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TMI Blog2020 (7) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... ant with its associated enterprises ('AES') were not at arm's length; Reference made to the Transfer Pricing Officer 3. Erred in referring the Appellant's case to the Learned Transfer Pricing Officer ('TPO') under Section 92CA(I) of the Act, without satisfying the conditions specified therein; TPO Erred in characterizing the distribution fee paid be MSMD to its AE as Royalty. 4. Erred in characterizing the distribution fee paid/ payable by the appellant to its AE to be in the nature of Royalty. Rejection of economic analysis undertaken by the Appellant in its transfer pricing study report 5. Erred in not following the Appellant's own order for AY 2010-11 which was passed by the Hon'ble DRP accepting software distributors as appropriate comparable to benchmark the Appellant's international transactions inspite of there being no change in facts in A Y 2011-12. 6. Erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act and disregarding the fact that software distributors are appropriate com parables to benchmark MSMD's international transactions in the absence of any direct comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables. Short grant of tax deducted at source (TDS) 14. erred in short granting credit of taxes deducted at source of Rs. 362,81,929/- while computing the tax liability for the year; Penalty Proceedings 15. Erred in initiating penalty proceedings under Section 271 (1)(c) of the Act. 2. The assessee vide its application dated 19.06.2020, has raised following additional grounds of appeal; 16 - Deduction of education and secondary and higher education cess paid on the income-tax liability 1. The assessee submits that deduction shall be granted under the head "Profits and Gains from Business or Profession" with respect to education cess and secondary higher education cess levied on its income under the Act. 3. Brief facts of the case are that the assessee was a joint venture between Multi Screen Media Private Limited (MSMI) and Discovery Communications India (DCI) during the relevant Financial Year, the assessee was engaged in the business of distribution of channels to Local Cable Operators ('LCOs'), Multi System Operators ('MSOs') and Direct to Home ('DTH') operators. The assessee while filing return of income reported international transaction with its Associate Enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year. The assessee was also asked as to why the agreement based Royalty stat based search conducted by TPO should not be considered as comparable to benchmark the distribution fee paid by assessee to its AEs. The assessee was also show caused as to why the rate of subscription earned by the assessee from third party should be adopted. 8. In reply to the show cause the assessee explained that margin earned by MSMD from distribution of third party channel, the MSMD is involved in the distribution of channels to Local Cable Operators (LCO)/ Multi System Operator (MSO) and Direct to Home (DTH) operators. For this purpose, MSMD had contracted directly with its AEs distribution of its channel in India. Under the said distribution agreement, MSMD collects subscription revenues and remits 90% of the same to AEs while retaining the balance 10%. It was also explained that MSMD also distributes a few channels to third-party channels during FY 2012-13 such as TV Today Network and Neo Sports Broadcast Limited. Copy of those agreements was furnished. The assessee claimed that it had earned a margin of 2.90% from the distribution of AE channel viz-a-vis (-) 25.26% from distribution thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earlier years (AY 2012-13), wherein they have a affirmed the order of TPO. 12. On receipt of the direction of the DRP, the assessing officer passed the final assessment order dated 23.10.2017 under section 143(3) read with section 144C(13), in pursuance of direction of ld DRP, by making T.P. Adjustment to Rs. 513,79,71,070/-, (which later on reduced to Rs. 308,27,82,462/-). Further aggrieved, the assessee has filed this appeal before this Tribunal. 13. We have heard the submissions of learned Senior Counsel Sh. J.D. Mistry (ld. AR), of the assessee and the learned CIT-DR for the revenue. At the outset the learned Sr Counsel Mr. Mistry submits that the grounds of appeal related with the transfer pricing (TP) adjustment are covered in favour of assessee by the decision of this Tribunal in assessee's own case for assessment year 2011-12 (ITA No. 971/Mum/2016) dated 16th March 2020, wherein the assessee raised identical grounds of appeal. The learned AR of the assessee further submits the lower authorities while passing the orders have relied on the orders for AY 2012-13, which in turn has relied on the orders for AY 2011-12. In AY 2011-12, the Tribunal categorically held distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same, we are of the view that the payment of distribution fee cannot be termed as 'Royalty'. Since, we have held that distribution fee cannot be termed as 'Royalty' thus; discussion on the royalty agreement selected for comparability has become academic." 16. On the rejection of comparables, the learned AR of the assessee submits that the assessee selected four comparable to benchmark its transaction under TNMM method. The lower authorities rejected all four comparables. The learned AR for the assessee further submits that two comparable companies namely Avance and Sonata are common with the set of comparable with AY 2011-12, which have been held as engaged in software distribution activity and comparable with the assessee. Further, remaining two comparable; namely Integra Telecommunication and Software Ltd and Trijel Industries Ltd are accepted as a valid comparable by Delhi Tribunal in Turner International Private Ltd. Vs DCIT (ITA No.218/ Delhi/2017 and ITA No. 1069/Delhi/2014 for AY 2009-10 and 2012-13). The Delhi Tribunal accepted both these comparable with channel distributor. Trijal was also held to be valid comparable in Turner International Private Ltd. For AY 2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11 by TPO himself in its order dated 29.01.2014. Further, financials of this comparable shown that this company has earned Rs. 584 Crore from distribution of software product out of total sales of Rs. 597 Crore, thus, earned 97.49% of its total revenue from software product (Page No. 224 of the Paper Book). SVAM Software was rejected by TPO on the ground that this comparable is engaged in software development, sale purchase of software and computer related hardware. The revenue of software is only Rs. 2 Crore against the total revenue of Rs. 20 Crore. From the financial of this company it is noted that entire income of Rs. 2.09 Crore is shown from sales (sale of product). Considering the nature and activities carried out by all these 4 comparable company which are primarily engaged in distribution of software product as noted above. The software distribution company are held to be good comparable to distributor satellite channels in Turner International India (P.) Ltd. vs. ACIT (supra). Therefore, we accept the submission of ld. AR of the assessee to accept these comparable as comparable with assessee and direct the AO/TPO to work out the T.P. Adjustment afresh. Needless to or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs no specific direction. 24. Ground No. 16 (additional ground of appeal) relates to deduction of education secondary and higher education cess. 25. The learned AR of the assessee submits that assessee has raised additional ground of appeal, with regard to deduction of education secondary and higher education cess paid on the income tax liability. The assessee while filing return of income for A.Y. 2013-14, had paid Education cess and Higher Education cess levied by virtue of the Finance Act, 2013. The Assessing officer after making the addition of Rs. 513,79,71,070/- in the final assessment order computed the Education Cess and Higher Education Cess at Rs. 5,14,11,761/- which was subsequently rectified vide order dated 13.04.2018 to Rs. 3,19,90,320/-. The Jurisdictional High Court in Sesa Goa Ltd Vs JCIT (107 CCH 0376 BHC) have taken a view that the Education cess and Secondary Higher Education cess is deductible as an expenditure while computing the income under the head "Profits and Gains from Business or Profession". Therefore, considering the decisions of Bombay High Court, the assessee has raises an additional ground of appeal with respect to deduction of Education cess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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