TaxTMI 
TaxTMI 
2019 (7) TMI 1318
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.... learned Dispute Resolution Panel-1, Mumbai( hereinafter called " the DRP") dated 22.12.2015 issued u/s 144C(5) of the 1961 Act . Earlier, the AO issued draft assessment order dated 25.03.2015 u/s 144C(1) read with Section 143(3) of the 1961 Act , wherein transfer pricing additions were made by the AO in the aforesaid draft assessment order based on order passed by learned Transfer Pricing Officer, Mumbai (hereinafter called "the TPO") u/s 92CA(3) of the 1961 Act. Subsequently, the assessee filed objections before learned DRP against the aforesaid draft assessment order dated 25.03.2015 passed by the AO , which were disposed off by learned DRP by issuing directions dated 22.12.2015 u/s 144C(5) of the 1961 Act. 2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 1519/Mum/2016 for AY 2011-12, read as under:- "Based on the facts and circumstances of the case, Channel V Music Networks Limited Partnership (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income-tax....
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....ct of transactions with non-AEs. Ground number 8 erred in applying an arbitrary profitability rate of 28 percent to Advertisement revenues from non-AEs without appreciating the fact that the ALP rate of 21.26 percent determined by the learned TPO should equally apply to the revenues received by the Appellant from non-AEs. Ground number 9 erred in disregarding the arms' length profit computed by the learned TPO in hands of the Appellant and in re-determining the ALP of the international transactions, thereby exceeding his jurisdiction provided under Section 92CA(4) of the Act. Ground number 10 erred in not following/disregarding the findings of the learned TPO that based on Functions, Assets and Risks ('FAR') analysis, only 50 percent of the entire business profits of the Appellant from India sourced revenues should be apportioned in the hands of the Appellant and the balance 50 percent be apportioned in the hands of STAR Ltd. Ground number 11 erred in assessing total India source revenues of INR 3,65,32,08,142 in the hands of the Channel Companies( the assessee has in foot notes specified namely, it....
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....consisted of Satellite Television Asian Region Limited(Star Limited) and channel companies, namely : a) Star Television Entertainment Limited(STEL) b) Star International Movies Limited(SIML) c) Star Asian Movies Limited(SAML) d) Star Asia Region FZ LLC(SAR) e) Channel V Networks Limited Partnership (Channel V) The companies at (a) to (d) above were merged with Star India Private Limited(SIPL) with effect from 1st April 2009 vide Hon'ble Bombay High Court judgment dated 18.02.2010. 3.2.2 During financial year ended 31st March ,2011 , Channel V , had, interalia entered into following transactions with the other entities within Star Group: a) Agency services provided by Star Limited to Channel Companies in connection with sale of advertisement airtime, distribution of channels and syndication of content including services relating to pre-production, post production, playout , uplinking and transmission of the channel; b) Agency Services provided by SIPL to STAR Limited in connection with sale of advertisement airtime, distribution of channels and syndication of content in India; c) Grant of licence by STAR L....
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....enterprises for availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production , playout , uplinking and transmission of the channels of the Assessee. 3.2.5 The assessee also submitted details of the international transactions entered into by assessee with other entities within the Star Group, based on revised Form 3CEB , as under:- Sr No. Nature of Transaction AE Amount in revised From 3CEB Method 1 Procurement of content Star India Pvt. Ltd., INR 315,868,823 TNMM 2 Grant of franchise rights Star India Pvt. Ltd. INR 16,401,447 TNMM 3 Grant of license for distribution of channels Star Den Media Services Pvt. Ltd. INR 234,199,645 TNMM 4 Availing of management services Star Ltd. USD 355,565 TNMM 5 Availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channel of the Assessee Star Ltd USD 3,567,972 ....
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....he AO observed that the assessee has adopted a methodology to compute income chargeable to tax wherein, the consolidated profits were compared to the total of India revenues earned by SIML / V Partnership during the 6 months period April 1, 2010 to September 30, 2010 and global revenues earned by the Overseas Merged Entities for the period commencing from April 1, 2010 till such time that they continued to exist in their local jurisdiction which reflected an overall profit rate of 15.81% percent ( profit as percentage of income). A detailed computation was provided , which is reproduced as under:- Notes: 1. In the case of STEL and SAML, the global advertisement, distribution and syndication revenues for the period April 1, 2010 to May 31, 2010 have been considered. 2. In the case of SIML and V Partnership, India advertisement, distribution and syndication revenues for the period April 1, 2010 to September 30, 2010 have been considered. 3. In the case of SAR the global advertisement, distribution and syndication revenues for the month of April 2010 have been considered. 3.2.8 The assessee submitted that under PSM , there is no need to further b....
