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TMI Blog2019 (4) TMI 1573X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of an independent fresh search and considered LIBOR + 2.785 BPS as the arm s length rate - HELD THAT:- Lower authorities and materials available on record. We also refer to the specific observation by DRP reproduced hereinabove. As both the parties admit that the issues under consideration are similar and identical with that of facts in assessment year 2010-11 [ 2017 (4) TMI 1190 - ITAT DELHI] . The directions issued by this Tribunal for assessment year 2010-11 more particularly the underlined portion are followed by us. Ld. CIT DR did not object for the issue to be set aside. We direct the TPO/AO to compute the rate of interest on the basis of aforesaid direction and accordingly is set aside to AO/TPO. Disallowance of branch office expenditure - treating it as pre-operative in nature - whether said expenditure was incurred wholly and exclusively for the purpose of the Appellant s business in India? - AO limited the disallowance to avoid double addition/ disallowance - HELD THAT:- We fail 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 incurred by one of the partners of that joint-vent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elete disallowance on account of difference in depletion as per the computation of income and tax audit report. Without prejudice, it is submitted that if the expenditure capitalised by the appellant in previous years is not held to be capital in nature and depreciation and depletion on capitalised portion is subsequently disallowed, the amount capitalised by the appellant should be allowed as deduction under section 37(1) in the relevant assessment year. CIT DR has no objection for the above issue to be set aside to ld. AO/TPO - restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate its case. The ground raised by the assessee on this issue is allowed for statistical purposes. Disallowance of loss on transportation - AO disallowing loss on transportation of condensate on the ground that the expenditure cannot be allowed on the basis of the provisions made by the assessee - HELD THAT:- In view of the admitted case of the taxpayer that during the AY 2016-17, independent expert appointed by the joint venture partners had determined the loss on condensate at 1.7% and without prejudice, the taxpayer also made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India is governed by the agreement of PSC and the foreign exchange losses on account of foreign currency translation is an allowable deduction while computing the total income of the taxpayer. In such circumstances, provisions of PSC are to be applied and the disallowance made by AO/DRP on account of difference in revenue is not sustainable, hence allowable subject to verification by the AO - restore the issue to the file of the AO with a direction to give an opportunity to the assessee to substantiate his case as per the direction of the DRP. Interest u/s 234B, 234C 234D - HELD THAT:- As relying on assessee's own case [ 2018 (7) TMI 1954 - ITAT DELHI] we direct the Assessing Officer to compute the interest u/s 234C of the Act qua returned income as per law followed by interest u/s 234B 234D of the Act by giving due opportunity to the assessee. - ITA No. 7476 & 7477/Del/2018 - - - Dated:- 3-4-2019 - Sh. N. S. Saini, Accountant Member And Smt. Beena A. Pillai, Judicial Member Assessee by: Sh. Ajay Vohra, Sr. Adv., Sh. Anshul Sachar, Adv. Sh. Neeraj Jain, Adv. Revenue by: Sh. Sanjay I. Bara, CIT DR ORDER Per Bench: Both parties sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or benchmarking the transactions pertaining to intra-group services, the learned AO / DRP / TPO have erroneously selected CUP method and have applied the same in an erroneous manner by considering the amount approved by the Joint Venture ( JV ) partner as CUP. Ground No. 4: Erroneously disregarded the Hon ble ITAT s decision 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 / DRP / TPO erred in disregarding the decision of ITAT in AY 2011 -12 and AY 2012-13 and the directions 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 business model of the Appellant continued to remain the same. Ground No. 5: Erroneously questioning of commercial expediency of the Appellant. 5.1 The learned AO / DRP / TPO erred in law and on facts by questioning the commercial expediency of the Appellant in availing the intra-group services from its associated enterprise ( AE ) and in changing from floating interest rate to fixed interest rate on the External Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has set up a Project Office ( PO ) in India. As mandated by the GOI, the PMT JV has an obligation to perform Minimum Work Programme ( MWP ) for exploitation and exploration of oil and natural gas on the PMT fields. Specialized and technically sound experts are required by the appellant in various diversified areas based on the MWP. BG International Limited ( BGIL or the associated enterprises ) is a company incorporated in the United Kingdom with more than 40 years of experience and enriched technical expertise related to exploration and production activities in the oil and gas sector. BGIL has access to a wide pool of highly knowledgeable, technically trained and experienced staff to engage in exploration and production related activities. 9. The aforesaid international transactions pertaining to intra-group services received by the appellant (i.e. MSU charges, reimbursement of expenses, payroll expenses, Information Technology and other charges) were benchmarked by the appellant applying Transactional Net Margin Method ( TNMM ) as the transaction of receipt of intra group services were closely linked to the main business activity of the appellant of exploration and produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction it was held that when the transactions are closely interrelated it is but natural to club such transaction and benchmarked it together. The Ld. dispute resolution panel at page No. 30 31, has considered the suspect and agreed with the contention of the assessee that intragroup services received from its associated enterprise are closely linked to the main business 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 nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 (ITA No. 1478/Del/2017) and assessment year 2012-13 (ITA No. 6791/Del/2017) following the above ruling. 16. From the above, it is clear that Revenue intends to keep issues alive, however, could not controvert view taken in respect of these issues as there has been no contrary observation/material evidences brought out on record by ld. CIT DR. It has been admitted by him that facts and circumstances of the services received by assessee for the year under consideration are same vis- -vis assessment year 2010- 11, and other preceding assessment years. We are therefore inclined to follow the same view. Respectfully, following view taken by this Tribunal in assessment year 2010-11 reproduced hereinabove and other preceding assessment years, orders of which are placed at pages 530-915 of paper book, addition made by Assessing Officer stands deleted. 17. Ground No. 6 of the appeal of the assessee reads as under: Ground No. 6: Erroneous application of CUP for determining arm s length interest rate. 6.1 The learned AO / DRP / TPO erred in making an upward adjustment of INR 959,664,505 to the total income of the Appellant by erroneously applying CUP Method for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BOR + 350 bps based on Barclay bank s quotation after assessing appellant s risks and market conditions prevailing at that time. Further, as the appellant expected volatile interest rates in future and hence believed that there should be stability in the interest rate to be paid at least for the next five year period. 20. He submitted that appellant thus decided to migrate from floating interest rate to fixed rate of interest for the next five years. Therefore the LIBOR + 350 bps was converted to a fixed rate of interest @ 6.18% (being USD Libor swap rate + 350 bps). Therefore, for the relevant year under consideration i.e. FY 2012-13, the appellant paid an effective interest of 6.18 percent for the year. The appellant had used CUP method for the purpose of benchmarking the international transaction and had arrived at a margin paid by companies with comparable borrowings at 6.33 percent. Since the interest rate paid by the taxpayer at 6.18 percent was less than 6.33%, the transaction was stated to be at arm s length. Further the appellant had also relied upon the Barclays Bank quotation submitted vide submission dated 16-10-2017. 21. Ld. Counsel submitted that the TPO rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 period of 1st 5 years from the date of execution of this agreement and thereafter at variable rate of 6 months USD LIBOR +350 unless parties mutually agree otherwise 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 under the facility on each day of the drawdown period and such interest due shall be created and interest accrued between 1st temporary in each year of the facility and 31st March in the following year, shall be paid by the borrower to the lender on 31st may each year of the facility on a modified following date on versions basis or as may be otherwise agreed between the parties. 3.2 Parties may mutually agree in writing to fix the interest rate for a period of 5 years. The Ld. Transfer Pricing Officer has questioned the business decision of the Assessee to say that there was no reason for the Assessee to increase the interest rate from 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the revenue , despite heavy business risk, and further in a manner that will lead to higher revenue to the coffers of the tax gatherers. Various decisions relied upon by the Ld. Authorised Representative also support the above view expressed by us. According to the provisions of section 92 CA of the Income Tax Act, authority envisaged with the Ld. Transfer Pricing Officer is to serve a notice 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 relation to the international transactions and then after hearing such evidences as produced before him and after taking into account all relevant materials gathered, he shall order determining the arm s length price in relation to an international transaction by passing an order. In the present case Ld. Transfer Pricing Officer has not performed his duty of determining arm s length price of interest payment made by the Assessee of ₹ 1059412322/ but has analyzed and questioned the international transactions entered into by the Assessee, of which he should have determined AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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 agreement dated 21st of October 2009 and 31st of May 2005, it is apparent that there are certain different terms and conditions in both the agreements. Therefore it is not proper to benchmark both the transactions of payment of interest with respect to two different loans which are governed by two different agreements which has different terms and conditions as one transaction . Regarding 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 does not include withholding taxes. Assessee with respect to other banks also took similar quotations. However, from the reading of the quotation it is not known that these quotes are with respect to both the transactions of loan of US dollar 500 million and US dollar 300 million where there are different terms and conditions of repayment prepayment. Most importantly, the Ld. Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... branch office expenditure 9.1 The learned AO / DRP erred in law and in facts in disallowing the branch office expenditure of ₹ 38,28,48,276 by treating it as pre-operative in nature. 9.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the Appellant s business in India. 9.3 The learned AO erred in law and in facts in observing that the payments made which are included in the branch office expenditure, were liable to be disallowed under section 40(a)(ia) of the Act. 9.4 The learned AO erred in not noting that the claim regarding double disallowance of ₹ 52,39,273, being depreciation included in branch office expenditure, was already rectified by the learned AO in its order dated 21 February 2017. Ground No. 10: Disallowance of expenditure incurred on non-producing Production Sharing Contracts ( PSCs ) 10.1 The learned AO / DRP erred in law and in facts in disallowing the expenditure of ₹ 2,15,34,15,982 incurred on non-producing PSCs. Facts: 27. The appellant claimed exploration expenditure incurred on non-producing block of ₹ 215,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eligible appellant under any other provision of the Act, in the absence of a non- obstante clause. Accordingly, where an assessee already carrying on business of exploration and production of mineral oil, incurs any expenditure in pursuance of such existing business, the same would be allowable business deduction under section 37(1), de hors section 42 of the Act. Ld. Counsel placed reliance on decision of Delhi Bench of the Tribunal in the case of ONGC Videsh Ltd. v. DCIT: 37 SOT 97. 30. The ld. Counsel at the outset submitted that fact and circumstances of the case are similar to assessment year 2010- 11 and this issue stands covered by this Tribunal for assessment year 2010-11 as under: 55. From the above chart it is apparent that out of the total expenditure incurred of ₹ 931819021/ the Ld. Assessing Officer has allowed the expenditure of ₹ 471505233/ which is the cost of respective PSC and shared with JV partners. The balance cost which is not shared by the JV partners amounting to ₹ 460313788/ was disallowed for the reason that these cost have not been shared by the JV partners and therefore it is not incurred for the purposes of the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 to our notice by the revenue. It is also not the case of the revenue that details of those expenditure are not available before them or Assessee has furnished incomplete information for its allowability. Further, no judicial precedent was cited before us by revenue, which says that such expenditure are not allowable to the Assessee. Therefore according to us the expenses incurred by the Assessee with respect to i) KG-OS- 02004/1 of ₹ 71638553/- ii) MN DWN 2002/2 of ₹ 10524 1649/- iii) KG-DWN-98/4 of ₹ 6245 0283/ cannot be disallowed. In view of this we direct 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 ₹ 220983295/ on account of purchase of seismic data and general and administrative expenses in connection with the proposed NELP VIII, It is submitted by the Assessee that these were the expenses incurred by the Assessee with respect to the offers which were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Essar Oil Ltd. [IT Appeal No. 921 of 2008, dated 16-10- 2008], such expenditure is to be allowed as revenue expenditure. Hon ble Calcutta High Court in the case of Kesoram Industries Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 held that where the setting up does not amount to starting of new business but expansion or extension of the business already being carried on by the Assessee, expenses in connection with such expansion or extension of the business must be held to be deductible as revenue expenses. One has to consider purpose of the expenditure and its object and effect. Accordingly, it was held 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 course of business of exploration and production of oil, being revenue in nature, is liable to be allowed as a deduction. Similar claim was also made by the Assessee in the earlier year. We, therefore, direct the Assessing Officer to allow the same as revenue expenditure. As we have allowed ground Nos. 3 to 3.2, the alternate ground No. 3.3 as taken by the Assessee become infr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as cited before us by revenue, which says that such expenditure are not allowable to the Assessee. Accordingly, these grounds raised by the assessee stands allowed. 