M/S. DOLPHIN DRILLING PTE. LTD.,NEW DELHI vs. ADIT, DEHRADUN

In the Income-Tax Appellate Tribunal, Delhi Bench ‘I-2’, New Delhi

Before : Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member

ITA No. 355/Del/2012 Assessment Year: 2007-08

Dolphin Drilling Pte. Ltd., C/o vs. ADIT(Intl. Taxation) Nangia & Company, CA, Suite-4A, Dehradun. Plaza M-6, Jasola, New Delhi. PAN : AACCD0288Q. (Appellant) (Respondent)

Appellant by Sh. Ajay Vohra, Sr. Advocate Sh. Neeraj Jain, Advocate Sh. Shahil Sharma, Advocate Respondent by Sh. H.K. Choudhary, CIT/DR

Date of Hearing 08.01.2019 Date of Pronouncement 27.02.2019

ORDER Per L.P. Sahu, A.M.: This appeal filed by the assessee is directed against the order passed by the Assessing Officer dated 30.11.2011 u/s. 143(3)/144C(13) of the Income-tax Act, 1961 on the following grounds : 1. That the Learned Assessing Officer ('Ld. AO') has erred on facts and in law in disallowing depreciation of Rs. 1,603,913,947 claimed by the appellant in respect of drilling rig 'Belford Dolphin', alleging that the appellant is failed to substantiate the ownership in the rig. 1.1 That the Ld. AO has erred in law and in facts in not taking cognizance of the fact that the above issue has been decided in the appellant's favour by

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the Hon'ble Tribunal in the appellant's own case for assessment years 2004- 05, 2005-06 and 2006-07. 2. That the Ld. AO has erred on facts and in law in making an addition of Rs. 527,040,434 being cost-to-cost reimbursement received by the appellant from Dolphin Drilling Limited for provision of crew, holding the same to be in the nature of fee for technical services taxable as such on the ground that the appellant failed to substantiate that the same was devoid of any income element. 2.1 That the Ld. AO has erred in law in travelling beyond jurisdiction and circumventing the findings of the Transfer Pricing Officer in contravention of the provisions of section 92CA(4) of the Income-tax Act, 1961 ('Act') who, vide order dated 29.10.2010, accepted the above transaction to be at arm's length . 2.2 That the Ld. AO has erred on facts and in law in alleging that the appellant did not deduct any tax at source from the above amount without appreciating that the same had already been deducted by Dolphin Drilling Limited while making payment of salary to the employees seconded by the appellant. 2.3 That the Ld. AO has erred on facts and in law in alleging that the appellant has not maintained its books of account in accordance with the principles of accounting without bringing any material on record to substantiate her contention. 2.4 Without prejudice to the above, the Ld. AO has erred in law in not taking cognizance of the provisions of the Double Taxation Avoidance Agreement between India and Singapore, being more beneficial to the appellant. 3. That the Ld. AO has erred on facts and in law in making an adjustment of Rs. 19,20,15,015 to the arm's length price of the international transactions entered into by the appellant. 3.1 That the Ld. AO has erred on facts and in law in reducing the cost of acquisition of the drillship by Rs. 15,54,12,561 being expenditure incurred by the appellant on reimbursement of cost of drillship equipment and spares to

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Dolphin Drilling Limited on the ground that the appellant has failed to substantiate the same by way of documentary evidence. 3.2 That the Ld. AO has erred on facts and in law in making an adjustment of Rs. 3,66,02,454 being reimbursement of insurance premium of the drillship made to Fred Olsen Brokers AS alleging that the appellant could not substantiate the ownership of the drillship without taking cognizance of the documentary evidence submitted by the appellant in this regard.

(i). Depreciation claimed on Belford Dolphin 160,39,13,947/- (ii). Receipts on account of personnel (reimbursement from M/s. Dolphin Drilling Ltd. On account of provision of crew. 52,70,40,434/- (iii). T.P. adjustment as per TPO order 3,66,02,454/-

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“4.1 The client cell reimburse DDPPL all crew salary/expenses reasonably incurred by DDPPL in the proper provision of the services in accordance with the Client’s identifications and requests – and DDPPL shall be entitled to a 5.0% handling fee thereon – as DDPPL shall provide the client with evidence of such salaries/expenses as the Client may reasonably require. The definition of reimbursable crew salaries and expenses shall include but not be limited to all costs and expenses reasonably incurred to provide competent drilling and marine crew for the operation of the Vessel including

