DCIT CIR 15(3)(1), MUMBAI vs. TRANSOCEAN DRILLING SERVICES (INDIA) PLT, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

This appeal in ITA No.2988/Mum/2019 & Cross Objection in CO No.05/Mum/2021 for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No. CIT(A)- 58,Mumbai/10222/2017-18 dated 19/02/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s.144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2016 by the ld. Dy. Commissioner of Income Tax-15(3)(1), Mumbai (hereinafter referred to as ld. AO). 2. At the outset, we find that the cross objections preferred by the assessee is delayed by 279 days. We find that the cross objections has been preferred during the Covid period and in view of the relaxation granted by the Hon‟ble Supreme Court in light of Covid-19 pandemic, the delay in filing of cross objections is hereby condoned and the same is taken up for adjudication.

3.1. The other grounds raised by the assessee in its cross objections would be dealt hereinafter while addressing the grounds raised by the Revenue.

3 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd 1. "On the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in directing the AO/TPO to include Agricultural Finance Corporation Ltd., as a comparable entity ignoring the fact that, the appellant itself has conceded to exclude this entity from comparability analysis before the TPO during the Transfer Pricing Proceedings and this entity is engaged in completely different functional sector and not comparable different functional sector and not comparable with assessee's functionality." 2. "On the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in deleting the TP adjustment made on account of Commission for Procurement and Assignment of Contract amounting to Rs.9,71,21,344/- despite the fact that, the appellant itself has provided the benchmarking analysis and ALP commission for this activity determined at 1.56% based on Royalty Stat Database before the TPO during the Transfer Pricing Proceedings." 3. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the basic tenet of Transfer Pricing as enshrined in Section 92F(ii) that no unrelated party in uncontrolled circumstances would have passed on such huge contract amount exceeding Rs.622.57 Crores without charging or retaining any commission." 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the fact that, the name lending and front end entity activities done by assessee for bidding process in availing contract from ONGC for the benefit of its AEs derive Arm's Length Compensation." 5. The appellant prays that the order of CIT(A), Mumbai on the above directions be set-aside and that of the assessing officer be restored. 6. The appellant craves leave to amend or alter any of the grounds or add a new ground of appeal, which may be necessary, at any time before or at the time of hearing of appeal."

4.1. We have heard rival submissions and perused the materials available on record. The return of income for the A.Y.2012-13 was filed by the assessee company electronically on 30/11/2012 declaring total income of Rs.2,42,79,910/-. The case was selected for scrutiny vide issuance of notice u/s.143(2) of the Act on 16/08/2013 which was duly served on the assessee. The assessee company is engaged in business of coordination / liasoning services to the group companies. During the year under consideration, the assessee company has shown revenue from operations

4 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd at Rs.6,54,08,130/- and other related income at Rs.29,78,840/-. The ld. AO found that assessee company had entered into Contractor Agreement with Oil and Natural Gas Corporation Ltd. („ONGC‟ in short) for hire of drilling rigs and had given sub-contract of the same activity to its group company. A reference u/s.92CA(1) of the Act was made by the ld. AO to the file of the ld. TPO for determining the Arm‟s Length Price (ALP) of international transactions carried out by the assessee.

4.2. The assessee is an Indian company liable to income tax in India as per the provisions of the Act. The AE of the assessee is engaged in offshore drilling activities by deploying rigs and skilled personnel. The AEs operate as project office in India and pay taxes in India u/s.44BB of the At @40% plus surcharge and cess on the income determined @10% of total receipts on gross basis. On the contrary, the assessee is engaged in providing coordination / liasoning services to AEs and remunerated the cost plus mark up basis on its own cost. The AEs of the assessee have been carrying out the same operations in India even prior to the arrangements entered into through the assessee due to the bid requirement of ONGC. Previously, AEs have been computing its profit u/s.44BB of the Act and paying taxes in India as stated supra. The same basis continued even after the arrangement from the assessee came into existence. The assessee always pleaded that there is no logical reason for the assessee / AE to enter into these arrangements to shift the profit and there is no such incident based on the facts of the case.

4.3. As per the Transfer Pricing Study Report (TPSR), Transocean group is the world‟s largest offshore drilling contractor providing the most versatile fleet of mobile offshore drilling units to help clients find and develop oil and natural gas reserves. It offers a complete package vis-a- vis constructing oil and natural gas wells in the deep waters and harsh

5 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd environments of various water depths and field development needs. The assessee company (TDSIPL) was incorporated in May 2008, as a wholly owned subsidiary of Transocean Offshore International Ventures Ltd which is in turn an indirect subsidiary of Transocean Ltd (Switzerland). During the A.Y.2011-12 and A.Y.2012-13 i.e. the year under consideration, TDSIPL(assessee) was engaged in provision of coordination services to the Transocean group entities vis-à-vis ONGC contracts for offshore drilling operations.

4.4. The details of international transactions entered into by the assessee with its AEs are in respect of provision of support services for which assessee had benchmarked the same using Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) and in respect of recovery and reimbursement of expenses, the assessee has benchmarked the same using Comparable Uncontrolled Price (CUP) Method as MAM. It is not in dispute that assessee‟s overseas Associated Enterprises have the necessary skill sets and assets to provide offshore drilling services of oil and gas exploration and production. It is also not in dispute that assessee does not possess such skill sets nor does it own the assets or the personnel that will enable it to render such services. For the sake of commercial prudence, the assessee had entered into service contracts with ONGC. However, since the assessee did not have the relevant skill sets / assets/ personnel for the provision of services to ONGC, this contract was sub-contracted by the assessee to its AEs with the prior consent of ONGC. Infact, the tender document of ONGC itself clearly permit the rendering services by the AE to ONGC. In this regard, the tender document for chartered hire of preliminary unit “J P ANGEL” between ONGC and assessee dated 20/08/2010 clearly captures the Memorandum of Understanding dated 02/02/2010 entered into by the assessee company with its AEs; agreement dated 02/02/2010 between

6 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd assessee company and its parent company i.e. Transocean Offshore International Ventures Ltd (AE). This goes to prove very clearly that the ONGC in the tender document itself had taken due cognizance of the back to back contract arrangement entered into by the assessee with its AEs for rendering of offshore drilling services considering the fact that assessee does not possess the requisite skill sets / assets and personnel for rendering services to ONGC. The ld. AR pleaded before us that assessee company had employed merely 7 persons for rendering the liasoning and coordination services to its AEs as well as to ONGC. Hence, the entire cost incurred by the assessee on rendering of the services had been marked up with 10% and recovered from its AEs. In this regard, the following documents would be relevant for our consideration:-

(a) Copy of tender issued by ONGC in relation to one of the Rig i.e. J P ANGEL (enclosed in pages 82-83 of the paper book) (b) Copy of agreement between ONGC and assessee in relation to one of the Rig i.e. J P ANGEL (enclosed in pages 86-221 of the paper book) (c) Sub-contracting agreement between assessee and AE in relation to one of the Rig i.e. J P ANGEL (enclosed in pages 220 to 262 of the paper book) (d) Memorandum of Understanding between the assessee and AE (enclosed in page 263 of the paper book) 4.5. It is pertinent to note that ONGC had taken due cognizance of the aforesaid documents and also the inability of the assessee company to render the requisite offshore drilling services. Accordingly, ONGC as part of tender documentation had imposed a condition that the AE should issue corporate guarantee to ONGC to enable ONGC to issue the contract to the assessee company. Actually, this corporate guarantee is the main basis for ONGC to award the contract in favour of the assessee company,

7 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd so that ONGC is fully secured of obtaining the technical expertise / experience and services of the AE which would in turn result in smooth implementation of the contract. ONGC is fully aware that it is the AE who is going to perform the contract. ONGC is also aware that entire risk is only on the AE and not the assessee, more so, in case, if the assessee fails to perform the contract, pursuant to the back to back arrangement with the AE and the corporate guarantee issued by the AE in favour of ONGC. The AE had to step in and address the issue of performance of rendering of services to ONGC. Hence, this is a clear case of complete secured contract entered into by ONGC with the assessee on the technical strength / credentials and corporate guarantee of AE.

4.6. The ld. DR drew our attention to various clauses of the argument entered into by assessee with ONGC to drive home the point that assessee had to undertake various risks attached with the performance of the contract. The main crux and essence of the argument of the ld. DR is that since the entire risk is undertaken by the assessee in the capacity of contractor to perform the offshore drilling services to ONGC, it should be adequately compensated with the said rigs undertaken by the AE in addition to the cost plus mark up reimbursed by the AE. This has not been compensated to the assessee and hence, the ld. TPO had adopted the ALP rate of 1.56% from Royalty STAT software based on the comparable instances and data submitted by the assessee before the ld. TPO. The ld. CIT(A) duly appreciated the contentions of the assessee and the modus operandi adopted by the assessee with regard to execution of contracts for ONGC and deleted the ALP adjustment made by the ld. TPO on the impugned issue.

4.7. In our considered opinion, the various arguments advanced by the ld. DR as summarized hereinabove are contrary to the facts and materials

8 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd available on record ignoring the cognizance taken by ONGC in the tender documentation itself as detailed supra. Hence, the various arguments advanced by the ld. DR drawing our attention to certain clauses in the agreement entered into between the assessee and ONGC are totally irrelevant and are hereby dismissed. Accordingly, we have no hesitation to conclude that the issue in dispute for A.Y.2012-13 is squarely covered by the decision rendered by this Tribunal in assessee‟s own case for A.Y.2011-12 in ITA No.453/Mum/2016 dated 13/01/2017. In fact, in A.Y.2011-12, the ld. TPO had stated that assessee was engaged in carrying marketing activities for which it had to be separately remunerated apart from cost plus 10%. Various observations made by the ld. TPO in page 13 and 14 of its order for the year under consideration are reproduced hereunder:-

“The claim of the assessee is considered. And is addressed as below 1. The assessee claims that it is not a marketing or sourcing entity. This is not a valid argument. Whether the assessee is a "marketing or a sourcing entity in general is not the determinant of the functionality of the transaction. What the assessee has done in the transaction under consideration is important, and the role of the assessee is that of potting contract and passing it on back to back to the AEs. In case, the contract had been passed on to a third party, rationality principle in economics would have ensured that the assessee would sock compensation or reward. 2. The assessee has not done any marketing or sourcing of contract from ONGC, It claims. This is not a valid argument as without the same it would not have got the contract at all. The formation of the assessee was to fulfill the commercial requirement of getting a contract. This is also a normal industry practice where the contract is obtained in the name of one party but is performed by the sub- contractee. The profits of execution are for the sub- contractee but the contractor retains a margin before it passes on the contract back to back. 3. The assessee claims that it did not have any employees to do the bidding formality and hence, the same was also done by the AEs. This is again not a valid argument. The reward is for legally getting the contract and passing on the same to the AEs. The fact that the employees of the AE helped the assessee in getting the same is a matter of convenience or internal arrangement as the entire profits of execution would go to the AEs. It does not change the fact that the service of the procurement of contract and passing on the same to the AF was done by the assessee. Neither does it change the fact that the initial incidence of risk lies on the

9 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd

4.8. We find as stated supra, the very same observations were made in A.Y.2011-12 also by the ld. TPO and this Tribunal had deleted the adjustment vide its order dated 13/01/2017. We find that this Tribunal in A.Y.2011-12 had analysed the various clauses of the agreement between ONGC and assessee and back to back agreement between assessee and

10 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd its AE in tabular form in respect of all the clauses thereon. For the sake of convenience, the facts prevailing in A.Y.2011-12; observations made by the ld. TPO thereon and the findings of this Tribunal for A.Y.2011-12 are reproduced hereunder:-

11 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd following support services to Transocean Group entities which are undertaking drilling activities:– i) Contracting / Bid; ii) Liaisoning and Co–ordination; iii) Assistance in import of equipments and warehousing; iv) Accounting and document maintenance; and v) Invoicing and collection. 5. Besides, the assessee performed other support / administrative activities that would enable the Transocean entities to execute the contract efficiently. He noticed, the assessee has categorized itself as tested party having undertaken lesser risk and bench–marked the transaction by adopting TNMM as most appropriate with OP/OC as the PLI. Assessee had selected five companies as comparables with average updated margin of 5.13% as against margin shown by the assessee of 63.94% after excluding foreign exchange loss and 13.11% including foreign exchange loss. The Transfer Pricing Officer on examining the annual report for the relevant previous year, however, found that the assessee had entered into following transactions with its A.E.

Sub–contracting costs paid ₹ 369,40,07,189 Recovering of expenses received ₹ 4,80,58,593 Reimbursement of expenses paid ₹ 3,69,73,756

12 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd various risks, it should be entitled to share of profit on the entire value of contract and not mere mark–up on the cost incurred. The Assessing Officer observed, assessee has to pay all the taxes and in case of change of location, the assessee has to bear the expenditure incurred in shifting sub–contractor’s equipment, personnel to the new location. Thus, the assessee is a full fledged risk taking entity. He observed, the A.E. could not have got the subcontract if the assessee would not have been there. As far as comparables selected by the assessee are concerned, the Assessing Officer rejected them and proceeded to select two comparables viz. ICRA Consulting Services Ltd. and Cyber Media Research with average margin of 13.11%. The Transfer Pricing Officer rejected assessee’s claim that the amount paid to its A.Es towards sub–contractor amounting to ₹ 369,40,07,189, is only a pass through cost, hence, should not be considered as part of assessee’s operating cost. Accordingly, Transfer Pricing Officer considered the total contract revenue of the assessee at ₹ 375,77,67,584 and payment made to sub–contractor amounting to ₹ 369,40,07,189 as part of the operating cost of the assessee. As a result, the PLI of the assessee was worked out to 0.37% as against 13.11% of the comparables and the arm’s length profit was determined at ₹ 49,26,43,330 and arm’s length cost at ₹ 32,65,12,425 resulting in upward transfer pricing adjustment of ₹ 47,88,71,298. In pursuance to the order passed by the Transfer Pricing Officer, Assessing Officer proposed the addition on account of transfer pricing adjustment in the draft assessment order. The assessee objected to the draft assessment order before the DRP. The DRP, however, upheld the order of the Transfer Pricing Officer on the issue, whether sub–contracting cost paid to the A.E. should form part of assessee’s operating cost as well as the issue of comparables selected by the Transfer Pricing Officer. Thus, in pursuance to the directions of the DRP, the Assessing Officer passed the impugned assessment order incorporating the transfer pricing adjustment proposed by TPO. 7. Learned Authorised Representative submitted, as per the pre–condition of the tender floated by ONGC, multiple companies of the Transocean Group could not have participated in the bid for supply of rig and off–shore drilling work. In this context, the learned Authorised Representative referred to the provisions of section 2 of the bid document. He submitted to overcome the hurdle and to qualify for participating in the bid, the Group companies, therefore, decided to set–up a subsidiary company in India which can participate in the tender. He submitted, the aforesaid condition was applied for the first time and prior to which all sub– contracting entities were present in India and executing contracts with ONGC. He submitted, as per the bid document, ONGC required the bidder of the tender to be an off–shore drilling contractor with relevant experience to carry out off–shore drilling operation. He submitted the bid document further provided, if the bidder itself did not meet the experience and financial capabilities criteria it can still bid for the tender, provided, the parent company of the bidder fulfills / satisfies the criteria of experience and financial standing. In this context, the learned Authorised Representative drew attention of the Bench to the relevant clauses of the bid document. He submitted, as the assessee did not have relevant assets / rig or experience or requisite personnel to perform drilling operation, ONGC awarded contract to the assessee on the financial and technical capabilities of its parent / A.Es who owned the required drilling equipments / rigs and personnel for

