2015 (3) TMI 796 - AT - Income Tax

Transfer pricing adjustment - adjustment to the arm s length price of the advertisement services received from the associated enterprise - downsliding adjustment of ALP of ₹ 82,78,760/- made by the TPO and sustained by the DRP - Held that - We do not find anywhere 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 ₹ 15,10,22,365/- in the financial year, against which the assessee was able to make the payments of ₹ 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, we do not accept that the assessee could utilize the basket of adslots and aggregate the same for achieving the target. We cannot accept the submissions of the AR 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, according to us is fair and reasonable and does not call for any disturbance, which we sustain. - Decided against the assessee.

Issues Involved:
1. Adjustment to the arm's length price (ALP) of advertisement services received from associated enterprises.
2. Benchmarking of international transactions under Section 92C(3) of the Income Tax Act, 1961.
3. Application of Comparable Uncontrolled Price (CUP) method for determining ALP.
4. Evaluation of prime time and non-prime time advertising slots.
5. Justification of higher payments for non-prime time slots.
6. Aggregation of transactions for determining ALP.
7. Non-speaking order of the Dispute Resolution Panel (DRP).

Issue-Wise Detailed Analysis:

1. Adjustment to the Arm's Length Price (ALP) of Advertisement Services:
The primary issue in the appeals was the adjustment to the ALP of advertisement services received from the associated enterprise, M/s Satellite Asian Region Ltd., amounting to Rs. 1,99,28,100/- for Assessment Year 2007-08 and Rs. 67,04,330/- for Assessment Year 2008-09. The assessee contended that the conditions set out in Section 92C(3) of the Income Tax Act, 1961, were not satisfied, and thus, the adjustments were unwarranted.

2. Benchmarking of International Transactions:
The Tribunal noted that the issue was covered against the assessee by an earlier order dated 05/04/2013 for Assessment Year 2006-07. The Tribunal reproduced relevant portions from the previous order, which dealt with the adjustment of Rs. 82,78,760/- made by the Transfer Pricing Officer (TPO) and sustained by the DRP. The assessee's company, engaged in providing television news content, had entered into transactions with its group enterprises, including purchasing ad-space on the Star Plus Channel.

3. Application of Comparable Uncontrolled Price (CUP) Method:
The assessee had adopted the CUP method for determining the ALP of the advertisement transaction, considering the associated enterprise (AE) as the tested party. The TPO observed that the AE charged higher rates for non-prime time slots compared to third parties, leading to the conclusion that the transaction was not at arm's length.

4. Evaluation of Prime Time and Non-Prime Time Advertising Slots:
The Tribunal examined the rates for prime time and non-prime time slots. The assessee paid Rs. 180,000/- per 30-second slot for prime time and Rs. 60,000/- for non-prime time, while third parties were charged Rs. 248,850/- and Rs. 35,115/- respectively. The TPO determined the ALP based on third-party rates, resulting in an adjustment of Rs. 82,78,760/-.

5. Justification of Higher Payments for Non-Prime Time Slots:
The assessee argued that the higher payments for non-prime time slots were necessary to meet the target amounts set in the agreement. However, the Tribunal found no justification for these higher payments, as there were no penalty clauses or other pressures to utilize non-prime time slots to meet targets.

6. Aggregation of Transactions for Determining ALP:
The assessee contended that the transactions should be aggregated for determining the ALP, citing decisions where aggregation was permitted in cases of interconnected transactions. However, the Tribunal, following the decision in UE Trade Corporation (India) (P) Ltd., held that each transaction should be evaluated separately unless they are part of a pre-arranged scheme or agreement.

7. Non-Speaking Order of the Dispute Resolution Panel (DRP):
The assessee argued that the DRP's order was non-speaking and did not consider their submissions. The Tribunal, however, noted that the DRP had given adequate time for representation, which the assessee failed to utilize. The Tribunal did not find any reason to restore the issue to the DRP for fresh adjudication.

Conclusion:
The Tribunal dismissed the appeals of the assessee, finding that the adjustments made by the TPO and sustained by the DRP were fair and reasonable. The Tribunal upheld the application of the CUP method and the separate evaluation of prime time and non-prime time slots, rejecting the aggregation of transactions for determining ALP. The Tribunal also found no merit in the argument that the DRP's order was non-speaking. The appeals were dismissed, and the adjustments to the ALP were sustained.

← Previous Next →