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Cairn India Ltd. Versus DCIT, Circle-1 (1) , Gurgaon

2017 (10) TMI 588 - ITAT DELHI

Disallowance made under Section 14A - Held that:- We find that the Assessing Officer, on being dissatisfied with the assessee’s computation of disallowance, embarked on his own computation under rule 8D(2)(iii) at ₹ 5,89,98,005/-. The assessee has not disputed any part of the calculation of such disallowance. This computation of disallowance, having been made in terms of rule 8D(2)(iii), is held to have rightly made. The assessment order making disallowance of ₹ 5.89 crore u/s 14A un .....

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sorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. Respectfully following the Special Bench decision, we hold that no separate disallowance should be made under section 14A in the computation of book profits under section 115JB of the Act. - Additional depreciation under section 32(1)(iia) - Held that:- The word “shall” is not always conclusive of the mandatory nature and can be read as the word “may” in certain circumstances. However, when we .....

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ld that the claim for additional depreciation is allowable as deduction under Section 32(1)(ii), the writ of Explanation 5 providing for allowing depreciation mandatorily, gets magnetized. Explanation 5, even if placed under clause (ii), applies to sub-section (1) of section 32, which also covers clause (iia). We, therefore, hold that the Assessing Officer was fully justified in granting additional depreciation amounting to ₹ 538.66 crore under clause (iia) read with clause (ii) of section .....

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VI of the Companies Act. It is further found that the audit report issued by the auditors of the assessee company is unqualified. The Annual accounts as prepared by the auditors are stated to have been approved by the company in its AGM and then registered by the Registrar of companies without any objection. Such a contention put forth on behalf of the assessee has not been disputed by the Revenue. When position is so, we fail to comprehend as to how the action of the AO in adding the alleged e .....

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of business, is not correct. The assessee undertook exploration work in Rajasthan oil wells in the later part of the preceding year. The assessee also explained to the TPO that it is a highly technical work requiring services of experts for optimising production. Such contentions have not been controverted with any cogent material. Thus, the claim of the Revenue that the assessee was already having personnel for doing similar work and the receipt of services was a case of duplication of service .....

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ALP of the international transaction of ‘Receipt of services’ - assessee aggregated the international transactions and determined ALP on the basis of TNMM - Held that:- By now, it is fairly settled through a catena of decisions that the CUP is the most appropriate method to determine the ALP of an international transaction because it seeks to compare the price charged or paid for property transferred or services rendered, provided proper comparables are available. It is under this method alone t .....

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a transaction. As such, we hold that the CUP is the most appropriate method for determining the ALP of the international transaction under the present circumstances and the TPO was fully justified in applying the CUP as the most appropriate method. - Turning to the methodology adopted, we find that the TPO though applied CUP method but determined Nil ALP without making reference to any comparable uncontrolled transactions. It was on account of his having canvassed a view that either the ser .....

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sons, he is free to apply any other appropriate methods for a fresh determination of the ALP of the international transaction of ‘Receipt of services’. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. - Addition being arm’s length interest on redeemable preference shares - Held that:- On a specific query, it was stated that the order of the AO making such addition for the preceding assessment year is still pending in appeal before t .....

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in this year as well. If on the other hand, the re-characterization is held to be invalid, this addition will have to be deleted. Under these circumstances, we set aside the impugned order on this issue and remit the matter to the file of AO/TPO for deciding it afresh in conformity with the view of the higher appellate authority for the preceding year, available before them at the time of decision. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such proc .....

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oonam Ahuja, CA For The Department : Shri Amrendra Kumar, CIT, DR, Shri Neeraj Kumar, Sr. DR & Shri Kumar Pranav, Sr. DR ORDER PER R.S. SYAL, VP: This appeal by the assessee arises out of the final assessment order dated 12.01.2016 passed by the Assessing Officer (AO) under section 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2011-12. 2. First issue raised in this appeal is against the disallowance made under .....

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ions as per section 115JB of the Act. On perusal of the assessee s Annual accounts, it was noticed by the AO that the assessee made investments in shares/mutual funds and earned exempt dividend income of ₹ 64,76,90,189/-. The assessee offered suo motu disallowance u/s14A of the Act to the tune of ₹ 18 lakh as the amount of expenses incurred in relation to the exempt income. The assessee was asked to furnish the details and basis of quantum of the disallowance. The assessee furnished .....

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k of India for its Rajasthan operations; during the Financial year 2010-11 relevant to the assessment year under consideration, the assessee issued unsecured debentures of ₹ 1350 crore for repaying the loan taken from SBI. That is how, it was claimed that no borrowed funds were utilized for making investments in mutual funds/equity shares. The suo motu disallowance was substantiated by the assessee with the help of a quotation from JN Financial Services Pvt. Ltd. offering to charge ₹ .....

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e under Section 14A read with Rule 8D was worked out at ₹ 15,53,23,782/-. The assessee remained unsuccessful before the Dispute Resolution Panel (DRP). The amount of disallowance was added in the computation of income under normal provisions as well as under MAT provisions under section 115JB of the Act. The assessee is aggrieved against this disallowance. 3. We have heard both sides and perused the relevant material on record. The first major issue taken by the learned Authorized Represen .....

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e the amount of expenditure incurred in relation to exempt income as per Rule 8D if he, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim made by the assessee. The crucial question which looms large before us is whether the Assessing Officer recorded proper satisfaction before venturing to make disallowance as per Rule 8D. 4. In this regard, it is relevant to note that a query was raised about the exempt dividend income of ₹ 64.76 crore earne .....

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ound to be correct as per provision of section 14A of the IT Act, 1961. The AR of the assessee relied upon the submission made in his letter dated 12.01.2015 and also furnished working of expenses u/s 14A amounting to ₹ 13,35,108. The reply of the assessee has been considered carefully but not found to be correct. The assessee company has submitted in its reply that the company has relied upon the quotation receipt from the JM Financial Services Pvt. Ltd. to determine the amount of expense .....

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ision of section 14A read with rule 8D is applied in the case of the assessee company to determine the amount of expenditure in relation to income not includible in total income. The claim of the assessee that the amount invested in shares was only out of its own funds and no part of it was invested out of borrowed funds cannot be accepted, as entire money of a company is part of a common kitty, it has been held by jurisdictional Ho ble High Court in the case of CIT vs. Abhishek Industries [2006 .....

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nvestment, only part of own funds was picked and borrowed funds were left untouched. Monies from different sources merge into a common pool. Just like upon picking wafer in a bucket from a pool, it is not possible to determine whether its source is rain or an inflowing stream, similarly it is not possible to pinpoint whether money for the said investment was picked from one specific source only, to the exclusion of other sources. Since own funds and borrowed funds existed simultaneously, part of .....

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ee , it was once again required to furnish the working of disallowance under section 14A. The assessee furnished working of expenses u/s 14A having regard to its accounts computing the amount of disallowance at ₹ 13,35,108. The same was again considered carefully but not found to be correct as the assessee : did not consider various aspects of indirect expenses in the shape of establishment in addition to direct expenses . He further found that : There are lot of cost factors involved in i .....

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ce. Thereafter, the provisions of section 14A read with rule 8D were applied to determine the amount of expenditure in relation to income not includible in total income. 6. It is thus discernible from page 6 of the assessment order that the Assessing Officer recorded proper satisfaction with regard to the assessee s computation of disallowance and only thereafter moved to compute disallowance u/s 14A of the Act in terms of rule 8D of the Income-tax Rules, 1962. In our considered opinion, the Ass .....

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ount computed in accordance with the formula given therein. Sum and substance of disallowance under Rule 8D(2)(ii) is that the interest relatable to investments/securities yielding exempt income is to be disallowed. 8. At this juncture, it is relevant to note that section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long .....

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t interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders funds, presumption stands established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In that case, the AO recorded a finding that a sum of ₹ 213 crore was invested by the as .....

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t free deposit of ₹ 10.03 crore. The assessee submitted before the first appellate authority that the balance-sheet of the assessee adequately depicted that there were enough interest free funds at its disposal for making investment. The ld. CIT(A) got convinced with the assessee s submissions and deleted the addition. Before the Tribunal, it was contended on behalf of the Revenue that the shareholders funds were utilized for the purchase of its assets and hence the assessee was left with .....

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Hon ble High Court, it was contended by the Department that the shareholders funds stood utilized in the purchase of fixed assets and hence could not be construed as available for investment in sister concern. Repelling this contention, the Hon ble High Court observed that : In our opinion, the very basis on which the Revenue had sought to contend or argue their case that the shareholders fund to the tune of over ₹ 172 crore was utilized for the purpose of fixed assets in terms of the bala .....

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e judgment of the Hon ble Calcutta High Court in Woolcombers of India Ltd. Vs. CIT (1981) 134 ITR 219 (Cal) were considered. It was finally concluded that: The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment . Consequently the interest .....

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0 ITR 637 (Del), holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. 9. Applying the above proposition in the context of section 14A, the Hon'ble Karnataka High Court in CIT & Anr vs. Microlabs (2016) 383 ITR 490 (Kar) has held that when investments are made from common pool and non-inte .....

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it has been held that when interest free funds in the form of share capital and reserves are more than investment, then no disallowance of interest can be made u/s 14A. 10. Adverting to the facts of the instant case, we find that the Assessing Officer has taken value of investments yielding exempt income at ₹ 1,179.96 crore. As against this, the assessees s share capital with the reserve and surplus at the close of the year stands at ₹ 25,351.75 crore. This shows that the assessee s .....

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ports do reflect the utilization of IPO funds at places other than the securities earning exempt income. However, it is also pertinent to note from the same Annual reports, as has been pointed out by the ld. AR, that it has been mentioned that part of the investments were also financed from IPO. Be that as it may, we are not so much concerned with the question as to whether or not proceeds from IPO were utilized for the purposes of making investments in securities yielding exempt income. Since t .....

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d. 12. Now, we turn to the last part of the disallowance made under rule 8D(2)(iii). This part of the Rule provides that an amount equal to 1/2 % of the average of the value of investment, income from which does not or shall not form part of the total income, shall be disallowed. The Assessing Officer has computed this amount of disallowance at ₹ 5,89,98,005/-. We have noticed above that the assessee furnished quotation from JM Financial Services stating fee of ₹ 18 lakh as a basis o .....

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,99,47,521 -Contract Employee Charges 66,50,568 63,65,98,089 Total 2,40,77,23,582 Less: Directors Salary (Refer Tax Audit Report) 23,59,48,525 Balance 2,17,17,75,057 No of Employees (support staff) 244 Cost per employee 89,00,717 Considering the number of transactions 15% cost of employee is considered Also Refer to Note 1 13,35,108 Note 1: Conservatively amount is very high as it includes salary of employee at very senior level and who are not directly or indirectly involved in investment portf .....

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divided with 244, being, number of employees for working out the Cost per employee at ₹ 89.00 lakh. Thereafter, 15% of the Cost of one employee has been attributed to disallowance under section 14A at ₹ 13,35,108/-. We find that there are several inconsistencies in the above calculation made by the assessee. The Assessing Officer has also held such calculation as incorrect: as it has not considered various aspects of indirect expenses in the shape of establishment in addition to dire .....

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holding investments to the tune of ₹ 1179.96 crore and has earned exempt income of ₹ 64.76 crore and there is a contention that Board of Directors was not involved in any of the decisions qua such Investments. This contention is obviously not acceptable. Further, the assessee determined cost per employee at ₹ 89.00 lakh and the amount disallowable under Section 14A at ₹ 13.35 lakh, being, 15% of the cost of one employee. This means that the claim of the assessee is that o .....

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the assessee at ₹ 13.35 lakh is absolutely devoid of any merit and totally unacceptable. 14. As regards quotation of JM Financial Services Pvt. Ltd., whose copy placed on record, we find that the same is merely a quotation and does not satisfy prescription of section 14A(2) being actual expenditure incurred by the assessee for earning exempt income, and the satisfaction of the Assessing Officer having regard to the accounts of the assessee . Moreover, this quotation is only for handling t .....

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ourt in Punjab Tractors Ltd. Vs. Commissioner of Income Tax, (2017) 78 taxmann.com 65 (P&H). In this case, the disallowance was made by the Assessing Officer under section 14A read with rule 8D. The assessee challenged the same before the Hon ble High Court. Their Lordships observed in para 38 that Assessing Officer cannot be faulted for not being satisfied with the claim of the assessee . Thereafter, the Lordships observed in para 40 that The Assessing Officer on not being satisfied with th .....

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Officer has rejected the assessee s claim of disallowance under section 14A of the Act, then such disallowance has necessarily to be computed in terms of rule 8D to the relevant extent. 16. Adverting to the facts of the instant case, we find that the Assessing Officer, on being dissatisfied with the assessee s computation of disallowance, embarked on his own computation under rule 8D(2)(iii) at ₹ 5,89,98,005/-. The assessee has not disputed any part of the calculation of such disallowance .....

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in ACIT Vs. Vireet Investments (P) Ltd. dated 16.6.2017 holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. Respectfully following the Special Bench decision, we hold that no separate disallowance should be made under section 14A in the computation of book profits under section 115JB of the Act. The impugned order is set aside to this extent. .....

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the assessee withdrew the claim of additional depreciation amounting to ₹ 538.66 crore. As a result of withdrawal of the claim of additional depreciation, the original deduction claim under section 80IB from ₹ 2042.81 crore shot up to ₹ 2579.07 crore. The Assessing Officer allowed the claim of additional depreciation by relying on Explanation 5 to section 32(1)(ii) and also holding that the judgment of the Hon ble Supreme Court in the case of Goetze India Ltd. Vs. Commissioner .....

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ng Officer in entertaining a new claim made before him otherwise then by way of a revised return, but such decision does not affect the powers of the appellate authorities in entertaining such a claim if it is legally sustainable. However, we find that the on the facts and in the circumstances of the case, the assessee does not deserve any relief on this score. 21. The Hon ble Supreme Court in the case of Commissioner of Income Tax Vs. Mahendra Mills (2000) 243 ITR 56 (SC), has held that if an a .....

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income . The effect of this Explanation is that deduction on account of depreciation has to be mandatorily allowed under section 32(1)(ii) of the Act notwithstanding the fact that assessee claims or does not claim it in the computation of its total income. 22. The ld. Authorized Representative contended that the Explanation does not cover the assessee s case inasmuch as the amount of additional depreciation originally claimed but subsequently withdrawn by the assessee is an incentive and not de .....

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, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) …. (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Provided that ….. Explanation 5.-For the removal of doubts, it is h .....

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further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : ………… 24. In our considered opinion, the contention that additional depreciation is an incentive and not depreciation has no legal legs to stand. It can be noticed that section 32 with caption Depreciation opens through sub-section (1) with the expression In respect of depreciation of and then sets out tangible and intangible assets owne .....

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to deduction equal to 20% of the actual cost of such machinery or plant, which shall be allowed as a deduction under clause (ii). Contention of the ld. Authorized Representative that the mandate of Explanation 5 does not apply to relief under clause (iia) as the same has been placed under clause (ii), in our view, is far-fetched. It is no doubt clear that Explanation 5 granting mandatory depreciation is placed in clause (ii) of Section 32(1) of the Act, but when we consider the language of clau .....

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eciation under clause (iia) so as to make the prescription of Explanation 5 inoperative. 26. We agree with the ld. Authorized Representative that the word shall is not always conclusive of the mandatory nature and can be read as the word may in certain circumstances. However, when we consider the text and the context of the word shall as employed in clause (iia), there remains no doubt whatsoever that the grant of additional claim at the rate of 20% has necessarily to be allowed as deduction und .....

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d under clause (ii), applies to sub-section (1) of section 32, which also covers clause (iia). We, therefore, hold that the Assessing Officer was fully justified in granting additional depreciation amounting to ₹ 538.66 crore under clause (iia) read with clause (ii) of section 32(1). This ground is not allowed. 27. The next issued raised in this appeal is against the computation under section 115JB of the Act whereby the assessee is aggrieved against the disallowance and addition of ₹ .....

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There is no dispute on the former amount. As regards the second amount of ₹ 332.65 crore, the AO did not agree with the claiming of Depletion (depreciation) under the UOP method. He took note of Circular F. No. 45/12/2000-CL.III dated 21.2.2003 prohibiting claiming depreciation under the UOP method. He further held that such a method is not permissible under the Companies Act, 1956 (hereinafter also called the Companies Act ). The assessee was called upon to explain as to why the book pro .....

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ties has been depleted by ₹ 332.65 crore on UOP basis. The assessee further relied on the industry practice for charging Depletion to the Profit and Loss account under UOP basis. It also furnished extracts from the Annual Reports of ONGC and Oil India Ltd., which have been reproduced on page 15 of the assessment order. The Assessing Officer observed that there are two stages in the production of mineral oils, where capital expenditure is incurred, namely, Exploration and Development. He id .....

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ng; Drilling and Equipping development wells, cost of platforms, well material and equipments etc.; and Construction/installation of production facilities, flow line, separators and heaters etc. were found to be part of capital work in progress. He opined that under the Successful efforts method in respect of a cost centre, capital work in progress is to be capitalized when the well is ready to commence the commercial production. If there is no proof of reserves in the Drilling/Exploratory wells .....

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aight line basis. A further sum of ₹ 9275.52 crore was found to have been transferred to the Cost of producing facilities (Schedule 8A), on which Depletion was charged on UOP basis. On the basis of the amount of Depletion claimed by the assessee, the AO worked out the rate of Depletion under the Straight line method at 22.32%. Considering the provisions of Schedule XIV to the Companies Act, the Assessing Officer opined that serial no. II of such Schedule, which is applicable insofar as the .....

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he Companies Act). The assessee is aggrieved against this addition to the book profit u/s 115JB of the Act. 29. We have heard the rival submissions and perused the relevant material on record. It is seen that the AO has recomputed the amount of book profit u/s 115JB by disallowing excess depreciation under UOP method at ₹ 253,87,76,138/-. Firstly, let us understand how this figure was determined by him. The AO noticed that the assessee claimed Depletion amounting to ₹ 332.65 crore in .....

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rch 31, 2011 As at March 31, 2010 Schedule - 8A Cost of Producing facilities (net) Opening Balance 5,060,388 Net Balance acquired on implementation of the Scheme 4,696,093 Add: Transferred from exploration, development and capital work in progress Add: Additions 563,302 234,402 14,898,921 5,386,039 Less: Depletion (3,326,581) (325,650) (Amounts in Rs. 000) As at March 31, 2011 As at March 31, 2010 Schedule-8B Exploration, development and capital work in progress Opening balance 42,788,683 540,29 .....

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27.52 crore has been transferred to Cost of producing facilities. An amount of ₹ 3090.26 crore, representing Tangible fixed assets, has been transferred from Schedule 8-B to the Schedule of fixed assets for the purposes of regular depreciation. A sum of ₹ 1510.44 crore is in respect of unsuccessful exploration, which has been debited to the Profit & Loss Account. We are not concerned directly with any of the figures from Schedule 8-B. Now, we espouse Schedule 8-A in which a sum o .....

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ich was worked by apportioning the gross amount of Cost of producing facilities in the ratio of Production during the year vis-a-vis the opening reserves of oil. This, in the opinion of the assessee, is the corresponding cost of producing facilities, which has been produced during the year. Working of depletion as given by the assessee is captured as under:- Cairn India Limited Assessment Year 2011-12 Working of Depletion Block RJ-ON-90/1 S. No. Particulars Production facilities Cost (other than .....

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INR) Site Restoration Cost -CIL s Share (INR) Total (INR) A Net Amount to be depleted 2,072,322,693 135,443,669 2,207,766,363 B Opening Reserve 9,673,752 9,673,752 D Production 3,034,383 3,034,383 E UOP (A/D) 214.22 14.00 F Depletion Charge for 2010-11 (C*E) 650,029,188 42,484,859 692,514,047 Block CB S No. Particulars Production facilities Cost (other than Site Restoration Cost) - CIL s Share (INR) Site Restoration Cost -CIL s Share (INR) Total (INR) A Net Amount to be depleted 970,946,854 27,9 .....

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ing the amount of Depletion amounting to ₹ 332.65 crore with the Gross amount of cost of producing facilities before such Depletion at ₹ 1489.89 crore. It can be noticed from the above Table that the amount of Depletion charges for all the three blocks totaling ₹ 332.65 crore has been worked out from the Production facilities costs and Site restoration costs. For example, closing Production facilities cost in respect of Block RJ-ON- 90/1, before depletion, stands at ₹ 610 .....

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n the same manner, calculation has been done for Site restoration cost of all the three blocks. To put it simply, the assessee worked out the amount of Depletion charges for the year by apportioning the total Production facilities cost and Site restoration costs in the ratio of barrels of oil produced during the year vis-a-vis total reserves of barrels of oil at the beginning of the year. 32. The ld. DR disputed the working of Depletion charges at ₹ 332.65 crore by contending that this is .....

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ar basis has not been disturbed in the past. Another important fact which needs to be noted in this regard is that the assessee is working under Production sharing contract . The figures of reserves of oil indicated by the assessee are its share in the total reserves which are shared by other consortium partners as well. The ld. AR submitted that the other consortium partners also adopted the figures of reserves of oil in the same manner and from the same base as the assessee did and such figure .....

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ecognizes two methods for calculating the amount of Depletion viz., Unit of production (UOP) method or Successful Efforts Method and Full cost method. Under the former, only those costs that lead directly to the discovery, acquisition or development of specific, discrete oil and gas reserves are capitalized and become part of the capitalized costs of the costs centre. Costs that are known at the time of incurrence to fail to meet this criterion are generally charged to expense in the period they .....

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ted as under: UOP charge for the period = UOP rate x Production for the period UOP rate = Acquisition cost of the cost centre / Proved Oil and Gas Reserves 42. The depreciation charge or the Unit of Production (UOP) charge for all capitalised costs excluding acquisition cost within a cost centre is calculated as under: UOP charge for the period = UOP rate x Production for the period UOP rate = Depreciation base of the cost centre / Proved Developed Oil and Gas Reserves 34. The other method set o .....

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8377; 332.65 crore is on the same lines as provided in the above referred paras 40-44. In our considered opinion, the UOP method is more appropriate as it goes with the matching concept of successful exploration and the amount of reduction in the costs. To put it in simple words, production facilities cost and site restoration costs, which are capitalised till the exploration stage are claimed as deduction on account of Depletion in the same proportion in which the reserves of oil deplete during .....

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keeping in view its conceptual superiority over the full cost method. Accordingly, the successful efforts method is recommended to be the preferred method, though an enterprise is permitted to follow the full cost method . It is, ergo, patent that the Institute has also recommended the following of UOP method in preference to the Full cost method. 36. It is a matter of record that the assessee has been consistently charging the amount of Depletion in its annual accounts under UOP basis. No such .....

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not been controverted by the AO in any manner. Rule of consistency requires that a stand consistently followed by the assessee and accepted by the Revenue should not be called in question in later years in the absence of any change in factual or legal position. Once the Revenue has throughout accepted the calculation of Depletion by the assessee under the UOP method in the earlier years, there was no logic in deviating from the same in the instant year. 37. The ld. DR vehemently relied on the ju .....

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hartered Accountants of India but also followed by the Oil industry as such. 38. The ld. DR relied on a publication of the Institute: Compendium of Accounting Standards to put forth that a Guidance Note need not be followed. This Compendium unequivocally notes that the Institute of Chartered Accountants of India has, from time to time, issued Guidance Notes and Statements on a number of matters. Whereas, the Statements are mandatory, Guidance Notes are recommendatory in nature except for Treatme .....

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llowed. Reverting to the Guidance Note on Accounting for oil and Gas producing activities , we find that the Institute has recommended two methods, including UOP, for recording the amount of Depletion in the books of account. In other words, the UOP is a method suggested to be followed and is in the nature of an enabling provision. When the Guidance Note is recommending the following of UOP method in accounting for oil and gas producing activities, no fault can be found with the assessee followi .....

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by the other players in the same industry. In such circumstances, we find it difficult to accept the argument of the ld. DR that the assessee should not have followed such recommended method of Depletion. A fortiori, there is nothing wrong with the assessee following UOP for recording Depletion in its Annual accounts. Thus the judgment in the case of Krishak Baharti (supra) does not bail out the case of the Revenue as the action of the assessee in following the UOP method is not contrary either .....

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whereas Schedule XIV to the Companies Act provides rate of depreciation under the SLM at 5.28%. In other words, the AO disputed the percentage of Depletion at 22.32% without questioning the accuracy of the amount of Depletion given by the assessee and, thereafter, reduced the rate of 5.28% given in Schedule XIV to the Companies Act for recomputing book profit u/s 115JB by disallowing the alleged excess depreciation rate. To put it simply, the point of view of the AO is that the amount of Depleti .....

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lar states that some companies, particularly companies engaged in production of steel, have requested to prescribe an appropriate method to make provision for depreciation based on unit of production. In para 2, it has been mentioned that upon consultations with the Institutes of ICAI & ICWAI, a view emerged that providing depreciation on UOP method will not be in tune with the basic concept of depreciation. In the last para, it has been clarified that companies may depreciate the assets on .....

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mpanies engaged in oil and gas producing activities, for which a dedicated Guidance Note dt. 4.2.2003 has been issued by the Institute permitting the UOP method. Such a Guidance Note has not been withdrawn by the Institute. Once there is a Guidance Note devoted to a specific oil and gas industry, it will have primacy over the instructions issued applicable generally. 42. Further, this Circular has been issued for depreciation u/s 205 of the Companies Act. It will be seen infra that section 205 o .....

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ating profit u/s 115JB of the Act. The reason is that Circular No. 2 of 1989 dt. 7th March, 1989 issued by the Company Law Department permits charging depreciation at rates higher than those prescribed under Schedule XIV to the Companies Act. Para 1 of the said circular reads as under: 1. Can higher rates of depreciation be charged ?-It is stated that Sch. XIV clearly states that a company should disclose depreciation rates if they are different from the principal rates specified in the Schedule .....

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ny Ltd. Vs. CIT (2008) 300 ITR 251 (SC) dealt with a question: whether in respect of a company consistently charging depreciation in its books of account at the rates prescribed in the IT Rules, the ITO has jurisdiction u/s 115J of the IT Act, 1961 to re-work net profits by substituting the rates prescribed in Schedule XIV of the Companies Act, 1956? It took note of the Circular dt. 7th March, 1989 issued by the Company Law Department, which provides that the rates of depreciation prescribed in .....

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which provides that a company can charge depreciation at a rate equal or higher than the rates prescribed in Schedule XIV, but not lower than such prescribed rates, the Hon ble Supreme Court answered the above question in negative by holding that the ITO has no jurisdiction to rework the book profit u/s 115J of the Act by substituting the rates of depreciation prescribed in Schedule XIV of the Companies Act for the rates prescribed in the Income-tax Rules. 46. The ld. DR relied on the judgment i .....

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la Manorama (SC)(supra) to the effect that depreciation need not be computed as per Schedule XIV of the Companies Act in computing profits for the purpose of section 115J. However, what is significant to note is that the Hon ble Supreme Court made these observations while directing the Registry to place the civil appeal before the Hon ble Chief Justice of India for appropriate directions as the matter needs reconsideration by a larger bench. In other words, this is simply a referral order for co .....

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issible and the fact that the AO converted the amount of Depletion charged by the assessee under the UOP method to the rate under Straight line method, which turned out to be a rate higher than that prescribed under Schedule XIV, Circular dated 7.3.1989 will regularize the claim of depreciation at higher rate under the straight line method. Thus the reliance of the ld. DR on Circular dated 21.2.2003, prohibiting the following of UOP method, does not advance his case. 48. Now, let us examine if t .....

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er this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2010, is less than fifteen per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of incometax at the rate of fifteen per cent. (2) Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the releva .....

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ding profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the .....

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evant previous year prepared under sub-section (2), as increased by- (a) to (i) if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,- (i) to (viii) (emphasis supplied by us) 49. Sub-section (2) of section 115JB of the Act provides that every company shall, for the purposes of this section, prepare its Profit & Loss Account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Compani .....

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with the amount of net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act . It is, therefore, essential that the Profit & Loss Account of a company must have been drawn in the first instance in accordance with Parts II and III of Schedule VI. If the Profit & Loss Account is not in accordance with the same, then, necessary alteration is required to be made so as to confirm the Profit & Loss .....

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auditors as having been prepared in accordance with the requirements of Part II and III of Schedule VI to the Companies Act cannot be examined by the AO while assessing a company for income-tax u/s 115J of the Act. The Hon ble Summit Court observed that: The use of the words in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. Wh .....

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examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act..… There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. …. Therefore, the AO while computing the income under s. 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained .....

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evant parts of its earlier decision in Apollo Tyres (supra) delivered in the context of section 115J of the Act. In the later judgment, their Lordships held that : the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Sch. VI to the Companies Act, which are certified by the auditors and passed by the company in the general meeting. ……The AO does not have the jurisdiction to go beyond the net profit shown in the .....

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ble Supreme Court, dealing with section 115JB observed that : sec. 115JB is the successor section to s. 115JA. In essence, it is the same except that s. 115JA provided for MAT on companies, so far as it does not deem the book profit as total income. Under s. 115JB, however, cl. (viii) of s. 115JA is renumbered as cl. (iv). s. 115JB continues to remain a self-contained code . 53. A survey of the above three judgments coming from the highest court of the land dealing with sections 115J, 115JA and .....

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f section 115JB, reduced the amount of capital gain exempt u/s 47(iv) of the Act from the amount of net profit shown in the Profit and Loss account drawn in accordance with Parts II and III of Schedule VI. The AO added back such amount of capital gain. Repelling the contention of the assessee, the Hon ble Special Bench held that merely because the long-term capital gain is exempt under s. 47(iv) under the normal provision of the Act, it is not correct to say that it is also to be reduced from th .....

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is that the Profit and loss account has to be necessarily drawn in accordance with Parts II and III of Schedule VI and if it does not accord with the same, then the AO can definitely bring it in line with the same. Once net profit has been so determined, then the AO has no power to make adjustments to such profit, other than those set out in the Explanation. 54. When we consider the ratio decidendi of the above referred three judgments of the Hon ble Supreme Court and also the Special Bench, it .....

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by the Registrar of Companies. However, such amount of net profit as determined in a uniform manner in all the three sections as a starting point is required to be adjusted in accordance with the prescription of the Explanation contained in each such section. For example, there is clause (iv) of the Explanation to section 115J which provides that the amount of loss or depreciation which would be required to be set off against the profits of the relevant previous year as if the provisions of sec .....

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oration and held that the provisions of section 205 of the Companies Act will be bodily lifted in section 115J of the Act. It is pertinent to note that there is no provision in section 115JB of the Act analogous to clause (iv) of the Explanation to section 115J. 55. The ld. DR contended that the language of section 115JB is different from its predecessor sections, namely, section 115J and 115JA and, hence, the ratio laid down in the decisions governing the former sections cannot be taken into co .....

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mputed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991(hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (1A) Every assessee, being a company, shall, f .....

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lip;. Deemed income relating to certain companies. 115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but before the 1st day of April, 2001 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, .....

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alculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for .....

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lo Tyres (SC)(supra), it is clear that every assessee, being a company, is required to prepare its Profit & Loss Account in accordance with the provisions of Parts II and III of the Schedule VI to the Companies Act for the purposes of section 115J. Identical language is used in sub-section (2) of section 115JA as considered in HCL Comnet Systems & Services Ltd. (SC) (supra) and sub-section (2) of section 115JB as considered in Ajantha Pharma Ltd. (SC)(supra). The only difference between .....

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Loss Account laid before the company at its Annual General Meeting in accordance with the provisions of section 210 of the Companies Act, 1956. When we consider the language of first proviso to section 115JB(2), it clearly emerges that except for addition of (i) the accounting policies and (ii) the accounting standards adopted for preparing such accounts including profit and loss account , there is no material difference between first proviso to section 115JA(2) and first proviso to section 115J .....

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roviso to section 115JA is not material for our purpose which deals with a situation in which a company adopts financial year under the Companies Act, which is different from the previous year under the Income-tax Act, 1961. Be that as it may, even the language of second proviso under section 115JA is similar to the language of the second proviso to section 115JB except for the addition of (i) the accounting policies and (ii) the accounting standards adopted for preparing such accounts including .....

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VI of the Companies Act cannot operate in the context of section 115JB, is, therefore, sans merit. Ex consequenti, we are helpless to take cognizance of the decisions relied by the ld. DR holding that the language of sections 115J, 115JA and 115JB is different and hence the decisions rendered in the former sections cannot apply in the later sections. It is so because the Hon ble Supreme Court in HCL Comnet (supra) [section 115JA] considered and applied the ratio of Apollo Tyres (supra) [section .....

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ge of this proviso that while preparing the Profit & Loss Account the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing ...... profit and loss Account … laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act. This part of the first proviso simply provides that the method and rates for calculating depreciation while preparing the Profit & .....

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f the period specified in sub-section (3); and (b) a profit and loss account for that period. (2) In the case of a company not carrying on business for profit, an income and expenditure account shall be laid before the company at its annual general meeting instead of a profit and loss account, and all references to profit and loss account , profit and loss in this section and elsewhere in this Act, shall be construed, in relation to such a company, as references respectively to the income and ex .....

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- 211. Form and contents of balance sheet and profit and loss account (1) Every balance sheet of a company shall give a true and fair view…. (2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto : (3) …. (3A) Every profit and loss account and balance sheet of the company sh .....

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ns the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A : Provided that the standard of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standa .....

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that the Profit & Loss Account of a company shall comply with the requirements of Part II of Schedule VI. In turn, Part II of Schedule VI to the Companies Act contains Requirements as to Profit & Loss Account. Clause 1 of Part II provides that the provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act. Clause 2 of Part II states that the Profit & Loss Account shall disclose the result of the working of the co .....

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tion, renewals or diminution in value of fixed assets. If such provision is not made by means of a depreciation charge, the method adopted for making such provision. If no provision is made for depreciation, the fact that no provision has been made shall be stated and the quantum of arrears of depreciation computed in accordance with section 205(2) of the Act shall be disclosed by way of a note. 61. Then, there are other clauses of Part II of Schedule VI to the Companies Act which are not releva .....

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of the Companies Act. The remaining part of sub-clause (iv) deals with a situation in which provision for depreciation has not been made. The later part of sub-clause (iv) states that if no provision is made for depreciation, this fact shall be stated and the quantum of arrears of depreciation computed in accordance with the section 205(2) of the Companies Act shall be disclosed by way of a note. It is, thus, discernible that the reference to section 205(2) in sub-clause (iv) of Part II of Sched .....

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been enshrined in this provision. 62. The ld. DR, referring to the provision of section 205(2) of the Companies Act, submitted that the depreciation has to be provided to the extent specified in section 350 of the Companies Act and section 350 of the Companies Act refers to the rates of depreciation specified in Schedule XIV of the Companies Act. In other words, his contention was that the rates provided under Schedule XIV of the Companies Act have to be considered for the purpose of preparing .....

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n accordance with the provisions of sub-section (2). Sub-section (2) states that the depreciation shall be provided, inter alia, to the extent specified in section 350. It, therefore, becomes clear that section 205 of the Companies Act, providing for charging depreciation in accordance with rates given in Schedule XIV of the Companies Act, is meant only for determining the availability of profits for paying dividend. Thus, to say that the mandate of section 205 applies to the pan Companies Act, .....

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hat in case of absence or inadequacy of profits, the total managerial remuneration shall not exceed 11% of the net profits of that company for that financial year computed in the manner laid down in section 349 and 350 of the Act. Similarly, there is another specific provision of section 387 dealing with remuneration of manager of a company. This section also provides for allowing remuneration to a manager by way of a specified percentage of the net profits of the company calculated in the manne .....

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0,000/- or 5% of its average net profits as determined in accordance with the provisions of section 349 and 350. Still another similar provision is section 293A of the Companies Act, which places certain restrictions and prohibitions regarding political contributions. This section also provides that a company may contribute any amount to any political party, provided the amount so contributed in a financial year does not exceed 5% of its average net profits determined in accordance with the prov .....

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of assets shown by the books of the company at the rates specified in Schedule XIV. An overview of the afore discussed provisions of the Companies Act reveals that the charging of depreciation in accordance with Schedule XIV of the Companies Act, is meant for specific provisions, such as, section 205 (payment of dividend), section 198 (overall maximum managerial remuneration), section 387 (remuneration of manager) and sections 293 & 293A (imposing certain restriction on the powers of the Boa .....

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provisions of Parts II and III of Schedule VI to the Companies Act, the command of Schedule XIV of the Companies Act, requiring the charging depreciation at the prescribed rates, does not, therefore, get attracted. In the absence of the prescription of any rates of depreciation in Parts II and III of Schedule VI, and further section 115JB of the Act mandating every company to prepare its Profit and Loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies .....

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y followed for preparing Profit and loss for the purposes of section 115JB of the Act. 64. Again coming back to first proviso to section 115JB(2) of the Act heavily relied by the ld. DR, we find that it simply provides that while preparing the Profit & Loss Account for the purpose of this section, the methods and rates adopted for calculating depreciation shall be the same as have been adopted for preparing Profit & Loss Account laid before the company at its annual general meeting in ac .....

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JB and the one that is prepared for the purposes of placing in the AGM. So long as the method and rates of depreciation charged in the Profit & Loss Account made for the purpose of section 115JB and to be placed at the annual general meeting are same, the first proviso does not get prompted. 65. Reverting to the facts of the extant case, we find that the assessee determined the amount of net profit as per its Profit and Loss account - both for the purposes of section 115JB and also for placi .....

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out any objection. Such a contention put forth on behalf of the assessee has not been disputed by the Revenue. When position is so, we fail to comprehend as to how the action of the AO in adding the alleged excess depreciation can be sustained. The impugned order is set aside pro tanto and the enhancement to the amount of net profit to the tune of ₹ 2,53,87,76,183/- made for the purposes of section 115JB of the Act is hereby deleted. 66. Next dispute in this appeal is against the addition .....

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JVs. The AO made reference to the Transfer Pricing Officer (TPO) for determining the arm s length price (ALP) of the international transactions. The TPO has tabled all the international transactions at page 2 of his order. The instant dispute relates to the three international transactions clubbed under the head Receipt of services , which head has four transactions in total, namely, Receipt of services in relation to business planning from Cairn Energy Plc. worth ₹ 11,93,02,725/-; Receipt .....

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Net Margin Method (TNMM) as the most appropriate method to demonstrate that the former three international transactions were at ALP, for which it paid ₹ 14,36,18,797/- in addition to mark up of 10%. For showing the transactions at ALP, the assessee identified ten comparable companies with substantial operations in United Kingdom. Besides, multiple year data of such companies was used for finding the average profit rate of 7.42%. It was stated that the AEs charged 10% mark up, which was no .....

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substantiate its claim of having received such services from its AE. The assessee filed a copy of Agreement between Cairn Energy India Pvt. Ltd. And Cairn Energy Plc entered in the year 2011 and stated that the Indian operations of Cairn Energy India Pvt. Ltd. were transferred and vested in the assessee on going concern basis w.e.f. 01.01.2010 in pursuance of the scheme of demerger approved by the Hon ble Bombay High Court vide its order dated 22.06.2010. After considering the assessee s reply .....

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cate in nature and no benefit was derived. Such services were also held to be in the nature of shareholders services requiring no payment of consideration. The TPO required the assessee to state if the AE has rendered such services to others as well and if yes, then the basis of allocation amongst various entities be furnished. The assessee did not furnish such information by stating that it was not privy to the information whether the AEs render such services to any other AEs/third parties. Fur .....

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377; 14.36 crore. The assessee remained unsuccessful before the Dispute Resolution Panel (DRP) and eventually, the AO made an addition of equal amount in the impugned order. The assessee is aggrieved against the addition. 68. We have heard both the sides and perused the relevant material on record. It is seen that the assessee paid ₹ 14.36 crore as cost of the above services and also mark up of 10% amounting to ₹ 1.43 crore. However, while computing the total income, the assessee vol .....

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or our purpose. As per this Agreement, a copy of which has been placed at pages 394 onwards of the paper book, Cairn Energy Plc and Capricorn Energy Ltd. agreed to provide Services , which term has been defined in the agreement to mean assisting CIL group with preparation of Business Plans. Such services are concerned with the business Operations , which term has also been defined to mean: the exploration, development and production of oil and gas and supporting and ancillary activities (whereve .....

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e material part is reproduced as under:- 2.1 The object of this Agreement is to set out the terms and conditions for the non-exclusive provision by CAIRN of the Services to CEIL and Its Affiliates In support of, and In connection with, the Operations. 2.2 CEIL or any Affiliate of CEIL from time to time, engages CAIRN to provide such Services to CEIL or the relevant Affiliate as it may request, provided always that CAIRN shall not render any such Services to CEIL or any Affiliate if to do so woul .....

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ance with good and prudent practice in the international oil and gas industry; (iii) in compliance with all applicable laws; and (iv) in conformity with all descriptions and specifications provided by CEIL and its Affiliates to CAIRN. 2.4 CAIRN shall undertake its obligations under this Agreement as an independent contractor and shall not be the agent of, nor have any authority to bind or commit, CEIL or any Affiliate of CEIL to any Third Party. Nothing in this Agreement and no action taken by t .....

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at its own cost and expense, all material governmental authorisations (including without limitation any licences, permits, exceptions, and other authorisations) and all other Third Party consents that may be reasonably required from time to lime for CAIRN's performance of the Services (or any part thereof). 2.7 Unless otherwise agreed by the Parties, CAIRN shall furnish all resources, personnel, facilities and equipment necessary to perform the Services, and provide any necessary access ther .....

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lt of its performance of the Services under this Agreement. 69. On going through the scope of the Agreement, it is manifested that Cairn Energy Plc. and Capricorn Energy Ltd. provided services to Cairn Energy India Pty. Ltd., whose undertaking was acquired by the assessee. It was also submitted to the TPO vide its letter dated 17.11.2014, copy available at page 371 onwards of the paper book, that oil and gas industry is a highly technical, capital intensive and risky industry and, as such, inter .....

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erts of AEs and the assessee s employees were also placed before the AO which are available at pages 436 onwards of the paper book. In such e-mail communications, planning, actual conduct of the operations and connected matters have been discussed. Then, there is a copy of Debit note on page 455 of the paper book which records the amount billed at US $ 611172.57, being, charges for business planning on the basis of hourly rates of the experts. Pages 456 to 459 are the details of such billed amou .....

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e documents. The view point of the TPO that such services were duplicate in nature as the assessee was already in similar line of business, is not correct. The assessee undertook exploration work in Rajasthan oil wells in the later part of the preceding year. The assessee also explained to the TPO that it is a highly technical work requiring services of experts for optimising production. Such contentions have not been controverted with any cogent material. Thus, the claim of the Revenue that the .....

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ature, is proved, the authorities cannot determine nil ALP of the payment made for such services. 70. This brings us to the question of determination of the ALP of the international transaction of Receipt of services . We have noted above that the assessee aggregated the international transactions and determined ALP on the basis of TNMM. 71. Section 92(1) of the Act provides that: Any income arising from an international transaction shall be computed having regard to the arm s length price. The .....

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have been enshrined in this provision apart from one general method, being : Such other method as may be prescribed by the Board. Out of the five specific methods, the first one is Comparable uncontrolled price (CUP) method and the fourth one is Transactional net margin method (TNMM). A bare reading of section 92C(1) brings out that: (i) the ALP is required to be determined of an international transaction; and (ii) the ALP of such an international transaction is to be determined by applying the .....

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rowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, ….. . It is discernible from the above definition of international transaction given in section 92B that it refers to a transaction between two or more associated enterprises. The term transaction has been defined in section 92F(v) and also in Rule 10A(d) of the Income-tax Rules, 1962. The Rule defines the term transaction to include: a number of closely linked transaction .....

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transaction as per section 92C(1) is done as per the most appropriate method. To put it simply, each international transaction is viewed separately and independent of other international transactions for determining its ALP by using one of the given methods, which is the most appropriate method having regard to the nature of transaction or class of transaction or functions performed, etc. It is impermissible to combine all the international transactions for determining their ALP in a unified man .....

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in a case where the computation of income having regard to ALP has the effect of reducing income chargeable to tax. The net effect of section 92(3) is that if transacted value income from an international transaction is more than its arm s length income, then, the arm s length income should be discarded and the actual income should be considered. To sum up, it is the higher of actual income or the arm s length income from an international transaction, which is taken into consideration for compu .....

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cted value income). When we consider more than one separate transaction under the combined umbrella of TNMM on an entity level, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one international transaction may be grabbed by the income from the other international transaction giving higher income on transacted value. 74. The Hon ble jurisdictional High Court in Knorr Bremse India (P) Ltd. Vs. ACIT (2016) 380 ITR 307 (P&H) considered the que .....

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given a composite price, these are one international transaction. It went on to hold that where a number of transactions are priced differently but on the understanding that the pricing was dependent upon the assessee accepting all of them together (i.e. either take all or leave all), then it is also an international transaction. But it will be on the assessee to prove that although each is priced separately, but they are provided under one composite agreement. It still further held that each co .....

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laid down by the Hon ble jurisdictional High Court in Knorr Bremse India (P) Ltd.(supra). Firstly, there is no package deal and the international transaction in question is separately valued. Secondly, despite the fact that the international transactions are priced differently, but, there is nothing to show an understanding that the pricing was dependent upon the assessee accepting all of them together. Besides, the assessee has not shown any inextricable link between these transactions as one .....

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O. Obviously, the TNMM applied by the assessee simply establishes the aggregate price paid for independent international transactions to be at ALP. Since the international transaction of Receipt of services has been held above to be separate, the determination of its ALP also needs to be done distinctly. 77. Now let us examine if the application of the CUP method, as employed by the TPO, is in order for determining the ALP of Receipt of services . By now, it is fairly settled through a catena of .....

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irectly through the medium of normal profit arising in a comparable uncontrolled transaction. Further, the CUP method is a transaction specific method which strives to determine the ALP of an international transaction on a micro level, thereby lending more credibility to the ALP of a transaction. As such, we hold that the CUP is the most appropriate method for determining the ALP of the international transaction under the present circumstances and the TPO was fully justified in applying the CUP .....

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emit the matter to the file of AO/TPO for a fresh determination of the ALP of the international transaction of Receipt of services primarily under the CUP method. In case, the TPO finds that the CUP method cannot be applied either due to non-availability of the relevant data or for some other genuine reasons, he is free to apply any other appropriate methods for a fresh determination of the ALP of the international transaction of Receipt of services . Needless to say, the assessee will be allowe .....

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t of ₹ 1343,76,37,000/- was made in the Jersey based 100% subsidiary of the assessee by way of the preference shares. CIHL is an Investment company. The Preference shares were carrying 0% coupon rate and the assessee stated in its TP study report for the Financial year 2009- 10 that CIHL did not declare dividend on any category of share capital including the Redeemable preference shares. While determining the ALP of the international transactions for the assessment year 2010-11, the TPO re .....

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le preference shares as deemed loan. This resulted into the instant transfer pricing addition. The assessee remained unsuccessful before the DRP and the AO made such addition in the computation of income under the normal provisions. The assessee is aggrieved against such addition. 81. We have heard both the sides and perused the relevant material on record. It is noticed that the origin of the instant addition is from the proceedings for the immediately preceding year, in which the transaction o .....

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