13 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd execution of the contract with ONGC. He submitted, these facts can be clearly established from various documents / agreements entered into with ONGC as well as A.Es. He submitted, as per the memorandum of understanding between assessee and TOIVL, which is also part of the agreement between ONGC and assessee, it confirms that the A.Es are the owner of drilling unit and the same will be made available for the ONGC contract. The said memorandum of understanding would be valid for the entire duration of the contract and any extension thereafter. He submitted, agreement between assessee and its A.E. TOIVL whereby both the entities mutually agree that the assessee will submit an offer to ONGC and TOIVL has gone through and understood the requirement of the tender and are capable to provide the services for a successful execution of the contract by providing financial / technical support and expertise for fulfillment of obligation as per ONGC contract. He submitted, in pursuance to the said agreement between the assessee and the A.E. to fulfill the terms and conditions of assessee’s contract with ONGC, the A.E. TOIVL provided a guarantee on behalf of the assessee for performance of work. He submitted, the aforesaid documents clearly establish that the assessee did not have the ability to perform any of the service as per the tender. It was clearly understood by the parties to the contract that all the services were due to be provided by the A.E. directly. The assessee only provided co– ordination and liaisoning services between ONGC and the A.E. He submitted, the above documents are part of ONGC contract. The assessee on its part only provided co–ordination and liaison services. It was due to the ability of the A.E. that the assessee has got the contract from ONGC. Therefore, assessee was merely providing liaisoning services and acted as an intermediary between ONGC and A.E. who are actually engaged in providing off–shore drilling service. Learned Authorised Representative submitted, after evaluation and fulfillment of various bid criteria ONGC gave a firm order to the assessee on 14th April 2010 and the firm order was followed up with a detailed contract. On getting the firm order from ONGC, assessee entered into back–to–back contract with its A.Es on the very same date i.e., 14th April 2010. He submitted, the agreement between ONGC and the assessee captured the rights and responsibility of each entity. He submitted, the responsibility agreed in the contract with ONGC was passed on completely to the A.Es in the back–to–back agreement between the assessee and the A.Es (sub– contractor). Thus, effectively the various functions and underlying risk in relation to contract with ONGC were also passed on to the A.Es. To demonstrate the aforesaid fact, the assessee made a comparative analysis of the different clauses of the contract between the assessee and ONGC with contract between the assessee and A.Es as under:–

Sr. Particulars ONGC and TDSIPL TDSIPL and TOIVL No. Contract (J.T. Angel) contract (J.T. angel) (Sub-

14 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd contact) 1. Mobilization Period Clause 1.1(iii) on page Clause 1.1(iii) on page 314 182 of the ITAT paper book of the ITAT paper book

Sub-clause (a) Sub-clause (a)

Contractor shall mobilize Sub-contractor shall Drilling Unit along with mobilize o Drilling Unit crew to commence along with crew to operations within 120 days commence operations at the from date of firm order designated first location from Operator. nominated by ONGC

Sub-clause (c) Sub-clause (d)

In case Contractor fails to If Sub-contractor fails to mobilize the Drilling Unit mobilizes and deploy the within the period specified Drilling Unit along with in the contract, the crew and/or fails to operator has right to commence operation within terminate the contract. the period specified, the Operator has, at its discretion, right to terminate the contract and as a result this agreement shall automatically stand terminated.

Sub-clause (f) Sub-clause f1)

If the Contractor is unable In case Sub-contractor is to mobilize/ deploy the Drilling Unit and unable to mobilize/ deploy the Drilling Unit and commence the operation with the period specified... commence the Operation within specified period..., it may request Operator for Contractor may request extension of the time with

15 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd unconditionally agreeing Operator for extension of for the payment of time with unconditionally liquidated damages... which agreeing for payment of shall 0.5% of the annual liquidated damages. Upon contract value... for each receipt of such a request, if week of delay or part the Operator extends the thereof subject to maximum period of mobilization and of 5%. recovers from the Contractor liquidated damages a sum equivalent to 0.5% of the annual contract value for each week of delay or part there of subject to maximum of 5%, then the contractor shall be entitled to recover the said amount of liquidated damages from sub-contractor 2. Duration Clause 1.3 Sub clause (c) Clause 1.3, Sub clause (c) on page 184 of the ITAT on page 315 of the ITAT paper book paper book

Operator shall have the Contractor (subject to option to terminate the ONGC opting to terminate agreement at any time the contract) shall have the during the last 30 days if in option to Terminate this the opinion of the operator agreement during the last another well cannot be 30 days if in the opinion of drilled the operator another well cannot be drilled. 3. Liquidated damages Clause 1.4 on page 184 of Clause 1.4 on the ITAT paper book page 315 of the ITAT paper book

Sub-clause (b) Sub-clause (b)

If Sub-contractor In case Contractor fails to fails to mobilize the Drilling mobilize the Drilling Unit Unit and commence and commence operation, operation, within the within the stipulated stipulated mobilization mobilization period... the period... Contractor (subject

16 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd operator....has the right to to ONGC opting to terminate the contract. terminate the Contract) shall... have right to terminate the contract with Sub-contractor.

Sub clause (c) Sub-clause (c)

If the Sub- If the Contractor is unable contractor is unable to to mobilize the Drilling mobilize the Drilling Unit Unit and commence the and commence operation operation within the period within specified period, the specified in the contract it Contractor may request may request Operator for Operator for extension of extension of time with time with unconditionally unconditionally agreeing agreeing For payment of for the payment of liquidated damages. Upon liquidated damage, a sum receipt of such a request, equivalent to 0.5% of the Operator extends the period annual contract value, for of mobilization and recovers each week of delay or part from the Contractor thereof subject to maximum liquidated damages a sum of 5% equivalent to 0.5% of the annual contract value, for each week of delay or part thereof subject to a maximum of 5%, then the Contractor shall be entitled to recover the said amount of liquidated damages from Sub-contractor. 4 Inspection Clause 1.6 on page 185 of Clause 1.6 of on page 315 the ITAT paper book of the ITAT paper book

Sub-clause 1.6.1: Sub-clause 1.6.1:

Operator shall get the Sub-contractor accepts that Drilling Unit and the Operator shall get the equipment inspected Drilling Unit and equipment through any of the inspected through any of the following internationally following internationally

17 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd reputed third party reputed third party inspection agency... the inspection agency... the cost cost of third party of third party inspection inspection shall be borne shall be borne by the by the Operator... Operator...

Sub-clause 1.6.2: Sub-clause 1.6.2:

Operator will accept the Sub-contractor Drilling Unit only after acknowledges y and Operator nominated third confirms that Operator will party agency confirms that accept the Drilling Unit Drilling Unit is as per the only after Operator tender specifications. nominated third party agency confirms that Drilling Unit is as per the tender specifications

Sub-clause 1.6.3: Sub-clause 1.6.3:

Sub-contractor confirms Contractor confirms completion of inspection completion of inspection and complete readiness of and complete readiness of the Drilling Unit in all the Drilling Unit in all aspects, to the satisfaction aspects, to the satisfaction of the Operator including of the Operator including conformity to Operator's conformity to Operator's tender specification tender specification certified by third party certified by third party inspection agency at least inspection agency at least days prior to stipulated 30 days prior to stipulated mobilization period. 30 mobilization period.

Sub-clause 1.6.4 Sub-clause 1.6.4:

In case the Sub-contractor In case the Contractor

18 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd fails to adhere to either of fails to adhere to either of the above time schedules the above time schedules Operator reserves the right and consequently Operator to invoke the performance invokes the performance bond, forfeit the same and bond submitted by the terminate the Agreement Contractor, forfeits the without prejudice to any same and terminated the other right or remedy Contract, the Contractor available as per the reserves the right to invoke Agreement. the performance bond to the extent invoked by the Operator and terminate the Agreement without prejudice to any other right or remedy available as per the Agreement 5 Depth Clause 2.1, sub clause (b) Clause 2.1, sub-clause (b) on page 186 of the ITAT on page 316 of the ITAT paper book paper book

The Drilling unit e e The Drilling unit furnished by the contractor furnished by the sub- hereunder, shall be fully contractor hereunder, shall equipped and adequate to be fully equipped and drill wells in terms of adequate to drill wells in agreed specifications and terms of agreed complete the same.... The specifications and complete drilling unit and all other the same.... The drilling unit equipment, materials and and all other equipment, supplies provided by materials and supplies contractor by the provided by sub- contractor contractor, as specified or by the contractor, as which the contractor is specified or which the otherwise required to contractor is otherwise provide under the terms of required to provide under this agreement... the terms of this agreement...

Clause 2.2 Clause 2.2

Sub-contractor confirms Contractor confirms that that the drilling unit shall be

19 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd the capable of drilling unit be capable of drilling wells upto a maximum depth of 6000 meters drilling unit shall be capable of

drilling unit be capable of drilling wells upto a maximum depth of 6000 meters 6 Hull Structure Clause 3.5 on page 189 of Clause 3.5 on page 318 of the ITAT paper book the ITAT paper book

Contractor shall be Sub-contractor shall be required to carry our required to carry our repair repair of damages or of damages or structural structural defects in the defects in the hull structure hull structure and/or to and/ or to carry out carry out required required inspections, which inspections, which prevents prevents the hull structure the hull structure from from performing its normal performing its normal intended functions. intended functions.

Sub-contractor shall bear Contractor shall bear all all costs towards diesel, costs towards diesel, water water and other services and other services (Air (Air Logistics, material Logistics, material transport and standby boat transport and standby boat for safety) in case the for safety) in case the inspections/repairs are inspections/ repairs are carried out at location other carried out at location than as specified above. other than as specified above. 7. Deficiencies Clause 3.6 on page 190 of Clause 3.6 of TDSIPL and the ITAT paper book TOIVL sub-contract on page 318 of the ITAT paper book

Sub-clause (1) Sub-clause (2)

Contractor equipment

20 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd shall be maintained by the Sub-contractor equipment contractor in sound and shall be maintained by the efficient operating sub- contractor in sound condition at all times. and efficient operating Should the performance of condition at all times. Contractor's drilling Should the performance of equipment becomes Sub- contractor's drilling unsatisfactory or the equipment becomes general standard of unsatisfactory or the performance of work general standard of hereunder be materially performance of work reduced because of hereunder be materially defective drill pipe, drill reduced because of collars, or other defective drill pipe, drill Contractor's furnished collars, or other Sub- equipment or by reason of contractor's furnished Contractor's incompetence or negligence, Operator shall give Contractor equipments or by reason of written notice... to correct Sub-contractor's the specified deficiencies incompetence or negligence, within 15 days failing subject to Operator... which the Operator shall Contractor shall give Sub- have right to terminate the contractor written notice... agreement by giving 30 to correct the specified days notice... deficiencies within 15 days failing which the Contractor shall have right to terminate this agreement by giving 30 days notice... 8. Personnel Clause 3.8 on page 191 of Clause 3.8 on page 319 the Mobilization the ITAT paper book ITAT paper book

lization ...In the event In the event there is a there is a change in change in location, location... and Contractor Contractor [subject to shifts its office to new Operator making payment location, Operator shall to Contractor] shall pay all pay all reasonable expenses reasonable expenses thereby incurred in moving thereby incurred in moving a maximum of 4 of the a maximum of 4 of the Sub- Contractor's Shore base contractor shore base personnel, and Contractor's personnel, and Contractor's onshore equipment, onshore equipment, material, supplies and material, supplies and related items located related items located

21 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd therein, from original therein, from original location to new location location to new location such transaction being such transaction being limited to surface/ sea limited to surface/ sea transportation charges transportation charges only. only. Contractor shall be Sub-contractor shall be responsible for providing responsible for providing all all other requirement of its other requirement of its personnel... personnel... 9. Performance Clause 3.10 on page 191 Clause 3.10 of TDSIPL and of the ITAT paper book The TOIVL sub-contract on Contractor undertakes to page 319 of the ITAT paper perform all services under book this agreement with all reasonable skill/ diligence and care in accordance The Sub-contractor with sound industry undertakes to perform all practice to the satisfaction services under this of the Operator and accepts agreement with all full responsibility for reasonable skill/ diligence satisfactory quality of such and care in accordance with services. sound industry practice to the satisfaction of the operator and accepts full If the Operator is responsibility for dissatisfied with the work of satisfactory quality of such Contractor, then Operator services. shall give a written notice specifying the causes of dissatisfaction and In the event of Operator Contractor shall correct the gives written notice specified deficiencies specifying the causes of within 15 days failing dissatisfaction to the which Operator shall have Contractor, the Contractor the right to terminate this shall give Sub-contractor agreement by giving 30 written notice specifying the days advance written notice causes of Operator's to the Contractor unless the dissatisfaction and Sub- specified deficiencies is contractor shall correct the corrected within such 30 specified deficiencies within days period. 15 days failing which Operator shall have the right to terminate this agreement by giving 30 days advance written notice to the Contractor unless the specified deficiencies is

22 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd corrected within such 30 days period. 10. Performance Bond/ Clause 3.11 on page 192 Clause 3.11 on page 320 Performance of the ITAT paper book of the ITAT paper book Guarantee

Clause 3.11: Clause 3.11: The Contractor has The Sub-contractor has furnished to T the furnished to the Contractor Contractor an irrevocable an irrevocable and fu and unconditional unconditional Performance Performance in Guarantee Guarantee issued by Sub- bearing No. 5520117516 contractor's parent dated 27th April 2010 for Company namely US$ 1,724,490.32 (U.S. Transocean Inc. with Dollars One Million Seven validity upto the expiry or 1 Hundred Twenty-Four termination of the said thousand Four hundred Contract. In the event of the Ninety and Thirty Two Sub-contractor failing to cents only) with validity of honour any of the end 15th December, 2013. The commitments entered into Contractor agrees to extend 13. e under this Agreement the validity of the and/or in respect of any Performance Bank amount due from Sub- Guarantee so as to be valid contractor to the up to 60 days beyond the Contractor, the Contractor last date primary term of shall have the unconditional Agreement or extension option under the guarantee entered into under this to invoke fthe said Contractor to the Operator, Performance Guarantee the Operator shall have the with Transocean Inc. and unconditional option under claim the amount from the guarantee to invoke the Transocean Inc. and forfeit said guarantee with the the same. Transocean Inc. bank and claim the amount shall be obliged to make the from the bank and forfeit payment to the Contractor the same. The bank shall be upon demand obliged to make the Notwithstanding the payment to the Operator on invocation of the demand. The Contractor Performance Guarantee by further agrees to extend the the Contractor, if the period of this guarantee or Agreement is not terminated to furnish a fresh guarantee simultaneously with the if the Operator decides to invocation of Performance the extend the period of this Guarantee, Sub-contractor Agreement a stated in the shall not be discharged

23 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd Article 1.3. from its obligations to diligently and efficiently execute the Agreement as per the terms and conditions herein. 11 Material, supplies, Clause 4.1 on page 192 of Clause 4.1 on page 320 of equipment and the ITAT paper book the ITAT paper book services

Sub-clause (a) Sub-clause (a)

Contractor will furnish Sub-contractor will furnish and maintain at its cost all and maintain at its cost all items designated at Exhibit items designated at A hereto under the heading Annexure -1 hereto under 'Furnished by the the heading Furnished by Contractor' the Sub- contractor' 12 Personnel Clause 4.2(a) submitted Clause 4.2(a) of TDSIPL on page 192 of the ITAT and TOIVL sub-contract on paper book page 320 of the ITAT paper book

Sub-clause 4.2 (a): Sub-clause 4.2 (a):

The Sub-contractor will at The Contractor will at the the time at its sole expense time at its sole expense and and under its exclusive under its exclusive responsibility arrange responsibility arrange supervisory, technical, other supervisor, technical, other personnel to properly personnel to properly perform the work, in the perform the work, in the number and categories as numbers and categories as specified in the contract specified in the contract (such as Drilling (such as Drilling Superintendent, Chief Superintendent, Chief Mechanic, Subsea Engineer, Mechanic, Subsea Asst. Subsea Engineer, Engineer, Asst. Subsea Driller, Asst. Driller, etc.)... Engineer, Driller, Asst. Driller, etc.)... 13 Space at Nhava Clause 4.3 on page 193 of Clause 4.3 on page 321 of

24 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd the ITAT paper book the ITAT paper book

The operator may provide The Contractor (subject to space at its Nhava Supply the operator providing) may Base for transit storage of provide space al its Nhava material required for Supply base for transil carrying out drilling storage of material required operations. It is agreed that for carrying out drilling the contractor shall remove operations. It is agreed that their materials at their cost, the sub- contractor shall within 30 days from the remove their materials at time of arrival of material their cost within 30 days from the space provided by from the time of arrival of the operator al Nhava. material from the space provided by the operator at Nhava.

Any material being stored Any material being stored by contractor beyond 30 by sub-contractor beyond days, the operator would 30 days, the operator would charge a ground rent as per charge a ground rent as per Mumbai Port Trust rale Mumbai Port Trust rate applicable on the day of applicable on the day of removal of material and removal of material and will will be recovered from any be recovered from any amount due to the amount due to the sub- contractor without giving contractor without giving any future notice... Further, any future notice... Further, the contractor shall obtain the sub- contractor shall all necessary clearance obtain all necessary from customs for storage clearance from customs for and removal of materials storage and removal of from stores materials from stores 14 Independent Clause 9.1 on B the ITAT 9.1 on page 325 of the ITAT Contractor paper book Sub-clause (a) paper book Sub-clause (a): Relationship

Contractor, directly and Sub-contractor, directly and through its employees, shall through its employees, shall perform all work connected perform all work connected with the Drilling operations with the Drilling operations herein contemplated. In the herein contemplated. In the performance of this work performance of this work contractor is an the Sub-contractor is an

25 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd independent Contractor independent contractor and and is completely is completely responsible to responsible to control and control and execute the execute the details of the details of the work, work, Operator being Contractor/Operator being interested in proper execution and results obtained. The work interested in proper contemplated herein shall execution meet the approval of Operator and be subject to the general rights of and results obtained. The directions and inspection. work Neither Contractor's employees nor employees of its sub- contractors, shall be considered employees of be contemplated herein Operator. shall meel the approval of Contractor/Operator and be subject to the general rights of directions and inspection. Neither Sub-contractor's employees nor employees of its sub-contractors, shall be considered employees of Contractor/Operator.

Sub-clause (b): Sub-clause (b):

Sub-contractor shall at all Contractor shall at all times, have full times, have full responsibility for control, responsibility for control, direction and supervision of direction and supervision of operations being carried out operations being carried under this Agreement except out under this Agreement when and to the extent that except when and to the the Operator assumes extent that the Operator control and supervision of assumes control and operation. supervision of operation. 15 Representatives Clause 9.2 on page 200 of Clause 9.2 on page 326 of the ITAT paper book the ITAT paper book Sub-clause (a}: Sub-clause (a): The actual performance The actual performance and and superintendence of all superintendence of all work work hereunder shall be by hereunder shall be by -Sub-

26 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd Contractor. contractor. 16 Completion or Clause 10 on page 202 of Clause 10 on page 327 of the ITAT paper book the 1TATpaper book Abandonment Contractor agrees to Sub-contractor agrees to perform all work necessary perform all work necessary to drill, complete or abandon to drill, complete or abandon each well in the each well in the manner manner specified by specified by Operator Contractor/Operator. 17 Drilling Unit Clause 13.2 on page 204 Clause 13.2 on page 328 of of the 1TAT paper book the IT AT paper book Licenses Contractor agrees that it Sub-contractor agrees that shall secure permits and il shall secure permits nnd licenses for operations of licenses for operations of the Drilling Unit in Indian the Drilling Unit in Indian Waters, if required and Waters, if required and Sub- Contractor shall pay any contractor shall pay any expenses in this regard. expenses in this regard. Contractor confirms that it It is the responsibility of would assist the Sub the Contractor to obtain contractor in obtaining Naval Defence Clearance Naval Defence C'learance of Drilling Unit prior to of Drilling Unit prior to commencement this commencement of contract Agreement from Ministry of from Ministry of Defence Defence through Ministry through Ministry of of Petroleum and Natural Petroleum and Natural Gas Gas (India), at his cost. (India), at Sub-contractor's COM. However, for It is the responsibility ol obtaining Naval Defence the Contractor to obtain all Clearance, and other necessary permissions and necessary permissions and clearances from the clearances for the statutory statutory authorities, for authorities, Contractor operating the Drilling Unit confirms that Operator shall in Indian waters, at his issue forwarding letter upon cost. request from Subcontractor Con tract 01 shall ensure supported by all relevant that the Drilling Unit i.s valid classed and confirm that they would obtain Contractor confirms that it permission /clearance of would assist the Sub- DG Shipping, wherever contractor in obtaining all required for operating the necessary permissions and Drilling Unit in Indian clearances from the waters, at his cost. concerned statutory However, for obtaining authorities, for operating the Drilling Unit in Indian Naval Defence Clearance waters, at Sub-contractor's and other necessary cost. permissions and clearances from [lie statutory Sub-contractor shall ensure authorities, Operator shall

27 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd issue forwarding tatter that the Drilling Unit is upon request from classed and confirm thai Contractor supported by all they would obtain relevant valid documents. permission / clearance of DO Shipping, wherever required for operating ihe Drilling Unil in Indian waters, al their cost,. 18 Insurance Clause 14 on pay e 204 of Clause 14 on page 328 of the 11 AT paper book the f TAT paper book Sub-Clause 14.1: Sub-Clause 14.1: Sub- contract or shall Contractor shall procure procure at Sub- contractor's al Contractor's expense and expense and maintain with maintain with respect to respect to and for the and for the duration of this duration of this Agreement Agreement the insurance the insurance policies policies described below described below and with and with policy limits policy limits indicated indicated below: below. • Workmen's » Workmen's compensation and compensation and employees' liability employees' liability insurance insurance • Comprehensive • Comprehensive general general liability insurance liability insurance • Marine insurance * Marine insurance • Comprehensive general • Comprehensive general automobile liability automobile liability • Protection and • Protection and indemnity indemnity liability liability 19 Indemnity Clause 14.6 on page 206 clause 14.6 on page 330 of Agreements of the ITAT paper book the ITAT paper book

A. Contractor agrees A. Sub-contractor agrees to to protect, defend, protect, defend, indemnify indemnify and hold and hold Operator its co- leases, its Contractor/Operator its con agents, if any, its other leases, its agents, if any, its Contractor's and/or their other contractors (other employees harmless from than Sub-contractor) and/or and against all claims, suits, demands and causes their employees harmless of action, liabilities, from and against all claims, expenses, costs, liens, suits, demands and causes rights in rem, and of action, liabilities, judgements of every kind

28 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd and character, without expenses, costs, liens, rights limit, which may arise in in rem, and judgements of favour of Contractor, every kind and character, Contractor's employees, without limit, which may agents, sub-contractors or arise in favour of Sub- their employees, on account contractor, Sub-contractor's of bodily injury or death of employees, agents, its Contractor's employees, agent, sub- contractor's subcontractors or their employce or damage to employees; on account of said employee's property as bodily injury or death of a result of the operations, Sub-contractor's employees, contemplated hereby, agent, subcontractor's regardless of whether said employee or damage to said claims, demands, or causes employee's property as a of action arise out of negligence or otherwise, in result of the operations, whole or in part, contemplated hereby, unseaworthiness or other regardless of whether said fault, including pre-existing claims, demands, or causes conditions of Operator, its of action arise out of contractors other than the negligence or otherwise, in Contractor, sub- contractors, partners, Joint whole or in part, un- Ventures, their employees seaworthiness or other or agents. fault, including pre-existing B. Operator agrees to conditions of Contractor/ protect, defend, indemnify Operator, its contractors and hold Contractor and its other than the Sub- sub- contractors, its agent and its affiliates, its other contractors and/or their employees harmless from contractor, partners, Joint and against all claims, Ventures, their employees suits, demands and causes or Agents. of action, liabilities, expenses, costs, liens, rights in rem and judgements of every kind B. Contractor (to the extent and character, without that Contractor receives an limit, which may arise in favour of Operator, equivalent indemnity from Operator's employees, Operator), agrees to Agents, invitees, protect, defend, indemnify: contractors (other than and hold Sub-contractor Contractor) and sub- and its subcontractors, its contractors, or their agent and its affiliates, its employees, on account of other contractors and/or bodily injury or death of their employees harmless Contractor's employees, from and against all claims, agents, invitees, suits, demands and causes contractors (other than of action, liabilities, Contractor) and sub- expenses, costs, liens, rights contractors or damage to

29 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd said employees or its in rem and judgements of property (including any every kind and character, property of Operator) as a without limit, which may result of the operations arise in favour of contemplated hereby, Contractor, Contractor's regardless of whether or employees, Agents, invitees, not said claims, demands, contractors (other than Sub- or causes of action arise contractor), or their out of the negligence or employees, on account of otherwise in whole or in bodily injury or death of part, unseaworthiness or Contractor's employees, other faults, including pre- agents, invitees, contractors existing conditions of (other than Sub-contractor) Contractor, its or damage to said subcontractors, partners, employees or its property Joint ventures, employees (including any property of or agents Contractor) as a result of the operations contemplated hereby, regardless of whether or not said claims, demands, or causes of action arise out of the negligence or otherwise in whole or in part, unseaworthiness or other faults, including pre existing conditions of Sub- contractor, its subcontractors, partners, Joint ventures, employees or agents. 20 Payment of Excise Clause 15.5.1 Refer page Clause 15.1.1 Refer page Duty, Vat/ Sales 210 of the ITAT paper book 333 of the ITAT paper book Tax, works Contract 3 Tax and Service Tax

VAT/Sales Tax/ Works VAT/Sales Tax/ Works Contract Tax/ Excise Duty Contract Tax/ Excise Duty levied, if any, on levied, if any, on materials/consumables will materials/consumables will be to the account of Sub- be to the account of contractor. VAT/ Sales Tax/ Contractor. VAT/ Sales Works Contract Tax/ Tax/Works Contract Tax/ Excise Duty levied, if any, Excise Duty levied, if any,

30 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd on charter hire payments on charter hire payments received by the Sub- received by the Sub- contractor, under this contractor, under this contract, will be to the contract, will be to the account of Operator. account of Contractor. 21 Termination for Clause 22.5 Refer page Clause 22.5 Refer page 337 unsatisfactory 217 of the ITAT paper book of the ITAT paper book Performance

If the operator consider If the operator consider the that the performance of the performance of the sub- contractor is unsatisfactory contractor is unsatisfactory or, not upto the standard, or not upto the expected the operator shall notify the standards and notifies the contractor in writing and contractor about its specify the details... dissatisfaction, the operator shall have the contractor shall notify the option to terminate the sub- contractor in writing agreement by giving 30 and specify the details... days notice in writing to the Contractor shall have the contractor, if, the option to terminate the contractor fails to comply agreement by giving 30 with the requisition days notice in writing to the contained in the said sub-contractor (provided written notice issued by the the operator issues such operator. notice of termination to the contractor), if, the sub- contractor fails to comply with the requisition contained in the said written notice issued by the Contractor. 22 Verification of cha– Clause 40 refer page 226 Clause 41 refer page 344 of racter and ante– of the ITAT paper book the ITAT paper book cedents of contrac– tual manpower The contractor shall The sub–contractor shall submit the documents to the submit the documents to the operator prior to start of operator prior to start of the work on the (1) the work on the (1) character and antecedents character and ante–cedents of the persons(s) proposed of the per–sons(s) proposed to be deployed (2) they to be deployed (2) they have scrutinized the have scrutinized the previous work of the previous work of the person(s) propo–sed to be persons(s) proposed to be deployed (3) certified deployed (3) certified

31 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd photo–copies of police photocopies of police very–fication certificates verification certificate.

Salary paid by A.Es to its employees ₹ 69,31,83,118 working on Rigs Salary paid by assessee to its employees none of whom are posted ₹ 1,87,45,991 on the Rigs Percentage of salary paid by TDSIPL 2.70% to salary paid by A.Es

32 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd submitted, once the transactions with the assessee in the hands of the A.E. are held to be at arm’s length, the same arm’s length nature is to be upheld in assessee’s case. Learned Authorised Representative submitted, in A.E’s case, the DRP in the assessment year 2011–12, while considering the nature of work performed has recorded a categorical finding that the A.E is engaged in actual drilling operation through provisions of drilling rig and integrated services and such activities are in connection with prospecting, extracting or production of mineral oil by ONGC. Therefore, presence of intermediary like TDSIPL is not relevant. Thus, ultimately, DRP held that consideration received by the assessee from contract with TDSIPL is taxable under section 44BB of the Act. Learned Authorised Representative submitted, once the DRP in the case of A.E. had held that the A.E id engaged in actual drilling operation and the assessee is a mere intermediary, which decision of the DRP has been accepted by the Department, a contrary view cannot be taken in assessee’s case in respect of the very same income. Learned Authorised Representative submitted, in assessment year 2012–13, the Transfer Pricing Officer himself has acknowledged that assessee is acting merely as an intermediary between ONGC and its A.Es and has accordingly considered the payments made by the assessee to A.Es as pass through cost, which cannot be considered as part of the cost base of the assessee to compute the arm's length price. Learned Authorised Representative submitted, as the assessee has been able to demonstrate that the responsibility agreed in the contract with ONGC were passed on completely to the A.Es in the back–to–back agreement effectively the various functions and underlying risk in relation to the same were also passed on to the A.Es. He submitted, the MoU / agreement between the assessee and the parent company and guarantee furnished by parent company are part of agreement with ONGC. Accordingly, the role of the assessee was merely to provide co–ordination and liaisoning services to its A.E. vis–a–vis ONGC contract while the A.E. carried out entire off–shore drilling operation including owning of the rigs and the personnel. He submitted, DRP in A.E’s case has categorically held the A.E. to be engaged in actual drilling operation and the assessee is a mere intermediary. It was submitted, on the face of the aforesaid facts, while carrying out functional analysis, the Transfer Pricing Officer has misdirected himself in holding that the assessee assumed significant risk. The learned Authorised Representative submitted, as the functions and the risk undertaken by the assessee in the contract with ONGC have been passed on to the A.E., the amount paid to the A.E. cannot be added back to the assessee’s cost. It was submitted, in order to apply TNMM, the assessee’s net profit margin realised from international transactions has to be calculated only with reference to cost incurred by it and not by any other entity. He submitted, rule–10B(1)(e), does not enable consideration of imputation of cost incurred by third party or unrelated enterprise to compute net profit margin of the assessee by applying TNMM. In support of such contention, learned Authorised Representative relied upon the following decisions:– i) Li and Fung India Pvt. Ltd., 40 taxmann.com 300 (Del.); ii) FedEx Express Transportation and Supply Chain Services India Pvt. Ltd. v/s DCIT,, ITA no.435/Mum./2014; iii) Cheil Communications India Pvt. Ltd., 11 taxmann.com 205.

33 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd 10. The learned Departmental Representative submitted, the Transfer Pricing Officer referring to the assessee’s transfer pricing study report has noted down various functions carried out by the assessee. Referring to the transfer pricing order he submitted, Transocean Group entity would not have got sub–contract if the assessee was not successful at the bid. He submitted, the ONGC required an Indian entity to bid, therefore, the Indian entity performed an important functions of contracting / bidding. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, this function is separate from liaisoning and co–ordination function, assistance in import, warehousing, accounting and document maintenance, invoicing in collection and other supporting functions. He submitted, the Transfer Pricing Officer bench marked the transaction for all the functions put together treating the assessee as risk bearing entity. He did not bench–mark the functions separately. In reply to the submissions of the assessee that in assessment year 2012–13, the Transfer Pricing Officer has accepted the payment made to sub–contractor as pass through cost, the learned Departmental Representative submitted, in assessment year 2012–13, the Transfer Pricing Officer has undertaken a detailed factual analysis and a separate bench marking of the functions have been undertaken. He submitted, while following separate bench marking approach of contracting / bidding function and that of liaisoning and support service, the Transfer Pricing Officer excluded sub– contracting cost. He submitted, in case sub–contract cost is to be excluded, the function of sub–contracting need to be remunerated at arm's length price. Extensively referring to the observations of the Transfer Pricing Officer in the said order, the learned Departmental Representative brought out certain importent points as under:– “a) FAR analysis revealed assessee was taking contracts and passing on the same to the AEs. This was done on back to back basis. b) The assessee has received a remuneration for the specific services that it was performing in the liaisoning and co–coordinating activities. However, services that it performed in the form of procuring a contract and passing it on back to back has not been compensated. c) The procurement of the contract and transferring the same to another entity for commercial reasons is a normal industry practice in many sectors. Same is done for a reduced contract or commission. In other words, the commission is a reward for bearing the initial incidence of a risk.”

4.9. Respectfully following the same, the ground Nos. 2-4 raised by the Revenue are hereby dismissed.

34 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd

(A) Inclusion of Agricultural Finance Corporation Ltd as comparable entity The ld. CIT(A) observed that this company is found to be a consultancy and technical support company, although in agricultural field and accordingly held to be functionally comparable with that of the assessee company. Aggrieved by this inclusion, the Revenue is in appeal before us vide ground No.1.

The ld. DR before us drew our attention to the financial statements of the said comparable company enclosed in page 663 of the paper book wherein he drew our attention that the said comparable company was involved in project activities as major expenditure is only project expenses to the tune of Rs.40.99 Crores. Per contra, the ld.AR drew our attention to page 75 of the paper book wherein it is reflected that the said comparable company had earned consultancy income of Rs.56.42 Crores and that only the way of determining the consultancy income is based on projects undertaken by that comparable company. The ld. DR also submitted that the said comparable company is subject to audit u/s. 619 (4) of the Companies Act, 1956 by Comptroller and Auditor General (C & AG), which goes to prove that the said company is a Government company. The ld. DR placed reliance on the decision of the Hon‟ble Jurisdictional High Court in the case of CIT vs Thyssen Krupp Industries India Pvt Ltd reported in 68 taxmann.com 248 (Bom) wherein it was held that when a substantial part of the Revenue of comparable company in execution of turnkey projects arise out of executing projects of public sector undertakings, it cannot be considered to be comparable to assessee company providing turnkey services to its AE as contracts between public sector undertakings were not driven by profit motive alone and other consideration also weigh in such as discharge of social

35 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd obligations etc. To buttress this argument, the ld. AR drew our attention to the order of the ld. TPO at page 10 thereon wherein, the ld. TPO himself had included Apitco Ltd as one of the comparables, which is also a Government company. The ld. AR, though, in principle, agreed that Government company cannot be a good comparable in view of the decision of the Hon‟ble Jurisdictional High Court referred supra, submitted that the said principle cannot be made applicable to the facts of the instant case in view of the fact that the ld. TPO himself had considered a Government company as a good comparable.

It is a fact on record that Apitco Ltd is a Government company which has been included as a good comparable by the ld. TPO. It is also pertinent to note that inclusion of a Government company as a good comparable i.e. Apitco Limited is not disputed by the assessee before us. While this is so, the ld. DR before us cannot try to make out a new case beyond what has been done by the ld. TPO/AO. Hence, rejection of Agricultural Finance Corporation Ltd as a good comparable cannot be done merely because it is a Government company in the peculiar facts and circumstances of the instant case. There is absolutely no dispute that Agricultural Finance Corporation Ltd is functionally comparable with that of the assessee. Hence, we hold that the ld. CIT(A) has rightly included Agricultural Finance Corporation Ltd as a good comparable in the facts and circumstances of the instant case. The ld. TPO/AO is directed to include the same as a comparable.

(B) Inclusion of Office Care Services Ltd as comparable The assessee has raised the ground No.7 in its cross objections seeking to include Office Care Services Ltd as a good comparable with that of the assessee company. The ld. CIT(A) had ignored this comparable on the

36 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd ground that the annual report of the said comparable company does not contain any mention on nature of services rendered by them. The assessee had actually given a screenshot of website of the said comparable which mentions various services rendered. In fact this screenshot was filed by the assessee before the ld. CIT(A) vide letter dated 28/01/2019 which is enclosed in pages 814-816 of the paper book. The ld. DR objected to the inclusion of the said comparable company as the details mentioned in the website of any company could not be relied upon as an evidence and he also drew our attention to the annual report of the said comparable company which does not mention anything about the nature of services rendered and functions performed by them. Per contra, the ld. AR stated that assessee had taken broader compatibility as business support services and that similar services were rendered by BVG India Ltd which has been included by the ld TPO as a good comparable and hence, he pleaded that Office Care Services Ltd also should be included as a comparable.

We have gone through the TPSR of the assessee which is enclosed in pages 1-48 of the paper book. In page 22 thereon, the assessee had sought to include Office Care Services Ltd as a good comparable with the assessee wherein the „Data Source‟ relied upon is the annual report of the said comparable company. It is not in dispute that the annual report of the said comparable company does not specify the nature of functions performed by that company. Hence, even at the time of benchmarking done by the assessee itself, the assessee had not bothered to obtain any other evidence to bring on record the nature of functions performed by the said comparable company to include the same in the list of comparables. It is very well settled that the information mentioned in the website of any company is only for their performance and cannot be relied upon by any statutory authority or by any Court. Hence, we are in

37 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd agreement with the argument advanced by the ld. DR on this issue. Accordingly, we hold that the ld. CIT(A) was justified in rejecting this company as a good comparable with the assessee for want of details of functions performed by the said comparable. Hence, the ground No.7 raised by the assessee in its cross objections is dismissed.

(C) Inclusion of Vatika Marketing Ltd:- The assessee has raised ground No.8 in its cross objections seeking for inclusion of the aforesaid comparable company. The ld. AR before us stated that the said comparable company is engaged in providing project maintenance services and segmental details are not available and hence, submitted fairly that the said comparable should be excluded from the final list of comparables. We are in agreement with the arguments advanced by the ld. AR and accordingly we hold that Vatika Marketing Ltd has been rightly rejected in the final list of comparables. Hence, the ground No.8 raised by the assessee in its cross objections is dismissed.

38 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd 9.1. We have heard rival submissions and perused the materials available on record. We find that the assessee has debited the following three expenses in its profit and loss account:- (a) Employee Benefit Expenses - Rs. 53,68,349/- (b) Other Expenses - Rs.1,65,43,025/- (c) Exchange Loss - Rs.4,13,05,616/- 9.2. We find that there is no dispute on the mark-up of 10% claim by the assessee on the expenses reflected in (a) & (b) above from its AEs. The only dispute is that though the assessee has debited exchange loss of Rs.4,13,05,616/- in its profit and loss account, it had not claimed mark-up on that to the extent of 10% from its AE during the year under consideration on the ground that the same is actually not incurred and is merely notional exchange loss and that it had resulted due to re- statement of the pending liability as on the balance sheet date to comply with Accounting Standard-11 issued by the Institute of Chartered Accountants of India (ICAI). In this regard, the ld. AR drew our attention to the undisputed fact that the assessee has back to back arrangement with its AE; that the entire contact services are rendered only by the AE to ONGC; that the assessee receives the contract revenue in US$ from ONGC and immediately passes on the same to its AE in US$. The said exchange loss is only arising due to re-statement of the pending dues from ONGC as on 31/03/2012, since the accounts of India are to be reflected in Indian Rupees. This re-statement of the figures had been done only to comply with the Accounting Standard-11 issued by ICAI and this figure has got absolutely no relevance with the assessee as such, for the purpose of taxation and the transfer pricing regulations, in view of the fact that the entire exchange fluctuation risk is to be borne only by the AE and not by the assessee. The assessee is merely a pass through entity of collecting the US$ from ONGC and passing on the same to AE pursuant to back to back arrangement. Since this exchange loss is purely notional, the

39 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd assessee has chosen not to get it reimbursed from its AE during the year under consideration. The ld. AR also stated that any exchange loss incurred actually by the assessee at the time of actual settlement of bills has been duly reimbursed by the AE to the assessee. Hence, we hold that assessee was duly justified in not adding mark-up of 10% on this exchange loss considering the fact that it is purely notional in nature in the peculiar facts and circumstances of the instant case. Accordingly, the ground No.9 raised by the assessee in its cross objections is allowed.

10.1. We have heard rival submissions and perused the material available on record. We find that assessee in its TPSR had stated the following with regard to reimbursement and recovery of expenses:- Sr. No. Name of the Description of Total Amount Total amount AE services / Paid / payable received / transactions with to the AE receivable from the AE the AE 1 Transocean Inc Reimbursement of 1,630,485 cargo costs, stock 2 R & B Falcon 8,584 based compensation (A) Pty. Ltd expenses of 3 Transocean 355,267 employee, freight Offshore charges etc Deepwater Drilling Inc. 4 Transocean Recovery of bid 8,11,989 RIG 140 bond expenses Limited

10.2. The ld. TPO had observed that assessee had reimbursed expenses to AE towards travel, accommodation, conveyance, communication charges, cargo costs, stock based compensation, employee expenses, freight charges etc. without any mark-up. The assessee submitted that

40 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd these transaction values represent third party costs recovered by the AEs from the assessee company without any margin. The ld. TPO had observed that assessee was asked to produce the invoices for these expenses which were not submitted by the assessee. The ld. TPO observed that since assessee is not carrying on any contract activity in India and hence, there is no need for it to realize the cargo expenses, freight expenses, employee benefit expenses, stock compensation expenses costs etc. to the AE, especially when the assessee has involved only in coordinating and liasoning services. Hence, the ld. TPO determined the ALP of this transaction at Rs.Nil and made adjustment of Rs.19,94,336/- on account of reimbursement of expenses.

10.3. The ld. AR pleaded that these expenses were already included as part of operating cost by the assessee on which 10% mark-up has already been done by the assessee. Moreover, out of the total 19.94 lakhs, the major expenditure of Rs.16,00,000/- is towards employees cost and ESOP expenses given by the parent to the employees. The ld. AR also drew the attention of this Bench to page No.3 of its ld. TPO order wherein the role of the assessee has been mentioned by stating that the assessee performed the following functions:- (a) Contracting / Bid (b) Liasoning and Co-ordination (c) Assistance in import of equipments and warehousing (d) Accounting and documents maintenance (e) Invoicing and collection (f) TDSIPL i.e. assessee performs other support administrative activity that would enable the Transocean group entities to execute the contract efficiently.

41 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd 10.4. When the transaction is in the reimbursement of expenses to AE, the third party cost incurred is a Comparable Uncontrolled Price (CUP) for reimbursement. Accordingly, the CUP method chosen by the assessee considering the nature of transaction and degree of comparability as the Most Appropriate Method, is hereby upheld.

10.5. We find that either way all these expenses have been duly included in the total expenses included by the assessee on which mark-up of 10% has been claimed by the assessee from its AE. Hence, the action of the ld. TPO in determining the ALP of this transaction at „Nil‟ is absolutely without any basis and the adjustment proposed in the sum of Rs.19,94,336/- is hereby directed to be deleted.

10.6. With regard to recovery of expenses in the sum of Rs.8,11,989/-, this represent expenses incurred by the assessee company on behalf of AE towards Bid bond expenses. These expenses were also recovered by the assessee from its AE with markup of 10%. Hence, the reasoning given by us hereinabove for reimbursement of expenses would apply for this issue of recovery of expenses also. Hence, we dismiss the action of the ld. TPO in determining the ALP of this transaction at Nil and consequentially direct for deletion of adjustment made in the sum of Rs.8,11,989/- towards recovery of expenses. Accordingly, the ground No.10 raised by the assessee in its cross objection is allowed.

42 ITA No. 2988/Mum/2019 & CO No.05/Mum/2021 M/s. Transocean Drilling Services (India) Pvt. Ltd

Order pronounced on 28/03/2023 by way of proper mentioning in the notice board.

Sd/- Sd/- (PAVAN KUMAR GADALE) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 28/03/2023 KARUNA, sr.ps

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. CIT 3. DR, ITAT, Mumbai 4. 5. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai