M/s. Dolphin Drilling Pte. Ltd., New Delhi V. ADIT, Dehradun

ITA 355/DEL/2012

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3005 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 24-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Cost of acquisition; Corroborative evidences; TDS
• Section: 92C; 143(3); 148; 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH I-2, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 355/DEL/2012 ASSESSMENT YEAR: 2007-08 DOLPHIN DRILLING PTE. LTD., C/O NANGIA & COMPANY, CA, SUITE-4A, PLAZA M-6, JASOLA, NEW DELHI. PAN : AACCD0288Q. (APPELLANT) VS. ADIT(INTL. TAXATION) DEHRADUN. (RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADVOCATE SH. NEERAJ JAIN, ADVOCATE SH. SHAHIL SHARMA, ADVOCATE RESPONDENT BY SH. H.K. CHOUDHARY, CIT/DR ORDER PER L.P. SAHU, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE ASSESSING OFFICER DATED 30.11.2011 U/S. 143(3)/144C (13) OF THE INCOME-TAX ACT, 1961 ON THE FOLLOWING GROUNDS : 1. THAT THE LEARNED ASSESSING OFFICER ('LD. AO') HA S ERRED ON FACTS AND IN LAW IN DISALLOWING DEPRECIATION OF RS. 1,603,913,94 7 CLAIMED BY THE APPELLANT IN RESPECT OF DRILLING RIG 'BELFORD DOLPHIN', ALLEG ING THAT THE APPELLANT IS FAILED TO SUBSTANTIATE THE OWNERSHIP IN THE RIG. 1.1 THAT THE LD. AO HAS ERRED IN LAW AND IN FACTS I N NOT TAKING COGNIZANCE OF THE FACT THAT THE ABOVE ISSUE HAS BEEN DECIDED I N THE APPELLANT'S FAVOUR BY DATE OF HEARING 08.01.2019 DATE OF PRONOUNCEMENT 27.02.2019 ITA NO. 355/DEL/2012 2 THE HON'BLE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR ASSESSMENT YEARS 2004- 05, 2005-06 AND 2006-07. 2. THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 527,040,434 BEING COST-TO-COST REIMBURSEMENT RE CEIVED BY THE APPELLANT FROM DOLPHIN DRILLING LIMITED FOR PROVISION OF CREW , HOLDING THE SAME TO BE IN THE NATURE OF FEE FOR TECHNICAL SERVICES TAXABLE AS SUCH ON THE GROUND THAT THE APPELLANT FAILED TO SUBSTANTIATE THAT THE SAME WAS DEVOID OF ANY INCOME ELEMENT. 2.1 THAT THE LD. AO HAS ERRED IN LAW IN TRAVELLING BEYOND JURISDICTION AND CIRCUMVENTING THE FINDINGS OF THE TRANSFER PRICING O FFICER IN CONTRAVENTION OF THE PROVISIONS OF SECTION 92CA(4) OF THE INCOME-TAX ACT, 1961 ('ACT') WHO, VIDE ORDER DATED 29.10.2010, ACCEPTED THE ABOVE TRANSACT ION TO BE AT ARM'S LENGTH . 2.2 THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW I N ALLEGING THAT THE APPELLANT DID NOT DEDUCT ANY TAX AT SOURCE FROM THE ABOVE AMOUNT WITHOUT APPRECIATING THAT THE SAME HAD ALREADY BEEN DEDUCTE D BY DOLPHIN DRILLING LIMITED WHILE MAKING PAYMENT OF SALARY TO THE EMPLO YEES SECONDED BY THE APPELLANT. 2.3 THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW I N ALLEGING THAT THE APPELLANT HAS NOT MAINTAINED ITS BOOKS OF ACCOUNT I N ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTING WITHOUT BRINGING ANY MATER IAL ON RECORD TO SUBSTANTIATE HER CONTENTION. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO HAS ERRED IN LAW IN NOT TAKING COGNIZANCE OF THE PROVISIONS OF THE DOUBLE TA XATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SINGAPORE, BEING MORE B ENEFICIAL TO THE APPELLANT. 3. THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 19,20,15,015 TO THE ARM'S LENGTH PRICE OF TH E INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT. 3.1 THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN REDUCING THE COST OF ACQUISITION OF THE DRILLSHIP BY RS. 15,54,12,561 BE ING EXPENDITURE INCURRED BY THE APPELLANT ON REIMBURSEMENT OF COST OF DRILLSHIP EQUIPMENT AND SPARES TO ITA NO. 355/DEL/2012 3 DOLPHIN DRILLING LIMITED ON THE GROUND THAT THE APP ELLANT HAS FAILED TO SUBSTANTIATE THE SAME BY WAY OF DOCUMENTARY EVIDENC E. 3.2 THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 3,66,02,454 BEING REIMBURSEMENT OF INSURANCE PREMIUM OF THE DRILLSHIP MADE TO FRED OLSEN BROKERS AS ALLEGING THAT THE APP ELLANT COULD NOT SUBSTANTIATE THE OWNERSHIP OF THE DRILLSHIP WITHOUT TAKING COGNIZANCE OF THE DOCUMENTARY EVIDENCE SUBMITTED BY THE APPELLANT IN THIS REGARD. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN DECLARING NIL INCOME AND CLAIMED REFUND OF RS.11,08,42,768/-. THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESSEE HAD UNDERTAKEN TRANSACTION W ITH ITS ASSOCIATE ENTERPRISE (AE). THEREFORE, THE CASE WAS REFERRED TO THE TPO A ND AFTER RECEIVING THE REPORT FROM TPO, DRAFT ASSESSMENT ORDER WAS PASSED AND PRO VIDED TO THE ASSESSEE. THE ASSESSEE MADE OBJECTIONS BEFORE THE DRP WHO AFTER C ONSIDERING THE FINDINGS OF THE LOWER AUTHORITIES AND OBJECTIONS OF THE ASSESSEE, G AVE PARTIAL RELIEF TO THE ASSESSEE VIDE THEIR DIRECTIONS DATED 29.09.2011. THE AO ACCO RDINGLY PASSED FINAL ORDER ON 30.11.2011 AFTER MAKING FOLLOWING ADJUSTMENTS : (I). DEPRECIATION CLAIMED ON BELFORD DOLPHIN 160, 39,13,947/- (II). RECEIPTS ON ACCOUNT OF PERSONNEL (REIMBURSEMENT FROM M/S. DOLPHIN DRILLING LTD. ON ACCOUNT OF PROVISION OF CREW. 52,70,40,434/- (III). T.P. ADJUSTMENT AS PER TPO ORDER 3,66,02,4 54/- 3. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES ON THE AFORESAID ADDITIONS AND HAVE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. ITA NO. 355/DEL/2012 4 4. AS FAR AS THE FIRST ADDITION RELATING TO DEPRECI ATION ON BELFORD DOLPHIN IS CONCERNED, THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE DISCREPANCIES POINTED OUT BY THE AO FOR DISALLOWING THE DEPRECIATION WERE PROPERLY EXPLAINED AND THE LD. AUTHORITIES BELOW DID NOT CONSIDER THE EXPLANATION OF THE ASSESSEE IN RIGHT PERSPECTIVE. THE NEXT CONTENTION OF THE ASSESSEE HA S BEEN THAT THIS ISSUE IS SQUARED COVERED BY THE DECISIONS OF THIS TRIBUNAL I N ASSESSEES OWN CASES FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07, OUT OF WHICH THE DECISIONS FOR A.YRS. 2005-06 AND 2006-07 HAVE BEEN CONFIRMED BY T HE JURISDICTIONAL HIGH COURT. THE LD. DR, THOUGH SUPPORTED THE ORDER OF THE AO, B UT COULD NOT BE ABLE TO CONTROVERT THE FACT THAT THIS ISSUE IS COVERED BY A FORESAID DECISIONS IN FAVOUR OF THE ASSESSEE. WE, ACCORDINGLY, DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE, HAVING BEEN COVERED BY THE DECISIONS O F CO-ORDINATE BENCH AND JURISDICTIONAL HIGH COURT IN THE CASES OF THE ASSES SEE ITSELF. 5. IN RESPECT OF GROUND NO. 02, FACTS, WHICH EMANAT E FROM THE SUBMISSIONS OF THE ASSESSEE ARE THAT THE ASSESSEE ENTERED INTO AGR EEMENT ON 01.07.2004 FOR PROVIDING OF CREWING SERVICE WITH THE DOLPHIN DRILL ING PERSONNEL PTE. LTD. (DDPPL) IN WHICH THE ASSESSEE HAS BEEN DEFINED AS C LIENT WHICH IS PLACED AT PAPER BOOK PAGE NO. 110 TO 112 . PARA 4 OF THE SAID AGREEMENT REGARDING FEE READS AS UNDER : 4.1 THE CLIENT CELL REIMBURSE DDPPL ALL CREW SALARY /EXPENSES REASONABLY INCURRED BY DDPPL IN THE PROPER PROVISION OF THE SE RVICES IN ACCORDANCE WITH THE CLIENTS IDENTIFICATIONS AND REQUESTS AND DDP PL SHALL BE ENTITLED TO A 5.0% HANDLING FEE THEREON AS DDPPL SHALL PROVIDE THE CLIENT WITH EVIDENCE OF SUCH SALARIES/EXPENSES AS THE CLIENT MAY REASONA BLY REQUIRE. THE DEFINITION OF REIMBURSABLE CREW SALARIES AND EXP ENSES SHALL INCLUDE BUT NOT BE LIMITED TO ALL COSTS AND EXPENSES REASONABLY INCURRED TO PROVIDE COMPETENT DRILLING AND MARINE CREW FOR THE OPERATIO N OF THE VESSEL INCLUDING ITA NO. 355/DEL/2012 5 SALARY, OVERTIME, SICK PAY, EMPLOYERS LIABILITY INS URANCE, ACCIDENT AND INJURY INSURANCE, TRAINING, ETC. THE CREW TRAVEL COST IS TH E RESPONSIBILITY OF THE CLIENT, BUT WILL BE ARRANGED AND PAID BY DDPPL. THERE WILL B E NO MARK-UP ON THE CREW TRAVEL COST INVOICED TO THE CLIENT. THIS HANDLING FEE SHALL ALSO COVER DDPPLS RUNNING C OSTS, SUCH AS BUT NOT LIMITED TO, PERSONNEL, OFFICE AND ADMINISTRATION CO STS/EXPENSES. THE FEE WILL BE SUBJECT TO A YEARLY REVIEW BUT WILL REMAIN UNCHANGE D UNLESS OTHERWISE AGREED BY THE PARTIES. AS PER SUBMISSIONS OF THE ASSESSEE COMPANY, ON THE SAME DATE THE ASSESSEE HAS ALSO MADE AGREEMENT WITH DOLPHIN DRILLING LTD. - IN DIA PROJECT OFFICE ( DDL - IPO)(ASSOCIATE ENTERPRISE) FOR PROVIDING BELFORD DO LPHIN DRILLSHIP ON CHARTER HIRE BASIS TO DDL-IPO AT USD 1,00,000 PER DAY AND HIGH L EVEL SKILLED MARINE AND DRILLING CREW, AS PROVIDED TO IT BY DDPPL. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY RECEIVED A TOTAL SUM OF RS.52, 70,40,434/- FROM DDL ON ACCOUNT OF SALARY AND A SUM OF RS.1,44,91,591/- AS HANDLING CHARGES. THE ASSESSEE HAD NOT DISCLOSED THIS RECEIPT INTO HIS TRADING, PR OFIT AND LOSS ACCOUNT, BUT DISCLOSED IN THE NOTES TO THE ACCOUNTS. THE ASSESSE E HAD SET OFF THE SALARY PAID TO THE CREW MEMBERS FROM THE RECEIPTS FROM DDL. THE AS SESSEE FILED ITS RETURN OF INCOME AS PER SECTION 44BB(3) OF THE IT ACT. DDL HA S DEDUCTED TDS ON THE PAYMENTS MADE TO THE ASSESSEE WHICH WAS CLAIMED BY THE ASSESSEE AS TAX PAYMENT WITHOUT OFFERING INCOME BY WAY OF PROFIT AN D LOSS ACCOUNT. THE ASSESSING OFFICER, HOWEVER, IN THE IMPUGNED ORDER ADDED THE A FORESAID AMOUNT OF RS.52,70,40,434 BEING RECEIPT OF CREW SALARY TO THE APPELLANT OBSERVING THAT THE APPELLANT FAILED TO FURNISH SUFFICIENT SUPPORTING DOCUMENTS TO PROVE PAYMENT TO THE SECONDED EMPLOYEES THROUGH BANK ACCOUNTS AND TH E SAID AMOUNT WAS NOT SHOWN AS INCOME IN THE PROFIT AND LOSS ACCOUNT. TH E ASSESSING OFFICER FURTHER HELD THAT THERE IS NO PAYMENT TO ANY CREW MEMBER BY THE APPELLANT AS IT HAS NEVER ITA NO. 355/DEL/2012 6 EMPLOYED ANY CREW MEMBER WHO IS SECONDED TO DOLPHIN DRILLING LTD. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSE E SHALL BE TAKEN AS SERVICE PROVIDER AND THE FEE RECEIVED FOR SUCH SERVICES SHA LL BE CONSIDERED AS FEE FOR TECHNICAL SERVICES AS HELD BY HONBLE UTTARAKHAND H IGH COURT, AS THE PAYMENT IS RECEIVED FROM THE NON-RESIDENT. THEREFORE, THE PROV ISIONS OF SECTION 28 TO 41 WILL APPLY IN THIS CASE. 6. THE LEARNED TPO HAS ACCEPTED THAT THE TRANSACTIO N IN THIS REGARD IS AT ARMS LENGTH AND THEREFORE, HE DID NOT MAKE ANY ADJUSTMEN T. THE ASSESSING OFFICER WHILE PASSING THE ORDER DATED 31.12.2010 MADE ADDIT ION OF THE ABOVE AMOUNT, WHICH WAS OBJECTED BEFORE THE LD. DRP. THE LEARNED DRP AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE AND RELYING UPON SOME CA SE LAWS, UPHELD THE ACTION OF THE ASSESSING OFFICER. 7. THE LEARNED AR OF THE ASSESSEE APART FROM MAKING ORAL ARGUMENTS AND REFERRING TO PAPER BOOK, ALSO SUBMITTED A WRITTEN S YNOPSIS AND SUPPLEMENTARY SUBMISSIONS AS UNDER : THE APPELLANT VIDE STANDARD TIME CHARTERED AGREEMENT DATED 01.07.2004 | ENTERED BETWEEN THE APPELLANT AND DOLPHIN DRILLING LTD. ('ASSOCIATED ENTERPRISE) PROVIDED CREW TO THE LATTER. IN CONSID ERATION, THE APPELLANT OF RS.52,70,40,434 FROM THE ASSOCIATED ENTERPRISE REIM BURSEMENT OF CREW SALARY AND A SUM OF RS.1,44,91,591 AS HANDLING CHARGES TH E REIMBURSED AMOUNT. THE ASSESSING OFFICER, HOWEVER, IN THE IMPUGNED ORDE R ADDED THE AFORESAID AMOUNT OF RS.52,70,40,434 BEING RECEIPT OF CREW SAL ARY TO THE APPELLANT ALLEGEDLY HOLDING THAT THE APPELLANT FAILED TO FURN ISH SUFFICIENT SUPPORTING DOCUMENTS EVIDENCING PAYMENT OF TO THE SECONDED EMP LOYEES THROUGH BANK ACCOUNTS AND THE SAID AMOUNT WAS NOT SHOWN AS INCOM E IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER, FURTHER HELD THAT TH ERE IS NO PAYMENT TO ANY CREW MEMBER BY THE APPELLANT AS IT HAS NEVER EMPLOY ED ANY CREW MEMBER WHO IS SECONDED TO DOLPHIN DRILLING LTD. ITA NO. 355/DEL/2012 7 IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT D OLPHIN DRILLING PERSONNEL PTE.LTD. (DDPPL) ENTERED INTO A CREWING SERVICES AGREEMENT DATED 01.07.2004 WITH THE APPELLANT TO PROVIDE CREW TO TH E LATTER. THE APPELLANT IN TURN PROVIDED THESE CREW MEMBERS TO DOLPHIN DRILLIN G LTD. - IPO. ACCORDINGLY, IT IS SUBMITTED THAT THE APPELLANT MERELY ACTED AS A FACILITATOR BETWEEN DDPPL AND DDL-IPO FOR THE PROVISION OF CREW MEMBERS TO TH E LATTER. CREWING SERVICES AGREEMENT IS ENCLOSED AT PAGES 110-112 OF THE PAPER BOOK. THE APPELLANT VIDE SUBMISSION DATED 20.10.2010 FILED BEFORE THE TPO PLACED ON RECORD THE FOLLOWING DOCUMENTS TO SUPPORT THE TR ANSACTION : I. SAMPLE DEBIT NOTES RAISED BY THE DDPL ON DDL ON ACCOUNT OF RECHARGE OF SALARY COST OF THE CREW MEMBERS (AT PAGES 126-29 3 OF THE PAPER BOOK) II. SAMPLE SERVICE AGREEMENT ENTERED WITH THE SECO NDED EMPLOYEES AT PAGES 294-295 OF THE PAPER BOOK. IT IS RESPECTFULLY SUBMITTED THAT THE AFORESAID TRA NSACTION WAS ALSO REPORTED IN THE FORM 3CEB AND TRANSFER PRICING REPORT AND THE TP O AFTER ANALYZING THE TRANSACTION ACCEPTED THE SAME TO BE AT ARMS LENGTH AND DID NOT PROPOSE ANY ADJUSTMENT. SINCE THE TPO HAS AFTER ANALYZING THE TR ANSACTION ADJUSTMENT, THE AO CANNOT MAKE ANY ADJUSTMENT/ADDITION CONSIDER ATION RECEIVED BY THE APPELLANT. IN THIS REGARD, REFERENCE IS MADE TO SECTION 92CA O F THE AC THE AO IS BOUND TO COMPUTE THE TOTAL INCOME OF THE ASSESS THE ARMS LE NGTH PRICE DETERMINED BY THE TPO: '92CA. REFERENCE TO TRANSFER PRICING OFFICER. (1) TO (3). (4) ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME OF THE AS SECTI ON (4) OF SECTION 92C HAVING REGARD TO THE DETERMINED UNDER SUB-SECTION ( 3) BY THE TRANSFER PRICE DETERMINED UNDER SUB-SECTION (3) BY THE TRANSFER PRI CING OFFICER. THE AFORESAID PRINCIPLES HAS BEEN UPHELD BY THE DELH I ITAT IN THE CASE OF CUSHMAN & WAKEFIELD INDIA PRIVATE LIMITED VS. ACIT I TA NO. 5510/DEL/2011 ITA NO. 355/DEL/2012 8 (AFFIRMED BY THE DELHI HIGH COURT) AND THE MUMBAI ITAT IN CASE OF ACIT VS. AMERICAN EXPRESS SERVICES INDIA LTD. ITA NO. 4106/M UM/2007. THE ASSESSING OFFICER HAS ARBITRARILY ADDED THE SAID AMOUNT APPELLANT ON THE BASIS THAT THE SAID AMOUNT IS NOT SHOWN AS SIDE OF THE PROFIT AND LOSS ACCOUNT, NOT APPRECIATING THAT THE SAME WAS MERELY A REIMB URSEMENT AND THE SAID FACT WAS DULY VERIFIED BY THE TPO WITH REFERENCE TO THE EVIDENCE ON RECORD AND A FINDING TO THIS EFFECT IS NOTED IN THE ORDER. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT SINC E SUFFICIENT SUPPORTING EVIDENCES WERE PLACED ON RECORD BEFORE THE ASSESSI NG OFFICER/TPO EVIDENCING PAYMENT OF SALARY COST TO THE SECONDED EMPLOYEES, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS UNWARRANTED AND L IABLE TO BE DELETED. SUPPLEMENTARY SUBMISSIONS IN CONTINUATION TO THE SUBMISSIONS MADE BEFORE THE HONBLE BENCH IN THE COURSE OF THE HEARING AND AS DIRECTED BY THE HONBL E BENCH, WITH REGARD TO GROUND NOS. 2 TO 2.4, THE APPELLANT SEEKS TO SUBMIT AS UNDER: IT HAS BEEN SUBMITTED THAT THE APPELLANT ENTERED IN TO A STANDARD TIME CHARTERED AGREEMENT DATED 01.07.2004 WITH DOLPHIN D RILLING LTD (DDL) TO PROVIDE CREW TO THE LATTER. ACCORDINGLY, THE APPELL ANT ENTERED INTO A BACK TO BACK CREW SERVICES AGREEMENT DATED 01.07.2004, WITH DOLPHIN DRILLING PERSONNEL PTE. LTD. (DDPPL) TO IN TURN PROVIDE TH ESE CREW MEMBERS TO DDL INDIA PROJECT OFFICE ON COST TO COST BASIS. IN OTHE R WORDS, IT IS SUBMITTED, THE APPELLANT MERELY ACTED AS A FACILITATOR BETWEEN DDP PL AND DDL-IPO FOR THE PROVISION OF CREW MEMBERS TO THE LATTER. IN CONSIDE RATION, THE APPELLANT RECEIVED A TOTAL SUM OF RS.52,70,40,434 ON ACCOUNT OF REIMBURSEMENT OF CREW SALARY FROM DDL-IPO. COPY OF THE SAMPLE DEBIT NOTES RAISED BY DDPL ON DDL ON ACCOUNT OF RECHARGE OF SALARY COST OF THE CREW M EMBERS HAS BEEN FILED AT PAGES 126-293 OF THE PAPER BOOK. IT HAS BEEN SUBMITTED THAT THE SAID TRANSACTION OF COST TO COST REIMBURSEMENT AMOUNTING TO RS. 52,70,40,434 RECEIVED FROM DOLPHIN DRILLING LIMITED, A NON- RESIDENT PER-SE, DOES NOT RESULT IN ANY INCOME IN T HE HANDS OF THE APPELLANT. HENCE, IN ABSENCE OF ANY ELEMENT OF INCOME, SUCH RE IMBURSEMENT WAS NOT CHARGEABLE TO TAX IN INDIA. ITA NO. 355/DEL/2012 9 RELIANCE IS ALSO PLACED IN THIS REGARD ON THE FOLLO WING DECISIONS IN SUPPORT OF THE PROPOSITION THAT PURE REIMBURSEMENTS, WITHOUT A NY MARK-UP DO NOT CONTAIN ANY ELEMENT OF INCOME AND HENCE ARE NOT CHA RGEABLE TO TAX. CIT V. TEJAJI FARASRAM KHARAWALLA LTD.: 67 ITR 95 (S C) CIT V. INDUSTRIAL ENGINEERING PRODUCTS PVT. LTD.: 202 ITR 1014 9DEL.) CIT V. DUNLOP RUBBER CO. LTD.: 142 ITR 493 (CAL) CIT VS. DLF COMMERCIAL PROJECT CORPORATION: ITA 62 7/2012 AND 507/2013 (DEL.) CIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD .: [2014] 361 ITR 192 (GUJARAT) CIT V. SIEMENS AKTIONGESELLSCHAFT: [2009] 310 ITR 3 20 (BOMBAY) CIT V. MICROSOFT CORPORATION OF INDIA (P) LIMITED: 220 CTR 425 (DEL) CIT VS. FORTIS HEALTHCARE LTD: 181 TAXMAN 257 (DEL) C.I.T. VS. STEWARDS AND LLYODS, 165 ITR 416 (CAL) CIT VS. SUNDWIGER EMFG. & CO.: 262 ITR 116 (AP) MAHINDRA & MAHINDRA: 313 ITR (AT) 263 (SB)(MUM) COCA COLA INDIA INC. V. ACIT: (2006) 7 SOT 224 (DEL ) CLIFFORD CHANCE V. DCIT: 82 ITD 106 (MUM) HYDER CONSULTING LTD. V. CIT: 236 ITR 640 (AAR) DECTA V. CIT: 237 ITR 190 (AAR) CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD: 309 I TR 356 (AAR) SINCE IN THE PRESENT CASE, THE RECEIPTS OF THE APPE LLANT FROM DDL ARE PURE REIMBURSEMENTS OF COST INCURRED BY THE APPELLANT FO R SUPPLYING THE CREW TO DDL-IPO AND CANNOT BE TREATED AS INCOME OF THE RECI PIENT, LIABLE TO TAX IN INDIA. SECTION 44BB OF THE ACT IS A SPECIAL, SPECIFIC PROV ISION PROVIDING FOR DEEMED / PRESUMPTIVE BASIS OF TAXATION IN CASE OF NON-RESIDE NTS PROVIDING, INTER ALIA, SERVICES OR FACILITY IN CONNECTION WITH PROSPECTING FOR OR EXPLORATION OR PRODUCTION OF MINERAL OILS IN INDIA. SECTION 44BB O F THE ACT, AS APPLICABLE FOR ASSESSMENT YEAR 2007-08, IS REPRODUCED BELOW: 44BB (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAI NED IN SECTIONS 28 TO 41 AND SECTIONS 43 AND 43A, IN THE CASE OF AN ASSESSEE , BEING A NON-RESIDENT, ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OR FA CILITIES IN CONNECTION WITH, ITA NO. 355/DEL/2012 10 OR SUPPLYING PLANT AND MACHINERY ON HIRE USED, OR T O BE USED, IN THE PROSPECTING FOR, OR EXTRACTION OR PRODUCTION OF, MI NERAL OILS, A SUM EQUAL TO TEN PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIF IED IN SUB-SECTION (2) SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSIN ESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON: PROVIDED THAT THIS SUB-SECTION SHALL NOT APPLY IN A CASE WHERE THE PROVISIONS OF SECTION 42 OR SECTION 44D OR SECTION 115A OR SECTIO N 293A APPLY FOR THE PURPOSES OF COMPUTING PROFITS OR GAINS OR ANY OTHER INCOME REFERRED TO IN THOSE SECTIONS. .. FURTHER, SECTION 115A OF THE ACT INTER-ALIA PROVIDE S THAT FEES FOR TECHNICAL SERVICES RECEIVED BY A NON-RESIDENT PURSUANT TO AN AGREEMENT MADE BY SUCH NON-RESIDENT WITH THE GOVERNMENT OR AN INDIAN CONCE RN IS TAXABLE @ 10 PERCENT. IN THE PRESENT CASE, SINCE THE APPELLANT HAS ENTERED INTO A CONTRACT WITH DDL, WHICH IS A NON-RESIDENT FOR PROVIDING THE CREW MEMBERS FOR OPERATING THE RIG FOR WHICH DDL IS MAKING PAYMENT T O THE APPELLANT AND NO PAYMENT BY WAY OF FEES FOR TECHNICAL SERVICES IS BE ING RECEIVED BY A NON- RESIDENT, SECTION 115A OF THE ACT HAS NO APPLICATIO N. EVEN OTHERWISE, IT MAY BE POINTED OUT THAT THE REIM BURSEMENTS RECEIVED BY THE APPELLANT FROM DDL FOR UNDERTAKING A MINING PRO JECT DO NOT FALL WITHIN THE AMBIT OF FEE FOR TECHNICAL SERVICES (FTS) AS EX PLAINED HEREUNDER: FTS HAS BEEN DEFINED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT, AS UNDER: EXPLANATION 2:- FOR THE PURPOSES OF THIS CLAUSE, ' FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES' THE QUESTION WHETHER EXTRACTION OF MINERAL OIL AND A CTIVITIES IN CONNECTION THEREWITH WOULD BE COVERED WITHIN THE SWEEP OF THE EXCLUSIONARY CLAUSE ITA NO. 355/DEL/2012 11 MINING OR LIKE PROJECT, WAS CLARIFIED VIDE INSTRU CTION NO.1862 DATED 22.10.1990 (ENCLOSED AS ANNEXURE 1) ISSUED BY THE C BDT, WHEREIN IT WAS STATED THAT MINING PROJECT OR LIKE PROJECT WOULD IN CLUDE RENDERING OF SERVICES LIKE IMPARTING OF TRAINING FOR CARRYING OUT DRILLIN G OPERATION IN CONNECTION WITH EXTRACTION OF MINERAL OIL, IN THE FOLLOWING TE RMS: 'THE QUESTION WHETHER PROSPECTING FOR, OR EXTRACTION , OR PRODUCTION OF, MINERAL OIL CAN BE TERMED AS 'MINING' OPERATIONS WA S REFERRED TO THE ATTORNEY GENERAL OF INDIA FOR HIS OPINION. THE ATTORNEY GENER AL HAS OPINED THAT SUCH OPERATIONS ARE MINING OPERATIONS AND THE EXPRESSION S 'MINING PROJECT' OR 'LIKE PROJECT', OCCURRING IN EXPLANATION 2 SECTION 9(1)(V II) OF THE INCOME-TAX ACT WOULD COVER RENDERING OF SERVICES LIKE IMPARTING OF TRAINING AND CARRYING DRILLING OPERATIONS FOR EXPLORATION OR EXPLOITATION OF NATURAL GAS. IN VIEW OF THE ABOVE OPINION, THE CONSIDERATION FOR SERVICES WILL NOT BE TREATED AS FEES FOR TECHNICAL SERVICES FOR PURPOSES OF EXPL ANATION 2 TO SECTION 9(1)(VII) OF THE INCOME-TAX ACT, 1961. THE PAYMENTS FOR SUCH S ERVICES TO A FOREIGN COMPANY WILL, THEREFORE, BE INCOME CHARGEABLE TO TA X UNDER THE PROVISIONS OF SECTION 44BB OF THE INCOME-TAX ACT, 1961 AND NOT UN DER THE SPECIAL PROVISIONS FOR THE TAXATION OF FEES FOR TECHNICAL SERVICES CON TAINED IN SECTION 115A READ WITH SECTION 44D OF THE INCOME-TAX ACT, 1961.' (EMP HASIS SUPPLIED) THEREFORE, AS CLARIFIED BY THE CBDT, RENDERING OF SE RVICES LIKE IMPARTING OF TRAINING AND CARRYING DRILLING OPERATIONS FOR EXPLO RATION OR EXPLOITATION OF NATURAL GAS WOULD BE OUTSIDE THE PURVIEW OF FEES F OR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT. TAKING NOTE OF THE AFORESAID, THE SUPREME COURT IN T HE CASE OF OIL AND NATURAL GAS CORPORATION LIMITED VS. CIT: 376 ITR 306 (ENCLOSE D AS ANNEXURE 2) HELD AS UNDER: 13. THE INCOME TAX ACT DOES NOT DEFINE THE EXPRESSIO NS 'MINES' OR 'MINERALS'. THE SAID EXPRESSIONS ARE FOUND DEFINED A ND EXPLAINED IN THE MINES ACT, 1952 AND THE OIL FIELDS (DEVELOPMENT AND REGUL ATION) ACT 1948. WHILE CONSTRUING THE SOMEWHAT PARI MATERIA EXPRESSIONS AP PEARING IN THE MINES AND MINERALS (DEVELOPMENT AND REGULATION) ACT 1957 REGARD MUST BE HAD TO THE PROVISIONS OF ENTRIES 53 AND 54 OF LIST I AND E NTRY 22 OF LIST II OF THE 7TH SCHEDULE TO THE CONSTITUTION TO UNDERSTAND THE EXCL USION OF MINERAL OILS FROM ITA NO. 355/DEL/2012 12 THE DEFINITION OF MINERALS IN SECTION 3(A) OF THE 1 957 ACT. REGARD MUST ALSO BE HAD TO THE FACT THAT MINERAL OILS IS SEPARATELY DEF INED IN SECTION 3(B) OF THE 1957 ACT TO INCLUDE NATURAL GAS AND PETROLEUM IN RE SPECT OF WHICH PARLIAMENT HAS EXCLUSIVE JURISDICTION UNDER ENTRY 53 OF LIST I OF THE 7TH SCHEDULE AND HAD ENACTED AN EARLIER LEGISLATION I.E. OIL FIELDS (REG ULATION AND DEVELOPMENT) ACT, 1948. READING SECTION 2(J) AND 2(JJ) OF THE MINES A CT, 1952 WHICH DEFINE MINES AND MINERALS AND THE PROVISIONS OF THE OIL FIELDS ( REGULATION AND DEVELOPMENT) ACT, 1948 SPECIFICALLY RELATING TO PRO SPECTING AND EXPLORATION OF MINERAL OILS, EXHAUSTIVELY REFERRED TO EARLIER, IT IS ABUNDANTLY CLEAR THAT DRILLING OPERATIONS FOR THE PURPOSE OF PRODUCTION O F PETROLEUM WOULD CLEARLY AMOUNT TO A MINING ACTIVITY OR A MINING OPERATION. VIEWED THUS, IT IS THE PROXIMITY OF THE WORKS CONTEMPLATED UNDER AN AGREEM ENT, EXECUTED WITH A NON-RESIDENT ASSESSEE OR A FOREIGN COMPANY, WITH MI NING ACTIVITY OR MINING OPERATIONS THAT WOULD BE CRUCIAL FOR THE DETERMINAT ION OF THE QUESTION WHETHER THE PAYMENTS MADE UNDER SUCH AN AGREEMENT T O THE NON-RESIDENT ASSESSEE OR THE FOREIGN COMPANY IS TO BE ASSESSED U NDER SECTION 44BB OR SECTION 44D OF THE ACT. THE TEST OF PITH AND SUBSTAN CE OF THE AGREEMENT COMMENDS TO US AS REASONABLE FOR ACCEPTANCE. EQUALL Y IMPORTANT IS THE FACT THAT THE CBDT HAD ACCEPTED THE SAID TEST AND HAD IN FACT ISSUED A CIRCULAR AS FAR BACK AS 22.10.1990 TO THE EFFECT THAT MINING OP ERATIONS AND THE EXPRESSIONS 'MINING PROJECTS' OR 'LIKE PROJECTS' OC CURRING IN EXPLANATION 2 TO SECTION 9(1) OF THE ACT WOULD COVER RENDERING OF SE RVICE LIKE IMPARTING OF TRAINING AND CARRYING OUT DRILLING OPERATIONS FOR E XPLORATION OF AND EXTRACTION OF OIL AND NATURAL GAS AND HENCE PAYMENTS MADE UNDE R SUCH AGREEMENT TO A NON-RESIDENT/FOREIGN COMPANY WOULD BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF SECTION 44BB AND NOT SECTION 44D OF T HE ACT. WE DO NOT SEE HOW ANY OTHER VIEW CAN BE TAKEN IF THE WORKS OR SERVICE S MENTIONED UNDER A PARTICULAR AGREEMENT IS DIRECTLY ASSOCIATED OR INEX TRICABLY CONNECTED WITH PROSPECTING, EXTRACTION OR PRODUCTION OF MINERAL OI L. IN THE CASE OF CIT VS. FORAMER FRANCE: 247 ITR 436 ( ALL.) (ENCLOSED AS ANNEXURE 3), RELIED BY THE DRP, THE ASSESSEE, A FOR EIGN COMPANY INCORPORATED IN FRANCE, WAS ENGAGED IN THE BUSINESS OF OIL EXPLO RATION AND PROVIDING EXPERTISE AND ASSISTANCE IN THE SAID FIELD THROUGHO UT THE WORLD. DURING THE ASSESSMENT YEAR 1988-89, THE PETITIONER-COMPANY WAS OPERATING UNDER THREE CONTRACTS WITH THE ONGC, FOR DRILLING OPERATION BY EMPLOYING ITS OWN RIG AND ALSO FOR MANNING AND MANAGEMENT SERVICES FOR SUPERV ISION OF DRILLING ACTIVITIES CARRIED ON BY THE ONGC ON ITS OWN RIGS. THE ASSESSEE FILED ITS RETURN ITA NO. 355/DEL/2012 13 OF INCOME RELATING TO ITS OWN RIG AS ORDINARY BUSIN ESS INCOME BUT RETURNED THE INCOME BY WAY OF PROCEEDS FROM MANNING AND MANAGEME NT CONTRACTS AS FEES FOR TECHNICAL SERVICES SUPPORTED BY AN ORDER DATED 25-8-1987 ISSUED UNDER SECTION 195(2) DIRECTING THE ONGC TO APPLY A TAX RA TE OF 30 PER CENT ON THE INCOME FROM SAID CONTRACTS. HOWEVER, THE ASSESSING OFFICER, WHILE MAKING THE AS SESSMENT UNDER SECTION 143(3) ON 26/27-2-1991, TOOK THE VIEW THAT THE PROC EEDS FROM MANNING AND MANAGEMENT CONTRACTS WERE TAXABLE AS BUSINESS INCOM E IN TERMS OF SECTION 44BB OF THE ACT. THE AFORESAID ASSESSMENT ORDER WAS ACCEPTED BY THE PETITIONER IN ORDER TO BUY PEACE AND TO AVOID PROTR ACTED LITIGATION AND HAD, THUS, BECOME FINAL. THEREAFTER, THE DEPARTMENT ISSUED A NOTICE UNDER SEC TION 148 ON 20-11-1998 PROPOSING TO TREAT THE INCOME OF THE PETITIONER-COM PANY AS FEES FOR TECHNICAL SERVICES AND NOT BUSINESS INCOME. AGGRIEVED BY THE SAID NOTICE, THE PETITIONER CHALLENGED IT FILING WRIT PETITIONS. THE HONBLE ALLAHABAD HIGH COURT CONSIDERING THE AFO RESAID HELD THAT SINCE THERE WAS NO FAILURE ON THE PART OF PETITIONER TO M AKE RETURN OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT, PROVISO TO NEW SECTION, WHICH BARS ISSUE OF NOTICE UNDER SECTION 1 48 AFTER EXPIRY OF FOUR YEARS FROM END OF RELEVANT ASSESSMENT YEAR, SQUARELY APPL IED TO FACTS OF INSTANT CASE, AND, THEREFORE, IMPUGNED NOTICE WAS BARRED BY LIMIT ATION. THE AFORESAID DECISION OF THE ALLAHABAD HIGH COURT WAS ALSO AFFIR MED BY THE SUPREME COURT IN CIT VS. FORAMER FRANCE: 264 ITR 566 (SC) (ENCLOSED AS ANNEXURE 4). IN VIEW OF THE ABOVE, IT WOULD BE APPRECIATED THAT THE AFORESAID DECISION HAS NO APPLICATION TO THE FACTS OF THE CASE AND RELIANC E PLACED BY THE DRP ON THE AFORESAID DECISION IS WITHOUT ANY MERIT. IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY SUBMIT TED THAT THE ADDITION MADE BY THE AO/ DRP IS WITHOUT JUDICIOUS APPRECIATION OF TH E FACTS OF THE CASE AND POSITION IN LAW, AND THUS, CALLS FOR BEING DELETED. ITA NO. 355/DEL/2012 14 8. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE CONTENTIONS RAISED BY THE AS SESSEE ARE NOT ACCEPTABLE THAT THE AO CANNOT EXAMINE THE ARMS LENGTH ADJUSTMENT W HICH HAS BEEN ADJUDICATED BY THE TPO. THE CASE IS REFERRED TO THE TPO FOR DETERMINATION OF ARMS LENGTH. HOWEVER, THE OPINION OF THE TPO DOES NOT GO TO MITIGATE THE POWERS OF THE ASSESSING OFFICER TO EXAMINE THE ALLOWABILITY OR DISALLOWABILITY OF ANY EXPENDITURE/TRANSACTIONS REC ORDED IN THE BOOKS OF ACCOUNT. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD RECEIVED CONSIDERATION FOR SUPPLY OF CREW MEMBERS TO DDL-IPO , BUT IT IS NOT APPEALING TO REASON AS TO WHY THE ASSESSEE DID NOT SHOW SUCH REC EIPTS IN ITS PROFIT AND LOSS ACCOUNT. THE LD. DRP / AO HAVE EXAMINED THE ISSUE I N DETAIL AND NOTHING IS BROUGHT ON RECORD ON BEHALF OF THE ASSESSEE TO INTE RFERE WITH THEIR CONCLUSION. THEREFORE, THE ORDER OF THE AO/DRP DOES NOT CALL FO R ANY INTERFERENCE. 9. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIALS ON RECORD, WE FIND THAT THE LD. DRP HAS RIGHTLY DEALT WITH THE OB JECTION OF THE ASSESSEE REGARDING POWER OF AO FOR EXAMINING SUCH ISSUES WHICH HAVE BE EN ADJUDICATED BY THE TPO. THE RELEVANT PART OF THE DRP DIRECTIONS READ AS UND ER: IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION THIS PENAL IS OF THE VIEW THAT THE TREATMENT OF INCOME ON THIS ISSUE AS PROPOSED BY TH E AO IN THE DRAFT ORDER IS CORRECT. IT IS NOT POSSIBLE TO AGREE WITH THE ASSES SEES CONTENTION THAT THE ACCEPTANCE OF THE TRANSACTION BY THE TPO MEANS THAT NO FURTHER EXAMINATION CAN BE DONE BY THE AO OR THAT THE AO CANNOT LOOK IN TO THE ADMISSIBILITY OF THE EXPENSE. WHAT THE TPO HAS DONE IS TO DETERMINE THE ARMS LENGTH PRICE I.E. IN A THIRD PARTY SITUATION THE PRICE PAID WOULD BE A FIR PRICE AND THAT NO DISTORTION HAS BEEN MADE DUE TO THE FACT THAT THE PAYER AND TH E PAYEE ARE ASSOCIATE ENTERPRISES. THE FINDING OF THE TPO STOPS THERE. THE TP O IS NOT REQUIRED TO GIVE A FINDING ABOUT THE ADMISSIBILITY OF AN EXPENDITURE . IN VIEW OF THE FACTS AND THE POSITION OF LAW STATED ABOVE THE ASSESSEES ARGUMEN T THAT THE AMOUNT IN ITA NO. 355/DEL/2012 15 QUESTION IS NOT TAXABLE CANNOT BE ACCEPTED AT ITS F ACE VALUE JUST BECAUSE THE TPO HAS HELD THAT THE PAYMENT WAS ON ARMS LENGTH BA SIS. IN VIEW OF THIS THE OBJECTION MADE BY THE ASSESSEE DESERVES TO BE REJEC TED. WHILE GOING THROUGH THE TRANSFER PRICING STUDY REPO RT IT WAS NOTICED THAT THE ASSESSEE COMPANY HAS PROVIDED HIGHLY SKILLED AND TE CHNICAL CREW TO DDL-IPO. THE RELEVANT PORTION OF THE TP STUDY REPORT AT PAGE 487 READS AS UNDER:- IN ADDITION TO PROVISION OF DRILLSHIP ON CHARTER H IRE BASIS , DURING THE FINANCIAL YEAR ENDED 31 MARCH, 2007, DDPL HAS ALSO PROVIDED HIGH LEVEL SKILLED MARINE AND DRILLING CREW TO DDL IPO IN CONNECTION WITH THE ONGC CONTRACT. THE CREW PROVIDED BY DDPL IS ON THE PAYROLL OF DDL IPO AND THE CREW WORKS UNDER THE CONTROL AND SUPERVISION OF THE MANAGEMENT OF THE DDL IPO. THE CREW PROVIDED BY DDPL COMPRISED OF HIGH-LEVEL SK ILLED PERSONNEL SUCH AS CAPTAIN, CHIEF ENGINEER, ENGINEERS INCLUDING A SPEC IALISTS IN SUB SEA ENGINEERING, CHIEF MECHANIC ETC. 10. FROM THE ABOVE T.P. STUDY REPORT, IT IS CLEAR T HAT THE ASSESSEE HAS PROVIDED HIGHLY SKILLED TECHNICAL PERSONNEL FOR UTILIZING TH EIR SERVICES BY DDL-IPO. SUCH SERVICES, IN OUR OPINION, CANNOT BE RENDERED BY A C OMMON OR UNSKILLED PERSON, HAVING TECHNICAL KNOWLEDGE OF THE FIELD. THE ASSESS EE IS NOT DIRECTLY OR INDIRECTLY ENGAGED IN THE MINING ACTIVITIES. HE HAS SUPPLIED M ANPOWER. THE AO/DRP HAS RIGHTLY DECIDED THIS ISSUE. BEFORE US, THE ASSESSEE HAS NOT SUBMITTED LEDGER ACCOUNTS MAINTAINED BY HIM FOR REIMBURSEMENTS SO AS TO EXAMINE WHETHER THE IMPUGNED EXPENDITURE WERE IN THE NATURE OF REIMBURS EMENT. THE PAYER HAS DEDUCTED TDS ON THE PAYMENTS TO THE ASSESSEE, MEANI NG THEREBY, THE PAYMENT SO MADE WAS THE INCOME OF THE ASSESSEE AND WAS IN THE NATURE OF MANPOWER CHARGES SUPPLIED BY THE ASSESSEE. THERE IS A PLETHORA OF DE CISIONS OF VARIOUS COURTS THAT THE TDS IS DEDUCTED ONLY ON SUCH PAYMENTS WHERE THE ELEMENT OF INCOME IS THERE. ITA NO. 355/DEL/2012 16 IT IS INTERESTING TO NOTE THAT THE ASSESSEE AT ONE HAND HAS CLAIMED TDS CREDIT, BUT ON THE OTHER HE HAS NOT OFFERED THE IMPUGNED PAYMEN T AS INCOME/EXPENDITURE. HAD THE IMPUGNED PAYMENT BEEN IN THE NATURE OF REIM BURSEMENT, THE AE OF THE ASSESSEE (DDL-IPO) WOULD NOT HAVE DEDUCTED TAX AT S OURCE ON SUCH PAYMENT. THE ASSESSEE HAS FILED RETURN OF INCOME AS PER SECTION 44BB(3). THEREFORE, HE HAS TO DISCLOSE THE RECEIPTS FROM DDL-IPO AGAINST SUPPLY O F HIGHLY SKILLED PERSONNEL AND HE COULD CLAIM SALARY EXPENSES, WHICH IS NOT DONE B Y HIM. IN ORDER TO CORRECTLY EXAMINE THE CONTENTION OF THE ASSESSEE REGARDING TH E PAYMENT RECEIVED IN THE NATURE OF REIMBURSEMENT, IN OUR OPINION, THIS MATTE R SHOULD GO BACK TO THE FILE OF THE AO FIRSTLY TO EXAMINE FROM THE LEDGER ACCOUNT O F ASSESSEE WHETHER THE PAYMENT RECEIVED BY ASSESSEE FROM DDL-IPO IS IN CON SONANCE WITH THE TERMS OF AGREEMENT ENTERED BETWEEN THE ASSESSEE AND DDPPL. I T IS NOT IN DISPUTE THAT THE IMPUGNED PAYMENT IS MADE AGAINST SUPPLY OF CREW AND IT IS NOT FEASIBLE FOR ANYONE TO SUPPLY SUCH A HIGH SKILLED CREW WITHOUT M AKING ANY EXPENDITURE. THEREFORE, THE ENTIRE RECEIPT CANNOT BE ADDED IN TH E HANDS OF ASSESSEE TREATING THE SAME AS TAXABLE INCOME OF THE ASSESSEE, AS DONE BY THE AO. THE AO IS DIRECTED TO EXAMINE THE CASE FROM THIS ANGLE ALSO. THE ASSESSEE IS DIRECTED TO FURNISH COGENT EVIDENCES IN SUPPORT OF HIS CLAIM, AS PER HIS WRITT EN SUBMISSIONS FILED BEFORE US. THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LA W BY WAY OF SPEAKING ORDER AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND V ARIOUS CASE LAWS, AND AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THIS GROUND DESERVES TO BE ALLOWED FOR STATISTICAL PURPO SES. 11. IN RESPECT OF GROUND NO. 3, THE BRIEF FACTS OF THE CASE ARE THAT THE DDL PURCHASED DRILLSHIP EQUIPMENTS AND SPARE PARTS ON B EHALF OF THE APPELLANT. SUBSEQUENTLY, IT WAS REIMBURSED TO THE DDL. THE LD. TPO, HOWEVER, DETERMINED ITA NO. 355/DEL/2012 17 THE ALP OF THE AFORESAID TRANSACTION AT NIL AND MAD E TRANSFER PRICING ADJUSTMENT OF RS.26,93,52,336/- BY HOLDING THAT THE APPELLANT FAILED TO FURNISH SUFFICIENT DOCUMENTARY EVIDENCES IN SUPPORT OF THE REIMBURSEME NT OF COST OF DRILLSHIP EQUIPMENT TO DDL. BEFORE THE DRP, THE LIST OF ITEMS /DRILLING EQUIPMENT PURCHASED BY DDL WAS SUBMITTED AND REMAND REPORT WAS CALLED F ROM THE TPO, BUT TPO DID NOT SUBMIT ANY REMAND REPORT. ACCORDINGLY, THE DRP DIRECTED THE AO/TPO FOR VERIFICATION OF DOCUMENTARY EVIDENCE SUBMITTED BY T HE APPELLANT. IT WAS FURTHER HELD THAT AS THE DOCUMENTARY EVIDENCES WITH REGARD TO PURCHASE AND RECEIPT OF SUCH EQUIPMENTS AND THIRD PARTY COST ARE AVAILABLE, THEREFORE, TRANSFER PRICING ADJUSTMENT SHALL BE DELETED/REDUCED TO THE EXTENT O F AVAILABILITY OF SUPPORTING DOCUMENTS. IN VIEW OF THESE DIRECTIONS, THE AO REDU CED THE TRANSFER PRICING ADJUSTMENT TO RS.15,54,12,561/- FROM RS.26,93,52,33 6/-. 12. THE LD. AR ASSAILING THE ASSESSMENT ORDER HAS S TATED BY WAY OF WRITTEN SYNOPSIS AS UNDER : IT IS RESPECTFULLY SUBMITTED, IN THIS REGARD, THE F ACT THAT THE APPELLANT PURCHASED DRILLSHIP EQUIPMENTS AND IS THE OWNER OF THE VESSEL ALONGWITH SPARES/EQUIPMENTS CAN BE DEMONSTRATED FROM THE SAL E P DATED 09.10.2003 ENTERED BETWEEN FRED OLSEN ENERGY, ASA AND THE APPE LLANT, ENCLOSED AT PAGES 455-462 OF THE PAPERBOOK. A COPY OF THE SAID AGREEM ENT WAS ALSO PLACED ON RECORD BEFORE THE TPO VIDE SUBMISSION DATED 6.10.201 0. IT WOULD BE APPRECIATED THAT THE APPELLANT VIDE SUB MISSION DATED 20.10.2010 FURNISHED COPIES OF INVOICES RAISED BY DDL ON THE A PPELLANT FOR RECHARGE OF COST OF DRILLSHIP EQUIPMENTS BEFORE THE TPO, ENCLOS ED AT PAGES 332-398 OF THE PAPERBOOK. IT IS FURTHER SUBMITTED THAT SIMILAR PAYMENTS MADE BY THE APPELLANT IN ASSESSMENT YEARS 2005-06 AND 2006-07 WAS ACCEPTED B Y THE TPO TO BE AT ARMS LENGTH PRICE REFER PAGE 66 TO 68 OF PAPERBO OK CASE LAWS ITA NO. 355/DEL/2012 18 IN THIS REGARD, IT IS SUBMITTED THAT ALTHOUGH THERE IS NO RES JUDICATA IN INCOME- TAX PROCEEDINGS, THE SUPREME COURT IN THE C ASE OF RADHASOAMI SATSANG VS. CIT: 193 ITR 321 HELD THAT WHERE A FUNDA MENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS I S ACCEPTED ONE WAY OR THE OTHER, A DIFFERENT VIEW IN THE MATTER IS NOT WARRA NTED, UNLESS THERE BE ANY MATERIAL CHANGE IN FACTS. THE RELEVANT OBSERVATION S AT PAGE 329 OF THE JUDGMENT ARE REPRODUCED AS UNDER :- WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT Y EAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFEREN T ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE OR DER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. THE SUPREME COURT IN THE RECENT DECISION IN THE CASE OF EXCEL INDUSTRIES LIMITED 358 ITR 295 FOLLOWING ITS EARLIER DECISION S UPRA REITERATED THE LAW IN THIS REGARD. RELIANCE IN THIS REGARD IS ALSO PLACED ON THE FOLLO WING DECISIONS WHEREIN THE AFORESAID POSITION HAS CONSISTENTLY BEEN UPHELD BY THE HIGH COURTS, INCLUDING THIS HONBLE COURT.: CIT VS NEO POLYPACK (P) LTD: 245 ITR 492 9DEL) DIT (E) V. APPAREL EXPORT PROMOTION COUNCIL: 244 I TR 734 (DEL) CIT V. GIRISH MOHAN GANERIWALA: 260 ITR 417 (P&H) CIT V. DALMIAL PROMOTERS DEVELOPERS (P) LTD: 200 C TR 426 (DEL) CIT VS. A.K.J. SECURITY PRINTERS: 264 ITR 276(DEL) M/S ESCORTS CARDIAC DISEASES HOSPITAL : 300 ITR 75 (DEL) GIESECKE & DEVRIENT INDIA PRIVATE LIMITED. VS DCI T (ITA NO. 5400/DEL/2010) LLOYDS TSB GLOBAL SERVICES PRIVATE LIMITED (ITA NO . 5928/MUM/2012) ARJ SECURITY PRINTERS (264 ITR 276) ITA NO. 355/DEL/2012 19 DEUTSCHE ASSET MANAGEMENT (INDIA) PRIVATE (ITA NO . 7717/MUM/2010) HOSLEY INDIA PRIVATE LIMITED (ITA NO. 5904/DEL/20 10) NOKIA INDIA PVT. LTD. [ITA NO.551/DEL/2011] LENOVO (INDIA) PVT. LTD. VS. ACIT [ITA NO.1457/BAN G/2010) NDS SERVICES PAY-TV TECHNOLOGY PRIVATE LIMITED, ITA NO. 1089/BANG/2011 RELIANCE, IN THIS REGARD, IS PLACED ON THE RECENT D ECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WELLS FARGO REAL ESTATE ADVISORS PRIVATE LIMITED VS. ACIT (ITA NO. 4426/MUM/2014), WHEREIN, THE TRIBUN AL UNDER SIMILAR CIRCUMSTANCES REMANDED THE MATTER TO THE FILE OF TH E ASSESSING OFFICER DIRECTING THE ASSOCIATED ENTERPRISE ON BEHALF OF TH E ASSESSEE IS SUBSEQUENTLY REIMBURSED ON ACTUAL BASIS AND AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, SIMILAR REIMBURSEMENT MADE IN THE EARLIER AS WELL AS SUBSEQUENT YEARS HAS BEEN ACCEPTED BY THE A.O. HE HAS ALSO PLA CED ON RECORD COPIES OF SOME SAMPLE INVOICES AT PAGE NO. 304 TO 306 OF THE ASSESSEES PAPER BOOK TO SHOW THAT ONLY THE ACTUAL PAYMENT MADE BY IT TO THI RD PARTIES FOR REPAIR WORK DONE FOR THE ASSESSEE WAS CLAIMED BY THE ASSOCIAT ED ENTERPRISE ON COST TO COST BASIS WITHOUT CHARGING ANY PROFIT. AS A MATTER OF FACT, SOME OF SUCH INVOICES PERTAINING TO THE YEAR UNDER CONSIDERATION WERE PRODUCED BY THE ASSESSEE BEFORE THE DRP SHOWING THE REIMBURSEMENT O F ACTUAL REPAIR EXPENSES TO THE ASSOCIATED ENTERPRISE TO THE EXTENT OF RS. 6 ,42,640/- AND ACCEPTING THE SAME, THE DRP DIRECTED THE A. 0. TO GIVE RELIEF TO THE ASSESSES TO THAT EXTENT. THE ASSESSEE, HOWEVER, HAS NOT BEEN ABLE TO PRODUCE THE DOCUMENTARY EVIDENCE IN RESPECT OF OTHER TRANSACTIONS INVOLVING THE REIMBURSEMENT OF ACTUAL REPAIR EXPENSES TO ITS ASSOCIATED ENTERPRISE FOR THE REASON THAT THE FILE CONTAINING THE SAID DOCUMENTARY EVIDENCE HAS BEEN L OST AND EVEN THE CONCERNED ASSOCIATED ENTERPRISE HAS GONE INTO LIQUI DATION. ALTHOUGH THIS STAND OF THE ASSESSEE IS DULY SUPPORTED BY EVIDENCE IN THE FORM OF FIR ETC., WE FELT THAT THE RELEVANT DOCUMENTARY EVIDENCE WHICH I S VERY CRUCIAL TO SUPPORT THE CASE OF THE ASSESSEE ON THIS ISSUE CAN STILL B E PROCURED BY IT FROM THE RECORDS OF ITS ASSOCIATED THOUGH IT IS UNDER LIQUID ATION. EVEN OTHERWISE, THE SAID DOCUMENTARY EVIDENCE CAN ALSO BE OBTAINED BY THE ASSESSEE FROM THE THIRD PARTIES WHO ACTUALLY DONE THE REPAIR WORK. WH EN THIS FEELING WAS CONVEYED TO THE ID. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARINGHE AGREED ITA NO. 355/DEL/2012 20 THAT EFFORTS CAN BE MADE TO OBTAIN THE EVIDENCE FR OM EITHER OF THESE SOURCES. HE, HOWEVER, HAS SUBMITTED THAT EVEN IF THE EFFORTS ASSESSEE DO NOT BRING THE DESIRE RESULTS FOR ANY REASON, THE ARMS LENGTH PRI CE OF THE REPAIR WORK DONE CANNOT BE TAKEN AS NIL AND THE SAME HAS TO BE DETE RMINED ON THE BASIS OF THE RELEVANT PAST, AND FUTURE DATA. WE FIND MERIT IN TH IS CONTENTION OF THE ID. COUNSEL FOR THE ASSESSEE . THE SAME, HOWEVER, IS ONL Y AN ALTERNATIVE CONTENTION AND WHAT IS RELEVANT TO BE SEEN FIRST IS THE DIRECT EVIDENCE TO PROVE THAT THE AMOUNT IN QUESTION WAS REIMBURSED BY THE ASSESSEE T O THE ASSOCIATED ENTERPRISE ON COST TO COST BASIS AND THE INVOICES R AISED BY THE THIRD PARTY FOR REPAIR WORK IS A VITAL EVIDENCE IN THIS REGARD WHI CH CAN CLEARLY ESTABLISH THE ARMS LENGH PRICE OF THE REPAIR WORK DONE. WE, THE REFORE, RESTORE THIS ISSUE TO FILE OF THE A.O. FOR DECIDING THE SAME AFRESH IN TH E LIGHT OF EVIDENCE TO BE PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM ON THIS ISSUE AS DISCUSSED ABOVE. IF THE ASSESSEE FAILS TO PRODUCE SUCH EVIDEN CE , THE A. 0. IS DIRECTED TO CONSIDER THE ALTERNATE CONTENTION OF THE ASSESSEE O N THIS ISSUE IN ACCORDANCE WITH LAW. GROUND NO. 3 OF ASSESSEES APPEAL IS ACCO RDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF ( CASTROL INDIA LTD. VS ACIT (ITA NO. 3938/MUM/2010) 7. IN SO FAR AS THE ALLOCATION/REIMBURSEMENT OF CC EXTENT OF RS.1,68,80,675/- IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THERE IS NO DISPUTE ABOUT THE FACT THAT SIGNI FICANT COSTS WERE INCURRED RELATED TO COE3 PROJECT DEPLOYED BY THE BP GROUP WO RLDWIDE AND THE ASSESSEE COMPANY AS A PART OF THE SAID GROUP HAD DERIVED BEN EFIT THEREOF. AS SUBMITTED BY HIM, THE DISPUTE IS ABOUT THE BASIS OF ALLOCATI ON AND WANT OF DETAILS IN THIS REGARD. HE HAS SUBMITTED THAT THE COPIES OF INVOICE S RAISED IN THIS REGARD BY THE AES WERE FURNISHED BY THE ASSESSEE ALONG WITH RESPECTIVE ALLOCATION KEYS. KEEPING IN VIEW THIS SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS ON PERUSAL OF THE RELEVANT DETAILS AVAIL ABLE ON RECORD, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSE SSEE THAT THERE IS NO JUSTIFICATION IN THE ACTION OF THE TPO IN IGNORING ALL THESE DETAILS AND TAKING THE ALP OF THE RELEVANT TRANSACTIONS AT NIL. IN OUR OPINION, IT IS INCUMBENT UPON THE TPO TO WORK OUT THE ALP OF THE RELEVANT TRA NSACTIONS BY FOLLOWING SOME AUTHORIZED METHOD AND THE ENTIRE COST BORNE BY THE ASSESSEE CANNOT BE DISALLOWED BY TAKING THE ALP AT NIL KEEPING IN VIE W THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD HAS SUBMITTED THAT IN THE ITA NO. 355/DEL/2012 21 SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2005-06 AND 2006-07, A SIMILAR ISSUE WAS INVOLVED IN THE ASSESSEES CASE AND THE LEARNED CIT(A) HAS ALLOWED THE EXPENSES ALLOCATED TO THE EXTENT OF 50%. WE HAVE PE RUSED THE ORDERS OF THE LEARNED CIT(APPEALS) PASSED IN THE ASSESEES CASE F OR ASSESSMENT YEARS 2005- 06 AND 2006-07. IT IS NOTED THAT NO CONVINCING OR S OUND BASIS HAS BEEN GIVEN BY THE LEARNED CIT(APPEAL) THEREIN IN SUPPORT OF TH E 50% COST ALLOCATION ACCEPTED BY HIM AND SUCH ESTIMATE HAS BEEN MADE PU RELY ON ADHOC BASIS. IN OUR OPINION, THE EXERCISE OF ASCERTAINING ALPS HAS TO BE DONE BY THE TPO KEEPING IN VIEW THE WELL LAID DOWN SCHEME IN THE RE LEVANT PROVISIONS OF THE ACT AND ADDITION, IF ANY, ON ACCOUNT OF TP ADJUSTMENT, HAS TO BE MADE ONLY AFTER DOING SUCH EXERCISE. WE, THEREFORE, RESTORE THIS IS SUE TO THE FILE OF THE AO/TPO WITH A DIRECTION TO DO SUCH EXERCISE AND MAKE ADDIT ION. IF ANY, ON THIS ISSUE AFTER COMPLETING SUCH EXERCISE IN ACCORDANCE WITH LAW. GROUND NO.2 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT SINC E SUFFICIENT SUPPORTING EVIDENCES WERE PLACED ON RECORD BEFORE THE LOWER A UTHORITIES, THEREFORE THE TRANSFER PRICING ADJUSTMENT OF RS. 15,54,12,561 MAD E BY THE TPO IS UNWARRANTED AND LIABLE TO BE DELETED. 13. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE COULD NOT FURNISH R EQUISITE EVIDENCE BEFORE THE LOWER AUTHORITIES. PRINCIPLE OF RES JUDI CATA IS NO T APPLICABLE IN THE INCOME-TAX PROCEEDINGS. EVERY ASSESSMENT YEAR IS SEPARATE UNIT . THE CASE LAWS RELIED BY THE ASSESSEE ARE NOT APPLICABLE IN THE PRESENT FACTS OF THE CASE. THEREFORE, THE ADDITION UPHELD BY THE AO DOES NOT CALL FOR ANY INTERFERENCE . 14. AFTER HEARING BOTH THE SIDES AND PERUSING THE E NTIRE MATERIAL AVAILABLE ON RECORD, WE OBSERVE THAT IN THE WRITTEN SYNOPSIS THE LD. AR HAS RELIED ON THE DECISION OF ITAT MUMBAI IN WELLS FARGO REAL ESTATE ADVISORS PRIVATE LIMITED (SUPRA), WHEREIN, IN THE IDENTICAL FACTS OF THE CAS E, THE CO-ORDINATE BENCH HAS RESTORED THE ISSUE BACK TO THE AO FOR EXAMINATION O F EVIDENCES FURNISHED BY ASSESSEE AND DECISION AFRESH. RESPECTFULLY FOLLOWIN G THIS DECISION OF CO-ORDINATE ITA NO. 355/DEL/2012 22 BENCH, WE ALSO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER CONSIDERING ALL THE EVIDENCES FILED BY ASSESSEE WITH RESPECT TO PURCHASE OF DRILLSHIP EQUIPMENTS AND SPARE PART. NE EDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEAR D. ACCORDINGLY, THIS GROUND IS ALSO ALLOWED TO STATISTICAL PURPOSES. 15. FURTHER IN RESPECT OF GROUND NO. 3.2 THE BRIEF FACTS OF THE CASE ARE THAT DURING THE FINANCIAL YEAR 2006-07, FRED OLSEN BROKE RS AS PAID INSURANCE PREMIUM AMOUNTING TO RS. 3,66,02,454 TO THIRD PARTY INSURER ON BEHALF OF THE APPELLANT. THEREAFTER, THE INSURANCE PREMIUM WAS RE IMBURSED BY THE APPELLANT TO THE ASSOCIATED ENTERPRISE. THE TPO, HOWEVER, DETERM INED THE ARMS LENGTH PRICE OF THE AFORESAID INTERNATIONAL TRANSACTION AT NIL HOL DING THAT THE APPELLANT COULD NOT ESTABLISH THE OWNERSHIP OF DRILLSHIP FOR WHICH THE INSURANCE PAYMENT WAS MADE. THE CONTENTION OF THE TPO WAS UPHELD BY THE DRP VID E DIRECTION DATED 29.09.2011 HOLDING THAT SINCE THE APPELLANT WAS NO T THE OWNER OF THE BELFORD DOLPHIN, THEREFORE, THE APPELLANT WAS NOT LIABLE T O REIMBURSE THE INSURANCE PREMIUM TO FRED OLSEN BROKERS AS. 16. THE LD. AR ASSAILING THE ASSESSMENT ORDER HAS S TATED BY WAY OF WRITTEN SYNOPSIS AS UNDER : IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT T HE APPELLANT PLACED ON RECORD SUFFICIENT DOCUMENTARY EVIDENCES BEFORE THE LOWER A UTHORITIES BEFORE THE LOWER AUTHORITIES DEMONSTRATING THE FACT THAT THE O WNERSHIP OF BELFORD DOLPHIN LIES WITH THE APPELLANT. YOUR HONOURS ATTENTION IS INVITED TO THE CHRONOLOG Y OF EVENTS IN TERMS OF WHICH THE RIG BELFORD DOLPHIN WAS ACQUIRED BY THE APPELLANT IS ENLISTED BELOW. ITA NO. 355/DEL/2012 23 FRED OLSEN ENERGY ASA ENTERED INTO AN AGREEMENT WIT H R & B FALCON INC. FOR THE PURCHASE OF THEIR 38.6 PERCENT SHAREHOLDING IN NAVIS ASA. THROUGH THIS TRANSACTION AND A NUMBER OF OTHER PURCHASES ON THE OPEN MARKET AS WELL AS A FORCED BUY-OUT OF THE MINORITY SHAREHOLDERS, THE CO MPANY ACQUIRED ALL REMAINING SHARES IN NAVIS ASA FOR A TOTAL CONSIDERA TION OF NOK 1.6 BILL. NAVIS AS WAS THE PARENT COMPANY OF NAVIS EXPLORER AS, WHI CH OWNED THE DRILLSHIP BELFORD DOLPHIN (FORMERLY KNOWN AS NAVIS EXPLORER- 1) NOVEMBER 2001 ON NOVEMBER 30, 2001, NAVIS EXPLORER AS SOLD THE VE SSEL NAVIS EXPLORER I (NOW KNOWN AS 'BELFORD DOLPHIN) TO FRED OLSEN DRIL LING AS, A NORWEGIAN COMPANY . THE SALE AGREEMENT IS ENCLOSED PAGES 571-5 85 OF THE PAPERBOOK-II OCTOBER 2002 FRED OLSEN ENERGY ASA WAS PRESENTED WITH A PROPOSAL FOR THE PURCHASE OF VESSEL BELFORD DOLPHIN FROM FRED OLSEN DRILLING A S. VIDE RESOLUTION DATED OCTOBER 8, 2002, FRED OLSEN ENERGY ASA RESOLVED THA T - (A) THE PROPOSAL FOR THE SALE OF VESSEL FROM FRE ( FOD) TO THE COMPANY AND THE FURTHER TRANSFER OF THE VESSEL FROM THE COMPANY TO DOLPHIN DRILLING PTE. LIMITED (DD) AS CONTRIBUTION IN KIND, THE PROPOSED AMENDMENT TO THE LOAN AGREEMENT AND THE PERTAINING DOCUMENTATION AND THE CHARGE OVER THE SHARES IN DD BE AND IS HEREBY APPROVED.' A COPY OF THE AFORESAID BOARD RESOLUTION IS ENCLOSE D AT PAGES 586-587 OF THE PAPERBOOK-II. APRIL 2003 IN OCTOBER 2003, THE RIG WAS TRANSFERRED BY FRED OL SEN DRILLING ENERGY AS TO FRED OLSEN ENERGY ASA. FURTHERMORE, ON OCTOBER 9, 2 003, DOLPHIN DRILLING PTE. LIMITED AUTHORIZED THE ISSUE OF 464,636,035 ORDINAR Y SHARES OF THE NOMINAL VALUE OF SGD 1.00 EACH TO FRED OLSEN ENERGY ASA AG AINST PURCHASE OF THE DRILLSHIP 'BELFORD DOLPHIN. THE VALUE OF THE SHARE S TRANSLATED TO USD 270 ITA NO. 355/DEL/2012 24 MILION. COPY OF THE BOARD RESOLUTION IS ENCLOSED A T PAGES 588-593 OF THE PAPERBOOK-II. ON OCTOBER 10, 2003, FRED OLSEN ENERGY ASA SOLD THE DRILLSHIP BELFORD DOLPHIN, TO DOLPHIN DRILLING PTE LIMITED. IN ORDER TO CORROBORATE THE AFORESAID SALE, A COPY OF THE BILL OF SALE ISSUED IN TERMS OF THE MERCHANT SHIPPING ACT OF SINGAPORE IS ENCLOSED AT PAGES 597-600 OF THE PAPER BOOK-II. IT IS ALSO PERTINENT TO NOTE THAT THE BILL OF SALE IS CERTIFIE D BY THE INDIAN HIGH COMMISSION ABROAD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT VIDE SUBMISSION DATED 06.10.2010 FURNISHED SAMPLE COPY OF DEBIT NOT ES RAISED BY FRED OLSEN BROKERS ON THE APPELLANT, ENCLOSED AT PAGES 326-331 OF THE PAPERBOOK-II. IT IS FURTHER SUBMITTED THAT SIMILAR PAYMENTS MADE BY THE APPELLANT IN ASSESSMENT YEARS 2005-06 AND 2006-07 WAS ACCEPTED BY THE TPO TO BE AT ARMS LENGTH PRICE - REFER PAGE 66 TO 68 OF PAPERBOOK-CASE LAWS. IT IS ALSO PERTINENT TO NOTE THAT THE APPELLANT WAS ACCEPTED AS THE OWNER OF BELFORD DOLPHIN BY THE HONBLE TRIBUNAL IN ASSESSRME NT YEARS 2004-05, 2005- 06 AND 2006-07. APPEAL PREFERRED BY THE REVENUE WAS DISMISSED BY THE HONBLE HIGH COURT OF UTTARAKHAND IN ITA NO. 57 OF 2010. IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY SUBMIT TED THAT THE OWNERSHIP OF BELFORD DOLPHIN WITH THE APPELLANT IS CLEARLY ESTAB LISHED FROM THE SUPPORTING DOCUMENTS PLACED ON RECORD BEFORE THE LOWER AUTHOR ITIES. 3.2 THAT THE LD. ASSESSING OFFICER HAS ERRED ON FACT S AND IN LAW IN MAKING AN ADJUSTMENT OF RS.3,66,02,454 BEING REIMBURSEMENT OF INSURANCE PREMIUM OF THE DRILLSHIP MADE TO FRED OLSEN BROKERS AS ALLEGIN G THAT THE APPELLANT COULD NOT SUBSTANTIATE THE OWNERSHIP OF THE DRILLSHIP WIT HOUT TAKING COGNIZANCE OF THE DOCUMENTARY EVIDENCE SUBMITTED BY THE APPELLANT IN THIS REGARD. 17. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE IS NOT THE OWNER OF BELFORD DOLPHIN THEREFORE THE INSURANCE PREMIUM CLAIMED BY THE ASSESSEE IS NOT AC CEPTABLE . PRINCIPLE OF RES ITA NO. 355/DEL/2012 25 JUDI CATA IS NOT APPLICABLE IN THE INCOME-TAX PROCE EDINGS. EVERY ASSESSMENT YEAR IS SEPARATE UNIT.. THEREFORE, THE ADDITION UPHELD BY T HE AO DOES NOT CALL FOR ANY INTERFERENCE. 18. AFTER HEARING BOTH THE SIDES AND PERUSING THE E NTIRE MATERIAL AVAILABLE ON RECORD, WE OBSERVE THAT IN THE WRITTEN SYNOPSIS THE LD. AR HAS RELIED ON THE DECISION IN CASE OF THE OWN CASE THAT THE HONBLE J URISDICTIONAL HIGH COURT HAS ALLOWED THE DEPRECIATION I.E OWNERSHIP TEST HAS BEE N SETTLED . THEREFORE, THE ASSESSEE IS ELIGIBLE FOR INSURANCE PREMIUM PAID FOR THE VESSEL. WE FURTHER EXAMINED FROM THE PAPER BOOKS SUBMITTED WHICH ARE P LACED AT PAGE NO. 296-325 THAT THERE ARE 8 PARTIES INCLUDING ASSESSEE AND SEV EN OTHERS, WHICH ARE ASSURED. AS PER PAGE NO. 302, FIVE PARTIES ARE INSURED INCLU DING ASSESSEE COMPANY, WHEREIN THE RISK IS STATED TO BE COVERED AS SPECIFIED IN CH APTER 6 OF THE RULES. AS PER PAGE 301 OF THE PAPER BOOK, THE PROTECTIVE CO-INSURANCE CLAUSE READS AS UNDER : THE CO-INSURED PARTY MAY RECOVER FROM THE ASSOCIATI ON ANY LIABILITIES, COST AND EXPENSES WHICH ARE INCURRED BY IT AND WHICH ARE TO BE BORNE BY THE MEMBER UNDER THE TERMS OF THE CHARTERPARTY AND WOUL D, IF BORNE BY THE MEMBER, BE RECOVERABLE BY THE MEMBER FROM THE ASSOC IATION. 19. FROM THE PAPER BOOK FILED BY THE ASSESSEE, IT I S CLEAR THAT AS PER THE INSURANCE DOCUMENTS, MORE THAN ONE PARTIES ARE INSU RED INCLUDING THE ASSESSEE, BUT TOTAL COST OF THE INSURANCE PREMIUM HAS BEEN CH ARGED TO THE ASSESSEE COMPANY. AS PER ABOVE FACTS, THE COST SHOULD BE REC OVERABLE BY THE MEMBERS FROM THE ASSOCIATION, WHICH HAS NOT BEEN DONE SO HERE. T HE RISK IS STATED TO BE COVERED AS SPECIFIED IN CHAPTER 6 OF THE RULES, BUT NOTHING IS AVAILABLE ON RECORD TO EXAMINE THE RISK COVERED, AS THE CHAPTER 6 OF THE A BOVE REFERRED RULES DOES NOT FORM PART OF THE PAPER BOOK. ALL THESE FACTS HAVE A LSO NOT BEEN EXAMINED BY THE LOWER AUTHORITIES AND THE ASSESSEE HAS ALSO NOT PRO VIDED ANY MATERIAL ON RECORD ITA NO. 355/DEL/2012 26 TO EXAMINE THE EXTENT OF THE RISK COVERED BY INSURE R AS WELL AS CO-INSURER. WE, THEREFORE, REMIT THIS ISSUE BACK TO THE FILE OF AO TO EXAMINE THE SAME AFRESH IN THE LIGHT OF DOCUMENTS TO BE FURNISHED BY THE ASSESSEE. THE ASSESSEE IS DIRECTED TO FURNISH ALL THE DETAILS WITH RESPECT TO THIS ISSUE, AS REQUIRED BY AO TO SUPPORT ITS CLAIM. NEEDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.02.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27.02.2019 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI