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TMI Blog2019 (1) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the purported order under Section 143(3) read with Section 144C of the Income Tax Act, 1961 ('the Act') dated December 27, 2016 giving effect to Learned Dispute Resolution Panel's ('Ld. DRP') directions dated 23 November 2016 disposing off Appellant's rectification application dated 2 November 2016 is bad in law, void ab initio and deserves to be quashed without prejudice to ground no. 1 below. 1. On the facts, in law and in the peculiar circumstances of the case, the purported order dated December 27, 2016 under Section 143(3) read with Section 144C of the Act, is bad in law and deserves to be quashed as it is barred by limitation. 2. the Ld. AO / Ld. TPO / Ld. DRP has erred in making an addition of Rs. 33,91,01,488 to the total income on account of a transfer pricing adjustment to the distribution segment of the Appellant. 3. the Ld. AO / Ld. TPO / Ld. DRP has erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 4. the Ld. AO / Ld. TPO / Ld. DRP has erred in conducting a fresh comparability analysis based on application of incorrect keyword ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case." 4. Ground No. 1 was not pressed and Ground No. 12 is raised pre-maturely, so these grounds do not require any comment on our part. 5. Ground Nos. 2 to 11 are co-related and relate to the addition of Rs. 33,91,01,488/- on account of transfer pricing adjustment to the distribution segment of the assessee. 6. Facts of the case in brief are that the assessee is a subsidiary of M/s Turner Broadcasting System Asia Pacific, Inc., and was engaged in the business of distribution of subscription rights of satellite channels of Cartoon Network, WB, CNN, POGO and HBO. The assessee was also engaged in the business of imports, promotion marketing, distribution and provision of sub-distribution rights to cable and broadcast entities. The assessee e-filed the return of income on 3011.2012 declaring an income of Rs. 5,58,47,660/-. Later on, the case was selected for scrutiny. The AO noticed that the assessee had entered into the following international transactions with its AE: S. No. Nature of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the TPO. The ld. DRP also directed to include the following three comparables if they pass all the filters: "1. M/s Advance Technologies Ltd. 2. M/s Empower Industries India Ltd. 3. M/s Integra Telecommunication and Software Ltd." The ld. DRP also directed the TPO to verify and use corrected margin in the final list of comparable. 8. The TPO, however, rejected the comparable M/s Softcell Technologies Ltd. by observing that it was engaged in the business of consultancy services, so, it was not comparable on the basis of functional dissimilarity. The TPO finally selected the following comparables and worked out the arithmetic mean at 9.48% in the following manner: S. No. Name of the company After DRP's OP/OR 1. Sonata Information Technology Ltd. -0.10% 2 India Vision Satellite Communication Ltd. -1.57% 3. Maa Television Network Ltd. 22.75% 4. Malayalam Communications Ltd. 35.86% 5. Raj Television Network Ltd. 20.42% 6. TV Today Network Lid. 5.24% 7. Zee Media Corpn. Ltd. 13.81% 8. Avance Technologies Ltd. -0.46% 9. Empower Industries India Ltd. -1.21% 10. Integra Telecommunication and Software L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the material available on the record. It is noticed that on a similar issue relating to the selection of the comparable in assessee's own case, this Bench of the ITAT directed to exclude the 7 comparables vide aforesaid order dated 18.06.2018. The relevant findings have been given in para 11 of the said order which read as under: "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 stage 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 distribution segment. The details of these comparable companies with this average margin have already been incorporated above. Out of the said 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to exclude the 4 comparables, namely, M/s Malayalam Communications Ltd., M/s Raj Television Network Ltd., M/s TV Today Network Ltd. and M/s Zee Media Corporation Ltd. So, respectfully following the aforesaid referred to order dated 18.06.2018 in ITA No. 1204/Del/2018 for the assessment year 200607 in assessee's own case, we direct the AO/TPO to exclude the aforesaid 4 companies from the list of comparables. 14. The next issue vide Ground No. 10 relates to the benefit of economic adjustment on account of working capital, denied to the assessee by the AO. 15. As regards to this issue, the ld. Counsel for the assessee submitted that the ld. DRP in the directions has rejected the assessee's claim for granting working capital adjustment to the margin of the companies finally identified as comparable. However, for the assessment years 2010-11 and 2011-12, the ld. DRP had granted the benefit of working capital adjustment to the assessee. Therefore, the consistent approach should have been followed and the assessee's claim may be allowed. 16. In his rival submissions, the ld. CIT DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selected as comparables and instead selecting the companies without appreciating that their FAR of these companies are different as compared to the Appellant under the distribution segment. 2.4. conducting a fresh comparability analysis based on application of additional/ revised filters in determining the Arm's Length Price ("ALP") for the Appellant's distribution segment. 2.5. disregarding the judicial precedence of NGC Network (India) Pvt. Ltd. (2011-TII-45-ITAT- MUMINTL), wherein companies engaged in trading of branded software were accepted as comparables to determine the arm's length price for the distribution of satellite television channel; and rejecting a similar search conducted by the Appellant which was presented before the Ld. TPO. 2.6. not considering that in case companies having completely different cost structure as compared to the Appellant were to be accepted and compared with the distribution activities of the Appellant, operating profit/ value added expenses ('OP/VAE') should have been used as the Profit Level Indicator ('PLI'). 2.7. disregarding prior years' data as used by the Appellant in the transfer pricing documentation and holding that current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter, the assessee filed the objection against the aforesaid adjustment before the ld. DRP who did not allow any relief to the assessee and sustained the adjustment made by the AO. 23. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee had chosen following 5 comparables: S. No. Name of the comparable company Unadjusted OP/Sales(%) 1. Advance Technologies Ltd. 0.54 2. Axon Infotech Ltd. 1.17 3. Empower Industries India Ltd. -0.21 4. Rockon Fintech Ltd. -1.50 5. Sonata Information Technology Ltd. 1.95 Mean 0.39 However, the TPO rejected the set of comparables selected by the assessee and proceeded to conduct a fresh search and selected 7 new comparables. It was further submitted that the ITAT Delhi Bench 'I-2', New Delhi in the assessee's own case for the assessment year 2006-07 in ITA No. 1204/Del/2018 vide order dated 18.06.2018 had ruled in favour of the assessee by accepting the software distribution companies to bench mark the distribution segment of the assessee and directed the department to include the following comparables companies in the final list of comparable: * "Sonata Informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that such companies can be taken for comparability analysis, when there are no direct comparable dealing with distribution of satellite channels are available. Such an acceptability of software distribution companies in the case of distribution of TV channels has found favour by the co-ordinate bench in the case of NGC India Pvt. Ltd. (supra). Thus, we hold that software companies can also be included for the purpose of comparability analysis, because in assessee's own case for the subsequent years such companies have been accepted to be good comparables and Trijal Industries Ltd. too has been accepted as a valid comparable by the TPO in the Assessment Year 2013-14. 14. In so far as Trijal Industries Ltd. is concerned, it is seen that this company is engaged in trading of computer packages and is mainly Software Distribution Company and hence can be taken as good comparable. The functions carried out are quite akin with the distribution activity of the assessee company, which can be analysed atleast under TNMM. Even if we agree with the contention of the learned DR that in case software companies are to be included then matter should be remanded back to the TPO for searching fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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