TaxTMI 
TaxTMI 
2022 (4) TMI 275
X X X X Extracts X X X X
X X X X Extracts X X X X
....egal and unsustainable on the basis of amongst other, following grounds, taken singly or cumulatively and therefore, the addition made by the Ld. AO/TPO/Hon'ble DRP should be deleted. II. Payment for management service and unit charges (MSU) availed from BG International Limited ('BGIL'): 1. The Ld. TPO/AO/DRP has erred in making an adjustment (partially) in respect of payment of MSU of INR 50,28,83,179 to BGIL 2. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of various services availed for its business operations. 3. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant's main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm's length price (ALP) 4. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light o....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of federal green recharges amounting to INR 8,51,41,585. 13. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific Skill Supply Agreements ('SSAs')/other evidences furnished by the Appellant in relation to receipt of technical and other services from BGIL. Payments made on account of technology recharges to BGIL (forming part of Total MSU charges) 14. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of technology recharges amounting to INR 9,79,28,872, while at the same time stating that the Appellant may have enjoyed certain benefits from services covered under such payments. 15. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant in relation to receipt of technical services from BGIL. Payments made on account of management and service unit charges to BGIL (forming part of Total MSU charges) 16. The Ld. TPO/AO/DRP has erred in law and fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing only that portion of Appellant's expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 23. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 24. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific SSAs furnished by the Appellant in relation to receipt of specific call out technical services from BGIL. 25. The Ld. TPO/AO/DRP has erred in law and facts in disallowing expenses reimbursed by the Appellant to BGIL on account of party charges incurred by BGIL amounting to INR 1,51,54,714. IV. Payments made on account of reimbursement of expenses to BGIL 26. The Ld. TPO/AO/DRP has erred in law and facts in disallowing expenses reimbursed by the Appellant to BGIL amounting to INR 2,92,51,111 on account of receipt of specific call out technical services incurred by BGIL. 27. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de oil and natural gas; and erred in analyzing the said transactions separately for determination of ALP. 34. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the TNMM as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIPL for services availed and that the Appellant had earned an operating margin of 66.64% on gross revenues vis-à-vis an arithmetic mean margin of 32.16% earned by the comparable companies. 35. The Ld. TPO/AO/DRP has erred in law and facts in holding that CUP is the most appropriate method for benchmarking payments made by the Appellant for availing proprietary services from BGIPL. 36. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant's expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 37. The Ld. AO/TPO/DRP has erred in law and facts in questio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of the case and in law, the Appellant prays that the Assessing Officer be directed to allow deduction in respect of education cess paid by the Appellant on income-tax, being an allowable expenditure for computing total income as per the provisions of the Act. IX. Other grounds The Ld. AO erred in law and in fact, in initiating penalty proceedings under section 271(1)(c) of the Act for concealing particulars of income/furnishing inaccurate particulars of such income. 3. At the outset, the Ld. Sr. Counsel Shri Ajay Vohra appearing for the assessee submits that ground no. (I) is general in nature. No adjudication is required. 4. Ground nos. (II) to (VI) relates to Transfer Pricing Adjustment on account of intra-group services. The Ld. Counsel submits that identical issue on similar facts has been decided in favour of the assessee by the Tribunal for the assessment years 2009-10 to 2016-17 and the orders of the Tribunal are placed in the compilation. The Ld. Counsel for the assessee further submits that the recent order of the Tribunal is for the AY 2016-17 dated 14.12.2021 in ITA No. 07/DDN/2021. Referring to this order the Ld. Counsel submits that the Tribu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n their order for the year under consideration has noted as under: "It has been brought to notice by the assessee that the Hon'ble ITAT has passed the orders for AY 2011-12 and 2012-13 respectively on 18.07.2018 & 17.07.2018. In these orders relief has been given to the assessee on the issues of branch office expenditure cost incurred on non producing PSC, head office expenditure, inventory written off and depreciation. In case a decision is taken by the department to accept the decision of Hon'ble ITAT before the final order is passed, the order of the ITAT may be followed to avoid further litigation as the matter become final." 