M/S. BG EXPLORATION & PRODUCTION INDIA LTD.,MUMBAI vs. JCIT (INTERNATIONAL TAXATION), DEHRADUN

per provision of this section. Therefore, setting-off of expense of one field

cannot be allowed from revenue of other oil block.

that the said section seeks to provide additional allowance/benefit/deduction to

an eligible assessee, which are otherwise not available under the regular

provisions of the Act. In other words, the section does not override or seek to

take away benefits/deductions available to the eligible assessee under any other provision of the Act in the absence of a non-obstante clause. Accordingly,

where an assessee already carrying on business of exploration and production of

mineral oil, incurs any expenditure in pursuance of such existing business, the

same would be allowable business deduction u/s 37(1) de hors section 42 of the

I.T. Act. He submitted that identical issue had come before the Tribunal in

assessee’s own case in the immediately preceding assessment year and the

Tribunal had deleted the disallowance. He accordingly submitted that the

disallowance of expenditure of Rs.39,18,72,912/- incurred on non-producing

PSC made by the Assessing Officer is bad in law and liable to be deleted.

29 ITA No.1478/Del/2017

Officer/TPO/DRP. He reiterated the arguments as made while arguing the

ground of appeal no.9.

perused the material available on record. We find, following the decision of the

Tribunal in assessee’s own case in assessment year 2009-10, the Tribunal vide

ITA No.6791/Del/2017 order dated 17.07.2018 [to which of us (AM) is a party]

has decided the issue in favour of the assessee by observing as under :-

“21. AO/DRP have disallowed the expenditure of Rs.1,96,49,04,712/- incurred by the taxpayer on non-producing block on the ground that the expenditure incurred by the taxpayer in other PSCs prior to commercial production shall be aggregated and claimed only from the year of commercial production. So, the expenses incurred by the taxpayer concerning oil blocks where commercial productions has not yet started has to be amortized and carried over and can be set off only when revenue is earned from such oil blocks after commencement of commercial production. The AO also invoked section 42 of the Act to disallow the expenses. 22. The taxpayer has come up with detail of expenditure incurred on non- producing blocks which is as under :-

Block Amount (Rs.) KG-OSN – 2004/1 1,08,03,21,692 MN-DWN-2002/2 58,53,00,833 Total 1,66,56,22,525 23. The ld. AR for the taxpayer contended that section 42 is not applicable as it allows benefit/deduction to the eligible taxpayer in addition to the allowance permissible under the Act and as such, these deductions are allowable u/s 37(1) of the Act and relied upon decision rendered by the coordinate Bench of the Tribunal in a case cited as ONGC Videsh Ltd. vs. DCIT – 37 SOT 97. 24. The ld. AR for the taxpayer has also contended that this issue has also been decided in favour of the taxpayer in its own case for AY 2010-11. For ready perusal, operative part of the order is extracted as under :- “54. Section 42(1) makes it clear that for the purpose of computing the profits and gains of any business consisting of prospecting, extraction or production of

30 ITA No.1478/Del/2017

mineral oil, the Assessee would be entitled to claim deduction in respect of three items of expenditure in lieu of or in addition to the allowances admissible under the Act, viz., (i) exploration cost, which is capital expenditure, (ii) development cost, which is also capital expenditure, and (iii) production costs which are operational expenditure. Therefore it is erroneous belief that in case of PSC the Assessee is only entitled to deduction, which are covered there and not any other deduction which are covered under the any other provisions of the act. We have already discussed the provision of section 42 of the act in deciding some of the grounds of appeal of the assessee. Therefore, we reject the contention of the revenue that if the expenditure do not find allowability under section 42, it cannot be allowed to the Assessee. Now coming to the various expenditure which has been incurred by the Assessee are in the form of various expenditure pertaining to oil exploration blocks for which the PSC has been entered into. Out of the same, the Ld. Assessing Officer has allowed some of the expenditure and disallowed rest of the expenditure. The below chart depicts this picture.

Classification Allowed by Disallowed Total AO by AO KG-OSN-2004/1 102,937,064 71,638,553 174,575,617 MN-DWN-2002/2 330,681,668 105,241,658 435,923,326 KG-DWN-98/4 37,886,501 62,450,282 100,336,783 Other expenditure – 220,983,295 220,983,295 primarily for purchase of seismic data (for new opportunities in exploration) Total 471,505,233 460,313,788 931,819,021 Remarks Cost Non-JV cost pertaining (primarily to those time-writing shared with costs and JV partners development expenses)

31 ITA No.1478/Del/2017

purposes of the business of the Assessee and hence disallowable. Further sum of Rs.220983295/– included in the disallowance of Rs. 460313788/– was pertaining to the purchase of seismic data for exploring new opportunities in the business of the company under the pretext that these are with respect to the future businesses which has not yet commenced. Therefore, primary the disallowances of Rs. 460313788/– includes a sum of Rs 22098 3295/– for purchase of seismic data and balance amount primarily with respect to time writing cost and development expenses. The time writing charges as it is explained by the Assessee are for the purpose of drilling and subsurface inputs, analysis and administrative expenses with respect to executive, finance, human resources, legal, commercial, etc the detailed breakup of these time writing charges for each of the PSC contract were explained by the Assessee by giving breakup of their cost as well as nature of those expenditure. Assessee explained that as it needs to safeguard its interest in the blocks it has employed technical experts for which time writing charges are incurred. Further, for the support functions. It also hires several other persons and necessarily has to incur other expenditure with respect to its finance and accounting activities, its human resource activities and legal compliance and litigation activities. These expenditure are though incurred in support to the PSC contracts executed by the Assessee at may not be necessarily shared by the other joint-venture partners. Merely because it is not shared by others, which may be for many reasons, it cannot be said that the Assessee has not incurred these expenditure wholly and exclusively for the purposes of business of the Assessee. With respect to the details available with the Assessing Officer, It was not pointed out a single instance that any of the expenditure are not incurred by the Assessee for the purposes of its business. In fact, out of the total expenditure The Ld. Assessing Officer has partly allowed the expenditure and partly disallowed the expenditure by using the single yardstick that if expenditure are shared by the JV same are allowable and if same is not shared by JV partners, then it is not allowable. We failed to see any such provision in the act that if the other party in the joint-venture do not agree to share the particular cost, the cost incurred by one of the partners of that joint-venture becomes the expenditure not for the purpose of the business of that partner. No such provision has also been brought to our notice by the revenue. It is also not the case of the revenue that details of those expenditure are not available before them or Assessee has furnished incomplete information for its allowability. Further, no judicial precedent was cited before us by revenue, which says that such expenditure are not allowable to the Assessee. Therefore according to us the expenses incurred by the Assessee with respect to

i) KG-OS- 02004/1 of Rs.71638553 ii) MN – DWN – 2002/2 of Rs.105241649 iii) KG-DWN-98/4 of Rs.62450283

32 ITA No.1478/Del/2017

cannot be disallowed. In view of this we direct the Ld. Assessing Officer to delete the disallowance made with respect to about 3 items.” 25. Keeping in view the facts and circumstances of the case wherein the taxpayer has brought on record the complete details of the expenditure incurred and there is no dispute between the parties to the appeal that all the expenses have been incurred for furtherance of its business, though incurred in support to the PSC contracts executed by the taxpayer, the same cannot be disallowed merely on the ground that it is not shared by others, particularly, when it is not disputed that these expenses have been incurred wholly and exclusively for the purpose of business of taxpayer. 26. Moreover, the AO has not disputed the incurrence of expenses for the purpose of business. Even otherwise, the expenses incurred by the taxpayer for furtherance of its business cannot be disallowed merely on the ground that the other party in the joint venture has not agreed to share the particular cost incurred by one party to the joint venture. So, following the decision rendered by the coordinate Bench of the Tribunal in taxpayer’s own case for AY 2010-11 (supra), the disallowance made by the AO/DRP is not sustainable in the eyes of law, hence disallowance is ordered to be deleted and ground no.12 is determined in favour of the taxpayer.” 45.1 Respectfully following the same, the grounds raised by the assessee on this issue are allowed. 46. In ground no.11, the assessee has challenged the order of the ld. CIT(A) in sustaining the disallowance of exploration expenses written off amounting to Rs.68,39,51,972/-. 47. Facts of the case, in brief, are that the assessee in its audited Profit &

Loss Account had claimed an amount of Rs.71,72,23,583/- as exploration

expenses written off. On being asked the Assessing Officer to furnish the

details regarding such expenditure the assessee submitted that the above amount

consists of two elements i.e. Rs.68,39,51,972/- which represents amount

payable by the assessee to ONGC in relation to cost incurred by them in KG-

DWN-98/4 block in the past. It was further submitted that since the assessee,

before commencement of commercial production, had decided to exit from the

33 ITA No.1478/Del/2017

block considering it to be not beneficial, hence it stood of abortive nature in the

books of the assessee. Balance of Rs.3,32,71,620/- was stated to be related to

PMT field considered to be of infructuous and abortive nature. It was further

submitted that as per Article 17.2.1 of PSC related to KG-DWN-98/4 block, the

same was an allowable expenditure. However, the Assessing Officer was not

satisfied with the arguments advanced by the assessee and disallowed the

deduction on the ground that the expenditure relating to unsuccessful or abortive

areas of one block cannot be adjusted against the revenue of some other block.

However, the same can be claimed only when commercial production begins in

those contract areas the PSC of which permits adjustments of cost incurred in

respect of any other unsuccessful or abortive areas from the revenue of the

former mentioned block. The action of the Assessing Officer was upheld by the

DRP.

in appeal before the Tribunal.

submitted that for allowing an expenditure u/s 37, the following conditions need

to be satisfied i.e. (i) Expense should be incurred wholly and exclusively for the

purpose of the business and (ii) the expense should be revenue in nature.

34 ITA No.1478/Del/2017

ONGC Videsh Ltd. (supra), he submitted that the assessee was engaged in

business of exploration and production of hydrocarbons incurred expenditure on

purchase and evaluation of seismic data of foreign blocks. It was held that

expenditure so incurred was for furtherance of activities undertaken by it in

normal course of business and, therefore, same was to be allowed as business

expenditure.

case of ACIT vs. Niko Resources Ltd. reported in 123 TTJ 310, he submitted

that the Tribunal in the said case after disallowing deduction claimed by the

assessee for certain expenses u/s 42 allowed the same under the regular

provisions of the I.T. Act. He further submitted that identical issue had come up

before the Tribunal in assessee’s own case in the immediately preceding

assessment year which is similar to ground of appeal no.9 and 10. He

accordingly submitted that the disallowance of exploration expenses written off

amounting to Rs.68,39,51,972/- made by the Assessing Officer being bad in law

is liable to be deleted.

Officer/DRP. Reiterating his arguments as made while arguing ground appeal

35 ITA No.1478/Del/2017

no.9 he submitted that since the expenditure has been incurred beyond the RBI

permission, therefore, it is not an allowable expenditure u/s 37 of the I.T. Act.

grounds are identical to the issue as per ground of appeal no.9. We have already

decided the issue and the ground has been allowed in the preceding paragraph.

Following similar reasoning, this ground by the assessee is allowed.

Officer/DRP in disallowing the amount of Rs.237,61,05,409/- holding the same

being expenses paid by the assessee to BGIL which is not borne by the operator

board of the PSC and, therefore, cannot be allowable as deduction to the extent

of 5% of adjusted total income in terms of section 44C of the I.T. Act.

proceedings the Assessing Officer observed that a number of expenses have

been incurred by its group entity M/s BG International Limited, a UK based

company. These expenses are primarily in the nature of salary and wages,

management charges, time writing charges, which are necessarily of the nature

of executive and general administration of the activities of the assessee. On

being confronted by the Assessing Officer, it was submitted by the assessee that

these services were procured for the operation of the assessee in India. The

main activities of the assessee in India are exploration and production of oil and

