AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 73
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of INR 4,17,83,007. 3. The learned DRP erred in not directing the AO to delete the transfer pricing adjustments proposed by the Transfer Pricing Officer (TPO), as he failed to follow the provisions of 92C(3) of the Act, hence the transfer pricing adjustments are bad in law and the appellant's international transactions should be accepted at arm's length as per section 92 of the Act. 4. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in confirming the transfer pricing adjustment of INR 58,85,90,002 as proposed by the TPO on account of determination of ALP of International License revenue receivable by the appellant in terms of the provision of agreement with associated Enterprise(AE). 5. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in confirming the transfer pricing adjustment of INR 6,05,22,966 as proposed by the TPO towards Arm's Length Price (ALP) determination of cost of internationa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and in law, the learned AO in pursuance of the direction given by the learned DRP erred in making the addition of INR16,40,24,000 from the payment made to BCCI towards acquisition of sports rights. 15. On the basis of the facts and in the circumstances of the case and in law, the AO in pursuance of the direction given by the DRP erred in making the addition of INR 23,39,082 towards the website development expenses treating the same as capital expenditure. Alternatively, depreciation on the same should be allowed. 16. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in making the addition of INR 6,88,43,281 under section 14A of the Act. 2. At the time of hearing the learned counsel, Mr. Vispi Patel, on behalf of the assessee, submitted that he is not pressing ground no.1, 2, 3, 11 and 12. Since these grounds have not been pressed before us, therefore, the same are not being adjudicated upon and are treated as dismissed. 3. In ground no.4, the assessee has challenged the transfer pricing adjustment of Rs. 58,85,90,002, as determ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This total bid price was broken into US$ 504.09 million for the Indian territory rights and US$ 108.09 million for the international territory rights. For the purpose of marketing, its international media rights to the cricket events in the international territory, the Nimbus India entered into an agreement on 1st March 2006 with its A.E., Nimbus Sports International Pte. Ltd., Singapore (for short "NSI"), which is mainly engaged in the exploitation of commercial advertising and media rights associated with cricket and other sports. It was stated before the TPO that as per the agreement, the NSI was required to distribute the international territory rights and the Nimbus India was assured of minimum revenue in consideration of transfer of media rights for the international territory. This minimum revenue guarantee by NSI for the international rights was of the same value which Nimbus India has earmarked for the international rights, while quoting for the BCCI tender. Apart from this, the Nimbus India was entitled to 90% of the revenue actually received by the NSI from exploitation of these rights which was in excess of the minimum guarantee amount. With this kind of arrangements, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m its A.E., as against Rs. 145,92,26,200 receivable as per the revised agreement. If the ratio of 15.2% is applied on Rs. 561.30 crores, the assessee has received more amount from the A.E. 7. However, the TPO rejected the entire contention of the assessee and first of all, demonstrated that the arrangement between the assessee and the A.E. cannot be considered under the CUP method, this he has demonstrated in Para-6.10 and 6.11 of his order. From the agreements submitted by the assessee before him, the TPO noted the following summary of the workings for the amount payable to the BCCI as per the contract and amount receivable from NSI by way of minimum guarantee as per the original agreement and revised agreement. (a) Amount payable to BCCI as per contract with BCCI Sr. no. Tournament details no. of events Attributable value Value in Rs. 1. Australia 7 ODI 8% 217,93,60,800 2. Pakistan 3 Test + 7 ODI 13.50% 367,76,71,350 3. Domestic 72 days 2.25% 61,29,45,225 4. To be decided 3 Test + 5 ODI 11.50% 313,28,31,150 Total :- 35.25% 960,28,08,525 Amounts to 21,57,93,450 in USD (b) Amount receivable from NSI by way of MG as per origina....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Now, as per the revised agreement with the NSI, the assessee was required to receive Rs. 1,45,92,26,200, if the calculation on the basis of the ratio of 15.2% of the global contract value is taken. As against this, the assessee has stated to have received only Rs. 87,06,36,178, from its A.E., which otherwise it was required to receive Rs. 145,92,26,200. Thus, he held that the difference amount of Rs. 58,85,90,022 should be adjusted by way of determination of ALP on the revenue receivable from the A.E. Accordingly, the upward adjustment of Rs. 58,85,90,022, was suggested to be added. 9. Thereafter, he went step further and held that amount payable to BCCI during the year was Rs.960.28 crores, however, due to certain non-events of cricketing tournament, the global contract value estimated to be payable was Rs. 612,60,46,999/- as per the following events. Sl. No. Tournament details No. of events No. of events held Attributable value Original contract value Estimated ratio Estimated contract value in Rs. 1 Australia 7ODI 7 8% 217,93,60,800 8% 217,93,60,800 2 Pakistan 3Test +7 ODI 8 13.50% 367,76,71,350 8/10 x 13.50 294,21,37,080 3 Domestic 72 Days 72 2.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rded to Doordarshan for telecasting of matches which has reduced the total contract value and this is evident from the documents placed before the authorities below and also given in the paper book. That apart, there were certain rescheduling/cancellation of matches which had resulted into lesser value of the contract. What the assessee had actually paid to the BCCI in this financial year was only Rs. 561.47 crores. This is evident from the audited accounts and also from the schedules annexed thereto, wherein the tournament wise media right fee have been provided. This figure also matches up with the schedule of cricketing matches conducted during the financial year 2007-08. In support of this contention, he drew our attention to Page-591 and 595 of the paper book. He submitted that there is also no dispute that the international media rights was 15.2% of the global contract value and if such a ratio is applied on Rs. 561.47 crores, then by way of minimum guarantee, the assessee was to receive roughly Rs. 85 crores from its A.E. and what the assessee has received at Rs. 87 crores is not only at arm's length but also in consonance with the material placed on record. The Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of arrangements was as such that the assessee had no risk and was fully assured of the minimum guarantee amount and not only that, over and above if there was any profit that would also would also be passed on to the assessee after certain limits. This would not have been possible with any third party in an uncontrolled transaction. Moreover, the TPO himself has not bench marked the margin by following any of the prescribed methods or carrying out any of the comparability analysis with any comparables. Therefore, such a mark-up of 10% and consequent adjustment is uncalled for. In support of his contention, he relied upon the decision of the Tribunal, Delhi Bench, in Global Vantedge (P.) Ltd. v. Dy CIT [2010] 37 SOT 1 and the decision of Kodak India Ltd., [ITA no.7349/Mum./2012, order dated 12th April 2013], wherein it has been held that the TPO cannot make any adjustment without following the prescribed method or bench marking the same with the comparables. 15. On the other hand, the learned Departmental Representative, Mr. Ajeet Kumar Jain, submitted that before the TPO, the assessee could not furnish any documentary evidence with regard to the actual payment made to the BCCI du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 under a contract with the BCCI on 28th February 2006. In consideration of the grant of license of the media rights by the BCCI, the assessee was required to pay US$ 612.18 million i.e., in terms of INR 2724,20,10,000 for the entire four years. This global contract was broken into exploitation of media rights in the Indian territory and in the international territory. The media rights for the international territory was at US$ 108.09 million. The entire license for exploitation of media rights was dependent upon schedule of matches and tournaments which were to be carried out in four years. For the financial year 2007-08, i.e., the assessment year 2008-09, the amount which was payable to the BCCI for the cricketing tournament was at Rs. 960,28,08,525. For the purpose of exploitation, the media rights in the international territory, the assessee had entered into the agreement with its A.E. i.e., NSI according to which the NSI was liable to pay the assessee higher of 90% of the revenue actually received by the NSI from the exploitation of the international media rights with the balance 10% being the NSI share or the minimum guarantee amount which was the exact amount of the licence ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onducted in this year which have given at Page-591 of the paper book from where the amount which are to be paid to the BCCI can be worked out. However, to corroborate the same, the assessee could have furnished a confirmation from the BCCI. If, for any reasons, the assessee was unable to file such confirmation, then it was the duty of the TPO to ascertain this information directly from the BCCI by carrying out enquiry under section 133(6) instead of making the transfer pricing adjustment on presumption and estimate. Once the correct amount can be ascertained, then there is no requirement of drawing any hypothetical inference for making any huge adjustment / addition. The very premise on which these adjustments have been made is based on indicative value given in the contract, which cannot be sustained, as the same can be ascertained on the basis of actual cricketing events and information from the BCCI which can be sought by either party. Therefore, in the interest of justice, we are of the considered opinion that this matter needs to be restored back to the file of the Assessing Officer/TPO to ascertain the proper information from the BCCI as to what is the exact amount payable to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll as the learned Departmental Representative that no proper analysis of CUP has been done and in fact it has not been demonstrated before us, as to how the minimum guarantee amount and the amount actually received will amount to CUP. The CUP has to be seen if an uncontrolled price is the price agreed between unconnected parties for the transfer of goods or services and if this transfer in all material aspect is comparable to the transfers between two related parties then only the price becomes comparable uncontrolled price. In the present case, no such uncontrolled conditions have been analysed. Even the TPO has also not bench marked the mark-up by analyzing from any comparables but has gone on the premise that margin on exploitation of media rights ranges from 5% to 15%. He has referred to revenue generation by the A.E. in respect of Australian tournament at 6% and Pakistan at 24% over the cost. Considering the mean of the two, he has arrived at the mark-up of 15% and then applied a mark-up of 10% on the cost. Thus, neither the approach of the assessee nor of the TPO can be sustained. The basic premise for determining the ALP under the transfer pricing mechanism is that a control....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thecated, therefore, he held that it would be the appropriate to determine the ALP at the interest rate @ 7% and, accordingly, he made the following adjustments:- Sr. no. Name of the Assessee Interest Charged Interest @ 7% 1. Nimbus Mediat Pte. Ltd. Nil 25,071 2. Nimbus Communication Ltd. BVI Nil 2,18,842 3. Nimbus Sports International Pvt. Ltd. Nil 34,87,654 37,31,567 22. The aforesaid adjustments have been confirmed by the DRP also. 23. Before us, the learned Counsel submitted that insofar as the notional interest charged on "NSI" account on the outstanding debit balance, the same is covered by a series of orders passed by the Tribunal in assessee's own case right from the assessment year 2003-04 to 2007-08, wherein this adjustment of notional interest has been deleted. As regards the interest on loans and advances given to the A.E., he submitted that in this year, the assessee has also received various advances during the course of the relevant financial year on which, no interest has been paid and if notional interest is to be applied, then it would result in an amount payable of Rs. 47.00 lakhs approximately. This would t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnational P. Ltd. on outstanding trade balances with the assessee is squarely covered in favour of the assessee by the order of the Tribunal dated 12-06-2013 (supra) passed in assessee's own case for A.Y. 2005-06 wherein a similar issue was decided by the Tribunal in favour of the assessee for the following reasons given in para No. 19 & 20 of its order:- "19. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has submitted that similar issue involved in assessee's own case for earlier years i.e. assessment years 2003-04 and 2004-05 has been decided by the Tribunal in favour of the assessee. The ld. D.R., however, has submitted that similar issue was decided by the Tribunal in favour of the assessee in the earlier years holding that the continuing debit balance was not an international transaction. He has contended that the law on this point, however, has undergone a change by insertion of Explanation to section 92-B with retrospective effect from 1-4-1992 and clause (i)(c) of the said Explanation is clearly applicable in the present case. The ld. counsel for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rangement, and not in isolation with the commercial terms on which transaction in respect of which payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be treated as 'international transactions' under section 92 B, the right course of applying the CUP method, in the case of non charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee has charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises have charged interest, in respect of overdues in respect of similar business transactions, with independent enterprises (external CUP). No such exercise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly following the order of the Tribunal in assessee's own case for A.Y. 2004-05, that the impugned addition of Rs. 12,98,048/- made on this issue is not sustainable. The same is accordingly deleted allowing ground No. 3 & 4 of the assessee's appeal". 8. Respectfully following the order of the co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 2005-06 on similar issue, we delete the addition of Rs. 1,99,504/- made by the A.O. and confirmed by the ld. CIT(A) on account of interest payable by Nimbus Sport International P. Ltd. on outstanding trade balance to the assessee. Ground No. 3 (d) of the assessee's appeal for A.Y. 2006-07 is accordingly allowed.' 27. Thus, respectfully following the earlier year's precedence in assessee's own case, we delete the adjustment of Rs. 34,87,654 on account of notional interest. Accordingly, ground no.7 is treated as partly allowed for statistical purposes. 28. In ground no.8, the assessee has challenged the transfer pricing adjustment of Rs. 83,47,173, on account of notional guarantee commission charges for the guarantee extended to the A.Es. 29. The TPO, from the financial sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee adopted TNMM as the most appropriate method after taking Profit Level Indicator (PLI) as net cost plus margin. The assessee had selected 13 comparables for bench marking its margin after taking financial data for three years, however, the TPO only considered the data relevant for the assessment year 2007-08. The TPO, after analyzing each and every comparables, finally short listed five companies which according to him were functionally comparable from the 13 comparables selected by the assessee. The average mean of the comparables in terms of OP/OC was arrived at 14.76%. Before the TPO, the assessee gave the working of the said margin based on segmental details. However, the TPO did not accept the same as the assessee has not given the basis for allocation of the expenditure and there was no mention in the transfer pricing documentation filed before him. The relevant findings and observations of the TPO is as under:- "11.8 It is seen that the assessee has taken the revenue from sports marketing segment which is 0.49 of that segment's revenue. However, it has not given any basis for allocation of the expenses. There is no mention of this i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... calculation of net profit margin for the consultancy fees and expenses and sales incentive from NSI based on the segmental accounts. He submitted that this calculation is based on the information furnished before the TPO and the entire information has been placed in the paper book at Page-547, 549 and 665. If such a calculation of net profit margin is taken into consideration, then assessee's net margin as a percentage of total consultancy revenue will come to 61.25%. He submitted that this can be verified on examined by the TPO. If such a margin is taken into consideration then even by carrying comparability analysis with the comparables it would be at ALP. 35. On the other hand, the learned Departmental Representative submitted that there cannot be segment of segmental account and it is not clear and how the expenditure can be allocated on sales turnover as in every segment there would be a problem for carrying out such an allocation, therefore, the assessee's contention cannot be sustained. In any case, he submitted that the calculation submitted by the learned Counsel has to be examined and verified by the TPO. 36. We have heard the rival contention, perused the rele....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the learned Counsel that insofar as the revenue relating to media rights fee and licence fee are concerned, which has been included in this segment has to be removed, as it has no co-relation with the consultancy fees and sales incentive. Thus, the TPO, while calculating the margin after removing the income from media fee and licence fee, examine the allocation of expenditure as given by the assessee in the aforesaid calculation. Accordingly, ground no.9 is treated as allowed for statistical purpose. 38. In ground no.10 the assessee has contended that relief, as provided in the proviso to section 92C(2) should be given if the final difference of the arm's length margin vis-a-vis a comparables is within the tolerance range of +/- 5%. Such a plea of the assessee is acceptable in view of the legal provisions and the TPO will look into this aspect at the time of determining the ALP. Thus, ground no. 10 is treated as allowed. 39. In ground no.13, the assessee has challenged the addition of Rs. 12,82,404 being the advance written-off. 40. The assessee has debited a sum of Rs. 12,82,404, under the head "Advances written-off". The Assessing Officer observed that the onus on the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. The agreement with BCCI is for 3 years out of which rights for the first year are exclusive and for the subsequent two years are non exclusive. It is submitted that all the three matches were over in the first year i.e., financial year 2007-08 and there were no direct telecast in the subsequent two years excepts some benefits derived in those two years. Considering general principle of computation of income under the mercantile system of accounting, the assessee has apportioned 80% (Rs. 65,60,96,000) to the financial year relevant to the A.Y. 2008-09 and the balance 20% (Rs 16,40,24,000) is carried forward to the subsequent years and apportioned in subsequent years." 46. The Assessing Officer held that it is a revenue expenditure but was of the view that the apportionment of the expenses have to be done @ 60% in the current year and 20% & 20% for the next two years. The reason for apportioning in such a ratio was that cricket matches has huge following and re-telecasting has a huge demand, therefore, considering these factors and the re-telecasting value of cricketing rights such an apportionment would be reasonable. 47. Before us, the learned Counsel submitted that the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....business operations. He submitted that the decision of the Delhi High Court in Indian Visit.com (P.) Ltd. (supra) is directly applicable to the facts of the present issue and the Assessing Officer is not justified in distinguishing the said judgment. 53. Learned Departmental Representative, on the other hand, relied upon the order passed by the Assessing Officer. 54. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. The assessee's contention that the assessee has incurred website expenditure for updating the website and not for creation of a new website has not been rebutted. The website is meant for dissemination of various information and in case of the assessee it is one of the very important factor in carrying out its business operation as the assessee is mainly engaged in media and entertainment business. Updating of website is the most essential part for running of day-to-day business. If such an updating is not carried out from time to time then the website itself becomes redundant and unpopular. Under these circumstances, we are of the opinion that such an expenditure for updating the websit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment in the mutual funds were made from own funds and not from the borrowed funds. Therefore, no expenditure can be said to be attributable to the earning of the said dividend. The Assessing Officer rejected the assessee's contention and after analyzing the various administrative expenses he worked out the disallowance as per rule 8D in the following manner:- A. Interest paid 9,20,42,610 B. Average of Investments Opening Closing 471,81,13,187 458,45,49,909 C. Average value of total assets 01.04.2007 954,37,29,596 31.03.2008 923,90,03,296 939,13,66,446 Disallowance u/s 14A r/w rule 8D = Ax B C = 9,20,42,610 x 465,13,31,548 939,13,66,446 = Rs. 4,55,86,624 0.5% of Rs. 465,13,31,548 = Rs. 2,32,56,657 Total disallowance u/s 14A = Rs. 6,88,43,281 59. Before us, the learned Counsel submitted that the assessee had made investment of more than Rs. 458 crores and secured ....