TMI Blog2020 (7) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the TPO/AO. Needless to order that before passing the order, the TPO/Assessing Officer shall grant opportunity to the assessee. In the result, the grounds related to comparability of comparable are allowed in accordance with the aforesaid directions. Short deduction of TDS - HELD THAT:- Considering the submissions of the ld. AR for the assessee the assessing officer is directed to verify the TDS details and grant appropriate relief to the assessee after verifying the details as early as possible. Deduction of education secondary and higher education cess - admitting the additional ground of appeal - HELD THAT:- gone through the copy of income tax return furnished by the assessee and the assessment order passed by the assessing officer and the working of income tax calculated and rectified by assessing officer. Considering the facts and circumstances of the case and the submissions of ld representatives of the parties that no additional facts are required to the brought on record and the necessary facts for adjudicating the additional grounds of appeal are already available on record, we admits the additional ground of appeal. Considering the facts that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 comparables. 7. Erred in law and in facts, in rejecting the following companies from the Transfer Pricing Study for FY 2012-13 which are comparable to the Appellant: (i) Avance Technology Limited (ii) Integra Technology and software Limited (iii) Sonata Information Technology Limited (iv) Trijal Industries Limited Benchmarking analysis undertaken by the learned TPO/ Hon'ble DRP by considering royalty agreements as Comparable Uncontrolled Price (CUP') to benchmark Appellant's international transactions 8. Erred in selecting the CUP to benchmark the international transactions of the Appellant without appreciating that Transaction Net Margin ('TNMM') is the most appropriate method to benchmark the Appellant's international transactions; 9. Erred in not appreciating that the distribution agreements like that entered into by the appellant with its AE is different from a license/Royalty agreement selected by honourable DRP/the learned TPO to bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Enterprises (AE) of distribution fee. The assessee in Form 3CEB, reported international transaction of license fee paid/payable for distribution of Television Channels in the following manner: Sr No. Details of transaction Amount paid or payable as per books of a/c Rs. Method 1 Payment of distribution fee 924,83,47,926/- TNMM 2 Reimbursement of channel placement charges 192,93,57,001/- CUP 3 Short term loan and advances 66,97,58,753/- CUP Total 1184,74,63,680/- 4. The assessee bench marked the transaction of distribution fee by adopting Transaction Net Margin Method ( TNMM ) and selected sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 third-party channels during this year. Thus, the assessee continues to be an arm s length margin. Even at the gross level MSMD has and a margin of 10% vis-a-vis 6.54% earned from distribution of third-party channels. Thus, even at the gross level the margin earned by MSMD from distribution of a channel is at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO in treating the payment of distribution fee as Royalty by taking view that there is no change in the facts as of in 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 ₹ 513,79,71,070/-, (which later on reduced to ₹ 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Singapore) Pte Ltd (ITA No. 103 of 2017). Considering the decision of the Hon ble Jurisdictional High Court and respectfully following 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y TPO by taking view that this company is engaged in software trading, consultancy services. We have noted that this comparable was accepted in A.Y. 2020-11 by TPO himself in its order dated 29.01.2014. Further, financials of this comparable shown that this company has earned ₹ 584 Crore from distribution of software product out of total sales of ₹ 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 ₹ 2 Crore against the total revenue of ₹ 20 Crore. From the financial of this company it is noted that entire income of ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate relief to the assessee after verifying the details as early as possible. 23. Ground No.15 relates to initiation of penalty u/s 271(1)(c). This ground of appeal is premature and 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 ₹ 513,79,71,070/- in the final assessment order computed the Education Cess and Higher Education Cess at ₹ 5,14,11,761/- which was subsequently rectified vide order dated 13.04.2018 to ₹ 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 Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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