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salary, overtime, sick pay, employers liability insurance, accident and injury insurance, training, etc. The crew travel cost is the responsibility of the Client, but will be arranged and paid by DDPPL. There will be no mark-up on the crew travel cost invoiced to The Client. This handling fee shall also cover DDPPL’s running costs, such as but not limited to, personnel, office and administration costs/expenses. The fee will be subject to a yearly review but will remain unchanged unless otherwise agreed by the parties.” As per submissions of the assessee company, on the same date the assessee has also made agreement with Dolphin Drilling Ltd. - India Project Office ( DDL - IPO)(Associate Enterprise) for providing Belford Dolphin drillship on charter hire basis to DDL-IPO at USD 1,00,000 per day and high level skilled marine and drilling Crew, as provided to it by DDPPL. During the year under consideration, the assessee company received a total sum of Rs.52,70,40,434/- from DDL on account of salary and a sum of Rs.1,44,91,591/- as handling charges. The assessee had not disclosed this receipt into his trading, profit and loss account, but disclosed in the notes to the accounts. The assessee had set off the salary paid to the crew members from the receipts from DDL. The assessee filed its return of income as per section 44BB(3) of the IT Act. DDL has deducted TDS on the payments made to the assessee which was claimed by the assessee as tax payment without offering income by way of profit and loss account. The assessing officer, however, in the impugned order added the aforesaid amount of Rs.52,70,40,434 being receipt of crew salary to the appellant observing that the appellant failed to furnish sufficient supporting documents to prove payment to the seconded employees through bank accounts and the said amount was not shown as income in the profit and loss account. The assessing officer further held that there is no payment to any crew member by the appellant as it has never

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employed any crew member who is seconded to Dolphin Drilling Ltd. The Assessing Officer further observed that the assessee shall be taken as service provider and the fee received for such services shall be considered as fee for technical services as held by Hon’ble Uttarakhand High Court, as the payment is received from the non-resident. Therefore, the provisions of section 28 to 41 will apply in this case.

“The appellant vide Standard Time Chartered agreement dated 01.07.2004 | entered between the appellant and Dolphin Drilling Ltd. ('associated enterprise’) provided crew to the latter. In consideration, the appellant of Rs.52,70,40,434 from the associated enterprise reimbursement of crew salary and a sum of Rs.1,44,91,591 as handling charges the reimbursed amount. The assessing officer, however, in the impugned order added the aforesaid amount of Rs.52,70,40,434 being receipt of crew salary to the appellant allegedly holding that the appellant failed to furnish sufficient supporting documents evidencing payment of to the seconded employees through bank accounts and the said amount was not shown as income in the profit and loss account. The assessing officer, further held that there is no payment to any crew member by the appellant as it has never employed any crew member who is seconded to Dolphin Drilling Ltd.

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In this regard, it is respectfully submitted that Dolphin Drilling Personnel Pte.Ltd. (‘DDPPL’) entered into a Crewing Services Agreement dated 01.07.2004 with the appellant to provide crew to the latter. The appellant in turn provided these crew members to Dolphin Drilling Ltd. - IPO. Accordingly, it is submitted that the appellant merely acted as a facilitator between DDPPL and DDL-IPO for the provision of crew members to the latter. Crewing Services agreement is enclosed at pages 110-112 of the paper book. The appellant vide submission dated 20.10.2010 filed before the TPO placed on record the following documents to support the transaction : i. Sample debit notes raised by the DDPL on DDL on account of recharge of salary cost of the crew members (at pages 126-293 of the paper book) ii. Sample service agreement entered with the seconded employees at pages 294-295 of the paper book. It is respectfully submitted that the aforesaid transaction was also reported in the Form 3CEB and transfer pricing report and the TPO after analyzing the transaction accepted the same to be at arm’s length and did not propose any adjustment. Since the TPO has after analyzing the transaction adjustment, the AO cannot make any adjustment/addition consideration received by the appellant. In this regard, reference is made to section 92CA of the Ac the AO is bound to compute the total income of the assess the arm’s length price determined by the TPO: "92CA. Reference to Transfer Pricing Officer. — (1) to (3)………………………. (4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the as section (4) of section 92C having regard to the determined under sub-section (3) by the Transfer Price determined under sub-section (3) by the Transfer Pricing Officer.

The aforesaid principles has been upheld by the Delhi ITAT in the case of Cushman & Wakefield India Private Limited vs. ACIT ITA No. 5510/Del/2011

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(affirmed by the Delhi high court) and the Mumbai ITAT in case of ACIT vs. American Express Services India Ltd. ITA No. 4106/Mum/2007. The assessing officer has arbitrarily added the said amount appellant on the basis that the said amount is not shown as side of the profit and loss account, not appreciating that the same was merely a reimbursement and the said fact was duly verified by the TPO with reference to the evidence on record and a finding to this effect is noted in the order. In view of the aforesaid, it is submitted that since sufficient supporting evidences were placed on record before the assessing officer/TPO evidencing payment of salary cost to the seconded employees, therefore, the addition made by the assessing officer is unwarranted and liable to be deleted. SUPPLEMENTARY SUBMISSIONS In continuation to the submissions made before the Hon’ble Bench in the course of the hearing and as directed by the Hon’ble Bench, with regard to Ground Nos. 2 to 2.4, the appellant seeks to submit as under: It has been submitted that the appellant entered into a Standard Time Chartered Agreement dated 01.07.2004 with Dolphin Drilling Ltd (‘DDL’) to provide crew to the latter. Accordingly, the appellant entered into a back to back Crew Services Agreement dated 01.07.2004, with Dolphin Drilling Personnel Pte. Ltd. (‘DDPPL’) to in turn provide these crew members to DDL – India Project Office on cost to cost basis. In other words, it is submitted, the appellant merely acted as a facilitator between DDPPL and DDL-IPO for the provision of crew members to the latter. In consideration, the appellant received a total sum of Rs.52,70,40,434 on account of reimbursement of crew salary from DDL-IPO. Copy of the sample debit notes raised by DDPL on DDL on account of recharge of salary cost of the crew members has been filed at pages 126-293 of the paper book. It has been submitted that the said transaction of cost to cost reimbursement amounting to Rs. 52,70,40,434 received from Dolphin Drilling Limited, a non- resident per-se, does not result in any income in the hands of the appellant. Hence, in absence of any element of income, such reimbursement was not chargeable to tax in India.

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Reliance is also placed in this regard on the following decisions in support of the proposition that pure reimbursements, without any mark-up do not contain any element of income and hence are not chargeable to tax. • CIT v. Tejaji Farasram Kharawalla Ltd.: 67 ITR 95 (SC) • CIT v. Industrial Engineering Products Pvt. Ltd.: 202 ITR 1014 9Del.) • CIT v. Dunlop Rubber Co. Ltd.: 142 ITR 493 (Cal) • CIT vs. DLF Commercial Project Corporation: ITA 627/2012 and 507/2013 (Del.) • CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd.: [2014] 361 ITR 192 (Gujarat) • CIT v. Siemens Aktiongesellschaft: [2009] 310 ITR 320 (Bombay) • CIT v. Microsoft Corporation Of India (P) Limited: 220 CTR 425 (Del) • CIT vs. Fortis Healthcare Ltd: 181 Taxman 257 (Del) • C.I.T. vs. Stewards and Llyods, 165 ITR 416 (Cal) • CIT vs. Sundwiger Emfg. & Co.: 262 ITR 116 (AP) • Mahindra & Mahindra: 313 ITR (AT) 263 (SB)(MUM) • Coca Cola India Inc. v. ACIT: (2006) 7 SOT 224 (Del) • Clifford Chance v. DCIT: 82 ITD 106 (Mum) • Hyder Consulting Ltd. v. CIT: 236 ITR 640 (AAR) • DECTA v. CIT: 237 ITR 190 (AAR) • Cholamandalam MS General Insurance Co. Ltd: 309 ITR 356 (AAR) Since in the present case, the receipts of the appellant from DDL are pure reimbursements of cost incurred by the appellant for supplying the crew to DDL-IPO and cannot be treated as income of the recipient, liable to tax in India. Section 44BB of the Act is a special, specific provision providing for deemed / presumptive basis of taxation in case of non-residents providing, inter alia, services or facility in connection with prospecting for or exploration or production of mineral oils in India. Section 44BB of the Act, as applicable for assessment year 2007-08, is reproduced below: “44BB (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-resident, engaged in the business of providing services or facilities in connection with,

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or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”: Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. ……………………………………………………………………..” Further, section 115A of the Act inter-alia provides that fees for technical services received by a non-resident pursuant to an agreement made by such non-resident with the Government or an Indian concern is taxable @ 10 percent. In the present case, since the appellant has entered into a contract with DDL, which is a non-resident for providing the crew members for operating the rig for which DDL is making payment to the appellant and no payment by way of fees for technical services is being received by a non- resident, section 115A of the Act has no application. Even otherwise, it may be pointed out that the reimbursements received by the appellant from DDL for undertaking a mining project do not fall within the ambit of fee for technical services (FTS) as explained hereunder: FTS has been defined under Explanation 2 to section 9(1)(vii) of the Act, as under: “Explanation 2:- For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries" The question whether extraction of mineral oil and activities in connection therewith would be covered within the sweep of the exclusionary clause

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“mining or like project”, was clarified vide Instruction No.1862 dated 22.10.1990 (enclosed as annexure 1) issued by the CBDT, wherein it was stated that mining project or like project would include rendering of services like imparting of training for carrying out drilling operation in connection with extraction of mineral oil, in the following terms: "The question whether prospecting for, or extraction, or production of, mineral oil can be termed as 'mining' operations was referred to the Attorney General of India for his opinion. The Attorney General has opined that such operations are mining operations and the expressions 'mining project' or 'like project', occurring in Explanation 2 section 9(1)(vii) of the Income-tax Act would cover rendering of services like imparting of training and carrying drilling operations for exploration or exploitation of natural gas. In view of the above opinion, the consideration for services will not be treated as fees for technical services for purposes of Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. The payments for such services to a foreign company will, therefore, be income chargeable to tax under the provisions of Section 44BB of the Income-tax Act, 1961 and not under the special provisions for the taxation of fees for technical services contained in Section 115A read with Section 44D of the Income-tax Act, 1961." (emphasis supplied) Therefore, as clarified by the CBDT, rendering of services like imparting of training and carrying drilling operations for exploration or exploitation of natural gas would be outside the purview of “fees for technical services” under section 9(1)(vii) of the Act. Taking note of the aforesaid, the Supreme Court in the case of Oil and Natural Gas Corporation Limited vs. CIT: 376 ITR 306 (enclosed as annexure 2) held as under: “13. The Income Tax Act does not define the expressions "mines" or "minerals". The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from

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the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in Section 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation i.e. Oil Fields (Regulation and Development) Act, 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22.10.1990 to the effect that mining operations and the expressions "mining projects" or "like projects" occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil.” In the case of CIT vs. Foramer France: 247 ITR 436 (All.) (enclosed as annexure 3), relied by the DRP, the assessee, a foreign company incorporated in France, was engaged in the business of oil exploration and providing expertise and assistance in the said field throughout the world. During the assessment year 1988-89, the petitioner-company was operating under three contracts with the ONGC, for drilling operation by employing its own rig and also for manning and management services for supervision of drilling activities carried on by the ONGC on its own rigs. The assessee filed its return

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of income relating to its own rig as ordinary business income but returned the income by way of proceeds from manning and management contracts as fees for technical services supported by an order dated 25-8-1987 issued under section 195(2) directing the ONGC to apply a tax rate of 30 per cent on the income from said contracts. However, the Assessing Officer, while making the assessment under section 143(3) on 26/27-2-1991, took the view that the proceeds from manning and management contracts were taxable as business income in terms of section 44BB of the Act. The aforesaid assessment order was accepted by the petitioner in order to buy peace and to avoid protracted litigation and had, thus, become final. Thereafter, the department issued a notice under section 148 on 20-11-1998 proposing to treat the income of the petitioner-company as fees for technical services and not business income. Aggrieved by the said notice, the petitioner challenged it filing writ petitions. The Hon’ble Allahabad High Court considering the aforesaid held that since there was no failure on the part of petitioner to make return or to disclose fully and truly all material facts necessary for assessment, proviso to new section, which bars issue of notice under section 148 after expiry of four years from end of relevant assessment year, squarely applied to facts of instant case, and, therefore, impugned notice was barred by limitation. The aforesaid decision of the Allahabad High Court was also affirmed by the Supreme Court in CIT vs. Foramer France: 264 ITR 566 (SC) (enclosed as annexure 4). In view of the above, it would be appreciated that the aforesaid decision has no application to the facts of the case and reliance placed by the DRP on the aforesaid decision is without any merit.

