TaxTMI 
TaxTMI 
2014 (8) TMI 1035
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....stified in accepting the additional evidence filed by the assessee as fresh evidence under Rule 46A of the I.T.Rules, 1962 when no prejudice is caused to the assessee as the TPO considered only those PLIs as computed by the assessee. 3. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in accepting the additional evidence filed by the assessee as fresh evidence under Rule 46A of the I.T.Rules, 1962 when the assessee had been given sufficient time to submit the computation of PLIs of comparable companies. 4. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in considering sundry balances written back as operating revenues when the se is on account of expenses incurred in earlier years and does not spring out of the operations carried out by the \ assessee for the F.Y.2006-07. 5. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in considering excess provisions written back when the same is on account of provisions made in earlier years and does not spring out of the operations carried out by the assessee for the F.Y.2006-07. 6. O....
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....perating revenue and rejection of Jain TV as comparable in the Remand Report for the first time without the jurisdiction of the TPO to make such changes at the Remand Report stage and Ld. CIT (A) upholding the redoing of the TP asst. in Remand Report. 1.7 Not applying the PLI of Sony / STAR which are most appropriate comparables and has functional similarity and comparable turnover which are available with the deptt. The Ld. CIT (A) failed to appreciate that in those cases deptt. taking assessee's comparable in appeal and assessment or by issue of notice u/s.133 (6) of the Act. 2. Rejecting segment accounts showing margin of 60% in export division on the ground that the segmental information is not audited and appears that expenses are allocated on ad hoc and arbitrary manner. 3. The Ld. CIT / TPO erred in law and facts in applying differential margin to entire sales in place of only to export sales to AEs. The reasons given by him for doing so are wrong and contrary to the facts of the case & provisions of law. 4.1 The Ld. TPO failed to give proper opportunity to the assessee at the time of original assessment and Remand Proceedings by way of show cause notice f....
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....isallowance of Rs. 26,71,000/- u/s 14A out of expenses as per Rule 8D without giving any specific finding of incurring expenses to earn exempt income as held by Delhi HO in the case of Hero Cycles 7.6 The Ld. CIT (A) erred in law and facts in upholding computation of disallowance u/s 14A of the Act as per Rule 8D even when Rule is not applicable to the year under appeal as held by Bombay High Court in the case of Godrej. 2. The sole issue raised by the Revenue in its appeal is regarding Transfer Pricing(T.P) adjustment of Rs. 137,46,33,244/-. The assessee also in its appeal is aggrieved by the T.P adjustment, part of which has been upheld by Ld. CIT(A). 3. The assessee had reported following international transactions with it's A.Es. S.No. Nature of Transaction F.Y.2006-07 Method used by the assessee. F.Y. 2005-06 1. Sale of TV programs and films 837,860,756 TNMM 749,671,866 2. Performance fee (received) 932,200 CUP - 3. Agent for Space Selling(received) 54,011,514 CUP CUP 4. Playout facility charges(received) 21,375,379 CUM - 5. Distribution of Pay TV(Received) 143,241,930 CUP 140,30....
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....India Limited 134.3 59.66 59.66 Arithmetic mean Assessee 655.58 273.54 41.72 3.2 From the above comparables it was noticed by the TPO that some of the above comparables were having significant Related Party Transactions(RPT), therefore, he proposed the assessee to exclude seven comparables ( i.e. comparables on the ground that they were having RPT of more than 20% sl.No.2,4,5,6,11,12) and one comparable having sale turnover less than Rs. 10.00 crores (i.e. Sl.No.7). In response to such query of the TPO revised calculation was filed by the assessee to show that arithmetic mean of comparables is 33.49% and assessee's PLI is 41.72%. This table is also appearing at page 3 & 4 of order of TPO. S.No. Name of the Comparable Company PLI% T/O RPT RPT(%) 1. Raj Television Metwork Ltd. 69.38 40.37 0 0.00 2. New Delhi Television Ltd. -0.23 282.45 2.91 1.03 3. B A G Films & Media Ltd. 27.14 44.14 0.38 0.86 4. Cinevistaas Ltd. 58.02 20.02 0 0.00 5. Sri Adhikari Brothers Television Network Ltd. 76.42 39.94 16.29 40....
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....essee the figures on the basis of which PLI was computed in respect of comparables were not correct as the same were based on data taken from data base. However, full details were mentioned in annual audited accounts which were not taken into account. This issue is discussed by Ld. CIT(A) in para 4.3 of his order. The assessee objected to the rejection of comparables on the ground that TPO was not right in excluding the comparables having more than 15% of RPT following the decision of ITAT in the case of Sony India Pvt. Ltd . After receiving the comments of the TPO and the submissions of the assessee Ld. CIT(A) has come to a conclusion that RPT filter applied by the TPO excluding comparables of more than 15% RPT transactions is in order. However, Ld. CIT(A) accepted the contention of the assessee that adjustment on account of depreciation cannot be done as suggested by TPO in the remand report. 5. The assessee in its appeal is aggrieved by the order of Ld. CIT(A) on several counts which inter-alia include exclusion of UTV Software Communications Ltd. as one of the comparable party. It is the main case of the assessee that since RPT transaction in the case of UTV Software Communi....
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....the submission of Ld. AR that aforementioned four comparables are finally selected by the TPO after excluding UTV Software Communications Ltd. from the list of comparables on the ground that RPT in that case had exceeded bench mark of 15% as the RPT transaction in that case were to the tune of 18.19%. He in this regard referred to TPO's order in which in para-7 the table showing RPT transaction of comparables is mentioned and the said table is also reproduced in the above part of this order in para-3.2. It was the submission of Ld. AR that bench mark of 15% in relation to RPT has been fixed by TPO on the basis of decision of Tribunal in the case of Sony India (P) Ltd., 114 ITD 448(Del). It was submitted by him that in several decisions ITAT after considering the decision of Sony India (P) Ltd. (supra) has come to the conclusion that bench mark for RPT filter should be applied at 25% instead of 15%. Ld. AR referred to the following decisions of Tribunal for taking this view and copies of these decisions are also enclosed. (a) Actis Advisers Pvt. Ltd. v. DCIT and vice versa for A.Ys. 2006-07 and 2007-08 in ITA Nos.958/Del/2012 and 5277/Del/2011 dated 12.10.2012 (after considering ....
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....d 25% of the total revenue. Thus, we do not find any fault in the conclusion of the learned TPO for applying this filter to the extent of 25% transaction with related party of the total revenue. The contentions raised by the learned counsel for the assessee in this regard are rejected." 8.3 From the decision in the case of DSM Anti Infectives India Ltd. vs. DCIT(Supra) our attention was drawn to the following observations of the Tribunal: "60. Similar view has been laid down by other Benches of the Tribunal. The learned AR, far the assessee placed strong reliance on the issue laid down in Sony India (P) Ltd. and CRM Services India (P) Ltd (supra) but we find no merit in the stand of the assessee. Applying the ratio laid down by Delhi Bench of the Tribunal in Actis Advisers Pvt. Ltd. vs. DCIT (supra) we hold that the an entity with whom related party transaction do not exceed 25% of the total revenue, is an uncontrolled entity. Applying the above said filter to the facts of the present case we are in conformity with the report of the TPO in assessment year 2006-07 in selecting Autombindo Pharma Ltd. as one of the comparables which admittedly had RPT of 21.77% to the sales. ....
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....the additional evidences. Therefore, he submitted that on the basis of Ground No.1,2&3 of the Revenue's appeal the adjustment made by TPO should be upheld. 8.7 It was further submitted by Ld. DR that Ground No7 & 8 raised in the Revenue's appeal should be allowed as Ld. CIT(A) is not correct in deleting the action of TPO regarding adjustment of depreciation while calculating ALP. It was submitted that TPO was very much right in making such adjustment and Ld. CIT(A) has committed an error in holding that such adjustment was not permissible as per Rule 10B(1)(e)(iii) of Income Tax Rules, 1962. He submitted that the said rule duly support the case of TPO and, therefore, order of Ld. CIT(A) on this account should be set aside and that of TPO should be restored. 8.8 We have heard both the parties and their contentions have carefully been considered. It is the main arguments of Ld. AR that UTV Software Communications having RPT transaction of 18.19% should be included in the list of comparable. This argument of Ld. AR is based on decisions of ITAT in the case of Actis Advisory Pvt. Ltd.; DSM Anti Infectives India Ltd. (supra) and Global Logic India vs. DCIT (supra). The main....
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.... ..................................................................... (e) transactional net margin method, by which,- ................................................................. (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the difference, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;" 8.10 Ld. CIT(A) while deciding the issue in favour of assessee has observed that such adjustment can be made only in a case where such adjustment materially effect the amount of net profit margin in the open market. Adjustment of depreciation if taken as per straight line method and as per Income-tax Rules would make material impact on the net profit margin of the concern. The TPO in his second remand report has clearly brought the case of the assessee as well as comparables at par so far as it relates to claim of depreciation. There has to be similarity in respect of depreciation claim while computing t....
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....cost in the case of taxpayer which is with unrelated parties. Profit Level Indicator = Operating Profit/Operating Expenses Operating Profit = Operating Revenues - Operating Expenses xii. OPERATING REVENUES means the amount of the total receipts from the provision of services. But, it does not include revenues which are non-operating in nature and not related to the business operations of the relevant financial year. For example, the following incomes which are non-operating in nature and nothing to do with the business operations of the company for the relevant financial year are excluded from operating revenues. i. Interest ii. Dividends iii. Gain on sale of assets /investments iv. Income from investments v. Gain o revaluation of assets. vi. Other incomes not pertaining to the business operations of the relevant financial year. xiii. OPERATING EXPENSES includes all expenses except for interest expenses not related to the operation of the relevant business activity. Operating expenses ordinarily include expenses associated with advertising, promotion, sales, marketing, warehousing and distribution, administration, and depreciation. But, it does not inc....
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.... that M/s. UTV Software Communications is required to be included in the list of comparables, we do not go into other issues raised in the grounds of appeal filed by the assessee and which were also not argued before us. Therefore, the other grievances of the assessee relating to TP adjustment have become academic and are treated as infructuous. 12. The other issue remain in the assessee's appeal is regarding disallowance under section 14A of the Act. During the year under consideration the assessee has earned tax free dividend of Rs. 1,93,47,596/-. As per assessment order the investment of the assessee in stocks of subsidiary company was Rs. 1345,88,95,000/-. The assessee also had interest expenses of Rs. 14,71,94,156/-. Therefore, AO while computing the disallowance under section 14A with reference to Rule 8D has disallowed a sum of Rs. 57,74,561/-. While considering the grievance of the assessee Ld. CIT(A) though has held that Rule 8D could not be applied but he has worked out the disallowance after referring to the formula described in Rule 8D and restricted the addition to a total sum of Rs. 33,51,401/-. 12.1 It is the case of Ld. AR that according to the decision of ....