TMI Blog2016 (8) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... s of AE without considering whether they are revenues generated out of the “IP” or not. They simply adopted the revenues of AE without giving proper findings that the revenues of AE are all generated only out of this “IP” (Jungle Book). The assessee submitted that these revenues are generated by “AE” out of other properties(IPs) as well. We are of the view that the revenue cannot adopt such values without proper verification. In our considered view, for valuation of an intangible asset, only the future projections alone can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by assessee are allowed. Apportionment of profit of the AE based on the ownership arising out of exploitation of intangibles - whether the TPO justified to determine the profit attributable to Indian entity (assessee) when he himself determined the sale consideration of IP (Jungle Book)? - Held that:- After the completion of the sale process, the “AE” has done transaction with the outsiders or outside the jurisdiction of the Indian territorybut there is no transaction done with the assessee involving the above IP (jungle book) to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation - ITA No. 151/Hyd/2015 - - - Dated:- 22-6-2016 - SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri P.V.S.S. Prasad For The Revenue : Shri M. Sitaram ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal by the assessee is directed against the assessment order passed u/s 143(3) read with section 144C of the Income-tax Act in pursuance to the directions of the Dispute Resolution Panel (DRP in short), Hyderabad pertaining to the assessment year 2010-11. 2. Briefly the facts of the case are that the assessee, DQ Entertainment (International) Ltd. is one of the leading producers of animation visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company has produced/co-produced and distributed cartoon TV series, direct-to-home videos and feature films, created real time game animation for online mobile and next-gen console games and now diversified into production and distribution of 3D stereoscopic animated feature films. The assessee-company filed its return of Income on 12.10.2010 and the same was processed u/s 143(1) of the Act. The ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee preferred an appeal and raised objections before the DRP. The DRP rejected the objections of the assessee. 4. Aggrieved, the assessee is in appeal before us and has raised the following grounds of appeal: 1. The Learned Dispute Resolution Panel (DRP) / Assessing Officer (AO) are erroneous in law and on the facts of the case. 2. The Ld DRP/AO are legally not justified in law in arriving at the price of ₹ 12,35,18,271/- towards sale of intangible asset as against the price of ₹ 5,36,20,000/- determined by the appellant thereby making an adjustment of ₹ 6,98,98,271/-. 3. The Ld DRP/AO ought to have accepted the fact that the sale of intangible asset of ₹ 5,36,20,000/- arrived at by the appellant was at arms length when the same had been valued by 2 independent valuers. 4. The ld DRP/AO ought not to have substituted the projections made as per DCF on which the valuation reports were based with the actual figures and use of latest information available . 5. The Ld. DRP/AO are not legally justified in making an additional adjustment of ₹ 6,74,17,416/- as profit attributable to the appellant company under the Profit Split M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed that during the year, DQE India sold the Intellectual Property ( IP ) rights of the Jungle Book Animation series to DQE Ireland, for an amount of ₹ 5,36,20,000/- which was based on average of the value's arrived at by 2 independent valuers. The detailed valuation conducted by independent valuer, Grant Thornton using Relief from Royalty Method is part of the paper book in pages,170 to 187 and the valuation carried out by independent valuer, American Appraisal using Discounted Cash flow Analysis is part of the paper book in pg.188 to 216. The consideration for purchase of Jungle Book Animation was arrived at the average values determined by independent valuers at ₹ 536.20 Lakhs. In order to arrive at the ALP, the Ld. TPO has replaced the projected cash flows with the actual total revenues of DQE Ireland for the year 2009-10 and 2010-11 and arrived at value of ₹ 12,35,18,271/- as compared to ₹ 5,36,20,000 as determined by the assessee and proposed the ALP adjustment to the AO. AO had accepted the ALP adjustment and added the same to the total income of the assessee. 6. Before the DRP, the assessee submitted that the valuation by applying DCF m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 5,36,20,000/- which was based on average of the value's arrived at by 2 independent valuers. The detailed valuation conducted by independent valuer American Appraisal using Discounted Cash flow Analysis is given in pg. to 207 to 235 of the paper book and the valuation carried out by independent valuer Grant Thornton using Relief from Royalty Method is given in pg.236 to 253 of paper book. It is submitted that the consideration for purchase of Jungle Book Animation was arrived at the average values determined by independent valuer 536.20 Lakhs ((510+562.3)/2) 8.1. The Ld. AR submitted that the TPO has replaced the projected cash flows with the actual total revenues of DQE Ireland for the year 2009-10 and 2010-11 and arrived at value of ₹ 12,35,18,271/- instead of ₹ 5,36,20,000 as determined by tax payer and made an adjustment of ₹ 6,98,98,271/-and added the same to the total income of the assessee. Further the Ld. TPO while replacing projections with actuals have considered the total revenue generated by DQ Ireland whereas the Intangible asset sold by DQ India to DQ Ireland was Jungle Book only. 8.2 The ld. AR contended that the Ld. TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR submitted that TPO's contentions of replacing the projections with actuals are legally unsustainable and technically incorrect. 9. Ld. DR submitted that the TPO with a view to determine the fair price replaced the projected figures in the DCF with the actual figures from the audited financial statements. In this regard, the TPO observed that there was a wide difference in the valuation of the intangible and therefore the TPO is well within his powers to examine and analyze the transaction and arrived at the Arm's Length Price with the information available. 9.1 Ld. DR submitted that the TPO requested the taxpayer company to provide justification for the revenues projected as he found from the valuation report that the projections have been provided by the management themselves. The TPO obtained that financial statement of DQ Ireland and replaced projected figures in valuation report by Grant Thornton and retained all other values and margins provided by the valuer. The result of such exercise resulted in the value of IP of Jungle Book at a relatively higher amount. The TPO could not arrive at the figures of Value till patent IP expiry of RS.2.70 lakhs and T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , when it goes to south, the assessee may adopt, there won t be any consistency. What is important is the value available at the time of making business decision. It should be left to the wisdom of the businessman, he knows what is good for the organization. No doubt, IP was sold to AE . The method adopted should be consistent and should be documented to review in the future. The review does not mean replacing the projection with actuals. It is the rational of adopting the values for making decision at the point of time of making decision. When the values are replaced subsequently, it is not valuation but evaluation i.e. moving the post of result determined out of projections. The revenue is doubting the valuation because the actual revenues were favourable. In rational decision making, the actual results are irrelevant. In the present case, the valuation was done by two independent valuers not by the assessee. The other issue with this are that the revenue adopted the actuals of AE without considering whether they are revenues generated out of the IP or not. They simply adopted the revenues of AE without giving proper findings that the revenues of AE are all generated only ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst circumstance arises when the economic substance of a transaction differs from its firm. In such a case the tax administration may disregard the parties' characterization of the transaction and re-characterize it in accordance with its substance. The second circumstance arises where, while the form and substance of the transaction are the same, the arrangements made in relation to the transactions, viewed in their totality, differ from those which would have been adopted by independent enterprise behaving in a commercially rationale manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price. In both sets of circumstances described above the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions and may have been structured by the tax payer to avoid or minimize tax. Legal registrations and contractual arrangements tend to be the starting point for determining the party entitled to the intangibles related returns. Where no written agreement exists, the OECD states that the conduct of the parties involved should be examined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the terms and conditions thereof: Neither the nomenclature of the documents nor any particular activity undertaken by the parties to the contract would be decisive. In the case of Nilkantha Narayan Singh v. CIT 20 ITR 8 at page 14), the Court held that if the terms used in the agreements are not conclusive and one has to look at the substance rather than the form. In addition, it is equally well settled that a name given to a transaction by the parties does not necessarily decide the nature of the transaction. In the case of Bhopal Sugar Industries Limited V S. T.O. (1977) 3 SCC 147, the court held as follows: It is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word agent or agency is used or the words buyer and seller are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequences. In tax law particularly, choosing a form to suit a particular tax benefit is not warranted but what matters is the actual substance. In the case of Rolls Royce Plc Vs DCIT (2007), greater emphasis was laid on the facts than the contractual arrangement. Rolls Royce Plc (RRP) was incorporated in UK and supplied aeronautical engines and spare parts to certain defense establishments in India. It had a wholly owned subsidiary in India, Rolls Royce India Ltd (RRIL). In this case, the Delhi ITAT found that the premises in the name of RRIL were being occupied by RRP's employees while visiting India frequently for the purposes of its business operations in India. RRP reimbursed RRIL the expenses for the operation and maintenance of the office in India and also compensated RRIL for the support services it rendered. The ITAT stated that RRP had a permanent establishment (PE) in India and held that 35% of its profits were attributable to marketing activity that was carried out in India and was therefore taxable in India. Business Restructuring: With the recently inserted explanation w.r.e.f. 1.4.2002, which is clarificatory in nature, international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Category 2: Intentional profit shifting through restructuring; Category 3: Intentional profit shifting through incorrect functional classification, the use of incorrect methods, allocation keys, etc; Category 4: Thin capitalization; and Category 5: Unintentional profit shifting. Re-characterization: Rule 10B(2)(c) of the IT Rules provide the TPO with necessary powers to re-characterize the transactions taking into account the contractual terms whether or not such terms are formal or in writing. The GECD TPG in para 1.64 to 1.69 has provided guidance on recognition of the actual transactions undertaken. Two circumstances have been enumerated where it is appropriate to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties characterization of the transaction and re-characterize it in accordance with its substance. The second circumstance arises where while the form and substance of the transaction are the same, the arrangements made in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortions of the revised Discussion Draft can be expected to be further revised during the course of the work on BEPS. New OECD guidance - 1. The definition of intangibles subject to the guidance has been clarified, and is a fairly comprehensive definition, not limited by requirements of legal registration or protection. 2. The concept of entitlement to intangible related returns is the guiding principle that determines which entity should receive the compensation arising from the intangible. Legal ownership and funding the development of the asset are now only a 'starting point'. The performance of key functions with respect to the development,. enhancement, maintenance and protection of the intangibles and, in particular, controlling the risks related to these functions is the primary determinant. 3. The requirement that all participants in a restructure consider the 'options realistically available' to them to validate whether the transaction makes commercial sense. 4. The economic analysis methods used to determine the arm's length price of intangibles now includes valuation techniques, such as a discounted cash flow analysis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owly taxed group companies and from contractual allocations of risk to low-tax environments in transactions that would be unlikely to occur between unrelated parties. Thus, following are the key areas of concern: - Intangible Transfers - Over capitalization - Contractual allocation of risk to low tax jurisdictions OECD plans to tackle above issues through action points 8-10 listed in the Report. Overall, the underlying theme of Action Points 8-10 is according an overriding importance to 'substance' over form in the context of Transfer Pricing. This is not an entirely novel direction as OECD has always accorded precedence to conduct over contractual agreements to the extent there is inconsistency between the two (refer para 1.48 to 1.49 of OECD Transfer Pricing Guidelines, 2010). Action Point 8 - 'Intangibles' Develop rules to prevent HEPS by moving intangibles among group members. This will involve: (i) adopting a broad and clearly delineated definition of intangibles; (ii) ensuring that profits associated with the transfer and use of intangibles are appropriately allocated in accordance with (rather than divorced from) val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as incorporated in Ireland on November, 12 2008. The company is stated to be engaged in the business of content development including all production activities for animation and live action for TV series, home video and various other media. As regards the purpose of establishment, it is stated - One of the key business strategies of DQE India is to strengthen the IP content creation and global lP portfolio. However, the talent for creation of global IPs in India is still nascent when compared to the European and other Western markets. Accordingly, DQE Ireland being located in Europe, enables to expand the DQE group's European footprint and pursues growth opportunities in pre-production and post-production services of various IPs. DQE Ireland, being a European company avails the benefits provided by the Government of Ireland to the Animation Industry, DQE Ireland has two directors and one employee - Shri Sanjay Choudhary, Director Shri Dominic Poole, Director Laurent Amar working as Marketing Manager As per the submission made on 23.12.2013 DQE Ireland hires various identified talents across Europe US for script writing, music. mixing co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. A further finance cost of Euros 46,699 constitutes 1.15% of revenue. Thus the balance of 96.85% of the expenditure is to freelancers. From the expenses it is seen that there are no expenses towards rent and from the FA schedule it is seen that there is no owned building; Assets include only intangible asset worth Euro 1,740,049. Thus the company appears to be working from some place other than Ireland. In this digital age there is also no need for a person to be stationed at a place to work but almost all the work such as hiring of persons, execution of contracts, payments, receipt of services are being done online and which is more so prevalent in the developed countries such as Europe. As per the profile of the taxpayer contained in the TP document, the DQE Group is a leading animation production company engaged in the production of 20, 3D and flash animation, with a substantial workforce and a global client base. The Group currently produces animation for films, television series and console based games for a number of international production houses. The group is equipped with manpower strength of close to 3,000 who operate out of seven facilities in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, mobile and next generation console game art and in-game animation. The company was able to place IPs like Twisted Whiskers, Sandra and Rat Man with Disney, Casper with Nickelodeon and Balkend Ravan with Turner Group among others. Thus the company is a multi faceted company with a very large trained and skilled work force capable of taking of any challenge. The taxpayer, however, is trying to project DQE India as incapable as compared to DOE Ireland, which is only into first year of its operations. It may again be pointed out that the Director Sanjay Chaudhary is a product of the Indian entity. The revenues of DOE India over a period of three years are as under: FY Sales (in crores) 2007-08 92.21 2008-09 149.81 2009-10 148.12 2010-11 161.70 It is, therefore, improbable to imagine that such an established company would sell an IP at a relatively low price which would be earning substantial revenue in the coming years. The revenue of DQE Ireland ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess and earn income from such product or process. The case of the taxpayer falls in category (b) above. The profit is to be divided such as is expected in a joint venture relationship. In the present case the creation of an IP is a significant process and is the life of the movie / animated series. One without the other does not exist. The UN practical manual on TP provides the method to allocate or split the profits Para 6.3.14.1 to 5 are extracted hereunder: 6.3.14. Methods to Allocate or Split the Profits 6.3.14.1. There are generally considered to be two specific methods to allocate the profits between the associated enterprises: contribution analysis and residual analysis. 6.3.14.2. Under the contribution analysis the combined profits from the controlled transactions are allocated between the associated enterprises on the basis of the relative value of functions performed by those associated enterprises engaged in the controlled transactions, External market data that reflect how independent enterprises allocate the profits in similar circumstances should complement the analysis to the extent possible. 6.3.14.3. If the relative value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not refer to specific allocation keys to be used in this respect. Step 2 may not, and typically does not, depend on the use of comparables. In response to the show cause notice the taxpayer filed its reply on 24.01.2014. It is stated that PSM is applicable only when the intangibles is jointly owned by both Associated Enterprises under cost contribution arrangement whereas in our case it is the absolute sale from DO India to DO Ireland which is supported by independent valuation reports. Hence application of PSM for revenues generated by DQ Ireland is legally unsustainable and factually incorrect. Hence it is not correct to attribute 80% of profits to DQ India. The submission has been considered. The question here is not who the legal owner of the IP is but who the economic owner of the IP is. The case of taxpayer encompasses business restructuring involving economic substance of the trans action. As discussed above the legal ownership is not in dispute. But as shown above, DQE Ireland is only a shell company located in low tax jurisdiction and being run by only 2 persons, therefore the economic benefits do not lie there. The AE in turn is also offloading product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, DQE India is headed by leading persons in Animation Industry having as many as 8 directors with a trained and skilled combined work force of 3000+, as compared to DQE Ireland which has no other set up other than the presence of 2 directors. DQE India is in existence for more than 10 years with tie ups with various studios over the world, whereas DQE Ireland which is only 1 year old can only get so much of business only with the association with DQE India. The taxpayer has the presence and a brand value of itself which has been capitalized by the AE to tap the right contacts in the industry. The hired staff in Ireland, if they are renowned, would like to associate with some established entity rather than a start-up company. Therefore it is only due to the identity and standing of DOE India in Global arena, the persons got hired. In this scenario it is only appropriate to share the profits in the ratio of 80:20 between DQE India and DQE Ireland. Thus the ALP of the profit attributable to DQE India is ₹ 6,74,17,416/- and the profit attributable to DQE Ireland is ₹ 1,68,54,340/-. Accordingly the income of the taxpayer shall be enhanced by ₹ 6,74,17,416 u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financials of DQ Ireland apportioned revenue to DQ India, the basis of allocation is as under: Particulars Amount Amount P.B.T. of DQ Ireland for year ending 31st March, 2010 (pg. 91 of paper book) (I) 11,56,523 Euros Distribution cost (pg. 91 of paper book) 42,172 Euros Administrative expenses (pg. 91 of paper book) 40,079 Euros Finance costs (pg. 91 of paper book) 46,699 Euros Total 1,28,950 Euros 10% Routine expenses (II) 12,895 Euros P.B.T. after deduction of routine expenses (A) = (I-II) 11,43,628 Amount in INR (A*70) (1 Euro = ₹ 70 approximately) E(B) 8,00,53,960 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o AE is in the nature of business restructuring. Under this particular restructuring there is a transfer of asset including intangible. Often these transactions involved efforts to move valuable assets into the tax favoured nation like Ireland and therefore, there was incentive to transfer the intangible asset in the development stage itself. The TPO also highlighted the issue of BEPS examining the substance, substance over form and recharacterization to conclude that the arrangements of the specific nature such as transfer of intangibles are not reencountered between the Indian entity and in such circumstances the tax administration would have to determine all the underlying reality is behind the contractual arrangement in applying the ALP principle. The TPO .observed that the DQ Ireland has only two directors and one employee. The only activity carried out by the company is hiring of artists. The copyrights valued at Euro 812,182 were purchased by the company from DQE India on 16-04-2009. The cost of sales of Euro 2,798,190 is paid to outsiders as there are no employees other than directors. Distribution cost is marketing expenses of 42,172 Euro, which constitutes 1% of the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Euros 4 million to Euros 7.8 million within a span of 1 year of acquiring the IP. It is possible that the taxpayer has purposefully shifted the revenue earning potential IP to a low tax regime jurisdiction where within a year of its incorporation, it has earned substantial revenue, which has further increased substantially in the subsequent years. The tax rate for corporate is 12.50% in Ireland as against the tax rate in India at 33.99%. Apparently the company is a shell company. It is also noticed that in the following years a few more IPRs have been shifted to Ireland AE, but the production work is again assigned back to the taxpayer. Thus both the AE and the taxpayer are involved at some stages in the exploitation of the IP even after the legal ownership of the IP is transferred. The TPO therefore rightly applied PSM. 14.3 As regards the profit sharing ratio of 80:20, ld. DR submitted that the reasons thereof are that DQE India is headed by leading persons in Animation Industry having as many as 8 directors with a trained and skilled combined work force of 3000+, as compared to DQE Ireland which has no other set up other than the presence of 2 directors. DQE India is in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y benefit neither the revenue. 15.2 The revenue has grievances on the arrangement and existences of group companies. There is no doubt, there exists tax planning. There can be tax planning within the four corners of the taxation laws. There is enough mechanism in the existing Act and also there is DTAA arrangement with Ireland, which will take care of the situations of tax avoidance. The revenue has not brought any cogent evidence to prove that there exists any tax avoidance. In our considered view, the action of the TPO is not justified and accordingly, the grounds raised by assessee are allowed. 16. As regards ground No. 8 regarding payment towards management consultancy service fee of ₹ 3,70,53,448/-, it is observed that the assessee has paid management consultancy charges of ₹ 3,70,53,448/- to its AE, DQ Mauritius for availing management consultancy services. In view of the assessee's failure to substantiate with supporting evidences showing the tangible benefit has been received, the TPO computed the Arm's Length Price at NIL. Following the decision of the earlier DRP for the preceding assessment years and ground of objections raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: Thus, it is seen that DQE Mauritius will identify those costs of its officers and consultants who are chiefly involved in providing management and supporting services to DQE India. Their costs will be allocated across DQE Mauritius and DQE India based on shares of agreed budgeted sales. DQE Mauritius will pass through at cost any major items of third party expenses to which it has not added value. All costs will be marked up with a profit element of 5%. Thus, detailed budgeting and documentation needs to be maintained for the services being rendered by the AE. These records, if produced before the TPO would throw more clarity and proof for the actual rendering of services. Therefore, this panel directs that the TPO shall call for those appropriate records for which the assessee shall extend full cooperation and then come to a determination whether the sum paid of ₹ 3,19,23,085/- to its holding company, DQ Mauritius on account of management consultancy services is at arm's length or it should be less. 20. Aggrieved with the above decision, assessee is in appeal before us and Ld. AR submitted that DQE India availed management consultancy services from DQ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Book) The Breakup of Management Consultancy Fees is as under: Particulars Amount (in USD) Administration charges 12,900 Audit Fee 4,600 Consultancy charges 7,32,570 Total 7,50,070 Add 5% 37,504 Grand Total 7,87,574 20.5 Ld. AR submitted that the Ld TPO determined the ALP at Nil without considering the details of expenditure provided by the assessee. 20.6 Ld. AR submitted that test of commercial expediency for determining whether the expenditure was necessary and reasonable has to be adjudged from the point of view of the businessman and not of the revenue. Expenditure can never be linked to the income earnings ability or the value addition the expenditure has bought into the business as the same cannot be quantified. Hence, the legitimacy of expenditure cannot be questioned. For this proposition he relied on the following decisions: 1. Dresser-Rand India (P) Ltd. Vs. Addl.CIT (2011) 47 SOT 423 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement Consultancy Service Fee, whereas the foreign exchange loss of US$ 3,21,000 cannot be considered as intra group service. We notice from the documents placed on record that instead of quarterly bills being raised as per the agreement, DQE Mauritius has raised only one bill for the whole of the year, which was placed at page 170 of the Paper Book. As can be seen from the details of payments made, placed at page 171 of the Paper Book, the amount of US$ 799,174 charged on 31-03- 08 was paid in three installments of US$ 3,00,000 on 14-09- 2010, US $ 1,99,174 on 25-10-2010 and US$ 3,00,000 on 04-01- 2011. It is noticed that even though invoice was raised on 31-03- 2008 for whole year instead of quarterly billing, the payments were made from September, 2010 to January, 2011 with substantial delay. The reasons for such delayed payments were not explained. Therefore, we are of the view, that in the given circumstances, the foreign exchanges losses or gains in the hands of DQE Mauritius cannot be considered as services rendered by the DQE Mauritius to assessee which should be on it's own account. To the extent of the above amount, we are in agreement with the observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in bringing in a number of projects with important customers. These projects have been executed by DQ India over the period. Further the business of DQ India is growing with the support of BOD of DQ Plc. However, the BOD of DQ Plc., includes members from the animation field, children entertainment field and those from the financial and legal background. Their experience and critical actions have enabled DQ India to exploit business opportunities which enabled growth in the company. The details of BOD from whom it had received advice and guidance - - Tapaas Chakravarti - Chairman CEO - K Balasubramanian - Non Executive Director - Theresa Plummer Andrews - Non Executive Direc - Anthony BM Good - Non Executive Director - Sanjay Saxena - Non Executive Director It is seen from the submission that DOE Mauritius has the following key management personal - 1. Tapaas Chakravarti - Director 2. Marc Yan Fook Cheong - Director 3. Li Fap Kien Kam Young - Director As per the Annual Report of the taxpayer following are the directors - 1. Tapaas Chakravarti - CMD CEO 2. Akula Ramakrishan - Additional Director 3. Lakshminarayan Nagu - Additional Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service fee. Hence, the TPO relying on the directions of the DRP has rightly treated the management consultancy fee as Nil. 22. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities and case laws submitted. After analyzing the case laws and assessee s own case in the earlier year, the coordinate bench of this Tribunal has adjudicated that management consultancy charges have to be allowed as per the MoU and OECD guidelines. Respectfully following the earlier decision, we are inclined to allow the grounds raised by the assessee. Accordingly, ground No. 8 is allowed. 23. As regards ground No. 9 pertaining to mark up on travel and other expenses reimbursed by the AE of ₹ 77,36,985/-, it is observed that DQE India had incurred expenses on behalf of DQE Ireland in the nature of travel other expenses. DQE India recovered the same from DQE Ireland on the basis of actual costs incurred. It was explained by assessee to the Ld. TPO that, reimbursement of travel and other expenses were incurred solely on behalf of DQE Ireland, This transaction did not impact the P L of DQ India and that it was at cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement of travel and other expenses @ 10%, stating that the same was reasonable which any independent party would be willing to pay. It is submitted that it is only reimbursement of expenses incurred by assessee on behalf of AE and there is no services rendered This resulted in an adjustment of ₹ 7,73,699/- to the profit of the assessee company. 26.2 Ld. AR submitted that according to Black's Law reimburse means to pay back, to make restoration, to repay that expended, to indemnify or make whole . As per Concise Oxford Dictionary the term reimburse means repay (a person who has expended money) or repay( a person's expenses) In view of the above definition being reimbursement of actual cost there is no income element in embedded in such payment and is merely in the nature of reimbursement. Hence to apply a markup of 10% based on the profit earned by the assessee is factually and legally incorrect. 26.3 Ld. AR submitted that in M/s. Cognizant Technology Solutions India Pvt. Ltd v, ACIT ITA Nos.114 2100(Mds)/2011 the Bench held that The next issue raised by the assessee is against the addition made by the Transfer Pricing Officer on the ground of reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O made a suggestion in the order to refer the matter to the Jurisdictional AO for appropriate action under the law for failure to deduct dividend distribution tax. The DRP, therefore, held that these grounds became infructuous and do not deserve adjudication, hence, rejected. 30. Ld. AR submitted that the AO/TPO is legally and factually incorrect in making an adjustment of ₹ 751,83,46,202/- in respect of bonus shares issued by the assessee to its AE. He submitted that the AO/TPO erred in by holding that there was excess benefit in the hands of the AE and the same was dividend when in fact share premium account is utilized for issuing bonus shares as per company law provisions. Further, ld. AR submitted that AO/TPO erred in making a reference to the jurisdictional AO of International Taxation for taking up proceedings u/s 195 of the IT Act when the issue of bonus shares by the assessee was at arm's length and cannot legally be treated as dividend or otherwise. 31. Ld. DR, on the other hand, relied on the order of DRP. 32. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. The TPO ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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