TaxTMI 
TaxTMI 
TaxTMI 
2020 (1) TMI 912
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....ion 92CA(1) of the Act without satisfying the conditions specified therein. 3. The AO erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act using 3 year average margin and determining the arm's length margin/ price using only data for financial year ('FY') 2007-08, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. 4. The AO erred in rejecting certain companies considered to be comparable by the Appellant in the benchmarking analysis for determination of the arm's length price for the international transaction of provision of promo production services and in not accepting the Appellant's contentions against certain additional companies considered by the AO to be comparable to the Appellant. 5. The AO erred in using data obtained under Section 133(6) of the Act, for the comparability analysis. Further, the AO erred in not providing the Appellant an opportunity to cross examine the relevant companies. 6. The AO erred in not considering the effect of differences in the functional, asset and risk profiles of the Appellant and the comparable co....
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....t considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the proviso to section 92C of the Act. 3. The appellant, a company incorporated under the Indian Companies Act, 1956, is primarily engaged in the business of distribution of two satellite television channels namely the National Geographic Channel and the History Channel (hereinafter referred to as 'the Channels') in India. Additionally, it also carries out sale of advertisement air time on the channel. It filed its return of income for the assessment year (AY) 2008-09 on 30.09.2008 declaring a total income of Rs. 29,30,99,321/-. Along with the return of income, the appellant also filed an Accountant's Report in Form 3CEB reporting the particulars of its international transactions with its associated enterprises (AEs). During the course of assessment proceedings, the AO referred the case to the Transfer Pricing Officer (TPO) u/s 92CA(1) in order to determine the arm's length price (ALP) in relation to international transactions entered into by the appellant. The TPO passed an order dated 14.1....
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.... of appeal Nos. 1, 8 to 13, the appellant has challenged the AMP adjustment made by the TPO and confirmed by the DRP. In this context, the Ld. counsel submits that unlike cases where income is shared with AEs, the appellant is the owner of income qua the distribution and advertisement revenue, and hence, an increase in the income by AMP expenses would solely benefit the appellant only. Further, it is explained that the appellant has acquired the right to distribute the channels from its AE as evident from clause 2.1 of the 'Distribution Agreement'. Referring to clause 2.4 of the 'Distribution Agreement' it is explained that the appellant, at its discretion, determines the price to be charged to cable operators. As per clause 3 of the 'Distribution Agreement', the appellant would pay a fixed consideration in advance for obtaining the rights. As per clause 2.4 of the 'Distribution Agreement', the appellant is the owner of income earned from distribution of the Channels and retains the entire revenue while recording them in its books of accounts from distribution of channels. Further, it is explained that the appellant also purchased under the same agreements the right to use the bran....
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....ant in newspapers contained in page 1625 to 1640 of the P/B. Referring to it, it is stated that it cannot be said that the advertisement published by the appellant is for brand building since the same is focused on the program being telecast and since the advertisements have a short shelf life, there can be no enduring benefit to the AE to such advertisements. In this regard, reliance is placed by him on the order of the Tribunal in the case of Nivea India (P.) Ltd. v. ACIT [2018] 92 taxmann.com 165 (Mum.), L'Oréal India Private Limited & Ors v. DCIT & Ors (2016) 49 ITR (Trib.) 0473 (Mum.), Mondelez India Foods Private Limited v. ACIT (2016) 47 (CCH 0098 Mum.). Further, it is stated that as per section 92B(1) r.w.s. 92F(v), for the AMP expenditure to qualify as an international transaction, there must be an explicit arrangement between the appellant and its AE for incurring such expenses. In the instant appeal, it is stated by the Ld. counsel that there is no arrangement or agreement between the appellant and its AE to undertake marketing activities/incur the AMP expenses ; the appellant decides the marketing strategy and quantum of AMP expenses to be incurred, which is not....
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.... the 'Distribution Agreement' between the appellant and its AE was only for a limited period of 9 months and hence, it is open to the AE to modify the terms of the agreement to pass on benefits of the AMP to itself. Further, it is stated by him that the AE takes all the key decisions relating to the channels, such as programming, content, scheduling etc. and hence, it cannot be said that the appellant is the owner of the channels. Thus the Ld. DR submits that the transfer pricing adjustment of Rs. 13,59,10,231/- made by the AO be confirmed. 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. As mentioned earlier, the appellant is engaged in the business of distribution of two television channels. For this purpose, it has entered into a 'Distribution Agreement' and 'Advertisement Sales Agreement' with its AEs. As per the terms of the agreement, the appellant pays a fixed consideration to the AE for acquiring the right to distribute the channels and sell advertisement airtime on the channels. As the owner of the rights and consequently, income arising from them, the appellant incurs product promotion e....
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....ip, the better chances of obtaining higher advertisement revenue. The higher advertisement revenue, the higher will be commission earned by the respondent-assessee. Accordingly, we have no doubt that there is a direct nexus between advertising expenditure and revenue albeit the fact that there may be a lean period before revenue picks up notwithstanding high amount spent on such publicity. This justifies the higher expenditure vis-a-vis revenue noticed by the department." We find that the AMP expenses have been incurred by the appellant are to make the customers aware of the programs being telecast on the channels, give program time details, etc. to the viewers and these advertisements have a short shelf life (till telecast of the program) and are published by the appellant only a few days prior to the telecast of the program on the channel to help create viewers/advertiser's awareness of the program. The advertisement published by the appellant is not for brand building but is focused on program being telecast. In the case of Nivea India (P.) Ltd. (supra), it is held that the product promotion expenses cannot be considered to be in the nature of AMP brand building ; the relevant ....