Income Tax Appellate Tribunal - Delhi
Bg Exploration & Production India Ltd., ... vs Dcit, International Taxation, ... on 3 April, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'I-1', NEW DELHI
Before Sh. N. S. Saini, Accountant Member
And
Smt. Beena A. Pillai, Judicial Member
ITA No. 7476/Del/2018 : Asstt. Year : 2013-14
ITA No. 7477/Del/2018 : Asstt. Year : 2014-15
B.G. Exploration & Production India Vs Deputy Commissioner of
Ltd., C/o BSR & Associated LLP, 1st Income Tax, International
Floor, Lodha Excelus, Apollo Mills Taxation, Circle-1,
Compound, N.M. Joshi Marg, Dehradun
Mahalakshmi, Mumbai-400011
(APPELLANT) (RESPONDENT)
PAN No. AAACE4569K
Assessee by : Sh. Ajay Vohra, Sr. Adv.,
Sh. Anshul Sachar, Adv. &
Sh. Neeraj Jain, Adv.
Revenue by : Sh. Sanjay I. Bara, CIT DR
Date of Hearing :25.03.2019 Date of Pronouncement : 03.04.2019
ORDER
Per Bench:
Both parti es submi tted that all i ssues under consi derati on i n year before us a re squa rel y covered by order of Co- ordi nate Bench of thi s Tri bunal i n assessee's own ca se for a ssessment year 2010-11 in ITA Nos.1170 & 1581/Del /2015, order date d 24.04.2017. He submitted that for assessment year 2010-11 i denti cal i ssues have been consi dered i n detail and deci ded at l ength.
2. Further, speci fi c observati ons by DRP are as under:
"It has been brought to notice by the assessee that the Hon'ble ITAT ha s passed the orders for AY 2011- 2 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
12 and 2012-13 respectively on 18.07.2018 & 17.07.2018. In these orde rs relief has been given to the assessee on the issues of branch office expenditure cost incurred on non producing PSC , head office expenditure, inventory written off and depreciati on. In ca se a decisi on is taken by the department to accept the decision of Hon 'ble ITAT before the final orde r is passed, the order of the ITAT may be followed to avoid further litigation as the matter become final."
3. Based upon aforestated submi ssi on, i t was submitted by l d. CIT DR that, the orders i n prece di ng assessment year (supra) has been chall enged before Hon'bl e Del hi Hi gh Court, and to keep the i ssues ali ve, Revenue i s contesting before thi s Tri bunal . We upon the a bove submi ssi ons are thus di sposi ng off the assessment years before us by way of a common orde r as under.
4. These are the appeal s fil ed by the assessee agai nst the orde r of the Assessi ng Offi cer u/s 143(3)/144C(13) of the Income Tax Act, 1961 dated 29.10.2018 for assessment years 2013-14 and 2014-15 respectivel y.
5. Ground No. 1 i s not pressed. Accordi ngl y thi s ground stands di smi ssed.
6. Ground Nos. 2 to 5 & 7 of the appeal of the assesse e reads as under:
"Ground No. 2: Erroneous re jecti on of Transactional Net Margin Method ("T NMM") and selection of Comparable Uncontrolled Price ("C UP") Method.
2.1 The learned AO / DRP / Transfer Pricing Officer ("TPO") have erred in law and on facts by disrega rding the economic analysis conducted by the Appellant, for determination of the arm's length 3 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
price (" ALP") by application of TNMM on an aggregated basis and further, erred in applying CUP method.
Ground No. 3: Without prejudice that TNMM should be selected, learned AO / DRP / TPO applied CUP method in an erroneous manner.
3.1 Without prejudi ce that TNMM should be selected as the most appropriate method for benchmarking the transactions pertaining to intra-group services, the learned AO / DRP / T PO have erroneously selected CUP method an d have a pplied the same in an errone ous manner by considering the amount approved by the Joint Venture ("JV") partner as CUP.
Ground No. 4: Errone ously disre garde d the Hon'ble ITAT's decisi on in AY 2011-12 and AY 2012-13 and directions of the Hon'ble DRP for AY 2009-10 and AY 2010-11.
4.1 The learned AO / DR P / TPO erred in disrega rding the de cision of ITAT i n AY 2011 -12 and AY 2012-13 and the di rections issued by the Hon'ble DRP in the case of the Appellant for the prior years i.e. AY 2009-10 and AY 2010-11 (which have also been affirmed by Hon'ble ITAT) even though the facts and circumstances of its case and the bu siness model of the Appellant continued to remain the same.
Ground No. 5: Errone ously questioning of commercial expediency of the Appellant.
5.1 The learned AO / DRP / TPO e rred in law an d on facts by questioning the commercial expediency of the Appellant in availing the intra-group se rvices from its associated enterp rise ("AE") and in chang ing from fl oating inte rest rate t o fi xed interest rate o n the External Commercia l Borro wing ta k en from its A E. Gro und N o. 7: Erro neous disal lo wance of payment made towards int ra-gro up services by Appellant to its AE 4 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
7.1 The learned AO/DRP/TPO g ross ly erred i n la w a nd on facts by making an upwa rd transfer pricing adjustment of INR 3,061,307,142 in total towa rds internatio nal tra nsactio ns pertai ni ng to payment of management service and unit cha rg es, IM charges and payro ll expenses t o its AE."
Facts:
7. The TPO, ma de an adjustment amounti ng to Rs.3,061,307,142 by re jecti ng TNMM and appl i ed CUP method.
The TPO hel d that the expenditure i ncurred by the appell ant and all owed by the JV partne rs/Ope rator board shal l be consi dered as Compa rabl e Uncontrol l ed Pri ce. The TPO accordi ngl y made an adjustment on account of i nternati onal transacti on of recei pt of i ntra group servi ces to the extent of amount not shared by JV pa rtners. The TPO ma de foll owi ng adjustment:
S. I n t ern at i on al Tran sact i on I n t ern at i on al No. descri pt i on Tran sact i on A m oun t
1. Rei m bu rsem en t of expen ses 1 9 8 ,1 67 ,0 7 9
2. I n f orm at i on Techn ol ogy an d ot h er 9 8 2 ,5 71 ,4 5 0 ch arges
3. Man agem en t S erv i ce U ni t ch arges 1 ,7 1 8 ,0 01 ,0 71
4. E xpat ri at e Pay rol l expen ses 3 7 3 ,9 63 ,0 8 7 Tot al 3,272,702,678
8. Ld. C ounsel submi tted that the appel l ant i s a company i ncorporate d wi th li mited li abili ty i n the Cayman Isl ands and i s engaged in the busi ness of prospecti ng, expl orati on and producti on of crude oi l and natura l gas. The appell ant i s a 100 percent subsi di ary of BG Mumbai Hol di ngs Li mi ted and has i ts project offi ce in Indi a for undert aki ng the Indi an operati ons. The appell ant has entered i nto Producti on Shari ng Contracts ('PSCs') wi th Oil and Natural Gas Corporati on Li mi ted ('ONGC ') and Reli ance Industri es Li mited ('RIL') ('JV Partners') al ong wi th Government of Indi a ('GOI') f or expl orati on and 5 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
producti on of oi l and gas hydrocarbons in the desi gnated contracted fi el ds of Panna-Mukta and Mi d and South Tapti fi el ds ('PMT '). To execute such PSCs a nd carry out i ts obli gati ons under the PSCs a s a joi nt opera tor, a ppel l ant has set up a Project Offi ce ('PO') i n Indi a. As mandated by the GOI, the PMT JV has an obl i gati on to perform Mi ni mum Work Programme ('MWP') f or expl oi tati on and expl orati on of oi l and natural gas on the PMT fi el ds. Speci ali zed and techni call y sound experts are re qui red by the appell ant i n vari ous di versi fied areas base d on the MWP. BG Internati onal Li mited ('BGIL' or the 'associ ated enterpri ses') i s a company i ncorporated i n the Uni ted Ki ngdom wi th more than 40 years of experi ence and enri ched techni cal experti se rel ated to expl orati on and producti on activi ti es i n the oil and gas sector. BGIL has access to a wi de pool of hi ghl y knowl edgeabl e, techni cally trai ned and experi enced staff to engage i n expl orati on and production rel ated activi ti es.
9. The aforesai d i nternati onal transacti ons pertai ni ng to i ntra-group servi ces recei ved by the appell ant (i .e. MSU charges, rei mbursement of expenses, payrol l expenses, Informati on Technol ogy and other charges) we re benchma rked by the appel l ant appl ying Transacti onal Net Margi n Method ('TNMM') as the transacti on of re cei pt of i ntra group se rvi ces were cl osely linked to the main business acti vi ty of the appel l ant of expl orati on and producti on of oil and gas. Si nce the operati ng margi n of the appell ant at 24.82% was hi gher than those of the compa rabl e compani es at 23.21% , i nternati onal transacti on of recei pt of intra-group se rvi ces was consi dered to be at a rm's l ength. It i s submi tted that the 6 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
adjustment made by the T PO i s not sustai nable for the rea son s submi tted as under:
At the outset it is submi tted that i ndustry in whi ch the appel l ant is functi oning, it will be di ffi cult to i magi ne a successful busi ness enti ty i n the gl obal envi ronment wi thout recei pt of the servi ces whi ch carri es huge i ntri nsi c and creati ve val ue. In vi ew of these facts, i t shall be just to avoi d any guesswork to eval uate or judge utili ty of these servi ces i n i sol ati on or i ndi vi duall y.
10. It i s submi tted that the appell ant incurs expendi ture to undertake acti vi ti es requi red by t he PSC, havi ng regard to i ts standard of ope rati on, i ncl udi ng the quali ty of executi on of work, acce ss to l atest i ndustry informati on and gl obal updates, safety of i ts empl oyees and the envi ronment, etc. The expenses on such se rvi ces are requi red to be i ncurred ba sed on commerci al expedi ency determined by BGEPIL.
11. It i s submi tted that there i s a real dearth of tal ent and avail abili ty of experts who can provi de servi ces whi ch have been recei ved by the appell ant from BGIL. In any case , si nce such resources may not be requi red al l the ti me, i t woul d be economi call y and commerci all y unvi abl e for the appell ant to empl oy hi ghl y techni call y sound personnel on pe rmanent basi s. Hence, need base d support was obtai ned by appell ant from BGIL whi ch has a wi de, experi enced and knowl edgeabl e pool of empl oyees at i ts di sposal .
12. The l d. Counsel for the assessee submi tted that these i ssues are squa rel y covered by th e order of Co-ordi nate Bench of thi s Tri bunal in assessee's ow n case for assessment year 7 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
2010-11 in ITA Nos.1170 & 1581/Del /2015, order date d 24.04.2017. He submi tted that assessment year 2010-11 i s the i niti al year in whi ch the i ssues has been consi dered and deci ded i n detail . In support of hi s argument he referred to para gra ph 72 at page nos. 795 & 796 whi ch are reproduce d here under:
"72. On the examination of the volume and us details submitted by the assesse e. The Ld. dispute resolution panel has come to t he conclusion that assessee has received the services and those services are useful services. With respect to the clubbing of the t ransaction it was held that when the transactions are cl osely interrelat ed it is but natural to club such transa ction and benchmarked it together. The Ld. dispute re solut ion panel at page No. 30 - 31, has conside red the suspect and agreed with the contention of the assessee that intragrou p services received from its associa ted enterprise are closely linked to the main business activity of the assessee company placing reliance on the US regulations, OECD regulati ons and OECD draft notes on comparability. In view of this we do not find any infirmity and none was pointed out before us by the Ld. depa rtmental representative in the order of the Ld. dispute re solution panel. C onsequently, after verifying that assessee has demonstrated need for those services, benefit derived from those services, evidence of receipt of such services and submitting that those services are neither duplicative in nature and nor are sha re holder a ctivities, the DRP directed the Ld. transfer pricing officer to delete the adjustment proposed with respe ct to the intragrou p services of Rs. 3329766244/-, deserves to be upheld. The ju dicial precedents ci ted before us also supports the view that the needed test, the benefit test are also requi red t o be viewed from the perspective of a businessperson and not from the perspective of the revenue. Furt her, no evidences have been led before us by re venue stating that these services a re duplicative i n nature and also serves only the interest of the shareholde r. According t o the information supplied by the 8 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
assessee an d examined by the L d. dispute resolution panel doe s not give any such indication. Furthe r regarding non-sharing of the cost by the joint- venture partners we have given our findings while deciding the appeal of the asse ssee that such an action of the joint-venture partn ers cannot be the reason t o dete rmine the arm's l ength price of the services which is been received by the assessee at nil. In view of this we uphold the finding of the Ld. dispute resolution panel holding t hat transactions of intragrou p services a re interlinke d, therefore , they should be benchmarked together by adopting T NMM as the most appropriate method , hence, dire cting the Ld. transfer pricing officer to delete the adjustment proposed of Rs. 3329 766244/-. In the result ground No. 1 t o 3 of the a ppeal of the revenue are dismissed."
