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2019 (4) TMI 1573 - AT - Income TaxTP adjustment - TPO rejecting TNMM and applied CUP method - The TPO held that the expenditure incurred by the appellant and allowed by the JV partners/Operator board shall be considered as Comparable Uncontrolled Price - international transactions pertaining to intra-group services received by the appellant (i.e. MSU charges, reimbursement of expenses, payroll expenses, Information Technology and other charges) - HELD THAT:- It has been admitted that facts and circumstances of the services received by assessee for the year under consideration are same vis-à-vis assessment year 2010- 11, and other preceding assessment years. We are therefore inclined to follow the same view. Respectfully, following view taken by this Tribunal in assessment year 2010-11 [2017 (4) TMI 1190 - ITAT DELHI] , addition made by Assessing Officer stands deleted. Erroneous application of CUP for determining arm’s length interest rate - assessee taken fixed rate of interest @ 6.18% (being USD Libor swap rate + 350 bps) - TPO proceeded on the basis of an independent fresh search and considered LIBOR + 2.785 BPS as the arm’s length rate - HELD THAT:- Lower authorities and materials available on record. We also refer to the specific observation by DRP reproduced hereinabove. As both the parties admit that the issues under consideration are similar and identical with that of facts in assessment year 2010-11 [2017 (4) TMI 1190 - ITAT DELHI] . The directions issued by this Tribunal for assessment year 2010-11 more particularly the underlined portion are followed by us. Ld. CIT DR did not object for the issue to be set aside. We direct the TPO/AO to compute the rate of interest on the basis of aforesaid direction and accordingly is set aside to AO/TPO. Disallowance of branch office expenditure - treating it as pre-operative in nature - whether said expenditure was incurred wholly and exclusively for the purpose of the Appellant’s business in India? - AO limited the disallowance to avoid double addition/ disallowance - HELD THAT:- We fail 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 expenditure are not allowable to the Assessee. Disallowance of head office expenditure - Allowable revenue expenditure - cost of services availed of by the taxpayer required by PSC with 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., disallowed merely on the ground that the said expenses have not been borne by the joint venture partner - DRP applying the provisions of section 44C of the Act to payments made to BG International Limited - HELD THAT:- We fail 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 expenditure are not allowable to the Assessee. Accordingly, this ground raised by the assessee stands allowed. Disallowance of depreciation and depletion - disallowing depreciation being the difference of depreciation amount between the tax audit report and the computation - aforesaid difference is on account of the fact that the appellant had capitalised certain costs as part of the cost of the fixed assets and appellant had claimed depreciation thereon - the tax auditor in the Tax Audit Report considered this as revenue in nature - HELD THAT:- AO ought to be directed to accept the opening WDV of assets as submitted by the appellant in the schedule to computation of income which is arrived from the closing WDV of fixed assets of previous year. Accordingly, the AO be directed to delete disallowance on account of difference in depletion as per the computation of income and tax audit report. Without prejudice, it is submitted that if the expenditure capitalised by the appellant in previous years is not held to be capital in nature and depreciation and depletion on capitalised portion is subsequently disallowed, the amount capitalised by the appellant should be allowed as deduction under section 37(1) in the relevant assessment year. CIT DR has no objection for the above issue to be set aside to ld. AO/TPO - restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate its case. The ground raised by the assessee on this issue is allowed for statistical purposes. Disallowance of loss on transportation - AO disallowing loss on transportation of condensate on the ground that the expenditure cannot be allowed on the basis of the provisions made by the assessee - HELD THAT:- In view of the admitted case of the taxpayer that during the AY 2016-17, independent expert appointed by the joint venture partners had determined the loss on condensate at 1.7% and without prejudice, the taxpayer also made a prayer for allowing the loss of transport of condensate @ 1.7% during the year under assessment, we are of the considered view that when undisputedly as per settlement agreement entered into between the taxpayer, ONGC and Reliance Industries Limited with ONGC (transporter) for transportation of gas and condensate, the loss is to be determined by the expert appointed by the joint venture partners, there is no question to resort to the estimation to claim such loss. More so in AY 2016-17, loss has been determined by the expert appointed as per settlement agreement @ 1.7%. So, we are of the considered view that the matter is required to be remanded back to the AO to decide afresh after providing an opportunity of being heard to the taxpayer by following the rule of consistency - restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate his case as per the direction of the DRP. Disallowance of inventory written off - As per AO Appellant submitted only internal documents which do not suffice for allowance of expenditure - HELD THAT:- When the taxpayer has prepared obsolete inventory in accordance with the system of accounting regularly followed by it in compliance to section 211 (3C) of the Companies (Accounting Standards) Rules, 2006 as amended and other relevant provisions of the Companies Act, 1956 and has duly got prepared audited report of an independent auditor on the basis of physical verification and in view of the maintenance of inventory, the disallowance made by the AO/DRP is not sustainable in the eyes of law - restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate his case. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee Foreign exchange loss disallowance - whether foreign exchange gain has been taxed in the previous years, foreign exchange loss in the subsequent years needs to be allowed? - HELD THAT:- As decided in own case [2018 (7) TMI 1954 - ITAT DELHI] in view of the law laid down by the Hon’ble Apex Court in case of CIT vs. Enron Oil & Gas Limited . [2008 (9) TMI 3 - SUPREME COURT] , we are of the considered view that the income earned by the taxpayer in foreign currency pursuant to the PSC entered into with Government of India is governed by the agreement of PSC and the foreign exchange losses on account of foreign currency translation is an allowable deduction while computing the total income of the taxpayer. In such circumstances, provisions of PSC are to be applied and the disallowance made by AO/DRP on account of difference in revenue is not sustainable, hence allowable subject to verification by the AO - restore the issue to the file of the AO with a direction to give an opportunity to the assessee to substantiate his case as per the direction of the DRP. Interest u/s 234B, 234C & 234D - HELD THAT:- As relying on assessee's own case [2018 (7) TMI 1954 - ITAT DELHI] we direct the Assessing Officer to compute the interest u/s 234C of the Act qua returned income as per law followed by interest u/s 234B & 234D of the Act by giving due opportunity to the assessee.
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