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....Margine on revenue (March 2011) Margine on cost (March 2011) 1. T.V. Today Network Ltd. 12.50 14.29 2. Zee News Ltd. 13.31 15.36 3. Maa Television Network Ltd. 19.28 23.88 4. Zee Entertainment Enterprise Ltd. 28.30 39.46 5. Malayalam Communication Ltd. 32.93 49.10 Arithmetic Mean (%) 21.26 28.42 3.2.11 The average mean of the comparables was 21.26% on revenue for the year ended 31.03.2011 , as against the profitability of 15.81% earned by the assessee which did not fall within the safe limit of +/- 5%. The TPO determined ALP rate of the international transaction at 21.26% which is profit rate to be applied to revenue, leading to transfer pricing additions to the tune of Rs. 79,02,816/- proposed by TPO , vide its order dated 28.01.2015 passed u/s 92CA(3) of the 1961 Act. The said order passed by TPO was forwarded to the AO for framing draft assessment order. 3.2.12 The AO while framing draft assessment order also observed that methodology adopted by assessee i.e. considering the profitability based on the audited global financial statements is not in accordance with provisions of the 1961 Act read with Inc....
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....60,320 - Franchise Fee 1,64,01,447 1,64,01,447 - TOTAL 30,64,13,027 13,45,03,811 17,19,09,216 3.12.15 The AO computed income of the assessee vide its draft assessment order dated 25.03.2015 passed u/s 143(3) read with Section 144C(1) of the 1961 Act, as under: Particulars Rs. Income(Advertisement and distribution) received from transactions with non AE taxable@28% of Gross Turnover on Non A.E. transactions (Rs. 1 7,19,09,216 * 28%) Rs. 4,81,34,580/- Income (Advertisement and distribution) received from transactions with A.E. taxable @ 21.26% of Gross Turnover in A.E. transactions( Rs. 2,42,044 + Rs. 11,78,60,320) * 21.26% 2,51,08,562/- Total Income 7,32,43,143/- Other income offered to tax by Assessee in return of income 1,64,01,447 Total Assessed Income 8,96,44,590/- 4. The assessee being aggrieved by draft assessment order dated 25.03.2015 passed by the AO u/s 144C(1) read with Section 143(3) of the 1961 Act, filed objection with learned DRP and made detailed submissions and learned DRP issued directions dated 22.12.2015 u/s 144C(5) of the 1961 Act , as under:- "8. Discussions and Directions....
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.... intangibles or in the case of multiple interrelated international transactions, which cannot be evaluated on a separate basis. 4 PSM first identifies the combined profit of the AEs that are to be split amongst the AEs from the controlled transactions in which the AEs are engaged. As a next step, PSM splits the combined profits between the AEs on an economically valid basis that represents the division of profits that would have been anticipated between independent entities. 5 Thus, the profit split amongst the parties to the controlled transaction reflects the actual profits that would be achieved by an independent enterprises participating in a comparable transaction. 6 Hence, it is submitted that once PSM is adopted, there is no need to further benchmark the profit so arrived at vis-a-vis the comparables since the profitability so arrived at as per PSM represents the ALP on transactions effectively with third parties. 7 Without prejudice to the submissions that once PSM is applied, there is no requirement to apply other method, it is submitted that with a view to avoid litigation and to demonstrate its bonafide, STAR Group Entities suo moto co....
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....adcasts news and current affairs through its channels, including Zee News, Zee Business, Zee Marathi, Zee Bangla, Zee Punjabi , Zee Gujarati, Zee 24 Taas, Zee Kannada, and Zee Telugu, The Company also provides advertising services. iii. UTV Software Communications Ltd UTV Software Communications Limited was incorporated in the year 1990. It is an India based integrated media company. The Company started as a television content production company and has developed into a media and entertainment company. It operates in the following segments: Television, Movies, Games and interactive segments. The Television business of the Company inter-alia includes broadcasting of four speciality genre channels, UTV Action, UTV World Movies, UTV Movies and UTV Bindass, distributed throughout India and selected international markets. Accordingly, the company is engaged in the business of broadcasting and thus, for the purpose of benchmarking, the 'Television' segment from the consolidated financial of the Company has been considered. iv. ibn18 Broadcast Ltd (TV18 Broadcast Ltd.) ibn18 Broadcast Limited was incorporated in the year 2005 as Global Broa....
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....o homes through cable operators and delivers satellite and internet content on cables to homes. The Company is also engaged in distribution of software learning products and provides IT educational services. . viii. Malayalam Communications Ltd Molayalam Communications limited {'the Company') was incorporated in the year 2000 in Thiruvananthapuram. The Company is in the business of television broadcasting. The Company currently operates channels; Kairali TV; People and We. For the purpose of our analysis, the Profit and Loss account of the Company has been considered. ix. Raj Television Limited ('Raj Television' or 'the Company1) Raj Television Network Limited is one of the largest Tamil television and broadcasting Company in southern region. The Company incorporated in 1994, broadcasts twelve channels presently in various southern languages. Raj TV, its flagship television channel launched in 1994 was the first genera! entertainment channel of the Company. Besides Raj TV, the Company promotes Raj digital plus, an exclusive movie channel, three Raj Musix, Music Channels, one in each southern regional languages and three 24X7 N....
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.... FAR analysis, FICAPL is entitled to 50% of the overall profit/loss earned/incurred by Channel Companies and accordingly, 50% of the above profits was apportioned to FICAPL and 50% to Channel Companies. 16 Accordingly, an adjustment of Rs. 79,02,816 was proposed to be made by the learned TPO in the hands of the Assessee. 17. As mentioned above, the adjustment to the arm's length profitability has been made by the learned TPO after rejecting certain comparables selected by the STAR Group Entities. It is respectfully submitted that the learned TPO is not justified in rejecting the comparables on account of the following: 18 On a perusal of the annual reports of the comparable companies selected by the Assessee, the following can be observed: * These entities own and are in the business of operating satellite television channels * Advertising and distribution revenues constitute the primary revenue sources for these entities. Advertising revenue is earned from the sale of air time between regular programming to advertisers. Subscription revenues are earned from cable operators. * Upon a review of the production, administrative ....
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....rusal of the subsidiary details given in the annual report of UTV Software Communications Limited, it can be observed that multiple subsidiaries of the company are engaged in broadcasting business and are operating in India. However, in the absence of sufficient information, the Assessee has considered the Television segment from the consolidated results of the company, which is comparable to the broadcasting operations undertaken by the STAR group entities. It is also relevant to note that the television segment of the company, which has been considered for comparability purposes, comprises of revenues from the sale of television content, airtime, provision of dubbing services and television channel broadcast business. A snapshot of the same has been reproduced below for your Honors reference; 11 Segment Reporting-Segment identification, Reportable Segments and definition of each reportable segment; i) Primary/Secondary Segment Reporting Format: (a) The risk/return profile of the group's business is determined predominantly by the nature of its products and services. Accordingly, the business segments constitute the primary segments for disc....
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....by the learned TPO. In this regard. It is submitted that the term 'consistent' in common parlance is understood to mean 'over a long period of time'. A company which is incurring losses consistently over a period of time (such as 3 consecutive years) can be considered to have abnormal operations, which is against the industry trend and hence it is appropriate to reject such companies. However, rejection of a company on the basis that it has incurred loss in less than 3 consecutive years would tantamount to rejection solely on account of incurring losses as against rejection on account of incurring consistent losses. Further, it is submitted that the industry trend is understood as the movement of the industry as a whole (i.e. including companies that are performing well as well as performing poorly). The trend in the revenues and profits of companies indicates that the risks of an industry are due to multiple business factors. The media industry growth in India is not only due to the existing companies but is also due to the new investments/companies being set up in the industry. If all the companies grow then the industry trend of media industry would have been abnorma....
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....mpanies to diminishing revenues. In this regard, it would be relevant to note that the Hyderabad Tribunal in the case of Brigade Global Services Limited (ITA No. 1494/Hyd/2010 & ITA No. 988/Hyd/2011) has held that a comparable company can only be rejected in case it has persistently incurred losses (for three years). This can be concluded from the fact that in connection to Vans information Limited and Suprawin Technologies Ltd which were considered as comparables by Brigade Global Services Limited, it was submitted by the DR that the companies were suffering losses continuously for three years. The Tribunal directed the exclusion of these companies as comparables on the ground that these companies had continuous loss year by year. can be concluded from the above judgement, that a company can be excluded as comparable if there is continuous loss year by year for 3 years consecutive years. The above principle has also been enunciated in the following case laws: * Goldman Sachs (India) Securities Private Limited vs ACIT (ITA No. 7724/Mum/2011) * Vodafone India Services (P) Ltd vs DC1T (ITA No. 7140/Mum/2012 & ITA No. 7097/Mum/2012) ....
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....loss maker merely on the basis of the fact that a company has accumulated losses. Accumulated losses do not impact the operating results of the company. A company, which has negative operating results continuously years on year, is a persistent loss making company. Further, we wish to submit that for the benchmarking of a transaction using TNMM method, the Assessee used the operating profit as a profit level indicator. The accumulated losses of the comparable company are not relevant, as it does not impact the operating results of a company. Hence the learned TPO has erred in considering the accumulated losses while only the operating profit of the company is relevant for determining its comparability. Further, it would be relevant to note that this selection criterion of rejecting companies incurring persistent operating losses based on data of FY 2008-09 and FY 2009-10 is in contradiction to the learned TPO's position that data of only FY 2010-11 should only be used for comparability analysis. We humbly request Your Honors to consider the above contentions of the Assessee and accordingly include Ibn 18 Broadcast Ltd in the list of comparable c....
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....the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to be the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or precedential value of the earlier pronouncement. Where the facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view." 25 Given the above principles laid down by the Supreme Court, the Assessee humbly submits that the approach adopted by the learned TPO during the previous years alongwith a set of comparable companies applied in the case of the Assessee in the preceding year should be applied even in the year under consideration on the basis of the facts remaining the same. This is without prejudice to the grounds of appeal raised by the Assessee during A Y 2007-08. 2....
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....Pune) "Regarding the 'rule of consistency' and the relevant decisions on the topic, we have examined the facts for the assessment years 2006-07 and 2007-08. So far as the external comparables, turn over details of export and domestic segments and other relevant facts are concerned, we find similarity of the facts between both the years. The argument of the assessee is that the external comparable prices for the impugned assessment year 2006-07 supplied by the assessee, when accepted by the Assessing Officer for the assessment year 2007-08, must be accepted for that year in view of the absence of material facts and also in view of the rule of consistency. We have considered this argument and in our opinion, it is a settled law that the principle of res judicaia is inapplicable to Income-tax matters. However, the same is true as long as the facts of different in different assessment years. Otherwise, the rule of consistency is relevant to Income-tax matters and Assessing Officer cannot be ignore the same. There ought to be uniformity in treatment and consistency when the facts and circumstances are identical as held by the Mumbai Tribunal in Gopal Purohit v. Jt. CIT (200....
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....mpensation of cost plus 6 per cent, or 1.5 times of the total wages bill, whichever is higher. This point we have to consider in the light of the fact that the assessee is working in a risk mitigated environment. That is why we have agreed with the argument of the assesses-company that there may not be extreme profits in the case of the assessee. When extremes are excluded from the samples, all sorts of extremes should be avoided. Otherwise, samples selected for comparative study may not be representative. 28 in view of the above case laws, it is submitted that the action of the learned TPO in selecting the comparables which are earning a higher profitability margin, such as Malayalam Communications Limited, Zee Entertainment Enterprise etc and rejecting comparable companies which are incurring losses is not justified. 29 In view of the above, the learned TPO be directed to accept the comparable companies selected by the Assessee after excluding India Vision Satellite Communications Limited as the same is rightfully rejected by the learned TPO." 5. The learned DRP after considering submissions of the assessee , issued directions dated 22.12.2015 u/s 144C(5) of ....
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.... comparable has been rejected by the TPO because the company has incurred losses in the F.Y. under consideration as well as in the previous financial year, thus, it was a persistent loss maker. The contention of the assessee is that it is not a persistent loss maker because it has reported profit in the year prior to the previous financial year. We have considered the contention of the assessee. We are in agreement with the finding of the TPO that the company is a persistent loss maker because it has reported loss in two consecutive years including the financial year under consideration. Rejection of this comparable by the TPO is, therefore, upheld." 5.2 So far as applicability of Rule 10B(4) , the Ld. DRP issued directions by holding as under:- "14.1 Discussions and directions of DRP: In sixth ground of objection the assessee has claimed that the TPO and the AO have erred in rejecting the compatibility analysis carried out by the assessee because the same was accepted in A.Y. 2007-08 and there was no change in facts or in the law in this year. We are unable to appreciate the objection raised by the assessee because the assessee has not demonstrated its claim w....
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....nly for taking a decision on how much the factors in earlier years have had an impact on the profit in the present year, either of the tax payer or of the comparable. Hence, when either the tax payer or the department takes earlier period data, onus is on the tax payer or department, respectively, to prove how the earlier years' conditions had an influence on the profit of the relevant financial year. 14.1.4 In this case, the tax payer has not given any details as to how earlier years' data has an impact on the profits in the current F.Y. 2010-11 of the tax payer or of the comparables and even if there is such an effect, it has to be quantified and adjustment has to be made to the profit margins of either the tax payer or comparables. Even a reference to the Revision of Chapter I, II and III of the Transfer Pricing Guidelines issued by the OECD indicates the caution that "use of multiple year data does not necessarily imply the use of multiple year averages." The OECD has laid downs clear guideline that use of multiple year data does not necessarily imply that multiple year averages be used for the purpose of benchmarking. As per well settled law, single y....
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....r before the tribunal is AY 2011-12. It was explained that the assessee is a non-resident limited liability partnership firm and is a tax resident of Hong Kong belonging to Star Television group of cases. The assessee owned satellite television "Channel' being Channel V. The assessee also owned the content broadcast on this Channel. It was submitted that assessee has adopted Profit Split method to benchmarking its international transactions with AE's , which is not under dispute as it is accepted by Revenue. It was explained that the same methodology was adopted for earlier years also. The ld. Senior Counsel for the assessee drew our attention to order passed by the TPO. It was submitted that profit attributable to the assessee by adopting Profit Split Method was to the tune of 15.81%. It was submitted that while applying PSM method, all intra group transactions are eliminated and thereafter based on contribution of each entity in the group profitability attributable to each entity is worked out. The learned Senior Counsel for the assessee argued that , iner-alia, two comparables viz. IBN18 Broadcast Limited and Raj Television Limited, were rejected by the authorities below on the ....
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.... of the company. However, AO/T'PO is directed to accept the company is a valid comparable if the assessee is able to demonstrate that the company has earned a profit in the F.Y. under consideration. 3. The DRP rejected all other objections of the Assessee and upheld the order of the Assessing Officer. 4. Accordingly, the Transfer Pricing Officer - 2(1)(1), Mumbai vide this office Setter dated 19.01.2016 was requested to give effect to the aforementioned DRP directions and forward the same to the undersigned. The TPO vide his letter dated 25/01/2016 submitted that as per the directions of the DRP, IBN 18 was accepted as a comparable For the AY 2011-12 and after recalculating the average operating margin as well as ALP, it was found that the operating margin of the assessee fell in the range of (+](-)5%. Hence, as per provisions of proviso to section 92C(2) of the Act, no adjustment was proposed by the TPO." 6.2 The leaned senior counsel for assessee also drew our attention to the Balance Sheet of the IBN18 Broadcast Limited( TV18 Broadcast Ltd.) which is placed in paper book at age 1-129, and it was submitted that perusal of the aforesaid Balance Sheet will ....
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....st Appropriate Method (MAM) for benchmarking the profits of the entities is PSM and the allocation of the combined net profit amongst the entities have been apportioned on the basis of their role and functions performed, risks assumed and assets deployed and all the companies are taxable at the same rate. Not only that, the combined net profit determined under the PSM has been arrived at 14.04% which has been accepted to be at Arm's Length by the TPO in the reference made under section 92(CA). Thereafter, the assessee has made suo moto disallowance under section 40(a)(i) in the return of income with regard to the payment made to the third party on account of expenditure related to content source from foreign suppliers; payments to third parties for hire transponder and payments for uplinking / maintenance of equipments and lastly, by disallowance of interest expenses. Such disallowances had led to upliftment of profit rate of 27.18%. Thus, the taxable income was shown @ 27.18% which has been apportioned amongst entities as per the percentage which has been incorporated in the foregoing paragraphs. The first and foremost issue is, whether the DRP was justified in segregating the rev....
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....sessee is taken into account to arrive at an arm's length price in relation to the international transaction: Provided that the combined net profit referred to in sub- clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual and profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction". From the plain reading of the above method, it is evident that, first step is to identify the combined net profit of the AE arising from the international transactions, in which....
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....Arm's Length Price will always be a subject matter of suspicion. Here in this case, what the AO has done is that, firstly, he has taken the combined net profit of 27.18% for whole of the transactions and thereafter, he has segregated the so called non-AE revenue and thereby applying the profit @ 28% on such revenues separately. Such an approach, in our opinion is untenable; firstly, there is no separate source or stream of revenue from Non-AE transaction; secondly, the combined profit has been determined by taking the gross revenues from all the streams by each of the entities and all the costs i.e. gross expenses has been worked out and deducted. The resultant profit percentage of 14.04% has been arrived from the revenues from all the streams are as under:- Particulars Amount in INR Particulars Amount in INR Advertisement revenue 10,147,277,000 Distribution revenues 2,496,481,000 Syndication revenues 60,534,958 Total India revenues 12,704,292,958 Profitability percentage (determined separately 14.04% Arm's length taxable profits 1,783,683,000 The above income has been then allocated amongst the various entities after considering f....
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.... AY 2008-09, which is reproduced as here under:- "4. Ground No.5 to 9 relate to determination of higher profitability for advertisement receipts received by STAR Ltd. on the ground that it was a Non-Associated Enterprise (Non-AE) receipt, hence, outside PSM. 4.1 We have heard the rival contention and found that the TPO on the basis of directions of the DRP, while passing the final assessment order, did not apply Rule 10(i) in case of assessee for A.Y.2007-08 as all the revenues generated by the assessee during relevant year were from the transactions with AEs and the returned income of the assessee was accepted. 4.2 The DRP followed its order for assessment year 2007-08 on the reason of consistency. 4.3 Ld. AR for the assessee has submitted before us that the sale of advertisement airtime by STAR Ltd to AEs is an international transaction which is closely related to apply the PSM has not been disputed by the TPO/DRP. Therefore, advertisement revenues from Non-AEs could not be excluded from the computation of income under the PSM. The starting point of the PSM is to determine the combined net profit. This net profit finally represents the re....
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.... and is not being repeated for the sake of brevity. 4.5 We have heard the rival parties at length and considered the same carefully. We noticed merit in the submissions of the Ld. AR for the assessee, as the combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. We therefore set aside the orders of lower authorities on this issue and restored the same back to AO/TPO for deciding afresh in terms of our above discussion. 4.6 In the result, the ground taken by the assessee is allowed for statistical purposes. 4.7 The same and identical issue are involved in ground no. 6 of ITA no. 7681/M/12, ITA no. 7681/M/12 , ITA no. 7683/M/12 , ITA no. 7684/M/12, and ITA no. 7679/m/12, all pertaining to AY 2008-09, therefore, following our above contention the appeals filed by the assessee on this ground, are allowed for statistical purposes." 6.4 It was also submitted by learned counsel for assesse....
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....ent Limited(STEL) b) Star International Movies Limited(SIML) c) Star Asian Movies Limited(SAML) d) Star Asia Region FZ LLC(SAR) e) Channel V Networks Limited Partnership (Channel V) The companies at (a) to (d) above were merged with Star India Private Limited(SIPL) with effect from 1st April 2009 vide Hon'ble Bombay High Court judgment dated 18.02.2010. 7.3 During financial year ended 31st March ,2011 , Channel V , had, interalia claimed to have entered into following transactions with the other entities within Star Group: a) Agency services provided by Star Limited to Channel Companies in connection with sale of advertisement airtime, distribution of channels and syndication of content including services relating to pre-production, post production, playout , uplinking and transmission of the channel; b) Agency Services provided by SIPL to STAR Limited in connection with sale of advertisement airtime, distribution of channels and syndication of content in India; c) Grant of licence by STAR Ltd. to the Channel Companies for use of 'Star Mark' in combination with Channel Mark; d) Provision of management ser....
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....ertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channels owned by the associated enterprises. 7.6 The assessee had benchmarked its international transactions entered into with its associated enterprises situated in India (Indian AE's) using the Indian AEs as tested parties. The transfer pricing analysis was done under Profit Split Method and TNMM with reference to the revenue generated from India. Out of the above said international transactions mentioned above, the TPO observed that transactions at nos. 1, 2,3, 6 and 7 are mirror transactions with Indian AEs and the same had been discussed in TP assessment of those Indian AEs by TPO-4(1), Mumbai. The TPO observed that transactions related to nos. 4 and 5 are covered under PSM method adopted by the assessee. The TPO observed that assessee has adopted Profit Split Method to be the most appropriate method(MAM) and consolidated global profitability of channel companies were applied to the India revenues generated by the Channel Companies for the 12 month period from 1st April 2010 to 31st March 2011. ....
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....does not pass the RPT Filter as out of total income of Rs. 3,13,69,230, the auditor's report state that Rs. 1,48,80,000 is from a foreign company in DUBAl, United Arab Emirates. Viz. India vision International FZ LLC. The assesss holds 51% shareholding in it as per memorandum of association of the said LLC company. * Raj Television: The annual accounts of the company The TPO accepted rest of the five comparables and margin on revenue was computed @21.26% (PLI), as detailed hereunder: Sr. No. Company Margine on revenue (March 2011) Margine on cost (March 2011) 1. T.V. Today Network Ltd. 12.50 14.29 2. Zee News Ltd. 13.31 15.36 3. Maa Television Network Ltd. 19.28 23.88 4. Zee Entertainment Enterprise Ltd. 28.30 39.46 5. Malayalam Communication Ltd. 32.93 49.10 Arithmetic Mean (%) 21.26 28.42 7.10 The assessee is aggrived by exclusion of IBN18 Broadcast and Raj Television Limited before us. 7.11 The AO while framing draft assessment order also observed that methodology adopted by assessee i.e. considering the profitability based on the audited global financial statements is not in a....
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....11-12, as under: (In Rs.) Streams of Revenues Total Revenues from India/India operations Revenue from the AE's Revenue from the Non AE's Advertisement 17,21,51,260 2,42,044 17,19,09,216 Distribution 11,78,60,320 11,78,60,320 - Franchise Fee 1,64,01,447 1,64,01,447 - TOTAL 30,64,13,027 13,45,03,811 17,19,09,216 7.14. The assessee being aggrieved by draft assessment order dated 25.03.2015 passed by the AO u/s 144C(1) read with Section 143(3) of the 1961 Act, filed objection with learned DRP which were overruled by learned DRP and order of learned DRP is reproduced by us in preceding para's of this order and is not repeated here. The learned DRP, however, directed for inclusion of IBN18 as comparable provided assessee is able to demonstrate that it has earned profits during the year under consideration. The DRP had also confirmed application of arm length profit @28% on assessee's transactions with non AE based on the decision of learned DRP for earlier years. The AO after considering the directions of DRP u/s. 144C(5) dated 22.12.2015, passed assessment order dated 14.01.2016 u/s 144C(13) read with Section 143(3)....
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.... segment. The assessee has not submitted any working in support of claim. From the examination of annual report of the company we are unable to accent the claim of the assessee because income from operations reported by the company is Rs. 2,43,25,58,348/- whereas its production administrative and other cost is Rs. 1,69,72,26,570/- and personal expenses are Rs. 80,53,27,884/- Other income of Rs. 9,51,39,418/- reported by the company is not at all related to the operations of the company. However, AO/T'PO is directed to accept the company is a valid comparable if the assessee is able to demonstrate that the company has earned a profit in the F.Y. under consideration. 3. The DRP rejected all other objections of the Assessee and upheld the order of the Assessing Officer. 4. Accordingly, the Transfer Pricing Officer - 2(1)(1), Mumbai vide this office Setter dated 19.01.2016 was requested to give effect to the aforementioned DRP directions and forward the same to the undersigned. The TPO vide his letter dated 25/01/2016 submitted that as per the directions of the DRP, IBN 18 was accepted as a comparable For the AY 2011-12 and after recalculating the average operatin....
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....d) is engaged in business of production and telecast of news and current affairs programmes primarily in India. It is further stated that this company operates in single business and geographical segments. On standalone basis, the income from operations is Rs. 243.22 crores for the year ended 31.03.2011 ( Rs. 209.50 crores for year ended 31.03.2010) while operating costs are Rs. 261.93 crores for the year ended 31.03.2011 while operating costs are Rs. 236.52 crores. Thus , at standalone basis, the IBN18 has operating losses. The figures for the year ended 31.03.2009 are not available for IBN18 as the same are not filed by assessee . Thus, at standalone basis, it has made operating losses for both the years viz. FY 2009-10 and 2010-11. We are agreeable with the proposition that comparable which is acceptable after conducting FAR analysis with the tax-payer cannot be merely discarded on the grounds that it has loss for the year unless cogent reasons are brought on record for its exclusion citing extraordinary events/situations in the year warranting its exclusions. The loss making companies may warrant exclusion as there could be abnormal reasons which might be effecting its no....
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....2 Profit/ (Loss) Before tax (1002.12) (1623.69) Provision for Taxation {net} (20.77) (46.12) Profit / (Loss) after Tax (981.35) (1577.58) Operations Review: The Company achieved revenue of Rs. 4509.53 Lakhs as agains! Rs. 4617.68 lakhs in the previous year. Net loss after tax stood at Rs. 981.35 lakhs as compared to Loss after tax of Rs. 1577.58 Lakhs in the previous year. The loss in current year was on account of low transaction volumes coupled with expenditure of exceptional nature, amounting to Rs. 1629 Lakhs." 7.19.2 The aforesaid financial results clearly reveals that the said comparable has incurred losses at operating levels but at the same time , it is mentioned in operations review that there are exceptional expenses to the tune of Rs. 1629 lacs incurred by said company Raj TV.The note number 15 at page 164/pb stipulate that this loss is due to expenditure of exceptional nature of Rs. 1628.79 lacs being recoverable from MSO operator and cable operators which led to operational loss. This losses/expenditure of Rs. 1628.79 lacs are considered by Raj TV itself to be "exceptional' in nature and these exceptional expenditure/loss....
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.... assumed and assets deployed and all the companies are taxable at the same rate. Not only that, the combined net profit determined under the PSM has been arrived at 14.04% which has been accepted to be at Arm's Length by the TPO in the reference made under section 92(CA). Thereafter, the assessee has made suo moto disallowance under section 40(a)(i) in the return of income with regard to the payment made to the third party on account of expenditure related to content source from foreign suppliers; payments to third parties for hire transponder and payments for up-linking / maintenance of equipments and lastly, by disallowance of interest expenses. Such disallowances had led to upliftment of profit rate of 27.18%. Thus, the taxable income was shown @ 27.18% which has been apportioned amongst entities as per the percentage which has been incorporated in the foregoing paragraphs. The first and foremost issue is, whether the DRP was justified in segregating the revenues from non-AE and directed the AO to tax separately @ 28% by applying Rule 10 of the Income-tax Rules. Further, whether the disallowance under section 40(a)(i) is required to be made on account of various payments w....
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.... be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual and profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction". From the plain reading of the above method, it is evident that, first step is to identify the combined net profit of the AE arising from the international transactions, in which they are engaged. Such a combined net profit is determined by taking into account all the transactions undertaken by all the AEs. In the second step, the relative contribution made by each of the entities which have co....
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....has segregated the so called non-AE revenue and thereby applying the profit @ 28% on such revenues separately. Such an approach, in our opinion is untenable; firstly, there is no separate source or stream of revenue from Non-AE transaction; secondly, the combined profit has been determined by taking the gross revenues from all the streams by each of the entities and all the costs i.e. gross expenses has been worked out and deducted. The resultant profit percentage of 14.04% has been arrived from the revenues from all the streams are as under:- Particulars Amount in INR Particulars Amount in INR Advertisement revenue 10,147,277,000 Distribution revenues 2,496,481,000 Syndication revenues 60,534,958 Total India revenues 12,704,292,958 Profitability percentage (determined separately 14.04% Arm's length taxable profits 1,783,683,000 The above income has been then allocated amongst the various entities after considering further disallowances offered by assessee; Thirdly, the evaluation of contribution made by AEs has been done on FAR analysis on the basis of external factors and data, because based on such evaluation by unrelated ....
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....d. on the ground that it was a Non-Associated Enterprise (Non-AE) receipt, hence, outside PSM. 4.1 We have heard the rival contention and found that the TPO on the basis of directions of the DRP, while passing the final assessment order, did not apply Rule 10(i) in case of assessee for A.Y.2007-08 as all the revenues generated by the assessee during relevant year were from the transactions with AEs and the returned income of the assessee was accepted. 4.2 The DRP followed its order for assessment year 2007-08 on the reason of consistency. 4.3 Ld. AR for the assessee has submitted before us that the sale of advertisement airtime by STAR Ltd to AEs is an international transaction which is closely related to apply the PSM has not been disputed by the TPO/DRP. Therefore, advertisement revenues from Non-AEs could not be excluded from the computation of income under the PSM. The starting point of the PSM is to determine the combined net profit. This net profit finally represents the receipts from the third parties and Non-AEs as all inter-company transactions are eliminated/non-recognised. The PSM is to determine prior to its application whether international t....
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.... the Ld. AR for the assessee, as the combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. We therefore set aside the orders of lower authorities on this issue and restored the same back to AO/TPO for deciding afresh in terms of our above discussion. 4.6 In the result, the ground taken by the assessee is allowed for statistical purposes. 4.7 The same and identical issue are involved in ground no. 6 of ITA no. 7681/M/12, ITA no. 7681/M/12 , ITA no. 7683/M/12 , ITA no. 7684/M/12, and ITA no. 7679/m/12, all pertaining to AY 2008-09, therefore, following our above contention the appeals filed by the assessee on this ground, are allowed for statistical purposes." 7.20.3 Respectfully following aforesaid decisions of the ITAT in assessee's own case and keeping in view similar facts and circumstances for the year under consideration before us, we hold that no adjustment to income is required by computing ALP....