In view of the aforesaid, it is respectfully submitted that the addition made by the AO/ DRP is without judicious appreciation of the facts of the case and position in law, and thus, calls for being deleted.”

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“In view of the above facts and legal position this Penal is of the view that the treatment of income on this issue as proposed by the AO in the draft order is correct. It is not possible to agree with the assessee’s contention that the acceptance of the transaction by the TPO means that no further examination can be done by the AO or that the AO cannot look into the admissibility of the expense. What the TPO has done is to determine the arm’s length price i.e. in a third party situation the price paid would be a fir price and that no distortion has been made due to the fact that the payer and the payee are associate enterprises. The finding of the TPO stops there. The TPO is not required to give a finding about the admissibility of an expenditure. In view of the facts and the position of law stated above the assessee’s argument that the amount in

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question is not taxable cannot be accepted at its face value just because the TPO has held that the payment was on arm’s length basis. In view of this the objection made by the assessee deserves to be rejected.”

While going through the Transfer pricing Study report it was noticed that the assessee company has provided highly skilled and technical crew to DDL-IPO. The relevant portion of the TP study report at page 487 reads as under:-

“In addition to provision of drillship on charter hire basis , during the financial year ended 31 March, 2007, DDPL has also provided high – level skilled marine and drilling crew to DDL – IPO in connection with the ONGC contract. The crew provided by DDPL is on the payroll of DDL – IPO and the crew works under the control and supervision of the management of the DDL – IPO. The crew provided by DDPL comprised of high-level skilled personnel such as captain, Chief engineer, engineers including a specialists in sub sea engineering, Chief mechanic etc. 10. From the above T.P. study report, it is clear that the assessee has provided highly skilled technical personnel for utilizing their services by DDL-IPO. Such services, in our opinion, cannot be rendered by a common or unskilled person, having technical knowledge of the field. The assessee is not directly or indirectly engaged in the mining activities. He has supplied manpower. The AO/DRP has rightly decided this issue. Before us, the assessee has not submitted ledger accounts maintained by him for reimbursements so as to examine whether the impugned expenditure were in the nature of reimbursement. The payer has deducted TDS on the payments to the assessee, meaning thereby, the payment so made was the income of the assessee and was in the nature of manpower charges supplied by the assessee. There is a plethora of decisions of various Courts that the TDS is deducted only on such payments where the element of income is there.

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It is interesting to note that the assessee at one hand has claimed TDS credit, but on the other he has not offered the impugned payment as income/expenditure. Had the impugned payment been in the nature of reimbursement, the AE of the assessee (DDL-IPO) would not have deducted tax at source on such payment. The assessee has filed return of income as per section 44BB(3). Therefore, he has to disclose the receipts from DDL-IPO against supply of highly skilled personnel and he could claim salary expenses, which is not done by him. In order to correctly examine the contention of the assessee regarding the payment received in the nature of reimbursement, in our opinion, this matter should go back to the file of the AO firstly to examine from the ledger account of assessee whether the payment received by assessee from DDL-IPO is in consonance with the terms of agreement entered between the assessee and DDPPL. It is not in dispute that the impugned payment is made against supply of crew and it is not feasible for anyone to supply such a high skilled crew without making any expenditure. Therefore, the entire receipt cannot be added in the hands of assessee treating the same as taxable income of the assessee, as done by the AO. The AO is directed to examine the case from this angle also. The assessee is directed to furnish cogent evidences in support of his claim, as per his written submissions filed before us. The AO shall decide the issue in accordance with law by way of speaking order after considering the submissions of assessee and various case laws, and after affording reasonable opportunity of being heard to the assessee. Accordingly, this ground deserves to be allowed for statistical purposes.

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the ALP of the aforesaid transaction at Nil and made transfer pricing adjustment of Rs.26,93,52,336/- by holding that the appellant failed to furnish sufficient documentary evidences in support of the reimbursement of cost of drillship equipment to DDL. Before the DRP, the list of items/drilling equipment purchased by DDL was submitted and remand report was called from the TPO, but TPO did not submit any remand report. Accordingly, the DRP directed the AO/TPO for verification of documentary evidence submitted by the appellant. It was further held that as the documentary evidences with regard to purchase and receipt of such equipments and third party cost are available, therefore, transfer pricing adjustment shall be deleted/reduced to the extent of availability of supporting documents. In view of these directions, the AO reduced the transfer pricing adjustment to Rs.15,54,12,561/- from Rs.26,93,52,336/-.

