TMI Blog2017 (4) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer Pricing Officer has not looked at these evidences produced by the Assessee in the form of quotations of various banks, comparable search by the Assessee on LPC/ dealscan database. The Ld. Dispute Resolution Panel has also brushed aside the provision of section 92C of the Income Tax Act, which prescribes methodology for computation of arms length price of an “international transactions‘. It has merely reiterated whatever has been stated by the Ld. Transfer Pricing Officer without applying the provisions of law to the facts of the case before them. In view of this we set aside the whole matter of determination of ALP of interest paid by the Assessee to its associated enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the computation of ALP by the Assessee of above transaction strictly in accordance with the provisions of section 92C of the Income Tax Act Disallowance of the production cost - Held that:- Assessing Officer as well as the Ld. Dispute Resolution Panel, despite having the necessary details of the expenditure did not point out the single instance that these expenditure are not incurred by the Assessee for the purposes of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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. Therefore according to us the expenses incurred by the Assessee cannot be disallowed Disallowance of purchase of seismic data and general and administrative expenses in connection with the proposed NELP VIII - Held that:- Neither the Ld. Assessing Officer nor the Ld. Departmental Representative could press any other judicial precedent which shows that amount spent by the assessing is not allowable as revenue expenditure under section 37 (1) of the act. It is also not the argument of the revenue that such expenditure incurred by the Assessee is capital in nature. Furthermore, the Ld. AR has also pressed into several decisions which say that that expenses incurred towards extension of business which was subsequently abandon or did not fructify, are allowable. Therefore in view of the above decisions wherein it is been held that the expenses for purchase of this kind of data is unnecessary revenue expenditure require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een delaying the submission of the details during assessment proceedings as it was asked to submit the breakup of expenses on 27th of March 2014 whereas the query was raised on 12/03/2014 and then again on 25/03/2014, this itself shows that Ld. Assessing Officer started questioning the allowability of these expenses in the last fortnight of the month of March 2014 only, whereas the notice under section 143 (2) was issued on 30th of August 2011. It is always for Assessing Officer to observe time limit for completion of the assessment proceedings and manage it for completing it properly in time. The provisions of Income Tax Act, 1961, has empowered him to tackle situations where Assessee is delaying submitting the requisite detail on time. However, if the Assessing Officer himself start acting late when the time has raced against him, the fault cannot be put on the head of the Assessee. In view of this, without going into the merits of the case about the allowability or otherwise of the above expenditure, We set aside this ground of appeal to the file of the Ld. Assessing Officer with a direction to examine the details furnished by the Assessee and call for such further evidence as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the intragroup services of ₹ 3329766244/–, deserves to be upheld. Further, no evidences have been led before us by revenue stating that these services are duplicative in nature and also serves only the interest of the shareholder. According to the information supplied by the assessee and examined by the Ld. dispute resolution panel does not give any such indication. Further regarding non-sharing of the cost by the joint-venture partners we have given our findings while deciding the appeal of the assessee that such an action of the joint-venture partners cannot be the reason to determine the arm‘s length price of the services which is been received by the assessee at nil. In view of this we uphold the finding of the Ld. dispute resolution panel holding that transactions of intragroup services are interlinked, therefore, they should be benchmarked together by adopting TNMM as the most appropriate method , hence, directing the Ld. transfer pricing officer to delete the adjustment proposed of ₹ 3329766244/–. In the result ground of the appeal of the revenue are dismissed. Depreciation to the assessee on wellhead platforms at the rate of hundred percent allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act') on the following among other grounds. Ground No. 1: Provision of support services 1.1 The learned AO / the Transfer Pricing Officer / the DRP has erred in making an upward adjustment of Rs, 8,018,048 to the total income of the appellant by holding that the international transactions relating to the provision of business support services provided by the appellant to its associated enterprise is not at an arm's length. 1.2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the international transactions relating to provision of business support services by the appellant to its associated enterprise was at an arm's length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO / the Transfer Pricing Officer / the DRP in this regard is misconceived, erroneous and incorrect. 1.3 The appellant submits that the learned AO be directed to delete the upward adjustment of ₹ 8,018,048 made by him to the appellant's total income and to re-compute its total income and tax liability thereon accordingly. Ground No. 2: Payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 The learned AO erred in not granting credit of tax deducted at source to the extent of ₹ 52,358,137. Ground No, 8: Short credit for self-assessment tax paid 8.1 The learned AO erred in not granting credit of self-assessment tax paid to the extent of ₹ 63,128,093. Ground No. 9: Levy of interest under sections 234B of the Act: 9.1 The learned AO has erred in law and in fact, in levying interest under sections 234B of the Act disregarding the fact that the appellant is a non-resident whose income is subject to tax deduction at source. Ground No. 10: Levy of interest under section 234D of the Act: 10.1 The learned AO has erred in law and in fact, in levying interest under section 234D of the Act. Ground No. 11: General: 11.1 Each of the foregoing grounds of appeal is without prejudice to the other. 11.2 The appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. The ld AO has filed the appeal against the directions of the Ld DRP for the Assessment Year 2010-11 in ITA No. 1581/Del/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are intrinsically linked with the other international transactions undertaken by the Assessee (e.g. payment on interest on loan, sale of gas, unsecured loans, re-imbursements etc.) and there is no link with the transactions under consideration and the other international transactions. ii) It is only when the international transactions are so closely linked that they cannot be benchmarked that a combined approach can be adopted as per Rule 10A(d) of the Income Tax Rules. iii) Given the discrete nature of the transactions, each transaction has to be benchmarked separately and not under TNMM. iv) Most of the services were duplicate in nature or relating to the headquarters to protect the interest of the shareholders. v) The Assessee has adopted a combined approach with regard to its business transactions as a whole which is contrary to the provisions of law. vi) The approach followed by the Assessee was not in accordance with the OECD guidelines with regard to the intra-group services in terms of which cost of intra-group services should be benchmarked using either CUP or Cost plus Method. 2. Whether on the fats and in the circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable independent enterprises would have paid for the services in comparable circumstances. h) Without prejudice to the findings regarding the actual rendering of services and the Non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement (JOA), all the costs are shared among the Joint Venture Partners in ratio of their participating interest and that the two other parties to the JOA (M/s ONGC and Reliance Industries Ltd.), which are unrelated parties, would not pay the cost of the services of associate enterprises which would have been in excess of the ALP. 3.3 Without prejudice to the generality of the foregoing grounds regarding the deletion of proposed adjustment of ₹ 3,32,97,66,244/- on the transactions of intra-group services, whether the Hon'ble DRP has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g contracts and joint operating agreements on 22/12/1994. Further amended in January 2005 for Panna Mukta and mid and South Tapti oil and gas fields PSC dated 2nd March 2007 for Contract Area KG-OSN-2004/1; Form in agreement dated February 18, 2008 for contract area MN-DWN-2002/2, approved by Mo PNG on November 21. 2008; Form in agreement dated February 18, 2008 for contract area KG-DWN-2009/1, as a partner of the respective unincorporated joint ventures for prospecting, exploring and producing oil and gas from the contracted areas. To execute such PSCs and carry out its obligations under the PSCs as a joint operator, Assessee has set up a Project Office (―PO ) in India. It has a participating interest in 5 production sharing contracts as under :- (a) For Panna/Mukta and Mid and South Tapti oil and gas fields Partner Participating Interest (%) Oil Natural Gas Corporation Limited (ONGC) 40 Enron Oil Gas Limited (now BGEPIL) 30 Reliance Industries Limited (RIL) 30 b) For Contract Area KG-OSN-2004/1 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,297,989 7 Mahanagar Gas Limited 1,46,611 8. BG International Limited Payroll expenses Reimbursement of expenses 372,800,271 382,471,987 9. BG International Limited Recovery of expenses 203,100,890 10 BG India Energy Private Limited (formerly British Gas India Private Limited) 1,239,375 11 BG LNG Regas Private Limited 59,694 12 BG India Energy Services Private Limited 51,234 13 Gujarat Gas Company Limited 57,409,887 14 Mahanagar Gas Limited 15,069,909 15 BG India Energy Solutions Private Limited 1,130,776 Therefore, the Ld. Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NA 1,239,375 11 BG LNG Regas Private Limited NA 59,694 12 BG India Energy Ser. Pvt. Ltd. NA 51,234 13 Gujarat Gas Company Limited NA 57,409,887 14 Mahanagr Gas Limited NA 15,069,909 15 BG India Energy Solutions Private Limited NA 1,130,776 6. The Ld. Transfer Pricing Officer dealt with each of the international transaction as under:- i) with respect to support services provided by the Assessee to its associated enterprise M/s BG India energy solutions Private Limited amounting to ₹ 71025995/- which were benchmarked by the Assessee using transactional net margin method [TNMM] as most appropriate method for determination of arms length price selecting 19 comparables, The Ld. Transfer Pricing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year Assessee has made payment to BG International Ltd for certain services, amounting in all to ₹ 3329766244/ as under:- Sr No Nature of services Amount 1 Joint Acquisition and Development of IT Infrastructure and software 801326641 2 Management service unit charges 1102791317 3 IM Recharge and Time Writing charges 670376028 4 Payroll Expenses 372800271 5 Reimbursement of expenses 382471987 Total 3329766244 The Assessee has aggregated all the transactions except transaction listed at five above of reimbursement of expenses, applied the transaction net margin method, and submitted that they are at arm s length. The Assessee did not benchmark the amount of reimbursement of expenses. The aggregation approach was adopted by the Assessee for the reason that these transactions are closely l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not submit any need and inevitability analysis for acquisition of the IT infrastructure. iv) Assessee failed to submit any documents such as third parry invoices and basis for computation of total cost as claimed was correctly computed. v) No third party invoices have been submitted. It is noted that BGIL charged its professional @ GBP 100 per hour, no basis of this cost has been provided. It is on the lump-sum basis without any reason and excessively high. vi) Assessee only submitted debit note (consolidated) to demonstrate that the amount as mentioned therein totaling to GBP 9015327 was demanded by BGIL from the Assessee. vii) Regarding allocation Assessee submitted sheet of allocation, mentioning that certain percentage of so called costs incurred by the parent company have been allocated to the Assessee viii) In some cases, it is mentioned that the cost was allocated based on head counts and other places some other methodology without famishing back up computation. ix) Assessee also did not submit any documents showing that the assets so created are being used by it and what benefits are being derived by it. x) Assessee also failed to demonstrate wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of its arm's length price even if these services are considered to be necessary. 3. Even if these services are considered to the necessary, and cost paid by the Assessee company seems to be excessively high. 4. Most of the services which have been claimed to have been received by the Assessee Company are in the nature of advisory. In most of the cases, the Assessee company itself is competent to take the decision. In such scenario, imposing upon the Assessee to take decision in one or the other way is only for the purposes of furtherance of the interest of the parent company. 5. The Assessee company has paid ₹ 3,12,88,784/-for HR international support. During the year the Assessee has also paid ₹ 37,28,00,271/- on account of payroll expenses to M/s BGIL towards salary of expats employee. This payment is in respect of 29 expats who have worked on secondment basis. It shows that BGIL is charging expenses in addition to the salary or other costs payable to the expats employees. It may also be mentioned that details submitted by the Assessee under- this-subhead are-placement policy documents and some e-mail communication regarding formalization of a planning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for taxation support and ₹ 4,59,06,012/- for legal support to its parent company. It is claimed that the Assessee has received consultancy regarding tax compliance and advisory support from personnel employed by the BGJL. No description of legal services obtained by the Assessee has been submitted. It is also pertinent to mention the Assessee has incurred ₹ 7,06,55,8391- on professional and legal expenses. The Assessee has not substantiated its claim of such a huge expenditure on routine basis every year for consultancy regarding taxation and legal purposes. It has not been supported what taxation or legal consultancy have been extended by M/s BGIL. Was there any legal dispute going on for which the legal advice was obtained by the Assessee company from BGIL. It appears that the Assessee is paying for expenditure for its parent company for which no benefits/ services have been derived. 9. The Assessee company has claimed that BGIL provides marketing services to it however, from notes to the account it has been observed that whole of the petroleum produced is sold to Govt. of India nominee i.e. GAIL or ONGC. Therefore the Assessee companies do not require any marketin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 10% of the IT network and software cost. With respect to technology recharge it was submitted that this is the cost in lieu of services and rendered in relation to identification, development and implementation of new and enhanced technique and capital Abilities to the existing exploration and production operation of the Assessee. The Assessee detailed various benefits and services received by the Assessee and the evidences for Western relation to such services. The Ld. Transfer Pricing Officer stated that these are the expenditure which is intended for creation of academic and talent centers and the Assessee company did not demonstrate what is going to be its role and responsibility in this institutions and the benefits in future, if any. He further submitted that the Assessee merely receives some technology bulletins for which only maximum subscription charges can be remunerated. He further noted that various projects have been undertaken. However, all of them may not relate to the areas in which the Assessee companies operating and therefore there is no need of this project with respect to the services. With respect to the federal Green charges. The Assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, the Ld. Transfer Pricing Officer made the following adjustment under section 92CA, on account of arms length price of the international transaction, amounting in all to ₹ 3 765048374/ International Transactions Amount 1 Provision of Business support services ₹ 8018048/- 2 Adjustment regarding excess provision of Interest RS 427264082/- 3 Intra Group services ₹ 3329766244/- Total ₹ 3765048374/- 7. On the corporate tax issues, It was noted that the Assessee has incurred total production cost amounting to ₹ 31678 6095/- which is borne exclusively by the Assessee out of which ₹ 237932251/- t was paid to the associated enterprise which was already adjusted by the Ld. Transfer Pricing Officer under section 92 CA and therefore it was not disallowed by the Ld. Assessing Officer but the balance of ₹ 70520756/ , as according to the Ld. Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nor drilling operations and therefore the Assessee is not entitled to depreciation at the rate of hundred percent on these expenditure. Consequently, the Ld. Assessing Officer made disallowance of ₹ 815097333/ allowing depreciation on the total cost of ₹ 9 5893 8038/ of ₹ 14384 0705/ only. 10. It was noted that Assessee has debited addition to the fixed assets under the head global IT and IT projects, amounting to ₹ 666113450/- and claimed depreciation on these assets amounting to ₹ 33305673/ . The Ld. Assessing Officer enquired about the ownership and user test thereof. Assessee submitted before the Ld. Assessing Officer that these are the allocation cost made by the group company who has acquired certain information technology infrastructure and software for the benefit of the group companies. Such assets are production database management system, SAP up gradation and efficient budgeting and forecasting system etc. It was noted by the Ld. Assessing Officer that Assessee has been allocated a sum of ₹ 8 0132 6640/ ,out of which ₹ 6130450/- was capitalized during the year and the balance of ₹ 135213190/- was capital work in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Ld. Assessing Officer they are not laid out or expended wholly for the purpose of the business of the Assessee and therefore they were disallowed. 13. On raising objections before the Ld. Dispute Resolution Panel, in its direction dated 17/12/2014 :- i) With respect to Intra Group services of ₹ 3329766244/ at Para No. 4.6 It was stated that the Assessee has established the fact that it has received the services and it is a useful services which it is has received. With respect to the separate benchmarking of the international transaction and the most appropriate method, the DRP held that TNMM was the most appropriate method in this case and the Assessee was justified in obtaining the services as mentioned in the earlier paragraph the year for DRP held that the determination of arm length price by the TPO in the intragroup services to the tune of ₹ 3329766244/ is erroneous and is also be deleted. ii) With respect to provision of support services and its benchmarking, ld DRP upheld the selection of comparables by the ld TPO. It was held vide Para No. 6.2 that these acquisition of information technology related infrastructure was for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5673/ the Ld. Dispute Resolution Panel upheld the depreciation disallowance holding that amendment to section 32 of the Income Tax Act, which now provides for the word used and Assessee could not substantiate the user f these assets. On the ownership it rejected finding of the ld AO/ TPO that Assessee fails ownership test. viii) With respect to the disallowance of ₹ 460313788/ of exploration cost, the Ld. Dispute Resolution Panel upheld the same. ix) With respect to the disallowance of club expenditure, The Ld. DRP directed the Ld. Assessing Officer to allow the club expenditure as deductible expenditure as in the preceding assessment year, i.e. Assessment year 2009 10, the Ld. Dispute Resolution Panel has allowed it. Therefore, for this year also the ld AO was directed to allow the club expenditure under section 37 (1) of the Income Tax Act. Based on above directions, ld AO passed final order u/s 143(3) of the act. 14. In the beginning of the hearing of the appeal, the Ld. Authorised Representative raised the following additional ground of appeal:- Ground No. 12: Exploration cost of ₹ 692,213,884 not claimed by the appellant 12.1 Without prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of the said amount of the expenditure while computing its taxable income. Accordingly, now the applicant claimed deduction of ₹ 3788 6501/ only being its share of expenses out of total expenditure of ₹ 100336783/ incurred in relation to the above block allocated by the joint venture and accepted by the applicant. The facts related to the above claim were stated before the Ld. Dispute Resolution Panel and are part of the record. By virtue of this ground the applicant is raising a legal claim which does not require any fresh investigation into the facts and omission to raise the aforesaid ground of appeal was neither willful nor intentional. Therefore relying on the decision of the Hon ble Supreme Court in case of National Thermal Power Co. Ltd vs. CIT [229 ITR 383](SC), The Ld. authorized representative pressed into operation, rule 11 of the Income Tax (Appellant Tribunal) Rules, 1963. It was further submitted that above expenditure has been claimed by the Assessee in assessment year 2011 12, in which it was disallowed in the draft assessment order passed by the Ld. Assessing Officer. The matter is pending before the Ld. Dispute Resolution Panel. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj) [FB]). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. However, where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an Assessee. In view of the above decision of the Hon ble Supreme Court of India, we admit the additional ground of appeal of the Assessee. 17. Now we adjudicate appeal of the Assessee first. Ground no. 1 of appeal of the Assessee is regarding provision of support services where the upward adjustment of ₹ 8018048/ made by the Ld. Assessing Officer to the total income of the appellant ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 92CA of the Income Tax Act of ₹ 8018048/ . Assessee objected to the comparables before the Ld. Dispute Resolution Panel, however, the contention of the Assessee was rejected holding that the Ld. Transfer Pricing Officer has considered them as functionally comparable by giving detailed reasons, which are valid, and the functional differences pointed out by the Assessee are not sufficient to reject those comparables. Therefore, the Assessee is in appeal before us on this ground. 18. the Ld. authorized representative contested 10 comparables before us and submitted with respect to each of them as under:- S. No. Company Name Arguments of the Assessee that this comparables is not a good comparable Reference to PB-II (Annual report) 1. Apitco Ltd. Broad classification - High-end technical and engineering services. Functionally dissimilar The company is engaged in business of cluster development, micro enterprises development, asset reconstruction management services, environment management and other project related services which are not simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. Refer notes to accounts P/L of the annual report (refer page 104,109, 110 of PB) 4. Quippo Valuers Broad classification - High-end technical and engineering services. Functional grounds The company is engaged in asset management services which includes asset disposal services of professional valuation, appraisals and auctioning of assets and lender service consultancy, which are not similar to services provided by the Assessee. The company s significant achievements during the year were of sale of earthmoving equipment by innovative disposal methodologies and signing of long term contracts with financial institutions for valuation services. The future outlook and key challenges noted down during the year were also similar to the above-mentioned asset management services. Reliance in this regard is placed on the decision of Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon ble ITAT held that the high end service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement, market research strategic intelligence, power water engineering and utility engineering project management, which are not similar to the support services provided by the Assessee. Non availability of segmental Information Few services provided by the company are akin to the services provided by the Assessee. But due to non-availability of segmental information such services could not be benchmarked. 9. Mahindra Consulting Engineers Limited Broad classification - High end technical and engineering services Functional grounds - The company provides consultancy services particularly in infrastructure sector like sector development, conception feasibility, project design engineering and project management, which are not similar to services provided by the Assessee. Refer page 114 of AR (refer page 305 of PB) 10. Asian Business Exhibition Conferences Ltd. Abnormally high profit company 58.11% Extraordinary events During the year the company has acquired a wholly owned subsidiary namely Oil Asia Publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the order of the Ld. Dispute Resolution Panel is not erroneous and therefore the comparables are correctly selected for the comparability analysis of the services. With respect to the margins of the comparables it was submitted by him that such correction is not pointed out by the Assessee as to how the error has crept in to in the computation by the Ld. Transfer Pricing Officer. He submitted that had it been pointed out to the Ld. Transfer Pricing Officer and if the objection of the Assessee is correct, same would have been recomputed by the Ld. Transfer Pricing Officer. However, he submitted that revenue does not have an objection if the computation, if erroneous, may be rectified by the Ld. Transfer Pricing Officer. 21. We have carefully considered the rival contentions and stated the facts relating to the functions performed by the Assessee. There is no dispute about the functions performed, risk assumed and assets employed to generate the revenue of support services. With reference to the error in the computation of margin of the comparable companies, in view of the argument of the both the parties and no objection from the side of the Ld. Departmental Representative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding mainly support services for the development of tourism and industry and therefore the services being provided by this company are in the nature of support services and hence it is a good comparable. According to us, the above comparable company is engaged in skilled allotment, asset reconstruction and management services and it has a very small segment of tourism and research studies. Further the nature of the cluster development activities in which the company is mainly engaged are not at all comparable with the functions performed by the Assessee. Further, the company s major operating expenses are also for skill development and cluster development. However, we do not agree with the contention of the Ld. Authorized Representative that this company has abnormal profit and therefore should be excluded. On perusal of the balance sheet and the profit and loss account of the company, We could not find that there is any abnormality in the business model of the company which could result in to an abnormal profit which is not comparable. No abnormality was also brought to our notice, we have also perused the profit and loss account and it shows that on the turnover of ₹ 11457 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l profile of this comparable company, We are of the view that functions performed by this comparable company are comparable with the functions performed by the Assessee. Hence, we reject the argument of the Ld. Authorised Representative of the functional dissimilarity of this comparable. Furthermore, regarding the argument of the Assessee that it is a government company, therefore it should be excluded as a comparable. Decision of Coordinate bench cited before us in Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013) is considered where the government companies are excluded as a comparable not for the reasons only that they are government owned companies but because of their functional dissimilarity. We reject the argument of the Ld. Authorised Representative. Firstly for the reason that it is not a government company as only the specified percentage of the shareholding is held by EXIM bank and therefore only the provisions with respect to the appointment of the auditors are regulated and secondly it does not have any impact on the business model of the company. In any way the government companies, which are mostly public sector undertakings also operate with similar func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries. It also has the new division in the form of research and technology Centre, which started functioning during the year. Looking to the assets employed by the company, It uses the computer software in the name of smart plant suite. Further during the year. It has incurred research and development expenditure of ₹ 11699720/ which was not there in the earlier year. Further, the company is also planning to use Smart plant foundation for integration of other smart plant tools. In view of this we agree with the argument of the Ld. Authorised Representative that this company is engaged in the business of high-end engineering services which is based and supported by the use of a specific technologies and huge research and development expenditure along with an R D centre. In view of this, the functions performed by this comparable company are not comparable with the Assessee s functions. For this reason only, we direct the Ld. Transfer Pricing Officer/AO, rejecting this comparable, to exclude the same for the comparability analysis. iv) Quippo Valuers This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in the business of advisory of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the innovative methodologies to be adopted for procurement and sale of these goods. It is not proper to say that it provides any high-end services except innovation in procurements only. The functions performed by the company are not at all different from the functions performed by the comparable as both are rendering support services in procurement and sales. Hence, we are of the opinion that Ld. TPO/DRP is correct in including the above company as comparable for comparability analysis. v) TS R Darshwa Limited This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in 3 segments such as registrar and transfer agent activity, records management activity and pay roll and trust fund activity. According to the Ld. Transfer Pricing Officer and Ld. Dispute Resolution Panel, this is a good comparable. However, the Ld. Authorised Representative submitted that this company is engaged in Share Registry Services and other support services. Further as per annual report of the company, it is primarily engaged in provision of share registry and related financial services and therefore, cannot be compared with the Assessee, a captive market support service p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween them, it cannot be taken as a fit comparable. However, if the assets employed has significant role in earnings of margins of the comparable this comparable company cannot be accepted as comparable. However before us no such facts are demonstrated either by revenue or by Assessee and therefore we set aside this comparable to the file of the ld TPO for examining it from this perspective and then decide the issues. In the result, we direct the Ld. Transfer Pricing Officer to reconsider this comparable. vii) Dalkia Energy services Limited This comparable selected by the Ld. Transfer Pricing Officer is engaged in the business of service in the area of energy manner and developing energy efficiency and energy projects with focus on reducing the energy cost and deriving of consequent environment benefiting the various sectors of economy in India and abroad. The comparable company adopts a multiproject approach when the individual customer defines the scope and structure of the services beginning with relatively simple projects, depending on the comfort level of the client, the scope and complexity of the service is expanded to multitier product package. The Ld. Authorised Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into all these transactions, which were not there in the past year. However, in view of the absence of complete information about the business profile of the company as well as the nature of the services rendered by the company, this comparable cannot be accepted. Hence, we reject this comparable due to inadequate information available before us. ix) Mahindra Consulting engineers Limited This company is selected by the Ld. Transfer Pricing Officer and the functional profile of the company is stated to be providing consultancy services in the areas of special economic zones, water supply and 7H, solid waste management, urban infrastructure, agree and for cultural infrastructure, social infrastructure, ports and harbor off shore etc. The Ld. Authorised Representative has stated that the functional profile of the company is not comparable. We have carefully perused annual report of the company submitted by the Assessee at page No. 305 323 of the paper book wherein it is clearly demonstrated that the Assessee is engaging the consulting services and it is only a reportable segment of consultancy services. Looking at the functional profile of the Assessee as well as the comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessee before the Dispute Resolution Panel in terms of its objection in Annexure 10. Therefore, we reject the contention of the Assessee for exclusion of the above comparable. Accordingly, we dispose of ground No. 1 of the appeal of the Assessee as directed above with respect to comparables and to take corrected margins in case of any error. 23. With respect to Ground No 2 of the appeal of the Assessee facts are that appellant had taken an unsecured foreign currency loan amounting to USD 500 million from its associated enterprise, BG Asia Pacific Pte. Ltd., Singapore ( BGAP ) on May 31, 2005 for a period of 15 years. The loan was taken at an interest rate of London Inter-Bank Offer Rate (―LIBOR ) plus 2 percent per annum payable annually. As a result of subprime crisis in the year 2008, there was lack of availability of funds in the global financial markets which indicated towards a possible increase in the interest rates in the near future and prevailing uncertainty, the proportion of borrowers borrowing funds at fixed rate of interest also increased. In order to fund the operations, the appellant, on October 22, 2009, availed additional loan amounting to U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... +2% per annum payable annually. He says that as a result of sub-prime crisis in the year 2008 there was lack of availability of funds in the global financial markets which gave indication about a possible increase in the interest rates in the near future, therefore, there was an increase in the borrowers who were borrowing funds at fixed rate of interest. For funding the operations of the company Assessee availed further loan and the interest rate was changed from floating rate of interest to a fixed rate of interest of 6.18% for 5 years. This funding from associated enterprise was unsecured because the financial position of the appellant did not permit obtaining secured loan on favourable rate of interest from unrelated parties. In view of this facts., He submitted that that the action of the Ld. Transfer Pricing Officer as well as Ld. Dispute Resolution Panel are inconsistent in view of the surrounding business circumstances as well as the transfer pricing principles for following reasons:- (i) Commercial rationale for shifting from floating to fixed rate of interest It is submitted that during the year 2008-09 due to additional borrowings and higher interest costs, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the total transactions were executed with fixed rate of interest as compared to 50% during the pre-crisis period. The relevant screen shot from the database is as under: Screenshot 2: Composition of loan transaction structure during the crisis period (i.e. from September 1, 2008 till August 31, 2009) In view of the aforesaid, he submitted that in the post crisis period, in order to avoid uncertainty associated with floating interest rates, even independent borrowers preferred to borrow funds at fixed rate of interest. In order to obtain certainty with respect to future interest obligations, the appellant decided to convert the floating rate loan into fixed rate loan. It would be appreciated that by shifting to fixed interest rate structure, the risk associated with uncertainty/fluctuations in the interest rate movements was shifted to the associated enterprise and the appellant became immune from any adverse movement in the interest rates. It would be appreciated that the decision of the appellant to shift from floating to fixed rate of interest was based on commercial considerations and to protect the business operations of the appellant from any adverse movements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned to run his business as he likes and whether to employ a broker or not so long as the genuineness of the employment of the broker is not in question. It is further submitted that the TPO has arbitrarily re-structured the transaction of fixed interest rate borrowing to floating interest rate borrowing. He submitted that such re-characterization/re-structuring of the transactions is not permissible under the transfer pricing legislation. Reliance in this regard is placed on the decision of the Hon ble Delhi High Court in the case of CIT vs EKL Appliances (ITA No 1068/2011 1070/2011) wherein the Hon ble High Court held that the revenue authorities cannot restructure/re-characterize the legitimate transaction. The Hon ble High Court held as under: 17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further signi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the same but the arrangements made in relation to a transaction, when viewed in their totality, differ from those which would have been adopted by an independent enterprise behaving in a commercially rational manner. The aforesaid observations were recorded in the light of the fact in the case of L.G. Electronics (supra). Commenting on the factual matrix of L.G. Electronics case (supra) would be beyond our domain; however, we do not find any factual finding to this effect by the TPO or the Tribunal in any of the present cases. However, in L.G. Electronics decision (supra), it is observed that if the AMP expenses and when such expenses are beyond the bright line, the transaction viewed in their totality would differ from one, which would have been adopted by an independent enterprise behaving in a commercially rational manner. No reason or ground for holding or the ratio, is indicated or stated. There is no material or justification to hold that no independent party would incur the AMP expenses beyond the bright line AMP expenses. Free market conditions would indicate and suggest that an independent third party would be willing to incur heavy and substantial AMP expenses, if he p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck or the benchmark for determining the interest payable by the subsidiary AE. This is not what Chapter X of the Act and Rules mandate and stipulate. The aforesaid provisions neither curtail the commercial freedom, nor do they bar or prohibit a legitimate transaction. They permit transfer pricing adjustment so as to bring to tax what would have been paid for the transaction in the same or similar comparable circumstances by an independent third party. XXX Transfer pricing rules treat the domestic AE and the foreign AE as two separate entities and profit centres, and the test applied is whether the compensation paid for the products and services is at arm s length, but it does not ignore that the two entities have a business and a commercial relationship. The terms and conditions of the commercial business relationship as agreed and undertaken are not to be rewritten or obliterated. XXX 23. This ratio and rationale, when applied to the facts of the present case, would mean that the transfer pricing determination would decide what an independent distributor and marketer, on the same contractual terms and having the same relationship, would have earned/paid as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Citigroup Libor+250 bps 2. HSBC Libor+189 bps 3. Bank of America Libor+300 bps Arithmetic Mean Libor+246.33 bps He submitted that the Libor at the time the appellant entered into the loan agreement with the associated enterprise in 2005 was 3.8632%. Accordingly, the effective rate of interest in the comparable companies at 6.33% (3.8632%+2.4633%) of the comparable companies is higher than the effective interest rate of the appellant at 3.8632%, the international transaction of payment of interest is at arm s length. (b) Quotations provided by Barclays Bank It is further submitted that the fixed rate of 6.18% was agreed on the basis of quotation provided by the Barclays Bank wherein the bank provided a rate of Libor +325 to 375 bps for a five year tenure. The fixed rate of 6.18% was equivalent to the Libor + 350 bps and the loan was converted from floating to fixed rate of interest by substituting Libor with 5 year SWAP rates. The SWAP rates represents the rates whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length. (c) Search for comparable uncontrolled transactions on LPC/Dealscan database The appellant has conducted a search for comparable loan transaction using LPC/Dealscan database. Based on the said search, 11 comparable loan transactions, with average rate of interest of 6.14% were identified. In view of the aforesaid, he submitted that since the average rate of 6.14% is within the +/-5% range of the rate of 6.18% agreed between the appellant and the associated enterprise, the transaction of payment of interest is at arm s length. On the other hand, the TPO has not conducted any independent search for comparable companies and merely held that the appellant should not have converted the loan from floating rate of interest to fixed rate of interest. It is submitted that the conversion from floating to fixed rate of interest was done considering the business and financial exigencies of the appellant and the TPO was unjustified in holding that no independent person would agreed for such conversion. He submitted that the TPO has disregarded the aforesaid analysis conducted by the appellant and arbitrarily made the adjustment on account of payment of interest by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Plc Ltd and Assessee for unsecured loan facility of US dollar 500 million. According to the terms and conditions of that agreement interest rate was fixed as one month, US $ LIBOR +2% for an and apportioned on an actual 360 basis. The termination date of the agreement was 31st of May 2020. Subsequently on 21/10/2009 There is an amendment made it to the existing loan facility under agreement dated 31/05/2005, according to which, the parties have agreed to amend the interest rate terms applicable to the existing loan facility at the fixed rate of 6.18% for 5 years from the date of execution of this agreement (i.e. from 21/10/2009), it would be once again at available rate of 6 months USD LIBOR +350 unless the parties agree otherwise. On conjoint readings of this 2 agreements it is apparent that during the year there is a change in the interest rate of the above loan, which was earlier at US dollar LIBOR +2% to 6.18%. For part of the year i.e. from 01/04/2009 2 21/10/2009, the rate of interest on the above loan was 2.33% and from 22/10/2009 to 31/03/2010 the rate of interest of the same loan without any change in the terms and condition of agreement except interest was @ 6.18%. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest payments. We disagree with this finding of the Ld. Transfer Pricing Officer that there was no reason for the Assessee to increase the interest rate for 2.33% to 6.18%. The Assessee has given detailed rational behind its own decision for shifting from floating rate of interest regime to fixed rate of interest. In a way, it reduces the risk of changes in the interest rates. It is a well settled proposition of law that The Ld. Transfer Pricing Officer is not supposed to question the business decision of the Assessee. The Assessee has given ample reasons for its business decision even stating that most of the reported loans in that particular period were having a clause of fixed rate of interest. Therefore, the decision of the appellant to shift from floating rate to fixed rate of interest was based on commercial consideration and to protect the business operation of the appellant from any adverse movement in floating interest rates and that only businessmen can decide. It may sound illogical to the Ld. Transfer Pricing Officer, but it is beyond his authority to question the wisdom of Assessee. It is not the prerogative of revenue to direct Assessee to conduct its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest transaction it is necessary to consider the factors such as :- i) Prevailing economic situation ii) Time Schedule of drawing down the debt iii) repayment schedule, iv) options of prepayment of the loan, v) term / tenure of loan, vi) tenure and periodicity of interest payments, vii) withholding taxes burden on interest viii) Security offered ix) Credit rating of the group , AE and Payer entity x) risk of currency xi) Possibility and terms and condition of convertibility of Debt to equity. The Ld. Transfer Pricing Officer must have looked the agreement dated 31st of May 2005. According to clause No. 7, the interest is required to be paid on the interest payment date, which is 31st May each year, , the taxes on interest, shall be on the account of the borrower according to clause 9 of the agreement. Further, according to clause 5 of the agreement the cancellation of the facility is at the sole discretion of the lender, therefore there was no right of prepayment with the Assessee. With respect to the 2nd transaction of loan of US dollar 300 million there are also the clauses of repayment and prepayment in clause No. 4, there is also an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monstrate that payment of interest made by the Assessee to its associated enterprise is at arm s length according to one of the methods supporting it with necessary and credible evidences . In the result ground No. 2 of the appeal of the Assessee is allowed with above direction. 27. Ground No. 3 of the appeal is with respect to the disallowance of the production cost of ₹ 316786095/- incurred by the appellant in relation to the technical and engineering services. During the course of assessment proceedings the Assessee was asked to submit the details of production cost claimed by it which is not shared by the joint-venture partners though they are obliged to share the same in the ratio of their participating interest as per the joint operating agreement dated 19/02/2004. The Assessee submitted the total cost incurred by the Assessee of ₹ 494452392/ which included the tanker and related cost, tugboat cost, safety, environment and materials and technical and engineering services. Assessee further submitted that expenditure under the technical and engineering services is ₹ 316786095/ and out of this sum of ₹ 237932251/ has been received from BG internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by ASSESSEE based on commercial expediency, notwithstanding that some cost may not be shared by the JV partners. As an Operator in the PMT JV, ASSESSEE incurs expenses as it deems are appropriate and necessary for conducting the operations. Out of the said expenditure, only the expenditure which is approved by the Joint Operator Board would be debited to the JV account and shared by the JV partners. The balance expenditure would have to be borne by ASSESSEE. He submitted that typically, costs are not shared with the JV in the following cases: 1. The expense is incurred in order to safeguard assessee's interest in any oil block in which it operates (such as analysis on risks, analysis of insurance, information management related services, HR international support, accounting support, insurance support, taxation support, marketing of oil and gas support, and cost control and finance service function); or 2. It is in relation to support functions (such as HR, legal, accounts and finance, etc.) which are inevitable for carrying on its business and incurred based on the commercial expediency determined by ASSESSEE (but not accepted by the Operator Board based on commercial e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the JV should be allowed under section 37 of the Act. He further relied up on following cases where it is held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue: i) CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) ii) CIT v. Walchand Co. etc. (1967) 65 ITR 381 iii) J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) iv) CIT v. Birla Cotton Spg. And Wvg. Mills Ltd.: 82 ITR 166 (SC) v) Madhav Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) vi) S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) vii) CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) viii) CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann 268 (Del) ix) CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P H) (FB) 29. The Ld. Departmental Representative strongly relied on the orders of the lower authorities to state that when the joint venture partners and not agreed to share the above expenditure, it is apparent that the expenditure have not been incurred by the Assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted; and] (iii) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement; 31. Accordingly to avail the benefit of deduction u/s 42 of the act, i) the Assessee should be carrying on the business consisting of the prospecting for or extraction or production of mineral oils ii) In relation to that business of the Assessee , central Government should have entered in to contract with the Assessee. iii) The Assessee may be granted deduction of expenditure and allowances in lieu of the existing allowances available to the Assessee. iv) The Assessee may also be granted deduction in addition to the existing deduction and allowance allowable to the Assessee. v) Such deduction can only be with respect to nature of deduction / allowances specified in section 42 (1) only. vi) Naturally the expenditure specified u/s 42 (1) are not expressly allowed under the other provision of the act vii) Assessee may claim the deduction allowable to the Assessee u/s 28 to 44 other than 42 if it satisfies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37 (1) of the Income Tax Act. Therefore, we reject the contention of the revenue that unless the expenditure is not borne by all the JV partners the expenses cannot be allowed to the Assessee. In fact, if the JV partners share the expenditure, there cannot be any question of claim of such expenditure in the hands of the Assessee, once again. Further, if the expenses are not specified in the agreement u/s 42 (1), even if the JV partners agree to share those expenditure, it is not allowable u/s 42 (1) or section 37 (1) of the act. Now it needs to be examined, whether the Assessee has incurred expenditure for the purposes of its business or not. The Assessee has stated that it has incurred such expenditure having regard to its standard of operation and the quality of execution work, safety of its employees in the environment. These expenses are required to be incurred by the Assessee based on the commercial expediency. The Assessee has stated that in relation to the support functions, which are innovatively inevitable for carrying on its business and incurred based on the commercial expediency are expenses belonging to the Assessee which cannot be accepted by the operating bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample basis and the copies of TDS certificate issued to the respective parties to whom the payment has been made. Based on this, the Ld. Assessing Officer disallowed a sum of ₹ 27792553/ for which no details have been submitted. The Assessee has paid ₹ 16418464/ out of above to the associated enterprise by way of debit notes which are already disallowed by the Ld. Transfer Pricing Officer at the time of determination of the arm s length price of the international transactions, disallowance was restricted to ₹ 11374089/ to avoid duplicity. The Ld. Dispute Resolution Panel, on certain evidences filed before it, directed the Ld. Assessing Officer to examine the details furnished by the Assessee and then