9911796707
TMI Blog2020 (1) TMI 1604X X X X Extracts X X X X X X X X Extracts X X X X ..... f the international transaction. Appeal filed by the assessee is allowed. - ITA No. 5377/Del/2017 - - - Dated:- 8-1-2020 - Shri R.K. Panda, Accountant Member And Shri Sudhanshu Srivastava, Judicial Member For the Assessee : Shri Ravi Sharma, Advocate. For the Revenue : Shri H.K. Choudhary, CIT, DR. ORDER PER R.K. PANDA, AM:- This appeal filed by the assessee is directed against the order dated 29th June, 2017 passed u/s 143(3) r.w.s. 144C(13) of the IT Act, 1961, relating to assessment year 2013-14. 2. The grounds raised by the assessee read as under:- On the facts and circumstances of the case and in law, the learned Assessing Officer ( Ld. AO ) has erred in passing an assessment order under section 143(3) read with section 144C of the Income-tax Act, 1961 ( the Act ) dated June 29, 2017 giving effect to directions of the Learned Dispute Resolution Panel ( Ld. DRP ) dated May 01, 2017. Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. 1. That on facts and circumstances of the case and in law, the Ld. AO / Ld. TPO / Ld. DRP has erred in making a tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.6.1. that the Ld. AO / Ld. TPO / Ld. DRP grossly erred in not appreciating and considering the judicial pronouncements in relation to working capital adjustments. 3. That in relation to transfer pricing addition with respect to alleged overdue receivables, the Ld.AO / Ld. TPO / Ld. DRP has erred 3.1. in re-characterizing the receivables due as unsecured loans advanced by the Appellant to its Associated Enterprises; 3.2. in not appreciating that receivables is a consequence of the main transaction and cannot be considered as a separate international transaction; 3.3. that the Ld. AO / Ld. TPO / Ld. DRP has grossly erred in denying the benefit of economic adjustment on account of working capital, which if taken into consideration would take into effect the alleged overdue receivables and thus no further addition would be warranted in the instant case; and 3.4. in not appreciating that the Appellant is a debt free company it does not pay any interest to its creditors, hence the question of charging interest to the Associated Enterprises does not arise; 3.5. without prejudice, in selecting an ad hoc interest rate of LIBOR plus 250 basis points while computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee which is as under:- Particulars (Amount in crores) FY 2012-13 FY 2011-12 FY 2010-11 Turnover 470.68 418.38 400.06 Net Profit/Loss 21.62 4.43 30.23 NP/Turnover 4.59% 1.05% 7.55% 5. The TPO, during the course of TP proceedings observed that the assessee has considered certain comparables which, according to him, are not functionally similar to that of the assessee s distribution activities. After considering the various submissions made by the assessee, the TPO retained two comparable companies selected by the assessee i.e., Sonata Information Technology Ltd. And Trijal Industries Ltd., in the final list of comparable companies. The TPO thereafter proceeded to conduct a fresh search and selected five other companies as comparables and arrived at the following set of comparables:- S. No. Name of the company Unadjusted Operating Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Since the proceedings were getting time barred by limitation, the TPO proceeded to complete the assessment and estimated the delay in outstanding receivables by estimating the average of outstanding receivables of six months. Applying the rate of 4.4569% i.e., six months LIBOR + 400 basis points for 2013-14, the TPO proposed an adjustment of Rs.61,56,007/- on account of interest on delayed payments. The TPO accordingly proposed the total upward adjustment of Rs.20,06,44,084/-. The assessee approached the DRP, who, vide order dated 1st May, 2017, directed the AO/TPO to include the following three companies in the final list of comparables i.e., i) Avance Technologies Ltd., ii) Empower Industries India Ltd.; and iii) Integra Telecommunication and Software Ltd. 9. Pursuant to the direction of the DRP, TP adjustment was reduced from Rs.19,44,88,077/- to Rs.9,83,63,207/- on account of distribution and advertisement segment. So far as interest receivable is concerned, the DRP directed the AO/TPO to compute interest on the outstanding receivables using notional interest rate of 2.950% i.e., six months LIBOR + 250 basis points. Accordingly, the TP adjustment as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Tribunal in assessee s own case for preceding assessment years, the above two companies introduced by the assessee which are engaged in the distribution of software should be selected as comparable companies to benchmark the operating margins of the distribution segment of the TIIPL. 13.1 The ld. Counsel for the assessee, again, referring to the order of the Tribunal for A.Y. 2006-07 which has been followed in A.Ys 2005-06, 2012-13 and 2014- 15, submitted that certain channel owners were excluded in the final set of comparables. Therefore, the TPO was not justified in selecting certain comparables which are primarily channel and content owners, thus, being functionally dissimilar to the assessee. He accordingly submitted that in view of the decision of the Tribunal, satellite TV channels cannot be selected for benchmarking the distribution segment of the assessee. He accordingly submitted that all channel/content companies identified by the TPO should be excluded from the list of comparables as they are not functionally comparable to the distribution segment of the assessee. 14. Without prejudice to the above, the ld. Counsel for the assessee further submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjustment on account of interest on receivables is concerned, the ld. Counsel for the assessee submitted that the Tribunal in assessee s own case for A.Y. 2014-15 relying on the decision of the Hon ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd., has held that working capital adjustment subsumes the impact of outstanding receivables and payments of the assessee. Accordingly, once working capital adjustment is granted to the assessee, no adjustments are to be warranted on account of interest on outstanding receivables from the AEs in the hands of the assessee. Without prejudice to the above, he submitted that: i) Outstanding receivables cannot be recharacterised as unsecured loans advanced by the Company to its AEs; ii) Outstanding receivables from AEs is not a separate international transaction; iii) The Appellant is a debt-free entity and it does not pay any interest to its creditors; iv) Interest rate of LIBOR plus 250 basis points is ad-hoc and without any basis. v) The Appellant has undertaken various transactions with AEs resulting in accounts receivables from and accounts payables to the AEs, therefore, the Appellant would like to dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork Ltd., we find this company was selected by the TPO and retained by the DRP on the ground that under TNMM method functional comparability is the important factor. Since the company is functionally comparable being in the same line of business and with comparable FAR, therefore, the DRP held that it should be retained. However, from the various details furnished by the assessee, we find Maa Television Network Ltd., is functionally different being content owner and channel owner. This being a full fledged channel owner company which owns and operates various entertainment channel such as Maa TV, MAA Gold, MAA Music, etc. Being a channel owner, it has incurred high studio and production related cost, its deployment of asset is 9.19 times of turnover as compared to assessee s ratio of 223.86 times of turnover. Further it holds significant intangible assets, therefore, this company, in our opinion, should be rejected on account of holding significant intangible assets and being functionally dissimilar. 20.1 So far as Malayalam Communications Ltd., is concerned, we find this company was selected by the TPO and retained by the DRP on the ground that this company being functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the TPO, has observed 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alayalam Communications Ltd. 20.07 2. Raj Television Network Ltd. 9.97 3. TV Today Network Ltd. 15.45 4. UTV Software Communications Ltd. 12.80 8.1 With regard to other three comparables, viz., S. No. Company Name Adjusted OP/Sales(%) 1. Empower Industries India Ltd. 0.65 2. Sonata Information Technology Limited 0.85 3. Softcell Technologies Limited 2.23 Mean 1.24 We direct the TPO to adopt the adjusted operating margin of the aforesaid comparables after giving working capital adjustment and accordingly, give consequential relief. 9. In the result, the appeal of the assessee is allowed. 10. Similarly in the appeal for the Assessment Year 2014-15, the following comparables have been selected by the TPO. S. No. Company Name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and in support of this contention, he had relied upon the decision of Hon'ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd., (2017) 398 ITR 66. 17. We agree with the contention of the learned counsel that if working capital adjustment is to be given, then it subsumes the impact of outstanding receivables and payables made by the assessee and accordingly respectfully following the judgment of Hon'ble Delhi High Court, we hold that no adjustment is warranted on account of interest on receivable given. 24. Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee s own case for A.Ys 2005-06 and 2014-15, therefore, respectfully following the same, we hold that if working capital adjustment is to be given, then, it subsumes the impact of outstanding receivables and payments by the assessee and, therefore, in the light of the ratio of the decision of the Hon ble Delhi High Court in Kusum Healthcase Pvt. Ltd. (supra), no adjustment is warranted on account of interest on receivables. 25. So far as allowing of working capital adjustment is concerned, from the various details fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
