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TMI Blog2017 (4) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... Dispute Resolution Panel ('DRP') has erred in holding that the Assessing Officer/Transfer Pricing Officer ('AO/TP0') was wrong in rejecting the economic analysis conducted by the assessee for the determination of the Arm's Length Price ( 'ALP') in connection with the transactions pertaining to Management Service and Unit charges ('MSU Charges') and General & Administrative Expenses ('G& A'). 1.1 The Hon'ble DRP has erred in holding that the Transactional Net Margin Method('TNMM) and Operating Profit Margin based on the Sales as the Profit Level Indicator ('PLI') as used by the assessee is the most appropriate method in the facts of the case solely on the ground of difficulty in availability of reliable data of comparables, not appreciating the fact that the selection of the most appropriate data is a function of several factors. 1.2 The Hon'ble DRP has erred in not appreciating the finding of the AO/TPO that the Comparable Uncontrolled Price ('CUP') method was the most appropriate method in this case and that the ALP as determined by the economic analysis conducted by the assessee was inappropriate as: i) The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 comparable circumstances have paid for the services in g) 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. 2.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement (`JOA'), all 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. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of Rs. 1,52,09,65,985/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 4. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to restrict the proposed adjustment of Rs. 22,58,422/- on account of the loan transaction between the assessee and M/s BG Asia Pacific Holding Ltd (BGAPHL) to Rs. 14,61,247/-only. 4.1 The Hon'ble DRP erred in holding that the AO/TPO was wrong in working out the adjustment on the basis of an interest rate of 12.5% as the loan transaction under consideration was in the nature of a forced transaction, having arisen due to the action of the AO in unilaterally adjusting a refund due to the assessee against a demand due from M/s BGAPHL in a previous year (which was subsequently reduced in first Appeal resulting into a refund in the hands of M/s BGAPHL which in turn paid back the amount to the assessee without any interest). 4.2 The Hon'ble DRP erred in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AO erred in law and in facts in initiating penalty proceedings under section 271(l)(c) of the Act. CROSS OBJECTION NO. 4: Erroneous levy of interest 4. The learned AO erred in law and in facts in directing to charge interest under sections 234A, 234B and 234C disregarding the fact that the appellant is a non-resident whose income is subject to tax deduction at source, CROSS OBJECTION NO. 5: General 5. Each one of our grounds of objection is without prejudice to the other." 3. The assessee, a non-resident company, engaged in the business of exploration and extraction of mineral oils and entered into production selling contracts, as mentioned in Para No. 3 of the order of the Ld. assessing officer, filed its return of income on 30/09/2009 declaring total income of Rs. 10081318857/-. Assessee has entered in to some international transactions mentioned at Para No. 4 of the order of the Ld. assessing officer determining its Arms' length price as mentioned at page No. 3 of the order. The 'international transaction' and its ALP in dispute is management services unit charges of Rs. 1 520966005/- paid by the assessee to BG international Ltd benchmarked using the Transaction Net M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is identical to ground No. 1- 3 of the appeal of the revenue for assessment year 2010 - 11 in ITA No. 1581/del/2015 for which detailed arguments have been placed on record by both the parties. It was further submitted that there are no changes in the facts and law in this appeal as compared to the appeal of revenue for assessment year 2010 - 11. 7. We have carefully considered the rival contention and perused the relevant records produced before us as well as the order of the Ld. assessing officer and direction of the Ld. Dispute Resolution Panel. Based on our examination we also found that the issue is squarely covered by the grounds of appeal in appeal of revenue for assessment year 2010-11. We have dealt with the issue vide Para No. 67 to 72 of our order dated 24/04/2017 in ITA No. 1581/del/2015 for assessment year 2010-11 as under:- "67. Ground No. 1 of the appeal of the revenue is with respect to several aspects arising on determination of arm's length price with respect to intragroup services such as that Ld. Dispute Resolution Panel Ld. assessing officer has erred in rejecting the economic analysis of the assessee and holding that the transactional net margin method adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. Dispute Resolution Panel provided by the assessee for allocation of those group expenses. Further, the Ld. assessing officer is aggrieved by the direction of Dispute Resolution Panel for deletion of the proposed adjustment of Rs. 8201326441/- on the amount paid to the associated enterprise as allocation of cost for joint acquisition of IT infrastructure and software. The main contention of the assessing