TMI Blog2018 (10) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... , passed by the Assessing Officer u/s 143 (3) read with section 144C (13) in pursuance of the directions given by the DRP-II vide order dated 2.12.2014. The revenue is mainly aggrieved by the direction of the DRP directing the AO to reduce the addition of ₹ 23,64,86,162/- made on account of ALP adjustment. 2. At the outset, Ld. Counsel for the assessee submitted that the only issue involved is inclusion of two comparable companies, Softcell Technologies Ltd.; and Sonata Information Technology Limited as comparables by the TPO; and inclusion of other software distribution companies namely, Empower Industries India Limited; and Trijal Industries Ltd. which was submitted by the assessee by way of fresh search for comparables before DRP; and lastly, upholding the benefit of working capital adjustment. He submitted that similar comparables and issues were involved in the appeal for the assessment year 2006- 07 wherein this issue has been decided by the Tribunal in ITA No. 1204 del 2018 vide order dated 18.6.2018. On the other hand Ld. DR strongly relied upon the order of the TPO. 3. Brief facts and background of the case are that assessee is a subsidiary of Turner Broadcasti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal license Total Sales/Operating Income Less: Operating Expenses 3,344,090,317 3,248,842,719 146,588,484 140,251,944 52,008,616 43,485,074 3,542,687,417 3,432,579,737 Operating Profit 95,247,597 6,336,541 8,523,542 110,107,680 Operating Margin (OP/TC) 2.93% 4.52% 19.60% 3.21% OP/Sales 2.85% 4.32% 16.39% 3.11% Add: Other Income 62,208,391 - - 62,208,391 Less: Non operating Expenses 31,760,242 - - (180,441,975) Profit for the year 125,695,747 6,336,541 8,523,542 140,555,83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee but has also analysed the comparable selected by the TPO in view of the objections raised by the assessee for each and every comparables. Before the DRP the assessee has also carried out search for fresh comparables and list of six comparables were given. Out of four comparable companies were rejected by the DRP on the ground that they are not functionally comparable. However, in so far as the comparable, Softcell Technologies Ltd. and Sonata Information Technology Ltd. , the same has been accepted by the DRP after observing and holding as under :- Softcell Technologies Ltd. and Sonata Information Technology Ltd. are in the area of distribution of software products and computer software packages. These two companies can be taken as comparables for the distribution segment of the assesee. They are having margin of 9.08% and 2.40% respectively. TPO is directed to take Softcell Technologies Ltd. and Sonata Information Technology Ltd. as comparables in this case in addition to the comparables taken in the TP order. 9. Further DRP has also allowed working capital adjustment after relying upon various judgments and held that while computing the margin upon by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial available on record that distribution activity and ancillary/production activity of the assessee are two distinct set of transactions for which, not only separate benchmarking has been done but also separate remuneration has been earned for each of the said activities. So far as production activity is concern, the same has been found at arm s length by the TPO and once these are two different segments then there is no justification to mix up the functions of such ancillary activities with that of distribution activity so as to justify selection of such channel/content owner companies, especially when transaction from such ancillary services constitutes only 4% of the value of the international transaction of the assessee. Apart from that, the assessee is providing these services as a captive service provider for which it is remunerated separately and ALP of such transaction is not in dispute. Accordingly, we reject the DRPs and TPO action for mixing the functionality of distribution and production activities which are in fact independent and also separately benchmarked. We are in tandem with the contention of the learned counsel that these two activities cannot be mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of TV channels has found favour by the co-ordinate bench in the case of NGC India Pvt. Ltd. (supra). Thus, we hold that software companies can also be included for the purpose of comparability analysis, because in assessee s own case for the subsequent years such companies have been accepted to be good comparables and Trijal Industries Ltd. too has been accepted as a valid comparable by the TPO in the Assessment Year 2013- 14. In so far as Trijal Industries Ltd. is concerned, it is seen that this company is engaged in trading of computer packages and is mainly Software Distribution Company and hence can be taken as good comparable. The functions carried out are quite akin with the distribution activity of the assessee company, which can be analysed atleast under TNMM. Even if we agree with the contention of the learned DR that in case software companies are to be included then matter should be remanded back to the TPO for searching for other software companies. However, looking to the fact that already two rounds of litigations have been done in the case of the assessee and matter pertains to the Assessment Year 2006-07, therefore, to give finality on the issues, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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