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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 ..... sment years 2012-13 and 2009-10 respectively passed by the AO u/s 143(3) r.w.s. 144C(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. Since, the appeals belonging to the same assessee having common issues involved, were heard together, so, these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance, we will deal with the appeal in ITA No. 218/Del/2017 for the assessment year 2012-13. Following grounds have been raised in this appeal: On the facts, in law and in the peculiar circumstances 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 deserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of international transaction with AE s as directed by the Ld. DRP, and instead proposed an adjustment to the entire cost base of the distribution segment, which includes uncontrolled transactions with independent third parties as well. 12. the Ld. AO has grossly erred in initiating penalty proceedings under section 271(1)(c) of the Act. 13. the Ld. AO has erred in levying interest under section 234A, 234B, 234C and 234D of the Act while completely disregarding the provisions of the Act and the judicial precedence. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally similar to the distribution activity undertaken by the assessee. The TPO proceeded to conduct a fresh search and selected the following six comparables. S. No. Name of the company OP/Sales (%) 1. Malayalam Communications Ltd. 36.18 2. Raj Television Network Ltd. 21.09 3. TV Today Network Ltd. 5.24 4. Zee Media Corporation Ltd. 13.81 5. Maa Television Network Ltd. 22.75 6. India Vision Satellite Communication Ltd. (-) 1.57 Average 16.27 The TPO proposed the adjustment of ₹ 61,52,84,260/- 7. Thereafter, the AO passed the draft assessment order dated 15.03.2016 and made the aforesaid adjustment. Against the above said draft assessment order, the assessee filed the objection before the ld. DRP who directed vide order dated 05.10.2016 to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars After DRP s Direction Operating Revenue of the assessee 406,74,92,954 Operating profit in distribution activity 464,96,844 OP/OR for distribution activity 1.14% Operating cost of the assessee 402,09,96,110 Arm s Length Price Margin (OP/OR) 9.48% Arm s Length Profit 38,55,98,332 Adjustment 33,91,01,488 The AO accordingly made the adjustment of ₹ 33,91,01,488/-. 9. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the TPO has wrongly selected companies which were primarily channel and content owners, thus functionally dissimilar to the assessee. It was further submitted that the ITAT vide consolidated order dated 20.05.2016 for the assessment years 200506 and 2006-07 in ITA No. 3080/Del/2011 and 5981/Del/2010 respectively, remanded the matter back to the AO/TPO, in pursuance to the directions of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll-fledged channel companies who owned and operate various TV channels and undertake content creation on their own. The Tribunal in assessee s own case for the Assessment Year 2007-08 and 2008-09 and also in Assessment Year 2006-07 have held that Satellite TV channels and cable network operators have significantly different operating models and provide earning model and once the Tribunal has held that such channel/content owner companies should not be included for the purpose of comparability analysis, then there is no reason why the TPO is again selecting such companies for the purpose of benchmarking the ALP of the assessee s distribution segment. Before us, the learned counsel has already clarified on the basis of material available on record that distribution activity and ancillary/production activity of the assessee are two distinct set of transactions for which, not only separate benchmarking has been done but also separate remuneration has been earned for each of the said activities. So far as production activity is concern, the same has been found at arm s length by the TPO and once these are two different segments then there is no justification to mix up the function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 17. After considering the submissions of both the parties and the material available on the record. We are of the view that when the ld. DRP has allowed working capital adjustment for the preceding assessment years 2010-11 and 2011-12 then there was no reason to deviate from the said view for the year under consideration. We, therefore, direct the AO to allow the benefit of the working capital adjustment to the assessee while working out the arm s length price. 18. Ground No. 12 relating to initiation of the penalty proceeding u/s 271(1)(c) of the Act is pre-maturely raised as such, it is dismissed. 19. Ground No. 13 relates to the charging of interest u/s 234A, 234D, 234C and 234D of the Act. As regards to this issue, it was the common contention of both the parties that it is consequential in nature. We order accordingly. 20. Now we will deal with the appeal in ITA No. 1069/Del/2014 for the assessment year 2009-10. Following grounds have been raised in this appeal: 1. The Assessment Order passed in pursuance of the directions issued by the Hon ble Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7. disregarding prior years data as used by the Appellant in the transfer pricing documentation and holding that current year (i.e. FY 2008-09) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its transfer pricing documentation, and in doing so has grossly erred in interpreting the requirement of contemporaneous data in the Rules to necessarily imply current year (i.e. FY 2008-09) data. 2.8. without prejudice to the above objections, in computing the operating margin of Mahalaxmi Commercial Services Limited in an incorrect manner leading to inaccurate computation of arithmetic mean of comparable companies, and the transfer pricing adjustment. 2.9. disregarding judicial pronouncements in India in undertaking the transfer pricing adjustment. 3. Without prejudice to the other grounds, Ld. AO erred in not making an adjustment to the operating margin of comparable companies to account for difference in working capital employed by the Appellant and comparable companies. 4. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in: 4.1. no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Information Technologies Ltd. Softcell Technologies Ltd. Empower Industries India Ltd. Trijal Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable 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 for other software companies. . However, looking to the fact that already two rounds of li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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