STAR ASIAN MOVIES LTD, MUMBAI V. DDIT (IT) 2(1), MUMBAI

ITA 1816/MUM/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7374 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 22-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAJEEV HARIT
• Keywords: Transfer pricing; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO . 181 6 / MUM . /2014 ( ASSESSMENT YEAR : 20 09 10 ) STAR ASIAN MOVIES LTD. (SINCE AMALGAMATED WITH STAR INDIA PVT. LTD.) C/O STAR INDIA PVT. LTD. STAR HOUSE, OFF. DR. E. MOSES ROAD MAHALAXMI, MUMBAI 400 011 PAN AAICS3256P . APPELLANT V/S DY . DIRECTOR OF INCOME TAX (I.T) CIRCLE 2 ( 1 ) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI PORUS KAKA REVENUE BY : DR. RAJEEV HARIT DATE OF HEARING 23.07.2019 DATE OF ORDER 18.10.2019 O R D E R PER SAKTIJIT DEY, J.M . T HE AFORESAID APPEAL ARISE OUT OF FINAL ASSESSMENT ORDER DATED 27 TH JANUARY 2014, PASSED U/S 143(3) R/W SECTION 144C(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL - II, MUMBAI, ( THE DRP ), FOR THE ASSESSMENT YEAR 2009 - 10. 2 STAR ASIAN MOVIES LTD. 2. THE FACTS AND ISSUES INVOLVED IN THE PRESENT APPEAL ARE IDENTICAL TO THE FACTS AND ISSUES INVOLVED IN ITA NO.1815/MUM./2014. THE ONLY FACTUAL DIFFERENCE IN THE PRESENT CASE IS, THE ASSESSEE IS A CHANNEL OWNING COMPANY BELONGING TO THE NEWS CORP GROUP OF HONG KONG. 3. GROUNDS NO.1, 2 AND 3 BEING GENERAL GROUNDS DO NOT REQUIRE ADJUDICATION, HENCE, DISMISSED. 4. IN GROUNDS NO.4 TO 6, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT , BASICALLY , ON THE ISS UE OF REJECTION OF THREE COMPARABLES . THE ISSUE RAI SED IN THESE GROUNDS ARE IDENTICAL TO THE ISSUE RAISED IN GROUNDS NO.1 TO 4 OF ITA NO.1815/ MUM./2014, DISPOSED OFF VIDE OUR ORDER DATED 18 TH OCTOBER 2019 , PASSED IN THE SAID APPEAL. T HE ISSUE HAS BEEN DECIDED IN THE FOLLOWING MANNER: - 9. WE HAVE CONSIDE RED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISION RELIED UPON. AS COULD BE SEEN FROM THE FACTUAL MATRIX OF THE ISSUE, BOTH THE TRANSFER PRICING OFFICER AND THE DRP HAVE NOT DISPUTED APPLICABILITY OF PSM AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION WITH THE AES. THE DISPUTE IS ONLY CONFINED TO THE COMPARABILITY OF THREE COMPARABLES AS NOTED ABOVE. THE TRANSFER PRICING OFFICER HAS REJECTED JAIN STUDIOS LTD. AND TELEVISION 18 INDIA LTD., PRIMARIL Y ON ACCOUNT OF ABNORMAL FALL IN RATE OF PROFIT. LIKEWISE, HE HAS REJECTED RAJ TELEVISION NETWORK LTD. DUE TO SHARP FALL IN MARGIN BY ATTRIBUTING TO HIGH AMOUNT OF BAD DEBT WRITTEN OFF DURING THE YEAR. FROM THE FACTS ON RECORD, IT IS CLEAR THAT NONE OF THE SE COMPANIES CAN BE CLASSIFIED AS PERSISTENT LOSS MAKING COMPANIES. IN VARIOUS 3 STAR ASIAN MOVIES LTD. DECISIONS IT HAS BEEN HELD THAT UNLESS THE COMPANY DECLARES LOSS CONSISTENTLY FOR THREE CONSECUTIVE ASSESSMENT YEARS, IT CANNOT BE CONSIDERED AS A PERSISTENT LOSS MAKING COMPANY . IN THIS CONTEXT, WE MAY REFER TO THE DECISION OF THE TRIBUNAL IN GOLDMAN SACHS INDIA SECURITIES PVT. LTD. (SUPRA). THE OTHER DECISIONS CITED BY THE LEARNED SR. COUNSEL FOR THE ASSESSEE ALSO SUPPORT THIS VIEW. IT IS FURTHER RELEVANT TO OBSERVE, IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2008 09, THE TRIBUNAL HAS ACCEPTED JAIN STUDIOS LTD. AS A COMPARABLE. FURTHER, THE TRANSFER PRICING OFFICER HIMSELF HAS ACCEPTED TELEVISION 18 INDIA LTD., AS A COMPARABLE IN ASSESSMENT YEARS 2007 08 AND 2008 09. THAT BE ING THE CASE, BOTH, JAIN STUDIOS LTD. AND TELEVISION 18 INDIA LTD., SHOULD NOT BE REJECTED AS A COMPARABLE. INSOFAR AS RAJ TELEVISION NETWORK LTD. IS CONCERNED, UNDISPUTEDLY, THE PROFIT MARGIN SHOWN BY THE COMPANY IN THE ASSESSMENT YEAR 2007 08 AND 2008 09 IS SUBSTANTIALLY HIGH. THOUGH, IN THE IMPUGNED ASSESSMENT YEAR, THE PROFIT MARGIN HAS FALLEN DRASTICALLY, THE COMPANY HAS STILL SHOWN PROFIT OF 1.04%. EVEN IF THE FALL IN PROFIT RATE IS DUE TO WRITE OFF OF BAD DEBT, STILL THIS COMPANY CANNOT BE EXCLUDED A S A COMPARABLE SINCE BAD DEBTS ARE OPERATING IN NATURE. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER / TRANSFER PRICING OFFICER TO INCLUDE THE AFORESAID THREE COMPANIES AS COMPARABLE AND DETERMINE THE ARM'S LENGTH PRICE ACCORDINGLY. THESE GROU NDS ARE ALLOWED. 5. FACTS BEING IDENTICAL, THE AFORESAID DECISION OF THE TRIBUNAL WOULD APPLY MUTATIS MUTANDIS TO THE FACTS OF THE PRESENT ISSUE ALSO. ACCORDINGLY, THESE GROUNDS ARE ALLOWED. 6. IN GROUNDS NO.7 TO 11, THE ASSESSEE HAS CHALLENGED NON - APPLICATION OF PROFIT SPLIT METHOD ( PSM ) TO NON - AE TRANSACTION AND AD - HOC ADDITION MADE BY THE ASSESSING OFFICER ON SUCH TRANSACTION. 7. THE ISSUE RAISED IN THESE GRO UNDS ARE IDENTICAL TO THE ISSUE RAISED IN GROUNDS NO.5 AND 6 OF ITA NO.1815/MUM./2014, D ATED 18.10.2019 , WHEREIN , THE TRIBUNAL HAS DECIDED THE ISSUE IN THE FOLLOWING MANNER: - 4 STAR ASIAN MOVIES LTD. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSING OFFICER SIMPLY RELYING UPON THE DIRECTION OF LEARNED DRP IN ASSESSME NT YEAR 2007 08 HAS ESTIMATED THE PROFIT ON NON AE TRANSACTIONS. HOWEVER, AS COULD BE SEEN, THE TRIBUNAL WHILE DECIDING THE ISSUE RELATING TO IDENTICAL ADDITION MADE IN ASSESSMENT YEAR 2007 08 IN ITA NO.8683/MUM./2011, DATED 2 ND FEBRUARY 2016, HAS OBSERVED THAT ONCE THE COMBINED NET PROFIT HAS BEEN ARRIVED AT BY TAKING INTO ACCOUNT THE TRANSACTIONS OF BOTH AES/NON AES, WHICH IS FACTORED INTO ALL THE COSTS AND REVENUE, THEN, TO SEGREGATE A NON AE TRANSACTION OVER AND ABOVE SUCH PROFIT DETERMINED IS NOT PROPE R. THUS, ULTIMATELY, THE BENCH HELD THAT THE INCOME FROM NON AE TRANSACTION CANNOT BE TAXED SEPARATELY BY APPLYING NET PROFIT RATE OF 28%. IT IS RELEVANT TO OBSERVE, THE AFORESAID DECISION OF THE TRIBUNAL WAS NOT CONTESTED BY THE REVENUE IN THE APPEAL PREF ERRED BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. NOTABLY, THE SAME VIEW WAS AGAIN EXPRESSED BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008 09 IN ITA NO. 7680/MUM./2012 & ORS., DATED 16 TH SEPTEMBER 2016. IN VIEW OF THE AFOR ESAID, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. GROUNDS ARE ALLOWED. 8. FACTS BEING IDENTICAL, THE AFORESAID DECISION OF THE TRIBUNAL WOULD APPLY MUTATIS MUTANDIS TO THE PRESENT ISSUE ALSO. ACCORDINGLY, THESE GROUNDS ARE ALLOWED. 9. IN VIEW OF O UR DECISION IN GROUNDS NO.4, 5, 6, 7 AND 11, GROUNDS NO.8, 9, 10, 12, 13 AND 14, HAVE BECOME ACADEMIC, HENCE, DO NOT REQUIRE ADJUDICATION. 10. IN GROUNDS NO.15, 16 AND 17, THE ASSESSEE HAS CHALLENGED INITIA TION OF PENALTY PROCEEDINGS UNDER VARIOUS PROVISIONS OF THE ACT. 5 STAR ASIAN MOVIES LTD. 11. THE ISSUE RAISED IN THESE GROUNDS BEING PRE - MATURE AT THIS STAGE , DO NOT REQUIRE ADJUDICATION. ACCORDINGLY, THESE GROUNDS ARE DISMISSED. 12. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.10.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 18.10.2019 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI