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TMI Blog2014 (8) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee as fresh evidence under Rule 46A of the I.T.Rules, 1962 when no prejudice is caused to the assessee as the TPO considered only those PLIs as computed by the assessee. 3. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in accepting the additional evidence filed by the assessee as fresh evidence under Rule 46A of the I.T.Rules, 1962 when the assessee had been given sufficient time to submit the computation of PLIs of comparable companies. 4. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in considering sundry balances written back as operating revenues when the se is on account of expenses incurred in earlier years and does not spring out of the operations carried out by the \ assessee for the F.Y.2006-07. 5. On the facts and in the circumstances of the case and in law, whether the Ld.CIT(A) was justified in considering excess provisions written back when the same is on account of provisions made in earlier years and does not spring out of the operations carried out by the assessee for the F.Y.2006-07. 6. On the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first time without the jurisdiction of the TPO to make such changes at the Remand Report stage and Ld. CIT (A) upholding the redoing of the TP asst. in Remand Report. 1.7 Not applying the PLI of Sony / STAR which are most appropriate comparables and has functional similarity and comparable turnover which are available with the deptt. The Ld. CIT (A) failed to appreciate that in those cases deptt. taking assessee's comparable in appeal and assessment or by issue of notice u/s.133 (6) of the Act. 2. Rejecting segment accounts showing margin of 60% in export division on the ground that the segmental information is not audited and appears that expenses are allocated on ad hoc and arbitrary manner. 3. The Ld. CIT / TPO erred in law and facts in applying differential margin to entire sales in place of only to export sales to AEs. The reasons given by him for doing so are wrong and contrary to the facts of the case & provisions of law. 4.1 The Ld. TPO failed to give proper opportunity to the assessee at the time of original assessment and Remand Proceedings by way of show cause notice for proposed adjustments and Hon. CIT (A) rejecting such contention on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of incurring expenses to earn exempt income as held by Delhi HO in the case of Hero Cycles 7.6 The Ld. CIT (A) erred in law and facts in upholding computation of disallowance u/s 14A of the Act as per Rule 8D even when Rule is not applicable to the year under appeal as held by Bombay High Court in the case of Godrej. 2. The sole issue raised by the Revenue in its appeal is regarding Transfer Pricing(T.P) adjustment of Rs. 137,46,33,244/-. The assessee also in its appeal is aggrieved by the T.P adjustment, part of which has been upheld by Ld. CIT(A). 3. The assessee had reported following international transactions with it's A.Es. S.No. Nature of Transaction F.Y.2006-07 Method used by the assessee. F.Y. 2005-06 1. Sale of TV programs and films 837,860,756 TNMM 749,671,866 2. Performance fee (received) 932,200 CUP - 3. Agent for Space Selling(received) 54,011,514 CUP CUP 4. Playout facility charges(received) 21,375,379 CUM - 5. Distribution of Pay TV(Received) 143,241,930 CUP 140,303,636 6. Distribution of Pay TV(Paid) 28,648,386 28,060,727 7. Interest received 16,361,769 CUP 21,203,872 8. Interest Paid on Installments - CUP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that they were having RPT of more than 20% sl.No.2,4,5,6,11,12) and one comparable having sale turnover less than Rs. 10.00 crores (i.e. Sl.No.7). In response to such query of the TPO revised calculation was filed by the assessee to show that arithmetic mean of comparables is 33.49% and assessee's PLI is 41.72%. This table is also appearing at page 3 & 4 of order of TPO. S.No. Name of the Comparable Company PLI% T/O RPT RPT(%) 1. Raj Television Metwork Ltd. 69.38 40.37 0 0.00 2. New Delhi Television Ltd. -0.23 282.45 2.91 1.03 3. B A G Films & Media Ltd. 27.14 44.14 0.38 0.86 4. Cinevistaas Ltd. 58.02 20.02 0 0.00 5. Sri Adhikari Brothers Television Network Ltd. 76.42 39.94 16.29 40.79 6. Aastha Broadcasting Network Ltd. 3.46 9.52 - 0.00 7. IBN 18 Broadcast Ltd. -18.02 78.88 24.88 31.54 8. TTV Today Network Ltd. 47.56 188.91 1.36 0.72 9. E T.C Network Limited 32.12 46.30 0.08 0.17 10. Jain Studios Ltd. 41.27 21.54 2.4 11.14 11. TV 18 India Ltd. 40.29 193.25 7 3.61 12. UTV Software Communications Ltd. 24.48 174.91 31.82 18.19 Arithmetic Mean 33.49 Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, Ld. CIT(A) accepted the contention of the assessee that adjustment on account of depreciation cannot be done as suggested by TPO in the remand report. 5. The assessee in its appeal is aggrieved by the order of Ld. CIT(A) on several counts which inter-alia include exclusion of UTV Software Communications Ltd. as one of the comparable party. It is the main case of the assessee that since RPT transaction in the case of UTV Software Communications are less than 25%, therefore, the same cannot be excluded from the list of comparables and if the said party is included in the list of comparables, then the PLI of the assessee will be within the safe harbour of +/- 5% and other issue on which TP adjustment has been assailed will become academic. 6. On the other hand, it is the case of the Revenue that Ld. CIT(A) has committed an error in admitting the additional evidences in the shape of final audited accounts of the comparables. It is also the case of the Revenue that Ld. CIT(A) has committed an error in holding that the margin of the comparables cannot be adjusted as per depreciation claim of the assessee. 7. It is on the basis of these submissions and arguments both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that bench mark for RPT filter should be applied at 25% instead of 15%. Ld. AR referred to the following decisions of Tribunal for taking this view and copies of these decisions are also enclosed. (a) Actis Advisers Pvt. Ltd. v. DCIT and vice versa for A.Ys. 2006-07 and 2007-08 in ITA Nos.958/Del/2012 and 5277/Del/2011 dated 12.10.2012 (after considering Sony India Pvt. Ltd). (b) DSM Anti Infectives India Ltd. v. DCIT and vice versa for A.Ys. 2005- 06 and 2006-07 in ITA Nos. 1395/Chd/2010 and 1455/Chd/2010 dated 08.08.2013 (after considering Sony India Pvt. Ltd). (c) Global Logic India Pvt. Ltd. v. DCIT for A.Y. 2006-07 in ITA No. 5110/Del/2010 dated 1.12.2012 (after considering Sony India Pvt. Ltd.). 8.2 From the decision in the case of Actis Advisers Pvt. Ltd.(supra) our attention was drawn to the following observations of the Tribunal: "29. We have heard the rival contentions. The expression Related Party Transaction (RPT) has not been defined in the Act. The ITAT in the case of Sony India had examined the facts of that case for verifying the arm's length price of the assessee. The ITAT has not interpreted any provisions of law which can be propounded as laying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with whom related party transaction do not exceed 25% of the total revenue, is an uncontrolled entity. Applying the above said filter to the facts of the present case we are in conformity with the report of the TPO in assessment year 2006-07 in selecting Autombindo Pharma Ltd. as one of the comparables which admittedly had RPT of 21.77% to the sales. The said results as do not exceed threshold of related party transaction to be applied for benchmarking the comparables and hence the results of such companies were to be applied in order to determine arms length price of international transaction entered upon by the assessee. The said companies should also be used as filter in the preceding year in case the related party transactions were not more than 25% of the total revenue." 8.4 From the decision in the case of Global Logic India Pvt. Ltd. v. DCIT our attention was drawn to the following observations: "5.17 In the background of the aforesaid discussion and precedents, we hold that an enterprise is to be considered as uncontrolled for the purpose of benchmarking analysis of the ratio of related party transaction to the relevant base i.e. sales or cost does not exceed the limit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UTV Software Communications having RPT transaction of 18.19% should be included in the list of comparable. This argument of Ld. AR is based on decisions of ITAT in the case of Actis Advisory Pvt. Ltd.; DSM Anti Infectives India Ltd. (supra) and Global Logic India vs. DCIT (supra). The main case of the TPO applying bench mark of 15% of RPT is based on the decision in the case of Sony India Pvt. Ltd.(supra). In all the above three decisions the Tribunal has later on considered this proposition and even after considering the decision in the case of Sony India Pvt. Ltd. (supra) it has come to a conclusion that bench mark of RPT transaction should be at 25%. The relevant portion of the observations of Tribunal in all the three decisions have already reproduced in the above part of this order. No contrary decision was brought to our notice. In this view of the situation, we are of the opinion that UTV Software Communication should be included in the list of comparables. However, we find that in the order of TPO, as per submission of the assessee UTV Software Communication was having PLI of (-) 2.64%. However, in the submissions made before us such margin has been taken as (-) 3.81%. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net profit margin of the concern. The TPO in his second remand report has clearly brought the case of the assessee as well as comparables at par so far as it relates to claim of depreciation. There has to be similarity in respect of depreciation claim while computing the profit margin of the comparables as well as the tested party. Therefore, we are of the view that Ld. CIT(A)has committed an error in admitting such claim of the assessee. 8.11 In view of above discussion, we direct the TPO to adopt the adjusted profit margin of the comparables as well as assessee after brining at par the treatment of the claim of depreciation. This exercise has been done by TPO in the remand proceedings and those figures should be adopted for the purpose of computing arithmetic mean of the margin of the comparables and the profit margin of the assessee. We direct accordingly. Therefore, Ground No. 7 & 8 are allowed in the manner aforesaid. 9. Now coming to the issue regarding grievance of the Revenue expressed in Ground No.1,2 & 3 for admission of additional evidences, we found that the additional evidences which have been filed by the assessee is in the shape of audited accounts as per which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the operation of the relevant business activity. Operating expenses ordinarily include expenses associated with advertising, promotion, sales, marketing, warehousing and distribution, administration, and depreciation. But, it does not include expenses not related to the business operations of the relevant financial year. For example, the following expenses which are non-operating and provisions are excluded from operating expenses. i. Provisions other than provisions for bad debts. ii. Loss on sale of assets / investments iii. Foreign exchange loss iv. Loss on revaluation of assets v. Other expenses not pertaining to the business operations of the relevant financial year. Similarly extra ordinary expenses, which do not recur every year like donations, preliminary expenses written off are not considered as operating expenses as the comparison of the profits should be at same level for the comparable with that of the taxpayer. Based on the above definition of PLI, the PLI of the comparable companies considered by the TPO were computed by the TPO based on the audited financial statements of these companies. 10.1 Referring to the above basis taken for calculating pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has worked out the disallowance after referring to the formula described in Rule 8D and restricted the addition to a total sum of Rs. 33,51,401/-. 12.1 It is the case of Ld. AR that according to the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd.VS. DCIT, 328 ITR 81 (Bom) Rule 8D cannot be applied in respect of assessment years prior to A.Y 2008-09. It was submitted that since the impugned assessment year is 2007-08, disallowance cannot be made with reference to Rule 8D. It was submitted that Tribunal in series of cases has adopted a view that prior to application of Rule 8D disallowance of some percentage of dividend earned will be sufficient to comply with the provisions of section 14A and it was the argument of Ld. AR that the disallowance on account of section 14A should be restricted to 2% of the exempted income. Ld. AR referred to the decision of ITAT Mumbai dated 10/04/2013 in the case of Shri Deepak Agarwal & Others vs. ACIT i.e. ITA No.8912/M/2010 (copy placed on record), wherein this issue was decided as under: 33. The only issue emanating from the above ground no. III and IV is the disallowance of Rs. 64,330/- for the AY 2006-07 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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