TaxTMI 
TaxTMI 
2017 (4) TMI 1190
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....circumstances of the case, the Hon'ble Dispute Resolution Panel ('DRP') has erred in holding that the Assessing Officer/Transfer Pricing Officer ('AO/TP0') was wrong in rejecting the economic analysis conducted by the assessee for the determination of the Arm's Length Price ( 'ALP') in connection with the transactions pertaining to Management Service and Unit charges ('MSU Charges') and General & Administrative Expenses ('G& A'). 1.1 The Hon'ble DRP has erred in holding that the Transactional Net Margin Method('TNMM) and Operating Profit Margin based on the Sales as the Profit Level Indicator ('PLI') as used by the assessee is the most appropriate method in the facts of the case solely on the ground of difficulty in availability of reliable data of comparables, not appreciating the fact that the selection of the most appropriate data is a function of several factors. 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 as....
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....external consultants, are completely arbitrary as they are based on ad-hoc factors like head-counts & hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves f) No comparable independent enterprise would comparable circumstances have paid for the services in g) Without prejudice to the findings regarding the actual rendering of services and the non-existence of the economic or commercial benefit derived by the assessee, the services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 2.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement (`JOA'), all 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 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 th....
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....y 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'), the all 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 not pay the cost of the services of associate enterprises which would have been in excess of the ALP 4. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to restrict the proposed adjustment of Rs. 22,58,422/- on account of the loan transaction between the assessee and M/s BG Asia Pacific Holding Ltd (BGAPHL) to Rs. 14,61,247/-only. 4.1 The Hon'ble DRP erred in holding that the AO/TPO was wrong in working out the adjustment on the basis of an interest rate of 12.5% as the loan transaction under consideration was in the nature of a forced transaction, having arisen due to the action of the AO in unilaterally adjusting a refund due to the assessee against a demand due from M/s BGAPHL in a previous year (which wa....
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.... international transaction, accordingly, the amount of interest added to the income of the appellant by the learned AO should be deleted. CROSS OBJECTION NO. 3: Erroneous initiation of penalty proceedings 3. The learned AO erred in law and in facts in initiating penalty proceedings under section 271(l)(c) of the Act. CROSS OBJECTION NO. 4: Erroneous levy of interest 4. The learned AO erred in law and in facts in directing to charge interest under sections 234A, 234B and 234C disregarding the fact that the appellant is a non-resident whose income is subject to tax deduction at source, CROSS OBJECTION NO. 5: General 5. Each one of our grounds of objection is without prejudice to the other." 3. The assessee, a non-resident company, engaged in the business of exploration and extraction of mineral oils and entered into production selling contracts, as mentioned in Para No. 3 of the order of the Ld. assessing officer, filed its return of income on 30/09/2009 declaring total income of Rs. 10081318857/-. Assessee has entered in to some international transactions mentioned at Para No. 4 of the order of the Ld. assessing officer determining its Arms' length price as ment....
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....paid to the same associated enterprise amounting to Rs. 98884046/-. Therefore, revenue by ground No. 1, 2 and 3 of the appeal has challenged the direction of Dispute Resolution Panel. 6. Both the parties agreed before us that the issue covered in this appeal is identical to ground No. 1- 3 of the appeal of the revenue for assessment year 2010 - 11 in ITA No. 1581/del/2015 for which detailed arguments have been placed on record by both the parties. It was further submitted that there are no changes in the facts and law in this appeal as compared to the appeal of revenue for assessment year 2010 - 11. 7. We have carefully considered the rival contention and perused the relevant records produced before us as well as the order of the Ld. assessing officer and direction of the Ld. Dispute Resolution Panel. Based on our examination we also found that the issue is squarely covered by the grounds of appeal in appeal of revenue for assessment year 2010-11. We have dealt with the issue vide Para No. 67 to 72 of our order dated 24/04/2017 in ITA No. 1581/del/2015 for assessment year 2010-11 as under:- "67. Ground No. 1 of the appeal of the revenue is with respect to several aspects a....
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....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 its business in India. With respect to these 3 grounds, the Ld. departmental representative vehemently supported the order of the Ld. t....
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....me 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 the Assessment proceedings till such time a....
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....ricing 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 the determination of ALP of intra ....
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....he TPO for his comments. TPO through 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 ....
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.... 14) Assessee has received significant support from BGIL, in absence of such services from BGIL, the assessee would have had to undertake these services itself or seek services of third 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) - h....
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.... by the TPO to furnish the evidence was at the fag end of the TP proceedings. It is only fair to give a chance to the assessee to explain its position. Therefore, the additional evidences are admitted. 4.4. The assessee is receiving services under different heads, 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 Additio....
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....on phone calls/visa cost/insurance cost/familiarization cost. These costs are incurred on the employees either seconded to India or travelling to India for a project. Thus, these costs are asset specific cost. General and Administrative expenses -Service tax - Service tax represents amount of tax paid on the services received from BGIL towards G&A. . -Evidence filed before the TPO (forming part of paper-book filed with Form 35A on 6, 2014) Salary & other 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 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 S....
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....ding BGEPIL * BGEPIL has access of global business information relating to Oil and gas industry * Access to the knowledge pool and huge database of information and technical knowledge. ; . Relocation, Bank charges. Deminimus charges ; The expenses pertaining to these services are in relation to administrative convenience incurred particularly in arranging for providing bank guarantee to BGEPIL, rent or hotel expenses incurred by the employees of BGIL while providing various services. Travel & 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,....
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....understanding global ideas and best practices which BGEPIL would not have ready access. B. MANAGEMENT AND UNIT RECHARGES - INFORMATION MANAGEMENT ('HWl RELATED SERVICES I. Description of services received (a) IT support services - Seamless IT support to the assessee's personnel on any IT issues faced by it on a day-to-day basis. Undertaking network improvements on a scheduled basis. (b) Email services - E-mail related support services in the nature of creating standardized corporate e-mail account for all employees across the 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 prov....
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....hacking enable asessee to function efficiently at lower cost. e. Monitoring internet activities of employees creates awareness and control among each employee in usage of internet facilities only on need basis. Avoidance of unnecessary II. Benefits derived IT support services * . l:- -.". -; . 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 investment on standby assets as such standby assets are owned and maintained by BGIL. c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services . a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the applicant's business and gives it better control over use of email by personnel for 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 b....
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.... the basis of number of users in BGEPIL to total users of BG Group (Page 49 to 98 of Volume VII of the Paperbook) (b) Cost Allocation Methodology -Lancaster Maclean report certifying cost allocation methodology PricewaterhouseCoopers report certifying cost allocation policy (c) Documents to evidence receipt of service Sample copies of e-mails stating service being provided in the nature of installation of windows security on the servers of the assesse, continuous monitoring of the server for up gradation, resolving day to day IT issues faced by the personnel of the assessee etc. (Page 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 A....
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....ion issues - Guidance on how the particular tax position will be looked at in international parlance in view of head office being located in overseas country. Assistance on local and group tax accounting matters. Assistance on managing tax audits/ assessment/ appeals and other issues as and when required Insurance support : Support on insurance related matters * Look after insurance coverage of various assets and activities of BG group entities including the assessee * Assists in obtaining necessary insurance coverage to protect the BG group entities including the assessee from potential / possible 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 Volu....
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....to 581 of Volume VB of the Paperbook) c. E-mail correspondences evidencing support received from BGIL in relation to WTfPage 582 to 587 of Volume VB of the Paperbook) d. E-mail correspondences evidencing support received from BGIL in relation to profit and loss account and balance sheet analysisffoge 588 to 588 of Volume VB of the Paperbook e. E-mail correspondences evidencing support received from BGIL in relation to legal matters, SAP support etc. Quarter review of user access summary along with SAP Role assignment forms in respect of employees(Page 533 to 562 of Volume VB of the Paperbook) f. E-mail 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 ....
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....ok) h) A manual in relation to Business Travel and Expenses Standard which is governed by BG Group's 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 (Poge 72 to 95 of Volume 3 of the Additional evidence paperbook) i) A sample HR Induction Checklist prepared by BG group for new starters / new employeesfPoge 96 to 98 of Volume 3 of the Additional evidence paperbook) j) A slide depicting list of SAP HR Super Users among the group entities (Page 99 to 99 of 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 An....
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....orkshop in relation to cost recovery for virtual conference undertaken by &G\L(Page 237 to 242 of Volume 3 of the Additional evidence paperbook) h) A slide deck prepared by BGIL which provides the group entities with a training guidelines to extract various reports from SAP. (Page 243 to 245 of Volume 3 of the Additional evidence paperbook) i) A functional career ladder or a Job description responsibility matrix in relation to taxation which summarizes position / designation, requisite skill set required, key accountability etc. (Page 246 to 246 of Volume 3 of the Additional evidence paperbook) , . , . j) A 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 establishe....
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.... from BG HSSE report and whether any advice to insurers is required for the same. (Page 379 to 379 of Volume 3 of the Additional evidence paperbook} n. A functional career ladder or a Job description responsibility matrix in relation to insurance which summarizes position / designation, requisite skill set required, key accountability etc. (Page 380 to 380 of Volume 3 of the Additional evidence paperbook} o. Terms of Personal Accident Insurance Scheme provided to BG group employees which mentions benefit for employees, non- employees, guidance for claims, exclusions if any, etc.(Page 381 to 382 of Volume 3 of the 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 sea....
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....ect management etc. Various assets (including the Assessee) agree to participate in common Federal Green Projects on issues that affect them on a common basis so that the project studies can serve as valuable inputs in their exploration and production efforts. Whenever, the studies are commissioned by various assets, the costs are shared between them and whenever the study or project is commissioned only by the Assessee, the charges are based on number of hours spent by the experts of the associated enterprise. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 (a) BG Group HSSE Incident 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 2QQ....
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....ement and leak testing of process utility and drilling systems. It should be followed at all BG operated sites, both onshore and offshore, and applies to all process systems including subsea pipelines.f^oge 172 to 226 of Volume 4 of the Additional evidence Paperbook) (f) A handbook issued on February 2010 by BGIL on operation guideline on Safe Isolation and Reinstatement of Plant which forms part of the BG Group operations requirements for all global assets.(Page 227 to 299 of Volume 4 of the Additional evidence Paperbook) (g) A slide deck issued on December 2009 prepared by BGIL on project & well accounting wherein the overview 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 relat....
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....ng networks amongst functional peer groups. Undertaking functional conferences, technical workshops, teleconferences etc. Support in technical problem solving. , ! ; ' ' '* c) Developing & delivering technical and functional training. d) Support in relation to development of governance and assurance principles. e) Reduction in exposure to potential major incident due to integrity failure f) Reduced risks of damage, loss of production or loss of revenue g) Reduced risks to the environment etc. E. MANAGEMENT AND UNIT RECHARGES - TECHNOLOGY RECHARGE I. Description of services received Represents costs incurred by BGIL to run technology programmes for identification, development 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 ; ....
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....roviding new metering or measurement systems or upgrading existing systems.fPage 153 to of Volume 187 of the Additional evidence Paperbook) (e) A guideline issued on Oct 2009 on Human Machine Interfaces issued by BGIL which displays need to be at their most effective during abnormal operation when the operator is under most stress, and the consequences of error are highest. This document provides best practice guidance in the design of operator interfaces.(PcrSfe 188 to 214 of Volume 5 of the Additional evidence Paperbook} (f) A guideline issued on July 2009 on Hot Tapping on Pipelines, Piping and Associated Equipment issued by BGIL which defines the minimum Company requirements for safe hot tapping operations.(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 gui....
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....Volume III of the Paperbook) b) Sample copies of tax returns filed by the employeesfPcrge 4 to 267 of Volume III of the Paperbook) c) Sample copies of debit notes raised by BGIL on the assessee, etc. (Page 268 to 291 of Volume III of the Paperbook) d) Letters of secondment issued by BGIL (Page 292to 309 of Volume III of the Paperbook) 4.6 From the above evidence, DRP is of the view that the assessee has established the fact that it has rprpivpdthp_5en/icp<: and it is a useful service which it has received. The next question before the DRP is whether assessee had to establish the arm's length nature of each and every transaction separately or it was available to the assessee to club the transaction together. DRP has considered this issue of separate benchmarking nf thp international transactipn carefully. The Income Tax Act and Rules provide for clubbing of transactions when a class of transactions are involved. The relevant part of the Section/ Rule is reproduced below: Section 92C. (1) The arm's length price in relation to an international transaction -[or specified domestic transaction] shall be determined by any of the following methods, being the most ....
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.... of Volume II of Paperbook) specifically provides the reasons for rejection of the other four methods. Specific reasons recorded for rejection of the CUP method are summarized below: * The assessee receives services from its AE and does not receive the same services directly from any unrelated parties in India or overseas; * The AE does not provide such services to any unrelated party in India; and * No public information is available with regard to the price paid for similar services, as would be rendered between unrelated parties. Considering the functional and risk profile of the intra-group services received and the availability and reliability of comparable data, TNMM using Net Operating Profit Margin on sales ('NPM') as the profit level indicator, was selected to be the most appropriate method. A search for broadly comparable companies that perform similar functions and carry risk profile similar to that of assessee in respect of its oil and gas exploration and production function was conducted. The search process yielded a set of 9 companies that are broadly comparable to the functional profile of assessee's oil and gas exploration and production a....
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....RP directed the Ld. transfer pricing officer to delete the adjustment proposed with respect to the intragroup services of Rs. 3329766244/-, deserves to be upheld. The judicial precedents cited before us also supports the view that the needed test, the benefit test are also required to be viewed from the perspective of a businessperson and not from the perspective of the revenue. Further, no evidences have been led before us by revenue stating that these services are duplicative in nature and also serves only the interest of the shareholder. According to the information supplied by the assessee and examined by the Ld. Dispute Resolution Panel does not give any such indication. Further regarding non-sharing of the cost by the joint-venture partners we have given our findings while deciding the appeal of the assessee that such an action of the joint-venture partners cannot be the reason to determine the arm's length price of the services which is been received by the assessee at nil. In view of this we uphold the finding of the Ld. Dispute Resolution Panel holding that transactions of intragroup services are interlinked, therefore, they should be benchmarked together by adopting TNMM ....
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.... was revised under section 251 of the income tax act, resulting into a refund of Rs. 18067380/- which was adjusted earlier. Subsequently, the revenue refunded the sum of Rs. 18067380/- back to the BG Asia-Pacific holding Ltd along with interest of Rs. 1461247/- amounting in all to Rs. 19528627/-. Rs. 18067380/- was recovered by the assessee from BG Asia-Pacific holding Ltd which was earlier adjusted from the refund of the assessee. Therefore apparently assessee received back Rs. 18067380/-. The Ld. Transfer Pricing Officer noted that though the sum was recovered by revenue from the refund due to the assessee , it is akin to loan given by the assessee to BG Asia-Pacific Ltd, which was subsequently refunded with interest to BG Asia-Pacific by the revenue. Therefore, the Ld. Transfer Pricing Officer held that interest @ 12.5% amounting to Rs. 2258422/- shall be charged which is the return an independent entity would expect on money given as loan. Therefore Ld. Transfer Pricing Officer proposed an adjustment of Rs. 2258422/-. Assessee preferred objections before the Ld. Dispute Resolution Panel, vide Para No.8.3 of the direction, the Ld. Transfer Pricing Officer was directed to restric....
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....namely BG Asia Pacific Holding Ltd. ('BGAPHL'). This action of the assessing officer was not approved by the CIT(A) and accordingly a sum of Rs. 1,95,28,627 (tax of Rs. 1,80,67,380 + interest of Rs. 14,61,247) was refunded to BGAPHL. The ld DRP held that no market interest rate can be imputed as the transaction is forced on the assessee due to unauthorized action of the assessing officer and restricted the adjustment to Rs. 14,61,247, the actual amount of interest received by BGAPHL. In this factual matrix, first issue to be decided whether this transaction can be said to be a ' transaction' within the meaning of section 92F (v) and then whether it can be said to be an 'international transaction" within meaning of section 92B of the act. Provisions of section 92F (V) of the act prescribes as under :- :- (v)"transaction" includes an arrangement, understanding or action in concert,-- (A) whether or not such arrangement, understanding or action is formal or in writing ; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding. From the above definition, it is clear that if two parties are acting in concert then it ca....
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....ney has been lent by the assessee to the associated enterprises hence it satisfies the basic condition laid down under section 92B (1) of the act. Even otherwise it is also included in clause (i) ( c ) of the explanation to section 92B of the act as it is a transaction akin to 'capital financing' in the form of 'advance' to the associated enterprise by the assessee. Therefore, in our opinion the above transaction is an 'international transaction' within the meaning of section 92B of the income tax act. Now after holding, so it would be mandatory to compute the arm's length price of the above transaction by applying one of the methods of determination as per the provisions of section 92C of the income tax act. In the present case the Ld. assessing officer has assumed the rate of interest @ 12.5 % without any basis but merely on assumptions and presumptions. Furthermore the Ld. Dispute Resolution Panel has also held that the refund amount of the assessee was wrongly adjusted and only actual amount of interest received from the Department by the associated enterprise shall be retained as an addition. We also do not approve the finding of the Ld. Dispute Resolution Panel and we failed ....
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.... to delete the disallowance with respect to the club expenditure amounting to Rs. 3959606/-. In the result ground No. 5 of the appeal of the revenue is dismissed. 16. In the result appeal filed by the revenue in ITA No. 2227//del/2014 for assessment year 2009-10 is dismissed. 17. Now we come to the cross objection filed by the assessee in CEO No. 13/del/2015. 18. The ground No. 1 of the appeal of the assessee is regarding the claim of the expenditure of Rs. 503071947/- as deduction in the year in which the expenditure become infructuous. The factual matrix of the claim of the assessee is that ONGC had executed a production sharing contract with the government of India in 2004. According to that production sharing contract ONGC was the owner of hundred percent of the participating interest in the block. Thereafter in 2008, assessee and ONGC entered into an agreement for assignment of 25% of the participating interest by ONGC to the assessee. As per article No. 4.1 of that agreement assessee was required to pay ONGC the past cost incurred by ONGC in proportion to the interest which is Rs. 503071917/-. On payment of such sum the assessee claimed it as a deduction which was di....
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....ntion that the aforesaid expenditure were in the nature of non-drilling exploration cost. Further, it was submitted that the appellant, as per the accounting policies consistently followed, claims all non-drilling exploration expenditure as a deduction in the year in which such expenditure is incurred. 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. In this regard, re....
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.... on 31 March 2009 for which a deduction has been claimed as per the provision of section 42 of the Act." 22. According to the provisions of section 42(1)(a) the assessee is eligible for allowance of any 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. Accordingly, such expenses shall be deductible prior to the beginning of commercial production in that block. According to section 42(1)(b) the assessee is entitle to deduction of expenditure incurred by the assessee in respect of drilling and exploration activities or in respect of physical assets used in that connection. Accordingly, all operating expenses in respect of drilling and exploration activities including capital expenditure shall be allowed only after beginning of commercial production. According to section 42(1)(c) the assessee is further allowed depletion of mineral oil from the year in which commercial production has begun. The claim of the assessee in the present case is tabulated at Para No. 11.1.1 of the DRP as under:- "11.1.1. As per section 42 allowance are to be computed as made in the....
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.... and has also relied upon plethora of case laws which shows that the expenses are deductible in the year in which they have become infructuous with respect to the abandoned projects etc. on the argument of ld AR that ld Assessing Officer may be directed to grant deduction of this sum in AY 2012-13, we are of the opinion that we are not empowered to do so. According to the provision of section 254(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders 'thereon" as it thinks fit. If an appeal relates to a particular assessment year, the finding and direction must necessarily be limited to that particular year and we do not have any jurisdiction to give direction with regard to the proceedings of the earlier year or to include or exclude the above amount in any other assessment year. We do not have jurisdiction to travel outside the scope of the appeal and purport to give direction beyond our limits. In holding this view we draw support from the decision of the Hon'ble Kerala High Court in CIT versus Chackola spinning and weaving Mills Ltd 188 ITR 532 (ker) where in it is held that :- "We answer question No. 2 to t....
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.... further submitted that there is no understanding or arrangement. He also relied on the same judicial precedent, which he relied in ground No. 4 of the appeal of the revenue. 27. LD DR also advanced the identical argument as were raised in that ground. 28. We have carefully considered the rival contentions. While deciding ground No. 4 of the appeal of the revenue we have already held that above transaction is an international transaction under section 92B of the income tax act and therefore arm's length price of such transaction is required to be determined in accordance with the provisions of section 92C of the income tax act and set aside the issue to the file of the Ld. Transfer Pricing Officer. Therefore accordingly we dismiss this ground of appeal of the assessee. In the result ground No. 2 of the appeal of the assessee is dismissed. 29. Ground No. 3 of the cross objection of the assessee is against initiation of penalty proceedings under section 271 (1) (C) of the act. The above ground is against the initiation of the penalty proceedings and not against the levy of the penalty , therefore it is premature hence we dismiss the same. 30. Ground No. 4 of the appeal of....