BG Exploration & Production India Ltd., Mumbai V. DCIT, International Taxation, Circle-1, Dehradun

ITA 7477/DEL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9856 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2014-2015
• Appeal Filed On: 26-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Commercial expediency; Revenue expenditure; Capital expenditure; Set aside
• Section: 92C; 43B; 234B; 40(a)(ia); 37(1); 195; 145; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E I - 1 , NEW DELHI BEFORE SH. N. S . SAINI, ACCOUNTANT MEMBER A ND SMT. BEENA A. PILLAI , JUDICIAL MEMBER ITA NO. 7476/DEL/2018 : ASSTT. YEAR : 2013 - 1 4 ITA NO. 7477/DEL/2018 : ASSTT. YEAR : 2014 - 1 5 B.G. EXPLORATION & PRODUCTION INDIA LTD., C/O BSR & ASSOCIATED LLP, 1 ST FLOOR, LODHA EXCELUS, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI - 400011 VS DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE - 1 , DEHRADUN (APPELLANT) (RESPONDENT) PAN NO. A A ACE4569K ASSESSEE BY : SH. AJAY VOHRA , SR. ADV., SH. ANSHUL SACHAR , ADV. & SH. NEERAJ JAIN, ADV. REVENUE BY : SH. SANJAY I. BARA, CIT DR DATE OF HEAR ING : 25.03 .201 9 DATE OF PRONOUNCE MENT : 03 .04 .201 9 ORDER PER BENCH : BOTH PARTIES SUBMITTED THAT ALL ISSUES UNDER CONSIDERATION IN YEAR BEFORE US ARE SQUARELY COVERED BY ORDER OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2010 - 11 IN ITA NOS.1170 & 1581/DEL/2015, ORDER DATED 24.04.2017. HE SUBMITTED THAT FOR ASSESSMENT YEAR 2010 - 11 IDENTICAL ISSUES HAVE BEEN CONSIDERED IN DETAIL AND DECIDED AT LENGTH . 2. FURTHER, SPECIFIC OBSERVATIONS BY DRP A RE AS UNDER: IT HAS BEEN BROUGHT TO NOTICE BY THE ASSESSEE THAT THE HON BLE ITAT HAS PASSED THE ORDERS FOR AY 2011 - ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 2 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 M AY BE FOLLOWED TO AVOID FURTHER LITIGATION AS THE MATTER BECOME FINAL. 3 . BASED UPON AFORESTATED SUBMISSION, IT WAS SUBMITTED BY LD. CIT DR THAT , THE ORDERS IN PRECEDING ASSESSMENT YEAR (SUPRA) HAS BEEN CHALLENGED BEFORE HON BLE DELHI HIGH COURT, AND TO KEEP THE ISSUES ALIVE, REVENUE IS CONTESTING BEFORE THIS TRIBUNAL. WE UPON THE ABOVE SUBMISSIONS ARE THUS DISPOSING OFF THE ASSESSMENT YEARS BEFORE US BY WAY OF A COMMON ORDER AS UNDER . 4. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSING OFFICER U/S 143(3)/144C(13) OF THE INCOME TAX ACT, 1961 DATED 29.10.2018 FOR ASSESSMENT YEAR S 2013 - 14 AND 2014 - 15 RESPECTIVELY . 5 . GROUND NO. 1 IS NOT PRESSED. ACCORDINGLY THIS GROUND STANDS DISMISSED. 6 . GROUND NOS. 2 TO 5 & 7 OF THE APPEA L OF THE ASSESSEE READS AS UNDER: GROUND NO. 2: ERRONEOUS REJECTION OF TRANSACT IONAL NET MARGIN METHOD ( TNMM ) AND SELECTION OF COMPARABLE UNCONTROLLED PRICE ( CUP ) METHOD . 2.1 THE LEARNED AO / DRP / TRANSFER PRICING OFFICER ( TPO ) HAVE ERRED IN LAW A ND ON FACTS BY DISREGARDING THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT, FOR DETERMINATION OF THE ARM S LENGTH ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 3 PRICE ( ALP ) BY APPLICATION OF TNMM ON AN AGGREGATED BASIS AND FURTHER, ERRED IN APPLYING CUP METHOD . GROUND NO. 3: WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED, LEARNED AO / DRP / TPO APPLIED CUP METHOD IN AN ERRONEOUS MANNER . 3.1 WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS PERTAINING TO INTRA - GROUP SERVICES, THE LEARNED AO / DRP / TPO HAVE ERRONEOUSLY SELECTED CUP METHOD AND HAVE APPLIED THE SAME IN AN ERRONEOUS MANNER BY CONSIDERING THE AMOUNT APPROVED BY THE JOINT VENTURE ( JV ) PARTNER AS CUP. GROUND NO. 4: ERRONEOUSLY DISREGARDED THE HON BLE ITAT S DECISION IN AY 20 11 - 12 AND AY 2012 - 13 AND DIRECTIONS OF THE HON BLE DRP FOR AY 2009 - 10 AND AY 2010 - 11 . 4.1 THE LEARNED AO / DRP / TPO ERRED IN DISREGARDING THE DECISION OF ITAT IN AY 2011 - 12 AND AY 2012 - 13 AND THE DIRECTIONS ISSUED BY THE HON BLE DRP IN THE CASE OF THE A PPELLANT FOR THE PRIOR YEARS I.E. AY 2009 - 10 AND AY 2010 - 11 (WHICH HAVE ALSO BEEN AFFIRMED BY HON BLE ITAT) EVEN THOUGH THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE BUSINESS MODEL OF THE APPELLANT CONTINUED TO REMAIN THE SAME. GROUND NO. 5: ERRONEOUSLY QUESTIONING OF COMMERCIAL EXPEDIENCY OF THE APPELLANT . 5.1 THE LEARNED AO / DRP / TPO ERRED IN LAW AND ON FACTS BY QUESTIONING THE COMMERCIAL EXPEDIENCY OF THE APPELLANT IN AVAILING THE INTRA - GROUP SERVICES FROM ITS ASSOCIATED ENTERPRISE ( AE ) AND IN CH ANGING FROM FLOATING INTEREST RATE TO FIXED INTEREST RATE ON THE EXTERNAL COMMERCIAL BORROWING TAKEN FROM ITS AE. GROUND NO. 7: ERRONEOUS DISALLOWANCE OF PAYMENT MADE TOWARDS INTRA - GROUP SERVICES BY APPELLANT TO ITS AE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 4 7.1 THE LEARNED AO/DRP/TPO GROSSLY ERRED IN LAW AND ON FACTS BY MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF INR 3,061,307,142 IN TOTAL TOWARDS INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMENT OF MANAGEMENT SERVICE AND UNIT CHARGES, IM CHARGES AND PAYROLL EXPENSES TO ITS AE. FACTS: 7 . THE TPO, MADE AN ADJUSTMENT AMOUNTING TO RS.3,061,307,142 BY REJECTING TNMM AND APPLIED CUP METHOD. THE TPO HELD THAT THE EXPENDITURE INCURRED BY THE APPELLANT AND ALLOWED BY THE JV PARTNERS/OPERATOR BOARD SHALL BE CONSIDERED AS COMPARABLE UNCONTROLLED PRI CE. THE TPO ACCORDINGLY MADE AN ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF RECEIPT OF INTRA GROUP SERVICES TO THE EXTENT OF AMOUNT NOT SHARED BY JV PARTNERS. THE TPO MADE FOLLOWING ADJUSTMENT: S. NO. INTERNATIONAL TRANSACTION DESCRIPTION INTERNA TIONAL TRANSACTION AMOUNT 1. REIMBURSEMENT OF EXPENSES 198,167,079 2. INFORMATION TECHNOLOGY AND OTHER CHARGES 982,571,450 3. MANAGEMENT SERVICE UNIT CHARGES 1,718,001,071 4. EXPATRIATE PAYROLL EXPENSES 373,963,087 TOTAL 3,272,702,678 8. LD. COUNSEL SUBMITTED THAT T HE APPELLANT IS A COMPANY INCORPORATED WITH LIMITED LIABILITY IN THE CAYMAN ISLANDS AND IS ENGAGED IN THE BUSINESS OF PROSPECTING, EXPLORATION AND PRODUCTION OF CRUDE OIL AND NATURAL GAS. THE APPELLANT IS A 100 PERCENT SUBSIDIARY OF BG MUM BAI HOLDINGS LIMITED AND HAS ITS PROJECT OFFICE IN INDIA FOR UNDERTAKING THE INDIAN OPERATIONS. THE APPELLANT HAS ENTERED INTO PRODUCTION SHARING CONTRACTS ( PSCS ) WITH OIL AND NATURAL GAS CORPORATION LIMITED ( ONGC ) AND RELIANCE INDUSTRIES LIMITED ( RIL ) ( JV PARTNERS ) ALONG WITH GOVERNMENT OF INDIA ( GOI ) FOR EXPLORATION AND ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 5 PRODUCTION OF OIL AND GAS HYDROCARBONS IN THE DESIGNATED CONTRACTED FIELDS OF PANNA - MUKTA AND MID AND SOUTH TAPTI FIELDS ( PMT ). TO EXECUTE SUCH PSCS AND CARRY OUT ITS OBLIGATIO NS UNDER THE PSCS AS A JOINT OPERATOR, APPELLANT HAS SET UP A PROJECT OFFICE ( PO ) IN INDIA. AS MANDATED BY THE GOI, THE PMT JV HAS AN OBLIGATION TO PERFORM MINIMUM WORK PROGRAMME ( MWP ) FOR EXPLOITATION AND EXPLORATION OF OIL AND NATURAL GAS ON THE PMT FIELDS. SPECIALIZED AND TECHNICALLY SOUND EXPERTS ARE REQUIRED BY THE APPELLANT IN VARIOUS DIVERSIFIED AREAS BASED ON THE MWP. BG INTERNATIONAL LIMITED ( BGIL OR THE ASSOCIATED ENTERPRISES ) IS A COMPANY INCORPORATED IN THE UNITED KINGDOM WITH MORE THAN 40 YEARS OF EXPERIENCE AND ENRICHED TECHNICAL EXPERTISE RELATED TO EXPLORATION AND PRODUCTION ACTIVITIES IN THE OIL AND GAS SECTOR. BGIL HAS ACCESS TO A WIDE POOL OF HIGHLY KNOWLEDGEABLE, TECHNICALLY TRAINED AND EXPERIENCED STAFF TO ENGAGE IN EXPLORATION A N D PRODUCTION RELATED ACTIVITIES. 9. THE AFORESAID INTERNATIONAL TRANSACTIONS PERTAINING TO INTRA - GROUP SERVICES RECEIVED BY THE APPELLANT (I.E. MSU CHARGES, REIMBURSEMENT OF EXPENSES, PAYROLL EXPENSES, INFORMATION TECHNOLOGY AND OTHER CHARGES) WERE BENCH MARKED BY THE APPELLANT APPLYING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE TRANSACTION OF RECEIPT OF INTRA GROUP SERVICES WERE CLOSELY LINKED TO THE MAIN BUSINESS ACTIVITY OF THE APPELLANT OF EXPLORATION AND PRODUCTION OF OIL AND GAS. SINCE THE OPERA TING MARGIN OF THE APPELLANT AT 24.82% WAS HIGHER THAN THOSE OF THE COMPARABLE COMPANIES AT 23.21%, INTERNATIONAL TRANSACTION OF RECEIPT OF INTRA - GROUP SERVICES WAS CONSIDERED TO BE AT ARM S LENGTH . IT IS SUBMITTED THAT THE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 6 ADJUSTMENT MADE BY THE TPO IS NO T SUSTAINABLE FOR THE REASONS SUBMITTED AS UNDER: AT THE OUTSET IT IS SUBMITTED THAT INDUSTRY IN WHICH THE APPELLANT IS FUNCTIONING, IT WILL BE DIFFICULT TO IMAGINE A SUCCESSFUL BUSINESS ENTITY IN THE GLOBAL ENVIRONMENT WITHOUT RECEIPT OF THE SERVICES WHIC H CARRIES HUGE INTRINSIC AND CREATIVE VALUE. IN VIEW OF THESE FACTS, IT SHALL BE JUST TO AVOID ANY GUESSWORK TO EVALUATE OR JUDGE UTILITY OF THESE SERVICES IN ISOLATION OR INDIVIDUALLY. 10. IT IS SUBMITTED THAT THE APPELLANT INCURS EXPENDITURE TO UNDERTAK E ACTIVITIES REQUIRED BY THE PSC, HAVING REGARD TO ITS STANDARD OF OPERATION, INCLUDING THE QUALITY OF EXECUTION OF WORK, ACCESS TO LATEST INDUSTRY INFORMATION AND GLOBAL UPDATES, SAFETY OF ITS EMPLOYEES AND THE ENVIRONMENT, ETC. THE EXPENSES ON SUCH SERVI CES ARE REQUIRED TO BE INCURRED BASED ON COMMERCIAL EXPEDIENCY DETERMINED BY BGEPIL. 11. IT IS SUBMITTED THAT THERE IS A REAL DEARTH OF TALENT AND AVAILABILITY OF EXPERTS WHO CAN PROVIDE SERVICES WHICH HAVE BEEN RECEIVED BY THE APPELLANT FROM BGIL. IN ANY CASE, SINCE SUCH RESOURCES MAY NOT BE REQUIRED ALL THE TIME, IT WOULD BE ECONOMICALLY AND COMMERCIALLY UNVIABLE FOR THE APPELLANT TO EMPLOY HIGHLY TECHNICALLY SOUND PERSONNEL ON PERMANENT BASIS. HENCE, NEED BASED SUPPORT WAS OBTAINED BY APPELLANT FROM BGI L WHICH HAS A WIDE, EXPERIENCED AND KNOWLEDGEABLE POOL OF EMPLOYEES AT ITS DISPOSAL . 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ISSUE S ARE SQUARELY COVERED BY THE ORDER OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESS MENT YEAR ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 7 2010 - 11 IN ITA NO S .1170 & 1581/DEL/2015, ORDER DATED 24.04.2017 . HE SUBMITTED THAT ASSESSMENT YEAR 2010 - 11 IS THE INITIAL YEAR IN WHICH THE ISSUES HAS BEEN CONSIDERED AND DECIDED IN DETAIL. IN SUPPORT OF HIS ARGUMENT HE REFERRED TO PARAGRAPH 72 A T PAGE NOS. 795 & 796 WHICH ARE REPRODUCED HERE UNDER: 72. ON THE EXAMINATION OF THE VOLUME AND US DETAILS SUBMITTED BY THE ASSESSEE. THE LD. DISPUTE RESOLUTION PANEL HAS COME TO THE CONCLUSION THAT ASSESSEE HAS RECEIVED THE SERVICES AND THOSE SERVICES AR E USEFUL SERVICES. WITH RESPECT TO THE CLUBBING OF THE TRANSACTION IT WAS HELD THAT WHEN THE TRANSACTIONS ARE CLOSELY INTERRELATED IT IS BUT NATURAL TO CLUB SUCH TRANSACTION AND BENCHMARKED IT TOGETHER. THE LD. DISPUTE RESOLUTION PANEL AT PAGE NO. 30 31, HAS CONSIDERED THE SUSPECT AND AGREED WITH THE CONTENTION OF THE ASSESSEE THAT INTRAGROUP SERVICES RECEIVED FROM ITS ASSOCIATED ENTERPRISE ARE CLOSELY LINKED TO THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE COMPANY PLACING RELIANCE ON THE US REGULATIONS, OEC D REGULATIONS AND OECD DRAFT NOTES ON COMPARABILITY. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY AND NONE WAS POINTED OUT BEFORE US BY THE LD. DEPARTMENTAL REPRESENTATIVE IN THE ORDER OF THE LD. DISPUTE RESOLUTION PANEL. CONSEQUENTLY, AFTER VERIFYING THAT ASSESSEE HAS DEMONSTRATED NEED FOR THOSE SERVICES, BENEFIT DERIVED FROM THOSE SERVICES, EVIDENCE OF RECEIPT OF SUCH SERVICES AND SUBMITTING THAT THOSE SERVICES ARE NEITHER DUPLICATIVE IN NATURE AND NOR ARE SHARE HOLDER ACTIVITIES, THE DRP DIRECTED THE LD . TRANSFER PRICING OFFICER TO DELETE THE ADJUSTMENT PROPOSED WITH RESPECT TO THE INTRAGROUP SERVICES OF RS. 3329766244/ , DESERVES TO BE UPHELD. THE JUDICIAL PRECEDENTS CITED BEFORE US ALSO SUPPORTS THE VIEW THAT THE NEEDED TEST, THE BENEFIT TEST ARE ALSO REQUIRED TO BE VIEWED FROM THE PERSPECTIVE OF A BUSINESSPERSON AND NOT FROM THE PERSPECTIVE OF THE REVENUE. FURTHER, NO EVIDENCES HAVE BEEN LED BEFORE US BY REVENUE STATING THAT THESE SERVICES ARE DUPLICATIVE IN NATURE AND ALSO SERVES ONLY THE INTEREST OF THE SHAREHOLDER. ACCORDING TO THE INFORMATION SUPPLIED BY THE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 8 ASSESSEE AND EXAMINED BY THE LD. DISPUTE RESOLUTION PANEL DOES NOT GIVE ANY SUCH INDICATION. FURTHER REGARDING NON - SHARING OF THE COST BY THE JOINT - VENTURE PARTNERS WE HAVE GIVEN OUR FINDINGS WH ILE DECIDING THE APPEAL OF THE ASSESSEE THAT SUCH AN ACTION OF THE JOINT - VENTURE PARTNERS CANNOT BE THE REASON TO DETERMINE THE ARM S LENGTH PRICE OF THE SERVICES WHICH IS BEEN RECEIVED BY THE ASSESSEE AT NIL. IN VIEW OF THIS WE UPHOLD THE FINDING OF THE L D. DISPUTE RESOLUTION PANEL HOLDING THAT TRANSACTIONS OF INTRAGROUP SERVICES ARE INTERLINKED, THEREFORE, THEY SHOULD BE BENCHMARKED TOGETHER BY ADOPTING TNMM AS THE MOST APPROPRIATE METHOD , HENCE, DIRECTING THE LD. TRANSFER PRICING OFFICER TO DELETE TH E ADJUSTMENT PROPOSED OF RS. 3329766244/ . IN THE RESULT GROUND NO. 1 TO 3 OF THE APPEAL OF THE REVENUE ARE DISMISSED. 13 . THE LD. CIT DR OBJECTED THE SAME AND SUBMITTED THAT THEY HAVE FILED APPEAL AGAINST THE ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2010 - 11 BEFORE THE HON BLE HIGH COURT WHICH IS PENDING. HE SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE SERVICES RECEIVED FROM ITS AE AND THEREFORE, THE ADDITION MADE BY LD. TPO DESERVES TO BE UPHELD. 14 . WE HAVE HEARD THE RIVAL SUBMISSI ONS 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 IT AT 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, INVEN TORY 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. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 9 15. FU RTHER, IT IS OBSERVED THAT FOR ASSESSMENT YEAR 2011 - 12 (ITA NO. 1478/DEL /2017) AND ASSESSMENT YEAR 2012 - 13 (ITA NO. 6791/DEL/2017) FOLLOWING THE ABOVE RULING. 16 . FROM THE ABOVE, IT IS CLEAR THAT REVENUE INTENDS TO KEEP ISSUE S ALIVE, H OWEVER, COULD NOT C ONTROVERT VIEW TAKEN IN RESPECT OF THESE ISSUES AS THERE HAS BEEN NO CONTRARY OBSERVATION /MATERIAL EVIDENCES BROUGHT OUT ON RECORD BY LD. CIT DR . IT HAS BEEN ADMITTED BY HIM THAT FACTS AND CIRCUMSTANCES OF THE SERVICES RECEIVED BY ASSESSEE FOR THE YEAR UND ER CONSIDERATION ARE SAME VIS - - VIS ASSESSMENT YEAR 2010 - 11 , AND OTHER PRECEDING ASSESSME NT YEARS . W E ARE THEREFORE INCLINED TO FOLLOW THE SAME VIEW. RESPECTFULLY, FOLLOWING VIEW TAKEN BY THIS TRIBUNAL IN ASSESSMENT YEAR 2010 - 11 REPRODUCED HEREINABOVE AND OTHER PRECEDING ASSESSMENT YEARS, ORDERS OF WHICH ARE PLACED AT PAGES 530 - 915 OF PAPER BOOK, ADDITION MADE BY ASSESSING OFFICER STANDS DELETED. 17 . GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 6: ERRONEOUS APPLICATION OF CUP FOR DETERMINING ARM S LENGTH INTEREST RATE. 6.1 THE LEARNED AO / DRP / TPO ERRED IN MAKING AN UPWARD ADJUSTMENT OF INR 959,664,505 TO THE TOTAL INCOME OF THE APPELLANT BY ERRONEOUSLY APPLYING CUP METHOD FOR DETERMINATION OF ARM S LENGTH INTEREST RATE ON THE EXTERNAL COMMERCIAL BORROWING ( ECB ) TAKEN FROM ITS AE. FACTS: 18. LD. COUNSEL SUBMITTED THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF PROSPECTING FOR, OR EXTRACTION OF OR PRODUCTION OF MINERAL OILS. THE APPELLANT HAS ENTERED INTO A JOINT VENTURE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 10 ( J V ) WITH OIL & NATURAL GAS CORPORATION ( ONGC ) AND RELIANCE INDUSTRIES LTD ( RIL ). THE JV OPERATES IN ACCORDANCE WITH THE TERMS AND CONDITIONS AS SET OUT IN THE PRODUCTION SHARING CONTRACT ( PSC ) DULY AGREED AND SIGNED BETWEEN THE JV PARTNERS AND GOVERN MENT OF INDIA. IN T ERMS OF THE PSC, THE APPELLANT IS REQUIRED TO CONTRIBUTE ITS SHARE OF THE FUNDS FOR THE PLANNED ACTIVITIES UNDER THE WORK PROGRAM. THE ACTIVITIES OF THE APPELLANT INVOLVES HUGE INVESTMENTS AND HAVE A LONG GESTATION PERIOD. 19. THE APPEL LANT HAD TAKEN AN UNSECURED FOREIGN CURRENCY LOAN AMOUNTING TO USD 500 MILLION FROM ITS ASSOCIATED ENTERPRISE, BG ASIA PACIFIC PTE. LTD., SINGAPORE ( BGAP ) ON MAY 31, 2005 FOR A PERIOD OF 15 YEARS. THE LOAN WAS TAKEN AT AN INTEREST RATE OF LONDON INTER - BA NK OFFER RATE ( LIBOR ) PLUS 2 PERCENT PER ANNUM PAYABLE ANNUALLY. AS A RESULT OF SUBPRIME CRISIS IN THE YEAR 2008, THERE WAS LACK OF AVAILABILITY OF FUNDS IN THE GLOBAL FINANCIAL MARKETS WHICH INDICATED TOWARDS A POSSIBLE INCREASE IN THE INTEREST RATES IN THE NEAR FUTURE. AS A RESULT OF THE PREVAILING UNCERTAINTY, THE PROPORTION OF BORROWERS BORROWING FUNDS AT FIXED RATE OF INTEREST ALSO INCREASE. IN ORDER TO FUND THE OPERATIONS, THE APPELLANT, ON OCTOBER 22, 2009, AVAILED ADDITIONAL LOAN AMOUNTING TO USD 300 MILLION AND THE INTEREST RATE WAS CHANGED TO A FIXED RATE OF 6.18% (BEING LIBOR USD SWAP RATE +350 BPS) FOR SUCCEEDING FIVE YEARS. THE SAID LOAN FROM THE AE WAS AN UNSECURED LOAN, SINCE THE FINANCIAL POSITION OF THE APPELLANT DID NOT PERMIT OBTAINING S ECURED LOAN ON FAVOURABLE RATE OF INTEREST FROM UNRELATED PARTY, FINANCIAL INSTITUTIONS OR BANKER. THIS INTEREST RATE WAS AMENDED IN OCTOBER 2009, WHEN THE ASSESSEE AVAILED ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 11 OF AN ADDITIONAL TRANCHE (UNDER THE SAME LOAN AGREEMENT) FROM ITS AE TO MEET ITS WO RKING CAPITAL REQUIREMENT. AS THERE WERE SIGNIFICANT VARIATIONS IN THE GLOBAL INTEREST RATES SINE 2005 (I.E. WHEN THE LOAN WAS INITIALLY EXTENDED AND THE ORIGINAL AGREEMENT WAS SIGNED) THROUGH 2009, THE AE AND THE ASSESSEE AGREED FOR AN INTEREST RATE REVIS ION IN 2009 FROM LIBOR +200 BPS TO LIBOR + 350 BPS BASED ON BARCLAY BANK S QUOTATION AFTER ASSESSING APPELLANT S RISKS AND MARKET CONDITIONS PREVAILING AT THAT TIME. FURTHER, AS THE APPELLANT EXPECTED VOLATILE INTEREST RATES IN FUTURE AND HENCE BELIEVED TH AT THERE SHOULD BE STABILITY IN THE INTEREST RATE TO BE PAID AT LEAST FOR THE NEXT FIVE YEAR PERIOD. 20. HE SUBMITTED THAT APPELLANT THUS DECIDED TO MIGRATE FROM FLOATING INTEREST RATE TO FIXED RATE OF INTEREST FOR THE NEXT FIVE YEARS. THEREFORE THE LIBOR + 350 BPS WAS CONVERTED TO A FIXED RATE OF INTEREST @ 6.18% (BEING USD LIBOR SWAP RATE + 350 BPS). THEREFORE, FOR THE RELEVANT YEAR UNDER CONSIDERATION I.E. FY 2012 - 13, THE APPELLANT PAID AN EFFECTIVE INTEREST OF 6.18 PERCENT FOR THE YEAR. THE APPELLANT H AD USED CUP METHOD FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION AND HAD ARRIVED AT A MARGIN PAID BY COMPANIES WITH COMPARABLE BORROWINGS AT 6.33 PERCENT. SINCE THE INTEREST RATE PAID BY THE TAXPAYER AT 6.18 PERCENT WAS LESS THAN 6.33%, THE TRANSACTION WAS STATED TO BE AT ARM S LENGTH. FURTHER THE APPELLANT HAD ALSO RELIED UPON THE BARCLAYS BANK QUOTATION SUBMITTED VIDE SUBMISSION DATED 16 - 10 - 2017. 21. LD. COUNSEL SUBMITTED THAT T HE TPO REJECTED THE SEARCH AND THE BANK QUOTATION PROVIDED BY THE APPELLANT AND PROCEEDED ON THE BASIS OF AN INDEPENDENT FRESH SEARCH AND ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 12 THEREBY CONSIDERED LIBOR + 2.785 BPS AS THE ARM S LENGTH RATE ON THE LOAN OF USD 500 MILLION AND THE ADDITIONAL LOAN OF USD 300 MILLION.. ACCORDINGLY, THE TPO MADE AN ADJUSTMENT O F RS.959,664,505. FURTHER THE DRP VIDE DIRECTIONS DATED 11.09.2018. DIRECTED THE TPO TO CONSIDER AVERAGE EXCHANGE RATE FOR THE PERIOD UNDER CONSIDERATION. ACCORDINGLY THE ADJUSTMENT WAS REDUCED TO RS. 82,17,38,124 . 22 . AT THE OUTSET, HE SUBMITTED THAT FAC T AND CIRCUMSTANCES OF THE CASE ARE SIMILAR TO THAT OF PRECEDING YEARS WHERE THE TPO PROPOSED ADJUSTMENT IN SIMILAR MANNER. HE PLACED RELIANCE ON VIEW EXPRESSED BY CO - ORDINATE BENCH OF THIS TRIBUNAL FOR A SSESSMENT YEAR 2010 - 11 AS UNDER : 26. WE HAVE CAREFU LLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND DIRECTIONS OF DISPUTE RESOLUTION PANEL. THE ASSESSEE ENTERED ORIGINALLY INTO A LOAN AGREEMENT DATED 31ST OF MAY 2005 BETWEEN BG. ASIA PACIFIC PLC LTD AND ASSESSEE F OR UNSECURED LOAN FACILITY OF US DOLLAR 500 MILLION. ACCORDING TO THE TERMS AND CONDITIONS OF THAT AGREEMENT INTEREST RATE WAS FIXED AS ONE MONTH, US $ LIBOR +2% FOR AN AND APPORTIONED ON AN ACTUAL 360 BASIS. THE TERMINATION DATE OF THE AGREEMENT WAS 31ST OF MAY 2020. SUBSEQUENTLY ON 21/10/2009 THERE IS AN AMENDMENT MADE IT TO THE EXISTING LOAN FACILITY UNDER AGREEMENT DATED 31/05/2005, ACCORDING TO WHICH, THE PARTIES HAVE AGREED TO AMEND THE INTEREST RATE TERMS APPLICABLE TO THE EXISTING LOAN FACILITY AT THE FIXED RATE OF 6.18% FOR 5 YEARS FROM THE DATE OF EXECUTION OF THIS AGREEMENT (I.E. FROM 21/10/2009), IT WOULD BE ONCE AGAIN AT AVAILABLE RATE OF 6 MONTHS USD LIBOR +350 UNLESS THE PARTIES AGREE OTHERWISE. ON CONJOINT READINGS OF THIS 2 AGREEMENTS IT IS APPARENT THAT DURING THE YEAR THERE IS A CHANGE IN THE INTEREST RATE OF THE ABOVE LOAN, WHICH WAS EARLIER AT US DOLLAR LIBOR +2% TO 6.18%. FOR PART OF THE YEAR I.E. FROM 01/04/2009 2 21/10/2009, THE RATE OF INTEREST ON THE ABOVE LOAN WAS 2.33% AND F ROM ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 13 22/10/2009 TO 31/03/2010 THE RATE OF INTEREST OF THE SAME LOAN WITHOUT ANY CHANGE IN THE TERMS AND CONDITION OF AGREEMENT EXCEPT INTEREST WAS @ 6.18%. FURTHER, VIDE LETTER DATED 21/10/2009 THE AE HAS AGREED TO OFFER AN ADDITIONAL UNSECURED LOAN OF U S DOLLARS 300 MILLION UNTIL 2020 TO THE APPELLANT WHEREIN TERMS OF CLAUSE 1 AND 3 OF THE TERMS AND CONDITIONS ARE AS UNDER: - 1 DEFINITION : - INTEREST MEANS THE INTEREST OR ADVANCE AT THE FIXED RATE OF 6.18% (BEING THE 5 YEARS, US LIBOR SWEPT RATE +350 ) FOR A PERIOD OF 1ST 5 YEARS FROM THE DATE OF EXECUTION OF THIS AGREEMENT AND THEREAFTER AT VARIABLE RATE OF 6 MONTHS USD LIBOR +350 UNLESS PARTIES MUTUALLY AGREE OTHERWISE IN WRITING 3 . INTEREST 3.1 INTEREST SHALL ACCRUE ON THE AMOUNT OF THE ADV ANCE ON A DAY - TO - DAY BASIS IN RESPECT OF AMOUNTS OUTSTANDING UNDER THE FACILITY ON EACH DAY OF THE DRAWDOWN PERIOD AND SUCH INTEREST DUE SHALL BE CREATED AND INTEREST ACCRUED BETWEEN 1ST TEMPORARY IN EACH YEAR OF THE FACILITY AND 31ST MARCH IN THE FOLLOWIN G YEAR, SHALL BE PAID BY THE BORROWER TO THE LENDER ON 31ST MAY EACH YEAR OF THE FACILITY ON A MODIFIED FOLLOWING DATE ON VERSIONS BASIS OR AS MAY BE OTHERWISE AGREED BETWEEN THE PARTIES. 3.2 PARTIES MAY MUTUALLY AGREE IN WRITING TO FIX THE INTEREST RATE FOR A PERIOD OF 5 YEARS. THE LD. TRANSFER PRICING OFFICER HAS QUESTIONED THE BUSINESS DECISION OF THE ASSESSEE TO SAY THAT THERE WAS NO REASON FOR THE ASSESSEE TO INCREASE THE INTEREST RATE FROM 2.33% TO 6.18%, WHICH WAS 165% HIGHER THAN THE RATE AT WHIC H THE ASSESSEE WAS PAYING INTEREST TILL THE TIME OF REVISION IN THE INTEREST RATE. THE LD. TRANSFER PRICING OFFICER HAS FURTHER HELD THAT ASSESSEE HAS FAILED TO SUBMIT ANY DOCUMENTARY DETAIL OF NEGOTIATION AND CONVINCING ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 14 AGREEMENT FOR INCREASING INTEREST RATE AND WHAT BENEFIT HAS ACCRUED TO THE ASSESSEE WHEN ALL THE TERMS AND AGGRIEVED TERMS AND CONDITIONS OF THE AGREEMENTS REMAINED UNCHANGED. ACCORDING TO THE LD. TRANSFER PRICING OFFICER NO INDEPENDENT PARTY WOULD HAVE AGREED FOR SUCH A UNILATERALLY INCR EASE WHICH DEFIES ANY LOGIC EXCEPT THAT THE AMOUNT WAS BEING PAID TO THE ASSOCIATED ENTERPRISE IN THIS REGARD TO TP PROVISIONS. ACCORDING TO HIM THE LIBOR RATES HAVE BEEN CONTINUOUSLY REDUCING FROM 2009 ONWARDS AND THE ASSESSEE WAS WELL AWARE OF THE TREND AT THE TIME OF TAKING DECISION. ACCORDINGLY, THE INCREASES IN RATES ARE CONSIDERED A CLASSIC EXAMPLE OF TRANSFER PRICING TO REDUCE THE PROFITABILITY OF THE ASSESSEE COMPANY. FOR THIS REASONS HE PROPOSED AN ADJUSTMENT OF RS. 42,72,64,082/ ON ACCOUNT OF INTEREST PAYMENTS. WE DISAGREE WITH THIS FINDING OF THE LD. TRANSFER PRICING OFFICER THAT THERE WAS NO REASON FOR THE ASSESSEE TO INCREASE THE INTEREST RATE FOR 2.33% TO 6.18%. THE ASSESSEE HAS GIVEN DETAILED RATIONAL BEHIND ITS OWN DECISION FOR SHIFTING FROM FLOATING RATE OF INTEREST REGIME TO FIXED RATE OF INTEREST. IN A WAY, IT REDUCES THE RISK OF CHANGES IN THE INTEREST RATES. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE LD. TRANSFER PRICING OFFICER IS NOT SUPPOSED TO QUESTION THE BUSINESS DECISIO N OF THE ASSESSEE. THE ASSESSEE HAS GIVEN AMPLE REASONS FOR ITS BUSINESS DECISION EVEN STATING THAT MOST OF THE REPORTED LOANS IN THAT PARTICULAR PERIOD WERE HAVING A CLAUSE OF FIXED RATE OF INTEREST. THEREFORE, THE DECISION OF THE APPELLANT TO SHIFT FRO M FLOATING RATE TO FIXED RATE OF INTEREST WAS BASED ON COMMERCIAL CONSIDERATION AND TO PROTECT THE BUSINESS OPERATION OF THE APPELLANT FROM ANY ADVERSE MOVEMENT IN FLOATING INTEREST RATES AND THAT ONLY BUSINESSMEN CAN DECIDE. IT MAY SOUND ILLOGICAL TO THE LD. TRANSFER PRICING OFFICER, BUT IT IS BEYOND HIS AUTHORITY TO QUESTION THE WISDOM OF ASSESSEE. IT IS NOT THE PREROGATIVE OF REVENUE TO DIRECT ASSESSEE TO CONDUCT ITS BUSINESS IN A PARTICULAR MANNER. IT IS ALSO NOT PROPER TO ASK AND ASSESSEE TO CONDUCT ITS BUSINESS IN A MANNER WHICH IS UNDERSTOOD BY THE REVENUE , DESPITE HEAVY BUSINESS RISK, AND FURTHER IN A MANNER THAT WILL LEAD TO HIGHER REVENUE TO THE COFFERS OF THE TAX GATHERERS. VARIOUS DECISIONS RELIED ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 15 UPON BY THE LD. AUTHORISED REPRESENTATIVE ALSO SUPPORT THE ABOVE VIEW EXPRESSED BY US. ACCORDING TO THE PROVISIONS OF SECTION 92 CA OF THE INCOME TAX ACT, AUTHORITY ENVISAGED WITH THE LD. TRANSFER PRICING OFFICER IS TO SERVE A NOTICE ON THE ASSESSEE REQUIRING HIM TO PRODUCE OR CAUSE TO BE PRODUC ED ON A DATE TO BE SPECIFIED THEREIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE COMPUTATION MADE BY HIM OF THE ARM S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS AND THEN AFTER HEARING SUCH EVIDENCES AS PRODUCED BEFORE HIM AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIALS GATHERED, HE SHALL ORDER DETERMINING THE ARM S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION BY PASSING AN ORDER. IN THE PRESENT CASE LD. TRANSFER PRICING OFFICER HAS NOT PERFORMED HIS DUTY OF DETERMINING ARM S LENGTH PRICE OF INTEREST PAYMENT MADE BY THE ASSESSEE OF RS. 1059412322/ BUT HAS ANALYZED AND QUESTIONED THE INTERNATIONAL TRANSACTIONS ENTERED IN TO BY THE ASSESSEE , OF WHICH HE SHOULD HAVE DETERMINED ALP ONLY. THE PROVISIONS OF SEC TION 92C OF THE ACT PROVIDES THAT ARM S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED ACCORDING TO ONE OF THE PRESCRIBED METHODS, WHICH SHOULD BE THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION AND TH E FUNCTIONS PERFORMED. THEREFORE ACCORDING TO THIS, THE LD. TRANSFER PRICING OFFICER IS DUTY BOUND TO APPLY ONE OF THE METHODS SPECIFIED IN THAT SECTION TO DETERMINE THE ARM S LENGTH PRICE, HAVING REGARD TO THE NATURE OF THE TRANSACTIONS AND FUNCTIONS PER FORMED BY THE ASSESSEE AFTER CONSIDERING INTO ACCOUNT THE MATERIALS/ DOCUMENTS AND EVIDENCES PLACED BEFORE HIM BY THE ASSESSEE. IN THE PRESENT CASE LD. TRANSFER PRICING OFFICER HAS STATED THAT ASSESSEE HAS FAILED TO SUBMIT ANY DOCUMENTARY DETAILS OF NEGOTI ATION AND CONVINCING AGREEMENT FOR INCREASING INTEREST RATE. THE NATURE OF TRANSACTION INVOLVED IN THIS CASE IS PAYMENT OF INTEREST WHERE THE TERMS AND CONDITIONS WITH RESPECT TO RATE OF INTEREST HAVE CHANGED DURING THE YEAR, WHEREAS THE LOAN WAS GRANTE D IN 2005. FOR BENCHMARKING THE INTEREST TRANSACTION IT IS NECESSARY TO CONSIDER THE FACTORS SUCH AS : - ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 16 I) PREVAILING ECONOMIC SITUATION II) TIME SCHEDULE OF DRAWING DOWN THE DEBT III) REPAYMENT SCHEDULE, IV) OPTIONS OF PREPAYMENT OF THE LOAN, V) TERM / T ENURE OF LOAN, VI) TENURE AND PERIODICITY OF INTEREST PAYMENTS, VII) WITHHOLDING TAXES BURDEN ON INTEREST VIII) SECURITY OFFERED IX) CREDIT RATING OF THE GROUP , AE AND PAYER ENTITY X) RISK OF CURRENCY XI) POSSIBILITY AND TERMS AND CONDITION OF CONV ERTIBILITY OF DEBT TO EQUITY. THE LD. TRANSFER PRICING OFFICER MUST HAVE LOOKED THE AGREEMENT DATED 31ST OF MAY 2005. ACCORDING TO CLAUSE NO. 7, THE INTEREST IS REQUIRED TO BE PAID ON THE INTEREST PAYMENT DATE, WHICH IS 31ST MAY EACH YEAR, , THE TAXES ON INTEREST, SHALL BE ON THE ACCOUNT OF THE BORROWER ACCORDING TO CLAUSE 9 OF THE AGREEMENT. FURTHER, ACCORDING TO CLAUSE 5 OF THE AGREEMENT THE CANCELLATION OF THE FACILITY IS AT THE SOLE DISCRETION OF THE LENDER, THEREFORE THERE WAS NO RIGHT OF PREPA YMENT WITH THE ASSESSEE. WITH RESPECT TO THE 2ND TRANSACTION OF LOAN OF US DOLLAR 300 MILLION THERE ARE ALSO THE CLAUSES OF REPAYMENT AND PREPAYMENT IN CLAUSE NO. 4, THERE IS ALSO AN AGREEMENT VIDE CLAUSE NO. 3 OF REWRITING THE INTEREST RATE FOR A PERIOD OF 5 YEARS, THE AMOUNT OF REPAYMENT ON PREPAYMENT SHALL BE OF AT LEAST 100000 US$, THERE IS NO REFERENCE OF THE CURRENCY IN WHICH THE AMOUNT IS REQUIRED TO BE REPAID. ON THE READING OF AGREEMENT DATED 21ST OF OCTOBER 2009 AND 31ST OF MAY 2005, IT IS APPARE NT THAT THERE ARE CERTAIN DIFFERENT TERMS AND CONDITIONS IN BOTH THE AGREEMENTS. THEREFORE IT IS NOT PROPER TO BENCHMARK BOTH THE TRANSACTIONS OF PAYMENT OF INTEREST WITH RESPECT TO TWO DIFFERENT LOANS WHICH ARE GOVERNED BY TWO DIFFERENT AGREEMENTS WHICH H AS DIFFERENT TERMS AND CONDITIONS AS ONE TRANSACTION . REGARDING THE CLAIM OF THE ASSESSEE WITH RESPECT TO THE QUOTATIONS OF THE BANK, THE 1ST QUOTATION IS DATED 10/10/2011 WHEREIN VIDE LETTER DATED 22/02/2012, A QUOTE WAS PROVIDED FROM CITIBANK WHICH S AYS THAT QUOTE FOR THE CURRENCY IS LIBOR +285 300 BASIS POINTS AND ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 17 DOES NOT INCLUDE WITHHOLDING TAXES. ASSESSEE WITH RESPECT TO OTHER BANKS ALSO TOOK SIMILAR QUOTATIONS. HOWEVER, FROM THE READING OF THE QUOTATION IT IS NOT KNOWN THAT THESE QUOTES ARE WITH RESPECT TO BOTH THE TRANSACTIONS OF LOAN OF US DOLLAR 500 MILLION AND US DOLLAR 300 MILLION WHERE THERE ARE DIFFERENT TERMS AND CONDITIONS OF REPAYMENT PREPAYMENT. MOST IMPORTANTLY, THE LD. TRANSFER PRICING OFFICER HAS NOT LOOKED AT THESE EVIDENCES P RODUCED BY THE ASSESSEE IN THE FORM OF QUOTATIONS OF VARIOUS BANKS, COMPARABLE SEARCH BY THE ASSESSEE ON LPC/ DEALS CAN DATABASE. THE LD. DISPUTE RESOLUTION PANEL HAS ALSO BRUSHED ASIDE THE PROVISION OF SECTION 92C OF THE INCOME TAX ACT, WHICH PRESCRIBES M ETHODOLOGY FOR COMPUTATION OF ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTIONS . IT HAS MERELY REITERATED WHATEVER HAS BEEN STATED BY THE LD. TRANSFER PRICING OFFICER WITHOUT APPLYING THE PROVISIONS OF LAW TO THE FACTS OF THE CASE BEFORE THEM. IN VIEW OF THIS WE SET ASIDE THE WHOLE MATTER OF DETERMINATION OF ALP OF INTEREST PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE BACK TO THE FILE OF THE LD. TRANSFER PRICING OFFICER WITH A DIRECTION TO EXAMINE THE COMPUTATION OF ALP BY THE ASSESSEE OF ABOVE TRANSACTION STRICTLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C OF THE INCOME TAX ACT CONSIDERING THE EVIDENCES PLACED BY THE ASSESSEE BEFORE HIM AND THEN DECIDE THE ISSUE OF ADJUSTMENT, IF ANY, ON MERITS. NEEDLESS TO SAY THAT ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF HEARING TO DEMONSTRATE THAT PAYMENT OF INTEREST MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IS AT ARM S LENGTH ACCORDING TO ONE OF THE METHODS SUPPORTING IT WITH NECESSARY AND CREDIBLE EVIDENCES. IN THE RESULT GROUND NO. 2 OF T HE APPEAL OF THE ASSESSEE IS ALLOWED WITH ABOVE DIRECTION. 23 . THE LD. COUNSEL FOR ASSESSEE RELIED UPON DIRECTIONS ISSUED BY THIS TRIBUNAL WHILE SETTING ASIDE THE ISSUE BACK TO LD. TPO. 24 . THE LD. CIT DR DID NOT OBJECT FOR THE ISSUE TO BE SET ASIDE WIT H SIMILAR DIRECTIONS . ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 18 25 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE ALSO REFER TO THE SPECIFIC OBSERVATION BY DRP REPRODUCED HEREINABOVE. AS BOTH THE PARTIES ADMIT THAT THE ISS UES UNDER CONSIDERATION ARE SIMILAR AND IDENTICAL WITH THAT OF FACTS IN ASSESSMENT YEAR 2010 - 11. THE DIRECTIONS ISSUED BY THIS TRIBUNAL FOR ASSESSMENT YEAR 2010 - 11 MORE PARTICULARLY T HE UNDERLINED PORTION HEREIN ABOVE ARE FOLLOWED BY US. LD. CIT DR DID NOT OBJECT FOR THE ISSUE TO BE SET ASIDE. WE DIRECT THE LD. TPO/ ASSESSING OFFICER TO COMPUTE THE RATE OF INTEREST ON THE BASIS OF AFORESAID DIRECTION AND ACCORDINGLY IS SET ASIDE TO AO/TPO. 26 . GROUND NOS. 9 & 10 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 9: DISALLOWANCE OF BRANCH OFFICE EXPENDITURE 9.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN DISALLOWING THE BRANCH OFFICE EXPENDITURE OF RS. 38,28,48,276 BY TREATING IT AS PRE - OPERATIVE IN NATURE. 9.2 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THE SAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE APPELLANT S BUSINESS IN INDIA. 9.3 THE LEARNED AO ERRED IN LAW AND IN FACTS IN OBSERVING THAT THE PAYMENTS MADE WHICH ARE INCLUDED IN THE BRANCH OFFICE EXPEN DITURE, WERE LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. 9.4 THE LEARNED AO ERRED IN NOT NOTING THAT THE CLAIM REGARDING DOUBLE DISALLOWANCE OF RS. 52,39,273, BEING DEPRECIATION INCLUDED IN BRANCH OFFICE EXPENDITURE, WAS ALREADY RECTIFIED BY THE LEARNED AO IN ITS ORDER DATED 21 FEBRUARY 2017. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 19 GROUND NO. 10: DISALLOWANCE OF EXPENDITURE INCURRED ON NON - PRODUCING PRODUCTION SHARING CONTRACTS ( PSCS ) 10.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN DISALLOWING THE EXPENDITURE OF RS.2,1 5,34,15,982 INCURRED ON NON - PRODUCING PSCS. FACTS: 27. THE APPELLANT CLAIMED EXPLORATION EXPENDITURE INCURRED ON NON - PRODUCING BLOCK OF RS. 215,34,15,982 IN TERMS OF SECTION 42(1) OF THE ACT READ WITH PRODUCTION SHARING CONTRACT OF PANNA / MUKTA AND MID AND SOUTH TAPTI GAS FIELDS. I N PURSUANCE OF THE SAID BUSINESS, THE APPELLANT FROM TIME TO TIME IDENTIFIES PROSPECTIVE AREAS CONTAINING MINERALS AND CARRIES OUT EXPLORATION /DRILLING AND/OR PRODUCTION ACTIVITIES THEREIN. ACCORDINGLY, THE ACTIVITY OF EXPLORA TION / DRILLING AT ANY NEW SITE/AREA CONSTITUTES PART AND PARCEL OF THE EXISTING BUSINESS AND CONSEQUENTLY EXPENDITURE INCURRED IN RELATION THERETO HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF SUCH BUSINESS . DURING THE COURSE OF THE ASSESSM ENT PROCEEDINGS, THE AO PROPOSED TO DISALLOW THE AFORESAID EXPENSE BY ALLEGING THAT: AS PER CLAUSE 17.2.3 AND 17.2.4 OF PSC IN RESPECT OF BLOCK KG - DWN - 2009/01, THE EXPENDITURE INCURRED BY BGEPIL IN OTHER PSCS PRIOR TO COMMERCIAL PRODUCTION SHALL BE AGGREG ATED AND CLAIMED ONLY FROM THE YEAR OF COMMERCIAL PRODUCTION. THEREFORE, EXPENSES INCURRED BY THE APPELLANT IN RESPECT OF THOSE OIL BLOCKS WHERE COMMERCIAL PRODUCTION HAS NOT YET COMMENCED HAS TO BE AMORTIZED AND CARRIED OVER AND CAN BE SET OFF ONLY WHEN R EVENUE IS EARNED FROM ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 20 SUCH OIL BLOCKS AFTER COMMENCEMENT OF COMMERCIAL PRODUCTION. SECTION 42 IS A COMPLETE CODE IN ITSELF WHICH ALLOWS THE APPELLANT TO CLAIM EVEN THE CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF EXPLORATION AND EXTRACTION ACTIVITIES, A S PROVIDED IN PSCS ENTERED INTO FOR THE PURPOSE. TAXABILITY OF PROFITS OF THE APPELLANT ARE STRICTLY AS PER PROVISION OF THIS SECTION. THEREFORE, SETTING - OFF OF EXPENSE OF ONE FIELD CANNOT BE ALLOWED FROM REVENUE OF OTHER OIL BLOCK. THE DRP UPHELD THE ADDI TIONS PROPOSED BY THE AO. 28 . OUT OF THE TOTAL AMOUNT OF RS 215,34,15,982, AN AMOUNT OF RS. 1,24,38,071 HAS BEEN ALREADY BEEN ADJUSTED/ DISALLOWED BY THE TPO. ACCORDINGLY, THE AO LIMITED THE DISALLOWANCE TO RS. 214,09,77,911 [RS. 215,34,15,982 - RS. 1,24, 38,071] TO AVOID DOUBLE ADDITION/ DISALLOWANCE. 29 . LD. COUNSEL SUBMITTED THAT SECTION 42 OF THE ACT SEEKS TO PROVIDE ADDITIONAL ALLOWANCE/BENEFIT/DEDUCTION TO AN ELIGIBLE APPELLANT, WHICH ARE OTHERWISE NOT AVAILABLE UNDER THE REGULAR PROVISIONS OF THE AC T, WHICH IS ABUNDANTLY CLEAR FROM USE OF THE PHRASE IN ADDITION TO THE ALLOWANCE PERMISSIBLE UNDER THE ACT . IN OTHER WORDS, THE SECTION DOES NOT OVERRIDE OR SEEK TO TAKE AWAY BENEFITS/DEDUCTIONS AVAILABLE TO THE ELIGIBLE APPELLANT UNDER ANY OTHER PROVISI ON OF THE ACT, IN THE ABSENCE OF A NON - OBSTANTE CLAUSE. ACCORDINGLY, WHERE AN ASSESSEE ALREADY CARRYING ON BUSINESS OF EXPLORATION AND PRODUCTION OF MINERAL OIL, INCURS ANY EXPENDITURE IN PURSUANCE OF SUCH EXISTING BUSINESS, THE SAME WOULD BE ALLOWABLE BU SINESS DEDUCTION UNDER SECTION 37(1), DE HORS SECTION 42 OF THE ACT. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 21 LD. COUNSEL PLACED RELIANCE ON DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ONGC VIDESH LTD. V. DCIT: 37 SOT 97. 30 . THE LD. COUNSEL AT THE OUTSET SUBMITTED THAT FACT AND CIRCU MSTANCES OF THE CASE ARE SIMILAR TO ASSESSMENT YEAR 2010 - 11 AND THIS ISSUE STANDS COVERED BY THIS TRIBUNAL FOR A SSESSMENT YEAR 2010 - 11 AS UNDER : 55. FROM THE ABOVE CHART IT IS APPARENT THAT OUT OF THE TOTAL EXPENDITURE INCURRED OF RS. 931819021/ THE LD. ASSESSING OFFICER HAS ALLOWED THE EXPENDITURE OF RS. 471505233/ WHICH IS THE COST OF RESPECTIVE PSC AND SHARED WITH JV PARTNERS. THE BALANCE COST WHICH IS NOT SHARED BY THE JV PARTNERS AMOUNTING TO RS. 460313788/ WAS DISALLOWED FOR THE REASON THAT THESE COST HAVE NOT BEEN SHARED BY THE JV PARTNERS AND THEREFORE IT IS NOT INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND HENCE DISALLOWABLE. FURTHER SUM OF RS . 220983295/ INCLUDED IN THE DISALLOWANCE OF RS. 460313788/ WAS PERTAIN ING TO THE PURC HASE OF SEISMIC DATA FOR EXPLORING NEW OPPORTUNITIES IN THE BUSINESS OF THE COMPANY UNDER THE PRETEXT THAT THESE ARE WITH RESPECT TO THE FUTURE BUSINESSES WHICH HAS NOT YET COMMENCED. THEREFORE, PRIMARY THE DISALLOWANCES OF RS. 460313788/ INC LUDES A SUM O F RS 22098 3295/ FOR PURCHASE OF SEISMIC DATA AND BALANCE AMOUNT PRIMARILY WITH RESPECT TO TIME WRITING COST AND DEVELOPMENT EXPENSES. THE TIME WRITING CHARGES AS IT IS EXPLAINED BY THE ASSESSEE ARE FOR THE PURPOSE OF DRILLING AND SUBSURFACE INPUTS, ANALY SIS AND ADMINISTRATIVE EXPENSES WITH RESPECT TO EXECUTIVE, FINANCE, HUMAN RESOURCES, LEGAL, COMMERCIAL, ETC THE DETAILED BREAKUP OF THESE TIME WRITING CHARGES FOR EACH OF THE PSC CONTRACT WERE EXPLAINED BY THE ASSESSEE BY GIVING BREAKUP OF THEIR COST AS WE LL AS NATURE OF THOSE EXPENDITURE. ASSESSEE EXPLAINED THAT AS IT NEEDS TO SAFEGUARD ITS INTEREST IN THE BLOCKS IT HAS EMPLOYED TECHNICAL EXPERTS FOR WHICH TIME WRITING CHARGES ARE INCURRED. FURTHER, FOR THE SUPPORT FUNCTIONS. IT ALSO HIRES SEVERAL OTHER PE RSONS AND NECESSARILY HAS TO INCUR OTHER EXPENDITURE WITH RESPECT TO ITS FINANCE AND ACCOUNTING ACTIVITIES, ITS ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 22 HUMAN RESOURCE ACTIVITIES AND LEGAL COMPLIANCE AND LITIGATION ACTIVITIES. THESE EXPENDITURE ARE THOUGH INCURRED IN SUPPORT TO THE PSC CONTRACTS EXECUTED BY THE ASSESSEE AT MAY NOT BE NECESSARILY SHARED BY THE OTHER JOINT - VENTURE PARTNERS. MERELY BECAUSE IT IS NOT SHARED BY OTHERS, WHICH MAY BE FOR MANY REASONS, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED THESE EXPENDITURE WHOLLY AND EXCLU SIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. WITH RESPECT TO THE DETAILS AVAILABLE WITH THE ASSESSING OFFICER, IT WAS NOT POINTED OUT A SINGLE INSTANCE THAT ANY OF THE EXPENDITURE ARE NOT INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. IN FACT, OUT OF THE TOTAL EXPENDITURE THE LD. ASSESSING OFFICER HAS PARTLY ALLOWED THE EXPENDITURE AND PARTLY DISALLOWED THE EXPENDITURE BY USING THE SINGLE YARDSTICK THAT IF EXPENDITURE ARE SHARED BY THE JV SAME ARE ALLOWABLE AND IF SAME IS NOT SHARED BY JV PARTNERS, THEN IT IS NOT ALLOWABLE. WE FAILED TO SEE ANY SUCH PROVISION IN THE ACT THAT IF THE OTHER PARTY IN THE JOINT - VENTURE DO NOT AGREE TO SHARE THE PARTICULAR COST, THE COST INCURRED BY ONE OF THE PARTNERS OF THAT JOINT - VENTURE BECOMES THE EXPEND ITURE NOT FOR THE PURPOSE OF THE BUSINESS OF THAT PARTNER. NO SUCH PROVISION HAS ALSO BEEN BROUGHT TO OUR NOTICE BY THE REVENUE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT DETAILS OF THOSE EXPENDITURE ARE NOT AVAILABLE BEFORE THEM OR ASSESSEE HAS FURNISHE D INCOMPLETE INFORMATION FOR ITS ALLOWABILITY. FURTHER, NO JUDICIAL PRECEDENT WAS CITED BEFORE US BY REVENUE, WHICH SAYS THAT SUCH EXPENDITURE ARE NOT ALLOWABLE TO THE ASSESSEE. THEREFORE ACCORDING TO US THE EXPENSES INCURRED BY THE ASSESSEE WITH RESPECT T O I) KG - OS - 02004/1 OF RS.7163 8553 / - II) MN DWN 2002/2 OF RS.1 0524 1649 / - III) KG - DWN - 98/4 OF RS.6 245 0283/ CANNOT BE DISALLOWED. IN VIEW OF THIS WE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE WITH RESPECT TO ABOUT 3 ITEMS. 5 6. NOW COMING TO THE CLAIM OF THE DEDUCT ION OF EXPENDITURE OF RS. 22098 3295/ ON ACCOUNT OF PURCHASE OF SEISMIC DATA AND GENERAL AND ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 23 ADMINISTRATIVE EXPENSES IN CONNECTION WITH THE PROPOSED NELP VIII, IT IS SUBMITTED BY THE ASSESSEE THAT THESE WERE THE EXP ENSES INCURRED BY THE ASSESSEE WITH RESPECT TO THE OFFERS WHICH WERE INVITED FOR THE 8TH OFFER OF BLOCKS FOR NATIONAL EXPLORATION LICENSING POLICY FOR WHICH THE ASSESSEE HAS TO PURCHASE THE DATA FOR THE BIDDING PURPOSES. THE OTHER EXPENSES WHICH ARE THE N ECESSARY GENERAL AND ADMINISTRATIVE EXPENSES WERE INCURRED FOR PROJECT MANAGEMENT, CONSULTANCY SERVICES, ETC AND ALSO STAFF COST AND PROJECT MANAGEMENT EXPENSES WERE INCURRED. THESE EXPENSES WERE DISALLOWED BY LD. ASSESSING OFFICER HOLDING THAT THESE ARE E XPENSES FOR THE FUTURE PROJECTS OF THE ASSESSEE FOR WHICH EVEN THE PSC IS NOT EXECUTED. THE LD. AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS ISSUE OF ALLOWABILITY OF THIS EXPENDITURE IS COVERED IN ITS FAVOUR BY THE DECISION OF ONGC VIDESH LTD VERSUS D CIT [37 SOT 97] WHEREIN IT HAS BEEN HELD AS UNDER: - 15. WITH REGARD TO DISALLOWING CLAIM OF EXPENSES OF RS. 43.85 LAKHS INCURRED FOR PURCHASE AND EVALUATION OF THE SEISMIC DATA OF FOREIGN BLOCKS, ON THE PLEA OF SAME BEING CAPITAL IN NATURE, WE FOUND THAT ASSESSEE BEING ENGAGED IN THE BUSINESS OF EXPLORATION AND PRODUCTION OF HYDROCARBONS IN OTHER COUNTRIES TO AUGMENT THE OIL RESOURCES OF INDIA, IT WAS CONTINUOUSLY EVALUATING VARIOUS BUSINESS OPPORTUNITIES BEFORE ACQUIRING A PARTICULAR FIELD/BLOCK. SINCE A LL THESE OPPORTUNITIES HAVE TO BE EVALUATED AND STUDIED BEFORE TAKING DECISION TO INVEST AND ENTER INTO A CONTRACT, THE PROCESS OF EVALUATION OF THE BLOCK STARTED WITH SUBMITTING TENDER FEE/DATA FEE, ETC. AND THEN THE SEISMIC DATA HAD TO BE EVALUATED IN SE ISMIC PROCESSING CENTRE. AFTER EVALUATING THE SAME, THE ASSESSEE WAS TO TAKE DECISION AS TO WHETHER INVESTMENTS SHOULD BE MADE IN THE PROJECT OR NOT. THERE IS NO DISPUTE TO THE FACT THAT IN ALL INDUSTRIES AN ACTIVITY FOR FURTHERANCE OF ITS BUSINESS OR EVAL UATION OF BETTER PROFIT - EARNING PROCESS IN ONE MANNER OR OTHER IS UNDERTAKEN. EFFORT TO EVALUATE THE PROSPECTS OF BETTER EARNING PROFIT IS NOT A SEPARATE ACTIVITY BUT IS IN THE COURSE OF CONDUCT OF ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 24 NORMAL DAY - TO - DAY BUSINESS. THESE EXPENDITURES CANNOT BE S AID TO BRING AN ENDURING BENEFIT TO THE BUSINESS NOR THE SAME CAN BE SAID AS INITIAL OUTLAY FOR EXPANSION OF BUSINESS. IN THE INSTANT CASE, THE EXPENDITURE SO INCURRED BY THE ASSESSEE IS FOR FURTHERANCE OF ACTIVITIES UNDERTAKEN BY IT IN THE NORMAL COURSE O F ITS BUSINESS. THE SAME ARE INCURRED ON CONTINUOUS BASIS FOR EVALUATION OF BUSINESS ACTIVITIES. IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT V. ESSAR OIL LTD. [IT APPEAL NO. 921 OF 2008, DATED 16 - 10 - 2008], SUCH EXPENDITURE IS TO BE ALLO WED AS REVENUE EXPENDITURE. HON BLE CALCUTTA HIGH COURT IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. V. CIT [1992] 196 ITR 845 HELD THAT WHERE THE SETTING UP DOES NOT AMOUNT TO STARTING OF NEW BUSINESS BUT EXPANSION OR EXTENSION OF THE BUSINESS AL READY BEING CARRIED ON BY THE ASSESSEE, EXPENSES IN CONNECTION WITH SUCH EXPANSION OR EXTENSION OF THE BUSINESS MUST BE HELD TO BE DEDUCTIBLE AS REVENUE EXPENSES. ONE HAS TO CONSIDER PURPOSE OF THE EXPENDITURE AND ITS OBJECT AND EFFECT. ACCORDINGLY, IT WAS HELD THAT EXPENSES PERTAINING TO EXPLORING FEASIBILITY OF EXPANSION OR EXTENSION OF BUSINESS ARE REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. THE EXPENDITURE SO INCURRED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS OF EXPLORATION AND PRODUCTION OF OIL, BEING REVENUE IN NATURE, IS LIABLE TO BE ALLOWED AS A DEDUCTION. SIMILAR CLAIM WAS ALSO MADE BY THE ASSESSEE IN THE EARLIER YEAR. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME AS REVENUE EXPENDITURE. AS WE HAVE ALLOWED GROUND NOS. 3 T O 3.2, THE ALTERNATE GROUND NO. 3.3 AS TAKEN BY THE ASSESSEE BECOME INFRUCTUOUS. [EXTRACTED TAXMANN.COM][UNDERLINE SUPPLIED BY US] NEITHER THE LD. ASSESSING OFFICER NOR THE LD. DEPARTMENTAL REPRESENTATIVE COULD PRESS ANY OTHER JUDICIAL PRECEDENT WHICH SHOWS THAT AMOUNT SPENT BY THE ASSESSING IS NOT ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37 (1) OF THE ACT. IT IS ALSO NOT THE ARGUMENT OF THE REVENUE THAT SUCH ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 25 EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE. FURTHERMORE, THE LD. AR HAS AL SO PRESSED INTO SEVERAL DECISIONS WHICH SAY THAT THAT EXPENSES INCURRED TOWARDS EXTENSION OF BUSINESS WHICH WAS SUBSEQUENTLY ABANDON OR DID NOT FRUCTIFY, ARE ALLOWABLE. THEREFORE IN VIEW OF THE ABOVE DECISIONS WHEREIN IT IS BEEN HELD THAT THE EXPENSES FO R PURCHASE OF THIS KIND OF DATA IS UNNECESSARY REVENUE EXPENDITURE REQUIRED TO BE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND HENCE IS ALLOWABLE AS REVENUE EXPENDITURE, WE ALSO DIRECT THE LD. ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCU RRED BY THE ASSESSEE ON PURCHASE OF DATA AND OTHER RELEVANT EXPENSES AMOUNTING TO RS. 220983295/ . IN THE RESULT GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 31 . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FACTS ARE SIMILAR AND IDENTICAL TO THAT FOR YEAR UNDER CONSIDERATION. ON A QUESTION BEING RAISED BY THE BENCH REGARDING BIFURCATION OF EXPENSES FOR YEAR UNDER CONSIDERATION, THE LD. COUNSEL POINTED OUT AT PAGE NO. 9 PARAGRAPH 7.2 OF FINAL ASSESSMENT ORDER WHEREIN THE DETAILS OF VARIOUS EXP ENSES INCURRED BY BRANCH OFFICE AND VARIOUS PROJECT OFFICE HAS BEEN TABULATED. 32 . THE LD. CIT DR OPPOSED FOR THE SAME. HOWEVER, COULD NOT CONTROVERT THE ABOVE REPRODUCED OBSERVATION BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER YEARS. 33 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FAIL TO SEE ANY SUCH PROVISION IN THE ACT THAT IF THE OTHER PARTY IN THE JOINT - VENTURE DO NOT AGREE TO SHARE THE PARTICULAR COST, THE COST INC URRED BY ONE OF THE PARTNERS OF THAT JOINT - VENTURE BECOMES THE EXPENDITURE NOT FOR THE PURPOSE OF THE BUSINESS OF THAT PARTNER. NO SUCH PROVISION HAS ALSO BEEN ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 26 BROUGHT TO OUR NOTICE BY THE REVENUE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT DETAILS OF THO SE EXPENDITURE ARE NOT AVAILABLE BEFORE THEM OR ASSESSEE HAS FURNISHED INCOMPLETE INFORMATION FOR ITS ALLOWABILITY. FURTHER, NO JUDICIAL PRECEDENT WAS CITED BEFORE US BY REVENUE, WHICH SAYS THAT SUCH EXPENDITURE ARE NOT ALLOWABLE TO THE ASSESSEE. ACCORDING LY, THESE GROUNDS RAISED BY THE ASSESSEE STANDS ALLOWED. 34 . GROUND NO. 11 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 11: DISALLOWANCE OF HEAD OFFICE EXPENDITURE 11.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN APPLYING THE PROVISION S OF SECTION 44C OF THE ACT TO PAYMENTS MADE TO BG INTERNATIONAL LIMITED. 11.2 WITHOUT PREJUDICE, THE AO HAS ERRED IN COMPUTING ALLOWANCE UNDER SECTION 44C WITH RESPECT TO THE RETURNED INCOME AND NOT INCOME ASSESSED. FACTS: 35 . LD. COUNSEL SUBMITTED TH AT THE APPELLANT INCURS EXPENDITURE TO UNDERTAKE ACTIVITIES REQUIRED BY THE PSC, HAVING REGARD TO ITS STANDARD OF OPERATION, INCLUDING THE QUALITY OF EXECUTION OF WORK, ACCESS TO LATEST INDUSTRY INFORMATION AND GLOBAL UPDATES, SAFETY OF ITS EMPLOYEES AND T HE ENVIRONMENT, ETC. THE EXPENSES ON SUCH SERVICES ARE REQUIRED TO BE INCURRED BASED ON COMMERCIAL EXPEDIENCY DETERMINED BY BGEPIL. THE SAME ARE NOT NECESSARILY ACCEPTED BY THE JV PARTNERS AS THE INCURRENCE AND NEED IS NOT DEPENDENT ON THE POINT OF VIEW OF THE OTHER CONTRACTORS IN THE JV (WHO LIKEWISE MAY INCUR EXPENDITURE BASED ON THEIR COMMERCIAL EXPEDIENCY HAVING REGARD TO THEIR OVERALL BUSINESS AND CIRCUMSTANCES, WHICH MAY VARY FROM THAT OF THE BGEPIL IN DIFFERENT ASPECTS). HOWEVER, ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 27 THE COST WOULD HAVE TO BE INCURRED BY BGEPIL BASED ON COMMERCIAL EXPEDIENCY, NOTWITHSTANDING THAT SOME COST MAY NOT BE SHARED BY THE JV PARTNERS. AS AN OPERATOR IN THE PMT JV, BGEPIL INCURS EXPENSES AS IT DEEMS ARE APPROPRIATE AND NECESSARY FOR CONDUCTING THE OPERATIONS. OUT OF THE SAID EXPENDITURE, ONLY THE EXPENDITURE WHICH IS APPROVED BY THE JOINT OPERATOR BOARD WOULD BE DEBITED TO THE JV ACCOUNT AND SHARED BY THE JV PARTNERS. THE BALANCE EXPENDITURE WOULD HAVE TO BE BORNE BY BGEPIL. LD. COUNSEL RAISED FOLLOWING ARGUMENTS: TYPICALLY, COSTS ARE NOT SHARED WITH THE JV IN THE FOLLOWING CASES: 1. THE EXPENSE IS INCURRED IN ORDER TO SAFEGUARD BGEPIL S INTEREST IN ANY OIL BLOCK IN WHICH IT OPERATES (SUCH AS ANALYSIS ON RISKS, ANALYSIS OF INSURANCE, INFORMATION MANAGEMENT RELATED SERVICES, HR INTERNATIONAL SUPPORT, ACCOUNTING SUPPORT, INSURANCE SUPPORT, TAXATION SUPPORT, MARKETING OF OIL AND GAS SUPPORT, AND COST CONTROL AND FINANCE SERVICE FUNCTION); OR 2. IT IS IN RELATION TO SUPPORT FUNCTIONS (SUCH AS HR, LEGAL, ACCOUNTS AND FI NANCE, ETC.) WHICH ARE INEVITABLE FOR CARRYING ON ITS BUSINESS AND INCURRED BASED ON THE COMMERCIAL EXPEDIENCY DETERMINED BY BGEPIL (BUT NOT ACCEPTED BY THE OPERATOR BOARD BASED ON COMMERCIAL EXPEDIENCY DETERMINED BY THEM)] 3. IT IS INCURRED TO ENABLE BGEP IL TO PERFORM OPERATIONS UNDER THE PSC, SUSTAIN ITS ACTIVITIES AND MAINTAIN ITS STANDARD OF OPERATIONS, BASED ON THE COMMERCIAL EXPEDIENCY DETERMINED BY BGEPIL (BUT NOT ACCEPTED BY THE OPERATOR BOARD DETERMINED BY THEM). ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 28 36 . HE SUBMITTED THAT IN CASE OF POINTS 2 AND 3 ABOVE, THERE COULD BE OCCASIONS WHERE BGEPIL DEEMS IT NECESSARY AND EXPEDIENT TO INCUR CERTAIN EXPENDITURE FOR ITS BUSINESS, WHEREAS, THE OTHER JV PARTNERS HAVE A DIFFERENT POINT OF VIEW IN THE MATTER. IN SUCH CASE, SOME COST MAY NOT BE SHARED BY THE JV. 37 . LD. COUNSEL SUBMITTED THAT THE PRINCIPAL REASON FOR THE JOINT OPERATOR BOARD NOT APPROVING EXPENDITURE IS ITS IMPACT ON COST RECOVERY (AS COST PETROLEUM) AND CONSEQUENT PROFIT (AS PROFIT PETROLEUM). AS IT IS NOT IN THE GOVERNMENT I NTEREST (IMPACT ON PROFIT PETROLEUM) TO CONSIDER THE HIGH COST OF THE FULL ENGAGEMENT, ONGC, LOOKING INTO THE GOVERNMENT S BENEFIT, ATTEMPTS TO PUSH BACK COSTS OUTSIDE THE JV. HOWEVER, IT DOES NOT ALTER THE NATURE OF COST IN THE HANDS OF BGEPIL; THE COSTS ARE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS OF PROSPECTING FOR, EXPLORATION AND PRODUCTION OF CRUDE OIL AND NATURAL GAS. DURING THE SUBJECT ASSESSMENT YEAR, THE APPELLANT HAD PAID RS. 327,27,02,677 TO BGIL IN RESPECT OF SER VICES RENDERED BY BGIL TO THE APPELLANT. HOWEVER, OUT OF THE AFORESAID EXPENSE, THE OPERATOR BOARD OF THE PSC DID NOT APPROVE EXPENSES AMOUNTING TO RS. 306,13,07,141. 38 . DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO ALLEGED THAT THE EXPENDITURE INCURRED BY BGIL FOR THE ACTIVITIES OF THE APPELLANT IN INDIA WERE IN NATURE OF HEAD OFFICE EXPENDITURE WITHIN THE MEANING OF SECTION 44C AND THAT PART OF THE AFORESAID EXPENDITURE WHICH WAS NOT APPROVED BY THE OPERATOR BOARD OF THE PSC, WAS OUTSIDE THE P URVIEW OF SECTION 42(1) OF THE ACT. ACCORDINGLY, SUCH EXPENSES INCURRED BY THE APPELLANT WERE HELD TO BE IN THE NATURE OF HEAD OFFICE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 29 EXPENDITURE ALLOWABLE ONLY TO THE EXTENT OF 5% OF THE ADJUSTED TOTAL INCOME OF THE APPELLANT. THE AO DID NOT, HOWEVER, MAK E ANY ADDITION SINCE THE SAID EXPENSES HAD ALREADY BEEN DISALLOWED BY THE TPO. THE DRP DID NOT INTERFERE WITH THE ACTION OF THE AO. 39 . AT THE OUTSET, LD. COUNSEL SUBMITTED THAT THIS ISSUE HAS BEEN DEALT WITH BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL FOR ASSESSMENT YEARS 2010 - 11 AND 2012 - 13. HE SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENSES TO UNDERTAKE ACTIVITIES REQUIRED BY THE PSC WITH REGARD TO ITS STANDARD OF OPERATION, INCLUDING THE QUALITY OF EXECUTION OF WORK, ACCESS TO LATEST INDUSTRY INFORMATI ON AND GLOBAL UPDATES, SAFETY OF ITS EMPLOYEES AND ENVIRONMENT ETC. AND ALL THESE EXPENSES ARE INCURRED ON THE BASIS OF COMMERCIAL EXPEDIENCY DETERMINED BY THE TAXPAYER AND THE SAME NEED NOT BE ACCEPTED BY THE JOINT VENTURE PARTNER. LD. AR FOR THE TAXPAYE R CONTENDED THAT IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE TAXPAYER IN ITS OWN CASE FOR AY 2010 - 11 (SUPRA). 40 . HE SUBMITTED THAT THIS ISSUE HAD BEEN ADJUDICATED BY COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR AY 2010 - 11 AND DECIDED AS UNDER: 31. COMING TO THE FACTS OF THE IMPUGNED GROUND, T HE LD. ASSESSING OFFICER HAS DISALLOWED THE SAME EXPENDITURE FOR THE ONLY REASON THAT HAD THE SAME WERE INCURRED FOR THE PRODUCTION IT SHOULD HAVE BEEN PASSED THROUGH THE JOINT VENTURE A ND SHARED BY ALL THE PARTNERS AND THESE EXPENSES ARE NOT INCURRED WHOLLY AND ACTUALLY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. NATURE OF THE EXPENSES WHICH HAVE BEEN DISALLOWED BY THE LD. ASSESSING OFFICER ARE AS UNDER: - ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 30 PARTICULARS AMOUNT TANKER & RELATED COSTS 115,534,442 TUG BOAT COSTS 70,464,943 SAFETY ENVIRONMENT & MATERIALS 11,355 TECHNICAL & ENGINEERING SERVICES 316,786,095 LESS: REVERSAL OF WATER TRANSPORTATION & OTHER CHARGES (8,344,443) TOTAL BG EXCLUSIVE PRODUCTION COST. 494,452,392 THE ABOVE EXPENDITURE ARE IN THE NATURE OF TANKER EXPENDITURE, TUG AND BOAT EXPENDITURE, SAFETY ENVIRONMENT AND MATERIAL EXPENDITURE AS WELL AS TECHNICAL AND ENGINEERING SERVICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED THE DETAILS OF THOSE EXPENDITURE. MERELY BECAUSE THE JOINT - VENTURE PARTNERS ARE NOT SHARING THE COST/EXPENSES WHICH IS BEEN INCURRED BY THE ASSESSEE, IT DOES NOT BECOME DISALLOWABLE IN THE HANDS OF THE ASSESSEE. WE FIND NO SUCH CONDITION EXISTIN G EITHER UNDER SECTION 42, OR UNDER SECTION 37 (1) OF THE INCOME TAX ACT. THEREFORE, WE REJECT THE CONTENTION OF THE REVENUE THAT UNLESS THE EXPENDITURE IS NOT BORNE BY ALL THE JV PARTNERS THE EXPENSES CANNOT BE ALLOWED TO THE ASSESSEE. IN FACT, IF THE JV PARTNERS SHARE THE EXPENDITURE, THERE CANNOT BE ANY QUESTION OF CLAIM OF SUCH EXPENDITURE IN THE HANDS OF THE ASSESSEE, ONCE AGAIN. FURTHER, IF THE EXPENSES ARE NOT SPECIFIED IN THE AGREEMENT U/S 42 (1), EVEN IF THE JV PARTNERS AGREE TO SHARE THOSE EXPENDI TURE, IT IS NOT ALLOWABLE U/S 42 (1) OR SECTION 37 (1) OF THE ACT. NOW IT NEEDS TO BE EXAMINED, WHETHER THE ASSESSEE HAS INCURRED EXPENDITURE FOR THE PURPOSES OF ITS BUSINESS OR NOT. THE ASSESSEE HAS STATED THAT IT HAS INCURRED SUCH EXPENDITURE HAVING REGA RD TO ITS STANDARD OF OPERATION AND THE QUALITY OF EXECUTION WORK, SAFETY OF ITS EMPLOYEES IN THE ENVIRONMENT. THESE EXPENSES ARE REQUIRED TO BE INCURRED BY THE ASSESSEE BASED ON THE COMMERCIAL EXPEDIENCY. THE ASSESSEE HAS STATED THAT IN RELATION TO THE SU PPORT FUNCTIONS, WHICH ARE INNOVATIVELY INEVITABLE FOR ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 31 CARRYING ON ITS BUSINESS AND INCURRED BASED ON THE COMMERCIAL EXPEDIENCY ARE EXPENSES BELONGING TO THE ASSESSEE WHICH CANNOT BE ACCEPTED BY THE OPERATING BOARD. FURTHER, THERE MAY BE CERTAIN EXPENDITUR E WHICH ARE REQUIRED TO BE INCURRED TO ENABLE THE ASSESSEE TO PERFORM ITS OPERATION UNDER THE PRODUCTION SHARING CONTRACT SUSTAINING ITS ACTIVITIES AND MAINTAINING ITS STANDARD OF OPERATIONS. IT IS IRRELEVANT WHETHER THE JOINT OPERATOR BOARD HAS APPROVED S UCH EXPENDITURE OR NOT BECAUSE THERE MAY BE SEVERAL OTHER REASONS FOR JOINT - VENTURE PARTNERS TO NOT TO SHARE THE EXPENDITURE. THE LD. ASSESSING OFFICER AS WELL AS THE LD. DISPUTE RESOLUTION PANEL, DESPITE HAVING THE NECESSARY DETAILS OF THE EXPENDITURE DID NOT POINT OUT THE SINGLE INSTANCE THAT THESE EXPENDITURE ARE NOT INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. MERELY MAKING REFERENCES TO THE VARIOUS JUDICIAL PRECEDENTS WITHOUT PUTTING TO THE FACTS ON RECORD ABOUT INCURRING OF THE EXPENDITU RE BY THE ASSESSEE OR NON - BUSINESS PURPOSES DISALLOWANCE MADE BY THE LD. AND ASSESSING OFFICER CANNOT BE UPHELD. INSTEAD, DESPITE FULL DETAILS AVAILABLE WITH THEM THEY HAVE DENIED THE CLAIM TO THE ASSESSEE. NEITHER THE ASSESSING OFFICER AND NOR THE DISPUTE RESOLUTION PANEL POINT OUT NATURE OF DETAILS WHICH WAS NOT SUBMITTED BY THE ASSESSEE WHEN PART OF THE EXPENDITURE HAS ALREADY BEEN CONSIDERED IN DETAIL AT THE TIME OF DETERMINING ARMS; LENGTH OF THE TRANSACTION. IN VIEW OF NO ADVERSE INFERENCE FROM THE LO WER AUTHORITIES ON THE DETAILS SUBMITTED, WE ARE CONSTRAINED TO ALLOW THE CLAIM OF THE ASSESSEE OF DEDUCTIBILITY OF THE ABOVE EXPEND ITURE OF RS. 316786095/ - . IN THE RESULT GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 41 . KEEPING IN VIEW THE FACT S AND CIRCUMSTANCES OF THE CASE AND THE FACT THAT BUSINESS MODEL HAS NOT UNDERGONE ANY CHANGE SINCE THE AY 2010 - 11 AND BY FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYER S OWN CASE FOR AY 2010 - 11, WE ARE OF THE CONSIDERE D VIEW THAT THE COST OF SERVICES AVAILED OF BY THE TAXPAYER REQUIRED BY PSC WITH REGARD TO ITS STANDARD OF OPERATION INCLUDING THE QUALITY OF ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 32 EXECUTION OF WORK, ACCESS TO LATEST INDUSTRY INFORMATION AND GLOBAL UPDATES, SAFETY OF ITS EMPLOYEES AND THE ENVIR ONMENT ETC., CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THE SAID EXPENSES HAVE NOT BEEN BORNE BY THE JOINT VENTURE PARTNER, PARTICULARLY WHEN IT IS NOT DISPUTED BY THE REVENUE THAT THE EXPENDITURE WERE MADE FOR COMMERCIAL EXPEDIENCY. 42 . THE LD. CIT D R OPPOSED TO THE SAME AND SUBMITTED THAT THE ISSUE HAS BEEN CONTESTED BEFORE THE HON BLE HIGH COURT. 43 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FAIL TO SEE ANY SUCH PROVISI ON IN THE ACT THAT IF THE OTHER PARTY IN THE JOINT - VENTURE DO NOT AGREE TO SHARE THE PARTICULAR COST, THE COST INCURRED BY ONE OF THE PARTNERS OF THAT JOINT - VENTURE BECOMES THE EXPENDITURE NOT FOR THE PURPOSE OF THE BUSINESS OF THAT PARTNER. NO SUCH PROVIS ION HAS ALSO BEEN BROUGHT TO OUR NOTICE BY THE REVENUE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT DETAILS OF THOSE EXPENDITURE ARE NOT AVAILABLE BEFORE THEM OR ASSESSEE HAS FURNISHED INCOMPLETE INFORMATION FOR ITS ALLOWABILITY. FURTHER, NO JUDICIAL PRECE DENT WAS CITED BEFORE US BY REVENUE, WHICH SAYS THAT SUCH EXPENDITURE ARE NOT ALLOWABLE TO THE ASSESSEE. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 44 . GROUND NO. 12 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 12: DISALL OWANCE OF DEPRECIATION AND DEPLETION 12 .1 THE LEARNED AO ERRED IN LAW AND IN FACTS IN DISALLOWING DEPRECIATION OF RS. 22,47,06,553 BEING ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 33 THE DIFFERENCE OF DEPRECIATION AMOUNT BETWEEN THE TAX AUDIT REPORT AND THE COMPUTATION. 1 2.2 THE LEARNED AO/DRP ERRED IN NOT APPRECIATING THAT THIS DIFFERENCE IS ON ACCOUNT OF DEPRECIATION CLAIMED ON GLOBA L IT & T EXPENDITURE AND THAT DEPRECIATION CLAIM ON GLOBAL IT & T EXPENDITURE WAS ALLOWABLE AS HELD BY THE HON BLE ITAT IN ASSESSEE S OWN CASE FOR AY 2010 - 11. 1 2. 3 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THIS DIFFERENCE IS ON ACCOUNT OF DIFFEREN CE IN OPENING WDV OF ASSETS ON FIRST DAY OF THE CAPTIONED ASSESSMENT YEAR WHICH WAS ACCEPTED BY THE REVENUE AUTHORITIES IN EARLIER YEARS. FACTS: 45 . LD. COUNSEL SUB MITTED THAT T HE AO IN ASSESSMENT ORDER HELD THAT THERE WAS DIFFERENCE IN THE DEPRECIATION AND DEPL ETION AMOUNT AS SUBMITTED BY THE APPELLANT IN ITS COMPUTATION OF INCOME AND THE TAX AUDIT REPORT AND DESPITE GIVING OPPORTUNITY, THE APPELLANT COULD NOT PROVI DE ANY JUSTIFICATION FOR THE SAID VARIANCE. THE DRP MERELY UPHELD THE DISALLOWANCE PROPOSED BY THE AO. IN THIS REGARD, THE APPELLANT VIDE SUBMISSION DATED 11TH DECEMBER, 2017 HAD SUBMITTED THAT THE DIFFERENCES IN THE ACTUAL COST OF ADDITIONS TO FIXED ASSET S AS PER THE TAX AUDIT REPORT AND AS PER THE COMPUTATION OF TOTAL INCOME IS ON ACCOUNT OF DIFFERENCE IN DEPRECIATION PERTAINING TO BLOCK COMPUTER SYSTEMS AND SOFTWARE (AMOUNTING TO RS. 19,48,05,630) AND THE BALANCE DIFFERENCE OF RS. 265,85,446 WAS ON ACC OUNT OF DIFFERENCE IN OTHER BLOCK OF ASSETS. 46 . FURTHER, THE APPELLANT HAD SUBMITTED THAT THE DIFFERENCE IN OPENING BALANCES OF ASSETS AS PER THE TAX AUDIT REPORT AND THE COMPUTATION OF INCOME IS ALSO DUE TO THE FACT THAT THE APPELLANT HAD CAPITALISED CE RTAIN AMOUNTS IN THE RESPECTIVE ASSESSMENT ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 34 YEAR WHICH WERE TREATED AS REVENUE EXPENDITURE BY THE TAX AUDITOR. FURTHER, THE MAJOR PORTION OF THE DIFFERENCE IN THE OPENING WDV OF ASSETS IS ON ACCOUNT OF DIFFERENCE IN THE BLOCK COMPUTER SYSTEMS AND SOFTWARE WHEREIN THE APPELLANT HAD CAPITALISED GLOBAL IT & T COST PAID TO BG INTERNATIONAL LIMITED IN PREVIOUS YEARS. 47 . AS REGARDS, DIFFERENCE IN AMOUNT OF DEPRECIATION OF RS. 19,48,05,630, LD. COUNSEL SUBMITTED THAT IN THE PREVIOUS YEARS, THE AMOUNT OF GLOB AL IT & T COST PAID TO BG INTERNATIONAL LIMITED WAS CONSIDERED AS CAPITAL IN NATURE BY THE ASSESSE E AND ACCORDINGLY THE SAME WAS CAPITALIZED AND APPELLANT HAD CLAIMED DEPRECIATION THEREON. HOWEVER, THE TAX AUDITOR IN THE TAX AUDIT REPORT CONSIDERED THIS A S REVENUE IN NATURE. HE SUBMITTED THAT, I N VIEW OF THE AFORESAID DIFFERENCE IN THE WDV OF THE ASSETS, THERE IS CONSEQUENTIAL DIFFERENCE IN THE AMOUNT OF DEPRECIATION OF RS. 19,48,05,630 CLAIMED DURING THE YEAR UNDER CONSIDERATION. LD. COUNSEL SUBMITTED THA T EVEN THOUGH THE AFORESAID AMOUNTS HAVE BEEN TREATED AS REVENUE EXPENDITURE BY THE TAX AUDITOR IN THE RESPECTIVE PREVIOUS YEARS, THEIR VIEW WAS NOT BINDING ON THE APPELLANT AND HENCE, THE SAME HAVE BEEN CAPITALISED BY THE APPELLANT AND DEPRECIATION HAS BE EN CLAIMED THEREON. REFERENCE IS MADE TO SR. NO. 70.10 OF GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF THE ACT ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHEREIN IT HAS BEEN MENTIONED THAT VIEW TAKEN BY TAX AUDITOR IS NOT BINDING ON THE APPELLANT. THE RELEVANT PARAGRAPH HAS BEEN REPRODUCED AS UNDER: 70.10 THE OPINION EXPRESSED BY THE TAX AUDITOR IS NOT BINDING ON THE ASSESSEE. IF THE TAX AUDITOR HAS QUALIFIED HIS REPORT AND EXPRESSED AN OPINION ON A ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 35 PARTICULAR ITEM, THE ASSESSEE MAY TAKE A DIFFERENT VIEW WHILE PREPARING HIS RETURN OF INCOME. 48 . THUS, IT WILL BE APPRECIATED THAT EVEN GUIDANCE NOTE ON TAX AUDIT RECOGNIZES THAT AN APPELLANT CAN TAKE A DIFFERENT STAND IN THE RETURN OF INCOME IF HE HAS A BONAFIDE REASON . 49 . THE LD. COUNSE L AT THE OUTSET SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSMENT YEAR 2010 - 11 AS UNDER: 41. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND ALSO NOTED THE FACTS THAT BGIL HAS ACQUIRED AND DEVELOPED CERTAIN IT INFRASTRUCTU RE AND SOFTWARE FOR THE BENEFIT OF BG GROUP OF COMPANIES. SUCH ASSETS INCLUDE PRODUCTION DATA BASE MANAGEMENT SYSTEM, SAP UP GRADATION, EFFICIENT BUDGETING AND FORECASTING SYSTEMS, FIELD DEVELOPMENT TRAINING PROGRAMS, GEOSCIENCES/GEOPHYSICS SIMULATIONS, I NTEGRATED ASSET MODELING SYSTEMS, SOPHISTICATED E - MAIL FACILITY ETC. BGIL HAS ALLOCATED THE COST OF THESE ASSETS TO ITS GROUP COMPANIES INCLUDING ASSESSEE AT COST BASED IN ALLOCATION METHODOLOGY DECIDED AT THE GROUP LEVEL. ASSESSEE HAS CAPITALIZED THESE COSTS IN THE BOOK OF ACCOUNTS. DURING THE YEAR, BGIL HAD ALLOCATED AN EXPENSE OF RS. 80,13,26,640/ - TO THE APPELLANT OUT OF WHICH RS. 66,61,30,450/ - HAD BEEN CAPITALIZED AND BALANCE WAS ACCOUNTED AS WORK IN PROGRESS. THE APPELLANT HAD CLAIMED DEPRECIATIO N OF RS. 3,30,05,676/ - ON THE IT INFRASTRUCTURE AND SOFTWARE. THE LD. DISPUTE RESOLUTION PANEL HAS STATED THAT EVEN THE BENEFICIAL OWNERSHIP OF THE ASSENT ALSO ENTITLES THE ASSESSEE TO CLAIM THE DEPRECIATION IF THE TEST OF USER IS PROVED. IN THE PRESENT CASE, WE DO NOT THINK THAT THERE IS ANY DOUBT ABOUT THE OWNERSHIP OF THE IT INFRASTRUCTURE IN QUESTION AS PER PARAGRAPH NO. 11.1 OF THE DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL. THEREFORE ONLY ISSUE NOW REMAINS IS TO BE SEEN WHETHER THE ASSESSEE HAS PROPERLY DEMONSTRATED BEFORE THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAS USED THE ASSETS FOR THE PURPOSES OF THE BUSINESS. IT IS BETTER TO LOOK AT WHAT KIND OF ASSETS THE ASSESSEE ARE OWNED BY AND USED BY IT. ASSETS ARE PRODUCTION ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 36 DATABASE MANAGEMEN T SYSTEM, SAP UP GRADATION, BUDGETING AND FORECASTING SYSTEM, TRAINING PROGRAMS, SIMULATIONS SOFTWARE, ASSET MODELING SYSTEMS AND EMAIL FACILITIES. WHEN THE ASSESSEE IS PARTICIPATING IN SUCH A HUGE PRODUCTION SHARING CONTRACT, IT IS TOO NAVE TO THINK THA T PRODUCTION DATABASE MANAGEMENT SYSTEM AND SAP, TRAINING PROGRAMS, SIMULATIONS PROGRAMME AND EMAIL FACILITIES HAVE NOT BEEN USED BY THE ASSESSEE. ISSUES HAVE ALSO BEEN EXAMINED AT THE TIME OF DETERMINING ARM S LENGTH PRICE OF THESE EXPENSE. THE ACTUAL CO ST OF THESE ASSETS ARE NOT DOUBTED BY THE LD. ASSESSING OFFICER. IN VIEW OF THIS WE ARE OF THE OPINION THAT THESE ASSETS ARE BENEFICIALLY OWNED BY THE ASSESSEE AND ARE USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE, THEREFORE ENTITLES ASSESSEE TO C LAIM THE DEPRECIATION ON THESE ASSETS. IN VIEW OF THIS GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 50 . AS REGARDS DIFFERENCE IN DEPRECIATION OF OTHER ASSETS OF RS. 2,65,85,446, THE APPELLANT SUBMITS THAT THE AFORESAID DIFFERENCE IS ON ACCOUNT OF THE FACT THAT THE APPELLANT HAD CAPITALISED CERTAIN COSTS AS PART OF THE COST OF THE FIXED ASSETS AND APPELLANT HAD CLAIMED DEPRECIATION THEREON. HOWEVER, THE TAX AUDITOR IN THE TAX AUDIT REPORT CONSIDERED THIS AS REVENUE IN NATURE. IN THIS REGARD, THE APPELLANT SUBMITS THAT EVEN THOUGH THE AFORESAID AMOUNTS HAVE BEEN TREATED AS REVENUE EXPENDITURE BY THE TAX AUDITOR IN THE RESPECTIVE PREVIOUS YEARS, THEIR VIEW WAS NOT BINDING ON THE APPELLANT AND HENCE, THE SAME HAVE BEEN CAPITALISED BY THE APPELLANT A ND DEPRECIATION HAS BEEN CLAIMED THEREON. REFERENCE IS MADE TO SR. NO. 70.10 OF GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF THE ACT ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHEREIN IT HAS BEEN MENTIONED THAT VIEW TAKEN BY TAX AUDITOR IS NOT BINDING ON THE APPELLANT. THE RELEVANT PARAGRAPH HAS BEEN REPRODUCED AS UNDER: ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 37 I T WILL BE APPRECIATED THAT EVEN GUIDANCE NOTE ON TAX AUDIT RECOGNIZES THAT AN APPELLANT CAN TAKE A DIFFERENT STAND IN THE RETURN OF INCOME IF HE HAS A BONAFIDE REASON. I N THIS REGARD, RELIANCE IS PLACED ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF MELMOULD CORPORATION V. CIT (202 ITR 789) WHERE THE COURT HELD THAT CLOSING VALUE OF AN ASSET OF PREVIOUS YEAR OUGHT TO BE TAKEN AS OPENING VALUE OF THE ASSET FOR THE IMMEDIATELY SUCCEEDING YEAR. RELEVANT EXTRACTS OF THE DECISION ARE AS UNDER: THUS, THE VALUE OF THE CLOSING STOCK OF THE PRECEDING YEAR MUST BE THE VALUE OF THE OPENING STOCK OF THE NEXT YEAR. THE CHANGE THEREFORE, HAS TO BE EFFECTED BY ADOPTING THE NEW METHOD FOR VALUING THE CLOSING STOCK WHICH WILL, IN ITS TURN, BECOME THE VALUE OF THE OPENING STOCK OF THE NEXT YEAR. IF INSTEAD, A PROCEDURE IS ADOPTED FOR CHANGING THE VALUE OF THE OPENING STOCK, IT WILL LEAD TO A CHAIN REACTION OF CHANGES IN THE SENSE THAT THE CLOSING VALUE OF STOCK OF THE YEAR PRECEDING WILL ALSO HAVE TO CHANGE AND CORRESPONDINGLY THE VALUE OF THE OPENING STOCK OF THAT YEAR AND SO ON. 51 . RELIANCE WAS ALSO PLACED ON THE DECISIONS OF THE HON BLE SUPREME COURT IN THE CASE OF VKJ BUILDERS & CONTRACTORS P LIMITED V. CIT (318 ITR 204) WHEREIN IT HAS BEEN HELD THAT IT IS THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY THAT THE FIGURE OF THE CLOSING STOCK OF THE EARLIER YEAR HAS TO FORM THE OPENING STOCK OF THE NEXT ACCOUNTING YEAR. TO THE S AME EFFECT IS THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. CORPORATION BANK LIMITED (174 ITR 616). 52 . IN VIEW OF THE ABOVE BINDING PRECEDENTS, THE AO OUGHT TO BE DIRECTED TO ACCEPT THE OPENING WDV OF ASSETS AS SUBMITTED BY THE APPE LLANT IN THE SCHEDULE TO COMPUTATION OF INCOME WHICH IS ARRIVED FROM THE CLOSING WDV OF FIXED ASSETS OF ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 38 PREVIOUS YEAR. ACCORDINGLY, THE AO BE DIRECTED TO DELETE DISALLOWANCE ON ACCOUNT OF DIFFERENCE IN DEPLETION AS PER THE COMPUTATION OF INCOME AND TAX AUD IT REPORT. WITHOUT PREJUDICE, IT IS SUBMITTED THAT IF THE EXPENDITURE CAPITALISED BY THE APPELLANT IN PREVIOUS YEARS IS NOT HELD TO BE CAPITAL IN NATURE AND DEPRECIATION AND DEPLETION ON CAPITALISED PORTION IS SUBSEQUENTLY DISALLOWED, THE AMOUNT CAPITALISE D BY THE APPELLANT SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT IN THE RELEVANT ASSESSMENT YEAR. 53 . THE LD. CIT DR HAS NO OBJECTION FOR THE ABOVE ISSUE TO BE SET ASIDE TO LD. AO/TPO. 54 . AFTER HEARING BOTH THE SIDES AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LA W AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 55 . GROUND NO. 13 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 13. DISALL OWANCE OF LOSS ON TRANSPORTATION 13.1 THE LEARNED AO ERRED IN DISALLOWING LOSS ON TRANSPORTATION OF CONDENSATE ON THE GROUND THAT THE EXPENDITURE CANNOT BE ALLOWED ON THE BASIS OF THE PROVISIONS MADE BY THE ASSESSEE. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 39 FACTS: 56 . LD. COUNSEL SUBMITTED T HAT ONGC, RELIANCE INDUSTRIES LIMITED AND BG EXPLORATION AND PRODUCTION INDIA LIMITED ( JV PARTNERS ) HAVE ENTERED INTO A SETTLEMENT AGREEMENT DATED 31 DECEMBER 2005 WITH ONGC ( TRANSPORTER ) FOR TRANSPORTATION OF GAS AND CONDENSATE FROM THE MID AND SOUTH TAPTI CONTRACT AREAS FROM THE TAPTI DELIVERY POINT TO PMT REDELIVERY POINT. HE SUBMITS THAT A S PER THE CLAUSE 4.4 OF THE AGREEMENT, THE LOSSES ON TRANSPORTATION OF GAS SHALL BE DETERMINED BY A CONDENSATE EXPERT TO BE JOINTLY APPOINTED BY THE JV PARTNERS AN D THE TRANSPORTER. PENDING APPOINTMENT OF THE EXPERT, BGEPIL HAS PROVIDED FOR TRANSPORTATION LOSSES @ 6% OF THE CONDENSATE REVENUE ON ESTIMATED BASIS. IT WAS SUBMITTED THAT AFORESAID ESTIMATE OF 6% HAS BEEN DERIVED ON A REASONABLE BASIS. FOR THE SAME PSC, THE JV PARTNERS HAD ENTERED INTO MEMORANDUM OF UNDERSTANDING ( MOU ) WITH ONGC FOR TRANSPORTATION, SEPARATION AND PROCESSING OF GAS. AS PER THE MOU, THE TRANSPORTATION LOSSES FROM THE SALE OF CONDENSATE WERE ESTIMATED TO BE 6% (PRELIMINARY DEDUCTION OF 1% AND ADDITIONAL DEDUCTION OF 5% OF NUMBER OF BTU S IN CONDENSATE AS PER CLAUSE 5 OF THE MOU). LD. COUNSEL SUBMITTED THAT CONSISTENT WITH METHOD OF ESTIMATION IN MOU, BGEPIL HAD PROVIDED FOR TRANSPOR TATION LOSS OF RS. 5,58,80,591, THE BASIS OF REASONABLE EST IMATE IN ITS BOOKS (I.E. AS PER MOU ENTERED INTO BETWEEN JV PARTNERS AND ONGC). 5 7 . LD. COUNSEL SUBMITTED THAT T HE AO IN ASSESSMENT ORDER ERRONEOUSLY OBSERVED THAT THE AFORESAID PROVISION HAS NOT BEEN REVERSED IN THE SUBSEQUENT YEAR. HE SUBMITTED THAT T HE AO RELYING ON THE DECISION OF SEAGRAM DISTILLERIES P LTD. V. CIT ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 40 (SLP TO APPEAL (C) NO. 12102 OF 2016) CONCLUDED THAT THE AFORESAID EXPENDITURE INCURRED CANNOT BE ALLOWED ON THE BASIS OF THE PROVISION MADE BY THE APPELLANT. THE DRP UPHELD FINDINGS OF AO . SECTION 145 OF THE ACT PRESCRIBES THE METHOD OF ACCOUNTING TO BE FOLLOWED BY THE APPELLANT FOR COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . SECTION 145(1) STATES THAT THE COMPUTATION WOULD BE IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT. SECTION 145(2) FURTHER STATES THAT THE CENTRAL GOVERNMENT MAY NOTIFY FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF APPELLANT S OR IN RESPECT OF A NY CLASS OF INCOME. 58 . LD. COUNSEL SUBMITTED THAT, A S PER ACCOUNTING STANDARDS, THE LIABILITY IS REFLECTED EVEN WHERE THERE IS NO ACTUAL EXPENDITURE; LIKEWISE THE INCOME IS REFLECTED EVEN WHERE THERE IS NO ACTUAL RECEIPT OF MONEY. MOREOVER, SECTION 209( 3) OF THE COMPANIES ACT, 1956 MAKES IT MANDATORY FOR COMPANIES TO KEEP ACCOUNTS ON ACCRUAL BASIS ONLY. IT WAS SUBMITTED THAT ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA REQUIRE THAT ACCOUNTING POLICIES MUST BE GOVERNED BY THE PRINCIPLE OF PRUDENCE . ACCOUNTING STANDARD - 1 PROVIDES THAT PROVISION SHOULD BE MADE FOR KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH SUBSTANTIAL ACCURACY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE I NFORMATION. LD. COUNSEL STATED THAT, W HAT IS REQUIRED, THEREFORE, IS THAT ALL ANTICIPATED LIABILITIES AND FORESEEABLE LOSSES HAVE TO BE PROVIDED FOR, WHILE CAUTION IS TO BE EXERCISED AGAINST ACCOUNTING FOR UNEARNED GAINS. ULTIMATELY ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 41 THE EMPHASIS IS ON PRES ENTING A TRUE AND CORRECT STATE OF AFFAIRS OF THE COMPANY AS A GOING CONCERN. 59 . LD. COUNSEL THEN SUBMITTED THAT AS PER INCOME COMPUTATION AND DISCLOSURE STANDARD ( ICDS ) - X RELATING TO PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS INTRODUCE D BY CENTRAL BOARD OF DIRECT TAX VIDE NOTIFICATION DATED 31 MARCH 2015 (WHICH IS APPLICABLE FROM FINANCIAL YEAR ( FY ) 2016 - 17 ONWARDS), A PROVISION IS RECOGNISED ONLY WHEN: PERSON HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; IT IS REASONABLY CERTAIN THAT AN OUTFLOW OF RESOURCES EMBODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. 60 . HE SUBMITTED THAT I N THE PRESENT CASE, PROVISION FOR TRANSPORTATION LOSS IS A PRESENT OBLIGATION AS A RESULT OF PAST EVENT, IT IS REASONABLY CERTAIN THAT AN OUTFLOW OF RESOURCES EMBODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THIS OBLIGATION, AND A REASONABLE ESTIMATE CAN BE MADE FOR THIS OBLIGATION AND HENCE THIS PROVI SION SHOULD BE ALLOWED AS DEDUCTION. HE F URTHER SUBMITTED THAT APPELLANT HAS MAINTAINED ACCOUNTS ON MERCANTILE BASIS AND THE FINANCIAL STATEMENTS PREPARED GIVE A TRUE AND FAIR VIEW OF THE FINANCIAL POSITION OF THE COMPANY, AS CERTIFIED BY THE STATUTORY AUD ITORS. EVEN THE STATUTORY AUDITORS HAVE ACCEPTED THAT THE PROVISION OF RS 5,58,80,591 HAS BEEN MADE TOWARDS TRANSPORTATION LOSS. HE SUBMITTED THAT, I T IS A WELL - KNOWN PRINCIPLE IN MERCANTILE SYSTEM OF ACCOUNTING THAT IF THE EXPENDITURE INCURRED PERTAINS TO THE YEAR IN QUESTION THEN THE DEDUCTION SHOULD BE ALLOWED ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 42 NOTWITHSTANDING THE FACT THAT THE BILLS HAVE BEEN RAISED IN THE CURRENT YEAR OR IN THE SUBSEQUENT YEAR AND VICE VERSA. IT WAS THUS SUBMITTED THAT , IT IS THE DUTY OF THE APPELLANT TO PROVIDE FOR A K NOWN EXPENDITURE ON THE BASIS OF CONTRACTUAL ARRANGEMENT, EVEN IF NO BILL IS RECEIVED IN THE PARTICULAR YEAR . 61 . THE LD. COUNSEL AT THE OUTSET SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN CONSIDERED BY THIS TRIBUNAL FOR ASSESSMENT YEAR 2012 - 13 AS UNDER: 3 0. WHEN WE EXAMINE THE FACTS AND CIRCUMSTANCES OF THE CASE IN VIEW OF THE ADMITTED CASE OF THE TAXPAYER THAT DURING THE AY 2016 - 17, INDEPENDENT EXPERT APPOINTED BY THE JOINT VENTURE PARTNERS HAD DETERMINED THE LOSS ON CONDENSATE AT 1.7% AND WITHOUT PREJUDI CE, THE TAXPAYER ALSO MADE A PRAYER FOR ALLOWING THE LOSS OF TRANSPORT OF CONDENSATE @ 1.7% DURING THE YEAR UNDER ASSESSMENT, WE ARE OF THE CONSIDERED VIEW THAT WHEN UNDISPUTEDLY AS PER SETTLEMENT AGREEMENT ENTERED INTO BETWEEN THE TAXPAYER, ONGC AND RELIA NCE INDUSTRIES LIMITED WITH ONGC (TRANSPORTER) FOR TRANSPORTATION OF GAS AND CONDENSATE, THE LOSS IS TO BE DETERMINED BY THE EXPERT APPOINTED BY THE JOINT VENTURE PARTNERS, THERE IS NO QUESTION TO RESORT TO THE ESTIMATION TO CLAIM SUCH LOSS. MORE SO IN AY 2016 - 17, LOSS HAS BEEN DETERMINED BY THE EXPERT APPOINTED AS PER SETTLEMENT AGREEMENT @ 1.7%. SO, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS REQUIRED TO BE REMANDED BACK TO THE AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO TH E TAXPAYER BY FOLLOWING THE RULE OF CONSISTENCY. SO, GROUND NO.13 IS DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. 62 . THE LD. CIT DR HAS NO OBJECTION FOR THE ABOVE ISSUE TO BE SET ASIDE TO LD. AO/TPO. 63 . AFTER HEARING BOTH THE SIDES AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 43 TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE HIS CASE AS PER THE DIRECTION OF THE DRP. THE ASSESSI NG OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 64 . GROUND NO. 14 OF TH E APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 14: DISALLOWANCE OF INVENTORY WRITTEN OFF 14.1 THE LEARNED AO ERRED IN LAW AND IN FACTS IN DISALLOWING INVENTORY WRITTEN OFF OF RS. 38,04,951 ON THE BASIS THAT THE APPELLANT SUBMITTED ONLY INTERNAL DOCU MENTS WHICH DO NOT SUFFICE FOR ALLOWANCE OF EXPENDITURE. 14.2 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT AMOUNT OF OBSOLETE INVENTORY WRITTEN OFF WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN AUDITED BY AN INDEPENDENT AUDITOR. FACTS : 65 . LD. COUNSEL SUBMITTED THAT APPELLANT HAD SUBMITTED BEFORE LD. AO VIDE LETTER DATED 11 TH DECEMBER, 2017 THAT INVENTORIES WRITTEN OFF WERE OBSOLETE AND NOT USABLE FOR DRILLING OF FUTURE WELLS AND HENCE WRITTEN OFF AND CLAIMED AS A DEDUCTION IN THE COMP UTATION OF TOTAL INCOME. THE APPELLANT HAD SUBMITTED DETAILED ITEM - WISE LIST OF INVENTORY WHICH HAD BECOME OBSOLETE AND SUBSEQUENT TO INTERNAL PROCEDURES AND DUE DILIGENCE OF THE COMPANY, THE AFORESAID INVENTORY OF RS. 38,04,951 WAS WRITTEN OFF IN THE BOOK S AND CLAIMED AS A DEDUCTION IN THE COMPUTATION OF TOTAL INCOME. THE METHOD OF WRITE OFF OF OBSOLETE INVENTORY IS IN ACCORDANCE WITH SYSTEM OF ACCOUNTING REGULARLY FOLLOWED ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 44 BY THE APPELLANT WHICH IS ALSO IN COMPLIANCE ACCOUNTING STANDARDS. ATTENTION IS INV ITED TO NOTE 2 OF THE FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION WHEREIN, IT HAS BEEN MENTIONED THAT THE FINANCIAL STATEMENTS HAVE BEEN PREPARED TO COMPLY IN ALL MATERIAL ASPECTS WITH THE ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 211 (3C) [COM PANIES (ACCOUNTING STANDARDS) RULES, 2006 AS AMENDED AND OTHER RELEVANT PROVISIONS OF THE COMPANIES ACT, 1956. SUPPORTING DOCUMENTS (DULY ACKNOWLEDGED BY SENIOR DRILLING ENGINEER OF THE COMPANY) STATING THAT SUCH INVENTORY WAS NOT USABLE IN FUTURE WERE SUB MITTED WITH THE AO. LD. COUNSEL SUBMITTED THAT APPELLANT ACCORDINGLY CLAIMED DEDUCTION FOR OBSOLETE INVENTORY WRITTEN OFF UNDER SECTION 37(1) OF THE ACT. HE PLACED RELIANCE ON ANNEXURE OF AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION SUBMITTED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS FOR THE CAPTIONED YEAR, IN WHICH IT IS OPINED THAT THE METHOD OF ACCOUNTING OF THE APPELLANT WITH RESPECT TO INVENTORY IS PROPER. IT IS SUBMITTED THAT INDEPENDENT AUDITOR IN HIS REPORT IN PARA II OF THE ANNEXURE TO THE AUDIT REPORT FOR THE CAPTIONED YEAR HAS MENTIONED AS UNDER: PARA II (A). THE PRODUCTION AND DRILLING INVENTORY OF THE INDIAN OPERATIONS HAS BEEN PHYSICALLY VERIFIED BY THE MANAGEMENT DURING THE YEAR. PARA II (B) STATES THAT THE PROCEDURES OF PHYSICAL VERIFICATI ON OF DRILLING INVENTORY AND PRODUCTION INVENTORY FOLLOWED BY THE MANAGEMENT ARE REASONABLE AND ADEQUATE IN RELATION TO THE SIZE OF THE INDIAN OPERATIONS AND NATURE OF ITS BUSINESS. PARA II(C) ST ATES THAT THE INDIAN OPERATIONS IS MAINTAINING PROPER RECORDS OF INVENTORY. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 45 66 . LD. COUNSEL SUBMITS THAT ASSESSEE PLACED A SOUND INTERNAL CONTROL MECHANISM TO DETERMINE OBSOLETE INVENTORY TO BE WRITTEN OFF DURING THE YEAR WHICH WAS ALSO SUPPORTED BY THE AUDITOR OF INTERNATIONAL REPUTE IN HIS AUDIT REPORT. HE SUBMIT TED THAT T HE ONLY REASON FOR DISALLOWANCE OF AFORESAID LOSS GIVEN BY THE AO WAS THAT THE APPELLANT HAD SUBMITTED A REPORT BY ITS SENIOR DRILLING ENGINEER AND NOT OF AN INDEPENDENT AUDITOR. ACCORDINGLY, THE AO CONCLUDED THAT THE OBSERVATIONS IN THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVAL (SUPRA) ARE NOT APPLICABLE TO THE APPELLANT. IN THIS REGARD, LD. COUNSEL SUBMITS THAT AMOUNT OF OBSOLETE INVENTORY WRITTEN OFF HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN AUDITE D BY AN INDEPENDENT AUDITOR. THE APPELLANT SUBMITS THAT THE AFORESAID WRITE OFF OF OBSOLETE INVENTORY HAS BEEN AUDITED AND THE QUANTUM OF WRITE OFF ALSO FORMS PART OF THE AUDITED FINANCIAL STATEMENTS. IN VIEW OF THE AFORESAID DISCUSSIONS, IT WAS SUBMITTED THAT SINCE THE BASIS OF DISALLOWANCE IN THE ASSESSMENT ORDER DOES NOT SURVIVE (I.E. AUDIT REPORT OF INDEPENDENT AUDITOR IS AVAILABLE), NO DISALLOWANCE CAN BE MADE WITH RESPECT TO THE LOSS ON ACCOUNT OF INVENTORY WRITTEN - OFF . 67 . THE LD. COUNSEL AT THE OUT SET SUBMITTED THAT THIS ISSUE STANDS SQUARELY COVERED BY THE ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2012 - 13 AS UNDER: 38. AO/DRP HAVE DISALLOWED AN AMOUNT OF RS.1,54,16,938/ - CLAIMED BY THE TAXPAYER ON ACCOUNT OF INVENTORY WRITTEN OFF ON THE GROUND TH AT CERTAIN INTERNAL DOCUMENTS FURNISHED BY THE TAXPAYER ARE NOT ENOUGH FOR ALLOWING OF THESES EXPENDITURE. THE LD. AR FOR THE TAXPAYER CONTENDED THAT THE EXPENDITURE HAS BEEN CLAIMED AS PER METHOD OF WRITE OFF OBSOLETE INVENTORY IN ACCORDANCE WITH THE SYS TEM OF ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 46 ACCOUNTING REGULARLY FOLLOWED AND RELIED UPON NOTE - II OF FINANCIAL STATEMENTS FOR THE YEAR UNDER ASSESSMENT WHEREIN IT IS STATED THAT THE FINANCIAL STATEMENTS HAVE BEEN PREPARED TO COMPLY WITH ALL MATERIAL ASPECTS WITH ACCOUNTING STANDARD NOTIFIED U /S 211(3C) OF THE COMPANIES (ACCOUNTING STANDARDS) RULES, 2006 AS AMENDED AND OTHER RELEVANT PROVISIONS OF THE COMPANIES ACT, 1956. THE TAXPAYER ALSO RELIED UPON THE SUPPORTING DOCUMENTS PREPARED BY SENIOR DRILLING ENGINEER OF THE COMPANY CERTIFYING THAT SUCH INVENTORY WAS NOT USABLE IN FUTURE AND WAS PRODUCED BEFORE AO AND CONSEQUENTLY CLAIMED DEDUCTION FOR THE OBSOLETE INVENTORY WRITTEN OFF U/S 37(1) OF THE ACT AND RELIED UPON THE DECISION RENDERED BY HON BLE BOMBAY HIGH COURT IN CASE OF ALFA LAVAL INDIA LTD. VS. DCIT 266 ITR 418 (BOM.) , AFFIRMED BY THE HON BLE SUPREME COURT BY JUDGMENT REPORTED IN 295 ITR 451 . THE LD. AR FOR THE TAXPAYER ALSO CONTENDED THAT THE TAXPAYER HAS SUBMITTED AUDIT REPORT OF AN INDEPENDENT AUDITOR PREPARED ON THE BASIS OF PHYS ICAL VERIFICATION AND MAINTENANCE OF INVENTORY DURING ASSESSMENT PROCEEDINGS AND FURTHER RELIED UPON THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUNAL IN GILLETTE INDIA LTD. VS. ACIT 66 TAXMANN.COM 221 . LD. DR FOR THE REVENUE TO REPEL THE ARGUME NTS ADDRESSED BY THE LD. AR FOR THE TAXPAYER RELIED UPON THE ORDERS OF AO/DRP. 39. WHILE DECIDING THE IDENTICAL ISSUE, THE HON BLE BOMBAY HIGH COURT IN CASE CITED AS ALFA LAVAL INDIA LTD. VS. DCIT (SUPRA) HELD AS UNDER : - HELD, (I) THAT THE DULY CERTIFIE D AUDITOR'S REPORT PLACED BEFORE THE ASSESSING OFFICER CLEARLY JUSTIFIED VALUATION OF OBSOLETE ITEMS AT 10 PER CENT. OF COST. THERE IS NO DISPUTE THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK AT MARKET VALUE OR AT COST WHICHEVER IS LOWER. IT IS ALSO NOT IN DISPUTE THAT THE VALUE OF THE CLOSING STOCK HAS BEEN TAKEN AS THE VALUE OF THE OPENING STOCK IN THE SUBSEQUENT YEAR. MOREOVER, IT IS ALSO NOT DISPUTED THAT THE OBSOLETE ITEMS WERE IN FACT SOLD IN THE SUBSEQUENT YEAR AT A PRICE LESS THAN 10 PER CENT. OF THE COST. IN THE ABSENCE OF ANY BASIS FOR VALUING THE OBSOLETE ITEMS AT 50 PER CENT. OF THE COST, THE TRIBUNAL COULD NOT ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 47 HAVE UPHELD THE FINDINGS OF THE ASSESSING OFFICER. 40. HON BLE DELHI HIGH COURT IN CASE CITED AS CIT VS. BHARAT COMMERCE A ND INDUSTRIES LTD. 240 ITR 256 (DEL.) HELD THAT, AN ASSESSEE IS FREE TO ADOPT A PARTICULAR METHOD OF VALUATION OF ITS CLOSING STOCK WHICH IT HAS TO FOLLOW REGULARLY FROM YEAR TO YEAR. AT THE SAME TIME IT IS WELL SETTLED THAT IRRESPECTIVE OF THE BASIS A DOPTED FOR VALUATION FOR EARLIER YEARS, THE ASSESSEE HAS AN OPTION TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK, PROVIDED THE CHANGE IS BONA FIDE AND FOLLOWED REGULARLY THEREAFTER. 41. IN VIEW OF THE SETTLEMENT PROPOSITION OF LAW DISCUSSED IN THE P RECEDING PARAS, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE TAXPAYER HAS PREPARED OBSOLETE INVENTORY IN ACCORDANCE WITH THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY IT IN COMPLIANCE TO SECTION 211 (3C) OF THE COMPANIES (ACCOUNTING STANDARDS) RULES, 2006 AS AMENDED AND OTHER RELEVANT PROVISIONS OF THE COMPANIES ACT, 1956 AND HAS DULY GOT PREPARED AUDITED REPORT OF AN INDEPENDENT AUDITOR ON THE BASIS OF PHYSICAL VERIFICATION AND IN VIEW OF THE MAINTENANCE OF INVENTORY, THE DISALLOWANCE MADE BY THE AO/DRP IS NOT SUSTAINABLE IN THE EYES OF LAW. 68 . THE LD. CIT DR HAS NO OBJECTION FOR THE ABOVE ISSUE TO BE SET ASIDE TO LD. AO/TPO. 69 . AFTER HEARING BOTH THE SIDES AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE HIS CASE. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND D IRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 48 70 . GROUND NO. 15 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 15: ADDITION ON ACCOUNT OF DIFFERENCE IN REVENUE AS PER FORM 26AS AND PROFIT AND LOSS ACCOUNT 15.1 THE LEARNED AO / DRP ERRED IN MAKING AN ADDITION OF RS. 1,01,66,288, BEING THE DIFFERENCE OF REVENUE RECEIVED FROM ONGC AS REFLECTED IN FORM 26AS AND APPELLANT S BOOKS, WITHOUT APPRECIATING THAT THE DIFFERENCE IS DUE TO THE INTERES T INCOME EARNED ON INCOME TAX REFUND BY THE APPLICANT AND INADVERTENTLY NOT CONSIDERED THE SAME AS INCOME. 71 . THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 72 . GROUND NO. 16 OF THE A PPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 16: FOREIGN EXCHANGE LOSS 16.1 THE LEARNED AO/ DRP ERRED IN DISALLOWING THE FOREIGN EXCHANGE LOSS OF RS. 2,07,34,181 BY NOT APPRECIATING THAT WHERE THE FOREIGN EXCHANGE GAIN HAS BEEN TAXED IN THE PREVIOUS YEARS, FOREIGN EXCHANGE LOSS IN THE SUBSEQUENT YEARS NEEDS TO BE ALLOWED. FACTS: 73 . LD. COUNSEL SUBMITTED THAT FOREIGN EXCHANGE LOSS INCURRED BY THE COMPANY IS DEBITED TO THE PROFIT AND LOSS ACCOUNT IN VIEW OF THE SPECIFIC PROVISIONS OF THE PRODUCTIO N SHARING CONTRACTS WHERE FOREIGN EXCHANGE LOSS IS CONSIDERED AS AN ALLOWABLE DEDUCTION. HE PLACED REL IANCE IS PLACED ON THE DECISION OF THE UTTARAKHAND HIGH COURT IN CIT V. ENRON OIL AND GAS INDIA LIMITED (305 ITR 68) WHICH HAS FURTHER BEEN AFFIRMED BY TH E HON BLE SUPREME COURT IN CIT V. ENRON OIL AND GAS INDIA LIMITED) (305 ITR 75). ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 49 74 . THE LD. COUNSEL AT THE OUTSET SUBMITTED THAT THE ISSUES STANDS COVERED BY THE ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2012 - 13 AS UNDER: 53. AO/DRP HAVE MADE ADDITION O F RS.63,65,958/ - ON ACCOUNT OF DIFFERENCE IN REVENUE AS PER FORM 26AS AND PROFIT & LOSS ACCOUNT. IT IS CONTENDED BY LD. AR FOR THE TAXPAYER THAT THE DIFFERENCE OF RS.63,65,958/ - WAS ON ACCOUNT OF DIFFERENCE IN FOREIGN EXCHANGE RATE WHICH IS TO BE GOVERNED BY THE TERMS OF PSC AND RELIED ON PARA 15.3.2 OF ARTICLE 15 TAXES, ROYALTIES, RENTALS, ETC. OF THE PSC FOR MID AND SOUTH TAPTI FIELD AND THE REVENUE FROM PETROLEUM OPERATIONS SHALL BE DETERMINED IN ACCORDANCE WITH ARTICLE 19 OF THE PSC. FOR READY PERUS AL, RELEVANT ARTICLE OF PSC IS EXTRACTED AS UNDER : - THE REVENUE FROM THE BUSINESS CONSISTING OF PETROLEUM OPERATIONS SHALL BE DETERMINED IN ACCORDANCE WITH ARTICLE 19 FOR ITS PARTICIPATING INTEREST SHARE OF CRUDE OIL SAVED AND SOLD, OR OTHERWISE DISPOSED OF, FROM EACH FIELD.' 'ARTICLE 19 - VALUATION OF OIL' PRESCRIBES FOR VALUATION OF SALE OF CRUDE OIL FOR WHICH THE ACCOUNTING TREATMENT OF CURRENCY FLUCTUATION IS PROVIDED UNDER 'ARTICLE 20 - CURRENCY AND EXCHANGE CONTROL PROVISIONS' OF THE AFORESAID PSC. PARA 20.2 IN ARTICLE 20 OF THE AFORESAID THE PSC PROVIDES THAT FOR ACCOUNTING OF PURCHASE AND SALE OF CURRENCY BY THE CONTRACTOR, THE RATES AS SPECIFIED IN SECTION 1.6 OF APPENDIX C - ACCOUNTING PROCEDURE' SHALL APPLY. THE RELEVANT EXTRACT OF THE AFORES AID ARTICLE OF PSC HAS BEEN REPRODUCED FOR YOUR READY REFERENCE: 'THE RATES OF EXCHANGE FOR THE PURCHASE AND SALE OF CURRENCY BY THE CONTRACTOR SHALL BE THE PREVAILING RATES OF GENERAL APPLICATION DETERMINED BY THE STATE BANK OF INDIA OR SUCH OTHER FINAN CIAL BODY AS MAY BE MUTUALLY AGREED BY THE PARTIES AND IN ACCORDANCE WITH PREVAILING CURRENCY AND EXCHANGE REGULATIONS AND, FOR ACCOUNTING ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 50 PURPOSES UNDER THIS CONTRACT, THESE RATES SHALL APPLY AS PROVIDED IN SECTION 1.6 OF APPENDIX C.' AS PER THE PARA 1. 6.1 IN 'ACCOUNTING PROCEDURE - SECTION L' OF THE AFORESAID MENTIONED PSC, THE APPELLANT IS REQUIRED TO CONSIDER PREVIOUS MONTH'S AVERAGE OF THE DAILY MEANS OF THE BUY AND SELLING RATES OF EXCHANGE AS QUOTED BY THE STATE BANK OF INDIA OR ANY OTHER FINANCIAL BODY AS MAY BE MUTUALLY AGREED. THE RELEVANT EXTRACT OF THE AFORESAID ARTICLE IS REPRODUCED FOR YOUR READY REFERENCE: 'FOR TRANSLATION PURPOSES BETWEEN UNITED STATES DOLLARS AND INDIAN RUPEES OR ANY OTHER CURRENCY, THE PREVIOUS MONTH'S AVERAGE OF THE DA ILY MEANS OF THE BUYING AND SELLING RATES OF EXCHANGE AS QUOTED BY THE STATE BANK OF INDIA (OR ANY OTHER FINANCIAL BODY AS MAY BE MUTUALLY AGREED BETWEEN THE PARTIES) SHALL BE USED FOR THE MONTH IN WHICH THE REVENUES, COSTS, EXPENDITURES, RECEIPTS OR INCOM E ARE RECORDED. HOWEVER, IN THE CASE OF ANY SINGLE NON - US DOLLAR TRANSACTION IN EXCESS OF THE EQUIVALENT OF ONE HUNDRED THOUSAND US DOLLARS (US$ 100,000), THE CONVERSION INTO US DOLLARS SHALL BE PERFORMED ON THE BASIS OF THE AVERAGE OF THE APPLICABLE EXCHA NGE RATES FOR THE DAY ON WHICH THE TRANSACTION OCCURRED.' 54. WHEN THE TAXPAYER HAS BOOKED EXCESS REVENUE IN ACCORDANCE WITH THE RULE 115 OF THE INCOME - TAX RULES, 1962 (FOR SHORT THE RULES ), ACCOUNTING AS PER PSC WOULD OBLIGE THE TAXPAYER TO REVERSE TH E EXCESS REVENUE AND CONSIDER IT AS FOREIGN EXCHANGE LOSS. THE TAXPAYER RELIED UPON THE DECISION RENDERED BY HON BLE SUPREME COURT IN CIT VS. ENRON OIL & GAS LIMITED 305 ITR 75 . 55. HON BLE APEX COURT IN CIT VS. ENRON OIL & GAS LIMITED (SUPRA) WHILE DE CIDING THE IDENTICAL ISSUE HELD THAT, SECTION 42 IS A COMPLETE CODE BY ITSELF FOR DEDUCTION IN CASE OF BUSINESS OF PROSPECTING THE EXTRACTION OR PRODUCTION OF MINERAL OILS. THE SECTION IS INOPERATIVE BY ITSELF AND BECOMES OPERATIVE ONLY WHEN IT IS READ WI TH THE PRODUCTION SHARING CONTRACT. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 51 THE SECTION WAS ENACTED TO ENSURE THAT WHERE THE STRUCTURE OF THE PRODUCTION SHARING CONTRACT IS AT VARIANCE WITH ACCOUNTING PRINCIPLES GENERALLY USED FOR ASCERTAINING TAXABLE INCOME, THE PROVISIONS OF THE PRODUCTION SHA RING CONTRACT WOULD PREVAIL. 56. HON BLE COURT FURTHER HELD THAT IN CASE OF PRODUCTION SHARING CONTRACT, AN INDEPENDENT ACCOUNTING REGIME IS APPLICABLE AND FOREIGN EXCHANGE LOSSES ON ACCOUNT OF FOREIGN CURRENCY TRANSLATION IS AN ALLOWABLE DEDUCTION. SO, IN VIEW OF THE LAW LAID DOWN BY THE HON BLE APEX COURT IN CASE OF CIT VS. ENRON OIL & GAS LIMITED (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE INCOME EARNED BY THE TAXPAYER IN FOREIGN CURRENCY PURSUANT TO THE PSC ENTERED INTO WITH GOVERNMENT OF INDIA I S GOVERNED BY THE AGREEMENT OF PSC AND THE FOREIGN EXCHANGE LOSSES ON ACCOUNT OF FOREIGN CURRENCY TRANSLATION IS AN ALLOWABLE DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE TAXPAYER. IN SUCH CIRCUMSTANCES, PROVISIONS OF PSC ARE TO BE APPLIED AND THE DI SALLOWANCE MADE BY AO/DRP ON ACCOUNT OF DIFFERENCE IN REVENUE IS NOT SUSTAINABLE, HENCE ALLOWABLE SUBJECT TO VERIFICATION BY THE AO. SO, GROUND NO.21 IS DETERMINED IN FAVOUR OF THE TAXPAYER FOR STATISTICAL PURPOSES. 75 . THE LD. CIT DR HAS NO OBJECTION F OR THE ABOVE ISSUE TO BE SET ASIDE TO LD. AO/TPO. 76 . AFTER HEARING BOTH THE SIDES AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE AN OPPORTUNITY T O THE ASSESSEE TO SUBSTANTIATE HIS CASE AS PER THE DIRECTION OF THE DRP. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 52 77 . GROUND NO. 17 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: GROUND NO. 17: INTEREST LEVIED UNDER SECTION 234B, 234C & 234D 17.1 THE ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS, IN LEVYI NG INTEREST UNDER SECTIONS 234B, 234C AND 234D OF THE ACT. FACTS: 78 . IT WAS SUBMITTED BY LD. COUNSEL THAT REVENUES RECEIVABLE BY THE APPELLANT NON - RESIDENT CO MPANY ARE SUBJECT TO DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, THE QUESTION OF PAYMENT OF ADVA NCE TAX AND CONSEQUENT LEVY OF INTEREST UNDER SECTION 234B OF THE ACT FOR SHORTFALL IN PAYMENT OF ADVANCE TAX DOES NOT ARISE. IN THAT VIEW OF THE MATTER, LEVY OF INTEREST UNDER SECTION 234B OF THE ACT IS LIABLE TO BE DELETED FOR THE FOLLOWING REASONS: 79 . HE SUBMITTED THAT A S PER PROVISIONS OF SECTION 234B OF THE ACT, AN ASSESSEE WHO IS LIABLE TO PAY ADVANCE TAX UNDER SECTION 208 WILL BE LIABLE TO INTEREST UNDER SECTION 234B OF THE ACT, IF HE FAILS TO PAY SUCH TAX, OR THE ADVANCE TAX PAID BY HIM FALLS SHOR T OF 90 PERCENT OF THE ASSESSED TAX. ACCORDINGLY, IN ORDER TO BE LIABLE TO PAY INTEREST UNDER SECTION 234B OF THE ACT, AN ASSESSEE MUST FIRST BE LIABLE TO PAY ADVANCE TAX UNDER THE PROVISIONS OF SECTION 208 OF THE ACT. 80 . HE FURTHER SUBMITTED THAT A S PER PROVISIONS OF SECT ION 208 READ WITH SECTION 209(1 )(D) OF THE ACT, ADVANCE TAX PAYABLE HAS TO BE COMPUTED AFTER REDUCING FROM THE ESTIMATED TAX LIABILITY THE AMOUNT OF TAX DEDUCTIBLE/ COLLECTIBLE AT SOURCE ON INCOME WHICH IS INCLUDED IN COMPUTING THE ESTIM ATED TAX ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 53 LIABILITY. SUCH BALANCE TAX LIABILITY IS THE ADVANCE TAX PAYABLE UNDER SECTION 208 OF THE ACT. IT SHOULD BE NOTED THAT THE WORDS USED IN SECTION 209(1 )(D) OF THE ACT ARE 'TAX DEDUCTIBLE AT SOURCE' AND NOT 'TAX DEDUCTED AT SOURCE. UNDER SECTION 195 OF THE ACT, TAX IS DEDUCTIBLE AT SOURCE FROM PAYMENTS MADE TO NON - RESIDENTS. APPELLANT IS A NON - RESIDENT AND THUS, TAX IS DEDUCTIBLE AT SOURCE FROM THE PAYMENTS MADE TO IT UNDER SECTION 195 OF THE ACT. SINCE TAX WAS DEDUCTIBLE AT SOURCE ON ALL THE PAYMENT S MADE TO APPELLANT, NO ADVANCE TAX WAS PAYABLE AS PER THE PROVISIONS OF SECTION 208 READ WITH S ECTION 209(1 )(D) OF THE ACT. IN THE ABSENCE OF ANY LIABILITY FOR PAYMENT OF ADVANCE TAX, THE PROVISIONS OF SECTION 234B OF THE ACT CANNOT APPLY AND THE LEVY OF INTEREST UNDER SECTION 234B OF THE ACT SHOULD BE DELETED. 81 . THE LD. COUNSEL AT THE OUTSET SUBMITTED THAT FOR COMPUTATION U/S 234C OF THE ACT, THE CHARGEABILITY ARISES QUA RETURNED INCOME AND 234B & 234D ARE CONSEQUENTIAL. HE SUGGESTED THE ISSUE MAY BE S ET ASIDE TO LD. AO FOR COMPUTATION OF INTEREST AS PER LAW. 82 . THE LD. CIT DR DID NOT OBJECT TO THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. 83 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVA ILABLE ON RECORD. LD. COUNSEL PLACED RELIANCE ON ORDER OF THE TRIBUNAL IN APPELLANT S OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 (ITA NO. 2227/DEL/2014) AND 2010 - 11 (ITA NO. 1170/DEL/2015) . THE RELEVANT EXTRACTS OF THE DECISION FOR THE ASSESSMENT YEAR 2010 - 11 ARE REPRODUCED HEREUNDER: ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 54 61 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT JUDICIAL PRECEDENTS CITED BEFORE US. IN T HE DECISION CITED BY THE LD. AUTHORISED REPRESENTATIVE IN CASE OF CIT VERSUS GE PACKAGED POWER INCORP ORATION (373 ITR 65) IN PARA NO. 19, THE HON BLE HIGH COURT HAS CONSIDERED THE DECISION CITED BY THE LD. DEPARTMENTAL REPRESENTATIVE AS UNDER: - 62 WE ARE AWARE THAT HON BLE SUPREME COURT HAS GRANTED SLP AGAINST HIGH COURT'S RULING THAT WHERE ASSESSEE WAS NON - RESIDENT COMPANY, ENTIRE TAX WAS TO BE DEDUCTED AT SOURCE ON PAYMENTS MADE BY PAYER TO IT AND THERE WAS NO QUESTION OF PAYMENT OF ADVANCE TAX BY ASSESSEE; THEREFORE, REVENUE COULD NOT CHARGE ANY INTEREST UNDER SECTION 234B FROM ASS ESSEE, WHICH IS PENDING FOR ADJUDICATION. HOWEVER THE DECISION OF THE HON HIGH COURT IS TO BE FOLLOWED BY US, IF THE SAME IS NOT STAYED BY THE HON BLE SUPREME COURT, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE HIGH COURT WE DIRECT THE LD. ASSESSING OFFICER TO NOT TO CHARGE INTEREST UNDER SECTION 234B OF THE ACT ON THE INCOME OF THE ASSESSEE WHICH IS SUBJECT TO OR LIABLE TO TAX DEDUCTION AT SOURCE. 84 . TO THE SAME EFFECT ARE THE DECISIONS OF THE HON BLE TRIBUNAL IN APPELLANT S OWN CASE FOR THE ASSESSMENT YEARS 2011 - 12 (ITA NO. 1478/DEL/2017) AND 2012 - 13 (ITA NO. 6791/DEL/2017). 85 . WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE INTEREST U/S 234C OF THE ACT QUA RETURNED INCOME AS PER LAW FOLLOWED BY INTEREST U/S 234B & 234D OF THE ACT BY GI VING DUE OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, APPEAL FOR THIS ASSESSMENT YEAR 2013 - 14 FILED BY THE ASSESSEE STANDS ALLOWED AS INDICATED ABOVE. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 55 ASSESSMENT YEAR 2014 - 15 86 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUND NO. 1 IMPUGN ED ORDER PASSED BY THE ASSESSING OFFICER IS BARRED BY LIMITATION AND IS LIABLE TO BE QUASHED. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER IS BARRED BY LIMITATION AND THEREFORE, IS LIABLE T O BE QUASHED. WITHOUT PREJUDICE: GROUND NO. 2: ERRONEOUS REJECTION OF TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AND SELECTION OF COMPARABLE UNCONTROLLED PRICE ( CUP ) METHOD 2.1 THE LEARNED AO / DRP / TRANSFER PRICING OFFICER ( TPO ) HAVE ERRED IN LAW A ND ON FACTS BY DISREGARDING THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT, FOR DETERMINATION OF THE ARM S LENGTH PRICE ( ALP ) BY APPLICATION OF TNMM ON AN AGGREGATED BASIS AND FURTHER, ERRED IN APPLYING CUP METHOD. GROUND NO. 3: WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED, LEARNED AO / DRP / TPO APPLIED CUP METHOD IN AN ERRONEOUS MANNER 3.1 WITHOUT PREJUDICE THAT TNMM SHOULD BE SELECTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS PERTAINING TO INTRA - GROUP SERVICES, THE LEARNED AO / DRP / TPO HAVE ERRONEOUSLY SELECTED CUP METHOD AND HAVE APPLIED THE SAME IN AN ERRONEOUS MANNER BY CONSIDERING THE AMOUNT APPROVED BY THE JOINT VENTURE ( JV ) PARTNER AS CUP. GROUND NO. 4: ERRONEOUSLY DISREGARDED THE DECISION OF HON BLE ITAT IN AY 20 11 - 12 AND 2012 - 13 AND DIRECTIONS OF THE HON BLE DRP FOR AY 2009 - 10 AND AY 2010 - 11 4.1 THE LEARNED AO / DRP / TPO ERRED IN DISREGARDING THE DECISION OF HON BLE ITAT IN AY 2011 - 12 AND AY 2012 - 13 AND DIRECTIONS ISSUED BY THE HON BLE DRP IN THE CASE OF THE AP PELLANT FOR THE PRIOR YEARS I.E. AY 2009 - 10 AND AY 2010 - 11 (WHICH HAVE ALSO BEEN ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 56 AFFIRMED BY HON BLE ITAT) EVEN THOUGH THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE BUSINESS MODEL OF THE APPELLANT CONTINUED TO REMAIN THE SAME. GROUND NO. 5: ERRONEOUSLY QUESTIONING OF COMMERCIAL EXPEDIENCY OF THE APPELLANT 5.1 THE LEARNED AO / DRP / TPO ERRED IN LAW AND ON FACTS BY QUESTIONING THE COMMERCIAL EXPEDIENCY OF THE APPELLANT IN AVAILING THE INTRA - GROUP SERVICES FROM ITS ASSOCIATED ENTERPRISE ('AE ) AND IN CHAN GING FROM FLOATING INTEREST RATE TO FIXED INTEREST RATE ON THE EXTERNAL COMMERCIAL BORROWING TAKEN FROM ITS AE. GROUND NO. 6: ERRONEOUS APPLICATION OF CUP FOR DETERMINING ARM S LENGTH INTEREST RATE 6.1 THE LEARNED AO / DRP / TPO ERRED IN MAKING AN UPWARD ADJUSTMENT OF INR 1,026,870,920 TO THE TOTAL INCOME OF THE APPELLANT BY ERRONEOUSLY APPLYING CUP METHOD FOR DETERMINATION OF ARM S LENGTH INTEREST RATE ON THE EXTERNAL COMMERCIAL BORROWING ( ECB ) TAKEN FROM ITS AE. GROUND NO. 7: ERRONEOUS DISALLOWANCE O F PAYMENT MADE TOWARDS INTRA - GROUP SERVICES BY APPELLANT TO ITS AE 7.1 THE LEARNED AO / DRP / TPO GROSSLY ERRED IN LAW AND ON FACTS BY MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF INR 2,39,55,66,019 IN TOTAL TOWARDS INTERNATIONAL TRANSACTIONS PERTAININ G TO PAYMENT OF MANAGEMENT SERVICE AND UNIT CHARGES, IM CHARGES AND PAYROLL EXPENSES TO ITS AE. GROUND NO. 8: ERRONEOUS DISREGARDING MULTIPLE YEAR DATA 8.1 THE LEARNED AO / DRP / TPO GROSSLY ERRED IN ERRONEOUSLY REJECTING MULTIPLE YEAR DATA USED BY THE APPELLANT IN COMPUTING THE ALP. GROUND NO. 9: PROCEEDINGS BARRED BY LIMITATION 9.1 THE ORDER FOR THE ASSESSMENT YEAR 2012 - 13 IS BAD IN LAW AND IS LIABLE TO BE QUASHED HAVING REGARD TO THE STATUTORY TIME LIMIT PRESCRIBED UNDER THE SECTION 153 OF ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 57 THE ACT R EAD WITH EXPLANATION 1 TO SECTION 153(4) OF THE ACT. GROUND NO. 10: DISALLOWANCE OF EXPENDITURE INCURRED ON NON - PRODUCING PRODUCTION SHARING CONTRACTS ( PSCS ) 10.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN DISALLOWING THE EXPENDITURE OF RS. 60,49,63,005 INCURRED ON NON - PRODUCING PSCS. GROUND NO. 11: DISALLOWANCE OF HEAD OFFICE EXPENDITURE 11.1 THE LEARNED AO / DRP ERRED IN LAW AND IN FACTS IN APPL YING THE PROVISIONS OF SECTION 44C OF THE ACT TO PAYMENTS MADE TO BG INTERNATIONAL LIMITED. 11.2 WITHOUT PREJUDICE, THE AO HAS ERRED IN COMPUTING ALLOWANCE UNDER SECTION 44C WITH RESPECT TO THE RETURNED INCOME AND NOT INCOME ASSESSED. GROUND NO. 12: DISAL LOWANCE OF DEPRECIATION AND DEPLETION 12.1 THE LEARNED AO ERRED IN LAW AND IN FACTS IN DISALLOWING DEPRECIATION OF RS. 7,97,89,024 BEING THE DIFFERENCE OF DEPRECIATION AMOUNT BETWEEN THE TAX AUDIT REPORT AND THE COMPUTATION. 12.2 THE LEARNED AO / DRP E RRED IN NOT APPRECIATING THAT THIS DIFFERENCE IS ON ACCOUNT OF DEPRECIATION CLAIMED ON GLOBAL IT & T EXPENDITURE AND THAT DEPRECIATION CLAIM ON GLOBAL IT & T EXPENDITURE WAS ALLOWABLE AS HELD BY THE HON BLE ITAT IN ASSESSEE S OWN CASE FOR AY 2010 - 11, AY 20 11 - 12 & AY 2012 - 13. 12.3 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT THIS DIFFERENCE IS ON ACCOUNT OF DIFFERENCE IN OPENING WDV OF ASSETS ON FIRST DAY OF THE CAPTIONED ASSESSMENT YEAR WHICH WAS ACCEPTED BY THE REVENUE AUTHORITIES IN EARLIER YEARS . GROUND NO. 13: DISALLOWANCE OF LOSS ON TRANSPORTATION 13.1 THE LEARNED AO ERRED IN DISALLOWING LOSS ON TRANSPORTATION OF CONDENSATE ON THE GROUND THAT THE EXPENDITURE CANNOT BE ALLOWED ON THE BASIS OF THE PROVISIONS MADE BY THE ASSESSEE. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 58 GROUND NO. 14 : DISALLOWANCE OF INVENTORY WRITTEN OFF 14.1 THE LEARNED AO ERRED IN LAW AND IN FACTS IN DISALLOWING INVENTORY WRITTEN OFF OF RS. 1,39,27,876 ON THE BASIS THAT THE APPELLANT SUBMITTED ONLY INTERNAL DOCUMENTS WHICH DO NOT SUFFICE FOR ALLOWANCE OF EXPENDITU RE. 14.2 THE LEARNED AO / DRP ERRED IN NOT APPRECIATING THAT AMOUNT OF OBSOLETE INVENTORY WRITTEN OFF WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN AUDITED BY AN INDEPENDENT AUDITOR. GROUND NO. 15: DISALLOWANCE OF EXCESS CLAIM OF GRATUITY OF RS. 26,18,915 15.1 THE LEARNED AO / DRP ERRED IN MAKING AN ADDITION OF RS 26,18,915, BEING DEDUCTION OF GRATUITY OF RS. 2,01,08,285 CLAIMED INADVERTENTLY UNDER SECTION 43B OF THE ACT ON ACCOUNT OF CONTRIBUTION MADE TO LIC, DUE TO CERTAIN ERRORS IN THE C OMPUTATION OF INCOME GROUND NO. 16: FOREIGN EXCHANGE LOSS 16.1 THE LEARNED AO/ DRP ERRED IN DISALLOWING THE FOREIGN EXCHANGE LOSS OF RS. 1,65,32,448 BY NOT APPRECIATING THAT WHERE THE FOREIGN EXCHANGE GAIN HAS BEEN TAXED IN THE PREVIOUS YEARS, FOREIGN E XCHANGE LOSS IN THE SUBSEQUENT YEARS NEEDS TO BE ALLOWED. GROUND NO. 17: INTEREST LEVIED UNDER SECTION 234B, 234C & 234D. 87 . AT THE TIME OF HEARING, T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NO S . 1, 5 & 9 ARE NOT PRESSED. ACCORDINGLY, THE SAME ARE DISMISSED AS NOT PRESSED. 88 . BOTH THE PARTIES AGREED THAT THE OTHER GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN THIS YEAR ARE IDENTICAL AND SIMILARLY NUMBERED TO GROUNDS OF APPEAL IN ASSESSMENT YEAR 2013 - 14. THEY ALSO SUBMITTED THAT THE FACTS ARE ALSO IDENTICAL IN THE YEAR UNDER APPEAL. WE OBSERVE THAT SUBMISSIONS OF BOTH SIDES ARE CORRECT. ITA NOS. 7476 & 7477DEL/2018 BG EXPLORATION & PRODUCTION INDIA LTD . 59 89. THEREFORE, WE FOLLOW OUR VIEW RECORDED IN RESPECT OF GROUNDS HEREINABOVE AND ACCORDINGLY, THE GROUNDS FOR PRESENT YEAR ARE ALLOWED AS INDICATED AND DISCUSS ED THEREIN. 90 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2013 - 14 AND 2014 - 15 ARE ALLOWED AS DISCUSSED HEREIN ABOVE . (ORDER PRON OUNCED IN THE OPEN COURT ON 03 /0 4 /2019 ) SD/ - SD/ - ( N. S. SAINI ) ( BEENA A. PILLAI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03 / 0 4 /2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR