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2015 (3) TMI 792 - ITAT DELHI

2015 (3) TMI 792 - ITAT DELHI - TMI - Applicability of section 44BB on assessee's income - allocation of expenses incurred by assessee for the services rendered to BGEPIL - 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 reimbursement from BGEPIL? - assessee is a non-resident company and is AE of M/s BGEPIL - Held that:- Once it is accepted that global cost allocation policy .....

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n 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 as deduction from Indian operations. It is .....

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edings and the High Court was in error in applying the principles of Mitchell’s case on the assumption of facts which were not proved. Consequently the assessee was not entitled to the deduction claimed. In view of above discussion, keeping in view the entire conspectus of the cases, we are of the opinion that it would be fair to tax the assessee’s receipts u/s 44BB, as has been done in past also. In this regard we find ourselves in agreement with the ld. counsel for the assessee that in AY 2003 .....

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r, considering the fact that assessee is not able to substantiate its claim, as has been extensively demonstrated by ld. Cit(DR) in his submissions and the assessee has only given a general writ e up for the benefits derived by BGEPIL, 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 .....

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appeal, preferred by the assessee, is directed against the assessment order dated 30-11-2011, framed by the AO pursuant to DRP directions u/s 144C, pertaining to assessment year 2007-08. 2. The assessee is a non-resident company and is AE of M/s BGEPIL. It had filed its return of income declaring income of ₹ 1,59,520/-, claiming refund of ₹ 6,12,08,565/-. While passing the draft assessment order, the AO noticed that assessee had received payments from BGEPIL under the following heads .....

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d not shown the corresponding income. The assessee took the plea that they were reimbursements. The AO did not accept the assessee s contention, inter alia, observing that the claim was not supported by any evidence and in order to establish that the payments were reimbursed on actual expenses, assessee should have shown the date of receipt of payment in their account from BGEPIL and corresponding expenses made with details of parties to whom payment was made. The AO further observed that during .....

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vice was actually rendered or not. 2.2. When show caused, the assessee reiterated its submissions that the transaction between the assessee and BGEPIL was in the nature of reimbursement of actual cost and devoid of any element of profit. The AO pointed out that assessee in its reply gave the following computation of income: Income from business : ₹ 972898465/- Less: Business expenditure, reimbursement Expenditure on cost of cost basis : ₹ 972898465/- Net business income chargeable to .....

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harged the cost of time spent by its personnel based overseas for the assessee's operations in India. Allocation of administrative costs incurred by BGIL: BGIL has recharged certain administrative costs incurred outside India and allocated to the assessee's operations in India. These costs have been allocated on the basis of Cost Allocation and Time writing Policy 2006. Further, the basis of allocation of the aforesaid costs has been verified by M/s. Price Water House Coopers and they ha .....

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accounting manual of the assessee wherein the allocation methods have been specified in detail, is enclosed as Annexure -14. Evidence of services render: Copies of debit notes raised by BGIL on the assessee in respect of the MSU expenses on a sample basis {have already been enclosed as annexure to these written submissions. The said debit notes are supported by appropriate evidence of services rendered by BGIL. The balance debit notes may also be furnished before your goodself if so desired. Rei .....

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balance debit notes may also be furnished before your goodself if so desired. General and Administrative expenses Nature of expenses: The assessee has received certain charges (based on allocation of actual costs incurred) from its associated enterprises in the nature of general administration and geological and geophysical expenses that are paid by the assessee. Apart from the above, these expenses also include expenses incurred by third parties in respect of various services. Further, the basi .....

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rived at the same conclusion vide their report dated 30 October 2007 enclosed as Annexure 13. Further, the accounting manual of the assessee wherein the allocation methods have been specified in detail is enclosed as Annexure 14. Evidence of services rendered: copies of debit notes raised b BGIL have already been enclosed as annexure to these written submissions. The said debit notes are supported by appropriate evidence of services rendered by BGIL. The balance debit notes may also be furnished .....

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of profit. Furthermore, the debit notes also go on to prove that the services were actually provided by the assessee to BG Exploration & Production India Ltd. 2.4. The AO, being not satisfied with the above reply, again issued following questionnaire: Please refer to the assessment proceeding for assessment year 2007-08. You are requested to furnish the following information: 1. Kindly refer to the notice dated 03-12-2010 and your subsequent reply. You have still not furnished the complete .....

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xpenses, management service unit charges, General and administrative expenses, you are asked to explain how the expenses other than reimbursement of expenses are also claimed by you as reimbursement of expenses. 3. Regarding payroll expenses, please give the name of employees seconded by you to BGEIPL, the date when BGEIPL requisitioned the services of those expats from you with documentary evidence, the date of appointment with you and subsequently, after the tenure was over in India and where .....

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w you are exempt from the same. Please note that even if you are not making any profit, you are required to maintain income and expenditure account and get it audited as per the provisions of Income-tax Act, 1961. You have not done the same. Therefore, your claim of reimbursement is not substantiated with any evidence. The debit notes are only your claim to BGEIPL and not an evidence of reimbursement. In order to establish reimbursement, you have to furnish the following information in the follo .....

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to be furnished in the proforma mentioned above. Please note that the debit note submitted by you are no evidence. 6. Please note that during the survey operation in the case of BGEIPL, no document was produced to substantiate rendering of any services by you to BGEIPL and also no requisition was made by BGEIPL for availing those services from you. In the light of these facts, you are asked to show cause why your total receipt be not taxed as income without allowing any expenses as you have not .....

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with evidence from your bank account. 9. What is the difference between al/ the three agreement signed in India on 15.02.2002. As per the service agreement for direct charges or operating charges, you have agreed to provide certain staff, support and personnel services. Please name the staff member who were provided to render the services, the nature of services rendered, the location of services rendered and the amount paid to such staff members by you. As per Exhibit A to the agreement, you w .....

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rties to substantiate your claim of reimbursement. Please further explain what are the services rendered by you under General and Administrative head to BGEIPL. It is once again clarified that mere submission of .invoices is not an evidence to substantiate your claim of reimbursement. " 2.5. The AO observed that assesseer s claim could not be allowed for the following reasons: (a) The assessee failed to furnish any worthwhile evidence to substantiate its of expenses. (b) The accounts were n .....

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services rendered nor any evidence that actual payment was made by the assessee to third parties. (g) During the survey operation, the principal office of the assessee could not give individual name and could not provide document from BGEIPL to show its requisitioning of specialized service from the assessee. (h) The assessee did not give any explanation as to how BGEIPL was charging the amount of accrual over head to the assessee as BGEIPL was supposed to charge this to its parent and not the a .....

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Vs. Enron Oil and Gas India Ltd. 305 ITR 68. The other services were also covered under the head fees for technical services and taxable under Article 9(1)(vii) of the I.T. Act. The AO, after considering Article 13 of Indo UK DTAA, pointed out that since assessee was having a fixed PE in India the fee for technical services was to be computed as per Article 7 of DTAA. As per which the assessee s income was taxable as per the provisions of Indian Income Tax Act and since assessee had not produced .....

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to a limited extent), about actual rendering of these services. (b) The evidence that the assessee referred in its submissions qua service agreement between the assessee and BGEPIL, list of employees of the assessee deputed to India, copies of debit notes raised by BGIL on BGEPIL and copies of some reports of some independent consultants. (c) Apart from the evidence noted above the assessee did not give any other evidence about the nature of services rendered, persons or parties who rendered the .....

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by it was based on a condition in the production sharing contract signed by BGEPIL, ONGC and Reliance Corporation with the Govt. of India, under which the partners of the contract cannot farm out services to an affiliate on a profit making basis. 2.10. Ld. DRP, inter alia, observed on this count as under: (a) If any Ministry or Department of Government of India introduces any scheme for promotion of industry, business, trade or for any other development activity in any field and any incentive is .....

