Tribunal adjusts sale price, profit attribution, management charges in appeal. Bonus shares claim dismissed as infructuous.

The tribunal partially allowed the appeal, agreeing with the appellant on the adjustment of the sale price of the intangible asset, profit attribution, payment of management charges, and reimbursement of expenses. The tribunal dismissed the appellant's grounds related to the adjustment regarding bonus shares as infructuous.

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Issues Involved:
1. Adjustment of sale price of intangible asset.
2. Profit attributable to the appellant company.
3. Payment of management charges.
4. Reimbursement of expenses received.
5. Adjustment regarding bonus shares issued by the appellant to its AE.

Issue-wise Detailed Analysis:

1. Adjustment of Sale Price of Intangible Asset:
The appellant sold the Intellectual Property (IP) rights of the Jungle Book Animation series to its AE, DQ Ireland, for Rs. 5,36,20,000, based on valuations by two independent valuers. The TPO replaced the projected cash flows with actual revenues and determined the value at Rs. 12,35,18,271, resulting in an adjustment of Rs. 6,98,98,271. The appellant argued that valuations should be based on projections and not actuals, citing the decision in Social Media India Ltd. Vs. ACIT. The tribunal agreed, stating that valuations should not be revisited with actuals years later, and allowed the grounds raised by the appellant.

2. Profit Attributable to the Appellant Company:
The TPO applied the Profit Split Method (PSM) to apportion profits between DQ India and DQ Ireland, attributing 80% of the profits to DQ India. The tribunal noted that the IP was sold outright and there was no international transaction post-sale. The tribunal found that the TPO's action was unjustified, as the revenue generated by DQ Ireland post-sale did not constitute an international transaction involving DQ India. The tribunal allowed the grounds raised by the appellant.

3. Payment of Management Charges:
The appellant paid Rs. 3,70,53,448 to DQ Mauritius for management consultancy services. The TPO determined the Arm’s Length Price (ALP) at NIL, citing the appellant's failure to substantiate the tangible benefits received. The tribunal, referencing its decision in the appellant's case for AY 2008-09, held that management consultancy charges should be allowed as per the MoU and OECD guidelines. The tribunal allowed the grounds raised by the appellant.

4. Reimbursement of Expenses Received:
The appellant incurred expenses on behalf of DQ Ireland and recovered the same at cost. The TPO applied a 10% markup on these reimbursements, resulting in an adjustment of Rs. 7,73,699. The tribunal held that reimbursements of actual costs do not involve a service element and should not be marked up. The tribunal allowed the grounds raised by the appellant.

5. Adjustment Regarding Bonus Shares Issued by the Appellant to its AE:
The TPO made a general observation regarding the issuance of bonus shares but did not make any addition. The tribunal noted that since no demand was raised, the grounds raised by the appellant on this issue were infructuous and dismissed them.

Conclusion:
The tribunal allowed the appeal partly, agreeing with the appellant on the issues of sale price adjustment, profit attribution, management charges, and reimbursement of expenses, while dismissing the grounds regarding bonus shares as infructuous.

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