Income Tax Appellate Tribunal - Mumbai
Msm Discovery P.Ltd, Mumbai vs Asst Cit Cen Cir 12(3)(2), Mumbai on 13 March, 2020
IN THE INCOME-TAX APPELLATE TRIBUNAL "J" BENCH MUMBAI
BEFORE SHRI PRAMOD KUMAR, VICE-PRESIDENT AND
SHRI PAWAN SINGH, JUDICIAL MEMBER
ITA No.971/Mum/2016 (Assessment Year 2011-12)
Sony Pictures Networks India DCIT Circle-3(2)
Pvt. Ltd. [Successor of MSM 19th Floor, Air India
Discovery (P.) Ltd.] Interface Building, Nariman Point,
Building No.7, 5th Floor,
Vs. Mumbai-400021.
Malad Link Road, Malad
(West), Mumbai-400064.
PAN: AABCS1728D
Appellant Respondent
Appellant by : Shri P.J. Pardiwalla with
Sh. Hiten Chande (AR)
Respondent by : Shri Uodhal Raj Singh (DR)
Date of Hearing : 16.12.2019
Date of Pronouncement : 13.03.2020
ORDER UNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
1. This appeal was adjudicated vide order dated 26.07.2017. Thereafter, the assessee filed a miscellaneous application (MA) under section 254(2) of the Act for seeking rectification of certain mistake in the order. In the said MA, the assessee sought consideration of issue; viz character of distribution fees whether Royalty or not. The MA was dismissed by Tribunal vide its order dated 13.04.2018.
2. The assessee challenged the order of Tribunal's dated 13.04.2018 before Hon'ble Bombay Hon'ble High Court in Writ Petition before the; vide W.P. No. 3508/2018. The Hon'ble High Court vide order dated 03.01.2019 set-
ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
aside the order of Tribunal dated 28.07.2017 and restored the matter back to the Tribunal for fresh adjudication. The Hon'ble High Court also directed to decide the characterization of distribution fee i.e. Royalty or not.
3. Accordingly, as per the direction of Hon'ble High Court the appeal was heard afresh. The assessee has raised following grounds of appeal:
General Ground
1. erred in assessing the total income of the Appellant at Rs 344,89,29,574 against Rs 47,26,78,397 as computed by the Appellant in its return of income; Transfer Pricing Grounds
2. erred in making a transfer pricing adjustment of Rs. 297,62,51,177 to the total income of the Appellant on the premise that the international transactions entered by the Appellant 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;
Rejection of economic analysis undertaken by the Appellant in its transfer pricing study report
4. 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.
5. 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 comparables.
6. erred in law and in facts, in rejecting the following companies from the Transfer Pricing Study for FY 2010-11 which are comparable to the Appellant:
(i) Advance Technology Limited
(ii) Empower Industries India Limited
(iii) Sonata Information Technology Limited 2 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
(iv) Svam Software 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
7. 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;
8. without prejudice to the above, erred in characterizing the distribution fee paid/ payable by the Appellant to its AES to be in the nature of royalty;
9. without prejudice to the above, erred in not appreciating that a 'distribution' agreement like that entered into by the Appellant with its AE is different from a 'license/ royalty' agreement selected by the Hon'ble DRP/ learned TPO to benchmark the Appellant's international transactions;
10. without prejudice to the above, erred in considering royalty agreements as comparable to Appellant's international transactions without appreciating that sufficient information is not available in the public domain to rely on their comparability;
11. without prejudice to the above, erred in considering royalty agreements as comparable to benchmark the Appellant's distribution activity with its AEs disregarding the fact that all agreements are functionally different and are entered into in different geographies (ie other than India) hence the economic and commercial circumstances under which they are entered would be different from the distribution agreement entered into by MSMD; Internal comparability
12. erred in observing that third party channels distributed by the Appellant in FY 2010-11 are comparable to AE channels distributed by the Appellant during the year without appreciating that they are not comparable;
13. without prejudice to the above, erred in not appreciating that while software distributors are appropriate comparables, internal comparables are suitable over the royalty agreements selected by the Hon'ble DRP/ learned TPO to benchmark the Appellant's international transactions;
14. without prejudice to the above, erred in making a transfer pricing adjustment using royalty agreements as CUP after observing that margin earned by the 3 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
Appellant from third party channels distributed during the year are comparable to benchmark the Appellant's international transactions;
15. erred in observing that operating profit to operating cost is determined at 1.3 9% and 5.84% for AEs and Non-AEs segment respectively as against 3.48% and 4.77% respectively as worked out by the Appellant in AY 2011-12;
16. erred in not allocating sundry balances and provisions no longer required written back, miscellaneous income, general and administration expenses and reversal of provision for doubtful debts between AE and non-AE channel segments;
17. erred in allocating marketing expenses relating to Non-AE channels to both AE and non-AE segment and not appreciating that marketing expenses incurred in the AE segment was reimbursed to the Appellant;
18. erred in not appreciating that 'number of channels' used by the Appellant to allocate common costs between AE and non-AE channels is a more appropriate allocation key instead of 'turnover' used by the Hon 'ble DRP;
19. erred in observing that the net margin as computed by the Appellant or as computed by the Hon'ble DRP does not fall within the +/- 5% range without appreciating that such range needs to be computed with respect to the value of the international transaction;
20. erred in observing that the gross profitability in AY 2012-13 in the non-AE segment is 27.21 % as against 4.6% as submitted by the Appellant;
21. erred in observing that the subscription fees of non-AE business for A Y 2010-11 is more than 50% of total subscription receipts and the resultant margins of non-AE business is 24.57% (on gross basis) without appreciating that the Appellant had entered into the international transaction of license fee payout only for last two months of the financial year;
22. Without prejudice to Ground Nos. 12 to 14, erred in not granting economic adjustments on account of the differences in AE and Non-AE segment. Grant of benefit of +/- 5%
23. Benefit of +/-5% under proviso to Section 92C(2) of the Act be granted to the Appellant if the adjustment under transfer pricing falls within the range specified therein;
Short grant of tax deducted at source (TDS) 4 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
24. erred in short granting credit of taxes deducted at source of Rs 1,61,53,825 while computing the tax liability for the year;
MAT credit
25. erred in granting MAT credit of Rs 30,07,126 instead of Rs 7,39,280 while computing the tax liability for the year;
Interest under Section 234B of the Act
26. erred in levying interest of Rs 54,84,11,706 under Section 234B of the Act;
27. without prejudice to the above, erred in computing interest under Section 234B at Rs. 54,84,11,718 instead of Rs 54,04,96,711;
Penalty Proceedings
28. erred in initiating penalty proceedings under Section 271 (1)(c) of the Act.
4. Brief facts of the case are that the assessee is a joint venture between Multi Screen Media Private Limited (now known as Sony Pictures Networks India Private Limited and Discovery Communications India) 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 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. Description Name and address of the AE Total amt. paid or No. of transaction payable in the transaction As per Method Books of Account (INR)
1. License Fees MSM Satellite (Singapore) 4,369,228,918 paid / Pte. Ltd. No.5, Tampines payable Central 6, #02-19, Telepark towards Building, Singapore 529482
2. distribution SPE Network India Inc. 361,355,460 of television 10202 West Washington TNMM 5 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
channels Boulevard, Culver City,
CA90232 USA
3. Discovery Asia Inc. One 8,33,817,957
Discovery Place, Silver
Spring, Maryland 20910,
USA
4. Animal Plant Asia LLC, 167,647,467
Corporation Trust Centre,
1209, Orange Street,
Delaware Limington, DE
19801, Country of New
Castle, USA
5,732,049,802
5. The assessee bench marked the transaction of distribution fee by adopting Transaction Net Margin Method ('TNMM') and selected software distributor i.e. company engaged in selling intangible products as comparable on the ground that information regarding the companies carrying on the same function was not available in the public domain. The assessee selected the following eight comparable:
S.No. Name of the company Updated OP/OR
for F.Y. 2010-11
(%)
1. Avance Technologies Limited 0.18
2. Axon Infotech Limited NC
3. Crystal Software Solution Limited NC
4. Empower Industries India Limited (-)0.19
5. Softcel Technologies Limited NA
6. Sonata Information Technology Limited 2.22
7. Svam Software Limited -0.55
8. Unisys Software and Holding Industries NC
Limited
Arithmetic mean 0.42
6. The assessee has shown its margin of 3.48% from distribution of AE Channel which was higher than the arithmetical means of 0.42% earned by comparable company, hence, the assessee claimed that its transaction with its AE was at arm's length.6
ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
7. However, during the Transfer Pricing assessment proceeding before the Transfer Pricing Officer (TPO), the assessee was asked to bench mark its transaction taking local cable operators (LCOs), Multi system operators (MSOs) &directs to home ( D.T.H) Operators as comparable. Accordingly, the assessee undertook the search to identify the LCOs, MSOs and D.T.H. Operator and identified eight comparable. The search resulted in the comparable having arithmetical means of 4.86% and the assessee claimed it was within +/- 5% range and qualified for Arms Length Test.
8. Thereafter, the TPO further issued a show-cause notice dated 27.01.2015 as to why the software distribution search carried out about the assessee should not be rejected. It was confronted that as to why the Royalty-stat database should not be selected for the purpose of benchmarking the transaction of "distribution fees". The TPO recorded that no reply was filed by assessee.
The TPO also took his view that "distribution fees" was in the nature of Royalty and Royalty agreements found in the Royalty-Stat Database were better functionally comparable to the assessee than the comparables selected by assessee. The assessee was also show-caused to disclose the rate charge with 3rd party channel Via Com 18 India Pvt. Ltd., ND Television Ltd. and T.P. Today Network for distribution activity and that why the same rate should not be applied.
9. The TPO recorded that no reply was received from assessee. However, in assessee's reply dated 11.11.2015 the assessee stated that MSMD has to pay 7 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
guarantee fee to the channel operator in addition to revenue. But under the distributor agreement with its AEs MSMD is not required to pay any minimum guarantee fees. The assessee is exclusive channel distribution for its AE channels and there is no internal CUP available.
10. The TPO after considering the reply and in absence of detailed furnished by the assessee that no benchmarking is possible, the TPO held that distribution fee paid by assessee is in the nature of Royalty and accordingly benchmarked the international transaction on the basis of 7 Royalty-stat database in the following manner:
Name of Name of Description of agreement Royalty Licensor Licensee rate Ruffnation New Line Exclusive copyrights license to 30.00% Films, LLC Television, distribute, exploit, transmit and (Ref: L4513) Inc. telecast the "Snipes" motion picture via free television broadcast, syndication, pay TV, cable, pay-per-
view, video-on-demand, subscription, interactive TV, and any other television transmission form.
American Radio Exclusive license to promote market, 50.00% Broadcasting Networks, distribute and sublicense English-
Companies LLC language audio version of news
Inc. (L12811) service under "ABC News" name to
FCC-licensed, terrestrial ratio
broadcast stations.
DuroMedia Rogers Nonexclusive copyrights license to 50.00%
Holdings Cable distribute and exhibit entertainment
Corp. (Ref: Communic programming to residential
L14933) ations Inc. subscribers of digital cable television
service on a Video-on-Demand basis.
International KBLCOM, Addendum to exclusive distribution 31.50%
Cablecasting Inc. license to broadcast, market and sell a
Technologies, multi-channel audio music service via
Inc. (Ref: direct broadcast satellite to
L17659) commercial establishments.
Digital ETV, Inc. Exclusive license to use a digital 20.00%
Continuum, technology solution to deliver
Inc. (Ref: program content for broadband
L18130) television over the internet.
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ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
Playboy TVN Exclusive license to market, promote, 30.00% Networks distribute and sell the "AdulTVision"
Worldwide 24 hour per day, adult movie based
(Ref: L20377) entertainment channel, through pay-
per-view, pay-per-block, pay-per-
night and pay-per-day to the C-Band
home satellite dish market, and
nonexclusive distribution rights in the
cable market.
Chequemate Telepro Nonexclusive copyright license to 50.00%
International, Communic exhibit the "C-3D Service," which is a
Inc. d/b/a ations, Inc. stereoscopic video entertainment
C3D programming service showing motion
Television pictures, pre-recorded programs, live
(Ref: L22904) productions, or other events, on a
subscription basis through a cable
television system, initially to
subscribers in San Bernarndino,
California.
Average 37.36%
11. The TPO made the adjustment in the following manner:
"The adjustment amount in the case of assessee is worked out as under:
Particulars Amount (Rs.) Distribution fees payout @ 90% of total 5,739,503,019 revenues (A) Distribution fees payout @ 37.36% of total 2,382,531,491 revenues - arm's length payout (B) Payout in excess of arm's length (A-B) 3,356,971,528
12. Thus, the TPO suggested adjustment of Rs. 335,69,71,528/- on account of distribution fee to its AE. On receipt of report of TPO, the Assessing Officer passed the draft assessment order under section 143(3) r.w.s. 144C(1) dated 27.02.2015. The copy of draft assessment order was served upon the assessee. The assessee exercised its option for filing objection before the Dispute Resolution Panel (DRP). During the hearing before the DRP, the assessee furnished the details of 3rd party channel distributor and urged that 9 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. due to insufficient time, the assessee could not furnish the same before the TPO. The Net Margin of assessee from AE segment was 3.48% compared to 4.77% from Non-AE segment. Thus, the assessee claimed its transaction with AE is within +/- 5% as prescribed under section 92C(2).
13. The DRP vide its direction dated 30.11.2015 held that distribution fee paid by assessee to its AE is in the nature of Royalty as the Auditors of assessee in assessee's report in Form 3CEB have used word "licence fee" to decide the distribution fee paid to its AE and accordingly upheld the action of TPO in considering Royalty agreement as comparable to distribution agreement by the assessee. However, the ld. DRP excluded 4 royalty agreements out of 7 agreements selected by TPO on the ground that 4 agreements were not in force during the previous relevant year.
14. The ld. DRP also carried out alternative benchmarking by applying internal TNMM as compared Net Margin earned by assessee by distributing the AE channel as compared the Net Margin earned by assessee distributing Non- AE channels. The ld. DRP while making comparison, benchmarked the allocation of expenses to the AE and Non-AE segment at 5.84% which was within +/- 5% tolerance range as prescribed under section 92C(2). The ld. DRP also made alternative adjustment of Rs. 63,77,22,598/- by applying internal TNMM/CUP compared the Gross Margin earned from distribution of AE channel vis-à-vis Gross Margin earned from distribution of Non-AE channel.
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ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
15. On receipt of the direction of the DPR , the assessing officer passed the final assessment order dated 31.12.2015 by making T.P. Adjustment to Rs. 297,62,51,177/-. The adjustment was rectified by TPO and the adjustment was restricted to Rs. 212,55,29,284/- vide order dated 06.12.2019. Thus, further aggrieved, the assessee has filed this appeal before the Tribunal.
16. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that royalty stat search undertaken by TPO and royalty agreements identified as a comparable in two folds namely (i) distribution fee paid by assessee to its AE is not in the nature of royalty, hence, royalty search undertaken by TPO is not appropriate and (ii) royalty agreements selected are functionally not comparable to the distribution agreements entered into by assessee for distribution of AE channels. In support of his first contention, the ld. AR of the assessee submits that the distribution agreements entered by assessee only grants the right to distribute the channel owned by the AE over various platforms namely Cable, DTH and other digital platforms. The assessee only acts as an intermediary between the Broadcaster and the ultimate customer who views the channel. The assessee neither any right in the content that is broadcasted over the channel nor any right to make any changes in the content to be broadcasted on the channel. The assessee simply acts as a distributor and distributes the channel 11 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. to various LCOs/MSOs/DTH operators in the chain who in turn distribute it further to the ultimate viewer. Thus, the distribution fees paid by the assessee cannot be termed as "Royalty" within the meaning of section 9(1)(vi) by making the payment it does not acquire any right to use any copyright or rights relating to the content that is broadcasted on the channel.
17. The ld. AR of the assessee further submits that "distribution fees" is not in the nature of Royalty has been upheld by Tribunal and affirmed by Hon'ble Bombay High Court in the hands of payer as well as the recipient of distribution fees in case of SET India Private Limited (ITA No. 1347/2013 and in case of recipient of distribution fees in CIT vs. MSM Satellite (Singapore) Pte Limited (ITA No. 103 & 207/2017. Further, the ld. DRP in case of MSM Satellite (Singapore) Pte Limited in A.Y. 2010-11 & 2011-12 has held that income received from MSMD as distribution fee is not in the nature of royalty; the copy of order of DRP is filed. Copies of all three aforesaid decisions are placed on record.
18. Accordingly, the ld. AR of the assessee submits that distribution paid by the assessee to its AEs cannot be characterized as Royalty as held by the Hon'ble Bombay High Court. Hence, the view of TPO to determine ALP paid by assessee to its AE by comparing the payment with the royalty agreements is devoid of merits and deserves to be rejected.
19. On second contention regarding royalty agreements selected are functionally not comparable to the distribution agreement by assessee with 12 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. its AE. The ld. AR of the assessee submits that royalty agreements selected by TPO from the Royalty-stat database fail the comparability criteria. The ld. AR of the assessee furnished the comparable criteria which he will refer while discussing the comparability, if necessity arise.
20. On benchmarking of transaction selecting software comparable, the ld. AR of the assessee submits that benchmarking carried out by assessee by applying TNMM and selecting the software comparable is in accordance with the law for the reasons that software distributors were accepted in A.Y. 2010-11 by TPO/DRP after detailed analysis. The copy of order of ld. DRP is placed on record. The ld. AR of the assessee submits that if comparable accepted in A.Y. 2010-11 are considered for the year under consideration, the ALP will be at 3.46% based on two comparable which are common in the year under consideration. The ld. AR for the assessee furnished the detail chart showing the functional comparability of four comparable rejected by the TPO. The ld. AR of the assessee further submits that software distributions are appropriate comparable to benchmarking channel distribution activities and is upheld by Tribunal in the following cases. ACIT vs NGC Network (India) Pvt. Ltd. (ITA No. 5307/M/2008) dt. 23.02.2011, Turner International India Private Limited vs ACIT (ITA No. 1204/Del/2018 dt. 18.06.2018, Turner International India Private Limited vs DCIT (ITA No. 218/Del/2017 & ITA No. 1069/Del/2014) dt. 01.01.2019 and 13 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. Turner International India Private Limited vs DCIT [2019] 101 taxmann.com 446 (Del Trib.) dt. 08.10.2018.
21. On the other hand the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that in its TPSR the assessee contended that that no direct comparable companies are available for channel distributor result. In absence of details no benchmarking was possible. The TPO has no option but to go to search Royalty stat data for searching comparable. The decision of High Court in NGC Network (India) Pvt Ltd (supra) is based on different facts and the ratio of order in that case is not applicable on the facts of this case. While examining the comparability functionality has to be seen predominantly.
22. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The first issue for our consideration is whether the 'distribution fee' is in the nature of 'Royalty' or not. Before us the ld. AR for the assessee vehemently submitted that the TPO wrongly characterized the channel distribution fee as Royalty. It was further explained that the assessee acts as a intermediary between the broadcaster and the ultimate customers who uses the channels. Thus, distribution fee paid by the assessee cannot be termed as Royalty. This fact in not controverted by ld. DR for the revenue nor any contrary facts were brought on record by the lower authorities. The ld. DRP in assessee's MSM Satellite (Singapore) Pte Ltd in its order dated 19.12.2014 for AY 2010-11 by following the order of Tribunal for AY 2005-06 & 2006-07 dated 14 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. 28.08.2015 held that distribution revenue is not Royalty income. The Hon'ble Bombay High Court in CIT Vs SET India Pvt Ltd (ITA No. 1347 of 2013) held that the distribution fee paid is not in the nature of royalty. Similar view was affirmed by Hon'ble Bombay High Court in CIT Vs MSM Satellite (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.
23. Now, turning to the benchmarking of transaction on the basis of software distributors. The assessee benchmarked its transaction by adopting TNMM and selected software comparables. The assessee selected 8 comparable companies. Out of 8 comparable companies, the TPO rejected 4 comparable companies on the ground of functional dissimilarity. Before us, the ld. AR of the assessee submitted that 4 comparable were wrongly rejected by TPO which are functionally comparable. The ld. AR further submits that Avance Technology Ltd. (Avance), Empower Industries Ltd. (Empower), Sonata Information Technology (Sonata) and SVM Software Ltd. are comparable with the assessee. All these comparable companies are engaged in distribution of software product and good comparable with the assessee. In 15 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. support of submission, the ld. AR relied on the decision which we have mentioned in para 20 above.
24. On the other hand, the ld. DR for the revenue supported the order of lower authorities.
25. We have considered the submission of both the parties and perused the record. The TPO during the TP Adjustment proceeding rejected Avance on the ground that this companies is engaged in software trading, sales of hardware and other services and no segmental information is available. DRP upheld the action of on the basis of order for A.Y. 2010-11.Before Tribunal, the assessee has placed on record the financial statement of Avance. Perusal of financial statement reveals that this company has earned Rs. 140 Crore from sale of software out of total sales of Rs. 176 Crore. This company has approximately 80% of its income from software product. Thus, segmental information as placed before us is available at (Page No. 204 to 205 of Paper Book). Further, while rejecting Empower, the TPO held that this company is engaged in selling of hardware and no segmental are available. From the financial statement placed before Tribunal at (Page No. 207 to 219 of the Paper Book) As per discussion available on Page No. 22 of Annual Report of this comparable (Page No. 209) the company has earned more than 80% of its revenue from software sales. Similarly, Sonata was rejected by TPO by taking view that this company is engaged in software trading, consultancy services. We have noted that this comparable was accepted in 16 ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd. 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 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 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. Considering the fact that we have allowed the functional comparability, therefore, discussions on alternative adjustment held by DRP have become academic.
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ITA No. 971 Mum 2016- Sony Pictures Networks India Pvt. Ltd.
26. Next ground of appeal (Ground No. 24) relates to short deduction of TDS of Rs. 1.61 Crore. And Ground No. 25 relates to MAT Credit. Ground No. 26 & 27 relates to interest u/s 234B. Although, no specific submission was made by ld. representative of the parties. However, keeping in view the principle of natural justice, the AO is directed to verify the TDS details and grant appropriate relief to the assessee as per law. Similarly on MAT Credit, the AO is directed to verify the fact and grant relief to the assessee in accordance with law. So far as levy of interest u/s 234B is concerned, this interest is consequential, thus, the AO is directed to work out the interest as per law. Ground No. 28 relates to initiation of penalty u/s 271(1)(c). This ground of appeal is premature and needs no specific direction.
27. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 13/03/2020.
Sd/- Sd/-
PRAMOD KUMAR PAWAN SINGH
VICE-PRESIDENT JUDICIAL MEMBER
Mumbai, Date:13.03.2020
SK
Copy of the Order forwarded to :
1. Assessee
2. Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. DR "J" Bench, ITAT, Mumbai
6. Guard File
BY ORDER,
Dy./Asst. Registrar
ITAT, Mumbai
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