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2020 (1) TMI 615 - AT - Income TaxAd hoc addition of 10% under transfer pricing adjustment - addition has been made by the TPO not in respect of any expenditure having been incurred but with respect to income derived by the assessee, part of which was distributed among the RPs according to their respective entitlements as worked out on the basis of their subscribers - HELD THAT:- We found that while upholding 10% of addition in respect of the amount distributed, the DRP have clearly observed that the TPO was not justified in making addition to the extent of 50%. DRP held that consumer numbers represent a key parameter for deciding the amount or placement charges and in the facts and circumstances of the case held that allocation made by the assessee with respect to the total placement charges received is fair and proper. After this finding being recorded by the DRP, there is no justification even for upholding 10% of the addition, in so far as the assessee has distributed income on the basis of actual subscribers being commanded by the RPs. DRP has categorically observed that the assessee has performed more functions that include making efforts to consolidate the RPs presenting their position and negotiating with the broadcasters for RPs. DRP has further categorically rejected the findings of the TPO that just because each RP individually represents mere 5% to 7% of the subscriber base which is not in a position to negotiate individually with the broadcasters. Finding of the TPO for the RPs should be allowed just 50% of the amount attributable to its subscriber base has been rejected by the DRP. DRP has held that by way of this transaction, the assessee was given an authority by the RPs to negotiate with the broadcasters for the placement charges for the entire group. The DRP acknowledges the fact that clubbing of such rights with one person ensured better charges for the entire group. And that the assessee itself has been benefitted from such pooling. Furthermore, the DRP has not categorically held that other than giving such rights of negotiation to the assessee, no other risks are transferred to the assessee nor there is any deployment of capital on behalf of the RPs. DRP has held that it is a transaction of rendering of services of marketing of the channel placement rights with the broadcasters and arms length consideration is to be received by the assessee with respect of functions performed in rendering these services,. After giving all these findings by the DRP, there is no justification for upholding any ad hoc addition of 10%. From the record we further found that the adjustment of 10% so upheld by the DRP was without following any of the prescribed methods U/s 92C(1) of the Act nor has any benchmarking been adopted in determination of the ALP. The Hon’ble Jurisdictional High Court in the case of CIT Vs Lever India Exports Limited [2017 (2) TMI 120 - BOMBAY HIGH COURT] have held that the ad hoc determination of ALP de-hors Section 92C of the Act cannot be sustained, rendering the entire transfer pricing adjustment unsustainable in law. We do not find any merit in the action of the DRP for upholding ad hoc addition of 10% under transfer pricing adjustment. - Decided in favour of assessee.
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