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TMI Blog2017 (4) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... used by the assessee. The Ld DR could not point out on any infirmity in the above submission of the assessee with respect to satisfaction of need, benefit, duplicity, or shareholder’s activity test. We do not find any reason to deviate from our finding as the facts and circumstances leading to the dispute are identical. In view of this we dismiss ground No. 1, 2 and 3 of the appeal of the revenue. Adjustment on account of loan transaction - Held that:- In the present case the Ld. assessing officer has assumed the rate of interest @ 12.5 % without any basis but merely on assumptions and presumptions. Furthermore the Ld. Dispute Resolution Panel has also held that the refund amount of the assessee was wrongly adjusted and only actual amount of interest received from the Department by the associated enterprise shall be retained as an addition. We also do not approve the finding of the Ld. Dispute Resolution Panel and we failed to understand what relationship the amount of interest on refund received by the associated enterprise have with the amount of arms length price of the interest on loans given by the assessee to the associated enterprise. In fact the interest on refund given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year u/s 42 of the act. It is also mentioned in the orders of lower authorities that the assessee has not made claim in respect of said expenditure when the expenditure become infructuous i.e. in FY 2011-12 being the year in which the area was surrendered prior to commercial production. From the above observation it is apparent that that the claim of the assessee falls in section 42(1)(a) when the expenditure becomes infructuous. Apparently, such expenditure became infructuous in Assessment Year 2011-12. In view of this the ld Assessing Officer as well as the ld Dispute Resolution Panel has correctly held that the assessee is not entitled for deduction therefore, in this year i.e. AY 2009-10, the claim of the assessee cannot be accepted. Adjusting the appellant’s refund with the demand of AE which is not an international transaction - Held that:- While deciding ground No. 4 of the appeal of the revenue we have already held that above transaction is an international transaction under section 92B of the income tax act and therefore arm’s length price of such transaction is required to be determined in accordance with the provisions of section 92C of the income tax act and set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are intrinsically linked with the other international transactions undertaken by the assessee (e.g. payment on interest on loan, sale of gas, unsecured loans taken or reimbursements made) and there is no link with the transactions under consideration and the other international transactions ii) It is only when the international transactions are so closely linked that they cannot be benchmarked that a combined approach can be adopted as per Rule 10A(d) of the Income Tax Rules iii) Given the nature of the transactions in this case, each transaction has to be benchmarked separately and not under TNMM. v) The assessee has adopted a combined approach with regard to its business transactions as a whole which is contrary to the provisions of law. v) The approach followed by the assessee was not in accordance with the OECD guidelines with regard to the intra-group services in terms of which cost of intra-group services should be benchmarked using either CUP or Cost Plus Method. 2. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of ₹ 9,88,84,046/- on account of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management Service and Unit Charges [consisting of Federal Green Recharges of 14,85,73,458/-, Management Unit Recharges of ₹ 1,22,95,73,659/- and Technology Recharges of ₹ 14,28,18,869/-) paid by the assessee to M/s B.G. International Ltd ( 'BGIL') 3.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TPO that a) The assessee has not been able to establish that it has actually received any services in lieu of the Management Service Unit Charges. b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so-called 'evidence' furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the assessee d) The assessee has not been able to establish the economic and commercial benefits derived by it on account of such services e) Without prejudice to the above, the cost allocation amongst the different units or assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating the fact that once a transaction admittedly takes the character of a loan between associate enterprises, it becomes immaterial whether or not the transaction was undertaken voluntarily and therefore, the receipt of the loan amount from M/s BGAPHL without charging any interest, called for adjustment at an appropriate interest rate on account of benefit availed by BGAPHL 5 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed addition of ₹ 39,59,606 on account of expenses claimed to have been incurred in relation to club entrance and subscription fees for its employees 5.1 The Hon'ble DRP has erred in not appreciating the fact the expenses under consideration are admittedly in the nature of club expenses and hence the same cannot be said to have been incurred wholly and exclusively for the purposes of the business of the assessee. 6 The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. 2. The Assessee in his cross objection raised the following grounds of appeal for the Assessment Year 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to BG international Ltd benchmarked using the Transaction Net Margin Method submitting that it is at arm s length. The Ld. transfer pricing officer computed the arm s length price of management and unit recharge paid by assessee to BGIL for following services as nil. i) Federal Green Charges ₹ 148573458/- ii) management unit recharges ₹ 1229573658/ iii) technology recharges ₹ 142818869/- Total ₹ 1 520965985/ 4. Similarly, the Ld. transfer pricing officer also noted that out of the total general and administrative expenses of ₹ 171220433/ , Third party cost are ₹ 14 crore and the balance of ₹ 31220433/ pertains to time writing cost. The Ld. transfer pricing officer held that the third-party costs are verifiable and therefore they are treated at arm s length. Further with respect to the balance expenses of ₹ 106104934/ no evidences have been produced to show that the services have been provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal of the revenue is with respect to several aspects arising on determination of arm s length price with respect to intragroup services such as that Ld. Dispute Resolution Panel Ld. assessing officer has erred in rejecting the economic analysis of the assessee and holding that the transactional net margin method adopted by the assessee is the most appropriate method and the operating profit margins based on the sales is the correct profit level indicator as used by the assessee. The Ld. AO is further aggrieved by the order of Ld. Dispute Resolution Panel s where it is accepted that all the transactions are required to be aggregated for the purposes of benchmarking. He is further aggrieved by the order of Ld. Dispute Resolution Panel wherein it is rejected the finding of the Ld. transfer pricing officer that cup method is the most appropriate method. He is further aggrieved that most of the services are duplicate services and shareholder services for which no 3rd party would have remunerated. Ground No. 2 of the revenue is that Ld. Dispute Resolution Panel has admitted the additional evidences filed by the assessee holding that no proper adequate opportunity was given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental representative vehemently supported the order of the Ld. transfer pricing officer and extensively read the relevant paragraphs from the order of the Ld. transfer pricing officer. He also referred to the decision of coordinate bench in case of M/s Knorr Bermese India private limited versus ACIT (ITA No. 5097/del/2011) (assessment year 2007 08) dated 31st of October 2012 where the adoption of NIL value for the intragroup services were upheld. He also relied on the decision of the coordinate bench in case of M/s Gem Plus India private limited versus ACIT( 352/bang /2009). In view of this, the Ld. departmental representative vehemently lease stated that directions given by the Ld. Dispute Resolution Panel were not in accordance with the law and therefore deserves to be cancelled. 68. The Ld. authorized representative vehemently relied upon the direction of Ld. Dispute Resolution Panel. He vehemently supported that with respect to the observation of intragroup services given at Para No. 4 of the direction is exhaustive and completely in accordance with the law. He extensively read that paragraph starting from page No. 3-31 of the order of the Ld. Dispute Resolution Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings till such time a final order of assessment which is appealable is passed by the Assessing Officer. This also finds support from Section 144C(6) which enables the DRP to collect evidence or cause any enquiry to be made before giving directions to the Assessing Officer under Section 144C(5) . The DRP procedure can only be initiated by an assessee objecting to the draft assessment order. This would enable correction in the proposed order (draft assessment order) before a final assessment order is passed. Therefore, we are of the view that in the present facts this issue could be agitated before and rectified by the DRP. 70. It is apparent from the above decision of the Hon ble Bombay high court that it is not an appeal proceedings, but a correcting mechanism whereby a second look is given to the proposed assessment made by the Ld. transfer pricing officer wrote assessing officer by the higher functionaries of the revenue wherein the interest of the assessee is kept in mind, and therefore it is a continuation of assessment proceedings only. Further, while reading the order of the Ld. Dispute Resolution Panel it has been noted that assessee has filed though volume of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 7 are on the determination of ALP of intra group services which are taken up together. The main issue under these objections is the rejection of TNMM as the most appropriate method used by the assessee. The assessee had benchmarked the intra group services using TNMM as the most appropriate method and it had earned a margin of 48.71%. All the international transactions relating to intra group services were clubbed together and assessee benchmarked the