TMI Blog2014 (5) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... is no requirement of drawing any hypothetical inference for making any huge adjustment / addition - The very premise on which the adjustments have been made is based on indicative value given in the contract, which cannot be sustained, as the same can be ascertained on the basis of actual cricketing events and information from the BCCI which can be sought by either party – thus, the matter is remitted back to the TPO for adjudication – Decided in favour of Assessee. Determination of mark-up from the A.E - Exploitation of international rights – Held that:- Neither the assessee nor the TPO have bench marked by applying any proper method or carrying out any comparability analysis vis-a-vis any comparables - no proper analysis of CUP has been done as to how the minimum guarantee amount and the amount actually received will amount to CUP - The CUP has to be seen if an uncontrolled price is the price agreed between unconnected parties for the transfer of goods or services and if this transfer in all material aspect is comparable to the transfers between two related parties then only the price becomes comparable uncontrolled price - no uncontrolled conditions have been analysed - Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to its A.E. at 0.5% as the basis for ALP – Decided in favour of Assessee. Determination of ALP on consultancy revenue – Held that:- The segmental account filed before the TPO that the assessee has also included the revenue of media rights fee and licence fee - media rights fee and licence fee should be removed so as to arrive at correct profit margin – the calculation has been given for the first time – thus, the matter is required to be remitted back to the AO/TPO for verification – Decided in favour of Assessee. Addition of payment made to BCCI - Acquisition of sports rights – Held that:- The assessee has made the payment to the BCCI for acquisition of sports rights to the BCCI in respect of three matches - Such a payment is a revenue expenditure which is allowable u/s 37(1) - Just because the assessee has deferred the expenditure for three years in the ratio of 80% (+) 10% (+) 10%, it cannot be held that the AO is justified in putting his own apportionment in the ratio of 60%:20%:20% - Once the expenditure has been incurred in the year which is allowable as revenue expenditure, the same should be allowed in the year only – thus, the AO is directed to allow the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of the facts and in the circumstances of the case and in law the learned AO in pursuance of the direction given by the learned DRP erred in assessing the income of the Appellant at INR 104,15,59,320 as against the returned income of INR 4,17,83,007. 3. The learned DRP erred in not directing the AO to delete the transfer pricing adjustments proposed by the Transfer Pricing Officer (TPO), as he failed to follow the provisions of 92C(3) of the Act, hence the transfer pricing adjustments are bad in law and the appellant's international transactions should be accepted at arm's length as per section 92 of the Act. 4. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in confirming the transfer pricing adjustment of INR 58,85,90,002 as proposed by the TPO on account of determination of ALP of International License revenue receivable by the appellant in terms of the provision of agreement with associated Enterprise(AE). 5. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in making the addition of INR16,40,24,000 from the payment made to BCCI towards acquisition of sports rights. 15. On the basis of the facts and in the circumstances of the case and in law, the AO in pursuance of the direction given by the DRP erred in making the addition of INR 23,39,082 towards the website development expenses treating the same as capital expenditure. Alternatively, depreciation on the same should be allowed. 16. On the basis of the facts and in the circumstances of the case and in law, the learned AO in pursuance of the direction given by the learned DRP erred in making the addition of INR 6,88,43,281 under section 14A of the Act. 2. At the time of hearing the learned counsel, Mr. Vispi Patel, on behalf of the assessee, submitted that he is not pressing ground no.1, 2, 3, 11 and 12. Since these grounds have not been pressed before us, therefore, the same are not being adjudicated upon and are treated as dismissed. 3. In ground no.4, the assessee has challenged the transfer pricing adjustment of Rs. 58,85,90,002, as determined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license to certain global media rights for cricketing events from the period 1st March 2006 to 31st March 2010. The BCCI had placed minimum bid price of US$ 450 million for giving the media rights for both domestic and international territory. As a highest bidder, the Nimbus India had acquired these rights for US$ 612.18 million which in terms of INR was Rs. 2724,20,10,000. This total bid price was broken into US$ 504.09 million for the Indian territory rights and US$ 108.09 million for the international territory rights. For the purpose of marketing, its international media rights to the cricket events in the international territory, the Nimbus India entered into an agreement on 1st March 2006 with its A.E., Nimbus Sports International Pte. Ltd., Singapore (for short NSI ), which is mainly engaged in the exploitation of commercial advertising and media rights associated with cricket and other sports. It was stated before the TPO that as per the agreement, the NSI was required to distribute the international territory rights and the Nimbus India was assured of minimum revenue in consideration of transfer of media rights for the international territory. This minimum revenue guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and as a consequence, the agreement between the assessee and its A.E. was revised vide agreement dated 15th January 2007 and the minimum revenue guarantee receivable from the NSI was reduced from US$ 108.09 million to US$ 95.02 million. Thus, earlier the ratio of international territory rights was 17.66% of the entire contract value which now as per the revised agreement had reduced to 15.2% of the total contract value. Another very important fact which was stated before the TPO was that the amount payable to the BCCI for the assessment year 2007-08, had also undergone a change due to breach of certain terms of the contract and also curtailment of number of matches in the tournament. The assessee was now required to pay Rs. 561.30 crores instead of the amount payable at Rs. 9,60,28,08,525 and the assessee has received Rs. 87.06 crores from its A.E., as against Rs. 145,92,26,200 receivable as per the revised agreement. If the ratio of 15.2% is applied on Rs. 561.30 crores, the assessee has received more amount from the A.E. 7. However, the TPO rejected the entire contention of the assessee and first of all, demonstrated that the arrangement between the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitute 17.66% of the global contract value payable for this year Represent 17.66% of Rs. 960.28 crores (c) Amount receivable from NSI by way of MG as per revised agreement Sl. No. Tournament details No. of events Attributable value Value in USD Value in Rs.@44.50 1 Australia 7 ODI 8% 74,42,065 33,11,71,893 2 Pakistan 3Test+7ODI 13.50% 1,25,58,485 55,88,52,583 3 Domestic 72Days 2.25% 20,93,081 9,31,42,105 4 To be decided 3Test+5ODI 11.50% 1,06,97,969 47,60,59,621 Total 35.25% 3,27,91,600 145,92,26,200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Attributable value Original contract value Estimated ratio Estimated contract value in Rs. 1 Australia 7ODI 7 8% 217,93,60,800 8% 217,93,60,800 2 Pakistan 3Test +7 ODI 8 13.50% 367,76,71,350 8/10 13.50 294,21,37,080 3 Domestic 72 Days 72 2.25% 313,28,31,150 2.25 61,29,45,225 4 To be decided 3Test +5 ODI 1 11.50% 61,29,45,225 1/8x 11.50 39,16,03,894 Total 35.25% 960,28,08,525 612,60,46,999 10. From this amount, if the ratio of 15.2% (which is the International Media Rights), is appealed then the amount receivable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had actually paid to the BCCI in this financial year was only Rs. 561.47 crores. This is evident from the audited accounts and also from the schedules annexed thereto, wherein the tournament wise media right fee have been provided. This figure also matches up with the schedule of cricketing matches conducted during the financial year 2007-08. In support of this contention, he drew our attention to Page-591 and 595 of the paper book. He submitted that there is also no dispute that the international media rights was 15.2% of the global contract value and if such a ratio is applied on Rs. 561.47 crores, then by way of minimum guarantee, the assessee was to receive roughly Rs. 85 crores from its A.E. and what the assessee has received at Rs. 87 crores is not only at arm's length but also in consonance with the material placed on record. The Assessing Officer has only taken the indicative value as given in the agreement as well as contract with the BCCI, but has not tried to verify the actual nature of payment vis-a-vis the cricketing tournament which undertook in this year. If the TPO had any doubt about the payments made to the BCCI, he could have got it verified from the BC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Moreover, the TPO himself has not bench marked the margin by following any of the prescribed methods or carrying out any of the comparability analysis with any comparables. Therefore, such a mark-up of 10% and consequent adjustment is uncalled for. In support of his contention, he relied upon the decision of the Tribunal, Delhi Bench, in Global Vantedge (P.) Ltd. v. Dy CIT [2010] 37 SOT 1 and the decision of Kodak India Ltd., [ITA no.7349/Mum./2012, order dated 12th April 2013], wherein it has been held that the TPO cannot make any adjustment without following the prescribed method or bench marking the same with the comparables. 15. On the other hand, the learned Departmental Representative, Mr. Ajeet Kumar Jain, submitted that before the TPO, the assessee could not furnish any documentary evidence with regard to the actual payment made to the BCCI during the relevant financial year and in the absence of any evidence, the TPO was justified in taking the value of the price paid as per the contract with the BCCI and also the value of the international media rights as receivable from the A.E. as per the revised agreement. The onus was on the assessee to prove before the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erritory and in the international territory. The media rights for the international territory was at US$ 108.09 million. The entire license for exploitation of media rights was dependent upon schedule of matches and tournaments which were to be carried out in four years. For the financial year 2007-08, i.e., the assessment year 2008-09, the amount which was payable to the BCCI for the cricketing tournament was at Rs. 960,28,08,525. For the purpose of exploitation, the media rights in the international territory, the assessee had entered into the agreement with its A.E. i.e., NSI according to which the NSI was liable to pay the assessee higher of 90% of the revenue actually received by the NSI from the exploitation of the international media rights with the balance 10% being the NSI share or the minimum guarantee amount which was the exact amount of the licence fee of the media rights allotted by the BCCI which was payable to the assessee. Due to the re-assignment of certain territory rights to assessee, a revised agreement was entered into between the assessee and the A.E., wherein the international licence fee for the media rights was revised to 15.2% of the global contract value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the duty of the TPO to ascertain this information directly from the BCCI by carrying out enquiry under section 133(6) instead of making the transfer pricing adjustment on presumption and estimate. Once the correct amount can be ascertained, then there is no requirement of drawing any hypothetical inference for making any huge adjustment / addition. The very premise on which these adjustments have been made is based on indicative value given in the contract, which cannot be sustained, as the same can be ascertained on the basis of actual cricketing events and information from the BCCI which can be sought by either party. Therefore, in the interest of justice, we are of the considered opinion that this matter needs to be restored back to the file of the Assessing Officer/TPO to ascertain the proper information from the BCCI as to what is the exact amount payable to the BCCI for the media rights in the financial year 2007-08. If the assessee is unable to get the information from the BCCI in the form of confirmation letter, then the Assessing Officer under the statutory power will call for the information from the BCCI and get the actual figure of the amount paid by the assessee. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted parties for the transfer of goods or services and if this transfer in all material aspect is comparable to the transfers between two related parties then only the price becomes comparable uncontrolled price. In the present case, no such uncontrolled conditions have been analysed. Even the TPO has also not bench marked the mark-up by analyzing from any comparables but has gone on the premise that margin on exploitation of media rights ranges from 5% to 15%. He has referred to revenue generation by the A.E. in respect of Australian tournament at 6% and Pakistan at 24% over the cost. Considering the mean of the two, he has arrived at the mark-up of 15% and then applied a mark-up of 10% on the cost. Thus, neither the approach of the assessee nor of the TPO can be sustained. The basic premise for determining the ALP under the transfer pricing mechanism is that a controlled transaction has to be bench marked by analyzing the comparable uncontrolled transactions. Therefore, we are of the opinion that this matter needs to be restored back to the file of the Assessing Officer/TPO to carry out functional analysis based on the FAR and carry out comparability analysis after searching for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nimbus Mediat Pte. Ltd. Nil 25,071 2. Nimbus Communication Ltd. BVI Nil 2,18,842 3. Nimbus Sports International Pvt. Ltd. Nil 34,87,654 37,31,567 22. The aforesaid adjustments have been confirmed by the DRP also. 23. Before us, the learned Counsel submitted that insofar as the notional interest charged on NSI account on the outstanding debit balance, the same is covered by a series of orders passed by the Tribunal in assessee's own case right from the assessment year 2003-04 to 2007-08, wherein this adjustment of notional interest has been deleted. As regards the interest on loans and advances given to the A.E., he submitted that in this year, the assessee has also received various advances during the course of the relevant financial year on which, no interest has been paid and if notional interest is to be applied, then it would result in an amount payable of Rs. 47.00 lakhs approximately. This would thus make the adjustment made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee is squarely covered in favour of the assessee by the order of the Tribunal dated 12-06-2013 (supra) passed in assessee's own case for A.Y. 2005-06 wherein a similar issue was decided by the Tribunal in favour of the assessee for the following reasons given in para No. 19 20 of its order: 19. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has submitted that similar issue involved in assessee's own case for earlier years i.e. assessment years 2003-04 and 2004-05 has been decided by the Tribunal in favour of the assessee. The ld. D.R., however, has submitted that similar issue was decided by the Tribunal in favour of the assessee in the earlier years holding that the continuing debit balance was not an international transaction. He has contended that the law on this point, however, has undergone a change by insertion of Explanation to section 92-B with retrospective effect from 1-4-1992 and clause (i)(c) of the said Explanation is clearly applicable in the present case. The ld. counsel for the assessee, on the other hand, has contended that although the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be treated as 'international transactions' under section 92 B, the right course of applying the CUP method, in the case of non charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which the assessee has charged interest on overdues with independent enterprises (internal CUP) or with the cases in which other enterprises have charged interest, in respect of overdues in respect of similar business transactions, with independent enterprises (external CUP). No such exercise has been carried out in this case, nor is it shown, as is the condition precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,98,048/- made on this issue is not sustainable. The same is accordingly deleted allowing ground No. 3 4 of the assessee's appeal . 8. Respectfully following the order of the co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 2005-06 on similar issue, we delete the addition of Rs. 1,99,504/- made by the A.O. and confirmed by the ld. CIT(A) on account of interest payable by Nimbus Sport International P. Ltd. on outstanding trade balance to the assessee. Ground No. 3 (d) of the assessee's appeal for A.Y. 2006-07 is accordingly allowed.' 27. Thus, respectfully following the earlier year's precedence in assessee's own case, we delete the adjustment of Rs. 34,87,654 on account of notional interest. Accordingly, ground no.7 is treated as partly allowed for statistical purposes. 28. In ground no.8, the assessee has challenged the transfer pricing adjustment of Rs. 83,47,173, on account of notional guarantee commission charges for the guarantee extended to the A.Es. 29. The TPO, from the financial statements, submitted by the assessee noted that the assessee has given following corporate guarantee to its A.E. without charging any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arking its margin after taking financial data for three years, however, the TPO only considered the data relevant for the assessment year 2007-08. The TPO, after analyzing each and every comparables, finally short listed five companies which according to him were functionally comparable from the 13 comparables selected by the assessee. The average mean of the comparables in terms of OP/OC was arrived at 14.76%. Before the TPO, the assessee gave the working of the said margin based on segmental details. However, the TPO did not accept the same as the assessee has not given the basis for allocation of the expenditure and there was no mention in the transfer pricing documentation filed before him. The relevant findings and observations of the TPO is as under: 11.8 It is seen that the assessee has taken the revenue from sports marketing segment which is 0.49 of that segment's revenue. However, it has not given any basis for allocation of the expenses. There is no mention of this in the TP documentation field. The assessee was specifically required to furnish the basis of allocation with evidence. This was not submitted. It is seen that the nature of services performed are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the learned Counsel submitted that under such segment, there was a revenue on account of licence fee and media rights fee which needs to be excluded for the purpose of determining the profit margin under consulting and sales incentive. He submitted a fresh calculation of net profit margin for the consultancy fees and expenses and sales incentive from NSI based on the segmental accounts. He submitted that this calculation is based on the information furnished before the TPO and the entire information has been placed in the paper book at Page-547, 549 and 665. If such a calculation of net profit margin is taken into consideration, then assessee's net margin as a percentage of total consultancy revenue will come to 61.25%. He submitted that this can be verified on examined by the TPO. If such a margin is taken into consideration then even by carrying comparability analysis with the comparables it would be at ALP. 35. On the other hand, the learned Departmental Representative submitted that there cannot be segment of segmental account and it is not clear and how the expenditure can be allocated on sales turnover as in every segment there would be a problem for carrying ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,253,745 Interest on Loans 41,910,153 Administrative and other Expenses 15,752,640 104,059,785 Less: Fixed period loans interest not related to sports segment (38,576,712) Resultant Segmental Expenditure 65,483,073 Apportionment of related expenses to Consultancy Revenue @ 18.97%(C) 12,422,304 Total Revenue From (B) above 32,056,280 Less: Cost apportioned or allocated to consultancy revenue .... From (C) above (12,422,304) Net profit as a percentage of total consultancy revenue 61.25% 37. Since this calculation has been given before us for the first time, therefore, we are of the considered opinion that this needs to be restored back to the file of the Assessing Officer / TPO to verify the assessee's calculation. We agree with the contention of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explain its case. Ground no.13 is thus treated as allowed for statistical purposes. 44. Ground no.14 relates to addition of Rs. 16,40,24,000 on account of payment made to the BCCI towards acquisition of sports rights. In addition to this, the assessee has also raised following additional grounds on this issue. On the basis of the facts and in the circumstances of the case and in law, the appellant should be given full deduction of INR 82,01,20,000 being the payment made to BCCI towards acquisition of sports rights for the three matches played on 26.6.2007, 29.6.2007 and 1.7.2007. 45. The assessee had acquired sports rights from the BCCI for three matches played on 26th June 2007, 29th June 2007 and 1st July 2007 for Rs. 82,01,20,000. The assessee has claimed 80% of the amount in the current year and the balance 10% each in the next two years. In response to the query raised by the Assessing Officer, the assessee submitted as under: It is submitted that Rs. 82,01,20,000 was paid to BCCI pursuant to an agreement for acquisition of sports right (refer Annexure 4) for three matches played on 26.06.2007, 29.06.2007 01.07.2007. The agreement with BCCI is for 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0%. Once the expenditure has been incurred in this year which is allowable as revenue expenditure, the same should be allowed in this year only. Accordingly, we direct the Assessing Officer to allow the entire claim of the assessee in this year only. Accordingly, the assessee's ground no.14 along with the additional ground is treated as allowed. 50. In ground no.15, the assessee has challenged the addition of Rs. 23,39,082, towards website development expenditure by treating the same as capital expenditure. Alternatively, it has been claimed that depreciation should be allowed if it is to be treated as capital expenditure. 51. The Assessing Officer has disallowed these expenses on the ground that these are the capital in nature as it has enduring benefit. He also tried to distinguish the decision of the Hon'ble Delhi High Court in CIT v. Indian Visit.com (P.) Ltd. [2009] 176 Taxman 164 (Del.), which was heavily relied upon by the learned Counsel. 52. Before us, the learned Counsel submitted that this expenditure has not been incurred for creation of a website but for updating the website which is essential to meet the requirement of day-to-day business operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The advance of technology and the wide spread use of the internet has provided a very powerful medium to companies to publicize their activities to a larger spectrum of people at a much lower cost. Websites enable companies to do what the printed brochures did but, in a much more' efficient manner as well as in a much shorter period of time and covering a much larger set of people worldwide. 55. Thus, applying the ratio laid down by the Delhi High Court, in the present case, we are of the opinion that this expenditure is to be allowed as revenue expenditure. We order accordingly. Ground no. 15, raised by the assessee is thus treated as allowed. 56. Ground no.16 relates to the addition of Rs. 6,88,43,281 u/s 14A. 57. The A.O. observed that the assessee has earned dividend income of Rs. 27,88,996, which was claimed as exempt and the assessee has not offered any expenditure allocable to earning of such income under section 14A. The investment as on 31st March 2008 was Rs. 488.45 crores and at the same time, the assessee has also claimed financial expenditure of Rs. 13,72,85,822. 58. Before the A.O., the assessee submitted that the investment in the mutual funds we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the business purpose and not for earning any exempt income. In any case, he submitted that the disallowance should not exceed the dividend income and if at all the disallowance is called for, the same should be restricted to dividend income of Rs. 27,88,996. 60. Learned Departmental Representative, on the other hand, relied upon the order passed by the Assessing Officer. 61. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. From the details as placed in the paper book in the form of audited accounts, it is seen that the assessee has funds of sums aggregating to Rs. 546,48,97,138 in the form of zero coupon fully convertible debenture on which there was no interest cost. Besides this, the assessee also had a huge reserve and surplus. Once the assessee had sufficient interest free funds, then it can be held that the disallowance on account of interest cost cannot be made. This proposition has been laid down by the Hon'ble Jurisdictional High Court in CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340. Thus, in the working of rule 8D, the interest component has to be removed. However, for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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