officer/transfer pricing officer is that such IT infrastructure is a capital asset which is created and owned by the parent company who has a right over those assets and therefore such costs paid for acquisition of the said by that associated enterprise cannot be allowed in the hands of the assessee as neither the assessee owns those assets nor those assets have been put to use for its business in India. With respect to these 3 grounds, the Ld. departmental representative vehemently supported the order of the Ld. transfer pricing officer and extensively read the relevant paragraphs from the order of the Ld. transfer pricing officer. He also referred to the decision of coordinate bench in case of M/s Knorr Bermese India private limited versus ACIT (ITA No. 5097/del/2011) (asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dispute Resolution Panel can take into consideration any further evidences which has been collected by it or furnished before it. Recently, a Division Bench of Hon'ble Bombay High Court, while deciding the Writ Petition filed by Vodafone India Services Pvt. Ltd. vs Union of India and Others ( Writ Petition No. 1877 OF 2013) directed Vodafone India Services Pvt. Ltd to approach the Dispute Resolution Panel (DRP) to submit objections to the Income Tax Department's demand and made the following observation with regards to DRP. "The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assesee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appealable is passed by the Assessing Officer. This also finds support from Section 144C(6) which enables the DRP to collect evidence or cause any enquiry to be made before giving directions to the Assessing Officer under Section 144C(5) . The DRP procedure can only be initiated by an assessee objecting to the draf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the additional evidences submitted before it and adjudicating on it. Therefore, the finding given by the Ld. Dispute Resolution Panel in Para No. 4.3 of its direction admitting the additional evidence does not suffer from any infirmity. With respect to the reasonable opportunity granted by the Ld. transfer pricing officer to the assessee we have already supplied our view, whether reasonable opportunity was granted by the Ld. transfer pricing officer or not. 71. Now coming to the merits of the case, the above issue has been discussed at length by the Ld. Dispute Resolution Panel in Para No. 4 onwards of its direction as under:- "DRP observation Intra Group Services 4. Objection No. 1, 2 and 3 are common to all other grounds on the additions made by the TPO. Objections No. 4 to 7 are on the determination of ALP of intra group services which are taken up together. The main issue under these objections is the rejection of TNMM as the most appropriate method used by the assessee. The assessee had benchmarked the intra group services using TNMM as the most appropriate method and it had earned a margin of 48.71%. All the international transactions relating to intra group se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: 1) The assessee is engaged in only one business activity, namely the exploration and production of oil and gas. For carrying out its obligations in respect of the production sharing contracts the assessee has sought technical, managerial and administrative assistance of BGIL. Accordingly, such services are sub-functions or constituents of the prime function of the assessee's business and accordingly by no stretch of imagination can be said to not be closely linked or not having a close nexus to the core revenue generating activity of exploration and production of oil and gas. 2) In the case of the applicant, receipt of MSU charges and G&A are support services are intrinsically linked to the entire business operations of the applicant and are not revenue generating activities of the applicant. The said services have been availed by the applicant for the purpose of optimizing resource utilization and increasing productivity in operations of exploration and production which is its main business activity. 3) The TPO completely disregarded the detailed documents/evidences submitted to justify actual availing of services i.e. detailed nature of services received, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk with its requirements and are only for the furtherance of the AE's own present / future business. 17) The nature of services received by the assessee is required by the assessee for its business and the TPO is unjustified in holding that the valuable services received by the assessee have no direct link with its requirements and are only for the furtherance of the AE's own present / future business. 18) TPO in the case of BGEPIL held in number of instances that the assessee failed to prove that services were actually received 19) Contrary approach of TPO in the case of BGIL (service provider entity) - held that such management services were provided by BGIL to the assessee, 20) The above clearly demonstrates that services were provided by BGIL and received by BGEPIL 21) Once assessee discharges its onus of establishing ALP, the onus shifts to the TPO to prove otherwise 22) TPO/AO failed to discharge its responsibility by making casual observations that the assessee 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 demonstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. No. of pages 1 Volume -III 390 2 Volume-IV 853 3 Vclume-VA 534 4 Volume-VB 671 5 Volume-VIA 665 6 Volume-VlB 590 7 Volume-VII 898 8 Volume-VIII 394 Total Pages of DRP Submission 4995 Additional submission to DRP S.No. Volume No. No. of pages 1 Volume-1 528 2 Volume-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/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 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) Diminimus charges. Sample copies of relevant debit notes along with third party invoices/documents to demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts 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 evidence filed before Ld. DRP on November 7, 2014 * Sample high value inter-company debit notes (above INR 10 lakhs) which demonstrate that the time writing charges were in relation to the work done on India project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate 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: - Portal provides a platform for and facilitates networking of employees; - Ready access to the employees of support function of the assesse on the policies and guidelines i.e. accounting policy manual etc.; and ; - Such standard documents assist the assessee in formulating / implementing similar - controls in place easily. - Internet services a. Maintenance of internet services to ensure assessee is protected fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EPIL 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 evidence Paperbook) e) Detailed list of sophisticated IT application to which personnel of assessee have access to where day to day operations of the assessee are carried outrage 97 to 495 of Volume 2A of the Additional evidence Paperbook and Page 1 to 489 of Volume 28 of the Additional evidence paper book) C. MANAGEMENT AND UNIT RECHARGES - HR. ACCOUNTS. TAXATION, INSURANCE ETC I. Description of services received HR support - Support on deployment of globally mobile expatriate staff: * BGIL's HR international team coordinates all expat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses 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 as a measure that would be researching on the graduate population to provide support to BGEPIL Input provided thereby by BGIL {Page 676 to 678 of Volume VBofthe Paperbook) d) E-mail correspondences by BGIL demonstrating support provided by BGIL to BGEPIL on training, on job learning, vendor supportive web based tools along with the competency and development review for employees. Power point presentations projecting appropriate training and ADR approach, the 360 tool and wallet cards are being attached for reference {Page 611 to 640 of Volume VB of the Paperbook)] e) E-mail correspondences by BGIL whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 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 offering depth and level of guidance sought, (Page 1 , to 5 of Volume 3 of the Additional evidence paper book) b) Guidelines prepared by BGIL on 360 Feedback tool are intended to support HR Managers and Advisors in understanding the 360 process in BG Group and their role as trained 360 HR Coaches. These guidelines are to ensure that a minimum standard is adopted and maintained across the Group in the feedback and support Participants receive from the HR Coach in completing their 360 review. It is the first time BG has introduced a 360 tool at group level in year 2009.(Page 6 to 11 of Volume 3 of the Additional evidence paper book) c) A slide deck of BGIL date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation 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. Taxation & Legal support a) A report prepared by BGIL on capital expenditure which provides detailed process transaction flow, identify financial reporting risks inherent in the process, and the related control objectives. It also helps identify the controls in operation, and map these to the control objectives identified. It demonstrates how the controls address the relevant assertions for the material financial statement balances affected by this process. It also helps identify the method of monitoring and nature of evidence b) required to confirm operation of controls. (Page 119 to 133 of Volume 3 of the Additional evidence paperbook) c) A manual / reference note for the year 2009 prepared by BGIL whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dated December 2009 which confirms the procedure adopted by the BG d. Group Insurance Team for the appointment of a project-specific insurance broker leading to the purchase of insurance and servicing of the insurance needs, including claims {1MB - claims handling may be subject to separate contract). The document also addresses the procedure adopted for the relatively limited direct approaches made to insurers without the use of brokers.(Page 306 to 311 of Volume 3 of the Additional evidence paperbook) \ e. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal of various insurance coveragesfPoge 312 to f. 364 of Volume 3 of the Additional evidence paperbook) g. E-mail correspondences evidencin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 better and on a more cost efficient basis (as the assessee need not investigate and implement its own separately designed compensation and rewards schemes) * Capability building of the assessee's workforce by managing their international movement to other business units within BG group, Accounting and Taxation Support * Financial systems and analysis - Consistency of reporting and security of data of the assesse. Received training and other advice on the use of SAP and other financial systems. Financial technical accounting and assurance support * * Assessee being a project office of a foreign company is required to follow international accounting standards. * Assessee's personnel are trained to keep pace with the recent developments in the international arena. * Technical accounting issues of the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52 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) 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 773to 788of Volume IV ofPaperbook) certified by Price Waterhouse Coopers vide their report. (Pages 789to 826of Volume IV of Paperbook) (g) 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) (h) Intercompany debit notes with details of time writing i.e. names of such people and hours booked by them (Pages 3 to 48 of Volume VII ofPaperbook) I. III. Additional evidence filed before Ld. DRP onNovember 7, 2014 (a) Detailed description of the activities undertaken for federal recharge (Page 1 to 7 of Volume 4 of the Additional evidence Paperbook) (b) A standard guidance note issued on December 2009 in relation to Floating Production, Storage and Offloa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities 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 activitiesfPage 349 to 356 of Volume 4 of the Additional evidence Paperbook) a. HSSE b. Health risk management . c. Exploration activity d. Development activity e. Policies f. Group operating mode g. Asset integrity h. Contracts & Procurement activity i. Production & operations activity j. Corporate reserves etc. (j) A graphical representation of combined operations safety case prepared by BG International Armada Development which gives guidelines of operation safety case which can be undertaken by other group entities. Page 357 to 361 of Volume 4 of the Additional evidence Paperbook) (k) A guidance note issued by BGIL for effective environmental management which delivers and protects business value throughout the lifecycle of an asset and reduces to as low as practicable impacts and risks related to the natural environment. CPage 362 to 411 of Volume 4 of the Additional evidence Paperbook) * ' (I) A guideline issued by BGIL on The Safety Case, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro physics technology program - Transmission and distribution - Commercial ; In relation to Structural Geology and petro physics technology program, BGIL financially supports research activities conducted by various independent third party universities and organizations. II. Evidence filed before the TPO (forming part of paper- book filed with Form 35A on May 6,2014) - (a) Manual describing the technology programmes proposed to be undertaken by BGIL which evidences the activities that has been undertaken, the cost involved, the benefits derived by the BsselsfPages 268 to 534 of Volume VA of Paperbook) (b) Technology bulletin for group technology strategyfPoges 237 to 265 of Volume VA of, Paperbook) (c) Snapshots of various portals in relation to Technology recharge (Pages 230 to 236 of Volume VA ofPaperbook) (i) 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 Paperbook) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) (d) In addition, report of the independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 259 of Volume 5 of the Additional evidence Paperbook) (h) A guideline issued on Aug 2009 on Supply Base issued by BGIL which captures the first draft in providing guidelines for Supply Base infrastructure development, management and operation.(Page 260 to 336 of Volume 5 of the Additional evidence Paperbook) (i) A guideline issued on December 2009 on Application of Process Isolations issued by BGIL which is provided to controls and procedures where Process Isolations are undertaken and will be used as the basis of any assessment or assurance activity relating to its subject matter.fPoge 337 to 356 of Volume 5 of the Additional evidence Paperbook) (j) A guideline issued on July 2009 on Field Development Engineering prepared by BGIL which presents a philosophy for Development Engineering and provides guidance for integrating Development and Engineering work streams in order that robust concepts are produced.(Page 357 to 392 of Volume 5 of the Additional evidence Paperbook) (k) Snapshots of access to intranet portal as well as information in relation to Technology recharge activities which are provided belowfPage 393 to 399 of Volume 5 of the Additional evidence Paperbook): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe-, namely :-....... Rule 10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub- rule (1), the following factors shall be taken into account namely:- *,+.' . . : " (a) the nature and class of the international transaction; Rule 10D. (1) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely:- (d) he nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gas exploration and production activities. For the year ended 31st March 2010, the assessee has earned an NPM of 48.71 percent with respect its oil and gas exploration and production activities. The NPM earned by assessee being higher than the average NPM of comparable companies, it has been concluded that the assessee's international transaction of receipt of intra-group services from its AE, is on an arm's length basis. Further, in support of its claim that the intra-group services received from its AE are 'closely' linked to the main business activity of the company i.e. exploration and extraction of oil and gas, the assessee also placed reliance upon the US regulations, OECD regulations and OECD Draft Notes on Comparability (Submission dated 9th January 2014}" In view of the above, DRP holds that TNMM was the most appropriate method in this case and assessee was justified in obtaining the services as mentioned in the earlier paragraphs. Therefore, DRP holds that the deterioration of arm's length price by the TPO in the intra group services to the tune of Rs. 332,97,66,244/- is erroneous and deserves to be deleted." [extracted from the directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked together by adopting TNMM as the most appropriate method , hence, directing the Ld. transfer pricing officer to delete the adjustment proposed of Rs. 3 329766244/-. In the result ground No. 1 to 3 of the appeal of the revenue are dismissed." 8. For the year before us the assessee has submitted 11 papaerbooks. According to paper book no 5 assessee has demonstrated the nature of the services in relation to general and administrative expenses . In paper book no 6 assessee has submitted the details of recovery of expenses details of payment made of management unit charges by the assessee. Paper book no 7 , 8, 10, 11 and 12 contains the details of the benefit received by the assessee on receipt of services with respect to general and administrative expenses, showing the time sheets of individual fro time writing cost etc. and details of third party costs. Paper book no 9 contains the details of list of application to which the assessee's employees have access to show that the assets are used by the assessee. The Ld DR could not point out on any infirmity in the above submission of the assessee with respect to satisfaction of need, benefit, duplicity, or shareholder's activity tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer was directed to restrict the addition to Rs. 1461247/- which is actual interest allowed by revenue to BG Asia-Pacific Ltd.. Against this direction, the revenue is in appeal. 10. The Ld. departmental representative vehemently supported the order of the Ld. assessing officer/Transfer Pricing Officer and contested that when the loan is given by assessee to its associated enterprise it is required to be benchmarked with the market rate of interest and the Ld. Transfer Pricing Officer has correctly it @ 12.5%. 11. The Ld. authorized representative, vehemently submitted that there is no 'Transaction' as per section 92 F (v) and therefore there is no International transaction , which could be benchmarked. He further pressed into service the decision of Hon'ble Delhi High Court in case of Whirlpool of India Ltd versus DCIT 381 ITR 154, Maruti Suzuki India Ltd versus CIT 381 ITR 117 and Honda seil power products Ltd versus DCIT 295 CTR 466. The LD AR stated that it is not a loan transaction and therefore cannot be an 'international transaction'. He further referred to fact that assessee in its cross objection is objecting even the amount upheld by the DRP on this ground. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert then it can be said that they have entered into a 'transaction'. The persons can be said to be 'acting in concert' if there is an element of cooperation which can be extended in many ways directly or indirectly through an agreement, formal or informal. Further, the persons by virtue of their business relations can also be said to be 'person acting in concert'. If that be not so then it would be the duty of the parties to demonstrate it that they are not acting in concert. In the present case, the tax demand with respect to associated enterprise has been recovered from the assessee by adjusting the refund due to the assessee against the tax demand of the associated enterprise by the revenue. It is not known whether the adjustments were made with the consent of the assessee whose case the refund is due. Even if there is no consent taken from the assessee then if the assessee is aggrieved by that action then it can always agitate this issue before the higher authorities. In the present case even after the adjustment of the refund due to the assessee no evidences have been placed before us that assessee objected it before higher authorities and also undertook any remedial measures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we failed to understand what relationship the amount of interest on refund received by the associated enterprise have with the amount of arms length price of the interest on loans given by the assessee to the associated enterprise. In fact the interest on refund given by the revenue to the AE is statutory interest rates, which cannot be used for benchmarking of loan between two business concerns. In view of this we set aside this ground of appeal of the revenue back to the file of the Ld. Transfer Pricing Officer to determine arm's length price of interest in one of the prescribed method and in accordance with the provisions of section 92C of the income tax act. Further we have perused the decisions relied upon by the Ld. authorized representative stating that there is no international transaction in absence of existence of some tangible material. As we have already held that in the present case the parties are acting in concert with its associated enterprise and there is a liquidation of the assets of the assessee for paying the tax liability of the associated enterprise we do not find those decisions can be applied to the facts of this case. In view of this ground No. 4 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed by the Ld. assessing officer holding that the appellant is not eligible to claim the aforesaid deduction as the appellant had not commenced production during the relevant year in terms of the provisions of section 42 of the act. The Ld. Dispute Resolution Panel upheld the contention of the Ld. assessing officer. Before the Ld. Dispute Resolution Panel the assessee submitted an alternative argument that the expenditure should be allowed as deduction in the financial year 2011 - 12, being the year in which the expenditure became infructuous. On this argument, the Ld. Dispute Resolution Panel stated that admittedly, the expenditure became infructuous in the financial year 2011 - 12, being the year in which the area was surrendered prior to commercial production. Therefore, no claim can be allowed in this year. Regarding the alternative claim of the assessee that the Ld. assessing officer may be directed to allow the said expenditure as deduction in the year in which became infructuous, It was held that it does not have jurisdiction to issue any such direction as Ld. Dispute Resolution Panel is authorized to give direction to the assessing officer with reference to the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference may be made to the decision of the Delhi ITAT in the case of ONGC Videsh Ltd. vs. DCIT: 37 SOT 97 wherein the assessee was engaged in business of exploration and production of hydrocarbons, incurred expenditure on purchase and evaluation of seismic data of foreign blocks. It was held that expenditure so incurred was for furtherance of activities undertaken by it in normal course of business and, therefore, same was to be allowed as business expenditure. Reference was also made to the following decisions wherein it has been held that expenses incurred towards extension of business which was subsequently abandoned are allowable as deduction: i) CIT vs. Vardhman Spinning and General Mills : 176 Taxman 157 (P&H) ii) Indo Rama Synthetics Ltd.: 333 ITR 18 (Del.) iii) CIT v. Priya Village Roadshows Ltd.: 332 ITR 594 (Del.) iv) CIT v. Euro India Ltd.: [2014] 223 Taxman 97 (Del.) v) Hindustan Aluminium Corporation Ltd. vs. CIT: 159 ITR 673 (Cal.) vi) Asiatic Oxygen Ltd. vs. CIT (Cal.) vii) CIT vs. Graphite India Ltd.: 221 ITR 420 (Cal.) viii) Binani Cement Ltd. v. CIT: 277 CTR 49 (Cal.) ix) DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.: 57 taxmann.com (Guj.) 20. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement as per article 15 for recovery of cost petroleum. As per article 15 exploration cost incurred by the contractor in the contract shall be entitled to recover the aggregate of such exploration costs out of the cost petroleum at the rate of 00% pa of such exploration costs beginning from the date of such commercial production. The assessee has submitted that cost beginning from the date of such commercial production. The assessee has submitted that cost of expenses incurred for block MN-DWN-2002/2 has been audited till 31.03.2007 only. Section 42 does not allow the assessee to claim deduction of a liability incurred for reimbursements of exploration cost where the production has not commenced during the year. In the case of the assessee production for the block MN-DWN-2002/2 has not commenced during the year. Hence, the above exploration cost of Rs. 503071917/-. 23. In the case of Joshi Technologies International Inc. v. UOI, 374 ITR 322, it was held that Where the production sharing contract entered into between the assessee with Ministry of Petroleum and Natural Gas did not incorporate clause for granting benefits under section 42 of the Act, it cannot be said the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment will be deductible for the assessment year 1981-82, while disposing of the appeal for the assessment year 1980-81, was only an incidental one ; such a matter never arose for consideration. The observation was unauthorized and uncalled for. It is true that there is no finding in the strict sense. Even so, the observation aforesaid is illegal and unjustified. We are fortified in this view by the following, among other decisions : ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC); P. J. Udani v. CIT [1967] 63 ITR 766 (AP) and Bakshish Singh v. ITO [1974] 93 ITR 178 (Cal). In this connection, it should be remembered that the Tribunal was disposing of the appeal filed by the Revenue before it for the year 1980-81, and not an appeal filed by the assessee. And there is no material or even a whisper to show that an alternate plea or approach was mooted by the assessee for the claim made by it when the Tribunal adjudicated the appeal, namely, that the amount is claimable for the subsequent year 1981- 82 and that the alternate plea necessitated the observations made, in which case, the ratio of the decision in Motilal Bawalal v. CIT [1963] 50 ITR 249 (Bom) may call for applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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