same under TNMM, In the provision of business support services, the assessee has used TNMM and had shown a margin of cost plus 12%. The payment of interest was benchmarked by obtaining quotations and corroborated by providing list of independent companies' comparable payment of interest on ECBs. 4.1. The TPO rejected the approach of the assessee and used CUP as the most appropriate method in intra group services. The justification given by the TPO can be summarized as under: (i) Each transaction being a separate class of transactions by itself, the same have to be benchmarked separately; (ii) Taxpayer failed to submit documentary evidences in respect of the intra-group service transactions and justify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the applicant and are not revenue generating activities of the applicant. The said services have been availed by the applicant for the purpose of optimizing resource utilization and increasing productivity in operations of exploration and production which is its main business activity. 3) The TPO completely disregarded the detailed documents/evidences submitted to justify actual availing of services i.e. detailed nature of services received, Skill supply agreements, emails evidencing receipt of services, Reports, etc. 4) Brushed aside the voluminous details / submissions filed by the assessee and stated no evidence was produced before him - action of TPO/AO devoid of any merits and rational. 5) Tabular chart detailing the nature of services received by the assessee and the benefits derived therefrom, as submitted before the TPO, is also provided in the additional evidence submissions made before your goodself. 6) Costs were allocated based on Global Cost Allocation Policy, on cost to cost basis without charging any mark-up thereon 7) Such policy has also been certified by Independent third party consultants -PricewaterhouseCoopers LLP, UK and Lancast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y BGIL to the assessee, 20) The above clearly demonstrates that services were provided by BGIL and received by BGEPIL 21) Once assessee discharges its onus of establishing ALP, the onus shifts to the TPO to prove otherwise 22) TPO/AO failed to discharge its responsibility by making casual observations that the assessee has failed to furnish documentary evidence to demonstrate / support receipt of services. 23) The assessee had argued that it had submitted voluminous evidence, on sample basis, to demonstrate actual receipt of services and it would not be humanely possible for the assessee to furnish each and every evidence for receipt of service. The Hon'ble Panel had held that based on the test checking it can be seen that the assessee has indeed received such services and thereby had arrived at the conclusion that TNMM is the most appropriate method in this case and that CUP cannot be applied in the absence of any data availability in case of comparable cases. Accordingly, the entire transfer pricing addition, on account of intra group services was deleted. 24) Assuming but not admitting that the arm's length price of G A and MSUs availed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Pages of DRP Submission 4995 Additional submission to DRP S.No. Volume No. No. of pages 1 Volume-1 528 2 Volume-2A 495 3 Volume-28 489 4 Volume-3 417 5 Volume-4 490 6 Volume-5 431 Total Pages of Additional Submission to DRP 2850 Total Pages 7845 4.5. The main objection of the TPO was that assessee has not produced the evidence and assessee has not established receiving any benefit on account of receipt o/this service. The above voluminous documents were further summarized by the assessee with reference to each and every pages submitted before the DRP and the TPO. The summary of the evidences and the benefit received on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f paper-book filed with Form 35A on 6, 2014) Salary other costs ' Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 259 to 293 of Volume IV of the Paperbook) Relocation costs : Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 294 to 296 of Volume IV of the Paperbook) Consultancy services Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 297 to 394 of Volume IV of the Paperbook) Professional subscriptions and license cost Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 325 to 330 of Volume IV of the Paperbook) Bank charges Sample copies of relevant debit notes along with third party invoices/documents (on sample basis) to demonstrate the actual receipt of services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to administrative convenience incurred particularly in arranging for providing bank guarantee to BGEPIL, rent or hotel expenses incurred by the employees of BGIL while providing various services. Travel subsistence These expenses pertain to BGEPIL BGEPIL has reimbursed the travel and subsistence expenses to BGIL. These are pure third party costs. ii. TIME WRITING I. Description of services received : Technical and engineering consultancy services - Time writing charges The costs recharged on account.of technical and engineering consultancy services include specific time-writing costs booked by the employees of BGIL for assistance with development projects that were proposed for the PMT oi! fields Technical experts whose assistance has been availed by the assessee inter alia