to restrict above disallowance. Therefore, Assessee is in appeal before us. 34. The Assessee submitted that Assessee has submitted copies of the (i) ledger accounts; (ii) Invoices on sample basis; (iii) TDS Certificates issued to the respective parties on sample basis. The appellant filed, by way of additional evidence, detail (including supporting invoices) of following legal and professional charges before the DRP. The DRP directed the AO to consider the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uery was raised on 12/03/2014 and then again on 25/03/2014, this itself shows that Ld. Assessing Officer started questioning the allowability of these expenses in the last fortnight of the month of March 2014 only, whereas the notice under section 143 (2) was issued on 30th of August 2011. It is always for Assessing Officer to observe time limit for completion of the assessment proceedings and manage it for completing it properly in time. The provisions of Income Tax Act, 1961, has empowered him to tackle situations where Assessee is delaying submitting the requisite detail on time. However, if the Assessing Officer himself start acting late when the time has raced against him, the fault cannot be put on the head of the Assessee. In view of this, without going into the merits of the case about the allowability or otherwise of the above expenditure, We set aside this ground of appeal to the file of the Ld. Assessing Officer with a direction to examine the details furnished by the Assessee and call for such further evidence as it is required for him for such examination and then to decide the issue on merit. In view of this ground No. 4 of the appeal of the Assessee is allowed accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in operations being undertaken in an efficient manner. Considering the large scale at which the appellant operates, the global IT T projects play a vital role in updating the operations and saving both time and energy of the employees. Hence, there could be no doubt as to whether these have been put to use by the appellant. Further, although the assets may not be registered in the name of the appellant, the appellant is entitled to and has been using the same in the capacity of an owner (having made due payment to its group company, and thus akin to a part-owner to the extent of payment made by it). The appellant submits that it certainly exercises rights as a beneficial owner of the same. Further, ownership need not only be denoted by physical control but also includes intangible rights in the asset. Further, the appellant submits that it is not possible to document every record of benefits derived from the use of IT assets. The qualitative aspects and benefits of the IT infrastructure procured are very high and carry a significant element of being non-figurative. However, the global IT T cost had been incurred centrally and infrastructure implemented after due deliberations a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depreciation of ₹ 3,30,05,676/- on the IT infrastructure and software. The Ld. Dispute Resolution Panel has stated that even the beneficial ownership of the assent also entitles the Assessee to claim the depreciation if the test of user is proved. In the present case, we do not think that there is any doubt about the ownership of the IT infrastructure in question as per paragraph No. 11.1 of the direction of the Ld. Dispute Resolution Panel. Therefore only issue now remains is to be seen whether the Assessee has properly demonstrated before the Ld. Assessing Officer that the Assessee has used the assets for the purposes of the business. It is better to look at what kind of assets the Assessee are owned by and used by it. Assets are production database management system, SAP up gradation, budgeting and forecasting system, training programs, simulations software, asset modeling systems and email facilities. When the Assessee is participating in such a huge production sharing contract, It is too na ve to think that production database management system and SAP, training programs, simulations programme and email facilities have not been used by the Assessee. Issues have also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral other blocks and therefore expenditure incurred by the Assessee is wholly and exclusively for the purpose of the business and same is allowable to the Assessee. The Ld. Assessing Officer rejected the contention of the Assessee and stated that Assessee has incurred these expenditure for new ventures which has not yet come into existence. According to him without signing a production sharing contract with the government of India Assessee cannot undertake any exploration or production activity and such contracts only determine the cost of such activities. Therefore according to him the expenditure claimed by the Assessee under the head exploration cost of ₹ 460313788/ in respect of future business which has not yet commenced and where there is no production sharing contracts signed by the Assessee is not allowable as deduction. On objection before the Ld. Dispute Resolution Panel, the findings of the Ld. Assessing Officers were upheld. Therefore, Assessee is in appeal before us. 44. Ld. Authorised Representative submitted before us that the amount disallowed by the AO includes expenses aggregating to ₹ 239,330,493 which relate to blocks KG-OSN-2004/1, MN-DWN-2002/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, ASSESSEE is required to incur various costs, such as for seismic data purchase, data analysis and general and administration cost, which are not shared with the JV partners but are critical to ensure that ASSESSEE s interest is safeguarded and its standard of operations is maintained. 2. Further, for sustenance of its business in India (of prospecting for, exploration and production of crude oil and natural gas), ASSESSEE is constantly on the lookout for new opportunities, for instance, the evaluating whether to bid for new block through NELP, etc. This expenditure does not relate to any JV and hence is not shared. However, the same is a necessary and an integral part of ASSESSEE s business in India. Accordingly, aforesaid expenses of ASSESSEE are regular business expenses incurred based on commercial expediency determined by ASSESSEE. 45. He further submitted for time writing charges giving its backup with respect to certain specific projects along with its backup in respective tables, which was considered by the Assessing Officer for disallowance is under:- Particulars of project Disallowed by the AO Time-writing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,803 Legal and PCA 3,440,781 Total 59,298,636 46. In the end he stated that , assessee is required to safeguard its interest in the blocks. Also, it participates in discussions and provides inputs on various matters although it is not the operator in these projects. In this regard, it requires technical experts in the respective fields to spend time for which time-writing charges are incurred. 47. With respect to the cost of support functionaries stated that In order to be able to safeguard its interest in the blocks and participate as a JV partner, Assessee is required to incur costs for support functions in line with its standard of operation and based on commercial expediency determined by it. Time-writing charges are incurred in respect of expert personnel providing their inputs for the said functions. Thus, the said expenses are regular business expenses incurred based on commercial expediency determined by Assessee. The same may have to be incurred notwithstanding their non-recovery as Cost Petroleum (i.e. even if the same are not shared by the JV partners), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as salaries of expats and other employees and their travel cost in relation to evaluation of opportunities under NELP-VIII. In this connection, cost is also incurred for project management consultancy services and assistance received from BGIL. A break-down providing the description of expense and corresponding amounts was submitted to the AO 51. With respect to the Staff costs and project management consultancy charges, He submitted that costs for identifying new opportunities primarily comprise of staff costs such as salaries of expats and other employees and their travel cost in this connection. Further, cost is incurred for purchase of geographic data, consultancy and professional services and assistance received from BGIL. He further submitted that break-up providing the description of expense and corresponding amounts was submitted to the AO. According to him said expenses are regular business expenses which are required to be incurred notwithstanding that the same would not be recovered as Cost Petroleum (since the expenses do not pertain to any PSC). The same incurred wholly and exclusively for the appellant s business of prospecting for, exploration and production of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey Fertilizers Co. Ltd.: 57 taxmann.com (Guj.) 53. Against this, the Ld. Departmental Representative relied upon the orders of the lower authorities submitted that Assessee is engaged in the business of exploration and the expenditure required to be governed by the production sharing contract. He further submitted that no expenditure other than which has been incurred in pursuance of that production sharing contract is allowable. The Ld. Departmental Representative further vehemently referred to the provisions of section 42 of the Income Tax Act to support the orders of the lower authorities. He vehemently supported the orders of the Ld. Assessing Officer and the directions of Ld. Dispute Resolution Panel. 54. Section 42(1) makes it clear that for the purpose of computing the profits and gains of any business consisting of prospecting, extraction or production of mineral oil, the Assessee would be entitled to claim deduction in respect of three items of expenditure in lieu of or in addition to the allowances admissible under the Act, viz., (i) exploration cost, which is capital expenditure, (ii) development cost, which is also capital expenditure, and (iii) production costs w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of ₹ 220983295/ included in the disallowance of ₹ 460313788/ was pertaining to the purchase of seismic data for exploring new opportunities in the business of the company under the pretext that these are with respect to the future businesses which has not yet commenced. Therefore, primary the disallowances of ₹ 460313788/ includes a sum of ₹ 22098 3295/ for purchase of seismic data and balance amount primarily with respect to time writing cost and development expenses. The time writing charges as it is explained by the Assessee are for the purpose of drilling and subsurface inputs, analysis and administrative expenses with respect to executive, finance, human resources, legal, commercial, etc the detailed breakup of these time writing charges for each of the PSC contract were explained by the Assessee by giving breakup of their cost as well as nature of those expenditure. Assessee explained that as it needs to safeguard its interest in the blocks it has employed technical experts for which time writing charges are incurred. Further, for the support functions. It also hires several other persons and necessarily has to incur other expenditure with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee that these were the expenses incurred by the Assessee with respect to the offers which were invited for the 8th offer of blocks for national exploration licensing policy for which the Assessee has to purchase the data for the bidding purposes. The other expenses which are the necessary general and administrative expenses were incurred for project management, consultancy services, etc and also staff cost and project management expenses were incurred. These expenses were disallowed by Ld. Assessing Officer holding that these are expenses for the future projects of the Assessee for which even the PSC is not executed. The Ld. Authorised Representative has submitted that this issue of allowability of this expenditure is covered in its favour by the decision of ONGC Videsh Ltd versus DCIT [37 SOT 97] wherein it has been held as under:- 15. With regard to disallowing claim of expenses of ₹ 43.85 lakhs incurred for purchase and evaluation of the seismic data of foreign blocks, on the plea of same being capital in nature, we found that Assessee being engaged in the business of exploration and production of hydrocarbons in other countries to augment the oil resources of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed ground Nos. 3 to 3.2, the alternate ground No. 3.3 as taken by the Assessee become infructuous. [Extracted Taxmann.com][underline supplied by us] Neither the Ld. Assessing Officer nor the Ld. Departmental Representative could press any other judicial precedent which shows that amount spent by the assessing is not allowable as revenue expenditure under section 37 (1) of the act. It is also not the argument of the revenue that such expenditure incurred by the Assessee is capital in nature. Furthermore, the Ld. AR has also pressed into several decisions which say that that expenses incurred towards extension of business which was subsequently abandon or did not fructify, are allowable. Therefore in view of the above decisions wherein it is been held that the expenses for purchase of this kind of data is unnecessary revenue expenditure required to be incurred by the Assessee for the purpose of its business and hence is allowable as revenue expenditure, we also direct the Ld. Assessing Officer to allow the expenditure incurred by the Assessee on purchase of data and other relevant expenses amounting to ₹ 220983295/ . In the result ground No. 6 of the appeal of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the provisions of section 208 of the Income Tax Act. He further referred to the provisions of section 208 to say that if the income of the Assessee is liable to tax deduction at source then no advance tax is payable. He further submitted that according to section 195 of the Income Tax Act income of a non-resident Assessee, such as appellant, is liable for tax deduction at source and therefore they are not supposed to pay advance tax under the provisions of section 208 of the Income Tax Act. In nutshell, There cannot be any liability for payment of advance tax in the hands of a non-resident its full income is liable to tax deduction at source and therefore, no interest under section 234B of the Income Tax Act can be charged. Assessee vehemently relied on the decision of the Hon ble Uttarakhand High Court in case of CIT versus Maersk company limited (334 ITR 79) and Hon ble Delhi High Court in case of DIT versus GE packaged power incorporation (373 ITR 65). He further relied on several other decisions for the same argument. In nutshell, he submitted that no interest under section 234B of the act was leviable for the above reasons that the entire payment received by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the Assessee or even the revenue. Moreover, interest is, inter alia, compensation for the use of the money. The Assessee has had the use of the money, which would otherwise have been paid as advance tax, until it accepted the assessments at the first appellate stage. Where the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the Assessee, it is not expected of the Assessee to shift the responsibility to the Indian payers. We are not to be understood as passing a value-judgment on the Assessee's conduct. We are only saying that the Assessee should take responsibility for its actions. [Emphasis added] This Court finds that no need is made out in these facts to balance any equities in these facts, as the Assessee has not vacillated in its stand as to the existence of a PE in India or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income. For this proposition he pressed the two decisions of Hon ble Supreme Court in case of Kedarnath Jute Mfg Co V CIT [ 82 ITR 363] and Goetz India Limited [ 284 ITR 323]. We have carefully considered the rival contentions, We direct the Ld. Assessing Officer to consider the claim of the Assessee on merits after examination of relevant submission and details filed by the Assessee. It is also pertinent to note that if such sum is allowed in any other year to the Assessee, then, Ld. Assessing Officer must consider first whether those expenditure are allowable or not and if yes, then in which year more particularly. In the result additional ground filed by the Assessee is allowed with directions accordingly. 65. In the result, appeal of the Assessee is partly allowed. 66. The revenue has raised the following grounds of appeal for the Assessment Year 2009-10 in ITA No. 2227/Del/2014:- 1. Whether on the facts and in circumstances of the case, the Hon'ble Dispute Resolution Panel ( DRP') has erred in holding that the Assessing Officer/Transfer Pricing Officer ('AO/TPO1) was wrong in rejecting the economic analysis conducted by the Assessee for the determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the AO/TRO that a) The Assessee has not been able to establish that it has actually received any intra-group G A services. b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so-called 'evidence' furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the Assessee d) The Assessee has not been able to establish the economic and commercial benefits derived by it on account of such services e) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as they are based on ad-hoc factors like head-counts hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves f) No comparable independent enterprise would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are based on ad-hoc factors like head-counts hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves f) No comparable independent enterprise would have paid for the services in comparable circumstances g) There is an element of duplication in respect of some of the services comprised in the Management Service Unit Charges (Accounting, Taxation, Cost Control etc.) claimed to have been rendered by M/s BGIL in that the India Project Office is also independently looking after such functions. h) Without prejudice to the findings regarding the actual rendering of services and the non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement ('JOA'), the all costs are shared among the joint venture partners in ratio of their participating interest and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argin method adopted by the assessee is the most appropriate method and the operating profit margins based on the sales is the correct profit level indicator as used by the assessee. The Ld. AO is further aggrieved by the order of Ld. dispute resolution panel s where it is accepted that all the transactions are required to be aggregated for the purposes of benchmarking. He is further aggrieved by the order of Ld. dispute resolution panel wherein it is rejected the finding of the Ld. transfer pricing officer that cup method is the most appropriate method. He is further aggrieved that most of the services are duplicate services and shareholder services for which no 3rd party would have remunerated. Ground No. 2 of the revenue is that Ld. dispute resolution panel has admitted the additional evidences filed by the assessee holding that no proper adequate opportunity was given to the assessee, though according to the Ld. TPO there was an adequate opportunity is the 1st notice was issued to the assessee on 14th of February 2013 giving time of a 11 and half months to the assessee. Ground No. 3 of the appeal is with respect to direction of the Ld. dispute resolution panel to the Ld. transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 5097/del/2011) (assessment year 2007 08) dated 31st of October 2012 where the adoption of NIL value for the intragroup services were upheld. He also relied on the decision of the coordinate bench in case of M/s Gem Plus India private limited versus ACIT( 352/bang /2009). In view of this, the Ld. departmental representative vehemently lease stated that directions given by the Ld. dispute resolution panel were not in accordance with the law and therefore deserves to be cancelled. 68. The Ld. authorized representative vehemently relied upon the direction of Ld. dispute resolution panel. He vehemently supported that with respect to the observation of intragroup services given at Para No. 4 of the direction is exhaustive and completely in accordance with the law. He extensively read that paragraph starting from page No. 3-31 of the order of the Ld. dispute resolution panel. He submitted to paper book volumes of index of various judicial precedents relied upon by him to support his contention. He relied upon:- i) CIT V Cushman wakefield India P Ltd 367 ITR 730 ii) CIT V EKL Appliances Limited 345 ITR 241 iii) Reebook India Co V ACIT (del ITAT) 5857/Del/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) . The DRP procedure can only be initiated by an assessee objecting to the draft assessment order. This would enable correction in the proposed order (draft assessment order) before a final assessment order is passed. Therefore, we are of the view that in the present facts this issue could be agitated before and rectified by the DRP. 70. It is apparent from the above decision of the Hon ble Bombay high court that it is not an appeal proceedings, but a correcting mechanism whereby a second look is given to the proposed assessment made by the Ld. transfer pricing officer wrote assessing officer by the higher functionaries of the revenue wherein the interest of the assessee is kept in mind, and therefore it is a continuation of assessment proceedings only. Further, while reading the order of the Ld. dispute resolution panel it has been noted that assessee has filed though volume of submissions as an additional evidences, the same were sent to the Ld. transfer pricing officer for his comments. However, the Ld. transfer pricing officer wide letter dated 12/11/2013 has not examine those evidence was submitted that though assessee was given ample opportunity but those are not submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od and it had earned a margin of 48.71%. All the international transactions relating to intra group services were clubbed together and assessee benchmarked the same under TNMM, In the provision of business support services, the assessee has used TNMM and had shown a margin of cost plus 12%. The payment of interest was benchmarked by obtaining quotations and corroborated by providing list of independent companies' comparable payment of interest on ECBs. 4.1. The TPO rejected the approach of the assessee and used CUP as the most appropriate method in intra group services. The justification given by the TPO can be summarized as under: (i) Each transaction being a separate class of transactions by itself, the same have to be benchmarked separately; (ii) Taxpayer failed to submit documentary evidences in respect of the intra-group service transactions and justify the arm's length price (iii) The assessee did not come up with any documentary evidence regarding its need for these services during the year under consideration as they remain same for fairly good amount of time and there is no incremental value add as such; (iv) The details submitted in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completely disregarded the detailed documents/evidences submitted to justify actual availing of services i.e. detailed nature of services received, Skill supply agreements, emails evidencing receipt of services, Reports, etc. 4) Brushed aside the voluminous details / submissions filed by the assessee and stated no evidence was produced before him - action of TPO/AO devoid of any merits and rational. 5) Tabular chart detailing the nature of services received by the assessee and the benefits derived therefrom, as submitted before the TPO, is also provided in the additional evidence submissions made before your goodself. 6) Costs were allocated based on Global Cost Allocation Policy, on cost to cost basis without charging any mark-up thereon 7) Such policy has also been certified by Independent third party consultants -PricewaterhouseCoopers LLP, UK and Lancaster Maclean. 8) TPO/AO failed to bring anything on record to: a. Negate the information and / or supportings provided; and b. Support that no independent person would make payments in similar circumstances 9) Such highly technical experts may not be required by assessee all the time. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has failed to furnish documentary evidence to demonstrate / support receipt of services. 23) The assessee had argued that it had submitted voluminous evidence, on sample basis, to demonstrate actual receipt of services and it would not be humanely possible for the assessee to furnish each and every evidence for receipt of service. The Hon'ble Panel had held that based on the test checking it can be seen that the assessee has indeed received such services and thereby had arrived at the conclusion that TNMM is the most appropriate method in this case and that CUP cannot be applied in the absence of any data availability in case of comparable cases. Accordingly, the entire transfer pricing addition, on account of intra group services was deleted. 24) Assuming but not admitting that the arm's length price of G A and MSUs availed by the assessee is Nil (as contended by the TPO/AO), we would like to submit that the TPO/AO has grossly erred in not excluding the amount of tax grossed up by the assessee on such payment while disallowing the same. In response to this objection raised by the assessee before the TPO/AO vide submission dated 9th January 2014 (Annexure 2 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A 495 3 Volume-28 489 4 Volume-3 417 5 Volume-4 490 6 Volume-5 431 Total Pages of Additional Submission to DRP 2850 Total Pages 7845 4.5. The main objection of the TPO was that assessee has not produced the evidence and assessee has not established receiving any benefit on account of receipt o/this service. The above voluminous documents were further summarized by the assessee with reference to each and every pages submitted before the DRP and the TPO. The summary of the evidences and the benefit received on account of these services are reproduced below: A. . GENERAL ADMINISTRATIVE EXPENSES i. T THIRD PARTY Description of services received | Salary other costs - These costs primarily pertain to Employee Stock Option Plan ( ESOP ) exercised by BGEPIL employees. BGEPIL employees receive shares from the parent company as Stock Opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 294 to 296 of Volume IV of the Paperbook) Consultancy services Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 297 to 394 of Volume IV of the Paperbook) Professional subscriptions and license cost Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 325 to 330 of Volume IV of the Paperbook) Bank charges Sample copies of relevant debit notes along with third party invoices/documents (on sample basis) to demonstrate the actual receipt of services and benefits received thereon. (Page 331 to 336 of Volume IV of the Paperbook) Travel subsistence I Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 337 to 363 of Volume IV of the Paperbook) Diminimu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BGIL. These are pure third party costs. ii. TIME WRITING I. Description of services received : Technical and engineering consultancy services - Time writing charges The costs recharged on account.of technical and engineering consultancy services include specific time-writing costs booked by the employees of BGIL for assistance with development projects that were proposed for the PMT oi! fields Technical experts whose assistance has been availed by the assessee inter alia include engineers, project risk experts, subsurface assurance managers, contracts/procurement managers and geophysical managers Evidence filed before the TPO {forming part of paper-book filed with Form 35A on May 6, 2013) Table of benefits detailing the description of the services, mode of receiving the services, benefits derived and a list of documentary evidence {in the nature of debit notes, invoices and back-up of document providing details of personnel of BGIL who have written time on India projects) in support of the time writing charges. (Pcge 99 to 513 of Volume VlI of the Paperbook and Page 516 to 772 of Volume IV of the Paperbook) Additional ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g control on making each e-mail account a separate and unique e-mail account, managing e-mail services. (c) BG Intranet Portal - Development and maintenance of the portal! is undertaken by BGIL. BGIL inputs various policies and guidelines of the group on the intranet portal. (d) Internet services - Provision of internet access to assessee. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking, etc. (e) Enabling mobile/offsite working - 24X7 platform provided by BGIL so that assessee's personnel can work even if not in office. (f) IM Central Services - Access to various licenses purchased by BGIL from third parties such as Procon license, Oracle license, Cognos license, SAP license. Receives support in case of any issues faced by BGEPIL in using SAP Oracle etc. Benefits derived IT support services (a) Access to highly experience and technical IT resources without having to invest in an in-house dedicated IT team. Thus, reduction in downtime and idle time cost. (b) Reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Reduction in investment on standby assets as such standby assets are owned and maintained by BGIL. c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services . [ a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the applicant's business and gives it better control over use of email by personnel for persona! use. b) Enables assesse to track the trail of e-mails much faster. c) A separate and unique e-mail account enables the assessee to have better control over the use of e-mails by its employees. d) Creating a corporate e-mail provides opportunity to the assessee to prescribe structure of e-mails to employees and for standardization of e-mail communications for specific purposes/events. e) Assessee receives the benefit of on-going and continuous development in IT arena. BG Intranet Portal , - Reduction in wastage of time, efforts and cost on the following grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being provided in the nature of installation of windows security on the servers of the assesse, continuous monitoring of the server for up gradation, resolving day to day IT issues faced by the personnel of the assessee etc. (Page 824 to 947 of Volume VB of the Paperbook) IV. Additional evidence filed before Ld. DRP on November?, 2014 a) Sample copies of Inter Company Debit Notes ( ICDNs ) with details of nature of expenses and the costs associated in relation to IM services. This includes IM Recharges by BGIL to BGEPIL proportionately on the basis of number of users in BGEPIL to total users of BG Group. (Page 1 to 75 of Volume 2A of the Additional evidence Paperbook) ( i - - \ XXXXXXXX b) Snapshots of the list of applications to which personnel of assessee have access to(Page 76 to 77 of Volume 2A of the Additional evidence Paperbook) c} List of users at BGEPIL having access to some of the technical applications Page 78 to 79 of Volume 2A of the Additional evidence Paperbook) d) Snapshots of the intranet portal maintained by BGIL which is accessible to all the Group entities including BGEPIL ( Page 80 to 96 of Volume 2A of the Additional evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Support on insurance related matters Look after insurance coverage of various assets and activities of BG group entities including the assessee Assists in obtaining necessary insurance coverage to protect the BG group entities including the assessee from potential / possible loss in case of an unforeseen event Assistance in managing and making insurance claims and dealing with settlement and other issues , II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 Human Resources a) A manual in relation to Business Travel and Expenses Standard which is governed by BG Groups Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with business travel and other business activities Page 535 to 562 of Volume VBofthe Paperbook) b) A talent management model of BG group which summarizes the potential qualities and skill set which is required to be maintained by BG group employees (Page 563 to 575 of Volume VB of the Paperbook) c) E-mail correspondences by BGIL sloganing young leaders research being recommended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet analysisffoge 588 to 588 of Volume VB of the Paperbook e. E-mail correspondences evidencing support received from BGIL in relation to legal matters, SAP support etc. Quarter review of user access summary along with SAP Role assignment forms in respect of employees(Page 533 to 562 of Volume VB of the Paperbook) f. E-mail correspondence evidencing support received from BGIL packaging supplementary information.(Page 591 to 562 of Volume VB of the Paperbook) g. The allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773 to 788 of Volume IV of Paperback) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) h. In addition, report of the independent consultant certifying the cost allocation methodology for the year 2009 is also provided. (Pages 773 to 853of Volume IV of Paperbook) III, Additional evidence filed before Ld. DRP on November?, 2014 Human Resources -i * a) A slide deck prepared by BGIL on 360 feedback tool which provides a framework for behaviours critical to excellence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated with business travel and other business activities (Poge 72 to 95 of Volume 3 of the Additional evidence paperbook) i) A sample HR Induction Checklist prepared by BG group for new starters / new employeesfPoge 96 to 98 of Volume 3 of the Additional evidence paperbook) j) A slide depicting list of SAP HR Super Users among the group entities (Page 99 to 99 of Volume 3 of the Additional evidence paperbook) k) Snapshots of portal which provides access to various websites, documents, manuals, standards etc. which are provided below^Poge 100 to 118 of Volume 3 of the Additional evidence paperbook) a. Access to learning management system b. Portal which provides information / role in relation to BG group employee c. behaviors I c. Portal related to BG group and talent management d. Assistance from BGIL in relation to Travel related queries e. Access to BG portal which provides various services d. Information related to Annual incentive scheme provided to BG group employees g. Information related to HR functions h. Information related to organizational functions i. Information assistance related to travel related documentations Accounting. Finance. Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a training guidelines to extract various reports from SAP. (Page 243 to 245 of Volume 3 of the Additional evidence paperbook) i) A functional career ladder or a Job description responsibility matrix in relation to taxation which summarizes position / designation, requisite skill set required, key accountability etc. (Page 246 to 246 of Volume 3 of the Additional evidence paperbook) , . , . j) A slide deck prepared by BGIL to train the group entities on sources of employment law, vicarious liability, contract of employment, various litigation laws. (Page 247 to 283 of Volumes of the Additional evidence paperbook) ; Insurance related support services and other miscellaneous support services a. A slide deck dated November 2009 on travel insurance policies which provides guidelines on applicable insurance policies for eligible employees.(Page 284 to 292 of Volume 3 of the Additional evidence paperbook) b. A guideline dated December 2009 which establishes BG Group insurance philosophy and responsibilities which applies to all locations of BG Group including BGEPIL-fPoge 293 to 305 of Volume 3 of the Additional evidence paperbook) c. A guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al career ladder or a Job description responsibility matrix in relation to insurance which summarizes position / designation, requisite skill set required, key accountability etc. (Page 380 to 380 of Volume 3 of the Additional evidence paperbook} o. Terms of Personal Accident Insurance Scheme provided to BG group employees which mentions benefit for employees, non-employees, guidance for claims, exclusions if any, etc.(Page 381 to 382 of Volume 3 of the Additional evidence paperbook) p. Sample copy of Inter Company Debit Notes raised by BGIL on BGEPIL in relation to miscellaneous expenses which summarizes various activities undertaken by BGIL for which cost is charged. (Page 383 to 417 of Volume 3 of the Additional evidence paperbook) IV. Benefits derived Support on deployment of globally mobile expatriate staff : Assessee leverages on the services of BGIL's HR team for obtaining staffing resource and expertise of the wider group thereby saving on the recruitment costs including fees payable to search firms and head hunters. Assessee's staff participates in group wide compensation initiatives thereby enabling assessee to be incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in common Federal Green Projects on issues that affect them on a common basis so that the project studies can serve as valuable inputs in their exploration and production efforts. Whenever, the studies are commissioned by various assets, the costs are shared between them and whenever the study or project is commissioned only by the Assessee, the charges are based on number of hours spent by the experts of the associated enterprise. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 (a) BG Group HSSE Incident Review Panel Report summarizing performance analysis (Page 75to 75of Volume VA of Paperbook) (b) A report on Asset integrity Programme by the Offshore Division of HSE's Hazardous Installations Division (Page 76 to 147 of Volume VA of Paperbook) (c) Powerpoint presentation summarizing the Egyptian LNG's Asset Integrity Journey of ExcellencefPoge 148 to 152 of Volume VA ofPaperbook) (d) HSSE Incident review report for the month of June 2QQB(Pages 153to 181of Volume VA ofPaperbook (e) HSSE report for all the four quarters of FY 2QQ9-lQ(Page 182 to 228 of Volume VA of Paperbook) _ (f) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity and drilling systems. It should be followed at all BG operated sites, both onshore and offshore, and applies to all process systems including subsea pipelines.f^oge 172 to 226 of Volume 4 of the Additional evidence Paperbook) (f) A handbook issued on February 2010 by BGIL on operation guideline on Safe Isolation and Reinstatement of Plant which forms part of the BG Group operations requirements for all global assets.(Page 227 to 299 of Volume 4 of the Additional evidence Paperbook) (g) A slide deck issued on December 2009 prepared by BGIL on project well accounting wherein the overview and statistics of BG group assets including BGEPIL capex framework, key projects plans, project accountant role, interaction with PMT well engineers, well reconciliation, reports etc. are summarized.(Page 300 to 347 of Volume 4 of the Additional evidence Paperbook). (h) A graphical chart summarizing BG Group Finance HSSE Schedule for 2009 which summarizing various fedgreen activities during the period/Page 348 to 348 of Volume 4 of the Additional evidence Paperbook) . (i) Snapshots of access to intranet portal as well as information in relation to following Fedgreen activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps. Undertaking functional conferences, technical workshops, teleconferences etc. Support in technical problem solving. , ! ; ' ' ' c) Developing delivering technical and functional training. d) Support in relation to development of governance and assurance principles. e) Reduction in exposure to potential major incident due to integrity failure f) Reduced risks of damage, loss of production or loss of revenue g) Reduced risks to the environment etc. E. MANAGEMENT AND UNIT RECHARGES - TECHNOLOGY RECHARGE I. Description of services received Represents costs incurred by BGIL to run technology programmes for identification, development and implementation of new and enhanced techniques to the existing exploration and production operations in order to address the technological challenges faced by the assessee in following areas: - Structural geology - Well Engineering - Productions Operations technology - Borehole geophysics - Geology Technology management - Geophysics technology watch I management - Petro physics technology program - Transmission and distribution - Commercial ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice approaches to be followed when providing new metering or measurement systems or upgrading existing systems.fPage 153 to of Volume 187 of the Additional evidence Paperbook) (e) A guideline issued on Oct 2009 on Human Machine Interfaces issued by BGIL which displays need to be at their most effective during abnormal operation when the operator is under most stress, and the consequences of error are highest. This document provides best practice guidance in the design of operator interfaces.(PcrSfe 188 to 214 of Volume 5 of the Additional evidence Paperbook} (f) A guideline issued on July 2009 on Hot Tapping on Pipelines, Piping and Associated Equipment issued by BGIL which defines the minimum Company requirements for safe hot tapping operations.(Page 215 to 236 of Volume 5 of the Additional evidence Paperbook} (g) A guideline issued on December 2009 on Engineering Technical Standard - Relief, Blcwdown Flaring issued by BGIL which sets out mandatory Company requirements for the design of relief, blowdown and flaring facilities for offshore and onshore assets for both new green field developments and brown field modifications.(Page 237 to 259 of Volume 5 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... containing names and job responsibilities of the expatriates seconded to BGEPIL (Page 3 of Volume III of the Paperbook) b) Sample copies of tax returns filed by the employeesfPcrge 4 to 267 of Volume III of the Paperbook) c) Sample copies of debit notes raised by BGIL on the assessee, etc. (Page 268 to 291 of Volume III of the Paperbook) d) Letters of secondment issued by BGIL (Page 292to 309 of Volume III of the Paperbook) 4.6 From the above evidence, DRP is of the view that the assessee has established the fact that it has rprpivpdthp_5en/icp : and it is a useful service which it has received. The next question before the DRP is whether assessee had to establish the arm's length nature of each and every transaction separately or it was available to the assessee to club the transaction together. DRP has considered this issue of separate benchmarking nf thp international transactipn carefully. The Income Tax Act and Rules provide for clubbing of transactions when a class of transactions are involved. The relevant part of the Section/ Rule is reproduced below: Section 92C. (1) The arm's length price in relation to an international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee of exploration and production of oil and gas. Further, Para 4.2.1 of the TP study report (Page 268 to 269 of Volume II of Paperbook) specifically provides the reasons for rejection of the other four methods. Specific reasons recorded for rejection of the CUP method are summarized below: The assessee receives services from its AE and does not receive the same services directly from any unrelated parties in India or overseas; The AE does not provide such services to any unrelated party in India; and No public information is available with regard to the price paid for similar services, as would be rendered between unrelated parties. Considering the functional and risk profile of the intra-group services received and the availability and reliability of comparable data, TNMM using Net Operating Profit Margin on sales ('NPM') as the profit level indicator, was selected to be the most appropriate method. A search for broadly comparable companies that perform similar functions and carry risk profile similar to that of assessee in respect of its oil and gas exploration and production function was conducted. The search process yiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, evidence of receipt of such services and submitting that those services are neither duplicative in nature and nor are share holder activities, the DRP directed the Ld. transfer pricing officer to delete the adjustment proposed with respect to the intragroup services of ₹ 3329766244/ , deserves to be upheld. The judicial precedents cited before us also supports the view that the needed test, the benefit test are also required to be viewed from the perspective of a businessperson and not from the perspective of the revenue. Further, no evidences have been led before us by revenue stating that these services are duplicative in nature and also serves only the interest of the shareholder. According to the information supplied by the assessee and examined by the Ld. dispute resolution panel does not give any such indication. Further regarding non-sharing of the cost by the joint-venture partners we have given our findings while deciding the appeal of the assessee that such an action of the joint-venture partners cannot be the reason to determine the arm s length price of the services which is been received by the assessee at nil. In view of this we uphold the finding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts which provides so. He therefore submitted that direction given by the Ld. dispute resolution panel, deserves to be set-aside. 75. The Ld. authorized representative submitted that The well headed platform are created for undertaking drilling operation and accordingly the expenditure is clearly in connection with drilling and exploration operations and not part of production equipment. Further the well head platforms are inseparable part of the well itself and accordingly, the same have to be treated in the same manner as the well itself. He reiterated same submission s made before the ld AO and DRP and relied on the judicial precedent covered there under. 76. We have carefully considered the rival contentions and also perused the orders of ld DRP where in the above issues has been dealt with as under :- 10. The next ground of objection is regarding the AO's erroneous treatment of expenditure on well head platform as being development and production operations instead of exploration and drilling operations and thereby disallowing an amount of ₹ 81,50,97,3337- in respect of the same. Therefore, the AO regarded that depreciation on well head platform has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 42(1) of the Act subject to fulfillment of the necessary conditions as enunciated in the said provision. Issue of allowability of the depreciation on wellhead has been considered by the coordinate bench in Reliance industries private limited versus DIT in ITA No. 1645 and 1646/MUM/2006 as under:- 13. The second issue is against the CIT(A) allowing expenditure of ₹ 2500.99 lakhs towards well head platform, u/s 42(1)(b) of the Act. The Assessee claimed total expenditure of ₹ 13717.10 lakhs as deduction u/s 42(1)(b), in respect of Oil and Gas division for extraction and production of oil and gas from panna, Mukta and Tapti fields. As per details of this expenditure furnished before the AO, the expenditure on production facilities at Panna Mukta field includes ₹ 25.00 crore incurred on well head platforms which was claimed deductible u/s 42(1)(b) as expenditure incurred on drilling and exploration,. The AO has disallowed the claim on the ground that the expenditure on production facilities is not related to drilling and exploration activities and is therefore not eligible for deduction u/s 42(1)(b) of the act. 14. The Ld, AR of the appellant explained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The AR contended that the expenditure incurred under the above heads for E P are accounted under the heads capital expenditure or revenue expenditure depending upon the nature of activity performed. The AR has submitted a detailed technical note to justify as to how the expenses incurred in wellhead Platforms are actually for drilling or exploration activities. The said note is reproduced as under: Justification for claiming wellhead platforms under section 42: Exploration activities include acquisition processing and interpretation of Geological Geophysical data various analysis studies and investigations such as geo chem./biostrat analysis. PVT fluid analysis core analysis and drilling of wells for prospecting for hydrocarbons. Production Facilities includes wellhead platforms processing platforms infield pipelines and export pipelines. Part of these facilities wellhead platforms (viz platform PC,PF and PG) houses equipments essential for drilling of wells. These wellhead platforms are necessary to be installed before the drilling of wells and the utility of these platforms are as follows: 12 Reliance Industries Facilitate drilling of drill multiple wells ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to drilling and exploration activity the same is clearly allowable as deduction while computing the total income under sec 42 of the act as claimed. 16. Before the CIT(A) the AR asserted that the details of exploration drilling and production expenditure were filed during the course of assessment, These details clearly show that expenditure on production facilities includes ₹ 25.00 crore incurred on platforms at Panna, Mukta site. This expense though classified under the expenses head production facilities is actually in the nature of expenses incurred on drilling or exploration activities and so has been rightly claimed as deduction under section 42(1)(b) of the act. 17. In the alternative the AR submitted that the assessee is eligible for depreciation on the capital expenditure relating to the drilling extraction and production facilities. 18. The Ld. CIT(A) accepted the contention of the assessee observing as under: I have carefully considered the matter The AO has disallowed the claim of the appellant merely by stating that the appellant could not substantiate its claim that the expenditure on production facilities is related to the drilling and exploration ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by the Ld.CIT(A), the Wellhead Platform is necessary for carrying out drilling and exploration activities. For the sake of convenience the part played by Well Head in drilling and exploration as explained by the Assessee is reproduced below: 15 Reliance Industries Exploration activities include acquisition processing and interpretation of Geological Geophysical data various analysis studies and investigations such as geo chemical/biostrata analysis. PVT fluid analysis core analysis and drilling of wells for prospecting for hydrocarbons. Production Facilities includes wellhead platforms processing platforms infield pipelines and export pipelines. Part of these facilities wellhead platforms (viz platform PC,PF and PG) houses equipments essential for drilling of wells. These wellhead platforms are necessary to be installed before the drilling of wells and the utility of these platforms are as follows: Facilitate drilling of drill multiple wells from a single location. On completion of each well the wellhead platform only holds the assembly of valves for manual and automatic well closure and control of production rate has to be installed After a well has been drilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. departmental representative could not point out that how wellhead are not covered as exploration and drilling apparatus. In view of the decision of the coordinate bench on this issue. We respectfully following the same find no infirmity in the order of the Ld. dispute resolution panel in allowing the depreciation to the assessee on wellhead platforms at the rate of hundred percent. In the result ground No. 4 of the appeal of the revenue is dismissed. 77. Ground No. 5 of the appeal of the revenue is against the direction of the dispute resolution panel in directing the Ld. assessing officer to allow expenses with respect to club entrance and subscription fee for its employees of ₹ 6 059882/ . 78. The Ld. departmental representative relied upon the orders of the Ld. assessing officer. 79. The Ld. authorized representative submitted that appellant has paid following amounts as club fees: Particulars Amount Club Renaissance 5,44,882 Waterstones Country Club 55,15,000 Total 60,59,882 He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the fact that on similar issue; the DRP has allowed club expenditure as a deductible expenditure in the preceding assessment year i.e. A.Y. 2009-10, the AO is therefore, directed to allow the club expenditure u/s 37(1) of the Act, for the assessment year under consideration. Further, in view of the submission of the assessee that assessee has considered these expenses for purpose of FBT which AO has also accepted. In such a case, this expenditure has to be treated as business expenditure of the assessee. The binding nature of Jurisdictional High Court and numerous decisions from various Tribunal, holding that club expenditure for its employees incurred by the assessee as expenditure incurred wholly and exclusively for the purposes of the business of the assessee. In view of this, respectfully following the decision of the Hon ble high courts and coordinate benches, we find no infirmity in the order of the Ld. dispute resolution panel in allowing the claim of the assessee of the stability of expenditure on account of the club expenses. In the result ground No. 5 of the appeal of the revenue is dismissed. 81. Ground No. 6 of the appeal of the revenue is general in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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