BG Exploration & Production India Limited, Mumabai V. The Deputy Commissioner of Income Tax, DDIT/ADIT(International Taxation), Circle-1, Dehradun

ITA 29/DDN/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6582 (ITAT-DEHRADUN)
• Duration Of Justice: 1 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Rule of consistency
• Section: 271(1)(c); 244A; 10B; 143(1); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH ‘DB’, DEHRADUN BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER आयकर अपील सं./I.T.A. Nos.29 & 30/DDN/2020 (िनधाᭅरण वषᭅ / Assessment Years: 2007-08 & 2008-09) BG Exploration & Production India Limited, C/o Deloitte Haskins and Sells LLP, Indiabulls Finance Centre, Tower-3, 28 th Floor, Elphinstone Mill Compound, Senapati Bapat Mart, Elphinstone (W), Mumbai, Maharashtra, 400013. बनाम/ Vs. The Deputy Commissioner of Income Tax, DDIT/ADIT(International Taxation), Circle-1, Dehradun. ᭭थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACE4569K (अपीलाथᱮ /Appellant) .. (ᮧ᭜यथᱮ / Respondent) अपीलाथᱮ ओर से /Appellant by : Sh. Ajay Vohra, Sr. Adv. & Ms. Manisha Sharma, Adv. ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Sh. Sanjay Pandey, CIT DR सुनवाई कᳱ तारीख / Date of Hearing 21.12.2021 घोषणा कᳱ तारीख / Date of Pronouncement 21.03.2022 आदेश/O R D E R PER C.N. PRASAD - JM: These two appeals are filed by the Assessee against the orders of the Assessing Officer passed u/s 143(3)/144C(13)/254 of the Act for the AYs 2007-08 & 2008-09. (AY 2007-08 ITA No. 29/DDN/2020): ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 2 - 2. For the AY 2007-08 assessee has raised the following grounds of appeal: - I. Ground No. 1: General Grounds On the facts and circumstances of the case and in law, the Ld. AO erred in determining the assessed income of INR 11,12,18,48,120 under the head Income from Business and Profession as against returned income of INR 10,29,11,53,553. The adjustments and disallowances made by the Ld. AO are bad in law, illegal and unsustainable on the basis of amongst other, following grounds, taken singly or cumulatively and therefore, the addition made by the Ld. AO/TPO/Hon’ble DRP should be deleted. II. Payment for management service and unit charges (MSU) availed from BG International Limited (‘BGIL’): 1. The Ld. TPO/AO/DRP has erred in making an adjustment (partially) in respect of payment of MSU of INR 50,28,83,179 to BGIL 2. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of various services availed for its business operations. 3. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm’s length price (ALP) 4. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIL for services availed and that the Appellant had earned an operating margin of 66.64% on gross revenues vis-à-vis an arithmetic mean margin of 32.16% earned by the comparable companies. 5. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 6. The Ld. TPO/AO/DRP has erred in law and in ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 3 - facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 7. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 8. The Ld. TPO/AO/DRP has erred in law and facts in questioning the commercial rationale of the Appellant in making payments to BGIL and in ignoring the intricacies and skill level required in oil and gas industry. 9. The Ld. TPO/AO/DRP has erred in law and facts in ignoring the fact that payments made by the Appellant to BGIL merely represented costs associated with services rendered by BGIL without any element of mark-up. 10. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the fact that the “cost only” recharge by BGIL was also certified by statutory auditor of BGIL viz M/s Price Waterhouse Coopers as well as an independent external consultant viz M/s Lancaster MacLean, and that all costs allocated to the Appellant were in accordance with the Global Cost Allocation Policy of the BG Group. 11. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey and specific evidence of services received by the Appellant. Payments made on account of federal green recharges to BGIL (forming part of Total MSU charges) 12. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of federal green recharges amounting to INR 8,51,41,585. 13. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific Skill Supply Agreements (‘SSAs’)/ other evidences furnished by the Appellant in relation to receipt of technical and other services from BGIL. Payments made on account of technology recharges to BGIL (forming part of Total MSU charges) 14. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of technology recharges amounting to INR 9,79,28,872, while at the same ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 4 - time stating that the Appellant may have enjoyed certain benefits from services covered under such payments. 15. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant in relation to receipt of technical services from BGIL. Payments made on account of management and service unit charges to BGIL (forming part of Total MSU charges) 16. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of management service and unit charges amounting to INR 31,93,12,904. The aforesaid cost recharges include: - Information management (‘IM’) recharges - Executive Vice President (‘EVP’) expense allocation - Human Resource International - International Accounting - Insurance - Taxation - Marketing - ICDN, cost control and finance services - Others (strategy, communications, etc.) 17. The Ld. TPO/AO/DRP has erred in law and facts in allowing an ad hoc amount of INR 60,00,000 out of the payments made by the Appellant to BGIL on account of IM recharges. III. Payments made on account of general and administrative charges to BGIL. 18. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of general and administrative charges (including third party charges of INR 1,51,54,714) amounting to INR 11,05,79,417. 19. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transacts separately for determination of arm’s length price (‘ALP’). 20. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 5 - made to BGIL for services availed and that the Appellant had earned an operating margin of 66.64% on gross revenues vis-à-vis an arithmetic mean margin of 32.16% earned by the comparable companies. 21. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 22. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 23. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 24. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific SSAs furnished by the Appellant in relation to receipt of specific call out technical services from BGIL. 25. The Ld. TPO/AO/DRP has erred in law and facts in disallowing expenses reimbursed by the Appellant to BGIL on account of party charges incurred by BGIL amounting to INR 1,51,54,714. IV. Payments made on account of reimbursement of expenses to BGIL 26. The Ld. TPO/AO/DRP has erred in law and facts in disallowing expenses reimbursed by the Appellant to BGIL amounting to INR 2,92,51,111 on account of receipt of specific call out technical services incurred by BGIL. 27. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm’s length price (ALP). 28. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 6 - international transactions pertaining to payments made to BGIL for services availed and that the Appellant had earned an operating margin of 66.64% on gross revenues vis-à-vis an arithmetic mean margin of 32.16% earned by the comparable companies. 29. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 30. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 31. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. V. Payments made on account of business auxiliary services to BG Gas India Pvt. Ltd. (‘BGIL’) 32. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments totaling to INR 18,79,80,857, made by the Appellant to BGIPL on account of receipt of business auxiliary services. The aforesaid services include: - Legal services - Assistance incorporate and strategic affairs - Business development - Other assistance 33. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of ALP. 34. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the TNMM as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIPL for services availed and that the Appellant had earned an operating margin of 66.64% on gross revenues vis-à-vis an arithmetic mean margin of 32.16% earned by the ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 7 - comparable companies. 35. The Ld. TPO/AO/DRP has erred in law and facts in holding that CUP is the most appropriate method for benchmarking payments made by the Appellant for availing proprietary services from BGIPL. 36. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 37. The Ld. AO/TPO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIPL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 38. The Ld. TPO/AO/DRP has erred in law and facts in questioning the commercial rationale of the Appellant in making payments to BGIPL for services availed by the Appellant. 39. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant (relevant agreement, monthly reports, debit notes etc.) in relation to receipt of services from BGIPL. 40. The Ld. TPO/AO/DRP has erred in law and facts in allowing only an adhoc amount of INR 48,82,776 out of the total payment made by the Appellant to BGIPL of INR 19,28,63,663 41. Without prejudice, the Ld. AO/TPO/DRP erred in appreciating the fact that the payments made by the Appellant to BGIPL, an Indian entity, were already taxed in the hands of BGIPL and hence, disallowing the same in the hands of the Appellant amounts to double taxation. 42. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey any specific evidence of services received by the Appellant. VI. Disregarding the directions issued by the office of Hon’ble DRP and Hon’ble Income Tax Appellate Tribunal (‘ITAT’) in the Appellant’s own case for the subsequent years. i. The Ld. TPO/AO/DRP erred in passing the transfer pricing order completely disregarding the directions issued by the office of the Hon’ble DRP in the Appellant’s own case for the subsequent years i.e. AY 2009-10 and AY 2010-11. ii. The TPO/AO/DRP erred in passing the transfer pricing order completely disregarding the ruling ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 8 - of the Hon’ble Delhi ITAT in the Appellant’s own case for the subsequent years i.e. AY 2009-10 to AY 2012-13. VII. Short grant of interest under section 244A of the Act The Ld. AO erred in not granting interest of INR 75,59,882 for the period April 2009 to June 2009 under section 244A notwithstanding that refund was determined in March 2009 vide intimation under section 143(1) whereas the same was granted only on 26 June 2009. VIII. Deduction in respect of education cess paid On the facts and circumstances of the case and in law, the Appellant prays that the Assessing Officer be directed to allow deduction in respect of education cess paid by the Appellant on income-tax, being an allowable expenditure for computing total income as per the provisions of the Act. IX. Other grounds The Ld. AO erred in law and in fact, in initiating penalty proceedings under section 271(1)(c) of the Act for concealing particulars of income/furnishing inaccurate particulars of such income. 3. At the outset, the Ld. Sr. Counsel Shri Ajay Vohra appearing for the assessee submits that ground no. (I) is general in nature. No adjudication is required. 4. Ground nos. (II) to (VI) relates to Transfer Pricing Adjustment on account of intra-group services. The Ld. Counsel submits that identical issue on similar facts has been decided in favour of the assessee by the Tribunal for the assessment years 2009-10 to 2016-17 and the orders of the Tribunal are placed in the compilation. The Ld. Counsel for the assessee further submits that the recent order of the Tribunal is for the AY 2016-17 dated 14.12.2021 in ITA No. 07/DDN/2021. Referring to this order the Ld. Counsel submits that the Tribunal following its order for the assessment years 2013-14 and 2014-15 deleted the transfer pricing ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 9 - adjustment made on account of intra-group services provided by the assessee to its AE. 5. On the other hand, the Ld. DR strongly placed reliance on the orders of the authorities below. However, he fairly submits that the issue in appeal regarding the transfer pricing adjustment on account of intra-group services has been decided in favour of the assessee by the Tribunal in subsequent assessment years. 6. We have heard rival submissions perused the orders of the Tribunal in assessee’s own case for the subsequent assessment years. On identical issue on similar facts the Tribunal in its order in ITA No. 07/DDN/2021 dated 14.12.2021 decided the issue in favour of the assessee observing as under: - “2. Ground Nos. 1 to 5 are regarding addition made on account of transfer pricing adjustment in respect of international transactions of Intra Group Services provided by the assessee to its Associated Enterprises (AE). 3. At the time of hearing, Ld. Sr. Counsel of the assessee has submitted that an identical issue has been considered by this Tribunal in assessee’s own case for the AYs 2013-14 and 2014-15. He has also pointed out that the DRP while passing the directions has also followed the earlier directions of the DRP for the AY 2013-14 and 2014- 15. Ld. Counsel has submitted that this issue is covered by the decision of this Tribunal in assessee’s own case for the AYs 2010-11 to 2014-15. ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 10 - 4. On the other hand, Ld. DR has relied upon the order of the Assessing Officer and fairly admitted that for the preceding assessment years, the Tribunal has decided identical issue in favour of the assessee. 5. Having considered the rival submissions and on careful perusal of the relevant record, we note that an identical issue has been considered by this Tribunal in assessee’s own case for the AYs 2010-11 to 2014-15. Thus, it is clear that this Tribunal has taken a consistent view on this recurring issue. In the latest decision for the AY 2013-14 and 2014-15 vide order dated 03.04.2019, the Tribunal has considered and decided this issue in para 14 to 16 as under: 14. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. It has been submitted that the DRP in their order for the year under consideration has noted as under: “It has been brought to notice by the assessee that the Hon’ble ITAT has passed the orders for AY 2011-12 and 2012-13 respectively on 18.07.2018 & 17.07.2018. In these orders relief has been given to the assessee on the issues of branch office expenditure cost incurred on non producing PSC, head office expenditure, inventory written off and depreciation. In case a decision is taken by the department to accept the decision of Hon’ble ITAT before the final order is passed, the order of the ITAT may be followed to avoid further litigation as the matter become final.” 15. Further, it is observed that for AY 2011-12 (ITA No. 1478/Del/2017) and AY 2012-13 (ITA No. 6791/Del/2017) following the above ruling. 16. From the above, it is clear that Revenue intends to keep issues alive, however, could not controvert view taken in respect of these issues as there has been no contrary observation/material evidences brought out on record by the Ld. CIT DR. It has been admitted by him that facts and ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 11 - circumstances of the services received by assessee for the year under consideration are same vis-à-vis AY 2010-11, and other preceding assessment years. We are, therefore, inclined to follow the same view. Respectfully, following view taken by this Tribunal in AY 2010-11 reproduced hereinabove and other preceding assessment years, orders of which are placed at pages 530-915 of paper book, addition made by Assessing Officer stands deleted.” 6. To maintain the rule of consistency, we follow the earlier order of Tribunal and decide the issue in favour of the assessee and the addition made being TP adjustment on account of intra group services provided by the assessee to its AE is deleted.” 7. Respectfully following the earlier order of the Tribunal we decide this issue in favour of the assessee. Thus, we direct the Assessing Officer to delete the addition made on account of transfer pricing adjustment on intra-group services provided by the assessee to its AE. Ground nos.(II) to (VI) are allowed. 8. Ground no. (VII) of grounds of appeal relates to granting interest u/s 244A of the Act. The Ld. Counsel for the assessee submits that the Assessing Officer erred in not granting interest of Rs. 75,59,882/- for the period April, 2009 to June, 2009 u/s 244A though refund was determined in March, 2009 while passing the intimation u/s 143(1), whereas the interest was granted only from 26.06.2009. Therefore, it is submitted that necessary directions may be issued to the Assessing Officer to correctly compute the interest u/s 244A of the Act. The DR has no serious objection for ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 12 - such directions. On hearing both the sides, we direct the Assessing Officer to look into the plea of the assessee and decide the same in accordance with law. This ground is allowed for statistical purpose. 9. Ground no. (VIII) relates to deduction in respect of education cess paid. The Ld. Counsel for the assessee submits that this issue also was decided in favour of the assessee by the Tribunal in its order in ITA No. 07/DDN/2021 dated 14.12.2021 for the AY 2016- 17 and, therefore, the same may be allowed. 10. Heard rival submissions and perused the order of the Tribunal. We noticed that the Tribunal following the decision of the Hon’ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. Vs. JCIT [107 taxmann.com 484] and the decision of the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT [117 taxmann.com 96] held that the education cess is an allowable deduction while computing the income from business and profession. However, in the Finance Bill, 2022 introduced in the Parliament an amendment to Section 40 was proposed by insertion of Explanation 3 with retrospective effect from 01.04.2005 clarifying that tax “shall include any surcharge or cess by whatever name called”. Since the legislature proposed an amendment to Section 40 with retrospective effect clarifying that cess is part of tax we are of the considered view that this issue has to be examined by the Assessing Officer in the light of the proposed amendment and ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 13 - also keeping in view various decisions on the issue. Thus, we restore this ground to the file of the Assessing Officer to decide afresh in accordance with law. 11. Ground no. (IX) relates to initiation of penalty proceedings u/s 271(1)(c) of the Act. This ground is premature and, therefore, the same is dismissed. AY 2008-09 (ITA No. 30/DDN/2020): The assessee has raised the following grounds in this appeal: I. Ground No. 1: General Grounds On the facts and circumstances of the case and in law, the Ld. AO erred in determining the assessed income of INR 13,35,55,57,072 under the head Income from Business and Profession as against returned income of INR 12,60,58,34,942. The adjustments and disallowances made by the Ld. AO are bad in law, illegal and unsustainable on the basis of, amongst other, following grounds, taken singly or cumulatively and therefore, the addition made by the Ld. AO/TPO/Hon’ble DRP should be deleted. II. Payment for management service and unit charges (MSU) availed from BG International Limited (‘BGIL’): 1. The Ld. TPO/AO/DRP has erred in making an adjustment (partially) in respect of payment of MSU of INR 60,27,55,894 to BGIL, and thereby determining the arm’s length of such payments as ‘Nil’. Further the Ld. TPO/AO/DRP erred in alleging that the services provided by BGIL are in the nature of shareholder activities. 2. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of various services availed for its business operations. 3. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm’s length price (ALP) 4. The Ld. TPO/AO/DRP has erred in law and facts ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 14 - in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIL for services availed. 5. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 6. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 7. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL, as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 8. The Ld. TPO/AO/DRP has erred in law and facts in questioning the commercial rationale of the Appellant in making payments to BGIL and in ignoring the intricacies and skill level required in oil and gas industry. 9. The Ld. TPO/AO/DRP has erred in law and facts in ignoring the fact that payments made by the Appellant to BGIL merely represented costs associated with services rendered by BGIL without any element of mark-up. 10. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the fact that the “cost only” recharge by BGIL was also certified by statutory auditor of BGIL as well as an independent external consultant and that all costs allocated to the Appellant were in accordance with the Global Cost Allocation Policy of the BG Group. 11. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey and specific evidence of services received by the Appellant. Payments made on account of federal green recharges to BGIL (forming part of Total MSU charges) 12. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 15 - to BGIL on account of federal green recharges amounting to INR 11,74,80,113. 13. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific Skill Supply Agreements (‘SSAs’)/ other evidences furnished by the Appellant in relation to receipt of technical and other services from BGIL. 14. Without prejudice, the Ld. TPO/AO/DRP ought to have allowed deduction for the taxes deposited by Appellant with the tax authorities on account of services received from BGIL. Payments made on account of technology recharges to BGIL (forming part of Total MSU charges) 15. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of technology recharges amounting to INR 6,02,39,777. 16. The Ld. TPO/AO/DRP has erred in law and facts in disregarding the evidences furnished by the Appellant in relation to the receipt of technical services from BGIL. 17. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant in relation to receipt of technical services from BGIL. 18. Without prejudice, the Ld. AO/TPO/DRP ought to have allowed deduction for the taxes deposited by Appellant with the tax authorities on account of services received from BGIL. Payments made on account of management and service unit charges to BGIL (forming part of Total MSU charges) 19. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of management service and unit charges amounting to INR 42,50,36,004. The aforesaid cost recharges include: - Information management (‘IM’) recharges - Executive Vice President (‘EVP’) expense allocation - Human Resource International - International Accounting - Insurance - Taxation - Marketing - ICDN, cost control and finance services - Others (strategy, communications, etc.) 20. The Ld. TPO/AO/DRP has erred on facts and in law in failing to appreciate that an international company depends on its head office/parent company and affiliates to provide a wide range of administrative support to achieve efficiency. ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 16 - 21. The Ld. TPO/AO/DRP has erred in law in not giving due consideration to the evidences furnished by the Appellant in relation to the receipt of services from BGIL. 22. The Ld. TPO/AO/DRP has erred in law and in facts in restricting the deduction in respect of payments made by the Appellant to BGIL on account of IM recharges to INR 60,00,000, having been computed in an arbitrary and adhoc manner. 23. Without prejudice, the Ld. TPO/AO/DRP ought to have allowed deduction for the taxes deposited by Appellant with the tax authorities on account of services received from BGIL. III. Payments made on account of general and administrative charges to BGIL 24. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments made by the Appellant to BGIL on account of general and administrative charges amounting to INR 8,18,44,590. 25. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm’s length price (ALP). 26. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIL for services availed. 27. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 28. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 29. The Ld. TPO/AO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 17 - 30. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the project specific SSAs furnished by the Appellant in relation to receipt of specific call out technical services from BGIL. 31. Without prejudice, the Ld. AO/TPO/DRP ought to have allowed deduction for the taxes deposited by Appellant with the tax authorities on account of services received from BGIL. IV. Payments made on account of reimbursement of expenses to BGIL 32. The Ld. TPO/AO/DRP has erred in law and facts in disallowing expenses reimbursed by the Appellant to BGIL amounting to INR 2,70,95,526 on account of receipt of specific call out technical services incurred by BGIL. 33. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of arm’s length price (ALP). 34. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the Transactional Net Margin Method (‘TNMM’) as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIL for services availed. 35. The Ld. TPO/AO/DRP has erred in law and facts in holding that the Comparable Uncontrolled Price Method (‘CUP’) is the most appropriate method for benchmarking payments made by the Appellant for availing services from BGIL. 36. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 37. The Ld. AO/TPO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIPL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP and thereby determining the arm’s length price of such payments as ‘Nil’. 38. Without prejudice, the Ld. AO/TPO/DRP ought to have allowed deduction for the taxes deposited by ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 18 - Appellant with the tax authorities on account of services received from BGIL. V. Payments made on account of business auxiliary services to BG Gas India Pvt. Ltd. (‘BGIL’) 39. The Ld. TPO/AO/DRP has erred in law and facts in disallowing the payments totaling to INR 18,79,80,857, made by the Appellant to BGIPL on account of receipt of business auxiliary services. The aforesaid services include: - Legal services - Assistance incorporate and strategic affairs - Business development - Other assistance 40. The Ld. TPO/AO/DRP erred in not appreciating the fact that the payment made towards services in the nature of intra-group services are intrinsically and closely linked to Appellant’s main business operations of prospecting, exploration and production of crude oil and natural gas; and erred in analyzing the said transactions separately for determination of ALP. 41. The Ld. TPO/AO/DRP has erred in law and facts in ignoring that the Appellant had, in adherence with Rule 10C(1) of the Income-tax Rules, 1962 and in light of the facts and circumstances of the case, adopted the TNMM as the most appropriate method in its transfer pricing study to benchmark the international transactions pertaining to payments made to BGIPL for services availed. 42. The Ld. TPO/AO/DRP has erred in law and facts in holding that CUP is the most appropriate method for benchmarking payments made by the Appellant for availing proprietary services from BGIPL. 43. The Ld. TPO/AO/DRP has erred in law and in facts in treating only that portion of Appellant’s expenditure which is approved by the JOB under the PSC as a CUP for the services received from its AE in utter disregard of Rule 10B of the Rules. 44. The Ld. AO/TPO/DRP has erred in law and facts in questioning whether any services have been rendered to the Appellant by BGIPL as the same is beyond the purview of the powers of the Ld. AO/TPO/DRP. 45. The Ld. TPO/AO/DRP has erred in law and facts in questioning the commercial rationale of the Appellant in making payments to BGIPL for services availed by the Appellant. 46. The Ld. TPO/AO/DRP has erred in law and facts in not giving due consideration to the evidences furnished by the Appellant (relevant agreement, ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 19 - monthly reports, debit notes etc.) in relation to receipt of services from BGIPL. 47. Without prejudice, the Ld. AO/TPO/DRP ought to have allowed deduction of INR 41,46,826 on account of service tax paid by Appellant on business auxiliary services. 48. Without prejudice, the Ld. AO/TPO/DRP erred in appreciating the fact that the payments made by the Appellant to BGIPL, an Indian entity, were already taxed in the hands of BGIPL and hence, disallowing the same in the hands of the Appellant amounts to double taxation. 49. The Ld. TPO/AO/DRP has erred in law and facts in contending that no service has been received by the Appellant and concluding that the additional documentation/supporting does not convey any specific evidence of services received by the Appellant. VI. Disregarding the directions issued by the office of Hon’ble DRP and Hon’ble Income Tax Appellate Tribunal (‘ITAT’) in the Appellant’s own case for the subsequent years. i. The Ld. TPO/AO/DRP erred in passing the transfer pricing order completely disregarding the directions issued by the office of the Hon’ble DRP in the Appellant’s own case for the subsequent years i.e. AY 2009-10 and AY 2010-11. ii. The TPO/AO/DRP erred in passing the transfer pricing order completely disregarding the ruling of the Hon’ble Delhi ITAT in the Appellant’s own case for the subsequent years i.e. AY 2009-10 to AY 2012-13. VII. Deduction in respect of education cess paid On the facts and circumstances of the case and in law, the Appellant prays that the Assessing Officer be directed to allow deduction in respect of education cess paid by the Appellant on income-tax, being an allowable expenditure for computing total income as per the provisions of the Act. VIII. Other grounds i. The Ld. AO erred in considering refund of INR 21,32,02,080 as already been granted to the Appellant on 24 March 2010 whereas the Appellant has not received this refund. ii. The Ld. AO erred in law and in fact, in initiating penalty proceedings under section 271(1)(c) of the Act for concealing particulars of income/furnishing inaccurate particulars of such income. 12. Ground nos. (II) to (VI) relates to transfer pricing adjustment on account of intra-group services. Similar grounds have been ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 20 - adjudicated by us for the AY 2007-08 in the above paragraphs in favour of the assessee following the order of the Tribunal in Assessee’s own case. For the reasons given therein the decision taken by us for AY 2007-08 applies mutatis mutandis to the grounds raised by the assessee on adjustment made towards intra group services for AY 2008-09. We order accordingly. Grounds (II) to (VI) are allowed. 13. Ground no. (VII) relates to deduction of education cess while computing the income of the Assessee. We have restored this issue to the file of the Assessing Officer for denovo adjudication, keeping in view the amendment inserted in the Finance Bill, 2022 and also various decisions on the issue while disposing of the appeal of the AY 2007-08. For the reasons mentioned therein this ground is restored to the file of the AO for fresh adjudication in accordance with law. This ground is allowed for statistical purpose. 14. In ground no. (VIII) the assessee contends that AO erred in considering refund of Rs. 21.32 crores as already been granted to the assessee on 24.03.2010, whereas the assessee has not received any refund. 15. The Ld. Counsel for the assessee submits that necessary direction may be issued to the AO for issue of refund. Considering the submissions of the Ld. Counsel and the ground taken, we direct the AO to look into the plea of the assessee and in case refund ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 21 - determined is not issued to the Assessee the same may be issued in accordance with law. This ground is allowed for statistical purpose. 16. In the result, both the appeals of the assessee are partly allowed as indicated above. Order pronounced in the open court on 21 st March, 2022. Sd/- Sd/- (RAMA KANTA PANDA) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21-03-2022 KAVITA ARORA, SPS आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of Order Forwarded to:- 1. राज᭭व / Revenue 2. आवेदक / Assessee 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ- अपील / CIT (A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, DELHI / DR, ITAT, DELHI 6. गाडᭅ फाइल / Guard file. By order, ASSISTANT REGISTRAR ITAT, Dehradun Date of dictation 10.03.2022 Date on which the typed draft is placed before the dictating 15.03.2022 ITA Nos. 29 & 30/DDN/2020 [BG Exploration & Production India Limited] AYS 2007-08 & 08-09 - 22 - Member Date on which the typed draft is placed before the Other Member 21.03.2022 Date on which the approved draft comes to the Sr. PS/PS 21.03.2022 Date on which the fair order is placed before the Dictating Member for pronouncement 21.03.2022 Date on which the fair order comes back to the Sr. PS/PS 21.03.2022 Date on which the final order is uploaded on the website of ITAT 21.03.2022 Date on which the file goes to the Bench Clerk 21.03.2022 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order