34. Ground No. 11 of the appeal of the assessee reads as under: Ground No. 11: Disallowance of head office expenditure 11.1 The learned AO / DRP 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 has erred in computing allowance under section 44C with respect to the returned income and not income assessed. Facts: 35. Ld. Counsel submitted that the appellant incurs expenditure to undertake activities required by the PSC, having regard to its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc. The expenses on such services are required to be incurred based on commercial expediency determined by BGEPIL. The same are not necessarily accepted by the JV partners as the incurrence and need is not dependent on the point of view of the other contractors in the JV (who lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t s benefit, attempts to push back costs outside the JV. However, it does not alter the nature of cost in the hands of BGEPIL; the costs are expenses incurred wholly and exclusively for the purpose of its business of prospecting for, exploration and production of crude oil and natural gas. During the subject assessment year, the appellant had paid ₹ 327,27,02,677 to BGIL in respect of services rendered by BGIL to the appellant. However, out of the aforesaid expense, the operator Board of the PSC did not approve expenses amounting to ₹ 306,13,07,141. 38. During the course of the assessment proceedings, the AO alleged that the expenditure incurred by BGIL for the activities of the appellant in India were in nature of head office expenditure within the meaning of section 44C and that part of the aforesaid expenditure which was not approved by the Operator Board of the PSC, was outside the purview of section 42(1) of the Act. Accordingly, such expenses incurred by the appellant were held to be in the nature of head office expenditure allowable only to the extent of 5% of the adjusted total income of the appellant. The AO did not, however, make any addition since the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 condition existing either under section 42, or under section 37 (1) of the Income Tax Act. Therefore, we reject the contention of the revenue that unless the expenditure is not borne by all the JV partners the expenses cannot be allowed to the Assessee. In fact, if the JV partners share the expenditure, there cannot be any question of claim of such expenditure in the hands of the Assessee, once again. Further, if the expenses are not specified in the agreement u/s 42 (1), even if the JV partners agree to share those expenditure, it is not allowable u/s 42 (1) or section 37 (1) of the act. Now it needs to be examined, whether the Assessee has incurred expenditure for the purposes of its business or not. The Assessee has stated that it has incurred such expenditure having regard to its standard of operation and the quality of execution work, safety of its employees in the environment. These expenses are required to be incurred by the Assessee based on the commercial expediency. The Assessee has stated that in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been borne by the joint venture partner, particularly when it is not disputed by the Revenue that the expenditure were made for commercial expediency. 42. The ld. CIT DR opposed to the same and submitted that the issue has been contested before the Hon ble High Court. 43. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We fail 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 incurred 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 to our notice by the revenue. It is also not the case of the revenue that details of those expenditure are not available before them or Assessee has furnished incomplete information for its allowability. Further, no judicial precedent was cited before us by revenue, which says that such expenditure are not allowable to the Assessee. Accordingly, this ground raised by the assessee stands allowed. 44. Ground No. 12 of the appeal of the assessee reads as under: Ground No. 12: Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted was considered as capital in nature by the assessee and accordingly the same was capitalized and appellant had claimed depreciation thereon. However, the tax auditor in the Tax Audit Report considered this as revenue in nature. He submitted that, in view of the aforesaid difference in the WDV of the assets, there is consequential difference in the amount of depreciation of ₹ 19,48,05,630 claimed during the year under consideration. Ld. Counsel submitted that even though the aforesaid amounts have been treated as revenue expenditure by the tax auditor in the respective previous years, their view was not binding on the appellant and hence, the same have been capitalised by the appellant and depreciation has been claimed thereon. Reference is made to Sr. No. 70.10 of Guidance Note on Tax Audit under section 44AB of the Act issued by the Institute of Chartered Accountants of India wherein it has been mentioned that view taken by tax auditor is not binding on the appellant. The relevant paragraph has been reproduced as under: 70.10 The opinion expressed by the tax auditor is not binding on the assessee. If the tax auditor has qualified his report and expressed an opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claim the depreciation on these assets. In view of this ground No. 5 of the appeal of the Assessee is allowed. 50. As regards difference in depreciation of other assets of ₹ 2,65,85,446, the appellant submits that the aforesaid difference is on account of the fact that the appellant had capitalised certain costs as part of the cost of the fixed assets and appellant had claimed depreciation thereon. However, the tax auditor in the Tax Audit Report considered this as revenue in nature. In this regard, the appellant submits that even though the aforesaid amounts have been treated as revenue expenditure by the tax auditor in the respective previous years, their view was not binding on the appellant and hence, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that if the expenditure capitalised by the appellant in previous years is not held to be capital in nature and depreciation and depletion on capitalised portion is subsequently disallowed, the amount capitalised by the appellant should be allowed as deduction under section 37(1) of the Act in the relevant assessment year. 53. The ld. CIT DR has no objection for the above issue to be set aside to ld. AO/TPO. 54. After hearing both the sides and considering the totality of the facts of the case, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate its case. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee on this issue is allowed for statistical purposes. 55. Ground No. 13 of the appeal of the assessee reads as under: 13. Disallowance of loss on transportation 13.1 The learned AO erred in disallowing loss on transportation of condensate on the ground that the expenditure cannot be allowed on the basis of the provisions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58. Ld. Counsel submitted that, as per accounting standards, the liability is reflected even where there is no actual expenditure; likewise the income is reflected even where there is no actual receipt of money. Moreover, section 209(3) of the Companies Act, 1956 makes it mandatory for companies to keep accounts on accrual basis only. It was submitted that accounting standards issued by the Institute of Chartered Accountant of India require that accounting policies must be governed by the principle of prudence . Accounting Standard-1 provides that provision should be made for known liabilities and losses even though the amount cannot be determined with substantial accuracy and represents only a best estimate in the light of available information. Ld. Counsel stated that, what is required, therefore, is that all anticipated liabilities and foreseeable losses have to be provided for, while caution is to be exercised against accounting for unearned gains. Ultimately the emphasis is on presenting a true and correct state of affairs of the company as a going concern. 59. Ld. Counsel then submitted that as per Income Computation and Disclosure Standard ( ICDS ) - X relating to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited with ONGC (transporter) for transportation of gas and condensate, the loss is to 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 appointed as per settlement agreement @ 1.7%. So, we are of the considered view that the matter is required to 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 no.13 is determined in favour of the taxpayer for statistical purposes. 62. The ld. CIT DR has no objection for the above issue to be set aside to ld. AO/TPO. 63. After hearing both the sides and considering the totality of the facts of the case, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate his case as per the direction of the DRP. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Audit report for the captioned year has mentioned as under: Para ii (a). The production and drilling inventory of the Indian operations has been physically verified by the Management during the year. Para ii (b) states that the procedures of physical verification of drilling inventory and production inventory followed by the Management are reasonable and adequate in relation to the size of the Indian operations and nature of its business. Para ii(c) states that the Indian operations is maintaining proper records of inventory. 66. Ld. Counsel submits that assessee placed a sound internal control mechanism to determine obsolete inventory to be written off during the year which was also supported by the auditor of international repute in his audit report. He submitted that the only reason for disallowance of aforesaid loss given by the AO was that the appellant had submitted a report by its Senior Drilling Engineer and not of an independent auditor. Accordingly, the AO concluded that the observations in the decision of the Hon ble Bombay High Court in the case of Alfa Laval (Supra) are not applicable to the appellant. In this regard, Ld. Counsel submits that amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 assessee is entitled to value the closing stock at market value or at cost whichever is lower. It is also not in dispute that the value of the closing stock has been taken as the value of the opening stock in the subsequent year. Moreover, it is also not 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 per cent. of the cost, the Tribunal could not have upheld the findings of the Assessing Officer. 40. Hon ble Delhi High Court in case cited as CIT vs. Bharat Commerce and Industries Ltd. 240 ITR 256 (Del.) held that, An assessee is free to adopt a particular method of valuation of its closing stock wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at where the foreign exchange gain has been taxed in the previous years, foreign exchange loss in the subsequent years needs to be allowed. Facts: 73. Ld. Counsel submitted that foreign exchange loss incurred by the Company is debited to the Profit and Loss account in view of the specific provisions of the Production Sharing Contracts where foreign exchange loss is considered as an allowable deduction. He placed reliance is placed on the decision of the Uttarakhand High Court in CIT v. Enron Oil and Gas India Limited (305 ITR 68) which has further been affirmed by the Hon ble Supreme Court in CIT v. Enron Oil and Gas India Limited) (305 ITR 75). 74. The ld. Counsel at the outset submitted that the issues stands covered by the order of this Tribunal for assessment year 2012-13 as under: 53. AO/DRP have made addition of ₹ 63,65,958/- on account of difference in revenue as per Form 26AS and profit loss account. It is contended by ld. AR for the taxpayer that the difference of ₹ 63,65,958/- was on account of difference in foreign exchange rate which is to be governed by the terms of PSC and relied on para 15.3.2 of Article 15 Taxes, royalties, rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand us Dollars (US$ 100,000), the conversion 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 excess revenue in accordance with the Rule 115 of the Income-tax Rules, 1962 (for short the Rules ), accounting as per PSC would oblige the taxpayer to reverse the excess revenue and consider it as foreign exchange loss. The taxpayer relied upon the decision rendered by Hon ble Supreme Court in CIT vs. Enron Oil Gas Limited 305 ITR 75. 55. Hon ble Apex Court in CIT vs. Enron Oil Gas 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 mineral oils. The section is inoperative by itself and becomes operative only when it is read with the production sharing contract. The section was enacted to ensure that where the structure of the production sharing contract is at variance with accounting principles generally used for ascertaining taxable income, the provisions of the production sharing contract would prevail. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance tax under section 208 will be liable to interest under section 234B of the Act, if he fails to pay such tax, or the advance tax paid by him falls short of 90 percent of the assessed tax. Accordingly, in order to be liable to pay interest under section 234B of the Act, an assessee must first be liable to pay advance tax under the provisions of section 208 of the Act. 80. He further submitted that as per provisions of section 208 read with section 209(1)(d) of the Act, advance tax payable has to be computed after reducing from the estimated tax liability the amount of tax deductible/ collectible at source on income which is included in computing the estimated tax liability. Such balance tax liability is the advance tax payable under section 208 of the Act. It should be noted that the words used in section 209(1)(d) of the Act are 'tax deductible at source' and not 'tax deducted at source. Under section 195 of the Act, tax is deductible at source from payments made to non-residents. Appellant is a non-resident and thus, tax is deductible at source from the payments made to it under section 195 of the Act. Since tax was deductible at source on all the payments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 6791/Del/2017). 85. We direct the Assessing Officer to compute the interest u/s 234C of the Act qua returned income as per law followed by interest u/s 234B 234D of the Act by giving due opportunity to the assessee. Accordingly, appeal for this assessment year 2013-14 filed by the assessee stands allowed as indicated above. Assessment Year 2014-15 86. The assessee has raised the following grounds of appeal: Ground No. 1 Impugned order passed by the assessing officer is barred by limitation and is liable to be quashed. That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer is barred by limitation and therefore, is liable to be quashed. Without prejudice: Ground No. 2: Erroneous rejection of Transactional Net Margin Method ( TNMM ) and selection of Comparable Uncontrolled Price ( CUP ) Method 2.1 The learned AO / DRP / Transfer Pricing Officer ( TPO ) have erred in law and on facts by disregarding the economic analysis conducted by the Appellant, for determination of the arm s length price ( ALP ) by application of TNMM on an aggregated basis and further, erred in applying CUP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant in computing the ALP. Ground No. 9: Proceedings barred by limitation 9.1 The order for the assessment year 2012-13 is bad in law and is liable to be quashed having regard to the statutory time limit prescribed under the section 153 of the Act read with Explanation 1 to section 153(4) of the Act. Ground No. 10: Disallowance of expenditure incurred on non-producing Production Sharing Contracts ( PSCs ) 10.1 The learned AO / DRP erred in law and in facts in disallowing the expenditure of ₹ 60,49,63,005 incurred on non-producing PSCs. Ground No. 11: Disallowance of head office expenditure 11.1 The learned AO / DRP 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 has erred in computing allowance under section 44C with respect to the returned income and not income assessed. Ground No. 12: Disallowance of depreciation and depletion 12.1 The learned AO erred in law and in facts in disallowing depreciation of ₹ 7,97,89,024 being the difference of depreciation amount between the tax audit report and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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