2013 (5) TMI 494 - AT - Income Tax

Adjustment to arm s length price - downsliding adjustment of ALP made by the TPO and sustained by the DRP - assessee company is a Joint Venture (74 26) between ABP Private Limited, part of the ABP Group and STAR News Broadcasting Limited, wholly-owned subsidiary of the STAR Group - Held that - Find nowhere either in the agreement or in the submissions made before the revenue authorities that the assessee had to pay more in non prime time slot to off-set the deficit of revenue transferred to Star TV in prime time slots. From the rate card the assessee had to make the payment of Rs. 15,10,22,365/- in the financial year, against which the assessee was able to make the payments of Rs. 10,00,22,000/- only. Except for a clause prescribing an interest @ 9% on shortfall, there are no penalty clauses, which could create pressure or insinuate the assessee to fall back on non prime time slots to recover the shortfalls in payment to be made as per agreed rate card. Since the agreement is also silent, thus cannot accept that the assessee could utilize the basket of ad-slots and aggregate the same for achieving the target. Submissions of the AR cannot be accepted that the aggregation could be allowed because, the payments were being made for same channel and same functions, i.e. ad-space, the difference between them only being prime time slot and non prime time slot. Since there was no justification for higher payment made by the assessee as compared to the third party payments, the adjustment as suggested by the TPO and sustained by the DRP, accordingly is fair and reasonable and does not call for any disturbance.

Summary

Issues Involved:
1. Adjustment to the arm's length price (ALP) of Rs. 82,78,760/-.
2. Consistency and methodology in determining the ALP.
3. Conditions under Section 92C(3) of the Income Tax Act.
4. Application of Rule 10B(1)(a) and comparability analysis.
5. Validity of the transfer pricing disallowance.
6. Consideration of grounds of appeal and additional submissions.

Issue-wise Detailed Analysis:

1. Adjustment to the Arm's Length Price (ALP) of Rs. 82,78,760/-:
The appeal was filed against the adjustment of Rs. 82,78,760/- to the ALP made by the Transfer Pricing Officer (TPO) and sustained by the Dispute Resolution Panel (DRP). The adjustment arose from the purchase of ad-space on the Star Plus Channel, where the TPO determined that the rates paid by the assessee for non-prime time slots were higher than those paid by third parties.

2. Consistency and Methodology in Determining the ALP:
The assessee argued that the TPO did not apply a consistent yardstick and failed to appreciate the underlying economics of the transaction. The TPO used the Comparable Uncontrolled Price (CUP) method, considering the rates charged to third parties for similar ad-space. The TPO found that the rates paid by the assessee were higher for non-prime time slots compared to third parties, leading to the adjustment.

3. Conditions under Section 92C(3) of the Income Tax Act:
The assessee contended that the conditions under Section 92C(3) were not satisfied, and thus, the transfer pricing analysis conducted by the assessee should not have been disregarded. The TPO, however, determined that the transaction did not meet the arm's length standard, justifying the adjustment.

4. Application of Rule 10B(1)(a) and Comparability Analysis:
The assessee argued that the TPO's approach was repugnant to Rule 10B(1)(a), as the comparability analysis was based on bare figures without considering the overall context. The TPO, however, used internal comparables and determined the arm's length price based on the average rates charged to third parties for similar ad-space.

5. Validity of the Transfer Pricing Disallowance:
The assessee submitted that the transfer pricing disallowance of Rs. 82,78,760/- was erroneous and should be set aside. The TPO and DRP, however, found that the higher rates paid by the assessee for non-prime time slots were not justified, leading to the adjustment.

6. Consideration of Grounds of Appeal and Additional Submissions:
The assessee argued that the DRP did not consider the details and submissions provided. The assessee relied on various judicial decisions to support their case, arguing for aggregation of transactions and application of FAR (Functions, Assets, and Risks) analysis. The DR, however, contended that the transactions were distinct and could not be aggregated. The DRP's order was found to be reasonable and justified.

Conclusion:
The Tribunal upheld the adjustment made by the TPO and sustained by the DRP, finding no justification for the higher payments made by the assessee for non-prime time slots compared to third parties. The appeal filed by the assessee was dismissed, and the adjustment of Rs. 82,78,760/- was sustained.