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TMI Blog2011 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the transfer pricing - Appeal is partly allowed - ITA NO. 5307/M/2008 - - - Dated:- 23-2-2011 - Shri R.S.Padvekar (JM) and Shri Rajendra Singh(AM) JJ. Revenue by : Shri Narender Singh Assessee by : Shri Porus Kaka Shri Divesh Chawla ORDER Per Rajendra Singh, Accountant Member This appeal by the revenue is directed against the order dated 31-3-2008 of CIT(A) for the assessment year 2003-04. The only dispute raised is in relation to Transfer Pricing adjustments made by the AO which has been deleted by the CIT(A). 2. Briefly stated the facts of the case are that the assessee who was mainly engaged in distribution and marketing of National Geographic Channel and the Adventure One Channel and rendering of post-production services to media companies, had international transactions totalling Rs. 13,75,27,281 with its associated enterprises i.e. M/s. NGC Asia LLC. The details of transactions were as under : Sr. No. Name and address of Associated Enterprise (AE) Country of tax residence of AEs Description of transaction with AEs Amount received/receivable Amount paid/payable as per books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -do- " Innetwork Entertainment Ltd. 3.08 0.11 27.86 -do- " New Delhi Television Ltd. 24.09 0.23 103.03 -do- " RPG Netcom Ltd. 1.24 0.03 39.86 Cable television broadcasting media " Raj Television Network Ltd. 5.01 0.16 30.48 Television broadcasting media " Sahara One Media Entertainment Ltd. 0.96 0.02 63.42 -do- " T V Today Network Ltd. 49.12 0.45 108.49 -do- " Zee Telefilms Ltd. 132.75 0.28 479.56 -do- " Zee Turner Ltd. 1.56 0.09 17.94 -do- " 6. The assessee vide letter dated 22.2.2006 submitted that it had conducted a search in respect of local channel companies but these companies were not acceptable as a comparative case due to unavailability of information or substantial related party transactions. A search was also conducted using the key words "distribution" "distributors" in Prowess but functions performed by those companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... $ 1,83,333 per month. The AO asked the assessee to explain the enhanced license fee. The assessee explained the position vide letter dated 14-3-2006: "4. in the year 2001, when NGC Asia first decided to make a foray into India, the license fee was decided as USD 1,00,000 per month, this was giving cognizance to the fact that it would take some time for a new and novel channel such as National Geographic Channel to establish a subscriber base in the initial periods. Accordingly, NGC India made a license fee payment of USD 12,00,000 to NGC Asia for assessment year 2002-03 However, over a period of time, National Geographic Channel started becoming popular and enlarged its subscriber base in India. By June 2003, the subscriber base of National Geographic Channel almost doubled to 1,01,94,191. Given the increase in the subscriber base, which was being monitored by NGC Asia, NGC Asia re-negotiated the license fee from USD 12,00,000 to USD 22,00,000. Further, the subscription revenue earned by NGC India have progressively increased from Rs. 19,69,90,262 in A.Y. 2002-03 to Rs. 26,05,44,496 in A.Y.2003-04, the above clearly demonstrates that the increase in license fee is justifiab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price and therefore analysis/comparables could not be arbitrarily rejected by the AO. Reliance was placed on the decision of the Tribunal in case of Mentor Graphics (India) Pvt. Ltd. (109 ITD 101). The assessee also submitted that the observation of the AO that the subscriber base had stabilized was not correct because the subscriber base had almost doubled from five million in the mid 2001 to ten million in mid 2003. CIT(A) was convinced by the arguments advanced by the assessee. It was observed by him that the AO after rejecting the TNMM method applied by the assessee had not given any finding as to which one of the five methods prescribed under rule 10B was to be applied. He appeared to have applied the CUP method but used assessee's own data in the previous year which could not be called as uncontrolled transaction. CIT(A) also observed that the TPO in A.Y. 2004-05 i.e. in the subsequent year accepted the methodology used by the assessee regarding selection of comparables and method of determination of arms length price. It was also observed by him that the AO had accepted the license fees paid by the assessee for the last two months to be at arms length and had not accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival contentions carefully. The dispute is regarding transfer pricing adjustments made by the AO on account of license fees paid to M/s. NGC Asia LLC, an associated enterprise of the assessee. The assessee is engaged in the business of marketing and distribution of satellite television channels. During the year a sum of Rs. 13.75 crores became payable to the associated enterprise mentioned above for various services as mentioned in para 2 earlier. The international transactions with associated enterprises are regulated by section 92 as per which the transactions have to be at arms length price and in case of any difference adjustments is required to the total income on account of any payment to associated enterprise. There are various method prescribed under the provisions of section 92C read with rule 10B to determine arms length price. These methods are transactional net margin method (TNMM); comparable uncontrolled price (CUP) method; resale price method (RPM); cost plus method (CPM); and profit split method (PSM). The assessee in this case applied TNMM method and for this purpose had conducted due diligence to find out the comparables. However no direct comparables dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement had arrived at only in January, 2003 which was the reason for increase with retrospective effect. It has also been submitted that the assessee's own transactions in the earlier year could not be adopted for comparison as these were controlled transactions with associated enterprise. Another argument advanced by the assessee is that the comparables selected by the assessee as well as method of computation of TP adjustments had accepted by the AO in the subsequent year i.e. A.Y. 2004-05 and therefore there was no reason for not using these comparables in the present year. 15. We have considered the various aspects. The AO had accepted the license fees for the month of February and March 2003 to be at arm's length. However the steep increase given from the beginning of the year with retrospective effect has not been accepted. The reasons given by the AO is that over the year there has been decline in rate of hiring transponders/satellite due to availability of higher capacity digital transponders and higher competition amongst various transporters. There would have been no difficulty if retrospective increase was with respect to an unrelated party because these are commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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