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TMI Blog2019 (3) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities, these two are entities are dissimilar and cannot be compared. Hence, the CIT(A) has rightly directed the AO/ TPO to exclude the broadcasting companies taken by Revenue and by assessee while comparing the two. Inclusion of creative Eye Limited as comparables - HELD THAT:- We find that the Creative Eye Limited is functionally similar to the assessee company reason being it is also engaged in production of film production that is why is functionally same with the assessee. Even otherwise, in this year only, the loss is made by Creative Eye Limited due to loss of volume because of competitive pressure on account of production of 3D film ‘Abra Ka Dabra’. Hence, we find no infirmity in the order of CIT(A) and the same is confirmed. This issue of Revenue’s appeal is dismissed. Transfer Pricing adjustment made on account of income from distribution i.e. distribution Revenue (payment segment) - selection of MAM - CUP v/s TNMM - HELD THAT:- We find that the assessee while making transfer pricing study under Cup Method, which is direct method available to the assessee and assessee has used the proper and scientific data which is available for comparison. But the TPO applied TN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent : Shri Farrokh V. Irani, AR ORDER PER MAHAVIR SINGH, JM: This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-15, Mumbai [in short CIT(A)], in appeals No. CIT(A)-15/IT-197/08-09 vide orders dated 20.09.2010. The Assessments was framed by the Asst. Commissioner of Income Tax, Central Circle 11(1), Mumbai (in short ACIT / ITO / AO ) for the A.Y. 2005-06 vide order dated 15.12.2008 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The first issue in this appeal of Revenue is against the order of CIT(A) holding that the broadcasting companies are not comparables with content producers like assessee and further directing that Creative Eye Limited is to be included in the final list of comparables, while making transfer pricing adjustment. For this Revenue has raised the following ground No. 1: - 1. On the facts and in the circumstances of the case and in law, the IA. CIT(A) Mumbai has erred in directing the A.O. to delete the transfer pricing adjustment of ₹ 7,33,23,877/- made to the content segment of the assessee on the ground that broadcasting companies were to be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Ltd. ETC networks Limited (merged) Innetwork Entertainment Ltd. Jain studios Ltd. Malayallam Communications Ltd. NDTV Media Ltd. Raj Television network Ltd. Television Eighteen India Ltd. 5. The assessee also admitted that it had itself inadvertently selected the following broadcasting companies as comparable, and which should be excluded from the comparables. (i) Jain studios Ltd. (ii) ETC Networks Ltd. (iii) Television Eighteen India Ltd. 6. The assessee before the AO contended that the broadcasting companies taken by assessee as comparables is a mistake and the same should be excluded. Even it was contended that the broadcasting companies taken as comparable should be excluded and cannot be taken as comparables for making adjustment under transfer pricing under the TNMM. But the AO by taking fresh comparables and mean margin of 25.50 % made adjustment of transfer pricing adjustment of ₹ 7,03,23,877/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after considering the submissions of the assessee noted that whether the TV broadcasting and Media content are functionally one and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (P)_ Ltd. Vs. ITO (IT Appeal No. 492 (Mum) of 2006 dt. 24.06.2009 that a taxpayer is entitled to request a correct determination of Arms Length Price where it had inadvertently overstated the price in its transfer pricing audit report. Further in the Quark System (P) Ltd. Case (supra) mentioned earlier, the Tribunal held that in accepting or rejecting a comparable, the tax payer should be able to correct a bonafide mistake. Accordingly, based on the above legal position and applying the principles of natural justice and FAR, all Broadcasting Companies are excluded from TPO s set of comparables. Aggrieved, Revenue came in appeal before Tribunal. 7. Before us, the learned CIT- Departmental Representative, relied on the TPO s order and stated that the assessee itself has chosen broadcasting companies as comparables and the economic activity of broadcasting and content companies is one and the same and can be compared and according to him, the TPO has rightly compared the broadcasting companies with that of the content producers. On the other hand, the learned Counsel for the assessee relied on the order of CIT(A). The learned Counsel for the assessee made arguments an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Intangible Assets The content producer does not hold any intellectual property The content once sold to the channel owner, the channel owner becomes the owner of the content Owns the channels Has the right over the content purchases from the content producers. 3. Risks 1) Risk of cost overruns Being the risks associated with overrun of production cost vis- -vis the budgeted cost 2) Market risk: Competition with other content producers 1) Failure of content Risk on account of charges in the taste of the viewing public. Thus, if the content fails to appeal to the viewers of the channel, the programme loses its popularity resulting in loss of revenues. Eg. One of the popular TV show Kaun Banega Crorepati was a huge hit with Mr. Amitabh Bachchan as the host, however did not do so well with Mr. Sharukh Khan as he could not match the popularity of Mr. Amitabh Bachchan resulting in losses to the channel owner. 2) Other Risk a) change in Government Policy: New regulations being implemented to address the changing markets and multiple regulators. Eg: In January 2010, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on economic factor, functional analysis and the activities, these two are entities are dissimilar and cannot be compared. Hence, the CIT(A) has rightly directed the AO/ TPO to exclude the broadcasting companies taken by Revenue and by assessee while comparing the two. We confirm the order of CIT(A). 9. The another aspect is that there is no estoppel against the assessee when arguing against the exclusion of its own comparable and this issue is covered by the Special Bench of this Tribunal in the case of DCIT vs. Quark Systems Pvt. Ltd. (2010) 38 SOT 307 (Chandigarh) (SB). Hence, on that account also the CIT(A) has rightly directed/ AO / TPO for exclusion of assessee s own comparable of broadcasting companies. 10. Another dispute is regarding inclusion of creative Eye Limited as comparables and direction given by CIT(A) accordingly. The TPO while excluding Creative Eye Limited as comparable has noted that this company whose operating profit and operating cost ratio is abnormally low and negative i.e. -37.57%. The TPO gone into the details and noted that this company s turnover has increased from 1.01 crores in FY 2003-04 to ₹ 17.30 crores in current financial year but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les and therefore the appellant s transactions of content segment pass the arms s length test. As such the other contentions raised by the appellant need not be adjudicated. Accordingly, the AO is hereby directed to delete the adjustment of ₹ 7,33,23,877/- made to the content segment of the appellant and as a consequential effect of this order, the arm s length price of the international transaction of content segment is considered to be at ₹ 52,03,63,004/-. Aggrieved, now Revenue is in appeal before Tribunal. 11. We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly, this company is making profit in earlier years and subsequent years as noted by CIT(A) as well as TPO in their orders. The loss incurred in this year is on account of failure of Abra Ka Dabra 3D movie produced by it during the year, is only a part of the reason along with competitive pressure for the loss incurred by this company. The assessee place the evidence in its paper book, wherein director s report of the company for the FY 2004-05, wherein it was mentioned that loss of volume because of competitive pressure coupled with a low pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 as under: - 5.10. I have perused the TPO s order and the written submissions. There is force in appellant s argument that viewership is higher amongst news/ general entertainment channels where as the appellants channels belong to the music and cartoon geners which are yet to be registered in the mind set of an emerging market population. 5.11. It is also a fact that the initial years involve investments which become profitable over a cycle. The expenses incurred in the Distribution segment was justified on commercial reasons and are incurred in order to get a stronghold in the market space and in anticipation that the initial loss arising from such higher costs would be made good by realizing more profits in later years. 5.12 Transfer Pricing scrutiny is not confined to financials only but also involve the underlying Economics and cannot be judged from the costs and revenues of a single year and should be viewed as a cycle, in its entirety, over the expected term. Economists direct their attention towhat may happen in the future the present value of future income whereas accountants are more concerned with what has happened in the past revenue less expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns business. 5.15 Accordingly, the AO is hereby directed to delete the adjustment of ₹ 4,47,43,612/- made to the distribution revenue segment of the appellant and as a consequential effect of this order, the arms length price of the international transaction of distribution revenue segment is considered to be at ₹ 4,72,86,761/-. Aggrieved, now Revenue is in appeal before Tribunal. 16. We have heard rival contentions and gone through the facts and circumstances of the case. The facts are that the assessee as a distribution segment and earning revenue under distribution payment segment entered into agreement and to distribute the rights with MTV, VH1 and Nickelodeon channel and a sharing arrangement with its AE at 50:50. The distribution of Revenue flows as under: - Revenue split between MTV India, MTVA/ NICKA and set discovery MTV India 50% Set Discovery 31.6% MTV India 18.5% MTV Aisa/ Nickk Asia 50% MTV Asia/ Nick Asia 50% Revenue Split between MTV India, MTVA and Zee Turner MTV India 50% Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd scientific data which is available for comparison. But the TPO applied TNMM method for computing Arms Length Price without any basis just on the basis of search conducted on Google and comparing the data with cable TV operators. In our view, the assessee is consistently following the CUP method for benchmarking the transaction with its AE s and for which scientific and correct data is available. The TPO or the AO has not pointed out any ambiguity in the data supplied by the assessee for benchmarking the Cup Method in the TP study. The AO applied TNMM method which is without any data or any basis. Hence, we are of the view that the CIT(A) has rightly deleted the adjustment and we confirm the same. This issue of Revenue s appeal is dismissed. 18. The next issue in this appeal of Revenue is against the order of CIT(A) directing the AO to delete the adjustment made to the reimbursement of advertisement and sale promotion expenses. For this Revenue has raised the following ground No.3:- 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to delete the adjustment of ₹ 8,64,348/- made to the reimbursement of advertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associate enterprises based on estimates and final payment was received based on invoices within 30 days. For the advertisement and distribution, the assessee gives credit period of around 30 to 90 days to its customers and the payment to be made to the AE which made only after the same are received from the customers. But the assessee has not availed any specific manpower for this purpose and existing manpower of the assessee has carried out for the incidental activity. In this process, the assessee also received indirect benefit in the shape of increased market development, as a result of major advertisement and sales promotion costs. Such costs will increase the viewership of the channel which will in turn result in higher income for the assessee in term of increase sales and distribution of adds receipt on the channels. Hence, according to us, no further expenditure has been incurred by assessee and consequently no further reimbursement was made by the assessee and hence, no markup can be added. Hence, we confirm the order of CIT(A) deleting the addition. This appeal of Revenue is dismissed. 21. The next issue in Revenue s appeal is against the order of CIT(A) deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were expenses incurred for promoting MTV channel. Thus, nature of expenditure being one for promoting MTV channel is not disputed. It is also not in dispute that as per the terms of the agreement between the assessee and MTVA and NICK, the assessee will not get any reimbursement of advertisement and sales promotion cost. The stand of the assessee is that by promoting brand MTV, there will be increased viewership, which will result in increase in advertising revenue. If the advertisement revenue increases, the assessee will directly benefit in terms of increase in commission income. The Revenue authorities have disallowed claim for deduction on the ground that there was no necessity for the assessee to incur these expenses under the agreement by which, they were appointed as advertising sales agent. Another reason was that these expenses ultimately benefit only MTV not the assessee. In our view, this approach of the revenue authorities is not legally correct. Law is well settled regarding deductibility of such expenses. In the case of Saoon J. David Co. Pvt. Ltd. Vs. CIT, 118 ITR 261 (SC); it has been laid down that no disallowance could be made on the ground that incurring of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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