GEOPETROL INTERNATIONAL INC.,CHENNAI vs. ACIT, CIRCLE INTERNATIONAL TAXATION1(3)1,, NEW DELHI

4. That the Dispute Resolution Panel (DRP)erred on facts and in law by affirm the disallowance proposed by the assessing officer in his draft assessment order of the cess paid amounting to Rs. 94,43,856 under section 40(a)(ii) of the Act in the assessment order.

5. That the assessing officer erred on facts and in law by making additions of Rs. 40,60,939 by treating the Other Business & Community development expenditures as a Corporate Social Responsibility (CSR) expenses under section 135 of Companies Act, 2013.

6. That the assessing officer erred on facts and in law by making additions of Rs. 2,25,92,010 on account of Seismic, Geological and Reservoir Studies in the assessment order by treating such expenditure as a capital expenditure. 7.That the assessing officer erred on the facts and in law in proposed the interest under section 234A, 234B, 234C and 234D of the Act in the draft assessment order.” Additional ground of appeal

1. That the assessing officer erred on facts and in law in completing assessment in accordance with provision of section 144C ignoring the fact the appellant was not an 'Eligible Assessee' in terms of section 144C(15).

(A.Y.2018-19) 3. Shri Sanchit Jain, appearing on behalf of the assessee submitted at the outset that he is not pressing ground no. 3 of appeal. Regarding additional ground of appeal

, he submitted that the assessee has raised a legal ground for which no additional evidences are required to be produced. The ground can be decided based on documents already on record. 3.1. In respect of ground no. 2 of appeal, the ld. Counsel for the assessee submitted that except for the notice issued u/s. 143(2) of the Act, no other notice was ever served on the assessee on the primary email id. Even, the draft assessment order was sent to the assessee on email id which was not furnished to the department for service of notice. He submitted that where the notices were not served on the assessee on the email id as specified under Rule 127 of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’) the assessment order is liable to be quashed. In support ofhis argument, he placed reliance on the decision in the case Lok Developers vs. DCIT 149 taxmann.com

93. (Bom). 3.2. In respect of additional ground of appeal challenging validity of assessment order, he submitted that the assessee does not fall within the definition of eligible assessee as defined in section 144C(15)(b) of the Act. He asserted that to be an ‘eligible assessee’ two conditions must be satisfied i.e. (i) there must be an order passed by Transfer Pricing Officer (TPO) u/s. 92CA(3) of the Act wherein variation has been made by him, and(ii) the assessee must be a foreign company. Both the conditions as specified in sub clause (i) and (ii) of clause (b)should be satisfied to fall within the meaning of ‘eligible assessee’. In the instant case there is no order of the TPO passed u/s. 92CA(3) of the Act. Since, one of the two conditions as set (A.Y.2018-19) out in sub section(15) to section 144C of the Act is not satisfied, therefore, provisions of section 144C of the Act are not attracted. 3.3. In respect of ground no. 4 of appeal, the ld. Counsel submitted that the assessee is a foreign company engaged in the business of extraction of crude oil. The assessee entered into the Production Sharing Contract with Government of India on 16.06.1995 which had assent of the Parliament. The assessee carries on the business in accordance with terms and conditions of said Production Sharing Contract (PSC). In the said agreement the Government has laid down certain conditions as well as given some relaxation to the participating parties over and above conditions and relaxation provided under various enactments and laws. As per Article 16.2 of the PSC, the assessee was liable for payment of royalty and Cess at the rate of Rs. 480 per ton and Rs. 900 per ton of crude oil, respectively. The assessee claimed payment of Cess as expenditure the AO disallowed the same u/s. 40(a)(ii)of the Act on the ground that Cess paid is in the nature of tax, hence, not allowable. The assessee filed objections before the Dispute Resolution Panel (DRP) against said disallowance. The DRP wrongly understood ‘Cess’ as ‘education cess’ and upheld the disallowance u/s. 40(a)(ii) of the Act. The ld. Counsel submitted that the assessee has been paying Cess in accordance with the PSC in the past and the Revenue in the preceding assessment year has allowed the same as business expenditure. The ld. Counsel referred to the PSC at pages 67 to 106 of the paper book and in particular referred to Article 16.2 that contains condition regarding Payment of Royalty and Cess. He submitted that since it is a regular business expenditure, the same should be allowed.

(A.Y.2018-19) 3.4. The ground of appeal no. 5 is in respect of disallowance of Rs. 40,60,939/- as expenditure in the nature of Corporate Social Responsibility (CSR). The ld. Counsel submitted that the said expenditure has been incurred in accordance with Article 13 of the PSC. Article 13 puts an obligation on the assessee to take necessary and adequate steps to remedy environmental damages caused by mining/extractions. The AO has disallowed the expenditure holding it to be in the nature of Corporate Social Responsibility (CSR) not eligible for deduction u/s. 37(1), Explanation 2 of the Act. The DRP upheld the findings of AO. The ld. Counsel for the assessee controverting the findings of AO and DRP submitted that the assessee is a loss-making company. Hence, the assessee is not obliged to provide for CSR. The assessee has incurred this expenditure incompliance with the provisions of PSC. Hence, the expenditure is allowable. He contended that the assessee has been incurring this expenditure for a long time in the past and the same has been allowed to the assessee in the preceding assessment years. Therefore, the same should be allowed in the impugned assessment year as well. 3.5. In respect of ground no. 6 of appeal relating to addition of Rs. 2,25,92,101/- on Seismic , Geological and Reservoir Studies. The ld. Counsel submits that the AO and the DRP has held the aforesaid expenditure as capital in nature. Similar expenditure was claimed by the assessee in preceding assessment year and the same was allowed by the AO. In the impugned assessment year there has been no change in the expenditure, hence, the same should be allowed to the assessee.

4. Per contra, Shri Vijay B Vasanta representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR vehemently opposing submissions of the assessee with regard to (A.Y.2018-19) service of draft Assessment Order stated that the assessee was served notices/draft assessment order on the email id that was available in the records of the department. There was no communication from the assessee to say that no notice is to be served on the old email id or furnishing fresh email id for issuance of notices. Hence, the assessee was served notices on the email id as available in the records of the Department. He further contended that in any case the assessee has admitted that notice issued u/s. 143(2) of the Act has been duly served. Upon, service of said notice the assessee has participated in assessment proceedings and has made submissions from time to time. No prejudice is caused to the assessee for not serving notices on the email id mentioned in the return of income. 4.1. The ld. DR in the first instance objected to raising of additional ground of appeal. The ld. DR on merits of additional ground submitted that section 144C(15)(b) of the Act defines ‘eligible assessee’. A bare perusal of the definition of eligible assessee would show that sub-clause (i) & (ii) are not two conditions but two categories of assessees. If, the assessee falls under any one of the two sub clauses, the assessee shall be considered as ‘eligible assessee’. To further, buttress his argument, the ld. DR placed reliance on the decision in the case of Abrar Fakirmohmmad Shaikh vs. ITO 155 taxmann.com 105 (Pune Trib). 4.2. In respect of ground no. 4 to 6 of appeal the ld. DR vehemently supported the findings of AO and the DRP. He submitted that the expenditure disallowed by the AO werenot in relation to the business of assessee and hence, not eligible for deduction u/s. 37(1) of the Act. He refered to Note 10 to Financials of the assessee at page 49 of paper book to support his contentions. Supporting addition (A.Y.2018-19) of Rs.40,60,939/- the ld. DR submitted that the aforesaid expenditure was on building school and road. The said expenditure is not in relation to the business of the assessee. He further pointed that Rs.2,25,92,010/-was towards compliance of Arbitral award passed on 30.07.2012. The same was rightly held to be on capital account as it would have given some long term benefit to the assessee.

raising a jurisdictional issue i.e. the assessee does not fall within the definition of ‘eligible assessee’ defined under section 144C(15)(b) of the Act. Before, we proceed further to decide this issue it would be relevant to refer to the definition of ‘eligible assessee’ as defined u/s. 144C(15)(b) of the Act, as was applicable to the assessment year under appeal. The same reads as under:- “(b) "eligible assessee" means,— (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company.” A bare perusal of above definition would show that these are not two conditions which are to be satisfied to fall within the definition of eligible assessee. In fact these are two categories of persons, who are held to be eligible assessees. The word ‘means’ followed by sub clauses (i) and (ii) clearly indicates that these are the two categories and not the conditions to be satisfied to fall within the meaning of eligible assessee. This can be explained with the help of an example; an Indian company can be an ‘eligible assessee’, where order of Transfer (A.Y.2018-19) Pricing Officer u/s. 92CA of the Act is passed to determine Arm’s Length Price of a transaction with its foreign AE. In such a case clause (ii) of section 144C(15)(b) of the Act would not get triggered. Our view is fortified by the decision of Hon’ble Delhi High Court in the case of Honda Car India Ltd. vs. DCIT, 67 taxmann.com 29, wherein the Hon’ble Jurisdictional High Court has explicitly made clear that definition of ‘eligible assessee’ u/s. 144C(15)(b) of the Act does not lay down two conditions but indicate two categories of persons. The relevant observations of the Hon’ble High Court are extracted herein below:-

11. In Section 144C(15)(b) of the Act, the term "eligible assessee" is followed by an expression "means" only and there are two categories referred therein (i) any person in whose case the variation arises as a consequence of an order of the Transfer Pricing Officer and ii) any foreign company. The use of the word "means" indicates that the definition "eligible assessee" for the purposes of Section 144(C)(15)(b) is a hard and fast definition and can only be applicable in the above two categories.” We find no merit in additional ground raised by the assessee, hence, the same is dismissed.

6. The ground no. 1 of appeal is general, hence, requires no separate adjudication.

7. In ground no. 2 of appeal, the assessee has assailed validity of assessment proceedings as the draft assessment order passed u/s. 144C of the Act was not served on the assessee in accordance with the provisions of section 282 of the Act r.w.r. 127 of the Income Tax Rules, 1962. The contention of the assessee is that the assessee had given an email id ramya@geopetrol.net for service of notice. Whereas, the notice/draft assessment order was sent to the mail id ajay.asri@geopetrol.net which is not operational. The contention of the assessee (A.Y.2018-19) is that since the draft assessment order was served on wrong email id, it is deemed that it was never served on the assessee. In this regard reliance is placed on the decision rendered by the Hon’ble Bombay High Court in the case of Lok Devlopers vs. DCIT (supra). The provisions regarding service of notice are contained in section 282 of the Act. The service of notice or summons or order or any other communication under the Act may be delivered or transmitted to the person by any of the following means: (a) by post or by such currier service as may be approved by the Board; (b) in the manner provided under code of civil procedure; (c) in the form any electronic record as provided in Chapter IV of the Information Technology Act, 2000; or (d) by any other means transmission of documents as provided by rules made by the Board in these behalf. 7.1. As per Rule 127(2) of the Income Tax Rules, service of notice, summons, order, etc. shall be on the following address: (i) the address available in the PAN date base of the addressee; (ii) the address available in the Income Tax Return; (iii) the address available in the last Income Tax Return furnished by the addressee; or in the case of addressee being a company address of registered office as available on website of Ministry of Corporate Affairs.

For the communications, delivered or transmitted electronically: (i)email address available in the Income Tax Return furnished by the addressee ; (A.Y.2018-19) (ii) email address available in the last Income Tax Return furnished by the assessee; (iii) in the case of addressee being a company, email address of the company as available on the website of Ministry of Corporate Affairs or any email address made available by the addressee to the Income Tax Authority or any person authorized by such Income Tax Authority. 7.2. In the instant case, the contention of the assessee is that the email id on which draft assessment order is communicated is not that of the assessee. It is an undisputed fact that after conclusion of draft assessment order, the assessee filed objection before the DRP within the time prescribed under the provisions of the Act. The assessee participated in draft assessment proceedings and thereafter in DRP proceedings. No prejudice was caused to the assessee, in availing the remedy against the draft assessment order. The Hon’ble Supreme Court of India in the case of CIT vs. Laxman Das Khandelwal, 108 taxmann.com 183 while dealing with an issue relating to service of notice u/s. 143(2) of the Act and the provisions of section 292BB of the Act which comes to rescue of the Department, where the assessee disputes service of notice held:- “7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served and the assessee would be precluded from taking any objections that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner.” 7.3. Once the draft assessment order comes to the knowledge of the assessee and the assessee has taken further steps to seek remedy against the said order within the period of limitation, any infirmity in service of notice or order would not impede the validity of proceedings arising from improper service of (A.Y.2018-19) notice/order in any manner if the assessee has participated in further proceedings. We find no merit in ground no. 2 of appeal, hence, the same is dismissed.