BG INTERNATIONAL LIMITED,MUMBAI vs. THE DEPUTY COMMISSIONER OF INCOME TAX, DDIT/ADIT(INTERNATIONAL TAXATION), CIRCLE-1, , DEHRADUN

Brief facts of the case are that in the instant case, draft assessment order was passed by the AO dated 17.03.2021 wherein an addition of INR 1,63,86,964/- was proposed based on the amount received from M/s. BG Exploration & Production India Ltd. [“BGEPIL”] which is an Associate Enterprise [“AE”] engaged in the business of providing support services to BG Group entities in the field of oil and gas in India. As per Form 3CEB of BGEPIL, it has made payment to the assessee of this sum. However, the assessee has not shown the said receipts as revenue therefore, AO has made the addition for the same.

Against the said order, assessee filed objections before ld. DRP who in terms of its order, has observed that the assessee has received this sum from BGEPIL therefore, is liable to tax in the year under appeal and rejected the claim of the assessee. Thereafter, AO passed the final assessment order dated 23.12.2021 u/s 143(3) r.w.s 144C(13) by making an addition of INR 1,63,84,964/- treating the same as income of the assessee for the year under appeal.

Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking following Grounds of appeal mentioned in the appeal memo:- “The appellant objects to the order dated 23 December 2021 passed by the Deputy Commissioner of Income Tax DDIT/ADIT (International Taxation), Circle-1, Dehradun ('the AO') for the assessment year 2018-19, pursuant to the directions dated 7 December 2021 issued by the Dispute Resolution Panel ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act') on the following among other grounds. Each of the following grounds of appeal is without prejudice to the other. Ground No. 1: Double taxation of income is not tenable 1.1 The learned AO/DRP erred in law and in facts in not appreciating that the sum of Rs.1,63,86,964 is the outstanding balance payable by BG Exploration and Production India Limited ('BGEPIL") for support provided in the past years (i.e. years prior to FY 2017-18). 2 1.2 The learned AO/DRP erred in facts in observing that the above amount was reported by BGEPIL as having been paid by BGEPIL to BGIL in FY 2017-18. 1.3 The learned AO/DRP erred in law and in facts in not appreciating that this sum was disclosed by the appellant in the respective year in which the support was provided (i.e. years prior to FY 2017-18). 1.4 The learned AO/DRP erred in law and in facts in not appreciating that this sum has already been considered as part of assessed income in the respective years and bringing the same to tax in AY 2018-19 results in doubly taxing the same sum. Ground No. 2: Reimbursement of expenses is not "income" 2.1. Without prejudice, the learned AO/DRP erred in law and in facts in not appreciating that the sums from India are purely reimbursement of expenses towards activities performed by the appellant for group entities in India and hence, cannot be regarded as "income" taxable under the Act as well as the Double Taxation Avoidance Agreement between India and United Kingdom ('DTAA'). Ground No. 3: Income, if any, should be taxable under section 44BB of the Act 3.1 Without prejudice, the learned AO/DRP erred in law and in facts in not applying the provisions of section 44BB of the Act, as the services rendered by the appellant were in relation to business of extraction or production of mineral oil. 3.2 The learned AO/DRP erred in not following the order of the Hon'ble Tribunal in the appellant's own case for AYs 2007-08 to 2016-17, as pointed out by the appellant. 3.3 In rejecting the ground of objection with reference to section 44BB of the Act, the learned DRP erred in following the directions of the DRP in AY 2012-13 to AY 2017-18 wherein it was observed that the appellant was shifting its stand on the matter from year to year and further, that the appellant had not offered the income to tax under section 44BB of the Act in its return of income. Ground No. 4: Levy of interest under section 234A of the Act 4.1. The learned AO has erred in law and in fact, in levying interest of Rs.4,13,184 under section 234A of the Act. 4.2. Without prejudice, the learned AO erred in erroneously computing interest under section 234A at Rs.4,13,184 instead of Rs.2,75,458. Ground No. 5: Levy of interest under section 234B of the Act 5.1 The learned AO has erred in law and in fact, in levying interest of Rs.30,98,880 under section 234B of the Act. Ground No. 6: Penalty under section 270A of the Act 6.1. The learned AO has erred in law and in fact, in initiating penalty proceedings under section 270A of the Act for misreporting and under- reporting of income.

Ground of appeal Nos. 1 & 2 raised by the assessee are with respect to the addition made by the AO towards amount received from BGEPIL.

Before us, ld. AR for the assessee submits that during the year under appeal, the assessee has not carried out any transaction with BGEPIL and the outstanding balance brought forward from previous year on account of support services provided in preceding years was received during the year under appeal. Since it is the reimbursement of expenses brought forward from preceding AYs therefore, the same cannot be treated as the income of the year under appeal. Ld.AR drew our attention to page 37 of the Paper Book which is copy of financial statement of BGEPIL wherein Note No. 30(b), the management has observed that there was no transaction carried out during the year under appeal with the assessee. Ld.AR further drew our attention to page 38 of the Paper Book wherein this amount was shown as “paid” against the opening balance to the assessee company. Ld.AR further filed copy of the Form 3CEB issued in the case of the assessee company wherein no such transaction was reported as carried out with BGEPIL. Ld.AR submits that before ld. DRP, these facts were submitted however, ld. DRP has failed to appreciate these facts and confirmed the income in the hands of the assessee company by placing reliance on Form 3CEB filed by BGEPIL. Ld. AR submits that such information was reported with respect to the payment of opening outstanding and cannot be held as income of the assessee. He therefore, prayed that the addition be deleted.

On the other hand, ld. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the amount of addition made has rightly been added in the hands of the assessee company and requested for the confirmation of the same.

Heard the contentions of both the parties at length and perused the material on record. At the outset, it is observed that during the year under appeal, assessee company has shown no income as contract period was over and no income was accrued/received. The assessee company had provided services to BGEPIL on “cost to cost” basis in preceding assessment years and outstanding balances were brought forward from previous year which were paid by the principal company during the year under appeal and was duly reported in immediately preceding AY in Form 3CEB. We further examined the related party information given by BGEPIL in its financial statement wherein it is clearly stated that no transactions were carried out with the assessee company during the year under appeal. It is thus, successfully demonstrated by the assessee that the sum was received against the old outstanding and the necessary income was already offered in preceding assessment years. Once it is established that the sum received was on account of reimbursement of expenses incurred in preceding years and has been considered in the respective years for the purpose of characterization of the same as income therefore, there is no occasion to treat the receipt of such outstanding as income in the year under appeal. In view of these , in our considered opinion, lower authorities had made an error of fact in treating the realization of the old outstanding balance during the year as income therefore, the addition made is hereby, deleted. Accordingly, Ground of appeal Nos. 1 & 2 raised by the assessee are allowed.

In respect of Ground of appeal No.3, the assessee has taken alternate argument that in the event the same is treated as taxable income for the year under appeal, the income should be computed in the manner provided in section s 44BB of the Act. Since we have already deleted the addition made by the AO therefore Ground of appeal No.3 became infructuous and thus, not adjudicated.

The remaining Grounds of appeal Nos. 4 to 9 are consequential in nature and requires no adjudication.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on 25.05.2026. Sd/- Sd/-