Appeal Details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 1037 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 11 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-05-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2008-2009
Appeal Filed On
12-05-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) ZEE ENTERTAINMENT ENTERPRISES LTD., 135, CONTINENTAL BUILDING, DR.A.B.ROAD, WORLI, MUMBAI 400 020 PAN:AAACZ 0243R ...... APPELL ANT VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE -11(1), 4 TH FLOOR, ROOM NO.434, AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020 .... RESPONDE NT APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : S/SHRI N.K.CHAND & SHAHI SANJAY KUMAR DATE OF HEARING : 10/02/2017 DATE OF PRONOUNCEMENT : 05/05/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERT AINING TO ASSESSMENT YEAR 2008-09 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-15, MUMBAI DATED 27/02/2014, WHICH IN TURN, ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C OF TH E INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 15/02/2012. 2 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER:- 1. ADDITION ON ACCOUNT OF ARM'S LENGTH PRICE BY TPO RS . 24,91,59,200/- (I) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING REJECTION OF TNM METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY DEPT. IN EARLIER YEARS AS WELL AS SUBSEQUENT YEARS AND ADOPTING RESALE PRICE METHOD (RPM) AS MAM EVEN WHEN THERE IS NO RESALE OF PROGRAMMES BY AE. T HE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF TH E CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHO LDING SELECTION OF AE AS TESTED PARTY TO WORKOUT ALP APPLYING RPM METHOD. THE REASO NS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CA SE AND AGAINST THE PROVISIONS OF LAW. (III) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPH OLDING ADDITION OF RS. 24,91,59,200/- ON ACCOUNT OF ALLEGED DIFFERENCE IN ALP CALCULATED AS PER RPM TAKING AE AS TESTED PARTY IN RELATION TO SALES MADE TO ASSOCIATED ENTERPRISES. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CO NTRARY TO THE FACTS OF THE CASE AND AGAINST PROVISIONS OF LAW. (IV) THE OBSERVATIONS MADE BY THE LD. TRANSFER PRIC ING OFFICER (TPO) FOR REJECTING TNM METHOD AND ADOPTING RPM METHOD AS MAM AND RECOM MENDING ADJUSTMENT TO INCOME AND CONFIRMING THE SAME BY THE LD. CIT (A) ARE MISPLACED, WRONG, CONTRARY TO THE FACTS OF THE CASE AND BASED ON ASSUMPTIONS, PRESUMPTIONS AND SURMISES. (V) THE LD. CIT (A)/TPO/AO ERRED IN LAW AND FACTS I N TREATING THE TELECASTING OF PROGRAMMES & FILMS AND DISTRIBUTION OF TV CHANNELS THROUGH ITS LOCAL DISTRIBUTORS AS RESALE OF PROGRAMMES BY AE AND APPL YING RPM WITHOUT CONSIDERING THE FACTS OF THE CASE, DOCUMENTS AND SU BSTANCE OF THE TRANSACTION. (VI) WITHOUT PREJUDICE TO ABOVE CONTENTIONS, EVEN I F PLI OF AE BEING 42.29% AS WORKED OUT BY TPO IS ACCEPTED AS COMPARABLE AS PER TNMM, THE PLI OF ASSESSEE IS 56%. HENCE, THE ADJUSTMENT TO ALP IS UN WARRANTED AND WRONG. (VII) THE LD CIT (A)/AO FAILED TO APPRECIATE THAT: A) THE ASSESSEE PRODUCE OR PURCHASE HINDI OR REGION AL LANGUAGE TV PROGRAMS & FILM RIGHTS FOR TELECAST ON ITS CHANNELS IN INDIA AND EXPORT THEIR LIMITED RIGHTS TO ITS AE, SIMULTANEOUSLY OR I MMEDIATELY THEREAFTER, FOR TELECAST IN SPECIFIED TERRITORY AND CHANNELS AND NO NE OF THE PROGRAMS ARE SOLD BY ASSESSEE WITHOUT TELECAST IN INDIA. 3 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) B) THE PROGRAMS RIGHTS ONCE TELECAST ON ZEE NETWORK IT CANNOT BE TELECAST ON COMPETING CHANNELS IN INDIA AND ABROAD HENCE IT HAS NO UNIVERSAL SALEABILITY. C) THE PROGRAM RIGHTS EXPORTED ARE HINDI & REGIONAL LANGUAGE TV PROGRAMS AND ARE VIEWED MAINLY BY LIMITED INDIAN ETHNIC POPU LATION ABROAD AND HAVE LIMITED VIEWERSHIP AND MARKET FOR THESE PROGRA MS. D) THE AE IS MAINLY IN BROADCASTING AND TELECASTING BUSINESS FOR ABOUT 18 YEARS AND IN BROADCASTING BUSINESS IN UK & USA FOR MORE THAN 10 YEARS. IT ACQUIRED RIGHTS OF HINDI & INDIAN REGIONAL LANGUAGE PROGRAMS & FILMS EACH TERRITORIES SEPARATELY. E) THE ABSOLUTE OWNERSHIP RIGHTS OF THE PROGRAMS RE MAINS WITH THE ASSESSEE AND THE AE GET ONLY LIMITED TELECAST RIGHT ON ITS T V CHANNELS IN SPECIFIED TERRITORY AND HAS NO RIGHT TO SUB LICENCE OR SALE T HESE PROGRAMS. F) THE PROGRAM COST AMORTISATION POLICY DOES NOT HA VE ANY RELATION OR RELEVANCE TO PRICE OF LIMITED RIGHTS SOLD BY ASSESS EE. G) THE PROGRAMS ARE PRODUCED OR PURCHASED BY ASSESS EE AS PER THE TASTE OF INDIAN PUBLIC AND WITH THE OBJECT TELECASTING ON IT S CHANNELS IN INDIA AND NOT FOR SALE AND PROGRAM & FILMS RIGHTS ARE SOLD TO AE & OTHERS ARE ADDITIONAL REVENUE AND HAS NO COST. 2. ADDITION ON ACCOUNT OF CORPORATE GUARANTEE FOR AE B Y TPO - RS. 1,63,16,370/- (I) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING ADDITION OF RS. 1,63,16,370/- TO INCOME TAKING 3% AS ARM'S LENGTH F EES FOR CORPORATE GUARANTEE (COLLATERAL) GIVEN FOR BORROWINGS BY ASSO CIATED ENTERPRISES WITHOUT CONSIDERING THE EVIDENCES AND DOCUMENTS SUBMITTED. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS O F THE CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT (A)/TPO/AO OUGHT TO HAVE APPRECIAT ED THAT IN THE FACTS & CIRCUMSTANCES OF THE CASE NO GUARANTEE WAS REQUIRED BY AE TO TAKE THE LOAN AND HAVING GIVEN GUARANTEE THE ASSESSEE CARRYING NO RISK NOR THE AE IS BENEFITED BY THE GUARANTEE ISSUED TO THE BANK HENCE NO GUARANTEE COMMISSION IS CHARGEABLE NOR TRANSFER PRICING ADJUS TMENT WARRANTED. (III) THE LD. CIT (A)/TPO/AO OUGHT TO HAVE ACCEPTED THE FACTS THAT ISSUANCE OF CORPORATE GUARANTEES BY ASSESSEE TO LENDER BANK FOR ITS AE, DOES NOT INVOLVE ANY COSTS TO THE ASSESSEE, DOES NOT HAVE ANY BEARIN G ON PROFITS, INCOME, LOSSES 4 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) OR ASSETS OF ASSESSEE HENCE OUTSIDE THE AMBIT OF EX PRESSION 'INTERNATIONAL TRANSACTION'. 3. DISALLOWANCE U/S 14 A - RS. 69,94,985/- (I) THE LD. CIT (A)/AO ERRED IN LAW AND FACTS IN DI SALLOWING RS. 41,44,060/- OUT OF INTEREST AND RS. 28,50,925/- OUT OF EXPENSES U/S 14 A OF THE ACT. THE REASONS GIVEN BY THEM FOR DOING SO ARE WRONG, CONTRARY TO T HE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT(A)/AO ERRED IN LAW AND FACTS IN DI SALLOWING INTEREST RELATING IT TO INVESTMENTS MADE DURING THE YEAR AND EARLIER YEARS, ALREADY PROVED TO HAVE BEEN MADE OUT OF INTERNAL ACCRUALS / INTEREST FREE FUNDS AND NO BORROWED FUNDS ARE UTILISED FOR EARNING EXEMPT INCOME. THE R EASONS GIVEN BY THEM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CA SE AND AGAINST THE PROVISIONS OF LAW. (III) THE LD. CIT(A)/ A.O. FAILED TO APPRECIATE THA T THE ASSESSEE HAD FAR MORE INTERNAL ACCRUALS AND INTEREST FREE FUNDS THAN THES E INVESTMENTS HENCE DISALLOWANCE OF INTEREST U/S 14A OF THE ACT IS UNWA RRANTED. (IV) WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD. CI T (A)/ AO ERRED IN LAW AND FACTS IN DISALLOWING INTEREST U/S 14A WITH REFERENCE TO T OTAL INTEREST EXPENSE WITHOUT EXCLUDING INTEREST EXPENSE RELEVANT TO SPEC IFIC BUSINESS AND SOURCES OF INCOME. (V) THE LD. CIT (A)/ AO ERRED IN LAW AND FACTS IN D ISALLOWING RS. 28,50,925/- OUT OF EXPENSES U/S 14 A OF THE ACT. THE REASONS GIVEN BY THEM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINS T THE PROVISIONS OF LAW. (VI) THE LD. CIT (A)/AO ERRED IN LAW AND FACTS IN D ISALLOWING EXPENSES MECHANICALLY CALCULATED AS PROVIDED U/R 8D, WITHOUT PROVING ANY NEXUS AND RELATION TO EARNING EXEMPT INCOME OR THE EXPENSES INCURRED FOR NON-BUSINESS PURPOSES. 4. BCCI ADVANCE WRITTEN OFF - RS. 33,54,01,600/- (I) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING DISALLOWANCE OF RS. 33,54,01,600/- BEING TRADE ADVANCE FOR TELECASTING CRICKET MATCHES, GIVEN TO BCCI NOT RECOVERABLE/ WRITTEN OFF DURING THE YEAR. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF TH E CASE AND AGAINST THE PROVISIONS OF LAW. , (II) THE LD. CIT (A) OUGHT TO HAVE ALLOWED, THE TRA DE ADVANCES GIVEN TO BCCI FOR THE PURPOSES OF BUSINESS AND WRITTEN OFF DURING THE YEAR BEING NOT RECOVERABLE, AS REVENUE EXPENSES U/S 37(1) OF THE A CT. 5 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) 5. STRUCTURED INTEREST SWAP LOSS TREATED AS SPECULATIO N LOSS & DISALLOWED RS.26,17,93,000/- (I) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING DISALLOWANCE OF CRYSTALISED LOSS OF RS.26,17,93,000/-, ON ACCOUNT OF STRUCTURED INTEREST SWAP TRANSACTION ENTERED BY THE ASSESSEE TO HEDGE THE INCREASING INT EREST COST IN THE NORMAL COURSE OF BUSINESS, TREATING THE SAME AS SPECULATIO N TRANSACTION COVERED U/S 43 (5) OF THE ACT. THE REASONS GIVEN BY HIM FOR DOI NG SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT (A) OUGHT TO HAVE ALLOWED THE CRYS TALLIZED & PAID INTEREST RATE SWAP TRANSACTION LOSS IN THE NORMAL COURSE OF BUSIN ESS BEING EXPENDITURE OF REVENUE IN NATURE INCURRED FOR THE BUSINESS OF THE COMPANY ALLOWABLE U/S 36 /37 OF THE ACT. (III) THE LD. CIT (A) WRONGLY RELIED ON THE BOMBAY HC DECISION IN THE CASE OF BHARAT RUIA LTD (337 ITR 452), FACTS OF WHICH TOTALLY DIST INGUISHABLE AS IT IS NEITHER MARK TO MARKET LOSS NOR THE LOSS ON ACCOUNT OF CURR ENCY EXCHANGE FLUCTUATION AND INTEREST RATE SWAP IS NEITHER COMMODITY NOR IT IS PURCHASE OR SALE OF COMMODITY OR SHARES & SECURITIES SETTLED OTHERWISE THAN DELIVERY. 6. THE LD. CIT (A) GROSSLY ERRED IN LAW AND FACTS I N DISMISSING THE APPEAL BY REPEATING THE ORDER OF THE TPO/ AO WITHOUT CONSIDER ING & APPLYING MIND TO THE SUBMISSIONS OF THE ASSESSEE AND DENYING JUSTICE TO THE APPELLANT, THEREBY ACTED AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 3. BEFORE WE PROCEED TO ADJUDICATE THE RESPECTIVE GROUNDS OF APPEAL, A BRIEF BACKGROUND OF THE CASE CAN BE SUMMARIZED AS F OLLOWS. THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956, AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF BROADCAS TING AND DISTRIBUTION OF TV CHANNELS. FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION, IT FILED A RETURN OF INCOME ON 26/09/2008 DECLARING A TOTAL INCOME OF RS .459,60,84,672/-, WHICH WAS SUBSEQUENTLY REVISED TO RS.471,34,52,865/-. TH E RETURN OF INCOME SO FILED WAS SUBJECT TO A SCRUTINY ASSESSMENT AND IN AN ORDE R PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT DATED 15/02/2012, THE TOTAL INCOME HAS BEEN ASSESSED AT RS.604,99,46,420/-, WHICH HAS SUBSEQUEN TLY BEEN RECTIFIED TO RS.558,28,18,020/-. THE ADDITIONS AND DISALLOWANCES MADE BY THE ASSESSING 6 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) OFFICER WERE CARRIED BEFORE THE CIT(A) BY WAY OF AN APPEAL, WHICH HAS SINCE BEEN DISMISSED. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPEAL, WHICH WE SHALL DEAL HEREINAFTER IN SERIATIM. 4. THE FIRST SUBSTANTIVE DISPUTE IN THIS APPEAL IS WITH RESPECT TO AN ADDITION OF RS.24,91,59,200/- MADE BY THE ASSESSING OFFICER, BASED ON THE DETERMINATION OF ARM'S LENGTH PRICE BY THE TRANSFER PRICING OFFICER, WITH RESPECT TO THE INTERNATIONAL TRANSACTION OF SALE OF TV PROGRAMMES AND FILMS TO ASSOCIATED ENTERPRISE. THE RELEVANT FACTS IN THIS REGARD ARE AS FOLLOWS. THE APPELLANT HAD UNDERTAKEN CERTAIN INTERNATIONAL TRAN SACTIONS WITHIN THE MEANING OF SECTION 92B OF THE ACT WITH ITS ASSOCIA TED ENTERPRISES, WHICH INTER-ALIA, INCLUDED SALE OF TV PROGRAMMES AND FILM S TO ASIA TODAY LTD., MAURITIUS ( IN SHORT ATL) FOR A STATED CONSIDERAT ION OF RS.79,35,27,132/-. THE TRANSFER PRICING OFFICER, ON A REFERENCE UNDER SECTION 92CA(1) OF THE ACT HAS PASSED AN ORDER UNDER SECTION 92CA(3) OF THE AC T DATED 31/10/2011 COMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATION AL TRANSACTION, WHICH WAS IN VARIANCE WITH THE STATED VALUE OF SUCH TRANSACTIONS . BEFORE THE TRANSFER PRICING OFFICER, ASSESSEE POINTED OUT THAT IT WAS PURCHAS ING AS WELL AS PRODUCING IN- HOUSE GENERAL ENTERTAINMENT PROGRAMMES, CURRENT AFF AIRS AND FILMS FOR TELECASTING ON ITS CHANNELS IN INDIA. AFTER EXHIBI TING AND TELECASTING ITS PROGRAMMES ON INDIAN CHANNELS, ASSESSEE SOLD THE TE LECASTING RIGHTS OF SUCH PROGRAMMES AND FILMS TO ITS ASSOCIATED ENTERPRISE, ATL FOR TELECASTING ON ITS CHANNELS IN UK, USA, AFRICA, MIDDLE EAST, ETC. AT P RE-DETERMINED PRICES. IT WAS EXPLAINED THAT THE PREDETERMINED PRICE WAS AS PER A TARIFF CARD, WHICH WAS A PERCENTAGE OF COST BASED PRICE FOR EACH TERRITORY. THE ASSESSEE HAD ALSO POINTED OUT THAT SUCH PROGRAMMES WERE ALSO SOLD TO OTHERS AS SYNDICATED SALES BASED ON NEGOTIATED PRICES. ATL, THE ASSOCIATED EN TERPRISE HAD IN-TURN ENTERED 7 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) INTO AGREEMENTS WITH ZEE TV, USA AND ASIA TV, USA F OR DISTRIBUTION OF PROGRAMMES ON CHANNELS VIA SATELLITE AND CABLE NETW ORKS, FOR A FIXED FEE. BEFORE THE TRANSFER PRICING OFFICER, ASSESSEE POINT ED OUT THAT SALE OF TV PROGRAMMES AND FILMS TO THE ASSOCIATED ENTERPRISE W AS BENCHMARKED BY APPLYING THE TRANSACTION NET MARGIN METHOD (TNMM), AND THE PROFIT LEVEL INDICATOR(PLI) WAS DETERMINED AT 56.36% BASED ON T HE FORMULAE OF OPERATING PROFIT/OPERATING COST (OP/OC). IT WAS ASSERTED THA T SINCE THE MARGIN OF THE SELECTED COMPARABLES WAS 0.13%, THE STATED VALUE OF THE INTERNATIONAL TRANSACTION OF SALE OF T.V PROGRAMMES AND FILMS WAS AT AN ARM'S LENGTH PRICE. AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES REL IED UPON BY THE ASSESSEE, THE TRANSFER PRICING OFFICER HAS DIFFERED WITH THE ASSESSEE ON THE DETERMINATION OF THE ARM'S LENGTH PRICE. FIRSTLY, THE TRANSFER PRICING OFFICER REJECTED THE TNM METHOD SELECTED BY THE ASSESSEE AN D INSTEAD HE HAS SELECTED THE RESALE PRICE METHOD (RPM) AS MOST APPR OPRIATE METHOD IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTION OF SALE OF PROGRAMMES AND FILMS. SECONDLY, THE TRANSFER PRICING OFFICER SELECTED AT L, MAURITIUS AS THE TESTED PARTY AND COMPUTED THE GROSS PROFIT EARNED BY ATL, MAURITIUS AND ATTRIBUTED 90% OF SUCH PROFITS TO THE ASSESSEE COMPANY AND IN THIS MANNER AN ADDITION OF RS.24,91,59,200/- WAS COMPUTED IN ORDER TO DETERMI NE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF SALE OF TV PROG RAMMES AND FILMS. THE CIT(A) HAS AFFIRMED THE STAND OF THE ASSESSING OFF ICER, WHICH IS IN CONFORMITY WITH THE ADDITION DETERMINED BY THE TRANSFER PRICIN G OFFICER. 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS MADE VARIED ARGUMENTS IN ORDER TO ASSAIL THE AFORESAID ADDITION . FIRSTLY, IT IS POINTED OUT THAT THE SELECTION OF RPM AS THE MOST APPROPRIATE METHOD BY THE TRANSFER 8 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) PRICING OFFICER IS INHERENTLY INCORRECT, INASMUCH A S, THE ASSOCIATED ENTERPRISE I.E. ATL HAS NOT MADE ANY FURTHER SALE OF THE TV PR OGRAMMES AND FILMS BUT HAS ONLY TRANSACTED IN GIVING TELECASTING RIGHTS TO ZEE USA & ASIA TV UK, WHICH ARE MERE DISTRIBUTION COMPANIES; THEY ARE BEING REMUNE RATED ON COMMISSION BASIS; AND, THAT THERE IS NO SALE OF TV PROGRAMMES AND FILMS BY ATL, MAURITIUS TO ZEE TV- USA AND ASIA TV, UK UNLIKE THE TRANSACTI ON BETWEEN ASSESSEE AND ATL. SECONDLY, IT IS EMPHASIZED THAT EVEN IF THE T RANSACTIONS OF ATL WITH ZEE TV- USA AND ASIAN TV UK ARE TO BE UNDERSTOOD AS THA T OF SALE, YET IT CANNOT JUSTIFY ADOPTION OF THE RPM BECAUSE SUCH TRANSACTIO NS ARE BETWEEN RELATED PARTIES. IT WAS POINTED OUT THAT ATL-MAURITIUS, ZEE TV- USA AND ASIAN TV-UK ARE RELATED PARTIES. IT WAS THEREFORE, CONTENDED T HAT UNDER THESE CIRCUMSTANCES ADOPTION OF THE RPM IS NOT FEASIBLE. THIRDLY, IT HAS BEEN VEHEMENTLY POINTED OUT THAT UNDER IDENTICAL CIRCUMS TANCES THE TNM METHOD HAS BEEN ADOPTED BY THE ASSESSEE IN OTHER ASSESSMEN T YEARS RIGHT FROM ASSESSMENT YEAR 2005-06 TO 2007-08 AND, THEREAFTER FROM ASSESSMENT YEAR 2009-10 TO 2012-13 AND THE SAME HAS BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER ALSO. IT WAS, THEREFORE, CONTENDED THAT EV EN ON THE PRINCIPLES OF CONSISTENCY THE STAND OF THE TRANSFER PRICING OFFIC ER IS UNTENABLE IN THIS YEAR. APART FROM THE AFORESAID, THE LD. REPRESENTATIVE FO R THE ASSESSEE HAS TAKEN US THROUGH THE ORDER OF THE TRANSFER PRICING OFFICER A ND POINTED OUT THAT THERE ARE GLARING MISTAKES INASMUCH AS CERTAIN OBSERVATIONS H AVE BEEN MADE, WHICH ARE DEVOID OF ANY FACTUAL SUPPORT. IN THIS CONTEXT, H E HAS MADE A SPECIFIC REFERENCE TO AN OBSERVATION MADE BY THE TRANSFER PR ICING OFFICER IN PARA 6.5 OF THE ORDER THAT THE ASSESSEE HAS SOLD ITS PROGRAMME AT A THROWAWAY PRICE TO ITS ASSOCIATED ENTERPRISE COMPARED TO THE ACTUAL PR ICE OF THE PRODUCT. IT IS CONTENDED THAT THE SAID OBSERVATION OF THE TRANSFER PRICING OFFICER IS WRONG 9 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) AND IS IN-FACT CONTRARY TO THE FACTS BROUGHT TO HIS NOTICE. IT HAS BEEN EXPLAINED THAT THE OBSERVATION OF THE TRANSFER PRICING OFFIC ER IS BASED ON SALES INSTANCES TABULATED BY HIM AT THE END OF PARA 6.4 OF HIS ORD ER. IT IS POINTED OUT THAT THE TRANSFER PRICING OFFICER HAS WRONGLY ASSUMED THAT T HE INSTANCES OF SUCH SALES ARE TO THE ASSOCIATED ENTERPRISES, WHEREAS THE CORR ECT POSITION IS THAT THESE ARE INSTANCES OF SALES MADE TO THE NON-ASSOCIATED E NTERPRISES. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EV EN BEFORE THE TRANSFER PRICING OFFICER, VIDE COMMUNICATION DATED 14/10/20 11, COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 115 TO 126 I T HAS BEEN EXPLAINED THAT IF THE SALE PRICE OF THE GOODS SOLD TO NON-ASSOCI ATED ENTERPRISE IS SEEN, THEN THE SALE PRICE OF THE GOODS SOLD TO ASSOCIATED ENT ERPRISES IS FOUND TO BE HIGHER. IN THIS CONTEXT, THE LD. REPRESENTATIVE FO R THE ASSESSEE REFERRED TO PAGE 119 OF THE PAPER BOOK TO DEMONSTRATE THAT THE TABULATION PREPARED BY THE TRANSFER PRICING OFFICER IS WRONG INASMUCH AS T HESE ARE INSTANCES OF SALES TO NON-ASSOCIATED ENTERPRISES. UNDER THESE CIRCUMSTANC ES, IT WAS POINTED OUT THAT THE TRANSFER PRICING OFFICER HAS MISDIRECTED H IMSELF IN REJECTING THE COMPARABILITY ANALYSIS UNDERTAKEN BY THE ASSESSEE . APART THEREFROM, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E AVERAGE MARGIN OF THE PEER COMPANIES IN THE SAME INDUSTRY IS LOWER THAN T HE MARGIN OF THE ASSESSEE OVER THE YEARS. IN THIS CONTEXT, IT IS SOUGHT TO B E POINTED OUT THAT THE AVERAGE MARGIN OF THE INDUSTRY-PEERS RIGHT FROM ASSESSMENT YEAR 2005-06 TO ASSESSMENT YEAR 2012-13, SHOWS THAT THE MARGIN OF THE ASSESSEE IS HIGHER AND, THEREFORE, EVEN ON A MACRO LEVEL NO ADJUSTMENT IS C ALLED FOR IN THE TESTED VALUE OF THE INTERNATIONAL TRANSACTIONS. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE APPEARING FOR THE REVENUE PRIMARILY REITERATED THE STAND OF THE T RANSFER PRICING OFFICER. IT IS 10 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) SOUGHT TO BE POINTED OUT THAT THE TRANSFER PRICING OFFICER HAD CALLED FOR THE STOCK INVENTORY OF ALL THE PROGRAMMES INDICATING TH EIR COST, UNAMORTIZED AMOUNT ON THE DATE OF SALE, SELLING PRICE, DIFFEREN CE BETWEEN BOOK VALUE AND SELLING PRICE, ETC. WHICH WERE NOT FURNISHED. IT W AS POINTED OUT THAT THE TRANSFER PRICING OFFICER HAD CONCLUDED THAT ASSESSE E HAD FAILED TO ESTABLISH THAT IT HAS KEPT AND MAINTAINED THE INFORMATION AND THE DOCUMENTS REQUIRED IN TERM OF RULE 10D(1) OF THE INCOME-TAX RULES, 196 2. THE LD. DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE HAS REFERR ED TO PARA 6.9 OF THE ORDER OF THE TRANSFER PRICING OFFICER, WHEREIN IT IS OBSE RVED THAT ASSESSEE HAS NOT FILED A DETAILED TRANSFER PRICING STUDY AND FOR THE SAID REASON THE TRANSFER PRICING OFFICER DID NOT ACCEPT THE SELECTION OF TNM METHOD AS MOST APPROPRIATE METHOD. THE EMPHASIS OF LD. DEPARTMENT AL REPRESENTATIVE APPEARING FOR THE REVENUE IS THAT IN THE ABSENCE OF ANY INFORMATION ABOUT THE COST OF GOODS SOLD AND FOR WANT OF ADEQUATE DOCUMEN TATION AS REQUIRED BY RULE 10D(1) OF THE RULES, THE PROFIT MARGIN COMPUTE D BY THE ASSESSEE FOR THE PURPOSES OF COMPARABILITY WAS NOT RELIABLE AND TH E REJECTION OF TNM METHOD HAS BEEN SOUGHT TO BE JUSTIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. BEFORE WE PROCEED TO DEAL WITH THE SPECIFIC DISPUTE, IT WOULD BE APPR OPRIATE TO BRIEFLY RECAPITULATE THE RELEVANT FACT-SITUATION. THE ASSESSEE PURCHASE S AS WELL AS CARRIES OUT AN IN- HOUSE PRODUCTION OF GENERAL ENTERTAINMENT PROGRAMME S, CURRENT AFFAIRS AND FILM RIGHTS FOR TELECASTING ON ITS CHANNELS IN INDI A. SUBSEQUENT TO SUCH EXPLOITATION ON INDIAN CHANNELS, ASSESSEE COMPANY E XPORTS/SELLS LIMITED TELECASTING RIGHTS OF SUCH PROGRAMME AND FILMS TO I TS ASSOCIATED ENTERPRISE, ATL MAURITIUS FOR ENABLING THE TELECAST OF SUCH PRODUCT S ON THE CHANNELS OF ITS ASSOCIATED ENTERPRISE IN THE TERRITORIES OF UK, USA , AFRICA, MIDDLE EAST, ETC. THE 11 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) SAID TRANSACTION HAS BEEN ENTERED IN TERMS OF A MEM ORANDUM OF UNDERSTANDING DATED 01/10/2005, COPY OF WHICH HAS B EEN PLACED IN THE PAPER BOOK AT PAGES 63 TO 66. THUS, ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF T HE ACT WITH THE ITS ASSOCIATED ENTERPRISE ATL MAURITIUS, FOR SALE OF RI GHTS OF TV PROGRAMMES AND FILMS, WHICH WERE ALREADY EXHIBITED ON ITS TV CHANN ELS IN INDIA. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS RECEIVED A SUM OF RS.79,35,25,132/- AS PROCEEDS AGAINST THE EXPORT/SALE OF TV PROGRAMMES A ND FILMS TO ATL MAURITIUS. AT THIS STAGE, WE MAY ALSO REFER TO THE ASSOCIATED ENTERPRISE (ATL) AND AS PER THE MATERIAL ON RECORD IT TRANSPIRES THAT THE SAID CONCERN IS OPERATING TV CHANNELS IN VARIOUS COUNTRIES LIKE, UK, USA, MIDDLE EAST, SOUTH AFRICA, ETC. THE CHANNELS ARE MANAGED AND DISTRIBUTED BY ITS SUBSIDI ARIES IN UK AND USA. IT IS ALSO EMERGING FROM RECORD THAT ATL MAURITIUS HAD EN TERED INTO A DISTRIBUTION AGREEMENT WITH ITS SUBSIDIARIES, NAMELY ZEE, TV US A AND ASIA TV-UK. THE PROGRAMMES AND FILMS ACQUIRED FROM ASSESSEE ARE SUP PLIED BY ATL, MAURITIUS TO THE SUBSIDIARIES, WHO ARE THE CHANNEL OPERATORS IN THE RESPECTIVE TERRITORIES. AT THE TIME OF HEARING, IT WAS EXPLAINED THAT THE A SSOCIATED ENTERPRISE SUPPLIES THE PROGRAMMES AND FILMS ACQUIRED FROM ASSESSEE TO THE ACTUAL CHANNEL OPERATING SUBSIDIARIES IN A TELECAST MODE IN FPC F ORMAT THROUGH ITS TRANSMISSION SYSTEMS. 7.1 THE TRANSFER PRICING OFFICER HAS SELECTED RPM AS MOST APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE OF T HE TRANSACTION OF SALE OF PROGRAMMES AND FILM RIGHTS TO ATL IN CONTRAST TO TH E TNM METHOD SELECTED BY THE ASSESSEE. THE FIRST CONTROVERSY IS AS TO WHETHE R THE TRANSFER PRICING OFFICER WAS JUSTIFIED IN SELECTING THE RPM AS MOST APPROPRI ATE METHOD. SECTION 92(1) OF THE ACT PROVIDES THAT THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL 12 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) TRANSACTION SHALL BE DETERMINED BY ANY OF THE METHO DS PRESCRIBED THEREIN, BEING THE MOST APPROPRIATE METHOD. NOTABLY, THE PH RASEOLOGY OF SECTION 92C(1) OF THE ACT MAKES IT CLEAR THAT THE SELECTIO N OF THE MOST APPROPRIATE METHOD IS TO BE MADE HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNC TIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS............. ....... . FURTHER, RULE 10B OF THE RULES ENUMERATES THE VARIOUS METHODS TO DETERMINE T HE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION AND FOR THE PRESENT PU RPOSE, WHAT IS RELEVANT IS CLAUSE(B) OF RULE 10B(1) OF THE RULES, WHICH PRESCR IBES THE MANNER IN WHICH THE RPM IS TO BE EFFECTUATED, AND IT READS AS UNDER:- (I) THE PRICE AT WHICH PROPERTY PURCHASED OR SERVICES O BTAINED BY THE ENTERPRISE FROM AN ASSOCIATED ENTERPRISE IS RESOLD OR ARE PROV IDED TO AN UNRELATED ENTERPRISE, IS IDENTIFIED; (II) SUCH RESALE PRICE IS REDUCED BY THE AMOUNT OF A NOR MAL GROSS PROFI T MARGIN ACCRUING TO THE ENTERPRISE OR TO AN UNRELATED ENTER PRISE FROM THE PURCHASE AND RESALE OF THE SAME OR SIMILAR PROPERTY OR FROM OBTAINING AND PROVIDING THE SAME OR SIMILAR SERVICES, IN A COMPARABLE UNCON TROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS; (III) THE PRICE SO ARRIVED AT IS FURTHER REDUCED BY THE E XPENSES INCURRED BY THE ENTERPRISE IN CONNECTION WITH THE PURCHASE OF PROPE RTY OR OBTAINING OF SERVICES; (IV) THE PRICE SO ARRIVED AT IS ADJUSTED TO TAKE INTO AC COUNT THE FUNCTIONAL AN D OTHER DIFFERENCES, INCLUDING DIFFERENCES IN ACCOUNT ING PRACTICES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION 55A [OR THE SPECIFIED DOMESTIC TRANSACTION] AND THE COMPARABLE UNCONTROLLED TRANSA CTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF GROSS PROFIT MARGIN IN THE OPEN MARKET; (V) THE ADJUSTED PRICE ARRIVED AT UNDER SUB- CLAUSE (IV) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPECT OF THE P URCHASE OF THE PROPERTY OR OBTAINING OF THE SERVICES BY THE ENTERPRISE FROM THE ASSOCIATED ENTE RPRISE; 7.2 THE FIRST ATTACK SET-UP BY THE APPELLANT AGAINS T THE SELECTION OF RPM IS THAT THE SAME HAS BEEN INAPPROPRIATELY APPLIED BY T HE TRANSFER PRICING OFFICER INASMUCH AS THE TRANSACTIONS OF ATL WITH ZEE TV-U SA AND ASIA TV-UK ARE NOT 13 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) BETWEEN UNRELATED ENTITIES. THE SAID PROPOSITION I S BEING SUPPORTED BY THE PHRASEOLOGY OF SUB-CLAUSE(I) OF CLAUSE(B) OF RULE 10B (1) OF THE RULES . QUITE CLEARLY, THE RPM, AT THE THRESHOLD, REFERS TO THE P RICE AT WHICH THE PROPERTY PURCHASED BY THE ENTERPRISE FROM AN ASSOCIATED ENTE RPRISE IS RE-SOLD OR PROVIDED TO AN UNRELATED ENTERPRISE OR IN OTHER WORDS AN INDEPENDENT ENTITY. IN THE PRESENT CASE, IT IS UNDENIABLE THAT ZEE TV- USA AND ASIA TV-UK ARE ENTITIES WHICH ARE 100% OWNED BY ATL-MAURITIUS AND, THEREFORE, THE TRANSACTIONS AMONGST THEM CANNOT BE CONSIDERED AS B ETWEEN UNRELATED ENTITIES, AND THE SAME ARE NOT UNCONTROLLED TRANSAC TIONS. THEREFORE, ON THIS SINGULAR ASPECT THE ACTION OF THE TRANSFER PRICING OFFICER IN SELECTING RPM AS THE MOST APPROPRIATE METHOD IS WHOLLY INAPPROPRIATE AND WRONG. SO HOWEVER, WE FIND THAT THE TRANSFER PRICING OFFICER WAS CONSCIOUS OF SUCH A SITUATION AND HAS SOUGHT TO COUNTER THE AFORESAID BY OBSERVING AS UNDER:- FURTHER EVEN OECD GUIDELINES, IN SIMILAR SITUATION PERMITS, LOOKING AT THE CONTROLLED TRANSACTIONS AS A GUIDE TO DETERMINING ALP OF THE T RANSACTIONS IF THE SAID TESTED TRANSACTIONS APPEAR TO BE OF DUBIOUS NATURE WITH AN INTENTION TO SHIFT PROFIT....... 7.3 THE AFORESAID REVEALS THE MIND OF THE TRANSFER PRICING OFFICER, AS ACCORDING TO HIM, EVEN CONTROLLED TRANSACTIONS CAN BE A GOOD DATA TO DETERMINE THE ARMS LENGTH PRICE, IF THE TESTED TRA NSACTIONS APPEARS TO BE OF DUBIOUS NATURE CARRIED OUT WITH AN INTENTION TO SHIFT PROFIT. THOUGH WE ARE UNABLE TO FIND ANY STATUTORY BACKING FOR THE AFORES AID STAND OF THE TRANSFER PRICING OFFICER, BUT EVEN GOING BY THE FACTUAL M ATRIX OF THE PRESENT CASE, THERE IS NO MATERIAL TO SAY THAT THE TRANSACTION IN QUESTION IS OF DUBIOUS NATURE, AS OUR SUBSEQUENT DISCUSSION WOULD SHOW. 7.4 FIRSTLY, IT IS TO BE NOTED THAT THE IMPUGNED IN TERNATIONAL TRANSACTION OF SALE OF TV PROGRAMME AND FILMS IS NOT SPECIFIC TO T HE YEAR UNDER CONSIDERATION AND RATHER, IT HAS BEEN ENTERED IN TERMS OF AN MEMO RANDUM OF UNDERSTANDING 14 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) DATED 01/10/2005, WHICH SHOWS THAT SIMILAR TRANSAC TIONS HAVE BEEN ENTERED BY THE ASSESSEE IN THE PAST YEARS ALSO. IN FACT, A T THE TIME OF HEARING, IT HAS BEEN EMPHASIZED THAT SUCH TRANSACTIONS HAVE BEEN E NTERED IN THE PAST AS WELL AS IN THE SUBSEQUENT YEARS AND IN NONE OF THE YEARS UPTO ASSESSMENT YEAR 2012-13, THE TRANSACTIONS HAVE BEEN VIEWED AS DUBI OUS BY THE ASSESSING AUTHORITY. THEREFORE, IN THIS BACKGROUND, THE STAND OF THE TRANSFER PRICING OFFICER IN THE INSTANT YEAR BECOMES SUSPECT, AND, IN ANY CASE, IT LENDS A HEAVY BURDEN ON THE TRANSFER PRICING OFFICER TO DEMONSTRA TE THE DUBIOUS NATURE OF THE TRANSACTIONS. THE MOOT POINT IS WHETHER SUCH A BURDEN HAS BEEN DISCHARGED BY THE TRANSFER PRICING OFFICER? THE DIS CUSSION IN THE ORDER OF TRANSFER PRICING OFFICER REVEALS TWO REASONS WHICH HAVE WEIGHED WITH HIM TO CONCLUDE THAT THE TRANSACTIONS ARE DUBIOUS. FIRSTL Y, ACCORDING TO HIM, THE PROGRAMMES HAVE BEEN SOLD AT THROWAWAY PRICES TO THE ASSOCIATED ENTERPRISE AS COMPARED TO THE ACTUAL COST OF PRODUCTION. FOR THIS PURPOSE, HE HAS TABULATED THE SALE PRICE OF CERTAIN T.V. PROGRAMMES IN PARA 6.4 OF HIS ORDER. AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE REFERENCE TO SUCH VALUES WAS A MISNOMER, BECAU SE THEY ARE PRICES AT WHICH TV PROGRAMMES AND FILMS HAVE BEEN SOLD TO NON -ASSOCIATED ENTERPRISES. IN SUPPORT, HE HAS REFERRED TO PAGE 119 OF THE PAP ER BOOK WHICH BRINGS OUT THAT THE SALE RATES ARE FOR SALES MADE TO NON-ASS OCIATED ENTERPRISES. IT IS SEEN THAT SUCH A POINT WAS RAISED BY THE ASSESSEE EVEN B EFORE THE CIT(A) BUT THE SAME HAS BEEN MERELY BRUSHED ASIDE; AND, EVEN BEFOR E US THERE IS NO REPUDIATION TO THE SAME. THUS, IT BECOMES QUITE CLE AR THAT THE STAND OF THE TRANSFER PRICING OFFICER IS BASED ON A MISCONCEPT ION, AND IS DEVOID OF ANY FACTUAL SUPPORT. THE SECOND REASON ADVANCED BY THE TRANSFER PRICING OFFICER IS THAT THE SALE PRICES DETERMINED BY THE ASSESSEE IN CONSULTATION WITH ATL IS IN 15 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) DISREGARD OF THE ACTUAL COST INCURRED BY THE ASSESS EE . ON THIS POINT, REFERENCE HAS BEEN MADE TO A COMMUNICATION DATED 14 /10/2011 ADDRESSED TO THE TRANSFER PRICING OFFICER, A COPY OF WHICH IS PLACED AT PAGES 115 TO 126 OF THE PAPER BOOK. IN THIS COMMUNICATION, ASSESSEE EX PLAINED THE BASIS ON WHICH THE PRICES HAVE BEEN CHARGED FROM THE ASSOCIATED E NTERPRISES. ASSESSEE HAS EXPLAINED THE POLICY OF AMORTIZATION OF COST OF PRO GRAMMES AND THE MANNER IN WHICH THE PRICES HAVE BEEN DETERMINED FOR SALE TO ATL. AS PER THE ASSESSEE, IT WAS FOLLOWING THE POLICY OF AMORTIZATION OF IT S COST OF PROGRAMMES OVER THREE YEARS, WHEREBY ITS WRITES-OFF 80% OF PRO GRAMMES ACQUIRED COST IN THE FIRST YEAR OF TELECAST, AND 10% EACH IN THE SUBSEQU ENT TWO YEARS. FURTHER, IF ON EVALUATION, IT IS FOUND THAT THE REALIZABLE VALUE O F THE PROGRAMME AT THE YEAR END IS LESS THAN UNAMORTIZED COST, THEN THERE IS AN ADDITIONAL WRITE-OFF OR FULL WRITE-OFF OF THE PROGRAMME COST. IT HAS BEEN EMPHA SIZED THAT SUCH AMORTIZATION POLICY OF WRITING-OFF THE COST IN 3 YE ARS IS BEING CONSISTENTLY FOLLOWED, AND HAS NOT BEEN DISPUTED BY THE REVENUE IN ANY OF THE ASSESSMENT YEARS. IT WAS EXPLAINED THAT IN TERMS OF THE SAID POLICY, THE MAJOR COST OF THE PROGRAMME IS WRITTEN-OFF ONCE IT IS TELECAST IN IND IA AND THE BALANCE 20% IS WRITTEN-OFF IN THE SUBSEQUENT TWO YEARS. IN THIS B ACKGROUND, ASSESSEE EXPLAINED THAT IN TERMS OF ITS MEMORANDUM OF UNDERS TANDING WITH ASSOCIATE ENTERPRISES, THE PRICING FORMULA IS BASED ON GRADIN G THE PROGRAMMES ON ACQUISITION COST AND THE PRICE CHARGED IS MORE THAN 20% OF THE AVERAGE PROGRAMME COST. FROM THE PRICING POLICY CANVASSED BY THE ASSESSEE IT IS QUITE EVIDENT THAT THE PROGRAMMES ARE SOLD TO THE ASSOCIA TE ENTERPRISES ONLY AFTER IT IS COMMERCIALLY EXPLOITED/TELECAST IN INDIA. THE P OLICY ALSO SHOWS THAT THE REVENUES GENERATED FROM THE SALE TO ASSOCIATED ENT ERPRISE WOULD RESULT IN PROFITS, SINCE ALMOST 80% OR MORE OF THE COST STA NDS WRITTEN-OFF IN THE FIRST 16 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) YEAR ITSELF AGAINST THE REVENUES GENERATED FROM T HE TELECAST IN INDIA. THUS, IN OUR CONSIDERED OPINION, THE TRANSFER PRICING OFFICE R HAS NOT DISCHARGED HIS BURDEN TO DEMONSTRATE HOW THE TRANSACTION WITH ASSO CIATE ENTERPRISE BE CONSIDERED AS DUBIOUS. 7.5 THE UNSUSTAINABILITY OF THE APPROACH OF THE TRA NSFER PRICING OFFICER IN SELECTING THE RPM CAN ALSO BE GAUGED IF ONE TAKES I NTO CONSIDERATION THE PROVISIONS OF RULE 10C OF THE RULES. AS NOTED EARL IER, THE COMPUTATION OF ARM'S LENGTH PRICE UNDER SECTION 92C(1) OF THE ACT IS REQ UIRED TO BE MADE IN TERMS OF THE MOST APPROPRIATE METHOD PRESCRIBED THEREIN. SU B-SECTION (1) OF SECTION 92C OF THE ACT ALSO ENUMERATES THE METHODS PRESCRIB ED AND RULE 10C(1) OF THE RULES POSTULATES THAT THE MOST APPROPRIATE METHOD S HALL BE THE METHOD WHICH IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR INTERNATIONAL TRANSACTION , AND WHICH PROVIDES THE MOST RELIABLE MEASURE OF AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRAN SACTION . SUB-RULE(2) OF RULE 10C PROVIDES THE FACTORS WHICH SHALL BE TAKEN INTO CONSIDERATION WHILE SELECTING THE MOST APPROPRIATE METHOD. QUITE CLEAR LY, THE ENTIRE DISCUSSION IN THE ORDER OF THE TRANSFER PRICING OFFICER DOES NOT REFLECT ANY JUSTIFIABLE FACTORS FOR SELECTING THE RPM METHOD IN PREFERENCE TO THE TNM METHOD SELECTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD. MOREO VER, IT IS FACTUALLY EVIDENT THAT ASSESSEE HAS UNDERTAKEN SIMILAR INTERNATIONAL TRANSACTIONS OF SALE OF TELEVISION PROGRAMMES AND FILM RIGHTS TO ITS ASSOCI ATED ENTERPRISES IN THE PAST AS WELL AS IN SUBSEQUENT YEARS AND THE SAME WERE BE NCHMARKED BY CONSIDERING THE TNM METHOD AS MOST APPROPRIATE MET HOD; AND, SUCH POSITION HAS BEEN ACCEPTED BY THE ASSESSING AUTHORITY IN THE RESPECTIVE YEARS. NO DOUBT, THE PRINCIPLES OF RES JUDICATA ARE NOT STRICTLY APPLICABLE TO THE INCOME- TAX PROCEEDINGS, SO HOWEVER, IF A QUALITATIVELY COM PARABLE SITUATION EXISTS IN 17 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) MORE THAN ONE ASSESSMENT YEAR, THEN THE RULES OF CO NSISTENCY CANNOT BE GIVEN A GO BY. IN THE INSTANT CASE, WE FIND THAT THE IMPU GNED INTERNATIONAL TRANSACTION OF SALE TO THE ASSOCIATED ENTERPRISE, A TL MAURITIUS IS EFFECTED IN TERMS OF MEMORANDUM OF UNDERSTANDING DATED 01/10/20 05, WHICH CLEARLY SHOWS THAT QUALITATIVELY SIMILAR TRANSACTIONS HAVE BEEN UNDERTAKEN BY THE ASSESSEE IN THE PAST YEAR, WHEREIN BENCHMARKING DON E BY SELECTING THE TNM METHOD AS THE MOST APPROPRIATE METHOD STANDS ACCEPT ED. IN THE COURSE OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE HA D ASSERTED THAT SIMILAR FACT- SITUATION PREVAILS IN THE SUBSEQUENT ASSESSMENT YEA RS ALSO, AND SUCH ASSERTION HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US. EVEN OTHERWISE, WE FIND THAT THE TRANSFER PRICING OFFICER HAS NOT BROUGHT O UT ANY JUSTIFIABLE REASONS TO DEPART FROM ADOPTING THE TNM METHOD, WHICH HAS OTHE RWISE BEEN FOUND TO BE APPLICABLE IN THE ASSESSMENTS OF PAST AS WELL AS SU BSEQUENT ASSESSMENT YEARS UPTO TO THE ASSESSMENT YEAR 2012-13, AS STATED BEFO RE US BY THE LD. REPRESENTATIVE FOR THE ASSESSEE BEFORE US. THEREFO RE, ON THE PRINCIPLE OF CONSISTENCY ALSO, WE ARE UNABLE TO UPHOLD THE SELEC TION OF RPM METHOD AS THE MOST APPROPRIATE METHOD BY THE TRANSFER PRICING OFF ICER IN PREFERENCE TO THE TNM METHOD SELECTED BY THE ASSESSEE. 7.6 BEFORE PARTING, WE MAY NOW REFER TO THE POINT R AISED BY THE LD. DEPARTMENTAL REPRESENTATIVE TO THE EFFECT THAT ASSE SSEE HAD FAILED TO SHOW BEFORE THE TRANSFER PRICING OFFICER THAT IT HAD KEP T AND MAINTAINED THE INFORMATION AND DOCUMENTS REQUIRED IN TERMS OF RULE 10D(1) OF THE RULES. THEREFORE, ACCORDING TO LD. DEPARTMENTAL REPRESENTA TIVE, THE TRANSFER PRICING OFFICER WAS JUSTIFIED IN REJECTING THE TNM METHOD S ELECTED BY THE ASSESSEE. ON THIS COUNT, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER IN THI S REGARD ARE CONTRARY TO THE 18 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) FACT-SITUATION. IT IS POINTED OUT THAT ASSESSEE HA S MAINTAINED ITS DOCUMENTATION CONTEMPORANEOUSLY BEFORE THE DUE DA TE OF FILING OF RETURN OF INCOME AS REQUIRED AS PER RULE 10D(2) OF THE RULES AND THE PRESCRIBED REPORT HAS ALSO BEEN CERTIFIED BY THE ACCOUNTANT IN FORM N O.3CEB. THE LD. REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT IN T HE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER THERE WAS CERTA IN DELAY IN FURNISHING THE REQUISITE INFORMATION, INCLUDING THE DOCUMENTATION AND INFORMATION REQUIRED TO BE MAINTAINED AS PER RULE 10D(1) OF THE RULES, BUT THE DELAY BY ITSELF CANNOT BE INTERPRETED TO MEAN THAT THE REQUISITE I NFORMATION OR DOCUMENTATION WAS NOT CONTEMPORANEOUSLY MAINTAINED. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS ALSO REFERR ED TO THE PAPER BOOK FILED, WHEREIN THE REQUISITE INFORMATION, MATERIAL AND DOC UMENTATION REQUIRED UNDER RULE 10D(1) OF THE RULES HAS BEEN PLACED. WE FIND THAT THE SAID MATERIAL WAS VERY MUCH BEFORE THE TRANSFER PRICING OFFICER AND, THEREFORE, IN OUR CONSIDERED OPINION, THE STAND OF THE REVENUE IS QUI TE MISPLACED. 7.7 ANOTHER ASPECT ARGUED BY THE LD. DEPARTMENTAL R EPRESENTATIVE WAS TO THE EFFECT THAT IN CASE THE ACTION OF THE TRANSFER PRICING OFFICER IN SELECTING THE RPM IS NOT UPHELD, THEN THE MATTER BE REMANDED BACK TO THE TRANSFER PRICING OFFICER FOR APPROPRIATELY VERIFYING THE COMPARABILI TY ANALYSIS UNDERTAKEN BY THE ASSESSEE BY APPLYING THE TNM METHOD. ON THIS POINT , THE LD. REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE PAPER BOOK TO POIN T OUT THAT THE FOLLOWING WORKINGS/EXPLANATIONS WERE FURNISHED IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER WITH REGARD TO THE APPLICA TION OF TNM:- (I) SUBMISSION OF FORM NO.3CEB AND FAR ANALYSIS VIDE COMMUNICATIO N DATED 25/10/2011, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK AT PAG ES 136 AND 153; (II) EXPLANATION REGARDING ACCEPT/REJECT MATRIX OF COMPA RABLES AND ANALYSIS OF THE 19 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) PROFIT LEVEL INDICATOR(PLI) OF THE ASSESSEE VIS--V IS COMPARABLE CONCERNS VIDE COMMUNICATION DATED 27/05/2011, COPIES OF WHICH HAV E BEEN PLACED AT PAGES 95, 98 TO 105 OF THE PAPER BOOK; (III) WORKING OF M ETHODOLOGY ADOPTED FOR SEARCHING COMPARABLES FURNISHED TO THE TRANSFER PRI CING OFFICER, COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 106 AND 107; (IV) TNM METHOD WORKING FOR THE LAST THREE YEARS SUBMITTED TO THE T RANSFER PRICING OFFICER VIDE LETTER DATED 07/10/2011, PLACED AT PAGES 110 OF THE PAPER BOOK. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E ABOVE INFORMATION WAS SUBMITTED AT THE INSTANCE OF THE TRANSFER PRICING O FFICER HIMSELF, WHICH CLEARLY DEMONSTRATES THAT THE TNM METHOD WORKINGS HAVE BEEN EXAMINED BY THE TRANSFER PRICING OFFICER AND NO ADVERSE INFERENCE H AS BEEN DRAWN BY HIM. FOR THE SAID REASONS, HE HAS OPPOSED THE PLEA OF THE LD . DR TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER. ON THIS ASPECT, WE FIND THAT IT WOULD BE INAPPROPRIATE TO FACTUALLY CONCLUDE THAT THE TRANSFER PRICING OFFICER HAS NOT VERIFIED THE TNM METHOD APP LIED BY THE ASSESSEE COMPANY . IN FACT, IN TERMS OF PAGE 108 OF THE PAP ER BOOK, WHEREIN IS PLACED A COPY OF ASSESSEES COMMUNICATION TO TRANSFER PRICIN G OFFICER DATED 07/10/2011, THE ASSESSEE HAD SUBMITTED A WORKING TO DEMONSTRATE THAT EVEN IF THE CONCERNS WHICH WERE SELECTED BY THE TRANSFER PR ICING OFFICER FOR ASSESSMENT YEAR 2007-08 ARE TAKEN AS COMPARABLES FO R THE INSTANT YEAR ALSO, THE TRANSACTIONS WITH ATL-MAURITIUS WOULD STILL TO BE AT ARM'S LENGTH PRICE. ALL THIS GOES TO SHOW THAT THE TRANSFER PRICING OFFICER WAS FULLY AWARE OF THE MANNER IN WHICH THE TNM METHOD WAS APPLIED BY THE A SSESSEE COMPANY AND THERE IS NO ADVERSE OBSERVATIONS IN THIS REGARD. T HE MATERIAL ON RECORD, IN OUR VIEW, CLEARLY BELIES THE AVERMENT OF THE REVENUE T HAT THE MATTER BE RESTORED BACK TO THE FILE OF TRANSFER PRICING OFFICER FOR VE RIFYING THE APPLICATION OF TNM 20 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) METHOD. RATHER, IN OUR VIEW, THE FACT-SITUATION CLEARLY POINTS TO THE CONTRARY INASMUCH AS THE ASSESSEE HAD FULLY EXPLAINED ITS PO SITION IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER AND NO JUSTIFIABLE FAULT HAS BEEN POINTED OUT BY THE TRANSFER PRICING OFFICER; A ND, EVEN BEFORE US THE SAME POSITION CONTINUES ON BEHALF OF THE REVENUE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE PLEA OF THE LD. DEPARTMENTAL REPRESEN TATIVE IS UNTENABLE AND IS HEREBY REJECTED. 7.8 IN THE FINAL ANALYSIS, IT IS HELD THAT THE ACTI ON OF THE TRANSFER PRICING OFFICER IN DETERMINING THE TRANSFER PRICING ADJUSTM ENT OF RS.24,91,59,200/- WITH REGARD TO THE SALE OF TELEVISION PROGRAMMES AN D FILM RIGHTS TO ATL- MAURITIUS DESERVES TO BE SET-ASIDE. WE HOLD SO. T HUS, IN SO FAR AS GROUND NO.1 IS CONCERNED, ASSESSEE SUCCEEDS. 8. THE NEXT SUBSTANTIVE DISPUTE IN THIS APPEAL IS O N ACCOUNT OF AN ADDITION OF RS.1,63,16,370/- MADE BY THE ASSESSING OFFICER O N ACCOUNT OF ARMS LENGTH FEE FOR CORPORATE GUARANTEE GIVEN BY THE ASSESSEE T O THE BANK ON BEHALF OF ITS ASSOCIATED ENTERPRISE , ATL-MAURITIUS FOR THE LOAN FACILITY AVAILED BY IT FROM THE BANK. 8.1 BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE T RANSFER PRICING OFFICER NOTICED THAT THE ASSOCIATED ENTERPRISE, ATL-MAURITI US HAD AVAILED CREDIT FACILITIES FROM THE BARCLAYS BANK, WHICH INTER-ALIA , INCLUDED A LOAN OF 30 MILLION US DOLLARS. THE ACTUAL AMOUNT OF LOAN OUTSTANDING AS ON 31/03/2008 WAS TO THE TUNE OF US DOLLAR 129,35,000. THE TRANSFER PRI CING OFFICER NOTICED THAT ASSESSEE DID NOT CHARGE ANY FEE OR COMMISSION FOR P ROVIDING CORPORATE GUARANTEE AS A COLLATERAL FOR THE AFORESAID BORROWI NG TO BARCLAYS BANK ON BEHALF OF ITS ASSOCIATED ENTERPRISE. THE PRELIMINA RY STAND OF THE ASSESSEE WAS 21 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) THAT PROVIDING OF THE CORPORATE GUARANTEE WAS NOT A N INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF T HE ACT, AND THAT IT WAS AN ACTIVITY WHICH WAS INCIDENTAL TO THE BUSINESS. WIT HOUT PREJUDICE TO THE ABOVE, THE ALTERNATE PLEA OF THE ASSESSEE WAS THAT IF ARM S LENGTH RATE OF SUCH FEE/COMMISSION WAS TO BE EVALUATED, IT MAY BE ESTIM ATED AT 0.25% OF THE OUTSTANDING LOAN LIABILITY. THE TRANSFER PRICING O FFICER HELD THAT PROVIDING OF A CORPORATE GUARANTEE TO THE BANK ON BEHALF OF THE AS SOCIATED ENTERPRISE WAS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF S ECTION 92B OF THE ACT AND, THEREFORE, IT WAS REQUIRED TO BE BENCHMARKED AS PER INDIAN TRANSFER PRICING REGULATIONS. THE TRANSFER PRICING OFFICER TOOK INTO CONSIDERATION THE INFORMATION RECEIVED FROM BANKS AND DETERMINED A RA TE OF 3% AS AN ARMS LENGTH RATE TO ESTIMATE THE INCOME BY WAY OF GUARAN TEE COMMISSION/FEE. ON THIS BASIS, THE TRANSFER PRICING OFFICER WORKED OUT AN ADDITION OF RS.1,63,16,370/-, BEING 3% OF THE AVERAGE AMOUNT OF LOAN OUTSTANDING DURING THE YEAR. THE ASSESSING OFFICER MADE AN ADDITION O F RS.1,63,16,370/- TO THE RETURNED INCOME ACCORDINGLY. BEFORE THE CIT(A), ASS ESSEE ASSAILED THE STAND OF THE ASSESSING AUTHORITY AND CONTENDED THAT THE TRAN SFER PRICING OFFICER HAD ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION ON ACCOUNT OF COMMISSION/FEE ON CORPORATE GUARANTEE GIVEN TO THE ASSOCIATED ENTE RPRISE. AS PER THE ASSESSEE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE FINANCIAL CAPACITY AND NET WORTH OF THE ASSOCIATED ENTERPRISE THERE WAS NO RISK ASSUMED BY THE ASSESSEE IN PROVIDING CORPORATE GUAR ANTEE TO THE BANK FOR THE LOAN TAKEN BY THE ASSOCIATED ENTERPRISE. ALTERNATI VELY, ASSESSEE CONTENDED THAT EVEN IF AN ADJUSTMENT WAS TO BE MADE, THE A RMS LENGTH RATE WOULD NOT EXCEED 1%, WHICH WAS THE RATE CHARGED BY BARCLAYS B ANK TO THE ASSOCIATED ENTERPRISE, ATL-MAURITIUS FOR PROVIDING GUARANTEE B Y WAY OF LETTER OF CREDIT IN 22 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) ASSESSMENT YEAR 2005-06. HOWEVER, THE CIT(A) DIS AGREED WITH THE ASSESSEE AND, HE HAS AFFIRMED THE ACTION OF THE TRANSFER PR ICING OFFICER AND ACCORDINGLY, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8.2 NOTABLY, AS THE ORDERS OF THE LOWER AUTHORITI ES REVEAL, THE PRINCIPAL PLEA OF THE ASSESSEE WAS THAT FURNISHING OF A CORPO RATE GUARANTEE ON BEHALF OF THE ASSOCIATED ENTERPRISE IS NOT TO BE CONSTRUED AS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF T HE ACT. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS NOT LAID ANY EM PHASIS ON THE AFORESAID PRIMARY PLEA, BUT HAS ASSAILED THE RATE OF 3% ADO PTED BY THE INCOME TAX AUTHORITIES TO DETERMINE ARMS LENGTH RATE OF THE I MPUGNED INTERNATIONAL TRANSACTION OF PROVIDING CORPORATE GUARANTEE TO THE BANK ON BEHALF OF THE ASSOCIATED ENTERPRISE. THEREFORE, WE ARE CONFINING OUR DISCUSSION TO THE EFFICACY OF THE RATE OF 3%, WHICH HAS BEEN CONSIDER ED TO BE ARMS LENGTH RATE FOR CORPORATE GUARANTEE FEE/COMMISSION. IN THIS CON TEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE JUD GEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EVEREST KANTO CYLINDERS LTD., 378 ITR 57(BOM), WHEREIN THE ARMS LENGTH RATE OF 0.50% HA S BEEN APPROVED IN RESPECT OF CORPORATE GUARANTEE FEE/COMMISSION. AC CORDING TO HIM, THE RATE OF 0.50% WAS APPROVED IN THE CASE OF EVEREST KANTO CYLINDERS LTD. (SUPRA) BECAUSE THE SAME WAS SUO-MOTO APPLIED BY THE ASSESS EE , WHEREAS IN THE PRESENT CASE, THE FACTS AND CIRCUMSTANCES ARE SUCH THAT THE ARMS LENGTH RATE OF CORPORATE GUARANTEE FEE/COMMISSION OUGHT TO BE D ETERMINED AT A LOWER RATE. IN ORDER TO JUSTIFY THE LOWER RATE, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE LOAN RAISED BY THE ASSOCIATED ENTERPRISE WAS FULLY SECURED BY THE ASSETS OWNED BY THE ASSOCIATED ENTERPRISE AN D IT WAS POINTED OUT THAT 23 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) NET WORTH OF THE ASSOCIATED ENTERPRISE AS ON 31/03/ 2008 WAS AROUND RS.800 CRORES AND PROFIT AFTER TAX FOR THE YEAR ENDING 31 /03/2008 IS TO THE TUNE OF RS.48 CRORES. IT WAS SOUGHT TO BE POINTED OUT THAT THE ASSOCIATED ENTERPRISE WAS IN A GOOD FINANCIAL HEALTH TO BORROW MONIES FRO M BANK ON ITS OWN ACCOUNT; THAT THE LOAN WAS ONLY TO THE EXTENT OF 30 MILLION US DOLLARS, WHICH WAS QUITE INSIGNIFICANT CONSIDERING THE NET WORTH OF THE ASSO CIATED ENTERPRISE. SECONDLY, IT WAS ALSO EXPLAINED THAT ASSESSEE WAS IN POSSESSI ON OF ABOUT RS.183.30 CRORES OF INTEREST-FREE FUNDS BELONGING TO THE ASSOCIATE D ENTERPRISE AS ON 31/3/2008 AND CONSIDERING ALL THESE ASPECTS, THERE WAS NO RIS K OF THE GUARANTEE DEVOLVING ON THE ASSESSEE FOR PAYMENT. FOR ALL THE SAID REAS ONS, IT IS SOUGHT TO BE POINTED OUT THAT THE ADJUSTMENT, IF ANY, BE RESTRIC TED TO A RATE EVEN LOWER THAN 0.50%. 8.4 ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTA TIVE APPEARING FOR THE REVENUE HAS REITERATED THAT THE TRANSACTION OF PROV IDING CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION WITHIN THE MEAN ING OF SECTION 92B OF THE ACT AND IT HAS TO BE BENCHMARKED SEPARATELY BASED ON T HE RELEVANT FAR ANALYSIS. ACCORDING TO HIM, IN THE PRESENT CASE, ASSESSEE HAD ITSELF MADE AN ALTERNATE PLEA BEFORE THE CIT(A) OF 1% GUARANTEE FEE BEING CH ARGED BY THE BANK AND, THEREFORE, THE SAME MAY BE TREATED AS ARMS LENGTH RATE FOR THE INTERNATIONAL TRANSACTION IN QUESTION. 8.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AS OBSERVED BY US EARLIER, THE LIMITED ISSUE BEFORE US RELATES TO THE EFFICACY OF THE ARMS LENGTH RATE OF 3% DETERMINED BY INCOME TAX AUTHORITIES ON ACCOUNT OF FEE/COMMISSION FOR CORPORATE GUARANTEE PROVIDED ON BEHALF OF THE ASSOCIATED 24 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) ENTERPRISE. FACTUALLY SPEAKING, IN THE PRESENT CAS E, ASSESSEE COMPANY HAS ISSUED CORPORATE GUARANTEE ON BEHALF OF ITS ASSOCIA TED ENTERPRISE FOR THE LOAN FACILITY AVAILED BY IT FROM THE BANK. THE DETERMIN ATION OF ARMS LENGTH COMMISSION/CORPORATE GUARANTEE FEE @ 3% BY THE TRA NSFER PRICING OFFICER IS BASED ON THE FEES CHARGED BY THE BANKS. QUITE CLEA RLY, THE AFORESAID APPROACH OF THE INCOME-TAX AUTHORITIES IS INCONSISTENT WITH THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO CYLI NDERS LTD.(SUPRA). AS PER HON'BLE BOMBAY HIGH COURT, THE INSTANCE OF A COMMER CIAL BANK ISSUING BANK GUARANTEE IS INCOMPARABLE TO A SITUATION WHERE A CO RPORATE ENTITY ISSUES GUARANTEE TO THE BANK THAT IF THE SUBSIDIARY/ASSOCI ATED ENTERPRISE DOES NOT REPAY A LOAN, THE SAME WOULD BE MADE GOOD BY SUCH C ORPORATE ENTITY. THEREFORE, FOLLOWING THE RATIO OF THE JUDGMENT OF T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO CYLINDERS LTD.(S UPRA), THE RATE OF 3% DESERVES TO BE REJECTED. SO HOWEVER, THE ADDITION IS REQUIRED TO BE SUSTAINED ON THE BASIS OF AN ARMS LENGTH RATE AND IN THIS RE GARD A REFERENCE HAS ALSO BEEN MADE TO THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE THOMAS COOK (INDIA) LIMITED IN ITA NO.859/MUM/2014 DATED 29/04 /2016, WHEREIN A RATE OF 0.5% HAS BEEN ADOPTED FOR THE PURPOSES OF DETERMINI NG THE ARMS LENGTH RATE OF CORPORATE GUARANTEE/FEE. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS CANVASSED FOR ADOPTION OF A LOWER RATE, WHEREAS THE LD. DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE HAS REFERR ED TO THE ALTERNATE PLEA OF THE ASSESSEE ITSELF, WHICH WAS RAISED BEFORE THE CI T(A) THAT SUCH RATE BE TAKEN AS 1%. IN OUR VIEW, THE ARGUMENTS OF THE LD. DEPAR TMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE WITH REFERENCE TO THE RAT E OF 1% CANVASSED BY THE ASSESSEE BEFORE THE CIT(A) CANNOT BE ACCEPTED BECAU SE SUCH A RATE WAS CANVASSED BASED ON THE RATE CHARGED BY THE BARCLAYS BANK FROM THE ASSOCIATED 25 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) ENTERPRISE. OSTENSIBLY, THE ADOPTION OF SUCH A RAT E WOULD MILITATE AGAINST THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF EVEREST KANTO CYLINDERS LTD.(SUPRA). AT THE SAME TIME, THE PLEA O F THE LD. REPRESENTATIVE FOR THE ASSESSEE THAT A RATE LOWER THAN 0.5% BE ADOPTED IS ALSO NOT JUSTIFIED. IN SUM AND SUBSTANCE, THE PLEA OF THE ASSESSEE IS THAT THE LOAN RAISED BY THE ASSOCIATED ENTERPRISE HAS ADEQUATE PRIMARY SECURITY IN THE SHAPE OF THE NET WORTH OF THE ASSOCIATED ENTERPRISE ITSELF AND, THER EFORE, THE RISK OF DEVOLVEMENT OF THE GUARANTEE GIVEN BY THE ASSESSEE IS MINIMAL. IN OUR CONSIDERED OPINION, THE SAID FEATURE CANNOT BE CONS IDERED AS A PECULIAR SITUATION SO AS TO WARRANT A RATE LOWER THAN 0.50%, WHICH HAS BEEN APPROVED IN A NUMBER OF DECISIONS OF THE MUMBAI BENCH OF TRIBUN AL, NAMELY:- (1) M/S.EVEREST KANTO CYLINDERS LTD. VS. DCIT,ITA NO.542/MUM/2012 ORDER DATED 23/11/2012. (2) ADITYA BIRLA MINACS WORLDWIDE LTD. VS. DCIT, 5 6 TAXMAN.COM 317 (MUM-TRIB) (3) M/S. GODREJ HOUSEHOLD PRODUCTS LTD. VS. ADDL. CIT, ITA NO.7369/MUM/2010 ORDER DATED 22/11/2013 (4) ACIT VS. NIMBUS COMMUNICATIONS LTD., ITA NO.36 64/MUM/2010 DATED 12/06/2013. 8.6 THEREFORE, CONSIDERING THE ENTIRETY OF FACTS AN D CIRCUMSTANCES, WE ARE INCLINED TO UPHOLD THE RATE OF 0.5% FOR THE PURPOSE S OF DETERMINING ARMS LENGTH RATE OF THE CORPORATE GUARANTEE COMMISSION/ FEE. THUS, ON THIS ASPECT, WE SET-ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASS ESSING OFFICER TO RECOMPUTE THE ADDITION AS PER OUR AFORESAID DIRECTION. THUS, ON THIS ASPECT ASSESSEE PARTLY SUCCEEDS. 9. THE NEXT GROUND OF APPEAL IS IN RESPECT OF DISAL LOWANCE OF RS.69,94,985/- SUSTAINED BY THE CIT(A) UNDER SECTION 14A OF THE AC T. IN THIS CONTEXT, THE 26 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) RELEVANT FACTS ARE THAT DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD MADE SUBS TANTIAL INVESTMENTS IN THE SHARES OF SUBSIDIARY COMPANIES AND HAS ALSO EARNED DIVIDEND INCOME OF RS.1,09,82,154/-, WHICH WAS CLAIMED AS EXEMPT INCOM E UNDER THE ACT. UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER SHOW CAU SED THE ASSESSEE AS TO WHY EXPENSES INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME NOT BE DISALLOWED UNDER SECTION 14A OF THE ACT. BEFORE TH E ASSESSING OFFICER, ASSESSEE MADE DETAILED SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 4 OF HIS ORDER. THE ASSE SSEE RAISED VARIOUS PLEAS, NAMELY, THAT THE FRESH INVESTMENTS MADE DURING THE YEAR WERE NOT OUT OF INTEREST BEARING FUNDS BUT OUT OF INTERNAL ACCRUALS ; THAT THE INVESTMENTS MADE IN EARLIER YEARS WERE OUT OF NON-INTEREST BEARING F UNDS AND HAVE BEEN DULY VERIFIED; AND, THEREFORE, NO INTEREST EXPENDITURE C OULD BE ATTRIBUTABLE TO SUCH INVESTMENTS. FURTHER, IT WAS ALSO CANVASSED THAT S URPLUS NON-INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE ARE IN EXCESS OF THE VALUE OF INVESTMENTS MADE AND RELIANCE WAS ALSO PLACED ON THE JUDGMENT O F THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD.,313 ITR 340(BOM) TO SAY THAT THE INVESTMENTS ARE PRESUMED TO BE MADE OU T OF INTEREST-FREE FUNDS. THUS, NO DISALLOWANCE COULD BE MADE OUT OF INTEREST EXPENDITURE. IT WAS ALSO CANVASSED THAT THE INVESTMENTS IN SISTER-CONCERNS A ND SUBSIDIARIES WERE OUT OF BUSINESS EXIGENCIES, AND THUS THE SAME ARE OUT OF T HE PURVIEW OF SECTION 14A OF THE ACT. WITH REGARD TO THE DISALLOWANCE OUT OF OVERHEADS, IT WAS ALSO CANVASSED THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME AND, THEREFORE, NO DISALLOWANCE WAS REQUIRED TO BE MADE OUT OF EITHER INTEREST OR OTHER OVERHEAD EXPENSES. THE ASSESSING OFFICER DISAGREED WITH THE ASSESSEE AND COMPUTED THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT OF 27 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) RS.69,94,985/- BY APPLYING THE FORMULA CONTAINED IN RULE 8D(2) OF THE RULES. THE SAID ACTION OF THE ASSESSING OFFICER HAS SINCE BEEN AFFIRMED BY THE CIT(A) ALSO. BEFORE US, THE LD. REPRESENTATIVE FOR THE AS SESSEE HAS PRIMARILY REITERATED THE SUBMISSIONS, WHICH HAVE BEEN MADE BE FORE THE LOWER AUTHORITIES. 9.1 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE APPEARING FOR THE REVENUE CONTENDED THAT THE PLEA OF THE ASSESSEE THAT DISALLOWANCE UNDER SECTION 14A IS NOT MERITED IN RESPECT OF STRATEGIC INVESTMENTS MADE IN SUBSIDIARY/SISTER CONCERN HAS NOT BEEN EXAMINED AND , THEREFORE, THE MATTER MAY BE SET-ASIDE TO THE FILE OF THE ASSESSING OFFIC ER. 9.2 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE PERTINENT PLEA OF THE ASSESSEE WAS THAT NO INTEREST EXPENDITURE IS LIABLE TO BE DISALLOWED UND ER SECTION 14A OF THE ACT SINCE ASSESSEE HAD SUFFICIENT OWNED FUNDS TO COVER THE INVESTMENTS AND FOR THIS PROPOSITION RELIANCE WAS PLACED ON THE JUDGMEN T OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD.(SUPRA). THE SUBMISSIONS OF THE ASSESSEE, WHICH HAVE BEEN REPROD UCED IN THE ASSESSMENT ORDER, ALSO CLEARLY ESTABLISH THAT THE OWNED INTERE ST-FREE FUNDS OF THE ASSESSEE COMPRISED OF SHARE CAPITAL AND RESERVES & SURPLUS A MOUNTING TO RS.2128.24 CRORES, WHEREAS THE INVESTMENTS ARE TO THE TUNE OF RS.60.12 CRORES. EVEN IN THE COURSE OF HEARING BEFORE US, THE LD. REPRESENTA TIVE FOR THE ASSESSEE HAS REFERRED TO THE PAPER BOOK TO JUSTIFY THE AFORESAID FIGURES. THERE IS NO REPUDIATION OF THE SAID FACTUAL MATRIX EITHER BEFOR E US OR IN THE ASSESSMENT PROCEEDINGS AND, THEREFORE, FOLLOWING THE RATIO OF THE HON'BLE BOMBAY HIGH 28 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD .(SUPRA) IT HAS TO BE PRESUMED THAT THE INVESTMENTS ARE OUT OF OWN INTERE ST FREE FUNDS. THE SAID PROPOSITION IS ALSO APPLICABLE IN THE CONTEXT OF SE CTION 14A OF THE ACT AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT, 366 ITR 505(BOM). THEREFORE, CONSIDERING THE AFORESAID FAC T-SITUATION, WE FIND NO REASON TO UPHOLD THE DISALLOWANCE MADE UNDER SECTIO N 14A OF THE ACT ON ACCOUNT OF INTEREST EXPENDITURE. 9.3 SO FAR AS THE DISALLOWANCE OUT OF OVERHEAD EXPE NSES IS CONCERNED, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THA T THE DISALLOWANCE HAS BEEN CALCULATED BY APPLYING RULE 8D(2)(III) OF THE RULES AND THAT THERE WAS NO JUSTIFICATION FOR THE SAME. IT WAS ALSO POINTED OU T THAT IN THE ASSESSMENT YEAR 2007-08, 5% OF THE DIVIDEND INCOME WAS DISALLOWED O N ACCOUNT OF THE OVERHEAD EXPENSES INCURRED TOWARDS ADMINISTRATIVE E XPENSES. ON THIS ASPECT, WE FIND THAT THE ASSESSING OFFICER HAS ADEQUATELY BROUGHT OUT THAT DURING THE YEAR ASSESSEE HAS UNDERTAKEN ACTIVITIES, WHICH INVOLVE TAKING INVESTMENT DECISIONS AND, THEREFORE, SOME AMOUNT OF MANAGEME NT/ADMINISTRATIVE COSTS ARE LIABLE TO BE ATTRIBUTED TO SUCH ACTIVITY. CON SIDERING THE ENTIRETY OF CIRCUMSTANCES, IN OUR VIEW , IN SO FAR AS THE ADMIN ISTRATIVE EXPENSES IS CONCERNED, THE APPLICATION OF RULE 8D(2)(III) OF TH E RULES TO COMPUTE DISALLOWANCE UNDER SECTION 14A OF THE ACT IS QUITE JUSTIFIED. THUS, ON THIS ASPECT, WE HEREBY AFFIRM THE STAND OF THE REVENUE. 9.4 IN THE RESULT, IN SO FAR AS GROUND OF APPEAL NO .3 IS CONCERNED, ASSESSEE SUCCEEDS PARTLY. 29 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) 10. THE NEXT GROUND OF APPEAL RELATES TO THE ACTION OF CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS.33,54,01,600/- WHICH REPRESE NTED WRITE OFF OF ADVANCE GIVEN TO THE BOARD OF CONTROL FOR CRICKET IN INDIA (BCCI). IN RELATION TO THE SAID ISSUE, THE RELEVANT FACTS CAN BE SUMMARIZED AS FOLL OWS. THE ASSESSEE-COMPANY HAD ACQUIRED MEDIA RIGHTS FROM BCCI FOR A 5-YEAR PE RIOD OF 1.4.2006 TO 31.3.2011. IN TERMS OF THE MEDIA RIGHTS AGREEMENT DATED 12.4.2006, MEDIA RIGHTS ACQUIRED BY THE ASSESSEE COMPRISED OF TELEVI SION RIGHTS, RADIO RIGHTS AND BROADBAND INTERNET RIGHTS IN RESPECT OF OVERSEAS MA TCHES TO BE PLAYED BY THE INDIAN CRICKET TEAM DURING THE AFORESAID 5-YEAR PER IOD. IN TERMS OF THE SAID AGREEMENT, ASSESSEE PAID US DOLLARS 17,540,000 OUT OF WHICH A SUM OF USD 10,080,000 WAS DEBITED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2007 ON ACCOUNT OF THE FIRST TWO MATCHES PLAYE D ON 18 TH & 19 TH APRIL, 2006, AND THE BALANCE OF US DOLLARS 7,460,000 WAS T O BE KEPT AS A DEPOSIT, WHICH WAS TO BE ADJUSTED AGAINST THE PAYMENT DUE FO R THE LAST SERIES IN THE 5 TH YEAR OF AGREEMENT. IN TERMS OF THE AGREEMENT, ASSE SSEE-COMPANY WAS ALSO REQUIRED TO FURNISH A BANK GUARANTEE OF US DOLLARS 60 MILLION AND ACCORDINGLY, ASSESSEE HAD PROVIDED A BANK GUARANTEE OF THE AFORE SAID VALUE, WHICH WAS EXPIRING ON 12.4.2007. THE AGREEMENT ENVISAGED THA T THE BANK GUARANTEE WAS RENEWABLE ON A YEARLY BASIS DURING THE FIRST FOUR Y EARS OF THE AGREEMENT. DURING THE YEAR UNDER CONSIDERATION, A DISPUTE AROS E BETWEEN THE ASSESSEE AND THE BCCI AND ASSESSEE DID NOT RENEW THE BANK GU ARANTEE WHICH EXPIRED ON 12.4.2007. AS A CONSEQUENCE, THE BCCI TERMINATED T HE AGREEMENT VIDE COMMUNICATION DATED 31.5.2007 AND 22.6.2007 AND FOR FEITED THE ADVANCE DEPOSIT OF US DOLLARS 7,460,000 AND REPLACED THE AS SESSEE AND GRANTED MEDIA RIGHTS TO A NEW BROADCASTER. THE APPELLANT-COMPANY CONSIDERED THE FORFEITED AMOUNT AS IRRECOVERABLE AND WROTE-OFF THE AMOUNT OF ADVANCE OF 30 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) RS.33,54,01,600/- (I.E. USD 7,460,000) AND CLAIMED THE SAME AS AN ALLOWABLE REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE CLAI M OF ASSESSEE WAS ON THE GROUND THAT THE SAID ADVANCE TO BCCI WAS A BUSINESS (TRADE) ADVANCE MADE IN THE ORDINARY COURSE OF BUSINESS AND HENCE ITS IRREC OVERABILITY ENTITLED THE ASSESSEE TO CLAIM IT AS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT. 10.1 ON BEING SHOW CAUSED BY THE ASSESSING OFFICER TO JUSTIFY THE CLAIM, ASSESSEE POINTED OUT THAT SUBSEQUENT TO ENTERING OF AGREEMENT DATED 12.4.2006, TWO SIGNIFICANT AND MATERIALLY ADVERSE E VENTS TOOK PLACE, PRIMARILY ON ACCOUNT OF STATUTORY REGULATIONS, WHICH WOULD HA VE CAUSED SUBSTANTIAL LOSS TO THE ASSESSEE; FIRSTLY, IT WAS POINTED OUT THAT T HE TRAI STIPULATED CEILING ON SUBSCRIPTION FEES PAYABLE BY THE SUBSCRIBERS OF THE T.V CHANNELS W.E.F. 1.1.2007. ACCORDING TO THE ASSESSEE, IN SPORTS CHA NNELS, SUBSCRIPTION REVENUE IS A SIGNIFICANT SOURCE AS THE COST OF PROGRAMMING IS HIGH. SECONDLY, ASSESSEE POINTED OUT THAT THE GOVERNMENT OF INDIA PROMULGATE D AN ORDINANCE IN FEBRUARY, 2007 WHICH MANDATED THE PRIVATE BROADCAST ERS, OWNING EXCLUSIVE RIGHTS TO COVER SPORTS EVENTS OF NATIONAL IMPORTANC E, TO COMPULSORILY SHARE THEIR LIVE-FEED WITH THE PUBLIC BROADCASTER, PRASAR BHARATI. IN VIEW OF THESE DEVELOPMENTS, ASSESSEE SOUGHT RE-NEGOTIATION OF THE TERMS OF AGREEMENT BECAUSE THE AFORESAID DEVELOPMENTS WOULD HAVE SEVER ELY IMPACTED THE REVENUES OF ASSESSEE. AWAITING RE-NEGOTIATIONS, AS SESSEE DID NOT RENEW THE BANK GUARANTEE, WHICH HAD EXPIRED ON 12.4.2007 AND AS A CONSEQUENCE, BCCI INVOKED CLAUSE (8) OF THE AGREEMENT DATED 12.4.2006 AND TERMINATED THE ARRANGEMENT AND FORFEITED THE ADVANCE OF US DOLLARS 7,460,000. ASSESSEE POINTED OUT THAT IT HAD FILED A LEGAL CASE FOR RECO VERY OF THE AMOUNT FORFEITED BY BCCI, WHICH WAS PENDING AND WITH NO SIGNS OF REC OVERY, THE ADVANCE 31 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) FORFEITED WAS WRITTEN-OFF IN THE INSTANT YEAR AND C LAIMED AS A DEDUCTION. THE ASSESSING OFFICER NOTED THAT CLAUSE 7.1 OF AGREEMEN T GAVE A RIGHT TO THE ASSESSEE-COMPANY TO RE-NEGOTIATE FOR A REASONABLE R EDUCTION IN COMPENSATION. THE ASSESSING OFFICER ALSO NOTED THAT IN TERMS OF C LAUSE 9.1(D) OF AGREEMENT, BCCI WAS OBLIGATED TO RETURN TO THE ASSESSEE ALL PR OPERTIES WITHIN ITS POSSESSION UPON TERMINATION OF THE AGREEMENT. THER EFORE, ACCORDING TO ASSESSING OFFICER, WRITING-OFF OF THE AMOUNT WAS PR EMATURE AND THAT THE ASSESSEE HAS WRITTEN-OFF THE AMOUNT WITHOUT EXPLORI NG THE POSSIBILITY OF ITS RECOVERY. THE ASSESSING OFFICER ALSO NOTICED THAT ASSESSEE HAD INITIATED ARBITRATION PROCEEDINGS, WHICH WERE CONTINUING AND, THEREFORE, IT COULD NOT BE SAID THAT THE LOSS HAD ACTUALLY CRYSTALLISED DURING THE YEAR ITSELF. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ADVANCE DEPOSIT IN Q UESTION WAS FOR ACQUIRING MEDIA RIGHTS, WHICH IS IN THE NATURE OF A CAPITAL ASSET AND, THEREFORE, NON- RECOVERY OF SUCH A DEPOSIT IS A CAPITAL LOSS. THE ASSESSING OFFICER ALSO OBSERVED THAT THE IMPUGNED ADVANCE WAS NOT A TRADE ADVANCE S O AS TO BE TREATED AS A BUSINESS LOSS. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE AND MADE AN ADDITION OF RS.33,54,01,600/- TO THE RETURNED INCOME. THE CIT(A) HAS SUSTAINED THE ADDITION FOR THE REASO NS TAKEN BY THE ASSESSING OFFICER. IN ADDITION, THE CIT(A) OBSERVED THAT THE WRITE-OFF WAS APPROVED BY THE BOARD OF DIRECTORS OF THE ASSESSEE-COMPANY VIDE RESOLUTION DATED 16.6.2008, A DATE WHICH CORRESPONDS TO THE SUBSEQUE NT ASSESSMENT YEAR AND, THEREFORE, ON THIS GROUND ALSO THE AFORESAID CLAIM OF ASSESSEE WAS NOT ALLOWABLE IN THE INSTANT ASSESSMENT YEAR. 10.2 AGAINST SUCH A DECISION OF THE LOWER AUTHORITI ES, ASSESSEE IS IN FURTHER APPEAL BEFORE US. BEFORE US, THE LEARNED REPRESENT ATIVE FOR THE ASSESSEE 32 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) POINTED OUT THAT IN TERMS OF CLAUSE 7.1 OF AGREEMEN T WITH BCCI, ASSESSEE HAD A RIGHT TO RE-NEGOTIATE THE TERMS OF THE AGREEMENT IN GOOD FAITH IN THE LIGHT OF ANY EXTERNAL DEVELOPMENTS AND, THEREFORE, IN VIEW O F THE CHANGE IN GOVERNMENTAL REGULATIONS, ASSESSEE HAD INVOKED THE SAID CLAUSE. THE ASSESSEE HAD AN OBLIGATION TO RENEW THE BANK GUARANTEE EXPIR ING ON 12.4.2007 WHICH WAS NOT DONE AND THE SAME WAS NOT TAKEN LIGHTLY BY THE BCCI, WHO INVOKED CLAUSE 8.1(II) OF THE AGREEMENT AND TERMINATED THE AGREEMENT WITH THE ASSESSEE VIDE COMMUNICATION DATED 31.5.2007. THE L EARNED REPRESENTATIVE POINTED OUT THAT CLAUSE 7.1 OF THE AGREEMENT GAVE A RIGHT TO THE ASSESSEE TO TERMINATE IF THE REVISED TERMS WERE NOT IN THE INTE RESTS OF THE ASSESSEE, SO HOWEVER, BECAUSE OF DEFAULT OF ASSESSEE IN NOT RENE WING THE BANK GUARANTEE, BCCI TERMINATED THE CONTRACT. THE LEARNED REPRESEN TATIVE POINTED OUT THAT IN VIEW OF THE TWO SUBSEQUENT DEVELOPMENTS, THE AGREEM ENT WOULD NOT HAVE BEEN PROFITABLE TO THE ASSESSEE AND, THEREFORE, ASS ESSEE HAD REQUESTED FOR REDUCTION IN THE AMOUNTS PAYABLE AS PER THE AGREEME NT. IT WAS EXPLAINED THAT ASSESSEE HAD SOUGHT REFUND OF THE DEPOSIT OF USD 7, 460,000 FROM BCCI, WHICH REQUEST WAS NOT EVEN RESPONDED BY THE BCCI AND INST EAD, BCCI SOUGHT TO CLAIM DAMAGES FOR BREACH COMMITTED BY ASSESSEE AS IS EVID ENT FROM THE COMMUNICATIONS OF BCCI DATED 31.5.2007 AND 22.6.200 7, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 269 TO 272. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, AS THERE WAS NO RESPONSE FROM THE BC CI AND THE LEGAL CASE FILED FOR RECOVERY OF ABOVE ADVANCE WAS STILL PENDING, AS SESSEE, AS A PRUDENT BUSINESSMAN, WROTE-OFF THE AMOUNT IN ITS BOOKS OF A CCOUNT. 33 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) 10.3 ON THIS ASPECT, THE LD. CIT-DR HAS RELIED UPON THE REASONING OF THE LOWER AUTHORITIES, WHICH WE HAVE ALREADY NOTED IN THE EAR LIER PARAS AND ARE NOT BEING REPEATED FOR THE SAKE OF BREVITY. 10.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE FACT-SITUATION REGARDING THE ALLOWABILITY OF THE WRITE-OFF OF RS.3 3,54,01,600/- HAS ALREADY BEEN SUCCINCTLY NOTED BY US IN THE EARLIER PARAS AN D IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. SO HOWEVER, IN ORDER TO BRIEF LY RECAPITULATE, IT WOULD SUFFICE TO NOTE THAT THE APPELLANT, WHICH IS ENGAGE D IN THE BUSINESS OF BROADCASTING AND DISTRIBUTION OF TELEVISION SERIALS HAD ACQUIRED MEDIA RIGHTS FROM BCCI FOR A FIVE YEAR PERIOD VIDE AGREEMENT DAT ED 12/04/2006. THE MEDIA RIGHTS WERE IN RESPECT OF THE OVERSEAS MATCHES TO B E PLAYED BY THE INDIAN CRICKET TEAM DURING THE PERIOD 01/04/2006 TO 31/03/ 2011. THE ASSESSEE PAID US DOLLARS 1,75,40,000 FOR ACQUIRING THE MEDIA RIGH TS AND A SUM OF US DOLLARS 1,00,80,000 WAS CHARGED TO THE PROFIT & LOSS ACCOUN T FOR THE YEAR ENDING 31/03/2007 ON ACCOUNT OF THE TWO MATCHES HAVING BEE N PLAYED ON 18 TH AND 19 TH APRIL, 2006. THE BALANCE AMOUNT OF US DOLLARS 74, 60,000 WAS TO BE ADJUSTED AGAINST THE PAYMENT DUE FOR THE LAST SERIE S IN THE FIFTH YEAR OF AGREEMENT. IT TRANSPIRES THAT BCCI TERMINATED THE ARRANGEMENT VIDE COMMUNICATIONS DATED 31/05/2007 AND/OR DATED 22/06/ 2007 AND THE ADVANCE OF RS.33,54,01,600/- WAS FORFEITED. ASSESSEE COMPA NY CONSIDERED SUCH FORFEITED AMOUNT OF RS.33,54,01,600/- AS AN IRRECOV ERABLE TRADE ADVANCE MADE IN THE ORDINARY COURSE OF BUSINESS AND, THUS, SOUGHT ITS DEDUCTIBILITY IN TERMS OF SECTION 37(1) OF THE ACT. THE ASSESSING O FFICER AS WELL AS CIT(A) HAVE DISALLOWED THE CLAIM ON VARIOUS COUNTS. FIRSTLY, A S PER THE ASSESSING OFFICER THE WRITE-OFF WAS PREMATURE AS ASSESSEE HAD NOT FULLY E XPLORED THE POSSIBILITY OF ITS 34 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) RECOVERY. THE ASSESSING OFFICER NOTED THAT ARBITRA TION PROCEEDINGS WERE INITIATED BY THE ASSESSEE, WHICH WERE CONTINUING AN D, THEREFORE, IT COULD NOT BE SAID THAT THE LOSS HAD ACTUALLY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. SECONDLY, AS PER THE ASSESSING OFFICER, THE PAYMENT WAS FOR ACQUIRING MEDIA RIGHTS, WHICH WAS IN THE NATURE OF A CAPITAL ASSET AND, THEREFORE, NON- RECOVERY OF THE DUES WAS A CAPITAL LOSS. THE CIT(A ) FURTHER, NOTED THAT THE DECISION OF THE BOARD OF DIRECTORS APPROVING THE WR ITE-OFF WAS DATED 16/06/2008, WHICH WAS A DATE FALLING IN THE NEXT AS SESSMENT YEAR AND, THEREFORE, EVEN ON THIS COUNT THE SAID CLAIM OF LOS S WAS PREMATURE IN THIS YEAR. 10.5 IN THE ABOVE BACKGROUND, THE FIRST POINT WHICH DESERVES TO BE APPRECIATED IS THAT THE AGREEMENT WITH BCCI FOR ACQ UIRING THE MEDIA RIGHTS WAS IN PURSUANCE TO A NORMAL BUSINESS ACTIVITY OF THE A SSESSEE, WHICH IS THE BUSINESS OF BROADCASTING AND DISTRIBUTION OF TELEVI SION PROGRAMMES, THEREFORE, FACTUALLY, IT CANNOT BE DENIED THAT THE IMPUGNED AR RANGEMENT WAS TRANSACTED BY THE ASSESSEE IN ITS REGULAR COURSE OF BUSINESS. AT THIS POINT, IT WOULD ALSO BE RELEVANT TO OBSERVE THAT ASSESSEE HAS BEEN CONSISTE NTLY ASSERTING SINCE THE ASSESSMENT STAGE THAT THE COST ON TELEVISION RIGHTS OF US DOLLARS 1,00,80,000 FOR THE TWO MATCHES PLAYED DURING THE YEAR 01/04/2006 TO 31/03/2007 (CORRESPONDING TO THE IMMEDIATELY PRECEDING ASSESSM ENT YEAR 2007-08) WAS CHARGED TO THE PROFIT & LOSS ACCOUNT AS A REVENUE E XPENDITURE. IT HAS ALSO BEEN ASSERTED BY THE ASSESSEE THAT THE INCOME RECE IVED BY THE ASSESSEE FOR TELECASTING THE MATCHES IN THE FORM OF ADVERTISEMEN T AND SUBSCRIPTION WAS ALSO OFFERED TO TAX. THESE TWO ASPECTS FOR ASSESSM ENT YEAR 2007-08, WHICH EMANATE FROM THE VERY SAME MEDIA RIGHTS AGREEMENT D ATED 12/04/2006 UNDER CONSIDERATION BEFORE US, HAVE NOT BEEN CONTROVERTED BY THE REVENUE AT ANY 35 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) STAGE. IN THE PRESENT YEAR, THE MOOT POINT IS AS T O WHETHER THE BALANCE AMOUNT OF US DOLLARS 74,60,000 CORRESPONDING TO RS. 33,54,01,600/- IS DEDUCTIBLE WHILE COMPUTING THE TOTAL INCOME. THE C IRCUMSTANCES, WHICH PREVAILED WITH THE ASSESSEE TO WRITE-OFF THE SAID A MOUNT HAS BEEN EXPLAINED IN DETAIL. ACCORDING TO THE ASSESSEE, THE VIABILITY O F THE MEDIA RIGHTS AGREEMENT DATED 12/04/2006 WAS JEOPARDIZED DUE TO REASONS BEY OND ITS CONTROL, NAMELY, STIPULATIONS BY THE TRAI PUTTING RESTRICTION ON FEE S TO BE PAID BY SUBSCRIBERS OF THE TELEVISION CHANNELS W.E.F. 01/01/2007; AND, PRO MULGATION OF ORDINANCE BY THE GOVERNMENT OF INDIA IN FEBRUARY, 2007 PRESCRIBI NG COMPULSORY SHARING OF LIVE-FEED OF SPORTS EVENTS BY THE PRIVATE BROADCAST ERS WITH PRASAR BHARATI, THE PUBLIC BROADCASTER. BECAUSE OF SUCH DEVELOPMENTS, ASSESSEE TOOK A BUSINESS DECISION TO SEEK RENEGOTIATION OF THE TERMS AND CON DITIONS OF THE MEDIA RIGHTS WITH BCCI AS ACCORDING TO THE ASSESSEE SUCH DEVELOP MENTS WOULD HAVE IMPACTED ITS INCOME FROM THE ARRANGEMENT. IT TRANS PIRES THAT IN TERMS OF THE REQUIREMENT OF MEDIA RIGHT AGREEMENT DATED 12/04/20 06, ASSESSEE WAS REQUIRED TO PROVIDE BANK GUARANTEE OF US DOLLARS 60 MILLION TO THE BCCI, WHICH WAS RENEWABLE ON THE YEARLY BASIS. PENDING RENEGOT IATION, ASSESSEE DID NOT RENEW THE BANK GUARANTEE, WHICH EXPIRED ON 12/04/20 07. BCCI VIEWED SUCH NON-RENEWAL OF THE BANK GUARANTEE AS A VIOLATION OF THE TERMS AND CONDITIONS OF THE AGREEMENT AND ACCORDINGLY, INVOKED THE TERMI NATION CLAUSE AND TERMINATED THE AGREEMENT AND GRANTED MEDIA RIGHTS T O NEW BROADCASTER. BCCI ALSO FORFEITED THE ADVANCE OF US DOLLARS 74,60,000 LYING WITH IT. ASSESSEE APPROACHED THE BCCI, FILED A LEGAL CASE FOR RECOVER Y AND ALSO INITIATED ARBITRATION PROCEEDINGS, SO HOWEVER, ASSESSEE DID N OT VISUALIZE ANY SIGN OF RECOVERY AND, THEREFORE, IT WROTE-OFF THE FORFEITED AMOUNT (I.E. RS.33,54,01,600/-) AND CLAIMED IT AS A DEDUCTION. FACTUALLY SPEAKING, THE LOSS 36 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) OF RS.33,54,01,600/- SUFFERED BY THE ASSESSEE IS NO T IN DISPUTE INASMUCH AS THERE IS NO AVERMENT BY THE REVENUE THAT THERE HAS BEEN ANY RECOVERY ON THIS COUNT ON A LATER DATE. THE ASSESSING OFFICER AND T HE CIT(A) HAVE EMPHASIZED THAT ASSESSEE DID NOT EXPLORE THE POSSIBILITY OF RE COVERY IN FULL AND, THEREFORE, THE WRITE-OFF IS PREMATURE. IN OUR CONSIDERED OPIN ION, IT IS THE JUDGEMENT OF THE ASSESSEE AS A BUSINESSMAN, WHICH IS RELEVANT TO EXAMINE AS TO WHETHER OR NOT THE LOSS HAS TAKEN PLACE. IN THE PRESENT CASE, THE EFFORTS AS WELL AS COMMUNICATION OF THE ASSESSEE WITH THE BCCI, WHICH HAVE BEEN NOTED BY THE LOWER AUTHORITIES, AND HAS ALSO BEEN PLACED IN THE PAPER BOOK REVEAL THAT THE CHANCES OF RECOVERY WERE REMOTE AND IN ANY CASE, IT IS FACTUALLY EVIDENT THAT SUCH AMOUNT HAS NOT BEEN RECOVERED. IN FACT, IN TE RMS OF THE COMMUNICATIONS DATED 31/05/2007 AND 22/06/2007, BCCI HAS NOT ONLY REFUSED TO ENTERTAIN THE REQUEST FOR REFUND, BUT ALSO REFERRED TO ITS RIGHTS TO CLAIM DAMAGES AND DISQUALIFY THE ASSESSEE FROM PARTICIPATING IN ANY T ENDERS FLOATED BY BCCI AS A CONSEQUENCE OF THE TERMINATION OF THE AGREEMENT. F URTHERMORE, THE DISCUSSION IN THE ORDERS OF THE AUTHORITIES BELOW A S WELL AS THE ARGUMENTS OF THE REVENUE BEFORE US DO NOT REVEAL THAT THE BONAFI DES OF THE NON-RECOVERY OF THE IMPUGNED AMOUNT IS DISPUTED. THEREFORE, CONSID ERING THE FACT THAT THE BONAFIDES OF THE CLAIMS ARE NOT IN DOUBT AND FURTHE R THAT THE AMOUNTS WERE PAID TO BCCI IN THE NORMAL COURSE OF BUSINESS, THE CLAIM FOR DEDUCTION OF THE IMPUGNED IRRECOVERABLE AMOUNT COULD NOT HAVE BEEN L IGHTLY BRUSHED ASIDE BY THE LOWER AUTHORITIES. IN SO FAR AS THE PLEA OF TH E REVENUE THAT THE ISSUE WAS STILL PENDING WITH THE ARBITRATOR AND, THEREFORE, T HE CLAIM WAS PREMATURE IS NO GROUND TO DISALLOW THE CLAIM. THE FACTUM OF THE AS SESSEE HAVING FORMED A BELIEF THAT THE AMOUNT FORFEITED BY THE BCCI HAS IN DEED RESULTED IN LOSS HAS NOT BEEN FOUND TO BE BASED ON ANY NON-BONAFIDE CONSIDER ATIONS, AND SUCH A BELIEF 37 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) IS RATHER SUPPORTED BY SUBSEQUENT NON-RECOVERY, THE REFORE, IN OUR VIEW, IT IS NOT APPROPRIATE FOR THE REVENUE TO CANVASS THAT THE IMPUGNED CLAIM IS PREMATURE. ANOTHER ASPECT CANVASSED BY THE REVENUE IS TO THE EFFECT THAT THE ACQUISITION OF MEDIA RIGHT IS A CAPITAL ASSET AND , THEREFORE, THE LOSS ON NON- RECOVERY OF THE IMPUGNED SUM WAS A CAPITAL LOSS. ON THIS ASPECT OF THE MATTER, THE LD. REPRESENTATIVE FOR THE ASSESSEE POI NTED OUT THAT THE PAYMENTS OF SIMILAR NATURE REGARDING ADVANCES FOR DEVELOPMEN T OF MUSICAL ALBUM WHICH WAS ABANDONED WAS NOT CONSIDERED BY THE TRIBUNAL TO BE A CAPITAL LOSS IN ASSESSMENT YEAR 1998-99 VIDE ITS ORDER IN ITA NO.2 233/MUM/2010 DATED 23/12/2011. SIMILARLY, RELIANCE HAS ALSO BEEN PLAC ED ON THE DECISION OF THE TRIBUNAL IN THE ASSESSEES SISTER CONCERN, M/S. ZEE MEDIA CORPORATION LTD. IN ITA NO.1590/MUM/2015 DATED 12/08/2015, WHEREIN ALS O SIMILAR PAYMENTS HAVE BEEN CONSIDERED ON REVENUE ACCOUNT AND NOT CA PITAL IN NATURE. IN OUR CONSIDERED OPINION, THE AFORESAID PRECEDENTS SUPPOR T THE CASE OF THE ASSESSEE THAT THE IMPUGNED LOSS WAS NOT CAPITAL IN NATURE. MOREOVER, IT IS PERTINENT TO OBSERVE THAT IN THE ASSESSMENT YEAR 2007-08 ASSESSE E HAS ASSERTED THAT PART OF THE AMOUNT PAID TO BCCI HAS BEEN DEBITED IN THE PRO FIT AND LOSS ACCOUNT AND THERE IS NO DISPUTE ON THIS COUNT. IN THIS BACKGRO UND, IN OUR VIEW, THE PLEA OF THE ASSESSING OFFICER TO SAY THAT THE IMPUGNED LOSS WAS CAPITAL IN NATURE IS NOT TENABLE. AT THIS STAGE, IT MAY ALSO BE RELEVANT TO MENTION THAT THE ASSESSING OFFICER HAS ONLY MADE A BALD ASSERTION AND NOT GIVE N REASON TO JUSTIFY AS TO WHY THE ACQUISITION OF MEDIA RIGHTS IN TERMS OF THE AGR EEMENT DATED 12/04/2006 HAS TO BE TREATED AS CAPITAL IN NATURE. THEREFORE, CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUM STANCES OF THE CASE, IN OUR VI EW, THE ASSESSEE MADE NO MISTAKE IN TREATING THE AMOUNT FORFEITED BY BCCI AS A DEDUCTION ALLOWABLE 38 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSI DERATION. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 11. THE LAST GROUND IN THIS APPEAL RELATES TO THE A CTION OF THE INCOME TAX AUTHORITIES IN TREATING STRUCTURED INTEREST SWAP LO SS OF RS.26,17,93,000/- AS A SPECULATION LOSS AS AGAINST BUSINESS LOSS TREATED B Y THE ASSESSEE. IN THIS CONTEXT, BRIEF FACTS ARE THAT THE ASSESSEE HAD CLAI MED LOSS OF RS.26,17,93,000/- ON ACCOUNT OF INTEREST SWAP TRANSACTIONS ENTERED BY IT WITH STANDARD CHARTERED BANK IN ORDER TO HEDGE ITS INCREASING INTEREST COST . THE ASSESSING OFFICER SHOW- CAUSED THE ASSESSEE TO EXPLAIN WHY THE SAME BE NOT TREATED AS A SPECULATION LOSS SINCE IT AROSE FROM A SPECULATIVE TRANSACTION COVERED WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. 11.1 IN RESPONSE, ASSESSEE EXPLAINED THAT IT HAD IS SUED 10000, 0.5% FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) OF US$ 10,000 EAC H AGGREGATING TO US DOLLARS 100 MILLION, REDEEMABLE ON 29/04/2009 AT 11 6.24% OF THEIR PRINCIPAL AMOUNT. THE SAID FCCBS WERE CONVERTIBLE AT AN I NITIAL CONVERSION PRICE OF RS.197.235 PER SHARE, WITH A FIXED RATE OF EXCHANG E ON CONVERSION OF RS.43.88 PER USD. NOTABLY, IN THIS CONNECTION ASSESSEE HAD A PRE-EXISTING LIABILITY TO PAY INTEREST AT A FIXED RATE OF 0.5% PER ANNUM TO THE B OND HOLDERS. IN ORDER TO CONVERT THE EXISTING FIXED RATE INTEREST CASH OUTFL OW TO INTEREST PAYMENT BASED ON FLOATING RATE, ASSESSEE ENTERED INTO AN INTERES T RATE SWAP WITH THE STANDARD CHARTERED BANK. THE MODUS OPERANDI OF THE SAID TRA NSACTION HAS BEEN EXPLAINED BY THE ASSESSEE WHICH READS AS UNDER:- STANDARD CHARTERED BANK WAS TO PAY INTEREST AT FIX ED RATE @ 0.5% P.A. ON A NOTIONAL PRINCIPAL OF USD 50,000,000 THE ABOVE RECEIPT FROM STANDARD CHARTERED BANK WOU LD BE USED TO DISCHARGE THE APPELLANT'S LIABILITY IN RESPECT OF FIXED INTEREST PAYMENTS TO BONDHOLDERS 39 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) IN RETURN, THE APPELLANT WAS TO PAY STANDARD CHART ERED BANK INTEREST BASED ON 1 MONTH USD LIBOR RATE ON DATE OF SETTLEMENT ON A NOT IONAL PRINCIPAL OF USD 50,000,000 FURTHER, THE APPELLANT AND THE BANK AGREED THAT IF THERE WAS AN APPRECIATION ON DOLLAR BEYOND THE AGREED EXCHANGE RATE OF USD/EURO 1.361, THE APPELLANT WOULD BENEFIT BY A REDUCTION OF 0.1% IN THE LIBOR RATE WH ILE IF THERE WAS AN APPRECIATION IN EURO BEYOND THE AGREED EXCHANGE RATIO, THE APPELLAN T WOULD PAY ADDITIONAL INTEREST. IN EFFECT, WHAT THE ASSESSEE DID WAS TO CHANGE ITS EXPOSURE FROM FIXED INTEREST CASH OUTFLOW IN USD TO FLOATING INTEREST CASH OUTF LOW AND ALSO INTENDED TO BENEFIT FROM FAVOURABLE MOVEMENT IN THE PRICE OF DO LLAR. ON THE MONTHLY BASIS, THE INTEREST CASH FLOWS RECEIVABLE AND PAYAB LE WERE NETTED OF BETWEEN THE ASSESSEE AND THE BANK AND SUCH ARRANGEMENT WAS TO CONTINUE UNTIL THE DISCHARGE OF BOND LIABILITY. NEITHER PARTY TO THE ARRANGEMENT HAD A RIGHT TO RECEIVE OR AN OBLIGATION TO PAY THE AFORESTATED NOT IONAL PRINCIPAL, WHICH WAS ONLY A MEANS TO CALCULATE INTEREST OUTFLOWS ON EACH SETTLEMENT DATE. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, ON ACCOUNT OF ADVERSE MOVEMENTS IN LIBOR AND/OR USD/EURO EXCHA NGE RATES, ASSESSEE INCURRED A LOSS OF RS.26,16,92,712/-. IN THIS BAC KGROUND, ASSESSEE SUBMITTED THAT THE SAID LOSS ARISING ON ACCOUNT OF ADVERSE MO VEMENT OF LIBOR/USD/EURO EXCHANGE RATES IS NOT A TRANSACTION FALLING WITHIN THE MEANING OF SECTION 43(5) OF THE ACT SO AS TO BE TREATED AS SPECULATIVE IN NA TURE. ADDITIONALLY, ASSESSEE ALSO CANVASSED BEFORE THE ASSESSING OFFICER THAT TH E IMPUGNED LOSS WAS A FOREIGN CURRENCY DERIVATIVE LOSS AND SINCE THE EXPR ESSION COMMODITY DOES NOT INCLUDE CURRENCY, SUCH TRANSACTION COULD NOT BE TREATED AS A SPECULATIVE TRANSACTION WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE STAND OF THE ASSESSEE AN D INSTEAD HELD THAT THE IMPUGNED TRANSACTION OF INTEREST RATE SWAP WAS A DE RIVATIVE FALLING WITHIN THE DEFINITION OF COMMODITY AS PER THE JUDGMENT OF THE HON'BLE BOMBAY HIGH 40 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) COURT IN THE CASE OF CIT VS. BHARAT R. RUIA(HUF), 3 37 ITR 452(BOM) AND, THEREFORE, THE SAID LOSS WAS A SPECULATION LOSS WIT HIN THE MEANING OF SECTION 43(5) OF THE ACT. ACCORDINGLY, HE DISALLOWED THE S AID LOSS. THE CIT(A) HAS ALSO AFFIRMED THE STAND OF THE ASSESSING OFFICER AND ACC ORDINGLY ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11.2 BEFORE US THE PLEA OF THE ASSESSEE IS THAT THE LOWER AUTHORITIES HAVE ERRONEOUSLY NOT ALLOWED A CRYSTALLIZED AND PAID INT EREST RATE SWAP TRANSACTION LOSS AS A NORMAL BUSINESS LOSS ALLOWABLE IN TERMS O F SECTION 37(1) OF THE ACT. AS PER LD. REPRESENTATIVE FOR THE ASSESSEE, THE AFORES AID LOSS OF RS.26,73,93,000/- WAS NOT IN THE NATURE OF SPECULATION AS ENVISAGED UNDER SECTION 43(5) OF THE ACT. ACCORDINGLY TO HIM, PROVISIONS OF SECTION 43( 5) OF THE ACT ARE ATTRACTED ONLY TO TRANSACTIONS WHICH, INTER-ALIA, INVOLVE A C ONTRACT FOR PURCHASE AND SALE OF COMMODITY, INCLUDING STOCKS AND SHARES, WHICH AR E PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSF ER OF THE RELEVANT COMMODITY OR SCRIPS. IT IS VEHEMENTLY POINTED OUT THAT INTER EST RATE SWAP WOULD NOT COME WITHIN THE MEANING OF THE TERM COMMODITY AS UNDER STOOD FOR THE PURPOSES OF SECTION 43(5) OF THE ACT, SINCE IT WAS NOT A TRADAB LE COMMODITY. IN THIS CONTEXT, REFERENCE HAS ALSO BEEN MADE TO THE DEFINITION OF T HE EXPRESSIONS SECURITIES AND DERIVATIVES PRESCRIBED IN THE SECURITIES CON TRACTS (REGULATION) ACT, 1956 TO SAY THAT THE SAME DOES NOT INCLUDE INTEREST RATE SWAP AS A SECURITY OR DERIVATIVE. 11.3 ON THE OTHER HAND, THE LD. CIT-DR APPEARING FO R THE REVENUE HAS DEFENDED THE ACTION OF THE LOWER AUTHORITIES AND RE -EMPHASIZED THAT THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF BHARAT R. RUIA(HUF) (SUPRA) SUPPORTS THE CASE OF THE REVENUE THAT EVEN TRANSACTION OF INTEREST RATE SWAP FALL WITHIN THE PURVIEW OF SECTION 43(5) OF TH E ACT. THE LD. CIT-DR 41 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) EMPHASIZED THAT WHEREAS THE HON'BLE HIGH COURT WA S DEALING WITH THE EXCHANGE-TRADED-DERIVATIVES (ETD), THE IMPUGNED ARR ANGEMENT OF INTEREST RATE SWAP IS IN THE NATURE OF OVER-THE- COUNTER (OT C) DERIVATIVES, WHICH ARE TRADED DIRECTLY BETWEEN THE PARTIES. ACCORDING TO HIM, THE TRADING IN OTC DERIVATIVES IS PERMITTED BY THE RESPECTIVE REGULATO RY BODIES AND IN THIS CONTEXT, CONTENDED THAT SUCH TRADING IN OTC MODE HA S BEEN PERMITTED BY THE RESERVE BANK OF INDIA, WHICH IS THE RELEVANT REGULA TORY AUTHORITY IN THIS REGARD. IT WAS, THEREFORE, EXPLAINED THAT THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BHARAT R. RUIA(HUF )(SUPRA) IS FULLY ATTRACTED EVEN TO SUCH TRANSACTIONS BECAUSE PRIMARILY THE TRA NSACTIONS ARE NOT BASED ON ACTUAL DELIVERY AND, THEREFORE, THE SAME ARE SPECUL ATIVE IN NATURE. 11.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN SO FAR AS FACTUAL ASPECT IS CONCERNED, WE ARE DEALING WITH THE TRANSA CTION OF INTEREST RATE SWAP, WHICH ESSENTIALLY IS AN INTEREST RATE AGREEMENT WIT H THE BANK, IN WHICH THE TWO PARTIES AGREE TO EXCHANGE INTEREST RATE CASH FLOWS BASED ON A SPECIFIC NOTIONAL AMOUNT, FROM A FIXED RATE TO A FLOATING RATE OR VIC E-VERSA. UNDOUBTEDLY, THE PRESENT ARRANGEMENT BETWEEN ASSESSEE AND THE BANK D OES ENVISAGE A FORWARD CONTRACT, WHICH HAS BEEN ENTERED BY THE ASSESSEE IN ORDER TO MANAGE OR HEDGE THE RISKS ASSOCIATED WITH VOLATILE INTEREST RATE AN D CURRENCY EXCHANGE RATE, ETC. THE CLAIM OF THE REVENUE BEFORE US IS THAT THE INTE REST RATE SWAP TRANSACTION IS A SPECULATIVE TRANSACTION COVERED WITHIN THE MEANIN G OF SECTION 43(5) OF THE ACT, WHEREAS THE STAND OF THE ASSESSEE IS THAT THE INSTANT INTEREST RATE SWAP IS NOT A PRODUCT OR COMMODITY SPECIFIED UNDER SECT ION 43(5) OF THE ACT AND, THEREFORE, THE INSTANT LOSS SUFFERED BY THE ASSESSE E CANNOT BE CONSIDERED AS SPECULATION LOSS WITHIN THE MEANING OF SECTION 43(5 ) OF THE ACT. 42 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) 11.5 IN THIS BACKGROUND, WE MAY, AT THE OUTSET REFE R TO SECTION 43(5), WHICH READS AS UNDER:- (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHAR ES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHA NTING BUSINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN R ESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MER CHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTE RED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF ST OCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWAR D MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF J OBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; OR (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N DERIVATIVES REFERRED TO IN CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGU LATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE; OR (E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING I N COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION 6A [, WHICH IS CHARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHAPTER VII OF THE FINANCE AC T, 2013 (17 OF 2013),] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (D), THE EXPRESSIONS (I) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYSTEMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UNDER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 199 2 (15 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CO NTRACTS (REGULATION) ACT, 1956 (42 OF 1956) OR THE SECURITIES AND EXCHAN GE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS ISSUED U NDER THOSE ACTS OR BY BANKS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANG E; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EVERY CLIENT INDICATING IN THE CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUM BER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACC OUNT NUMBER ALLOTTED UNDER THIS ACT; 43 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) (II) 'RECOGNISED STOCK EXCHANGE' MEANS A RECOGNISED STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CONTRA CTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY B E PRESCRIBED AND NOTIFIED7 BY THE CENTRAL GOVERNMENT FOR THIS PURPOS E; EXPLANATION 2.FOR THE PURPOSES OF CLAUSE (E), THE EXPRESSIONS (I) 'COMMODITY DERIVATIVE' SHALL HAVE THE MEANING AS ASSIGNED TO IT IN CHAPTER VII OF THE FINANCE ACT, 2013; (II) 'ELIGIBLE TRANSACTION' MEANS ANY TRANSACTION, (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH MEMBER OR AN INTERMEDIARY, REGISTERED UNDER THE BYE-LAWS, RULES AND REGULATIONS OF THE RECOGNISED ASSOCIATION FOR TRADING IN COMMODITY DER IVATIVE IN ACCORDANCE WITH THE PROVISIONS OF THE FORWARD CONTRACTS (REGUL ATION) ACT, 1952 (74 OF 1952) AND THE RULES, REGULATIONS OR BYE-LAWS MADE O R DIRECTIONS ISSUED UNDER THAT ACT ON A RECOGNISED ASSOCIATION; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH MEMBER OR INTERMEDIARY TO EVERY CLIENT INDICATING I N THE CONTRACT NOTE, THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER TH E ACT, RULES, REGULATIONS OR BYE-LAWS REFERRED TO IN SUB-CLAUSE (A), UNIQUE T RADE NUMBER AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; (III) 'RECOGNISED ASSOCIATION' MEANS A RECOGNISED A SSOCIATION AS REFERRED TO IN CLAUSE (J) OF SECTION 2 OF THE FORWARD CONTRACTS (R EGULATION) ACT, 1952 (74 OF 1952) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE P RESCRIBED 7A AND IS NOTIFIED BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE; 11.6 SECTION 43(5) OF THE ACT DEFINES THE EXPRESSI ON SPECULATIVE TRANSACTION TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE P URCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODIC ALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER O F THE COMMODITY OR SCRIPS. QUITE CLEARLY, THE SHORT CONTROVERSY BEFORE US IS A S TO WHETHER INTEREST RATE SWAP IS LIABLE TO BE UNDERSTOOD AS A COMMODITY FO R THE PURPOSES OF SECTION 43(5) OF THE ACT. TO PUT IT DIFFERENTLY, IN THE PR ESENT CASE, WHAT IS OF RELEVANCE IS TO EXAMINE WHETHER THE TRANSACTION IN INTEREST R ATE SWAP ENTERED BY THE ASSESSEE WITH THE STANDARD CHARTED BANK CONSTITUTES A TRANSACTION FOR THE PURCHASE OR SALE OF ANY COMMODITY WITHIN THE MEANIN G OF SECTION 43(5) OF THE ACT. IN THIS CONTEXT, REFERENCE MAY BE MADE TO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BHARAT R. RUIA(HUF )(SUPRA), WHICH WAS A CASE 44 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) WHERE ASSESSEE HAD ENTERED INTO FUTURES CONTRACT FO R PURCHASE OF SHARES OF CERTAIN COMPANIES AT SPECIFIED FUTURE DATE AND AT A SPECIFIED PRICE, WHICH WERE TO BE SETTLED IN CASH WITHOUT ACTUAL DELIVERY OF TH E SHARES. THE ISSUE BEFORE THE HON'BLE BOMBAY HIGH COURT WAS WHETHER SUCH A CO NTRACT CONSTITUTED A CONTRACT FOR THE PURCHASE OF COMMODITY WITHIN THE M EANING OF SECTION 43(5) OF THE ACT. AS PER THE HON'BLE BOMBAY HIGH COURT THE FUTURE CONTRACT BEING ARTICLES OF TRADE AND COMMERCE, WHICH ARE LEGALLY P ERMITTED TO BE TRADED ON THE STOCK EXCHANGE WOULD BE A TRANSACTION IN A COMM ODITY AS CONTEMPLATED UNDER SECTION 43(5) OF THE ACT. THEREFORE, THE LOS S INCURRED IN SUCH A TRANSACTION WAS HELD TO BE FALLING FOR CONSIDERATIO N AS A SPECULATIVE TRANSACTION WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. IN COMING TO SUCH CONCLUSION, THE HONBLE HIGH COURT NOTED THAT THE TRANSACTION I NVOLVED TRADING IN UNDERLYING SECURITY/DERIVATES, WHICH WAS TRADABLE O N THE STOCK EXCHANGE. THUS, COMING BACK TO THE INSTANT CASE, IN ORDER TO TREAT THE IMPUGNED INTEREST RATE SWAP ARRANGEMENT TO BE SPECULATIVE IN TERMS OF SECTION 43(5) OF THE ACT, THE REVENUE WOULD HAVE TO DEMONSTRATE THAT AN INTER EST RATE SWAP ARRANGEMENT WAS A TRADABLE COMMODITY. THIS CRUCIAL ASPECT HAS NOT BEEN ADDRESSED BY THE LOWER AUTHORITIES AND INFACT THE A SSESSEE HAS BEEN CONSISTENTLY ARGUING THAT INSTANT ARRANGEMENT DO NO T QUALIFY TO BE A COMMODITY FOR THE PURPOSES OF SECTION 43(5) OF THE ACT. NO DOUBT, BEFORE US THE LD. CIT-DR HAS ATTEMPTED TO SHOW THAT INTEREST RATE SWAP ARRANGEMENTS ARE AKIN TO. TRADABLE DERIVATES, BUT NO SUCH ASPECT IS EMERGING FROM THE RESPECTIVE ORDERS OF THE LOWER AUTHORITIES. INFACT , THE ORDER OF THE ASSESSING OFFICER IS QUITE INCONSISTENT BECAUSE AT ONE PLACE HE SAYS THAT THE PRESENT TRANSACTIONS ARE NOT DERIVATIVE TRANSACTIONS , WHILE AT OTHER PLACE HE SAYS THAT THE TRANSACTION OF INTEREST RATE SWAP IS A DERIVATIVE F ALLING WITHIN THE MEANING 45 ITA NO.3406/MUM/2014 (ASSESSMENT YEAR 2008-09) ....... THUS, IN OUR VIEW, THE SAID ISSUE REQUIRE S TO BE REVISITED BY THE ASSESSING OFFICER TO BRING OUT WHY THE IMPUGNED TRANSACTION F ALLS FOR CONSIDERATION AS A SPECULATIVE TRANSACTION FOR THE PURPOSES OF SECTION 43(5) OF THE ACT SO THAT THE ASSESSEE CAN MEET THE POINT IN AN APPROPRIATE MANNE R. THEREFORE, WE SET- ASIDE THE ORDER OF THE CIT(A) ON THIS ASPECT AND RE STORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR A DE NOVO CONSIDERATION. NEEDLESS TO SAY, THE ASSESSEE-COMPANY SHALL BE ALLOWED AN APPROPRIATE OP PORTUNITY OF BEING HEARD AND ONLY THEREAFTER THE ASSESSING OFFICER SHALL PAS S AN ORDER AFRESH ON THIS LIMITED ASPECT AS PER LAW. THUS, ON THIS ASPECT AS SESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/05/2017 SD/- SD/- ( RAVISH SOOD) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 05/05/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI
Other Referred Cases
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Laws Referred To
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1:1 Consultation on Tax Litigation
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1:1 Consultation on Salary Structuring
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1:1 Consultation on Tax Litigation
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Declaration of Gift
Mehul₹500
Startup Dissolution Resolution
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