2020 (2) TMI 1356 - AT - Income Tax

ITAT Orders TPO to Reassess Comparables for Accurate Arm's Length Price in TV Channel Distribution Case.

Star Den Media Services Pvt. Ltd. Versus ACIT Range-11 (1) Mumbai

The ITAT allowed the assessee's appeals for A.Y. 2009-10 and 2010-11, instructing the TPO to reassess the comparables in alignment with the assessee's ... TP adjustment - Comparable selection - assessee has adopted TNMM to be the most appropriate method to benchmark the transaction with OP/TR as the PLI and with the Assessee as the tested party. The assessee has an entity level PLI working of 0.74% - HELD THAT:- Identical issue was decided in the case of Turner International India P. Ltd. [2018 (8) TMI 259 - ITAT DELHI] has sufficient cogency. The business activity of the assessee in that case was marketing and distribution of satellite TV channels. Akin to that the assessee in the present case is also involved in distribution of various Star as well as third party channels in India. In such circumstances, selection of comparables engaged in software distributor has been accepted by the ITAT. Accordingly, we accept the submission of learned counsel and direct the TPO to examine his submission that if the comparables finally accepted by the ITAT in the case of Turner International India P. Ltd. are taken into account and the comparables of the assessee are selected with reference to it the margin should be accepted if they are plus and minus 5%. Needless to add assessee should be provided adequate opportunity. Issues:Transfer pricing adjustment by the TPO for A.Y. 2009-10 and 2010-11.Detailed Analysis:Issue 1: Transfer Pricing Adjustment for A.Y. 2009-10 and 2010-11The judgment deals with the appeals by the assessee against the orders of the Assessing Officer passed pursuant to the direction of the Dispute Resolution Panel (DRP) for A.Y. 2009-10 and 2010-11. The common issue raised was regarding the Transfer Pricing Officer (TPO) making an adjustment of Rs. 429,611,231 for A.Y. 2009-10 and Rs. 2,88,54,506 for A.Y. 2010-11. The facts and figures for A.Y. 2009-10 were referred to due to their similarity with the subsequent year. The assessee, a joint venture between two entities, was involved in distributing television channels in India. The international transactions reported by the assessee included obtaining licenses for distribution of channels and providing services in Sri Lanka and Bangladesh.Issue 2: Determination of Arm's Length Price (ALP)The assessee aggregated the international transactions for benchmarking purposes, claiming similarity in functions and efforts expended. The transfer pricing report documented that the transactions were similar in nature with minor variations in arrangement terms. Due to the inability to segregate profits, an entity-level TNMM approach was adopted. The TPO, however, was not satisfied with the comparables selected by the assessee, particularly software distributors, as he believed they did not perform similar functions. The TPO made adjustments based on the comparables he selected, resulting in transfer pricing adjustments for both A.Y. 2009-10 and 2010-11.Issue 3: ITAT's DecisionThe ITAT, after hearing both parties, considered the submissions and previous decisions. It noted that the issue was similar to a case decided by the ITAT Delhi Bench involving marketing and distribution of satellite TV channels. The ITAT accepted the selection of software distributors as comparables, as in the previous case, and directed the TPO to reevaluate the comparables based on this criterion. The ITAT allowed the assessee's appeals, emphasizing the importance of selecting comparables that align with the nature of the assessee's business activities.In conclusion, the ITAT allowed the assessee's appeals for both A.Y. 2009-10 and 2010-11, directing the TPO to reconsider the comparables based on the nature of the assessee's business activities to determine the Arm's Length Price.