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UN-NECESSART LITIGATION BY TAX AUTHORITIES BY INVOKING EXPLANATION TO SECTION 37 IN RELATION TO ROYALTY PAID TO GOVERNMENT AND THAT TOO IN CASE OF HIGH TAX PAYING NAVRATNA PSU - ONGC.

UN-NECESSART LITIGATION BY TAX AUTHORITIES BY INVOKING EXPLANATION TO SECTION 37 IN RELATION TO ROYALTY PAID TO GOVERNMENT AND THAT TOO IN CASE OF HIGH TAX PAYING NAVRATNA PSU - ONGC. - Income Tax - Direct Tax Code - DTC - By: - CA DEV KUMAR KOTHARI - Dated:- 17-8-2015 - Relevant PROVISIONS AND LINKS: Sections 37 and of the Income-tax Act, 1961 Section 92(F)(ii) was also considered by honourable High Court, as an aid to find out reasonableness based on árms length pricing. Section 6A(4) o .....

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ent Insurance Companies also hold substantial stake. During the years to which litigation relates to Government held much higher stake. ONGC had also been one of largest tax payer / largest tax paying PSU for many number of years. Royalty - higher limit: Section 6A(4) of the Oilfield (Exploration and Development Act), 1948 provides that the Central Government is authorised to prescribe manner and rate of royalty payable to Central Government and state Government. The provision also provide maxim .....

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de on the basis of international price instead of discounted sale price. This was with a view to avoid loss of revenue to the State Government. The learned CIT(A) after detailed discussion of facts and relevant documents, allowed the claim and deleted disallowance made by the AO. The revenue preferred appeal before the ITAT which was dismissed on this issue and claim was allowed. The finding of Tribunal, in this case are pure finding of the facts, therefore, revenue should not have filed an appe .....

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diture? From the question, it is clear that the payment is on account of Royalty and was paid to State Government. The method of computation of royalty has also been indicated in the question itself. There is no case of finding being wrong or perverse. Therefore, this appeal should not have been filed. Anyway the appeal was admitted by the High Court. The High Court observed and held that the case set up by the Revenue that it is a case, which involves violation of the mandate of Section 37 in i .....

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the decision of the Government of India. In the circumstances of this case, we are therefore of the view that the amounts, which were paid, would not incur the opprobrium of being in violation of Section 37. There is no dispute that all the other ingredients required to sanction the expenditure as expenditure under Section 37 are present. Therefore the appeal of revenue was dismissed and case stood decided against revenue and in favour of assessee (ONGC). The conclusive paragraph of the judgmen .....

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e disallowance was deleted by CIT(A) the revenue should not have indulged in litigation by preferring an appeal on this issue. However, appeal was preferred first against order of CIT(A) and then against order of ITAT. Recently we have come across observations of CBDT itself showing displeasure on filing of frivolous or un-necessary appeals. However, unfortunately despite policy decision to avoid un-necessary appeals, the revenue authorities are preferring appeal, even when tax effect is low and .....

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