15. Further, it is observed that for AY 2011-12 (ITA No. 1478/Del/2017) and AY 2012-13 (ITA No. 6791/Del/2017) following the above ruling. 16. From the above, it is clear that Revenue intends to keep issues alive, however, could not controvert view taken in respect of these issues as there has been no contrary observation/material evidences brought out on record by the Ld. CIT DR. It has been admitted by him that facts and circumstances of the services received by assessee for the year under consideration are same vis-&ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the education cess is an allowable deduction while computing the income from business and profession. However, in the Finance Bill, 2022 introduced in the Parliament an amendment to Section 40 was proposed by insertion of Explanation 3 with retrospective effect from 01.04.2005 clarifying that tax "shall include any surcharge or cess by whatever name called". Since the legislature proposed an amendment to Section 40 with retrospective effect clarifying that cess is part of tax we are of the considered view that this issue has to be examined by the Assessing Officer in the light of the proposed amendment and also keeping in view various decisions on the issue. Thus, we restore this ground to the file of the Assessing Officer to decide afresh in accordance with law. 11. Ground no. (IX) relates to initiation of penalty proceedings u/s. 271(1)(c) of the Act. This ground is premature and, therefore, the same is dismissed. AY 2008-09 (ITA No. 30/DDN/2020): The assessee has raised the following grounds in this appeal: I. Ground No. 1: General Grounds On the facts and circumstances of the case and in law, the Ld. AO erred in determining the assessed income of I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red in law and facts in questioning whether any services have been rendered to the Appellant by BGIL, as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 8. The Ld. TPO/AO/DRP has erred in law and facts in questioning the commercial rationale of the Appellant in making payments to BGIL and in ignoring the intricacies and skill level required in oil and gas industry. 9. The Ld. TPO/AO/DRP has erred in law and facts in ignoring the fact that payments made by the Appellant to BGIL merely represented costs associated with services rendered by BGIL without any element of mark-up. 10. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the fact that the "cost only" recharge by BGIL was also certified by statutory auditor of BGIL as well as an independent external consultant and that all costs allocated to the Appellant were in accordance with the Global Cost Allocation Policy of the BG Group. 11. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey and specific evidence of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....law in failing to appreciate that an international company depends on its head office/parent company and affiliates to provide a wide range of administrative support to achieve efficiency. 21. The Ld. TPO/AO/DRP has erred in law in not giving due consideration to the evidences furnished by the Appellant in relation to the receipt of services from BGIL. 22. The Ld. TPO/AO/DRP has erred in law and in facts in restricting the deduction in respect of payments made by the Appellant to BGIL on account of IM recharges to INR 60,00,000, having been computed in an arbitrary and ad hoc manner. 23. Without prejudice, the Ld. TPO/AO/DRP ought to have allowed deduction for the taxes deposited by Appellant with the tax authorities on account of services received from BGIL. III. Payments made on account of general and administrative charges to BGIL 24. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of general and administrative charges amounting to INR 8,18,44,590. 25. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm's length price (ALP). 34. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method ('TNMM') as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIL for services availed. 35. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method ('CUP') is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 36. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant's expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 37. The Ld. AO/TPO/DRP has erred in law and facts in questioning whether any services have been rendered ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the Appellant in making payments to BGIPL for services availed by the Appellant. 46. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant (relevant agreement, monthly reports, debit notes etc.) in relation to receipt of services from BGIPL. 47. Without prejudice, the Ld. AO/TPO/DRP ought to have allowed deduction of INR 41,46,826 on account of service tax paid by Appellant on business auxiliary services. 48. Without prejudice, the Ld. AO/TPO/DRP erred in appreciating the fact that the payments made by the Appellant to BGIPL, an Indian entity, were already taxed in the hands of BGIPL and hence, disallowing the same in the hands of the Appellant amounts to double taxation. 49. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey any specific evidence of services received by the Appellant. VI. Disregarding the directions issued by the office of Hon'ble DRP and Hon'ble Income Tax Appellate Tribunal ('ITAT') in the Appella....