M/s. BG Exploration & Production India Ltd., Mumbai V. JCIT (International Taxation), Dehradun

ITA 1478/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7112 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 28-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Business expenditure; Double taxation relief; Opportunity of being heard; Principle of natural justice; International transaction; Additional depreciation; Retrospective amendment; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 234B; 37(1); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1478/DEL/2017 ASSESSMENT YEAR : 2011-12 BG EXPLORATION & PRODUCTION INDIA LTD., LAKE BOULEVARD ROAD, HIRANANDANI BUSINESS PARK, POWAI, MUMBAI. VS. JCIT (INTERNATIONAL TAXATION), DEHRADUN. PAN : AAACE4569K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SR.ADV. SHRI SAHIL SHARMA, CA DEPARTMENT BY : SHRI H. K. CHOUDHARY, CIT-DR DATE OF HEARING : 19-04-2018 DATE OF PRONOUNCEMENT : 18-07-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 23.02.2017 PASSED U/S 143(3)/144C(13) OF THE I.T. A CT, 1961 BY THE JCIT (INTERNATIONAL TAXATION), DEHRADUN FOR THE ASSESSME NT YEAR 2011-12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE (BGEPIL) IS A NON- RESIDENT COMPANY INCORPORATED IN THE CAYMAN ISLANDS WITH LIMITED LIABILITY AND IS ENGAGED IN THE BUSINESS OF PROSPECTING FOR EXPLO RATION AND PRODUCTION OF CRUDE OIL AND NATURAL GAS. IT FILED ITS RETURN OF INCOME ON 30.11.2011 DECLARING 2 ITA NO.1478/DEL/2017 TOTAL INCOME OF RS.890,50,35,760/-. SINCE THE ASSE SSEE HAD ENTERED INTO SEVERAL INTERNATIONAL TRANSACTIONS WITH ITS AE, THE ASSESSI NG OFFICER REFERRED THE MATTER TO THE TPO FOR DETERMINATION OF THE ARMS LENGTH PR ICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE. THE TPO VIDE ORDER DATED 29.01.2016 PROPOSED AN UPWARD ADJUSTMENT OF RS.291, 72,84,667/- IN RESPECT OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE AS SESSEE, THE DETAILS OF WHICH ARE AS UNDER :- S. NO. NATURE OF INTERNATIONAL TRANSACTION TP ADJU STMENT U/S 92CA (INR) 1. INTRA GROUP SERVICES 183,94,39,318 2. INTEREST PAYMENT 107,78,45,349 TOTAL 291,72,84,667 3. THE ASSESSING OFFICER ACCORDINGLY IN THE DRAFT A SSESSMENT ORDER PASSED ON 28.03.2016 MADE THE ABOVE ADJUSTMENT ON ACCOUNT OF PAYMENT OF INTEREST AND ON ACCOUNT OF INTRA GROUP SERVICES. IN THE SAI D DRAFT ASSESSMENT ORDER, THE ASSESSING OFFICER ALSO MADE THE FOLLOWING ADDITIONS /DISALLOWANCES :- 1. DISALLOWANCE OF BRANCH OFFICE EXPENSES 51,42,39 ,383/- 2. DISALLOWANCE OF NON-PRODUCING PSCS 39,18,72,912/ - 3. DISALLOWANCE OF EXPLORATION EXPENSES WRITTEN OFF 68,39,51,972/- 5. DISALLOWANCE OF EXCESS DEPRECIATION/DEPLETION CL AIMED 26,57,46,314/- 6. DISALLOWANCE OF INTEREST EXPENSES OF CAPITAL NAT URE 14,99,98,785/- 7. DISALLOWANCES OF CLUB EXPENSES 56,12,044/- 4. THE ASSESSING OFFICER ACCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.1383,37,41,840/-. 3 ITA NO.1478/DEL/2017 5. THE ASSESSEE APPROACHED THE DRP WHO VIDE ORDER D ATED 23.12.2016 DELETED THE ADDITION ON ACCOUNT OF DISALLOWANCE OF CLUB EXPENSES AMOUNTING TO RS.56,12,044/- AND SUSTAINED THE REMAINING ADDITION S MADE BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER. THE ASSESSI NG OFFICER, THEREAFTER, PASSED THE FINAL ASSESSMENT ORDER ON 23.02.2017 U/S 143(3) /144C(13) OF THE I.T. ACT DETERMINING THE TOTAL INCOME AT RS.1382,81,29,790/- . 6. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFIC ER/TPO/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISIN G THE FOLLOWING GROUNDS :- THE APPELLANT OBJECTS TO THE ORDER DATED 23 FEBRUA RY 2017 PASSED BY THE JOINT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) , DEHRADUN ('AO') FOR THE ASSESSMENT YEAR ('AY') 2011-12, PURSUANT TO THE DIR ECTIONS DATED 23 DECEMBER 2016 ISSUED BY THE DISPUTE RESOLUTION PANEL ('DRP') UNDE R SECTION 144C(5) OF THE INCOME- TAX ACT, 1961 ('THE ACT') ON THE FOLLOWING AMONG OT HER GROUNDS. GROUND NO.1: PROCEEDINGS BARRED BY LIMITATION 1.1 THE ORDER FOR THE ASSESSMENT YEAR 2011-12 IS BAD IN LAW AND IS LIABLE TO BE QUASHED HAVING REGARD TO THE STATUTORY TIME LIMIT P RESCRIBED UNDER THE SECTION 153 OF THE ACT READ WITH EXPLANATION 1 TO SECTION 153(4) O F THE ACT. GROUND NO.2: ERRONEOUS REJECTION OF TRANSACTIONAL N ET MARGIN METHOD ('TNMM') AND SELECTION OF COMPARABLE UNCONTROLLED PRICE ('CU P') METHOD 2.1 THE LEARNED AO / DRP / TRANSFER PRICING OFFICE R ('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 AND FURTHER, ERRED IN APPLYING CUP METHOD GROUND NO.3: WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED, LEARNED AO / DRP / TPO APPLIED CUP METHOD IN AN ERRONEOUS MANNER 3.1 WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS PERTAINING TO INTRA-GROUP SERVICES, THE LEARNED AO / DRP / TPO HAVE ERRONEOUSLY SELECTED CU P 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 DIRECTIONS OF THE HON'BLE DRP FOR AY 2009-10 AND AY 2010-11 4.1 THE LEARNED AO / DRP / TPO ERRED IN COMPLETELY DISREGARDING THE DIRECTIONS ISSUED BY THE HON'BLE DRP IN THE CASE OF THE APPELL ANT FOR THE PRIOR YEAR'S I.E. AY 4 ITA NO.1478/DEL/2017 2009-10 AND AY 2010-11 EVEN THOUGH THE FACTS AND CI RCUMSTANCES OF ITS CASE AND THE BUSINESS MODEL OF THE APPELLANT HAS CONTINUED TO RE MAIN 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 F LOATING INTEREST RATE TO FIXED INTEREST RATE ON THE EXTERNAL COMMERCIAL BORROWING TAKEN FROM ITS AE. GROUND NO.6: ERRONEOUS APPLICATION OF CUP FOR DETER MINING ARM'S LENGTH INTEREST RATE 6.1 THE LEARNED AO / DRP / TPO ERRED IN MAKING AN U PWARD ADJUSTMENT OF RS.1,07,78,45,349 TO THE TOTAL INCOME OF THE APPELL ANT BY ERRONEOUSLY APPLYING CUP METHOD FOR DETERMINATION OF ARM'S LENGTH INTEREST R ATE ON THE EXTERNAL COMMERCIAL BORROWING ('ECB') TAKEN FROM ITS AE. GROUND NO.7: ERRONEOUS DISALLOWANCE OF PAYMENT MADE TOWARDS INTRA-GROUP SERVICES BY APPELLANT TO ITS AE 7.1 THE LEARNED AO / DRP / TPO GROSSLY ERRED IN LA W AND ON FACTS BY MAKING AN UPWARD TRANSFER / PRICING ADJUSTMENT OF RS. 1,83,94 ,39,318 IN TOTAL TOWARDS INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMENT OF MANAGEMENT SERVICE AND UNIT CHARGES, IM CHARGES, GENERAL AND ADMINISTRATION EXP ENSES, PAYROLL EXPENSES AND JOINT ACQUISITION AND DEVELOPMENT OF IT INFRASTRUCTURE AN D SOFTWARE TO ITS AE. GROUND NO.8: ERRONEOUS DISREGARDING MULTIPLE YEAR D ATA 8.1 THE LEARNED AO / DRP / TPO GROSSLY ERRED IN ER RONEOUSLY REJECTING MULTIPLE YEAR DATA USED BY THE APPELLANT IN COMPUTING THE AL P. GROUND NO.9: DISALLOWANCE OF BRANCH OFFICE EXPENDIT URE 9.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN DISALLOWING THE BRANCH OFFICE EXPENDITURE OF RS. 51,42,39,383 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 OB SERVING THAT THE PAYMENTS MADE FOR PURCHASE OF SEISMIC DATA, INCLUDED IN THE BRANC H OFFICE EXPENDITURE, WERE LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(IA) 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 FACT S IN DISALLOWING UNDER SECTION 42 OF THE ACT READ WITH THE PSCS, THE EXPENDITURE O F RS. 39,18,72,912 INCURRED ON NON-PRODUCING PSCS. GROUND NO. 11: DISALLOWANCE OF EXPLORATION EXPENDIT URE WRITTEN OFF 11.1 THE LEARNED AO / DRP ERRED IN DISALLOWING EXP LORATION EXPENDITURE WRITTEN OFF OF RS.68,39,51,972, UNDER SECTION 42 OF THE ACT READ WITH THE PSCS. GROUND NO. 12: DISALLOWANCE OF HEAD OFFICE EXPENDIT URE 12.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACT S IN APPLYING THE PROVISIONS OF SECTION 44C OF THE ACT TO PAYMENTS MADE TO BG INTER NATIONAL LIMITED. 12.2 WITHOUT PREJUDICE, THE AO HAS ERRED IN COMPUT ING ALLOWANCE UNDER SECTION 44C WITH RESPECT TO THE RETURNED INCOME AND NOT INC OME ASSESSED. GROUND NO. 13: DISALLOWANCE OF DEPRECIATION ON PANN A-MUKTA WELL COST 5 ITA NO.1478/DEL/2017 13.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACT S IN DISALLOWING A SUM OF RS.26,57,46,314 BY CONSIDERING DEPRECIATION RATE OF 15% ON THE PANNA-MUKTA WELL COST AS PER SECTION 32, INSTEAD OF ALLOWING 100% OF THE COST UNDER SECTION 42. GROUND NO. 14: DISALLOWANCE OF DEPRECIATION ON GLOB AL IT & T EXPENDITURE 14.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACT S IN DISALLOWING DEPRECIATION OF RS.26,79,33,582 ON GLOBAL IT & T EXPENDITURE. 14.2 WITHOUT PREJUDICE, THE LEARNED DRP ERRED IN N OT TREATING THE GLOBAL IT & T EXPENDITURE AS REVENUE EXPENDITURE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. GROUND NO. 15: DISALLOWANCE OF INTEREST 15.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACT S IN DISALLOWING INTEREST OF RS.14,99,98,785 CLAIMED BY THE APPELLANT. GROUND NO. 16: NON-GRANT OF ADDITIONAL DEPRECIATION 16.1 THE LEARNED AO / DRP ERRED IN NOT GRANTING AD DITIONAL DEPRECIATION OF RS.4,32,25,478 UNDER SECTION 32(1)(IIA) OF THE ACT ON THE NEW PLANT AND MACHINERY OF RS. 21,05,13,315 PURCHASED AND PUT TO USE BY THE AP PELLANT DURING THE YEAR. GROUND NO.17: VIOLATION OF PRINCIPLES OF NATURAL JU STICE 17.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACT S, IN IGNORING THE SUBMISSIONS AND THE INFORMATION FURNISHED BY THE APPELLANT DURI NG THE ASSESSMENT PROCEEDINGS. GROUND NO. 18: SHORT CREDIT FOR TAX DEDUCTED AT SOU RCE 18.1 THE LEARNED AO ERRED IN NOT GRANTING CREDIT O F TAX DEDUCTED AT SOURCE TO THE EXTENT OF RS.87,48,486. GROUND NO. 19: LEVY OF INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT 19.1 THE LEARNED AO HAS ERRED IN LAW AND IN FACT, IN LEVYING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT DISREGARDING THE FACT THAT THE APPELLANT IS A NON-RESIDENT WHOSE INCOME IS SUBJECT TO TAX DEDUCTION AT SOURCE. GROUND NO. 20: GENERAL 20.1 THE APPELLANT SUBMITS THAT THE AO, TPO AND DR P HAVE ERRED IN ARRIVING VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUP PORTED BY ANY RELEVANT MATERIAL IN DECIDING THE CASE. 20.2 THE AO ERRED IN INITIATING PENALTY PROCEEDING S UNDER SECTION 271(1)(C) OF THE ACT. 20.3 THE APPELLANT SUBMITS THAT EACH GROUNDS OF AP PEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER 20.4 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND, SUBSTITUTE AND / OR MODIFY IN ANY MANNER WHATSOEVER ALL OR ANY OF THE FOREGOING G ROUNDS OF OBJECTIONS AT OR BEFORE THE HEARING OF THE APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING DID NOT PRESS GROUND NO.1, 17 AND 20 BEING GENERAL IN NATURE FOR WHICH LD. DR HAS NO OBJECTION. ACCORDINGLY, THE ABOVE GROUNDS ARE DISM ISSED AS NOT PRESSED. 6 ITA NO.1478/DEL/2017 8. GROUND NO.2 TO 8 BY THE ASSESSEE RELATES TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER/TPO/DRP. 9. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE AVAILED THE FOLLOWING SERVICES FROM THE AS SOCIATED ENTERPRISES FOR THE PURPOSES OF CARRYING ON ITS BUSINESS OF PROSPECTING , EXPLORATION AND PRODUCTION OF CRUDE OIL AND NATURAL GAS :- S.NO. TYPE OF INTRA GROUP SERVICE AMOUNT I JOINT ACQUISITION DEVELOPMENT OF IT INFRASTRUCTURE AND SOFTWARE 804,936,227 II MANAGEMENT SERVICE UNIT CHARGES 1,014,795,742 III IM RECHARGE AND TIME WRITING CHARGES 74,397,36 7 IV PAYROLL EXPENSES 255,563,180 V REIMBURSEMENT OF EXPENSES 472,645,602 TOTAL AMOUNT 2,622,338,118 10. THE AFORESAID INTERNATIONAL TRANSACTIONS PERTAI NING TO INTRA-GROUP SERVICES RECEIVED BY THE ASSESSEE (I.E. MSU CHARGES, G&A CHA RGES, PAYROLL EXPENSES AND JOINT ACQUISITION AND DEVELOPMENT OF IT INFRASTRUCT URE AND SOFTWARE) WERE BENCHMARKED BY THE ASSESSEE APPLYING TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE TRANSACTION OF RECEIPT OF INTRA GRO UP SERVICES WERE CLOSELY LINKED TO THE MAIN BUSINESS ACTIVITY OF THE ASSESSE E OF EXPLORATION AND PRODUCTION OF OIL AND GAS. SINCE THE OPERATING MAR GIN OF THE ASSESSEE AT 32.12% WAS HIGHER THAN THOSE OF THE COMPARABLE COMPANIES A T 25.94%, INTERNATIONAL TRANSACTION OF RECEIPT OF INTRA-GROUP SERVICES WAS CONSIDERED TO BE AT ARMS 7 ITA NO.1478/DEL/2017 LENGTH. THE TPO, HOWEVER, DETERMINED THE ARM'S LEN GTH PRICE OF INTERNATIONAL TRANSACTION OF RECEIPT OF SERVICES AT 782,898,800 A PPLYING THE CUP METHOD HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESS EE AND ALLOWED BY THE JV PARTNERS/OPERATOR BOARD SHALL BE CONSIDERED AS COMP ARABLE UNCONTROLLED PRICE. THE TPO ACCORDINGLY MADE AN ADJUSTMENT ON ACCOUNT O F INTERNATIONAL TRANSACTION OF RECEIPT OF INTRA GROUP SERVICES TO T HE EXTENT OF AMOUNT NOT SHARED BY JV PARTNERS ACCORDINGLY, THE TPO MADE AN ADJUSTM ENT AMOUNTING TO RS.183,94,39,318/- AS UNDER :- S.NO. DESCRIPTION OF INTRA GROUP SERVICE VALUE OF INTERNATIONAL TRANSACTION AMOUNT SHARED BY JOIN VENTURE (JV) TOTAL ADJUSTMENT I PAYROLL EXPENSES 255,563,180 107,381,829 148,181,351 II MANAGEMENT SERVICE UNIT CHARGES 1,014,795,742 0 1,015,132,296 III IM RECHARGE AND TIME WRITING CHARGES 74,397,367 7,086,287 67,310,540 IV JOINT ACQUISITION DEVELOPMENT OF IT INFRASTRUCTURE AND SOFTWARE 804,936,227 0 267,933,582 (AMOUNT CLAIMED AS DEPRECIATION CORRESPONDING TO 804,936,227) V REIMBURSEMENT OF EXPENSES 472,645,602 131,764,052 340,881,550 TOTAL 2,622,338,118 246,232,708 1,839,439,318 11. THE DRP UPHELD THE ACTION OF THE ASSESSING OFFI CER/TPO. ACCORDINGLY, THE ASSESSING OFFICER MADE ADJUSTMENT OF RS.1,83,94 ,39,318/- ON ACCOUNT OF INTRA GROUP SERVICES. 12. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFI CER/TPO/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8 ITA NO.1478/DEL/2017 13. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE. THE TRIBUNAL VIDE ITA NO.1581/DEL/2015 HAS DELETED THE SIMILAR ADJUSTMENT BY OBSERVING AS UNDER :- 7.2 ON THE EXAMINATION OF THE VOLUME AND US DETAIL S SUBMITTED BY THE ASSESSEE. THE LD. DISPUTE RESOLUTION PANEL HAS COME TO THE CO NCLUSION THAT ASSESSEE HAS RECEIVED THE SERVICES AND THOSE SERVICES ARE USEFUL SERVICES.. WITH RESPECT TO THE CLUBBING OF THE TRANSACTION IT WAS HELD THAT WHEN T HE TRANSACTIONS ARE CLOSELY INTERRELATED IT IS BUT NATURAL TO CLUB SUCH TRANSAC TION AND BENCHMARKED IT TOGETHER. THE LD. DISPUTE RESOLUTION PANEL AT PAGE NO. 30 3 1, HAS CONSIDERED THE SUSPECT AND AGREED WITH THE CONTENTION OF THE ASSESSEE THAT INT RAGROUP SERVICES RECEIVED FROM ITS ASSOCIATED ENTERPRISE ARE CLOSELY LINKED TO THE MAI N BUSINESS ACTIVITY OF THE ASSESSEE COMPANY PLACING RELIANCE ON THE US REGULATIONS, OEC D REGULATIONS AND OECD DRAFT NOTES ON COMPARABILITY. IN VIEW OF THIS WE DO NOT F IND ANY INFIRMITY AND NONE WAS POINTED OUT BEFORE US BY THE LD. DEPARTMENTAL REPRE SENTATIVE IN THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL. CONSEQUENTLY, AFTER VERIF YING THAT ASSESSEE HAS DEMONSTRATED NEED FOR THOSE SERVICES, BENEFIT DERIVED FROM THOSE SERVICES, EVIDENCE OF RECEIPT OF SUCH SERVICES AND SUBMITTING THAT THOSE SERVICES AR E 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 RS. 3329766244/, DESERVES TO BE UPHELD. THE JUDICIAL P RECEDENTS 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 FR OM THE PERSPECTIVE OF THE REVENUE. FURTHER, NO EVIDENCES HAVE BEEN LED BEFORE US BY RE VENUE STATING THAT THESE SERVICES ARE DUPLICATIVE IN NATURE AND ALSO SERVES ONLY THE INTEREST OF THE SHAREHOLDER. ACCORDING TO THE INFORMATION SUPPLIED BY THE ASSESS EE AND EXAMINED BY THE LD. DISPUTE RESOLUTION PANEL DOES NOT GIVE ANY SUCH IND ICATION. FURTHER REGARDING NON- SHARING OF THE COST BY THE JOINT-VENTURE PARTNERS W E HAVE GIVEN OUR FINDINGS WHILE DECIDING THE APPEAL OF THE ASSESSEE THAT SUCH AN AC TION OF THE JOINT-VENTURE PARTNERS CANNOT BE THE REASON TO DETERMINE THE ARMS LENGTH PRICE OF THE SERVICES WHICH IS BEEN RECEIVED BY THE ASSESSEE AT NIL. IN VIEW OF THIS WE UPHOLD THE FINDING OF THE LD. DISPUTE RESOLUTION PANEL HOLDING THAT TRANSACTIONS OF INTRA GROUP SERVICES ARE INTERLINKED, THEREFORE, THEY SHOULD BE BENCHMARKED TOGETHER BY ADOPTING TNMM AS THE MOST APPROPRIATE METHOD , HENCE, DIRECTING THE LD. TRA NSFER PRICING OFFICER TO DELETE THE ADJUSTMENT PROPOSED OF RS. 3 329766244/. IN THE R ESULT GROUND NO. 1 TO 3 OF THE APPEAL OF THE REVENUE ARE DISMISSED. 9 ITA NO.1478/DEL/2017 14. WE FIND, FOLLOWING THE ABOVE DECISION THE TRIBU NAL VIDE ITA NO.6791/DEL/2017 ORDER DATED 17.07.2018 HAS RESTORE D THE ISSUE TO THE FILE OF THE DRP WITH A DIRECTION TO DECIDE THE ISSUE AFRESH BY OBSERVING AS UNDER :- 14. SO, FOLLOWING THE DECISION RENDERED BY THE COO RDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2010-11 (SUPRA), WE DEEM IT NECESSARY TO REMAND THIS ISSUE TO LD. DRP TO DECIDE AFRESH TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE TAXPAYER BY APPLYING THE TNMM AS MAM BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER, IN THE LIGHT OF THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN AY 2010-11. SO , GROUNDS NO.1 TO 9 ARE DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICA L PURPOSES. 15. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDI NATE BENCH OF THE TRIBUNAL TO WHICH ONE OF US IS A PARTY (AM), WE RESTORE THE ISSUE TO THE FILE OF THE DRP FOR ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT O F THE DIRECTION OF THE TRIBUNAL. THE GROUNDS RELATING TO INTRA-GROUP SERVICES ARE AC CORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 16. SO FAR AS TRANSFER PRICING ADJUSTMENT ON ACCOUN T OF INTEREST ON PAYMENT OF LOAN AMOUNTING TO RS.107,78,45,349/- IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN TERMS OF THE PSC, THE AS SESSEE IS REQUIRED TO CONTRIBUTE ITS SHARE OF THE FUNDS FOR THE PLANNED A CTIVITIES UNDER THE WORK PROGRAM. THE ACTIVITIES OF THE ASSESSEE INVOLVES H UGE INVESTMENTS AND HAVE A LONG GESTATION PERIOD. THE ASSESSEE HAD TAKEN AN U NSECURED FOREIGN CURRENCY LOAN AMOUNTING TO USD 500 MILLION FROM ITS ASSOCIAT ED ENTERPRISE, BG ASIA PACIFIC PTE. LTD., SINGAPORE CBGAP') ON MAY 3 L 200 5 FOR A PERIOD OF 15 YEARS. 10 ITA NO.1478/DEL/2017 THE LOAN WAS TAKEN AT AN INTEREST RATE OF LONDON IN TER-BANK OFFER RATE (LIBOR) PLUS 2 PERCENT PER ANNUM PAYABLE ANNUALLY . AS A RESULT OF SUBPRIME CRISIS IN THE YEAR 2008, THERE WAS LACK OF AVAILABI LITY OF FUNDS IN THE GLOBAL FINANCIAL MARKETS WHICH INDICATED TOWARDS A POSSIBL E INCREASE IN THE INTEREST RATES IN THE NEAR FUTURE. AS A RESULT OF THE PREVA ILING UNCERTAINTY, THE PROPORTION OF BORROWERS BORROWING FUNDS AT FIXED RATE OF INTER EST ALSO INCREASE. 17. IN ORDER TO FUND THE OPERATIONS THE ASSESSEE ON OCTOBER 22. 2009, AVAILED ADDITIONAL LOAN AMOUNTING TO USD 300 MILLION AND TH E INTEREST RATE WAS CHANGED TO A FIXED RATE OF 6.18% (BEING LIBOR USD SWAP RATE +350 BPS) FOR SUCCEEDING FIVE YEARS. THE SAID LOAN FROM THE AE WAS AN UNSECU RED LOAN, SINCE THE FINANCIAL POSITION OF THE ASSESSEE DID NOT PERMIT OBTAINING S ECURED LOAN ON FAVOURABLE RATE OF INTEREST FROM UNRELATED PARTY, FINANCIAL INSTITU TIONS OR BANKER. 18. THE INTEREST RATE WAS AMENDED IN OCTOBER 2009, WHEN THE ASSESSEE AVAILED OF AN ADDITIONAL TRANCHE (UNDER THE SAME LO AN AGREEMENT) FROM ITS AE TO MEET ITS WORKING CAPITAL REQUIREMENT. AS THERE WERE SIGNIFICANT VARIATIONS IN THE GLOBAL INTEREST RATES SINE 2005 (I.E. WHEN THE LOAN WAS INITIALLY EXTENDED AND THE ORIGINAL AGREEMENT WAS SIGNED) THROUGH 2009, THE AE AND THE ASSESSEE AGREED FOR AN INTEREST RATE REVISION IN 2009 FROM LIBOR +2 00 BPS TO LIBOR + 350 BPS BASED ON BARCLAY BANKS QUOTATION AFTER ASSESSING AP PELLANT'S RISKS AND MARKET CONDITIONS PREVAILING AT THAT TIME. FURTHER, AS TH E APPELLANT EXPECTED VOLATILE 11 ITA NO.1478/DEL/2017 INTEREST RATES IN FUTURE AND HENCE BELIEVED THAT TH ERE SHOULD BE STABILITY IN THE INTEREST RATE TO BE PAID AT LEAST FOR THE NEXT FIVE YEAR PERIOD. 19. ACCORDINGLY, THE ASSESSEE DECIDED TO MIGRATE FR OM A 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 CO NSIDERATION I.E. FY 2010-11, THE APPELLANT PAID AN EFFECTIVE INTEREST OF 6.18 PE RCENT FOR THE YEAR. IT WAS FURTHER SUBMITTED THAT THE INTEREST RATE PAID BY TH E APPELLANT WAS IN LINE WITH THE RATES QUOTED, BY INDEPENDENT ENTERPRISES (CITI BANK , HSBC BANK AND BANK OF AMERICA). 20. THE TPO, HOWEVER, CONSIDERED USD LONDON INTER-B ANK OFFER RATE (,LIBOR') + 200 BPS (EFFECTIVE 2.28%) AS THE ARM'S LENGTH RATE AND MADE AN ADJUSTMENT FOR THE ADDITIONAL AMOUNT OF INTEREST PA ID DURING THE PERIOD APRIL 1, 2010 TO MARCH 2011 BEING DIFFERENCE BETWEEN 6.18% A ND 2.28%. ACCORDINGLY, THE TPO MADE AN ADJUSTMENT OF RS.107,78,45,349/- TO THE INTERNATIONAL TRANSACTION OF PAYMENT OF INTEREST UNDERTAKEN BY TH E ASSESSEE. 21. THE TPO ADDITIONALLY PERFORMED A WITHOUT PREJUD ICE ANALYSIS WHEREIN THE TPO ARRIVED AT A FIXED INTEREST RATE OF 4.88% FOR T HE OLD LOAN FACILITY OF USD 500MN AFTER CONVERTING THE LIBOR + 200 BPS THROUGH THE SWAP MANAGER FUNCTION IN BLOOMBERG DATABASE. THE TPO APPLIED THI S RATE ON THE OLD LOON 12 ITA NO.1478/DEL/2017 FACILITY WHICH WAS CONTINUING FROM THE YEAR 2005, W ITHOUT APPRECIATING THAT THE PRICING TERMS WERE RE-NEGOTIATED DURING THE FINANCI AL YEAR 2009. 22. THE TPO FURTHER PERFORMED A FRESH LOAN SEARCH A ND IDENTIFIED THREE LOAN COMPARABLE FROM FINANCIAL AND GOVERNMENT INDUSTRY H AVING AN AVERAGE SPREAD OF LIBOR + 213 .33BPS. THE TPO CONVERTED THIS RATE INTO FIXED RATE OF 5.02% FOR THE NEW LOAN FACILITY OF USD 300MN. BASED ON T HE ABOVE ANALYSIS THE TPO MADE AN ADJUSTMENT OF RS.35,86,76,789/- ON A WITHOU T PREJUDICE BASIS. THE ACTION OF THE TPO WAS UPHELD BY THE DRP. THE ASSES SING OFFICER ACCORDINGLY MADE THE ADDITION. 23. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIAT ELY PRECEDING ASSESSMENT YEAR. WE FIND THE TRIBUNAL VIDE ITA NO.1581/DEL/20 15 (SUPRA) HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO WITH CERTAIN DIRECTIONS. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL READ AS UNDER :- 26. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND DIRECTIONS OF DISPUTE RES OLUTION PANEL. THE ASSESSEE ENTERED ORIGINALLY INTO A LOAN AGREEMENT DATED 31 ST OF MAY 2005 BETWEEN BG. ASIA PACIFIC PLC LTD AND ASSESSEE FOR UNSECURED LOAN FA CILITY OF US DOLLAR 500 MILLION. ACCORDING TO THE TERMS AND CONDITIONS OF THAT AGREE MENT INTEREST RATE WAS FIXED AS ONE MONTH, US $ LIBOR +2% FOR AN AND APPORTIONED ON AN ACTUAL 360 BASIS. THE TERMINATION DATE OF THE AGREEMENT WAS 31 ST OF MAY 2020. SUBSEQUENTLY ON 21/10/2009 THERE IS AN AMENDMENT MADE IT TO THE EXISTING LOAN FACILITY UNDER AGREEMENT DATED 31/05/2005, ACCORDING TO WHICH, THE PARTIES HAVE A GREED TO AMEND THE INTEREST RATE TERMS APPLICABLE TO THE EXISTING LOAN FACILITY AT T HE FIXED RATE OF 6.18% FOR 5 YEARS FROM THE DATE OF EXECUTION OF THIS AGREEMENT (I.E. FROM 21/10/2009), IT WOULD BE ONCE AGAIN AT AVAILABLE RATE OF 6 MONTHS USD LIBOR +350 UNLESS THE PARTIES AGREE OTHERWISE. ON CONJOINT READINGS OF THIS 2 AGREEMEN TS IT IS APPARENT THAT DURING THE 13 ITA NO.1478/DEL/2017 YEAR THERE IS A CHANGE IN THE INTEREST RATE OF THE ABOVE LOAN, WHICH WAS EARLIER AT US DOLLAR LIBOR +2% TO 6.18%. FOR PART OF THE YEAR I. E. FROM 01/04/2009 2 21/10/2009, THE RATE OF INTEREST ON THE ABOVE LOAN WAS 2.33% AND FROM 22/10/2009 TO 31/03/2010 THE RATE OF INTEREST OF THE SAME LOAN WI THOUT ANY CHANGE IN THE TERMS AND CONDITION OF AGREEMENT EXCEPT INTEREST WAS @ 6.18%. FURTHER, VIDE LETTER DATED 21/10/2009 THE AE HAS AGREED TO OFFER AN ADDITIONAL UNSECURED LOAN OF US DOLLARS 300 MILLION UNTIL 2020 TO THE APPELLANT WHEREIN TER MS 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 1 ST 5 YEARS FROM THE DATE OF EXECUTION OF THIS AGREEMENT AND TH EREAFTER AT VARIABLE RATE OF 6 MONTHS USD LIBOR +350 UNLESS PARTIES MUTU ALLY AGREE OTHERWISE IN WRITING 3 . INTEREST 3.1 INTEREST SHALL ACCRUE ON THE AMOUNT OF THE ADVA NCE ON A DAY-TO-DAY BASIS IN RESPECT OF AMOUNTS OUTSTANDING UNDER THE F ACILITY ON EACH DAY OF THE DRAWDOWN PERIOD AND SUCH INTEREST DUE SHALL BE CREATED AND INTEREST ACCRUED BETWEEN 1 ST TEMPORARY IN EACH YEAR OF THE FACILITY AND 31 ST MARCH IN THE FOLLOWING YEAR, SHALL BE PAID BY THE BORROWE R TO THE LENDER ON 31 ST MAY EACH YEAR OF THE FACILITY