36 ITA No.1478/Del/2017

natural gas in India. The Assessing Officer noted that some of these expenses,

which is claimed to be pertaining to MPT contract area have not been approved

by the operating board of the JV of that contract area. A bifurcation of these

expenses were furnished to the TPO in the course of transfer pricing

proceedings. The Assessing Officer in the light of the provisions of section 44C

r.w.s. 42 analyzed as to whether these expenses can be construed as head office

expenses or not. The Assessing Officer, however, held that the expenditure

incurred by BGIL for the activities of the assessee in India were in nature of

head office expenditure within the meaning of section 44C and that part of the

expenditure which was not approved by the Operator Board of the PSC was

outside the purview of section 42(1) of the I.T. Act. Therefore, such expenses

incurred by the assessee are held to be in the nature of head office expenditure

allowable only to the extent of 5% of the adjusted total income of the assessee.

The Assessing Officer, however, did not make any addition since the said

expenses had already been disallowed by the TPO. The DRP did not interfere

with the action of the Assessing Officer.

assessee is in appeal before the Tribunal.

had come before the Tribunal in assessee’s own case in the immediately

37 ITA No.1478/Del/2017

preceding assessment year wherein the Tribunal held that the cost of services availed by the assessee from its group company cannot be disallowed in the

hands of the assessee merely because the said expenses has not been borne by the JV partners. He accordingly submitted that since the expenditure have been incurred by the assessee wholly and exclusively for the purpose of its business

of prospecting for, exploration and production of crude oil and natural gas, therefore, the disallowance made by the Assessing Officer being bad in law is liable to be deleted. 58. Without prejudice to the above, the ld. counsel for the assessee drew the

attention of the Bench to the provisions of section 44C and Circular No.202 dated 05th July, 1976 issued by the CBDT and various other decisions, he submitted that the assessee in the instant case is incorporated in Cayman Islands

and is operating in India through Project office established with the prior approval of RBI for the purpose of conducting its business activities. In other words, the head office of the assessee is situated in Cayman Islands. Further,

BGIL is an affiliate company incorporated in the United Kingdom with more than 40 years of experience and expertise in oil and gas exploration and production. BGIL possesses a pool of highly knowledgeable, technically trained

and experienced individuals having extensive knowledge of exploration and production activities. This pool of trained and experienced personnel is used by

38 ITA No.1478/Del/2017

BGIL to provide requisite support to other BG Group companies, across the

globe. BGIL being the spearhead of the BG group, like every other

multinational group, devises policies and practices in various areas for the use

and benefit of all BG Group entities worldwide. Such centralization of

knowledge and expertise, ensures overall efficiency and smooth functioning. All

new projects/ initiatives are first conceived, developed and launched at BGIL,

and are thereafter implemented in other BG Group entities. In the instant case,

BGIL had provided various direct support services to BGEPIL for its

exploration projects in India like cost in relation to IT related services, HR

related services and other services like insurance support, taxation support,

support in financial accounting, management reporting and other service

functions and payment for the same was claimed as deduction. The debit notes

in this regard were submitted to the Assessing Officer / TPO during the course

of the assessment proceedings. A summary of services rendered by BGIL to the

appellant have been filed before the Assessing Officer / DRP. In terms of

Explanation (iv) to section 44C of the Act, HO expenditure is defined as an

expenditure incurred by the appellant outside India. The provisions of section

44C of the Act are applicable only in respect of head office expenditure and not

expenditure incurred by the affiliate company. Since in the instant case, the

aforesaid payment is made to an affiliate company, i.e., BGIL and not to the

39 ITA No.1478/Del/2017

head office of the appellant situated in Cayman Islands, the provisions of

section 44C of the Act would not be applicable. Even otherwise provisions of

section 44C of the Act are not applicable since (i) BGIL provides services to

various entities of BG Group since the past many years; BGIL's income is

assessed to tax in India by the same Assessing Officer who is assessing income

of BGEPIL; All information pertaining to the transactions of BGIL in India is

available with the Revenue authorities and hence there is no difficulty in

scrutinizing and verifying the claims of the appellant; (ii) The payment to BGIL

is on cost to cost basis and no profit element is involved therein. In other

words, the same is mere reimbursement of expenses incurred by BGIL and (iii)

the expenditure has been incurred by the appellant for availing specialized

services for carrying out its technical business operations in relation to

prospecting, exploring and production of oil-and gas and the expenses, (iv)

payment made for specific services for- which necessary manpower/experience

is not available with the appellant; and are not in nature of executive and

general administration expenses.

Assessing Officer/DRP. He submitted that the provisions of section 44C does

not spell out what construed head office expenses, therefore, specific services

will include head office expenses. Reiterating his arguments as made while

40 ITA No.1478/Del/2017

arguing in ground no.9, he submitted that the order of the Assessing

Officer/DRP should be upheld.

perused the material available on record. We find identical issue had come up

before the Tribunal in assessee’s own case in the immediately preceding

assessment year and the Tribunal has allowed the claim of the assessee at para

31 of the order holding that cost of services availed by the assessee from its

group company cannot be disallowed in the hands of the assessee merely

because the said expenditure has not been borne by the J.V. Partners. It is an

admitted fact that the Assessing Officer/TPO/DRP had not the benefit the order

of the Tribunal which was passed subsequent to the orders passed by them.

Considering the totality of the facts of the case and in the interest of justice, we

deem it proper to restore this issue to the file of the Assessing Officer/TPO for

adjudication of the issue afresh in the light of the decision of the Tribunal in

assessee’s own case in the immediately preceding assessment year. The ground

raised by the assessee on this issue is allowed for statistical purposes.

depreciation amounting to Rs.26,57,56,314/- of Panna Well Cost.

of assessment proceedings observed that the assessee claimed 100%

41 ITA No.1478/Del/2017

depreciation/depletion on Panna Well Cost. In support of its claim, it has

annexed schedule2B alongwith its computation of income. From the

depreciation chart which is forming part of 3CD report of the Auditor of the

assessee. The Assessing Officer noted that it is a bit different from the chart

annexed by the assessee with its computation of income. He, therefore, asked

the assessee to reconcile the above charts. Since the assessee refurnished the

same chart that was annexed with the computation of income, the Assessing

Officer asked the assessee to reconcile the above two charts and explain the

difference. From the reconciliation chart furnished by the assessee, the

Assessing Officer noted that there was difference of Rs.31,26,42,722/-. He

observed that in the depreciation chart furnished by the Auditor in 3CD report,

the above addition to fixed assets were shown in the head “Panna Mukta PD &

PE Gas Lift surface facility” which was eligible for depreciation @ 15%.

Where as in the chart annexed by the assessee with its computation of income,

the same has been shown as addition to fixed assets in the head “Panna Well

Cost” which is eligible for 100% depreciation. Thus, the assessee has claimed

85% more depreciation/depletion on the above amount in the computation of

income. Since no documentary evidence was produced by the assessee in shape

of bills, vouchers, invoices etc., the Assessing Officer made disallowance of

Rs.26,57,46,314/-. While doing so, he further alleged that the assessee could

42 ITA No.1478/Del/2017

not find fault with the finding of the Auditors and make its own claim regarding

the proper head of expenditure.

verify the claim of the assessee after scrutinizing the bills, vouchers, invoices,

etc. However, the Assessing Officer in the order passed on 23.02.2017 upheld

the disallowance of Rs.26,57,46,314/- proposed in the draft assessment order.

directions issued by the DRP, the Assessing Officer while passing the final

assessment order dated 23.02.2017 did not grant an opportunity to the assessee

to furnish the invoices, bills, etc. and passed the impugned order in gross

violation of principles of natural justice upholding the disallowance proposed in

the draft assessment order. Relying on various decisions, he submitted that in

absence of affording adequate opportunity the addition cannot be made. He

accordingly submitted that he has no objection if the matter is restored to the

file Assessing Officer for fresh adjudication.

the assessee.

case, we deem it proper to restore the issue to the file of the Assessing Officer

with a direction to give an opportunity to the assessee to substantiate his case as

43 ITA No.1478/Del/2017

per the direction of the DRP. The Assessing Officer shall decide the issue as

per fact and law after giving due opportunity of being heard to the assessee. We

hold and direct accordingly. The ground raised by the assessee on this issue is

allowed for statistical purposes.

depreciation amounting to Rs.26,79,33,582/- on the IT infrastructure and

software.

consideration has claimed addition of assets under the head global IT and I

Projects amounting to Rs.80,49,36,227/- and claimed depreciation of

Rs.26,79,33,582/-. The Assessing Officer proposed the disallowance on the

ground that the deduction is not allowable since the assessee was not able to

prove that the assets are owned by it or that the assets are put to use for the

business purposes. He, however, did not make any addition since the said

expenses had already been disallowed by the TPO and the DRP did not interfere

with the findings of the Assessing Officer.

before the Tribunal in assessee’s own case in the immediately preceding

assessment year and the Tribunal has allowed the depreciation. Further,

although the assets may not be registered in the name of the assessee, the

44 ITA No.1478/Del/2017

assessee is entitled to and has been using the same in the capacity of an owner

having made due payment to its group company and thus akin to a part owner to

the extent payment made by it. The global IT & T projects are being used by

the assessee in its day to day business operations and the same are essential for

conducting the business operations. The same results in operations being

undertaken in an efficient manner. Considering the large scale at which the

assessee operates, the global IT & T projects play a vital role in updating the

operations and saving both time and energy of the employees. Hence, there

could be no doubt as to whether these have been put to use by the assessee.

Further, ownership need not only be denoted by physical control but also

includes intangible rights in the asset. Further, it is not possible to document

every record of benefits derived from the use of IT assets. The qualitative

aspects and benefits of the IT infrastructure procured are very high and carry a

significant element of being non-figurative. However, the global IT & T cost

had been incurred centrally and infrastructure implemented after due

deliberations and discussions with the appellant. Further, the cost has been

allocated to the appellant based on a detailed cost allocation methodology.

Hence, the disallowance in respect of deduction should be deleted.

eligible to deduction on account of not being the registered owner of the assets,

45 ITA No.1478/Del/2017

the appellant submits that the entire expenditure should be allowed as revenue

expenditure under section 37(1) of the Act, the same having been incurred

wholly and exclusively for the purpose of the business. Reliance may be placed

on the decision of the Hon'ble Supreme Court in the case of CIT vs. Madras

Auto Service (P.) Ltd. reported in 233 ITR 468 wherein it was held that in order

to decide whether this expenditure is revenue expenditure or capital

expenditure, one has to look at the expenditure from a commercial point of

view. To the same effect is the decision of Supreme Court in Empire Jute Go.

Ltd. vs. CIT reported in 124 ITR 1.

Assessing Officer/DRP.

perused he orders of the authorities below. It is an admitted fact that the

assessee during the year has claimed addition of assets under the head global IT

and I Projects amounting to Rs.80,49,36,227/- and claimed depreciation of

Rs.26,79,33,582/-. We find the Assessing Officer disallowed depreciation on

the ground that since the assessee was not able to prove that the assets are

owned by the assessee or that the assets are put to use for the business purposes.

Since the said expenses was already disallowed by the TPO, Assessing Officer

46 ITA No.1478/Del/2017

did not make any addition. We find the Assessing Officer at page 24 of the

order while disallowing the depreciation has observed as under :-

“From the details submitted by the assessee it is clear that the asset is not owned by the assessee either wholly or partly neither any document was submitted to prove that these assets were put to use for the business of the assessee company. Therefore, the depreciation claimed by the assessee on IT infrastructure and software amounting to Rs.26,79,33,582/- is not allowable. However, since the above amount has already been adjusted by the TPO on the determination of ALP of the above transactions, no separate addition is made on this account to avoid double taxation of the same amount. However, if any alteration or modification takes place in the determination of arm’s length price of the above transactions, the above addition on account of excess depreciation would hold good to that extent.”

before the Assessing Officer/DRP. Since the assessee in the instant case has not

filed the documentary evidences before the Assessing Officer substantiating that

the assets were put to use for the business of the assessee, therefore, we in the

interest of justice deem it proper to restore the issue to the file of the Assessing

Officer/TPO to adjudicate the issue afresh after giving due opportunity of being

heard to the assessee. While doing so, the Assessing Officer/TPO shall keep in

mind the order of the Tribunal in assessee’s own case in the immediately

preceding assessment year. The ground raised by the assessee on this issue is

allowed for statistical purposes.

expenses of Rs.14,99,98,785/- as capital in nature.

47 ITA No.1478/Del/2017

of assessment proceedings observed that the assessee has claimed an amount of

Rs.151,11,93,163/- as payment of interest to BG Asia pacific Pte Ltd., a group

entity of the assessee. This amount has been added back in the computation of

income and an amount of Rs.166,04,21,607/- has been claimed as interest paid

on BGAP loan. The Assessing Officer, therefore, asked the assessee to explain

the same. Rejecting the various explanations given by the assessee, the

Assessing Officer made disallowance of Rs.14,99,98,785/- by observing as

under :-

“12.4 From the above reply, it is clear that actual amount of interest that was capitalized was Rs.19,74,59,895/-. Assessee even furnished details of utilization of the said loan. It has categorically been stated that these pertains to Panna-Mukta project. Assets of this project is also eligible for depreciation. The Auditors of the assessee’s accounts have also audited the said head of expenses and then certified the amount of Rs.151,04,22,823/- pertaining to revenue accounts of the assessee. However, in computation of income, assessee has reduced this capitalization amount to Rs.4,74,61,411/- without any note from Auditor or without any basis or without submitting any evidence regarding the same. Accordingly, it is held that the amount of interest allowable is Rs.151,04,22,283/- only, which has duly been verified and certified by Auditors. Accordingly, difference of Rs.14,99,98,785/- is disallowed as excess interest claim, which is of capital in nature and added t the total income of the assessee.”

following directions :-

“In the notes to the accounts, the assessee had mentioned that interest of Rs.170,78,82,718/- was accrued to BG Asia Pacific Pte Ltd. out of which only an amount of Rs.151,04,22,822/- was claimed in the profit & loss account and balance was capitalized. Later the assessee furnished detail showing interest accrued during the year – Rs.170,78,82,718/-. Interest capitalized – Rs.197,459,895/- balance

48 ITA No.1478/Del/2017

Rs.151,04,22,822/- was claimed as deduction. The A.O. has observed that “However, in computation of income, assessee has reduced this capitalization amount to Rs.4,74,61,411/- without any note from Auditor or without any basis or without submitting any evidence regarding the same”. During the DRP proceedings the assessee submitted that out of Rs.197,459,895/- Rs.43,529,545/- pertain to loan utilized towards capital work in progress not yet capitalized as on 31.03.2012 and Rs.93,931,566/- pertain to the assets capitalized during the year. The assessee claimed that the assessee follows an assumption for tax purposes which are different from accounting. The assessee has been following this method of accenting regularly. The A.O. did not give it an opportunity to explain the accounting method. In view of this the A.O. is directed to go through the submissions of the assessee and to allow the interest as per the law.”

in appeal before the Tribunal.

the sides, we are of the opinion that this issue should be restored to the file of

the Assessing Officer for proper verification. We therefore restore the issue to

the file of the Assessing Officer/TPO with a direction to verify the details and

adjudicate the issue afresh after giving due opportunity of being heard to the

assessee. We hold and direct accordingly. The ground raised by the assessee is

accordingly allowed for statistical purposes.

Officer in not granting additional depreciation of Rs.4,32,25,478/- u/s 32(1)(iia)

on the new plant and machinery of Rs.21,05,13,315/- purchased and put to use

during the relevant assessment year.

49 ITA No.1478/Del/2017

and machinery amounting to Rs.21,05,13,315/-. According to the assesse the

same were put to use during the year under consideration. However, the

assessee did not claim additional depreciation on the same inadvertently

amounting to Rs.4,32,25,478/- u/s 32(1)(iia). The Assessing Officer and the

DRP did not admit the claim of the assessee on the ground that such claim can

be made only by way of filing a revised return of income. It is the submission

of the ld. counsel for the assessee that in view of the various decisions such

additional claim can be made during the appellate proceedings. It has been held

in various decisions that (a) the ld. CIT(A) having coextensive power over the

assessment could deal with the claim made for the first time during the course

of assessment proceedings and (b) it is open to the assessee to enlarge the claim

before the Assessing Officer through a letter filed during the course of

assessment proceedings without filing a revised return of income. In view of

the same, we deem it proper to restore the issue to the file of the Assessing

Officer with a direction to verify the allowability of the claim and if the assessee

is otherwise eligible for such additional depreciation then allow the same.

Needless to say, the Assessing Officer shall decide the issue as per the fact and

law after giving due opportunity of being heard to the assessee. The ground

no.16 is accordingly allowed for the statistical purposes.

50 ITA No.1478/Del/2017

Assessing Officer with a direction to verify the same and allow the TDS credit

as per law.

234B of the I.T. Act.

assessee non-resident company are subject to deduction of tax at source.

Therefore, the question of payment of advance tax and consequent levy of

interest u/s 234B for shortfall in payment of advance tax does not arise.

Referring to the decision of the Tribunal in assessee’s own case for assessment

year 2009-10 in ITA No.2227/Del/2014 and for assessment year 2010-11 in

ITA No.1170/Del/2015, he submitted that the Tribunal in the said decision has

directed the Assessing Officer not to charge interest u/s 234B on the income of

the assessee which is liable to tax deduction at source. He accordingly

submitted that the ground raised by the assessee should be allowed.

submitted that section 234B is mandatory and consequential in nature.

51 ITA No.1478/Del/2017

the Tribunal in the immediately preceding assessment year. We find the

Tribunal at para 61 and 62 of the order has observed as under :-

“61. We have carefully considered the rival contentions and also perused the relevant judicial precedents cited before us. In the decision cited by the Ld. Authorised Representative in case of CIT versus GE packaged power incorporation (373 ITR 65) in Para No. 19, the Hon’ble high court has considered the decision cited by the Ld. Departmental Representative as under:- xxxxx 62. We are aware that Hon’ble Supreme Court has granted SLP against High Court's ruling that where Assessee was non-resident company, entire tax was to be deducted at source on payments made by payer to it and there was no question of payment of advance tax by Assessee; therefore, revenue could not charge any interest under section 234B from Assessee, which is pending for adjudication. However the decision of the Hon high court is to be followed by us , if the same is not stayed by the hon supreme court, therefore respectfully following the decision of the Hon’ble high court we direct the Ld. Assessing Officer to not to charge interest under section 234B of the act on the income of the Assessee which is subject to or liable to tax deduction at source.”

added proviso below section 209(1)(d) of the Act to the following effect:

“Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.”

14 and is, therefore, prospective in operation. The insertion of the proviso

cannot be construed to have retrospective effect so to expose a non-resident

52 ITA No.1478/Del/2017

company to levy of interest u/s 234B of the Act for assessment years prior to

assessment year 2013-14, where tax was deductible at source on the income

payable to the non-resident, if such income is held to be chargeable to tax in

India. Accordingly, this ground raised by the assessee is allowed.

retuned income and not on the assessed income as held in various decisions.

We therefore direct the Assessing Officer to compute the interest u/s 234C on

the basis of the returned income.

statistical purposes. Order pronounced in the open Court on this 18th July, 2018.

Sd/- Sd/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18-07-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The DRP- 2, New Delhi. 5) The DR, I.T.A.T., New Delhi By Order //True Copy// Assistant Registrar ITAT, New Delhi