot be any liability for payment of advance tax in the hands of a non-resident its full income is liable to tax deduction at source and therefore, no interest under section 234B of the Income Tax Act can be charged. Assessee vehemently relied on the decision of the Hon'ble Uttarakhand High Court in case of CIT versus Maersk company limited (334 ITR 79) and Hon'ble Delhi High Court in case of DIT versus GE pack....
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....tax at source except on being prompted by the Assessee. It may be true that the general rule is that equity has no place in the interpretation of tax laws. But we are of the view that when the facts of a particular case justify it, it is open to the court to invoke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the Assessee or even the revenue. Moreover, interest is, inter alia, compensation for the use of the money. The Assessee has had the use of the money, which would otherwise have been paid as advance tax, until it accepted the assessments at the first appellate stage. Where the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the Assessee, it is not expected of the Assessee to shift the responsibility to the Indian payers. We are not to be understood as passing a value-judgment on the Assessee's conduct. We are only saying that the Assessee shou....
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.... as Assessee has not accepted the charge of the expenses by joint venture operating board claim of expenditure on it of Rs. 69221384/- has neither debited these expenditure in its books of accounts and also have not claimed it in its return of income. For this proposition he pressed the two decisions of Hon'ble Supreme Court in case of Kedarnath Jute Mfg Co V CIT [ 82 ITR 363] and Goetz India Limited [ 284 ITR 323]. We have carefully considered the rival contentions, We direct the Ld. Assessing Officer to consider the claim of the Assessee on merits after examination of relevant submission and details filed by the Assessee. It is also pertinent to note that if such sum is allowed in any other year to the Assessee, then, Ld. Assessing Officer must consider first whether those expenditure are allowable or not and if yes, then in which year more particularly. In the result additional ground filed by the Assessee is allowed with directions accordingly. 65. In the result, appeal of the Assessee is partly allowed. 66. The revenue has raised the following grounds of appeal for the Assessment Year 2009-10 in ITA No. 2227/Del/2014:- "1. Whether on the facts and in circumstances of ....
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....ed adjustment of Rs. 9,88.84,0467- on account of disallowance of G&A Expenses paid by the Assessee to M/s B.G. International Ltd ( 'BOIL') 2.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TRO that a) The Assessee has not been able to establish that it has actually received any intra-group G&A services. b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so-called 'evidence' furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the Assessee d) The Assessee has not been able to establish the economic and commercial benefits derived by it on account of such services e) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as they are based on ad-hoc factors like head-cou....
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....n amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as they are based on ad-hoc factors like head-counts & hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves f) No comparable independent enterprise would have paid for the services in comparable circumstances g) There is an element of duplication in respect of some of the services comprised in the Management Service & Unit Charges (Accounting, Taxation, Cost Control etc.) claimed to have been rendered by M/s BGIL in that the India Project Office is also independently looking after such functions. h) Without prejudice to the findings regarding the actual rendering of services and the non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operati....
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....essing officer has erred in rejecting the economic analysis of the assessee and holding that the transactional net margin method adopted by the assessee is the most appropriate method and the operating profit margins based on the sales is the correct profit level indicator as used by the assessee. The Ld. AO is further aggrieved by the order of Ld. dispute resolution panel's where it is accepted that all the transactions are required to be aggregated for the purposes of benchmarking. He is further aggrieved by the order of Ld. dispute resolution panel wherein it is rejected the finding of the Ld. transfer pricing officer that cup method is the most appropriate method. He is further aggrieved that most of the services are duplicate services and shareholder services for which no 3rd party would have remunerated. Ground No. 2 of the revenue is that Ld. dispute resolution panel has admitted the additional evidences filed by the assessee holding that no proper adequate opportunity was given to the assessee, though according to the Ld. TPO there was an adequate opportunity is the 1st notice was issued to the assessee on 14th of February 2013 giving time of a 11 and half months to the ass....
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....ferred to the decision of coordinate bench in case of M/s Knorr Bermese India private limited versus ACIT (ITA No. 5097/del/2011) (assessment year 2007 - 08) dated 31st of October 2012 where the adoption of NIL value for the intragroup services were upheld. He also relied on the decision of the coordinate bench in case of M/s Gem Plus India private limited versus ACIT( 352/bang /2009). In view of this, the Ld. departmental representative vehemently lease stated that directions given by the Ld. dispute resolution panel were not in accordance with the law and therefore deserves to be cancelled. 68. The Ld. authorized representative vehemently relied upon the direction of Ld. dispute resolution panel. He vehemently supported that with respect to the observation of intragroup services given at Para No. 4 of the direction is exhaustive and completely in accordance with the law. He extensively read that paragraph starting from page No. 3-31 of the order of the Ld. dispute resolution panel. He submitted to paper book volumes of index of various judicial precedents relied upon by him to support his contention. He relied upon:- i) CIT V Cushman & wakefield India P Ltd 367 ITR 730 i....
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....fore giving directions to the Assessing Officer under Section 144C(5) . The DRP procedure can only be initiated by an assessee objecting to the draft assessment order. This would enable correction in the proposed order (draft assessment order) before a final assessment order is passed. Therefore, we are of the view that in the present facts this issue could be agitated before and rectified by the DRP." 70. It is apparent from the above decision of the Hon'ble Bombay high court that it is not an appeal proceedings, but a correcting mechanism whereby a second look is given to the proposed assessment made by the Ld. transfer pricing officer wrote assessing officer by the higher functionaries of the revenue wherein the interest of the assessee is kept in mind, and therefore it is a continuation of assessment proceedings only. Further, while reading the order of the Ld. dispute resolution panel it has been noted that assessee has filed though volume of submissions as an additional evidences, the same were sent to the Ld. transfer pricing officer for his comments. However, the Ld. transfer pricing officer wide letter dated 12/11/2013 has not examine those evidence was submitted that t....
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....oup services using TNMM as the most appropriate method and it had earned a margin of 48.71%. All the international transactions relating to intra group services were clubbed together and assessee benchmarked the same under TNMM, In the provision of business support services, the assessee has used TNMM and had shown a margin of cost plus 12%. The payment of interest was benchmarked by obtaining quotations and corroborated by providing list of independent companies' comparable payment of interest on ECBs. 4.1. The TPO rejected the approach of the assessee and used CUP as the most appropriate method in intra group services. The justification given by the TPO can be summarized as under: (i) Each transaction being a separate class of transactions by itself, the same have to be benchmarked separately; (ii) Taxpayer failed to submit documentary evidences in respect of the intra-group service transactions and justify the arm's length price (iii) The assessee did not come up with any documentary evidence regarding its need for these services during the year under consideration as they remain same for fairly good amount of time and there is no incremental value add as suc....
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....he TPO completely disregarded the detailed documents/evidences submitted to justify actual availing of services i.e. detailed nature of services received, Skill supply agreements, emails evidencing receipt of services, Reports, etc. 4) Brushed aside the voluminous details / submissions filed by the assessee and stated no evidence was produced before him - action of TPO/AO devoid of any merits and rational. 5) Tabular chart detailing the nature of services received by the assessee and the benefits derived therefrom, as submitted before the TPO, is also provided in the additional evidence submissions made before your goodself. 6) Costs were allocated based on Global Cost Allocation Policy, on cost to cost basis without charging any mark-up thereon 7) Such policy has also been certified by Independent third party consultants -PricewaterhouseCoopers LLP, UK and Lancaster Maclean. 8) TPO/AO failed to bring anything on record to: a. Negate the information and / or supportings provided; and b. Support that no independent person would make payments in similar circumstances 9) Such highly technical experts may not be required by assessee all the time. Thus, economically....
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....nstrate / support receipt of services. 23) The assessee had argued that it had submitted voluminous evidence, on sample basis, to demonstrate actual receipt of services and it would not be humanely possible for the assessee to furnish each and every evidence for receipt of service. The Hon'ble Panel had held that based on the test checking it can be seen that the assessee has indeed received such services and thereby had arrived at the conclusion that TNMM is the most appropriate method in this case and that CUP cannot be applied in the absence of any data availability in case of comparable cases. Accordingly, the entire transfer pricing addition, on account of intra group services was deleted. 24) Assuming but not admitting that the arm's length price of G&A and MSUs availed by the assessee is Nil (as contended by the TPO/AO), we would like to submit that the TPO/AO has grossly erred in not excluding the amount of tax grossed up by the assessee on such payment while disallowing the same. In response to this objection raised by the assessee before the TPO/AO vide submission dated 9th January 2014 (Annexure 2 - page 1 to 534 of Volume VA of the Paperbook), the TPO has ....
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....SES i. T THIRD PARTY Description of services received | Salary & other costs - These costs primarily pertain to Employee Stock Option Plan ("ESOP") exercised by BGEPIL employees. BGEPIL employees receive shares from the parent company as Stock Options. These shares are allotted at "NIL" cost to the employees. However, the cost relating to these shares are subsequently recovered/charged to individual asset. Relocation costs - This head comprise costs in respect of relocation of assignees/employees including familiarization expenses, travel costs, cost of transporting the assignees personal belongings, storage costs, etc. also form a part of this head. Consultancy fees , - Consulting services mainly comprise of services availed from third parties by BG/L on behalf of the assessee. For instance, services were availed from global tax and legal firms in relation to expat taxation of the BG employees. Professional subscriptions and license cost - Professional subscriptions and license cost mainly comprise of payments made for subscription to journals magazines and other reports relevant to the business sector of - the assessee viz. oil and gas journals, fees paid ....
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....s/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 337 to 363 of Volume IV of the Paperbook) Diminimus charges. Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 364 to of Volume 493 of the Paperbook). : Service tax Copy of the service tax return comprising of service tax paid in respect of services received from BGIL and IDS certificate in respect of services received from BGIL. (Page 494 to 517 of Volume IV of the Paperbook) : III. Additional evidence filed before Ld. DRP onNovember 7, 2014 General and Administrative expenses - Travel & Subsistence Sample inter-company debit notesand American Express copies which demonstrate the :'~- travel of the employee for India project for the relevant period and third party costs for the same: ! XXXXXX (Refer Page 1 to 202 of Volume 1 of the additional evidence Paper book) General and Administrative expenses - Others General & Administrative (G&A) Manual for use by the Global Finance team prepared by BGIL to provide clarity around G&A costs within BG and in s....
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....o 772 of Volume IV of the Paperbook) Additional evidence filed before Ld. DRP on November 7, 2014 * Sample high value inter-company debit notes (above INR 10 lakhs) which demonstrate that the time writing charges were in relation to the work done on India projects and the invoice was raised accordingly. Further, the description of time writing cost sheet demonstrates that the same pertains to the India project. XXXXXXX (Refer Page 260 to 518 of Volume 1 of the additional evidence Paper book) Timesheets of individuals evidencing the actual work done pertaining to India projects. The said timesheet clearly demonstrates that those employees had worked in relation to which cost has been charged to BGEPIL. * Sample inter-company debit notes and Skill Supply Agreement copies which demonstrate that the time writing charges were in relation to the said SSAs and the invoice was raised under the said SSA. Further, the description of time writing cost sheet demonstrates that the same pertains to the India project. (Refer Page 236 to 281 of Volume 1 of the additional evidence Paper book) * Timesheets of individuals evidencing the actual work done pertaining to ....
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....wntime and idle time cost. (b) Reduction in investment on standby assets as such standby assets are owned and maintained by BGIL. {c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services (a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the applicant's business and gives it better control over use of email by personnel for personal use. (b) Enables assesse to track the trail of e-mails much faster. (c) A separate and unique e-mail account enables the assessee to have better control over the use of e-mails by its employees. (d) Creating a corporate e-mail provides opportunity to the assessee to prescribe structure of e-mails to employees and for standardization of e-mail communications for specific purposes/events. (e} Assessee receives the benefit of on-going and continuous development in IT arena. BG Intranet Portal , Reduction in wastage of time, efforts and cost on the following grounds:....
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....form for and facilitates networking of employees; - Ready access to the employees of support function of the assesse on the policies and guidelines i.e. accounting policy manual etc.; and ; - Such standard documents assist the assessee in formulating / implementing similar - controls in place easily. - Internet services a. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. b. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking etc. c. Ensure uniform connectivity as per the assessee's requirements. d. Corrective actions against hacking enable asessee to function efficiently at lower cost. e. Monitoring internet activities of employees creates awareness and control among each employee in usage of internet facilities only on need basis. Avoidance of unnecessary of internet for playing games etc. Thus, optimal utilization of bandwidth for official purpose. Enabling mobile/offsite working , • Ensures continuity of work and optimum utilization of time of the employees of assessee. • Encryption and safety precautions taken....
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....ist of sophisticated IT application to which personnel of assessee have access to where day to day operations of the assessee are carried outrage 97 to 495 of Volume 2A of the Additional evidence Paperbook and Page 1 to 489 of Volume 28 of the Additional evidence paper book) C. MANAGEMENT AND UNIT RECHARGES - HR. ACCOUNTS. TAXATION, INSURANCE ETC I. Description of services received HR support - Support on deployment of globally mobile expatriate staff: • BGIL's HR international team coordinates all expat requirements based on nature of work, profile of activities, resource availability, cost factors, etc. • Manages issues connected with the transfer of staff between various projects of BG group entities including the assessee, repatriation of staff at the end of a secondment etc. • . Managing the international movement of Indian nationals who go to other business units within BG group for developmental assignments. • For areas like compensation and benefits, standards and methods are developed, managed and monitored centrally to ensure consistency of process. Accounting and Taxation support • Financial syste....
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.... c) E-mail correspondences by BGIL sloganing young leaders research being recommended as a measure that would be researching on the graduate population to provide support to BGEPIL Input provided thereby by BGIL {Page 676 to 678 of Volume VBofthe Paperbook) d) E-mail correspondences by BGIL demonstrating support provided by BGIL to BGEPIL on training, on job learning, vendor supportive web based tools along with the competency and development review for employees. Power point presentations projecting appropriate training and ADR approach, the 360 tool and wallet cards are being attached for reference {Page 611 to 640 of Volume VB of the Paperbook)] e) E-mail correspondences by BGIL which demonstrates the international placement policy communicated to BGEPIL specifying the placement criteria along with the cost of living and salary caps. The policy stands attached herewith.(Page 679 to 733 of Volume VB of the Paperbook) . f) E-mail correspondences by BGIL in relation to the recruitment policies. Power point presentations demonstrating graduate development move projections necessary as a recruitment agenda for BGEPIL (Page 607 to 608 of Volume VB of t....
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.... a) A slide deck prepared by BGIL on 360° feedback tool which provides a framework for behaviours critical to excellence offering depth and level of guidance sought, (Page 1 , to 5 of Volume 3 of the Additional evidence paper book) b) Guidelines prepared by BGIL on 360 Feedback tool are intended to support HR Managers and Advisors in understanding the 360 process in BG Group and their role as trained 360 HR Coaches. These guidelines are to ensure that a minimum standard is adopted and maintained across the Group in the feedback and support Participants receive from the HR Coach in completing their 360 review. It is the first time BG has introduced a 360 tool at group level in year 2009.(Page 6 to 11 of Volume 3 of the Additional evidence paper book) c) A slide deck of BGIL dated October 2009 on Awareness Training for Mentors & Mentees containing an agenda of safety moments, role of mentor, developmental approach to mentoring, role of a mentee, ground rules for mentoring relationship, etc.fPage 12 to 33 of Volume 3 of the Additional evidence paper book) d) A slide deck on People Agenda update for year 2009 which refers activities in relation to perform....
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....functions h. Information related to organizational functions i. Information & assistance related to travel related documentations Accounting. Finance. Taxation & Legal support a) A report prepared by BGIL on capital expenditure which provides detailed process transaction flow, identify financial reporting risks inherent in the process, and the related control objectives. It also helps identify the controls in operation, and map these to the control objectives identified. It demonstrates how the controls address the relevant assertions for the material financial statement balances affected by this process. It also helps identify the method of monitoring and nature of evidence b) required to confirm operation of controls. (Page 119 to 133 of Volume 3 of the Additional evidence paperbook) c) A manual / reference note for the year 2009 prepared by BGIL which helps the Regional Investment Committee to approve ordinary Course business expenditure on capital projects and financial commitments for the Region, the substitution capital funding within the Region's current approved budget for new projects, Re-approving capital investments, Approve pre-sanction....
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....surance philosophy and responsibilities which applies to all locations of BG Group including BGEPIL-fPoge 293 to 305 of Volume 3 of the Additional evidence paperbook) c. A guideline dated December 2009 which confirms the procedure adopted by the BG d. Group Insurance Team for the appointment of a project-specific insurance broker leading to the purchase of insurance and servicing of the insurance needs, including claims {1MB - claims handling may be subject to separate contract). The document also addresses the procedure adopted for the relatively limited direct approaches made to insurers without the use of brokers.(Page 306 to 311 of Volume 3 of the Additional evidence paperbook) \ e. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal of various insurance coveragesfPoge 312 to f. 364 of Volume 3 of the Additional evidence paperbook) g. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal premium calculation for 2010 BGEPIL (Poge 365 to 367 of Volume 3 of the Additional evidence paperbook) h. E-mail corr....
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....ider group thereby saving on the recruitment costs including fees payable to search firms and head hunters. • Assessee's staff participates in group wide compensation initiatives thereby enabling assessee to be incentive better and on a more cost efficient basis (as the assessee need not investigate and implement its own separately designed compensation and rewards schemes) • Capability building of the assessee's workforce by managing their international movement to other business units within BG group, • Accounting and Taxation Support * Financial systems and analysis - Consistency of reporting and security of data of the assesse. Received training and other advice on the use of SAP and other financial systems. Financial technical accounting and assurance support * • Assessee being a project office of a foreign company is required to follow international accounting standards. • Assessee's personnel are trained to keep pace with the recent developments in the international arena. • Technical accounting issues of the assessee are resolved by BGIL Financial Reporting : * Saving....
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....148 to 152 of Volume VA ofPaperbook) (d) HSSE Incident review report for the month of June 2QQB(Pages 153to 181of Volume VA ofPaperbook (e) HSSE report for all the four quarters of FY 2QQ9-lQ(Page 182 to 228 of Volume VA of Paperbook) _ (f) The allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773to 788of Volume IV ofPaperbook) certified by Price Waterhouse Coopers vide their report. (Pages 789to 826of Volume IV of Paperbook) (g) In addition, report of the independent consultant certifying the cost allocation methodology for the year 2009 is also provided. (Pages 773 to 853of Volume IV of Paperbook) (h) Intercompany debit notes with details of time writing i.e. names of such people and hours booked by them (Pages 3 to 48 of Volume VII ofPaperbook) I. III. Additional evidence filed before Ld. DRP onNovember 7, 2014 (a) Detailed description of the activities undertaken for federal recharge (Page 1 to 7 of Volume 4 of the Additional evidence Paperbook) (b) A standard guidance note issued on December 2....
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....summarizing BG Group Finance HSSE Schedule for 2009 which summarizing various fedgreen activities during the period/Page 348 to 348 of Volume 4 of the Additional evidence Paperbook) . (i) Snapshots of access to intranet portal as well as information in relation to following Fedgreen activitiesfPage 349 to 356 of Volume 4 of the Additional evidence Paperbook) a. HSSE b. Health risk management . c. Exploration activity d. Development activity e. Policies f. Group operating mode g. Asset integrity h. Contracts & Procurement activity i. Production & operations activity j. Corporate reserves etc. (j) A graphical representation of combined operations safety case prepared by BG International Armada Development which gives guidelines of operation safety case which can be undertaken by other group entities. Page 357 to 361 of Volume 4 of the Additional evidence Paperbook) (k) A guidance note issued by BGIL for effective environmental management which delivers and protects business value throughout the lifecycle of an asset and reduces to as low as practicable impacts and risks related to th....
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....ed by the assessee in following areas: - Structural geology - Well Engineering - Productions Operations technology - Borehole geophysics - Geology Technology management - Geophysics technology watch I management - Petro physics technology program - Transmission and distribution - Commercial ; In relation to Structural Geology and petro physics technology program, BGIL financially supports research activities conducted by various independent third party universities and organizations. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014) - (a) Manual describing the technology programmes proposed to be undertaken by BGIL which evidences the activities that has been undertaken, the cost involved, the benefits derived by the BsselsfPages 268 to 534 of Volume VA of Paperbook) (b) Technology bulletin for group technology strategyfPoges 237 to 265 of Volume VA of, Paperbook) (c) Snapshots of various portals in relation to Technology recharge (Pages 230 to 236 of Volume VA ofPaperbook) (i) T he allocation of the technology exp....
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....f the Additional evidence Paperbook} (g) A guideline issued on December 2009 on Engineering Technical Standard - Relief, Blcwdown& Flaring issued by BGIL which sets out mandatory Company requirements for the design of relief, blowdown and flaring facilities for offshore and onshore assets for both new "green field" developments and "brown field" modifications.(Page 237 to 259 of Volume 5 of the Additional evidence Paperbook) (h) A guideline issued on Aug 2009 on Supply Base issued by BGIL which captures the first draft in providing guidelines for Supply Base infrastructure development, management and operation.(Page 260 to 336 of Volume 5 of the Additional evidence Paperbook) (i) A guideline issued on December 2009 on Application of Process Isolations issued by BGIL which is provided to controls and procedures where Process Isolations are undertaken and will be used as the basis of any assessment or assurance activity relating to its subject matter.fPoge 337 to 356 of Volume 5 of the Additional evidence Paperbook) (j) A guideline issued on July 2009 on Field Development Engineering prepared by BGIL which presents a philosophy for Development Engi....
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....s available to the assessee to club the transaction together. DRP has considered this issue of separate benchmarking nf thp international transactipn carefully. The Income Tax Act and Rules provide for clubbing of transactions when a class of transactions are involved. The relevant part of the Section/ Rule is reproduced below: Section 92C. (1) The arm's length price in relation to an international transaction -[or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe-, namely :-....... Rule 10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall....
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....e data, TNMM using Net Operating Profit Margin on sales ('NPM') as the profit level indicator, was selected to be the most appropriate method. A search for broadly comparable companies that perform similar functions and carry risk profile similar to that of assessee in respect of its oil and gas exploration and production function was conducted. The search process yielded a set of 9 companies that are broadly comparable to the functional profile of assessee's oil and gas exploration and production activities. For the year ended 31st March 2010, the assessee has earned an NPM of 48.71 percent with respect its oil and gas exploration and production activities. The NPM earned by assessee being higher than the average NPM of comparable companies, it has been concluded that the assessee's international transaction of receipt of intra-group services from its AE, is on an arm's length basis. Further, in support of its claim that the intra-group services received from its AE are 'closely' linked to the main business activity of the company i.e. exploration and extraction of oil and gas, the assessee also placed reliance upon the US regulations, OECD reg....
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....ation. Further regarding non-sharing of the cost by the joint-venture partners we have given our findings while deciding the appeal of the assessee that such an action of the joint-venture partners cannot be the reason to determine the arm's length price of the services which is been received by the assessee at nil. In view of this we uphold the finding of the Ld. dispute resolution panel holding that transactions of intragroup services are interlinked, therefore, they should be benchmarked together by adopting TNMM as the most appropriate method , hence, directing the Ld. transfer pricing officer to delete the adjustment proposed of Rs. 3 329766244/-. In the result ground No. 1 to 3 of the appeal of the revenue are dismissed. 73. Ground No. 4 of the appeal of the revenue is against the direction of dispute resolution panel to the Ld. assessing officer to drop the disallowance of Rs. 8 15097333/- out of the depreciation claimed on wellhead platforms. It was noted by the Ld. assessing officer during the assessment proceeding that the assessee has claimed depreciation at the rate of hundred percent on wellhead platforms and therefore assessee was asked to explain that why the depr....
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....ction is regarding the AO's erroneous treatment of expenditure on well head platform as being development and production operations instead of exploration and drilling operations and thereby disallowing an amount of Rs. 81,50,97,3337- in respect of the same. Therefore, the AO regarded that depreciation on well head platform has to be determined as per provisions of section 32 of the Act @15%. It has been contended by the assessee that the well head platform are created for undertaking drilling operation and accordingly the expenditure is clearly in connection with drilling and exploration operations and not part of production equipment. Further, the well head platforms are inseparable part of the well itself and accordingly, the same have to the treated in the same manner as the well itself. It has been further pointed out by the assessee that as per clause 15.2.1 (relating to taxes, royalties, rentals etc.) of the PSC read with section 42 of the Act, all expenditure relating to the exploration activities or in respect of physical assets used in that connection is to be allowed fully during the year under consideration i.e. @100%. The assessee has also stated that the AO vide o....
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....u/s 42(1)(b) as expenditure incurred on drilling and exploration,. The AO has disallowed the claim on the ground that the expenditure on production facilities is not related to drilling and exploration activities and is therefore not eligible for deduction u/s 42(1)(b) of the act. 14. The Ld, AR of the appellant explained that the appellant company is undertaking the activities of exploration extraction and production of oil and gas from the panna, Mukta and Tapti fields in a joint venture. The appellant incurs various expenses on drilling exploration extraction and production activities. The AR further explained that the expenditure in exploration and production (hereinafter referred to as E&P) is classified based on the nature of activities performed undertaken as under: Acquisition Activities: i. Cost of acquiring exploration development and production rights. 10 Reliance Industries ii. Includes lease bonus brokers, fees, legal costs to acquire exploration eights. Exploration Activities: i. Cost of aerial, Geological. Geophysical, Geochemical, Palaentological , Topographical and Seismic surveys, studies, analysis and interpretation Investigations relating to....
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....rt of these facilities wellhead platforms (viz platform PC,PF and PG) houses equipments essential for drilling of wells. These wellhead platforms are necessary to be installed before the drilling of wells and the utility of these platforms are as follows: 12 Reliance Industries Facilitate drilling of drill multiple wells from a single location. On completion of each well the wellhead platform only holds the assembly of valves for manual and automatic well closure and control of production rate has to be installed. After a well has been drilled and performed the well has to be tested to determine well productivity and collect other production and reservoir data. During these well tests hydrocarbons along with drilling and completion fluids that are potentially hazardous to the environment are produced. These fluids have to be handled very carefully without causing any environmental damage. The facilities on the wellhead platform like test separator, manifolds and sumps are used to carry out well testing without violating any environmental regulations. The wellhead platform provides the necessary support for the well conductors and therefore has to be installed before ....
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....d. CIT(A) accepted the contention of the assessee observing as under: " I have carefully considered the matter The AO has disallowed the claim of the appellant merely by stating that the appellant could not substantiate its claim that the expenditure on production facilities is related to the drilling and exploration activities for which the deduction u/s 42(1)(b) is allowable. No other infirmity in the claim was pointed out by the AO. On a consideration of the note explaining the necessity of wellhead platforms for exploration and drilling operations. I am of the view that installation of wellhead platforms is an integral part of the drilling and exploration process. It appears that the AO also may have no quarrel with this position because similar expenses on well head platforms have been allowed as deduction in the preceding as well in subsequent years u/s 42(1)(b). Even during the year under consideration expenses of Rs. 5.20 crore incurred on the wellhead platforms at Tapti field has been allowed as deduction u/s 42(1)(b) On the facts of the case therefore, I am inclined to agree with the appellant that installation of wellhead platform forms part of drilling and exploratio....
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....ty of these platforms are as follows: Facilitate drilling of drill multiple wells from a single location. On completion of each well the wellhead platform only holds the assembly of valves for manual and automatic well closure and control of production rate has to be installed After a well has been drilled and performed the well has to be tested to determine well productivity and collect other production and reservoir data. During these well tests hydrocarbons along with drilling and completion fluids that are potentially hazardous to the environment are produced. These fluids have to be handled very carefully without causing any environmental damage. The facilities on the wellhead platform like test separator, manifolds and sumps are used to carry out well testing without violating any environmental regulations. The wellhead platform provides the necessary support for the well conductors and therefore has to be installed before the wells are in place. Cathodic protection is required for the well conductors so that they can be used as long as the well is capable of producing. The hardware required for cathodic protection is provided at the wellhead platform. Thus the wellhead....
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.... as club fees: Particulars Amount Club Renaissance 5,44,882 Waterstones Country Club 55,15,000 Total 60,59,882 He submitted that assessee has paid the FBT on the entire amount of the above expenditure, there is no warrant to disallow the same and as such, the expenditure qualifies for deduction under section 37(1) as it is incurred wholly and exclusively for the business of the assessee. If the position adopted by the AO was to be extended, any expenditure incurred by a company which incidentally results in some deemed benefit/ welfare of its employees would be liable to be disallowed. This would result into absurdity. The fact that FBT has been paid on the entire amount of expenditure, there was no warrant to disallow the same. Further, the said expenditure qualifies for deduction under section 37(1) of the Act, being incurred wholly and exclusively for the purpose of business of the assessee. He further said that courts have in the following cases held that the club expenses are allowed as business expenditure for deduction from total income under section 37(1) as they are done wholly and exclusively for the business purposes: i) CIT vs. Ne....
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....s. In the result ground No. 5 of the appeal of the revenue is dismissed. 81. Ground No. 6 of the appeal of the revenue is general in nature and therefore dismissed. 82. In the result appeal of revenue in ITA No. 1581/del/2015 for assessment year 2010 - 11 is dismissed. 83. Therefore appeals of both the parties are disposed off for assessment year 20 10 - 11 wherein appeal of the assessee in ITA No. 1170/DEL/2015 is partly allowed and appeal of the revenue in ITA No. 1581/DEL/2015 is dismissed. Order pronounced in the open court on 24 /04/2017. ============= Document 1 for explanation. 91) Actions 10 Build/Edit Search 1. Select Universe 2. 11) Asset Classes 12) Sources • Criteria 92) Settings 20 My Searches 30 Example Searches Corporates, Governments All Securities Security Status Field 31) 2) And Issue Date 33) And 34) And Coupon Type Ask a question Boundaries Include In the range of Include Selected Criteria Bonds: Active 09/01/2007 to 08/31/2008 (Fixed) Original Maturity (Yrs) In the range of 4 To 6 Years And 99) All Fields Fixed Income Search 1,744,438 securities Matches 336,510 12.096 5,977 16 16 securities Resul....