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TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 1023
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....her. 1. That on the facts and circumstances of the case, and in law, the Ld. AO/ Learned Transfer Pricing Officer (Ld. TPO)/ Ld. DRP have erred in making a transfer pricing adjustment of INR 70,013,697 to the total income with respect to the distribution segment of the Appellant and a transfer pricing adjustment of INR 168,252 to the total income by imputing interest on alleged overdue receivables from the Associated Enterprise ('AEs') on an ad-hoc basis. 2. That in relation to the transfer pricing addition with respect to the distribution segment of the Appellant, the order issued by the Ld. AO/TPO and directions issued by the Ld. DRP are not in conformity with the order passed by the Hon'ble Income Tax Appellant Tribunal ('Hon'ble ITAT) in the Appellant's own case for AY 2006- 07 (second round of appeal) which is squarely applicable in the instant case as well, thus, violating the principle of judicial discipline. 3. That in relation to the transfer pricing addition with respect to the distribution segment of the Appellant, the Ld. AO/Ld. TPO/Ld. DRP have erred in disregarding the Hon'ble ITAT's order in Appellant's o....
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....ot allowing complete credit of tax deducted at source claimed by the Appellant. 8. That on the facts and circumstances of the case and in law, the Ld. AO erred in not granting applicable interest on refund in accordance with Section 244A of the Act. 9. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act against the Appellant. 3. Ground NO.2 to 5.4 of grounds of appeal are in respect of transfer pricing adjustment made in distribution segment of the assessee and the Ld. Counsel for the assessee submitted that the seven comparables selected namely Vision Corporation Ltd., News 24 Broadcast India Ltd, TV Vision Ltd, Enter 10 Television Pvt. Ltd, Malayalam Communications Pvt. Ltd, Odisha Television Ltd. and TV Today Network Ltd. are functionally different was rejected by the TPO on the premise that the assessee was engaged in planning channel content and production services alongwith its content for channels like HBO, POGO, Cartoon modification was undertaken by the assessee. The AO held that there was little difference between these comparables being "channel owner" and th....
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..... 10. The Ld. Counsel further submitted that the TPO while following the directions issued by the DRP, excluded these comparables from the final set, for determination of ALP under section 92 of the Act. The Ld. Counsel submits that this issue is also no longer res-integra and this Hon'ble Tribunal in assessee's own case for AY 2006-07, in the second round of litigation upheld the approach adopted by the assessee i.e. selection of software distribution companies as comparables for benchmarking distribution segment of the Assessee. It was held that comparables engaged in trading of computer packages and classified as software distribution companies are good comparables for determination of ALP of the distribution segment. 11. The Ld. Counsel further submitted that the Hon'ble High Court of Delhi vide its judgment dated 10.09.2024 has affirmed the order passed by the Tribunal for AY. 2006-07 in its entirety and the judgment of High Court is placed at pages 1081 to 1084 of the paper book. 12. On the other hand the Ld. DR supported the orders of the authorities below. 13. Heard rival contentions, perused the orders of the authorities below and the order of the Tribunal for ....
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....een analysed separately. Its activities of acting as a marketer of advertisements and distributing sub-distribution rights for the Turner group channels (including HBO) have been aggregated. These activities are essentially driven towards promoting channels, by increasing their spread, awareness and viewership. Thus, the activities are inter-related and complementary to each other. Overall, this aggregate segment contributed to approximately 95% of the Company's total revenues during 2005-06. 1.2.6 Further, the following international transactions have been separately analyzed. Income from production 1.2.7. Based on an analysis of the functions performed and risks assumed, we conclude TIIPL has less complex operations and bears lesser share of risks and was accordingly selected as the tested party for this analysis." 3. The segmented financial information of the assessee for the year ended 31st March, 2006 for various stream of income was treated as under :- Subscription and advertisement activity Product and Promotional license.. Production Services Total per P&L Sales/Operating Income 1,327,792,654 21,859,898 ....
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....ssues, the ITAT has upheld that the comparables selected by both the Revenue and the appellant are not appropriate and has set aside the orders of the Assessing Officer and remitted back the matter to the file of the Assessing Officer to undertake fresh search of comparables companies. 14. In view of above submissions and the findings of the ITAT in the appeal for the assessment year 2007, 08 and 2008-09 in the case of assessee itself on an identical issue, we in the interest of justice and to meet out ends of justice set aside the matter to the file of the Assessing Officer to decide the issue afresh after undertaking fresh search of comparable companies. It is needless to mention over here that while deciding the issue afresh, the Assessing Officer will afford opportunity of being heard to the assessee and will meet out the submission of the assessee by speaking order." 6. In pursuance of direction given by the Tribunal, the TPO undertook fresh comparability analysis and assessee furnished fresh search comparable which were in distribution of software to bench mark the distribution segment. The TPO, also undertook a fresh comparability analysis wherein companies....
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....eded with the premise that the assessee is engaged in production activities without appreciating the fact that the transactions of distribution and production/ancillary activities are independent of each other for which a separate remuneration is earned by the assessee. Regarding international distribution rights with respect to the channels held by the group companies, he pointed out that they have the sole right to determine the content of the channels and the same has been duly captured in the transfer pricing study report. The distribution activity and production activity two were completely different set of transactions and separate remunerations were earned said activity benchmarking has also been done in the TP study is and separate cannot be report. In fact, in the first round of proceedings the TPO accepted the above mentioned ancillary services and no adverse inference was drawn by the TPO, because these services constituted roughly 4% of the entire value of international transaction and these services were provided in the capacity of contract service provider, which being remunerated separately. The channel/content owner companies. which have been selected by the assesse....
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....cordingly, he submitted that there is a gross violation ITATS order by selecting channel/content owner companies which should be out rightly rejected/excluded. of 9. Mr. Mitra's other limb of argument was that software distributor companies can be taken as a comparable because, in assessee's own case for the Assessment Year 2012-13 software distributors have been directed to be included by the DRP and in Assessment Year 2013-14 TPO has accepted the software distributors. He also relied upon the decision of Tribunal in the case of ACIT vs. M/s. NGC Network (India) Pvt. Ltd., in ITA No.5307/Mum/2008, wherein it was held that companies engaged in distribution of software can be adopted as comparable for companies engaged in distribution of TV channels. Apart from that, he also filed a brief synopsis on each and every comparable to point out the FAR difference of the channel/content owner companies as selected by the TPO/DRP and submitted that they should be rejected on FAR basis. For the sake of ready reference, the main contentions of the assessee with regard to each and every channel owner companies are as under :- S. No Name of the company Appellant's ....
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.... ltd. ("TV Today) (OP/OR 24.82% and Adjusted OP/ OR 23%) * TTNL is part of the India Today group, is engaged in news broadcasting operations and operates a network of TV news channels; * Operates in two segments: TV Broadcasting and Radio Business; * TV Today was the first Indian broadcaster to uplink from India, a 24 hour Hindi news channel; and. * Channel owned includes Aaj Tak, Headlines Today, Tez, Delli Aaj Tak. 7 UTV Software Communications Ltd ("UTV") (OP/OR 0.44% and Adjusted OP/OR -4.05%) * Functionally different (owns and operates TV channels); and * Business activity includes producing TV programmes and films. 10. On the other hand, learned DR strongly relied upon the order of the TPO as well as the DRP and submitted that the DRP' has given detailed reason for selecting channel/content assessee's functions are in relation to distribution of owners, because TV channels only which quite similar to the selected ΤΡΟ. Alternatively, content channel he owner companies by submitted that if the companies are to be excluded then matter should be restored back for selection of software distribution companies and based on tha....
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....duction activities which are in fact independent and also separately benchmarked. We are in tandem with the contention of the learned counsel that these two activities cannot Sun TV be mixed up for distorting, the functionality and justifying the selection of channel owner companies. Thus, we hold that the seven comparable companies, namely, i) Malayalam' Communications Ltd.; ii) Raj Television Network Ltd.; iii) TV Today Network Ltd. iv) Network Ltd.; v), Zee Entertainment Enterprises Ltd.; vi) Zee Media Corporation Ltd.; and vii) UTV Software Communications Ltd.; are directed to be excluded. The other three comparables, namely, Empower Industries India Ltd. (56.65%), Sonata Information Technologies Ltd. (4.54%) and Softcell Technologies Ltd. (4.23%), have been accepted by the assessee. However, after working capital adjustment OP/OR of these three companies are as under:- S.No. Name of comparable Working capital adjusted OP/OR 1. Empower Industries India Ltd. 0.43% 2. Sonata Information Technologies Ltd. 0.67% 3. Softcell Technologies Ltd. 2.24% Mean 1.11% 12. In so far as the contention of the assessee that Trijal ....
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.... should be taken and should be benchmarked with the assessee's margin fo 2.07% on PLI of OP/ OR:- (i) Empower Industries India Ltd. (ii) Sonata Information Technologies Ltd. (iii) Softcell Technologies Ltd. (iv) Trijal Industries Ltd. 14. With this direction, the grounds raised by the assessee on transfer pricing adjustment are treated as allowed. 14. This order of the Tribunal is affirmed by the Hon'ble High Court by order dated 10.09.2024 holding as under :- 1. The Principal Commissioner impugns the order of the Income Tax Appellate Tribunal dated 18 June 2018 [ITA 437/2019]. 8 October 2018 [ITA 1014/2019], 01. January 2019 [ITA 838/2019 and ITA 875/2019], and 04 February 2019: [ITA 866/2019 and ITA 876/2019] and posits the following questions for our consideration: "2.1 Whether the Id. ITAT was right in fact and in law in seeking only distributor companies while searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require' seeking similar comparables companies? 2.2 Whether the Id. ITAT was right in fact and in law in demanding com....
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.... "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 state 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 distribation segment. The details of these comparables companies with this average margin have already been incorporated above. Out of the sald comparable companies, seven comparables have been sought to be excluded by the assessee which are channel and contents owners who are full-fledged channel companies who owned and operate various TV channels and undertake content creation on their own. The Tribunal in assessee's own case for the Assessment Year 2007-08 and 2008-09 and also in Assessment Year 2006-07 have held that Satellite TV channels and cable network operators have significantly different has held that such channel/ content owner companies should not be operating models and provide earning model and once the Tribunal included for the purpose of comparability analysis, then there is no reason why the TPO is agaih selecting such companies for ....
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....ion, be said to be engaged in activities which would satisfy the test of functional similarity. 5. We also bear in consideration that the view taken by the Tribunal in this respect for AY 2007-08 and 2008-09 was never assailed or questioned by the appellants. 6. Consequently, and for reasons assigned by the Tribunal and which we have taken note of hereinabove, we find no merit in the instant appeals. They shall, consequently, stand dismissed. 15. In the light of the decision of the Hon'ble Tribunal in assessee's own case and the High Court dismissing the appeal of the revenue we direct the TPO to exclude the following seven comparables and include three comparables for benchmarking the distribution segment and determination of ALP :- Sr. No. Comparables to exclude Comparable to include 1 Vision Corporation PS IT Infrastructure & Services Ltd. 2 News 24 Broadcast India Ltd. JMD Ventures Ltd. (Seg.) 3. TV Vision Ltd. Compuage Infocom Ltd. 4. Enter 10 Television Pvt. Ltd. 5. Malayalam Communications Pvt. Ltd. 6 Odisha Television Ltd. 7. TV Today Network Ltd. 16. ....