ON A MODIFIED FOLLOWI NG DATE ON VERSIONS BASIS OR AS MAY BE OTHERWISE AGREED BETWEEN THE PAR TIES. 3.2 PARTIES MAY MUTUALLY AGREE IN WRITING TO FIX TH E 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 AS SESSEE TO INCREASE THE INTEREST RATE FROM 2.33% TO 6.18%, WHICH WAS 165% HIGHER THA N THE RATE AT WHICH THE ASSESSEE WAS PAYING INTEREST TILL THE TIME OF REVIS ION IN THE INTEREST RATE. THE LD. TRANSFER PRICING OFFICER HAS FURTHER HELD THAT ASSE SSEE HAS FAILED TO SUBMIT ANY DOCUMENTARY DETAIL OF NEGOTIATION AND CONVINCING AG REEMENT FOR INCREASING INTEREST RATE AND WHAT BENEFIT HAS ACCRUED TO THE A SSESSEE WHEN ALL THE TERMS AND AGGRIEVED TERMS AND CONDITIONS OF THE AGREEMENTS RE MAINED UNCHANGED. ACCORDING TO THE LD. TRANSFER PRICING OFFICER NO IN DEPENDENT PARTY WOULD HAVE AGREED FOR SUCH A UNILATERALLY INCREASE WHICH DEFIE S ANY LOGIC EXCEPT THAT THE AMOUNT WAS BEING PAID TO THE ASSOCIATED ENTERPRISE IN THIS REGARD TO TP PROVISIONS. ACCORDING TO HIM THE LIBOR RATES HAVE BEEN CONTINUOUSLY REDUCING FROM 2009 ONWARDS AND THE ASSESSEE WAS WELL AWARE O F THE TREND AT THE TIME OF TAKING DECISION. ACCORDINGLY, THE INCREASES IN RAT ES ARE CONSIDERED A CLASSIC EXAMPLE OF TRANSFER PRICING TO REDUCE THE PROFITABI LITY OF THE ASSESSEE COMPANY. FOR THIS REASONS HE PROPOSED AN ADJUSTMENT OF RS. 4 2,72,64,082/ ON ACCOUNT OF INTEREST PAYMENTS. WE DISAGREE WITH THIS FINDING O F THE LD. TRANSFER PRICING OFFICER THAT THERE WAS NO REASON FOR THE ASSESSEE T O INCREASE THE INTEREST RATE FOR 2.33% TO 6.18%. THE ASSESSEE HAS GIVEN DETAILED RAT IONAL BEHIND ITS OWN DECISION FOR SHIFTING FROM FLOATING RATE OF INTEREST REGIME TO FIXED RATE OF INTEREST. IN A WAY, IT REDUCES THE RISK OF CHANGES IN THE INTEREST RATE S. IT IS A WELL SETTLED PROPOSITION 14 ITA NO.1478/DEL/2017 OF LAW THAT THE LD. TRANSFER PRICING OFFICER IS NOT SUPPOSED TO QUESTION THE BUSINESS DECISION OF THE ASSESSEE. THE ASSESSEE HA S GIVEN AMPLE REASONS FOR ITS BUSINESS DECISION EVEN STATING THAT MOST OF THE REP ORTED LOANS IN THAT PARTICULAR PERIOD WERE HAVING A CLAUSE OF FIXED RATE OF INTERE ST. THEREFORE, THE DECISION OF THE APPELLANT TO SHIFT FROM FLOATING RATE TO FIXED RATE OF INTEREST WAS BASED ON COMMERCIAL CONSIDERATION AND TO PROTECT THE BUSINES S OPERATION OF THE APPELLANT FROM ANY ADVERSE MOVEMENT IN FLOATING INTEREST RATE S AND THAT ONLY BUSINESSMEN CAN DECIDE. IT MAY SOUND ILLOGICAL TO THE LD. TRAN SFER PRICING OFFICER, BUT IT IS BEYOND HIS AUTHORITY TO QUESTION THE WISDOM OF ASSE SSEE. IT IS NOT THE PREROGATIVE OF REVENUE TO DIRECT ASSESSEE TO CONDUCT ITS BUSINE SS IN A PARTICULAR MANNER. IT IS ALSO NOT PROPER TO ASK AND ASSESSEE TO CONDUCT ITS BUSINESS IN A MANNER WHICH IS UNDERSTOOD BY THE REVENUE , DESPITE HEAVY BUSINESS RISK, AND FURTHER IN A MANNER THAT WILL LEAD TO HIGHER REVENUE TO THE COFFERS OF THE TAX GATHERERS. VARIOUS DECISIONS RELIED UPON BY THE LD. AUTHORISED REPRESE NTATIVE 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 ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS AND THEN AFTER HEARI NG SUCH EVIDENCES AS PRODUCED BEFORE HIM AND AFTER TAKING INTO ACCOUNT ALL RELEVA NT MATERIALS GATHERED, HE SHALL ORDER DETERMINING THE ARMS LENGTH PRICE IN RELATIO N TO AN INTERNATIONAL TRANSACTION BY PASSING AN ORDER . IN THE PRESENT CASE LD. TRANSFER PRICING OFFICER HAS NOT PERFORMED HIS DUTY OF DETERMINING ARMS LEN GTH PRICE OF INTEREST PAYMENT MADE BY THE ASSESSEE OF RS. 1059412322/ BUT HAS AN ALYZED AND QUESTIONED THE INTERNATIONAL TRANSACTIONS ENTERED IN TO BY THE ASS ESSEE , OF WHICH HE SHOULD HAVE DETERMINED ALP ONLY. THE PROVISIONS OF SECTION 92C OF THE ACT PROVIDES THAT ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED ACCORDING TO ONE OF THE PRESCRIBED METHODS, WHICH S HOULD BE THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION AND THE FUNCTIONS PERFORMED. THEREFORE ACCORDING TO THIS, THE LD. TRANSFER PRICI NG OFFICER IS DUTY BOUND TO APPLY ONE OF THE METHODS SPECIFIED IN THAT SECTION TO DETERMINE THE ARMS LENGTH PRICE, HAVING REGARD TO THE NATURE OF THE TRANSACTI ONS AND FUNCTIONS PERFORMED BY THE ASSESSEE AFTER CONSIDERING INTO ACCOUNT THE MAT ERIALS/ DOCUMENTS AND EVIDENCES PLACED BEFORE HIM BY THE ASSESSEE. IN THE PRESENT CASE LD. TRANSFER PRICING OFFICER HAS STATED THAT ASSESSEE HAS FAILED TO SUBMIT ANY DOCUMENTARY DETAILS OF NEGOTIATION AND CONVINCING AGREEMENT FOR INCREASING INTEREST RATE. THE NATURE OF TRANSACTION INVOLVED IN THIS CASE IS PAYM ENT OF INTEREST WHERE THE TERMS AND CONDITIONS WITH RESPECT TO RATE OF INTEREST HAVE CHANGED DURING THE YEAR, WHEREAS THE LOAN WAS GRANTED IN 2005. FOR BENCHMARK ING THE INTEREST TRANSACTION IT IS NECESSARY TO CONSIDER THE FACTORS SUCH AS :- I) PREVAILING ECONOMIC SITUATION II) TIME SCHEDULE OF DRAWING DOWN THE DEBT III) REPAYMENT SCHEDULE, IV) OPTIONS OF PREPAYMENT OF THE LOAN, V) TERM / TENURE OF LOAN, 15 ITA NO.1478/DEL/2017 VI) TENURE AND PERIODICITY OF INTEREST PAYMENTS, VII) WITHHOLDING TAXES BURDEN ON INTEREST VIII) SECURITY OFFERED IX) CREDIT RATING OF THE GROUP , AE AND PAYER ENTITY X) RISK OF CURRENCY XI) POSSIBILITY AND TERMS AND CONDITION OF CONVERTIBILI TY OF DEBT TO EQUITY. THE LD. TRANSFER PRICING OFFICER MUST HAVE LOOKED T HE AGREEMENT DATED 31 ST OF MAY 2005. ACCORDING TO CLAUSE NO. 7, THE INTEREST IS REQUIRED TO BE PAID ON THE INTEREST PAYMENT DATE, WHICH IS 31 ST MAY EACH YEAR, , THE TAXES ON INTEREST, SHALL BE ON THE ACCOUNT OF THE BORROWER ACCORDING TO CLA USE 9 OF THE AGREEMENT. FURTHER, ACCORDING TO CLAUSE 5 OF THE AGREEMENT THE CANCELLATION OF THE FACILITY IS AT THE SOLE DISCRETION OF THE LENDER, THEREFORE THE RE WAS NO RIGHT OF PREPAYMENT WITH THE ASSESSEE. WITH RESPECT TO THE 2 ND TRANSACTION OF LOAN OF US DOLLAR 300 MILLION THERE ARE ALSO THE CLAUSES OF REPAYMENT AND PREPAYMENT IN CLAUSE NO. 4, THERE IS ALSO AN AGREEMENT VIDE CLAUSE NO. 3 OF REW RITING THE INTEREST RATE FOR A PERIOD OF 5 YEARS, THE AMOUNT OF REPAYMENT ON PREPA YMENT 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 21 ST OF OCTOBER 2009 AND 31 ST 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 RESPEC T TO TWO DIFFERENT LOANS WHICH ARE GOVERNED BY TWO DIFFERENT AGREEMENTS WHICH HAS DIFFERENT TERMS AND CONDITIONS AS ONE TRANSACTION. REGARDING THE CLAI M OF THE ASSESSEE WITH RESPECT TO THE QUOTATIONS OF THE BANK, THE 1 ST 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 QUOTA TION 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. TRA NSFER PRICING OFFICER HAS NOT LOOKED AT THESE EVIDENCES PRODUCED BY THE ASSESSEE IN THE FORM OF QUOTATIONS OF VARIOUS BANKS, COMPARABLE SEARCH BY THE ASSESSEE ON LPC/ DEALSCAN DATABASE. THE LD. DISPUTE RESOLUTION PANEL HAS ALSO BRUSHED A SIDE THE PROVISION OF SECTION 92C OF THE INCOME TAX ACT, WHICH PRESCRIBES METHODO LOGY FOR COMPUTATION OF ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTIONS . IT HAS MERELY REITERATED WHATEVER HAS BEEN STATED BY THE LD. TRANSFER PRICIN G OFFICER WITHOUT APPLYING THE PROVISIONS OF LAW TO THE FACTS OF THE CASE BEFORE T HEM. IN VIEW OF THIS WE SET ASIDE THE WHOLE MATTER OF DETERMINATION OF ALP OF INTERES T PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE BACK TO THE FILE OF THE LD. T RANSFER PRICING OFFICER WITH A DIRECTION TO EXAMINE THE COMPUTATION OF ALP BY TH E ASSESSEE OF ABOVE TRANSACTION STRICTLY IN ACCORDANCE WITH THE PROVISI ONS OF SECTION 92C OF THE INCOME TAX ACT CONSIDERING THE EVIDENCES PLACED BY THE ASS ESSEE BEFORE HIM AND THEN DECIDE THE ISSUE OF ADJUSTMENT, IF ANY, ON MERITS. NEEDLESS TO SAY THAT ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF HEARING TO DEMON STRATE THAT PAYMENT OF INTEREST MADE BY THE ASSESSEE TO ITS ASSOCIATED ENT ERPRISE IS AT ARMS LENGTH 16 ITA NO.1478/DEL/2017 ACCORDING TO ONE OF THE METHODS SUPPORTING IT WITH NECESSARY AND CREDIBLE EVIDENCES . IN THE RESULT GROUND NO. 2 OF THE APPEA L OF THE ASSESSEE IS ALLOWED WITH ABOVE DIRECTION. 24. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSES SEES OWN CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSE SSING OFFICER/TPO TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTION OF THE T RIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE GRO UNDS NO.2 TO 8 RAISED BY THE ASSESSEE ON THIS ISSUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 25. SO FAR AS GROUND NO.9 IS CONCERNED, THE SAME RE LATES TO DISALLOWANCE OF BRANCH OFFICE EXPENDITURE OF RS.51,42,39,383/- BY T REATING THE SAME AS PRE- OPERATIVE EXPENDITURE. 26. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAS ESTABLISHED A BRANCH OFFICE IN INDIA TO UNDERTAKE OTHER FUNCTIONS NECESS ARY FOR SUSTENANCE OF ITS BUSINESS OF PROSPECTING FOR EXPLORATION AND PRODUCT ION OF CRUDE OIL AND NATURAL GAS IN INDIA SUCH AS IDENTIFYING OPPORTUNITIES FOR EXPLORATION, ACQUIRING SEISMIC DATA AND UNDERTAKING FEASIBILITY STUDIES, BASED THE REON DETERMINING THE CONTRACTS/OPPORTUNITIES FOR WHICH BIDS SHOULD BE MA DE, PARTICIPATING IN BIDS, ETC. AND OTHER CORPORATE FUNCTIONS SUCH AS HR, LEGAL, AC COUNTS AND FINANCE, IT, ETC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD INCURRED EXPLORATION AND BUSINESS DEVELOPMENT COST OF RS.514,239,383/-. THE ASSESSING OFFICER 17 ITA NO.1478/DEL/2017 PROPOSED TO DISALLOW THE SAID EXPENSES BY ALLEGING THAT SINCE THE SAID EXPENSES HAD BEEN INCURRED FOR PROSPECTING NEW BUSINESS OPPO RTUNITIES, THEREFORE, THE SAME WERE TO BE TREATED AS PRE-OPERATIVE IN NATURE AND NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER FU RTHER ALLEGED THAT SINCE THE BRANCH OFFICE WOULD NOT EARN ANY INCOME IN FUTURE, THEREFORE, NO EXPENDITURE WOULD BE ALLOWED UNDER THE MATCHING PRINCIPLE. 27. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR SUSTENANCE OF ITS BUSINESS IN INDIA OF PROSPECTING FOR EXPLORATION AND PRODUCT ION OF CRUDE OIL AND NATURAL GAS, BGEPIL IS CONSTANTLY ON THE LOOKOUT FOR NEW OP PORTUNITIES, FOR INSTANCE, THE EVALUATING WHETHER TO BID FOR NEW BLOCK THROUGH NELP, ETC. HE SUBMITTED THAT WHILE ASSESSING THE ASSESSEES TAXABLE INCOME, ALL THE EXPENDITURE INCURRED FOR ITS BUSINESS WOULD HAVE TO BE CONSIDERED AND EV ALUATED TO DETERMINE THE DEDUCTIBILITY AS PER THE NORMAL PROVISIONS OF THE A CT. THE SAID EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER/DRP HAS BEEN IN CURRED FOR DEVELOPMENT OF THE ASSESSEES EXISTING BUSINESS OF PROSPECTING FOR , EXTRACTION AND PRODUCTION OF MINERAL OILS BY EXPLORING AND EVALUATING NEW BUSINE SS OPPORTUNITIES I.E. OILFIELDS. THE EXPLORATORY EXPENSES ARE IMPORTANT FOR APPELLANT TO CARRY ON ITS BUSINESS IN INDIA. BASED ON THE EVALUATION OF OPPO RTUNITIES AND TECHNICAL ANALYSIS, APPELLANT MAKES A DECISION TO INVEST IN A N OPPORTUNITY OR NOT. THIS IS AN INTEGRAL PART OF THE BUSINESS OF THE ASSESSEE AN D ANY EXPENDITURE INCURRED FOR 18 ITA NO.1478/DEL/2017 THE SAME IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THE ASSESSING OFFICER HAS FAILED TO CONSIDER THAT EXPLO RATION AND BUSINESS DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE IS TO EXPLORE AND EVALUATE NEW BUSINESS OPPORTUNITIES IN INDIA. SINCE THE BUS INESS OF THE ASSESSEE IS ALREADY IN EXISTENCE, THE AFORESAID EXPENSES CANNOT BE REGARDED AS PRE-OPERATIVE. REFERRING TO PROVISIONS OF SECTION 37, HE SUBMITTED THAT THE SAID SECTION PROVIDES FOR DEDUCTION OF EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CA PITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LAID OUT OR EXPENDED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. THUS, FOR EXPENDITURE TO BE ALLOWABLE U/S 37, THE FOLLOWING CONDITIONS NEED TO BE SATISFIED :- (I) EXPENSE SHOULD BE INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF THE BUSINESS. (II) THE EXPENSE SHOULD BE REVENUE IN NATURE. 28. REFERRING TO THE DECISION IN THE CASE OF ONGC V IDESH LTD. VS. DCIT REPORTED IN 37 SOT 97, HE SUBMITTED THAT THE ASSESS EE IN THAT CASE WAS ENGAGED IN BUSINESS OF EXPLORATION AND PRODUCTION OF HYDROC ARBONS INCURRED EXPENDITURE ON PURCHASE AND EVALUATION OF SEISMIC DATA OF FOREI GN BLOCKS. IT WAS HELD THAT EXPENDITURE SO INCURRED WAS FOR FURTHERANCE OF ACTI VITIES UNDERTAKEN BY IT IN 19 ITA NO.1478/DEL/2017 NORMAL COURSE OF BUSINESS AND, THEREFORE, SAME WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. 29. HE ALSO RELIED ON THE FOLLOWING DECISIONS :- (I) CIT VS. VARDHMAN SPINNING AND GENERAL MILLS, 17 6 TAXM 157 (P&H). (II) INDO RAMA SYNTHETICS LTD., 333 ITR 18 (DEL.). (III) JAY ENGINEERING WORKS LTD., [2008] 166 TAXMA N 115 (DEL.). (IV) CIT VS. PRIYA VILLAGE ROADSHOWS LTD., 332 ITR 594 (DEL.). (V) CIT VS. EURO INDIA LTD., [2014] 223 TAXMAN 97 (DEL.). (VI) HINDUSTAN ALUMINIUM CORPORATION LTD. VS. CIT, 159 ITR 673 (CAL.). (VII) ASIATIC OXYGEN LTD. VS. CIT (CAL.). (VIII) CIT VS. GRAPHITE INDIA LTD., 221 ITR 420 (C AL.). (IX) BINANI CEMENT LTD. VS. CIT, 227 CTR 49 (CAL.) . (X) DCIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD., 57 TAXMANN.COM (GUJ.). 30. HE SUBMITTED THAT IDENTICAL ISSUE HAD COME UP B EFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 AND THE TRIBUNAL VIDE ITA NO.1170/DEL/2015 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE OF EXPLORATION AND BUSINESS DEVELOPMENT COST OF RS.51,42,39,383/- MADE BY THE ASSESSING OFFICER SHO ULD BE DELETED. 31. SO FAR AS THE ALLEGATIONS OF THE ASSESSING OFFI CER THAT NO EXPENDITURE WOULD BE ALLOWED UNDER THE MATCHING PRINCIPLE SINCE BO WOULD NOT EARN ANY INCOME IN FUTURE IS CONCERNED, HE SUBMITTED THAT TH E ASSESSING OFFICER ERRED IN ALLEGING THAT SINCE BO WOULD NOT EARN ANY INCOME IN FUTURE, THEREFORE, NO EXPENDITURE WOULD BE ALLOWED UNDER THE MATCHING PRI NCIPLE. IF THE BUSINESS DEVELOPMENT EFFORTS LEAD TO INVESTMENTS IN OIL AND GAS BLOCKS BY THE ASSESSEE IN 20 ITA NO.1478/DEL/2017 FUTURE, THEN THE ASSESSEE WILL EARN INCOME IN INDIA AFTER ESTABLISHMENT OF A PROJECT OFFICE TO CARRY OUT EXPLORATION AND DEVELOP MENT ACTIVITIES. THE ASSESSING OFFICER HAS ERRED IN DISREGARDING THE BUS INESS STRUCTURE OF THE ASSESSEE TO CONTEND THAT THERE WILL NOT BE ANY FUTU RE INCOME OF THE ASSESSEE AFTER THE BUSINESS DEVELOPMENT COST IS INCURRED. AS REGA RDS THE ALLEGATION OF THE ASSESSING OFFICER THAT NO TAX IS REQUIRED TO BE DED UCTED AT SOURCE ON PAYMENTS MADE TO FUGRO DATA SERVICES LTD., SWITZERLAND (FURG O) AND GEO SPECTRUM LIMITED, UK (GEO) FOR PURCHASE OF SEISMIC DATA IS C ONCERNED, HE SUBMITTED THAT THE DISALLOWANCE IN TERMS OF SECTION 40(A)(IA) IS A PPLICABLE ONLY WHEN THE PAYER FAILS TO DEDUCT TAX U/S 195, WHICH CASTS AN OBLIGAT ION ON A PERSON MAKING PAYMENT TO A NON-RESIDENT OF ANY SUM, WHICH IS CHAR GEABLE UNDER THE PROVISIONS OF THE ACT TO DEDUCT TAX AT THE RATES IN FORCE AT T HE TIME OF PAYMENT OF SUCH SUM OR AT THE TIME OF CREDIT THEREOF TO THE ACCOUNT OF THE PAYEE, WHICHEVER IS EARLIER. AS PER THE SAID SECTION 195, TAX IS REQUIRED TO BE WITHHELD IN RESPECT OF PAYMENTS MADE TO A NON-RESIDENT ONLY IF SUCH PAYMEN T IS CHARGEABLE TO TAX IN INDIA. IN TERMS OF SECTION 90(2) OF THE ACT, PROVI SIONS OF THE ACT ARE OVERRIDDEN BY THE PROVISIONS OF THE DTAA TO THE EXTENT MORE BE NEFICIAL TO THE NON-RESIDENT ASSESSEE. IN THE PRESENT CASE, FURGO AND GEO ARE N ON-RESIDENTS AND ENTITLED TO CLAIM BENEFIT UNDER THE INDIA-SWISS AND INDIA-UK TA X TREATIES RESPECTIVELY. IN TERMS OF PARAGRAPH 1 OF ARTICLE 7 OF THE AFORESAID TREATIES, BUSINESS PROFITS 21 ITA NO.1478/DEL/2017 ARISING TO A NON-RESIDENT ENTERPRISE SHALL BE TAXAB LE IN INDIA, ONLY IF SUCH ENTERPRISE HAS A PE IN INDIA. IN OTHER WORDS, IN A BSENCE OF PE IN INDIA, NO PART OF THE BUSINESS PROFITS ARISING TO SUCH ENTERPRISE WOULD BE TAXABLE IN INDIA. IN THE INSTANT CASE, SINCE FUGRO AND GEO DO NOT HAVE A NY PE IN INDIA, THEREFORE BUSINESS PROFITS EARNED BY THE SAID COMPANIES FROM SALE OF SEISMIC DATA TO THE ASSESSEE WOULD NOT BE LIABLE TO TAX IN INDIA IN TER MS OF ARTICLE 7 READ WITH ARTICLE 5 OF THE RESPECTIVE DTAA AND HENCE THE ASSE SSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE PAYMENTS TO BE MADE TO THE SAID PARTIES. HE ACCORDINGLY SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 32. LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER/TPO/DRP. HE SUBMITTED THAT THE ASSESSEE WA S GIVEN PERMISSION TO OPEN BRANCH OFFICE FOR EXPLORATION OF CRUDE OIL AND GAS AS PER RBI GUIDELINES AND AS PER PSC. THE ASSESSEE CANNOT CONDUCT ANY BU SINESS BEYOND PERMISSION GRANTED BY THE RBI SINCE THE ASSESSEE IS NOT A NORM AL RESIDENT ASSESSEE. THEREFORE, THE DECISION OF THE ITAT IN ASSESSEES O WN CASE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SO FAR AS THE ACTIV ITIES OF SEISMIC DATA IS CONCERNED, THE LD. DR SUBMITTED THAT SUCH ACTIVITIE S ARE NOT PERMITTED BY THE RBI FOR OPENING BRANCH OFFICE. THEREFORE, THE ASSE SSEE CANNOT CLAIM THE SAME AS BUSINESS ACTIVITIES. SO FAR AS THE DECISION IN THE CASE OF ONGC VIDESH LTD. 22 ITA NO.1478/DEL/2017 (SUPRA) CONSIDERED BY THE TRIBUNAL IS CONCERNED, HE SUBMITTED THAT THE FACTS IN THAT CASE ARE ENTIRELY DIFFERENT SINCE ONGC VIDESH LTD. WAS A RESIDENT ASSESSEE. IT WAS THE MANDATE AND NOT UNDER ANY PROVISION TO C ONDUCT BUSINESS IN INDIA FOR NEW VENTURES OF CRUDE OIL EXPLORATION, THEREFORE, T HE DEDUCTION OF EXPENDITURE U/S 37 WAS ALLOWED. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE IS A NON-RESIDENT COMPANY HAVING BEEN ALLOWED TO OPEN BRANCH OFFICE O NLY TO CONDUCT BUSINESS IN RESPECT OF PARTICULAR PSC, THEREFORE, SUCH EXPENDIT URE AND ITS ALLOWABILITY U/S 37 WILL NOT APPLY. 33. LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER S UBMITTED THAT THERE IS NO BAR AS PER FEMA FOR BRANCH OFFICE NOT TO TAKE ANY OTHER ACTIVITIES. ALL THE EXPENSES ARE PSC SPECIFIC AND WHERE THERE IS NO PSC, THE EXP ENDITURE IS ALLOWABLE U/S 37(1) AND IT IS NOT RIGHT TO DISTINGUISH THE DECISI ON OF THE ITAT. 34. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.51,42,39,383/- ON THE GR OUND THAT THE SAID EXPENSES HAD BEEN INCURRED FOR PROSPECTING NEW BUSINESS ACTI VITIES AND, THEREFORE, THE SAME ARE BASICALLY PRE-OPERATIVE IN NATURE AND NOT ALLOWABLE U/S 37(1) OF THE I.T. ACT. WE FIND THE ACTION OF THE ASSESSING OFFICER H AS BEEN UPHELD BY THE DRP. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASS ESSEE THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN T HE IMMEDIATELY PRECEDING 23 ITA NO.1478/DEL/2017 ASSESSMENT YEAR. IT IS THE SUBMISSION OF THE LD. D R THAT WHEN THE ASSESSEE WAS GIVEN PERMISSION TO OPEN BRANCH OFFICE FOR EXPLORAT ION OF CRUDE OIL/GAS AS PER RBI GUIDELINES AND AS PER PSC, THE ASSESSEE CANNOT CONDUCT ANY BUSINESS BEYOND PERMISSION BY THE RBI ESPECIALLY WHEN THE AS SESSEE IS NOT A NORMALLY RESIDENT ASSESSEE. 35. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND THE TRIBUNAL AT PARA 55 AND 56 HAS DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER :- 55. FROM THE ABOVE CHART IT IS APPARENT THAT OUT O F THE TOTAL EXPENDITURE INCURRED OF RS. 931819021/ THE LD. ASSESSING OFFICER HAS AL LOWED THE EXPENDITURE OF RS. 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 RS. 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 O F THE BUSINESS OF THE ASSESSEE AND HENCE DISALLOWABLE. FURTHER SUM OF RS. 220983295/ INCLUDED IN THE DISALLOWANCE OF RS. 460313788/ WAS PERTAINING TO THE PURCHASE OF S EISMIC DATA FOR EXPLORING NEW OPPORTUNITIES IN THE BUSINESS OF THE COMPANY UNDER THE PRETEXT THAT THESE ARE WITH RESPECT TO THE FUTURE BUSINESSES WHICH HAS NOT YET COMMENCED. THEREFORE, PRIMARY THE DISALLOWANCES OF RS. 460313788/ INCLUDES A SUM OF RS 22098 3295/ FOR PURCHASE OF SEISMIC DATA AND BALANCE AMOUNT PRIMARILY WITH RESPECT TO TIME WRITING COST AND DEVELOPMENT EXPENSES. THE TIME WRITING CHARGES AS I T IS EXPLAINED BY THE ASSESSEE ARE FOR THE PURPOSE OF DRILLING AND SUBSURFACE INPUTS, ANALYSIS AND ADMINISTRATIVE EXPENSES WITH RESPECT TO EXECUTIVE, FINANCE, HUMAN RESOURCES, LEGAL, COMMERCIAL, ETC THE DETAILED BREAKUP OF THESE TIME WRITING CHARGES FOR EACH OF THE PSC CONTRACT WERE EXPLAINED BY THE ASSESSEE BY GIVING BREAKUP OF THEI R COST AS WELL AS NATURE OF THOSE EXPENDITURE. ASSESSEE EXPLAINED THAT AS IT NEEDS TO SAFEGUARD ITS INTEREST IN THE BLOCKS IT HAS EMPLOYED TECHNICAL EXPERTS FOR WHICH TIME WR ITING CHARGES ARE INCURRED. FURTHER, FOR THE SUPPORT FUNCTIONS. IT ALSO HIRES S EVERAL OTHER PERSONS AND NECESSARILY HAS TO INCUR OTHER EXPENDITURE WITH RESPECT TO ITS FINANCE AND ACCOUNTING ACTIVITIES, ITS HUMAN RESOURCE ACTIVITIES AND LEGAL COMPLIANCE AND LITIGATION ACTIVITIES. THESE EXPENDITURE ARE THOUGH INCURRED IN SUPPORT TO THE P SC CONTRACTS EXECUTED BY THE ASSESSEE AT MAY NOT BE NECESSARILY SHARED BY THE OT HER JOINT-VENTURE PARTNERS. MERELY BECAUSE IT IS NOT SHARED BY OTHERS, WHICH MAY BE FO R MANY REASONS, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED THESE EXPENDITUR E WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. WITH RESPECT TO THE DETAILS AVAILABLE WITH THE 24 ITA NO.1478/DEL/2017 ASSESSING OFFICER, IT WAS NOT POINTED OUT A SINGLE INSTANCE THAT ANY OF THE EXPENDITURE ARE NOT INCURRED BY THE ASSESSEE FOR TH E PURPOSES OF ITS BUSINESS. IN FACT, OUT OF THE TOTAL EXPENDITURE THE LD. ASSESSING OFFI CER HAS PARTLY ALLOWED THE EXPENDITURE AND PARTLY DISALLOWED THE EXPENDITURE B Y USING THE SINGLE YARDSTICK THAT IF EXPENDITURE ARE SHARED BY THE JV SAME ARE ALLOWABLE AND IF SAME IS NOT SHARED BY JV PARTNERS, THEN IT IS NOT ALLOWABLE. WE FAILED TO SE E ANY SUCH PROVISION IN THE ACT THAT IF THE OTHER PARTY IN THE JOINT-VENTURE DO NOT AGREE T O SHARE THE PARTICULAR COST, THE COST INCURRED BY ONE OF THE PARTNERS OF THAT JOINT-VENTU RE BECOMES THE EXPENDITURE NOT FOR THE PURPOSE OF THE BUSINESS OF THAT PARTNER. NO SUC H PROVISION HAS ALSO BEEN BROUGHT TO OUR NOTICE BY THE REVENUE. IT IS ALSO NOT THE CA SE OF THE REVENUE THAT DETAILS OF THOSE EXPENDITURE ARE NOT AVAILABLE BEFORE THEM OR ASSESS EE HAS FURNISHED INCOMPLETE INFORMATION FOR ITS ALLOWABILITY. FURTHER, NO JUDIC IAL PRECEDENT WAS CITED BEFORE US BY REVENUE, WHICH SAYS THAT SUCH EXPENDITURE ARE NOT A LLOWABLE TO THE ASSESSEE. THEREFORE ACCORDING TO US THE EXPENSES INCURRED BY THE ASSESSEE WITH RESPECT TO I) KG-OS- 02004/1 OF RS. 7 163 8553 II) MN DWN 2002/2 OF RS. 1 0524 1649 III) KG-DWN-98/4 OF RS. 6 245 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 EXP ENDITURE OF RS. 22098 3295/ ON ACCOUNT OF PURCHASE OF SEISMIC DATA AND GENERAL AND ADMINISTRATIVE EXPENSES IN CONNECTION WITH THE PROPOSED NELP VIII, IT IS SUBM ITTED BY THE ASSESSEE THAT THESE WERE THE EXPENSES INCURRED BY THE ASSESSEE WITH RES PECT TO THE OFFERS WHICH WERE INVITED FOR THE 8 TH OFFER OF BLOCKS FOR NATIONAL EXPLORATION LICENSING POLICY FOR WHICH THE ASSESSEE HAS TO PURCHASE THE DATA FOR THE BIDDI NG PURPOSES. THE OTHER EXPENSES WHICH ARE THE NECESSARY GENERAL AND ADMINISTRATIVE EXPENSES WERE INCURRED FOR PROJECT MANAGEMENT, CONSULTANCY SERVICES, ETC AND A LSO STAFF COST AND PROJECT MANAGEMENT EXPENSES WERE INCURRED. THESE EXPENSES W ERE DISALLOWED BY LD. ASSESSING OFFICER HOLDING THAT THESE ARE EXPENSES F OR THE FUTURE PROJECTS OF THE ASSESSEE FOR WHICH EVEN THE PSC IS NOT EXECUTED. TH E LD. AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS ISSUE OF ALLOWABILITY OF TH IS EXPENDITURE IS COVERED IN ITS FAVOUR BY THE DECISION OF ONGC VIDESH LTD VERSUS DCIT [37 SOT 97] WHEREIN IT HAS BEEN HELD AS UNDER:- 15. WITH REGARD TO DISALLOWING CLAIM OF EXPENSES OF RS . 43.85 LAKHS INCURRED FOR PURCHASE AND EVALUATION OF THE SEISMIC DATA OF FOREIGN BLOCKS, ON THE PLEA OF SAME BEING CAPITAL IN NATURE, WE FOUND THAT ASSE SSEE BEING ENGAGED IN THE BUSINESS OF EXPLORATION AND PRODUCTION OF HYDROCARB ONS IN OTHER COUNTRIES TO AUGMENT THE OIL RESOURCES OF INDIA, IT WAS CONTINUO USLY EVALUATING VARIOUS BUSINESS OPPORTUNITIES BEFORE ACQUIRING A PARTICULA R FIELD/BLOCK. SINCE ALL THESE OPPORTUNITIES HAVE TO BE EVALUATED AND STUDIE D BEFORE TAKING DECISION TO INVEST AND ENTER INTO A CONTRACT, THE PROCESS OF EV ALUATION OF THE BLOCK STARTED WITH SUBMITTING TENDER FEE/DATA FEE, ETC. AND THEN THE SEISMIC DATA HAD TO BE EVALUATED IN SEISMIC PROCESSING CENTRE. AFTER EVALU ATING THE SAME, THE ASSESSEE WAS TO TAKE DECISION AS TO WHETHER INVESTM ENTS SHOULD BE MADE IN THE PROJECT OR NOT. THERE IS NO DISPUTE TO THE FACT THA T IN ALL INDUSTRIES AN ACTIVITY 25 ITA NO.1478/DEL/2017 FOR FURTHERANCE OF ITS BUSINESS OR EVALUATION OF BE TTER PROFIT-EARNING PROCESS IN ONE MANNER OR OTHER IS UNDERTAKEN. EFFORT TO EVALUA TE THE PROSPECTS OF BETTER EARNING PROFIT IS NOT A SEPARATE ACTIVITY BUT IS IN THE COURSE OF CONDUCT OF NORMAL DAY-TO-DAY BUSINESS. THESE EXPENDITURES CANNOT BE SAID TO BRING AN ENDURING BENEFIT TO THE BUSINESS NOR THE SAME CAN B E SAID AS INITIAL OUTLAY FOR EXPANSION OF BUSINESS. IN THE INSTANT CASE, THE EXP ENDITURE SO INCURRED BY THE ASSESSEE IS FOR FURTHERANCE OF ACTIVITIES UNDERTAKE N BY IT IN THE NORMAL COURSE OF ITS BUSINESS. THE SAME ARE INCURRED ON CONTINUOU S BASIS FOR EVALUATION OF BUSINESS ACTIVITIES . IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN T HE CASE OF CIT V. ESSAR OIL LTD. [IT APPEAL NO. 921 OF 2008 , DATED 16-10-2008], SUCH EXPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDITURE . HONBLE CALCUTTA HIGH COURT IN THE CASE OF KESORAM INDUSTRIES & COTTON MI LLS 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 E XPANSION OR EXTENSION OF THE BUSINESS MUST BE HELD TO BE DEDUCTIBLE AS REVEN UE EXPENSES. ONE HAS TO CONSIDER PURPOSE OF THE EXPENDITURE AND ITS OBJECT AND EFFECT. ACCORDINGLY, IT WAS HELD THAT EXPENSES PERTAINING TO EXPLORING FEAS IBILITY OF EXPANSION OR EXTENSION OF BUSINESS ARE REVENUE EXPENDITURE AND N OT 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 TH E EARLIER YEAR. WE, THEREFORE, DIRECT THE ASSESSING O FFICER 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 UCTUOUS. [EXTRACTED TAXMANN.COM][UNDERLINE SUPPLIED BY US] NEITHER THE LD. ASSESSING OFFICER NOR THE LD. DEPAR TMENTAL REPRESENTATIVE COULD PRESS ANY OTHER JUDICIAL PRECEDENT WHICH SHOWS THAT AMOUNT SPENT BY THE ASSESSING IS NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTI ON 37 (1) OF THE ACT. IT IS ALSO NOT THE ARGUMENT OF THE REVENUE THAT SUCH EXPENDITU RE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE. FURTHERMORE, THE LD. AR HAS ALSO PRESSED INTO SEVERAL DECISIONS WHICH SAY THAT THAT EXPENSES INCURRED TOWARDS EXTEN SION OF BUSINESS WHICH WAS SUBSEQUENTLY ABANDON OR DID NOT FRUCTIFY, ARE ALL OWABLE. THEREFORE IN VIEW OF THE ABOVE DECISIONS WHEREIN IT IS BEEN HELD THAT THE EX PENSES FOR PURCHASE OF THIS KIND OF DATA IS UNNECESSARY REVENUE EXPENDITURE REQUIRED TO BE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND HENCE IS ALLOWABLE AS REVENUE EXPENDITURE, WE ALSO DIRECT THE LD. ASSESSING OFFIC ER TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE ON PURCHASE OF DATA AND OT HER RELEVANT EXPENSES AMOUNTING TO RS. 220983295/. IN THE RESULT GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 26 ITA NO.1478/DEL/2017 36. WE FIND FOLLOWING THE ABOVE DECISION, THE TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.6791/DEL /2017 ORDER DATED 17.07.2018 HAS ALLOWED SUCH CLAIM BY OBSERVING AS U NDER :- 20. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE A RE OF THE CONSIDERED VIEW THAT SINCE THE AO/DRP HAVE NOT DISPUTED THE INCURRENCE O F EXPENSES AND HAVE ALSO NOT DISPUTED THE FACT THAT THE TAXPAYERS BUSINESS WAS ALREADY RUNNING AND EXPENSES ARE FOR THE BUSINESS OF PROSPECTING EXPLORATION AND PRO DUCTION OF CRUDE OIL AND NATURAL GAS IN INDIA, THE SAME CANNOT BE DISALLOWED ON THE GROUND THAT THESE EXPENSES ARE INCURRED FOR FUTURE PROSPECTS OF THE TAXPAYER FOR W HICH PSC WAS NOT EXECUTED BECAUSE WHEN EXPENSES ARE INCURRED FOR SUSTENANCE OF THE BU SINESS, TO EVALUATE THE PROSPECT OF BETTER PROFIT AS PER AIMS AND OBJECTS OF THE TAXPAY ER, THE SAME HAS TO BE TREATED AS REVENUE EXPENSES IN NATURE. SO, FOLLOWING THE DECI SION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2010-11 (SUPRA), AO IS DIRECTED TO ALLOW THE EXPENDITURE INCURRED BY THE TAXPAYER O N COST OF PURCHASE OF SEISMIC DATA, GENERAL AND ADMINISTRATIVE EXPENSES IN CONNECTION W ITH PROPOSED NELP-VIII AND STAFF COST AND PROJECT MANAGEMENT AND CONSULTANCY CHARGES OF RS.40,70,92,375/-. SO, GROUND NO.11 IS DETERMINED IN FAVOUR OF THE TAXPAYE R. 37. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL, THE ABOVE GROUNDS ARE DECIDED IN FAVOUR OF THE ASSESSEE. 38. SO FAR AS GROUND NO.10 IS CONCERNED, THE SAME R ELATES TO DISALLOWANCE OF EXPENDITURE OF RS.39,18,72,912/- INCURRED ON NON-PR ODUCING PSC. 39. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE BEING A NON-RESIDENT ENTITY HAS INTEREST IN PANNA/MUKTA OIL AND GAS FIELDS, MID AND SOUTH TAPTI OIL AND GAS FIELDS, KG-OSN-2004/1, MN-DWN-2002/2, KG-DWN-1998/4 AND KG-DWN- 2009/1 FIELDS. DURING THE YEAR UNDER CONSIDERATION , PANNA/MUKTA AND MID AND SOUTH TAPTI OIL AND GAS FIELDS WERE PRODUCING GAS F IELDS. THE PRODUCTION IN KG- OSN-204/1, MN-DWN-2002/2, KG-DWN-1998/4 AND KG-DWN- 2009/1 OIL 27 ITA NO.1478/DEL/2017 AND GAS FIELDS HAD NOT COMMENCED DURING THE YEAR UN DER CONSIDERATION. THE ASSESSEE CLAIMED EXPLORATION EXPENDITURE INCURRED O N NON-PRODUCING BLOCK OF RS.39,18,72,912/- IN TERMS OF SECTION 42(1) READ WI TH PRODUCTION SHARING CONTRACT OF PANNA/ MUKTA AND MID AND SOUTH TAPTI GA S FIELDS. THE BREAK-UP OF THE EXPENDITURE INCURRED ON NON-PRODUCING BLOCKS AR E AS UNDER :- BLOCK AMOUNT (RS.) KG-DWN-2009/1 4,157,641 KG-DWN-98/4 18,499,277 KG-OSN-2004/1 322,917,779 MN-DWN-2002/2 46,298,214 TOTAL 391,872,912 40. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER PROPOSED TO DISALLOW THE AFORESAID EXPENSE OF RS.39 ,18,72,912/- BY ALLEGING THAT AS PER CLAUSE 17.2.3 AND 17.2.4 OF PSC IN RESPECT O F BLOCK KG-DWN-2009/1, THE EXPENDITURE INCURRED BY BGEPIL IN OTHER PSCS PR IOR TO COMMERCIAL PRODUCTION SHALL BE AGGREGATED AND CLAIMED ONLY FRO M THE YEAR OF COMMERCIAL PRODUCTION. THEREFORE, EXPENSES INCURRED BY THE AS SESSEE IN RESPECT OF THOSE OIL BLOCKS WHERE COMMERCIAL PRODUCTION HAS NOT YET COMM ENCED HAS TO BE AMORTIZED AND CARRIED OVER AND CAN BE SET OFF ONLY WHEN REVENUE IS EARNED FROM SUCH OIL BLOCKS AFTER COMMENCEMENT OF COMMERCIAL PR ODUCTION. 41. THE ASSESSING OFFICER FURTHER HELD THAT SECTION 42 IS A COMPLETE CODE IN ITSELF WHICH ALLOWS THE ASSESSEE TO CLAIM EVEN THE CAPITAL EXPENDITURE INCURRED 28 ITA NO.1478/DEL/2017 FOR THE PURPOSE OF EXPLORATION AND EXTRACTION ACTIV ITIES AS PROVIDED IN PSCS ENTERED INTO FOR THE PURPOSE. TAXABILITY OF PROFIT S OF THE ASSESSEE ARE STRICTLY AS PER PROVISION OF THIS SECTION. THEREFORE, SETTING- OFF OF EXPENSE OF ONE FIELD CANNOT BE ALLOWED FROM REVENUE OF OTHER OIL BLOCK. 42. THE DRP UPHELD THE ADDITION PROPOSED BY THE ASS ESSING OFFICER. 43. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO SE CTION 42(1) AND SUBMITTED THAT THE SAID SECTION SEEKS TO PROVIDE ADDITIONAL A LLOWANCE/BENEFIT/DEDUCTION TO AN ELIGIBLE ASSESSEE, WHICH ARE OTHERWISE NOT AVAIL ABLE UNDER THE REGULAR PROVISIONS OF THE ACT. IN OTHER WORDS, THE SECTION DOES NOT OVERRIDE OR SEEK TO TAKE AWAY BENEFITS/DEDUCTIONS AVAILABLE TO THE ELIG IBLE ASSESSEE UNDER ANY OTHER PROVISION OF THE ACT IN THE ABSENCE OF A NON-OBSTANTE CLAUSE . ACCORDINGLY, WHERE AN ASSESSEE ALREADY CARRYING ON BUSINESS OF E XPLORATION AND PRODUCTION OF MINERAL OIL, INCURS ANY EXPENDITURE IN PURSUANCE OF SUCH EXISTING BUSINESS, THE SAME WOULD BE ALLOWABLE BUSINESS DEDUCTION U/S 37(1 ) DE HORS SECTION 42 OF THE I.T. ACT. HE SUBMITTED THAT IDENTICAL ISSUE HAD CO ME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING AS SESSMENT YEAR AND THE TRIBUNAL HAD DELETED THE DISALLOWANCE. HE ACCORDIN GLY SUBMITTED THAT THE DISALLOWANCE OF EXPENDITURE OF RS.39,18,72,912/- IN CURRED ON NON-PRODUCING PSC MADE BY THE ASSESSING OFFICER IS BAD IN LAW AND LIABLE TO BE DELETED. 29 ITA NO.1478/DEL/2017 44. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER/TPO/DRP. HE REITERATED THE ARGUMENTS AS MA DE WHILE ARGUING THE GROUND OF APPEAL NO.9. 45. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10, THE TRIBUNAL VIDE ITA NO.6791/DEL/2017 ORDER DATED 17.07.2018 [TO WHI CH OF US (AM) IS A PARTY] HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER :- 21. AO/DRP HAVE DISALLOWED THE EXPENDITURE OF RS.1 ,96,49,04,712/- INCURRED BY THE TAXPAYER ON NON-PRODUCING BLOCK ON THE GROUND T HAT THE EXPENDITURE INCURRED BY THE TAXPAYER IN OTHER PSCS PRIOR TO COMMERCIAL PROD UCTION SHALL BE AGGREGATED AND CLAIMED ONLY FROM THE YEAR OF COMMERCIAL PRODUCTION . SO, THE EXPENSES INCURRED BY THE TAXPAYER CONCERNING OIL BLOCKS WHERE COMMERCIAL PRODUCTIONS HAS NOT YET STARTED HAS TO BE AMORTIZED AND CARRIED OVER AND CAN BE SET OFF ONLY WHEN REVENUE IS EARNED FROM SUCH OIL BLOCKS AFTER COMMENCEMENT OF COMMERCI AL PRODUCTION. THE AO ALSO INVOKED SECTION 42 OF THE ACT TO DISALLOW THE EXPEN SES. 22. THE TAXPAYER HAS COME UP WITH DETAIL OF EXPENDI TURE INCURRED ON NON- PRODUCING BLOCKS WHICH IS AS UNDER :- BLOCK AMOUNT (RS.) KG-OSN 2004/1 1,08,03,21,692 MN-DWN-2002/2 58,53,00,833 TOTAL 1,66,56,22,525 23. THE LD. AR FOR THE TAXPAYER CONTENDED THAT SECT ION 42 IS NOT APPLICABLE AS IT ALLOWS BENEFIT/DEDUCTION TO THE ELIGIBLE TAXPAYER I N ADDITION TO THE ALLOWANCE PERMISSIBLE UNDER THE ACT AND AS SUCH, THESE DEDUCT IONS ARE ALLOWABLE U/S 37(1) OF THE ACT AND RELIED UPON DECISION RENDERED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN A CASE CITED AS ONGC VIDESH LTD. VS. DCIT 37 SOT 97. 24. THE LD. AR FOR THE TAXPAYER HAS ALSO CONTENDED THAT THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE TAXPAYER IN ITS OWN CASE F OR AY 2010-11. FOR READY PERUSAL, OPERATIVE PART OF THE ORDER IS EXTRACTED AS UNDER : - 54. SECTION 42(1) MAKES IT CLEAR THAT FOR THE PUR POSE OF COMPUTING THE PROFITS AND GAINS OF ANY BUSINESS CONSISTING OF PROSPECTING , EXTRACTION OR PRODUCTION OF 30 ITA NO.1478/DEL/2017 MINERAL OIL, THE ASSESSEE WOULD BE ENTITLED TO CLAI M DEDUCTION IN RESPECT OF THREE ITEMS OF EXPENDITURE IN LIEU OF OR IN ADDITION TO T HE ALLOWANCES ADMISSIBLE UNDER THE ACT, VIZ., (I) EXPLORATION COST, WHICH IS CAPIT AL EXPENDITURE, (II) DEVELOPMENT COST, WHICH IS ALSO CAPITAL EXPENDITURE, AND (III) PRODUCTION COSTS WHICH ARE OPERATIONAL EXPENDITURE. THEREFORE IT IS ERRONEOUS BELIEF THAT IN CASE OF PSC THE ASSESSEE IS ONLY ENTITLED TO DEDUCTION, WHICH ARE C OVERED THERE AND NOT ANY OTHER DEDUCTION WHICH ARE COVERED UNDER THE ANY OTH ER PROVISIONS OF THE ACT. WE HAVE ALREADY DISCUSSED THE PROVISION OF SECTION 42 OF THE ACT IN DECIDING SOME OF THE GROUNDS OF APPEAL OF THE ASSESSEE. THEREFORE, W E REJECT THE CONTENTION OF THE REVENUE THAT IF THE EXPENDITURE DO NOT FIND ALLOWAB ILITY UNDER SECTION 42, IT CANNOT BE ALLOWED TO THE ASSESSEE. NOW COMING TO TH E VARIOUS EXPENDITURE WHICH HAS BEEN INCURRED BY THE ASSESSEE ARE IN THE FORM OF VARIOUS EXPENDITURE PERTAINING TO OIL EXPLORATION BLOCKS FOR WHICH THE PSC HAS BEEN ENTERED INTO. OUT OF THE SAME, THE LD. ASSESSING OFFICER HAS ALLO WED SOME OF THE EXPENDITURE AND DISALLOWED REST OF THE EXPENDITURE. THE BELOW C HART DEPICTS THIS PICTURE. 55. FROM THE ABOVE CHART IT IS APPARENT THAT OUT O F THE TOTAL EXPENDITURE INCURRED OF RS. 931819021/ THE LD. ASSESSING OFFIC ER HAS ALLOWED THE EXPENDITURE OF RS. 471505233/ WHICH IS THE COST OF RESPECTIVE PSC AND SHARED WITH JV PARTNERS. THE BALANCE COST WHICH IS NOT SHA RED BY THE JV PARTNERS AMOUNTING TO RS. 460313788/ WAS DISALLOWED FOR THE REASON THAT THESE COST HAVE NOT BEEN SHARED BY THE JV PARTNERS AND THEREFO RE IT IS NOT INCURRED FOR THE CLASSIFICATION ALLOWED BY AO DISALLOWED BY AO TOTAL KG-OSN-2004/1 102,937,064 71,638,553 174,575,617 MN-DWN-2002/2 330,681,668 105,241,658 435,923,326 KG-DWN-98/4 37,886,501 62,450,282 100,336,783 OTHER EXPENDITURE PRIMARILY FOR PURCHASE OF SEISMIC DATA (FOR NEW OPPORTUNITIES IN EXPLORATION) 220,983,295 220,983,295 TOTAL 471,505,233 460,313,788 931,819,021 REMARKS COST PERTAINING TO THOSE SHARED WITH JV PARTNERS NON-JV COST (PRIMARILY TIME-WRITING COSTS AND DEVELOPMENT EXPENSES) 31 ITA NO.1478/DEL/2017 PURPOSES OF THE BUSINESS OF THE ASSESSEE AND HENCE DISALLOWABLE. FURTHER SUM OF RS.220983295/ INCLUDED IN THE DISALLOWANCE OF R S. 460313788/ WAS PERTAINING TO THE PURCHASE OF SEISMIC DATA FOR EXPL ORING NEW OPPORTUNITIES IN THE BUSINESS OF THE COMPANY UNDER THE PRETEXT THAT THESE ARE WITH RESPECT TO THE FUTURE BUSINESSES WHICH HAS NOT YET COMMENCED. THER EFORE, PRIMARY THE DISALLOWANCES OF RS. 460313788/ INCLUDES A SUM OF RS 22098 3295/ FOR PURCHASE OF SEISMIC DATA AND BALANCE AMOUNT PRIMARI LY WITH RESPECT TO TIME WRITING COST AND DEVELOPMENT EXPENSES. THE TIME WRI TING CHARGES AS IT IS EXPLAINED BY THE ASSESSEE ARE FOR THE PURPOSE OF DR ILLING AND SUBSURFACE INPUTS, ANALYSIS AND ADMINISTRATIVE EXPENSES WITH RESPECT T O EXECUTIVE, FINANCE, HUMAN RESOURCES, LEGAL, COMMERCIAL, ETC THE DETAILED BREA KUP OF THESE TIME WRITING CHARGES FOR EACH OF THE PSC CONTRACT WERE EXPLAINED BY THE ASSESSEE BY GIVING BREAKUP OF THEIR COST AS WELL AS NATURE OF THOSE EX PENDITURE. ASSESSEE EXPLAINED THAT AS IT NEEDS TO SAFEGUARD ITS INTEREST IN THE B LOCKS IT HAS EMPLOYED TECHNICAL EXPERTS FOR WHICH TIME WRITING CHARGES ARE INCURRED . FURTHER, FOR THE SUPPORT FUNCTIONS. IT ALSO HIRES SEVERAL OTHER PERSONS AND NECESSARILY HAS TO INCUR OTHER EXPENDITURE WITH RESPECT TO ITS FINANCE AND ACCOUNT ING ACTIVITIES, ITS HUMAN RESOURCE ACTIVITIES AND LEGAL COMPLIANCE AND LITIGA TION ACTIVITIES. THESE EXPENDITURE ARE THOUGH INCURRED IN SUPPORT TO THE P SC CONTRACTS EXECUTED BY THE ASSESSEE AT MAY NOT BE NECESSARILY SHARED BY TH E OTHER JOINT-VENTURE PARTNERS. MERELY BECAUSE IT IS NOT SHARED BY OTHERS , WHICH MAY BE FOR MANY REASONS, IT CANNOT BE SAID THAT THE ASSESSEE HAS NO T INCURRED THESE EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. WITH RESPECT TO THE DETAILS AVAILABLE WITH THE ASSESSING OFFICER, IT WAS NOT POINTED OUT A SINGLE INSTANCE THAT ANY OF THE EXPENDITURE ARE N OT INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. IN FACT, OUT OF T HE TOTAL EXPENDITURE THE LD. ASSESSING OFFICER HAS PARTLY ALLOWED THE EXPENDITUR E AND PARTLY DISALLOWED THE EXPENDITURE BY USING THE SINGLE YARDSTICK THAT IF E XPENDITURE ARE SHARED BY THE JV SAME ARE ALLOWABLE AND IF SAME IS NOT SHARED BY JV PARTNERS, THEN IT IS NOT ALLOWABLE. WE FAILED TO SEE ANY SUCH PROVISION IN T HE ACT THAT IF THE OTHER PARTY IN THE JOINT-VENTURE DO NOT AGREE TO SHARE THE PART ICULAR COST, THE COST INCURRED BY ONE OF THE PARTNERS OF THAT JOINT-VENTURE BECOME S THE EXPENDITURE NOT FOR THE PURPOSE OF THE BUSINESS OF THAT PARTNER. NO SUCH PR OVISION HAS ALSO BEEN BROUGHT TO OUR NOTICE BY THE REVENUE. IT IS ALSO NO T THE CASE OF THE REVENUE THAT DETAILS OF THOSE EXPENDITURE ARE NOT AVAILABLE BEFO RE THEM OR ASSESSEE HAS FURNISHED INCOMPLETE INFORMATION FOR ITS ALLOWABILI TY. FURTHER, NO JUDICIAL PRECEDENT WAS CITED BEFORE US BY REVENUE, WHICH SAY S 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 RS.71638553 II) MN DWN 2002/2 OF RS.105241649 III) KG-DWN-98/4 OF RS.62450283 32 ITA NO.1478/DEL/2017 CANNOT BE DISALLOWED. IN VIEW OF THIS WE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE WITH RESPECT TO ABOUT 3 ITEMS. 25. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE WHEREIN THE TAXPAYER HAS BROUGHT ON RECORD THE COMPLETE DETAILS OF THE E XPENDITURE INCURRED AND THERE IS NO DISPUTE BETWEEN THE PARTIES TO THE APPEAL THAT ALL THE EXPENSES HAVE BEEN INCURRED FOR FURTHERANCE OF ITS BUSINESS, THOUGH INCURRED IN SUP PORT TO THE PSC CONTRACTS EXECUTED BY THE TAXPAYER, THE SAME CANNOT BE DISALLOWED MERE LY ON THE GROUND THAT IT IS NOT SHARED BY OTHERS, PARTICULARLY, WHEN IT IS NOT DISP UTED THAT THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF TAXPAYER. 26. MOREOVER, THE AO HAS NOT DISPUTED THE INCURRENC E OF EXPENSES FOR THE PURPOSE OF BUSINESS. EVEN OTHERWISE, THE EXPENSES INCURRED BY THE TAXPAYER FOR FURTHERANCE OF ITS BUSINESS CANNOT BE DISALLOWED MERELY ON THE GRO UND THAT THE OTHER PARTY IN THE JOINT VENTURE HAS NOT AGREED TO SHARE THE PARTICULA R COST INCURRED BY ONE PARTY TO THE JOINT VENTURE. SO, FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2010-11 (SUP RA), THE DISALLOWANCE MADE BY THE AO/DRP IS NOT SUSTAINABLE IN THE EYES OF LAW, H ENCE DISALLOWANCE IS ORDERED TO BE DELETED AND GROUND NO.12 IS DETERMINED IN FAVOUR OF THE TAXPAYER. 45.1 RESPECTFULLY FOLLOWING THE SAME, THE GROUNDS R AISED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 46. IN GROUND NO.11, THE ASSESSEE HAS CHALLENGED TH E ORDER OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE OF EXPLORATION EXPEN SES WRITTEN OFF AMOUNTING TO RS.68,39,51,972/-. 47. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IN ITS AUDITED PROFIT & LOSS ACCOUNT HAD CLAIMED AN AMOUNT OF RS.71,72,23,5 83/- AS EXPLORATION EXPENSES WRITTEN OFF. ON BEING ASKED THE ASSESSING OFFICER TO FURNISH THE DETAILS REGARDING SUCH EXPENDITURE THE ASSESSEE SUB MITTED THAT THE ABOVE AMOUNT CONSISTS OF TWO ELEMENTS I.E. RS.68,39,51,972/- WHI CH REPRESENTS AMOUNT PAYABLE BY THE ASSESSEE TO ONGC IN RELATION TO COST INCURRED BY THEM IN KG- DWN-98/4 BLOCK IN THE PAST. IT WAS FURTHER SUBMITT ED THAT SINCE THE ASSESSEE, BEFORE COMMENCEMENT OF COMMERCIAL PRODUCTION, HAD D ECIDED TO EXIT FROM THE 33 ITA NO.1478/DEL/2017 BLOCK CONSIDERING IT TO BE NOT BENEFICIAL, HENCE IT STOOD OF ABORTIVE NATURE IN THE BOOKS OF THE ASSESSEE. BALANCE OF RS.3,32,71,620/- WAS STATED TO BE RELATED TO PMT FIELD CONSIDERED TO BE OF INFRUCTUOUS AND ABORT IVE NATURE. IT WAS FURTHER SUBMITTED THAT AS PER ARTICLE 17.2.1 OF PSC RELATED TO KG-DWN-98/4 BLOCK, THE SAME WAS AN ALLOWABLE EXPENDITURE. HOWEVER, THE AS SESSING OFFICER WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESS EE AND DISALLOWED THE DEDUCTION ON THE GROUND THAT THE EXPENDITURE RELATI NG TO UNSUCCESSFUL OR ABORTIVE AREAS OF ONE BLOCK CANNOT BE ADJUSTED AGAINST THE R EVENUE OF SOME OTHER BLOCK. HOWEVER, THE SAME CAN BE CLAIMED ONLY WHEN COMMERCI AL PRODUCTION BEGINS IN THOSE CONTRACT AREAS THE PSC OF WHICH PERMITS ADJUS TMENTS OF COST INCURRED IN RESPECT OF ANY OTHER UNSUCCESSFUL OR ABORTIVE AREAS FROM THE REVENUE OF THE FORMER MENTIONED BLOCK. THE ACTION OF THE ASSESSIN G OFFICER WAS UPHELD BY THE DRP. 48. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFI CER/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 49. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE P ROVISIONS OF SECTION 37(1) SUBMITTED THAT FOR ALLOWING AN EXPENDITURE U/S 37, THE FOLLOWING CONDITIONS NEED TO BE SATISFIED I.E. (I) EXPENSE SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND (II) THE EXPENSE SHOUL D BE REVENUE IN NATURE. 34 ITA NO.1478/DEL/2017 50. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ONGC VIDESH LTD. (SUPRA), HE SUBMITTED THAT THE ASS ESSEE WAS ENGAGED IN BUSINESS OF EXPLORATION AND PRODUCTION OF HYDROCARB ONS INCURRED EXPENDITURE ON PURCHASE AND EVALUATION OF SEISMIC DATA OF FOREIGN BLOCKS. IT WAS HELD THAT EXPENDITURE SO INCURRED WAS FOR FURTHERANCE OF ACTI VITIES UNDERTAKEN BY IT IN NORMAL COURSE OF BUSINESS AND, THEREFORE, SAME WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. 51. REFERRING TO THE DECISION OF THE AHMEDABAD BENC H OF THE TRIBUNAL IN THE CASE OF ACIT VS. NIKO RESOURCES LTD. REPORTED IN 12 3 TTJ 310, HE SUBMITTED THAT THE TRIBUNAL IN THE SAID CASE AFTER DISALLOWIN G DEDUCTION CLAIMED BY THE ASSESSEE FOR CERTAIN EXPENSES U/S 42 ALLOWED THE SA ME UNDER THE REGULAR PROVISIONS OF THE I.T. ACT. HE FURTHER SUBMITTED T HAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR WHICH IS SIMILAR TO GROUND OF APPEA L NO.9 AND 10. HE ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE OF EXPL ORATION EXPENSES WRITTEN OFF AMOUNTING TO RS.68,39,51,972/- MADE BY THE ASSESSIN G OFFICER BEING BAD IN LAW IS LIABLE TO BE DELETED. 52. THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER/DRP. REITERATING HIS ARGUMENTS AS MADE WHI LE ARGUING GROUND APPEAL 35 ITA NO.1478/DEL/2017 NO.9 HE SUBMITTED THAT SINCE THE EXPENDITURE HAS BE EN INCURRED BEYOND THE RBI PERMISSION, THEREFORE, IT IS NOT AN ALLOWABLE EXPEN DITURE U/S 37 OF THE I.T. ACT. 53. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE INVOLVED IN THE ABOVE GROUNDS ARE IDENTICAL TO THE ISSUE AS PER GROUND OF APPEAL NO.9. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND HAS BEEN ALLOWED I N THE PRECEDING PARAGRAPH. FOLLOWING SIMILAR REASONING, THIS GROUND BY THE ASS ESSEE IS ALLOWED. 54. IN GROUND NO.12, THE ASSESSEE HAS CHALLENGED TH E ORDER OF THE ASSESSING OFFICER/DRP IN DISALLOWING THE AMOUNT OF RS.237,61, 05,409/- HOLDING THE SAME BEING EXPENSES PAID BY THE ASSESSEE TO BGIL WHICH I S NOT BORNE BY THE OPERATOR BOARD OF THE PSC AND, THEREFORE, CANNOT BE ALLOWABL E AS DEDUCTION TO THE EXTENT OF 5% OF ADJUSTED TOTAL INCOME IN TERMS OF SECTION 44C OF THE I.T. ACT. 55. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT A N UMBER OF EXPENSES HAVE BEEN INCURRED BY ITS GROUP ENTITY M/S BG INTERNATIO NAL LIMITED, A UK BASED COMPANY. THESE EXPENSES ARE PRIMARILY IN THE NATUR E OF SALARY AND WAGES, MANAGEMENT CHARGES, TIME WRITING CHARGES, WHICH ARE NECESSARILY OF THE NATURE OF EXECUTIVE AND GENERAL ADMINISTRATION OF THE ACTI VITIES OF THE ASSESSEE. ON BEING CONFRONTED BY THE ASSESSING OFFICER, IT WAS S UBMITTED BY THE ASSESSEE THAT THESE SERVICES WERE PROCURED FOR THE OPERATION OF T HE ASSESSEE IN INDIA. THE MAIN ACTIVITIES OF THE ASSESSEE IN INDIA ARE EXPLOR ATION AND PRODUCTION OF OIL AND 36 ITA NO.1478/DEL/2017 NATURAL GAS IN INDIA. THE ASSESSING OFFICER NOTED THAT SOME OF THESE EXPENSES, WHICH IS CLAIMED TO BE PERTAINING TO MPT CONTRACT A REA HAVE NOT BEEN APPROVED BY THE OPERATING BOARD OF THE JV OF THAT CONTRACT A REA. A BIFURCATION OF THESE EXPENSES WERE FURNISHED TO THE TPO IN THE COURSE OF TRANSFER PRICING PROCEEDINGS. THE ASSESSING OFFICER IN THE LIGHT OF THE PROVISIONS OF SECTION 44C R.W.S. 42 ANALYZED AS TO WHETHER THESE EXPENSES CAN BE CONSTRUED AS HEAD OFFICE EXPENSES OR NOT. THE ASSESSING OFFICER, HOWEVER, H ELD THAT THE EXPENDITURE INCURRED BY BGIL FOR THE ACTIVITIES OF THE ASSESSEE IN INDIA WERE IN NATURE OF HEAD OFFICE EXPENDITURE WITHIN THE MEANING OF SECTI ON 44C AND THAT PART OF THE EXPENDITURE WHICH WAS NOT APPROVED BY THE OPERATOR BOARD OF THE PSC WAS OUTSIDE THE PURVIEW OF SECTION 42(1) OF THE I.T. AC T. THEREFORE, SUCH EXPENSES INCURRED BY THE ASSESSEE ARE HELD TO BE IN THE NATU RE OF HEAD OFFICE EXPENDITURE ALLOWABLE ONLY TO THE EXTENT OF 5% OF THE ADJUSTED TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER, HOWEVER, DID NOT MAKE ANY AD DITION SINCE THE SAID EXPENSES HAD ALREADY BEEN DISALLOWED BY THE TPO. T HE DRP DID NOT INTERFERE WITH THE ACTION OF THE ASSESSING OFFICER. 56. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFI CER/TPO/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 57. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSIDE SUB MITTED THAT IDENTICAL ISSUE HAD COME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY 37 ITA NO.1478/DEL/2017 PRECEDING ASSESSMENT YEAR WHEREIN THE TRIBUNAL HELD THAT THE COST OF SERVICES AVAILED BY THE ASSESSEE FROM ITS GROUP COMPANY CANN OT BE DISALLOWED IN THE HANDS OF THE ASSESSEE MERELY BECAUSE THE SAID EXPEN SES HAS NOT BEEN BORNE BY THE JV PARTNERS. HE ACCORDINGLY SUBMITTED THAT SIN CE THE EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS OF PROSPECTING FOR, EXPLORATION AND PRODUCTION OF C RUDE OIL AND NATURAL GAS, THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER BEING BAD IN LAW IS LIABLE TO BE DELETED. 58. WITHOUT PREJUDICE TO THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE PROVISIONS OF SECTION 44C AND CIRCULAR NO.202 DATED 05 TH JULY, 1976 ISSUED BY THE CBDT AND VARIOUS OTHER DEC ISIONS, HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE IS INCORPORATED IN CAYMAN ISLANDS AND IS OPERATING IN INDIA THROUGH PROJECT OFFICE ES TABLISHED WITH THE PRIOR APPROVAL OF RBI FOR THE PURPOSE OF CONDUCTING ITS B USINESS ACTIVITIES. IN OTHER WORDS, THE HEAD OFFICE OF THE ASSESSEE IS SITUATED IN CAYMAN ISLANDS. FURTHER, BGIL IS AN AFFILIATE COMPANY INCORPORATED IN THE UN ITED KINGDOM WITH MORE THAN 40 YEARS OF EXPERIENCE AND EXPERTISE IN OIL AN D GAS EXPLORATION AND PRODUCTION. BGIL POSSESSES A POOL OF HIGHLY KNOWLED GEABLE, TECHNICALLY TRAINED AND EXPERIENCED INDIVIDUALS HAVING EXTENSIVE KNOWLE DGE OF EXPLORATION AND PRODUCTION ACTIVITIES. THIS POOL OF TRAINED AND EXP ERIENCED PERSONNEL IS USED BY 38 ITA NO.1478/DEL/2017 BGIL TO PROVIDE REQUISITE SUPPORT TO OTHER BG GROUP COMPANIES, ACROSS THE GLOBE. BGIL BEING THE SPEARHEAD OF THE BG GROUP, L IKE EVERY OTHER MULTINATIONAL GROUP, DEVISES POLICIES AND PRACTICES IN VARIOUS AREAS FOR THE USE AND BENEFIT OF ALL BG GROUP ENTITIES WORLDWIDE. SUC H CENTRALIZATION OF KNOWLEDGE AND EXPERTISE, ENSURES OVERALL EFFICIENCY AND SMOOTH FUNCTIONING. ALL NEW PROJECTS/ INITIATIVES ARE FIRST CONCEIVED, DEVE LOPED AND LAUNCHED AT BGIL, AND ARE THEREAFTER IMPLEMENTED IN OTHER BG GROUP EN TITIES. IN THE INSTANT CASE, BGIL HAD PROVIDED VARIOUS DIRECT SUPPORT SERVICES T O BGEPIL FOR ITS EXPLORATION PROJECTS IN INDIA LIKE COST IN RELATION TO IT RELATED SERVICES, HR RELATED SERVICES AND OTHER SERVICES LIKE INSURANCE SUPPORT, TAXATION SUPPORT, SUPPORT IN FINANCIAL ACCOUNTING, MANAGEMENT REPORTI NG AND OTHER SERVICE FUNCTIONS AND PAYMENT FOR THE SAME WAS CLAIMED AS D EDUCTION. THE DEBIT NOTES IN THIS REGARD WERE SUBMITTED TO THE ASSESSING OFFI CER / TPO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. A SUMMARY OF SERVICE S RENDERED BY BGIL TO THE APPELLANT HAVE BEEN FILED BEFORE THE ASSESSING OFFI CER / DRP. IN TERMS OF EXPLANATION (IV) TO SECTION 44C OF THE ACT, HO EXPE NDITURE IS DEFINED AS AN EXPENDITURE INCURRED BY THE APPELLANT OUTSIDE INDIA . THE PROVISIONS OF SECTION 44C OF THE ACT ARE APPLICABLE ONLY IN RESPECT OF HE AD OFFICE EXPENDITURE AND NOT EXPENDITURE INCURRED BY THE AFFILIATE COMPANY. SINC E IN THE INSTANT CASE, THE AFORESAID PAYMENT IS MADE TO AN AFFILIATE COMPANY, I.E., BGIL AND NOT TO THE 39 ITA NO.1478/DEL/2017 HEAD OFFICE OF THE APPELLANT SITUATED IN CAYMAN ISL ANDS, THE PROVISIONS OF SECTION 44C OF THE ACT WOULD NOT BE APPLICABLE. EV EN OTHERWISE PROVISIONS OF SECTION 44C OF THE ACT ARE NOT APPLICABLE SINCE (I) BGIL PROVIDES SERVICES TO VARIOUS ENTITIES OF BG GROUP SINCE THE PAST MANY YE ARS; BGIL'S INCOME IS ASSESSED TO TAX IN INDIA BY THE SAME ASSESSING OFFI CER WHO IS ASSESSING INCOME OF BGEPIL; ALL INFORMATION PERTAINING TO THE TRANSA CTIONS OF BGIL IN INDIA IS AVAILABLE WITH THE REVENUE AUTHORITIES AND HENCE TH ERE IS NO DIFFICULTY IN SCRUTINIZING AND VERIFYING THE CLAIMS OF THE APPELL ANT; (II) THE PAYMENT TO BGIL IS ON COST TO COST BASIS AND NO PROFIT ELEMENT IS I NVOLVED THEREIN. IN OTHER WORDS, THE SAME IS MERE REIMBURSEMENT OF EXPENSES I NCURRED BY BGIL AND (III) THE EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR AVAILING SPECIALIZED SERVICES FOR CARRYING OUT ITS TECHNICAL BUSINESS OP ERATIONS IN RELATION TO PROSPECTING, EXPLORING AND PRODUCTION OF OIL-AND GA S AND THE EXPENSES, (IV) PAYMENT MADE FOR SPECIFIC SERVICES FOR- WHICH NECES SARY MANPOWER/EXPERIENCE IS NOT AVAILABLE WITH THE APPELLANT; AND ARE NOT I N NATURE OF EXECUTIVE AND GENERAL ADMINISTRATION EXPENSES. 59. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER/DRP. HE SUBMITTED THAT THE PROVI SIONS OF SECTION 44C DOES NOT SPELL OUT WHAT CONSTRUED HEAD OFFICE EXPENSES, THEREFORE, SPECIFIC SERVICES WILL INCLUDE HEAD OFFICE EXPENSES. REITERATING HIS ARGUMENTS AS MADE WHILE 40 ITA NO.1478/DEL/2017 ARGUING IN GROUND NO.9, HE SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER/DRP SHOULD BE UPHELD. 60. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL HAS ALLOWED THE CL AIM OF THE ASSESSEE AT PARA 31 OF THE ORDER HOLDING THAT COST OF SERVICES AVAIL ED BY THE ASSESSEE FROM ITS GROUP COMPANY CANNOT BE DISALLOWED IN THE HANDS OF THE ASSESSEE MERELY BECAUSE THE SAID EXPENDITURE HAS NOT BEEN BORNE BY THE J.V. PARTNERS. IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER/TPO/DRP HA D NOT THE BENEFIT THE ORDER OF THE TRIBUNAL WHICH WAS PASSED SUBSEQUENT TO THE ORDERS PASSED BY THEM. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT OF TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING AS SESSMENT YEAR. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 61. IN GROUND NO.13, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.26,57,56,314/- OF PANN A WELL COST. 62. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSE E CLAIMED 100% 41 ITA NO.1478/DEL/2017 DEPRECIATION/DEPLETION ON PANNA WELL COST. IN SUPP ORT OF ITS CLAIM, IT HAS ANNEXED SCHEDULE2B ALONGWITH ITS COMPUTATION OF INC OME. FROM THE DEPRECIATION CHART WHICH IS FORMING PART OF 3CD REP ORT OF THE AUDITOR OF THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT IT IS A BIT DIFFERENT FROM THE CHART ANNEXED BY THE ASSESSEE WITH ITS COMPUTATION OF INC OME. HE, THEREFORE, ASKED THE ASSESSEE TO RECONCILE THE ABOVE CHARTS. SINCE THE ASSESSEE REFURNISHED THE SAME CHART THAT WAS ANNEXED WITH THE COMPUTATION OF INCOME, THE ASSESSING OFFICER ASKED THE ASSESSEE TO RECONCILE THE ABOVE T WO CHARTS AND EXPLAIN THE DIFFERENCE. FROM THE RECONCILIATION CHART FURNISHE D BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THERE WAS DIFFERENCE O F RS.31,26,42,722/-. HE OBSERVED THAT IN THE DEPRECIATION CHART FURNISHED B Y THE AUDITOR IN 3CD REPORT, THE ABOVE ADDITION TO FIXED ASSETS WERE SHOWN IN TH E HEAD PANNA MUKTA PD & PE GAS LIFT SURFACE FACILITY WHICH WAS ELIGIBLE FO R DEPRECIATION @ 15%. WHERE AS IN THE CHART ANNEXED BY THE ASSESSEE WITH ITS COMPUTATION OF INCOME, THE SAME HAS BEEN SHOWN AS ADDITION TO FIXED ASSETS IN THE HEAD PANNA WELL COST WHICH IS ELIGIBLE FOR 100% DEPRECIATION. THU S, THE ASSESSEE HAS CLAIMED 85% MORE DEPRECIATION/DEPLETION ON THE ABOVE AMOUNT IN THE COMPUTATION OF INCOME. SINCE NO DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSESSEE IN SHAPE OF BILLS, VOUCHERS, INVOICES ETC., THE ASSESSING OF FICER MADE DISALLOWANCE OF RS.26,57,46,314/-. WHILE DOING SO, HE FURTHER ALLE GED THAT THE ASSESSEE COULD 42 ITA NO.1478/DEL/2017 NOT FIND FAULT WITH THE FINDING OF THE AUDITORS AND MAKE ITS OWN CLAIM REGARDING THE PROPER HEAD OF EXPENDITURE. 63. THE DRP REMITTED THE ISSUE TO THE ASSESSING OFF ICER DIRECTING HIM TO VERIFY THE CLAIM OF THE ASSESSEE AFTER SCRUTINIZING THE BILLS, VOUCHERS, INVOICES, ETC. HOWEVER, THE ASSESSING OFFICER IN THE ORDER P ASSED ON 23.02.2017 UPHELD THE DISALLOWANCE OF RS.26,57,46,314/- PROPOSED IN T HE DRAFT ASSESSMENT ORDER. 64. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT PURSUANT TO THE DIRECTIONS ISSUED BY THE DRP, THE ASSESSING OFFICER WHILE PASSING THE FINAL ASSESSMENT ORDER DATED 23.02.2017 DID NOT GRANT AN OPPORTUNITY TO THE ASSESSEE TO FURNISH THE INVOICES, BILLS, ETC. AND PASSED THE IMPUGNED ORDER IN GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE UPHOLDIN G THE DISALLOWANCE PROPOSED IN THE DRAFT ASSESSMENT ORDER. RELYING ON VARIOUS DEC ISIONS, HE SUBMITTED THAT IN ABSENCE OF AFFORDING ADEQUATE OPPORTUNITY THE ADDIT ION CANNOT BE MADE. HE ACCORDINGLY SUBMITTED THAT HE HAS NO OBJECTION IF T HE MATTER IS RESTORED TO THE FILE ASSESSING OFFICER FOR FRESH ADJUDICATION. 65. LD. DR HAS NO OBJECTION FOR THE ABOVE CONTENTIO N OF THE LD. COUNSEL FOR THE ASSESSEE. 66. AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E 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 ASSE SSEE TO SUBSTANTIATE HIS CASE AS 43 ITA NO.1478/DEL/2017 PER THE DIRECTION OF THE DRP. THE ASSESSING OFFICE R SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 67. IN GROUND NO.14, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.26,79,33,582/- ON THE IT INFRASTRUCTURE AND SOFTWARE. 68. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE DURING THE YEAR UNDER CONSIDERATION HAS CLAIMED ADDITION OF ASSETS UNDER THE HEAD GLOBAL IT AND I PROJECTS AMOUNTING TO RS.80,49,36,227/- AND CLAIMED DEPRECIATION OF RS.26,79,33,582/-. THE ASSESSING OFFICER PROPOSED THE DISALLOWANCE ON THE GROUND THAT THE DEDUCTION IS NOT ALLOWABLE SINCE TH E ASSESSEE WAS NOT ABLE TO PROVE THAT THE ASSETS ARE OWNED BY IT OR THAT THE A SSETS ARE PUT TO USE FOR THE BUSINESS PURPOSES. HE, HOWEVER, DID NOT MAKE ANY A DDITION SINCE THE SAID EXPENSES HAD ALREADY BEEN DISALLOWED BY THE TPO AND THE DRP DID NOT INTERFERE WITH THE FINDINGS OF THE ASSESSING OFFICER. 69. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDE NTICAL ISSUE HAD COME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL HAS ALLOWED THE DE PRECIATION. FURTHER, ALTHOUGH THE ASSETS MAY NOT BE REGISTERED IN THE NA ME OF THE ASSESSEE, THE 44 ITA NO.1478/DEL/2017 ASSESSEE IS ENTITLED TO AND HAS BEEN USING THE SAME IN THE CAPACITY OF AN OWNER HAVING MADE DUE PAYMENT TO ITS GROUP COMPANY AND TH US AKIN TO A PART OWNER TO THE EXTENT PAYMENT MADE BY IT. THE GLOBAL IT & T P ROJECTS ARE BEING USED BY THE ASSESSEE IN ITS DAY TO DAY BUSINESS OPERATIONS AND THE SAME ARE ESSENTIAL FOR CONDUCTING THE BUSINESS OPERATIONS. THE SAME RESULT S IN OPERATIONS BEING UNDERTAKEN IN AN EFFICIENT MANNER. CONSIDERING THE LARGE SCALE AT WHICH THE ASSESSEE OPERATES, THE GLOBAL IT & T PROJECTS PLAY A VITAL ROLE IN UPDATING THE OPERATIONS AND SAVING BOTH TIME AND ENERGY OF THE E MPLOYEES. HENCE, THERE COULD BE NO DOUBT AS TO WHETHER THESE HAVE BEEN PUT TO USE BY THE ASSESSEE. FURTHER, OWNERSHIP NEED NOT ONLY BE DENOTED BY PHYS ICAL CONTROL BUT ALSO INCLUDES INTANGIBLE RIGHTS IN THE ASSET. FURTHER, I T IS NOT POSSIBLE TO DOCUMENT EVERY RECORD OF BENEFITS DERIVED FROM THE USE OF IT ASSETS. THE QUALITATIVE ASPECTS AND BENEFITS OF THE IT INFRASTRUCTURE PROCU RED ARE VERY HIGH AND CARRY A SIGNIFICANT ELEMENT OF BEING NON-FIGURATIVE. HOWEVE R, THE GLOBAL IT & T COST HAD BEEN INCURRED CENTRALLY AND INFRASTRUCTURE IMPL EMENTED AFTER DUE DELIBERATIONS AND DISCUSSIONS WITH THE APPELLANT. F URTHER, THE COST HAS BEEN ALLOCATED TO THE APPELLANT BASED ON A DETAILED COST ALLOCATION METHODOLOGY. HENCE, THE DISALLOWANCE IN RESPECT OF DEDUCTION SHO ULD BE DELETED. 70. WITHOUT PREJUDICE TO THE ABOVE, IF IT IS CONSID ERED THAT THE APPELLANT IS NOT ELIGIBLE TO DEDUCTION ON ACCOUNT OF NOT BEING THE R EGISTERED OWNER OF THE ASSETS, 45 ITA NO.1478/DEL/2017 THE APPELLANT SUBMITS THAT THE ENTIRE EXPENDITURE S HOULD BE ALLOWED AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT, THE SAM E HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. RELIANCE MAY BE PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P.) LTD. REPORTED IN 233 ITR 468 WHER EIN IT WAS HELD THAT IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVENUE EXPEN DITURE OR CAPITAL EXPENDITURE, ONE HAS TO LOOK AT THE EXPENDITURE FRO M A COMMERCIAL POINT OF VIEW. TO THE SAME EFFECT IS THE DECISION OF SUPREME COURT IN EMPIRE JUTE GO. LTD. VS. CIT REPORTED IN 124 ITR 1. 71. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER/DRP. 72. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED HE ORDERS OF THE AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT THE ASSESSEE DURING THE YEAR HAS CLAIMED ADDITION OF AS SETS UNDER THE HEAD GLOBAL IT AND I PROJECTS AMOUNTING TO RS.80,49,36,227/- AND C LAIMED DEPRECIATION OF RS.26,79,33,582/-. WE FIND THE ASSESSING OFFICER D ISALLOWED DEPRECIATION ON THE GROUND THAT SINCE THE ASSESSEE WAS NOT ABLE TO PROVE THAT THE ASSETS ARE OWNED BY THE ASSESSEE OR THAT THE ASSETS ARE PUT TO USE FOR THE BUSINESS PURPOSES. SINCE THE SAID EXPENSES WAS ALREADY DISALLOWED BY T HE TPO, ASSESSING OFFICER 46 ITA NO.1478/DEL/2017 DID NOT MAKE ANY ADDITION. WE FIND THE ASSESSING O FFICER AT PAGE 24 OF THE ORDER WHILE DISALLOWING THE DEPRECIATION HAS OBSERV ED AS UNDER :- FROM THE DETAILS SUBMITTED BY THE ASSESSEE IT IS C LEAR THAT THE ASSET IS NOT OWNED BY THE ASSESSEE EITHER WHOLLY OR PARTLY NEITHER ANY DO CUMENT WAS SUBMITTED TO PROVE THAT THESE ASSETS WERE PUT TO USE FOR THE BUSINESS OF TH E ASSESSEE COMPANY. THEREFORE, THE DEPRECIATION CLAIMED BY THE ASSESSEE ON IT INFRASTR UCTURE AND SOFTWARE AMOUNTING TO RS.26,79,33,582/- IS NOT ALLOWABLE. HOWEVER, SINCE THE ABOVE AMOUNT HAS ALREADY BEEN ADJUSTED BY THE TPO ON THE DETERMINATION OF AL P OF THE ABOVE TRANSACTIONS, NO SEPARATE ADDITION IS MADE ON THIS ACCOUNT TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. HOWEVER, IF ANY ALTERATION OR MODIFICATION TAKES PLACE IN THE DETERMINATION OF ARMS LENGTH PRICE OF THE ABOVE TRANSACTIONS, TH E ABOVE ADDITION ON ACCOUNT OF EXCESS DEPRECIATION WOULD HOLD GOOD TO THAT EXTENT. 73. IT IS ALSO AN ADMITTED FACT THAT THE ORDER OF T HE TRIBUNAL WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER/DRP. SINCE THE ASSESS EE IN THE INSTANT CASE HAS NOT FILED THE DOCUMENTARY EVIDENCES BEFORE THE ASSESSIN G OFFICER SUBSTANTIATING THAT THE ASSETS WERE PUT TO USE FOR THE BUSINESS OF THE ASSESSEE, THEREFORE, WE IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THE I SSUE TO THE FILE OF THE ASSESSING OFFICER/TPO TO ADJUDICATE THE ISSUE AFRESH AFTER GI VING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WHILE DOING SO, THE ASSESSI NG OFFICER/TPO SHALL KEEP IN MIND THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CA SE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE GROUND RAISED BY TH E ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 74. IN GROUND NO.15, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF INTEREST EXPENSES OF RS.14,99,98,785/- AS CAPITAL IN NATURE. 47 ITA NO.1478/DEL/2017 75. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSE E HAS CLAIMED AN AMOUNT OF RS.151,11,93,163/- AS PAYMENT OF INTEREST TO BG ASI A PACIFIC PTE LTD., A GROUP ENTITY OF THE ASSESSEE. THIS AMOUNT HAS BEEN ADDED BACK IN THE COMPUTATION OF INCOME AND AN AMOUNT OF RS.166,04,21,607/- HAS BEEN CLAIMED AS INTEREST PAID ON BGAP LOAN. THE ASSESSING OFFICER, THEREFORE, AS KED THE ASSESSEE TO EXPLAIN THE SAME. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.14,99,98, 785/- BY OBSERVING AS UNDER :- 12.4 FROM THE ABOVE REPLY, IT IS CLEAR THAT ACTUAL AMOUNT OF INTEREST THAT WAS CAPITALIZED WAS RS.19,74,59,895/-. ASSESSEE EVEN F URNISHED DETAILS OF UTILIZATION OF THE SAID LOAN. IT HAS CATEGORICALLY BEEN STATED TH AT THESE PERTAINS TO PANNA-MUKTA PROJECT. ASSETS OF THIS PROJECT IS ALSO ELIGIBLE F OR DEPRECIATION. THE AUDITORS OF THE ASSESSEES ACCOUNTS HAVE ALSO AUDITED THE SAID HEAD OF EXPENSES AND THEN CERTIFIED THE AMOUNT OF RS.151,04,22,823/- PERTAINING TO REVENUE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN COMPUTATION OF INCOME, ASSESSEE HAS RED UCED THIS CAPITALIZATION AMOUNT TO RS.4,74,61,411/- WITHOUT ANY NOTE FROM AUDITOR O R WITHOUT ANY BASIS OR WITHOUT SUBMITTING ANY EVIDENCE REGARDING THE SAME. ACCORD INGLY, IT IS HELD THAT THE AMOUNT OF INTEREST ALLOWABLE IS RS.151,04,22,283/- ONLY, W HICH HAS DULY BEEN VERIFIED AND CERTIFIED BY AUDITORS. ACCORDINGLY, DIFFERENCE OF RS.14,99,98,785/- IS DISALLOWED AS EXCESS INTEREST CLAIM, WHICH IS OF CAPITAL IN NATUR E AND ADDED T THE TOTAL INCOME OF THE ASSESSEE. 76. THE DRP RESTORED THE ISSUE TO THE FILE OF THE A SSESSING OFFICER WITH THE FOLLOWING DIRECTIONS :- IN THE NOTES TO THE ACCOUNTS, THE ASSESSEE HAD MEN TIONED THAT INTEREST OF RS.170,78,82,718/- WAS ACCRUED TO BG ASIA PACIFIC P TE LTD. OUT OF WHICH ONLY AN AMOUNT OF RS.151,04,22,822/- WAS CLAIMED IN THE PRO FIT & LOSS ACCOUNT AND BALANCE WAS CAPITALIZED. LATER THE ASSESSEE FURNISHED DETA IL SHOWING INTEREST ACCRUED DURING THE YEAR RS.170,78,82,718/-. INTEREST CAPITALIZE D RS.197,459,895/- BALANCE 48 ITA NO.1478/DEL/2017 RS.151,04,22,822/- WAS CLAIMED AS DEDUCTION. THE A .O. HAS OBSERVED THAT HOWEVER, IN COMPUTATION OF INCOME, ASSESSEE HAS REDUCED THIS CAPITALIZATION AMOUNT TO RS.4,74,61,411/- WITHOUT ANY NOTE FROM AUDITOR OR W ITHOUT ANY BASIS OR WITHOUT SUBMITTING ANY EVIDENCE REGARDING THE SAME. DURIN G THE DRP PROCEEDINGS THE ASSESSEE SUBMITTED THAT OUT OF RS.197,459,895/- RS. 43,529,545/- PERTAIN TO LOAN UTILIZED TOWARDS CAPITAL WORK IN PROGRESS NOT YET C APITALIZED AS ON 31.03.2012 AND RS.93,931,566/- PERTAIN TO THE ASSETS CAPITALIZED D URING THE YEAR. THE ASSESSEE CLAIMED THAT THE ASSESSEE FOLLOWS AN ASSUMPTION FOR TAX PURPOSES WHICH ARE DIFFERENT FROM ACCOUNTING. THE ASSESSEE HAS BEEN FOLLOWING T HIS METHOD OF ACCENTING REGULARLY. THE A.O. DID NOT GIVE IT AN OPPORTUNITY TO EXPLAIN THE ACCOUNTING METHOD. IN VIEW OF THIS THE A.O. IS DIRECTED TO GO THROUGH THE SUBMISSIONS OF THE ASSESSEE AND TO ALLOW THE INTEREST AS PER THE LAW. 77. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFI CER/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 78. AFTER HEARING BOTH THE SIDES AND IN VIEW OF THE AGREEMENT MADE BY BOTH THE SIDES, WE ARE OF THE OPINION THAT THIS ISSUE SH OULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR PROPER VERIFICATION. WE THEREFORE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO WITH A DIRECT ION TO VERIFY THE DETAILS AND ADJUDICATE THE ISSUE AFRESH AFTER GIVING DUE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GRO UND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 79. IN GROUND NO.16, THE ASSESSEE HAS CHALLENGED TH E ORDER OF THE ASSESSING OFFICER IN NOT GRANTING ADDITIONAL DEPRECIATION OF RS.4,32,25,478/- U/S 32(1)(IIA) ON THE NEW PLANT AND MACHINERY OF RS.21,05,13,315/- PURCHASED AND PUT TO USE DURING THE RELEVANT ASSESSMENT YEAR. 49 ITA NO.1478/DEL/2017 80. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAS MADE ADDITION TO PLANT AND MACHINERY AMOUNTING TO RS.21,05,13,315/-. ACCO RDING TO THE ASSESSE THE SAME WERE PUT TO USE DURING THE YEAR UNDER CONSIDER ATION. HOWEVER, THE ASSESSEE DID NOT CLAIM ADDITIONAL DEPRECIATION ON T HE SAME INADVERTENTLY AMOUNTING TO RS.4,32,25,478/- U/S 32(1)(IIA). THE ASSESSING OFFICER AND THE DRP DID NOT ADMIT THE CLAIM OF THE ASSESSEE ON THE GROUND THAT SUCH CLAIM CAN BE MADE ONLY BY WAY OF FILING A REVISED RETURN OF I NCOME. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE VARIOUS DECISIONS SUCH ADDITIONAL CLAIM CAN BE MADE DURING THE APPELLATE P ROCEEDINGS. IT HAS BEEN HELD IN VARIOUS DECISIONS THAT (A) THE LD. CIT(A) HAVING COEXTENSIVE POWER OVER THE ASSESSMENT COULD DEAL WITH THE CLAIM MADE FOR THE F IRST TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND (B) IT IS OPEN TO THE ASSESSEE TO ENLARGE THE CLAIM BEFORE THE ASSESSING OFFICER THROUGH A LETTER FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITHOUT FILING A REVISED RET URN OF INCOME. IN VIEW OF THE SAME, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE ALLOWABILITY OF THE CLAIM AND IF THE ASSESSEE IS OTHERWISE ELIGIBLE FOR SUCH ADDITIONAL DEPRECIAT ION THEN ALLOW THE SAME. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER THE FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO.16 IS ACCORDINGLY ALLOWED FOR THE STATISTICAL PU RPOSES. 50 ITA NO.1478/DEL/2017 81. GROUND NO.18 RELATES TO SHORT CREDIT OF TDS AMO UNTING TO RS.87,48,486/-. 82. AFTER HEARING BOTH THE SIDES, WE RESTORE THE IS SUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE SA ME AND ALLOW THE TDS CREDIT AS PER LAW. 83. IN GROUND NO.19, THE ASSESSEE HAS CHALLENGED TH E INTEREST CHARGED U/S 234B OF THE I.T. ACT. 84. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVENUES RECEIVABLE BY THE ASSESSEE NON-RESIDENT COMPANY ARE SUBJECT TO DEDUCT ION OF TAX AT SOURCE. THEREFORE, THE QUESTION OF PAYMENT OF ADVANCE TAX A ND CONSEQUENT LEVY OF INTEREST U/S 234B FOR SHORTFALL IN PAYMENT OF ADVAN CE TAX DOES NOT ARISE. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.2227/DEL/2014 AND FOR ASSESS MENT YEAR 2010-11 IN ITA NO.1170/DEL/2015, HE SUBMITTED THAT THE TRIBUNA L IN THE SAID DECISION HAS DIRECTED THE ASSESSING OFFICER NOT TO CHARGE INTERE ST U/S 234B ON THE INCOME OF THE ASSESSEE WHICH IS LIABLE TO TAX DEDUCTION AT SO URCE. HE ACCORDINGLY SUBMITTED THAT THE GROUND RAISED BY THE ASSESSEE SH OULD BE ALLOWED. 85. LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT SECTION 234B IS MANDATORY AND CONSEQ UENTIAL IN NATURE. 51 ITA NO.1478/DEL/2017 86. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR. WE FIND THE TRIBUNAL AT PARA 61 AND 62 OF THE ORDER HAS OBSERVE D AS UNDER :- 61. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND ALSO PERUSED THE RELEVANT JUDICIAL PRECEDENTS CITED BEFORE US. IN TH E DECISION CITED BY THE LD. AUTHORISED REPRESENTATIVE IN CASE OF CIT VERSUS GE PACKAGED POWER INCORPORATION (373 ITR 65) IN PARA NO. 19, THE HONBLE HIGH COUR T HAS CONSIDERED THE DECISION CITED BY THE LD. DEPARTMENTAL REPRESENTATIVE AS UND ER:- XXXXX 62. WE ARE AWARE THAT HONBLE SUPREME COURT HAS GR ANTED SLP AGAINST HIGH COURT'S RULING THAT WHERE ASSESSEE WAS NON-RESIDENT COMPANY, ENTIRE TAX WAS TO BE DEDUCTED AT SOURCE ON PAYMENTS MADE BY PAYER TO IT AND THERE WAS NO QUESTION OF PAYMENT OF ADVANCE TAX BY ASSESSEE; THEREFORE, REVE NUE COULD NOT CHARGE ANY INTEREST UNDER SECTION 234B FROM ASSESSEE, WHICH IS PENDING FOR ADJUDICATION. HOWEVER THE DECISION OF THE HON HIGH COURT IS TO BE FOLLOWED BY US , IF THE SAME IS NOT STAYED BY THE HON SUPREME COURT, THEREFORE RESPECTFULLY FO LLOWING THE DECISION OF THE HONBLE HIGH COURT WE DIRECT THE LD. ASSESSING OFFICER TO N OT TO CHARGE INTEREST UNDER SECTION 234B OF THE ACT ON THE INCOME OF THE ASSESSEE WHICH IS SUBJECT TO OR LIABLE TO TAX DEDUCTION AT SOURCE. 87. FURTHER, IT MAY BE POINTED OUT THAT THE FINANCE ACT, 2012 W.E.F. 1.4.2012 ADDED PROVISO BELOW SECTION 209(1)(D) OF THE ACT TO THE FOLLOWING EFFECT: PROVIDED THAT FOR COMPUTING LIABILITY FOR ADVANCE TAX, INCO ME-TAX CALCULATED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) SHALL NOT, I N EACH CASE, BE REDUCED BY THE AFORESAID AMOUNT OF INCOME-TAX WHICH WOULD BE DEDUC TIBLE OR COLLECTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME, IF THE PERSON RESPONSIBLE FOR DEDUCTING TAX HAS PAID OR CR EDITED SUCH INCOME WITHOUT DEDUCTION OF TAX OR IT HAS BEEN RECEIVED OR DEBITED BY THE PERSON RESPONSIBLE FOR COLLECTING TAX WITHOUT COLLECTION OF SUCH TAX. 88. THE SAID PROVISO IN OUR OPINION IS APPLICABLE F ROM ASSESSMENT YEAR 2013- 14 AND IS, THEREFORE, PROSPECTIVE IN OPERATION. TH E INSERTION OF THE PROVISO CANNOT BE CONSTRUED TO HAVE RETROSPECTIVE EFFECT SO TO EXPOSE A NON-RESIDENT 52 ITA NO.1478/DEL/2017 COMPANY TO LEVY OF INTEREST U/S 234B OF THE ACT FOR ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2013-14, WHERE TAX WAS DEDUCTIBLE A T SOURCE ON THE INCOME PAYABLE TO THE NON-RESIDENT, IF SUCH INCOME IS HELD TO BE CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, THIS GROUND RAISED BY THE ASSE SSEE IS ALLOWED. 89. SO FAR AS INTEREST U/S 234C IS CONCERNED, THE S AME IS LEVIABLE ONLY ON THE RETUNED INCOME AND NOT ON THE ASSESSED INCOME AS HE LD IN VARIOUS DECISIONS. WE THEREFORE DIRECT THE ASSESSING OFFICER TO COMPUT E THE INTEREST U/S 234C ON THE BASIS OF THE RETURNED INCOME. 90. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH JULY, 2018. SD/- SD/- (SUCHITRA KAMBLE) (R. K. P ANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18-07-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE DRP- 2, NEW DELHI. 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI