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2017 (4) TMI 1491

..... ibunal in the case of Bobst India (P.) Ltd. [2015 (12) TMI 684 - ITAT PUNE] decided this aspect by examining the financial position of the particular concern over the last three years. The Bench noted that in one of the last three years, the concern was in profits and, therefore, in this background it inferred that such a concern could not be considered as a persistent loss-maker. At the time of hearing, assessee had drawn our attention to a tabulation prepared for three years ending 31.3.2006, 31.3.2007 and 31.3.2008, which shows that in the year ending 31.3.2006, the said concern had made a profit while there was loss in the other two years. In this background, therefore, it could not be said that as on the year ending 31.3.2008, which corresponds to the assessment year before us, such a concern was a persistent loss-maker so as to exclude it from the final set of comparables. Thus, following the ratio of the decision of the Pune Bench of the Tribunal in the case of Bobst India (P.) Ltd. (supra), we deem it fit and proper to direct the TPO/Assessing Officer to include the said concern in the final set of comparables. Correction of margin of one of the concerns included in the fin .....

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..... o the earlier three years, the margin levels are quite in variance not only in comparison with the level of margin in the instant assessment year but also in relation to the subsequent two years. Be that as it may, the financial data of the succeeding years, which is essential to examine any abnormal profit trends, was not available to the assessee at the time of carrying out its Transfer Pricing Study and, therefore, once such an information is available in public domain, it is only thereafter that the assessee can feasibly raise such a ground based on the abnormal fluctuations in the margins. Notably, insofar as the instant case is concerned, there is ostensibly a justifiable reason for the assessee to raise such a plea before us, which was hitherto not raised before the lower authorities. Therefore, on this aspect, we admit for consideration the plea of assessee for exclusion of Access India Advisors Ltd. from the final set of comparables. Having admitted the plea of assessee seeking exclusion of Access India Advisors Ltd. from the final set of comparables, and for the reason that such a plea was hitherto not before the lower authorities, we deem it fit and proper to remand the .....

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..... o however, it would be imperative for the assessee to factually demonstrate the justifiability of the adjustments on account of difference in working capital and risks assumed vis-a-vis the comparables before the lower authorities. Therefore, the matter is set- aside to the file of TPO/Assessing Officer with directions to consider the plea of the assessee in accordance with law. Thus, on this aspect, assessee succeeds for statistical purposes. Addition of non-reconciliation of ITS data - HELD THAT:- Onus is on the assessee to reconcile the details, so however, the reconciliation is to be based on availability of appropriate details. At the time of hearing, the assessee-company had referred to a communication dated 12.12.2011 addressed to the Assessing Officer which succinctly details the reasons for the difference and the reason for which proper reconciliation could not be made. In the said communication, assessee had explained that the ITS details was founded on the basis of name and address of the parties and the amount and date entered by the other party in its book of accounts. It has been pointed out that in the absence of PAN of other party, the relevant invoice number and da .....

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..... ant for AY 2008-09. 2. The learned TPO / AO erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('Rules') and determining the arm's length operating margin with respect to the international transaction of support and supply of content to be 22.55% and for the international transaction of provision of general management support services to be 13.26%. 3. The learned TPO / AO erred in rejecting the benchmarking analysis undertaken by the Appellant for its international transactions, more specifically with respect to the international transactions of supply and support of content and provision of general management support services in its transfer pricing documentation, maintained under Section 92D of the Act read with Rule 10D(4) of Rules and determining the arm's length operating margin for these transactions using only the updated Financial Year 2007-08 operating margins of the comparable companies, as available at the time of the assessment. 4. The learned TPO / AO erred in rejecting loss making comparables while determining the arm's length operating margin fo .....

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..... o ₹ 35,59,140. 15. The learned AO has erred in levying interest under Section 234C of the Act amounting to ₹ 3,74,452." 3. The appellant before us is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of television broadcasting and for the assessment year under consideration it filed a return of income declaring NIL income as per the normal provisions of the Act whereas the tax liability was determined in terms of Sec. 115JB of the Act. The assessment has been finalised by the Assessing Officer u/s 143(3) r.w.s. 144C(5) of the Act on 29.10.2012 in conformity with the directions of the Dispute Resolution Panel (DRP) whereby the total income has been assessed at NIL under the normal provisions of the Act whereas the income returned u/s 115JB of the Act has been varied. Be that as it may, even the assessment made under the normal provisions of the Act has resulted in scaling down of the loss returned by the assessee on account of certain additions, primarily on account of the transfer pricing adjustment of ₹ 3,41,85,321/-. The appellant-company was found to have entered into certain international tr .....

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..... resaid activities. Since the dispute before us relates to the transactions entered in two segments, namely Content supply and support segment, and Provision of General management services segment, our further discussion is confined to the facts relating to the aforesaid segments only. 5. Insofar as the Content supply and Support segment is concerned, the services rendered by the assessee, inter-alia, include support for production of TV programme content for BVI, which is aired on various Disney channels. The specific services rendered by the assessee in this segment have been noted by the TPO, which are to provide services for programme acquisition, programme scheduling and quality control with respect to content aired on the channels. The assessee is compensated at cost + mark-up basis for these services and the mark-up over cost is stated at 10%. In its Transfer Pricing Study, assessee had selected the Transactional Net Margin (TNM) method as the most appropriate method to benchmark the said international transactions and the Profit Level Indicator (PLI) was characterised as Operating profit/Operating cost. Though, in the Transfer Pricing Study, assessee had used the average of .....

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..... We find that in the final assessment order passed after considering the directions of the DRP, the adjustment has been worked out at ₹ 2,77,08,038/-, whereas the TPO had worked out the adjustment of ₹ 2,07,08,038/-. The difference in the two figures is on account of revised margin of two of the ten comparables and, in any case, the same is not the subject matter of dispute before us, therefore, we proceed further on the premise that the adjustment of ₹ 2,77,08,038/- has been made on this count. 7. In this background, the learned representative for the assessee had made two points with regard to the concerns included in the final set of comparables. The first grievance is against the stand of the TPO in excluding Twenty Twenty Television Company Ltd. from the final set of comparables. The learned representative had referred to point (x) of Part A of para 7 of the order of TPO, to point out that the said concern has been excluded by the TPO on the ground that it had incurred an operating loss. It has been canvassed that the action of the TPO to exclude the said concern is not well-founded inasmuch as incurrence of loss is a normal business incidence and, in any case .....

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..... he Bench noted that in one of the last three years, the concern was in profits and, therefore, in this background it inferred that such a concern could not be considered as a persistent loss-maker. At the time of hearing, the learned representative for the assessee had drawn our attention to a tabulation prepared for three years ending 31.3.2006, 31.3.2007 and 31.3.2008, which shows that in the year ending 31.3.2006, the said concern had made a profit while there was loss in the other two years. In this background, therefore, it could not be said that as on the year ending 31.3.2008, which corresponds to the assessment year before us, such a concern was a persistent loss-maker so as to exclude it from the final set of comparables. Thus, following the ratio of the decision of the Pune Bench of the Tribunal in the case of Bobst India (P.) Ltd. (supra), we deem it fit and proper to direct the TPO/Assessing Officer to include the said concern in the final set of comparables. 11. The only other point raised before us is with regard to correction of margin of one of the concerns included in the final set of comparables, i.e., Creative Eye Ltd. As the tabulation enumerated in the earlier .....

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..... Creative Eye Ltd. is to be taken as 0.47% and that the DRP has unjustifiably rejected the plea of the assessee. As a consequence, we direct the TPO/Assessing Officer to consider the margin of Creative Eye Ltd. at 0.47%, and thereafter rework the determination of arm's length price. 15. At the time of hearing, the learned representative for the assessee submitted that if the plea for inclusion of Twenty Twenty Television Company Ltd. and the corrected margin of Creative Eye Ltd. is accepted, then, the margin of the resultant comparables would fall within the + 5% of the stated margin of the assessee and the necessity of making any adjustment would be obviated in terms of Sec. 92C(2) of the Act. Since we have accepted the aforesaid two pleas of the assessee, therefore, the other issues raised in the Grounds of appeal with regard to the Content and Support segment are rendered academic and are not being adjudicated for the present. 16. In the result, insofar as the Content and Support segment is concerned, the TPO/Assessing Officer is directed to re-work the arm's length price of the international transactions in accordance with the aforesaid directions. 17. Now, we may take u .....

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..... ure of adjustment worked out by the TPO and that by the Assessing Officer (post the directions of the DRP) is on account of revision of the margins in the case of two of the concerns out of the six comparables. Therefore, we proceed further on the basis that the adjustment on account of determination of arm's length price of international transactions for Provision of general management and support services has been determined at ₹ 64,77,283/-. 19. In this background, the first plea of the assessee is by way of an additional Ground of appeal in terms of which it is canvassed that Access India Advisors Ltd. be excluded from the final set of comparables. The learned representative for the assessee explained that the said concern deserves to be excluded on the ground that its margins have wide fluctuations over the years and in this context, he referred to page 492 of the Paper Book wherein the margin of the said concern from the yea₹ 2005 to 2010 have been tabulated. The learned representative for the assessee justified the admission of the said plea, which was hitherto not raised before the lower authorities on the ground that the necessary information showing fluctu .....

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..... instance, in the assessment year under consideration, the margin of the said concern is reported at 45.97%, which is significantly in variance with the margin in the succeeding and preceding assessment years. In fact, in the year 2010, it has reported a negative margin. Ostensibly, the significant variation in the margins does not render the said concern to be a reliable comparable unless it can be made out that the variation is on account of a normal business condition. 24. We may now take up the argument raised by the ld. CIT-DR to the effect that the said concern has been included by the assessee itself as comparable. Ostensibly, in the Transfer Pricing Study, the assessee had carried out the comparability analysis by adopting multiple year's data of the comparables which would have off-set the wide fluctuations. It is only in the course of proceedings before the TPO, the adoption of multiple year's data of the comparables was negated and assessee carried out a comparability analysis after adopting single year's data of the comparables relating to the period under consideration. It has also been pointed out before us that in order to establish volatility in the margi .....

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..... the assessee. In the present case, assessee has sought exclusion of Access India Advisors Ltd. on the ground that the profit margins of the said concern fluctuate widely and in the instant assessment year itself it is quite high at 45.97%, which goes down to 6.62% in the next year and thereafter there is a negative margin of 74.60%. Similarly, with regard to the earlier three years, the margin levels are quite in variance not only in comparison with the level of margin in the instant assessment year but also in relation to the subsequent two years. Be that as it may, the financial data of the succeeding years, which is essential to examine any abnormal profit trends, was not available to the assessee at the time of carrying out its Transfer Pricing Study and, therefore, once such an information is available in public domain, it is only thereafter that the assessee can feasibly raise such a ground based on the abnormal fluctuations in the margins. Notably, insofar as the instant case is concerned, there is ostensibly a justifiable reason for the assessee to raise such a plea before us, which was hitherto not raised before the lower authorities. Therefore, on this aspect, we admit f .....

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..... of comparables. The exclusion of the said concern has been sought to be justified by the ld. CIT-DR based on the discussion of TPO in points (viii) and (ix) of part A of para 7. Notably, the TPO has observed that Educational Consultants (India) Ltd. is functionally dissimilar and, therefore, the same is liable to be excluded. The ld. CIT-DR has emphasised the aforesaid discussion in the order of TPO to justify the stand of the Revenue. 29. The plea of the appellant is that the said concern has been found to be a comparable in the preceding three Assessment Years of 2005-06 to 2007-08. The learned representative for the assessee also pointed out that between Assessment Yea₹ 2009-10 to 2013-14, the said concern has also been accepted as a comparable and in Assessment Yea₹ 2010-11 and 2013-14, the assessments were completed u/s 143(3) of the Act. In sum and substance, the learned representative has justified the inclusion of the said concern on the basis of principle of consistency. In this context, the learned representative has referred to the decision of the Delhi Bench of the Tribunal in the case of Eli Lilly & Co. (India) (P.) Ltd. v. Asstt. CIT [2016] 159 ITD 48 .....

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..... t of comparables. Therefore, on this aspect also, assessee succeeds. 31. Apart from the aforesaid, the only other ground argued by the assessee in relation to the General management and support services segment is relating to allowing of suitable adjustment for risks. The aforesaid plea of the assessee was raised before the DRP, but it was declined on the ground that where the comparability analysis is being carried out by applying TNM method, there was no requirement for allowing adjustment for risks. 32. Before us, the learned representative for the assessee has relied upon the following decisions for allowability of risk adjustment :- (i) Intellinet Technologies India (P.) Ltd. v. ITO [2012] 53 SOT 92/22 taxmann.com 28 (Bang.). (ii) Schlumberger Global Support Centre Ltd v. Dy. DIT [2015] 64 taxmann.com 322 (Pune - Trib.) 33. The learned representative also referred to page 560 of the Paper Book to point out the basis for working out the risk adjustment and contended that the matter may be set-aside to the file of TPO/Assessing Officer for appropriate verification. 34. On this aspect, the ld. CIT-DR appearing for the Revenue has opposed the plea of assessee for allowing risk adj .....

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..... , while we uphold the stand of the assessee in-principle, so however, it would be imperative for the assessee to factually demonstrate the justifiability of the adjustments on account of difference in working capital and risks assumed vis-a-vis the comparables before the lower authorities. Therefore, the matter is set- aside to the file of TPO/Assessing Officer with directions to consider the plea of the assessee in accordance with law. Thus, on this aspect, assessee succeeds for statistical purposes. 37. Insofar as the issue relating to the transfer pricing adjustment is concerned, no further arguments have been raised by the assessee and accordingly, we direct the Assessing Officer to re-determine the arm's length price of international transactions on the basis of our aforesaid directions. 38. The next Ground is with regard to addition of ₹ 77,13,648/- made by the Assessing Officer on account of non-reconciliation of ITS data. In this context, the relevant facts are that the Assessing Officer provided assessee with ITS data in terms of which there was a difference vis-a-vis entries made in the account books of the assessee- company. Before the lower authorities, assess .....

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..... ication dated 12.12.2011 addressed to the Assessing Officer which succinctly details the reasons for the difference and the reason for which proper reconciliation could not be made. In the said communication, assessee had explained that the ITS details was founded on the basis of name and address of the parties and the amount and date entered by the other party in its book of accounts. It has been pointed out that in the absence of PAN of other party, the relevant invoice number and date, it is difficult to exactly match the entries appearing in the assessee's book of accounts. The relevance of the aforesaid has also been brought out in some detail by the assessee in its communication to the Assessing Officer. For instance, it is pointed out that in some cases names of certain individuals are mentioned in the ITS details whereas assessee would have recorded the transactions in the name of the proprietary concern and not in the name of the individual and that such a situation makes it extremely difficult to reconcile the amounts on the basis of limited information available. In any case, it is quite obvious that the revenues credited by the assessee in its financial statements a .....

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