include engineers, project risk experts, subsurface assurance managers, contracts/procurement managers and geophysical managers Evidence filed before the TPO {forming part of paper-book filed with Form 35A on May 6, 2013) Table of benefits detailing the description of the services, mode of receiving the services, benefits derived and a list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eamless IT support to the assessee's personnel on any IT issues faced by it on a day-to-day basis. Undertaking network improvements on a scheduled basis. (b) Email services - E-mail related support services in the nature of creating standardized corporate e-mail account for all employees across the globe, maintaining control on making each e-mail account a separate and unique e-mail account, managing e-mail services. (c) BG Intranet Portal - Development and maintenance of the portal! is undertaken by BGIL. BGIL inputs various policies and guidelines of the group on the intranet portal. (d) Internet services - Provision of internet access to assessee. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking, etc. (e) Enabling mobile/offsite working - 24X7 platform provided by BGIL so that assessee's personnel can work even if not in office. (f) IM Central Services - Access to various licenses purchased by BGIL from third parties such as Procon license, Oracle license, Cognos license, SAP li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in usage of internet facilities only on need basis. Avoidance of unnecessary II. Benefits derived IT support services . l:- -. . -; . a) Access to highly experience and technical IT resources without having to invest in an in-house dedicated IT team. Thus, reduction in downtime and idle time cost. b) Reduction in investment on standby assets as such standby assets are owned and maintained by BGIL. c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services . a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the applicant's business and gives it better control over use of email by personnel for persona! use. b) Enables assesse to track the trail of e-mails much faster. c) A separate and unique e-mail account enables the assessee to have better control over the use of e-mails by its employees. d) Creating a corporate e-mail provides opportunity to the assessee to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BG Group (Page 49 to 98 of Volume VII of the Paperbook) (b) Cost Allocation Methodology -Lancaster Maclean report certifying cost allocation methodology PricewaterhouseCoopers report certifying cost allocation policy (c) Documents to evidence receipt of service Sample copies of e-mails stating service being provided in the nature of installation of windows security on the servers of the assesse, continuous monitoring of the server for up gradation, resolving day to day IT issues faced by the personnel of the assessee etc. (Page 824 to 947 of Volume VB of the Paperbook) IV. Additional evidence filed before Ld. DRP on November?, 2014 a) Sample copies of Inter Company Debit Notes ( ICDNs ) with details of nature of expenses and the costs associated in relation to IM services. This includes IM Recharges by BGIL to BGEPIL proportionately on the basis of number of users in BGEPIL to total users of BG Group. (Page 1 to 75 of Volume 2A of the Additional evidence Paperbook) ( i - - \ XXXXXXXX b) Snapshots of the list of applications to which personnel of assessee have access to(Page 76 to 77 of Volume 2A of the Additional evidence Paperbook) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistance on local taxation issues - Guidance on how the particular tax position will be looked at in international parlance in view of head office being located in overseas country. Assistance on local and group tax accounting matters. Assistance on managing tax audits/ assessment/ appeals and other issues as and when required Insurance support : Support on insurance related matters Look after insurance coverage of various assets and activities of BG group entities including the assessee Assists in obtaining necessary insurance coverage to protect the BG group entities including the assessee from potential / possible loss in case of an unforeseen event Assistance in managing and making insurance claims and dealing with settlement and other issues , II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 Human Resources a) A manual in relation to Business Travel and Expenses Standard which is governed by BG Groups Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with business travel an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al support received from BGIL in relation to taxation and provisioning mattersfPage 578 to 581 of Volume VB of the Paperbook) c. E-mail correspondences evidencing support received from BGIL in relation to WTfPage 582 to 587 of Volume VB of the Paperbook) d. E-mail correspondences evidencing support received from BGIL in relation to profit and loss account and balance sheet analysisffoge 588 to 588 of Volume VB of the Paperbook e. E-mail correspondences evidencing support received from BGIL in relation to legal matters, SAP support etc. Quarter review of user access summary along with SAP Role assignment forms in respect of employees(Page 533 to 562 of Volume VB of the Paperbook) f. E-mail correspondence evidencing support received from BGIL packaging supplementary information.(Page 591 to 562 of Volume VB of the Paperbook) g. The allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773 to 788 of Volume IV of Paperback) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) h. In addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which provides details of cost recharged in relation to HR activities (Page 61 to 71 of Volume 3 of the Additional evidence paperbook) h) A manual in relation to Business Travel and Expenses Standard which is governed by BG Group's Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with business travel and other business activities (Poge 72 to 95 of Volume 3 of the Additional evidence paperbook) i) A sample HR Induction Checklist prepared by BG group for new starters / new employeesfPoge 96 to 98 of Volume 3 of the Additional evidence paperbook) j) A slide depicting list of SAP HR Super Users among the group entities (Page 99 to 99 of Volume 3 of the Additional evidence paperbook) k) Snapshots of portal which provides access to various websites, documents, manuals, standards etc. which are provided below^Poge 100 to 118 of Volume 3 of the Additional evidence paperbook) a. Access to learning management system b. Portal which provides information / role in relation to BG group employee c. behaviors I c. Portal related to BG group and talent management d. Assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and keep the group updated on the financial frontpage 190 to 236 of Volume 3 of the Additional evidence paperbook) g) A slide deck dated May 2009 prepared for a workshop in relation to cost recovery for virtual conference undertaken by G\L(Page 237 to 242 of Volume 3 of the Additional evidence paperbook) h) A slide deck prepared by BGIL which provides the group entities with a training guidelines to extract various reports from SAP. (Page 243 to 245 of Volume 3 of the Additional evidence paperbook) i) A functional career ladder or a Job description responsibility matrix in relation to taxation which summarizes position / designation, requisite skill set required, key accountability etc. (Page 246 to 246 of Volume 3 of the Additional evidence paperbook) , . , . j) A slide deck prepared by BGIL to train the group entities on sources of employment law, vicarious liability, contract of employment, various litigation laws. (Page 247 to 283 of Volumes of the Additional evidence paperbook) ; Insurance related support services and other miscellaneous support services a. A slide deck dated November 2009 on travel insurance policies which provides guid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 378 to 378 of Volume 3 of the Additional evidence paperbook) m. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to a potential leak which has been detected from BG HSSE report and whether any advice to insurers is required for the same. (Page 379 to 379 of Volume 3 of the Additional evidence paperbook} n. A functional career ladder or a Job description responsibility matrix in relation to insurance which summarizes position / designation, requisite skill set required, key accountability etc. (Page 380 to 380 of Volume 3 of the Additional evidence paperbook} o. Terms of Personal Accident Insurance Scheme provided to BG group employees which mentions benefit for employees, non- employees, guidance for claims, exclusions if any, etc.(Page 381 to 382 of Volume 3 of the Additional evidence paperbook) p. Sample copy of Inter Company Debit Notes raised by BGIL on BGEPIL in relation to miscellaneous expenses which summarizes various activities undertaken by BGIL for which cost is charged. (Page 383 to 417 of Volume 3 of the Additional evidence paperbook) IV. Benefits derived Support on deploymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Environment ('HSSE'), projects etc. to ensure smooth and efficient functioning. The aforesaid services are also in relation to development of C P infrastructure C P Systems Strategy, Contractor relationship management, Market intelligence, Procon-Enhancement, SAP Wave, parenting, and project management etc. Various assets (including the Assessee) agree to participate in common Federal Green Projects on issues that affect them on a common basis so that the project studies can serve as valuable inputs in their exploration and production efforts. Whenever, the studies are commissioned by various assets, the costs are shared between them and whenever the study or project is commissioned only by the Assessee, the charges are based on number of hours spent by the experts of the associated enterprise. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 (a) BG Group HSSE Incident Review Panel Report summarizing performance analysis (Page 75to 75of Volume VA of Paperbook) (b) A report on Asset integrity Programme by the Offshore Division of HSE's Hazardous Installations Division (Page 76 to 147 of Volume VA of Pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Additional evidence Paperbook) (e) A guidance note issued on February 2010 prepared by BGIL to define BG's operating policy and procedures for the safe isolation, and reVasftateica icvt o ^las\*. vt ^i jpw^\ from sources of hydrocarbons and other fluids.This document applies to the preparation for mechanical isolation, reinstatement and leak testing of process utility and drilling systems. It should be followed at all BG operated sites, both onshore and offshore, and applies to all process systems including subsea pipelines.f^oge 172 to 226 of Volume 4 of the Additional evidence Paperbook) (f) A handbook issued on February 2010 by BGIL on operation guideline on Safe Isolation and Reinstatement of Plant which forms part of the BG Group operations requirements for all global assets.(Page 227 to 299 of Volume 4 of the Additional evidence Paperbook) (g) A slide deck issued on December 2009 prepared by BGIL on project well accounting wherein the overview and statistics of BG group assets including BGEPIL capex framework, key projects plans, project accountant role, interaction with PMT well engineers, well reconciliation, reports etc. are summarized.(Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee with access to ever-evolving technical standards and guidelines that helps in achieving higher level of efficiency and safety. This leads to improvement in processes by gaining access to workflow manuals. The direct benefits are as below: a) Improved processes / functional management systems etc. ' b) Development and sustaining networks amongst functional peer groups. Undertaking functional conferences, technical workshops, teleconferences etc. Support in technical problem solving. , ! ; ' ' ' c) Developing delivering technical and functional training. d) Support in relation to development of governance and assurance principles. e) Reduction in exposure to potential major incident due to integrity failure f) Reduced risks of damage, loss of production or loss of revenue g) Reduced risks to the environment etc. E. MANAGEMENT AND UNIT RECHARGES - TECHNOLOGY RECHARGE I . Description of services received Represents costs incurred by BGIL to run technology programmes for identification, development and implementation of new and enhanced techniques to the existing exploration and production operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he evaluation of data provided in a 'dataroom'. The dataroom is a key opportunity to assist BG in the evaluation of an opportunity and in order to manage the risks associated with a business decision.(Page 125 to 152 of Volume 5 of the Additional evidence Paperbook) (d) A guideline issued on July 2009 on Metering issued by BGIL which provides guidance and instruction which outlines best practice approaches to be followed when providing new metering or measurement systems or upgrading existing systems.fPage 153 to of Volume 187 of the Additional evidence Paperbook) (e) A guideline issued on Oct 2009 on Human Machine Interfaces issued by BGIL which displays need to be at their most effective during abnormal operation when the operator is under most stress, and the consequences of error are highest. This document provides best practice guidance in the design of operator interfaces.(PcrSfe 188 to 214 of Volume 5 of the Additional evidence Paperbook} (f) A guideline issued on July 2009 on Hot Tapping on Pipelines, Piping and Associated Equipment issued by BGIL which defines the minimum Company requirements for safe hot tapping operations.(Page 215 to 236 of Vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the direct control and supervision of the assessee. BGIL has not rendered any other service to the assessee in this regard except facilitating the payment of salary to its above employees. The assessee has reimbursed the salary of such personnel to BGIL on a cost-to-cost basis. II. Evidence filed before the TPO (forming part of paper- book filed with Form 35A on May 6, 2014 a) Worksheet containing names and job responsibilities of the expatriates seconded to BGEPIL (Page 3 of Volume III of the Paperbook) b) Sample copies of tax returns filed by the employeesfPcrge 4 to 267 of Volume III of the Paperbook) c) Sample copies of debit notes raised by BGIL on the assessee, etc. (Page 268 to 291 of Volume III of the Paperbook) d) Letters of secondment issued by BGIL (Page 292to 309 of Volume III of the Paperbook) 4.6 From the above evidence, DRP is of the view that the assessee has established the fact that it has rprpivpdthp_5en/icp : and it is a useful service which it has received. The next question before the DRP is whether assessee had to establish the arm's length nature of each and every transaction separately or it was available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the assessee (i.e. MSU charges, including federal green and technology recharge, G A charges, IM and other time writing services, personnel services and joint acquisition and development of IT infrastructure and software} have been aggregated and benchmarked on a whole entity level using Transactional Net Margin Method (TNMM'), since such transactions are closely linked to the main business activity of the assessee of exploration and production of oil and gas. Further, Para 4.2.1 of the TP study report (Page 268 to 269 of Volume II of Paperbook) specifically provides the reasons for rejection of the other four methods. Specific reasons recorded for rejection of the CUP method are summarized below: The assessee receives services from its AE and does not receive the same services directly from any unrelated parties in India or overseas; The AE does not provide such services to any unrelated party in India; and No public information is available with regard to the price paid for similar services, as would be rendered between unrelated parties. Considering the functional and risk profile of the intra-group services received and the availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness activity of the assessee company placing reliance on the US regulations, OECD regulations 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. departmental representative in the order of the Ld. Dispute Resolution Panel. Consequently, 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 share holder activities, the DRP directed the Ld. transfer pricing officer to delete the adjustment proposed with respect to the intragroup services of ₹ 3329766244/ , deserves to be upheld. The judicial precedents cited before us also supports the view that the needed test, the benefit test are also required to be viewed from the perspective of a businessperson and not from the perspective of the revenue. Further, no evidences have been led before us by revenue stating that these services are duplicative in nature and also serves only the interest of the shareholder. According to the information supplied by the assessee and examined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia-Pacific holding Ltd for assessment year 2004 05 vide order under section 143 (1) of the income tax act, which was adjusted against the refund of ₹ 18067380/ due to the assessee for assessment year 2005 06. Subsequently the case of BG Asia-Pacific holding Ltd was selected for scrutiny and assessment was completed under section 143 (3) of the income tax act and the credit of tax paid was given to the assessee, resulting into nil tax demand. The BG Asia- Pacific holding Ltd preferred an appeal before the Ld. CIT (A) who directed that the interest be calculated and thus the assessment was revised under section 251 of the income tax act, resulting into a refund of ₹ 18067380/ which was adjusted earlier. Subsequently, the revenue refunded the sum of ₹ 18067380/ back to the BG Asia-Pacific holding Ltd along with interest of ₹ 1461247/- amounting in all to ₹ 19528627/ . ₹ 18067380/- was recovered by the assessee from BG Asia-Pacific holding Ltd which was earlier adjusted from the refund of the assessee. Therefore apparently assessee received back ₹ 18067380/-. The Ld. Transfer Pricing Officer noted that though the sum was recovered by rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associated enterprise in connection with the adjustment of refund or granting of loan so as to construe the existence of a transaction between the appellant and the associated enterprise. In the result, he submitted that adjustment proposed by the ld TPO is erroneous. 12. We have carefully considered the rival contentions and also perused the order of the Ld. assessing officer/Transfer Pricing Officer and direction of the Ld. Dispute Resolution Panel. The transaction relates to alleged forced adjustment of refunds of ₹ 1,80,67,380 due to the appellant against the demand due in the case of the associated enterprise namely BG Asia Pacific Holding Ltd. ( BGAPHL ). This action of the assessing officer was not approved by the CIT(A) and accordingly a sum of ₹ 1,95,28,627 (tax of ₹ 1,80,67,380 + interest of ₹ 14,61,247) was refunded to BGAPHL. The ld DRP held that no market interest rate can be imputed as the transaction is forced on the assessee due to unauthorized action of the assessing officer and restricted the adjustment to ₹ 14,61,247, the actual amount of interest received by BGAPHL. In this factual matrix, first issue to be decided whether this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, it may be a transaction but if it is not an international transaction within the meaning of the provisions of section 92B of the act, the arms length price of it is not required to be determined. Therefore, it is imperative to examine whether it satisfies the conditions laid down under that section. According to section 92B, lending or borrowing of money between two or more associated enterprises means an international transaction. In the present case, the assessee has lent money to the associated enterprises by liquidating its asset of refund due for repayment of the tax dues of associated enterprise. In view of this, money has been lent by the assessee to the associated enterprises hence it satisfies the basic condition laid down under section 92B (1) of the act. Even otherwise it is also included in clause (i) ( c ) of the explanation to section 92B of the act as it is a transaction akin to capital financing in the form of advance to the associated enterprise by the assessee. Therefore, in our opinion the above transaction is an international transaction within the meaning of section 92B of the income tax act. Now after holding, so it would be mandatory to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the arguments of the both the parties also remains the same. 15. We have carefully considered the rival contention and also perused the relevant material available before us and we are of the view that issue is identical to ground No. 5 of the appeal of the revenue for assessment year 2010 2011 wherein we have held that the Ld. Dispute Resolution Panel has correctly directed the Ld. assessing officer to delete the disallowance was respect to the club expenditure. For the same reasons and on the same logic we also hold that Ld. Dispute Resolution Panel has correctly directed the Ld. Transfer Pricing Officer/Ld. assessing officer to delete the disallowance with respect to the club expenditure amounting to ₹ 3959606/ . In the result ground No. 5 of the appeal of the revenue is dismissed. 16. In the result appeal filed by the revenue in ITA No. 2227//del/2014 for assessment year 2009-10 is dismissed. 17. Now we come to the cross objection filed by the assessee in CEO No. 13/del/2015. 18. The ground No. 1 of the appeal of the assessee is regarding the claim of the expenditure of ₹ 503071947/ as deduction in the year in which the expenditure become infruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Farmout Agreement for assignment of 25% of the participating interest by ONGC to the assessee in the Block MN-DWN-2002/2. Subsequently, on 31.03.2009, BGEPIL received a letter from ONGC seeking reimbursement of past and interim cost. As per the said letter, past and interim cost amounted to ₹ 50,30,71,917. Since, the Indian government had provided the approval for the assignment of cost on 21.11.2008, the liability under the Farmout Agreement was crystallized and BGEPIL created a provision in its books of accounts while recognizing the expenditure as Capital Work in Progress in terms of Article 4.4 of the said Agreement. It would be pertinent to mention that the aforesaid expenditure were in the nature of non-drilling exploration cost. Further, it was submitted that the appellant, as per the accounting policies consistently followed, claims all non-drilling exploration expenditure as a deduction in the year in which such expenditure is incurred. It is submitted that while assessing the appellant s taxable income, all the expenditure incurred by it for its business would have to be considered and evaluated to determine the deductibility as per the normal provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the aforesaid expenditure became infructuous. 21. We have carefully considered the rival contentions. The ld Assessing Officer has noted that the assessee has put a note in computation of the total income stating that ;- During the financial year 2008-09, BGEPIL received approval from the government of India for acquiring 25 per cent participating interest in block MN-DWM-2002/2 and 30 percent participating interest in block KG- DWN/98/4 from ONGCL (refer to note-1 in schedule 12- note to financial statements). BGEIPL has accrued a liability towards reimbursements of the exploration costs (Rs. 696649450/-) relating to these blocks payable to ONGC as on 31 March 2009 for which a deduction has been claimed as per the provision of section 42 of the Act. 22. According to the provisions of section 42(1)(a) the assessee is eligible for allowance of any expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee. Accordingly, such expenses shall be deductible prior to the beginning of commercial production in that block. According to section 42(1)(b) the assessee is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 being the year in which the area was surrendered prior to commercial production. From the above observation it is apparent that that the claim of the assessee falls in section 42(1)(a) when the expenditure becomes infructuous. Apparently, such expenditure became infructuous in Assessment Year 2011-12. In view of this the ld Assessing Officer as well as the ld Dispute Resolution Panel has correctly held that the assessee is not entitled for deduction therefore, in this year i.e. AY 2009-10, the claim of the assessee cannot be accepted. 24. The assessee alternatively claimed that the deduction may be allowed in the year in which it has become infructuous and has also relied upon plethora of case laws which shows that the expenses are deductible in the year in which they have become infructuous with respect to the abandoned projects etc. on the argument of ld AR that ld Assessing Officer may be directed to grant deduction of this sum in AY 2012-13, we are of the opinion that we are not empowered to do so. According to the provision of section 254(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE which is not an international transaction and accordingly, the amount of interest added to the income of the appellant may be deleted. The facts relating to this ground of appeal are already discussed in ground No. 4 of the appeal of the revenue. Assessee has contested that the forced and unauthorized adjustment done by the Assessing Officer does not construe an international transaction within the meaning of section 92B of the Act. He further submitted that clause (v) of section 92F defies the term transaction to include an arrangement, understanding or action in concert irrespective of same being formal or in writing or enforceable by legal proceedings. He further submitted that there is no understanding or arrangement. He also relied on the same judicial precedent, which he relied in ground No. 4 of the appeal of the revenue. 27. LD DR also advanced the identical argument as were raised in that ground. 28. We have carefully considered the rival contentions. While deciding ground No. 4 of the appeal of the revenue we have already held that above transaction is an international transaction under section 92B of the income tax act and therefore arm s length price of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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