13. The l d. CIT DR objected the same and submi tted that they have fil ed appeal agai nst the orde r of thi s Tri bunal for assessment year 2010-11 before the Hon'bl e Hi gh Court whi ch i s pendi ng. He submi tted that the assessee has not been abl e to establ i sh the servi ces recei ved from i ts AE and therefore, the addi ti on made by l d. TPO deserves to be uphel d.
14. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. It has been su bmi tted that the DRP i n thei r order f or the year under consi derati on has noted as under:
"It has bee n brought to notice by th e assesse e that th e Hon'ble IT AT has passed t he orders for AY 20 11-12 and 2012-1 3 resp ectively on 18.0 7.201 8 & 17.0 7.201 8. In these orders relief has been give n to the assesse e on the issues of branch office exp enditure c ost incurred on non producing PSC, head office exp enditure, inv entory written off and depreciation. In case a decision is taken by the department to accept the deci sion of Hon'ble IT AT before th e final order is passed, the order of the IT AT may be followed to avoid further litigation as the matter become final."9 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
15. Further, i t i s observed that for a ssessment year 2011-12 (ITA No. 1478/Del /2017) and assessment year 2012-13 (ITA No. 6791/Del /2017) foll owi ng the above rul ing.
16. From the above, i t i s cl ear that Revenue i ntends to keep i ssues ali ve, however, coul d not controvert vi ew taken in respect of these i ssues as th ere has been no contra ry observati on/materi al evi dences brought out on record by l d. CIT DR. It has been admi tted by hi m that facts and ci rcumstances of the servi ces recei ved by assessee for the year under consi derati on are same vi s-à-vi s assessment year 2010- 11, and other precedi ng assessm ent years. We a re therefore i nclined to foll ow the same vi ew. Respectfully, foll owi ng vi ew taken by thi s Tri bunal i n assessment year 2010-11 reproduced herei nabove and other precedi ng assessment years, orders of whi ch are pl aced at pages 530- 915 of pape r book, a ddi ti on made by Assessi ng Offi cer stands del eted.
17. Ground No. 6 of the appeal of the assessee reads a s under:
"Ground No. 6: Erroneous appli cation of CUP for determining arm's length interest rate.
6.1 The learned AO / DRP / TPO erred in making an upward adjustment of INR 9 59,664,505 to the total income of the Appellan t by errone ously applying CUP Method for determination of arm's length interest rate on the ex ternal commercial borrowing ("ECB") ta ken from its AE."
Facts:
18. Ld. Counsel submi tted that the appell ant i s engaged i n the busi ness of prospecti ng for, or e xtracti on of or producti on of mineral oil s. The appell ant has entered i nto a joi nt venture 10 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
('JV') wi th Oil & Natural Gas Corporati on ('ONGC ') and Reli ance Industri es Ltd ('RIL'). The JV operates i n accordance wi th the terms and condi ti ons as set ou t i n the Producti on Shari ng Contract ( 'PSC ') dul y agreed a nd si gned between the JV partners an d Government of Indi a. In terms of the PSC, the appel l ant i s requi red to contri bute i ts share of the funds for the pl anned activi ti es under the work program. The acti vi ti es of the appel l ant i nvolves huge investments and have a l ong gestati on peri od.
19. The appel l ant had taken an unsecured forei gn currency l oan amounting to USD 500 milli on from i ts associ ated enterpri se, BG Asi a Paci fi c Pte. Ltd., Si ngapore ('BG AP') on Ma y 31, 2005 for a pe ri od of 15 years. The l oan was taken at an i nterest rate of L ondon Inter- Ban k Offer Rate ("LIBOR") pl us 2 percent pe r annum payabl e annuall y. As a resul t of subpri me cri si s i n the year 2008, there wa s l ack of avai l abili ty of funds in the gl obal fi nanci al markets whi ch i ndi cated towa rds a possi bl e i ncrease i n the interest rates i n the near future. As a resul t of the prevaili ng uncertai nty, the proporti on of borrowe rs borrowi ng funds at fixed rate of i nterest al so i ncrease. In order to fund the operati ons, the appell ant, on Octobe r 22 , 2009, avai led addi tional l oan amounting to USD 300 milli on and the interest rate was changed to a fi xed rate of 6.18% (bei ng Li bor USD Swap ra te +350 bps) f or succeedi ng five years. The sai d l oan from the AE was an unsecured l oan, si nce the financi al posi ti on of the appell ant di d not permi t obtai ni ng secured l oan on favou rabl e rate of i nterest from unrel ated party, fi nanci al i nstitutions or banker. Thi s i nterest rate was amended i n October 200 9, when the assessee avail ed 11 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
of an addi ti onal tranche (under the same l oan agreement) from i ts AE to meet i ts worki ng capi tal requi rement. As there we re si gni fi cant vari ati ons i n the gl obal interest rates si ne 2005 (i .e. when the l oan was i ni ti ally extended and the ori gi nal agreement was si gned) through 2009, the AE and the assessee agreed for an i nterest rate revi sion i n 2009 from LIBOR +200 bps to LIBOR + 350 bps based on Barcl ay bank's quotati on after assessi ng appel l ant's ri sks and market condi ti ons prevaili ng at that ti me. Further, as the appel l ant expected vol atil e interest rates i n future and hence beli eved that there shoul d be stabili ty in the i nterest rate to be pai d at l east for the next fi ve year peri od.
20. He submi tted that appell ant thus deci ded to mi grate from fl oati ng i nterest rate to fi xed rate of i nterest for the next fi ve years. The refore the L IBOR + 350 bps was converted t o a fi xed rate of i nterest @ 6.18% (bei ng USD Li bor swap rate + 35 0 bps). The refore , for the rel evant year under consi derati on i .e. FY 2012-13, the appell ant pai d an effecti ve i nterest of 6.18 percent for the yea r. The appel l ant had used CUP method for the purpose of benchma rki ng the i nternati onal transacti on and had arri ved at a margi n pai d by compani es wi th comparabl e borrowi ngs at 6.33 percent. Si nce the i nterest rate pai d by the taxpayer at 6.18 percent was l ess than 6.33%, the transacti on was stated to be at a rm's l ength. Further the appel l ant had al so reli ed upon the Barcl ays Bank quotati on submitted vi de submi ssi on dated 16-10-2017.
21. Ld. Counsel submi tted that the TPO re jected the search and the bank quotati on provi ded by the appel l ant and proceeded on the basi s of an i ndependent fresh search and 12 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
thereby consi dered LIBOR + 2.785 BPS as the a rm's l ength rate on the l oan of USD 500 milli on and the addi ti onal l oan of USD 300 Milli on.. Accordi ngly, the TPO made an adjustment of Rs.959,664,505. Further the DRP vi de di recti ons dated 11.09.2018. di rected the TPO to consi der average exchange rate for the peri od under con si derati on. Accordi ngl y the adjustment was reduced to Rs. 82,17,38,124.
22. At the outset, he submi tted that fact and ci rcumstances of the case are si mil ar to that of precedi ng years where the TPO propose d adjustment i n si mil ar manner. He pl aced reli ance on vi ew expressed by Co-ordi nate Bench of thi s Tri bunal for assessment year 2010-11 as under:
"26. We have carefully considere d the rival contentions and pe rused the orde rs of the Assessing Officer and di rections of Dispute Resolution Panel. The Assessee entered origina lly into a loan agreement dated 31st of May 200 5 between BG. Asia Pacific Plc Ltd and Assessee f or unsecu red loan facility of US dollar 500 million. According to the terms and conditions of that agreement interest rate was fixed as one month, US $ LIBOR +2% for an and apportioned on an a ctual 360 basi s. The termination date of the agreement was 31st of May 2020. Subsequently on 21/10/2009 There is an amendment made it to the existing loan facility under agreement dated 31/05/2005, according t o which, the pa rties have agreed to amend the interest rate terms applicable to the existing loan facility at the fixed rate of 6.18% for 5 years from the date of execution of this agreement (i.e. from 21/10/2009), it would be once again at availa ble rate of 6 months USD LIBOR +350 unless the pa rties agree otherwise . On conjoint readings of this 2 a greem ents it is appa rent that during the year there is a change in the interest rate of the above l oan, which was earlie r at U S dollar L IBOR +2% to 6.18% . For pa rt of the year i.e. from 01/04/2009 2 21/10/2009, the rate of interest on the above loan w as 2.33% and from 13 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
22/10/2009 to 31/03/2010 the rate of interest of the same loan without any change in the terms and condition of agreement except interest was @ 6.18%. Further, Vide letter dat ed 21/10/2009 the AE has agreed to offer an additional unsecured loan of US dollars 300 million until 2020 to the appellant wherein terms of clause 1 and 3 of the terms and conditions are as under:-
"1 Definition:-
" interest" means the interest or advance at the fixed rate of 6.18% (being the 5 years, US Libor swept rate +350 ) for a peri od of 1st 5 years f rom the date of execution of this agreement and thereafter at variable rate of 6 m onths USD LIBOR +350 unless pa rties mutually agree othe rwise in writing"
"3. Interest 3.1 interest shall accrue on the amount of the advance on a day-to-day basis in respect of amounts outstanding unde r the facility on each day of the drawdown period and such interest due shall be created an d interest accrued between 1st tempora ry in each year of the f acility and 31st March in the following year, shall be paid by the borrowe r to the lender on 31st may each year of the facility on a modified following date on versions ba sis or as may be otherwise agree d between the parties.
3.2 Parties may mutually agree in writing to fix the interest rate for a peri od of 5 years."
The Ld. T ransfer Pricing Officer has questioned the business decisi on of the Assessee to say that there was no reason f or the Assesse e to increase the interest rate from 2.33% to 6.18 %, which was 165% higher than the rate at which the Assessee was paying interest till the time of revision in the interest rate. The Ld. T ransfer Pricing Officer ha s further held that Assessee has fa iled to submit any documentary detail of negotiation and convincing 14 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
agreement for increa sing intere st rate and what benefit has accrued to the Assessee when all the terms and aggrieved terms and conditions of the agreements remained unchanged. According t o the Ld. Transfer Pricing Officer no independent party would have agreed for such a unilaterally increase which defies any logic except th at the amount was being paid to the associated enterprise in this regard to TP provisions. According to hi m the LIBOR rates have been continuously reducing from 2009 onwards and the Assessee was well aw are of the trend at the time of taking de cision. Accordi ngly, the increases in rates a re conside red a cla ssic e xample of transfer pricing to reduce the profitabilit y of the Assessee company. F or this reasons he proposed an adjustment of Rs. 42,72,64,082/- on account of interest payments. We disagree with this finding of the Ld. Transfe r Pricing Officer that there was no reason for the Assessee to increa se the interest rate for 2.33% to 6.18%. The Assessee has given detailed rati onal behind its own decision for shifting from floating rate of interest regi me to fixed rate of interest. In a way, it re duces the risk of changes in the interest rates. It is a well set tled proposition of law that The Ld. Transfer Prici ng Officer is not suppose d to question the business decisi on of the Assessee. The Assessee ha s given ample re asons for its business decision even stating that most of the reported l oans in that pa rticular period were having a clause of fixed rate of interest. Therefore, the decision of the appellant to shift from floating rate to fixed rate of interest was ba sed on commercial consideration and to protect the business ope ration of the appellant from any adverse movement in floating interest rates and that onl y businessmen can decide. It may sound illogical t o the Ld. T ransfer Pricing Officer, but it is beyond his authority to question the wisdom of Assesse e. It is not the prerogative of revenue to direct Assessee to conduct its business in a particular manner. It is also not proper to a sk and Assessee to conduct its business in a manner which is understood by the revenue , despite heavy business risk, and further in a manner that will lead to higher revenue to the coffers of the tax gathere rs. Va rious decisi ons relied 15 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
upon by the L d. Authorised R epresentative also support the above view expresse d by us. According to the provisi ons of section 92 C A of the Income Tax Act, authority envisaged with the Ld. Transfer Pricing Officer is to se rve a n otice on the Assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the Assessee may rely in support of the computation made by him of the arm 's length price in relati on to the international transacti ons and then after hearing such evidences as produced before him and after taking into account all relevant materials gathere d, he shall order determining the arm's length price in relation to an international transaction by passing an orde r. In the present case L d. Transfer Pricing Officer has n ot perf ormed his duty of determining arm's length price of interest pay ment made by the Assessee of Rs. 1059412322/- but has analyzed and questioned the international tra nsactions entered into by the Assessee, of which he should have determined ALP only. The provisi ons of section 92C of the act provides that arm 's length price in relation to an international tra nsaction shall be determined according t o one of the prescribed methods, which sh ould be the most a ppropriate method, having regard to the nature of transaction and the functions performed. Therefore according t o this, the Ld. Transfer Pricing Officer is duty bound to apply one of the methods specifie d in that section to determine the arm's length price , having regard to the nature of the transactions and functions performed by the Assessee afte r consi dering into account the materials/ documents and evidences placed before him by the Assessee. In the present case Ld. Transfer Pricing Officer has stated that Assessee has failed to submit any documentary details of negotiation and convincing agreement for increasing interest rate. The nat ure of transaction involved in this case is payment of interest where the terms and conditions with respect to rate of interest have changed during the year, whereas the loan was granted in 2005. For benchmarking the interest transacti on it is necessa ry to conside r the factors such as:-
16 ITA Nos. 7476 & 7477Del/2018BG Exploration & Production India Ltd.
i) Prevailing economic situation
ii) Time Schedule of drawing down the debt
iii) repayment schedule,
iv) options of prepayment of the loan,
v) term / tenure of loan,
vi) tenure and periodicity of interest payments,
vii) withholding taxes burden on interest
viii) Security offered
ix) Credit rating of the group , AE and Payer entity
x) risk of currency
xi) Possibility and terms and condition of convertibility of Debt to equity.
The Ld. Transfe r Pricing Officer must have looked the agreement dated 31st of May 2005. According to clause No. 7, the interest is required to be paid on the interest payment date, which is 31st May each year, , the taxes on intere st, shall be on the account of the borrowe r accordin g to clause 9 of the agreement. Further, according to clause 5 of the agreement the cancellation of the facility is at the sole discretion of the lender, therefore there was no right of prepayment with the Assessee. With respect to the 2nd transaction of loan of US dollar 300 million there are also the clauses of repayment and prepayment in clause No. 4, there is also an agreement vide clause No. 3 of re writing the interest rate for a peri od of 5 years, the amount of repayment on prepayment shall be of at least 100000 US$, there is no reference of the currency in which the amount is required to be repaid. On the reading of a greement dated 21st of October 2009 and 31st of May 2005, it i s a ppa rent that there are certain different terms and con ditions in both the agreements. Therefore it is not proper to benchmark both the transactions of payment of interest with respect to tw o different loans whi ch are governed by two different agreements which has different terms and conditions as 'one transacti on'. Rega rding the claim of the Assessee with respect to the quotations of the bank, the 1st quotation is dated 10/10/2011 wherein vide letter dated 22/02/2012, a quote was provided from Citibank which says that quote for the currency is LIBOR +285 - 300 basis points and 17 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
does n ot include withholding tax es. Assessee with respect to other banks also took similar quotations. However, from the reading of the quotation it is not known that these qu otes a re with respect t o both the transactions of loan of US dollar 500 million and US dollar 300 million whe re there a re different terms and conditi ons of repayment prepayment. Most importantly, the Ld. T ransfer Prici ng Officer has not looke d at these evidences produced by the Assessee in the form of quotations of various banks, compa rable search by the Assessee on LPC/ deals can database. The Ld. Dispute Resolution Panel has also brushed aside the provision of se ction 92C of the Income Tax Act, which prescribes methodology for computation of a rms length price of an 'international transacti ons'. It has merely reiterated whatever has been stated by the Ld. Transfer Pricing Officer without applying the provisi ons of law to the facts of the case before them. In view of this we set aside the whole matter of determination of ALP of interest paid by the Assessee to its associate d enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the computation of ALP by the Assessee of above transaction strictly in accordance with the provisi ons of section 92C of the Income Tax Act considering the evidences placed by the Assessee before him and then decide the issue of adjustment, if any, on merits. Needless to say that Assessee may be given prope r opportunity of hearing to demonstrate that payment of int erest made by the Assessee to its associated ente rprise is at a rm's length according to one of the me thods supporting it with necessary and credible evide nces. In the result ground No. 2 of the appeal of the Assessee is allowed with above direction ."
23. The l d. Counsel for assessee rel i ed upon di recti ons i ssued by thi s Tri bunal whil e setting asi de the i ssue back to l d. TPO.
24. The l d. CIT DR di d not object for the i ssue to be set asi de wi th si mil ar di recti ons.
18 ITA Nos. 7476 & 7477Del/2018BG Exploration & Production India Ltd.
25. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. We al so refer to the speci fi c observati on by DR P reproduced he rei nabove. As both the parti es admi t that the i ssues under consi derati on are si mil ar and i denti cal wi th that of facts i n assessment year 2010-11. The di recti ons i ssued by thi s Tri bunal for assessment year 2010-11 more parti cul arly the underli ned porti on herei nabove are foll owed by us. Ld. CIT DR di d not object for the i ssue to be set asi de. We di rect the Ld. TPO/Asse ssi ng Offi cer to compute the rate of i nterest on the basi s of aforesai d di recti on and accordi ngl y i s set asi de to AO/TPO.
26. Ground Nos. 9 & 10 of the appe al of the assessee reads as under:
"Ground No. 9: Disallowance of branch office expenditure 9.1 The learned AO / DRP e rre d in law and in facts in disallowing the branch office expenditure of Rs. 38,28,48,276 by treating it as pre- operative in nature.
9.2 The learned AO / DRP erred i n not appreciating that the said expenditure was incurred wh olly and exclusively for the purpose of the Appellant's business in India.
9.3 The learned AO e rred in la w and in facts in observing that the payments made which are included in the branch office expenditure, were lia ble to be disallowed under se ction 40(a)(ia) of the Act.
9.4 The learned AO erred in not noting that the claim regarding dou ble disallow ance of Rs. 52,39,273, being depre ciation included in branch office expenditure, was already rectified by the learned AO in its order dated 21 Februa ry 2017.19 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
Ground No. 10: Disallow ance of expenditure incurred on non-producing Production Sharing Cont racts ("PSCs") 10.1 The learned AO / DRP e rred in law and in facts in disallowing the expenditure of Rs.2,15,34,15,982 incurred on non-producing PSCs."
Facts:
27. The appel l ant cl ai med expl orati on expendi ture i ncurred on non-produci ng bl ock of Rs. 215,34,15,982 i n terms of secti on 42(1) of the Act read wi th Producti on Shari ng Contract of Panna / Mukta and Mi d and South Tapti gas fi el ds. In pursuance of the sai d business, the appell ant from ti me to ti me i dentifi es prospecti ve areas contai ning mi neral s and carri es out expl orati on /drilli ng and/or producti on acti vi ti es therei n. Accordi ngl y, the acti vi ty of expl orati on / dri lling at any new si te/area consti tutes part and parcel of the exi sti ng busi ness and conse quentl y expendi ture incurred i n rel ati on thereto has been i ncurred wholl y and excl usi vel y for the purposes of such busi ness. During the course of the assessment proceedi ngs, the AO proposed to di sall ow the aforesai d expense by all egi ng that:
· As per cl ause 17.2.3 and 17.2.4 of PSC i n respect of Bl ock KG-DWN-2009/01, the expendi ture i ncurred by BGEPIL i n other PSCs pri or to comme rci al producti on shall be aggre gated and cl ai med only from the year of commerci al producti on. Therefore , expenses i ncurred by the appell ant i n respect of those oi l bl ocks where commerci al producti on has not yet commenced has to be amorti zed an d ca rri ed over and can be set off onl y when revenue i s earned from 20 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
such oil bl ocks after commencement of commerci al producti on.
· Secti on 42 i s a compl ete code in i tsel f whi ch all ows the appel l ant to cl ai m even the capital expendi ture i ncurred for the purpose of expl orati on and extracti on acti viti es, as provi ded i n PSCs entered i nto for the purpose. Taxabi li ty of profi ts of the appel l ant are stri ctl y as per provi si on of thi s secti on. Therefore, setti ng-off of expense of one fi el d cannot be al l owed from revenue of other oi l bl ock. The DRP uphel d the additi ons proposed by the AO.
28. Out of the total amount of Rs 215,34,15,982, an amount of Rs. 1,24,38,071 has been al rea dy been adjusted/ di sall owed by the TPO. Accordi ngly, the AO l imi ted the di sall owance to Rs. 214,09,77,911 [Rs. 215,34,15,98 2 - Rs. 1,24,38,071] to avoi d doubl e addi ti on/ di sall owance.
29. Ld. Counsel submi tted that Secti on 42 of the Act seeks to provi de addi ti onal all owance/benefit/deducti on to an eli gi bl e appel l ant, whi ch are otherwi se not avail abl e under the regul ar provi si ons of the Act, whi ch i s abundantl y cl ear from use of the phrase "i n addi ti on to the all owance permi ssi bl e under the Act". In other words, the secti on does not overri de or seek to take away benefi ts/deducti ons avail abl e to the eli gi ble appel l ant under any other provi sion of the Act, i n the absence of a non- obstante cl ause. Accordi ngly, where an assessee al ready carryi ng on busi ness of expl orati on and producti on of mineral oil , i ncurs any expenditure in pursuance of such exi sting busi ness, the same woul d be all owabl e business deducti on under secti on 37(1), de hors secti on 42 of the Act.
21 ITA Nos. 7476 & 7477Del/2018BG Exploration & Production India Ltd.
Ld. Counsel pl aced reli ance on deci si on of Del hi Bench of the Tri bunal i n the case of ONGC Vi desh Ltd. v. DCIT: 37 SOT 97.
30. The l d. Counsel at the outset submi tted that fact and ci rcumstances of the case a re si mil ar to assessment year 2010- 11 and thi s i ssue stands covered by thi s Tri bunal for assessment year 2010-11 as under:
"55. From the above cha rt it is appa rent that out of the total expenditure incurred of Rs. 931819021/- the Ld. Assessing Officer has allowed the expenditure of Rs. 471505233/- which is the cost of respective PSC and sha red with JV pa rtners. The balance cost which is not share d by the JV partners amounting to Rs. 460313788/- was disall owed for the reason that these cost have not been shared by the JV partne rs and therefore it is not incurred for the purposes of the business of the Assessee and hence disallowa ble. Further sum of Rs. 220983295/- included in the disallowance of Rs. 460313788/- was pertaining to the purchase of seismic data for exploring new opportunities in the business of the company under the pretext tha t these are with respect t o the future businesses which has not yet commenced. Therefore, prima ry the disallowances of Rs. 460313788/- includes a sum of Rs 22098 3295/- for pu rchase of seismic dat a an d balance am ount primarily with respect to time writing cost and development expenses. The time writing charges as it is explained by the Assessee are for the purpose of drilling and subsurface inputs, analysis and administrative expenses with respect to executive, finance, human resou rces, legal , commercial, etc the detailed breakup of these time writing charges f or each of the PSC cont ract were explained by the Assessee by giving breakup of their cost a s well as nature of those expenditure. Asse ssee explained that as it needs to safeguard its interest in the blocks it has employed technical experts for which time writing charges a re incurred. Further, for the support functions. It also hires several other persons and necessarily has t o incur other expenditure with respect to its finance and accounting activities, its 22 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
human resource activities and legal compliance and litigation activities. These expenditure are th ough incurred in support to the PSC contracts executed by the Assessee at may not be necessarily share d by the other joint-venture partners. Merely because it is not shared by others, which may be for many reasons, it cannot be said that the Assessee has n ot incurred these expenditure wholly and exclusively for the purposes of business of the Assessee. With respect to the details available with the Assessing Officer, It was n ot pointed out a si ngle instance that any of the expenditure are not incurred by the Assessee f or the purposes of its business. In fact, out of the total expenditure T he Ld. Asse ssing Officer has partly allowed the expenditure and partly disallowed the expenditure by using the single yardstick that if expenditure are shared by the JV same are all owable an d if same i s not share d by JV partners, then it is not allowable. We failed to see any such provision in the act that if the other party in the joint-venture do not agree to share the particular cost, the cost incurre d by one of the partners of that joint-venture becomes the expenditure not for the purpose of the business of that partner. No such provision has also been brought t o ou r notice by the reve nue. It is also not the case of the revenue that details of those expenditure are not available before them or Assessee has furnished incomple te information for its allowability. Further, no judicial precedent was cited before us by revenue, which says that such expenditure are n ot allow able to the Assessee. Therefore a ccording t o us the ex penses incurre d by the Assessee with respect to
i) KG-OS- 02004/1 of Rs.71638553/-
ii) MN - DWN - 2002/2 of Rs.10524 1649/- iii) KG-DWN-98/4 of Rs.6245 0283/-
cannot be disallowed. In view of this we dire ct the Ld. Assessing Officer to delete the disallowance made with respect to about 3 items.
