2019 (1) TMI 636 - AT - Income Tax

Tribunal allows assessee's appeals, directs exclusion of comparables, emphasizes consistency in transfer pricing

The Tribunal partly allowed the appeals of the assessee by directing the exclusion of certain comparables, allowing working capital adjustment, and ... TPA - comparable selection - functinal similarity - Held that:- Assessee was engaged in the business of distribution of subscription rights of satellite channels of Cartoon Network, WB, CNN, POGO and HBO. The assessee was also engaged in the business of imports, promotion marketing, distribution and provision of sub-distribution rights to cable and broadcast entities, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Direct the AO to allow the benefit of the working capital adjustment to the assessee while working out the arm’s length price. Issues Involved:1. Validity of the assessment order under Section 143(3) read with Section 144C of the Income Tax Act, 1961.2. Transfer pricing adjustments and selection of comparables.3. Economic analysis and comparability analysis.4. Use of multiple year data and financial year data.5. Working capital adjustment.6. Penalty proceedings under Section 271(1)(c) of the Act.7. Charging of interest under sections 234A, 234B, 234C, and 234D.8. Grant of tax credit and withdrawal of interest under section 244A.Detailed Analysis:1. Validity of the Assessment Order:The assessee contended that the assessment order dated December 27, 2016, under Section 143(3) read with Section 144C of the Income Tax Act, 1961, was bad in law and barred by limitation. However, this ground was not pressed by the assessee, and thus, it did not require any comment from the Tribunal.2. Transfer Pricing Adjustments and Selection of Comparables:The primary issue involved was the addition of Rs. 33,91,01,488 on account of transfer pricing adjustment to the distribution segment of the assessee. The Tribunal noted that the Transfer Pricing Officer (TPO) had selected certain comparables which were functionally dissimilar to the assessee’s distribution activity. The Tribunal directed the exclusion of four comparables, namely, M/s Malayalam Communications Ltd., M/s Raj Television Network Ltd., M/s TV Today Network Ltd., and M/s Zee Media Corporation Ltd., from the list of comparables, following the decision in the assessee's own case for the assessment year 2006-07.3. Economic Analysis and Comparability Analysis:The Tribunal found that the TPO had erred in not accepting the economic analysis undertaken by the assessee and in conducting a fresh comparability analysis using incorrect keywords and filters. The Tribunal emphasized that only companies engaged in similar distribution activities should be considered as comparables.4. Use of Multiple Year Data and Financial Year Data:The Tribunal observed that the TPO had erred in not accepting the use of multiple year data as adopted by the assessee in its Transfer Pricing documentation and in using data pertaining only to the financial year 2011-12. The Tribunal directed the TPO to follow a consistent approach as adopted in previous assessment years.5. Working Capital Adjustment:The Tribunal noted that the Dispute Resolution Panel (DRP) had allowed the benefit of working capital adjustment to the assessee for the assessment years 2010-11 and 2011-12. Therefore, the Tribunal directed the Assessing Officer (AO) to allow the benefit of working capital adjustment to the assessee for the year under consideration as well.6. Penalty Proceedings under Section 271(1)(c) of the Act:The Tribunal dismissed the ground related to the initiation of penalty proceedings under Section 271(1)(c) of the Act, as it was raised prematurely.7. Charging of Interest under Sections 234A, 234B, 234C, and 234D:The Tribunal held that the issue of charging interest under sections 234A, 234B, 234C, and 234D of the Act was consequential in nature and ordered accordingly.8. Grant of Tax Credit and Withdrawal of Interest under Section 244A:The Tribunal remanded the issue of not granting complete credit of Tax Deducted at Source (TDS), charging of interest under section 234D, and withdrawal of interest under section 244A back to the AO for adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee.Conclusion:The Tribunal partly allowed the appeals of the assessee, directing the AO/TPO to exclude certain comparables, allow working capital adjustment, and reconsider the issues related to tax credit and interest. The Tribunal emphasized the need for consistency in the approach adopted by the AO/TPO in transfer pricing matters.