M/S. BG EXPLORATION & PRODUCTION INDIA LTD.,MUMBAI vs. JCIT, DEHRADUN

2010-11 B G Exploration and Production India Limited

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 1170/Del/2015 (Assessment Year: 2010-11) BG Exploration & Production JCIT, India Ltd, International Taxation, BG House, Dehradun Vs. Lake Boulevard Road, Hiranandani Business Park, Powai, Mumbai PAN:AAACE4569K (Appellant) (Respondent)

ITA No. 1581/Del/2015 (Assessment Year: 2010-11)

DCIT, BG Exploration & Production International Taxation, India Ltd, BG House, Lake Dehradun Boulevard Road, Hiranandani Vs. Business Park, Powai, Mumbai PAN: AAACE4569K (Appellant) (Respondent)

Assessee by : Sh. Ajay Vohra, Sr. Adv Revenue by: Sh. NC Swain, CIT DR Date of Hearing 02/03/2017 Date of pronouncement 24/04/2017

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

O R D E R PER PRASHANT MAHARISHI, A. M. ITA No. 1170/Del/2015 & ITA No. 1581/Del/2015 A Y 2010-11

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act') on the following among other grounds.

“Ground No. 1: Provision of support services 1.1 The learned AO / the Transfer Pricing Officer / the DRP has erred in making an upward adjustment of Rs, 8,018,048 to the total income of the appellant by holding that the international transactions relating to the provision of business support services provided by the appellant to its associated enterprise is not at an arm's length. 1.2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the international transactions relating to provision of business support services by the appellant to its associated enterprise was at an arm's length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO / the Transfer Pricing Officer / the DRP in this regard is misconceived, erroneous and incorrect. 1.3 The appellant submits that the learned AO be directed to delete the upward adjustment of Rs. 8,018,048 made by him to the appellant's total income and to re- compute its total income and tax liability thereon accordingly. Ground No. 2: Payment of interest 2.1 The learned AO / the Transfer Pricing Officer / the DRP has erred in making an upward adjustment of Rs. 427,264,082 to the total income of the appellant by holding

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 that the international transactions relating to the payment of interest by the appellant to its associated enterprise on external commercial borrowings ("ECB") is not at an arm's length. 2.2 The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the international transactions relating to payment of interest on ECB by the appellant to its associated enterprise was at an arm's length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO / the Transfer Pricing Officer / the DRP in this regard is misconceived, erroneous and incorrect. 2.3 The appellant submits that the learned AO be directed to delete the upward adjustment of Rs. 427,264,082 made by him to the appellant's total income and to re-compute its total income and tax liability thereon accordingly. Ground No. 3: Disallowance of production cost 3.1 The learned AO / DRP erred in law and in facts in disallowing under section 37(1) of the Act, the production cost of Rs. 316,786,095 incurred by the appellant in relation to the technical and engineering services. 3.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the appellant's business in India.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Ground No. 5: Disallowance of depreciation on global IT & T expenditure 5.1 The learned AO / DRP erred in law and in facts in disallowing depreciation on global IT & T expenditure of Rs. 33,005,676. 5.2 Without prejudice, the learned DRP erred in not treating the global IT & T expenditure as revenue expenditure allowable under section 37(1) of the Act. Ground No. 6: Disallowance of exploration cost 6.1 The learned AO / DRP erred in law and in facts in disallowing under section 37(1) of the Act, the exploration cost of Rs. 460,313,788 incurred by the appellant. 6.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the appellant's business in India. Ground No. 7: Short credit for Tax deducted at source 7.1 The learned AO erred in not granting credit of tax deducted at source to the extent of Rs. 52,358,137. Ground No, 8: Short credit for self-assessment tax paid 8.1 The learned AO erred in not granting credit of self- assessment tax paid to the extent of Rs. 63,128,093. Ground No. 9: Levy of interest under sections 234B of the Act: 9.1 The learned AO has erred in law and in fact, in levying interest under sections 234B of the Act disregarding the fact

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 that the appellant is a non-resident whose income is subject to tax deduction at source. Ground No. 10: Levy of interest under section 234D of the Act: 10.1 The learned AO has erred in law and in fact, in levying interest under section 234D of the Act. Ground No. 11: General: 11.1 Each of the foregoing grounds of appeal is without prejudice to the other. 11.2 The appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” 2. The ld AO has filed the appeal against the directions of the Ld DRP for the Assessment Year 2010-11 in ITA No. 1581/Del/2015 raising following grounds of appeal:- “1. Whether on the facts and circumstances of the case, the Hon'ble Dispute Resolution Panel (DRP) has erred in holding that the Assessing Officer/ Transfer Pricing Officer (AO/TPO) was wrong in rejecting the economic analysis conducted by the Assessee for the determination of the Arm's Length Price ("ALP") of international transactions pertaining to intra-group services. 1.1 The Hon'ble DRP has erred in holding that the Transactional Net Margin Method (TNMM) and

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Operating Profit Margin based on the Sales as the profit Level Indicator (PLI) as used by the Assessee is the most appropriate method in the facts of the case on the ground of difficulty in availability of reliable data of comparables, not appreciating the fact that the selection of the most appropriate data is a function of several factors. 1.2 The Hon'ble DRP has erred in holding that the transactions are to be benchmarked by clubbing them together, without first dislodging the findings of the TPO that the transactions are separable and without independently examining as to how the transactions were intrinsically linked together or were incapable of being benchmarked separately. 1.3 The Hon'ble DRP has erred in implicitly accepting the proposition that the linking of the transactions with the main business by itself is sufficient for clubbing them together, not appreciating the fact that this argument is contrary to the well established concept of the Transfer Pricing benchmarking that each transaction has to be benchmarked separately unless rendered impossible for their inseparability. 1.4 The Hon'ble DRP has erred in not appreciating the fact that each transaction was very clearly distinguished by the Assessee itself in terms of not only its nature but also the amount paid for them and therefore, the conclusion of the DRP was incorrect that

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 the transactions were so closely linked to each other that it was not possible to benchmark them separately. 1.5 The Hon'ble DRP has erred in not appreciating the finding of the AO/TPO that the Comparable Uncontrolled Price (CUP) method was the most appropriate method in this case and that the ALP as determined by the economic analysis conducted by the Assessee was inappropriate as: i) The Assessee has not been able to establish as how these transactions are intrinsically linked with the other international transactions undertaken by the Assessee (e.g. payment on interest on loan, sale of gas, unsecured loans, re-imbursements etc.) and there is no link with the transactions under consideration and the other international transactions. ii) It is only when the international transactions are so closely linked that they cannot be benchmarked that a combined approach can be adopted as per Rule 10A(d) of the Income Tax Rules. iii) Given the discrete nature of the transactions, each transaction has to be benchmarked separately and not under TNMM. iv) Most of the services were duplicate in nature or relating to the headquarters to protect the interest of the shareholders.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 v) The Assessee has adopted a combined approach with regard to its business transactions as a whole which is contrary to the provisions of law. vi) The approach followed by the Assessee was not in accordance with the OECD guidelines with regard to the intra-group services in terms of which cost of intra- group services should be benchmarked using either CUP or Cost plus Method. 2. Whether on the fats and in the circumstances of the case, the Hon'ble DRP has erred in accepting additional evidences filed by the Assessee observing that the opportunity to furnish information was given by the TPO at the fag end of the year, ignoring the vital facts mentioned by TPO in its order that 1st notice was issued on 14/02/2013, almost eleven and half months prior to the time barring date, and further notices calling for specific information were also sent quite early in the TP Proceedings on 26/5/2013, 12/09/2013, 23/12/2013 etc. 3. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of Rs. 3,32,97,66,244/- on account of intra-group services. 3.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TPO that a) The Assessee has not been to establish that it has actually received any intra-group services.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so called evidence furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the Assessee. d) The Assessee has not been able to establish the economic and commercial benefits derived by it on account of such services. e) The Assessee itself has accepted the fact that almost entire expenses incurred by the Assessee through its AEs were not approved and hence, not shared by the JV Partners. This fact itself shows that either no meaningful services were received from such AEs or such so-called services were not of any value for operational activities of respective oil fields and therefore, TPO was justified in determining the Arm's length value of intra-group services at NIL f) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as these are based on ad-hoc factors like head-counts & hourly

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 rates etc. and prepared by the external consultants on the basis of the inputs (on such ad-hoc factors) given by the AEs themselves. g) No comparable independent enterprises would have paid for the services in comparable circumstances. h) Without prejudice to the findings regarding the actual rendering of services and the Non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement (JOA), all the costs are shared among the Joint Venture Partners in ratio of their participating interest and that the two other parties to the JOA (M/s ONGC and Reliance Industries Ltd.), which are unrelated parties, would not pay the cost of the services of associate enterprises which would have been in excess of the ALP. 3.3 Without prejudice to the generality of the foregoing grounds regarding the deletion of proposed adjustment of RS. 3,32,97,66,244/- on the transactions of intra-group services, whether the Hon'ble DRP has

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 erred in directing the AO/TPO to drop the proposed adjustment of Rs. 80,13,26,441/-on the amount paid to the parent company ostensibly as allocation cost for joint acquisition of IT infrastructure and software. 3.3-1 The Hon'ble DRP has erred in not appreciating the fact that a) The IT infrastructure is a capital asset which is created and owned by the parent company. b) It is the parent company which has the rights over the asset. c) The cost paid for acquisition of the asset by the parent company cannot be allowed in the hands of the Assessee as neither the Assessee owns the asset nor has it established the requirement of putting the asset to use for its business in India. 4. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO to drop the proposed disallowance of Rs. 81,50,97,333/- out of the depreciation claimed on well- head platform. 4.1 Whether the Hon'ble DRP has erred in not appreciating the fact that well-head platforms are part of neither development operations nor drilling operations and therefore expenditure on well-head platforms are not covered u/s 42(1) of the Act and has

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 to be dealt with the under the normal provisions of sections 32(1) of the Act. 5. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed addition of Rs. 60,59,882/- on account of expenses claimed to have been incurred in relation to club entrance and subscription fees for its employees. 5.1 The Hon'ble DRP has erred in not appreciating the fact the expenses under consideration are admittedly in the nature of club expenses and hence the same cannot be said to have been incurred wholly and exclusively for the purposes of the business of the Assessee.” 3. Brief facts of the case is that Assessee is a non resident company incorporated in the cayman Island with limited liability and is engaged in the business of exploration and extraction of Mineral Oils in terms of production sharing contracts signed with the Government of India. Assessee filed its return of income on 12/10/2010 showing income of Rs 14610630540/- which was subsequently revised on 28/3/2012 at income of Rs 14880049136/- . The Business of the Assessee is that it has entered into 4. production sharing contracts and joint operating agreements on 22/12/1994. Further amended in January 2005 for Panna Mukta and mid and South Tapti oil and gas fields PSC dated 2nd March 2007 for Contract Area KG-OSN-2004/1; Form in

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 agreement dated February 18, 2008 for contract area MN- DWN-2002/2, approved by Mo PNG on November 21. 2008; Form in agreement dated February 18, 2008 for contract area KG-DWN-2009/1, as a partner of the respective ‗unincorporated joint ventures‖ for prospecting, exploring and producing oil and gas from the contracted areas. To execute such PSCs and carry out its obligations under the PSCs as a joint operator, Assessee has set up a Project Office (―PO‖) in India. It has a participating interest in 5 production sharing contracts as under :- (a) For Panna/Mukta and Mid and South Tapti oil and gas fields

Participating Partner Interest (%) Oil & Natural Gas 40 Corporation Limited (ONGC) Enron Oil & Gas Limited 30 (now BGEPIL) Reliance Industries 30 Limited (RIL)

b) For Contract Area KG-OSN-2004/1 : Participatin Partner g Interest (%) ONGC 55 BGEPI 45 L

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 c) For Contract Area KG-DWN-98/4 Participating Partner Interest (%) Oil & Natural Gas 55 Corporation Limited (ONGC) BGEPIL 30 Oil India Limited (OIL) 15

d) For Contract Area MN-DWN-2002/2 : Participatin Partne g Interest r (%) ONGC 75 BGEPIL 25 e) For Contract Areas KG-DWN-2009/1 : Participatin Partne g Interest r (%) ONGC 45 BGEPIL 30 Oil India Limited (OIL) 15 Andhra Pradesh Gas 10 Infrastructure Corpn. Pvt. Ltd. 5. Therefore, undisputedly Assessee has a permanent establishment in India. According to the Assessee, it has entered into following international transactions with its associated enterprises as under:-

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Name of Associated Nature of Transactions Amount S. No. Enterprises (in INR) 1 BG International Joint acquisition and 801,326,641 Limited development of IT infrastructure and software 2. BG India Energy Provision of support 71,045,995 Solutions Private services Limited 3. BG Asia Pacific Pte Interest paid on loan 1,059,412,322 Limited Unsecured loan 28,878,224 4 BG International Management Service 1,102,791,317 Limited Unit Charge IM Recharge and 670,376,028 Typewriting Charges 5 BG India Energy Management Service 14,506,572 Solutions Private Unit Charge Limited 6 Gujarat Gas Reimbursement of 1,297,989 Company expenses 7 Mahanagar Gas 1,46,611 Limited 8. BG International Payroll expenses 372,800,271 Limited Reimbursement of 382,471,987 expenses 9. BG International Recovery of expenses 203,100,890 Limited 10 BG India Energy 1,239,375 Private Limited (formerly British Gas India Private Limited)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 11 BG LNG Regas 59,694 Private Limited 12 BG India Energy 51,234 Services Private Limited 13 Gujarat Gas 57,409,887 Company Limited 14 Mahanagar Gas 15,069,909 Limited 15 BG India Energy 1,130,776 Solutions Private Limited Therefore, the Ld. Assessing Officer referred to Ld. Transfer Pricing Officer for determination of arm‘s length price of the above transactions. According to the transfer pricing documentation submitted by the Assessee in form number 3CEB along with its return of income, it applied various methods to its international transactions as under and held that they are at arm‘s length :- Name of Nature of Method Amount S. Associated Transactions (in INR) No. Enterprises 1 BG International Joint acquisition TNMM 801,326,641 Limited and development of IT infrastructure and software 2 BG India Energy Provision of TNMM 71,045,995 Solutions Private support services Limited

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 3 BG Asia Pacific Interest paid on CUP 1,059,412 Pte Limited loan Unsecured loan NA 28,878,224 4 BG International Management TNMM 1,102,791,317 Limited Service Unit Charge IM Recharge 670376028 and Typewriting Charges 5 BG India Energy Mgmt Ser. Unit TNMM 14,506,572 Solutions Pvt. Charge Ltd. 6 Gujarat Gas Reimbursement TNMM 1,297,989 Company of expenses 7 Mahanagar Gas TNMM 146,611 Limited 8 BG International Payroll expenses TNMM 372,800,271 Ltd. Reimbursement TNMM 382,471,987 of expenses 9 BG International Recovery of NA 203,100,890 Limited expenses 10 BG India Energy NA 1,239,375 Pvt. Ltd. (formerly British Gas India Pvt. Ltd.) 11 BG LNG Regas NA 59,694 Private Limited 12 BG India Energy NA 51,234 Ser. Pvt. Ltd. 13 Gujarat Gas NA 57,409,887

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Company Limited 14 Mahanagr Gas NA 15,069,909 Limited 15 BG India Energy NA 1,130,776 Solutions Private Limited

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 functional dissimilarity and one comparable on failing the filter setup and thereby selecting 17 comparables, computed the average margin of comparables at 24.64% and computed the price of services at the arm‘s length price at Rs. 79064042/– against the actual price of Rs. 7102 5995/– and thereby making an adjustment of Rs. 82018048/–. ii) Assessee has availed loan from its associated enterprise and has paid interest of Rs. 1059412322/– to M/s BG Asia- Pacific PTE Ltd as external commercial borrowing of US dollar 500 million until 2020, as unsecured loan for financing its oil and gas operation in India in terms of agreement dated 01/06/2005 at the interest rate of US dollar Libor +2%. On 21/10/2009 the interest rate is been increased at the rate of 6.18% as an amendment to the existing loan facility agreement. Consequently, for the period from 01/04/2009 to 21/10/2009 the Assessee has paid interest to its associated enterprise at the rate of interest of Libor +200 basis point amounting to Rs. 373570237/– and for the period from 22/10/2009 to 31/03/2010 at the rate of 6.18% amounting to Rs. 685842085/- totaling to Rs. 1059412322/–. Thereby, according to the Ld. Assessing Officer, the interest paid by the Assessee for the period 22nd of October 2009 to 31/03/2010 at the rate of 6.18% is excessive. He therefore determined the effective rate at 2.33% (interest at the rate paid by the Assessee from 01/04/2009 to 21/10/2009) as arm‘s length rate of interest and held that Assessee has paid excess interest to the associated enterprise of Rs.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 427264082/– and made adjustment under section 92CA of the act. iii) During the year Assessee has made payment to BG International Ltd for certain services, amounting in all to Rs. 3329766244/– as under:-

Sr Nature of services Amount No Joint Acquisition and Development 801326641 1 of IT Infrastructure and software Management service unit charges 1102791317 2 IM Recharge and Time Writing 670376028 3 charges Payroll Expenses 372800271 4 Reimbursement of expenses 382471987 5 Total 3329766244

The Assessee has aggregated all the transactions except transaction listed at five above of reimbursement of expenses, applied the transaction net margin method, and submitted that they are at arm‘s length. The Assessee did not benchmark the amount of reimbursement of expenses. The aggregation approach was adopted by the Assessee for the reason that these transactions are closely linked to the only business activity of the company of the extraction of oil and gas. The Ld. Transfer Pricing Officer rejected the contention of the Assessee with respect to aggregation and stated that all these transactions are in itself a class of transaction hence is required

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 to be benchmarked separately and TNMM is not the most appropriate method. Therefore Ld. Transfer Pricing Officer held that it needs to be verified that i. whether the Assessee has actually received the intragroup services, ii. what are the economic and commercial benefits derived by the recipient of the intragroup services, iii. the mechanism adopted with respect to the cost recharge and the basis of allocation of cost to various associated enterprises, and iv. whether the comparable independent enterprise would have paid for the services in comparable circumstances and v. after that benchmarking the same services either using cup or cost plus method. With respect to the IT infrastructure services availed by the Assessee, it was submitted that Group company acquired and developed certain infrastructure software and software for the benefit of the group companies which included upgraded software, sophisticated email facility etc. These costs are located to the group company at cost based on allocation methodology decided on a group level and the same were capitalized the books of Assessee. The Assessee submitted the details of allocation and the copy of debit note along with supporting working. It was further submitted by the Assessee that the production sharing contract was approved by the government of India and any services received by the Assessee

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 from its associated enterprise is required to be remunerated on cost and thus on that basis the services received by the Assessee are at arm‘s length. The Ld. Transfer Pricing Officer stated that:- i) The IT infrastructure asset was acquired by BGIL and is owned by BGIL. All rights to use and allow others for using the asset created/ acquired vest with BGIL. BGIL may use the asset at present or future as per its own decision. There is no agreement between the Assessee and BGIL regarding the rights and ownership of the IT asset. ii) It is not clear what was the need and inevitability for the Assessee to share the cost of acquisition of the property, which was to be owned by the parent company. iii) Assessee also did not submit any need and inevitability analysis for acquisition of the IT infrastructure. iv) Assessee failed to submit any documents such as third parry invoices and basis for computation of total cost as claimed was correctly computed. v) No third party invoices have been submitted. It is noted that BGIL charged its professional @ GBP 100 per hour, no basis of this cost has been provided. It is on the lump-sum basis without any reason and excessively high. vi) Assessee only submitted debit note (consolidated) to demonstrate that the amount as mentioned therein totaling to GBP 9015327 was demanded by BGIL from the Assessee. vii) Regarding allocation Assessee

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 submitted sheet of allocation, mentioning that certain percentage of so called costs incurred by the parent company have been allocated to the Assessee viii) In some cases, it is mentioned that the cost was allocated based on head counts and other places some other methodology without famishing back up computation. ix) Assessee also did not submit any documents showing that the assets so created are being used by it and what benefits are being derived by it. x) Assessee also failed to demonstrate whether the payments made for using the IT infrastructure, even if it considered being useful and beneficial, was at arm‘s length. xi) Whether any comparable company (independent entity) is incurring so much cost on using software infrastructure which is owned by others, It is not understandable if any third party (Independent enterprise) would be ready to incur such a huge expense without proper need, cost benefit analysis.

With respect to the Management service unit the Assessee submitted that Assessee is merely a project office and is not setup as self-sufficient Department for each of such functions, therefore the Assessee requires extensive support of resources for carrying out its business efficiently and since the Assessee does not have in-house skilled manpower, it has to seek assistance of the service provider on time to time basis for procuring such services. Assessee further submitted that it operates in a very complex business environment, which needs

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 specialized services for the smooth conduct of its business operations. It was further submitted that the Assessee has availed Management service unit charges and technology recharge from the service provider and the said amount represents allocation of actual cost incurred without charging any markup based on global cost allocation policy followed by the Assessee. As it was submitted that no markup has been charged and the fact that the independent party would have paid for such services. The Assessee submitted copy of the global allocation policy as well as report issued by M/s Price Waterhouse Coopers LLC, UK and other independent consultants. The Assessee submitted that it has received services with respect to federal Green charges of Rs. 38136209/– and technology recharge of Rs. 113499961/– along with other management and unit charges of Rs. 1278031174/-, which included the services with respect to IT, HR, accounting, insurance, taxation, cost control, recovery, planning and budgeting, legal, service tax and others. The Assessee explained each of the services and their allocation methodology. With respect to Management service unit expenses, The Ld. transfer pricing noted as under:- 1. The Assessee company did not conduct/submit any need /inevitability study before obtaining these services from the parent company.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 2. There is no benchmarking of these services and determination of its arm's length price even if these services are considered to be necessary. 3. Even if these services are considered to the necessary, and cost paid by the Assessee company seems to be excessively high. 4. Most of the services which have been claimed to have been received by the Assessee Company are in the nature of advisory. In most of the cases, the Assessee company itself is competent to take the decision. In such scenario, imposing upon the Assessee to take decision in one or the other way is only for the purposes of furtherance of the interest of the parent company. 5. The Assessee company has paid Rs. 3,12,88,784/-for HR international support. During the year the Assessee has also paid Rs. 37,28,00,271/- on account of payroll expenses to M/s BGIL towards salary of expats employee. This payment is in respect of 29 expats who have worked on

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 secondment basis. It shows that BGIL is charging expenses in addition to the salary or other costs payable to the expats employees. It may also be mentioned that details submitted by the Assessee under- this-subhead are-placement policy documents and some e-mail communication regarding formalization of a planning schedule etc. It is very surprising that BGIL, the parent company, has charged Rs.3.12 crores merely for copy of policy documents (which do not change year after year). The e-mail communications do not point towards any service, which might have been provided to the Assessee company. 6. Assessee company has also paid Rs. 5,73,82,514/- under the head international accounting support. It is stated that the main financial system are managed centrally by the BG group and used by all entities to ensure consistency of reporting and ease of consolidation etc. the Assessee further stated that the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 personnel are provided guidance and support by BGIL on timely basis. The cost allocated to the Assessee for central accounting system and consolidation of accounts of various entities to the extent of Rs. 5.73 crore is excessively high. Further payment of such a huge amount every year for the guidance of the accounting personnel also seems to be needless as training of staff every year on the same platform cannot be justified. 7. Assessee has claimed that he has utilized services of central insurance team for insurance of its assets. Assessee justified that the employment of full time insurance specialist would have not been utilized on full time basis. The amount incurred by the Assessee on insurance advice and guidance was Rs. 4,59,56,012/-. In support the service of the utilized insurance the Assessee company has not provided-any detail regarding obtaining insurance guidance services which may be

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 worth Rs. 4,59,56,102/ From Profit and Loss Account of Assessee it has been noted that the Assessee has paid insurance expenses amounting to Rs. 17,26,00,174/-. It may also be mentioned that the Assessee continues to operate in two contract areas i.e. Panna- Mukta and KG- OSN since last many years and no new location have been included neither there is any significant increase in the assets. Out of the total addition in assets amounting to Rs. 68.34 crores, Rs. 66.16 crore pertains to joint acquisition of IT infrastructure for which payment have been made to BGIL itself. Regarding insurance of employees etc in the form of medi claim policies etc. I do not think payment of Rs. 4.59 crore is justified only, for consultancy, which is more than 25% of the insurance amount. 8. Assessee has claimed to have paid Rs. 9,18,12,0231- crore for taxation support and Rs. 4,59,06,012/- for legal support to its parent

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 company. It is claimed that the Assessee has received consultancy regarding tax compliance and advisory support from personnel employed by the BGJL. No description of legal services obtained by the Assessee has been submitted. It is also pertinent to mention the Assessee has incurred Rs. 7,06,55,8391- on professional and legal expenses. The Assessee has not substantiated its claim of such a huge expenditure on routine basis every year for consultancy regarding taxation and legal purposes. It has not been supported what taxation or legal consultancy have been extended by M/s BGIL. Was there any legal dispute going on for which the legal advice was obtained by the Assessee company from BGIL. It appears that the Assessee is paying for expenditure for its parent company for which no benefits/ services have been derived. 9. The Assessee company has claimed that BGIL provides marketing services to it however,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 from notes to the account it has been observed that whole of the petroleum produced is sold to Govt. of India nominee i.e. GAIL or ONGC. Therefore the Assessee companies do not require any marketing consultancy or expenses. 10. The Assessee company has also claimed to have paid Rs. 6,88,59,017/- to BGIL for cost control and recovery. From the note on the subhead it is observed that this expenditure has been made to BGIL for help obtained for it in getting the inter company account reconciled and managing the internal recharge system. Precisely for the same services which is booked under the head international accounting support the Assessee company has paid Rs. 5,73,82,514/-. 11. Regarding claim of payments under the head planning and budgeting amounting to Rs. 5,16,44263/- legal services Rs. 4,59,06,0121- and others amounting to Rs. 10,16,55,4201/- totaling to Rs.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 19,92,05,695/- Assessee has not submitted even a small note on the nature of services what to say about need, cost of the services, benefits arising to the company and proof of receipt of services etc. 12. The Assessee is also asked to submit proof regarding payment of Service-Tax along with reconciliation. 13. Regarding IT support (Information management related services) it -has been noted that the Assessee company has claimed approximately 3% of its total revenue as IT cost which primarily relates to troubleshooting of IT infrastructure. The expense @ of 3% of the revenue of IT seems to be excessively high than an independent company might have paid for management and troubleshooting of the IT related services. It may be mentioned that on IT and computer related assets as on 01.04.2009 was approximately Rs. 72.29 crore on W.D. V basis. For maintenance and management of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 this assets. The Assessee company has incurred Rs. 74.05 crore out of which 70.22 crore has been paid to the parent company, which is excessively high. Assessee has not benchmarked his expense with industry standard. The Assessee also seems to have delayed submission with an intention to move the proceeding towards time barring date source TPO is not left sufficient time to investigate independently. The Assessee is asked to come out with reasonable working on its support expenditure.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 With respect to technology recharge it was submitted that this is the cost in lieu of services and rendered in relation to identification, development and implementation of new and enhanced technique and capital Abilities to the existing exploration and production operation of the Assessee. The Assessee detailed various benefits and services received by the Assessee and the evidences for Western relation to such services. The Ld. Transfer Pricing Officer stated that these are the expenditure which is intended for creation of academic and talent centers and the Assessee company did not demonstrate what is going to be its role and responsibility in this institutions and the benefits in future, if any. He further submitted that the Assessee merely receives some technology bulletins for which only maximum subscription charges can be remunerated. He further noted that various projects have been undertaken. However, all of them may not relate to the areas in which the Assessee companies operating and therefore there is no need of this project with respect to the services. With respect to the federal Green charges. The Assessee submitted that is that the group devises policies and practices in respect to various areas where the entities operate to increase the overall

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 efficiency and smooth functioning. The Assessee demonstrated various benefits or services received by the Assessee in relation to the federal Green charges. Further, with respect to all the charges under the intragroup services, the Ld. Transfer Pricing Officer further held that the company does not share these expenses with its JV partners. The Assessee did not furnish to the Ld. Transfer Pricing Officer, the trial balance of the joint ventures which are audited and certified by the D, G, H, every year. Therefore the Assessee was asked to submit with respect to the intragroup services the treatment in the cost- sharing agreement with the joint-venture partners, amount charged to joint-venture, amount borne by the JV partners and reasons for rejection of amount not shared by partners. However, in response to this the Assessee did not submit these details, but made a general comment that only a small portion of such expenses pertaining to, international transaction, such as namely payroll expenses is Management service unit charges have been charged to the JV partners. However, no quantification of the same was provided to the Ld. Transfer Pricing Officer. Therefore, the Ld. Transfer Pricing Officer has stated that despite giving ample opportunity to the Assessee the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 requisite details were not submitted, and further the notices sent to the JV partners under section 133 (6) to ONGC and reliance seeking the above information was also not received. Therefore, the Ld. Transfer Pricing Officer determined the ALP in respect of the amount paid by the Assessee to its AE for various services amounting to Rs. 3329766244/– as nil.

