TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1145
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....ting 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 subject, the international transactions relating to ....
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....der 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 in law and in fact, in levying interest under section 234D of the Act. ....
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....s 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 the shareholders. v) The Assessee has adopted a combined approach with regard to it....
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....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 other parties to the JOA (M/s ONGC and Reliance Industries Ltd.), which are unrelated parties, would no....
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....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 fields Partner Participating Interest (%) Oil & Natural Gas Corporation Limited (ONGC) 40 Enron Oil & Gas Limi....
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....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 of expenses TNMM 1,297,989 7 Mahanagar Gas Limited TNMM 146,611 8 BG International Ltd. Payroll expenses TNMM 372,800,271 Reimbursement of expenses TNMM 382,471,987 9 BG International Limited Recovery of expenses NA 203,100,890 10 BG India Energy Pvt. Ltd. (formerly British Gas India Pvt. Ltd.) NA 1,239,375 11 BG LNG Regas Private Limited NA 59,694 12 BG In....
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....nt 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 Assessee has made payment to BG International Ltd for certain services, amounting in all to Rs. 3329766244/- as under:- Sr No Nature of services Amount 1 Joint Acquisition and Development of IT Infrastructure and software 801326641 2 Management service unit charges 1102791317 3 IM Recharge and Time Writing charges 670376028 4 Payroll Expenses 372800271 5 Reimbursement of expenses 382471987 Total 3329766244 The Assessee has aggregated all the transactions except transaction listed at five above of reim....
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....ement 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 party invoices have been submitted. It is noted that BGIL charged its professional @ GBP 100 per hour, no basis of this cost has been provided. It is on the lump-sum basis without any reason and excessively high. vi) Assessee only submitted debit note (consolidated) to demonstrate that the amount as mentioned therein totaling to GBP 9015327 was demanded by BGIL from the Assessee. vii) Regarding allocation Assessee submitted sheet of allocation, mentioning that certain percentage of so called costs incurred by the parent company have been allocated to the Assessee viii) In some cases, it is mentioned that the cost was allocated based on head counts an....
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....t 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. 4. Most of the services which have been claimed to have been received by the Assessee Company are in the nature of advisory. In most of the cases, the Assessee company itself is competent to take the decision. In such scenario, imposing upon the Assessee to take decision in one or the other way is only for the purposes of furtherance of the interest of the parent company. 5. The Assessee company has paid Rs. 3,12,88,784/-for HR international support. During the year the Assessee has also paid Rs. 37,28,00,271/- on account of payroll expenses to M/s BGIL towards salary of expats employee. This payment is in respect of 29 expats who have worked on secondment basis. It shows that BGIL is charging expenses in addition to....
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....licies 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 of legal services obtained by the Assessee has been submitted. It is also pertinent to mention the Assessee has incurred Rs. 7,06,55,8391- on professional and legal expenses. The Assessee has not substantiated its claim of such a huge expenditure on routine basis every year for consultancy regarding taxation and legal purposes. It has not been supported what taxation or legal consultancy have been extended by M/s BGIL. Was there any legal dispute going on for which the legal advice was obtained by the Assessee company from BGIL. It appears that the Assessee is paying for expenditure for its parent company for which no benefits/ services have been derived. 9. The Assessee company has claimed that BGIL provides marketing services to it however, from n....
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....ave 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 technique and capital Abilities to the existing exploration and production operation of the Assessee. The Assessee detailed various benefits and services received by the Assessee and the evidences for Western relation to such services. The Ld. Transfer Pricing Officer stated that these are the expenditure which is intended for creation of academic and talent centers and the Assessee company did not demonstrate what is going to be its role and responsibility in this institutions and the benefits in future, if any. He further submitted that the Assessee merely receives some technology bulletins for which only maximum subscription charges can be remunerated. He further noted that various projects have been undertaken. However, all of them may not relate to the areas in which the Assessee companies opera....
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....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 Amount 1 Provision of Business support services Rs. 8018048/- 2 Adjustment regarding excess provision of Interest RS 427264082/- 3 Intra Group services Rs. 3329766244/- Total Rs. 3765048374/- 7. On the corporate tax issues, It was noted that the Assessee has incurred total production cost amounting to Rs. 31678 6095/- which is borne exclusively by the Assessee out of which Rs. 237932251/- t was paid to the associated enterprise which was already adjusted by the Ld. Transfer Pricing Officer under section 92 CA and therefore it was not disallowed by the Ld. Assessing Officer but the balance of Rs. 70520756/- , as according to the Ld. Assessing Officer the Assessee has not submitted any explanation as to what are these expenses for and therefore needs to be disallowed. 8. The Ass....
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.... 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 Ld. Assessing Officer enquired about the ownership and user test thereof. Assessee submitted before the Ld. Assessing Officer that these are the allocation cost made by the group company who has acquired certain information technology infrastructure and software for the benefit of the group companies. Such assets are production database management system, SAP up gradation and efficient budgeting and forecasting system etc. It was noted by the Ld. Assessing Officer that Assessee has been allocated a sum of Rs. 8 0132 6640/- ,out of which Rs. 6130450/- was capitalized during the year and the balance of Rs. 135213190/- was capital work in progress in the books. According to the Ld. Assessing Officer the Assessee is neither owner of these assets wholly or partly and could not produce any document to prove that these assets were put to use for the bu....
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....ion 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 appropriate method, the DRP held that TNMM was the most appropriate method in this case and the Assessee was justified in obtaining the services as mentioned in the earlier paragraph the year for DRP held that the determination of arm length price by the TPO in the intragroup services to the tune of Rs. 3329766244/- is erroneous and is also be deleted. ii) With respect to provision of support services and its benchmarking, ld DRP upheld the selection of comparables by the ld TPO. It was held vide Para No. 6.2 that these acquisition of information technology related infrastructure was for the purpose of the business and the Ld. Transfer Pricing Officer is not the authority to allow or disallow any expenses. As the Ld. Dispute Resolution Panel has already issued separate direction with respect to the intra group services, there was no need for issuing any....
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.... 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 deductible expenditure as in the preceding assessment year, i.e. Assessment year 2009 - 10, the Ld. Dispute Resolution Panel has allowed it. Therefore, for this year also the ld AO was directed to allow the club expenditure under section 37 (1) of the Income Tax Act. Based on above directions, ld AO passed final order u/s 143(3) of the act. 14. In the beginning of the hearing of the appeal, the Ld. Authorised Representative raised the following additional ground of appeal:- "Ground No. 12: Exploration cost of Rs. 692,213,884 not claimed by the appellant 12.1 Without prejudice to the grounds raised, the learned DRP erred in not granting deduction of Rs. 692,213,884/- , being appellant's share of expenditure of Rs. 2,307,379,612/- incurred by the unincorporated joint venture but not claimed by the appellant. 12.2 In this connection, having regard to the rationale adopted....
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....elated 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 intentional. Therefore relying on the decision of the Hon'ble Supreme Court in case of National Thermal Power Co. Ltd vs. CIT [229 ITR 383](SC), The Ld. authorized representative pressed into operation, rule 11 of the Income Tax (Appellant Tribunal) Rules, 1963. It was further submitted that above expenditure has been claimed by the Assessee in assessment year 2011 - 12, in which it was disallowed in the draft assessment order passed by the Ld. Assessing Officer. The matter is pending before the Ld. Dispute Resolution Panel. He further submitted that the aforesaid grounds of appeal should be admitted therefore. 15. The Ld. Departmental Representative vehemently objected to the raising of the additional ground of appeal and submitted that these facts are already available before the Assessing Officer as well as the Ld. Dispute Resolution Panel, but it was not raised at that part....
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....uj) [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 be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an Assessee." In view of the above decision of the Hon'ble Supreme Court of India, we admit the additional ground of appeal of the Assessee. 17. Now we adjudicate appeal of the Assessee first. Ground no. 1 of appeal of the Assessee is regarding provision of support services where the upward adjustment of Rs. 8018048/- made by the Ld. Assessing Officer to the total income of the appellant holding that the international transactions pertaining to the provisions of business support services provided by the appellant to its associated enterprises are not at arm's length. The Ld. Dispute Resolution Panel upheld this adjustment. According to the transfer pricing study report the Assessee company has provided various support services to its associated enterprises of Rs....
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....eject 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 comparables is not a good comparable Reference to PB-II (Annual report) 1. Apitco Ltd. * Broad classification - High-end technical and engineering services. * Functionally dissimilar - The company is engaged in business of cluster development, micro enterprises development, asset reconstruction & management services, environment management and other project related services which are not similar to services provided by the assesse. * Abnormal Profits - The Company has earned a high profit margin of 39.77% during the FY 2009-10. * Reliance in this regard is placed on the decision of Bangalore ITAT in case of Cisco Systems (India) (P.)Ltd vs. DCIT, Bangalore 66SOT82 Refer schedule 11 of Annual Accounts (refer page 19 of PB) 2. Global Procurement Consultants Ltd. * Broad classification - High-end technical and engineering services. * Functionally dissimilar - The Company is engaged in business of shippi....
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....hodologies 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 management services. * 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 page 1 & 2 of the Directors Report (AR of FY 10-11) (refer page 118, 119 of PB) 5. T S R Darashaw Ltd. * Broad classification - Share Registry Services and other support services. * 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 * Abnormal Profits - The company has earned a high profit margin of 41.86% during the FY 2009-10. * 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 Refer Schedule L of Annual Repor....
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....d. * 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 Refer notes to accounts in AR (refer page 348 of PB) 19. Assessee also contested that several margin computed by the Ld. Transfer Pricing Officer are erroneous and corrected margin is 23.43% against 24.64%. He further submitted that this was a specific objection taken by the Assessee before the Ld. Dispute Resolution Panel, which was not adjudicated upon. He referred to Annexure 11 of the objection filed before the Ld. DRP contesting that erroneous computation of margins of some of the alleged comparables by the Ld. Transfer Pricing Officer needs correction. 20. Ld. Departmental Representative vehemently relied upon the order of the Ld. Transfer Pricing Officer and on the direction of the Ld. Dispute Resolution Panel. He submitted that Assessee had cost +12% margin on services provided and Assessee had taken 19 comparables, which had an average net margin of 8.02 percentages. He submitted that out of the total comparable selected by the Assessee, TPO has accepted 3 comparables and further added 14 comparables. Out of those comp....
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.... 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 recompute the PLI of the comparables. 22. Now we consider each of the comparables, considering their functions, assets, and risk assumed by them with respect to the similar functions, assets employed and risk assumed by Assessee. i) Aptico Limited This comparable was objected by the Assessee before the Ld Dispute Resolution Panel, which is apparent from Annexure 10 of objections filed before it titled as erroneous selection of comparables by the Ld. Transfer Pricing Officer. In view of this we do not agree with the finding of the Ld. Dispute Resolution Panel that this comparable is not contested by the Assessee as well as also reject argument of the Ld. Departmental Representative. We have perused the balance sheet of the comparable company, which is placed before us at page No. 1 to 28 of the of paper book titled as "financials of comparable companies' and on perusal of page No. 5 Para No. 3 of the director's report for the year ended on 31st of March 2010 of the company, We noted that the company has recorded total revenue of Rs. 1609.11 lakhs....
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....r the current year, on a turnover of Rs. 160911080/- it has earned profit of Rs. 50550951/-. However, on the functional dissimilarity, we agree with the arguments of the Ld. authorized representative. In view of this we are of the opinion that this comparable is functionally dissimilar to the functions performed by the Assessee and hence, we direct the Ld. Transfer Pricing Officer/AO to reject this comparable for comparability analysis. ii) Global procurement consultants Ltd, Ld. Transfer Pricing Officer has included this comparable and according to him this company acts as the clients' representative in taking on the total responsibility of procurement by providing a comprehensive range of procurement related advisory services and allied activities for projects in India and abroad. The main functions of the company are preparing and reviewing technical specifications, estimation of costs, selection of vendors, inspection and expediting, quality control and time management. The Ld. authorized representative has contested that this Company is engaged in business of shipping logistics, payment and accounting, know-how transfer (training) and bid support services which are not simil....
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.... from comparability analysis. Many times Government companies are better business propositions/ models then private entrepreneurs, and are good comparables and such instances of government companies are innumerable. In view of this we are in agreement with the observation of the Ld. Transfer Pricing Officer as well as the Ld. Dispute Resolution Panel that this comparable is a good comparable for the comparability analysis in the case of the company. iii) IBI Chemature Limited This comparable has been selected by the Ld. Transfer Pricing Officer which is a joint venture company promoted in association with Swedish company to render basic engineering, detailed engineering and consultancy services in the field of petrochemicals, fine chemicals and chemicals, cosmetics, pharmaceuticals, industrial explosive and west acid recovery. The Ld. Authorised Representative submitted that The company generates income from provision of engineering services like designing and drawing, 3D modeling, piping and instrumentation diagram, smart plant instrumentation, process simulation, inspection services and erection supervision services, which are not similar to services provided by the Assessee. T....
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....s for financial institution in the eastern part of the country, provision of valuation services to a number of clients in respect of assets including construction equipment, barges and other industrial assets. According to the Ld. Transfer Pricing Officer, this company is a pioneering the concept of E auctions helping create a market for sale and disposal of the assets for the customers vis-a-vis' infrastructure equipment rental, contractors, banks and NBFCs. It is also engaged in the business of appraiser and evaluator of construction equipments and other machineries. It is also engaged in the business of managing the surplus assets of any industry through customized disposal services. In nutshell, it provides an asset management services. The Ld. Authorised Representative objected to the inclusion of this comparable for the reason that The company is engaged in asset an management service 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 sale of earthmoving equipment by innovativ....
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....ed reliance in this regard on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ITA 5766/Del/2011. We have carefully considered the rival contention and perused the balance sheet of the company, which is placed at page No. 155 - 196 of the paper book, which says that it is mainly engaged in the business of registrar and share transfer agent. At page No. 178 of the paper book the segment reporting shows that out of the total turnover of 20.07 lakhs, Rs. 11.94 Lacs of the turnover goes to the registry and share transfer agent business. The functions to be performed with respect to the registry and share transfer agent are altogether dissimilar to the functions to be performed by a procurement advisor like Assessee. It is also not the case of the revenue that only some of the segment of the comparable is required to be considered, but the Ld. Transfer Pricing Officer has considered the whole of the company as functionally comparable to the Assessee with which we disagree. Therefore, we direct the Ld. Transfer Pricing Officer/AO to exclude this comparable for being functionally dissimilar. vi) HCCA Business Services Limited This comparable was selec....
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....Neither the Ld. Transfer Pricing Officer nor the Ld. DRP has considered this aspect that when the financial of the comparable is not available how the assets employed by that company vis-a-vis's risk assumed and functions performed can be compared. Therefore, in absence of any financial information available of this company, either in the order of the Ld. Transfer Pricing Officer or available with the Assessee, we reject this comparable at the threshold itself. viii) Kirloskar Consultants Limited This comparable is selected by the Ld. Transfer Pricing Officer which is engaged in the area of engineering consultancy, project management services and architectural consultancy. The comparable company specializes in conceptualizing, designing and executing architectural, civil, structural, electrical, mechanical fire and life safety, water supply, drainage, storm water management, networking, surveillance, telephone and building management systems required for any large integrated project. According to the Ld. Authorised Representative, this company is engaged in the high-end service provider segment and it was also stated that he does not have the segmental information pertaining to t....
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....tional profile dissimilar, unless there are vast differences in the functions performed. In view of this we do not find any reason to exclude this comparable and therefore we held that the Ld. TPO is correctly included this company for comparability analysis. x) Asian Business Exhibition Conferences Limited This comparable is selected by the Ld. Transfer Pricing Officer, however, in the order under section 92CA passed by the Ld. Transfer Pricing Officer, we could not find whether the profile of this company is discussed at all. The Ld. Authorised Representative has objected to the comparable for the reasons of high profit and also extraordinary events taking place during the year. As mentioned by the Ld. Dispute Resolution Panel in Para No. 5.1 of its order this comparable is selected by the Assessee himself which has been accepted by the Ld. Transfer Pricing Officer. Therefore, the functional profile of the company is acceptable to both the parties at the initial stage itself. Before us, the Ld. Authorised Representative also did not put any evidence to show that the company is functionally dissimilar. The only grievance of the Ld. Authorised Representative is that the comparabl....
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.... since the financial position of the appellant did not permit obtaining secured loan on favourable rate of interest from unrelated party, financial institutions, or banker. In the transfer pricing documentation the appellant benchmarked the international transaction of payment of interest applying CUP method on the basis of quotations provided by Bank of America, HSBC and Citigroup. The ld. TPO per se did not dispute benchmarking analysis applying CUP method nor comparables placed on record in support of fixed rate of interest paid to the AE. He however, held that the appellant did not provide any documentary evidence or convincing argument for shift in the interest rates from floating rate of interest to fixed rate of interest mechanism and no independent party would have agreed to such an increase. Accordingly, he determined the arm's length rate of interest for the period October 22, 2009 to March 31, 2010 at 2.33% being the rate equivalent to the floating rate of interest for the period April 1, 2009 to March 31, 2010. Ld. TPO, therefore, made an adjustment of Rs. 42,72,64,082 on account of allegedly excess payment of interest to associated enterprise. The Assessee objected it ....
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....ces, any independent lender would have either revised the existing interest rates or directed the appellant to repay the borrowed funds. However, despite the deteriorating financial position of the appellant, the associated enterprise agreed to further provide a borrowing amounting to USD 300 million and the interest rate was revised to protect the appellant from any adverse movement in the Libor. He submitted that during financial year 2009-10 the global financial markets were suffering from sub-prime crisis which led to significant volatility and uncertainty in the global liquidity and interest rate scenario. Due to the crisis, there was scarcity of funds in the global financial system and it was expected that the interest rate would rise in the near future. The fact that there was scarcity of funds in the global system and independent borrowers preferred to avail funds at fixed rate of interest is evident from the fact that as per Bloomberg, a globally renowned financial database, during the post crisis period there was significant increase in the proportion of loan transactions at fixed rate of interest as compared to pre crisis period. As per the said database, during the pre-....
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....sessee's point of view. Attention in this regard is invited to the following decisions: i) CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) ii) CIT v. Walchand& Co. etc. (1967) 65 ITR 381 iii) J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) iv) CIT v. Birla Cotton Spg. And Wvg. Mills Ltd.: 82 ITR 166 (SC) v) Madhav 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) x) CIT vs. EKL Appliances Ltd. [2012] 345 ITR 241(Delhi) xi) CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del) xii) CIT vs Reebok India Co Ltd (ITA No 213/2014) xiii) Atotech India Limited vs ACIT (ITA No. 104/Del/2012) xiv) Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010) xv) LG Polymers India Pvt Ltd vs Addl. CIT (ITA No 524/Vizag/2010) Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Dhanrajgirji Raja Narasingirji : 91 ITR 544, wherein the Apex Court ruled as under: "On the finding arrived at by the Tri....
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....n if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner." Recently the Hon'ble Delhi High Court in case of Sony Ericsson Mobile India Pvt Ltd vs. CIT (ITA 16/2014) relying upon the decision of EKL Appliances (supra) held as under: "147. Tax authorities examine a related and associated parties" transaction as actually undertaken and structured by the parties. Normally, tax authorities cannot disregard the actual transaction or substitute the same for another transaction as per their perception. Restructuring of legitimate business transaction would be an arbitrary exercise. This legal position stands affirmed in EKL Appliances Ltd. (supra). The decision accepts two exceptions to the said rule. The first being where ....
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....brand value of the intangibles by the third party." Recently, the Hon'ble Delhi High Court in the case of CIT vs Cotton Naturals India Pvt Ltd (ITA No. 233/2014) under similar circumstances held as under: "17. In our opinion, the reasoning recorded therein suffers from a basic and fundamental fallacy. Transfer pricing determination is not primarily undertaken to re-write the character and nature of the transaction, though this is permissible under two exceptions. Chapter X and Transfer Pricing rules do not permit the Revenue authorities to step into the shoes of the Assessee and decide whether or not a transaction should have been entered. It is for the assessed to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. It is not uncommon for manufacturers cum exporters to enter into distribution and marketing agreements with third parties or incorporate subsidiaries in different countries for undertaking marketing and distribution of the products XXX 22. The aforesaid Rules indicate factors that ought to be taken into account for selection of the comparables, which necessarily i....
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....erent transaction, say with a party in India, is not the criteria. What is permitted and made subject matter of the arm„s length determination is the question of rate of interest and not re-classification or substitution of the transaction. The position would have been different, if the two exceptions carved out in the case of EKL Appliances (supra) were applicable." It is further submitted that the Hon'ble Delhi Bench of the Tribunal in the case of Sony India Pvt Ltd vs DCIT [2008] 114 ITD 448 (Delhi) held that the TPO is not authorized to arbitrarily re-characterize a legitimate transaction. The Hon'ble Tribunal held as under: "(i) Under Fiscal Laws, actual transaction, as entered into between the parties, is to be considered. Authorities have no right to re-write the transaction unless it is held that it is sham or bogus or entered into by the parties in bad faith to avoid and evade taxes. That is not the case here and, there is no allegation that transaction had any other purpose then one reflected and shown by the parties in the transaction." In view of the aforesaid he submitted that the ld. TPO was unjustified in disregarding the commercial rationale behind shift....
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....g swap rates, He submitted that the fixed rate of interest agreed between the appellant and the associated enterprise at 6.18% is lower than the arm's length fixed rate of interest of 6.20%. In this regard He submitted that quotations provided by banks represent a valid benchmark for the purpose of determining the arm's length price of international transaction of payment of interest applying CUP method. Reliance in this regard is placed on the decision of the Hon'ble Gujarat High Court in the case of CIT vs Adani Wilmar Ltd (ITA No 240/2014) wherein the Hon'ble High Court upheld the use of quotations as a valid CUP. Relying upon the decision of the Hon'ble High Court, the Hon'ble Delhi Tribunal in the case of Noble Resources and Trading India Pvt Ltd vs DCIT (ITA No 3132/Del/2013) upheld the use of quotations as a valid CUP. Further, the appellant also resorted to Bloomberg database for determination of fixed rate of interest corresponding to the quotation for floating rate of interest provided by the Barclays bank. The results provided by Bloomberg are as under: Quote by Barclays bank Rate of interest Libor +325 bps 5.87% Libor +350 bps 6.37% Average 6.12%  ....
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..... Assessing Officer to say that that Assessee has tried to benchmark the average rate of interest paid by it. During the year to justify the increase in the interest rate, He further stated that Assessee has failed to submit any documentary details of negotiation or convincing agreement for increasing interest rate and accordingly no benefit has accrued to the Assessee as all the terms of agreement remains the same. He therefore submitted that no independent party would have agreed for such a unilaterally increase in the interest rate without any logic. He further submitted that the LIBOR rates have been continuously reducing from 2009 onwards and the Assessee was well aware of the trend at the time of taking this decision. Therefore, this transaction is directly hinting at reducing the profitability of the Assessee company at its own whims and fancies. He further submitted that by applying the internal cup rate of 2.33% of the interest rate for the same transaction with Same terms and condition is the best benchmarking available for the determination of interest from October 22, 2010 to 31/03/2010. He therefore submitted that the adjustment made by the Ld. Transfer Pricing Officer....
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....paid by the borrower to the lender on 31st may each year of the facility on a modified following date on versions basis or as may be otherwise agreed between the parties. 3.2 Parties may mutually agree in writing to fix the interest rate for a period of 5 years." The Ld. Transfer Pricing Officer has questioned the business decision of the Assessee to say that there was no reason for the Assessee to increase the interest rate from 2.33% to 6.18%, which was 165% higher than the rate at which the Assessee was paying interest till the time of revision in the interest rate. The Ld. Transfer Pricing Officer has further held that Assessee has failed to submit any documentary detail of negotiation and convincing agreement for increasing interest rate and what benefit has accrued to the Assessee when all the terms and aggrieved terms and conditions of the agreements remained unchanged. According to the Ld. Transfer Pricing Officer no independent party would have agreed for such a unilaterally increase which defies any logic except that the amount was being paid to the associated enterprise in this regard to TP provisions. According to him the LIBOR rates have been continuously reducing fro....
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....ls gathered, he shall order determining the arm's length price in relation to an international transaction by passing an order. In the present case Ld. Transfer Pricing Officer has not performed his duty of determining arm's length price of interest payment made by the Assessee of Rs. 1059412322/- but has analyzed and questioned the international transactions entered in to by the Assessee , of which he should have determined ALP only. The provisions of section 92C of the act provides that arm's length price in relation to an international transaction shall be determined according to one of the prescribed methods, which should be the most appropriate method, having regard to the nature of transaction and the functions performed. Therefore according to this, the Ld. Transfer Pricing Officer is duty bound to apply one of the methods specified in that section to determine the arm's length price, having regard to the nature of the transactions and functions performed by the Assessee after considering into account the materials/ documents and evidences placed before him by the Assessee. In the present case Ld. Transfer Pricing Officer has stated that Assessee has failed to submit any doc....
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.... does not include withholding taxes. Assessee with respect to other banks also took similar quotations. However, from the reading of the quotation it is not known that these quotes are with respect to both the transactions of loan of US dollar 500 million and US dollar 300 million where there are different terms and conditions of repayment prepayment. Most importantly, the Ld. Transfer Pricing Officer has not looked at these evidences produced by the Assessee in the form of quotations of various banks, comparable search by the Assessee on LPC/ dealscan database. The Ld. Dispute Resolution Panel has also brushed aside the provision of section 92C of the Income Tax Act, which prescribes methodology for computation of arms length price of an "international transactions'. It has merely reiterated whatever has been stated by the Ld. Transfer Pricing Officer without applying the provisions of law to the facts of the case before them. In view of this we set aside the whole matter of determination of ALP of interest paid by the Assessee to its associated enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the computation of ALP by the Assessee of abo....
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..... According to the Ld. Dispute Resolution Panel Assessee is required to prove commercial expediency and business purpose of incurring these expenditure. According to it the claim of the Assessee does not fall under section 42 of the Income Tax Act as well as under section 37 (1) of the act. The Ld. dispute resolution further held that in the instant case the joint operating board of the joint-venture has not approved the incurring of the said expenditure on certain grounds of commercial prudence and therefore same are not allowable to the Assessee. Hence, Assessee is in appeal before us. 28. The Ld. authorized representative made detailed submission on this count as under:- i) Assessee incurs expenditure to undertake activities required by the PSC, having regard to its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc. The said expenses are required to be incurred based on commercial expediency determined by the appellant. The same are not necessarily accepted by the JV partners as the incurrence and need is not dependent on the point of view of the other co....
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....gagement, ONGC, looking into the government's benefit, attempts to push back costs outside the JV. According to him However, it does not alter the nature of cost in the hands of ASSESSEE; the costs are expenses incurred wholly and exclusively for the purpose of its business of prospecting for, exploration and production of crude oil and natural gas. ii) He further stated that Section 37 of the Act provides for deduction of expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the appellant) laid out or expended wholly and exclusively for the purposes of the business. Thus, for expenditure to be allowable under section 37 of the Act, the following conditions need to be satisfied - * Expense should be incurred wholly and exclusively for the purposes of the business; * The expense should be revenue in nature. The expenditure incurred by the appellant is for conducting and maintaining the standard of operations. As submitted hereinabove, the expenses are incurred by the appellant wholly and exclusively for the purpose of the appellant's existing business viz. prospecting for, exp....
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....pecting, etc., for mineral oil. 42. [(1)] For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation [of the Central Government or any person authorized by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation- (i) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the Assessee ; (ii) after the beginning of commercial production, to expenditure incurred by the Assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 : [Provided that in relation to any agreement entered into ....
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....it should have been passed through the joint venture and shared by all the partners and these expenses are not incurred wholly and actually for the purpose of the business of the Assessee. Nature of the expenses which have been disallowed by the Ld. Assessing Officer are as under:- Particulars Amount Tanker & Related Costs 115,534,442 Tug Boat Costs 70,464,943 Safety Environment & Materials 11,355 Technical & Engineering Services 316,786,095 Less: Reversal of Water Transportation & other charges (8,344,443) Total BG Exclusive Production Cost. 494,452,392 The above expenditure are in the nature of tanker expenditure, tug and boat expenditure, safety environment and material expenditure as well as technical and engineering services. During the course of assessment proceedings, the Assessee has furnished the details of those expenditure. Merely because the joint-venture partners are not sharing the cost/expenses which is been incurred by the Assessee, It does not become disallowable in the hands of the Assessee. We find no such condition existing either under section 42, or under section 37 (1) of the Income Tax Act. Therefore, we reject the contention of th....
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..... In view of no adverse inference from the lower authorities on the details submitted, we are constrained to allow the claim of the Assessee of deductibility of the above expenditure of Rs. 316786095/- . In the result ground No. 3 of the appeal of the Assessee is allowed. 32. Ground No. 4 of the appeal of the Assessee is as under:- Ground No. 4: Disallowance of legal and professional expenses 4.1 The learned AO erred in law and in facts in disallowing legal and professional expenses of Rs. 24,936,767 by not applying the practice of test check. 33. Brief facts leading to the disallowances that Assessee has incurred expenses on legal and professional charges amounting to Rs. 63507427/-, Assessee was asked to submit the details of these expenditure. The Assessee explained the details vide letter dated 28th of March 2014 before the Assessing Officer stating that as only one day has been made available to the Assessee to provide evidences, it could place only sample evidences before the Assessing Officer. The Assessee submitted the copies of the Ledger account, copies of invoices on sample basis and the copies of TDS certificate issued to the respective parties to whom the payment h....
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....allowable to the Assessee. He submitted that as Assessee has failed to submit the evidences before the Ld. Assessing Officer that disallowance made by him is in order and in accordance with the law. 36. We have carefully considered the rival contentions and also perused the orders of lower authorities. Needless to state that unless an adequate opportunity is provided to the Assessee to substantiate the details of expenditure incurred by it, disallowance cannot be made. It amounts to first pushing Assessee to the wall and then hitting it hard. This approach is not acceptable. It is stated by the Assessee before the Ld. Assessing Officer that only on 27th of March 2014 the Assessee was asked to submit the details of this expenses on the very next day i.e. on 28/3/2014 as per the statement of the Assessing Officer himself in Para No. 8 of his order. The Ld. Assessing Officer has stated that Assessee has been delaying the submission of the details during assessment proceedings as it was asked to submit the breakup of expenses on 27th of March 2014 whereas the query was raised on 12/03/2014 and then again on 25/03/2014, this itself shows that Ld. Assessing Officer started questioning t....
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....ssessee and only the depreciation charge for it has been claimed in the return of income. The Ld. Assessing Officer held that the assets are not owned by the Assessee either wholly or partly and neither any document was submitted to prove that these assets were put to use for the business of the Assessee company. Therefore he disallowed Rs. 3 300 5673/- on account of claim of depreciation. As the full expenditure of Rs. 801326640 was disallowed by the Ld. Transfer Pricing Officer considering the ALP of the international transaction as nil, the disallowance was not made once again in the computation of income to avoid duplicate disallowances. The Ld. Dispute Resolution Panel upheld the disallowance proposed by the Ld. Assessing Officer on the aspects of user test , therefore, Assessee is in appeal before us. 39. Assessee submitted before us that The global IT & T projects are being used by the appellant in its day-to-day business operations and the same are essential for conducting the business operations. The same result in operations being undertaken in an efficient manner. Considering the large scale at which the appellant operates, the global IT & T projects play a vital role i....
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....he act was never raised before the Assessing Officer. He submitted that it is a new argument and therefore it cannot be dealt with now. 41. We have carefully considered the rival contention and also noted the facts that BGIL has acquired and developed certain IT infrastructure and software for the benefit of BG Group of companies. Such assets include production data base management system, SAP up gradation, efficient budgeting and forecasting systems, field development training programs, geosciences/geophysics simulations, integrated asset modeling systems, sophisticated e-mail facility etc. BGIL has allocated the cost of these assets to its Group companies including Assessee at cost based in allocation methodology decided at the group level. Assessee has capitalized these costs in the book of accounts. During the year, BGIL had allocated an expense of Rs. 80,13,26,640/- to the appellant out of which Rs. 66,61,30,450/- had been capitalized and balance was accounted as work in progress. The appellant had claimed depreciation of Rs. 3,30,05,676/- on the IT infrastructure and software. The Ld. Dispute Resolution Panel has stated that even the beneficial ownership of the assent also e....
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....ubmitted that it has purchased Seismic data from the director-general of hydrocarbons prior to the bidding and further in line with overall business growth of the company. It has participated in NELP and has incurred expenditure. The company has also incurred general expenditure in the form of administrative costs for the purpose of analyzing and for bidding new ventures. Such expenses are of Rs. 218832750/-. It was submitted by the Assessee that these expenditure are incurred by it only and exclusively for the purposes of the business and hence are allowable under section 37 (1) of the act. To support its contentions, It submitted several documents of incurring the above cost on standalone basis. It was further submitted that certain cost have also been allocated on account of NELP VIII and general administrative costs. The Assessee also submitted the copies of invoices. It was further the claim of the Assessee that it also incurred exploration cost on a stoned alone basis for several other blocks and therefore expenditure incurred by the Assessee is wholly and exclusively for the purpose of the business and same is allowable to the Assessee. The Ld. Assessing Officer rejected the....
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....,241 460,313,788 Notes: 1. In order to safeguard its interest in any oil block in which it operates, ASSESSEE is required to undertake a lot of activities such as analysis of 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. Thus, ASSESSEE is required to incur various costs, such as for seismic data purchase, data analysis and general and administration cost, which are not shared with the JV partners but are critical to ensure that ASSESSEE's interest is safeguarded and its standard of operations is maintained. 2. Further, for sustenance of its business in India (of prospecting for, exploration and production of crude oil and natural gas), ASSESSEE is constantly on the lookout for new opportunities, for instance, the evaluating whether to bid for new block through NELP, etc. This expenditure does not relate to any JV and hence is not shared. However, the same is a necessary and an integral part of ASSESSEE's business in India. Accordingly, aforesaid expenses of ASSESSEE are regular busi....
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....writing charges are incurred in respect of expert personnel providing their inputs for the said functions. Thus, the said expenses are regular business expenses incurred based on commercial expediency determined by Assessee. The same may have to be incurred notwithstanding their non-recovery as Cost Petroleum (i.e. even if the same are not shared by the JV partners), since, ASSESSEE cannot sustain its business without maintaining its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc.. Thus, the said expenses are incurred wholly and exclusively for the appellant's business of prospecting for, exploration and production of crude oil and natural gas. 48. With respect to identifying the new opportunities of the business submitted that For sustenance of its business in India (of prospecting for, exploration and production of crude oil and natural gas), assessee is constantly on the lookout for new opportunities, for instance, the evaluating whether to bid for new block through NELP, etc., The expenditure of Rs. 220,983,295 disallowed by the AO largely comprises th....
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....lly and exclusively for the appellant's business of prospecting for, exploration and production of crude oil and natural gas. 52. It is submitted that while assessing the appellant's taxable income, all the expenditure incurred by it for its business would have to be considered and evaluated to determine the deductibility as per the normal provisions of the Act (as against considering only those expenses which are shared with the other contractors as per the PSC). Section 37 of the Act provides for deduction of expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the appellant) laid out or expended wholly and exclusively for the purposes of the business. Thus, for expenditure to be allowable under section 37 of the Act, the following conditions need to be satisfied - i) Expense should be incurred wholly and exclusively for the purposes of the business; ii) The expense should be revenue in nature. He further relied up on following decisions: i) ONGC Videsh Ltd. vs. DCIT: 37 SOT 97 wherein the Assessee was engaged in business of exploration and production of hydrocarbons, incurr....
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....pment cost, which is also capital expenditure, and (iii) production costs which are operational expenditure. Therefore it is erroneous belief that in case of PSC the Assessee is only entitled to deduction, which are covered there and not any other deduction which are covered under the any other provisions of the act. We have already discussed the provision of section 42 of the act in deciding some of the grounds of appeal of the assessee. Therefore, we reject the contention of the revenue that if the expenditure do not find allowability under section 42, it cannot be allowed to the Assessee. Now coming to the various expenditure which has been incurred by the Assessee are in the form of various expenditure pertaining to oil exploration blocks for which the PSC has been entered into. Out of the same, the Ld. Assessing Officer has allowed some of the expenditure and disallowed rest of the expenditure. The below chart depicts this picture. Classification Allowed by AO Disallowed by AO Total KG-OSN-2004/1 102,937,064 71,638,553 174,575,617 MN-DWN-2002/2 330,681,668 105,241,658 435,923,326 KG-DWN-98/4 37,886,501 62,450,282 100,336,783 Other expenditure - primarily for p....
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....not incurred these expenditure wholly and exclusively for the purposes of business of the Assessee. With respect to the details available with the Assessing Officer, It was not pointed out a single instance that any of the expenditure are not incurred by the Assessee for the purposes of its business. In fact, out of the total expenditure The Ld. Assessing Officer has partly allowed the expenditure and partly disallowed the expenditure by using the single yardstick that if expenditure are shared by the JV same are allowable and if same is not shared by JV partners, then it is not allowable. We failed to see any such provision in the act that if the other party in the joint-venture do not agree to share the particular cost, the cost incurred by one of the partners of that joint-venture becomes the expenditure not for the purpose of the business of that partner. No such provision has also been brought to our notice by the revenue. It is also not the case of the revenue that details of those expenditure are not available before them or Assessee has furnished incomplete information for its allowability. Further, no judicial precedent was cited before us by revenue, which says that such ....
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....ivity for furtherance of its business or evaluation of better profit-earning process in one manner or other is undertaken. Effort to evaluate the prospects of better earning profit is not a separate activity but is in the course of conduct of normal day-to-day business. These expenditures cannot be said to bring an enduring benefit to the business nor the same can be said as initial outlay for expansion of business. In the instant case, the expenditure so incurred by the Assessee is for furtherance of activities undertaken by it in the normal course of its business. The same are incurred on continuous basis for evaluation of business activities. In view of the decision of Bombay High Court in the case of CIT v. Essar Oil Ltd. [IT Appeal No. 921 of 2008, dated 16-10-2008], such expenditure is to be allowed as revenue expenditure. Hon'ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 held that where the setting up does not amount to starting of new business but expansion or extension of the business already being carried on by the Assessee, expenses in connection with such expansion or extension of the business must be held to be ....
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....of the appeal of the Assessee to the file of the Ld. Assessing Officer with a direction to verify the tax credit certificates submitted by the Assessee of Rs. 52358137/- and then to grant credit for such taxes if they are found in order and in accordance with the law. In the result ground No. 7 of the appeal of the Assessee is allowed with above direction. 58. Ground No. 8 of the Assessee is that it has not been allowed the credit for self-assessment tax paid of Rs. 63128093/-. The Assessee has submitted that the Ld. Assessing Officer may kindly be directed to grant credit for the aforesaid tax to the appellant. Ld. Departmental Representative submitted that if the Assessee has proper tax challan available with it then only the credit for it can be granted, and if those are available then there is no objection against this. In view of these arguments, we set aside ground No. 8 of the appeal of the Assessee to the file of the Ld. Assessing Officer with a direction to verify the self-assessment tax paid as submitted by the Assessee of Rs. 63128093/- and then to grant credit for such taxes if they are found in order and in accordance with the law. In the result ground No. 8 of the ap....
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....by the Ld. Authorised Representative in case of CIT versus GE packaged power incorporation (373 ITR 65) in Para No. 19, the Hon'ble high court has considered the decision cited by the Ld. Departmental Representative as under:- "19. Alcatel Lucent USA Inc (supra), in any event, can be distinguished on the ground that the Court was persuaded to confirm the levy of interest under Section 234B, only on account of the equities that needed to be balanced in those peculiar facts, in favour of taxability. This is evident from the following words of the Court: "26. It further seems to us inequitable that the Assessee, who accepted the tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. The Assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided. After having accepted the liability to tax at the first appellate stage, it is unfair on the part of the Assessee to invoke section 201 and point fingers at the Indian payers. The argument advan....
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....e tax by Assessee; therefore, revenue could not charge any interest under section 234B from Assessee, which is pending for adjudication. However the decision of the Hon high court is to be followed by us , if the same is not stayed by the hon supreme court, therefore respectfully following the decision of the Hon'ble high court we direct the Ld. Assessing Officer to not to charge interest under section 234B of the act on the income of the Assessee which is subject to or liable to tax deduction at source. In view of this we set aside ground No. 9 of the appeal of the Assessee back to the file of the Ld. Assessing Officer to recompute the interest under section 234B of the act accordingly. 63. Ground No. 10 of the appeal of the Assessee is against interest charged under section 234D of the act. Both the parties agreed that this is consequential ground and does not required to be adjudicated. In view of this we dismiss ground No. 10. 64. Now we come to the additional ground admitted with respect to allowability of the expenditure of Rs. 2307379612/- for which relevant facts have been noted in the order while admitting the above ground. It was also submitted by the Assessee that this....
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....1.2 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 show 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 taken or re-imbursements made) 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 nature of the transactions in this case, each transaction has to be benchmarked separately and not under TNMM. v) The Assessee has adopted a combined approach with regard to its business transactions as a whole which is contrary to the provisions of law. v) The approach followed by the Assessee was not in accordance with the OECD gui....
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.... unrelated parties, would not pay the cost of the services of associate enterprises which would have been in excess of the ALP. 3. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of Rs. 1,52,09,65,9857-on account of disallowance of Management Service and Unit Charges [consisting of Federal Green Recharges of 14,85,73,4587-, Management & Unit Recharges of Rs. 1,22,95,73,6597- and Technology Recharges of Rs. 14,28,18,8697-) paid by the Assessee to M7s B.C. International Ltd ( 'BGIL1) 3.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TPO that a) The Assessee has not been able to establish that it has actually received any services in lieu of the Management Service & Unit Charges. 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....
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....y adjusting a refund due to the Assessee against a demand due from M/s BGAPHL in a previous year (which was subsequently reduced in first Appeal resulting into a refund in the hands of M/s BGAPHL which in turn paid back the amount to the Assessee without any interest). 4.2 The Hon'ble DRP erred in not appreciating the fact that once a transaction admittedly takes the character of a loan between associate enterprises, it becomes immaterial whether or not the transaction was undertaken voluntarily and therefore, the receipt of the loan amount from M/s BGAPHL without charging any interest, called for adjustment at an appropriate interest rate on account of benefit availed by BGAPHL 5 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed addition of Rs. 39,59,606 on account of expenses claimed to have been incurred in relation to club entrance and subscription fees for its employees 5.1 The Hon'ble DRP has erred in not appreciating the fact the expenses under consideration are admittedly in the nature of club expenses and hence the same cannot be said to have been incurred wholly and exclusively....
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....ers which itself shows that either no meaningful services were received from such associated enterprises or such services do not have any value with respect to the business of the assessee and therefore Ld. transfer pricing officer was justified in determining the arm's length value of intragroup services at nil. The Ld. transfer pricing officer has also questioned the allocation key accepted by the Ld. dispute resolution panel provided by the assessee for allocation of those group expenses. Further, the Ld. assessing officer is aggrieved by the direction of dispute resolution panel for deletion of the proposed adjustment of Rs. 8201326441/- on the amount paid to the associated enterprise as allocation of cost for joint acquisition of IT infrastructure and software. The main contention of the assessing officer/transfer pricing officer is that such IT infrastructure is a capital asset which is created and owned by the parent company who has a right over those assets and therefore such costs paid for acquisition of the said by that associated enterprise cannot be allowed in the hands of the assessee as neither the assessee owns those assets nor those assets have been put to use for i....
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....like to refer the provisions of section 144C of the income tax act, whether the reference dispute resolution panel is dealt with. According to the provisions of section 144 C (6) of the dispute resolution panel hall issue the direction after considering evidences collected by or cause to be collected by it and result of any enquiry made or cause to be made by it. Therefore it is apparent that the Ld. dispute resolution panel can take into consideration any further evidences which has been collected by it or furnished before it. Recently, a Division Bench of Hon'ble Bombay High Court, while deciding the Writ Petition filed by Vodafone India Services Pvt. Ltd. vs Union of India and Others ( Writ Petition No. 1877 OF 2013) directed Vodafone India Services Pvt. Ltd to approach the Dispute Resolution Panel (DRP) to submit objections to the Income Tax Department's demand and made the following observation with regards to DRP. "The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assesee. It is a continuation of t....
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....at appellate forum. As the Ld. transfer pricing officer did not respond to the additional evidences submitted by the assessee on merits of the case, and Ld. dispute resolution panel has admitted those evidences for the reason that no proper opportunity has been given by the Ld. transfer pricing officer, we do not find any infirmity in the order of the Ld. dispute resolution panel on admission of the additional evidences submitted before it and adjudicating on it. Therefore, the finding given by the Ld. dispute resolution panel in Para No. 4.3 of its direction admitting the additional evidence does not suffer from any infirmity. With respect to the reasonable opportunity granted by the Ld. transfer pricing officer to the assessee we have already supplied our view, whether reasonable opportunity was granted by the Ld. transfer pricing officer or not. 71. Now coming to the merits of the case, the above issue has been discussed at length by the Ld. dispute resolution panel in Para No. 4 onwards of its direction as under:- "DRP observation Intra Group Services 4. Objection No. 1, 2 and 3 are common to all other grounds on the additions made by the TPO. Objections No. 4 to 7 are on....
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....letter dated 12.11.2013 has stated that assessee was given ample opportunity to submit the evidence during the course of the TP proceedings. However, the assessee failed to use the opportunity to produce the evidences and therefore the additional produced before the TPO could not be entertained. y 4.2. The assessee has made the submissions elaborately which can be summarized as follows: 1) The assessee is engaged in only one business activity, namely the exploration and production of oil and gas. For carrying out its obligations in respect of the production sharing contracts the assessee has sought technical, managerial and administrative assistance of BGIL. Accordingly, such services are sub-functions or constituents of the prime function of the assessee's business and accordingly by no stretch of imagination can be said to not be closely linked or not having a close nexus to the core revenue generating activity of exploration and production of oil and gas. 2) In the case of the applicant, receipt of MSU charges and G&A are support services are intrinsically linked to the entire business operations of the applicant and are not revenue generating activities of the applica....
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....ird party service providers. 15) This clearly establishes that such services cannot be considered as shareholder " activities. 16) The TPO has failed to consider the submission and the documentary evidence furnished by the assessee and has made casual and general observations that the valuable services received by the assessee have no direct link with its requirements and are only for the furtherance of the AE's own present / future business. 17) The nature of services received by the assessee is required by the assessee for its business and the TPO is unjustified in holding that the valuable services received by the assessee have no direct link with its requirements and are only for the furtherance of the AE's own present / future business. 18) TPO in the case of BGEPIL held in number of instances that the assessee failed to prove that services were actually received 19) Contrary approach of TPO in the case of BGIL (service provider entity) - held that such management services were provided by BGIL to the assessee, 20) The above clearly demonstrates that services were provided by BGIL and received by BGEPIL 21) Once assessee discharges its onus of establishin....
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.... namely, A. General and Administrative, B. Information Management related services, C. Management and Unit Charges D. Federal Green Charge E. Technology Recharge i F. Payroll Expenses ' : ' The assessee has provided voluminous documents which are containing the following Pages: DRP Submission S.No. Volume No. No. of pages 1 Volume -III 390 2 Volume-IV 853 3 Vclume-VA 534 4 Volume-VB 671 5 Volume-VIA 665 6 Volume-VlB 590 7 Volume-VII 898 8 Volume-VIII 394 Total Pages of DRP Submission 4995 Additional submission to DRP S.No. Volume No. No. of pages 1 Volume-1 528 2 Volume-2A 495 3 Volume-28 489 4 Volume-3 417 5 Volume-4 490 6 Volume-5 431 Total Pages of Additional Submission to DRP 2850 Total Pages 7845 4.5. The main objection of the TPO was that assessee has not produced the evidence and assessee has not established receiving any benefit on account of receipt o/this service. The above voluminous documents were further summarized by the assessee with reference to each and every pages submitted before the DRP and the TPO. The summary of the evidences and the benefit received on account of th....
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.... copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 259 to 293 of Volume IV of the Paperbook) > Relocation costs : Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 294 to 296 of Volume IV of the Paperbook) Consultancy services Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 297 to 394 of Volume IV of the Paperbook) Professional subscriptions and license cost Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 325 to 330 of Volume IV of the Paperbook) Bank charges Sample copies of relevant debit notes along with third party invoices/documents (on sample basis) to demonstrate the actual receipt of services and benefits received thereon. (Page 331 to 336 of Volume IV of the Paperbook) Travel & subsistence I Sample copies of releva....
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.... subsistence These expenses pertain to BGEPIL BGEPIL has reimbursed the travel and subsistence expenses to BGIL. These are pure third party costs. ii. TIME WRITING I. Description of services received : Technical and engineering consultancy services - Time writing charges * The costs recharged on account.of technical and engineering consultancy services include specific time-writing costs booked by the employees of BGIL for assistance with development projects that were proposed for the PMT oi! fields * Technical experts whose assistance has been availed by the assessee inter alia include engineers, project risk experts, subsurface assurance managers, contracts/procurement managers and geophysical managers Evidence filed before the TPO {forming part of paper-book filed with Form 35A on May 6, 2013) Table of benefits detailing the description of the services, mode of receiving the services, benefits derived and a list of documentary evidence {in the nature of debit notes, invoices and back-up of document providing details of personnel of BGIL who have written time on India projects) in support of the time writing charges. (Pcge 99 to 513 of Volume VlI of the Paperbo....
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....he globe, maintaining control on making each e-mail account a separate and unique e-mail account, managing e-mail services. (c) BG Intranet Portal - Development and maintenance of the portal! is undertaken by BGIL. BGIL inputs various policies and guidelines of the group on the intranet portal. (d) Internet services - Provision of internet access to assessee. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking, etc. (e) Enabling mobile/offsite working - 24X7 platform provided by BGIL so that assessee's personnel can work even if not in office. (f) IM Central Services - Access to various licenses purchased by BGIL from third parties such as Procon license, Oracle license, Cognos license, SAP license. Receives support in case of any issues faced by BGEPIL in using SAP Oracle etc. Benefits derived IT support services (a) Access to highly experience and technical IT resources without having to invest in an in-house dedicated IT team. Thus, reduction in downtime and idle time cost. (b) Reduction in inve....
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....GIL. 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 persona! 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: - Portal provides a platform for and facilitates networking of employees; - Ready access to the employees of support function of the....
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....e 824 to 947 of Volume VB of the Paperbook) IV. Additional evidence filed before Ld. DRP on November?, 2014 a) Sample copies of Inter Company Debit Notes ("ICDNs") with details of nature of expenses and the costs associated in relation to IM services. This includes IM Recharges by BGIL to BGEPIL proportionately on the basis of number of users in BGEPIL to total users of BG Group. (Page 1 to 75 of Volume 2A of the Additional evidence Paperbook) ( i - - \ XXXXXXXX b) Snapshots of the list of applications to which personnel of assessee have access to(Page 76 to 77 of Volume 2A of the Additional evidence Paperbook) c} List of users at BGEPIL having access to some of the technical applications Page 78 to 79 of Volume 2A of the Additional evidence Paperbook) d) Snapshots of the intranet portal maintained by BGIL which is accessible to all the Group entities including BGEPIL ( Page 80 to 96 of Volume 2A of the Additional evidence Paperbook) e) Detailed list 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 4....
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....ible loss in case of an unforeseen event * Assistance in managing and making insurance claims and dealing with settlement and other issues , II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 Human Resources a) A manual in relation to Business Travel and Expenses Standard which is governed by BG Groups Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with business travel and other business activities Page 535 to 562 of Volume VBofthe Paperbook) b) A talent management model of BG group which summarizes the potential qualities and skill set which is required to be maintained by BG group employees (Page 563 to 575 of Volume VB of the Paperbook) 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 suppo....
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.... correspondence evidencing support received from BGIL packaging supplementary information.(Page 591 to 562 of Volume VB of the Paperbook) g. 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 773 to 788 of Volume IV of Paperback) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) h. 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) III, Additional evidence filed before Ld. DRP on November?, 2014 Human Resources -i * 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....
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....Volume 3 of the Additional evidence paperbook) k) Snapshots of portal which provides access to various websites, documents, manuals, standards etc. which are provided below^Poge 100 to 118 of Volume 3 of the Additional evidence paperbook) a. Access to learning management system b. Portal which provides information / role in relation to BG group employee c. behaviors I c. Portal related to BG group and talent management d. Assistance from BGIL in relation to Travel related queries e. Access to BG portal which provides various services d. Information related to Annual incentive scheme provided to BG group employees g. Information related to HR 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 ass....
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....slide deck prepared by BGIL to train the group entities on sources of employment law, vicarious liability, contract of employment, various litigation & laws. (Page 247 to 283 of Volumes of the Additional evidence paperbook) ; Insurance related support services and other miscellaneous support services a. A slide deck dated November 2009 on travel insurance policies which provides guidelines on applicable insurance policies for eligible employees.(Page 284 to 292 of Volume 3 of the Additional evidence paperbook) b. A guideline dated December 2009 which establishes BG Group insurance 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 t....
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.... Additional evidence paperbook) p. Sample copy of Inter Company Debit Notes raised by BGIL on BGEPIL in relation to miscellaneous expenses which summarizes various activities undertaken by BGIL for which cost is charged. (Page 383 to 417 of Volume 3 of the Additional evidence paperbook) IV. Benefits derived Support on deployment of globally mobile expatriate staff : * Assessee leverages on the services of BGIL's HR team for obtaining staffing resource and expertise of the wider 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 ....
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....ncident Review Panel Report summarizing performance analysis (Page 75to 75of Volume VA of Paperbook) (b) A report on Asset integrity Programme by the Offshore Division of HSE's Hazardous Installations Division (Page 76 to 147 of Volume VA of Paperbook) (c) Powerpoint presentation summarizing the Egyptian LNG's Asset Integrity Journey of ExcellencefPoge 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 ....
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....and statistics of BG group assets including BGEPIL capex framework, key projects & plans, project accountant role, interaction with PMT & well engineers, well reconciliation, reports etc. are summarized.(Page 300 to 347 of Volume 4 of the Additional evidence Paperbook). (h) A graphical chart 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 Paperbo....
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....ment and implementation of new and enhanced techniques to the existing exploration and production operations in order to address the technological challenges faced 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 ....
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....rations.(Page 215 to 236 of Volume 5 of 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 De....
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.... 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 be taken into account namely:- *,+.' . . : " (a....
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....M') 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 regulations and OECD Draft Notes on Comparability (Submission dated 9t....
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....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 depreciation allowance should not be restricted at the rate of 15%. The asse....
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....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 order sheet noting dated 30 March, 2014 i.e. at the end of the time available wit....
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....ed 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 subsurface geology. ii. Cost of structural drilling exploratory Type, Stratigraphic, test drilling....
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....ad 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 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 prod....
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....nt 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 exploration activities 14 Reliance Industries and expenses incurred on the same will be eligible for deduction u/s 42(1)(b) of the IT Act. This ground of appeal is theref....
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....mbly 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 platform and the associated equipment as aforesaid are part and parcel of drilling operations in offshore areas. 23. This technical explanation about the purpose and necessity ....
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....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. Nestle India Ltd: 296 ITR 682(Del) ii) CIT vs. Samtek Color Ltd: 326 ITR 425(Del) iii) CIT vs. Groz Beckert Asia Ltd: 351 ITR 196(Punjab & Haryana) iv) Otis Elevator Co. (India) Ltd. vs. CIT: 195 ITR 682(Bom....