TaxTMI 
TaxTMI 
2014 (5) TMI 73
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....e income of the Appellant at INR 104,15,59,320 as against the returned income 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 ....
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....n off. 14. 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 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....
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....nd international territory. As a highest bidder, the Nimbus India had acquired these rights for US$ 612.18 million which in terms of INR was Rs. 2724,20,10,000. 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 ....
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....breach of certain terms of the contract and also curtailment of number of matches in the tournament. The assessee was now required to pay Rs. 561.30 crores instead of the amount payable at Rs. 9,60,28,08,525 and the assessee has received Rs. 87.06 crores from 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 ....
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.... estimate has to be made on the basis of material available on record. First of all, he pointed out that as per the BCCI bid documents, the cost of value of international rights were 17.66% of the global contract value and if the assessee was required to pay Rs. 960.28 crores to the BCCI in this year, then the international rights component at this ratio will come to Rs. 169,58,55,986 which the assessee was expected to receive from the A.E. by way of minimum guarantee amount as per the original agreement with NSI. 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 yea....
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....after narrating the entire facts of the case, as have been discussed above, submitted that the Assessing Officer has made the adjustment in a very arbitrary manner by firstly presuming that the assessee had paid Rs. 960.28 crores to the BCCI in terms of the contract and thereupon had worked out the ratio of the media rights for the international territory and estimated the value at Rs. 145,92,26,200, receivable from the A.E. The consideration payable as per the contract was only the indicative value as per the scheduled matches in tournament which were to be played. It was brought on record that some of the rights were awarded 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.....
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....ights given to the A.E. for the international territory, he submitted that there was a clear cut stipulation that whatever the value of media rights would be assigned to the A.E., the assessee will get the same value in the form of minimum guarantee amount and if such media rights are exploited, profitably in the overseas market then any excess revenue over and above the assured 90% of the revenue receipt would be passed on to Nimbus India i.e., the assessee. This transaction itself can be benched marked by way of CUP method. Even the transaction itself goes to show that the assessee was in a far better position as the terms 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 ....
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....tted that this matter can be restored to the file of the TPO for bench marking the margin from the exploitation of media rights in the international territory by following most appropriate method and after searching comparables, who are into media or advertisement rights, as it cannot be held that there would be no mark-up or margin in such transactions in a third party situation. 16. We have heard the rival contentions, perused the relevant findings of the authorities below and the material available on record. The assessee had acquired the media rights in respect of BCCI cricket events for a period from the year 2006 to 2010 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 wer....
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....ansaction on the ground that the minimum guarantee amount receivable by the assessee from the A.E. is less. This again is based on the same premise. 17. Thus, the main controversy as it appears is, what is the exact amount which is payable to the BCCI in the relevant financial year because this is the only basis of these two adjustments. As per the material placed on record by the assessee, it is seen that the amount which is payable to the BCCI is dependent upon the tournament and the matches which were to be conducted for which the media rights were assigned to the assessee. The assessee has given the details of the matches conducted 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 ascertain....
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....ational rights which works out to Rs. 85.34 crores which is the amount receivable as minimum guarantee as per the agreement. As against this, the assessee has received a sum of Rs. 87.06 crores from its A.E. and, therefore, there is a margin earned and there is a direct CUP available in the form of recovery of minimum guarantee amount. On a perusal of the TPO's order as well as the material placed on record by the assessee, it is seen that neither the assessee nor the TPO have bench marked by applying any proper method or carrying out any comparability analysis vis-a-vis any comparables. We agree with the contention of the TPO as well 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 s....
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....bunal in assessee's own case for the assessment year 2004-05, wherein such an adjustment on account of notional interest has been deleted. However, the TPO rejected the assessee's contention after taking note of the fact that all its current assets have been placed towards security for loan availed and, therefore, there is an element of cost to the assessee for the loans and advances and independent third party would not have advanced any money without any compensation or without any security. Looking to the fact that the assessee had substantial liability on account of various borrowings and that all its assets are pledged / hypothecated, 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, th....
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....o the assessee to explain its case. 26. Insofar as the adjustment of notional interest on the outstanding debit balance in the account of FSI, it is seen that this is a recurring issue in assessee's case, wherein the Tribunal has dealt and discussed this issue in detail. In the appeal for the assessment year 2007-08 in ITA no.6816/Mum./2010, order dated 7th August 2013, the Tribunal has dealt and discussed this issue after observing and holding as under:- ''7. As regards ground No. 3(d), the ld. representatives of both the sides have agreed that the issue involved therein relating to addition made on account of notional interest payable by Nimbus Sport International 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.....
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.... profits, incomes, losses or assets of such enterprises, does not apply to a continuing debit balance, on the given facts of the case, for the elementary reason that there is nothing on record to show that as a result of not realizing the debts from associated enterprises, there has been any impact on profits, incomes, losses or assets of the assessee. In view of these discussions, in our considered view, a continuing debit balance perse, in the account of the associated enterprises, does not amount to an international transaction under section 92 B in respect of which ALP adjustments can be made. The factum of payment has to be considered vis-a-vis terms of payment set out in the transaction arrangement, 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....
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....rest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee had charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises had charged interest in respect of overdues in respect of similar business transactions with independent enterprises (external CUP). Since no such exercise had been carried out in the case of the assessee for A.Y. 2004-05, the Tribunal held that the impugned addition was not sustainable. In the year under consideration also, no such exercise has been carried out by the TPO and since the addition was made by adopting interest at LIBOR rate, we hold, respectfully 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 con....
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....ingly, ground no.8 is treated as partly allowed. 32. Ground no.9, the assessee has challenged the transfer pricing adjustment of Rs. 45,97,345 as proposed by the TPO towards determining of ALP on consultancy revenue received from the A.E. 33. The assessee, during the year, as per the service agreement with the NSI for rendering various services like sales and marketing of the television production and event management support service rendered to NSI, has earned revenue for a sum of Rs. 215,81,536 as consulting fees and Rs. 104,74,744, being sales incentive. This aggregated to Rs. 3,20,56,280. In the transfer pricing report, the assessee gave description of the services rendered to NSI and for bench marking the ALP, 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 ....
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....nbsp; (-) 23,08,409 NCP (-) 6.71% 11.11 It was already noted that the average mean of the comparables comes to 14.67%. The assessee's OP/TC is -6.71%. The assessee's case does not fall within +/- 5% range. Hence, an adjustment of 50,72,228 is to be made as follows:- OP. Revenue 3,43,64,689 ALP profit rate 14.76% OP. Profit 50,72,228 ALP Revenue 3,71,28,508 AE Revenue 3,20,56,280 Adjustment to be made 50,72,228 +/- 5% of TP 3,36,59,094" 34. Before us, the learned Counsel submitted that under such segment, there was a revenue on account of licence fee and media rights fee which needs to be excluded for the purpose of determining the profit margin under consulting and sales incentive. He submitted a fresh 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,....
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....ovisions for Employees 11,521,793 Financial Charges Bank Charges 1,253,745 Interest on Loans 41,910,153 Administrative and other Expenses 15,752,640 104,059,785 Less: Fixed period loans interest not related to sports segment (38,576,712) Resultant Segmental Expenditure 65,483,073 Apportionment of related expenses to Consultancy Revenue @ 18.97%(C) 12,422,304 Total Revenue From (B) above 32,056,280 Less: Cost apportioned or allocated to consultancy revenue .... From (C) above (12,422,304) Net profit as a percentage of total consultancy revenue 61.25% 37. Since this calculation has been given before us for the first time, therefore, we are of the considered opinion that this needs to be restored back to the file of the Assessing Officer / TPO to verify the assessee's calculation. We agree with the contention of the learned Counsel that insofar as the revenue relating to media rights fee and licence fee are concerned, which has been ....
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.... to addition of Rs. 16,40,24,000 on account of payment made to the BCCI towards acquisition of sports rights. In addition to this, the assessee has also raised following additional grounds on this issue. "On the basis of the facts and in the circumstances of the case and in law, the appellant should be given full deduction of INR 82,01,20,000 being the payment made to BCCI towards acquisition of sports rights for the three matches played on 26.6.2007, 29.6.2007 and 1.7.2007." 45. The assessee had acquired sports rights from the BCCI for three matches played on 26th June 2007, 29th June 2007 and 1st July 2007 for Rs. 82,01,20,000. The assessee has claimed 80% of the amount in the current year and the balance 10% each in the next two years. In response to the query raised by the Assessing Officer, the assessee submitted as under:- "It is submitted that Rs. 82,01,20,000 was paid to BCCI pursuant to an agreement for acquisition of sports right (refer Annexure 4) for three matches played on 26.06.2007, 29.06.2007 & 01.07.2007. The agreement with BCCI is for 3 years out of which rights for the first year are exclusive and for the....
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....ble as revenue expenditure, the same should be allowed in this year only. Accordingly, we direct the Assessing Officer to allow the entire claim of the assessee in this year only. Accordingly, the assessee's ground no.14 along with the additional ground is treated as allowed. 50. In ground no.15, the assessee has challenged the addition of Rs. 23,39,082, towards website development expenditure by treating the same as capital expenditure. Alternatively, it has been claimed that depreciation should be allowed if it is to be treated as capital expenditure. 51. The Assessing Officer has disallowed these expenses on the ground that these are the capital in nature as it has enduring benefit. He also tried to distinguish the decision of the Hon'ble Delhi High Court in CIT v. Indian Visit.com (P.) Ltd. [2009] 176 Taxman 164 (Del.), which was heavily relied upon by the learned Counsel. 52. Before us, the learned Counsel submitted that this expenditure has not been incurred for creation of a website but for updating the website which is essential to meet the requirement of day-to-day business operations. He submitted that the decision of the Delhi High Court in Indian Visit.....
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....se of the internet has provided a very powerful medium to companies to publicize their activities to a larger spectrum of people at a much lower cost. Websites enable companies to do what the printed brochures did but, in a much more' efficient manner as well as in a much shorter period of time and covering a much larger set of people worldwide." 55. Thus, applying the ratio laid down by the Delhi High Court, in the present case, we are of the opinion that this expenditure is to be allowed as revenue expenditure. We order accordingly. Ground no. 15, raised by the assessee is thus treated as allowed. 56. Ground no.16 relates to the addition of Rs. 6,88,43,281 u/s 14A. 57. The A.O. observed that the assessee has earned dividend income of Rs. 27,88,996, which was claimed as exempt and the assessee has not offered any expenditure allocable to earning of such income under section 14A. The investment as on 31st March 2008 was Rs. 488.45 crores and at the same time, the assessee has also claimed financial expenditure of Rs. 13,72,85,822. 58. Before the A.O., the assessee submitted that the investment in the mutual funds were made from own funds and not from the borrowed fu....