TaxTMI 
TaxTMI 
2019 (1) TMI 1851
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....ed that this ground is of a general nature and needs no specific adjudication. 4. Ground No.2 of the assessee's appeal, which reads as under, has not been pressed by the learned counsel and is accordingly dismissed:- "That the order passed by the AO is bad in law and is liable to be quashed having regard to the statutory time limit prescribed under the section 153 of the Act read with Explanation 1 to section 153(4) of the Act." 5. Ground Nos.3 to 6 of the assessee's appeal read as under :- "3. That the AO/Dispute Resolution Panel ('DRP') erred on facts and in law in failing to appreciate that reimbursement of expenses by BG Exploration and Production India Limited ('BGEPIL') to the appellant for services rendered could, under no circumstances, result in accrual of income chargeable to tax under the Act. 4. That the AO/DRP erred on facts and in law in alleging that the appellant had failed to establish that services were actually incurred by the appellant to BGEPIL while bringing to tax payments received for such services. 5. That the AO/DRP erred on facts and in law in alleging that the appellant had failed to substantiate its claim regarding allocation of expenses incur....
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....in Remanded to verify the claim of the assessee that the receipts are only reimbursements without any profit element in line with PSC (p.212-213) CIT(A)- - "The appellant has furnished the debit notes along with invoices." [p.193] - "Regarding 1% over-head charged by the parent company on the expenses incurred on Indian project, the revenue on this account may have an element of profit but the same can't be brought to tax because the income, if any does not accrue or arise in India. [p.193-194] ITAT- -"In the present year, Ld. CIT(A) has considered the factual aspects..."[p.203] - "We are of the opinion that other members of PSC would not allow the affiliated concern of any member to inflate its expenses for the services and enable it to earn profit in the garb of providing such services." (p204) DRP- -AO & DRP has brought on record that there is no evidence of expenses being incurred by BGI for which the alleged reimbursement was taken. [p.181] ITAT- - The main dispute is whether assessee has been able to provide primary evidence in respect of various types of services allegedly rendered to BGEPIL for which it claimed to have received reimbursements from BGEIPL. [p.183, para-9.....
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....iate its claim as to what common expenses have been incurred; how those were allocated to assessee' and why those needed to be allowed as deduction from Indian operations. It is a settled law that unless the assessee is able to substantiate its claim the deduction cannot be allowed.... Consequently, the assessee was not entitled to the deduction claimed. [p.186-187, para-9.24] - We are of the considered opinion that no fruitful purpose would be served by restoring the matter to the file of AO for examining the assessee's claim again as that would be a futile exercise particularly because assessee has clearly stated that it is not possible to have one to one nexus of the expenses with services rendered. [p.187, para-9.25] - Under such circum-stances, in our opinion, the only possible recourse is to invoke section 44BB because BGI provide services to BGEIPL, which was engaged in prospecting the mineral oils. [p.187, para-9.26] 2007-08 - Other Important Observations of Hon'ble ITAT- * The ground on existence of PE not pressed and hence dismissed by ITAT (p177) * Considered the decisions of HC (p181, 6.17) * The TPO was primarily concerned with the ALP of the rece....
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....lity of Costs/Expenses incurred- Assessee can't charge any profit for the services provided by it to BGEIPL in pursuance of clauses of PSC. Clause-3.1.4(b)(i) - Shall not include any element of profit. (p.3394) The question is whether all the reimbursements are covered under this clause? 1. Assessee claimed to have incurred expenses to the tune of Rs. 270,60,26,911/- on behalf of BGEIPL a nonresident company incorporated in the Cayman Islands. 2. Out of this, AO removed (allowed) that part of expenses which were covered under Clause-3.1.4(b)(i) and shared by JV and approved by JV Board [Operating Board of PCS] amounting to Rs. 24,62,32,708/- (AO, p.9 table). What about the balance expenses? Can there be any expenses other than those covered under Clause-3.1.4(b)(i) of PSC? The AO and DRP as well as Hon'ble ITAT in the case of BGEIPL answered this question in affirmative as reproduced hereunder- a. Certain portion of the service provided by the assessee to BGPIL is related to PSC with BGPIL. It simply means there is no prohibition on the assessee on not charging markup on services solely provided to BGPIL (not related to PSC) for which the expenses are solely born by BGPIL. ....
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....rmined by them); 3. It is incurred to enable ASSESSEE to perform operations under the PSC, sustain its activities and maintain its standard of operations, based on the commercial expediency determined by ASSESSEE (but not accepted by the Operator Board based on commercial expediency determined by them). It is pertinent to point out that in case of points '2' and '3' above, there could be occasions where ASSESSEE deems it necessary and expedient to incur certain expenditure for its business, whereas, the other JV partners have a different point of view in the matter. In such case, some cost may not be shared by the JV. He further submitted that principal reason for the Joint Operator Board not approving expenditure is its impact on cost recovery (as Cost Petroleum) and consequent profit (as Profit Petroleum). As it is not in the government interest (impact on Profit Petroleum) to consider the high cost of the full engagement, 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 fo....
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....saction is without any profit element in it. Similarity/Difference with BGEIPL Tribunal Order for 2009-10 & 2010-11- TPO doubted whether the services have been actually provided and whether services so provided has any value w.r.t. the business of BGEIPL. (p.224) [Finding of Tribunal in p.261 -262.] In the instant case, the AO doesn't doubt the provision of services to BGEIPL because that will be antithetic to taxing such services. What the AO doubts is the cost of such services and the assessee incurring such expenses amounting to Rs. 225,53,35,797/-. Since these are neither approved by the JV Board nor are supported by any other evidences." 8. We have carefully considered the submissions of both the sides and perused the material placed before us. We find that this issue is settled by the ITAT in assessee's own case in earlier years. We find that in assessment year 2007-08, the ITAT, after considering the submissions of both the sides, held as under :- "9.17. The assessee has relied on the global allocation policy which only provides that those costs which are deemed to benefit the asset are included in the general and administrative over head cost. 9.18. Ld. CIT(D....
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.... allocation of these expenses and how the same had been allocated to various assets/ countries. What expenses had been allocated to India, on what basis and what were the benefits. 9.23. Once it is accepted that global cost allocation policy exist in a case of group of size like B.G. Group, then it cannot be denied that the debit notes raised are towards services rendered. Now the core issue that remains for consideration is whether the whole amount claimed to be reimbursement should be accepted or not. On this count, admittedly the assessee has not been able to establish one to one nexus between the services rendered and alleged reimbursement. There are also no comparable cases which obviously could not be there. 9.24. Thus, in sum and substance the position as it emerges is that inspite of there being a global cost allocation policy, the existence of which is not doubted by revenue, the assessee failed to substantiate its claim regarding allocation of expenses incurred by it for the services rendered to BGEPIL. It has not been able to substantiate its claim as to what common expenses had been incurred; how those were allocated to assessee; and why those needed to be allowed a....
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....ase for assessment years 2008-09 to 2010-11, wherein ITAT held as under:- "5.1 Since the facts are identical, respectfully following the above decision of the ITAT in assessee's own case, we hold that the amount received by the assessee from BGEPIL is taxable and cannot be accepted to be reimbursement of expenses by BGEPIL to the assessee. However, the assessee's alternate contention that the above receipt should be taxed as per provisions of section 44BB is accepted. Accordingly, ground no.8 of assessee's appeal for AY 2008-09 is rejected while ground no.7 of assessee's appeal is allowed." 10. In view of the above, we, respectfully following the above decision of ITAT, hold that the amount received by the assessee from BGEPIL cannot be accepted to be reimbursement of expenses by BGEPIL to the assessee and the same is taxable in India. Accordingly, ground Nos.3 to 6 of assessee's appeal are rejected. 11. Ground Nos.7 & 8 of the assessee's appeal read as under:- "7. That the AO/DRP erred on facts and in law in holding that payments received by the appellant from BGEPIL were taxable in terms of section 44DA of the Act as opposed to section 44BB of the Act. 8. That the AO/DRP ....
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.... Provided that no deduction shall be allowed,- (i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or (ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices : [Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section.]." 16. From the above, it is evident that Section 44DA would be applicable where the income by way of royalty or fees for technical services is received from the Government or an Indian concern in pursuance to an agreement made by a non-resident or a foreign company with Government or Indian concern after 31st day of March, 2003. In the case under consideration before us, admittedly, the payment is neither received from the Government nor from an Indian concern. Therefore, Section 44DA would not be applicable and, the decisions of ITAT in assessee's own case in earlier years holding that the income of the assessee is to be determined as per Sectio....
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....sible to make the payment, the liability of the assessee to pay the tax gets discharged. If the tax is not deducted, it is payable by the assessee directly as provided under section 191 of the Act. Further, the liability to pay interest under section 201(1A) is on the person who fails to deduct the tax at source; it is absolute and is upon the person responsible for deducting tax at source till the date it was actually paid. The liability to pay interest under section 234B is on the person who fails to pay advance tax under section 208 of the Act and/or under section 210 of the Act. Where the assessee's income is chargeable under the head "Salaries", the person responsible for paying the income chargeable under the head "Salaries" shall at the time of paying, deduct income tax at source and failure on his part of the employer to deduct tax at source, the assessee only becomes liable to pay the tax directly under section 191 of the Act and does not become liable to pay interest under section 234B of the Act." From the above it is clear that the principle laid down by the Hon'ble Jurisdictional High Court is that when tax is deductible at source, the liability of the assess....
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....ssessment year 2011-12. With this submission, we proceed to decide various grounds raised by the assessee for assessment year 2012-13. 21. By way of ground No.1, the assessee has claimed that the order for assessment year 2012-13 is bad in law and is liable to be quashed. This ground was not there for assessment year 2011-12 and no arguments have been raised by the assessee in support of this ground while arguing the appeal for assessment year 2012-13. He only relied upon his submission for assessment year 2011-12. We, therefore, consider this ground as not pressed and accordingly, the same is rejected. 22. By way of ground No.2, the assessee has claimed that the receipt of amount from BGEPIL is reimbursement of income and the same is not chargeable to tax as income. We have already considered this issue while deciding ground Nos.3 to 6 of assessee's appeal for assessment year 2011-12 and, for the detailed discussion therein, we hold that the receipt from BGEPIL cannot be accepted to be reimbursement of income but the same is business receipt chargeable to tax in India. Accordingly, ground No.2 of the assessee's appeal is rejected. 23. By way of ground Nos.3 & 4, the assessee ha....
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....tax as income. We have already considered this issue while deciding ground Nos.3 to 6 of assessee's appeal for assessment year 2011-12 and, for the detailed discussion therein, we hold that the receipt from BGEPIL cannot be accepted to be reimbursement of income but the same is business receipt chargeable to tax in India. Accordingly, ground No.2 of the assessee's appeal is rejected. 31. By way of ground Nos.3 & 4, the assessee has claimed that the income, if any, should be taxed under Section 44BB of the Income-tax Act and not under Section 44DA. We have already considered this issue while deciding ground No.7 & 8 of assessee's appeal for assessment year 2011-12 and, for the detailed discussion therein, we agree with the assessee's contention that the income of the assessee is chargeable to tax u/s 44BB and not u/s 44DA. Accordingly, ground Nos.3 & 4 of the assessee's appeal are allowed. 32. Ground Nos.5 & 6 of the assessee's appeal are against initiation of penalty proceedings u/s 271B and 271(1)(c) respectively. The same are premature. Accordingly, they are rejected as such. 33. By way of ground No.7, the assessee has claimed that the impugned order passed by the AO/DRP is in....