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assessee had not given complete text of the PSC, ld. DRP considered the model production sharing contract, as the terms were almost identical. 2.12. After examining the contents of Model agreement, which are reproduced from page 6 to 8 of its order, ld. DRP observed as under: A perusal of the above provisions shows that this is a code of conduct that governs the members of the PSC. The basic intention of the above provision is that the members of the PSC will charge fair and reasonable price fo .....

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er than charges to a third party in the similar circumstances. There is nothing in the above provision which lays down any restriction on an affiliate other than that of charging an arm's length price. The above provisions therefore have no bearing on •he way the affiliate is to conduct its business. It certainly does not absolve the assessee from the requirements of maintaining its books of accounts and getting them audited as required u/s 44AS of the I.T Act. As mentioned earlier such .....

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troleum Operations or for an r other purpose and the employees of such persons shall be subject to all fiscal legislation in India except where, pursuant to any authority granted under an 7 applicable law, they are exempted wholly or partly from the application of the revisions of a particular law or as otherwise provided herein." In view of the above the plea taken by the assessee that it is not required to maintain any books of accounts and not to reflect the amounts received from BGEPIL .....

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ase of BGEPIL. The order of the TPO in the case of BGEPIL by and large had been confirmed by the Panel as BGEPIL, inspite of sufficient opportunities given to, was unable to furnish any convincing evidence to prove that the services for which the assessee (BGEPIL) had been remunerated, were actually rendered. 2.14. Ld. DRP concluded its findings as under: Taking into consideration the above facts and circumstances, this Panel is of the view that the assessee has not been able to substantiate Its .....

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and Administrative expenses of ₹ 19,16,1 0,571: expenses in respect of which the evidence regarding third party cost is furnished by the assessee. iii. Out of Miscellaneous Expenses ₹ 3,05,85,488: direct recharge of third party cost incurred on behalf of the taxpayer of the expenses in respect of which the evidence regarding third party cost is furnished by the assessee. Therefore as the assessee has declared the revenue on account of the four head of services it will be taxed in it .....

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essee is computed as under: Income as determined in draft assessment order: ₹ 97,28,98,465/- Less: 1) Relief granted by DRP out of Management and service unit Charges of ₹ 34,77,35,896/- Rs.60,00,000/- 2) Relief granted by DRP out of General & Admn. Expenses Of ₹ 19,16,1,571/- ₹ 8,10,31,154/- 3) Out of miscellaneous expenses Of ₹ 3,05,85,488/- ₹ 13,34,377/- Total income ₹ 88,45,32,934/- Total income rounded off ₹ 88,45,32,930/- 3. Being aggriev .....

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the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - II, Delhi (hereinafter referred to as the 'Hon'ble DRP') on the following grounds, each of which are without prejudice to one another: I. Violation of principles of natural justice 1. The learned AO/ DRP has erred in law and in facts, in denying the Appellant an opportunity of being heard and thereby, violating the principal of .....

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DRP has erred in disregarding the submissions and documents filed by the Appellant substantiating the receipts to be in the nature of reimbursements. The learned AO/ DRP ought to have held that the receipts are pure reimbursements and hence, not taxable under the Act. 5. The learned AO has erred in law and in facts, in not granting relief to the Appellant for the payroll cost of ₹ 219,736,534 and not considering the directions of the DRP. 6. WITHOUT PREJUDICE the learned AO/ DRP has erred .....

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India - UK Double Taxation Avoidance Agreement ( DTAA ) III. Taxing the receipts as fees for technical services ( FTS ) under DTAA 8. The learned AO/ DRP has erred in law and in facts in not appreciating (without verifying the tax residency certificate of the Appellant) that the Appellant is a tax resident of UK and therefore, is entitled to the beneficial provisions under the DT AA. 9. The learned AO/ DRP has erred in law and in facts, in ignoring the fact that the reimbursements received by th .....

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dia. 11. WITHOUT PREJUDUCE to Ground 10, assuming but not accepting that a PE exists, the AO/ DRP erred in treating all amounts received by the Appellant as income attributable to the PE. The learned AO/ DRP ought to have held that only income directly attributable to the PE should be taxable in India under the DTAA. 12. WITHOUT PREJUDUCE to Ground 10, assuming but not accepting that a PE exists, the Appellant being a nonresident engaged in the business of providing services and facilities in co .....