56. Now coming to the claim of the deduction of expenditure of Rs. 220983295/- on account of purchase of seismic data a nd general and 23 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
administrative expenses in connection with the propose d NELP VIII, It is submitt ed by the Assessee that these were the expenses incurred by the Assessee with re spect t o the of fers which were invited for the 8th offer of blocks for national exploration licensing policy for w hich the Assessee has to purchase the data for the bidding purposes. The other expenses which a re the necessary gene ral and administrative expenses were incurred for project management, consultancy services, etc and also staff cost an d project man agement expenses were incurred. These expenses were disall owed by Ld. Assessing Officer holding that these are expenses for the future projects of the Assessee for which even the PSC is not executed. The Ld. Authorised Representative has submitted that this issue of allowability of this expen diture is covere d in its favour by the decision of ONGC Videsh Ltd versus DCIT [37 SOT 97] wherein it has been held as under:-
"15. With regard to disallowing claim of expenses of Rs. 43 .85 lakhs incurred for purchase an d evaluation of the seismic dat a of f oreign bl ocks, on the plea of same being capital in nature, we found that Assessee being engaged in the business of exploration and production of hydroca rbons in other countries to augment the oil resources of India, it was continuously evaluating various business opportunities before acquiring a particular field/bl ock. Since all these opportunities have to be evaluated and studi ed before taking decision to invest and enter into a contract, the process of evaluation of the bl ock starte d with submitting tender fee/data fee, etc. and then the seismic data had to be evaluated in seismic processing centre. After evaluating the same, the Assessee w as to take decision as to whether investments should be made in th e project or n ot. There is no dispute to the fact tha t in all industries an activity for furtherance of its business or evaluation of better profit-earning proce ss in one manner or other is undertaken. Effort to evaluate the prospects of better earning profit is not a separate activity but is in the course of conduct of 24 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
normal day-to-day business. Th ese expenditures cannot be said t o bring an endu ring benefit to the business nor the same can be said as initial outlay for expansi on of business. In the instant case, the expenditure so incurred by the Assessee i s for furtherance of activities undertaken by it in the normal course of its business. The same are incurred on continuous basis f or evaluation of business activities. In view of the decision of Bombay High Court in the ca se of CIT v. Essa r Oil Ltd. [IT Appeal No. 921 of 200 8, dated 16-10- 2008], such expenditure is to be allowed as revenue expenditure. Hon'ble Cal cutta High Court in the case of Kesoram Industrie s & Cotton Mills Ltd. v. C IT [1992] 196 ITR 845 held that where the setting up does not amount to starting of new business but expansi on or ex tension of the business already being carried on by the Assessee, expenses in connection with su ch expansion or extension of the business must be held to be deductible as revenue expenses. One has t o consider pu rpose of the expenditure and its object and effect. Accordingly, it wa s he ld that expenses pertaining to exploring feasibility of expansion or extension of business are revenue expenditure and not capital expenditure . The expenditure so incurred by the Assessee in the normal cou rse of business of exploration and production of oil, being revenue in nature, is liable to be allowed as a deduction. Similar claim was al so made by the Assessee in the ea rlier yea r. We, therefore, direct the Assessing Officer to allow the same as revenue expenditure. As we have all owed ground Nos. 3 t o 3.2, the alternate ground No. 3.3 as taken by the Assessee become infructuous."
[Extracted Taxmann.com][underli ne supplied by us] Neither the Ld. Assessing Officer nor the Ld. Departmental Repre sentative could press any other judicial precedent which sh ows th at amount spent by the assessing is not allowable as revenue expenditure under section 37 (1 ) of the act . It is also not the argument of the revenue that such 25 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
expenditure incurred by the Assessee is ca pital in nature. Furtherm ore, the Ld. AR has also pressed into several de cisions which say that that expenses incurred t owa rds extension of business which was subsequently abandon or did not fructify, are allowable. Therefore in view of t he above decisions wherein it is been held that the expenses for purchase of this kind of data i s unnecessary revenue expenditure requi red t o be incurred by the Assessee for the pu rpose of its busine ss and hence is allowable as revenue expenditure, we also direct the Ld. Assessing Officer to allow the expenditure incurred by the Assessee on purchase of data and other relevant expenses amounting to Rs.
220983295/-. In the result ground No. 6 of the appeal of the Assessee is allowed."
31. The l d. Counsel for the assessee submi tted that facts are si mil ar and i denti cal to that for year under consi derati on. On a questi on bei ng rai sed by the Bench rega rdi ng bi furcati on of expenses for year under consi dera ti on, the l d. Counsel poi nted out at page no. 9 pa ragraph 7.2 of fi nal assessment orde r wherei n the detail s of vari ous expenses i ncurred by Branch Offi ce and vari ous project offi ce has been tabul ated.
32. The l d. CIT DR oppose d for the same. However, coul d not controve rt the above reproduced observati on by thi s Tri bunal i n assessee's own case for earl i er years.
33. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. We fail to see any such provi si on i n the act that i f the other party i n the joint-venture do not agree to share the parti cul ar cost, the cost i ncurred by one of the partners of that joi nt-venture becomes the expendi ture not for the purpose of the busi ness of that partner. No such provi si on has al so been 26 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
brought t o our n oti ce by the revenue. It i s al so not the case of the revenue that detai l s of those expendi ture are not avail abl e before them or Assessee has furn i shed i ncompl ete i nformati on for i ts all owability. Further, no judi ci al precedent was ci ted before us by revenue, whi ch says that such expendi ture are not all owabl e to the Assessee. Accordi ngl y, these grounds rai sed by the assessee stands all owed.
34. Ground No. 11 of the a ppeal of the assessee reads as under:
"Ground No. 11: Disall owance of head office expenditure 11.1 The learned AO / DR P erred in law and in facts in applying the provisions of section 44C of the Act to payments made to BG International Limited.
11.2 Without prejudice, the AO h as erre d in computing allowance under section 44C with respect to the returned income and not income assessed."
Facts:
35. Ld. Counsel submi tted that the appell ant i ncurs expendi ture to undertake acti viti es requi red by the PSC, havi ng regard to i ts standa rd of ope rati on, i ncluding the quali ty of executi on of work, acce ss to l atest i ndustry i nformati on and gl obal updates, safety of i ts empl oyees and the envi ronment, etc. The expenses on such servi ces are requi red to be i ncurre d based on commerci al expedi ency determi ned by BGEPIL. The same are not necessari l y accepted by the JV pa rtners as the i ncurrence and need i s not dependent on the poi nt of vi ew of the other contractors in the JV (who likewi se may i ncur expendi ture based on thei r commerci al expedi ency having regard to thei r overall business and ci rcumstances, whi ch may vary from that of the BGEPIL i n di fferent aspects). However, 27 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
the cost woul d have to be i ncurred by BGEPIL ba sed on commerci al expedi ency, notwi thstandi ng that some cost ma y not be sha red by the JV pa rtners. As an Ope rator i n the PMT JV, BGEPIL i ncurs expenses as i t deems are appropri ate and necessary for con ducti ng the operati ons. Out of the sai d expendi ture, onl y the expendi ture whi ch i s approved by the Joi nt Operator Boa rd w oul d be debi ted to the JV account and shared by the JV pa rtners. The bal ance expendi ture woul d have to be borne by BGEPIL. Ld. Counsel rai sed foll owi ng arguments:
"Typically, costs are not shared with the JV in the following cas es:
1. The expense i s i ncurred i n order to safeguard BGEPIL's i nterest i n any oil bl ock in whi ch i t operates (such as anal ysi s on ri sks, anal ysi s of i nsurance, i nformati on management rel ated servi ces, HR i nternati onal support, accounti ng support, i nsurance support, taxati on support, marketi ng of oil and gas support, and cost control and fi nance servi ce functi on); or
2. It i s in rel ati on to support f uncti ons (such as HR, l egal , accounts an d fi nance, etc.) whi ch are i nevi tabl e for carryi ng on i ts business and i ncurred based on the commerci al expedi ency determi ned by BGEPIL (but not accepted by the Ope rator Board based on comme rci al expedi ency determi ned by them)]
3. It i s i ncurred to enabl e BGEPIL to perform operati ons under the PSC, sustai n i ts activi ti es and mai ntai n i ts standard of operati ons, based on the commerci al expedi ency determi ned by BGEPIL (but not accepted by the Operator Board determi ned by them)."28 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
36. He submi tted that i n case of poi nts '2' and '3' above, there coul d be occasi ons where BGEPIL deems i t necessary and expedi ent to i ncur certai n expendi ture for i ts busi ness, whereas, the other J V pa rtners ha ve a di fferent poi nt of vi ew i n the matter. In such case, some cost may not be shared by the JV.
37. Ld. Counsel submitted that the pri nci pal reason for the Joi nt Operator Board n ot approvi ng expendi ture i s its impact on cost re covery (as C ost Pet rol eum) and consequent profi t (as Profi t Petrol eum). As i t i s not i n the Government i nterest (i mpact on Profit Petrol eum) to consi der the hi gh cost of the full engagement, ONGC, l ooking i nto the Government's benefi t, attempts to push back costs outsi de the JV. However, i t does not al ter the nature of cost i n the hands of BGEPIL; the costs are expenses i ncurred whol l y and excl usivel y for the purpose of i ts busi ness of prospecti ng for, e xpl orati on and producti on of crude oi l and natural gas. Duri ng the subject assessment year, the appell ant had pai d Rs. 327,27,02,677 to BGIL i n respect of servi ces rendered by BGIL to th e appel l ant. However, out of the aforesai d expense, the operat or Boa rd of the PSC di d not approve expenses amounti ng to Rs. 306,13,07,141.
38. Duri ng the course of the assessment proceedi ngs, the AO all eged that the expendi ture i ncurred by BGIL for the acti vi ti es of the appell ant in Indi a were in nature of head offi ce expendi ture wi thin the meani ng of secti on 44C and that part of the aforesai d expendi ture whi ch was not approved by the Operat or Board of the PSC, was outsi de the purvi ew of secti on 42(1) of the Act. Accordi ngl y, such expenses i ncurred by the appel l ant were hel d to be in the nature of head offi ce 29 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
expendi ture all owabl e onl y to the extent of 5% of the adjusted total i ncome of the appel l ant. The AO di d not, however, make any addi ti on si nce the sai d expenses had al ready been di sall owed by the TPO. The DRP di d not i nterfere wi th the acti on of the AO.
39. At the outset, Ld. C ounsel submitted that thi s i ssue has been deal t wi th by the Co-ordi nate Bench of thi s Tri bunal for assessment years 2010-11 and 20 12-13. He submitted that the assessee has i ncurred expenses to undertake acti vi ti es requi red by the PSC wi th regard to i ts standard of operati on, i ncl udi ng the quali ty of executi on of work, access to l atest i ndustry i nformati on and gl obal updates, safety of i ts empl oyees and envi ronment etc. and all these expenses are i ncurred on the basi s of commercial expedi ency determi ned by the taxpayer and the same need not be accepte d by the joi nt venture partner. Ld. AR for the taxpayer contended that i denti cal i ssue has al ready been deci ded i n favour of the taxpayer i n its own case for AY 2010-11 (supra).
40. He submi tted that thi s i ssue had been adjudi cated by coordi nate Bench of the Tri bunal in assessee's own case for AY 2010-11 and deci ded as under:
"31.......Coming to the facts of the impugned ground, the Ld. Assessing Officer has di sallowed the same expenditure for the only reason that had the same were incurred f or the produ ction it should have been passed through the joint venture and shared by all the partners and these expenses are not incurred wholly and actually for the purpose of the business of the Assessee. Natu re of the ex penses which have been disallowe d by the Ld. Assessing Officer a re a s under:-30 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
Particulars Amount Tanker & Related Cost s 115,534,442 Tug Boat Costs 70,464,943 Safety Environment & 11,355 Materials Technical & Engineering 316,786,095 Services Less: Reversal of Water (8,344,443) Transportation & other charges Total BG Exclusive 494,452,392 Production Cost.
The above expenditu re a re in th e nature of tanke r expenditure, tug and boat e xpenditure, safety environment and material expenditure as well a s technical and engineering services. During the course of assessment procee dings, the Assessee has furnished the details of those expenditure. Merely because the joint-venture partners are not sharing the cost/expenses which is been incurred by the Assessee, It does not become disallowable in the hands of the Assessee. We find no such con dition existing either under section 42, or under se ction 37 (1) of the Income Tax Act. There fore, we reje ct the contention of the revenue that unless the expenditure is not borne by all the JV partners the expenses cannot be allowed to the Assesse e. In fact , if the J V partners sha re the expenditure, there cannot be any question of claim of such expenditure in the hands of the Assessee, once again. Furth er, if the expenses are not specified in the agreement u/s 42 (1), even if the JV pa rtners a gree t o sha re t hose expenditure, it is not allowable u/s 42 (1) or section 37 (1) of the act. Now it needs to be examined, whether the Assessee has incurre d expenditure for the pu rposes of its business or not . The Asse sse e has stated that it has incurred such expenditure having regard to it s standard of operation and the quality of execution work, safety of its employees i n the environment.
These expenses a re re quired to be incurre d by the Assessee base d on the commercial expediency. The Assessee has stated that in relation to the support functions, which are innovatively inevitable for 31 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
carrying on its business and incurred ba sed on the commercial expe diency are expenses belonging to the Assessee which cannot be accept ed by the operating boa rd. Furthe r, there may be certain expenditure which are required to be incurred to enable the Assessee to perform its ope ration under the production sha ring contract sust aining its activities and maintaining its standard of operations. It is irrelevant whether the joint operator boa rd has approved such expenditure or not because there may be several other reasons for joint- venture partners to not to sha re the expenditure. The Ld. Assessing Officer as well as the Ld. Disput e Resolution Panel, despite having the necessary details of the expenditure did not point out the single instance that these expenditure are n ot incurred by the Assessee for the purposes of its busine ss. Me rely making references to the vari ous judi cial precedents withou t putting to the facts on record about incurring of the expenditure by the Assessee or non-business purposes disallowance made by the Ld. and Assessin g Officer cannot be upheld. Instead, despite full details available with them they have denied the claim to the Assessee. Neither the a ssessing officer and n or th e Dispute resolution Panel point out nature of details which was n ot submitted by the Assessee when pa rt of the expenditure has already been considere d in detail at the time of determining Arms; Length of the transaction. In view of no adverse inference from the lower authorities on the details submitted, we are constrained t o allow the claim of the Assessee of deductibility of the above e xpenditure of Rs. 316786095/-. In the result ground No. 3 of the appeal of the Assessee is allowed.
41. Keepi ng i n view the facts and ci rcumstances of the case and the fact that busi ness model has not undergone any change si nce the AY 2010-11 a nd by fol l owing the deci si on rendered by the coordi nate Bench of the Tri bunal in taxpayer's own case for AY 2010-11, we are of the consi dered vi ew that the cost of servi ces avail ed of by the taxpayer requi red by PSC wi th regard t o i ts standard of operati on incl udi ng the quali ty of 32 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
executi on of work, acce ss to l atest i ndustry i nformati on and gl obal updates, safety of i ts empl oyees and the envi ronment etc., cannot be di sall owed merel y on the ground that the sai d expenses have not been borne by the joi nt venture partner, parti cul arl y when i t i s not di sputed by the Revenue that the expendi ture were made for commerci al expedi ency.
42. The l d. CIT DR opposed t o the same and submi tted that the i ssue has been contested before the Hon'bl e Hi gh Court.
43. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. We fail to see any such provi si on i n the act that i f the other party i n the joint-venture do not agree to share the parti cul ar cost, the cost i ncurred by one of the partners of that joi nt-venture becomes the expendi ture not for the purpose of the busi ness of that partner. No such provi si on has al so been brought t o our n oti ce by the revenue. It i s al so not the case of the revenue that detai l s of those expendi ture are not avail abl e before them or Assessee has furn i shed i ncompl ete i nformati on for i ts all owability. Further, no judi ci al precedent was ci ted before us by revenue, whi ch says that such expendi ture are not all owabl e to the Assessee. Accordi ngl y, thi s ground rai sed by the assessee stands all owed.
44. Ground No. 12 of the a ppeal of the assessee reads as under:
"Ground No. 12: Disallow ance of depreciati on an d depletion 12.1 The learned AO erred in l aw and in facts in disallowing depreciation of Rs. 22,47,06,553 being 33 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
the difference of depreciation amount between the tax audit report and the computati on.
12.2 The learned AO/DRP erred in not appreciating that this difference is on account of depre ciation claimed on Global IT & T expenditure and that depreciati on claim on Global IT & T expenditure was allowable as held by the Hon'ble ITAT in assessee's own case for AY 2010-11.
12.3 The learned AO / DRP erred in not appreciating that this difference is on account of difference in opening WDV of assets on first da y of the captioned assessment year which was a ccepted by the revenue authorities in earlier years."
Facts:
45. Ld. Counsel submi tted that the AO i n assessment orde r hel d that there was di fference in the depreci ati on and depl eti on amount as submi tted by the appell ant i n i ts computati on of i ncome and the tax audi t report a nd despi te gi vi ng opportuni ty, the appell ant coul d not provi de any justi fi cati on for the sai d vari ance. The DRP merel y uphel d the di sall owance proposed by the AO. In thi s regard, the appell ant vi de submi ssi on dated 11th December, 2017 had submitted that the di fferences i n the actual cost of addi ti ons to fi xed assets as per the tax audi t report and as per the computati on of total i ncome i s on account of di fference i n depreci ati on pertai ni ng to bl ock "Computer Systems and Software" (amounting to Rs. 19,48,05,630) and the bal ance di fference of Rs. 26 5,85,446 was on account of di fference in other bl ock of assets.
46. Further, the appel l ant had submi tted that the di fference i n openi ng bal ances of assets as per the tax audi t report and the computati on of i ncome i s al so due to the fact that the appell ant had ca pi tali sed certai n amounts i n the respe cti ve assessment 34 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
year whi ch were treated as revenue expendi ture by the tax audi tor. Further, the major portion of the di fference i n the openi ng WDV of assets i s on account of di fference i n the bl ock 'Computer Systems and Software ' wherei n the appell ant had capi tali sed 'Gl obal IT & T' cost paid to BG Internati onal Limi ted i n previ ous years.
47. As re gards, di fference i n amount of depreci ati on of Rs. 19,48,05,630, Ld. Counsel submi tted that in the previ ous years, the amount of 'Gl obal IT & T' cost pai d to BG Internati onal Li mi ted was consi dered as capi tal i n nature by the assessee and accordi ngl y the same was capi tali zed and appel l ant had cl ai med depreci ati on thereon. However, the tax audi tor i n the Tax Audi t Report consi dered thi s as revenue i n nature. He submi tted that, i n vi ew of the aforesai d difference i n the WDV of the assets, there is consequenti al di fference i n the amount of depreci ati on of Rs. 19,48,05,630 cl ai med duri ng the year under consi derati on. Ld. Counsel submi tted that even though the aforesai d amounts have been treated as revenue expendi ture by the tax audi tor in the respecti ve previ ous years, thei r vi ew was not bi ndi ng on the appell ant and hence, the same have been capi tali sed by the appel l ant and depreci ati on has been cl ai med thereon. Reference i s made t o Sr. No. 70.10 of Gui dance Note on Tax Audi t under secti on 44AB of the Act i ssued by the Insti tute of Chartere d Accountants of Indi a wherei n it has been menti oned that vi ew taken by tax audi tor i s not bi ndi ng on the appell ant. The rel evant paragraph has been reproduced as under:
"70.10 The opinion expre ssed by the tax auditor i s not binding on the assessee. If the tax auditor has qualified his report and expressed an opinion on a 35 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
particular item, the assessee m ay take a different view while preparing his return of income."
48. Thus, i t will be appreci ated that even Gui dance Note on Tax Audi t recogni zes that an appell ant can take a di fferent stand i n the return of i ncome i f he has a bonafi de reason.
49. The l d. Counsel at the outset submi tted that thi s i ssue has been consi dered by thi s Tri bunal i n assessment year 2010-11 as under:
"41. We have carefully conside red the rival contention and also noted the facts that BGIL has a cquired an d developed certain IT infrast ructure and software for the benefit of BG Group of companies. Such assets include production data ba se management system, SAP up gra dation, efficient budgeting and forecasting systems, field development training programs, geosciences/ge ophysics simulations, integrated asset modeling systems, sophisticated e-mail facility etc. BGIL has allocate d the cost of these assets t o its Group companies including Assessee at cost based in allocation methodology decide d at the group level. Assessee has capitalize d these costs in the book of accounts. Du ring the year, BGIL had allocated an expense of Rs. 80,13,26 ,640/- t o the appellant out of which Rs. 66,61,30 ,450/- had been capitalized and balance was accounted as w ork in progress. The appellant had claimed depreciation of Rs. 3,30,05,676/- on the IT infrastru cture and software. The Ld. Dispute Resolution Panel has stated that even the beneficial ownership of the assent also entitles the Assessee to claim the depreciation if the test of user is proved. In the present ca se, we do n ot think that there is any doubt about the ownership of the IT infrastructure in question a s per paragraph No. 11.1 of the direction of the Ld. Di sput e Resolution Panel. Therefore only issue now remains is to be seen whether the Assessee has properly demonstrate d before the Ld. Asse ssing Officer that the Assessee ha s used the assets for the purposes of the business. It is better to look at what kind of assets the Assessee are owned by and used by it. Assets are production 36 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
database management system, SAP up gradation, budgeting and foreca sting system, training programs, simulations software , asset m odeling systems and email facilities. When the Assesse e is pa rticipating in such a huge producti on sharing contract , It is t oo naïve to think that production da tabase management system and SAP, training programs, simulations programme and email facilities have not been used by the Assessee. Issues have also been examined at the time of determining Arm's length price of these expense. The actual cost of these assets are not doubted by the Ld. Assessing Officer. In view of this we are of the opinion that these assets are beneficially owned by the Assessee and are used for the purposes of the business of the Assessee, therefore entitles Assessee to cla im the depreciation on these assets. In view of this ground No. 5 of the appeal of the Assessee is allowed."
50. As rega rds di fference i n depreci ati on of other assets of Rs. 2,65,85 ,446, the appel l ant submi ts that the aforesai d di fference i s on account of the fact that the appell ant had capi tali sed certai n costs as part of the cost of the fi xed assets and appel l ant had cl ai med depreci ati on thereon. However, the tax audi tor i n the Tax Audi t Report consi dered thi s as revenue i n nature. In thi s regard, the appel l ant submi ts that even though the aforesai d amounts have been treated as revenue expendi ture by the tax audi tor in the respecti ve previ ous years, thei r vi ew was not bi ndi ng on the appell ant and hence, the same have been capi tali sed by the appel l ant and depreci ati on has been cl ai med thereon. Reference i s made t o Sr. No. 70.10 of Gui dance Note on Tax Audi t under secti on 44AB of the Act i ssued by the Insti tute of Chartere d Accountants of Indi a wherei n it has been menti oned that vi ew taken by tax audi tor i s not bi ndi ng on the appell ant. The rel evant paragraph has been reproduced as under:
37 ITA Nos. 7476 & 7477Del/2018BG Exploration & Production India Ltd.
It will be appreci ated that even Gui dance Note on Tax Audi t recogni zes that an appel l ant can take a di fferent stand i n the return of i ncome i f he has a bon afi de reason. In thi s regard, reli ance i s pl aced on the deci si on of the Hon'bl e Bombay Hi gh Court i n the case of Mel moul d Corporati on v. CIT (202 ITR 789) where the Court hel d that cl osi ng val ue of an asset of previ ous year ought to be taken a s openi ng val ue of the asset f or the i mmedi ately succeedi ng year. Rel evant extracts of the deci si on are as under:
"Thus, the value of the closing stock of the precedin g year must be the value of the opening stock of the next year. The change therefore, has to be effected by adopting the new method for valuing the closing stock which will, in its turn, become the value of the opening stock of the next year. If instead, a procedure i s adopted for changin g the value of the opening st ock, it will lea d t o a chain rea ction of changes in the sense that the closing value of stock of the year preceding will also have to change and correspondingly the value of the opening stock of that year and so on."
51. Reli ance was al so pl aced on the deci si ons of the Hon'bl e Supreme Court i n the case of VKJ Buil ders & Contractors P Li mited v. CIT (318 ITR 204) wherei n i t has been hel d that i t i s the fundamental pri nci pl e of accountancy that the fi gure of the cl osi ng stock of the earli er year has to form the openi ng stock of the next accounti ng year. To the same effect i s the deci si on of the Hon'bl e Bombay Hi gh Court i n the case of CIT v. Corporati on Bank Li mi ted (174 ITR 616).
52. In vi ew of the above bi ndi ng precedents, the AO ought to be di rected to accept the openi ng WDV of assets as submi tted by the appel l ant i n the schedule to computati on of i ncome whi ch i s arri ved from the cl osing WDV of fi xed assets of 38 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
previ ous year. Accordi ngl y, the AO be di rected to del ete di sall owance on account of di fference i n depleti on as per th e computati on of income and tax audi t report. Wi thout prejudi ce, it is submi tted that if the expendi ture capi tali sed by the appel l ant i n previ ous years i s not hel d to be capi tal in nature and depre ci ati on and depl eti on on capi tali sed porti on is subsequentl y di sall owed, the amount capi tali sed by the appel l ant shoul d be all owed as deducti on under secti on 37(1) of the Act i n the rel evant assessment year.
53. The l d. CIT DR has no objecti on for the above i ssue to be set asi de to l d. AO/TPO.
54. After heari ng both the si des and consi deri ng the totali ty of the facts of the case, we deem i t prope r to restore the i ssue to the fil e of the Assessi ng Offi cer wi th a di recti on to give an opportuni ty to the assessee to substanti ate i ts case. The Assessi ng Offi cer shall deci de the i ssue as per fact and l aw after gi vi ng due opportuni ty of being heard to the assessee . We hol d and di rect accordi ngl y. The ground rai sed by the assessee on thi s i ssue i s all owed for stati stical purposes.
55. Ground No. 13 of the a ppeal of the assessee reads as under:
"13. Disallowance of loss on transportati on 13.1 The learned AO e rred in disallowing loss on transportation of condensate on t he ground that the expenditure cannot be all owed on the basis of the provisi ons made by the assessee."39 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
Facts:
56. Ld. Counsel submi tted that ONGC, Reli ance Industri es Li mited and BG Expl orati on and Producti on Indi a Li mited ('JV partners') have entered i nto a settl ement agreement dated 31 December 2005 wi th ONGC ( 'Tran sporter') for transportati on of gas and condensate from the Mid and South Ta pti Contract Areas from the Tapti Delivery poi nt to PMT redel i very poi nt. He submi ts that as per the cl ause 4.4 of the agreement, the l osses on transportati on of gas shall be determi ned by a Condensate expert to be joi ntly appoi nted by the JV Partners and the Transporter. Pendi ng appoi ntment of the expert, BGEPIL has provi ded for transportati on l osses @ 6% of the con densate revenue on esti mated basi s. It was submi tted that aforesai d esti mate of 6% has been deri ved on a reasonabl e basi s. For the same PSC, the JV partners had entered i nto Memorandum of understandi ng ('MOU') wi th ONGC for transportati on, separati on and processi ng of gas. As per the MOU, the transportati on l osses from the sal e of condensate we re esti mated to be 6% (preli mi nary deducti on of 1% and addi ti onal deducti on of 5% of number of BTU's i n condensate as per cl ause 5 of the MOU). Ld. C ounsel submi tted that consi stent wi th method of estimati on in MOU, BGEPIL had provi ded for transportati on l oss of Rs. 5,58,80,591, the basi s of reasonabl e esti mate i n i ts books (i .e. as per MOU entere d i nto between JV partners and ONG C).
57. Ld. Counsel submi tted that the AO i n assessment orde r errone ousl y observed that the aforesai d provi si on has not been reversed i n the subsequent year. He submi tted that the AO rel yi ng on the deci si on of Seagram Di still eri es P Ltd. V. CIT 40 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
(SLP to Appeal (c) No. 12102 of 2016) concl uded that the aforesai d expendi ture i ncurred ca nnot be al l owed on the basi s of the provi si on made by the appel l ant. The DRP uphel d findings of AO. Secti on 145 of the Act pre scri bes the method of accounti ng to be fol l owed by the appell ant for computi ng i ncome chargeabl e under the head 'Profi ts and gai ns of busi ness or professi on'. Se cti on 145(1) states that the computati on woul d be 'i n accordance wi th ei ther cash or mercantil e system of accounti ng regul arl y empl oyed by the appel l ant.' Secti on 145(2) further states that the Central Government may noti fy from ti me to ti me 'accounti ng standards to be fol l owed by any cl ass of appell ant's or i n respect of any cl ass of income.'
58. Ld. C ounsel submi tted that, as pe r accounti ng standards, the li abili ty is refl ected even where there is no actual expendi ture; li kewi se the i ncome is refl ected even where there i s no actual recei pt of money. Moreover, secti on 209(3) of the Compani es Act, 1956 makes i t mandatory for compani es to keep accounts on accrual basi s onl y. It was su bmi tted that accounti ng standards i ssued by the Insti tute of Chartered Accountant of Indi a requi re that accounti ng poli ci es must be governed by the pri nci ple of 'prudence'. Accounti ng Standard-1 provi des that provi si on shoul d be made for kn own li abiliti es and l osses even though the amou nt cannot be dete rmi ned wi th substanti al accuracy and represents onl y a best esti mate i n the li ght of avail abl e i nformati on. Ld. Counsel stated that, what i s requi red, therefore, is that all anti ci pated li abiliti es and foreseeabl e l osses have to be provi ded for, whil e cauti on i s to be exerci sed agai nst accounti ng for unearned gai ns. Ul timatel y 41 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
the emphasi s i s on presenti ng a true and correct state of affai rs of the company as a going concern.
59. Ld. C ounsel then submi tted that as per Incom e Computati on and Di scl osure Standard ( 'ICDS') - X rel ating to provi si ons, conti ngent li abiliti es and conti ngent assets i ntroduced by Central Boa rd of Di rect Tax vi de Noti fi cati on dated 31 Ma rch 2015 (whi ch i s appli cabl e from Financi al Year ('FY') 2016-17 onwards) , a provi sion i s recogni sed onl y when:
• person has a present obl i gati on as a resul t of a past event; • it is reasonabl y certai n that an outfl ow of re sources embodyi ng economi c benefi ts will be requi red to settl e the obl i gati on; and • a reli abl e esti mate can be made of the amount of the obl i gati on.
60. He submi tted that in the present case, provi si on for transportati on l oss i s a present obli gati on as a resul t of past event, i t i s reasona bl y certai n that an outfl ow of resou rce s embodyi ng economi c benefi ts will be requi red to settl e thi s obl i gati on, and a reasonabl e estimate can be made for thi s obl i gati on and hence thi s provisi on shoul d be all owed as deducti on. He further submi tted that appell ant has mai ntai ned accounts on mercanti l e basi s and the fi nanci al statements prepa red gi ve a true and fai r vi ew of the fi nanci al posi ti on of the Company, as certi fi ed by the statutory audi tors. Even the statutory audi tors have accepted that the provi si on of Rs 5,58,80,591 has been made tow ards transportati on l oss. He submi tted that, it is a well -known pri nci pl e in mercantil e system of accounti ng that i f the expendi ture i ncurred pertai ns to the year i n questi on then the deducti on shoul d be all owed 42 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
notwi thstandi ng the fact that the bill s have been rai sed i n the current year or i n the subsequent year and vi ce versa . It wa s thus submi tted that, i t i s the duty of the appell ant to provi de for a known expendi ture on the basi s of contractual arrangement, even i f no bill i s recei ved in the parti cul ar year.
61. The l d. Counsel at the outset submi tted that thi s i ssue has al ready been consi dered by thi s Tri bunal for assessment yea r 2012-13 as under:
"30. When we examine the facts and circumstances of the case in view of the admitted case of the taxpayer that du ring the AY 20 16-17, independent expert appointed by the joint venture partners ha d determined the loss on condensate at 1.7% an d without prejudice, the taxpayer also made a praye r for allowing the loss of t ransport of condensate @ 1.7% during the yea r under assessment, we a re of the considered view that when undisputedly as pe r settlement agreement entered into between the taxpayer, ONGC and Reliance Industries Limited with ONGC (transporter) for transportation of gas an d condensate, the loss is t o be determined by the expert appointed by the joint venture partners, there is no question to resort to the estimation to claim such loss. More so in AY 2016-17, loss has been determined by the expert appointe d as pe r settlement agreement @ 1.7%. So, we are of the consi dere d view that the matter is required t o be remanded back to the AO to decide afresh after providing an opportunity of being heard to the taxpayer by following the rule of consistency. So, ground n o.13 i s determined in favour of the taxpayer for statistical purposes."
62. The l d. CIT DR has no objecti on for the above i ssue to be set asi de to l d. AO/TPO.
63. After heari ng both the si des and consi deri ng the totali ty of the facts of the case, we deem i t prope r to restore the i ssue 43 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
to the fil e of the Assessi ng Offi cer wi th a di recti on to give an opportuni ty to the assessee to substanti ate hi s case as per the di recti on of the DRP. The Assessi ng Offi cer shall deci de the i ssue as per fact and l aw after giving due opportuni ty of bei ng heard t o the assessee. We hol d and di rect a ccordi ngl y. The ground rai sed by the assessee on thi s i ssue i s all owed for stati sti cal purposes.
64. Ground No. 14 of the a ppeal of the assessee reads as under:
"Ground No. 14: Disallow ance of inventory written off 14.1 The learned AO e rre d in law an d in facts in disallowing inventory written off of Rs. 38,04,951 on the basis that the Appellant submitted only internal documents which do not suffice for allowance of expenditure.
14.2 The learned AO / DRP erred in not appreciating that amount of obsolete inventory written off was debited to the Profit and Loss Account which has been audited by an independent auditor."
Facts:
65. Ld. Counsel submi tted that appell ant had submi tted before Ld. AO vi de letter dated 11 t h December, 2017 that i nventories wri tten off were obsol ete and not usabl e for dri lli ng of future well s and hence wri tten off and cl ai med as a de ducti on i n the computati on of total i ncome. The appell ant had submitted detail ed item-wi se li st of i nventory whi ch had become obsol ete and subsequent to i nternal procedures and due di li gence of the company, the aforesai d inventory of Rs. 38,04,951 was w ri tten off i n the books and cl aimed as a deducti on in the computati on of total i ncome. The method of wri te off of obsol ete i nventory i s i n accordance wi th system of accounti ng regul arl y foll owed 44 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
by the appel l ant whi ch is al so in compli ance Accounti ng Standards. Attenti on i s i nvi ted to Note 2 of the Fi nanci al Statements for the year unde r consi derati on wherei n, it has been menti oned that the financi al statements have been prepa red to com pl y i n all materi al aspects wi th the accounti ng standards noti fi ed under Section 211 (3C) [Compani es (Accounti ng Standards) Rul es, 2 006 as amended and other rel evant provi si ons of the Compani es Act, 1956. Supporti ng documents (dul y acknowl edged by seni or dri lling engi neer of the Company) stati ng that such i nventory was not usa bl e in future were submi tted wi th the AO. Ld. Counsel submi tted that appel l ant accordi ngl y cl ai med deducti on for obsol ete i nventory wri tten off under secti on 37(1) of the Act. He pl aced reli ance on Annexure of Audi t report for the year under consi derati on submi tted during the course of assessment proceedi ngs for the capti oned year, i n whi ch i t i s opi ned that the method of accounti ng of the appell ant wi th respect to i nventory i s proper. It i s submi tted that i ndependent audi tor i n hi s report i n para ii of the Annexure to the Audit report for the capti oned year has menti oned as under:
Para i i (a). The producti on and drilling i nventory of the Indi an operati ons has been physi cally veri fi ed by the Management duri ng the year.
Para i i (b) states that the procedu res of physi cal verifi cati on of dri lling inventory and producti on i nventory foll owed by the Management are reasona bl e and adequate i n rel ati on to the si ze of the Indi an operati ons and nature of i ts busi ness. Para i i (c) states that the Indi an operati ons i s mai ntaini ng proper records of i nventory.45 ITA Nos. 7476 & 7477Del/2018
BG Exploration & Production India Ltd.
66. Ld. Counsel submi ts that assessee pl aced a sound i nternal control mechani sm to determi ne obsol ete i nventory to be wri tten off duri ng the year whi ch was al so supported by the audi tor of i nternati onal repute i n hi s audi t report. He submi tted that the onl y reason f or di sall owance of af oresai d l oss gi ven by the AO was that the appell ant had submi tted a report by i ts Seni or Drilling Engi neer and not of an independent audi tor. Accordi ngl y, the AO concl uded that the obse rvati ons i n the deci si on of the Hon'bl e Bombay Hi gh Court in the case of Al fa Laval (Supra) are n ot appl i cable to the appel l ant. In thi s regard, Ld. Counsel submi ts that amount of obsol ete i nventory wri tten off has been debi ted to the Profi t and Loss Account whi ch has been audi ted by an independent audi tor. The appel l ant submi ts that the aforesai d wri te off of obsol ete i nventory has been audi ted and t he quantum of wri te off al so forms pa rt of the audi ted fi nanci al statements. In vi ew of the aforesai d di scussi ons, i t was submi tted that si nce the basi s of di sall owance i n the assessment orde r does n ot survi ve (i .e. audi t report of i ndependent audi tor is avail abl e), no di sall owance can be made wi th respect to the l oss on account of i nventory wri tten-off.
67. The l d. Counsel at the outset submi tted that thi s i ssue stands squarel y covered by the order of thi s Tri bunal for assessment year 2012-13 as under:
"38. AO/DRP have di sallowed an amount of Rs.1,54,16,938/- claimed by the taxpayer on account of inventory written off on the ground that certain internal documents furnished by the taxpayer are not enough for allowing of theses expenditure. The ld. AR for the taxpaye r contended t hat the expenditure has been claimed as per method of write off obsolete inventory in accordance with the system of 46 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
accounting re gularly followe d and relied upon Note-II of Financial Statements for the year unde r assessment wherein it is stated that the financial statements have been prepare d to comply with all material aspects with accounting standard notified u/s 211(3C) of the Companies (Accounting Standards) Rules, 2006 as amended and other relevant provisions of the Companies Act, 1956 . The taxpayer also relie d upon the supporting documents prepa red by Senior Drilling Engineer of the company certifying that such inventory was not usa ble in future and was produce d before AO and consequently claimed deduction for the obsolete inventory written off u/s 37(1) of the Act and relied upon the decision re ndered by Hon 'ble Bombay High Court in case of Alfa Laval India Lt d. vs. DCIT - 266 ITR 418 (Bom.), affirmed by the Hon'ble Supreme Court by judgm ent reported in 295 ITR 451. The ld. AR for the taxpayer also contende d that the taxpayer has submitted audit report of an independent auditor prepa red on the basis of physica l verification and maintenance of inventory durin g assessment proceedings and furt her relied upon the decision rendered by coordinate Bench of the Tribunal in Gillette India Ltd. vs. A CIT - 66 taxmann.com
221. Ld. DR f or the Revenue to repel the arguments addressed by the ld. AR for the taxpayer relied upon the orders of AO/DRP.
39. While deciding the identical issue, the Hon'ble Bombay High Court in case cited as Alfa Laval India Ltd. vs. DCIT ( supra) held as under:-
"Held, (i) that the duly certified auditor's report placed before the Assessing Officer clearly justified valuation of obsolete items at 10 per cent. of cost . There is no dispute that the asse ssee is entitled to value the closing stock at market value or at cost whichever is lower. It is also not i n dispute that the value of the closing st ock has been taken as the value of the opening stock in the subsequent year. More over, it is also n ot disputed that the obsolete items were in fact sold in the subsequent year at a price less than 10 per cent. of the cost. In the absence of any basis for valuing the obsolete items at 50 pe r cent. of the cost , the Tribunal could not 47 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
have upheld the findings of the Assessing Officer."
40. Hon'ble Delhi High Court in case cited as CIT vs. Bh arat Comm erce and Ind ustries Ltd. - 240 ITR 256 (Del.) held that, " An assessee is free t o adopt a particular method of valuation of its closing stock which it has to f ollow regularly from year t o year. At the same time it is well settled that irrespe ctive of the basis adopted for valuation for earlier yea rs, the asse ssee has a n option to change the method of valuation of closing stock, provided the change is bona fide and followed re gularly thereafter."
41. In view of the settlement proposition of la w discussed in the preceding paras, we are of the considere d view that when the taxpayer has prepa re d obsolete inventory in accordance with the system of accounting regularly followed by it in compliance to section 211 (3C) of the C ompanies (Accounting Standards) Rules, 2006 a s a mended and othe r relevant provisi ons of the C ompa nies Act, 1956 an d has duly got prepa red audit ed report of an independent auditor on the basis of physical verification and in view of the maintenance of inventory, the disallowance made by the AO/DRP i s not sustainable in the eyes of law."
68. The l d. CIT DR has no objecti on for the above i ssue to be set asi de to l d. AO/TPO.
69. After heari ng both the si des and consi deri ng the totali ty of the facts of the case, we deem i t prope r to restore the i ssue to the fil e of the Assessi ng Offi cer wi th a di recti on to give an opportuni ty to the assessee to substanti ate hi s case. The Assessi ng Offi cer shall deci de the i ssue as per fact and l aw after gi vi ng due opportuni ty of being heard to the assessee . We hol d and di rect accordi ngl y. The ground rai sed by the assessee on thi s i ssue i s all owed for stati stical purposes.
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70. Ground No. 15 of the a ppeal of the assessee reads as under:
"Ground No. 15: Addition on account of difference in revenue as per Form 26AS and profit and loss account 15.1 The learned AO / DRP erred i n making an addition of Rs. 1,01 ,66,288, bein g the difference of revenue received from ONGC as reflected in Form 26AS and appellant 's books, without appre ciating that the difference is due to the interest income earned on income tax refund by the applica nt and inadvertently not considere d the same as income."
71. The l d. Counsel for the assessee di d not press thi s ground of appeal . Hence, the same i s di smi ssed as not pressed.
72. Ground No. 16 of the a ppeal of the assessee reads as under:
"Ground No. 16: Foreign exchange loss 16.1 The learned AO/ DRP erred in di sallowing the foreign exchange l oss of Rs. 2 ,07,34,181 by n ot appreci ating that where the foreign exchange gain has been taxed in the previ ous years, foreign exchange loss in the subsequent years needs to be allowed."
Facts:
73. Ld. C ounsel submitted that forei gn exchange l oss i ncurred by the Company i s debi ted to the Profi t and Loss account i n vi ew of the speci fi c provi si ons of the Producti on Sha ri ng Contracts where f orei gn exchange l oss i s consi dered a s a n all owabl e deducti on. He pl aced reli ance is pl aced on the deci si on of the Uttarakhand Hi gh Court i n CIT v. Enron Oi l and Gas Indi a Li mi ted (305 ITR 68) whi ch has further been affi rmed by the Hon'bl e Supreme Court i n CIT v. Enron Oil and Gas Indi a Li mi ted) (305 ITR 75).
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74. The l d. Counsel at the outset submi tted that the i ssues stands covered by the orde r of thi s Tri bunal for assessment year 2012-13 as under:
"53. AO/DRP have made addition of R s.63,65,958/- on account of difference in revenue as per Form 26AS and profit & loss account. It is contended by l d. AR for the taxpayer that the difference of Rs.63,65,958/- was on account of difference in foreign exchange rate which is to be governed by the terms of PSC an d relied on para 15.3.2 of Article 15 - Taxes, royalties, rentals, etc. of the PSC for Mid a nd South Tapti Field and the Revenue from petroleum operati ons shall be determined in accordance with Article 19 of the PSC. For rea dy perusal, relevant article of PSC is extracte d as under:-
"The revenue from the business consisting of Petroleum Operations shall be determined in accordance with Article 19 for its Participating Interest share of Crude oil saved and sold, or otherwise disposed of , from each Field."
'Article 19 - Valuation of Oil ' prescribe s for valuation of sale of crude oil for which the accounting tre atment of cu rren cy fluctuation is provided unde r 'Article 20 - Curre ncy and Exchange Control Provisions' of the aforesai d PSC.
Para 20.2 in Article 20 of the aforesaid the PSC provides that for accounting of purchase and sale of currency by the contract or, the ra tes as spe cified in Section 1.6 of Appendix C - Accounting Procedure ' shall apply. The relevant extract of the aforesai d article of PSC has been reproduced for your rea dy reference:
"The rates of exchange for the pu rchase and sale of currency by the Contractor shall be the prevailing rates of general applica tion determined by the State Bank of India or such other financial body as may be mutually agreed by the Parties and in accordance with prevailing currency an d exchange regulations and, f or accounting 50 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
purposes unde r this C ontract , th ese rates shall apply as provided in Section 1.6 of Appendix C."
As per the Para 1.6.1 in 'Accou nting Procedure - Section l' of the aforesai d mentioned PSC, th e appellant is required to consider previous month's average of the daily means of the buy and selling rates of exchange a s quote d by t he State Bank of India or any other financial body as may be mutually agreed. The relevant extract of the aforesaid article is reproduced for you r rea dy reference:
"For translati on purposes between United States Dollars and Indian Rupees or any other currency , the previous m onth's ave rage of the daily means of the buying and selling rates of exchange as quoted by the State Ban k of Indi a (or any othe r financial body as may be mutually agreed between the Parties) shall be used for the month in which the revenues, costs, expenditures, receipts or income are recorde d. However, in th e case of any single non-US Dolla r transa ction in excess of the equivalent of one hundred thousan d us Dollars (US$ 100,000), the con version into US Dollars shall be performed on the basis of the average of the applicable exchange rates for the day on which the transaction occurred."
54. When the taxpayer has booked e xcess revenue in accordance with the Rule 115 of the Income-tax Rules, 1962 (for short 'the Rules'), accounting as pe r PSC would oblige the taxpayer to reverse the excess revenue and consider it a s foreign exchange loss. The taxpayer relied upon the decision rendere d by Hon'ble Supreme Cou rt in CIT vs. Enron Oil & Gas Limited - 305 ITR 75.
55. Hon'ble Apex Court in CIT vs. Enron Oil & Ga s Limited (supra) while deciding the identical issue held that, "Section 42 is a complete code by itself for deduction in case of business of prospecting the extraction or production of minera l oils. The section is inoperative by itself and becomes ope rative only when it is read with the producti on sharing contract .
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The section was enacted to ensure that where the structure of the production sha ring contract is at variance with accounting principles generally used for ascertaining taxable income, the provisions of the production sharing contract would prevail."
56. Hon'ble Court further held that in case of production sharing contra ct, an independent accounting re gime is a pplica ble a nd foreign exchange losses on a ccount of foreign curre ncy translation is an allowable deduction. So, in view of the law laid down by the Hon'ble Apex Court in case of CIT vs. Enron Oil & Gas Limited (supra), we are of the considered view that the income earned by the taxpayer in foreign currency pu rsuant to the PSC entered into with Government of India is governed by the agreement of PSC and the foreign exchange losses on account of foreign currency translati on is an allowable deduction while computing the total income of the taxpayer. In such circumstances, provisions of PSC are t o be applied and the disallowance made by AO/DRP on account of difference in revenue is not sustainable, hence allowable subject to verifica tion by the AO. So, ground no.21 is determined in favour of the taxpaye r for statistical purposes."
75. The l d. CIT DR has no objecti on for the above i ssue to be set asi de to l d. AO/TPO.
76. After heari ng both the si des and consi deri ng the totali ty of the facts of the case, we deem i t prope r to restore the i ssue to the fil e of the Assessi ng Offi cer wi th a di recti on to give an opportuni ty to the assessee to substanti ate hi s case as per the di recti on of the DRP. The Assessi ng Offi cer shall deci de the i ssue as per fact and l aw after giving due opportuni ty of bei ng heard t o the assessee. We hol d and di rect a ccordi ngl y. The ground rai sed by the assessee on thi s i ssue i s all owed for stati sti cal purposes.
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77. Ground No. 17 of the a ppeal of the assessee reads as under:
"Ground No. 17: Intere st levied u nder secti on 234B, 234C & 234D 17.1 The Assessing Officer has e rred in law and on facts, in levying interest under se ctions 234B, 234C and 234D of the Act."
Facts:
78. It was submi tted by Ld. Counsel that revenues recei vabl e by the appell ant non-resi dent company are subject to deducti on of tax at sou rce. Accordi ngly, the questi on of payment of advance tax an d consequent l evy of i nterest under secti on 234B of the Act for sh ortf all i n payment of advance tax does not ari se. In that vi ew of the matter, l evy of i nterest under secti on 234B of the Act i s li abl e to be del eted for the foll owi ng reasons:
79. He submi tted that as per provi si ons of secti on 234B of the Act, an assessee who i s li abl e to pay advance tax under secti on 208 will be li abl e to i nterest under secti on 234B of the Act, if he fail s to pay such tax, or the advance tax pai d by him fall s short of 90 pe rcent of the assessed tax. Accordi ngl y, i n order to be li abl e to pay i nterest under secti on 234B of the Act, an assessee must fi rst be li abl e to pay advance tax under the provi si ons of secti on 208 of the Act.
80. He further submi tted that as per provi si ons of secti on 208 read wi th secti on 209(1)(d) of the Act, advance tax payabl e has to be computed after re duci ng from the esti mated tax li abili ty the amount of tax deducti bl e/ coll ecti bl e at source on i ncome whi ch is i ncl uded in computing the esti mated tax 53 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
li abili ty. Such bal ance tax li abili ty i s the advance tax payabl e under secti on 208 of the Act. It shoul d be noted that the words used i n secti on 209(1)(d) of the Act are 'tax deducti bl e at source ' and n ot 'tax dedu cted at source . Under secti on 195 of the Act, tax i s deducti bl e at source from payments made t o non-resi dents. Appell ant i s a non-resi dent and thus, tax i s deducti ble at source from the payments made to i t under secti on 195 of the Act. Si nce tax was deducti bl e at source on all the payments made to Appell ant, no advance tax was payabl e as per the provi si ons of secti on 208 read wi th secti on 209(1)(d) of the Act. In the absence of any li abili ty for payment of advance tax, the provi si ons of secti on 234B of the Act cannot a ppl y and the l evy of interest under secti on 234B of the Act shoul d be del eted.
81. The l d. Counsel at the outset submitted that for computati on u/s 234C of the Act , the chargea bili ty ari ses qua returned i ncome and 234B & 234D are consequenti al . He suggested the i ssue may be set asi de to l d. AO for computati on of i nterest as per l aw.
82. The l d. CIT DR di d not object to the submi ssi ons of the l d. Counsel for the assessee.
83. We have heard the ri val submi ssi ons and peruse d the orde rs of the l ower authori ties and materi al s avail abl e on record. Ld. Counsel pl aced reli ance on order of the Tri bunal i n appel l ant's own case for the assessment years 2009-10 (ITA No. 2227/Del /2014) and 2010-11 (ITA No. 1170/Del /2015). The rel evant extracts of the deci si on for the assessment year 2010-11 are reproduced hereunder:
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"61 We have carefully considered the rival contentions and also pe rused t he relevant judicial precedents cited before us. In the decision cited by the Ld. Authorised Repre sentative in case of CIT versus GE packaged powe r incorporation (373 ITR 65) in Para No. 19, the Hon'ble high court has conside red the decision cited by the Ld. Departmental Representative as under:-
...................................................
"62 We are aware that Hon'ble Supreme Court has granted SLP against High Court's ruling that where Assessee wa s non- resi dent company, entire tax was to be deducte d at source on payments made by paye r to it and there was no question of payment of advance tax by Assessee; therefore, revenue could not charge any interest under section 234B from Assessee, which is pending for adjudication. Howeve r the decision of the Hon high cou rt is to be foll owed by us, if the same is n ot stayed by t he Hon'ble Supreme Court, therefore respectfully following the decision of the Hon'ble high court we direct the Ld. Assessin g Officer to n ot to charge interest under section 234 B of the act on the income of the Assessee which is subject to or liable to tax deduction at source."
84. To the same effect are the de ci si ons of the Hon'bl e Tri bunal i n appell ant's own case for the assessment years 2011-12 (ITA No. 1478/Del /2017) and 2012-13 (ITA No. 6791/Del /2017).
85. We di rect the Assessi ng Offi cer t o compute the i nterest u/s 234C of the Act qua retu rned i ncome as pe r l aw foll owed by i nterest u/s 234B & 234D of the Act by gi vi ng due opportuni ty to the assessee . Accordi ngl y, appeal for thi s assessment year 2013-14 filed by the assessee stands al l owed as i ndi cated above.
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Assessment Year 2014-15
86. The assessee has rai sed the foll owi ng grounds of appeal :
"Gro und N o. 1 Impug ned o rder pas sed by the assessi ng officer is ba rred by l imitatio n a nd is liable to be quashed.
That on the facts and ci rc umstance s of the case and in law, the impug ned order passed by the assessing office r is barred by limitati on and the refore, is liab le to be quashed.
Without prejudice:
Gro und N o. 2: Erroneo us rejection of Transact iona l Net Margi n Method ("TNMM") a nd selection of Comparab le Unco ntro lled Price ("CUP") Method 2.1 The learned AO / DRP / Transfer Prici ng Officer ("TPO") have erred in law a nd on f acts by dis regard ing the economic anal ysis co nducted b y the Appellant, fo r determinatio n of the arm's lengt h price ("ALP") by applicatio n of TNMM on a n ag gregated basis and furt her, erred in appl yi ng CUP method.
Gro und N o. 3: Witho ut p rejudice t hat TNMM should be selected, learned AO / DRP / TPO a pplied CUP method i n an erroneo us manne r 3.1 Without prejudi ce that TNMM should be selected as the most appropriate method for benchma rki ng the transact ions perta ini ng t o i ntra- group services , t he learned AO / DRP / TPO have erro neously selected CUP method and ha ve applied the sa me in a n erro neous manner by considering the amount approved by the Joint Vent ure ("JV") partner as CUP .
Gro und N o. 4: Erro neousl y di srega rded the decis ion of Hon'ble ITAT in AY 2011-12 and 2012-13 and directions of the Hon'b le DRP fo r AY 2009-10 and AY 2010-11 4.1 The learned AO / DRP / TPO e rred in dis regardi ng the decision of Ho n'ble ITAT in AY 2011-12 and AY 2012-13 and directio ns iss ued by the Hon'ble DRP i n the case of the Appellant fo r t he pri or years i .e. AY 2009-10 and AY 2010-11 (which have als o been 56 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
affirmed by Hon'ble ITAT) even thoug h the facts and circ umstances of it s case and the b usiness model of the Appellant co ntinued to remain the s ame.
Gro und No . 5: Erro neous ly q uesti oni ng of commercia l expediency of t he Appellant 5.1 The learned AO / D RP / TPO e rred in la w and o n facts by quest ioning t he commerci al expediency of the Appellant i n a vaili ng t he intra-g ro up services f rom its associated enterp rise ("AE") and in c hangi ng from floating inte rest rate to f ixed i nterest rate on the External Commercia l Borro wing ta k en from its A E. Gro und N o. 6: Erroneo us app li cation of CUP fo r determining a rm's lengt h i nterest rate 6.1 The learned AO / DRP / TPO erred in mak ing a n upward adjustment of INR 1,026,870,920 to the tota l income of the Appel lant b y e rroneously applying CUP Method fo r determinati on of arm's length inte rest rate on the exte rna l commercia l bo rro wing (" ECB") take n from its AE.
Gro und No. 7: Erroneo us d isallo wance of payment made towards int ra-gro up services b y App ellant to it s AE 7.1 The learned AO / DRP / TPO grossl y erred in la w and on facts b y maki ng an upw ard tra nsfer pri cing adjustment of IN R 2,39,55,66,019 in total t owa rds internatio nal t ransactio ns pe rtaini ng to payment of management service and unit cha rges, IM cha rges and payro ll expenses t o its AE.
Gro und No . 8: Erro neous di srega rding m ultip le year data 8.1 The learned AO / DRP / TPO gross ly e rred i n erro neous ly rejecting multiple yea r data used by the Appellant i n comput ing the ALP .
Gro und No . 9: Pro ceedings barred b y limitat ion 9.1 The order for the assessment year 2012-13 is bad in law a nd is l iable to be q uashed havi ng regard t o t he statuto ry time limit presc ribed und er the section 153 of 57 ITA Nos. 7476 & 7477Del/2018 BG Exploration & Production India Ltd.
the Act read w ith Exp lanati on 1 to s ection 153(4) of the Act.
Gro und N o. 10: Disal lowa nce of e xp enditure incurred o n non-p rod ucing P rod ucti on Sha ri ng Contract s ("PSCs") 10.1 The learned AO / DRP erred i n law and in fact s i n disallo wing the expendit ure of Rs . 60,49,63,005 incurred on non-p rod uci ng PSCs.
Gro und No . 11: Disallo wance of head office expendit ure 11.1 The learned AO / DRP erred i n law and in fact s i n applyi ng the provis io ns of sectio n 44C of the Act to payments made to BG Internat iona l Limited. 11.2 Without prejud ice, the AO has erred in computing allowa nce unde r sectio n 44C with respect to t he returned income and not inc ome assessed.
Gro und No . 12: Disallowance of depreciation and depletion 12.1 The learned AO erred i n law a nd in facts i n disallo wing depreciati on of Rs. 7 ,97,89,024 being the difference of depreciati on amount b etween the tax audit report a nd the comp utatio n.
12.2 The learned AO / DRP erred in no t appreciating that this d ifference is on a cco unt of deprec iatio n claimed on Globa l IT & T e xpenditure and t hat depreciatio n claim o n G lobal IT & T expenditure wa s allowable as held b y the Ho n'ble IT AT in assessee's ow n case for AY 2010-11, AY 2011-12 & AY 2012-13.
12.3 The learned AO / DRP erred in no t appreciating that this differe nce is on account of difference i n opening WDV of a ssets on fi rst d ay of t he captio ned assessment year whic h was accepted by the revenue autho rities in earlier years .
Gro und No . 13: Disallo wance of l oss on tra nspo rtatio n 13.1 The learned AO erred in disallo wing loss o n transpo rtati on of co ndensate o n t he gro und that t he expenditure cannot be allo wed o n the basis of the provisio ns made by the assessee.
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Gro und No . 14: Disallo wance of i nventory w ritten off 14.1 The learned AO e rred in law a nd in fa cts i n disallo wing i nventory written off of Rs. 1,39,27,876 on the basis t hat t he Appella nt s ub mitted onl y i nternal documents w hic h do not s uffice for al lowa nce of expenditure.
14.2 The learned AO / DRP erred in no t appreciati ng that amount of obso lete invento ry written off wa s debited to the P rofit and L oss Acc ount which has bee n audited by an independent a udito r.
Gro und N o. 15: Disallo wance of exc ess claim of grat uit y of Rs. 26,18,915 15.1 The learned AO / DRP erred in making an addition of Rs 26,18,915, being deductio n of g ratuity o f Rs. 2,01,08,285 claimed inadvert ently under secti o n 43B of the Act on account of contri butio n made to LIC, due to certai n erro rs in the comput ation of income Gro und No . 16: Foreign exchange l o ss 16.1 The learned AO/ DRP erred in d isallo wing t he foreign exchange l oss of Rs . 1,65,32,448 by not appreciati ng that whe re the foreig n exchange gai n has been taxed in the previous years , f oreign exchange lo ss in the s ubsequent years needs to be allowed.
Gro und No. 17: Inte rest levied under sectio n 234B, 234C & 234D."
87. At the ti me of heari ng, the l d. Counsel for the assessee submi tted that ground nos. 1, 5 & 9 are not pressed. Accordi ngl y, the same are di smi ssed as not presse d.
88. Both the pa rti es agreed that the other grounds of appeal taken by the assessee i n thi s year are i denti cal and simil arly numbered to grounds of appeal in assessment year 2013-14 . They al so submi tted that the facts are al so i denti cal in the year under appeal . We observe that submi ssi ons of both si des are correct.
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89. Therefore, we fol l ow our vi ew recorded i n respect of grounds he rei nabove and accordi ngl y, the grounds for presen t year are all owed as i ndi cated and di scussed therei n.
90. In the result, the appeals filed by the assessee for assessment years 2013-14 and 2014-15 are allowed as discussed hereinabove. (Order Pron ounced i n the Open Court on 03/04/2019) Sd/- Sd/-
(N. S. Saini) (Beena A. Pillai)
Accountant Member Judicial Member
Dated: 03/04/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR