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2020 (1) TMI 1604
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....1. That on facts and circumstances of the case and in law, the Ld. AO / Ld. TPO / Ld. DRP has erred in making a transfer pricing addition of Rs. 9,83,63,207 to the total income with respect to the distribution segment of the Appellant and a transfer pricing addition of Rs. 40,84,256 to the total income by imputing interest on alleged overdue receivables from the Associated Enterprises on an ad hoc basis. 2. That in relation to the transfer pricing addition with respect to the distribution segment of the Appellant, the Ld. AO / Ld. TPO/Ld. DRP has erred 2.1. in completely disregarding the order passed by Hon'ble Income Tax Appellate Tribunal ("ITAT")in the Appellant's own case for Assessment Years 2007-08 and 2008-09 and Assessment Years 2005-06 and 2006-07 which is squarely applicable in the instant case as well, thus violating the principal of judicial discipline; 2.2. in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). Further, the Ld. AO / Ld. TPO / Ld. DRP grossly erred: 2.2.1. by not accepting the use of multiple year data, as adop....
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....ence the question of charging interest to the Associated Enterprises does not arise; 3.5. without prejudice, in selecting an ad hoc interest rate of LIBOR plus 250 basis points while computing the addition 4. The Ld. AO has grossly erred in initiating penalty proceedings under section 27 l(l)(c) of the Act. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case." 3. Facts of the case, in brief, are that the assessee is a subsidiary of Historic TBS Asia LLC and is a part of Time Warner Group for the impugned assessment year. During the year, the assessee company is engaged in activities that are primarily directed towards distribution of foreign owned television networks, media products, television programmes and rendering of production related support services of television programmes in India. The AO referred the matter to the TPO for determination of the ALP of the international transaction entered into by the assesse....
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....essee in arriving at the ALP of the international transaction and, accordingly, proposed an adjustment of Rs.19,14,88,077/-. 7. Similarly, the TPO noted that huge amount of outstandings are receivable from the AE, the details of which are as under:- S. No. Name of AE Receivable as on 01.04.2012 Receivable as on 31.03.2013 Average of receivables Delay in No. of days Interest @ 4.4569% 1. Turner Broadcasting System Asia Pacific Inc. 257,240,713 244,945,824 251,093,269 182 5,580,158 2. CNN Inc. 15,151,432 15,151,432 15,151,432 182 336,717 3. Historic TBS Asia LLC - - - 182 - 4. HBO Pacific Partners, V.O.F. - 21,520,706 10,760,353 182 239,132 Total 61,56,007 8. Despite being asked by him to provide the invoice-wise details, there was no compliance from the side of the assessee. Since the proceedings were getting time barred by limitation, the TPO proceeded to complete the assessment and estimated the delay in outstanding receivables by estimating the average of outstanding receivables of six months. Applying the rate of 4.4569% i.e., six months LIBOR + 400 basis points f....
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....g Industries Limited and JMD Ventures Limited for which data was not available at the time of undertaking of search. However, such companies being comparable to the assessee's distribution segment which were rejected by the TPO/DRP without any cogent reason, the same should be included. For the above proposition, he submitted as under:- Sr. No. Name of Company Business description 1. Unisys Software and Holding Industries Limited The company is engaged in investment business and trading in computer hardware and software packages. 2. JMD Ventures Limited The company is engaged in Music Activities and trading of software and hardware products and miscellaneous investment activities. 13. He accordingly submitted that in the light of the decision of the Tribunal in assessee's own case for preceding assessment years, the above two companies introduced by the assessee which are engaged in the distribution of software should be selected as comparable companies to benchmark the operating margins of the distribution segment of the TIIPL. 13.1 The ld. Counsel for the assessee, again, referring to the order of the Tribunal for A.Y. 2006-07 which has been follo....
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....ital adjustment is concerned, the ld. Counsel for the assessee submitted that the DRP in assessee's own case for A.Y. 2005-06, 2006-07 and 2014-15 has allowed the benefit of working capital adjustment. Further, the Tribunal in assessee's own case for A.Y. 2012-13 has allowed the benefit of working capital adjustment. Therefore, it is not justified on the part of the lower authorities to deny the benefit of working capital adjustment for the impugned assessment year. 16.1 So far as the adjustment on account of interest on receivables is concerned, the ld. Counsel for the assessee submitted that the Tribunal in assessee's own case for A.Y. 2014-15 relying on the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd., has held that working capital adjustment subsumes the impact of outstanding receivables and payments of the assessee. Accordingly, once working capital adjustment is granted to the assessee, no adjustments are to be warranted on account of interest on outstanding receivables from the AEs in the hands of the assessee. Without prejudice to the above, he submitted that: i) Outstanding receivables cannot be recharacterised as ....
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....book, we find the assessee had demonstrated that India Vision Satellite Communication Ltd., is functionally different since it is a content owner and channel owner. It is a full-fledged channel owner company which owns and operates various news and entertainment channels. Being a channel owner, it has incurred high studio and production related cost and there is high intensity of deployment of asset which is 1.43% of the turnover as compared to the assessee's ratio of 223.86 times of the turnover. 20. Similarly, in case of Maa Television Network Ltd., we find this company was selected by the TPO and retained by the DRP on the ground that under TNMM method functional comparability is the important factor. Since the company is functionally comparable being in the same line of business and with comparable FAR, therefore, the DRP held that it should be retained. However, from the various details furnished by the assessee, we find Maa Television Network Ltd., is functionally different being content owner and channel owner. This being a full fledged channel owner company which owns and operates various entertainment channel such as Maa TV, MAA Gold, MAA Music, etc. Being a chann....
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.... Being a channel owner, it has incurred high studio and production related costs, its deployment of assets is 1.35 times of the turnover as compared to the assessee's ratio of 223.86 times of the turnover. Further, it holds significant intangible assets. We, therefore, are of the considered opinion that this company should be excluded from the list of comparables. 20.4 We find the Tribunal in assessee's own case vide ITA No.1204/Del/2018, order dated 18th June, 2018 for A.Y. 2006-07, while excluding the channel owners/broadcasting companies selected by the TPO, has observed as under:- "11. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as the material referred to before us. From the stage of the DRP, ten comparables have been selected with an average mean of 11.95% and based on such comparables adjustment of Rs.10,07,35,464/- has been made in the distribution segment. The details of these comparable companies with this average margin have already been incorporated above. Out of the said comparable companies, seven comparables have been sought to be excluded by the assessee which are channel and contents ow....
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....he Tribunal for A.Y. 2006-07 has been followed by the Tribunal in assessee's own case in subsequent assessment years. We find the Tribunal in assessee's own case vide ITA Nos.1203 & 6627/Del/2018, order dated 4th January, for AYs 2005-06 and 2014-15, respectively, has observed as under:- "8. Thus, respectfully following the Tribunal order for the Assessment Year 2006-07, we hold that the following comparable companies are to be excluded. S. No. Company Name OP/OR(%) 1. Malayalam Communications Ltd. 20.07 2. Raj Television Network Ltd. 9.97 3. TV Today Network Ltd. 15.45 4. UTV Software Communications Ltd. 12.80 8.1 With regard to other three comparables, viz., S. No. Company Name Adjusted OP/Sales(%) 1. Empower Industries India Ltd. 0.65 2. Sonata Information Technology Limited 0.85 3. Softcell Technologies Limited 2.23 Mean 1.24 We direct the TPO to adopt the adjusted operating margin of the aforesaid comparables after giving working capital adjustment and accordingly, give consequential relief. 9. In the result, the appeal of the assessee is allowed. 10. S....
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....9;ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd., (2017) 398 ITR 66. 17. We agree with the contention of the learned counsel that if working capital adjustment is to be given, then it subsumes the impact of outstanding receivables and payables made by the assessee and accordingly respectfully following the judgment of Hon'ble Delhi High Court, we hold that no adjustment is warranted on account of interest on receivable given." 24. Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee's own case for A.Ys 2005-06 and 2014-15, therefore, respectfully following the same, we hold that if working capital adjustment is to be given, then, it subsumes the impact of outstanding receivables and payments by the assessee and, therefore, in the light of the ratio of the decision of the Hon'ble Delhi High Court in Kusum Healthcase Pvt. Ltd. (supra), no adjustment is warranted on account of interest on receivables. 25. So far as allowing of working capital adjustment is concerned, from the various details furnished by the assessee, we find the DRP in assessee's own case has allowed work....