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in levying interest under section 234B and 234C of the Act disregarding the fact that the Appellant is a non-resident Appellant, whose income is subject to tax deduction at source. Accordingly, interest under section 234B and 234C of the Act is not leviable to the Appellant. VII. Initiating penalty proceedings under section 271 B of the Act 15. The learned AO/ DRP has erred in law and in fact, in initiating penalty proceedings under section 271 B of the Act for not getting the accounts audited .....

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the time of hearing ld. counsel for the assessee did not press ground nos. 1,2,3,5,10 & 11, accordingly, the same stand dismissed being not pressed. 5. As regards ground nos. 8 & 9, ld. counsel submitted that they are academic in nature as they do not arise out of AO s order and stand dismissed accordingly. Ground nos. 15 & 16 are premature and accordingly dismissed. 6. Ld. counsel submitted that assessee is a company incorporated in the U.K. with more than 4 decades of experience an .....

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( assets ) across the world, and the same is cross charged to such group entities without any mark up. 6.1. Ld. counsel submitted that BG Exploration and Production India Ltd. ( BGEPIL ) is a limited liability company incorporated in Cayman Islands and an Associated Enterprise of the assessee within the meaning of Sec. 92A of the Act. BGEPIL had entered into a production sharing contract ( PSC ) dated 15-2-2002 (which was subsequently amended on 10-1-2005) along with Oil and Natural gas Commiss .....

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oration challenges and low success rate (of finding oil deposits), makes use of high end and sophisticated technology, and, technically expert and highly trained and experienced human resource, imperative for this industry. The challenges are further marked by a dearth of experienced personnel with required level of technical expertise. (ii) BGEPIL's Project Office in India does not possess all requisite expertise to discharge its critical business functions and requires extensive support of .....

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in the nature of reimbursements. 6.3. Ld. counsel further submitted that the assessee had rendered services to BGEPIL under following heads: - Management Service Unit Charges - Federal Green Recharges Other Management and Unit charges (a) IM related services - Online and telephonic IT support services in the form of service desk and remote support to all BGEPIL employees. - Email services - BG Intranet portal - Internet services - Enabling mobile/offsite working. (b) HR International (c) Intern .....

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f. Marketing g. EVP Office support. h. ICDN, cost control and finance service function. - Technology recharges - Structural geology - Well Engineering - Production Operations Technology - Borehole geophysics - Geology Technology management - Geophysics Technology Watch I management - Petro Physics technology program - Transmission and Distribution - Commercial. General and administrative expenses: - Other consultancy services - Professional subscriptions - Travel & subsistence. 6.4. Third p .....

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o the file of AO, following the Tribunal s decision in the case of EGEPIL for A.Y. 2000- 01 as per ITA no. 861/Del/2005 dated 24-10-2008, observing in para 9 as under: 9. Since, we have noted that the facts in the present case are identical we decide this issue in the present case in principle in favour of the assessee respectively following this Tribunal decision but since factual aspect of this claim of the assessee that the receipt of the assessee in these three years is only reimbursement of .....

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r dated 29-1-2010 in ITA no. 4773/Del/2007 dismissed the revenue s appeal observing in para 5 as under: The ITAT in these assessment years had agreed in principle with the assessee but set aside the issue for verification of factual aspects. However, in the present year, learned CIT(Appeals) has considered the factual aspects also in the finding extracted supra. In paragraph no. 9.3, learned CIT(Appeals) has observed that assessee has produced invoices and no material brought by the Assessing Of .....

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arn profit in the garb of providing such services. Assessing Officer ought to have brought material indicating the fact that services rendered by the assessee to the PSC members could be rendered at a lower cost and should have established on record that in the garb of reimbursement of expenses, in fact, it is earning profit. Merely on apprehension, we cannot deviate from the view taken in earlier years which is more particularly in the lines of decision of Hon ble Jurisdictional High Court s de .....

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ngrtehg ard price (INR) BG & Production India Ltd Payroll Expenses 219,736,534 219,736,534 Management services unit 530,806,352 530,806,352 General & administrative expenses 191,610,571 191,610,571 - Reimbursement 30,585,488 30,585,488 Total 972,738,945 972,738,945 BG & Production India Ltd Reimbursement of expenses 50,98,140 50,98,1401 No TP adjustment is proposed in this case 6.8. Ld. counsel referred to pages 106 to 147 of the PB wherein the Cost Allocation and time writing policy .....

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enses of BGI cost centres. The support costs incurred by BGI were mainly insurance and under management support unit, the allocation was made on the basis of shared service performed for the benefit of time writing cost centres and assets or of a corporate nature. 6.10. Ld. counsel took us to various clauses of policy to buttress the submission that the cost allocation policy was quite reasonable and debit notes contained at page 347 were raised on the basis of its global cost allocation policy. .....

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s is not possible. 6.13. Ld. counsel further referred to page 269 of the PB, wherein the reference was made u/s 92CA to TPO for determination of ALP of the international transactions entered by the assessee during AY 2009-10 and the TPO has observed as under: 6.14. The assessee has entered into following transactions: S. No. Name of Associated Enterprises Description of Transaction Value of Transaction (INR) Method of Computation of ALP 1. BG Exploration and Production India Ltd. Payroll expense .....

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he allocation as has been done by assessee as per global allocation policy. 6.16. Ld. counsel further submitted that profit sharing contract has been approved by government and, therefore, it over-rides the income-tax provisions. In this regard he referred to section 42 of the I.T. Act and pointed out that as per this section for the purpose of computing profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central .....

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endered prior to the beginning of commercial production by the assessee; (b) 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 after the 31st day of Marc .....

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khand High Court in the case of Enron Oil and Gas India Ltd., which has been taken over by BG International, wherein it has been held that taxability of income of each member of the PSC has to be determined in terms of provisions of section 42, which over-rides other provisions of the Act. The Hon ble Uttrakhand High Court has relied on the decision of another Division Bench in the case of CIT & Another Vs. Enron Oil and Gas India Ltd. 305 ITR 68. Ld. counsel further submitted that Hon ble J .....

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giving effect to Tribunal s order is contained, in which assessee s contentions have been noted as under: In this connection the assessee would apprise you that the documents pertaining to the assessment year in question are now over 7 years old, located in the United Kingdom and are extremely difficult to retrieve. In these circumstances, BGIL does not wish to litigate/ agitate this issue any further before the tax authorities. 7.1. Thus, the assessee was not able to substantiate its claim rega .....

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dence of expenses being incurred by BGI for which the alleged reimbursement was taken. Since there was no expenditure incurred by BGI, therefore, there was no question of any reimbursement. 7.4. As far as the ld. counsel s reliance on the TPO s order for AY 2007- 08 is concerned, ld. CIT(DR) submitted that BGIPL had made the payment to assessee under specific head, therefore, TPO accepted the same. In this regard ld. DR referred to section 92(3), which reads as under: Computation of income from .....

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asing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction or specified domestic transaction was entered into. 7.5. Ld. CIT(DR) referred to page 6 of ld. DRP order and pointed out that ld. DRP has specifically observed that considering the consideration of the services involved the evidence that the assessee was able to produce was absolutely insufficient. 7.6. Ld. CIT(DR) further referr .....

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incorporated by or under the laws of a country outside India (Franchisee company). Therefore, assessee was required to maintain books of a/c to substantiate its claim. AS regard the assessee s submission that the assessment be made u/s 44BB, ld. DR submitted that it is not an amnesty scheme and the assessee s profits are taxable under Article 7 of DTAA between India and UK on net basis. 7.7. Ld. CIT(DR) further submitted that the provisions of section 44C regarding deduction of head office expen .....

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eipts were taxable u/s 44BB. 8.1. Ld. counsel further pointed out that in AY 2009-10 ld. DRP has allowed the assessee s claim contained at pages 27 to 75 of the PB in which ld. DRP has observed as under: i) Assessee has produced large amount of documents in support of its claim. The same is summarized in Para 4.4. It cannot be brushed aside. They are relevant to the. Claims made by the assessee. ii) Technical services received are intangible in nature. Therefore, TPO should be clear when he/she .....

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de comparables. Search for comparables of intra group services in an uncontrolled - independent environment is an oxymoron. Therefore, to demand that assessee to produce evidence to show that "independent entity in comparable situation would have paid' for such services" is nothing but asking to perform the impossible. iv) . DRP is convinced that without such services assessee would not have succeeded in earning the income it did during the year. If the assessee and its group compa .....

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not be applied in the absence of any data availability in case of comparable cases. As the assessee has earned 41.42% on cost, which is much above the comparable companies, the underlying international transaction is held to be at arm's length. TPO/AO is directed to delete the addition made under this head. 9. We have considered rival submissions and perused the record of the case. The assessee is a tax resident of the UK. It has received payments from BGEPIL, which is incorporated in Cayman .....

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opened a project office in India. There is no tax treaty between India and the Cayman Islands; therefore, profits of BGEIPL are taxable in India as per the provisions of the Income Tax Act. These three parties are joint operators to the contract. Vide agreement dated 10-1-2005 BGEPIL is the operator and is also responsible for maintaining of books of account of the contract. 9.3. BGEPIL and the assessee are associated enterprises under the Incometax Act. BGEPIL has operations in India only and .....

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staff support and personnel services in connection with Oil and Gas Exploration and drilling activities. BGI is rendering services on cost to cost basis any payment to BGI through Debit Note is purely accordance with provisions of PSC. 2. For the purpose of the Double Taxation Avoidance Agreement between India and the United Kingdom, BGI is a tax resident of the United Kingdom. 3. In India, BGI is providing services only to BG Exploration & Production India Limited (BGEPIL). The services ar .....

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evenues to BGI society consist of reimbursement revenues not chargeable to tax under section 44BB of the Income-tax Act. 9.5. In course of hearing, the assessee filed an affidavit to confirm that the profits of the assessee and BGEPIL were incorporated in the U.K. with the ultimate holding company viz. assessee. There was no dispute on this aspect but the main object was that while considering the profits being incorporated with BGEPIL how the total expenses claimed were set off against the allo .....

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ary evidence in respect of various types of services allegedly rendered to BGEPIL for which it claimed to have received reimbursement from BGEPIL. The debit notes were raised by assessee to BGEPIL, BG House, Lake Boulevard Road, Hiranandani Business Park, Mumbai (India). There is no dispute on the raising of these debit notes and the receipt of ₹ 97,28,98,465/-. Before we proceed further to deal with the merits of the case, we may first deal with the assessee s arguments with regard to its .....

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nsel because in assessment year AY 2006-07, ld. CIT(A) had allowed the claim of the assessee because he held that services had been provided on cost to cost basis. The tribunal s findings were based on the ld. CIT(A) s observation that assessee had produced invoices and no material was brought by the AO to doubt the debit note and invoices. However, in the present year the assessee has not produced any documents before the AO or ld. DRP to justify that it had incurred any expenses (other than pa .....

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f the assessee s claim. Matter was taken up by AO to give effect of the Tribunal s order for AY 2004-05. The assessee clearly stated that since the documents were for more than 7 years, therefore, it was extremely difficult to retrieve them from UK. Therefore, on this basis, AO based on his earlier order rendered determined the income u/s 44BB. 9.8. Ld. counsel for the assessee submitted that the findings for AY 2004- 05 cannot be a guiding factor for deciding the issue in the present assessment .....

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of time and offered the income u/s 44BB, the same cannot be the basis for arriving at any conclusion that the income should be assessed u/s 44BB. In view of above discussions, the decisions given in earlier years have little bearing on the facts as obtaining in the current assessment year. 9.9. Ld. counsel for the assessee has relied on the ld. DRP s order for AY 2009-10 wherein ld. DRP has accepted that the services were rendered by BGEPIL, inter alia, observing as under: i) Assessee has produc .....

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d the cost based on the time spent by the expert/ employee, then, it would have been possible to doubt the transactions. This is not the case. iii) Intra group services, by definition are within the group. It is a tautology to say that intra group services do not have outside comparables. Search for comparables of intra group services in an uncontrolled - independent environment is an oxymoron. Therefore, to demand that assessee to produce evidence to show that "independent entity in compar .....

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ry invoice. It is a time honoured practice of audit to .test check.' Assessee has a system of documentation retention of backup invoices. Therefore, based on the test checking, DRP comes to the conclusion that TNMM is the most appropriate method in this case and CUP cannot be applied in the absence of any data availability in case of comparable cases. As the assessee has earned 41.42% on cost, which is much above the comparable companies, the underlying international transaction is held to b .....

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e present assessment year, the first aspect to be considered is the effect of TPO s order relied upon by ld. counsel for the assessee. We are in agreement with ld. CIT(DR) that the transactions of the assessee, referred in TPO s order are with BGEPIL and total transactions are of ₹ 97,27,38,495/- and these transactions are all receipts by the assessee from BGEPIL. The TPO was primarily concerned with the ALP of the receipts of the assessee which are not at all disputed. The TPO accepted th .....

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imbursement of expenses. Ld. CIT(DR) has referred to the ld. DRP s observations with regard to TP order in the case of BGEPIL wherein the TPO has given a finding that BGEPIL was not able to provide any evidence of the services rendered by the BGEPIL and, therefore, the ALP of the transactions were computed at NIL. Further, it is noticed that AO had carried out a survey u/s 133A of the act at the premises of BGEPIL on 12-11-2010 and question no. 12 of the AO s letter to the assessee stated that d .....

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he department has disputed this on the ground that assessee did not submit the details of expenses incurred i.e. to whom paid, when paid and where paid along with supporting invoices received. The assessee did not produce any document to substantiate the expenses incurred by it against receipts for which debit notes were raised on BGEPIL. The debit notes did not show as to on what account and where the expenses were incurred by assessee on behalf of BGEPIL. The assessee has to prove that the ser .....

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asic details as pointed out by lower revenue authorities have to be brought on record. Further, the submissions of assessee did not justify the nature of activities specific to India. 9.15. Ld. CIT(DR) has pointed out that the terminology franchisee suggests that these expenses apparently pertained to US territory. The assessee has business in the USA. The term Green also described something related to preserving climate. The US is having Federal Energy Regulatory Commission and any expenses inc .....

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eting: 43,65,895 - Executive Vice President Office Support: 6,73,72,229 - ICDN, Cost control and finance service function. 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(DR) has pointed out that revenue does not doubt that a MNC like British gas Group does not have a cost allocation policy, but the assessee has failed to justify ho .....

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tax advisor. Why this amount has been further charged by BGEPIL, the assessee was required to demonstrate this aspect. 9.19. Further, the ld. CIT(DR) has questioned as to why the Indian Permanent establishment was allocated marketing expenses which were not incurred in India. He has rightly pointed out that Executive VP support is no doubt the head office expenses and attract the application of section 44C but the deduction could not be allowed in full. 9.20. Ld. CIT(DR) has also pointed out th .....

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rences nowhere require the PWC to examine as to how the cost had been allocated to various assets (business in different locations/ countries) and do not refer to certification of benefits tests. He pointed out that PWC has come out with a time writing rates which were primarily hourly rates which needed to be applied for various types of activities. 9.21. As regards the reliance placed on M/s Lancaster Mac Lean, UK report, ld. CIT(DR) has pointed out that this independent consultant was appoint .....

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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 positi .....

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ssessee is able to substantiate its claim the deduction cannot be allowed. In this regard we may refer to the decision of Hon ble Supreme court in the case of CIT Vs. Calcutta Agency Ltd. (1951) 19 ITR 191, wherein it has been held that the burden of proving the necessary facts in order to entitle the assessee to claim exemption u/s 10(2)(xv) was on the assessee but the necessary facts had not been established by the assessee at any stage of the proceedings and the High Court was in error in app .....

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