It is respectfully submitted, in this regard, the fact that the appellant purchased drillship equipments and is the owner of the vessel alongwith spares/equipments can be demonstrated from the Sale P dated 09.10.2003 entered between Fred Olsen Energy, ASA and the appellant, enclosed at pages 455-462 of the paperbook. A copy of the said agreement was also placed on record before the TPO vide submission dated 6.10.2010. It would be appreciated that the appellant vide submission dated 20.10.2010 furnished copies of invoices raised by DDL on the appellant for recharge of cost of drillship equipments before the TPO, enclosed at pages 332-398 of the paperbook. It is further submitted that similar payments made by the appellant in assessment years 2005-06 and 2006-07 was accepted by the TPO to be at arm’s length price – Refer page 66 to 68 of paperbook – case laws

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In this regard, it is submitted that although there is no res judicata in income- tax proceedings, the Supreme Court in the case of Radhasoami Satsang vs. CIT: 193 ITR 321 held that where a fundamental aspect permeating through the different assessment years is accepted one way or the other, a different view in the matter is not warranted, unless there be any material change in facts. The relevant observations at page 329 of the judgment are reproduced as under :- “We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. ” The Supreme Court in the recent decision in the case of Excel Industries Limited 358 ITR 295 following its earlier decision supra reiterated the law in this regard. Reliance in this regard is also placed on the following decisions wherein the aforesaid position has consistently been upheld by the High Courts, including this Hon’ble Court.: • CIT vs Neo Polypack (P) Ltd: 245 ITR 492 9Del) • DIT (E) V. Apparel Export Promotion Council: 244 ITR 734 (Del) • CIT V. Girish Mohan Ganeriwala: 260 ITR 417 (P&H) • CIT V. Dalmial Promoters Developers (P) Ltd: 200 CTR 426 (Del) • CIT vs. A.K.J. Security Printers: 264 ITR 276(Del) • M/S Escorts Cardiac Diseases Hospital : 300 ITR 75 (Del) • Giesecke & Devrient India Private Limited. Vs DCIT (ITA No. 5400/Del/2010) • Lloyds TSB Global Services Private Limited (ITA No. 5928/Mum/2012) • ARJ Security Printers (264 ITR 276)

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• Deutsche Asset Management (India) Private (ITA No. 7717/Mum/2010) • Hosley India Private Limited (ITA No. 5904/Del/2010) • Nokia India Pvt. Ltd. [ITA No.551/Del/2011] • Lenovo (India) Pvt. Ltd. vs. ACIT [ITA No.1457/Bang/2010) • NDS Services Pay-TV Technology Private Limited, ITA No. 1089/Bang/2011 Reliance, in this regard, is placed on the recent decision of Mumbai Bench of the Tribunal in the case of Wells Fargo Real Estate Advisors Private Limited vs. ACIT (ITA No. 4426/Mum/2014), wherein, the Tribunal under similar circumstances remanded the matter to the file of the assessing officer directing the Associated Enterprise on behalf of the assessee is subsequently reimbursed on actual basis and as submitted by the learned counsel for the assessee, similar reimbursement made in the earlier as well as subsequent years has been accepted by the A.O. He has also placed on record copies of some sample invoices at page No. 304 to 306 of the assessee’s paper book to show that only the actual payment made by it to third parties for repair work done for the assessee was claimed by the Associated Enterprise on cost to cost basis without charging any profit. As a matter of fact, some of such invoices pertaining to the year under consideration were produced by the assessee before the DRP showing the reimbursement of actual repair expenses to the Associated Enterprise to the extent of Rs. 6,42,640/- and accepting the same, the DRP directed the A. 0. to give relief to the assesses to that extent. The assessee, however, has not been able to produce the documentary evidence in respect of other transactions involving the reimbursement of actual repair expenses to its Associated Enterprise for the reason that the file containing the said documentary evidence has been lost and even the concerned Associated Enterprise has gone into liquidation. Although this stand of the assessee is duly supported by evidence in the form of FIR etc., we felt that the relevant documentary evidence which is very crucial to support the case of the assessee on this issue can still be procured by It from the records of its Associated though it is under liquidation. Even otherwise, the said documentary evidence can also be obtained by the assessee from the third parties who actually done the repair work. When this feeling was conveyed to the Id. Counsel for the assessee at the time of hearinghe agreed

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that efforts can be made to obtain the evidence from either of these sources. He, however, has submitted that even if the efforts assessee do not bring the desire results for any reason, the arm’s length price of the repair work done cannot be taken as nil and the same has to be determined on the basis of the relevant past, and future data. We find merit in this contention of the Id. counsel for the assessee . The same, however, is only an alternative contention and what is relevant to be seen first is the direct evidence to prove that the amount in question was reimbursed by the assessee to the Associated Enterprise on cost to cost basis and the invoices raised by the third party for repair work is a vital evidence in this regard which can clearly establish the arm’s lengh price of the repair work done. We, therefore, restore this issue to file of the A.O. for deciding the same afresh in the light of evidence to be produced by the assessee in support of its claim on this issue as discussed above. If the assessee fails to produce such evidence , the A. 0. is directed to consider the alternate contention of the assessee on this issue in accordance with law. Ground No. 3 of assessee’s appeal is accordingly treated as allowed for statistical purpose Decision of Mumbai Bench of the Tribunal in the case of ( Castrol India Ltd. vs ACIT (ITA No. 3938/Mum/2010) “7. In so far as the allocation/reimbursement of CC extent of Rs.1,68,80,675/- is concerned, the learned Counsel for the assessee has submitted before us that there is no dispute about the fact that significant costs were incurred related to COE3 project deployed by the BP group worldwide and the assessee company as a part of the said group had derived benefit thereof. As submitted by him, the dispute is about the basis of allocation and want of details in this regard. He has submitted that the copies of invoices raised in this regard by the AEs were furnished by the assessee along with respective allocation keys. Keeping in view this submission made by the learned counsel for the assessee as well as on perusal of the relevant details available on record, we agree with the contention of the learned counsel for the assessee that there is no justification in the action of the TPO in ignoring all these details and taking the ALP of the relevant transactions at Nil. In our opinion, it is incumbent upon the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot be disallowed by taking the ALP at Nil keeping in view the facts and circumstances of the case and the relevant details furnished by the assessee. The learned counsel for the assessee in this regard has submitted that in the

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subsequent years i.e. assessment years 2005-06 and 2006-07, a similar issue was involved in the assessee’s case and the learned CIT(A) has allowed the expenses allocated to the extent of 50%. We have perused the orders of the learned CIT(Appeals) passed in the assesee’s case for assessment years 2005- 06 and 2006-07. It is noted that no convincing or sound basis has been given by the learned CIT(Appeal) therein in support of the 50% cost allocation accepted by him and such estimate has been made purely on adhoc basis. In our opinion, the exercise of ascertaining ALPs has to be done by the TPO keeping in view the well laid down scheme in the relevant provisions of the Act and addition, if any, on account of TP adjustment, has to be made only after doing such exercise. We, therefore, restore this issue to the file of the AO/TPO with a direction to do such exercise and make addition. If any, on this issue after completing such exercise in accordance with law. Ground No.2 of the assessee’s appeal is accordingly treated as allowed for statistical purposes. ” In view of the aforesaid, it is submitted that since sufficient supporting evidences were placed on record before the lower authorities, therefore the transfer pricing adjustment of Rs. 15,54,12,561 made by the TPO is unwarranted and liable to be deleted. 13. On the other hand, the ld. DR relied on the orders of the lower authorities and submitted that the assessee could not furnish requisite evidence before the lower authorities. Principle of res judi cata is not applicable in the income-tax proceedings. Every assessment year is separate unit. The case laws relied by the assessee are not applicable in the present facts of the case. Therefore, the addition upheld by the AO does not call for any interference.

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Bench, we also restore this issue back to the file of the AO for deciding the same afresh after considering all the evidences filed by assessee with respect to purchase of drillship equipments and spare part. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, this ground is also allowed to statistical purposes.

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Fred Olsen Energy ASA entered into an agreement with R & B Falcon Inc. for the purchase of their 38.6 percent shareholding in Navis ASA. Through this transaction and a number of other purchases on the open market as well as a forced buy-out of the minority shareholders, the Company acquired all remaining shares in Navis ASA for a total consideration of NOK 1.6 bill. Navis AS was the parent company of Navis Explorer AS, which owned the drillship Belford Dolphin (formerly known as ‘Navis Explorer-1’) November 2001 On November 30, 2001, Navis Explorer AS sold the vessel ‘Navis Explorer I’ (now known as 'Belford Dolphin’) to Fred Olsen Drilling AS, a Norwegian Company . The sale agreement is enclosed pages 571-585 of the paperbook-II October 2002 Fred Olsen Energy ASA was presented with a proposal for the purchase of vessel ‘Belford Dolphin’ from Fred Olsen Drilling AS. Vide resolution dated October 8, 2002, Fred Olsen Energy ASA resolved that - “(a) the proposal for the sale of vessel from Fre (FOD) to the company and the further transfer of the Vessel from the company to Dolphin Drilling Pte. Limited (DD) as contribution in kind, the proposed amendment to the loan agreement and the pertaining documentation and the charge over the shares in DD be and is hereby approved." A copy of the aforesaid Board Resolution is enclosed at pages 586-587 of the paperbook-II. April 2003 In October 2003, the rig was transferred by Fred Olsen Drilling Energy AS to Fred Olsen Energy ASA. Furthermore, on October 9, 2003, Dolphin Drilling Pte. Limited authorized the issue of 464,636,035 ordinary shares of the nominal value of SGD 1.00 each to Fred Olsen Energy ASA against purchase of the drillship 'Belford Dolphin’. The value of the shares translated to USD 270

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Milion. Copy of the Board Resolution is enclosed at pages 588-593 of the paperbook-II. On October 10, 2003, Fred Olsen Energy ASA sold the drillship ‘Belford Dolphin, to Dolphin Drilling Pte Limited. In order to corroborate the aforesaid sale, a copy of the Bill of sale issued in terms of the Merchant Shipping Act of Singapore is enclosed at pages 597-600 of the paperbook-II. It is also pertinent to note that the Bill of Sale is certified by the Indian High Commission abroad. During the course of assessment proceedings, the appellant vide submission dated 06.10.2010 furnished sample copy of debit notes raised by Fred Olsen Brokers on the appellant, enclosed at pages 326-331 of the paperbook-II. It is further submitted that similar payments made by the appellant in assessment years 2005-06 and 2006-07 was accepted by the TPO to be at arm’s length price - Refer page 66 to 68 of paperbook-case laws. It is also pertinent to note that the appellant was accepted as the owner of Belford Dolphin by the Hon’ble Tribunal in assessrment years 2004-05, 2005- 06 and 2006-07. Appeal preferred by the revenue was dismissed by the Hon’ble High Court of Uttarakhand in ITA No. 57 of 2010. In view of the aforesaid, it is respectfully submitted that the ownership of Belford Dolphin with the appellant is clearly established from the supporting documents placed on record before the lower authorities. 3.2 That the Ld. Assessing officer has erred on facts and in law in making an adjustment of Rs.3,66,02,454 being reimbursement of insurance premium of the drillship made to Fred Olsen Brokers AS alleging that the appellant could not substantiate the ownership of the drillship without taking cognizance of the documentary evidence submitted by the appellant in this regard. 17. On the other hand, the ld. DR relied on the orders of the lower authorities and submitted that the assessee is not the owner of Belford Dolphin therefore the Insurance premium claimed by the assessee is not acceptable . Principle of res

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judi cata is not applicable in the income-tax proceedings. Every assessment year is separate unit.. Therefore, the addition upheld by the AO does not call for any interference.

“The co-insured party may recover from the association any liabilities, cost and expenses which are incurred by it and which are to be borne by the Member under the terms of the Charterparty and would, if borne by the Member, be recoverable by the Member from the Association.” 19. From the paper book filed by the assessee, it is clear that as per the insurance documents, more than one parties are insured including the assessee, but total cost of the insurance premium has been charged to the assessee company. As per above facts, the cost should be recoverable by the Members from the Association, which has not been done so here. The risk is stated to be covered as specified in Chapter 6 of the Rules, but nothing is available on record to examine the risk covered, as the chapter 6 of the above referred Rules does not form part of the paper book. All these facts have also not been examined by the lower authorities and the assessee has also not provided any material on record

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to examine the extent of the risk covered by insurer as well as co-insurer. We, therefore, remit this issue back to the file of AO to examine the same afresh in the light of documents to be furnished by the assessee. The assessee is directed to furnish all the details with respect to this issue, as required by AO to support its claim. Needless to say, the assessee shall be given proper opportunity of being heard.

Sd/- Sd/- (Amit Shukla) (L.P. Sahu) Judicial member Accountant Member

Dated: 27.02.2019 *aks* Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi