2024 (12) TMI 864 - HC - Income Tax

TP adjustment - comparable selection - assessee, it becomes pertinent to note, is concerned with the distribution of TV channels - HELD THAT - Tribunal while holding in favour of the assessee in this respect had taken into consideration its determination in the assessee s own case fo AY 2007-08 and 2008-09 and where it had held that satellite TV Channels and cable network operators cannot be equated with the activities undertaken by the assessee. Before us it could not be disputed that the seven comparables which ultimately came to be excluded could not, by any stretch of imagination, be said to be engaged in activities which would satisfy the test of functional similarity. 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. Consequently, we have taken note of hereinabove, we find no merit in the instant appeals. They shall, consequently, stand dismissed.

Summary

Issues:
1. Exclusion of seven comparables for determining Arm's Length Price (ALP) under the Income Tax Act.

Detailed Analysis:
The judgment involves an appeal by the Principal Commissioner against the order of the Income Tax Appellate Tribunal (Tribunal) regarding the exclusion of seven comparables for determining the ALP. The questions posed for consideration include whether the Tribunal was correct in seeking only distributor companies as comparables, the standards for comparability, the rejection of certain comparables as functionally dissimilar, and the selection of software distributor companies over entertainment channels. The main issue revolves around the exclusion of seven comparables by the Tribunal.

The Tribunal, in favor of the assessee, excluded seven comparables based on its previous determinations for the Assessment Years 2007-08 and 2008-09. It highlighted the distinction between the activities of satellite TV channels and cable network operators from those of the assessee, a TV channel distributor. The Tribunal rejected the inclusion of channel and content owner companies as comparables, emphasizing the separate nature of distribution and production activities. It noted that the assessee's ancillary services constituted only 4% of the transaction value and were separately remunerated, thus warranting the exclusion of certain comparables.

The Tribunal's decision was based on the principle that the functionality of distribution and production activities should not be mixed to justify the selection of certain comparables. It held that the excluded comparables were not functionally similar to the assessee, as they were engaged in different activities within the electronic media and entertainment industry. The Tribunal also considered the lack of challenge to its previous decisions for the relevant assessment years, reinforcing the validity of its exclusion of the seven comparables.

Ultimately, the High Court upheld the Tribunal's decision to exclude the seven comparables, emphasizing the importance of functional similarity in determining comparables for ALP analysis. The Court found no merit in the appeals and dismissed them accordingly. Additionally, other related appeals were not pressed further by the appellants in light of the Court's decision on the batch of appeals concerning the exclusion of comparables.