M/s DQ Entertainment (International) Limited, Hyderabad V. Asst.Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 1890/Hyd/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4166 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-08-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 17-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K SRINIVAS REDDY
• Keywords: Transfer pricing; Double taxation relief; International transaction
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER ITA NO. 1 8 90 /HYD/201 7 ASSESSMENT YEAR: 20 1 3 - 1 4 M /S DQ ENTERTAINMENT (INTERNATIONAL) LTD., HYDERABAD. VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 14(1), HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P.V.S.S. PRASAD REVENUE BY : SHRI K. SRINIVAS REDDY DATE OF HEARING 0 7 / 0 8 /2018 DATE OF PRONOUNCEMENT 1 7 / 0 8 / 201 8 O R D E R PER P. MADHAVI DEVI, J .M. : T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C OF THE I.T. ACT, DATED 03 / 1 0 / 201 7 FOR AY 20 1 3 - 1 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 . THE LD . DISPUTE RESOLUTION PANEL ( D RP) / LD . ASSESSING OFFICER (AO) ARE ERRONEOUS IN LAW AND ON THE FACTS OF THE CASE. 2. THE LD. DRP/AO ARE NOT LEGALLY JUSTIFIED IN MAKING AN ADJUSTMENT OF RS 2,20,99,958/ - AS PROFIT ATTRIBUTABLE TO THE APPELLANT COMPANY UNDER THE PROFIT SPLIT METHOD IN CONNECTION WITH THE ABSOLUTE SALE OF INTANGIBLE ASSETS TO AE W HEN SUCH REVENUE IS GENERATED BY AE OF THE APPELLANT COMPANY I.E., DQ IRELAND WHICH IS THE ABSOLUTE OWNER OF SUCH INTANGIBLE ASSETS. 3. THE LD. DRP/AO ARE ERRONEOUS IN NOT CONSIDERING THE FACT THAT THE INTANGIBLE ASSETS WERE SOLD TO ITS AE IN EARLIER YEA RS AT ARM'S LENGTH PRICE AND ACCEPTED BY THE LD.AO /T PO AND THEREFORE DID NOT REQUIRE ANY FURTHER ADDITIONAL ADJUSTMENT. 2 ITA NO. 1890 /HYD/1 7 M/S DQ ENTERTAINMENT (INTERNATIONAL) LTD., HYD. 4. THE LD. AO ERRED IN LAW AND FACTS BY NOT PROVIDING THE MINIMUM ALTERNATE TAX ('MAT') CREDIT U/S 115J AA WHICH THE APPELLA NT IS GENUINELY ELIGIBLE FOR. 5. THE LD. AO HAS ERRED IN LAW AND FACTS IN NOT PROVIDING CREDIT OF FOREIGN TAXES OF RS. 30,24,095 UNDER SECTION 90/90A WHICH THE APPELLANT IS GENUINELY ELIGIBLE FOR. 6. THE LD. AO HAS ERRED IN LAW AND FACTS IN LEVYING AND COMPUTING INTEREST UNDER SECTION 234B AND 234C OF THE, ACT. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING WITH THE PREVIOUS APPROVAL OF THE HON'BLE TRIBUNAL . 2. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASS ESSEE DOES NOT WISH TO PRESS GROUND NOS. 4 , 5 & 6 AND, THEY ARE, ACCORDINGLY REJECTED. GROUND NOS. 1 & 7 ARE GENERAL IN NATURE, HENCE, NEED NO ADJUDICATION. AS REGARDS GROUND NOS. 2 & 3, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE I SSUE RAISED IN THESE GROUNDS HAD ARISEN IN ASSESSEES OWN CASE FOR EARLIER AYS I.E. 2010 - 11 TO 2012 - 13 AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. COPIES OF THE ORDERS OF THE TRIBUNAL HAVE BEEN FILED BEFORE US. 3. LD. DR, ON THE OTH ER HAND, RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 4. HAVING REGARD TO THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF PRO VIDING ANIMATION SERVICES FOR TELEVISION AND FILM PRODUCTI ON COMPANIES FROM ITS IN - HOUSE ANIMATION STUDIO FACILITIES IN HYDERABAD, FILED ITS RETURN OF INCOME FOR THE RELEVANT AY UNDER BOTH NORMAL PROVISIONS AND THE MAT PROVISIONS OF I.T. ACT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE AND, THEREFORE, DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WAS REFERRED TO TPO, WHO CONSIDERED THE TRANSACTIONS AND PROPOSED AN ADJUSTMENT OF RS. 3 ITA NO. 1890 /HYD/1 7 M/S DQ ENTERTAINMENT (INTERNATIONAL) LTD., HYD. 2,20,99,958/ - TOWARDS PROFIT AT TRIBUTABLE TO THE ASSESSEE IN CONNECTION WITH SALE OF INTANGIBLE ASSETS BY ADOPTING THE PROFITS SPLIT METHOD. ON APPEAL, THE DRP ALLOCATED 80% OF THE REVENUE TO THE ASSESSEE AND IN ACCORDANCE THEREWITH, T HE FINAL ASSESSMENT ORDER WAS PASSED. 4.1 AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING EARLIER YEARS, ASSESSEE HAD SOLD THE I.P. RIGHTS OF TH IS ASSET TO ITS AE DQE, IRELAND AT ARM S LENGTH PRICE AND, THEREFORE, OWNERSHIP OF THE SAID ASSET WAS TRANSFERRED AND NO QUESTION OF CHARGING THE SAME AGAIN IN THE HANDS OF THE ASSESSEE IN THE SUBSEQUENT AYS. ARISES. HE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY AYS 2010 - 11 TO 2 012 - 13 HAS HELD THAT INTANGIBLE ASSET HAS BEEN TRANSFERRED DURING THE AY 2010 - 11 AND THE TRANSACTION WAS HELD TO BE AT ALP. FOR AY 2011 - 12, THE TRIBUNAL HAS AGAIN CONSIDERED THE ISSUE AND HAS HELD THAT THERE IS NO INTERNATIONAL TRANSACTION DURING THE RELEV ANT FY AND THIS FINDING WAS REITERATED IN THE AY 2012 - 13 AS WELL. THEREFORE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADJUSTMENT PROPOSED BY THE TPO AND CONFIRMED BY THE DRP HAS TO BE DELETED. 4.2 LD. DR WAS ALSO HEARD, WHO RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4.3 HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010 - 11 ONWAR DS ; AND ONE OF US I.E. JM IS SIGNATORY TO THE ORDERS OF THE TRIBUNAL FOR AYS 2011 - 12 AND 2012 - 13. FOR THE SAKE OF CONVENIENCE AND READY REFERENCE, WE REPRODUCE THE FINDINGS OF THE TRIBUNAL IN AY 2012 - 13 (ITA NO. 441/HYD/2017, ORDER DATED 12/01/2018) AS UNDER: 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE INVOLVED IS ADJUSTMENT TOWARDS PROFIT ATTRIBUTABLE TO THE 4 ITA NO. 1890 /HYD/1 7 M/S DQ ENTERTAINMENT (INTERNATIONAL) LTD., HYD. ASSESSEE COMPANY IN CONNECTION WITH SALE OF INTANGIBLE ASSETS BY THE ASSESSEE TO ITS AE, DQ ENTERTAINMENT (IRELAND). THE IPR WAS SOLD BY THE ASSESSEE TO ITS AE IN THE EARLIER A.YS AND THE ALP OF THE SAME HAD ARISEN FOR CONSIDERATION IN THE A.Y 2010 - 11. THE COORDINATE BENCH OF THE TRIBUNAL AT PARA 15 OF ITS ORDER IN ITA NO.151/HYD/2015, DATED 22ND JUNE, 2016 HAS HELD AS UNDER: '15. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. THE FACTS ARE, THE ASSESSEE HAD SOLD 'IP' (JUNGLE BOOK) TO ITS 'AE' ON 30/09/2009 AT T HE DEVELOPMENT STAGE. IT WAS NOT FULLY DEVELOPED TO GENERATE REVENUE IMMEDIATELY. AS PER LD. AR, 'AE' WAS IN A POSITION TO GENERATE REVENUE IN THE LAST QUARTER OF 2009 - 10 I.E. JAN - MARCH, 2010. BUT TPO ADOPTED THE WHOLE REVENUE GENERATED BY 'AE' IN THE WHO LE YEAR TO ARRIVE THE PROFIT ARITHMETICALLY TO THE INDIAN ENTITY. THE MAIN ISSUE BEFORE US IS, WHETHER THE TPO JUSTIFIED TO DETERMINE THE PROFIT ATTRIBUTABLE TO INDIAN ENTITY (ASSESSEE) WHEN HE HIMSELF DETERMINED THE SALE CONSIDERATION OF IP (JUNGLE BOOK). WHEN THE TPO AGREED THAT THERE IS A OUTRIGHT SALE, THERE ENDS THE INTERNATIONAL TRANSACTION. NOW, TPO IS TRYING TO GO BEYOND SALES AND MAKING TP ADJUSTMENTS. WE ARE ASKING OURSELVES, WHETHER THERE IS ANY INTERNATIONAL TRANSACTION EXISTS. IN OUR CONSIDERED VIEW, THERE IS NO INTERNATIONAL TRANSACTION AFTER OUTRIGHT SALE. THERE IS NO INTERNATIONAL TRANSACTION EXISTS AS PER SECTION 92BOF THE ACT AS THERE IS NO TRANSACTION EXISTS BETWEEN ASSESSEE AND WITH IT'S AE. WE ARE INCLINED TO REJECT THE STAND OF THE TPO. 15.1 MOREOVER, AFTER THE COMPLETION OF THE SALE PROCESS, THE 'AE' HAS DONE TRANSACTION WITH THE OUTSIDERS OR OUTSIDE THE JURISDICTION OF THE INDIAN TERRITORY BUT THERE IS NO TRANSACTION DONE WITH THE ASSESSEE INVOLVING THE ABOVE IP (JUNGLE BOOK) TO CONSID ER THAT THERE EXISTS A INTERNATIONAL TRANSACTION. ONCE, THE IP IS SOLD AND ARM'S LENGTH PRICE IS DETERMINED, THE 'IP' BECOMES THE PROPERTY OF 'AE'. THE ASSESSEE HAS NO LOCUS STANDI TO CLAIM ANY BENEFIT NEITHER THE REVENUE. 15.2 THE REVENUE HAS GRIEVANCES O N THE ARRANGEMENT AND EXISTENCES OF GROUP COMPANIES. THERE IS NO DOUBT, THERE EXISTS TAX PLANNING. THERE CAN BE TAX PLANNING WITHIN THE FOUR CORNERS OF THE TAXATION LAWS. THERE IS ENOUGH MECHANISM IN THE EXISTING ACT AND ALSO THERE IS DTAA - ARRANGEMENT WI TH IRELAND, WHICH WILL TAKE CARE OF THE SITUATIONS OF TAX AVOIDANCE. THE REVENUE HAS NOT BROUGHT ANY COGENT EVIDENCE TO PROVE THAT THERE EXISTS ANY TAX AVOIDANCE. IN OUR CONSIDERED VIEW, THE ACTION OF THE TPO IS NOT JUSTIFIED AND ACCORDINGLY, THE GROUNDS R AISED BY ASSESSEE ARE ALLOWED'. 7. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE A.Y BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE ALLOW THE ASSESSEE'S GROUND OF APPEAL AND HOLD THAT THERE IS NO INTERNATIONA L 5 ITA NO. 1890 /HYD/1 7 M/S DQ ENTERTAINMENT (INTERNATIONAL) LTD., HYD. TRANSACTION DURING THE RELEVANT FINANCIAL YEAR. GROUNDS OF APPEAL 2 & 3 ARE ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THERE IS NO INTERNATIONAL TRANSACTION DURING THE RELEVANT AY AND THE ADDITION MADE BY THE AO IS ACCOR DINGLY DELETED. THUS, GROUND NOS. 2 & 3 ARE ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 17 TH AUGUST , 2018 . SD/ - SD/ - ( INTURI RAMA RAO ) ( P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 17 TH AUGUST , 2018 KV C OPY TO: - 1) M/S DQ ENTERTAINMENT (INTERNATIONAL) LTD., C/O PRASAD & PRASAD CAS, FLAT NO. 301, MJ TOWERS, 8 - 2 - 698, ROAD NO. 12, BANJARA HILLS HYDERABAD 500 034 2) ACIT, CIRCLE 14(1), HYDERABAD 3) DRP 1, BENGALURU . 4) PR. CIT 6 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE