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TMI Blog2022 (9) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance to depreciation on support equipment under section 32 (1)(ii) - HELD THAT:- We find that depreciation on these support equipment has already been allowed in earlier year. There is no change in facts or law in this year. Hence, there is no reason why Revenue should change its stand and disallowed depreciation. The case laws referred by ld. CIT (A) as well as the ld. counsel of assessee are germane and support the case of assessee. Hence, the order of ld.CIT (A) is upheld. Disallowance of claim of expenses pending settlement of EPC contract - HELD THAT:- We find that the ITAT has already decided this issue in AY 2006-07 [ 2019 (7) TMI 1577 - ITAT DELHI ] wherein the claim of expenditure was disallowed as well as the addition of income was also deleted. For the present year, ld. CIT (A) has given a finding that these do not pertain to this year. However, Revenue s ground is on merits. We are of the considered opinion that this aspect has already been dealt with by ITAT and same ratio should follow. Accordingly, the AO is directed to consider the issue afresh in the light of the ITAT order as referred above. Pre-acquisition of expenses - AO held that the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock has been increased in AY 2008-09, in AY 2009-10 the value of opening stock should also increase - HELD THAT:- We find that ld. DR has not disputed the CIT (A) s finding and he is only submitting that this is a factual issue and may be remitted to AO. We find that this is exactly what ld. CIT (A) has done. The CIT (A) has noted the assessee s submissions and held that AO may consider the same. Hence, Revenue s ground in this regard is misplaced and hence dismissed. Contribution to abandonment account - claim was an expense which was to be allowed in future years and was a claim which was not acceptable in view of the decision of M/s. Goetze India [ 2006 (3) TMI 75 - SUPREME COURT ] - HELD THAT:- We find that ld. CIT (A) has duly examined the additional evidences and given a proper finding that the expenditure is allowable u/s 57. The ld. CIT (A) s order is well reasoned. The ld. CIT (A) has already found that the assessee cannot get back any amount from the fund. Hence, Revenue s plea that ld. CIT (A) has not decided whether the amount paid is provisional or not is not at all sustainable. Hence, we uphold the order of the ld. CIT (A). TP adjustment - appellant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 And ITA No.7435/Del./2017 And ITA No.6281/Del./2017 And ITA No.158/Del./2018 And ITA No.2379/Del./2019 - - - Dated:- 5-9-2022 - Shri Shamim Yahya, Accountant Member And Shri Anubhav Sharma, Judicial Member For the Assessee : Shri C.S. Agarwal, Sr. Advocate, Shri R.P. Mall, Advocate For the Revenue : Shri Mahesh Shah, CIT DR ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These are appeals by the Revenue against the respective orders of ld. CIT (Appeals). 2. Since the issues are common and connected the appeals were heard together and these are being consolidated for the sake of convenience and also disposed off by this common order. 3. For the sake of reference, we are referring to the following grounds of appeal for the Assessment Year 2007-08 :- 1. On the facts and circumstances of the case and in law, the Ld.CIT (A) has erred in deleting the disallowance of acquisition cost of participating interests in various blocks amounting to Rs.174,52,34,343/- by not considering the fact that the expression licences used in section 32(1)(ii) of the Act applies to licences that are relatable to intellectual properties only and not relatable to all typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. On the facts and circumstances of the case and in law, the Ld.CIT(A) is erred in deleting the disallowance of claim of expenses pending settlement of EPC contract but not recognized as revenues amounting to Rs.145,33,10,000 by ignoring the fact that the project has been completed and as such both the total costs as well as the total revenues should be taken into account for determining the taxable profits on accrual basis. 8. On the facts and circumstances of the case and in law, the Ld.CIT(A) is erred in deleting the disallowance of claim of expenses pending settlement of EPC contract but not recognized as revenues amounting to Rs.145,33,10,000 by ignoring the fact that the expenses claimed by the assessee are not added but only the profits which have accrued and crystallized during the year are added. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the claim of the revenues amounting to 1453.31 million has been forwarded by the company to MEM during the year which shows that the revenue has not only accrued but crystallized during the year and the same should have been taken into account for calculation of prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development service contract had not even awarded to it and the declaration of commerciality was still pending. 16. On the facts and circumstances of the case and in law, the Ld.CIT(A) is erred in deleting the addition on account of disallowance of prior period income of Rs.33,47,65,000/- by holding that the assessee in the course of assessment has filed the computation along with copy of revised return of income for AY 2006-07 by ignoring the contention of the AO that the assessee has not furnished the copy of revised return for F.Y.2005-06 relevant to AY 2006-07 during the course of assessment. 4. Grounds No.1, 2 3 relate to the issue whether the payment made for acquisition cost of participating interests in various blocks would qualify for intangible assets in order to be eligible for depreciation. 5. On this issue, Assessing Officer made disallowance of Rs.174,52,34,343/- on acquisition cost/WDV of participating interest in respect of Sakhalin 1 Project, Block A-I A-3 Myanmar Project, Sudan Blocks 5A 5B Projects, Ivory Coast Project, 81-1 Libya Project, Egypt, Qatar, Block 127 128 Vietnam Project and Cuba Project. As per the return of income filed, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght and license by making payment of Rs. 1559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation u/s 32(1)(ii) of the IT Act. The above decision of Hon'ble ITAT is squarely applicable to the facts of the present case as the issue is identical. In view of the above, following the above decision of Hon'ble ITAT it is held that the participating interests in the above projects are intangible assets entitled to claim of depreciation u/s 32(1)(ii) of the IT Act. Therefore, the claim of depreciation disallowed by the AO is deleted and appeal is allowed in this ground. 7. We further note that ITAT for AY 2006-07 in ITA No.3208/Del/2014 has held that the ITAT in assessee s own case for AYTs 2003-04, 2004-05 2005-06 has upheld the order of the ld. CIT (A) and allowed the depreciation. The ITAT further noted that the Revenue s appeal against Tribunal order for AY 2002-03 has been dismissed by Hon ble Delhi High Court. Therefore, ITAT held that in absence of any distinguishing feature, the CIT(A) s order is upheld and the ground raised by the Revenue is dismissed. 8. Ld. DR in this regard submitted that ld. CIT (A) s order is erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stage during the year under consideration. AO observed that in the case of the assessee each project is a separate and distinct project. There is no interlacing, interdependence or inter- connection of finance production and hence expenses incurred by the assessee in connection with a new division cannot be allowed as business expenditure of the assessee before commencement of production of that unit. Further, AO observed that in the case of the assessee being an oil prospecting company sufficient safeguard is provided by section 42 of the Income Tax act. As such section 42 determines the scheme of things in case of oil prospecting companies. In terms of section 42 business is set up in the calendar year in which the commercial production starts. AO observed that in the case of the projects where the commercial production have not commenced the claim of depreciation is not allowable at this stage but only where commercial production begins. In case of abandonment the entire costs may be allowed over a period of 10 years as per the agreement. As such for the year under consideration the claim of depreciation on support equipments at Myanmar Block A-I A-3, Libya Block NC- 188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not related to setting up of new business but amounts to an extension of existing business only. The observations of the High Court are as under: It cannot be disputed that if the expenses are incurred in connection with the setting up of a new business, such expenses will be on capital account. But where the setting up does not amount to starting of a 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. The assessee is a manufacturer of cement. In addition to its factory in Andhra Pradesh, it proposed to start another cement factory in Rajasthan. There is one business. Although the factory at Rajasthan was not set up in the previous year relevant to the assessment year, this fact, in our view, is not a relevant factor in determining whether the deduction is allowable or not. The expenses in this case are miscellaneous expenses and legal charges for the proposed cement factory project. This expenditure is not related to the setting up of a new factory, it pertains to exploring the feasibility of expanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not challenge the order of CIT(A) on this issue. Thirdly, depreciation could not held disallowable [see the judgment of Delhi High Court in the case of Oswal Agro reported in 341 ITR 467 (copy attached at page no. 15 to]. The Ld. AO held that the support equipment on which depreciation has been claimed pertains to those projects/Oil blocks wherein the assessee has acquired participating interest and are at such stage where exploration activities are being undertaken by the Assessee and no income has yet been booked from these projects. Further, held that each project constitutes a new business for the Assessee, therefore, in these projects, the Assessee is still in the pre-commencement stage. Each block of participating interest is not a separate business. The assessee is engaged in the business of exploration of crude oil and natural gas and in the process, keeps on acquiring other blocks in other jurisdictions. Thus when it acquires participating interest in other oil block, it is only an expansion of the business in which it is engaged. Support equipments are like other fixed assets and as such depreciation is allowable on cost incurred for acquisition of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's share out of Rs.1109.71 Million which has been provided as expenditure during the A Y 2006-07. The above issue pertains to A Y 2006-07 and does not pertain to A Y 2007-08. The issue was decided by me in A Y 2006-07 in appeal 140/09-10. Since, the issue pertains to A Y 2006-07 and addition made by the AO in A Y 2007-08 is double addition, therefore, the same is deleted. The appeal is allowed in this ground. 19. This issue was decided by the ITAT in AY 2006-07 as under :- 35. We have considered the rival arguments made by both the sides, perused orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the EPC Contractor executing the project on behalf of the consortium claimed additional costs aggregating to Rs.1659 million from the assessee and, consequently, an amount of Rs.1026.08 million being the assessee s share out of Rs.1140.08 million as approved by ONGC (consultant) was provided in the books of account and was claimed as an expenditure in the return of income. The assessee forwarded the counter claim to its customer, MEM amounting to Rs.1524.20 million ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show the revenue in its books of account on the ground the revenue did not accrue or arise to the assessee especially when the assessee is following mercantile system of accounting. 36. We find the assessee, during the year under consideration has completed the execution of the pipeline from Khartoum Refinery to Port Sudan. The EPC contractor executing the project on behalf of the consortium has claimed additional costs aggregating to Rs.1026.08 million being the share of the company out of Rs.1140.08 million as approved by ONGC (consultant) which has been provided as expenditure during the year. The claim forwarded by the company has not been accepted by the MEM for which the company has not considered any revenue in the P L Account. However, it has made a provision for additional expenses of Rs.1026.08 million being the company s share in the consortium. From the findings given by the CIT(A), we find the additional cost of Rs.1659.00 million company s share being Rs.1493.10 million claimed by the EPC contractor is pending in arbitration in its entirety. The claim of the EPC contractor has not been accepted by the assessee company. Part of the cost of Rs.1524.20 million (comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds raised by the assessee as well as the Revenue are accordingly dismissed. 20. Further we note that ld. counsel of the assessee has submitted that the assessee s submissions in this regard are as under :- For AY 2006-07, the Company had provided an expenditure amounting to INR 1,026.08 Million in the books. of accounts with respect to a claim made by an EPC contractor which remain outstanding. The claim made had not been allowed by the ITAT on the ground that no such liability had accrued. For AY 2007-08 to 2014-15, the Company had neither claimed nor debited nor provided for any fresh claim from EPC contractor. Thus, there being no claim made, the addition made was not only misconceived but had inadvertently been made. In fact, in the notes to accounts for AY 2007-08 to 2014- 15, the Company had reinstated the amount of liability incurred in AY 2006-07 on account of fluctuation in the foreign exchange rate. The foreign exchange gain/loss arising on account of such fluctuation had been erroneously offered to tax/claimed in the respective A Y s despite the fact that no such sum had accrued. The AO had accepted such claim/income and not raised any is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the disallowance of pre-acquisition expenses of Rs.79,18,87,613 claimed by the assessee under section 37 of the Act by holding that the same was allowable deduction under section 42 of the Act in terms of the Section 42 Agreement in the subsequent assessment years only after the commencement of commercial production/abandonment of the relevant projects. During the relevant assessment year, the assessee incurred an expense of Rs. 791,887,613 at the time to evaluation of projects in acquisition and pre-bid phase. The assessee claimed above expenditure as revenue expenditure allowable under section 37(1) of the Act on the ground that the said expenditure were incurred for expansion / extension of the existing business of the assessee. These expenses include expenses incurred for foreign block evaluation, for making bid, legal and professional fees paid to lawyers and consultants, travelling, communication, boarding and lodging expenses etc. AO held that the above claim of pre-acquisition expenses u/s 37(1) to the extent of Rs.79,18,87,613/- is not proper as the same is eligible u/s 42 as per the terms of the agreement. Therefore, AO disallowed the claim being premature and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 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 was 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 AO to allow the' same as revenue expenditure. As we have allowed ground no. 3 to 3.2, the alternate ground no. 3.3 as taken by assessee become anfractuous. 16. The expenditure of Rs.5.64 crores incurred on projects pending final approval, even though the said expenditure was written off in the accounts over a period of five years the AO disallowed the same. We have considered rival contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of M/s. Enron Oil and Gas India Ltd. (supra). 26. Ld. counsel of the assessee in this regard submitted that on this issue, Revenue has appealed for AYs 2002-03 and 2005-06 which has been dismissed by Hon ble Delhi High Court. Further, for AY 2006-07, the Revenue did not challenge the order of ITAT. 27. In this view of the matter, since the issue is covered by Hon ble Delhi High Court in assessee s own case, reference to case laws of M/s. Enron Oil and Gas India Ltd. 305 ITR 75 by ld. DR is not applicable on the facts here. Hence, the order of ld. CIT (A) is upheld on this issue. 28. Another issue relates to excess depreciation claimed on UPS @ 60% u/s 32(1)(ii). 29. Pursuant to the AO s disallowance in this regard, ld. CIT (A) has decide the issue in favour of the assessee by placing reliance on the decision of Hon ble Delhi High Court in case of BSES Yamuna Powers Ltd. in ITA No.1267 order dated 31.08.2010 wherein it has been held that depreciation on UPS shall be allowed @ 30%. 30. In AY 2005-06, in assessee s own case, the same issue is decided in favour of the assessee by the ITAT. 31. In our considered view, this issue is covered in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is erroneous because it is a settled legal position that allowability of an expense is not contingent on earning of income accrued. Hon'ble Supreme Court in the case of CIT Vs Rajendra Prasad Moody and Another: 115 ITR 519, held that the only condition for allowability of expenditure is that the same should have been incurred wholly and exclusively for the purpose of the business of the assessee. There is no dispute that exploratory expenditures under the service contract have been incurred wholly and exclusively for the purpose of business of the assessee. In case of Underwater Services Co.(P) Ltd vs DCIT (1991) 37 ITD 447, Mumbai IT AT held that simply because the assessee had incurred expenditure and the income resulted in the subsequent years, the claim of expenses cannot be disallowed. In Birlasoft (India) Ltd. Vs DClT [44 SOT 664 (Del)] Hon'ble ITAT Delhi held that settled proposition that when once an outlay is made for the purpose of the business, it need not turn out to be profitable. It is a mistake to suppose that any deductible expenditure must not only be incurred for the purpose of business or trade but must also be profitably laid out. Deductible expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income under the Income Tax Act, an expenditure incurred is allowable when it is incurred. However, an income accrues and is taxable when it is due to be received with a corresponding liability of the other party from whom it is due. 37. Upon careful consideration, we find that the ld. CIT (A) has taken a correct view of the matter. It is certainly settled law that allowability of expenses is not contingent upon earning of income. It has been duly incurred and no doubt has been expressed about the veracity of the expenditure. When no income has accrued in this regard, the expenditure cannot be disallowed on the plank that since income has not been earned expenditure is to be disallowed. In our considered opinion, the order of ld. CIT (A) and the case laws referred by him are germane and duly support the case of the assessee. Hence, we uphold the order of the ld. CIT(A) on this issue. The mere reference to section 42 and the decision of the Hon ble Supreme Court by the Ld. DR does not fructify the case of the Revenue in absence of details submitted as to how they are affecting the issue here. 38. Another issue raised relates to deletion of addition on account of disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e might be remitted back to the AO for verification. 42. Ld. counsel of this assessee in this regard as made following submissions :- AO, despite the fact that a sum of INR 33,47,65,000 does not represent the income for A Y 2007-08 has not excluded the same from the income. For the AY 2006-07, the assessee had claimed deduction u/s 42 of the Act amounting to INR 320,60,77,138 in the original return of income. The above amount includes liability amounting to INR 33,47,65,000 to be paid after the recovery of development investment. Accordingly, based on the advice of CAG, the- assessee had written back liability of INR 33,47,65,000 in the books of account of FY 2006-07 (AY 2007-08) as prior period income. The assessee had also 'revised its return of income for the AY 2006- 07 and deduction u/s 42 was reduced by INR 33,47,65,000. Copy attached at page no. 24 to 32 . The AO held that no evidence had been furnished to substantiate that the aforesaid sum has been offered to tax in the A Y 2006-07. In fact the revised return of income for A Y 2006-07 has been accepted by the revenue. 43. We find that ld. DR is not disputing the findings of the ld. CIT (A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand reduced by Rs.56.61 million. In view of the above we pray before your honor to allow deduction amounting to Rs.5,66,05,690 on account of consequential claim of increase in value of opening stock in AY 2009-10. 46. Considering the same, ld. CIT (A) found merit in the same and directed that the AO may allow benefit of revised opening stock to the assessee. 47. Ld. counsel of the assessee has made following submissions :- Stocks of crude oil in pipeline/flow line till the delivery point remains the property of State. The ownership of the oil gets transferred at marine terminal to the consortium. This accounting policy adopted has been accepted for valuation of stocks in respect of Sakhalin 1 Project, Russia and such accounting policy of the company of valuation of closing stock' has also been accepted by the Comptroller and Auditor General of India. Therefore, the assessee had reduced the closing stock of AY 2008- 09 by INR 56.61 million and the corresponding opening stock of AY 2009-10 was shown at the reduced value. The AO did not accept the contention of the assessee and assessed the closing stock of AY 2008-09 at a higher value including the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision for future abandonment cost being dismounting, abandoning, restoring well sites. During the year, the appellant had made a payment of Rs.6,02,19,264/- and an amount of Rs.1,65,67,432/- Rs.94,91,110/- had accrued for the month of February March respectively. 12.5. The appellant moved an application Tor submitting additional evidence under Rule 46A. The appellant gave evidence that deposits in the fund were made during the year. The matter was referred to the AO for a report. 12.6. In spite of several reminders, no report has been received from the AO. I am therefore basing my order on the documents on record and on merit. 53. Ld. CIT (A) admitted the additional evidence. He noted the submissions as under :- The Appellant vide an assignment agreement dated February 10, 2001 with Consortium members and the Russian Government acquired a 20% participating interest in Sakhalin Block Russia. As per the Production Sharing Agreement (PSA), the consortium has liability of site restoration and for this purpose shall establish an account (Abandonment Account) and begin making a monthly contribution to the Abandonment Account following the initial sale of Hydrocarbons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not considering the claim of the appellant, filed during the assessment proceedings, for allowing deduction on account of contribution to site restoration fund amounting to Rs.60,219,264 as per Production Sharing Contract for Sakhalin, Russia block. 8.2 That the Ld. AO has erred on facts and in law in holding that the amount deposited in the site restoration fund is mere provisional in nature. 8.3 That the Ld. AO has erred on facts and in law in holding that at best it is an expense that has to be allowed in future years. 8.4 That the Ld. AO has erred on facts and in law in holding that it is not possible for an appellant to earn interest on an item of expenditure. 8.5 That the Ld. AO has erred in not considering the claim of the appellant, filed during the assessment proceedings, that the amount of Rs. 493,456 credited to site restoration fund as interest was not in the nature of income or alternatively the same is to be treated as amount of contribution to the fund and hence is not taxable. 8.6 That the Ld. AO has erred in not considering the claim of the appellant, filed during the assessment proceedings, that the amount of Rs.6,998,554 credited to site restora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the facts of the case clearly demonstrates that while filing the original ROI no deduction on account of provision of abandonment cost has been claim. However, during the course of assessment proceedings, the assessee claimed an amount of Rs.6,77,11,274/- as a deduction. The assessee also claim deduction for the month of February 2009 and March 2009 totaling to Rs.8,62,77,806/- in total. 9.2 The AO did not allow the same on the ground that the amount deposited in the site restoration fund accounts is mere provisional in nature. It is also clear that the assessee has an option of making a bank or corporate guarantee in lieu of paying the same. The liability in respect of the abandonment cost has not arisen during the year and can be changed at the end of the period. The deposit is payable in the future years and no liability to pay has been incurred during the year. The agreement clearly states that there is no finality of the amount that the assessee is liable and shall only be determined at the conclusion of the contract. 9.3 The Ld. CIT(A) allowed the claim of the assessee by holding as under: 12.8 It is relevant to note that the AO has not doubted that the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed appeal before us. The same are dealt with as under. ASSESSMENT YEAR 2011-12 59. During FY 2010-11, the appellant had advanced foreign currency loan from its own funds amounting to INR 733,425,259 to its indirect subsidiary ONGC Caspian carrying a rate of interest of 2.5%. The bridge loan was advanced by the Appellant to ONGC Caspian on November 4, 2010 and was repaid on March 30, 2011 in accordance with the terms of the loan agreement. The loan to ONGC Caspian was advanced for the purpose of investment in South East Asia Gas Pipeline Company Limited (SEAGP). It was a short term loan for less than 6 months and was borrowed to bridge the short term gap between the requirement of funds and inflow of funds. 60. The assessee had maintained the TP Documentation for establishing the arm's length nature of its above mentioned international transaction. The appellant applied Comparable Uncontrolled Price ('CUP ) method as the most appropriate method. Since the loan was a short term loan for 146 days only and was repaid during the year itself, the appellant had compared the interest rate charged to the average 6- month LIBOR rate prevailing during the year i.e. 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling during the year i.e. 0.59% and used a spread of Libor plus 1.91% to arrive at the figure of 2.5%. That the assessee claimed that the said interest was at arm s length as it has been benchmarked using 6 month Libor as the base rate. The assessee submitted an additional benchmarking analysis conducted using Loan Connector database where the effective interest rate paid by the comparable companies was 1.40%. It was further stated that it was the first year of operation of ONGC Caspian, hence it has not earned any income though it had incurred expenditure. Ld. CIT (A) accepted assessee s contention that TPO has erred in determining the credit rate of ONGC Caspian as CCC instead of considering its credit rating to be the same as that of the parent company. Further assessee also objected before the ld. CIT (A) to the TPO using loan transactions undertaken by two different companies as comparable transactions. Assessee stated before the ld. CIT (A) that the loan in the name of above companies were taken in the last financial year and were long term loans as compared loan given by it to ONGC Caspian which was a bridge loan for less than 6 months and which was paid during the year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Connector) and concluded the transaction to be at arm's length. 71. The TPO did not agree to the contention of the appellant. He remarked that credit rating by external agency was not available for the borrower company and rejected the additional benchmarking analysis conducted by the Appellant. The TPO used the interest rate charged by SBI and determined the arm's length interest at the rate of 5.4357% (LlBOR+4.5%) by assigning lowest credit rating to Jarpeno. 72. Against the above order, the assessee filed objections before the ld.CIT (A). Ld. CIT (A) also noted that for AY 2010-11 in assessee s own case, the ld. CIT(A) has deleted the adjustment on interest on loan provided to Jarpeno made by the TPO and concluded that the interest rate charged by the assessee @ 4% at arm s length. He further noted that in AY 2011-12, the TPO did not make any adjustment on the interest on loan provided to Jarpeno and accepted the interest rate charged by the assessee @ 4% at arm s length. Ld. CIT (A) in this regard relied on the CIT(A) s order for those years and found that it has rejected the transfer pricing adjustment made by the TPO by relying upon the decision of Hon ble De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer pricing adjustment was deleted by the Ld. CIT(A) based on his earlier order for AY 2013-14. He held as under:- 13.22. In the instant year, the TPO has taken the arm s length rate of interest as the rate charged by SBI at LIBOR plus 4.5% for entities with lowest credit rating. The appellant, in his submission dated 26.09.2017, has pointed out that the TPO had accepted that the credit rating of Jarpeno, based on Moody s Analysis, was AA and AAA which is borne out by the order of the TPO for AY 2010-11 dated 28.01.2014 filed along with the submission. It is also observed that the TPO has not made any addition on account of the loan given to Jarpeno during AY 2011-12. The same has not been disputed by the CIT(A) in his order for AY 2010-11. In view of the above, the AO/TPO is directed to calculate the arm s length interest by giving credit rating of AA/AAA to Jarpeno i.e. LIBOR plus 3% as mentioned at page 15 of the order of the TPO dated 26.10.2016. The ground of appeal is disposed off accordingly. 7.5. The material facts of the case are the same in the instant year also. In accordance with the principle of consistency and respectfully following the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts available on record, the AO/TPO is directed to benchmark the loan transaction of the appellant with ONGC (BTC) at 6 months LIBOR + 4%. The AO/TPO is also directed to verify the value of LIBOR after taking the contention of the appellant into consideration. In view of the order of the CsIT(A) in AYs 2012-13 and 2013-14, the AO/TPO is also directed to apply 6 months LIBOR rate for benchmarking receipt of interest from ONGC (BTC).The ground of appeal is disposed off accordingly. 80. Upon careful consideration, we find the Ld. CIT(A) has passed a reasonable order which does not need any interference from us. The TPO s application of interest rate based on SBI rates have already been disapproved by the Hon ble Delhi High Court in the case of Cotton Naturals. 81. On loan to ONGC Nile Ganga, the AO/TPO did not accept the interest rate of 2.5% charged by the appellant to be at arm s length and applied interest rate of LIBOR + 4.5%. The AO/TPO also rejected the credit rating of A2 furnished by the appellant. 82. Upon assessee s objection, the Ld. CIT(A) dealt with the issue as under:- 7.13 The appellant advanced a short term loan of Rs. 5,318,240,000 to ONGC Nile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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