With respect to the joint acquisition of IT infrastructure and software cost of Rs. 801326641/– the Ld. Transfer Pricing Officer noted that there was no specific contract in this regard and the Assessee has failed to submit any documentary evidence regarding need and further whether such expenses have been shared by the joint-venture partners or not. With respect to other management service unit charge it was noted by the Ld. Transfer Pricing Officer that Assessee has not been able to demonstrate the services under the head with the writ is been actually received and utilized by the Assessee or not. Accordingly, the Ld. Transfer Pricing Officer made the following adjustment under section 92CA, on account of arms length price of the international transaction, amounting in all to Rs. 3 765048374/–

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

International Amount Transactions 1 Provision of Business Rs 8018048/- support services 2 Adjustment regarding RS 427264082/- excess provision of Interest 3 Intra Group services Rs. 3329766244/- Total Rs. 3765048374/-

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 basis of Rs. 35714874/–. Ld. Assessing Officer noted that Assessee has incurred an expenditure of Rs. 63507427/- and out of that the details of only Rs. 35714874/- has been provided. Hence, he disallowed a sum of Rs. 27792553/-and out of which a sum of Rs. 16418464/- was already paid to an associated enterprise for which the Ld. Transfer Pricing Officer has determined the arm‘s length price at rupees Nil , the balance sum of Rs. 11374089/– was disallowed. 9. During the year the Assessee has claimed that the wellhead platforms amounting to Rs. 958938038/– are liable for depreciation / deduction at the rate of hundred percent as deduction. However, the Ld. Assessing Officer was of the view that depreciation on them is allowable only at the rate of 15%. Assessee submitted that the provisions of section 42 (1) of the Income Tax Act provides that the expenditure with respect to the production sharing contract are liable as are specified in the agreement and according to clause (b) of section 42 (1) the depreciation is also fully allowable to the Assessee as it is an expenditure incurred by the Assessee with respect to drilling or exploration activities of services. Assessee further relied upon the relevant portion of the production-sharing contract wherein it has been provided that capital and revenue expenditure are allowable to the Assessee. However, the Ld. Assessing Officer noted that these are the expenditure in respect of development operations and production operations which would be governed by the provisions of the Income Tax Act and only those expenditure which are related to the exploration operations and

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 drilling operations are allowed deduction at the rate of hundred percent. Therefore according to him the wellhead platforms are neither part of the exploration operations nor drilling operations and therefore the Assessee is not entitled to depreciation at the rate of hundred percent on these expenditure. Consequently, the Ld. Assessing Officer made disallowance of Rs. 815097333/– allowing depreciation on the total cost of Rs. 9 5893 8038/– of Rs. 14384 0705/– only. 10. It was noted that Assessee has debited addition to the fixed assets under the head global IT and IT projects, amounting to Rs. 666113450/- and claimed depreciation on these assets amounting to Rs. 33305673/–. The Ld. Assessing Officer enquired about the ownership and user test thereof. Assessee submitted before the Ld. Assessing Officer that these are the allocation cost made by the group company who has acquired certain information technology infrastructure and software for the benefit of the group companies. Such assets are production database management system, SAP up gradation and efficient budgeting and forecasting system etc. It was noted by the Ld. Assessing Officer that Assessee has been allocated a sum of Rs. 8 0132 6640/– ,out of which Rs. 6130450/- was capitalized during the year and the balance of Rs. 135213190/- was capital work in progress in the books. According to the Ld. Assessing Officer the Assessee is neither owner of these assets wholly or partly and could not produce any document to prove that these assets were put to use for the business of the Assessee company. Therefore, the Ld. Assessing Officer

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 disallowed the depreciation claim of the Assessee. However, the Ld. Transfer Pricing Officer has already determined the arm‘s length price of the international transactions amounting to Rs. 801326640/- as nil, no further separate addition was made by the Ld. Assessing Officer as it will amount to double disallowance. 11. Further during the year the Assessee has claimed exploration costs relating to contract areas other than on the account of JV amounting to Rs. 931819021/–. Assessee submitted that out of the above expenditure, Rs. 471505233/– has been incurred on the blocks in respect of which the Assessee assigned production sharing contract with government of India and with respect to the balance of Rs. 460313788/– the Assessee submitted that the cost of Rs. 218832750/- was with respect to the purchase of seismic data from Director- General of Hydrocarbons prior to bidding of NELP- VIII and further general administrative cost, for analyzing and building new ventures. It was submitted that these expenditure is normal business expenditure incurred wholly and exclusively for the purpose of the business and therefore allowable under section 37 (1) of the Income Tax Act, 1961. Assessee submitted that some of the expenditure is respect with respect to the new ventures. However, the Ld. Assessing Officer disallowed holding that business of the Assessee is governed by the production sharing contract signed with the government of India without which the Assessee cannot undertake any exploration and production activity, and expenditure incurred by the Assessee under the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 head exploration cost is in respect of future business which has not yet commenced and nor any production sharing contract has been signed. He further held that as Assessee has not provided the complete details of these expenses amounting to Rs. 460313788/– the same are disallowed and further expenses for new business opportunities are capital in nature. 12. Assessee has also incurred the expenditure of Rs. 6059882/- with respect to the club expenditure for the employees of the company and according to the Ld. Assessing Officer they are not laid out or expended wholly for the purpose of the business of the Assessee and therefore they were disallowed. 13. On raising objections before the Ld. Dispute Resolution Panel, in its direction dated 17/12/2014 :- i) With respect to Intra Group services of Rs 3329766244/– at Para No. 4.6 It was stated that the Assessee has established the fact that it has received the services and it is a useful services which it is has received. With respect to the separate benchmarking of the international transaction and the most appropriate method, the DRP held that TNMM was the most appropriate method in this case and the Assessee was justified in obtaining the services as mentioned in the earlier paragraph the year for DRP held that the determination of arm length price by the TPO in the intragroup services to the tune of Rs. 3329766244/– is erroneous and is also be deleted. ii) With respect to provision of support services and its benchmarking, ld DRP upheld the selection of comparables

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 by the ld TPO. It was held vide Para No. 6.2 that these acquisition of information technology related infrastructure was for the purpose of the business and the Ld. Transfer Pricing Officer is not the authority to allow or disallow any expenses. As the Ld. Dispute Resolution Panel has already issued separate direction with respect to the intra group services, there was no need for issuing any further direction with regard to the same. Thus on account of the comparability analysis it upheld the adjustment made by the ld TPO amounting to Rs 8018048/-. iii) With respect to the payment of interest, It was held by the Ld. Dispute Resolution Panel at Para No. 7.3 of its order that there is no justification for conversion of floating rate of interest into a fixed rate of interest and further the increasing the rate of interest is 165% higher than the rate at which the Assessee was paying interest at the time of conversion. It was further held that such coin was and also happened when the interest paid was on changing or not volatile. In view of this, the Ld. Dispute Resolution Panel held that there is no justification for the revision of the rate of interest and hence the order of the Ld. Transfer Pricing Officer was sustained to that extent. iv) With respect to the disallowance of the production cost of Rs. 31678 6095/- under section 37 (1) of the Income Tax Act, The Ld. Dispute Resolution Panel held that as the Assessee has failed to show the commercial expediency test in the instant case, the disallowance is correctly made.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 v) With respect to the disallowance on account of legal and professional charges of Rs. 27792553/–, on Lack of availability of details, The Ld. Dispute Resolution Panel submitted that the Assessee has submitted the additional details and supporting evidences of more than 60% of the expenditure claimed by the Assessee and therefore it should be allowed. In view of this, it directed the Ld. Assessing Officer to consider the additional evidence filed by the Assessee before the Ld. Dispute Resolution Panel and to modify the disallowance accordingly based on evidence on record. vi) With respect to the disallowance of expenditure on wellhead platform the Ld. Dispute Resolution Panel directed the Ld. Assessing Officer to allow depreciation under section 42 (1) of the act, subject to the fulfillment of the necessary condition. vii) With respect to the disallowance of depreciation on the global infrastructure on information technology projects of Rs. 33005673/– the Ld. Dispute Resolution Panel upheld the depreciation disallowance holding that amendment to section 32 of the Income Tax Act, which now provides for the word ‗used‘ and Assessee could not substantiate the user f these assets. On the ownership it rejected finding of the ld AO/ TPO that Assessee fails ownership test. viii) With respect to the disallowance of Rs. 460313788/– of exploration cost, the Ld. Dispute Resolution Panel upheld the same.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 ix) With respect to the disallowance of club expenditure, The Ld. DRP directed the Ld. Assessing Officer to allow the club expenditure as deductible expenditure as in the preceding assessment year, i.e. Assessment year 2009 – 10, the Ld. Dispute Resolution Panel has allowed it. Therefore, for this year also the ld AO was directed to allow the club expenditure under section 37 (1) of the Income Tax Act. Based on above directions, ld AO passed final order u/s 143(3) of the act. 14. In the beginning of the hearing of the appeal, the Ld. Authorised Representative raised the following additional ground of appeal:- “Ground No. 12: Exploration cost of Rs. 692,213,884 not claimed by the appellant

12.1 Without prejudice to the grounds raised, the learned DRP erred in not granting deduction of Rs. 692,213,884/- , being appellant‘s share of expenditure of Rs. 2,307,379,612/- incurred by the unincorporated joint venture but not claimed by the appellant.

12.2 In this connection, having regard to the rationale adopted by the learned AO that only expenditure accepted by the joint venture should be proportionately allowed to the appellant, the appellant highlighted before the DRP that it had not accepted well related expenditure of Rs.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 2,307,379,612 and hence not claimed proportionate amount of Rs. 692,213,884/- if the learned AO‘s proposition was to be accepted, expenditure of Rs. 692,213,884/- should have been allowed to the appellant.‖

Earlier vide application dated 13/03/2015 similar ground was raised, but now the above ground is reworded as above. The main contention of the Assessee is that applicant is engaged in the execution of the production sharing contract for exploration and production of petroleum in the designated contact area which is in accordance with the agreement signed by the government of India and the consortium of companies were the successful bidder are awarded the contract. The joint venture partners share expenses and revenue arising from the production sharing contracts. In connection with the above, it was submitted that the applicant along with ONGC and Oil India has formed one joint venture which has entered into production sharing contract with the Indian government for exploring block KG - DW8- 98/4. ONGC is the operator of the block and the revenue and the cost under the production-sharing contract is shared among the joint venture members where the share of ONGC is 55% and reliance is 15% resulting into applicant share of 30%. According to the production sharing agreement, ONGC being the operator prepares budget for the proposed drilling program and presents it to the joint operating board of the joint venture which agree for certain expenses deemed

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 appropriate for the purpose of the operation. For the assessment year 2010-11 the total expenditure amounting to Rs. 2433667947/– pertaining to that block included well related expenses amounting to Rs. 2 307379612/– out of which the applicant share is Rs. 692213884/-. The applicant had not accepted its share of the expenditure and therefore has not claimed deduction of the said amount of the expenditure while computing its taxable income. Accordingly, now the applicant claimed deduction of Rs. 3788 6501/– only being its share of expenses out of total expenditure of Rs. 100336783/– incurred in relation to the above block allocated by the joint venture and accepted by the applicant. The facts related to the above claim were stated before the Ld. Dispute Resolution Panel and are part of the record. By virtue of this ground the applicant is raising a legal claim which does not require any fresh investigation into the facts and omission to raise the aforesaid ground of appeal was neither willful nor intentional. Therefore relying on the decision of the Hon‘ble Supreme Court in case of National Thermal Power Co. Ltd vs. CIT [229 ITR 383](SC), The Ld. authorized representative pressed into operation, rule 11 of the Income Tax (Appellant Tribunal) Rules, 1963. It was further submitted that above expenditure has been claimed by the Assessee in assessment year 2011 – 12, in which it was disallowed in the draft assessment order passed by the Ld. Assessing Officer. The matter is pending before the Ld. Dispute Resolution Panel. He further submitted that the aforesaid grounds of appeal should be admitted therefore.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 15. The Ld. Departmental Representative vehemently objected to the raising of the additional ground of appeal and submitted that these facts are already available before the Assessing Officer as well as the Ld. Dispute Resolution Panel, but it was not raised at that particular time. It was further submitted that whether the share of the Assessee is Rs. 692213884/– on account of production sharing well related expenses or not is also required to be investigated and therefore it cannot be stated that no further facts are required to be adduced. It was further submitted that when the Assessee itself has not accepted the above expenditure, how its claim of such expenditure can be allowed as the expenditure have not been incurred by the Assessee and are not pertaining to the business of the Assessee for the year. In view of this, he submitted that this additional ground of appeal should not be admitted at all. 16. We have carefully considered the rival contention and perused the ground raised by the Assessee. As the ground raised by the Assessee is a claim bring with respect to the claim of deduction of certain expenditure pertaining to the share of the applicant. As the Assessee has not accepted its share of the expenditure therefore it has not claimed the deduction of the said amount of Rs. 692213884/– in its return of income. It is an accepted fact that Assessee has only claimed deduction of Rs. 37886501/– out of the total expenditure of Rs. 100336783/–. There is no dispute about the amount of claim made by the Assessee and the total expenditure incurred for the production- sharing contract. Merely because the Assessee has not

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 accepted the expenditure with respect to various parties involved in the production sharing contract, it cannot be said that these expenditure cannot be allowed to the Assessee, if it satisfies the basic condition that it is incurred wholly and exclusively for the purpose of the business and it falls under the provisions of section 42 as well as provisions of section 28 to section 44 of the Income Tax Act. Undeniably, ground is also legal in nature, which can be raised at any time during the course of pendency of appeal. The Hon‘ble Supreme Court in case of National Thermal Power Co. Ltd versus CIT [ 229 ITR 383] has held that :- ―The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj) [FB]). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. However, where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an Assessee. ―

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 In view of the above decision of the Hon‘ble Supreme Court of India, we admit the additional ground of appeal of the Assessee.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 maintenance of accounts and remittances, inventory management, evaluation or development of prospective customers or vendor , and public relations services For benchmarking the above transaction, Assessee used Transactional Net Margin Method [ TNMM] as most appropriate method [MAM] and used the profit level indicator [PLI] of net operating profit margin to operating expenses. According to the Ld. Transfer Pricing Officer the Assessee selected the comparables, which are functionally different from the Assessee company. The Assessee has mostly chosen companies engaged in the business of arranging tours and travels, facility management etc. Some of the comparable selected by the Assessee were engaged in manufacturing of steel drums, trading of lubricant oils, company‘s working on government grants and one of the comparable did not have the annual report available with the Assessee. In view of this, the Ld. Transfer Pricing Officer rejected 16 comparables selected by the Assessee. Thereafter applying the relevant filters the Ld. Transfer Pricing Officer selected 17 comparables and applied the profit level indicator of operating profit to operating cost and average PLI of the comparable was determined at 24.64 percentage and thereafter computed the arm‘s length price of services at Rs. 79064042/– compared to the actual value of the transactions of Rs. 71025995/– computed the adjustment under section 92CA of the Income Tax Act of Rs. 8018048/– . Assessee objected to the comparables before the Ld. Dispute Resolution Panel, however, the contention of the Assessee was

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 rejected holding that the Ld. Transfer Pricing Officer has considered them as functionally comparable by giving detailed reasons, which are valid, and the functional differences pointed out by the Assessee are not sufficient to reject those comparables. Therefore, the Assessee is in appeal before us on this ground. 18. the Ld. authorized representative contested 10 comparables before us and submitted with respect to each of them as under:-

S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) 1. Apitco Ltd.  Broad classification - High- Refer end technical and schedule engineering services. 11 of  Functionally dissimilar – Annual The company is engaged Accounts in business of cluster (refer development, micro page 19 enterprises development, of PB) asset reconstruction & management services, environment management and other project related services which are not similar to services provided by the assesse.  Abnormal Profits – The Company has earned a high profit margin of 39.77% during the FY 2009-10.  Reliance in this regard is placed on the decision of Bangalore ITAT in case of Cisco Systems (India) (P.)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) Ltd vs. DCIT, Bangalore 66SOT82 2. Global  Broad classification - High- Refer Procureme point 2 of end technical and nt Directors engineering services. Consultants Report Ltd.  Functionally dissimilar – (refer The Company is engaged page 32, in business of shipping 30 of PB) logistics, payment and accounting, know-how transfer (training) and bid support services which are not similar to services provided by the Assessee.  Company also renders financial advisory services  Abnormal & Volatile Margins – The Company has earned a high profit margin of 36.39% during the FY 2009-10.  The company is a Government company as more than 25% subscribed share capital is held by the Export Import Bank Of India, a public financial institution.  Reliance in this regard is made to the recent decision of Mumbai Bench of Tribunal in the case of Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013), wherein, the Hon‘ble Tribunal directed to exclude

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) company owned by Government of India as a valid comparable to the taxpayer. 3. IBI  Broad classification - High Refer Chematur end technical and notes to Ltd engineering services accounts & P/L of  Functionally dissimilar – the The company generates annual income from provision of report engineering services like (refer designing and drawing, 3D page modeling, piping and 104,109, instrumentation diagram, 110 of PB) smart plant instrumentation, process simulation, inspection services and erection supervision services, which are not similar to services provided by the Assessee. The company generates income from provision of engineering services and software services.  Abnormal Profits – The company has earned a high profit margin of 52.66% during the FY 2009-10.  Existence of significant R&D Cost - IB1 Chematur's R&D cost to sales ratio for the FY 2009-10 is 5.41%.  Reliance in this regard is placed on the decision of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon‘ble ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. 4. Quippo  Broad classification - High- Refer Valuers end technical and page 1 & engineering services. 2 of the Directors  Functional grounds – The Report company is engaged in (AR of asset management FY 10- services which includes 11) asset disposal services of (refer professional valuation, page appraisals and auctioning 118, of assets and lender 119 of service consultancy, which PB) are not similar to services provided by the Assessee.  The company‘s significant achievements during the year were of sale of earthmoving equipment by innovative disposal methodologies and signing of long term contracts with financial institutions for valuation services.  The future outlook and key challenges noted down during the year were also similar to the above- mentioned asset management services.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report)  Reliance in this regard is placed on the decision of Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon‘ble ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. 5. T S R  Broad Refer classification - Darashaw Schedule Share Registry Services Ltd. L of and other support Annual services. Report  As per annual report of the (refer company, it is primarily page 179 engaged in provision of of PB share registry and related financial services and therefore, cannot be compared with the Assessee, a captive market support service provider  Abnormal Profits – The company has earned a high profit margin of 41.86% during the FY 2009-10.  Reliance in this regard is placed on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ITA 5766/Del/2011  Broad 6. Dalkia classification - Energy High-end technical and

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) Services engineering services. Ltd.  Functionally dissimilar - The company is involved in providing consulting services in the area of energy management and developing energy efficiency and renewable energy projects. These services are not similar to the services provided by the Assessee.  Annual report of the company not available 7. HSCC  Functionally dissimilar – Refer (India) Annexure The company provides services in nature of 1 to Directors health care facility design, Report of logistics and installations, AR conceptual studies and management consultancy, (refer procurement and page purchase of medical 204-206 equipment and of PB) appliances, which are not similar to support services provided by the Assessee.  Non-availability of segmental information – Services provided by HSCCIL in terms of procurement and purchase are akin to the services provided by the Assessee. But due to non- availability of segmental information such services could not be

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) benchmarked. 8. Kirloskar  Broad classification - High Consultants end technical and Ltd. engineering services  Functionally comparable – The company is engaged in services of architecture & structural engineering, environmental & green management, market research & strategic intelligence, power & water engineering and utility engineering & project management, which are not similar to the support services provided by the Assessee.  Non availability of segmental Information – Few services provided by the company are akin to the services provided by the Assessee. But due to non-availability of segmental information such services could not be benchmarked.  Broad classification - High 9. Mahindra Refer Consulting page 114 end technical and Engineers of AR engineering services Limited (refer  Functional grounds - The page 305 company provides of PB) consultancy services particularly in infrastructure sector like sector development, conception & feasibility,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 S. No. Company Arguments of the Assessee Referenc Name that this comparables is not e to PB-II a good comparable (Annual report) project design & engineering and project management, which are not similar to services provided by the Assessee.  Abnormally 10. Asian Refer high profit Business notes to company – 58.11% Exhibition accounts &Conferenc  Extraordinary in AR events – es Ltd. During the year the (refer company has acquired a page 348 wholly owned subsidiary of PB) namely Oil Asia Publications Pvt. Ltd.  Reliance in this regard is placed on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ITA 5766/Del/2011

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 the Ld. Dispute Resolution Panel. He submitted that Assessee had cost +12% margin on services provided and Assessee had taken 19 comparables, which had an average net margin of 8.02 percentages. He submitted that out of the total comparable selected by the Assessee, TPO has accepted 3 comparables and further added 14 comparables. Out of those comparables the Assessee has also accepted 3 comparables selected by the Ld. Transfer Pricing Officer and therefore there is no dispute about the 6 comparables for the comparability analysis. He submitted that comparables selected by the Assessee have been rejected by the Ld. Transfer Pricing Officer which has been further approved by the Ld. Dispute Resolution Panel and there is no argument by the Assessee that those comparables are required to be selected for the comparability analysis. He therefore submitted that the comparables rejected by the Ld. Transfer Pricing Officer as well as the Ld. Dispute Resolution Panel are no more arguable. With respect to the comparable selected by the Ld. Transfer Pricing Officer, He submitted that only 6 comparables are contested by the Assessee before the Ld. Dispute Resolution Panel, therefore, only 6 comparable stated and considered by the Ld. Dispute Resolution Panel in Para No. 5.2 of the direction of the Ld. Dispute Resolution Panel. Hence not 10 but only 6 comparables are required to be considered. He further submitted that the order of the Ld. Assessing Officer/Transfer Pricing Officer as well as the order of the Ld. Dispute Resolution Panel is not erroneous and therefore the comparables are

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 correctly selected for the comparability analysis of the services. With respect to the margins of the comparables it was submitted by him that such correction is not pointed out by the Assessee as to how the error has crept in to in the computation by the Ld. Transfer Pricing Officer. He submitted that had it been pointed out to the Ld. Transfer Pricing Officer and if the objection of the Assessee is correct, same would have been recomputed by the Ld. Transfer Pricing Officer. However, he submitted that revenue does not have an objection if the computation, if erroneous, may be rectified by the Ld. Transfer Pricing Officer. 21. We have carefully considered the rival contentions and stated the facts relating to the functions performed by the Assessee. There is no dispute about the functions performed, risk assumed and assets employed to generate the revenue of support services. With reference to the error in the computation of margin of the comparable companies, in view of the argument of the both the parties and no objection from the side of the Ld. Departmental Representative, we direct the Ld. Transfer Pricing Officer to verify the computation of the margins of the comparable and also give an opportunity to the Assessee to point out, if there is any error, and recompute the PLI of the comparables. 22. Now we consider each of the comparables, considering their functions, assets, and risk assumed by them with respect to the similar functions, assets employed and risk assumed by Assessee.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 i) Aptico Limited This comparable was objected by the Assessee before the Ld Dispute Resolution Panel, which is apparent from Annexure 10 of objections filed before it titled as erroneous selection of comparables by the Ld. Transfer Pricing Officer. In view of this we do not agree with the finding of the Ld. Dispute Resolution Panel that this comparable is not contested by the Assessee as well as also reject argument of the Ld. Departmental Representative. We have perused the balance sheet of the comparable company, which is placed before us at page No. 1 to 28 of the of paper book titled as ‗financials of comparable companies‘ and on perusal of page No. 5 Para No. 3 of the director‘s report for the year ended on 31st of March 2010 of the company, We noted that the company has recorded total revenue of Rs. 1609.11 lakhs contributed by all major business segments: cluster development Rs. 479.87 lakhs, project and related services Rs. 326.01 lakhs, skill development Rs. 275.75 Lacs, tourism and research studies Rs. 148.36 Lacs, Entrepreneurship development and training Rs. 1 0 8.73 Lacs, asset reconstruction and management services Rs. 55.03 Lacs, micro-enterprise development Rs. 52.83 Lacs, energy- related services Rs. 48.35 Lacs, and environment management Rs. 39.98 lakhs, emerging areas Rs. 6.84 and other income of Rs. 67.36 Lacs. These revenue is depicted in schedule 11 of the profit and loss account. Looking at the assets employed by the company, it has computer assets of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Rs. 43.70 Lacs as per schedule 3 of the annual accounts without any intangible assets. On looking to the functional of the company, it is apparent that the company is engaged mainly in skill development, project related services such as infrastructure planning and development, cluster development and asset reconstruction and management services mainly. The Ld. Transfer Pricing Officer has held that this company is providing mainly support services for the development of tourism and industry and therefore the services being provided by this company are in the nature of support services and hence it is a good comparable. According to us, the above comparable company is engaged in skilled allotment, asset reconstruction and management services and it has a very small segment of tourism and research studies. Further the nature of the cluster development activities in which the company is mainly engaged are not at all comparable with the functions performed by the Assessee. Further, the company‘s major operating expenses are also for skill development and cluster development. However, we do not agree with the contention of the Ld. Authorized Representative that this company has abnormal profit and therefore should be excluded. On perusal of the balance sheet and the profit and loss account of the company, We could not find that there is any abnormality in the business model of the company which could result in to an abnormal profit which is not comparable. No abnormality was also brought to our notice, we have also

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 perused the profit and loss account and it shows that on the turnover of Rs. 114571147/- for the year ended on 31st of March 2009, comparable company has earned the profit of Rs. 34180513/– and for the current year, on a turnover of Rs. 160911080/– it has earned profit of Rs. 50550951/–. However, on the functional dissimilarity, we agree with the arguments of the Ld. authorized representative. In view of this we are of the opinion that this comparable is functionally dissimilar to the functions performed by the Assessee and hence, we direct the Ld. Transfer Pricing Officer/AO to reject this comparable for comparability analysis. ii) Global procurement consultants Ltd, Ld. Transfer Pricing Officer has included this comparable and according to him this company acts as the clients‘ representative in taking on the total responsibility of procurement by providing a comprehensive range of procurement related advisory services and allied activities for projects in India and abroad. The main functions of the company are preparing and reviewing technical specifications, estimation of costs, selection of vendors, inspection and expediting, quality control and time management. The Ld. authorized representative has contested that this Company is engaged in business of shipping logistics, payment and accounting, know-how transfer (training) and bid support services which are not similar to services provided by the Assessee. It also renders financial advisory services. It was further contested that it

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 has abnormal and volatile margins. An interesting reason was also given that the company is a government company and more than 25% subscribed capital is held by one of the banks. Reliance in this regard is made to the recent decision of Mumbai Bench of Tribunal in the case of Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013), wherein, the Hon‘ble Tribunal directed to exclude company owned by Government of India as a valid comparable to the taxpayer. The Assessee has submitted the balance sheet of the company which is placed at page No. 29 to 73 of the paper book. According to the revenue model of the company, it is providing services of procurement advisory services and back-office support to the regional procurement officers of the World Bank reviewing their technical specification of the goods planned to be procured. The major earning of the company is from consultancy services in these areas only. On perusing the functional profile of this comparable company, We are of the view that functions performed by this comparable company are comparable with the functions performed by the Assessee. Hence, we reject the argument of the Ld. Authorised Representative of the functional dissimilarity of this comparable. Furthermore, regarding the argument of the Assessee that it is a government company, therefore it should be excluded as a comparable. Decision of Coordinate bench cited before us in Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013) is considered where the government companies are excluded as a

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 comparable not for the reasons only that they are government owned companies but because of their functional dissimilarity. We reject the argument of the Ld. Authorised Representative. Firstly for the reason that it is not a government company as only the specified percentage of the shareholding is held by EXIM bank and therefore only the provisions with respect to the appointment of the auditors are regulated and secondly it does not have any impact on the business model of the company. In any way the government companies, which are mostly public sector undertakings also operate with similar functions, risks and assets employed, therefore it cannot be said that merely a company is a government company; it should be excluded from comparability analysis. Many times Government companies are better business propositions/ models then private entrepreneurs, and are good comparables and such instances of government companies are innumerable. In view of this we are in agreement with the observation of the Ld. Transfer Pricing Officer as well as the Ld. Dispute Resolution Panel that this comparable is a good comparable for the comparability analysis in the case of the company. iii) IBI Chemature Limited This comparable has been selected by the Ld. Transfer Pricing Officer which is a joint venture company promoted in association with Swedish company to render basic engineering, detailed engineering and consultancy services in the field of petrochemicals, fine chemicals and chemicals,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 cosmetics, pharmaceuticals, industrial explosive and west acid recovery. The Ld. Authorised Representative submitted that The company generates income from provision of engineering services like designing and drawing, 3D modeling, piping and instrumentation diagram, smart plant instrumentation, process simulation, inspection services and erection supervision services, which are not similar to services provided by the Assessee. The company generates income from provision of engineering services and software services. It is further submitted that company has earned a high profit margin of 52.66% during the FY 2009-10. It was further stated that there is an existence of significant research and development cost to sales ratio for the FY 2009-10 is 5.41%. He further placed reliance on the decision of Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon‘ble ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. We have carefully perused the annual accounts of the company, which are placed at page No. 93 -117 of the paper book. At page No. 94 of the paper book where review of performance of company is noted, it shows that company has employed highly trained technical staff and is also marketing these capabilities in the domestic as well as the overseas market. It further uses SMART plant foundation, which is software for bringing the technologies specific to several industries. It also has the new division in the form of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 research and technology Centre, which started functioning during the year. Looking to the assets employed by the company, It uses the computer software in the name of smart plant suite. Further during the year. It has incurred research and development expenditure of Rs. 11699720/– which was not there in the earlier year. Further, the company is also planning to use Smart plant foundation for integration of other smart plant tools. In view of this we agree with the argument of the Ld. Authorised Representative that this company is engaged in the business of high-end engineering services which is based and supported by the use of a specific technologies and huge research and development expenditure along with an R&D centre. In view of this, the functions performed by this comparable company are not comparable with the Assessee‘s functions. For this reason only, we direct the Ld. Transfer Pricing Officer/AO, rejecting this comparable, to exclude the same for the comparability analysis. iv) Quippo Valuers This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in the business of advisory of sale of construction and earthmoving equipment on auctions and also by means of innovative disposal methodologies, and execution of live auctions for financial institution in the eastern part of the country, provision of valuation services to a number of clients in respect of assets including construction equipment, barges and other industrial

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 assets. According to the Ld. Transfer Pricing Officer, this company is a pioneering the concept of E auctions helping create a market for sale and disposal of the assets for the customers vis-a-vis‘ infrastructure equipment rental, contractors, banks and NBFCs. It is also engaged in the business of appraiser and evaluator of construction equipments and other machineries. It is also engaged in the business of managing the surplus assets of any industry through customized disposal services. In nutshell, it provides an asset management services. The Ld. Authorised Representative objected to the inclusion of this comparable for the reason that The company is engaged in asset an management service which includes asset disposal services of professional valuation, appraisals and auctioning of assets and lender service consultancy, which are not similar to services provided by the Assessee. The company‘s significant achievements during the year were sale of earthmoving equipment by innovative disposal methodologies and signing of long term contracts with financial institutions for valuation services. The future outlook and key challenges noted down during the year were also similar to the above mentioned asset management services. Reliance in this regard is placed on the decision of Delhi ITAT in case of iQor India Services Private Ltd. Vs ITO where in the Hon‘ble ITAT held that the high end services involving special knowledge cannot be compared with the low end ITES services provided by the Assessee. We have

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 carefully analyzed the balance sheet of the company which is placed at the page number 118 – 154 of the paper book. According to page No. 149 of the balance sheet of the company at Para No. 80, it is stated that the company deals in rendering consultancy and professional services in India, which is the only business segment and only geographical segment of the company. It is pertinent to note here that the company is not dealing in purchase and sale of Earth moving or other equipment or machineries, but it only advises for the innovative methodologies to be adopted for procurement and sale of these goods. It is not proper to say that it provides any high-end services except innovation in procurements only. The functions performed by the company are not at all different from the functions performed by the comparable as both are rendering support services in procurement and sales. Hence, we are of the opinion that Ld. TPO/DRP is correct in including the above company as comparable for comparability analysis. v) TS R Darshwa Limited This comparable has been selected by the Ld. Transfer Pricing Officer which is engaged in 3 segments such as registrar and transfer agent activity, records management activity and pay roll and trust fund activity. According to the Ld. Transfer Pricing Officer and Ld. Dispute Resolution Panel, this is a good comparable. However, the Ld. Authorised Representative submitted that this company is engaged in Share Registry Services and other support

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 services. Further as per annual report of the company, it is primarily engaged in provision of share registry and related financial services and therefore, cannot be compared with the Assessee, a captive market support service provider. It is also contended that company has earned a high profit margin of 41.86% during the FY 2009-10. The Ld. Authorised Representative placed reliance in this regard on the decision of Delhi ITAT in case of Microsoft Corporation India (P.) Ltd vs. DCIT, ITA 5766/Del/2011. We have carefully considered the rival contention and perused the balance sheet of the company, which is placed at page No. 155 – 196 of the paper book, which says that it is mainly engaged in the business of registrar and share transfer agent. At page No. 178 of the paper book the segment reporting shows that out of the total turnover of 20.07 lakhs, Rs. 11.94 Lacs of the turnover goes to the registry and share transfer agent business. The functions to be performed with respect to the registry and share transfer agent are altogether dissimilar to the functions to be performed by a procurement advisor like Assessee. It is also not the case of the revenue that only some of the segment of the comparable is required to be considered, but the Ld. Transfer Pricing Officer has considered the whole of the company as functionally comparable to the Assessee with which we disagree. Therefore, we direct the Ld. Transfer Pricing Officer/AO to exclude this comparable for being functionally dissimilar. vi) HCCA Business Services Limited

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 This comparable was selected by the Ld. Transfer Pricing Officer as the main functions of the company are conceptual studies, healthcare facilities design, project management, procurement and supply, logistics and installations commissioning and skill enhancement through training and retraining. The Assessee objected to the above comparable before the Ld. Dispute Resolution Panel. Before us It is also contention that this company is functionally not similar. The annual report of the companies provided at page No. 74 – 92 of the paper book which is carefully perused by us. On the analysis of the Fixed assets schedule of the company, it is apparent that the Assessee is possessing intangible rights in the form of business and commercial rights of Rs. 37533159/–. With respect to the functions performed there is no much difference in the functional profile of the company compared to the comparable‘s. However, for the comparability analysis the Functions performed, assets employed and risk assumed are to be compared, if there is unadjustable dissimilarity between them, it cannot be taken as a fit comparable. However, if the assets employed has significant role in earnings of margins of the comparable this comparable company cannot be accepted as comparable. However before us no such facts are demonstrated either by revenue or by Assessee and therefore we set aside this comparable to the file of the ld TPO for examining it from this perspective and then decide

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 the issues. In the result, we direct the Ld. Transfer Pricing Officer to reconsider this comparable. vii) Dalkia Energy services Limited This comparable selected by the Ld. Transfer Pricing Officer is engaged in the business of service in the area of energy manner and developing energy efficiency and energy projects with focus on reducing the energy cost and deriving of consequent environment benefiting the various sectors of economy in India and abroad. The comparable company adopts a multiproject approach when the individual customer defines the scope and structure of the services beginning with relatively simple projects, depending on the comfort level of the client, the scope and complexity of the service is expanded to multitier product package. The Ld. Authorised Representative objected to the inclusion of the above company as comparable for the simple reason that it did not have the financial available in the public domain. Neither the Ld. Transfer Pricing Officer nor the Ld. DRP has considered this aspect that when the financial of the comparable is not available how the assets employed by that company vis-a- vis‘s risk assumed and functions performed can be compared. Therefore, in absence of any financial information available of this company, either in the order of the Ld. Transfer Pricing Officer or available with the Assessee, we reject this comparable at the threshold itself.

viii) Kirloskar Consultants Limited

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 This comparable is selected by the Ld. Transfer Pricing Officer which is engaged in the area of engineering consultancy, project management services and architectural consultancy. The comparable company specializes in conceptualizing, designing and executing architectural, civil, structural, electrical, mechanical fire and life safety, water supply, drainage, storm water management, networking, surveillance, telephone and building management systems required for any large integrated project. According to the Ld. Authorised Representative, this company is engaged in the high-end service provider segment and it was also stated that he does not have the segmental information pertaining to the segment in which the Assessee operates, and therefore, this cannot be accepted as a comparable. We have carefully considered the rival contention and also perused the annual report of the company available in paper book at page No. 246 – 304. No information is available with respect to the provision of the services of consultancy, its nature, and its volume. It is simply mentioned that this company is engaged in the business of consultancy services at the consultancy revenue shown in the profit and loss account as a single item. There are no specific bifurcations given of various services provided by the Assessee as well as the nature of such services or the segmental information. Further, it is also noted that during the year the Assessee has entered into transactions for receipt of the consultancy fee from the related parties to the tune of Rs. 89.59 lakhs out

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 of the total consultancy fee receipt of Rs. 586 Lacs. Though the related party filter has passed but during the year itself the Assessee has entered into all these transactions, which were not there in the past year. However, in view of the absence of complete information about the business profile of the company as well as the nature of the services rendered by the company, this comparable cannot be accepted. Hence, we reject this comparable due to inadequate information available before us. ix) Mahindra Consulting engineers Limited This company is selected by the Ld. Transfer Pricing Officer and the functional profile of the company is stated to be providing consultancy services in the areas of special economic zones, water supply and 7H, solid waste management, urban infrastructure, agree and for cultural infrastructure, social infrastructure, ports and harbor off shore etc. The Ld. Authorised Representative has stated that the functional profile of the company is not comparable. We have carefully perused annual report of the company submitted by the Assessee at page No. 305 – 323 of the paper book wherein it is clearly demonstrated that the Assessee is engaging the consulting services and it is only a reportable segment of consultancy services. Looking at the functional profile of the Assessee as well as the comparable company, it is apparent that both are engaged in the consultancy services area. Merely because they are providing consultancy in a different field, it does not make

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 their functional profile dissimilar, unless there are vast differences in the functions performed. In view of this we do not find any reason to exclude this comparable and therefore we held that the Ld. TPO is correctly included this company for comparability analysis. x) Asian Business Exhibition Conferences Limited This comparable is selected by the Ld. Transfer Pricing Officer, however, in the order under section 92CA passed by the Ld. Transfer Pricing Officer, we could not find whether the profile of this company is discussed at all. The Ld. Authorised Representative has objected to the comparable for the reasons of high profit and also extraordinary events taking place during the year. As mentioned by the Ld. Dispute Resolution Panel in Para No. 5.1 of its order this comparable is selected by the Assessee himself which has been accepted by the Ld. Transfer Pricing Officer. Therefore, the functional profile of the company is acceptable to both the parties at the initial stage itself. Before us, the Ld. Authorised Representative also did not put any evidence to show that the company is functionally dissimilar. The only grievance of the Ld. Authorised Representative is that the comparable company has entered into an extraordinary event and therefore it becomes not comparable. It is the contention of the Assessee that during the year the company has acquired shares of oil Asia Publications Private limited and therefore this is the extraordinary event that makes it not comparable. We have carefully considered the contention

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 of the Ld. authorized representative and disagree with him, or the reason that it is purely an investment decision and it does not have any impact on the function performed by the Assessee, assets employed for the revenue earned and risk assumed. The action of putting investment into another company did not have any impact on the profitability of the company, no such impact was shown, and therefore we do not find any reason to exclude this comparable. This is precisely so because of the reason that this comparable was accepted by the Assessee in its transfer pricing study report, accepted by the Ld. Transfer Pricing Officer as having functional similarity, not contested by the Assessee before the Dispute Resolution Panel in terms of its objection in Annexure 10. Therefore, we reject the contention of the Assessee for exclusion of the above comparable. Accordingly, we dispose of ground No. 1 of the appeal of the Assessee as directed above with respect to comparables and to take corrected margins in case of any error.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 availability of funds in the global financial markets which indicated towards a possible increase in the interest rates in the near future and prevailing uncertainty, the proportion of borrowers borrowing funds at fixed rate of interest also increased. In order to fund the operations, the appellant, on October 22, 2009, availed additional loan amounting to USD 300 million and the interest rate was changed to a fixed rate of 6.18% (being Libor USD Swap rate +350 bps) for succeeding five years. The said loan from the AE was an unsecured loan, since the financial position of the appellant did not permit obtaining secured loan on favourable rate of interest from unrelated party, financial institutions, or banker. In the transfer pricing documentation the appellant benchmarked the international transaction of payment of interest applying CUP method on the basis of quotations provided by Bank of America, HSBC and Citigroup. The ld. TPO per se did not dispute benchmarking analysis applying CUP method nor comparables placed on record in support of fixed rate of interest paid to the AE. He however, held that the appellant did not provide any documentary evidence or convincing argument for shift in the interest rates from floating rate of interest to fixed rate of interest mechanism and no independent party would have agreed to such an increase. Accordingly, he determined the arm‘s length rate of interest for the period October 22, 2009 to March 31, 2010 at 2.33% being the rate equivalent to the floating rate of interest for the period April 1, 2009 to March 31, 2010. Ld. TPO, therefore, made an

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 adjustment of Rs 42,72,64,082 on account of allegedly excess payment of interest to associated enterprise. The Assessee objected it before the Ld. Dispute Resolution Panel who in turn rejected the arguments of the Assessee and upheld the adjustment proposed by the Ld. Transfer Pricing Officer. Therefore it culminated into addition in the final order passed by the Ld. Assessing Officer which is challenged before us vide ground No. 2 of this appeal. 24. The Ld. Authorised Representative submitted that appellant is engaged in the business of prospecting for, or extracting of production of mineral oil, which is entered into a joint venture agreement with other parties, which is approved by the government of India. According to that agreement, the appellant was required to contribute its share of the funds for the planned activities under the work programme as these activities of exploration and extraction involved huge investments and have a long gestation period. He submitted that appellant had taken an unsecured loan in foreign currency from its associated enterprise for a period of 15 years at the rate of interest of LIBOR +2% per annum payable annually. He says that as a result of sub-prime crisis in the year 2008 there was lack of availability of funds in the global financial markets which gave indication about a possible increase in the interest rates in the near future, therefore, there was an increase in the borrowers who were borrowing funds at fixed rate of interest. For funding the operations of the company Assessee availed further loan and the interest rate was changed from floating

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 rate of interest to a fixed rate of interest of 6.18% for 5 years. This funding from associated enterprise was unsecured because the financial position of the appellant did not permit obtaining secured loan on favourable rate of interest from unrelated parties. In view of this facts., He submitted that that the action of the Ld. Transfer Pricing Officer as well as Ld. Dispute Resolution Panel are inconsistent in view of the surrounding business circumstances as well as the transfer pricing principles for following reasons:- (i) Commercial rationale for shifting from floating to fixed rate of interest It is submitted that during the year 2008-09 due to additional borrowings and higher interest costs, the interest coverage position of the appellant along with other key financial ratios deteriorated significantly which led to deterioration in the credit profile of the appellant. Under such circumstances, any independent lender would have either revised the existing interest rates or directed the appellant to repay the borrowed funds. However, despite the deteriorating financial position of the appellant, the associated enterprise agreed to further provide a borrowing amounting to USD 300 million and the interest rate was revised to protect the appellant from any adverse movement in the Libor. He submitted that during financial year 2009-10 the global financial markets were suffering from sub-prime crisis which led to significant volatility and uncertainty in the global liquidity and interest rate scenario. Due to the crisis, there was scarcity of funds in the global

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 financial system and it was expected that the interest rate would rise in the near future. The fact that there was scarcity of funds in the global system and independent borrowers preferred to avail funds at fixed rate of interest is evident from the fact that as per Bloomberg, a globally renowned financial database, during the post crisis period there was significant increase in the proportion of loan transactions at fixed rate of interest as compared to pre crisis period. As per the said database, during the pre-crisis period (i.e. September 1, 2007 till August 31, 2008) there were approximately 12,000 reported loan deals. Out of these, approximately 6,000 deals were having a fixed interest rate structure, i.e. approximately 50% of total deals were having fixed interest rate structure during the pre-crisis period. The relevant screen shot from the database is as under:

Screenshot 1: Composition of loan transaction structure during the pre-crisis period (i.e. from September 1, 2007 till August 31, 2008)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

As opposed to the pre-crisis period, total number of reported deals which were active during the crisis period (i.e. September 1, 2008 till August 31, 2009) was approximately 10,000. Therefore, the total volume of loan issue transactions decreased considerably indicating towards scarcity of funds in the global financial markets. Further, out of the total loan transactions, 6,534 transactions were having fixed interest rate structure i.e. during the post crisis period more than 65% of the total transactions were executed with fixed rate of interest as compared to 50% during the pre-crisis period. The relevant screen shot from the database is as under: Screenshot 2: Composition of loan transaction structure during the crisis period (i.e. from September 1, 2008 till August 31, 2009)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

In view of the aforesaid, he submitted that in the post crisis period, in order to avoid uncertainty associated with floating interest rates, even independent borrowers preferred to borrow funds at fixed rate of interest. In order to obtain certainty with respect to future interest obligations, the appellant decided to convert the floating rate loan into fixed rate loan. It would be appreciated that by shifting to fixed interest rate structure, the risk associated with uncertainty/fluctuations in the interest rate movements was shifted to the associated enterprise and the appellant became immune from any adverse movement in the interest rates. It would be appreciated that the decision of the appellant to shift from floating to fixed rate of interest was

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 based on commercial considerations and to protect the business operations of the appellant from any adverse movements in floating interest rates. He submitted, that the Assessee is free to conduct business in the manner that Assessee deems fit and the commercial or business expediency of incurring any expenditure is to be seen from the Assessee‘s point of view. Attention in this regard is invited to the following decisions: CIT vs. Malayalam Plantations Limited: 53 ITR 140 i) (SC) CIT v. Walchand& Co. etc. (1967) 65 ITR 381 ii) J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) iii) CIT v. Birla Cotton Spg. And Wvg. Mills Ltd.: 82 ITR iv) 166 (SC) Madhav Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) v) S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) vi) CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) vii) CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann viii) 268 (Del) CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 ix) (P&H) (FB) CIT vs. EKL Appliances Ltd. [2012] 345 ITR 241(Delhi) x) CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del) xi) CIT vs Reebok India Co Ltd (ITA No 213/2014) xii)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Atotech India Limited vs ACIT (ITA No. 104/Del/2012) xiii) Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No xiv) 8753/Mum/2010) LG Polymers India Pvt Ltd vs Addl. CIT (ITA No xv) 524/Vizag/2010)

Reliance is also placed on the decision of the Hon‘ble Supreme Court in the case of CIT Vs. Dhanrajgirji Raja Narasingirji : 91 ITR 544, wherein the Apex Court ruled as under: “On the finding arrived at by the Tribunal, it is clear that the Assessee had incurred the expenditure in question for the purpose of his business. The learned counsel for the revenue urged that there was no necessity for the Assessee to incur that expenditure, as the prosecution was launched by the Government. It was not urged, it could not have been urged, that the expenditure was not bona fide incurred. The Tribunal has come to the conclusion that the expenditure in question has been incurred. The contention that, as the Government was conducting the prosecution, there was no necessity for the Assessee to engage his own lawyers is not substantial. It was for the Assessee to decide how best to protect his own properly conducted.”

A similar view was upheld by the Bombay High Court in the case of CIT Vs. National Rayon Commercial Co. Ltd. : 193 ITR

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 744. Relevant extracts from the judgment are reproduced as under:

“As the Tribunal has pointed out, it is for a businessman concerned to run his business as he likes and whether to employ a broker or not so long as the genuineness of the employment of the broker is not in question.”

It is further submitted that the TPO has arbitrarily re-structured the transaction of fixed interest rate borrowing to floating interest rate borrowing. He submitted that such re- characterization/re-structuring of the transactions is not permissible under the transfer pricing legislation. Reliance in this regard is placed on the decision of the Hon‘ble Delhi High Court in the case of CIT vs EKL Appliances (ITA No 1068/2011 & 1070/2011) wherein the Hon‘ble High Court held that the revenue authorities cannot restructure/re-characterize the legitimate transaction. The Hon‘ble High Court held as under:

“17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner.” Recently the Hon‘ble Delhi High Court in case of Sony Ericsson Mobile India Pvt Ltd vs. CIT (ITA 16/2014) relying upon the decision of EKL Appliances (supra) held as under:

“147. Tax authorities examine a related and associated parties‗ transaction as actually undertaken and structured by the parties. Normally, tax authorities cannot disregard the actual transaction or substitute the same for another transaction as per their perception. Restructuring of legitimate business transaction would be an arbitrary exercise. This legal position stands affirmed in EKL Appliances Ltd. (supra). The decision accepts two

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 exceptions to the said rule. The first being where the economic substance of the transaction differs from its form. In such cases, the tax authorities may disregard the parties„ characterization of the transaction and re-characterize the same in accordance with its substance. The Tribunal has not invoked the said exception, but the second exception, i.e. when the form and substance of the transaction are the same, but the arrangements made in relation to the transaction, when viewed in their totality, differ from those which would have been adopted by the independent enterprise behaving in a commercially rational manner. The second exception also mandates that actual structure should practically impede the tax authorities from determining an appropriate transfer price. The majority judgment does not record the second condition and holds that in their considered opinion, the second exception governs the instant situation as per which, the form and substance of the transaction were the same but the arrangements made in relation to a transaction, when viewed in their totality, differ from those which would have been adopted by an independent enterprise behaving in a commercially rational manner. The aforesaid observations were recorded in the light of the fact in the case of L.G. Electronics (supra). Commenting on the factual matrix of L.G. Electronics case (supra) would be beyond our domain; however, we do not find any factual finding to this effect by the TPO or the Tribunal in any of the present cases.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 However, in L.G. Electronics decision (supra), it is observed that if the AMP expenses and when such expenses are beyond the bright line, the transaction viewed in their totality would differ from one, which would have been adopted by an independent enterprise behaving in a commercially rational manner. No reason or ground for holding or the ratio, is indicated or stated. There is no material or justification to hold that no independent party would incur the AMP expenses beyond the bright line AMP expenses. Free market conditions would indicate and suggest that an independent third party would be willing to incur heavy and substantial AMP expenses, if he presumes this is beneficial, and he is adequately compensated. The compensation or the rate of return would depend upon whether it is a case of long-term or short-term association and market conditions, turnover and ironically international or worldwide brand value of the intangibles by the third party.” Recently, the Hon‘ble Delhi High Court in the case of CIT vs Cotton Naturals India Pvt Ltd (ITA No. 233/2014) under similar circumstances held as under: “17. In our opinion, the reasoning recorded therein suffers from a basic and fundamental fallacy. Transfer pricing determination is not primarily undertaken to re- write the character and nature of the transaction, though this is permissible under two exceptions. Chapter X and Transfer Pricing rules do not permit the Revenue

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 authorities to step into the shoes of the Assessee and decide whether or not a transaction should have been entered. It is for the assessed to take commercial decisions and decide how to conduct and carry on its business. Actual business transactions that are legitimate cannot be restructured. It is not uncommon for manufacturers cum exporters to enter into distribution and marketing agreements with third parties or incorporate subsidiaries in different countries for undertaking marketing and distribution of the products

XXX

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 on distribution and marking function. This is not an unusual but common. Once this is accepted, then we cannot accept the reasoning given by the TPO that the transfer pricing adjustment could restructure the transaction to reflect maximum return that a party could have earned and this would be the yardstick or the benchmark for determining the interest payable by the subsidiary AE. This is not what Chapter X of the Act and Rules mandate and stipulate. The aforesaid provisions neither curtail the commercial freedom, nor do they bar or prohibit a legitimate transaction. They permit transfer pricing adjustment so as to bring to tax what would have been paid for the transaction in the same or similar comparable circumstances by an independent third party. XXX Transfer pricing rules treat the domestic AE and the foreign AE as two separate entities and profit centres, and the test applied is whether the compensation paid for the products and services is at arm„s length, but it does not ignore that the two entities have a business and a commercial relationship. The terms and conditions of the commercial business relationship as agreed and undertaken are not to be rewritten or obliterated. XXX 23. This ratio and rationale, when applied to the facts of the present case, would mean that the transfer pricing determination would decide what an independent

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 distributor and marketer, on the same contractual terms and having the same relationship, would have earned/paid as interest on the loan in question. What an independent party would have paid under the same or identical circumstances would be the arm„s length price or rate of interest. What the assessed would have earned in case he would have entered into or gone ahead with a different transaction, say with a party in India, is not the criteria. What is permitted and made subject matter of the arm„s length determination is the question of rate of interest and not re-classification or substitution of the transaction. The position would have been different, if the two exceptions carved out in the case of EKL Appliances (supra) were applicable.”

It is further submitted that the Hon‘ble Delhi Bench of the Tribunal in the case of Sony India Pvt Ltd vs DCIT [2008] 114 ITD 448 (Delhi) held that the TPO is not authorized to arbitrarily re-characterize a legitimate transaction. The Hon‘ble Tribunal held as under:

“(i) Under Fiscal Laws, actual transaction, as entered into between the parties, is to be considered. Authorities have no right to re-write the transaction unless it is held that it is sham or bogus or entered into by the parties in bad faith to avoid and evade taxes. That is not the case here and, there is no allegation that transaction had any other

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 purpose then one reflected and shown by the parties in the transaction.” In view of the aforesaid he submitted that the ld. TPO was unjustified in disregarding the commercial rationale behind shifting from floating to fixed rate of interest and arbitrarily re- structuring the transaction of payment of interest on fixed rate of interest to transaction of payment of interest on floating rate of interest.

Re: Without prejudice - Benchmarking of payment of interest applying CUP method

He submitted that in order to establish the international transaction of payment of interest as at arm‘s length, applying CUP method, the appellant had placed the following benchmarks on record: (a) Quotations provided by Independent banks He submitted that in the transfer pricing documentation the appellant benchmarked the international transaction of payment of interest applying CUP method on the basis of quotations provided by Bank of America, HSBC and Citigroup. The details of quotes provided by banks are as under:

S No Particulars Rate of interest(%)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 2. HSBC Libor+189 bps

Arithmetic Mean Libor+246.33 bps

He submitted that the Libor at the time the appellant entered into the loan agreement with the associated enterprise in 2005 was 3.8632%. Accordingly, the effective rate of interest in the comparable companies at 6.33% (3.8632%+2.4633%) of the comparable companies is higher than the effective interest rate of the appellant at 3.8632%, the international transaction of payment of interest is at arm‘s length.

(b) Quotations provided by Barclays Bank It is further submitted that the fixed rate of 6.18% was agreed on the basis of quotation provided by the Barclays Bank wherein the bank provided a rate of Libor +325 to 375 bps for a five year tenure. The fixed rate of 6.18% was equivalent to the Libor + 350 bps and the loan was converted from floating to fixed rate of interest by substituting Libor with 5 year SWAP rates. The SWAP rates represents the rates which is required to be paid for converting/swapping the floating interest rate to fixed rate of interest. The 5 year US swap rate prevailing at the time of conversion was 2.70%. Therefore, the arm‘s length rate of interest can be computed as under:

Rate of Particulars interest

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 5 year SWAP rate (A) 2.70% Spread over swap rate as per the quotation 3.50% provided by Barclays bank (B) Arm's fixed rate of 6.20% interest (C = A+B)

Accordingly, considering the quotation provided by the Barclays bank and prevailing swap rates, He submitted that the fixed rate of interest agreed between the appellant and the associated enterprise at 6.18% is lower than the arm‘s length fixed rate of interest of 6.20%. In this regard He submitted that quotations provided by banks represent a valid benchmark for the purpose of determining the arm‘s length price of international transaction of payment of interest applying CUP method. Reliance in this regard is placed on the decision of the Hon‘ble Gujarat High Court in the case of CIT vs Adani Wilmar Ltd (ITA No 240/2014) wherein the Hon‘ble High Court upheld the use of quotations as a valid CUP. Relying upon the decision of the Hon‘ble High Court, the Hon‘ble Delhi Tribunal in the case of Noble Resources and Trading India Pvt Ltd vs DCIT (ITA No 3132/Del/2013) upheld the use of quotations as a valid CUP. Further, the appellant also resorted to Bloomberg database for determination of fixed rate of interest corresponding to the quotation for floating rate of interest provided by the Barclays bank. The results provided by Bloomberg are as under:

Rate of Quote by Barclays bank interest

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Libor +325 bps 5.87% Libor +350 bps 6.37% Average 6.12%

It is submitted that the average fixed rate of interest of 6.12% is within the +/-5% range of the rate of interest of 6.18% agreed by the appellant with the associated enterprise. In view of the aforesaid, he submitted that the international transaction of payment of interest by the appellant to the associated enterprise is at arm‘s length. (c) Search for comparable uncontrolled transactions on LPC/Dealscan database The appellant has conducted a search for comparable loan transaction using LPC/Dealscan database. Based on the said search, 11 comparable loan transactions, with average rate of interest of 6.14% were identified. In view of the aforesaid, he submitted that since the average rate of 6.14% is within the +/- 5% range of the rate of 6.18% agreed between the appellant and the associated enterprise, the transaction of payment of interest is at arm‘s length. On the other hand, the TPO has not conducted any independent search for comparable companies and merely held that the appellant should not have converted the loan from floating rate of interest to fixed rate of interest. It is submitted that the conversion from floating to fixed rate of interest was done considering the business and financial exigencies of the appellant and the TPO was unjustified in holding that no

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 independent person would agreed for such conversion. He submitted that the TPO has disregarded the aforesaid analysis conducted by the appellant and arbitrarily made the adjustment on account of payment of interest by the appellant to the associated enterprise. In view of the previously mentioned, too, he submitted that that the adjustment made by the TPO is unsustainable and is liable to be deleted.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 have agreed for such a unilaterally increase in the interest rate without any logic. He further submitted that the LIBOR rates have been continuously reducing from 2009 onwards and the Assessee was well aware of the trend at the time of taking this decision. Therefore, this transaction is directly hinting at reducing the profitability of the Assessee company at its own whims and fancies. He further submitted that by applying the internal cup rate of 2.33% of the interest rate for the same transaction with Same terms and condition is the best benchmarking available for the determination of interest from October 22, 2010 to 31/03/2010. He therefore submitted that the adjustment made by the Ld. Transfer Pricing Officer and confirmed by the Ld. Dispute Resolution Panel is the most appropriate. 26. We have carefully considered the rival contentions and perused the orders of the Assessing Officer and directions of Dispute Resolution Panel. The Assessee entered originally into a loan agreement dated 31st of May 2005 between BG. Asia Pacific Plc Ltd and Assessee for unsecured loan facility of US dollar 500 million. According to the terms and conditions of that agreement interest rate was fixed as one month, US $ LIBOR +2% for an and apportioned on an actual 360 basis. The termination date of the agreement was 31st of May 2020. Subsequently on 21/10/2009 There is an amendment made it to the existing loan facility under agreement dated 31/05/2005, according to which, the parties have agreed to amend the interest rate terms applicable to the existing loan facility at the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 fixed rate of 6.18% for 5 years from the date of execution of this agreement (i.e. from 21/10/2009), it would be once again at available rate of 6 months USD LIBOR +350 unless the parties agree otherwise. On conjoint readings of this 2 agreements it is apparent that during the year there is a change in the interest rate of the above loan, which was earlier at US dollar LIBOR +2% to 6.18%. For part of the year i.e. from 01/04/2009 2 21/10/2009, the rate of interest on the above loan was 2.33% and from 22/10/2009 to 31/03/2010 the rate of interest of the same loan without any change in the terms and condition of agreement except interest was @ 6.18%. Further, Vide letter dated 21/10/2009 the AE has agreed to offer an additional unsecured loan of US dollars 300 million until 2020 to the appellant wherein terms of clause 1 and 3 of the terms and conditions are as under:- ―1 Definition :- ― interest‖ means the interest or advance at the fixed rate of 6.18% (being the 5 years, US Libor swept rate +350 ) for a period of 1st 5 years from the date of execution of this agreement and thereafter at variable rate of 6 months USD LIBOR +350 unless parties mutually agree otherwise in writing‖ ―3 . Interest 3.1 interest shall accrue on the amount of the advance on a day-to-day basis in respect of amounts outstanding under the facility on each day of the drawdown period and such interest due shall be created and interest

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 accrued between 1st temporary in each year of the facility and 31st March in the following year, shall be paid by the borrower to the lender on 31st may each year of the facility on a modified following date on versions basis or as may be otherwise agreed between the parties. 3.2 Parties may mutually agree in writing to fix the interest rate for a period of 5 years.‖ The Ld. Transfer Pricing Officer has questioned the business decision of the Assessee to say that there was no reason for the Assessee to increase the interest rate from 2.33% to 6.18%, which was 165% higher than the rate at which the Assessee was paying interest till the time of revision in the interest rate. The Ld. Transfer Pricing Officer has further held that Assessee has failed to submit any documentary detail of negotiation and convincing agreement for increasing interest rate and what benefit has accrued to the Assessee when all the terms and aggrieved terms and conditions of the agreements remained unchanged. According to the Ld. Transfer Pricing Officer no independent party would have agreed for such a unilaterally increase which defies any logic except that the amount was being paid to the associated enterprise in this regard to TP provisions. According to him the LIBOR rates have been continuously reducing from 2009 onwards and the Assessee was well aware of the trend at the time of taking decision. Accordingly, the increases in rates are considered a classic example of transfer pricing to reduce the profitability of the Assessee company. For this reasons he proposed an

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 adjustment of Rs. 42,72,64,082/– on account of interest payments. We disagree with this finding of the Ld. Transfer Pricing Officer that there was no reason for the Assessee to increase the interest rate for 2.33% to 6.18%. The Assessee has given detailed rational behind its own decision for shifting from floating rate of interest regime to fixed rate of interest. In a way, it reduces the risk of changes in the interest rates. It is a well settled proposition of law that The Ld. Transfer Pricing Officer is not supposed to question the business decision of the Assessee. The Assessee has given ample reasons for its business decision even stating that most of the reported loans in that particular period were having a clause of fixed rate of interest. Therefore, the decision of the appellant to shift from floating rate to fixed rate of interest was based on commercial consideration and to protect the business operation of the appellant from any adverse movement in floating interest rates and that only businessmen can decide. It may sound illogical to the Ld. Transfer Pricing Officer, but it is beyond his authority to question the wisdom of Assessee. It is not the prerogative of revenue to direct Assessee to conduct its business in a particular manner. It is also not proper to ask and Assessee to conduct its business in a manner which is understood by the revenue , despite heavy business risk, and further in a manner that will lead to higher revenue to the coffers of the tax gatherers. Various decisions relied upon by the Ld. Authorised Representative also support the above view expressed by us. According to the provisions of section 92 CA of the Income Tax

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Act, authority envisaged with the Ld. Transfer Pricing Officer is to serve a notice on the Assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the Assessee may rely in support of the computation made by him of the arm‘s length price in relation to the international transactions and then after hearing such evidences as produced before him and after taking into account all relevant materials gathered, he shall order determining the arm‘s length price in relation to an international transaction by passing an order. In the present case Ld. Transfer Pricing Officer has not performed his duty of determining arm‘s length price of interest payment made by the Assessee of Rs. 1059412322/– but has analyzed and questioned the international transactions entered in to by the Assessee , of which he should have determined ALP only. The provisions of section 92C of the act provides that arm‘s length price in relation to an international transaction shall be determined according to one of the prescribed methods, which should be the most appropriate method, having regard to the nature of transaction and the functions performed. Therefore according to this, the Ld. Transfer Pricing Officer is duty bound to apply one of the methods specified in that section to determine the arm‘s length price, having regard to the nature of the transactions and functions performed by the Assessee after considering into account the materials/ documents and evidences placed before him by the Assessee. In the present case Ld. Transfer Pricing Officer has stated that Assessee has

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 failed to submit any documentary details of negotiation and convincing agreement for increasing interest rate. The nature of transaction involved in this case is payment of interest where the terms and conditions with respect to rate of interest have changed during the year, whereas the loan was granted in 2005. For benchmarking the interest transaction it is necessary to consider the factors such as :- i) Prevailing economic situation ii) Time Schedule of drawing down the debt iii) repayment schedule, iv) options of prepayment of the loan, v) term / tenure of loan, vi) tenure and periodicity of interest payments, vii) withholding taxes burden on interest viii) Security offered ix) Credit rating of the group , AE and Payer entity x) risk of currency xi) Possibility and terms and condition of convertibility of Debt to equity. The Ld. Transfer Pricing Officer must have looked the agreement dated 31st of May 2005. According to clause No. 7, the interest is required to be paid on the interest payment date, which is 31st May each year, , the taxes on interest, shall be on the account of the borrower according to clause 9 of the agreement. Further, according to clause 5 of the agreement the cancellation of the facility is at the sole discretion of the lender, therefore there was no right of prepayment with the Assessee.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 With respect to the 2nd transaction of loan of US dollar 300 million there are also the clauses of repayment and prepayment in clause No. 4, there is also an agreement vide clause No. 3 of rewriting the interest rate for a period of 5 years, the amount of repayment on prepayment shall be of at least 100000 US$ , there is no reference of the currency in which the amount is required to be repaid. On the reading of agreement dated 21st of October 2009 and 31st of May 2005, it is apparent that there are certain different terms and conditions in both the agreements. Therefore it is not proper to benchmark both the transactions of payment of interest with respect to two different loans which are governed by two different agreements which has different terms and conditions as ‗one transaction‘. Regarding the claim of the Assessee with respect to the quotations of the bank, the 1st quotation is dated 10/10/2011 wherein vide letter dated 22/02/2012, a quote was provided from Citibank which says that quote for the currency is LIBOR +285 – 300 basis points and does not include withholding taxes. Assessee with respect to other banks also took similar quotations. However, from the reading of the quotation it is not known that these quotes are with respect to both the transactions of loan of US dollar 500 million and US dollar 300 million where there are different terms and conditions of repayment prepayment. Most importantly, the Ld. Transfer Pricing Officer has not looked at these evidences produced by the Assessee in the form of quotations of various banks, comparable search by the Assessee on LPC/ dealscan database. The Ld. Dispute Resolution Panel has also brushed

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 aside the provision of section 92C of the Income Tax Act, which prescribes methodology for computation of arms length price of an ‗international transactions‘. It has merely reiterated whatever has been stated by the Ld. Transfer Pricing Officer without applying the provisions of law to the facts of the case before them. In view of this we set aside the whole matter of determination of ALP of interest paid by the Assessee to its associated enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the computation of ALP by the Assessee of above transaction strictly in accordance with the provisions of section 92C of the Income Tax Act considering the evidences placed by the Assessee before him and then decide the issue of adjustment, if any, on merits. Needless to say that Assessee may be given proper opportunity of hearing to demonstrate that payment of interest made by the Assessee to its associated enterprise is at arm‘s length according to one of the methods supporting it with necessary and credible evidences . In the result ground No. 2 of the appeal of the Assessee is allowed with above direction.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 interest as per the joint operating agreement dated 19/02/2004. The Assessee submitted the total cost incurred by the Assessee of Rs. 494452392/– which included the tanker and related cost, tugboat cost, safety, environment and materials and technical and engineering services. Assessee further submitted that expenditure under the technical and engineering services is Rs. 316786095/– and out of this sum of Rs. 237932251/– has been received from BG international Ltd that has not been shared by any other production sharing partners. It was further, the contention of the Assessee that out of this sum of Rs. 237932251/- received by the Assessee, ld TPO has already disallowed, there cannot be a double disallowance of the same. The Ld. Assessing Officer was of the view that out of the total production cost of Rs. 316786095/- which is borne exclusively by the Assessee therefore, it cannot be said that these are incurred wholly and exclusively incurred for the purpose of the business of Assessee. Ld. Assessing Officer was further of the view that being the production cost had the same were incurred for the production, it should have been passed through the joint-venture and shared by all the partners. In view of this he disallowed a sum of Rs. 316786095/–. The Ld. Dispute Resolution Panel on objection being filed before it confirmed the finding of the Ld. Assessing Officer. According to the Ld. Dispute Resolution Panel Assessee is required to prove commercial expediency and business purpose of incurring these expenditure. According to it the claim of the Assessee does not fall under section 42 of the Income Tax Act as well as

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 under section 37 (1) of the act. The Ld. dispute resolution further held that in the instant case the joint operating board of the joint-venture has not approved the incurring of the said expenditure on certain grounds of commercial prudence and therefore same are not allowable to the Assessee. Hence, Assessee is in appeal before us. 28. The Ld. authorized representative made detailed submission on this count as under:- i) Assessee incurs expenditure to undertake activities required by the PSC, having regard to its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc. The said expenses are required to be incurred based on commercial expediency determined by the appellant. The same are not necessarily accepted by the JV partners as the incurrence and need is not dependent on the point of view of the other contractors in the JV (who likewise may incur expenditure based on their commercial expediency having regard to their overall business and circumstances, which may vary from that of the appellant in different aspects). However, the cost would have to be incurred by ASSESSEE based on commercial expediency, notwithstanding that some cost may not be shared by the JV partners. As an Operator in the PMT JV, ASSESSEE incurs

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 expenses as it deems are appropriate and necessary for conducting the operations. Out of the said expenditure, only the expenditure which is approved by the Joint Operator Board would be debited to the JV account and shared by the JV partners. The balance expenditure would have to be borne by ASSESSEE. He submitted that typically, costs are not shared with the JV in the following cases:

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 3. It is incurred to enable ASSESSEE to perform operations under the PSC, sustain its activities and maintain its standard of operations, based on the commercial expediency determined by ASSESSEE (but not accepted by the Operator Board based on commercial expediency determined by them).

It is pertinent to point out that in case of points ‗2‘ and ‗3‘ above, there could be occasions where ASSESSEE deems it necessary and expedient to incur certain expenditure for its business, whereas, the other JV partners have a different point of view in the matter. In such case, some cost may not be shared by the JV. He further submitted that principal reason for the Joint Operator Board not approving expenditure is its impact on cost recovery (as Cost Petroleum) and consequent profit (as Profit Petroleum). As it is not in the government interest (impact on Profit Petroleum) to consider the high cost of the full engagement, ONGC, looking into the government‘s benefit, attempts to push back costs outside the JV. According to him However, it does not alter the nature of cost in the hands of ASSESSEE; the costs are expenses incurred wholly and exclusively for the purpose of its business of prospecting for, exploration and production of crude oil and natural gas.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 ii) He further stated that Section 37 of the Act provides for deduction of expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the appellant) laid out or expended wholly and exclusively for the purposes of the business. Thus, for expenditure to be allowable under section 37 of the Act, the following conditions need to be satisfied –

 Expense should be incurred wholly and exclusively for the purposes of the business;  The expense should be revenue in nature.

The expenditure incurred by the appellant is for conducting and maintaining the standard of operations. As submitted hereinabove, the expenses are incurred by the appellant wholly and exclusively for the purpose of the appellant‘s existing business viz. prospecting for, exploration and production of crude oil and natural gas as per the commercial expediency determined by it. Further the same are revenue in nature. Accordingly, the expenses incurred in the ordinary course of the business and which are not shared with the JV should be allowed under section 37 of the Act. He further

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 relied up on following cases where it is held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue: i) CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) ii) CIT v. Walchand & Co. etc. (1967) 65 ITR 381 iii) J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) iv) CIT v. Birla Cotton Spg. And Wvg. Mills Ltd.: 82 ITR 166 (SC) v) Madhav Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) vi) S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) vii) CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) viii) CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann 268 (Del) ix) CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P&H) (FB)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 29. The Ld. Departmental Representative strongly relied on the orders of the lower authorities to state that when the joint venture partners and not agreed to share the above expenditure, it is apparent that the expenditure have not been incurred by the Assessee for the purposes of its business. He vehemently submitted that provision of section 42 of the act does not grant allowability of these expenses. He relied vehemently on the decision of Hon Supreme court in Joshi technologies international Inc. V UOI [ 57 taxmann.com 290 (SC) and submitted that if the deduction are not mentioned in the PSC same cannot be allowed to the Assessee. As the JV partners have not shared the expenses, these are not covered under PSC and hence disallowance is rightly made. 30. We have carefully considered the rival contentions and also perused the orders of the lower authorities by disallowing the above expenditure. The income of the Assessee is required to be computed under section 42 of the Income Tax Act which is a special provision for deduction in the case of business for prospecting etc for mineral oil. Section 42 of the Act as it stood for the relevant year is as under :- Special provision for deductions in the case of business for prospecting, etc., for mineral oil. 42. [(1)] For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation [of the Central Government or any person authorized by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation—

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 (i) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the Assessee ;

(ii) after the beginning of commercial production, to expenditure incurred by the Assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 :

[Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shall have effect subject to the modification that the words and figures "except assets on which allowance for depreciation is admissible under section 32" had been omitted; and]

(iii) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement;

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 iv) The Assessee may also be granted deduction ‗in addition to‘ the existing deduction and allowance allowable to the Assessee. v) Such deduction can only be with respect to nature of deduction / allowances specified in section 42 (1) only. vi) Naturally the expenditure specified u/s 42 (1) are not expressly allowed under the other provision of the act vii) Assessee may claim the deduction allowable to the Assessee u/s 28 to 44 other than 42 if it satisfies the conditions contained in the respective sections. viii) For the purposes of specified deduction/ allowance u/s 42 (1), the agreement shall specify the manners of computation and other aspects of that deduction/ allowance. ix) For claim of deduction / allowances specified in the agreement as per provision of section 42 (1), if there is any contrary provision in any other provision of the act, such other provision shall be deemed to have been modified to that extent. Meaning thereby, the allowances, / deduction specified shall be allowable to the Assessee despite any contrary provision in any other section of the act. Decision of Honourable Supreme Court in Joshi Technologies International Inc. v. UOI, 374 ITR 322, does not apply to the facts of present case as here the expenditure claimed is u/s 37(1) of the act. Coming to the facts of the impugned ground, The Ld. Assessing Officer has

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 disallowed the same expenditure for the only reason that had the same were incurred for the production it should have been passed through the joint venture and shared by all the partners and these expenses are not incurred wholly and actually for the purpose of the business of the Assessee. Nature of the expenses which have been disallowed by the Ld. Assessing Officer are as under:-

Particulars Amount Tanker & Related Costs 115,534,442

Tug Boat Costs 70,464,943 Safety Environment & Materials 11,355 Technical & Engineering Services 316,786,095 Less: Reversal of Water Transportation & other charges (8,344,443) Total BG Exclusive Production Cost. 494,452,392

The above expenditure are in the nature of tanker expenditure, tug and boat expenditure, safety environment and material expenditure as well as technical and engineering services. During the course of assessment proceedings, the Assessee has furnished the details of those expenditure. Merely because the joint-venture partners are not sharing the cost/expenses which is been incurred by the Assessee, It does not become disallowable in the hands of the Assessee. We find no such condition existing either under section 42, or under section 37 (1) of the Income Tax Act. Therefore, we reject the contention of the revenue that unless the expenditure is not borne by all the JV partners the expenses cannot be allowed to the Assessee. In fact, if the JV partners share the expenditure,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 there cannot be any question of claim of such expenditure in the hands of the Assessee, once again. Further, if the expenses are not specified in the agreement u/s 42 (1), even if the JV partners agree to share those expenditure, it is not allowable u/s 42 (1) or section 37 (1) of the act. Now it needs to be examined, whether the Assessee has incurred expenditure for the purposes of its business or not. The Assessee has stated that it has incurred such expenditure having regard to its standard of operation and the quality of execution work, safety of its employees in the environment. These expenses are required to be incurred by the Assessee based on the commercial expediency. The Assessee has stated that in relation to the support functions, which are innovatively inevitable for carrying on its business and incurred based on the commercial expediency are expenses belonging to the Assessee which cannot be accepted by the operating board. Further, there may be certain expenditure which are required to be incurred to enable the Assessee to perform its operation under the production sharing contract sustaining its activities and maintaining its standard of operations. It is irrelevant whether the joint operator board has approved such expenditure or not because there may be several other reasons for joint-venture partners to not to share the expenditure. The Ld. Assessing Officer as well as the Ld. Dispute Resolution Panel, despite having the necessary details of the expenditure did not point out the single instance that these expenditure are not incurred by the Assessee for the purposes of its business.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Merely making references to the various judicial precedents without putting to the facts on record about incurring of the expenditure by the Assessee or non-business purposes disallowance made by the Ld. and Assessing Officer cannot be upheld. Instead, despite full details available with them they have denied the claim to the Assessee. Neither the assessing officer and nor the Dispute resolution Panel point out nature of details which was not submitted by the Assessee when part of the expenditure has already been considered in detail at the time of determining Arms; Length of the transaction. In view of no adverse inference from the lower authorities on the details submitted, we are constrained to allow the claim of the Assessee of deductibility of the above expenditure of Rs. 316786095/- . In the result ground No. 3 of the appeal of the Assessee is allowed. 32. Ground No. 4 of the appeal of the Assessee is as under:- Ground No. 4: Disallowance of legal and professional expenses 4.1 The learned AO erred in law and in facts in disallowing legal and professional expenses of Rs. 24,936,767 by not applying the practice of test check.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Assessee to provide evidences, it could place only sample evidences before the Assessing Officer. The Assessee submitted the copies of the Ledger account, copies of invoices on sample basis and the copies of TDS certificate issued to the respective parties to whom the payment has been made. Based on this, the Ld. Assessing Officer disallowed a sum of Rs. 27792553/– for which no details have been submitted. The Assessee has paid Rs. 16418464/– out of above to the associated enterprise by way of debit notes which are already disallowed by the Ld. Transfer Pricing Officer at the time of determination of the arm‘s length price of the international transactions, disallowance was restricted to Rs. 11374089/– to avoid duplicity. The Ld. Dispute Resolution Panel, on certain evidences filed before it, directed the Ld. Assessing Officer to examine the details furnished by the Assessee and then to restrict above disallowance. Therefore, Assessee is in appeal before us. 34. The Assessee submitted that Assessee has submitted copies of the (i) ledger accounts; (ii) Invoices on sample basis; (iii) TDS Certificates issued to the respective parties on sample basis. The appellant filed, by way of additional evidence, detail (including supporting invoices) of following legal and professional charges before the DRP. The DRP directed the AO to consider the additional evidence and modify the disallowance accordingly. Subsequently, the AO passed the final assessment order wherein he disallowed the expense amounting to Rs. 2,49,36,767/- which was computed as follows: The amount of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Rs. 1,64,18,464 (which pertains to payments made to BGIL) disallowed by the TPO, has been allowed by the DRP, therefore, the same is to be disallowed. The appellant has submitted detail of more than 60% of the expenditure on legal and professional charges on sample basis. It may not be feasible to provide detail of each of the numerous transactions entered into by the appellant. In the directions issued by the DRP for the assessment year 2009-10, DRP has observed that it is impossible for any auditor or TPO or DRP to check each and every invoice. It is a time honoured practice of audit to test check. Accordingly, the addition based on the non-furnishing of all the details is not justified. The sample invoices representing the expenditure incurred should be accepted as sufficient to authenticate the expenditure and allow the same to the appellant. 35. The Ld. Departmental Representative submitted that when Assessee has failed to support the expenditure incurred by it by adducing proper evidences before the Ld. Assessing Officer there was no question that these expenditure are allowable to the Assessee. He submitted that as Assessee has failed to submit the evidences before the Ld. Assessing Officer that disallowance made by him is in order and in accordance with the law. 36. We have carefully considered the rival contentions and also perused the orders of lower authorities. Needless to state that unless an adequate opportunity is provided to the Assessee to substantiate the details of expenditure incurred by it,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 disallowance cannot be made. It amounts to first pushing Assessee to the wall and then hitting it hard. This approach is not acceptable. It is stated by the Assessee before the Ld. Assessing Officer that only on 27th of March 2014 the Assessee was asked to submit the details of this expenses on the very next day i.e. on 28/3/2014 as per the statement of the Assessing Officer himself in Para No. 8 of his order. The Ld. Assessing Officer has stated that Assessee has been delaying the submission of the details during assessment proceedings as it was asked to submit the breakup of expenses on 27th of March 2014 whereas the query was raised on 12/03/2014 and then again on 25/03/2014, this itself shows that Ld. Assessing Officer started questioning the allowability of these expenses in the last fortnight of the month of March 2014 only, whereas the notice under section 143 (2) was issued on 30th of August 2011. It is always for Assessing Officer to observe time limit for completion of the assessment proceedings and manage it for completing it properly in time. The provisions of Income Tax Act, 1961, has empowered him to tackle situations where Assessee is delaying submitting the requisite detail on time. However, if the Assessing Officer himself start acting late when the time has raced against him, the fault cannot be put on the head of the Assessee. In view of this, without going into the merits of the case about the allowability or otherwise of the above expenditure, We set aside this ground of appeal to the file of the Ld. Assessing Officer with a direction to examine the details furnished by the Assessee and call for such further

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 evidence as it is required for him for such examination and then to decide the issue on merit. In view of this ground No. 4 of the appeal of the Assessee is allowed accordingly.

Ground No. 5: Disallowance of depreciation on global IT & T expenditure 5.1 The learned AO / DRP erred in law and in facts in disallowing depreciation on global IT & T expenditure of Rs. 33,005,676. 5.2 Without prejudice, the learned DRP erred in not treating the global IT & T expenditure as revenue expenditure allowable under section 37(1) of the Act. 38. The brief facts leading to the disallowance is that during the year Assessee has claimed addition of assets under the head global information technology projects amounting to Rs. 666113450/– and claim depreciation of Rs. 33305673/– Assessee was asked to justify the claim of depreciation along with documentary evidence of ownership and user of those assets. The Assessee explained before the Assessing Officer that these expenditure have been incurred by the group company and Assessee has been allocated these expenditure by the group. To support its contention, it submitted the details of allocation and the copy of debit note along with supporting

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 working for the purpose of claim of the depreciation. It was further submitted that these expenditure have been capitalized by the Assessee and only the depreciation charge for it has been claimed in the return of income. The Ld. Assessing Officer held that the assets are not owned by the Assessee either wholly or partly and neither any document was submitted to prove that these assets were put to use for the business of the Assessee company. Therefore he disallowed Rs. 3 300 5673/– on account of claim of depreciation. As the full expenditure of Rs. 801326640 was disallowed by the Ld. Transfer Pricing Officer considering the ALP of the international transaction as nil, the disallowance was not made once again in the computation of income to avoid duplicate disallowances. The Ld. Dispute Resolution Panel upheld the disallowance proposed by the Ld. Assessing Officer on the aspects of user test , therefore, Assessee is in appeal before us. 39. Assessee submitted before us that The global IT & T projects are being used by the appellant in its day-to-day business operations and the same are essential for conducting the business operations. The same result in operations being undertaken in an efficient manner. Considering the large scale at which the appellant 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 appellant. Further, although the assets may not be registered in the name of the appellant, the appellant is entitled to and has been using the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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 of payment made by it). The appellant submits that it certainly exercises rights as a beneficial owner of the same. Further, ownership need not only be denoted by physical control but also includes intangible rights in the asset. Further, the appellant submits that 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. Assessee submitted alternatively that, without prejudice to the above, if it is considered that the appellant is not eligible to deduction on account of not being the registered owner of the assets, the appellant submits that the entire expenditure should be allowed to it 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 Supreme Court in the case of CIT vs. Madras Auto Service (P.) Ltd. 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

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 commercial point of view . To the same effect is the decision of Supreme Court in Empire Jute Co. Ltd. vs. CIT: 124 ITR 1 40. the Ld. Departmental Representative submitted that as Assessee has failed to prove the ownership as well as the user of the assent for the purpose of the business the disallowance of depreciation has correctly been made. Regarding the claim of the Assessee of allowing the entire expenditure to the Assessee under section 37 (1) of the act was never raised before the Assessing Officer. He submitted that it is a new argument and therefore it cannot be dealt with now.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 software. The Ld. Dispute Resolution Panel has stated that even the beneficial ownership of the assent also entitles the Assessee to claim the depreciation if the test of user is proved. In the present case, we do not think that there is any doubt about the ownership of the IT infrastructure in question as per paragraph No. 11.1 of the direction of the Ld. Dispute Resolution Panel. Therefore only issue now remains is to be seen whether the Assessee has properly demonstrated before the Ld. Assessing Officer that the Assessee has used the assets for the purposes of the business. It is better to look at what kind of assets the Assessee are owned by and used by it. Assets are production database management system, SAP up gradation, budgeting and forecasting system, training programs, simulations software, asset modeling systems and email facilities. When the Assessee is participating in such a huge production sharing contract, It is too naïve to think that production database management system and SAP, training programs, simulations programme and email facilities have not been used by the Assessee. Issues have also been examined at the time of determining Arm‘s length price of these expense. The actual cost of these assets are not doubted by the Ld. Assessing Officer. In view of this we are of the opinion that these assets are beneficially owned by the Assessee and are used for the purposes of the business of the Assessee, therefore entitles Assessee to claim the depreciation on these assets. In view of this ground No. 5 of the appeal of the Assessee is allowed.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

Ground No. 6: Disallowance of exploration cost 6.1 The learned AO / DRP erred in law and in facts in disallowing under section 37(1) of the Act, the exploration cost of Rs. 460,313,788 incurred by the appellant. 6.2 The learned AO / DRP erred in not appreciating that the said expenditure was incurred wholly and exclusively for the purpose of the appellant's business in India.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 submitted by the Assessee that these expenditure are incurred by it only and exclusively for the purposes of the business and hence are allowable under section 37 (1) of the act. To support its contentions, It submitted several documents of incurring the above cost on standalone basis. It was further submitted that certain cost have also been allocated on account of NELP VIII and general administrative costs. The Assessee also submitted the copies of invoices. It was further the claim of the Assessee that it also incurred exploration cost on a stoned alone basis for several other blocks and therefore expenditure incurred by the Assessee is wholly and exclusively for the purpose of the business and same is allowable to the Assessee. The Ld. Assessing Officer rejected the contention of the Assessee and stated that Assessee has incurred these expenditure for new ventures which has not yet come into existence. According to him without signing a production sharing contract with the government of India Assessee cannot undertake any exploration or production activity and such contracts only determine the cost of such activities. Therefore according to him the expenditure claimed by the Assessee under the head exploration cost of Rs. 460313788/– in respect of future business which has not yet commenced and where there is no production sharing contracts signed by the Assessee is not allowable as deduction. On objection before the Ld. Dispute Resolution Panel, the findings of the Ld. Assessing Officers were upheld. Therefore, Assessee is in appeal before us.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 44. Ld. Authorised Representative submitted before us that the amount disallowed by the AO includes expenses aggregating to Rs. 239,330,493 which relate to blocks KG-OSN-2004/1, MN- DWN-2002/2 and KG-DWN-98/4 in respect of which he has allowed a deduction of Rs. 47,15,05,233. The balance cost of Rs. 220,983,295 is primarily in respect of seismic data purchase for new opportunities, which relate to development of the appellant‘s existing business of prospecting for, exploration and production of crude oil and natural gas. With respect to expenses recorded in books of accounts and claimed by Assessee for tax purposes, It was submitted that detail of expenses shows relevance of the said expenditure to its business of prospecting for, exploration and production of crude oil and natural gas. Further, the details of cost shared by JV partners and Assessee resultant share therein are provided below:

Classification Claimed by JV cost ASSESSEE’s Other cost ASSESSEE incurred share in JV of in tax cost, ASSESSEE return / allowed as a (disallowed financial deduction by by the AO – statements the AO Refer Notes 2 and 3)

(A) (B) (C) = B * % (D) = A – C share

KG-OSN- 174,575,617 228,749,031 102,937,064 71,638,553 2004/1

MN-DWN- 435,923,326 1,328,454,708 330,681,677 105,241,649 2002/2

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Classification Claimed by JV cost ASSESSEE’s Other cost ASSESSEE incurred share in JV of in tax cost, ASSESSEE return / allowed as a (disallowed financial deduction by by the AO – statements the AO Refer Notes 2 and 3)

(A) (B) (D) = A – C (C) = B * % share

KG-DWN-98/4 100,336,783 2433,667,947 37,886,501 62,450,283 after rejection by ASSESSEE of well related expenses of Rs. 692,213,884

(see Note 1 below)

220,983,295 - - 220,983,295 Other expenditure – primarily for purchase of seismic data

Total 931,819,021 3,990,871,686 471,505,241 460,313,788

Notes:

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11

Thus, ASSESSEE is required to incur various costs, such as for seismic data purchase, data analysis and general and administration cost, which are not shared with the JV partners but are critical to ensure that ASSESSEE‘s interest is safeguarded and its standard of operations is maintained.

Accordingly, aforesaid expenses of ASSESSEE are regular business expenses incurred based on commercial expediency determined by ASSESSEE.

Particulars Disallowed Time-writing Details of activity of project by the AO cost therein to which it pertains (on sample basis, for reference) KG-OSN-2004/1 71,638,553 54,646,471 Drilling and

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Particulars Disallowed Time-writing Details of activity of project by the AO cost therein to which it pertains (on sample basis, for reference) subsurface inputs / MN-DWN-2002/2 105,241,658 21,029,524 analysis, executive, finance, HR, legal, KG-DWN-98/4 62,450,282 59,298,636 commercials, PCA

Total 460,313,788 134,974,631

Break up of time-writing charges for KG-OSN-2004/1 forming part of Exploration Cost

(Amounts in Rs.)

Department charging time to the project Amount

Commercial 36,337,036

Drilling and subsurface inputs and analysis 163,833

Executive 2,456,900

Finance 11,662,701

HR and HSSE 149,690

Legal and PCA 3,827,443

Total 54,646,471

Break up of time-writing charges for MN-DWN-2002/2 forming part of Exploration Cost

Department charging time to the project Amount

Commercial 12,086,900

Drilling and subsurface inputs and analysis 2,236,674

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Department charging time to the project Amount

Executive 1,059,009

Finance 3,665,648

HR and HSSE 47,834

Legal and PCA 1,933,460

Total 21,029,524

Break up of time-writing charges for KG-DWN-98/4 forming part of Exploration Cost

Department charging time to the project Amount

Commercial 48,508,663

Drilling and subsurface inputs and analysis 538,245

Executive 2,654,514

Finance 4,150,630

HR and HSSE 5,803

Legal and PCA 3,440,781

Total 59,298,636

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 47. With respect to the cost of support functionaries stated that In order to be able to safeguard its interest in the blocks and participate as a JV partner, Assessee is required to incur costs for support functions in line with its standard of operation and based on commercial expediency determined by it. Time-writing charges are incurred in respect of expert personnel providing their inputs for the said functions. Thus, the said expenses are regular business expenses incurred based on commercial expediency determined by Assessee. The same may have to be incurred notwithstanding their non-recovery as Cost Petroleum (i.e. even if the same are not shared by the JV partners), since, ASSESSEE cannot sustain its business without maintaining its standard of operation, including the quality of execution of work, access to latest industry information and global updates, safety of its employees and the environment, etc.. Thus, the said expenses are incurred wholly and exclusively for the appellant‘s business of prospecting for, exploration and production of crude oil and natural gas. 48. With respect to identifying the new opportunities of the business submitted that For sustenance of its business in India (of prospecting for, exploration and production of crude oil and natural gas), assessee is constantly on the lookout for new opportunities, for instance, the evaluating whether to bid for new block through NELP, etc., The expenditure of Rs. 220,983,295 disallowed by the AO largely comprises the following nature of expenses:

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Particulars of expense Approx. amount Documents submitted to AO (broad category)

Purchase of seismic data 38,508,514 Evidences aggregating to Rs. 14,040,703 on sample basis

General and administrative 45,752,345 Break-down providing expenses in connection with description of expense and proposed NELP-VIII amounts

Staff cost, consultancy and data 71,746,725 Break-down providing purchase for other new description of expense and opportunities amounts Total 460,313,788

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 services and assistance received from BGIL. A break-down providing the description of expense and corresponding amounts was submitted to the AO 51. With respect to the Staff costs and project management consultancy charges, He submitted that costs for identifying new opportunities primarily comprise of staff costs such as salaries of expats and other employees and their travel cost in this connection. Further, cost is incurred for purchase of geographic data, consultancy and professional services and assistance received from BGIL. He further submitted that break-up providing the description of expense and corresponding amounts was submitted to the AO. According to him said expenses are regular business expenses which are required to be incurred notwithstanding that the same would not be recovered as Cost Petroleum (since the expenses do not pertain to any PSC). The same incurred wholly and exclusively for the appellant‘s business of prospecting for, exploration and production of crude oil and natural gas. 52. It is submitted that while assessing the appellant‘s taxable income, all the expenditure incurred by it for its business would have to be considered and evaluated to determine the deductibility as per the normal provisions of the Act (as against considering only those expenses which are shared with the other contractors as per the PSC). Section 37 of the Act provides for deduction of expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 appellant) laid out or expended wholly and exclusively for the purposes of the business. Thus, for expenditure to be allowable under section 37 of the Act, the following conditions need to be satisfied –

i) Expense should be incurred wholly and exclusively for the purposes of the business; ii) The expense should be revenue in nature.

He further relied up on following decisions:

i) ONGC Videsh Ltd. vs. DCIT: 37 SOT 97 wherein 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

ii) ACIT v. Niko Resources Ltd. (123 TTJ 310) (Ahd.), wherein the Ahmedabad Tribunal has observed that even in case of expenses which have been dealt with in section 42 but cannot be deducted there under for the reason that

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 the necessary conditions are not satisfied, deduction can still be allowed as per the other provisions of the Act

He also relied up on following decisions wherein it has been held that expenses incurred towards extension of business, which was subsequently abandoned, are allowable as deduction:

i) CIT vs. Vardhman Spinning and General Mills : 176 Taxman 157 (P&H) ii) Indo Rama Synthetics Ltd.: 333 ITR 18 (Del.) iii) CIT v. Priya Village Roadshows Ltd.: 332 ITR 594 (Del.) iv) CIT v. Euro India Ltd.: [2014] 223 Taxman 97 (Del.) v) Hindustan Aluminium Corporation Ltd. vs. CIT: 159 ITR 673 (Cal.) vi) Asiatic Oxygen Ltd. vs. CIT (Cal.) vii) CIT vs. Graphite India Ltd.: 221 ITR 420 (Cal.) viii) Binani Cement Ltd. v. CIT: 277 CTR 49 (Cal.) ix) DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.: 57 taxmann.com (Guj.) 53. Against this, the Ld. Departmental Representative relied upon the orders of the lower authorities submitted that Assessee is engaged in the business of exploration and the expenditure

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 required to be governed by the production sharing contract. He further submitted that no expenditure other than which has been incurred in pursuance of that production sharing contract is allowable. The Ld. Departmental Representative further vehemently referred to the provisions of section 42 of the Income Tax Act to support the orders of the lower authorities. He vehemently supported the orders of the Ld. Assessing Officer and the directions of Ld. Dispute Resolution Panel. 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 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

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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 62,450,282 100,336,783 220,983,295 220,983,295 Other expenditure – 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)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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. 7 163 8553 ii) MN – DWN – 2002/2 of Rs. 1 0524 1649 iii) KG-DWN-98/4 of Rs. 6 245 0283/– cannot be disallowed. In view of this we direct the Ld. Assessing Officer to delete the disallowance made with respect to about 3 items.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 56. Now coming to the claim of the deduction of expenditure of Rs. 22098 3295/– on account of purchase of seismic data and general and administrative expenses in connection with the proposed NELP VIII, It is submitted by the Assessee that these were the expenses incurred by the Assessee with respect to the offers which were invited for the 8th offer of blocks for national exploration licensing policy for which the Assessee has to purchase the data for the bidding purposes. The other expenses which are the necessary general and administrative expenses were incurred for project management, consultancy services, etc and also staff cost and project management expenses were incurred. These expenses were disallowed by Ld. Assessing Officer holding that these are expenses for the future projects of the Assessee for which even the PSC is not executed. The Ld. Authorised Representative has submitted that this issue of allowability of this expenditure is covered in its favour by the decision of ONGC Videsh Ltd versus DCIT [37 SOT 97] wherein it has been held as under:- “15. With regard to disallowing claim of expenses of Rs. 43.85 lakhs incurred for purchase and evaluation of the seismic data of foreign blocks, on the plea of same being capital in nature, we found that Assessee being engaged in the business of exploration and production of hydrocarbons in other countries to augment the oil resources of India, it was continuously evaluating various business opportunities before acquiring a particular field/block. Since all these

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 opportunities have to be evaluated and studied before taking decision to invest and enter into a contract, the process of evaluation of the block started with submitting tender fee/data fee, etc. and then the seismic data had to be evaluated in seismic processing centre. After evaluating the same, the Assessee was to take decision as to whether investments should be made in the project or not. There is no dispute to the fact that in all industries an activity for furtherance of its business or evaluation of better profit-earning process in one manner or other is undertaken. Effort to evaluate the prospects of better earning profit is not a separate activity but is in the course of conduct of normal day-to-day business. These expenditures cannot be said to bring an enduring benefit to the business nor the same can be said as initial outlay for expansion of business. In the instant case, the expenditure so incurred by the Assessee is for furtherance of activities undertaken by it in the normal course of its business. The same are incurred on continuous basis for evaluation of business activities. In view of the decision of Bombay High Court in the case of CIT v. Essar Oil Ltd. [IT Appeal No. 921 of 2008, dated 16-10-2008], such expenditure is to be allowed as revenue expenditure. Hon‘ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CIT [1992] 196 ITR

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 845 held that where the setting up does not amount to starting of new business but expansion or extension of the business already being carried on by the Assessee, expenses in connection with such expansion or extension of the business must be held to be deductible as revenue expenses. One has to consider purpose of the expenditure and its object and effect. Accordingly, it was held that expenses pertaining to exploring feasibility of expansion or extension of business are revenue expenditure and not capital expenditure. The expenditure so incurred by the Assessee in the normal course of business of exploration and production of oil, being revenue in nature, is liable to be allowed as a deduction. Similar claim was also made by the Assessee in the earlier year. We, therefore, direct the Assessing Officer to allow the same as revenue expenditure. As we have allowed ground Nos. 3 to 3.2, the alternate ground No. 3.3 as taken by the Assessee become infructuous.‖ [Extracted Taxmann.com][underline supplied by us] Neither the Ld. Assessing Officer nor the Ld. Departmental Representative could press any other judicial precedent which shows that amount spent by the assessing is not allowable as revenue expenditure under section 37 (1) of the act. It is also not the argument of the revenue that such expenditure incurred by the Assessee is capital in nature. Furthermore, the Ld. AR has also pressed into several decisions which say that that

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 expenses incurred towards extension of business which was subsequently abandon or did not fructify, are allowable. Therefore in view of the above decisions wherein it is been held that the expenses for purchase of this kind of data is unnecessary revenue expenditure required to be incurred by the Assessee for the purpose of its business and hence is allowable as revenue expenditure, we also direct the Ld. Assessing Officer to allow the expenditure incurred by the Assessee on purchase of data and other relevant expenses amounting to Rs. 220983295/–. In the result ground No. 6 of the appeal of the Assessee is allowed. 57. Ground No. 7 of the appeal of the Assessee is against not allowing credit of tax deduction at source of Rs. 52358137/–. The Assessee has submitted that the Ld. Assessing Officer may kindly be directed to grant credit for the aforesaid tax deduction to the appellant. Ld. Departmental Representative submitted that if the Assessee has proper tax credit certificates available with it then only the credit for tax deducted at source can be granted, and if those are available then there is no objection against this. In view of these arguments, we set aside ground No. 7 of the appeal of the Assessee to the file of the Ld. Assessing Officer with a direction to verify the tax credit certificates submitted by the Assessee of Rs. 52358137/– and then to grant credit for such taxes if they are found in order and in accordance with the law. In the result ground No. 7 of the appeal of the Assessee is allowed with above direction.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 58. Ground No. 8 of the Assessee is that it has not been allowed the credit for self-assessment tax paid of Rs. 63128093/–. The Assessee has submitted that the Ld. Assessing Officer may kindly be directed to grant credit for the aforesaid tax to the appellant. Ld. Departmental Representative submitted that if the Assessee has proper tax challan available with it then only the credit for it can be granted, and if those are available then there is no objection against this. In view of these arguments, we set aside ground No. 8 of the appeal of the Assessee to the file of the Ld. Assessing Officer with a direction to verify the self- assessment tax paid as submitted by the Assessee of Rs. 63128093/– and then to grant credit for such taxes if they are found in order and in accordance with the law. In the result ground No. 8 of the appeal of the Assessee is allowed with above direction. 59. Ground No. 9 of the appeal of the Assessee is with respect to chargeability of interest under section 234B of the Income Tax Act. The Assessee is aggrieved that income receivable by the Assessee are subject to deduction of tax at source and therefore the question of payment of advance tax in subsequent levy of interest under section 234B of the Income Tax Act does not arise at all. He further submitted that a person would be liable to pay interest under section 234B of the act only when he is liable to pay advance tax under the provisions of section 208 of the Income Tax Act. He further referred to the provisions of section 208 to say that if the income of the Assessee is liable to tax deduction at source then no advance tax is payable. He

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 further submitted that according to section 195 of the Income Tax Act income of a non-resident Assessee, such as appellant, is liable for tax deduction at source and therefore they are not supposed to pay advance tax under the provisions of section 208 of the Income Tax Act. In nutshell, There cannot be any liability for payment of advance tax in the hands of a non- resident its full income is liable to tax deduction at source and therefore, no interest under section 234B of the Income Tax Act can be charged. Assessee vehemently relied on the decision of the Hon‘ble Uttarakhand High Court in case of CIT versus Maersk company limited (334 ITR 79) and Hon‘ble Delhi High Court in case of DIT versus GE packaged power incorporation (373 ITR 65). He further relied on several other decisions for the same argument. In nutshell, he submitted that no interest under section 234B of the act was leviable for the above reasons that the entire payment received by the appellant from India was subject to/liable to deduction of tax at source. 60. Ld. Departmental Representative vehemently contested the argument of the Assessee and submitted that Assessee is required to pay interest under section 234B of the Income Tax Act. For this proposition he relied upon the decision of the Hon‘ble Delhi High Court in case of CIT versus Alcatel Lucent inc. [2014] 45 taxmann.com 422 (Delhi)/[2014] 223 Taxman 176 (Delhi)(MAG.)/[2014] 264 CTR 240 (Delhi). 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

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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:-

“19. Alcatel Lucent USA Inc (supra), in any event, can be distinguished on the ground that the Court was persuaded to confirm the levy of interest under Section 234B, only on account of the equities that needed to be balanced in those peculiar facts, in favour of taxability. This is evident from the following words of the Court:

"26. It further seems to us inequitable that the Assessee, who accepted the tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. The Assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided. After having accepted the liability to tax at the first appellate stage, it is unfair on the part of the Assessee to invoke section 201 and point fingers at the Indian payers. The argument advanced by the learned counsel for the Assessee that the Indian payers failed to deduct tax at their own risk seems to us to be only an argument of convenience or despair. As we have pointed out earlier, it is difficult to imagine that the Indian telecom equipment dealers of the Assessee would have failed to deduct tax at source except on being prompted by the Assessee. It may be true that the general rule is that equity has no place in the interpretation of tax laws. But we are of the view that when the facts of a particular case justify it, it is open to the court to invoke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the Assessee or even the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 revenue. Moreover, interest is, inter alia, compensation for the use of the money. The Assessee has had the use of the money, which would otherwise have been paid as advance tax, until it accepted the assessments at the first appellate stage. Where the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the Assessee, it is not expected of the Assessee to shift the responsibility to the Indian payers. We are not to be understood as passing a value- judgment on the Assessee's conduct. We are only saying that the Assessee should take responsibility for its actions." [Emphasis added]

This Court finds that no need is made out in these facts to balance any equities in these facts, as the Assessee has not vacillated in its stand as to the existence of a PE in India or otherwise. In any event, as observed earlier, the position of law itself requires that the tax be deducted at source, whatever may be the Assessee's stance, failing which the payer is treated as an Assessee-in-default under Section 201, and the payee is required to discharge its liability to pay the tax that was not deducted under Section 191.” [Extracted from Taxmann.com] 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

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 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. In view of this we set aside ground No. 9 of the appeal of the Assessee back to the file of the Ld. Assessing Officer to recompute the interest under section 234B of the act accordingly. 63. Ground No. 10 of the appeal of the Assessee is against interest charged under section 234D of the act. Both the parties agreed that this is consequential ground and does not required to be adjudicated. In view of this we dismiss ground No. 10. 64. Now we come to the additional ground admitted with respect to allowability of the expenditure of Rs. 2307379612/– for which relevant facts have been noted in the order while admitting the above ground. It was also submitted by the Assessee that this is claimed by Assessee in assessment year 2011 – 12, however same was disallowed by the Ld. Assessing Officer. It was further stated that this expenditure was not claimed in the return of income by the Assessee for that year but claimed before the Ld. Dispute Resolution Panel. It was further stated that as Assessee has not accepted the charge of the expenses by joint venture operating board claim of expenditure on it of Rs. 69221384/- has neither debited these expenditure in its books of accounts and also have not claimed it in its return of income. For this proposition he pressed the two decisions of Hon‘ble Supreme Court in case of Kedarnath Jute Mfg Co V CIT [ 82 ITR 363] and Goetz India Limited [ 284 ITR 323]. We have

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 carefully considered the rival contentions, We direct the Ld. Assessing Officer to consider the claim of the Assessee on merits after examination of relevant submission and details filed by the Assessee. It is also pertinent to note that if such sum is allowed in any other year to the Assessee, then, Ld. Assessing Officer must consider first whether those expenditure are allowable or not and if yes, then in which year more particularly. In the result additional ground filed by the Assessee is allowed with directions accordingly. 65. In the result, appeal of the Assessee is partly allowed. 66. The revenue has raised the following grounds of appeal for the Assessment Year 2009-10 in ITA No. 2227/Del/2014:- “1. Whether on the facts and in circumstances of the case, the Hon'ble Dispute Resolution Panel ("DRP') has erred in holding that the Assessing Officer/Transfer Pricing Officer ('AO/TPO1) was wrong in rejecting the economic analysis conducted by the Assessee for the determination of the Arm's Length Price ( "ALP') in connection with the transactions pertaining to Management Service and Unit charges ( "MSU Charges1) and General & Administrative Expenses ( 'G & A1). 1.1 The Hon'ble DRP has erred in holding that the Transactional Net Margin Method ("TNMM1) and Operating Profit Margin based on the Sales as the Profit Level Indicator ( "PLI") as used by the Assessee is the most appropriate method in the facts of the case solely on the ground of difficulty in availability of reliable data of comparables, not appreciating the fact that the selection of the most appropriate data is a function of several factors. 1.2 The Hon'ble DRP has erred in not appreciating the finding of the AO/TPO that the Comparable Uncontrolled Price ('CUP) method was the most appropriate method in this case and that the ALP as

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 determined by the economic analysis conducted by the Assessee was inappropriate as: i) The Assessee has not been able to show as how these transactions are intrinsically linked with the other international transactions undertaken by the Assessee ( e.g. payment on interest'on loan, sale of gas, unsecured loans taken or re- imbursements made) and there is no link with the transactions under consideration and the other international transactions ii) It is only when the international transactions are so closely linked that they cannot be benchmarked that a combined approach can be adopted as per Rule 10A(d) of the Income Tax Rules iii) Given the nature of the transactions in this case, each transaction has to be benchmarked separately and not under TNMM. v) The Assessee has adopted a combined approach with regard to its business transactions as a whole which is contrary to the provisions of law. v) The approach followed by the Assessee was not in accordance with the OECD guidelines with regard to the intra-group services in terms of which cost of intra-group services should be benchmarked using cither CUP or Cost Plus Method. 2. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of Rs. 9,88.84,0467- on account of disallowance of G&A Expenses paid by the Assessee to M/s B.G. International Ltd ( 'BOIL') 2.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TRO that a) The Assessee has not been able to establish that it has actually received any intra-group G&A services.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so-called 'evidence' furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the Assessee d) The Assessee has not been able to establish the economic and commercial benefits derived by it on account of such services e) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as they are based on ad-hoc factors like head-counts & hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves f) No comparable independent enterprise would have paid for the services in comparable circumstances g) Without prejudice to the findings regarding the actual rendering of services and the non-existence of the economic or commercial benefit derived by the Assessee. the services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 2.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement ("JOA"), all costs are shared among the joint venture partners in ratio of their participating interest and that the two other parties to the JOA( M/s ONGC and Reliance Industries Ltd) , which arc unrelated

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 parties, would not pay the cost of the services of associate enterprises which would have been in excess of the ALP. 3. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed adjustment of Rs. 1,52,09,65,9857-on account of disallowance of Management Service and Unit Charges [consisting of Federal Green Recharges of 14,85,73,4587-, Management & Unit Recharges of Rs. 1,22,95,73,6597- and Technology Recharges of Rs. 14,28,18,8697-) paid by the Assessee to M7s B.C. International Ltd ( 'BGIL1) 3.1 The Hon'ble DRP has erred in not appreciating the findings of the AO/TPO that a) The Assessee has not been able to establish that it has actually received any services in lieu of the Management Service & Unit Charges. b) Beyond a description of the services, no evidence, much less concrete evidence, establishing the actual rendering of services has been provided. c) The bulk of the so-called 'evidence' furnished during the proceedings before the TPO as well the DRP consists of the debit notes, manuals, policy documents, mention of budget amounts, internal correspondence, which by themselves do not establish that such services have actually been received by the Assessee d) The Assessee has not been able to establish the economic and commercial benefits derived by it on account of such services e) Without prejudice to the above, the cost allocation amongst the different units or associate enterprises, purportedly on the basis of the reports of external consultants, are completely arbitrary as they are based on ad-hoc factors like head-counts & hourly rates etc. and prepared by the external consultants on the basis of the inputs on such ad-hoc factors given by the AEs themselves

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 f) No comparable independent enterprise would have paid for the services in comparable circumstances g) There is an element of duplication in respect of some of the services comprised in the Management Service & Unit Charges (Accounting, Taxation, Cost Control etc.) claimed to have been rendered by M/s BGIL in that the India Project Office is also independently looking after such functions. h) Without prejudice to the findings regarding the actual rendering of services and the non-existence of the economic or commercial benefit derived by the Assessee, the services are essentially in the nature of share-holders/stewardship services which are for the benefit of the parent company and hence to that extent the ALP is liable to be treated as Nil. 3.2 The Hon'ble DRP has erred in not appreciating the fact that in terms of the Joint Operating Agreement ('JOA'), the all costs are shared among the joint venture partners in ratio of their participating interest and that the two other parties to the JOA( M/s ONGC and Reliance Industries Ltd), which are unrelated parties, would not pay the cost of the services of associate enterprises which would have been in excess of the ALP 4. Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to restrict the proposed adjustment of Rs. 22,58,4227- on account of the loan transaction between the Assessee and M/s BG Asia Pacific Holding Ltd (BGAPHL) to Rs. 14,61,247/-only. 4.1 The Hon'ble DRP erred in holding that the AO/TPO was wrong in working out the adjustment on the basis of an interest rate of 12.5% as the loan transaction under consideration was in the nature of a forced transaction, having arisen due to the action of the AO in unilaterally adjusting a refund due to the Assessee against a demand due from M/s BGAPHL in a previous year (which was subsequently

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 reduced in first Appeal resulting into a refund in the hands of M/s BGAPHL which in turn paid back the amount to the Assessee without any interest). 4.2 The Hon'ble DRP erred in not appreciating the fact that once a transaction admittedly takes the character of a loan between associate enterprises, it becomes immaterial whether or not the transaction was undertaken voluntarily and therefore, the receipt of the loan amount from M/s BGAPHL without charging any interest, called for adjustment at an appropriate interest rate on account of benefit availed by BGAPHL 5 Whether on the facts and in the circumstances of the case, the Hon'ble DRP has erred in directing the AO/TPO to drop the proposed addition of Rs. 39,59,606 on account of expenses claimed to have been incurred in relation to club entrance and subscription fees for its employees 5.1 The Hon'ble DRP has erred in not appreciating the fact the expenses under consideration are admittedly in the nature of club expenses and hence the same cannot be said to have been incurred wholly and exclusively for the purposes of the business of the Assessee. 67. Ground No. 1 of the appeal of the revenue is with respect to several aspects arising on determination of arm‘s length price with respect to intragroup services such as that Ld. dispute resolution panel Ld. assessing officer has erred in rejecting the economic analysis of the assessee and holding that the transactional net margin method adopted by the assessee is the most appropriate method and the operating profit margins based on the sales is the correct profit level indicator as used by the assessee. The Ld. AO is further aggrieved by the order of Ld. dispute resolution panel‘s where it is accepted that all the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 transactions are required to be aggregated for the purposes of benchmarking. He is further aggrieved by the order of Ld. dispute resolution panel wherein it is rejected the finding of the Ld. transfer pricing officer that cup method is the most appropriate method. He is further aggrieved that most of the services are duplicate services and shareholder services for which no 3rd party would have remunerated. Ground No. 2 of the revenue is that Ld. dispute resolution panel has admitted the additional evidences filed by the assessee holding that no proper adequate opportunity was given to the assessee, though according to the Ld. TPO there was an adequate opportunity is the 1st notice was issued to the assessee on 14th of February 2013 giving time of a 11 and half months to the assessee. Ground No. 3 of the appeal is with respect to direction of the Ld. dispute resolution panel to the Ld. transfer pricing officer to drop the adjustment of Rs. 3 329766244/– on account of intragroup services. The Ld. TPO is aggrieved that assessee could not establish that whether it has actually received any intragroup services by producing any evidence. According to him the evidences so submitted were only the debit notes, manuals, policy documents, the budgets, internal correspondences which are not adequate to show that intragroup services have been rendered. He was further of the view that assessee also could not establish the economic and commercial benefits derived by it on account of such services. The main contention of the Ld. assessing officer/transfer pricing officer was that that the expenses incurred by the assessee through its associated

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 enterprise were not approved and shared by the joint venture partners which itself shows that either no meaningful services were received from such associated enterprises or such services do not have any value with respect to the business of the assessee and therefore Ld. transfer pricing officer was justified in determining the arm‘s length value of intragroup services at nil. The Ld. transfer pricing officer has also questioned the allocation key accepted by the Ld. dispute resolution panel provided by the assessee for allocation of those group expenses. Further, the Ld. assessing officer is aggrieved by the direction of dispute resolution panel for deletion of the proposed adjustment of Rs. 8201326441/– on the amount paid to the associated enterprise as allocation of cost for joint acquisition of IT infrastructure and software. The main contention of the assessing officer/transfer pricing officer is that such IT infrastructure is a capital asset which is created and owned by the parent company who has a right over those assets and therefore such costs paid for acquisition of the said by that associated enterprise cannot be allowed in the hands of the assessee as neither the assessee owns those assets nor those assets have been put to use for its business in India. With respect to these 3 grounds, the Ld. departmental representative vehemently supported the order of the Ld. transfer pricing officer and extensively read the relevant paragraphs from the order of the Ld. transfer pricing officer. He also referred to the decision of coordinate bench in case of M/s Knorr Bermese India private limited versus ACIT (ITA No. 5097/del/2011)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 (assessment year 2007 – 08) dated 31st of October 2012 where the adoption of NIL value for the intragroup services were upheld. He also relied on the decision of the coordinate bench in case of M/s Gem Plus India private limited versus ACIT( 352/bang /2009). In view of this, the Ld. departmental representative vehemently lease stated that directions given by the Ld. dispute resolution panel were not in accordance with the law and therefore deserves to be cancelled. 68. The Ld. authorized representative vehemently relied upon the direction of Ld. dispute resolution panel. He vehemently supported that with respect to the observation of intragroup services given at Para No. 4 of the direction is exhaustive and completely in accordance with the law. He extensively read that paragraph starting from page No. 3-31 of the order of the Ld. dispute resolution panel. He submitted to paper book volumes of index of various judicial precedents relied upon by him to support his contention. He relied upon:- i) CIT V Cushman & wakefield India P Ltd 367 ITR 730 ii) CIT V EKL Appliances Limited 345 ITR 241 iii) Reebook India Co V ACIT (del ITAT) 5857/Del/2012 iv) Atotech India Limited V ACIT 104 /del/2012 v) Dresser Rand India Co V ACIT 8753/Mum/2010 vi) Ericsson India P Ltd V DCIT 141/del/2011 vii) GE Money Financial services P Ltd V ACIT 5882/Del/2010 viii) Peri India P Ltd V DCIT ( Mum ITAT) ix) Maruti Suzuki India Ltd V CIT 381 ITR 117

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 x) Sony Ericsson mobile Communication India P Ltd V CIT 374 ITR 118 xi) CIT V Lumax Industries Limited ITA No 102/2014 xii) Demag Cranes & Components Limited V DCIT 1683/pn/2011 xiii) Cummins India limited V Addl CIT ITA No 1616/Pn/2011

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 "The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assesee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appealable is passed by the Assessing Officer. This also finds support from Section 144C(6) which enables the DRP to collect evidence or cause any enquiry to be made before giving directions to the Assessing Officer under Section 144C(5) . The DRP procedure can only be initiated by an assessee objecting to the draft assessment order. This would enable correction in the proposed order (draft assessment order) before a final assessment order is passed. Therefore, we are of the view that in the present facts this issue could be agitated before and rectified by the DRP." 70. It is apparent from the above decision of the Hon‘ble Bombay high court that it is not an appeal proceedings, but a correcting mechanism whereby a second look is given to the proposed assessment made by the Ld. transfer pricing officer wrote assessing officer by the higher functionaries of the revenue wherein the interest of the assessee is kept in mind, and therefore it is a continuation of assessment proceedings only. Further, while reading the order of the Ld. dispute resolution panel it has been noted that assessee has filed though volume of submissions as an additional evidences, the same were sent to the Ld. transfer pricing officer for his comments. However, the Ld. transfer pricing officer wide letter dated 12/11/2013 has not examine those evidence was submitted that though assessee was given ample opportunity but those are not submitted before him. Therefore he objected to the additional evidences submitted. We are not in agreement with such an

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 approach of the Ld. transfer pricing officer in 1st not verifying the additional evidences submitted by the assessee for which a proper opportunity has been given by the Ld. dispute resolution panel and secondly now objecting before us that Ld. dispute resolution panel has ad in admitting the additional evidences. The correct approach would have been though objecting to the admission of the additional evidences but also opining on the merit in case the Ld. dispute resolution panel decides to admit the additional evidences, so that such objection on the merit can also be considered by the Ld. dispute resolution panel or any higher forum. This approach can save the precious time of everybody involved either in resolving the dispute a dispute resolution mechanism or at appellate forum. As the Ld. transfer pricing officer did not respond to the additional evidences submitted by the assessee on merits of the case, and Ld. dispute resolution panel has admitted those evidences for the reason that no proper opportunity has been given by the Ld. transfer pricing officer, we do not find any infirmity in the order of the Ld. dispute resolution panel on admission of the additional evidences submitted before it and adjudicating on it. Therefore, the finding given by the Ld. dispute resolution panel in Para No. 4.3 of its direction admitting the additional evidence does not suffer from any infirmity. With respect to the reasonable opportunity granted by the Ld. transfer pricing officer to the assessee we have already supplied our view, whether reasonable opportunity was granted by the Ld. transfer pricing officer or not.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 71. Now coming to the merits of the case, the above issue has been discussed at length by the Ld. dispute resolution panel in Para No. 4 onwards of its direction as under:- “DRP observation Intra Group Services 4. Objection No. 1, 2 and 3 are common to all other grounds on the additions made by the TPO. Objections No. 4 to 7 are on the determination of ALP of intra group services which are taken up together. The main issue under these objections is the rejection of TNMM as the most appropriate method used by the assessee. The assessee had benchmarked the intra group services using TNMM as the most appropriate method and it had earned a margin of 48.71%. All the international transactions relating to intra group services were clubbed together and assessee benchmarked the same under TNMM, In the provision of business support services, the assessee has used TNMM and had shown a margin of cost plus 12%. The payment of interest was benchmarked by obtaining quotations and corroborated by providing list of independent companies' comparable payment of interest on ECBs. 4.1. The TPO rejected the approach of the assessee and used CUP as the most appropriate method in intra group services. The justification given by the TPO can be summarized as under: (i) Each transaction being a separate class of transactions by itself, the same have to be benchmarked separately; (ii) Taxpayer failed to submit documentary evidences in respect of the intra-group service transactions and justify the arm's length price (iii) The assessee did not come up with any documentary evidence regarding its need for these services during the year under consideration as they remain same for fairly good amount of time and there is no incremental value add as such;

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 (iv) The details submitted in support of arm's length price of international transactions do not establish need and inevitability of these services, proof regarding receipt of these services, benefits accrued to the assessee, and the reasonable cost thereof; (v) Assessee has submitted voluminous details running into thousands of pages, most of them seem to be irrelevant to benchmark intragroup services; (vi) The services only enrich the talent pool of BGIL, the benefit of which can be reaped by BGIL (vii) No logic for payment of intra-group services year after year; (viii) Most of the services are duplicate in nature or relating to the head quarters to protect the interest of shareholders; (ix) Cost of the services allocated to assessee is on adhoc basis and not linked to the benefit derived by the assessee; Assessee had filed voluminous submissions as additional evidence. The same was sent to the TPO for his comments. TPO through letter dated 12.11.2013 has stated that assessee was given ample opportunity to submit the evidence during the course of the TP proceedings. However, the assessee failed to use the opportunity to produce the evidences and therefore the additional produced before the TPO could not be entertained. y

4.2. The assessee has made the submissions elaborately which can be summarized as follows: 1) The assessee is engaged in only one business activity, namely the exploration and production of oil and gas. For carrying out its obligations in respect of the production sharing contracts the assessee has sought technical, managerial and administrative assistance of BGIL. Accordingly, such services are sub-functions or

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 constituents of the prime function of the assessee's business and accordingly by no stretch of imagination can be said to not be closely linked or not having a close nexus to the core revenue generating activity of exploration and production of oil and gas. 2) In the case of the applicant, receipt of MSU charges and G&A are support services are intrinsically linked to the entire business operations of the applicant and are not revenue generating activities of the applicant. The said services have been availed by the applicant for the purpose of optimizing resource utilization and increasing productivity in operations of exploration and production which is its main business activity. 3) The TPO completely disregarded the detailed documents/evidences submitted to justify actual availing of services i.e. detailed nature of services received, Skill supply agreements, emails evidencing receipt of services, Reports, etc. 4) Brushed aside the voluminous details / submissions filed by the assessee and stated no evidence was produced before him - action of TPO/AO devoid of any merits and rational. 5) Tabular chart detailing the nature of services received by the assessee and the benefits derived therefrom, as submitted before the TPO, is also provided in the additional evidence submissions made before your goodself. 6) Costs were allocated based on Global Cost Allocation Policy, on cost to cost basis without charging any mark- up thereon 7) Such policy has also been certified by Independent third party consultants -PricewaterhouseCoopers LLP, UK and Lancaster Maclean.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 8) TPO/AO failed to bring anything on record to: a. Negate the information and / or supportings provided; and b. Support that no independent person would make payments in similar circumstances 9) Such highly technical experts may not be required by assessee all the time. Thus, economically and commercially unviable for assessee to employ such personnel on permanent basis. Hence, need based support obtained. 10) Assessee's prerogative to use services from Group enterprises or / and third parties -directing the assessee on how to conduct its business operations is beyond the powers of the TPO/AO. 11) Rule 108 does not authorize disallowance of any expenditure on the ground that it was not necessary 12) Reliance placed on following judicial precedents: a. AWB India Pvt. Ltd. . b. McCann Erickson India Pvt. Ltd. c. Ericsson India Pvt. Ltd. d. EKL Appliances Ltd. 13) OECD guidelines: Shareholder activity - intra-group activities essentially performed by a parent company in its capacity as a shareholder even though the recipient group members may not need the activity 14) Assessee has received significant support from BGIL, in absence of such services from BGIL, the assessee would have had to undertake these services itself or seek services of third party service providers. 15) This clearly establishes that such services cannot be considered as shareholder " activities. 16) The TPO has failed to consider the submission and the documentary evidence furnished by the assessee and

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 has made casual and general observations that the valuable services received by the assessee have no direct link with its requirements and are only for the furtherance of the AE's own present / future business. 17) The nature of services received by the assessee is required by the assessee for its business and the TPO is unjustified in holding that the valuable services received by the assessee have no direct link with its requirements and are only for the furtherance of the AE's own present / future business. 18) TPO in the case of BGEPIL held in number of instances that the assessee failed to prove that services were actually received 19) Contrary approach of TPO in the case of BGIL (service provider entity) - held that such management services were provided by BGIL to the assessee, 20) The above clearly demonstrates that services were provided by BGIL and received by BGEPIL 21) Once assessee discharges its onus of establishing ALP, the onus shifts to the TPO to prove otherwise 22) TPO/AO failed to discharge its responsibility by making casual observations that the assessee has failed to furnish documentary evidence to demonstrate / support receipt of services. 23) The assessee had argued that it had submitted voluminous evidence, on sample basis, to demonstrate actual receipt of services and it would not be humanely possible for the assessee to furnish each and every evidence for receipt of service. The Hon'ble Panel had held that based on the test checking it can be seen that the assessee has indeed received such services and thereby had arrived at the conclusion that TNMM is the most appropriate method in this case and that CUP cannot be applied in the absence of any data availability in case of comparable cases. Accordingly, the entire transfer pricing addition, on account of intra group services was deleted.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 24) Assuming but not admitting that the arm's length price of G&A and MSUs availed by the assessee is Nil (as contended by the TPO/AO), we would like to submit that the TPO/AO has grossly erred in not excluding the amount of tax grossed up by the assessee on such payment while disallowing the same. In response to this objection raised by the assessee before the TPO/AO vide submission dated 9th January 2014 (Annexure 2 - page 1 to 534 of Volume VA of the Paperbook), the TPO has not commented on the same and has completely disregarded the submissions of the assessee 25} This contention of the TPO is extraneous to the application of arm's length standard in respect of intra- group services as the assessee is only required to show that these services are received and have benefited it and where non- duplicative and non-shareholder in nature and the assessee has fully discharged his onus in this regard. 4.3. DRP has considered the submission of the assessee. The proceedings before the DRP are only a continuation of the assessment proceedings. Therefore, DRP is bound to accept any additional evidence filed by the assessee during the course of its proceedings. It is also clear that the time given by the TPO to furnish the evidence was at the fag end of the TP proceedings. It is only fair to give a chance to the assessee to explain its position. Therefore, the additional evidences are admitted.

4.4. The assessee is receiving services under different heads, namely, A. General and Administrative, B. Information Management related services, C. Management and Unit Charges D. Federal Green Charge E. Technology Recharge i

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 F. Payroll Expenses ' : ' The assessee has provided voluminous documents which are containing the following Pages: DRP Submission

S.No. Volume No. No. of pages 1 Volume -III 390 2 Volume-IV 853 3 Vclume-VA 534 4 Volume-VB 671 5 Volume-VIA 665 6 Volume-VlB 590 7 Volume-VII 898 8 Volume-VIII 394 Total Pages of DRP Submission 4995 Additional submission to DRP S.No. Volume No. No. of pages 1 Volume-1 528 2 Volume-2A 495 3 Volume-28 489 4 Volume-3 417 5 Volume-4 490 6 Volume-5 431 Total Pages of Additional Submission to 2850 DRP Total Pages 7845

The main objection of the TPO was that assessee has 4.5. not produced the evidence and assessee has not established receiving any benefit on account of receipt o/this service. The above voluminous documents were further summarized by the assessee with reference to each and every pages submitted before the DRP and the TPO. The summary of the evidences and the benefit received on account of these services are reproduced below: A. . GENERAL & ADMINISTRATIVE EXPENSES i. T THIRD PARTY

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Description of services received | Salary & other costs - These costs primarily pertain to Employee Stock Option Plan ("ESOP") exercised by BGEPIL employees. BGEPIL employees receive shares from the parent company as Stock Options. These shares are allotted at "NIL" cost to the employees. However, the cost relating to these shares are subsequently recovered/charged to individual asset. Relocation costs - This head comprise costs in respect of relocation of assignees/employees including familiarization expenses, travel costs, cost of transporting the assignees personal belongings, storage costs, etc. also form a part of this head. Consultancy fees , - Consulting services mainly comprise of services availed from third parties by BG/L on behalf of the assessee. For instance, services were availed from global tax and legal firms in relation to expat taxation of the BG employees. Professional subscriptions and license cost - Professional subscriptions and license cost mainly comprise of payments made for subscription to journals magazines and other reports relevant to the business sector of - the assessee viz. oil and gas journals, fees paid for Platts reports, fees paid for reports issued by Society of Petroleum Engineers/other professional institutes (i.e. Geoquest/PEEP/HIS Energy/Schlumberger, other energy industry related publications etc.). Bank charges ; - Bank charges are predominantly recovery of cost incurred by BGIL in arranging for providing bank guarantee to BGEPIL. i Travel & Subsistence

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Travel and subsistence refers to business travel expenses incurred by BGIL on behalf of the assessee. Also includes cost of meals, per diem expenses and other incidental charges. Diminimus charges - Diminimus charges are expenses incurred by BGIL in relation to the expats on phone calls/visa cost/insurance cost/familiarization cost. These costs are incurred on the employees either seconded to India or travelling to India for a project. Thus, these costs are asset specific cost. General and Administrative expenses -Service tax - Service tax represents amount of tax paid on the services received from BGIL towards G&A. . - Evidence filed before the TPO (forming part of paper- book filed with Form 35A on 6, 2014) Salary & other costs ' Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 259 to 293 of Volume IV of the Paperbook) > Relocation costs : Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 294 to 296 of Volume IV of the Paperbook) Consultancy services Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 297 to 394 of Volume IV of the Paperbook) Professional subscriptions and license cost Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 325 to 330 of Volume IV of the Paperbook) Bank charges

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Sample copies of relevant debit notes along with third party invoices/documents (on sample basis) to demonstrate the actual receipt of services and benefits received thereon. (Page 331 to 336 of Volume IV of the Paperbook)

Travel & subsistence I Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 337 to 363 of Volume IV of the Paperbook) Diminimus charges. Sample copies of relevant debit notes along with third party invoices/documents to demonstrate the actual receipt of services and benefits received thereon. (Page 364 to of Volume 493 of the Paperbook). : Service tax Copy of the service tax return comprising of service tax paid in respect of services received from BGIL and IDS certificate in respect of services received from BGIL. (Page 494 to 517 of Volume IV of the Paperbook) : III. Additional evidence filed before Ld. DRP onNovember 7, 2014 General and Administrative expenses - Travel & Subsistence Sample inter-company debit notesand American Express copies which demonstrate the :'~- travel of the employee for India project for the relevant period and third party costs for the same: ! XXXXXX (Refer Page 1 to 202 of Volume 1 of the additional evidence Paper book) General and Administrative expenses - Others

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 General & Administrative (G&A) Manual for use by the Global Finance team prepared by BGIL to provide clarity around G&A costs within BG and in so doing bring consistency in understanding and treatment of G&A costs within the Group. - (Refer Page 203 to 259 of Volume 1 of the additional evidence Paper book) IV. Benefits derived Salary & other costs : It is an expense incurred to retain, motivate and award employees of subsidiary company, it is similar to salary cost and it is business expenditure. Consultancy services Services availed from global tax and legal firms in relation to expat taxation of the BG employees. Professional subscriptions • Reduction in wastage of time, efforts and cost as BGIL procures these licenses for the common use and benefit of BG group entities including BGEPIL • BGEPIL has access of global business information relating to Oil and gas industry • Access to the knowledge pool and huge database of information and technical knowledge. ; . Relocation, Bank charges. Deminimus charges ; The expenses pertaining to these services are in relation to administrative convenience incurred particularly in arranging for providing bank guarantee to BGEPIL, rent or hotel expenses incurred by the employees of BGIL while providing various services. Travel & subsistence These expenses pertain to BGEPIL BGEPIL has reimbursed the travel and subsistence expenses to BGIL. These are pure third party costs. ii. TIME WRITING I. Description of services received :

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Technical and engineering consultancy services - Time writing charges • The costs recharged on account.of technical and engineering consultancy services include specific time- writing costs booked by the employees of BGIL for assistance with development projects that were proposed for the PMT oi! fields • Technical experts whose assistance has been availed by the assessee inter alia include engineers, project risk experts, subsurface assurance managers, contracts/procurement managers and geophysical managers Evidence filed before the TPO {forming part of paper-book filed with Form 35A on May 6, 2013) Table of benefits detailing the description of the services, mode of receiving the services, benefits derived and a list of documentary evidence {in the nature of debit notes, invoices and back-up of document providing details of personnel of BGIL who have written time on India projects) in support of the time writing charges. (Pcge 99 to 513 of Volume VlI of the Paperbook and Page 516 to 772 of Volume IV of the Paperbook) Additional evidence filed before Ld. DRP on November 7, 2014 • Sample high value inter-company debit notes (above INR 10 lakhs) which demonstrate that the time writing charges were in relation to the work done on India projects and the invoice was raised accordingly. Further, the description of time writing cost sheet demonstrates that the same pertains to the India project. XXXXXXX (Refer Page 260 to 518 of Volume 1 of the additional evidence Paper book) Timesheets of individuals evidencing the actual work done pertaining to India projects. The said timesheet

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 clearly demonstrates that those employees had worked in relation to which cost has been charged to BGEPIL. • Sample inter-company debit notes and Skill Supply Agreement copies which demonstrate that the time writing charges were in relation to the said SSAs and the invoice was raised under the said SSA. Further, the description of time writing cost sheet demonstrates that the same pertains to the India project. (Refer Page 236 to 281 of Volume 1 of the additional evidence Paper book) • Timesheets of individuals evidencing the actual work done pertaining to India projects. The said timesheet clearly demonstrates that those employees had worked for the SSA's in relation to which cost has been charged to BGEPIL (Refer Page 282 to 294 of Volume 1 of the additional evidence Paper book) • Email evidences containing employee declarations (for sample SSAs) demonstrating that actual work done pertains to India projects. Copies of reports made by such employees under the SSA. (Refer Page 296 to 532 of Volume 1 of the additional evidence Paper book) IV. Benefits derived Expatriate employees provide technical assistance as required by BGEPIL which assists them in terms of quality, industry details, understanding global ideas and best practices which BGEPIL would not have ready access. B. MANAGEMENT AND UNIT RECHARGES - INFORMATION MANAGEMENT ('HWl RELATED SERVICES I. Description of services received (a) IT support services - Seamless IT support to the assessee's personnel on any IT issues faced by it on a day-to-day basis. Undertaking network improvements on a scheduled basis. (b) Email services - E-mail related support services in the nature of creating standardized corporate e-mail

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 account for all employees across the globe, maintaining control on making each e-mail account a separate and unique e-mail account, managing e-mail services. (c) BG Intranet Portal - Development and maintenance of the portal! is undertaken by BGIL. BGIL inputs various policies and guidelines of the group on the intranet portal. (d) Internet services - Provision of internet access to assessee. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber- crime. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking, etc. (e) Enabling mobile/offsite working - 24X7 platform provided by BGIL so that assessee's personnel can work even if not in office. (f) IM Central Services - Access to various licenses purchased by BGIL from third parties such as Procon license, Oracle license, Cognos license, SAP license. Receives support in case of any issues faced by BGEPIL in using SAP Oracle etc. Benefits derived IT support services (a) Access to highly experience and technical IT resources without having to invest in an in-house dedicated IT team. Thus, reduction in downtime and idle time cost. (b) Reduction in investment on standby assets as such standby assets are owned and maintained by BGIL. {c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services (a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 applicant's business and gives it better control over use of email by personnel for personal use. (b) Enables assesse to track the trail of e-mails much faster. (c) A separate and unique e-mail account enables the assessee to have better control over the use of e-mails by its employees. (d) Creating a corporate e-mail provides opportunity to the assessee to prescribe structure of e-mails to employees and for standardization of e-mail communications for specific purposes/events. (e} Assessee receives the benefit of on-going and continuous development in IT arena. BG Intranet Portal , Reduction in wastage of time, efforts and cost on the following grounds:  Portal provides a platform for and facilitates networking of employees;  Ready access to the employees of support function of the assesse on the policies and guidelines i.e. accounting policy manual etc.; and !  Such standard documents assist the assessee in formulating / implementing similar controls in place easily. internet services a. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. b. Monitoring activities of various employees on internet and corrective actions taken in c. case of reports of hacking etc. (c} Ensure uniform connectivity as per the assessee's requirements. d. Corrective actions against hacking enable asessee to function efficiently at lower cost. e. Monitoring internet activities of employees creates awareness and control among each employee in usage of internet facilities only on need basis. Avoidance of unnecessary

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 II. Benefits derived IT support services • . l:- -.". -; . a) Access to highly experience and technical IT resources without having to invest in an in-house dedicated IT team. Thus, reduction in downtime and idle time cost. b) Reduction in investment on standby assets as such standby assets are owned and maintained by BGIL. c) Consistent IT platform and infrastructure maintained by BGIL which provides assesse access to the knowledge pool and huge database of information and technical knowledge. Further, consistent IT platform also ensures on-time performance of services. Email services . [ a) Corporate e-mail account ensures confidentiality of sensitive information closely associated with the applicant's business and gives it better control over use of email by personnel for persona! use. b) Enables assesse to track the trail of e-mails much faster. c) A separate and unique e-mail account enables the assessee to have better control over the use of e-mails by its employees. d) Creating a corporate e-mail provides opportunity to the assessee to prescribe structure of e-mails to employees and for standardization of e-mail communications for specific purposes/events. e) Assessee receives the benefit of on-going and continuous development in IT arena. BG Intranet Portal , Reduction in wastage of time, efforts and cost on the following grounds: - Portal provides a platform for and facilitates networking of employees; - Ready access to the employees of support function of the assesse on the policies and guidelines i.e. accounting policy manual etc.; and ; - Such standard documents assist the assessee in formulating / implementing similar

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 - controls in place easily. - Internet services a. Maintenance of internet services to ensure assessee is protected from cyber-attacks and cyber-crime. b. Monitoring activities of various employees on internet and corrective actions taken in case of reports of hacking etc. c. Ensure uniform connectivity as per the assessee's requirements. d. Corrective actions against hacking enable asessee to function efficiently at lower cost. e. Monitoring internet activities of employees creates awareness and control among each employee in usage of internet facilities only on need basis. Avoidance of unnecessary of internet for playing games etc. Thus, optimal utilization of bandwidth for official purpose. Enabling mobile/offsite working ,  Ensures continuity of work and optimum utilization of time of the employees of assessee.  Encryption and safety precautions taken care of  Saving of cost by allowing an employee to work from anywhere in the world. IM Central Services t : a. SAPS, Oracle etc., are crucial for day to day functioning of business. b. Purchase of such license by BGiL for all group entities leads to cost efficiency. c. Cost savings to BGEPIL - not required to employ fully dedicated personnel to provide support on issues faced in using SAP etc. III. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 ! ^ (a) Inter-company debit notes ' !

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Sample copies of ICDNs with details of nature of expenses and the costs associated under each such expense head: '  ICDN No. 1-17:IM Recharges by BGIL to BGEPIL proportionately on the basis of number of users in BGEPIL to total users of BG Group (Page 49 to 98 of Volume VII of the Paperbook) (b) Cost Allocation Methodology -Lancaster Maclean report certifying cost allocation methodology PricewaterhouseCoopers report certifying cost allocation policy (c) Documents to evidence receipt of service Sample copies of e-mails stating service being provided in the nature of installation of windows security on the servers of the assesse, continuous monitoring of the server for up gradation, resolving day to day IT issues faced by the personnel of the assessee etc. (Page 824 to 947 of Volume VB of the Paperbook) IV. Additional evidence filed before Ld. DRP on November?, 2014 a) Sample copies of Inter Company Debit Notes ("ICDNs") with details of nature of expenses and the costs associated in relation to IM services. This includes IM Recharges by BGIL to BGEPIL proportionately on the basis of number of users in BGEPIL to total users of BG Group. (Page 1 to 75 of Volume 2A of the Additional evidence Paperbook) ( i - - \ XXXXXXXX b) Snapshots of the list of applications to which personnel of assessee have access to(Page 76 to 77 of Volume 2A of the Additional evidence Paperbook) c} List of users at BGEPIL having access to some of the technical applications Page 78 to 79 of Volume 2A of the Additional evidence Paperbook) d) Snapshots of the intranet portal maintained by BGIL which is accessible to all the Group entities including

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 BGEPIL ( Page 80 to 96 of Volume 2A of the Additional evidence Paperbook) e) Detailed list of sophisticated IT application to which personnel of assessee have access to where day to day operations of the assessee are carried outrage 97 to 495 of Volume 2A of the Additional evidence Paperbook and Page 1 to 489 of Volume 28 of the Additional evidence paper book) C. MANAGEMENT AND UNIT RECHARGES - HR. ACCOUNTS. TAXATION, INSURANCE ETC I. Description of services received HR support - Support on deployment of globally mobile expatriate staff:  BGIL's HR international team coordinates all expat requirements based on nature of work, profile of activities, resource availability, cost factors, etc.  Manages issues connected with the transfer of staff between various projects of BG group entities including the assessee, repatriation of staff at the end of a secondment etc.  . Managing the international movement of Indian nationals who go to other business units within BG group for developmental assignments.  For areas like compensation and benefits, standards and methods are developed, managed and monitored centrally to ensure consistency of process. Accounting and Taxation support  Financial systems and analysis - Main financial systems (SAP, Cognos etc.) used by the assessee are managed centrally by BGIL Implementation of such systems, training and provision of ongoing advice undertaken by BGIL.  Financial technical accounting and assurance support - Implementation of various international accounting

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 principles, training the assessee's employees and solving their queries on a day to day basis, if any.  Financial Reporting - Assistance on internal and external financial reporting  requirements. Provides advice to the assessee on the group financial reporting  requirements and policies and impact of local projects on the overall financial  reporting. .  Management reporting - Guidance provided to assessee on corporate requirements, collection of data and other management reporting matters.  Assistance on local taxation issues - Guidance on how the particular tax position will be looked at in international parlance in view of head office being located in overseas country. Assistance on local and group tax accounting matters. Assistance on managing tax audits/ assessment/ appeals and other issues as and when required Insurance support : Support on insurance related matters  Look after insurance coverage of various assets and activities of BG group entities including the assessee  Assists in obtaining necessary insurance coverage to protect the BG group entities including the assessee from potential / possible loss in case of an unforeseen event  Assistance in managing and making insurance claims and dealing with settlement and other issues , II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014 Human Resources a) A manual in relation to Business Travel and Expenses Standard which is governed by BG Groups Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 business travel and other business activities Page 535 to 562 of Volume VBofthe Paperbook) b) A talent management model of BG group which summarizes the potential qualities and skill set which is required to be maintained by BG group employees (Page 563 to 575 of Volume VB of the Paperbook) c) E-mail correspondences by BGIL sloganing young leaders research being recommended as a measure that would be researching on the graduate population to provide support to BGEPIL Input provided thereby by BGIL {Page 676 to 678 of Volume VBofthe Paperbook) d) E-mail correspondences by BGIL demonstrating support provided by BGIL to BGEPIL on training, on job learning, vendor supportive web based tools along with the competency and development review for employees. Power point presentations projecting appropriate training and ADR approach, the 360 tool and wallet cards are being attached for reference {Page 611 to 640 of Volume VB of the Paperbook)] e) E-mail correspondences by BGIL which demonstrates the international placement policy communicated to BGEPIL specifying the placement criteria along with the cost of living and salary caps. The policy stands attached herewith.(Page 679 to 733 of Volume VB of the Paperbook) . f) E-mail correspondences by BGIL in relation to the recruitment policies. Power point presentations demonstrating graduate development move projections necessary as a recruitment agenda for BGEPIL (Page 607 to 608 of Volume VB of the Paperbook) g) E-mail correspondences by BGIL which demonstrates that BGEPIL avails support in relation to Annual Incentive Scheme performance and Salary Review along with the progression panel considering the employer-employee relationship with a long term perspective. (Page 607 to 608 of Volume VB of the Paperbook)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 h) Snapshots on global mobility and demonstration on professional and area development. Employee resourcing and recruitment strategy summary of Poge 735 to 741 of Volume VB of the Paperbook) i) Extract of Service agreements providing certain staff, support and personnel services of Page 808 to 823 of Volume VB of the Paperbook) Accounting. Finance. Taxation & Legal support ! a. E-mail correspondences evidencing support received from BGIL in relation to accounting matters fPageSSS to 590 of Volume VB of the Paperbook) b. E-mail correspondences evidencing substantial support received from BGIL in relation to taxation and provisioning mattersfPage 578 to 581 of Volume VB of the Paperbook) c. E-mail correspondences evidencing support received from BGIL in relation to WTfPage 582 to 587 of Volume VB of the Paperbook) d. E-mail correspondences evidencing support received from BGIL in relation to profit and loss account and balance sheet analysisffoge 588 to 588 of Volume VB of the Paperbook e. E-mail correspondences evidencing support received from BGIL in relation to legal matters, SAP support etc. Quarter review of user access summary along with SAP Role assignment forms in respect of employees(Page 533 to 562 of Volume VB of the Paperbook) f. E-mail correspondence evidencing support received from BGIL packaging supplementary information.(Page 591 to 562 of Volume VB of the Paperbook) g. The allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773 to 788 of Volume IV of Paperback) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) h. In addition, report of the independent consultant certifying the cost allocation methodology for the year 2009 is also provided. (Pages 773 to 853of Volume IV

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 of Paperbook) III, Additional evidence filed before Ld. DRP on November?, 2014 Human Resources -i * a) A slide deck prepared by BGIL on 360° feedback tool which provides a framework for behaviours critical to excellence offering depth and level of guidance sought, (Page 1 , to 5 of Volume 3 of the Additional evidence paper book) b) Guidelines prepared by BGIL on 360 Feedback tool are intended to support HR Managers and Advisors in understanding the 360 process in BG Group and their role as trained 360 HR Coaches. These guidelines are to ensure that a minimum standard is adopted and maintained across the Group in the feedback and support Participants receive from the HR Coach in completing their 360 review. It is the first time BG has introduced a 360 tool at group level in year 2009.(Page 6 to 11 of Volume 3 of the Additional evidence paper book) c) A slide deck of BGIL dated October 2009 on Awareness Training for Mentors & Mentees containing an agenda of safety moments, role of mentor, developmental approach to mentoring, role of a mentee, ground rules for mentoring relationship, etc.fPage 12 to 33 of Volume 3 of the Additional evidence paper book) d) A slide deck on People Agenda update for year 2009 which refers activities in relation to performance management, reward, talent management, On-line ADR, etc.fPage 34 to 50 of Volume 3 of the Additional evidence paper book) e) A planning document on BG Group Relatives Response Plan December 2009 which describes how BG Group manages enquiries from relatives of BG people in an incident. It explains the context of BG Group's Crisis Management system. It f) describes the organization, processes, roles and responsibilities of the Relatives Response Team (RRT).(Page 51 to 56 of Volume 3 of the Additional evidence paper book) ' '..... ,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 g) A functional career ladder or a Job description responsibility matrix in relation to HSSE management, finance & planning, global IT&T and HR which summarizes position / designation, requisite skill set required, key accountability etc. Poge 57 to 60 of Volume 3 of the Additional evidence paperbook) h) Sample copies of Inter Company Debit Notes raised by BG1L on BGEPIL which provides details of cost recharged in relation to HR activities (Page 61 to 71 of Volume 3 of the Additional evidence paperbook) h) A manual in relation to Business Travel and Expenses Standard which is governed by BG Group's Human Resources Policy and sets mandatory requirements regarding undertaking business travel on behalf of BG Group and the claiming of expenses associated with business travel and other business activities (Poge 72 to 95 of Volume 3 of the Additional evidence paperbook) i) A sample HR Induction Checklist prepared by BG group for new starters / new employeesfPoge 96 to 98 of Volume 3 of the Additional evidence paperbook) j) A slide depicting list of SAP HR Super Users among the group entities (Page 99 to 99 of Volume 3 of the Additional evidence paperbook) k) Snapshots of portal which provides access to various websites, documents, manuals, standards etc. which are provided below^Poge 100 to 118 of Volume 3 of the Additional evidence paperbook) a. Access to learning management system b. Portal which provides information / role in relation to BG group employee c. behaviors I c. Portal related to BG group and talent management d. Assistance from BGIL in relation to Travel related queries e. Access to BG portal which provides various services d. Information related to Annual incentive scheme provided to BG group employees g. Information related to HR functions h. Information related to organizational functions i. Information & assistance related to travel related documentations Accounting. Finance. Taxation & Legal support

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 a) A report prepared by BGIL on capital expenditure which provides detailed process transaction flow, identify financial reporting risks inherent in the process, and the related control objectives. It also helps identify the controls in operation, and map these to the control objectives identified. It demonstrates how the controls address the relevant assertions for the material financial statement balances affected by this process. It also helps identify the method of monitoring and nature of evidence b) required to confirm operation of controls. (Page 119 to 133 of Volume 3 of the Additional evidence paperbook) c) A manual / reference note for the year 2009 prepared by BGIL which helps the Regional Investment Committee to approve ordinary Course business expenditure on capital projects and financial commitments for the Region, the substitution capital funding within the Region's current approved budget for new projects, Re-approving capital investments, Approve pre-sanction capital expenditure incurred in year of sanction, Approve physical energy commodity sales and purchase agreements (including associated transportation / regasification capacity and trading activities), etc.fPage 134 to 138 of Volume 3 of the Additional evidence paperbook) d) A slide deck prepared by BGIL dated May 2009 which summarizes process improvements and overview of benchmarking of financial shared services etc.(Page 139 to 151 of Volume 3 of the Additional evidence paperbook) ,.--.. ^ -- -..->-> e) A slide deck dated May 2009 prepare by BGIL which provides a guidance towards cost control, cost management, G&A management, travel saving strategy, cost reduction etc.(Page 152 to!89 of Volume 3 of the Additional evidence paperbook) f) Copies of BG group finance newsletter for Quarter 1, 3 & 4 of 2009 which provides various useful guidelines in relation to finance. It also provides updates on the happening of events at various group entities and keep

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 the group updated on the financial frontpage 190 to 236 of Volume 3 of the Additional evidence paperbook) g) A slide deck dated May 2009 prepared for a workshop in relation to cost recovery for virtual conference undertaken by &G\L(Page 237 to 242 of Volume 3 of the Additional evidence paperbook) h) A slide deck prepared by BGIL which provides the group entities with a training guidelines to extract various reports from SAP. (Page 243 to 245 of Volume 3 of the Additional evidence paperbook) i) A functional career ladder or a Job description responsibility matrix in relation to taxation which summarizes position / designation, requisite skill set required, key accountability etc. (Page 246 to 246 of Volume 3 of the Additional evidence paperbook) , . , . j) A slide deck prepared by BGIL to train the group entities on sources of employment law, vicarious liability, contract of employment, various litigation & laws. (Page 247 to 283 of Volumes of the Additional evidence paperbook) ; Insurance related support services and other miscellaneous support services a. A slide deck dated November 2009 on travel insurance policies which provides guidelines on applicable insurance policies for eligible employees.(Page 284 to 292 of Volume 3 of the Additional evidence paperbook) b. A guideline dated December 2009 which establishes BG Group insurance philosophy and responsibilities which applies to all locations of BG Group including BGEPIL-fPoge 293 to 305 of Volume 3 of the Additional evidence paperbook) c. A guideline dated December 2009 which confirms the procedure adopted by the BG d. Group Insurance Team for the appointment of a project- specific insurance broker leading to the purchase of insurance and servicing of the insurance needs, including claims {1MB - claims handling may be subject to separate contract). The document also addresses the procedure adopted for the relatively limited direct approaches made to insurers without the use of

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 brokers.(Page 306 to 311 of Volume 3 of the Additional evidence paperbook) \ e. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal of various insurance coveragesfPoge 312 to f. 364 of Volume 3 of the Additional evidence paperbook) g. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal premium calculation for 2010 BGEPIL (Poge 365 to 367 of Volume 3 of the Additional evidence paperbook) h. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to forecast guidelines on insurance assumptionsfPoge 36S to 371 of Volume 3 of the Additional evidence paperbook) i. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to BGEPIL - operational insurance renewal 2009/lOfPoge 372 to 372 of Volume 3 of the Additional evidence paperbook) . .. j. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal of various insurance coveragesfPoge 373 to 374 of Volume 3 of the Additional evidence paperbook) k. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to renewal of insurance 2010fPoge 375 to 377 of Volume 3 of the Additional evidence paperbook} l. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to premium paid inclusive of tax(Poge 378 to 378 of Volume 3 of the Additional evidence paperbook) m. E-mail correspondences evidencing support received from BGIL in relation to insurance issues pertaining to a potential leak which has been detected from BG HSSE report and whether any advice to insurers is required for the same. (Page 379 to 379 of Volume 3 of the Additional evidence paperbook} n. A functional career ladder or a Job description responsibility matrix in relation to insurance which

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 summarizes position / designation, requisite skill set required, key accountability etc. (Page 380 to 380 of Volume 3 of the Additional evidence paperbook} o. Terms of Personal Accident Insurance Scheme provided to BG group employees which mentions benefit for employees, non-employees, guidance for claims, exclusions if any, etc.(Page 381 to 382 of Volume 3 of the Additional evidence paperbook) p. Sample copy of Inter Company Debit Notes raised by BGIL on BGEPIL in relation to miscellaneous expenses which summarizes various activities undertaken by BGIL for which cost is charged. (Page 383 to 417 of Volume 3 of the Additional evidence paperbook) IV. Benefits derived Support on deployment of globally mobile expatriate staff :  Assessee leverages on the services of BGIL's HR team for obtaining staffing resource and expertise of the wider group thereby saving on the recruitment costs including fees payable to search firms and head hunters.  Assessee's staff participates in group wide compensation initiatives thereby enabling assessee to be incentive better and on a more cost efficient basis (as the assessee need not investigate and implement its own separately designed compensation and rewards schemes)  Capability building of the assessee's workforce by managing their international movement to other business units within BG group, Accounting and Taxation Support • Financial systems and analysis - Consistency of reporting and security of data of the assesse. Received training and other advice on the use of SAP and other financial systems. Financial technical accounting and assurance support *  Assessee being a project office of a foreign company is required to follow international accounting standards.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11  Assessee's personnel are trained to keep pace with the recent developments in the international arena.  Technical accounting issues of the assessee are resolved by BGIL Financial Reporting : • Savings in time and cost by using a shared overall group finance reporting system. Management reporting • Savings in time and cost. ! Assistance on local taxation issues • Ongoing assistance on international taxation matters and update on developments in the international arena (extremely crucial for the assessee since it is a project office of the foreign entity in India). Insurance Support • Central insurance management team manages insurance for the group as a whole thereby reducing the overall risk and costs and enjoying economies of scale • Removes necessity to employ a full time insurance specialist - reduction in downtime and idle time cost. • Access to more experienced and skilled insurance specialist D. FEDERAL GREEN RECHARGE Description of services received The Assessee is provided with guidelines in relation to best practices, E&A Budget management E&A Budget planning, Peer networks, Parenting & resourcing, trainings etc. in relation to exploration, developments, operations, Health Safety Security Environment ('HSSE'), projects etc. to ensure smooth and efficient functioning. The aforesaid services are also in relation to development of C&P infrastructure C&P Systems Strategy, Contractor relationship management, Market intelligence, Procon-Enhancement, SAP Wave, parenting, and project management etc. Various assets

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 (including the Assessee) agree to participate in common Federal Green Projects on issues that affect them on a common basis so that the project studies can serve as valuable inputs in their exploration and production efforts. Whenever, the studies are commissioned by various assets, the costs are shared between them and whenever the study or project is commissioned only by the Assessee, the charges are based on number of hours spent by the experts of the associated enterprise. II. Evidence filed before the TPO (forming part of paper- book filed with Form 35A on May 6,2014 (a) BG Group HSSE Incident Review Panel Report summarizing performance analysis (Page 75to 75of Volume VA of Paperbook) (b) A report on Asset integrity Programme by the Offshore Division of HSE's Hazardous Installations Division (Page 76 to 147 of Volume VA of Paperbook) (c) Powerpoint presentation summarizing the Egyptian LNG's Asset Integrity Journey of ExcellencefPoge 148 to 152 of Volume VA ofPaperbook) (d) HSSE Incident review report for the month of June 2QQB(Pages 153to 181of Volume VA ofPaperbook (e) HSSE report for all the four quarters of FY 2QQ9- lQ(Page 182 to 228 of Volume VA of Paperbook) _ (f) The allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773to 788of Volume IV ofPaperbook) certified by Price Waterhouse Coopers vide their report. (Pages 789to 826of Volume IV of Paperbook) (g) In addition, report of the independent consultant certifying the cost allocation methodology for the year 2009 is also provided. (Pages 773 to 853of Volume IV of Paperbook) (h) Intercompany debit notes with details of time writing i.e. names of such people and hours booked by them (Pages 3 to 48 of Volume VII ofPaperbook) I.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 III. Additional evidence filed before Ld. DRP onNovember 7, 2014 (a) Detailed description of the activities undertaken for federal recharge (Page 1 to 7 of Volume 4 of the Additional evidence Paperbook) (b) A standard guidance note issued on December 2009 in relation to Floating Production, Storage and Offloading Systems (FLNG)which sets out mandatory Company requirements for the design and construction of monohull (ship-shaped) new build FLNG Facilities worldwide. (Page 8 to 63 of Volume 4 of the Additional evidence Paperbook) (c) Guideline issued on July 2009 on Material Selection & Corrosion Controlwhich defines the minimum Company requirements for selecting materials of construction and corrosion control measures to support the corrosion management strategy for a facilityfPage 64 to 127 of Volume 4 of the Additional evidence Paperbook) (d) A guideline issued on July 2009 on Fabrication of Equipment and Piping which defines minimum Company requirements for the fabrication, joining, inspection and testing of metallic and non-metallic structures (including offshore jackets, trestles etc.), static equipment (including pressure vessels, tanks, boilers, furnaces, sub-sea manifolds, machinery and valve casings), piping systems and pipelines (including flow lines, trunk lines and r\sers)(Page 128 to 171 of Volume 4 of the Additional evidence Paperbook) (e) A guidance note issued on February 2010 prepared by BGIL to define BG's operating policy and procedures for the safe isolation, and reVasftateica&icvt o£ <^las\*.<vt ^i>jpw^\ from sources of hydrocarbons and other fluids.This document applies to the preparation for mechanical isolation, reinstatement and leak testing of process utility and drilling systems. It should be followed at all BG operated sites, both onshore and offshore, and applies to all process systems including subsea

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 pipelines.f^oge 172 to 226 of Volume 4 of the Additional evidence Paperbook) (f) A handbook issued on February 2010 by BGIL on operation guideline on Safe Isolation and Reinstatement of Plant which forms part of the BG Group operations requirements for all global assets.(Page 227 to 299 of Volume 4 of the Additional evidence Paperbook) (g) A slide deck issued on December 2009 prepared by BGIL on project & well accounting wherein the overview and statistics of BG group assets including BGEPIL capex framework, key projects & plans, project accountant role, interaction with PMT & well engineers, well reconciliation, reports etc. are summarized.(Page 300 to 347 of Volume 4 of the Additional evidence Paperbook). (h) A graphical chart summarizing BG Group Finance HSSE Schedule for 2009 which summarizing various fedgreen activities during the period/Page 348 to 348 of Volume 4 of the Additional evidence Paperbook) . (i) Snapshots of access to intranet portal as well as information in relation to following Fedgreen activitiesfPage 349 to 356 of Volume 4 of the Additional evidence Paperbook) a. HSSE b. Health risk management . c. Exploration activity d. Development activity e. Policies f. Group operating mode g. Asset integrity h. Contracts & Procurement activity i. Production & operations activity j. Corporate reserves etc. (j) A graphical representation of combined operations safety case prepared by BG International Armada Development which gives guidelines of operation safety

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 case which can be undertaken by other group entities. Page 357 to 361 of Volume 4 of the Additional evidence Paperbook) (k) A guidance note issued by BGIL for effective environmental management which delivers and protects business value throughout the lifecycle of an asset and reduces to as low as practicable impacts and risks related to the natural environment. CPage 362 to 411 of Volume 4 of the Additional evidence Paperbook) • ' (I) A guideline issued by BGIL on The Safety Case, which is the means of both ensuring and demonstrating that suitable and sufficient measures are in place to prevent a major accident or environmental event, and to reduce the effects of these events should they occur. fPage 412 to 449 of Volume 4 of the Additional evidence Paperbook) (m) A document of BGIL which provides the definition and guidance on the layout & content of a Safety Case for Combined Offshore Operations. It enables such Safety Cases to be prepared consistent with the requirements of the BG Group Standard.(Page 451 to 482 of Volume 4 of the Additional evidence Paperbook) (n) A standard issued by BGIL on incident reporting and investigation which sets out procedures for establishing reporting and investigation processes, reporting and investigation of incidents and subsequent learning from incidents. Page 483 to 490 of Volume 4 of the Additional evidence Paperbook)

IV. Benefits derived The aforesaid services provide the Assessee with access to ever-evolving technical standards and guidelines that helps in achieving higher level of efficiency and safety. This leads to improvement in processes by gaining access to workflow manuals. The direct benefits are as below: a) Improved processes / functional management systems etc. ' • •

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 b) Development and sustaining networks amongst functional peer groups. Undertaking functional conferences, technical workshops, teleconferences etc. Support in technical problem solving. , ! ; ' ' '• c) Developing & delivering technical and functional training. d) Support in relation to development of governance and assurance principles. e) Reduction in exposure to potential major incident due to integrity failure f) Reduced risks of damage, loss of production or loss of revenue g) Reduced risks to the environment etc.

E. MANAGEMENT AND UNIT RECHARGES - TECHNOLOGY RECHARGE I. Description of services received Represents costs incurred by BGIL to run technology programmes for identification, development and implementation of new and enhanced techniques to the existing exploration and production operations in order to address the technological challenges faced by the assessee in following areas: - Structural geology - Well Engineering - Productions Operations technology - Borehole geophysics - Geology Technology management - Geophysics technology watch I management - Petro physics technology program - Transmission and distribution - Commercial ; In relation to Structural Geology and petro physics technology program, BGIL financially supports research

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 activities conducted by various independent third party universities and organizations. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6,2014) - (a) Manual describing the technology programmes proposed to be undertaken by BGIL which evidences the activities that has been undertaken, the cost involved, the benefits derived by the BsselsfPages 268 to 534 of Volume VA of Paperbook) (b) Technology bulletin for group technology strategyfPoges 237 to 265 of Volume VA of, Paperbook) (c) Snapshots of various portals in relation to Technology recharge (Pages 230 to 236 of Volume VA ofPaperbook) (i) T he allocation of the technology expenses have been made on cost to cost basis. Evidence that allocation is on cost to cost is in form of Global Cost Allocation Policy (Pages 773 to 788 of Volume IV of Paperbook) certified by Price Waterhouse Coopers vide their report. (Pages 789 to 826 of Volume IV of Paperbook) (d) In addition, report of the independent consultant certifying the cost allocation methodology for the year 2009 is also provided. (Pages 853 to 297 of Volume IV of Paperbook) ; : III. Additional evidence filed before Ld. DRP onlMovember 7, 2014 (a) A report of BGIL on 2009 Technology Program to identify, develop and implement new and enhanced techniques and capabilities to the benefit of BG asset challenges.{Page 1 to 54 of Volume 5 of the Additional evidence Paperbook) (b) A document of BGIL on 2009 Technology Program which provides various project definitions on projects such as Geology, Geophysics, Petrophysics, Reservoir Engineering, etc.fPage 55 to 124 of Volume 5 of the Additional evidence Paperbook)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 (c) A manual issued on June 2009 on Data Room Visit Guideline issued by BGIL which provides guidelines/checklists for key disciplines involved in the evaluation of data provided in a 'dataroom'. The dataroom is a key opportunity to assist BG in the evaluation of an opportunity and in order to manage the risks associated with a business decision.(Page 125 to 152 of Volume 5 of the Additional evidence Paperbook) (d) A guideline issued on July 2009 on Metering issued by BGIL which provides guidance and instruction which outlines best practice approaches to be followed when providing new metering or measurement systems or upgrading existing systems.fPage 153 to of Volume 187 of the Additional evidence Paperbook) (e) A guideline issued on Oct 2009 on Human Machine Interfaces issued by BGIL which displays need to be at their most effective during abnormal operation when the operator is under most stress, and the consequences of error are highest. This document provides best practice guidance in the design of operator interfaces.(PcrSfe 188 to 214 of Volume 5 of the Additional evidence Paperbook} (f) A guideline issued on July 2009 on Hot Tapping on Pipelines, Piping and Associated Equipment issued by BGIL which defines the minimum Company requirements for safe hot tapping operations.(Page 215 to 236 of Volume 5 of the Additional evidence Paperbook} (g) A guideline issued on December 2009 on Engineering Technical Standard - Relief, Blcwdown& Flaring issued by BGIL which sets out mandatory Company requirements for the design of relief, blowdown and flaring facilities for offshore and onshore assets for both new "green field" developments and "brown field" modifications.(Page 237 to 259 of Volume 5 of the Additional evidence Paperbook) (h) A guideline issued on Aug 2009 on Supply Base issued by BGIL which captures the first draft in providing guidelines for Supply Base infrastructure development,

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 management and operation.(Page 260 to 336 of Volume 5 of the Additional evidence Paperbook) (i) A guideline issued on December 2009 on Application of Process Isolations issued by BGIL which is provided to controls and procedures where Process Isolations are undertaken and will be used as the basis of any assessment or assurance activity relating to its subject matter.fPoge 337 to 356 of Volume 5 of the Additional evidence Paperbook) (j) A guideline issued on July 2009 on Field Development Engineering prepared by BGIL which presents a philosophy for Development Engineering and provides guidance for integrating Development and Engineering work streams in order that robust concepts are produced.(Page 357 to 392 of Volume 5 of the Additional evidence Paperbook) (k) Snapshots of access to intranet portal as well as information in relation to Technology recharge activities which are provided belowfPage 393 to 399 of Volume 5 of the Additional evidence Paperbook): a. Policy b. Engineering activities c. Group well risk management activities

(l) A guideline issued on Aug 2009 on Temporary Repair of Piping Systems issued by BGIL which is intended to provide guidance on the different types of temporary repairs/joints that are to be utilised during an unplanned repair to a process or utility system.(Page 400 to 419 of Volume 5 of the Additional evidence Paperbook) (m) ICDNs with details of nature of expenses and the costs associated under each such expense head.(Page 420 to 431 of Volume 5 of the Additional evidence Paperbook} F. PAYROLL EXPENSES I. Description of services received i

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 BGIL has deputed its employees to the various projects of the assessee in India. The said employees have, however, worked under the direct control and supervision of the assessee. BGIL has not rendered any other service to the assessee in this regard except facilitating the payment of salary to its above employees. The assessee has reimbursed the salary of such personnel to BGIL on a cost-to-cost basis. II. Evidence filed before the TPO (forming part of paper-book filed with Form 35A on May 6, 2014 a) Worksheet containing names and job responsibilities of the expatriates seconded to BGEPIL (Page 3 of Volume III of the Paperbook) b) Sample copies of tax returns filed by the employeesfPcrge 4 to 267 of Volume III of the Paperbook) c) Sample copies of debit notes raised by BGIL on the assessee, etc. (Page 268 to 291 of Volume III of the Paperbook) d) Letters of secondment issued by BGIL (Page 292to 309 of Volume III of the Paperbook) 4.6 From the above evidence, DRP is of the view that the assessee has established the fact that it has rprpivpdthp_5en/icp<: and it is a useful service which it has received. The next question before the DRP is whether assessee had to establish the arm's length nature of each and every transaction separately or it was available to the assessee to club the transaction together. DRP has considered this issue of separate benchmarking nf thp international transactipn carefully. The Income Tax Act and Rules provide for clubbing of transactions when a class of transactions are involved. The relevant part of the Section/ Rule is reproduced below: Section 92C. (1) The arm's length price in relation to an international transaction —[or specified domestic transaction] shall be determined by any of the following

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe—, namely :—....... Rule 10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account namely:— •,+.' . . : " (a) the nature and class of the international transaction; Rule 10D. (1) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely:— (d) he nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction: (/) a description of the methods considered for determining the arm's length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;

From the reading of the above Section/ Rules, it is clear that when the transactions are closely interrelated, it is but natural to club such transactions and benchmark it

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 together. The justification given by the assessee in this regard is worth considering. "The international transactions pertaining to intra-group services received by the assessee (i.e. MSU charges, including federal green and technology recharge, G&A charges, IM and other time writing services, personnel services and joint acquisition and development of IT infrastructure and software} have been aggregated and benchmarked on a whole entity level using Transactional Net Margin Method (TNMM'), since such transactions are closely linked to the main business activity of the assessee of exploration and production of oil and gas. Further, Para 4.2.1 of the TP study report (Page 268 to 269 of Volume II of Paperbook) specifically provides the reasons for rejection of the other four methods. Specific reasons recorded for rejection of the CUP method are summarized below: • The assessee receives services from its AE and does not receive the same services directly from any unrelated parties in India or overseas; • The AE does not provide such services to any unrelated party in India; and • No public information is available with regard to the price paid for similar services, as would be rendered between unrelated parties. Considering the functional and risk profile of the intra- group services received and the availability and reliability of comparable data, TNMM using Net Operating Profit Margin on sales ('NPM') as the profit level indicator, was selected to be the most appropriate method. A search for broadly comparable companies that perform similar functions and carry risk profile similar to that of assessee in respect of its oil and gas exploration and production function was conducted. The search process yielded a set of 9 companies that are broadly

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 comparable to the functional profile of assessee's oil and gas exploration and production activities. For the year ended 31st March 2010, the assessee has earned an NPM of 48.71 percent with respect its oil and gas exploration and production activities. The NPM earned by assessee being higher than the average NPM of comparable companies, it has been concluded that the assessee's international transaction of receipt of intra-group services from its AE, is on an arm's length basis. Further, in support of its claim that the intra-group services received from its AE are 'closely' linked to the main business activity of the company i.e. exploration and extraction of oil and gas, the assessee also placed reliance upon the US regulations, OECD regulations and OECD Draft Notes on Comparability (Submission dated 9th January 2014}" In view of the above, DRP holds that TNMM was the most appropriate method in this case and assessee was justified in obtaining the services as mentioned in the earlier paragraphs. Therefore, DRP holds that the deterioration of arm's length price by the TPO in the intra group services to the tune of Rs. 332,97,66,244/- is erroneous and deserves to be deleted.” [extracted from the directions of DRP 9 tables excluded]

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 from its associated enterprise are closely linked to the main business activity of the assessee company placing reliance on the US regulations, OECD regulations and OECD draft notes on comparability. In view of this we do not find any infirmity and none was pointed out before us by the Ld. departmental representative in the order of the Ld. dispute resolution panel. Consequently, after verifying that assessee has demonstrated need for those services, benefit derived from those services, evidence of receipt of such services and submitting that those services are neither duplicative in nature and nor are share holder activities, the DRP directed the Ld. transfer pricing officer to delete the adjustment proposed with respect to the intragroup services of Rs. 3329766244/–, deserves to be upheld. The judicial precedents cited before us also supports the view that the needed test, the benefit test are also required to be viewed from the perspective of a businessperson and not from the perspective of the revenue. Further, no evidences have been led before us by revenue stating that these services are duplicative in nature and also serves only the interest of the shareholder. According to the information supplied by the assessee and examined by the Ld. dispute resolution panel does not give any such indication. Further regarding non- sharing of the cost by the joint-venture partners we have given our findings while deciding the appeal of the assessee that such an action of the joint-venture partners cannot be the reason to determine the arm‘s length price of the services which is been received by the assessee at nil. In view of this we uphold the

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 finding of the Ld. dispute resolution panel holding that transactions of intragroup services are interlinked, therefore, they should be benchmarked together by adopting TNMM as the most appropriate method , hence, directing the Ld. transfer pricing officer to delete the adjustment proposed of Rs. 3 329766244/–. In the result ground No. 1 to 3 of the appeal of the revenue are dismissed.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 therefore it cannot be considered to be part of exploration operation and drilling operations. Hence he allowed 15% depreciation of Rs. 1 4384 0705/– and disallowed Rs. 8 1509 7333/–. The assessee filed an objection before the dispute resolution panel wide Para No. 10 the objection of the assessee was accepted and the Ld. assessing officer was directed to allow depreciation to the assessee. 74. The Ld. departmental representative vehemently contested the claim of the Ld. assessing officer and submitted that assessee has failed to establish how the wellhead platform are part of exploration and drilling operations and therefore the claim of the assessee of hundred percent depreciation thereon cannot be allowed. He further submitted that depreciation allowance is guided by the provisions of the production sharing contracts which provides so. He therefore submitted that direction given by the Ld. dispute resolution panel, deserves to be set-aside. 75. The Ld. authorized representative submitted that The well headed platform are created for undertaking drilling operation and accordingly the expenditure is clearly in connection with drilling and exploration operations and not part of production equipment. Further the well head platforms are inseparable part of the well itself and accordingly, the same have to be treated in the same manner as the well itself. He reiterated same submission s made before the ld AO and DRP and relied on the judicial precedent covered there under.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 76. We have carefully considered the rival contentions and also perused the orders of ld DRP where in the above issues has been dealt with as under :- “10. The next ground of objection is regarding the AO's erroneous treatment of expenditure on well head platform as being development and production operations instead of exploration and drilling operations and thereby disallowing an amount of Rs. 81,50,97,3337- in respect of the same. Therefore, the AO regarded that depreciation on well head platform has to be determined as per provisions of section 32 of the Act @15%. It has been contended by the assessee that the well head platform are created for undertaking drilling operation and accordingly the expenditure is clearly in connection with drilling and exploration operations and not part of production equipment. Further, the well head platforms are inseparable part of the well itself and accordingly, the same have to the treated in the same manner as the well itself. It has been further pointed out by the assessee that as per clause 15.2.1 (relating to taxes, royalties, rentals etc.) of the PSC read with section 42 of the Act, all expenditure relating to the exploration activities or in respect of physical assets used in that connection is to be allowed fully during the year under consideration i.e. @100%. The assessee has also stated that the AO vide order sheet noting dated 30 March, 2014 i.e. at the end of the time available with him to complete the assessment asked the assessee to show cause as to why depreciation on well head platform claimed @100% should not be disallowed and depreciation be allowed @15% as platform do not form part of exploration costs and drilling costs, that are allowable depreciation @100%, as per the provisions of section 42(1), thereby violating the principles of natural justice.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 10.1. The panel has considered the submission of the assessee. From the draft assessment order, it is seen that the AO considered that the well head platform are neither part of exploration nor drilling operations. Also, these are generally integrated deck, utility systems, well head systems which are used in the production of oil and gas and therefore, it cannot be considered to be a part of exploration operation and drilling operations. However, the assessee is of the view that the expenditure in relation to well head platform is necessary for drilling operations, as well head platform is a surface component of an oil or gas well that provides the interface for drilling and production equipment. A well head in general is the component at the surface of an oil or gas well that provides the structural and pressure containing interface for the drilling and production equipment. Similar views have been upheld by Hon'ble Mumbai ITAT in Reliance Industries Pvt. Ltd. V DIT in ITA No. 1645 & 1646/Mum/2006. Therefore, the AO is directed to allow depreciation u/s 42(1) of the Act subject to fulfillment of the necessary conditions as enunciated in the said provision.” Issue of allowability of the depreciation on wellhead has been considered by the coordinate bench in Reliance industries private limited versus DIT in ITA No. 1645 and 1646/MUM/2006 as under:-

“13. The second issue is against the CIT(A) allowing expenditure of Rs 2500.99 lakhs towards well head platform, u/s 42(1)(b) of the Act. The Assessee claimed total expenditure of Rs 13717.10 lakhs as deduction u/s 42(1)(b), in respect of Oil and Gas division for extraction and production of oil and gas from panna, Mukta and Tapti fields. As per details of this expenditure furnished before the AO, the expenditure on production facilities at Panna Mukta field includes Rs 25.00 crore incurred on well head platforms

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 which was claimed deductible u/s 42(1)(b) as expenditure incurred on drilling and exploration,. The AO has disallowed the claim on the ground that the expenditure on production facilities is not related to drilling and exploration activities and is therefore not eligible for deduction u/s 42(1)(b) of the act. 14. The Ld, AR of the appellant explained that the appellant company is undertaking the activities of exploration extraction and production of oil and gas from the panna, Mukta and Tapti fields in a joint venture. The appellant incurs various expenses on drilling exploration extraction and production activities. The AR further explained that the expenditure in exploration and production (hereinafter referred to as E&P) is classified based on the nature of activities performed undertaken as under: Acquisition Activities: i. Cost of acquiring exploration development and production rights.

10 Reliance Industries

ii. Includes lease bonus brokers, fees, legal costs to acquire exploration eights. Exploration Activities: i. Cost of aerial, Geological. Geophysical, Geochemical, Palaentological , Topographical and Seismic surveys, studies, analysis and interpretation Investigations relating to subsurface geology. ii. Cost of structural drilling exploratory Type, Stratigraphic, test drilling drilling of exploration and appraisal wells. iii. Cost of carrying and retaining undeveloped properties, such

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 as delay rental legal cost for title defence maintenance of land and lease records. iv. Dry hole contributions and bottom hole contribution. Developments activities

(A) Development Drilling.

(B) Cost of preparing well locations for drilling including surveying well locations for determining development drilling sites cleaning ground draining road building gas lines and power lines necessary to develop proved oil and gas reserves. (C) Cos of drilling and equipping development wells. Development type stratigraphic tests wells and service wells. D. Cost of well equipments such as casing tubing pumping equipment. Production Facilities: i. Cost of platforms well head assembly ii. Cost of installation of lease flow lines separators treaters heaters, manifolds measuring device and production storage 11 Reliance Industries tanks, natural gas cycling and processing plants and utility and waste disposal systems. Production activities: (A) Pre well Head cost: (i) Cost of labour repairs and maintenances materials supplies fuel and power property taxes insurance severance taxes, royalty and other costs incurred for lifting the oil and gas to the surface. (ii) Work over of wells. B. Pre well Head Cost: Cost of gathering treating field transportation field processing etc.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 15. The AR contended that the expenditure incurred under the above heads for E& P are accounted under the heads capital expenditure or revenue expenditure depending upon the nature of activity performed. The AR has submitted a detailed technical note to justify as to how the expenses incurred in wellhead Platforms are actually for drilling or exploration activities. The said note is reproduced as under: "Justification for claiming wellhead platforms under section 42: Exploration activities include acquisition processing and interpretation of Geological & Geophysical data various analysis studies and investigations such as geo chem./biostrat analysis. PVT fluid analysis core analysis and drilling of wells for prospecting for hydrocarbons. Production Facilities includes wellhead platforms processing platforms infield pipelines and export pipelines. Part of these facilities wellhead platforms (viz platform PC,PF and PG) houses equipments essential for drilling of wells. These wellhead platforms are necessary to be installed before the drilling of wells and the utility of these platforms are as follows: 12 Reliance Industries Facilitate drilling of drill multiple wells from a single location. On completion of each well the wellhead platform only holds the assembly of valves for manual and automatic well closure and control of production rate has to be installed. After a well has been drilled and performed the well has to be tested to determine well productivity and collect other production and reservoir data. During these well tests hydrocarbons along with drilling and completion fluids that are potentially hazardous to the environment are produced. These fluids have to be handled very carefully without causing any environmental damage. The facilities on the wellhead platform like test separator, manifolds and sumps

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 are used to carry out well testing without violating any environmental regulations. The wellhead platform provides the necessary support for the well conductors and therefore has to be installed before the wells are in place. Cathodic protection is required for the well conductors so that they can be used as long as the well is capable of producing. The hardware required for cathodic protection is provided at the wellhead platform. Thus the wellhead platform and the associated equipment as aforesaid are part and parcel of drilling operations in offshore areas. The production sharing contract (PSC) signed with the Government of India specifically allows the prospectors to claim section 42 deduction in respect of the physical assets used in drilling or exploration activities or services. Since wellhead platform are very much an asset used in drilling it is rightly allowable for deduction under section 42. In respect to the other facilities such processing platforms infield pipelines and export pipelines are related to Transportation and processing of Hydrocarbons and therefore classified as fixed asset and depreciation is claimed on the same. It is submitted that since Wellhead platform are essential for conduct of exploration activities the expenditure incurred on the same should be considered as an allowable expense under sec 42 of the act. It is urged that section 42(1)(b) of the act allows deduction on expenditure incurred in respect of drilling or exploration activities or in respect of physical assets used for that purpose. It is subjected 13 Reliance Industries that since a part of capital expenditure incurred and clubbed under the head production activity is directly attributable to drilling and exploration activity the same is clearly allowable as deduction while computing the total income under sec 42 of the act as claimed." 16. Before the CIT(A) the AR asserted that the details of exploration drilling and production expenditure were filed during the course of assessment, These details clearly show that expenditure on production facilities includes Rs 25.00

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 crore incurred on platforms at Panna, Mukta site. This expense though classified under the expenses head production facilities is actually in the nature of expenses incurred on drilling or exploration activities and so has been rightly claimed as deduction under section 42(1)(b) of the act. 17. In the alternative the AR submitted that the assessee is eligible for depreciation on the capital expenditure relating to the drilling extraction and production facilities. 18. The Ld. CIT(A) accepted the contention of the assessee observing as under: " I have carefully considered the matter The AO has disallowed the claim of the appellant merely by stating that the appellant could not substantiate its claim that the expenditure on production facilities is related to the drilling and exploration activities for which the deduction u/s 42(1)(b) is allowable. No other infirmity in the claim was pointed out by the AO. On a consideration of the note explaining the necessity of wellhead platforms for exploration and drilling operations. I am of the view that installation of wellhead platforms is an integral part of the drilling and exploration process. It appears that the AO also may have no quarrel with this position because similar expenses on well head platforms have been allowed as deduction in the preceding as well in subsequent years u/s 42(1)(b). Even during the year under consideration expenses of Rs.5.20 crore incurred on the wellhead platforms at Tapti field has been allowed as deduction u/s 42(1)(b) On the facts of the case therefore, I am inclined to agree with the appellant that installation of wellhead platform forms part of drilling and exploration activities 14 Reliance Industries and expenses incurred on the same will be eligible for deduction u/s 42(1)(b) of the IT Act. This ground of appeal is therefore allowed."

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 19. Aggrieved the revenue is on appeal before us. We heard both the parties. The issue pertains to allowance of expenses of Rs.25 crores (out of the total expenses of Rs.13717.70 lakhs) towards Well Head platform which was claimed u/s.42(1)(b) as expenditure incurred on drilling and exploration. The assessing officer disallowed the claim on the ground that expenditure on production facility is not related to drilling and exploration activities and is therefore not eligible for deduction u/s.42(1)(b) of the Act. 20. Before the CIT(A), the assessee had given details/particulars of activities and the necessity of well head platform for carrying out the drawing ad exploration etc., activities. Considering the detailed explanation by the assessee, the CIT(A) has directed the allowance of Rs.25 crores as deduction under Section 42(1)(b). 21. Section 42(1)(b) provides for deduction, after beginning of commercial production expenses incurred in respect of drilling and exploration activities on the basis of agreement entered into between the Government of India and the assessee. The issue for consideration is whether the expenditure of Wellhead Platform will constitute expenditure in respect of drilling and exploration activities as well as in respect of physical assets used in that connection. 22. As pointed out by the Ld.CIT(A), the Wellhead Platform is necessary for carrying out drilling and exploration activities. For the sake of convenience the part played by Well Head in drilling and exploration as explained by the Assessee is reproduced below: 15 Reliance Industries

Exploration activities include acquisition processing and interpretation of Geological & Geophysical data various analysis studies and investigations such as geo chemical/biostrata analysis. PVT fluid analysis core analysis and drilling of wells for prospecting for hydrocarbons.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 Production Facilities includes wellhead platforms processing platforms infield pipelines and export pipelines. Part of these facilities wellhead platforms (viz platform PC,PF and PG) houses equipments essential for drilling of wells. These wellhead platforms are necessary to be installed before the drilling of wells and the utility of these platforms are as follows: Facilitate drilling of drill multiple wells from a single location. On completion of each well the wellhead platform only holds the assembly of valves for manual and automatic well closure and control of production rate has to be installed After a well has been drilled and performed the well has to be tested to determine well productivity and collect other production and reservoir data. During these well tests hydrocarbons along with drilling and completion fluids that are potentially hazardous to the environment are produced. These fluids have to be handled very carefully without causing any environmental damage. The facilities on the wellhead platform like test separator, manifolds and sumps are used to carry out well testing without violating any environmental regulations. The wellhead platform provides the necessary support for the well conductors and therefore has to be installed before the wells are in place. Cathodic protection is required for the well conductors so that they can be used as long as the well is capable of producing. The hardware required for cathodic protection is provided at the wellhead platform. Thus the wellhead platform and the associated equipment as aforesaid are part and parcel of drilling operations in offshore areas. 23. This technical explanation about the purpose and necessity of well heads submitted by the assessee has not been seriously contested by the department. Wellhead Platform has provided necessary support for drilling and exploration which is carried out. Section 42(1)(b) specifically allowed the expenditure incurred after commercial production, 16 Reliance Industries expenditure incurred in respect of drilling or exploration activities or in respect of physical assets used in connection with drilling and exploration. Therefore expenditure in connection with drill heads will certainly fall within expenditure incurred in

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 connection with drilling and exploration contemplated u/s 42(1)(b). We are therefore of the view that the Ld. CIT(A) was correct in holding that expenditure of Rs.25 crores incurred in connection with Wellhead Platform are allowable expenses under Section 42(1)(b).It has been submitted by the assessee that similar expenditure has been allowed by the assessing officer himself in other fields. In the circumstances, we uphold the order of the Ld.CIT(A) allowing the expenditure of Rs. 2500.99 lakhs incurred in connection with well head, and dismiss the departmental appeal on this issue.” [ Extracted from idiankanoon.org]

The Ld. dispute resolution has followed the above decision of the coordinate bench and allowed the claim of the assessee. The Ld. departmental representative could not point out that how wellhead are not covered as exploration and drilling apparatus. In view of the decision of the coordinate bench on this issue. We respectfully following the same find no infirmity in the order of the Ld. dispute resolution panel in allowing the depreciation to the assessee on wellhead platforms at the rate of hundred percent. In the result ground No. 4 of the appeal of the revenue is dismissed.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 79. The Ld. authorized representative submitted that appellant has paid following amounts as club fees:

Particulars Amount Club Renaissance 5,44,882 Waterstones Country Club 55,15,000 Total 60,59,882

He submitted that assessee has paid the FBT on the entire amount of the above expenditure, there is no warrant to disallow the same and as such, the expenditure qualifies for deduction under section 37(1) as it is incurred wholly and exclusively for the business of the assessee. If the position adopted by the AO was to be extended, any expenditure incurred by a company which incidentally results in some deemed benefit/ welfare of its employees would be liable to be disallowed. This would result into absurdity. The fact that FBT has been paid on the entire amount of expenditure, there was no warrant to disallow the same. Further, the said expenditure qualifies for deduction under section 37(1) of the Act, being incurred wholly and exclusively for the purpose of business of the assessee. He further said that courts have in the following cases held that the club expenses are allowed as business expenditure for deduction from total income under section 37(1) as they are done wholly and exclusively for the business purposes: i) CIT vs. Nestle India Ltd: 296 ITR 682(Del)

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 ii) CIT vs. Samtek Color Ltd: 326 ITR 425(Del) iii) CIT vs. Groz Beckert Asia Ltd: 351 ITR 196(Punjab & Haryana) iv) Otis Elevator Co. (India) Ltd. vs. CIT: 195 ITR 682(Bombay) v) DCIT vs. Bank of America Securities (India) (P.) Ltd: 128 ITD 186 (Mumbai Trib.) vi) Pritam Hotel Pvt. Ltd. vs. ITO: 17 TTJ 550 (Mumbai Trib.) vii) ACIT vs. American Express Bank Ltd: 41 SOT 11 (Mumbai trib.) viii) Adarsh Chemicals & fertilizers Ltd. vs. ITO: 13 TTJ 143 (Ahmedabad trib.) 80. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The Ld. dispute resolution panel has given direction as per Para No. 13 as under:- ―13.The next ground of objection regarding the disallowance of club expenditure of Rs. 60,591,882/- u/s 37(1) of the Act by the AO; on the ground that the same is not expended wholly and exclusively for the purpose of business of the assessee. However, the assessee has contended that the club expenditure has been incurred by the assessee in relation to club entrance and subscription fees for its employees for development of a food network/contacts which are useful in connection with BGEPIL's business & has also be entreated as a perquisite while computing amount or salary for the purpose of TDS u/s 192. Considering the fact that on similar issue; the DRP has allowed club expenditure as

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 a deductible expenditure in the preceding assessment year i.e. A.Y. 2009-10, the AO is therefore, directed to allow the club expenditure u/s 37(1) of the Act, for the assessment year under consideration.‖ Further, in view of the submission of the assessee that assessee has considered these expenses for purpose of FBT which AO has also accepted. In such a case, this expenditure has to be treated as business expenditure of the assessee. The binding nature of Jurisdictional High Court and numerous decisions from various Tribunal, holding that club expenditure for its employees incurred by the assessee as expenditure incurred wholly and exclusively for the purposes of the business of the assessee. In view of this, respectfully following the decision of the Hon‘ble high courts and coordinate benches, we find no infirmity in the order of the Ld. dispute resolution panel in allowing the claim of the assessee of the stability of expenditure on account of the club expenses. In the result ground No. 5 of the appeal of the revenue is dismissed. 81. Ground No. 6 of the appeal of the revenue is general in nature and therefore dismissed. 82. In the result appeal of revenue in ITA No. 1581/del/2015 for assessment year 2010 – 11 is dismissed. 83. Therefore appeals of both the parties are disposed off for assessment year 20 10 – 11 wherein appeal of the assessee in ITA No. 1170/DEL/2015 is partly allowed and appeal of the revenue in ITA No. 1581/DEL/2015 is dismissed. Order pronounced in the open court on 24 /04/2017.

B G Exploration & Production India Limited V DCIT ITA No 1170/Del/2015 DCIT V B G Exploration & Production India Limited ITA No 1581/Del/2015 AY 2010-11 -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 24 /04/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi