NIMBUS COMMUNICATION LTD., MUMBAI V. ADD.CIT.RG.- 11(1), MUMBAI

ITA 429/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5095 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 14-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: VISPI PATEL
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Retrospective amendment; Cost of acquisition; Notional interest; Revenue expenditure; Capital expenditure
• Section: 14A; 133(6); 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER ( . ) . / ITA (TP) NO. 429 / MUM./ 2013 ( / ASSESSMENT YEAR : 20 0 8 09 ) NIMBUS COMMUNICATION LTD. NIMBUS CENTRE OBEROI COMPLEX ANDHERI (W), MUMBAI 400 053 .. / APPELLANT V/S A DDL . COMMISSIONER OF INCOME TAX RANGE 11(1), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER A AACN3947L / ASSESSEE BY : MR. VISPI PATEL / REVENUE BY : MR. AJEET KUMAR JAIN / DATE OF HEARING 14 . 1 1 .2013 / DATE OF ORDER 20.12.2013 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE IMPUGNED FINAL ASSE SSMENT ORDER DATED 20 TH NOVEMBER 2012 PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 11(1), MUMBAI, IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DISPUTE RESOLUTION PANEL - II, MUMBAI (DRP) UNDER SECTION 144C(5) OF THE INCOME TAX ACT, 1961 ( FOR SHORT 'THE ACT' ). THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : NIMBUS COMMUNICATION LTD. 2 1 . THE TRANSFER PRICING PROCEEDING INITIATED BY THE AO UNDER SECTION 92CA(1) ARE WITHOUT ANY JURISDICTION AND OUGHT TO BE QUASHED. 2 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT INR 104,15,59,320 AS AGAINST THE RETURNED INCOME OF INR 4,17,83,007. 3 . THE LEARNED DRP ERRED IN NOT DIRECTING THE A O TO DELETE THE TRANSFER PRICING ADJUSTMENTS PROPOSED BY THE TRANSFER PRICING OFFICER (TPO), AS HE FAILED TO FOLLOW THE PROVISIONS OF 92C(3) OF THE ACT, HENCE THE TRANSFER PRICING ADJUSTMENTS ARE BAD IN LAW AND THE APPELLANTS INTERNATIONAL TRANSACTIONS SH OULD BE ACCEPTED AT ARMS LENGTH AS PER SECTION 92 OF THE ACT. 4 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTM ENT OF INR 58,85,90,002 AS PROPOSED BY THE TPO ON ACCOUNT OF DETERMINATION OF ALP OF INTERNATIONAL LICENSE REVENUE RECEIVABLE BY THE APPELLANT IN TERMS OF THE PROVISION OF AGREEMENT WITH ASSOCIATED ENTERPRISE(AE). 5 . ON THE BASIS OF THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 6,05,22,966 AS PROPOSED BY THE TPO TOWARDS ARMS LENGTH PRICE (ALP) DETERMINATION OF COST OF I NTERNATIONAL RIGHTS. 6 . ON THE BASIS OF THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED, AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERR3ED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 9,31,15,914 AS PROPOSED BY THE TPO TOWARDS ALP DETERMINATION OF RETURN ON THE EXPLOITATION OF INTERNATIONAL RIGHTS. 7 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE DRP ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 37,31,567 AS PROPOSED BY THE TPO TOWARDS NOTIONAL INTEREST ON THE LOANS AND ADVANCES GIVEN TO AES. 8 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY TH E LEARNED DRP ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 83,47,173 AS PROPOSED BY THE TPO TOWARDS NOTIONAL GUARANTEE COMMISSION CHARGES FOR THE GUARANTEES EXTENDED TO ITS AES. 9 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 45,97,345 AS PROPOSED BY THE TPO TOWARDS DETERMINATION OF ALP OF CONSULTANCY REVENUE RECEIVED FROM AE. 10 . THE LEARNED D RP ERRED IN NOT DIRECTING AO/TPO TO GRANT THE RELIEF AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT. 11 . THE LEARNED A.O. ERRED IN DISALLOWING THE DEDUCTION OF AN AMOUNT OF RS.19,49,836/ - CLAIMED U/S.35 - D. NIMBUS COMMUNICATION LTD. 3 12 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN MAKING THE ADDITION OF INR 24,32,721/ - BEING THE 10% OF THE EXPENDITURE INCURRED ON FOOD, EQUIPMENT HIRE, ETC BY THE APPELLANT. THE WHOLE OF THE EXPEND ITURE IS INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. 13 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN MAKING THE ADDITION OF INR 12,82,4 04 BEING THE ADVANCES WRITTEN OFF. 14 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN MAKING THE ADDITION OF INR16,40,24,000 FROM THE PAYMENT MADE TO BCC I TOWARDS ACQUISITION OF SPORTS RIGHTS. 15 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE DRP ERRED IN MAKING THE ADDITION OF INR 23,39,082 TOWARDS THE WE B SITE DEVELOPMENT EXPENSES TREATING THE SAME AS CAPITAL EXPENDITURE. ALTERNATIVELY, DEPRECIATION ON THE SAME SHOULD BE ALLOWED. 16 . ON THE BASIS OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE LEARNED DRP ERRED IN M AKING THE ADDITION OF INR 6,88,43,281 UNDER SECTION 14A OF THE ACT. 2 . AT THE TIME OF HEARING THE LEARNED COUNSEL, MR. VISPI PATEL, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT HE IS NOT PRESS SING GROUND NO.1, 2, 3, 11 AND 12. SINCE THESE GROUNDS HAVE NOT BEEN PRESSED BEFORE US, THEREFORE, THE SAME ARE NOT BEING ADJUDICATED UPON AND ARE TREATED AS DISMISSED. 3 . IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT OF ` 58,85,90,002, AS DETERMINED BY THE TRANSFER PRICING OFFICER ( TPO ) ON AC COUNT OF ARMS LENGTH PRICE ( ALP ) OF INTERNATIONAL LICENSE REVENUE RECEIVABLE BY THE ASSESSEE IN TERMS OF PROVISIONS OF THE AGREEMENT WITH THE ASSOCIATED ENTERPRISE ( A.E ). IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT OF ` 6,05,22,966, TOWARDS DETERMINATION OF ALP ON THE COST OF INTERNATIONAL RIGHTS AND IN GROUND NO.6, THE TRANSFER PRICING ADJUSTMENT OF ` 9,31,15,914, HAS BEEN CHALLENGED TOWARDS ALP DETERMINATION OF MARK UP FROM THE A.E. ON THE EXPLOITATION OF INTERNATION AL RIGHTS. SINCE THE ISSUE S INVOLVE IN ALL THESE THREE GROUNDS ARE INTER RELATED, THEREFORE, THE SAME ARE BEING DEALT TOGETHER. NIMBUS COMMUNICATION LTD. 4 4 . BRIEF FACTS, APROPOS THE AFORESAID TRANSFER PRICING ADJUSTMENT S , ARE THAT THE ASSESSEE, NIMBUS COMMUNICATION LTD., (FOR SHORT NIMBUS INDIA ), IS ONE OF THE LEADING MEDIA AND ENTERTAINMENT BUSINESS IN INDIA WHICH IS MAINLY FOCUSED ON TELEVISION , ADVERTISING AND SPORTS RIGHTS MANAGEMENT. DURING THE FINANCIAL YEAR ENDING ON 31 ST MARCH 2008, THE ASSESSEE HAS REPORTED THE FOLLOWING IN TERNATIONAL TRANSACTIONS WITH ITS AES. NAME OF THE AE NATURE OF TRANSACTION F.Y. 07 - 08 METHOD USED BY ASSESSEE M/S. NIMBUS SUPPORTS INTERNATIONAL P. LTD. SINGAPORE (NSI) INTERNATIONAL LICENCE REVENUE RECEIVED 87,06,36,178 CUP NIMBUS SUPPORTS INTERNATIONA L P. LTD. SINGAPORE (NSI) CONSULTANCY FEES AND EXPENSE AND SALES INCENTIVES RECEIVED 2,15,81,536 TNMM NIMBUS SUPPORTS INTERNATIONAL P. LTD. SINGAPORE (NSI) SALES INCENTIVES RECEIVED/RECEIVABLE 1,04,74,744 TNMM NIMBUS SUPPORTS INTERNATIONAL P. LTD. SINGAP ORE (NSI) SALES INCENTIVES RECEIVED/RECEIVABLE 13,57,53,016 COST REIMBURSE MENT TOTAL 103,84,45,474 5 . WITH REGARD TO THE TRANSACTIONS RELATING TO INTERNATIONAL LICENSE REVENUE RECEIVABLE FROM THE A.E., THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD E NTERED INTO A CONTRACT WITH THE BOARD OF CONTROL FOR CRICKET IN INDIA ( BCCI ) ON 28 TH FEBRUARY 2006 , UNDER WHICH THE ASSESSEE WAS GIVEN LICENSE TO CERTAIN GLOBAL MEDIA RIGHTS FOR CRICKETING EVENTS FROM THE PE RIOD 1 ST MARCH 2006 TO 31 ST MARCH 20 10 . THE BCCI HAD PLACED MINIMUM BID PRICE OF US$ 450 MILLION FOR GIVING THE MEDIA RIGHTS FOR BOTH DOMESTIC AND INTERNATIONAL TERRITORY. AS A HIGHEST BIDDER, THE NIMBUS INDIA HAD ACQUIRED THESE RIGHTS FOR US$ 612.18 MILLI ON WHICH IN TERMS OF INR WAS ` 2724,20,10,000. THIS TOTAL BID PRICE WAS BROKEN INTO US$ 504.09 MILLION FOR THE INDIAN TERRITORY RIGHTS AND US$ 10 8 .09 MILLION FOR THE INTERNATIONAL TERRITORY RIGHTS. FOR THE PURPOSE OF MARKETING, ITS INTERNATIONAL MEDIA RIGH TS TO THE CRICKET EVENTS IN THE INTERNATIONAL TERRITORY , THE NIMBUS INDIA ENTERED INTO AN AGREEMENT ON 1 ST MARCH 2006 WITH ITS A.E. , NIMBUS SPORTS INTERNATIONAL PTE. LTD., SINGAPORE (FOR SHORT NSI ) , WHICH IS MAINLY ENGAGED IN THE EXPLOITATION OF COMMERCI AL NIMBUS COMMUNICATION LTD. 5 ADVERTISING AND MEDIA RIGHTS ASSOCIATED WITH CRICKET AND OTHER SPORTS. IT WAS STATED BEFORE THE TPO THAT AS PER THE AGREEMENT, THE NSI WAS REQUIRED TO DISTRIBUTE THE INTERNATIONAL TERRITORY RIGHTS AND THE NIMBUS INDIA WAS ASSURED OF MINIMUM REVENUE IN C ONSIDERATION OF TRANSFER OF MEDIA RIGHTS FOR THE INTERNATIONAL TERRITORY. THIS MINIMUM REVENUE GUARANTEE BY NSI FOR THE INTERNATIONAL RIGHTS WAS OF THE SAME VALUE WHICH NIMBUS INDIA HAS EARMARKED FOR THE INTERNATIONAL RIGHTS, WHILE QUOTING FOR THE BCCI TEN DER. APART FROM THIS, THE NIMBUS INDIA WAS ENTITLED TO 90% OF THE REVENUE ACTUALLY RECEIVED BY THE NSI FROM EXPLOITATION OF THESE RIGHTS WHICH WAS IN EXCESS OF THE MINIMUM GUARANTEE AMOUNT. WITH TH IS KIND O F ARRANGEMENTS, IT WAS PLE ADED BY THE ASSESSEE THA T IT HAD EFFECTIVELY TRANSFERRED ALL THE RISK S ASSOCIATED WITH THE BCCI CONTRACT (FOR THE INTERNATIONAL TERRITORY) TO NSI AT THE PRICE WHICH IT HAD ACQUIRED THE CONTRACT FROM THE BCCI. NOT ONLY THAT , IF THE NSI SUCCEEDS TO EXPLORE THE INTERNATIONAL RIGHTS PROFITABLY IN THE OVERSEAS MARKET, ANY EXCESS REVENUE OVER AND ABOVE THE SUM ASSURED I.E., MINIMUM GUARANTEE AMOUNT, 90% OF THE REVENUE WOULD ALSO BE PASSED TO THE ASSESSEE. THUS, THE ENTIRE TRANSACTION WITH THE A.E. IS ACTUALLY BENEFICIAL TO THE ASSESSEE AND, THEREFORE, ARE AT ALP. IT WAS ALSO STATED THAT UNDER THIS ARRANGEMENT, THERE IS A CUP METHOD WHICH HAS BEEN CONSIDERED AS MOST DIRECT AND APPROPRIATE METHOD FOR DETERMINING THE ALP WITH REGARD TO THE INTERNATIONAL LICENSE REVENUE. FOR THE ASSESSMENT Y EAR IN QUESTION, THE MEDIA RIGHTS FEE ATTRIBUTABLE TO THE BCCI EVENTS WERE AS UNDER: CALENDAR MONTH TEAM TEST ODI DOMESTIC TV DAYS ATTRIBUTABLE VALUE VALUE ( ` ) OCT. 20 07 AUSTRALIA 7 ODIS 8% 217,93,60,800 NOV. 2007 PAKISTAN 3 7 13.50% 367,76,71,350 JAN. 2008 TBD (T O BE DECIDED) 3 5 11.50% 313,28,31,150 DOMESTIC 72 2.25% 61,29,45,225 TOTAL 35.25% 960,28,08,525 6 . THUS, THE MEDIA FEE PAYABLE TO THE BCCI IN THE FINANCIAL YEAR 2007 08 WAS ` 960,28,08,528. IT WAS FURTHER SUBMITTED BY THE ASSESSE E THAT DUE TO CERTAIN ALLOCATION OF TERRITORY AND MODIFICATION , CERTAIN MEDIA RIGHTS REVERTED NIMBUS COMMUNICATION LTD. 6 BACK TO THE ASSESSEE AND AS A CONSEQUENCE, THE AGREEMENT BETWEEN THE ASSESSEE AND ITS A.E. WAS REVISED VIDE AGREEMENT DATED 15 TH JANUARY 2007 AND THE MINIMUM REVE NUE GUARANTEE RECEIVABLE FROM THE NSI WAS REDUCED FROM US$ 108.09 MILLION TO US$ 95.02 MILLION. THUS, EARLIER THE RATIO OF INTERNATIONAL TERRITORY RIGHTS WAS 17.66% OF THE ENTIRE CONTRACT VALUE WHICH NOW AS PER THE REVISED AGREEMENT HAD REDUCED TO 15.2% OF THE TOTAL CONTRACT VALUE. ANOTHER VERY IMPORTANT FACT WHICH WAS STATED BEFORE THE TPO WAS THAT THE AMOUNT PAYABLE TO THE BCCI FOR THE ASSESSMENT YEAR 2007 08, HAD ALSO UNDERGONE A CHANGE DUE TO BREACH OF CERTAIN TERMS OF THE CONTRACT AND ALSO CURTAILMENT OF NUMBER OF MATCHES IN THE TOURNAMENT. THE ASSESSEE WAS NOW REQUIRED TO PAY ` 561.30 CRORES INSTEAD OF THE AMOUNT PAYABLE AT ` 9,60,28,08,525 AND THE ASSESSEE HAS RECEIVED ` 87.06 CRORES FROM ITS A.E. , AS AGAINST ` 145,92,26,200 RECEIVABLE AS PER THE REVI SED AGREEMENT. IF THE RATIO OF 15.2% IS APPLIED ON ` 561.30 CRORES, THE ASSESSEE HAS RECEIVED MORE AMOUNT FROM THE A.E. 7 . HOWEVER, THE TPO REJECTED THE ENTIRE CONTENTION OF THE ASSESSEE AND FIRST OF ALL, DEMONSTRATED THAT THE ARRANGEMENT BETWEEN THE ASSESSE E AND THE A.E. CANNOT BE CONSIDERED UNDER THE CUP METHOD, THIS HE HAS DEMONSTRATED IN PARA 6.10 AND 6.11 OF HIS ORDER. FROM THE AGREEMENTS SUBMITTED BY THE ASSESSEE BEFORE HIM, THE TPO NOTED THE FOLLOWING SUMMARY OF THE WORKINGS FOR THE AMOUNT PAYABLE TO T HE BCCI AS PER THE CONTRACT AND AMOUNT RECEIVABLE FROM NSI BY WAY OF MINIMUM GUARANTEE AS PER THE ORIGINAL AGREEMENT AND REVISED AGREEMENT. (A) AMOUNT PAYABLE TO BCCI AS PER CONTRACT WITH BCCI SR.NO. TOURNAMENT DETAILS NO. OF EVENTS ATTRIBUTABLE VALUE VA LUE IN ` 1. AUSTRALIA 7 ODI 8% 217,93,60,800 2. PAKISTAN 3 TEST + 7 ODI 13.50% 367,76,71,350 3. DOMESTIC 72 DAYS 2.25% 61,29,45,225 4. TO BE DECIDED 3 TEST + 5 ODI 11.50% 313,28,31,150 TOTAL: 35.25% 960,28,08,525 AMOUNTS TO 21,57,93,450 IN USD NIMBUS COMMUNICATION LTD. 7 ( B) AMOUNT RECEIVABLE FROM NSI BY WAY OF MG AS PER ORIGINAL AGREEMENT SR.NO. TOURNAMENT DETAILS NO. OF EVENTS ATTRIBUTABLE VALUE VALUE IN US$ VALUE IN ` @ 44.50 1. AUSTRALIA 7 ODI 8% 86,47,200 38,48,00,400 2. PAKISTAN 3 TEST + 7 ODI 13.50% 1,45,92,150 64 ,93,50,675 3. DOMESTIC 72 DAYS 2.25% 24,32,025 10,82,25,113 4. TO BE DECIDED 3 TEST + 5 ODI 11.50% 1,24,30,350 55,31,50,575 TOTAL: 35.25% 3,81,01,725 169,55,26,76 3 REPRESENT 35.25% OF TOTAL CONTRACT VALUE OF 10,80,90,000 US$ CONSTITUTE 17.66% OF THE GLOBAL CONTRACT VALUE PAYABLE FOR THIS YEAR REPRESENT 17.66% OF ` 960.28 CRORES (C) AMOUNT RECEIVABLE FROM NSI BY WAY OF MG AS PER REVISED AGREEMENT SI. NO. TOURNAMENT DETAILS NO. OF EVENTS ATTRIBUTA BLE VALUE VALUE IN USD VALUE IN RS.@44.50 1 AU STRALIA 7ODI 8% 74,42,065 33,11,71,893 2 PAKISTAN 3TEST+7ODI 13.50% 1,25,58,485 55,88,52,583 3 DOMESTIC 72DAYS 2.25% 20,93,081 9,31,42,105 4 TO BE DECIDED 3TEST+5ODI 11.50% 1,06,97,969 47,60,59,621 TOTAL 35.25% 3,27,91,600 145,92,26,200 REPRESENT 34.51% OF REVISED CONTRACT VALUE OF 9,50,21,818 USD CONSTITUTES 15.2% OF THE GLOBAL CONTRACT VALUE PAYABLE FOR THIS YEAR REPRESENT 15.2% OF RS.960.28 CRORE 8 . INSOFAR AS THE ASSESSEES CONTENTION T HAT THE AMOUNT PAID TO THE BCCI IN THIS YEAR IS ACTUAL LY ` 561.30 CRORES AND THE AMOUNT RECEIVED FROM NSI WAS ` 87.06 CRORES, THE TPO OBSERVED THAT SUCH A CONTENTION HAS NOT BEEN PROVEN BY THE ASSESSEE FROM THE RECORD AS NO PROOF AND EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE THAT THE AMOUNT RECORDED IN THE CONTRACT WAS NOT NIMBUS COMMUNICATION LTD. 8 PAID TO THE BCCI. HE CAME TO THE CONCLUSION THAT THE ASSESSEES CONTENTIONS ARE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. THUS, HE HELD THAT IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, REASONABLE ESTIMATE HAS TO BE MADE ON THE BASIS OF MA TERIAL AVAILABLE ON RECORD. FIRST OF ALL, HE POINTED OUT THAT AS PER THE BCCI BID DOCUMENTS, THE COST OF VALUE OF INTERNATIONAL RIGHTS WERE 17.66% OF THE GLOBAL CONTRACT VALUE AND IF THE ASSESSEE WAS REQUIRED TO PAY ` 960.28 CRORES TO THE BCCI IN THIS YEAR , THEN THE INTERNATIONAL RIGHTS COMPONENT AT THIS RATIO WILL COME TO ` 169,58,55,986 WHICH THE ASSESSEE WAS EXPECTED TO RECEIVE FROM THE A.E. BY WAY OF MINIMUM GUARANTEE AMOUNT AS PER THE ORIGINAL AGREEMENT WITH NSI. NOW, AS PER THE REVISED AGREEMENT WITH THE NSI, THE ASSESSEE WAS REQUIRED TO RECEIVE ` 1,45,92,26,200, IF THE CALCULATION ON THE BASIS OF THE RATIO OF 15.2% OF THE GLOBAL CONTRACT VALUE IS TAKEN . AS AGAINST THIS, THE ASSESSEE HAS STATED TO HAVE RECEIVED ONLY ` 87,06,36,178, FROM ITS A.E. , WHICH OTHERWISE IT WAS REQUIRED TO RECEIVE ` 145,92,26,200. THUS, HE HELD THAT THE DIFFERENCE AMOUNT OF ` 58,85,90,022 SHOULD BE ADJUSTED BY WAY OF DETERMINATION OF ALP ON THE REVENUE RECEIVABLE FROM THE A.E. ACCORDINGLY, THE UPWARD ADJUSTMENT OF ` 58,85,90,022 , WAS SUGGESTED TO BE ADDED. 9 . THEREAFTER, HE WENT STEP FURTHER AND HELD THAT AMOUNT PAYABLE TO BCCI DURING THE YEAR WAS RS.960.28 CRORES, HOWEVER, DUE TO CERTAIN NON - EVENTS OF CRICKET ING T OURNAMENT , THE GLOBAL CONTRACT VALUE ESTIMATED TO BE PAYABLE WAS ` 6 12,60,46,999/ - AS PER THE FOLLOWING EVENTS. SI .N O. TOURNA MENT DETAILS NO. OF EVENTS NO. OF EVENTS HELD ATTRIBUT ABLE VALUE ORIGINAL CONTRACT VALUE ESTIMATED RATIO ESTIMATED CONTRACT VALUE IN RS. 1 AUSTRALIA 7ODI 7 8% 217,93,60,800 8% 217,93,60,800 2 PAK ISTAN 3TEST +7 ODI 8 13.50% 367,76,71,350 8 / 10 X 13.50 294,21,37,080 3 DOMESTIC 72 DAYS 72 2.25% 313,28,31,150 2.25 61,29,45,225 4 TO BE DECIDED 3TEST +5 ODI 1 11.50% 61,29,45,225 1 / 8 X 11.50 39,16,03,894 TOTAL 35.25% 960,28,08,525 612,60,46,999 NIMBUS COMMUNICATION LTD. 9 10 . FROM THIS AMOUNT , IF THE RATIO OF 15.2% (WHICH IS THE INTERNATIONAL MEDIA RIGHTS ) , IS APP EA L ED THEN THE AMOUNT RECEIVABLE FROM THE A . E . BY WAY OF COST I.E. , MINIMUM GUARANTEE WOULD BE ` 93,11,59,144 AS AGAINST WHICH THE ASSESSEE HAS RECEIVED ONLY ` 87,06, 36,178 . T HUS AN ADJUSTMENT OF ` 6,05,22,966 WAS ALSO SUGGESTED TO BE MADE. 11 . LASTLY , THE TPO REJECTED THE ASSESSEES CONTENTION THAT THE RECOVERY OF MINIMUM GUARANTEE WOULD AMOUNT TO CUP . HE HELD THAT I T IS MERELY RECOVERY OF COST OF ACQUISITION OF THE RIGH T. THE ASSESSEE HAS NOT RECEIVED ANY REVENUE ON THE EXPLOITATION OF SUCH RIGHT BY THE A.E. HE OBSERVED THAT GENERALLY THE MARGIN ON EXPLOITATION OF MEDIA RIGHTS RANGES FROM 5 % TO 15%. HE FURTHER NOTED THAT THE A.E HAS GENERATED APPROXIMATELY 6% REVENUE OVE R THE COST IN RESPECT OF AUSTRALIA N TOURNAMENT AND NEARLY 24% REVENUE IN RESPECT OF PAKISTAN TOURNAMENT. BASED ON THIS, HE OBSERVED THAT EXPLOITATION OF RIGHTS IF DONE BY THE 3 RD PARTY THERE WOULD BE FAIRLY REASONABLE RETURN OF SUCH EXPLOITATION. ACCORDING LY, HE WAS OF THE VIEW THAT IT WOULD BE REASONABLE TO DETERMINE THE ARMS LENGTH PRICE AT 10% OF THE COST OF INTERNATIONAL RIGHTS. THUS, THE 10% MAKE UP OF THE COST OF THE INTERNATIONAL RIGHT WAS TAKEN , AS PER REVISED AGREEMENT WHICH WAS DETERMINED BY HIM AT ` 93,11,59,914 . THIS WORKED OUT TO ` 9,31,15,914 AND ACCORDINGLY, ADJUSTMENT BY THIS AMOUNT WAS MADE. 12 . THE ADJUSTMENTS MADE BY THE TPO HA VE ALSO BEEN CONFIRMED BY THE DRP ON THE SAME REASONING S . 13 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE, AFTER N ARRATING THE ENTIRE FACTS OF THE CASE, AS HAVE BEEN DISCUSSED ABOVE, SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE ADJUSTMENT IN A VERY ARBITRARY MANNER BY FIRSTLY PRESUMING THAT THE ASSESSEE HAD PAID ` 960.28 CRORES TO THE BCCI IN TERMS OF THE CONTRAC T AND THEREUPON HAD WORKED OUT THE RATIO OF THE MEDIA RIGHTS FOR THE INTERNATIONAL TERRITORY AND ESTIMATED THE VALUE AT ` 145,92,26,200, RECEIVABLE FROM THE A.E. THE CONSIDERATION PAYAB LE AS PER THE CONTRACT WAS ONLY THE INDICATIVE VALUE AS PER THE SCHEDU LED MATCHES IN TOURNAMENT WHICH WERE TO BE PLAYED. IT WAS BROUGHT ON RECORD THAT SOME OF NIMBUS COMMUNICATION LTD. 10 THE RIGHTS WERE AWARDED TO DOORDARSHAN FOR TELECASTING OF MATCHES WHICH HAS REDUCED THE TOTAL CONTRACT VALUE AND THIS IS EVIDENT FROM THE DOCUMENTS PLACED BEFORE THE A UTHORITIES BELOW AND ALSO GIVEN IN THE PAPER BOOK. THAT APART, THERE WERE CERTAIN RESCHEDULING / CANCELLATION OF MATCHES WHICH HAD RESULTED INTO LESSER VALUE OF THE CONTRACT. WHAT THE ASSESSEE HAD ACTUALLY PAID TO THE BCCI IN THIS FINANCIAL YEAR WAS ONLY ` 561.47 CRORES. THIS IS EVIDENT FROM THE AUDITED ACCOUNTS AND ALSO FROM THE SCHEDULE S ANNEXED THERETO, WHEREIN THE TOURNAMENTWISE MEDIA RIGHT FEE HAVE BEEN PROVIDED. THIS FIGURE ALSO MATCHES UP WITH THE SCHEDULE OF CRICKETING MATCHES CONDUCTED DURING THE F INANCIAL YEAR 2007 08 . I N SUPPORT OF THIS CONTENTION, HE DREW OUR ATTENTION TO PAGE 591 AND 595 OF THE PAPER BOOK. HE SUBMITTED THAT T HERE IS ALSO NO DISPUTE THAT THE INTERNATIONAL MEDIA RIGHTS WAS 15.2% OF THE GLOBAL CONTRACT VALUE AND IF SUCH A RATIO IS APPLIED ON ` 561.47 CRORES, THEN BY WAY OF MINIMUM GUARANTEE, THE ASSESSEE WAS TO RECEIVE ROUGHLY ` 85 CRORES FROM ITS A.E. AND WHAT THE ASSESSEE HAS RECEIVED AT ` 87 CRORES IS NOT ONLY AT ARMS LENGTH BUT ALSO IN CONSONANCE WITH THE MATERIAL PLACED ON REC ORD. THE ASSESSING OFFICER HAS ONLY TAKEN THE INDICATIVE VALUE AS GIVEN IN THE AGREEMENT AS WELL AS CONTRACT WITH THE BCCI , BUT HAS NOT TRIED TO VERIFY THE ACTUAL NATURE OF PAYMENT VIS A VIS THE CRICKETING TOURNAMENT WHICH UNDERTOOK IN THIS YEAR. IF THE TP O HAD ANY DOUBT ABOUT THE PAYMENTS MADE TO THE BCCI, HE COULD HAVE GOT IT VERIFIED FROM THE BCCI BY ISSUING NOTICE UNDER SECTION 133(6). THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD ACTUALLY PAID THE ENTIRE INDICATIVE VALUE GIVEN IN THE CONTRAC T WITH THE BCCI OR THE PROPORTIONATE AMOUNT WAS RECEIVABLE FROM ITS A.E. AS PER THE AGREEMENT. THUS, THE ENTIRE PRESUMPTION AND PREMISE DRAWN BY THE TPO FROM PARA 8 ONWARDS IS PRESUMPTIVE AND ERRONEOUS. THE ADJUSTMENT OF ` 58,85,90,022 ON ACCOUNT OF DIFFER ENTIAL VALUE BETWEEN THE AMOUNT ACTUALLY RECEIVED BY THE ASSESSEE FROM ITS A.E. AND THE PROPORTIONATE INDICATIVE VALUE AS GIVEN IN THE AGREEMENT IS NOT JUSTIFIED AND UNCALLED FOR. NOT ONLY THIS, HE FURTHER PROCEEDED TO MAKE ADJUSTMENT OF ` 6,05,22,966 AGAI N ON THE BASIS OF THE MINIMUM GUARANTEE RECEIVABLE FORM THE A.E. AS PER THE INDICATIVE VALUE AND THE AMOUNT ACTUALLY RECEIVED AS PER THE WORKING GIVEN IN PARA 8.6 AND 8.7 OF THE TPOS ORDER. THIS HE SUBMITTED HAS LED TO DOUBLE ADDITION , ONCE THE ADDITION O N ACCOUNT OF DIFFERENTIAL AMOUNT RECEIVABLE FROM THE A.E. AND NIMBUS COMMUNICATION LTD. 11 AGAIN THE ADDITION HAS BEEN MADE ON THE SAME TRANSACTION FROM THE AMOUNT RECEIVABLE BY WAY OF MINIMUM GUARANTEE FROM THE A.E. ONCE THE ACTUAL FIGURE OF AMOUNT PAID TO THE BCCI AND THE AMOUNT REC EIVED FROM THE A.E. IS ASCERTAIN ABLE, THEN THERE WOULD REMAIN NO ADJUSTMENT TO BE MADE ON THIS SCORE. 14 . ON THE ISSUE OF ADJUSTMENT OF ` 9,31,15,914, MADE BY THE TPO BY TAKING THE MARK UP OF 10% AS A MARGIN ON THE EXPLOITATION OF MEDIA RIGHTS GIVEN TO THE A .E. FOR THE INTERNATIONAL TERRITORY, HE SUBMITTED THAT THERE WAS A CLEAR CUT STIPULATION THAT WHATEVER THE VALUE OF MEDIA RIGHTS WOULD BE ASSIGNED TO THE A.E., THE ASSESSEE WILL GET THE SAME VALUE IN THE FORM OF MINIMUM GUARANTEE AMOUNT AND IF SUCH MEDIA R IGHTS ARE EXPLOITED, PROFITABLY IN THE OVERSEAS MARKET THEN ANY EXCESS REVENUE OVER AND ABOVE THE ASSURED 90% OF THE REVENUE RECEIPT WOULD BE PAS SED ON TO NIMBUS INDIA I.E., THE ASSESSEE. THIS TRANSACTION ITSELF CAN BE BENCHED MARKED BY WAY OF CUP METHOD. EVEN THE TRANSACTION ITSELF GOES TO SHOW THAT THE ASSESSEE WAS IN A FAR BETTER POSITION AS THE TERMS OF ARRANGEMENTS WAS AS SUCH THAT THE ASSESSEE HAD NO RISK AND WAS FULLY ASSURED OF THE MINIMUM GUARANTEE AMOUNT AND NOT ONLY THAT, OVER AND ABOVE IF THERE WAS ANY PROFIT THAT WOULD ALSO WOULD ALSO BE PASSED ON TO THE ASSESSEE AFTER CERTAIN LIMITS. THIS WOULD NOT HAVE BEEN POSSIBLE WITH ANY THIRD PARTY IN AN UNCONTROLLED TRANSACTION. MOREOVER, THE TPO HIMSELF HAS NOT BENCH MARKED THE MARGIN BY FOLLOWING ANY O F THE PRESCRIBED METHOD S OR CARRYING OUT ANY OF THE COMPARABILITY ANALYSIS WITH ANY COMPARABLES. THEREFORE, SUCH A MARK UP OF 10% AND CONSEQUENT ADJUSTMENT IS UNCALLED FOR. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF THE TRIBUNAL, DELHI BE NCH, IN GLOBAL VANTEDGE PVT. LTD., ITA NO.2763 AND 2764/DEL./2009, ORDER DATED 17 TH DECEMBER 2009 AND THE DECISION OF KODAK INDIA LTD., IN ITA NO.7349/MUM./2012, ORDER DATED 12 TH APRIL 2013, WHEREIN IT HAS BEEN HELD THAT THE TPO CANNOT MAKE ANY ADJUSTMENT WITHOUT FOLLOWING THE PRESCRIBED METHOD OR BENCH MARKING THE SAME WITH THE COMPARABLES. 15 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. AJEET KUMAR JAIN, SUBMITTED THAT BEFORE THE TPO, THE ASSESSEE COULD NOT FURNISH NIMBUS COMMUNICATION LTD. 12 ANY DOCUMENTARY EVIDEN CE WITH REGARD TO THE ACTUAL PAYMENT MADE TO THE BCCI DURING THE RELEVANT FINANCIAL YEAR AND IN THE ABSENCE OF ANY EVIDENCE, THE TPO WAS JUSTIFIED IN TAKING THE VALUE OF THE PRICE PAID AS PER THE CONTRACT WITH THE BCCI AND ALSO THE VALUE OF THE INTERNATION AL MEDIA RIGHTS AS RECEIVABLE FROM THE A.E. AS PER THE REVISED AGREEMENT. THE ONUS WAS ON THE ASSESSEE TO PROVE BEFORE THE AUTHORITIES BELOW WHICH HAS NOT BEEN DISCHARGED. THE ASSESSEE HAS NOT EVEN FILED ANY CONFIRMATION FROM THE BCCI WITH REGARD TO THE AC TUAL PAYMENT , BASED ON WHICH THE ASSESSEES ASSERTIONS COULD HAVE BEEN VERIFIED. ANOTHER IMPORTANT ASPECT IN CASE OF THE ASSESSEE IS THAT THOUGHT T H E ASSESSEE HAS CANVASSED THAT CUP METHOD HAS BEEN FOLLOWED BUT HOW THE CUP METHOD IS APPLICABLE AND W H ERE IT HAS BEEN APPLIED BY THE ASSESSEE HAS NOT BEEN DEMONSTRATED EITHER IN THE T.P. STUDY REPORT OR BEFORE THE TPO. IN FACT, THERE IS NO CUP AVAILABLE AND THE REASONING GIVEN BY THE TPO AT SEVERAL PLACES FOR REJECTING THE ASSESSEES CONTENTION THAT WHY THE CUP IS NOT APPLICABLE , HAS NOT BEEN REBUTTED BEFORE THIS BENCH BY GIVING ANY COGENT GROUND S . ONCE NO CUP IS AVAILABLE, THEREFORE, THE CALCULATION HAS TO BE MADE , WHICH HAS BEEN DONE BY THE T P O . HE ALSO DISTINGUISHED THE DECISION S RELIED UPON BY THE LEARNED COU NSEL AND SUBMITTED THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTION WITH ITS A.E. ARE AT ALP. REGARDING THE APPLICATION OF MARK UP OF 10% ON THE COST DETERMINED BY THE TPO WITH REGARD TO THE INTERNATIONAL MEDIA RIGHTS, HE SUBMITTED THAT THE TPO HAS ANALYSED THIS MARK UP , ON THE BASIS OF THE MARGIN RECEIVED BY THE A.E. IN RESPECT OF VARIOUS TOURNAMENTS. IN AN UNCONTROLLED TRANSACTION WITH THE THIRD PARTY, SUCH A MEDIA RIGHT CANNOT BE ASSIGNED WITHOUT ANY MARGIN OR MARK UP. A LTERNATIVELY, HE SUBMITTED THAT THIS MATTER CAN BE RESTORED TO THE FILE OF THE TPO FOR BENCH MARKING THE MARGIN FROM THE EXPLOITATION OF MEDIA RIGHTS IN THE INTERNATIONAL TERRITORY BY FOLLOWING MOST APPROPRIATE METHOD AND AFTER SEARCHING COMPARABLES, WHO A RE INTO MEDIA OR ADVERTISEMENT RIGHTS, AS IT CANNOT BE HELD THAT THERE WOULD BE NO MARK UP OR MARGIN IN SUCH TRANSACTIONS IN A THIRD PARTY SITUATION. 16 . WE HAVE HEARD THE RIVAL CONTENTION S , PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATER IAL AVAILABLE ON RECORD. THE ASSESSEE HAD ACQUIRED THE MEDIA RIGHTS IN RESPECT OF BCCI CRICKET EVENTS FOR A PERIOD FROM NIMBUS COMMUNICATION LTD. 13 THE YEAR 2006 TO 2010 UNDER A CONTRACT WITH THE BCCI ON 28 TH FEBRUARY 2006. IN CONSIDERATION OF THE GRANT OF LICENSE OF THE MEDIA RIGHTS BY THE BCCI, THE ASSESSEE WAS REQUIRED TO PAY US$ 612.18 MILLION I.E., IN TERMS OF INR 2724,20,10,000 FOR THE ENTIRE FOUR YEARS. THIS GLOBAL CONTRACT WAS BROKEN INTO EXPLOITATION OF MEDIA RIGHTS IN THE INDIAN TERRITORY AND IN THE INTERNATIONAL TERRITORY. THE MEDIA RIGHTS FOR THE INTERNATIONAL TERRITORY WAS AT US$ 108.09 MILLION . T HE ENTIRE LICENSE FOR EXPLOITATION OF MEDIA RIGHTS WAS DEPENDENT UPON SCHEDULE OF MATCHES AND TOURNAMENTS WHICH WERE TO BE CARRIED OUT IN FOUR YEARS. FOR THE FINANCIAL YEAR 2007 0 8, I.E., THE ASSESSMENT YEAR 2008 09, THE AMOUNT WHICH WAS PAYABLE TO THE BCCI FOR THE CRICKETING TOURNAMENT WAS AT ` 960,28,08,525. FOR THE PURPOSE OF EXPLOITATION, THE MEDIA RIGHTS IN THE INTERNATIONAL TERRITORY, THE ASSESSEE HAD ENTERED INTO THE AGREEME NT WITH ITS A.E. I.E., NSI ACCORDING TO WHICH THE NSI WAS LIABLE TO PAY THE ASSESSEE HIGHER OF 90% OF THE REVENUE ACTUALLY RECEIVED BY THE NSI FROM THE EXPLOITATION OF THE INTERNATIONAL MEDIA RIGHTS WITH THE BALANCE 10% BEING THE NSI SHARE OR THE MINIMUM G UARANTEE AMOUNT WHICH WAS THE EXACT AMOUNT OF THE LICENCE FEE OF THE MEDIA RIGHTS ALLOTTED BY THE BCCI WHICH WAS PAYABLE TO THE ASSESSEE. D UE TO THE RE ASSIGNMENT OF CERTAIN TERRITORY RIGHTS TO ASSESSEE , A REVISED AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE A .E., WHEREIN THE INTERNATIONAL LICENCE FEE FOR THE MEDIA RIGHTS WAS REVISED TO 15.2% OF THE GLOBAL CONTRACT VALUE FROM 17.66% . IN THAT RATIO, THE MINIMUM GUARANTEE AMOUNT PAYABLE BY THE A.E. TO THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR WAS AT ` 145, 92,26,200 I.E., 15.2% OF ` 960.28 CRORES. THE ASSESSEES CASE HAD BEEN THAT DUE TO RE SCHEDULING / CANCELLATION OF CERTAIN MATCHES AND ASSIGNMENT OF MEDIA RIGHTS TO DOORDARSHAN, THE ACTUAL AMOUNT PAYABLE TO THE BCCI HAD COME DOWN TO ` 561.47 CRORES. THE CA LCULATION OF THIS AMOUNT HAS BEEN GIVEN IN SCHEDULE 16 OF THE AUDITED ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH 2008 AND IN THAT PROPORTION, THE ASSESSEE HAS RECEIVED THE AMOUNT FROM ITS A.E. WHICH IS MORE THAN THE MINIMUM GUARANTEE AMOUNT AND, HENCE, NO ADJ USTMENT IS REQUIRED FOR. ON THE OTHER HAND, THE CASE OF THE DEPARTMENT IS THAT THE ASSESSEE COULD NOT SUBSTANTIATE WITH ANY DOCUMENTARY EVIDENCE THAT SUM OF ` 561,47,82,152 WAS ACTUALLY PAID TO BCCI IN THIS YEAR AND, THEREFORE, THE AMOUNT RECEIVED BY THE A SSESSEE FROM THE A.E. IN THE RATIO OF NIMBUS COMMUNICATION LTD. 14 15.2% IS NOT AT ARMS LENGTH. THE DEPARTMENT HAS TAKEN THE INDICATIVE VALUE GIVEN IN THE AGREEMENT AND HELD THAT THE ASSESSEE WAS TO RECEIVE ` 145,92,26,200, FROM THE A.E. AS PER THE AGREEMENT AND THE DIFFERENTIAL AMOU NT BETWEEN THE SUM ACTUALLY RECEIVED IS NOTHING BUT THE PRICE WHICH WAS TO BE RECEIVED BY THE A.E. IN THIS TRANSACTION AND HENCE, ADJUSTMENT OF ` 58,85,90,022 HAS BEEN MADE. BESIDES THIS, A FURTHER ADJUSTMENT OF ` 6,05,22,966 HAS BEEN MADE ON THE SAME TRAN SACTION ON THE GROUND THAT THE MINIMUM GUARANTEE AMOUNT RECEIVABLE BY THE ASSESSEE FROM THE A.E. IS LESS. THIS AGAIN IS BASED ON THE SAME PREMISE. 17 . THUS, THE MAIN CONTROVERSY AS IT APPEARS IS, WHAT IS THE EXACT AMOUNT WHICH IS PAYABLE TO THE BCCI IN THE R ELEVANT FINANCIAL YEAR BECAUSE THIS IS THE ONLY BASIS O F THESE TWO ADJUSTMENTS. AS PER THE MATERIAL PLACED ON RECORD BY THE ASSESSEE, IT IS SEEN THAT THE AMOUNT WHICH IS PAYABLE TO THE BCCI IS DEPENDENT UPON THE TOURNAMENT AND THE MATCHES WHICH WERE TO BE CONDUCTED FOR WHICH THE MEDIA RIGHTS WERE ASSIGNED TO THE ASSESSEE. THE ASSESSEE HAS GIVEN THE DETAILS OF THE MATCHES CONDUCTED IN THIS YEAR WHIC H HAVE GIVEN AT PAGE 591 OF THE PAPER BOOK FROM WHERE THE AMOUNT WHICH ARE TO BE PAID TO THE BCCI CAN BE WORKED OUT . HOWEVER, TO CORROBORATE THE SAME, THE ASSESSEE COULD HAVE FURNISH ED A CONFIRMATION FROM THE BCCI. IF, FOR ANY REASONS, THE ASSESSEE WAS UNABLE TO FILE SUCH CONFIRMATION, THEN IT WAS THE DUTY OF THE TPO TO ASCERTAIN THIS INFORMATION DIRECTLY FROM THE BCCI BY CARRYING OUT ENQUIRY UNDER SECTION 133(6) INSTEAD OF MAKING THE TRANSFER PRICING ADJUSTMENT ON PRESUMPTION AND ESTIMATE. ONCE THE CORRECT AMOUNT CAN BE ASCERTAINED , THEN THERE IS NO REQUIREMENT OF DRAWING ANY HYPOTHETICAL INFERENCE FOR MAKING ANY H UGE ADJUSTMENT / ADDITION. THE VERY PREMISE ON WHICH THESE ADJUSTMENTS HAVE BEEN MADE IS BASED ON INDICATIVE VALUE GIVEN IN THE CONTRACT, WHICH CANNOT BE SUSTAINED , AS THE SAME CAN BE ASCERTAINED ON THE BASIS OF ACTUAL CRICKETING EVEN T S AND INFORMATION FRO M THE BCCI WHICH CAN BE SOUGHT BY EITHER PARTY. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINION THAT THIS MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO ASCERTAIN THE PROPER INFORMATION FROM THE BCCI AS TO WHAT IS THE EXACT AMOUNT PAYABLE TO THE BCCI FOR THE MEDIA RIGHTS IN THE FINANCIAL YEAR 2007 08. IF THE ASSESSEE IS UNABLE TO GET THE NIMBUS COMMUNICATION LTD. 15 INFORMATION FROM THE BCCI IN THE FORM OF CONFIRMATION LETTER , THEN THE ASSESSING OFFICER UNDER THE STATUTORY POWER W ILL CALL FOR THE INFORMATION F R O M THE BCCI AND GET THE ACTUAL FIGURE OF THE AMOUNT PAID BY THE ASSESSEE . IT IS AFTER THE CORRECT ASCERTAINMENT OF THE AMOUNT, THE TPO WILL PROCEED TO DECIDE THIS ISSUE. IF THE EXACT AMOUNT IS AVAILABLE THEN THE AMOUNT RECEIV ABLE FROM THE A.E. FOR THE INTERNATIONAL MEDIA RIGHTS IN THE RATIO OF 15.2% CAN ALSO BE ASCERTAINED AND PROBABLY NO ADJUSTMENT WOULD BE REQUIRED. THUS, GROUND NO.4, RELATING TO THE ADJUSTMENT OF ` 58,85,90,022 IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER / TPO AND, ACCORDINGLY, GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 18 . SIMILARLY, THE ADJUSTMENT OF ` 6,05,22,966 WILL ALSO BE TAKEN CARE OF , AS THIS IS AGAIN BASED ON PRESUMPTION OF THE AMOUNT WHICH IS RECEIVABLE FROM THE A.E. ONCE THE C ORRECT AMOUNT IS ASCERTAINED, THEN THIS ADJUSTMENT CANNOT BE SUSTAINED AS THERE WOULD BE NO REQUIREMENT OF ESTIMATING THE GLOBAL CONTRACT VALUE AND THEREBY ESTIMATING THE AMOUNT RECEIVABLE FROM THE A.E. BY WAY OF MINIMUM GUARANTEE AND ADDING ANY DIFFERENCE . IN ANY CASE, THIS ADJUSTMENT HAS BEEN MADE TWICE BY THE TPO ON THE SAME AMOUNT OF DIFFERENCE . ACCORDINGLY, GROUND NO.5, IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19 . NOW, COMING TO GROUND NO.6, WHICH RELATES TO ADJUSTMENT ON ACCOUNT OF ALP DETERM INATION BY THE TPO AFTER APPLYING 10% MARK UP ON THE COST OF MEDIA RIGHTS GIVEN TO THE A.E. 20 . BEFORE US, THE LEARNED COUNSELS CASE IS THAT THE ASSESSEE HAS FINALLY PAID A SUM OF ` 561.57 CRORES TO THE BCCI OUT OF WHICH 15.2% RELATES TO INTERNATIONAL RIGHTS WHICH WORKS OUT TO ` 85.34 CRORES WHICH IS THE AMOUNT RECEIVABLE AS MINIMUM GUARANTEE AS PER THE AGREEMENT. AS AGAINST THIS, THE ASSESSEE HAS RECEIVED A SUM OF ` 87.06 CRORES FROM ITS A.E. AND, THEREFORE, THERE IS A MARGIN EARNED AND THERE IS A DIRECT CUP AVAILABLE IN THE FORM OF RECOVERY OF MINIMUM GUARANTEE AMOUNT. ON A PERUSAL OF THE TPOS ORDER AS WELL AS THE MATERIAL PLACED ON RECORD BY THE ASSESSEE, IT IS SEEN THAT NEITHER THE ASSESSEE NOR THE TPO HAVE BENCH MARKED BY APPLYING ANY PROPER METHOD OR CA RRYING OUT ANY COMPARABILITY ANALYSIS VIS A VIS ANY NIMBUS COMMUNICATION LTD. 16 COMPARABLES. WE AGREE WITH THE CONTENTION OF THE TPO AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT NO PROPER ANALYSIS OF CUP HAS BEEN DONE AND IN FACT IT HAS NOT BEEN DEMONSTRATED BEFORE US, AS TO HOW THE MINIMUM GUARANTEE AMOUNT AND THE AMOUNT ACTUALLY RECEIVED WILL AMOUNT TO CUP. THE CUP HAS TO BE SEEN IF AN UNCONTROLLED PRICE IS THE PRICE AGREED BETWEEN UNCONNECTED PARTIES FOR THE TRANSFER OF GOODS OR SERVICES AND IF THIS TRANSFER IN ALL MATER IAL ASPECT IS COMPARABLE TO THE TRANSFERS BETWEEN TWO RELATED PARTIES THEN ONLY THE PRICE BECOMES COMPARABLE UNCONTROLLED PRICE. IN THE PRESENT CASE, NO SUCH UNCONTROLLED CONDITIONS HAVE BEEN ANALYSED. EVEN THE TPO HAS ALSO NOT BENCH MARKED THE MARK UP BY ANALYZING FROM ANY COMPARABLES BUT HAS GONE ON THE PREMISE THAT MARGIN ON EXPLOITATION OF MEDIA RIGHTS RANGES FROM 5% TO 15%. HE HAS REFERRED TO REVENUE GENERATION BY THE A.E. IN RESPECT OF AUSTRALIA N TOURNAMENT AT 6% AND PAKISTAN AT 24% OVER THE COST . C ON SIDERING THE MEAN OF THE TWO, HE HAS ARRIVED AT THE MARK UP OF 15% AND THEN APPLIED A MARK UP OF 10% ON THE COST. THUS, NEITHER THE APPROACH OF THE ASSESSEE NOR OF THE TPO CAN BE SUSTAINED. THE BASIC PREMISE FOR DETERMINING THE ALP UNDER THE TRANSFER PRICI NG MECHANISM IS THAT A CONTROLLED TRANSACTION HAS TO BE BENCH MARKED BY ANALYZING THE COMPARABLE UNCONTROLLED TRANSACTIONS. THEREFORE, WE ARE OF THE OPINION THAT THIS MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO CARRY OUT FUNCTIONAL ANALYSIS BASED ON THE FAR AND CARRY OUT COMPARABILITY ANALYSIS AFTER SEARCHING FOR THE COMPARABLES ENGAGED IN SIMILAR KIND OF TRANSACTIONS VIZ. PURCHASE AND SALE OF MEDIA RIGHTS. WHILE DETERMINING THE MARGIN ON THE COST OF THE MEDIA RIGHTS, TH E TPO WILL TAKE INTO CONSIDERATION THE ACTUAL AMOUNT RECEIVABLE FROM THE A.E. THAT IS ` 87,06,36,178, OR SOME OTHER FIGURE WHICH WOULD BE ASCERTAINED AS PER THE DIRECTIONS GIVEN IN RELATION TO GROUND NO.4 AND 5. THUS, THIS ISSUE IS RESTORED TO THE FILE OF THE TPO AND CONSEQUENTLY, GROUND NO.6 IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 21 . GROUND NO.7 RELATES TO TRANSFER PRICING ADJUSTMENT OF ` 37,31,567 AS PROPOSED BY THE TPO TOWARDS NATIONAL INTEREST ON THE LOANS AND ADVANCES GIVEN TO THE A.ES. THE ASSESSEE HAS GRANTED LOANS AND ADVANCES TO NIMBUS INDIA PTE. LTD. OF ` 4,02,918 AND LOANS OF ` 35,16,963 TO ITS A .E. NIMBUS COMMUNICATION BRITISH VIRGIN ISLAND. ON BOTH THESE AMOUNTS, THE ASSESSEE NIMBUS COMMUNICATION LTD. 17 HAS NOT CHARGED ANY INTEREST. THAT APART, THE ASSESSEE HAD OUTSTANDING BALANCES RECOVERABLE FROM ITS A .E. NIMBUS SPORTS INTERNATIONAL PTE. LTD., SINGAPORE, ON WHICH INTEREST HAS NOT BEEN CHARGED ON THE AMOUNT RECEIVABLE. WITH REGARD TO THE ADVANCES AND LOANS, IT WAS CONTENDED BEFORE THE TPO THAT THEY WERE GIVEN IN THE ORDINARY COURSE OF BUSINESS AND THE NATURE OF THE BUSINESS WAS AS SUCH THAT IT DOES NOT WARRANT ANY ARMS LENGTH ANALYSIS. WITH REGARD TO THE DEBIT BALANCE IN CASE OF NSI, I T WAS SUBMITTED THAT THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 05 , WHEREIN SUCH AN ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST HAS BEEN DELETED. HOWEVER, THE TPO REJECTED THE ASSESSEES CONTENTION AFTER TAKING NOTE OF THE FACT THAT ALL ITS CURRENT ASSETS HAVE BEEN PLACED TOWARDS SE CURITY FOR LOAN AVAILED AND, THEREFORE, THERE IS AN ELEMENT OF COST TO THE ASSESSEE FOR THE LOANS AND ADVANCES AND INDEPENDENT THIRD PARTY WOULD NOT HAVE ADVANCED ANY MONEY WITHOUT ANY COMPENSATION OR WITHOUT ANY SECURITY. LOOKING TO THE FACT THAT THE ASSE SSEE HAD SUBSTANTIAL LIABILITY ON ACCOUNT OF VARIOUS BORROWINGS AND THAT ALL ITS ASSETS ARE PLEDGED / HYPOTHECATED, THEREFORE, HE HELD THAT IT WOULD BE THE APPROPRIATE TO DETERMINE THE ALP AT THE INTEREST RATE @ 7% AND, ACCORDINGLY, HE MADE THE FOLLOWING A DJUSTMENTS: SR. NO. NAME OF THE ASSESSEE INTEREST CHARGED INTEREST @ 7% 1. NIMBUS MEDIAT PTE. LTD. NIL 25,071 2. NIMBUS COMMUNICATION LTD. BVI NIL 2,18,842 3. NIMBUS SPORTS INTERNATIONAL PVT. LTD. NIL 34,87,654 37,31,567 22 . THE AFORESAID ADJUSTMENTS HAVE BEEN CONFIRMED BY THE DRP ALSO. 23 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT INSOFAR AS THE NOTIONAL INTEREST CHARGED ON NSI ACCOUNT ON THE OUTSTANDING DEBIT BALANCE, THE SAME IS COVERED BY A SERIES OF ORDERS PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEAR 2003 04 TO 2007 08 , WHEREIN THIS ADJUSTMENT OF NOTIONAL INTEREST HAS BEEN DELETED. AS REGARDS THE INTEREST ON NIMBUS COMMUNICATION LTD. 18 LOANS AND ADVANCES GIVEN TO THE A.E. , HE SUBMITTED THAT IN THIS YEAR, THE ASSESSEE HAS ALSO RECEIVED VARIO US ADVANCES DURING THE COURSE OF THE RELEVANT FINANCIAL YEAR ON WHICH , NO INTEREST HAS BEEN PAID AND IF NOTIONAL INTEREST IS TO BE APPLIED, THEN IT WOULD RESULT IN AN AMOUNT PAYABLE OF ` 47.00 LAKHS APPROXIMATELY. THIS WOULD THUS MAKE THE ADJUSTMENT MADE B Y THE TPO INTO NEGATIVE. 24 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE ISSUE OF ADVANCES AND LOANS , SUBMITTED THAT THIS PLEA OF THE LEARNED COUNSEL HAS BEEN TAKEN FOR THE FIRST TIME AND THERE IS NO FINDING GIVEN BY THE TPO / DRP ON THI S CONTENTION. THEREFORE, THE ADJUSTMENT OF INTEREST ON LOANS AND ADVANCES, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE TPO TO VERIFY THE CONTENTION OF THE ASSESSEE FROM THE RECORDS. REGARDING CHARGING OF NOTIONAL INTEREST ON DEBIT BALANCE ON THE ACCOUNT OF NSI, HE STRONGLY RELIED UPON THE REASONING AND FINDINGS GIVEN BY THE TPO SPECIFICALLY FROM PARA 9.5 TO 9.7. 25 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. ISOFAR A S THE ISSUE OF CHARGING OF NOTIONAL INTEREST ON LOANS AND ADVANCES ARE CONCERNED, IT IS SEEN THAT THIS ISSUE HAD COME UP FOR CONSIDERATION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 08, HOWEVER, THIS GROUND AS TAKEN IN GROUND NO.3(A), (B) AND (C), IN THAT YEAR HAS NOT BEEN PRESSED. IN THIS YEAR, THE LEARNED COUNSEL HAS TAKEN A PLEA THAT THE ASSESSEE HAS ALSO RECEIVED VARIOUS ADVANCES ON WHICH NO INTEREST IS PAYABLE. THIS PLEA HAS NOT BEEN TAKEN EITHER BEFORE THE TPO OR THE BEFORE DRP, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT INSOFAR AS THE ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON LOANS AND ADVANCES GIVEN TO 2 A.ES NAMELY NIMBUS INDIA PTE. LTD., SINGAPORE AND NIMBUS COMMUNICATION BRITISH VIRGIN ISLAND, THE MATTER NEEDS TO BE VERIFIED AND EXAMINED BY THE TPO AND SHOULD BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE TO EXPLAIN ITS CASE. 26 . INSOFAR AS THE ADJUSTMENT OF NOTIONAL INTEREST ON THE OUTSTANDING DEBIT BALANCE IN THE ACC OUNT OF FSI, IT IS SEEN THAT THIS IS A RECURRING ISSUE IN NIMBUS COMMUNICATION LTD. 19 ASSESSEES CASE , WHEREIN THE TRIBUNAL HAS DEALT AND DISCUSSED THIS ISSUE IN DETAIL. IN THE APPEAL FOR THE ASSESSMENT YEAR 2007 08 IN ITA NO.6816/MUM./2010, ORDER DATED 7 TH AUGUST 2013, THE TRIBUNAL HAS DEALT AND DISCUSSED THIS ISSUE AFTER OBSERVING AND HOLDING AS UNDER: 7. AS REGARDS GROUND NO. 3(D), THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED THEREIN RELATING TO ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST PAYAB LE BY NIMBUS SPORT INTERNATIONAL P. LTD. ON OUTSTANDING TRADE BALANCES WITH THE ASSESSEE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 12 - 06 - 2013 (SUPRA) PASSED IN ASSESSEES OWN CASE FOR A.Y. 2005 - 06 WHEREIN A SIMILAR IS SUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 19 & 20 OF ITS ORDER: - 19. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL F OR THE ASSESSEE HAS SUBMITTED THAT SIMILAR ISSUE INVOLVED IN ASSESSEES OWN CASE FOR EARLIER YEARS I.E. ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE LD. D.R., HOWEVER, HAS SUBMITTED THAT SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEARS HOLDING THAT THE CONTINUING DEBIT BALANCE WAS NOT AN INTERNATIONAL TRANSACTION. HE HAS CONTENDED THAT THE LAW ON THIS POINT, HOWEVER, HAS UNDERGONE A CHANGE BY INSERTION OF EXPLANA TION TO SECTION 92 - B WITH RETROSPECTIVE EFFECT FROM 1 - 4 - 1992 AND CLAUSE (I)(C) OF THE SAID EXPLANATION IS CLEARLY APPLICABLE IN THE PRESENT CASE. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS CONTENDED THAT ALTHOUGH THE LAW HAS CHANGED ON THIS POINT AND CONTINUING DEBIT BALANCE IS NOW TREATED AS AN INTERNATIONAL TRANSACTION AS PER THE RETROSPECTIVE AMENDMENT, THE TRIBUNAL VIDE ITS ORDER DTD. 5 - 1 - 2011 PASSED IN ITA NO. 6597/MUM/09 FOR A.Y. 2004 - 05 HAS GIVEN RELIEF TO THE ASSESSEE ON THIS ISSUE EV EN ON MERIT. IN THIS REGARD, HE HAS REFERRED TO PARA 5 & 6 OF THE SAID ORDER WHICH IS REPRODUCED HEREUNDER: - 5. A CONTINUING DEBIT BALANCE, IN OUR HUMBLE UNDERSTANDING, IS NOT AN INTERNATIONAL TRANSACTION PER SE, BUT IS A RESULT OF THE INTERNATIONAL TR ANSACTION. IN PLAIN WORDS, A CONTINUING DEBIT BALANCE ONLY REFLECTS THAT THE PAYMENT, EVEN THOUGH DUE, HAS NOT BEEN MADE BY THE DEBTOR. IT IS NOT, HOWEVER, NECESSARY THAT A PAYMENT IS TO BE MADE AS SOON AS IT BECOMES DUE. MANY FACTORS, INCLUDING TERMS OF P AYMENT AND NORMAL BUSINESS PRACTICES, INFLUENCE THE FACT OF PAYMENT IN RESPECT OF A COMMERCIAL TRANSACTION. UNLIKE A LOAN OR BORROWING, IT IS NOT AN INDEPENDENT TRANSACTION WHICH CAN BE VIEWED ON STANDALONE BASIS. WHAT CAN BE EXAMINED ON THE TOUCHSTONE OF ARMS LENGTH PRINCIPLES IS THE COMMERCIAL TRANSACTION ITSELF, AS A RESULT OF WHICH THE DEBIT BALANCE HAS COME INTO EXISTENCE, AND THE TERMS AND CONDITIONS, INCLUDING TERMS OF PAYMENT, ON WHICH THE SAID COMMERCIAL TRANSACTION HAS BEEN ENTERED INTO. THE PAYM ENT TERMS ARE AN INTEGRAL PART OF ANY COMMERCIAL TRANSACTION, AND THE TRANSACTION VALUE TAKES INTO ACCOUNT THE TERMS OF PAYMENT, SUCH AS PERMISSIBLE CREDIT PERIOD, AS WELL. THE RESIDUARY CLAUSE IN THE DEFINITION OF INTERNATIONAL TRANSACTION, I.E. ANY NIMBUS COMMUNICATION LTD. 20 OTH ER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISES, DOES NOT APPLY TO A CONTINUING DEBIT BALANCE, ON THE GIVEN FACTS OF THE CASE, FOR THE ELEMENTARY REASON THAT THERE IS NOTHING ON RECORD TO SHOW THAT AS A RESULT OF NOT REALIZING THE DEBTS FROM ASSOCIATED ENTERPRISES, THERE HAS BEEN ANY IMPACT ON PROFITS, INCOMES, LOSSES OR ASSETS OF THE ASSESSEE. IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, A CONTINUING DEBIT BALANCE PERSE, IN THE ACCOUNT OF THE ASSOCIATE D ENTERPRISES, DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION UNDER SECTION 92 B IN RESPECT OF WHICH ALP ADJUSTMENTS CAN BE MADE. THE FACTUM OF PAYMENT HAS TO BE CONSIDERED VIS - - VIS TERMS OF PAYMENT SET OUT IN THE TRANSACTION ARRANGEMENT, AND NOT IN ISOL ATION WITH THE COMMERCIAL TERMS ON WHICH TRANSACTION IN RESPECT OF WHICH PAYMENT IS, ACCORDING TO THE REVENUE AUTHORITIES, DELAYED. IN ANY EVENT, EVEN WHEN AN ALP IS MADE IN RESPECT EXCESSIVE CREDIT PERIOD ALLOWED UNDER THE CUP METHOD, STATED BY THE TPO, T HE COMPARABLE HAS TO BE DUES RECOVERABLE FROM A DEBTOR AND NOT A BORROWER. IT APPEARS THAT THE TPO HAS ADOPTED INTEREST @ 2.19% LIBOR ON BALANCES WHICH EXCEED 30 DAYS, BUT LIBOR RATE IS RELEVANT ONLY IN THE CASE OF LENDING OR BORROWING OF FUNDS, AND NOT IN THE CASE OF COMMERCIAL OVERDUES. EVEN ASSUMING THAT THE CONTINUING DEBIT BALANCES OF ASSOCIATED ENTERPRISES CAN BE TREATED AS INTERNATIONAL TRANSACTIONS UNDER SECTION 92 B, THE RIGHT COURSE OF APPLYING THE CUP METHOD, IN THE CASE OF NON CHARGING OF INTE REST ON OVERDUE BALANCES, WOULD HAVE BEEN BY COMPARING THIS NOT CHARGING OF INTEREST WITH OTHER CASES IN WHICH THE ASSESSEE HAS CHARGED INTEREST ON OVERDUES WITH INDEPENDENT ENTERPRISES (INTERNAL CUP) OR WITH THE CASES IN WHICH OTHER ENTERPRISES HAVE CHARG ED INTEREST, IN RESPECT OF OVERDUES IN RESPECT OF SIMILAR BUSINESS TRANSACTIONS, WITH INDEPENDENT ENTERPRISES (EXTERNAL CUP). NO SUCH EXERCISE HAS BEEN CARRIED OUT IN THIS CASE, NOR IS IT SHOWN, AS IS THE CONDITION PRECEDENT FOR BRINGING THIS CONTINUING DE BIT BALANCE IN THE AMBIT OF INTERNATIONAL TRANSACTION, THAT AS A RESULT OF NOT REALIZING THE DEBTS FROM ASSOCIATED ENTERPRISES, THERE HAS BEEN ANY IMPACT ON PROFITS, INCOMES, LOSSES OR ASSETS OF THE ASSESSEE. 6. FOR ALL THESE REASONS SET OUT ABOVE, AS A LSO RESPECTFULLY FOLLOWING THE DECISION DATED 28TH JANUARY 2010 OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR, WE HOLD THAT THE IMPUGNED ADDITION OF RS 12,51,175 IS UNSUSTAINABLE IN LAW AND THAT THE CIT(A) OUGHT TO HAVE D ELETED THE SAME. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADJUSTMENT. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 20. IT IS CLEARLY EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNALS ORDER AS REPRODUCED ABOVE THAT A SIMILAR A DDITION MADE IN ASSESSEES OWN CASE FOR THE EARLIER A.Y. I.E. 2004 - 05 HAS BEEN DELETED BY THE TRIBUNAL EVEN ON MERIT HOLDING THAT EVEN WHEN AN ALP IS MADE IN RESPECT EXCESSIVE CREDIT PERIOD ALLOWED UNDER THE CUP METHOD, THE COMPARABLE HAS TO BE DUES RECOVE RABLE FROM A DEBTOR AND NOT A BORROWER. IT WAS HELD THAT THE TPO HAD ADOPTED INTEREST @ 2.19% LIBOR ON BALANCES WHICH EXCEEDED 30 DAYS, BUT LIBOR RATE WAS RELEVANT ONLY IN THE CASE OF LENDING OR BORROWING OF FUNDS AND NOT IN THE CASE OF COMMERCIAL OVERDUES . IT WAS HELD THAT EVEN IF THE CONTINUING DEBIT BALANCES OF ASSOCIATED ENTERPRISES COULD BE TREATED AS INTERNATIONAL TRANSACTIONS U/S 92 - B, THE RIGHT COURSE OF APPLYING THE NIMBUS COMMUNICATION LTD. 21 CUP METHOD, IN THE CASE OF NON - CHARGING OF INTEREST ON OVERDUE BALANCES, WOULD HA VE BEEN BY COMPARING THIS NOT CHARGING OF INTEREST WITH OTHER CASES IN WHICH THE ASSESSEE HAD CHARGED INTEREST ON OVERDUES WITH INDEPENDENT ENTERPRISES (INTERNAL CUP) OR WITH THE CASES IN WHICH OTHER ENTERPRISES HAD CHARGED INTEREST IN RESPECT OF OVERDUES IN RESPECT OF SIMILAR BUSINESS TRANSACTIONS WITH INDEPENDENT ENTERPRISES (EXTERNAL CUP). SINCE NO SUCH EXERCISE HAD BEEN CARRIED OUT IN THE CASE OF THE ASSESSEE FOR A.Y. 2004 - 05, THE TRIBUNAL HELD THAT THE IMPUGNED ADDITION WAS NOT SUSTAINABLE. IN THE YEAR UNDER CONSIDERATION ALSO, NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE TPO AND SINCE THE ADDITION WAS MADE BY ADOPTING INTEREST AT LIBOR RATE, WE HOLD, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004 - 05, THAT THE IMPU GNED ADDITION OF ` 12,98,048/ - MADE ON THIS ISSUE IS NOT SUSTAINABLE. THE SAME IS ACCORDINGLY DELETED ALLOWING GROUND NO. 3 & 4 OF THE ASSESSEES APPEAL. 8. RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CA SE FOR A.Y. 2005 - 06 ON SIMILAR ISSUE, WE DELETE THE ADDITION OF RS. 1,99,504/ - MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF INTEREST PAYABLE BY NIMBUS SPORT INTERNATIONAL P. LTD. ON OUTSTANDING TRADE BALANCE TO THE ASSESSEE. GROUND NO. 3 (D) OF THE ASSESSEES APPEAL FOR A.Y. 2006 - 07 IS ACCORDINGLY ALLOWED. 27 . THUS, RESPECTFULLY FOLLOWING THE EARLIER YEARS PRECEDENCE IN ASSESSEES OWN CASE, WE DELETE THE ADJUSTMENT OF ` 34,87,654 ON ACCOUNT OF NOTIONAL INTEREST. ACCORDINGLY, GROUND NO.7 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 28 . IN GROUND NO.8, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT OF ` 83,47,173, ON ACCOUNT OF NOTIONAL GUARANTEE COMMISSION CHARGES FOR THE GUARANTEE EXTENDED TO THE A.ES. 29 . THE TPO, FROM THE FINANCIAL STATEMENTS, SUBMITTED BY THE ASSESSEE NOTED THAT THE ASSESSEE HAS GIVEN FOLLOWING CORPORATE GUARANTEE TO ITS A.E. WITHOUT CHARGING ANY COMMISSION: I ) US$ 3 MILLION (PREVIOUS YEAR US$3 MILLION) TO ICICI BANK, UK FOR A TERM LOAN GIVEN BY THE BANK I N THE RELEVANT YEAR FOR FINANCIAL FACILITY TO M/S. NIMBUS COMMUNICATIONS WORLDWIDE LTD. (AE) MAURITIUS AND II ) US$ 20,22,472 (PREVIOUS YEAR US$ 15 MILLION) TO ICICI BANK UK FOR A TERM LOAN GIVEN BY THE BANK IN THE RELEVANT YEAR FOR NIMBUS COMMUNICATION LTD. 22 FINANCIAL FACILITY TO M/S. NIMBUS SPORTS INTERNATIONAL PTE LTD., SINGAPORE. THE TPO OBSERVED THAT SINCE AN INDEPENDENT ENTERPRISE WOULD HAVE CHARGED A FEE FOR THIS SERVICE, THEREFORE, THE ALP OF SUCH AN TRANSACTION IS TO BE DETERMINED. ACCORDINGLY, HE HAS TAKEN GUARANTEE COMMISSION RATE OF 1.5% FOR THE CORPORATE GUARANTEE GIVEN AS PER HIS DISCUSSION GIVEN IN PARA 10.3 TO PAARA 10.6. 30 . BEFORE US, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THIS ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEARS 2005 06, 2006 07 AND 2007 08. 31 . AFTER CAREFULLY GOING THROUGH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS, IT IS NOTICED THAT THE TRIBUNAL HAS RESTRICTED THE T.P. ADJUSTMENT ON THIS SCORE BY RE COMPUTI NG THE COMMISSION FOR THE GUARANTEE GIVEN BY THE ASSESSEE TO ITS A.ES AT 0.5% CONSIDERING IT TO BE AT ALP. ACCORDINGLY, WE ALSO DIRECT THE ASSESSING OFFICER / TPO TO RESTRICT THE TP ADJUSTMENT BY RE COMPUTING THE COMMISSION FOR GUARANTEE GIVEN BY THE ASSE SSEE TO ITS A.E. AT 0.5% AS THE BASIS FOR ALP. ACCORDINGLY, GROUND NO.8 IS TREATED AS PARTLY ALLOWED. 32 . GROUND NO.9, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT OF ` 45,97,345 AS PROPOSED BY THE TPO TOWARDS DETERMINING OF ALP ON CONSULTANCY REVENUE RECEIVED FROM THE A.E. 33 . THE ASSESSEE, DURING THE YEAR, AS PER THE SERVICE AGREEMENT WITH THE NSI FOR RENDERING VARIOUS SERVICES LIKE SALES AND MARKETING OF THE TELEVISION PRODUCTION AND EVENT MANAGEMENT SUPPORT SERVICE RENDERED TO NSI, HAS EARNED REVENUE FOR A SUM OF ` 215,81,536 AS CONSULTING FEES AND ` 104,74,744, BEING SALES INCENTIVE. THIS AGGREGATED TO ` 3,20,56,280. IN THE TRANSFER PRICING REPORT, THE ASSESSEE GAVE DESCRIPTION OF THE SERVICES RENDERED TO NSI AND FOR BENCH MARKING THE ALP, THE ASSESSEE ADOPTED TNMM AS THE MOST APPROPRIATE METHOD AFTER TAKING PROFIT LEVEL INDICATOR (PLI) AS NET COST PLUS MARGIN. THE ASSESSEE HAD SELECTED 13 COMPARABLES FOR BENCH MARKING ITS MARGIN AFTER TAKING FINANCIAL DATA FOR THREE YEARS, HOWEVER, THE NIMBUS COMMUNICATION LTD. 23 TPO ONL Y CONSIDERED THE DATA RELEVANT FOR THE ASSESSMENT YEAR 2007 08. THE TPO, AFTER ANALYZING EACH AND EVERY COMPARABLES , FINALLY SHORT LISTED FIVE COMPANIES WHICH ACCORDING TO HIM WERE FUNCTIONALLY COMPARABLE FROM THE 13 COMPARABLES SELECTED BY THE ASSESSEE. T HE AVERAGE MEAN OF THE COMPARABLES IN TERMS OF OP/OC WAS ARRIVED AT 14.76%. BEFORE THE TPO, THE ASSESSEE GAVE THE WORKING OF THE SAID MARGIN BASED ON SEGMENTAL DETAILS. HOWEVER, THE TPO DID NOT ACCEPT THE SAME AS THE ASSESSEE HAS NOT GIVEN THE BASIS FOR AL LOCATION OF THE EXPENDITURE AND THERE WAS NO MENTION IN THE TRANSFER PRICING DOCUMENTATION FILED BEFORE HIM. THE RELEVANT FINDINGS AND OBSERVATIONS OF THE TPO IS AS UNDER: 11.8 IT IS SEEN THAT THE ASSESSEE HAS TAKEN THE REVENUE FROM SPORTS MARKETING SEG MENT WHICH IS 0.49 OF THAT SEGMENTS REVENUE. HOWEVER, IT HAS NOT GIVEN ANY BASIS FOR ALLOCATION OF THE EXPENSES. THERE IS NO MENTION OF THIS IN THE TP DOCUMENTATION FIELD. THE ASSESSEE WAS SPECIFICALLY REQUIRED TO FURNISH THE BASIS OF ALLOCATION WITH EVID ENCE. THIS WAS NOT SUBMITTED. IT IS SEEN THAT THE NATURE OF SERVICES PERFORMED ARE EXTENSIVE AS COULD BE SEEN FROM THE AGREEMENT, WHICH IS AS FOLLOWS: LIAISONING AND INTERACTION WITH MAJOR CORPORATE CLIENTS, POLITICAL REPRESENTATIVES, SPORTS GOVERNING B ODIES; ASSISTANCE IN TELEVISION PRODUCTION INCLUDING CLIENT ACCOUNTING SERVICING; SPONSORSHIP SALES AND MARKETING SUPPORT SERVICES INCLUDING CLIENT ACCOUNTING SERVICING; EVENT MANAGEMENT SERVICES AND SUPPORT FUNCTION. 11.9 THE ASSESSEE HAS INCURRED PRO DUCTION EXPENSES TO THE TUNE OF ` 13.57 CRORES ON BEHALF OF THE A.E. FROM THE NATURE AND EXTENT OF ACTIVITIES TO BE PERFORMED, IT IS SEEN THAT THE CLAIM OF ALLOCATION OF EXPENDITURE FOR THE SERVICES RENDERED AT ` 34,03,168 IS TOTALLY UNRELIABLE. IF THE EXP ENSES ARE ALLOCATED, TAKING PERCENTAGE OF CONSULTANCY REVENUE TO THE REVENUE FROM SPORTS SEGMENT, THE POSITION IS AS FOLLOWS: SEGMENT INFORMATION CONSULTANCY DIVISION @ 0.49% SEGMENT REVENUE 6,50,11,39,522 3,20,56,280 SEGMENT EXPENSES 6,35,65,96,030 3 ,11,47,321 SEGMENT DEPRECIATION 65,66,05,805 32,17,368 NIMBUS COMMUNICATION LTD. 24 11.10 THUS THE OPERATING EXPENSES, ON THE BASIS OF PERCENTAGE OF SEGMENTAL REVENUE WOULD BE ` 3,43,64,609 WHICH WOULD BE A REASONABLE AND APPROPRIATE BASIS OF ALLOCATION. THE RESULT IS AS FOLLOWS: OP. REVENUE 3,20,56,280 OP. EXPENSES 3,43,64,689 ( ) 23,08,409 NCP ( ) 6.71% 1111 IT WAS ALREADY NOTED THAT THE AVERAGE MEAN OF THE COMPARABLES COMES TO 14.67%. THE ASSESSEES OP/TC IS 6.71%. THE ASSESSEES CASE DOES NOT FALL WITHIN +/ 5% RANGE. H ENCE, AN ADJUSTMENT OF ` 50,72,228 IS TO BE MADE AS FOLLOWS: OP. REVENUE 3,43,64,689 ALP PROFIT RATE 14.76% OP. PROFIT 50,72,228 ALP REVENUE 3,71,28,508 AE REVENUE 3,20,56,280 ADJUSTMENT TO BE MADE 50,72,228 +/ 5% OF TP 3,36,59,094 34 . BEFORE US, T HE LEARNED COUNSEL SUBMITTED THAT UNDER SUCH SEGMENT, THERE WAS A REVENUE ON ACCOUNT OF LICENCE FEE AND MEDIA RIGHTS FEE WHICH NEEDS TO BE EXCLUDED FOR THE PURPOSE OF DETERMINING THE PROFIT MARGIN UNDER CONSULTING AND SALES INCENTIVE . HE SUBMITTED A FRESH CALCULATION OF NET PROFIT MARGIN FOR THE CONSULTANCY FEES AND EXPENSES AND SALES INCENTIVE FROM NSI BASED ON THE SEGMENTAL ACCOUNTS. HE SUBMITTED THAT THIS CALCULATION IS BASED ON THE INFORMATION FURNISHED BEFORE THE TPO AND THE ENTIRE INFORMATION HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 547, 549 AND 665. IF SUCH A CALCULATION OF NET PROFIT MARGIN IS TAKEN INTO CONSIDERATION, THEN ASSESSEES NET MARGIN AS A PERCENTAGE OF TOTAL CONSULTANCY REVENUE WILL COME TO 61.25%. HE SUBMITTED THAT THIS CAN BE VERIFIED ON EXAMINED BY THE TPO. IF SUCH A MARGIN IS TAKEN INTO CONSIDERATION THEN EVEN BY CARRYING COMPARABILITY ANALYSIS WITH THE COMPARABLES IT WOULD BE AT ALP. NIMBUS COMMUNICATION LTD. 25 35 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE CANNOT BE SEGMENT OF SEGMENTAL ACCOUNT AND IT IS NOT CLEAR AND HOW THE EXPENDITURE CAN BE ALLOCATED ON SALES TURNOVER AS IN EVERY SEGMENT THERE WOULD BE A PROBLEM FOR CARRYING OUT SUCH AN ALLOCATION, THEREFORE, THE ASSESSEES CONTENTION CANNOT BE SUSTAINED. IN ANY CASE, HE SU BMITTED THAT THE CALCULATION SUBMITTED BY THE LEARNED COUNSEL HAS TO BE EXAMINED AND VERIFIED BY THE TPO. 36 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN FROM THE SEGMENTAL ACCOUNT FILED BEFORE THE TPO THAT THE ASSESSEE HAS ALSO INCLUDED THE REVENUE OF MEDIA RIGHTS FEE AND LICENCE FEE. BEFORE US NOW, IT HAS BEEN SUBMITTED THAT MEDIA RIGHTS FEE AND LICENCE FEE SHOULD BE REMOVED SO AS TO ARRIVE AT CORRECT PROFIT MARGI N. THE LEARNED COUNSEL HAD SUBMITTED THE FOLLOWING CALCULATION OF NET PROFIT MARGIN UNDER THIS SEGMENT: DESCRIPTION OF TRANSACTION AMOUNT ( ` ) AMOUNT ( ` ) INCOME TOTAL VALUE OF SPORTS MARKETING SEGMENT TOTAL SEGMENT REVENUE 6,501,139,522 LESS: MED IA RIGHT FEES (5,341,027,071) LESS: LICENSE FEES (991,130,613) (A) 168,981,838 TOTAL TRANSACTIONAL SALES (INTERNATIONAL TRANSACTION) CONSULTANCY REVENUE SALES INCENTIVE (B) PERCENTAGE OF TRANSACTIONAL SALES TO TOTAL REVENUE IN SPORTS SEGM ENT (B/A *100) 18.97% EXPENDITURE TOTAL SEGMENT EXPENDITURE 6,356,596,030 LESS: PURCHASE OF MEDIA RIGHTS/SIGNAGE FEES/DISTRIBUTION AND OTHER RIGHTS (5,634,507,152) NIMBUS COMMUNICATION LTD. 26 LESS: DEPRECIATION (AMORTIZATION OF MEDIA RIGHTS) (656,605,805) 65,483,073 PRO DUCTION EXPENSES 31,913,116 MARKETING EXPENSES 1,708,338 PAYMENTS TO AND PROVISIONS FOR EMPLOYEES 11,521,793 FINANCIAL CHARGES BANK CHARGES 1,253,745 INTEREST ON LOANS 41,910,153 ADMINISTRATIVE AND OTHER EXPENSES 15,752,640 104,059,785 LE SS: FIXED PERIOD LOANS INTEREST NOT RELATED TO SPORTS SEGMENT (38,576,712) RESULTANT SEGMENTAL EXPENDITURE 65,483,073 APPORTIONMENT OF RELATED EXPENSES TO CONSULTANCY REVENUE @ 18.97%(C) 12,422,304 TOTAL REVENUE FROM (B) ABOVE 32,056,280 LESS: COST APPORTIONED OR ALLOCATED TO CONSULTANCY REVENUE . FROM (C) ABOVE (12,422,304) NET PROFIT AS A PERCENTAGE OF TOTAL CONSULTANCY REVENUE 61.25% 37 . SINCE THIS CALCULATION HAS BEEN GIVEN BEFORE US FOR THE FIRST TIME, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THIS NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO VERIFY THE ASSESSEES CALCULATION. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT INSOFAR AS THE REVENUE RELATING TO MEDIA RIGHTS FEE AND LICENCE FEE ARE C ONCERNED, WHICH HAS BEEN INCLUDED IN THIS SEGMENT HAS TO BE REMOVED , AS IT HAS NO CO RELATION WITH THE CONSULTANCY FEES AND SALES INCENTIVE. THUS, THE TPO, WHILE CALCULATING THE MARGIN AFTER REMOVING THE INCOME FROM MEDIA FEE AND LICENCE FEE, EXAMINE THE A LLOCATION OF EXPENDITURE AS GIVEN BY THE ASSESSEE IN THE AFORESAID CALCULATION. ACCORDINGLY, GROUND NO.9 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. NIMBUS COMMUNICATION LTD. 27 38 . IN GROUND NO.10 THE ASSESSEE HAS CONTENDED THAT RELIEF, AS PROVIDED IN THE PROVISO TO SECTION 92C(2) SH OULD BE GIVEN IF THE FINAL DIFFERENCE OF THE ARMS LENGTH MARGIN VIS A VIS A COMPARABLES IS WITHIN THE TOLERANCE RANGE OF +/ 5%. SUCH A PLEA OF THE ASSESSEE IS ACCEPTABLE IN VIEW OF THE LEGAL PROVISIONS AND THE TPO WILL LOOK INTO THIS ASPECT AT THE TIME O F DETERMINING THE ALP. THUS, GROUND NO.10 IS TREATED AS ALLOWED. 39 . IN GROUND NO.13, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 12,82,404 BEING THE ADVANCE WRITTEN OFF. 40 . THE ASSESSEE HAS DEBITED A SUM OF ` 12,82,404, UNDER THE HEAD ADVANCES WRITTEN OFF . THE ASSESSING OFFICER OBSERVED THAT THE ONUS ON THE ASSESSEE TO PROVE THAT THESE ADVANCES HAVE NOT BEEN RECOVERED AND THE SAME HAS BEEN CRYSTALLISED DURING THE YEAR HAS NOT BEEN DISCHARGED. HE HELD THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2007 08. 41 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ENTIRE DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICER AND THESE ARE BASICALLY AMOUNTS WHICH HAVE BEEN WRITTEN OFF DUE TO ROUNDING OF THE FIGURES COMING FROM EARLIER YEARS . IN ANY CASE, THIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006 07 AND 2007 08. 42 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE DRP. 43 . AFTER HEARING BOTH T HE PARTIES AND IN VIEW OF THE FACT THAT SIMILAR ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE A .O. IN THE EARLIER YEAR BY THE TRIBUNAL WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER CONSIDERING THE ASSESSEES EXPLANATION, WE ALSO CONSIDER IT FAIR AND PROPER TO RESTORE THE ISSUE BACK TO THE F ILE OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH AND IN ACCORDANCE WITH THE PROVISIONS OF LAW AFTER PROVIDING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE TO EXPLAIN ITS CASE. GROUND NO.13 IS THUS TREATED AS ALLOWED FOR STATISTICAL PURPOS ES. NIMBUS COMMUNICATION LTD. 28 44 . GROUND NO.14 RELATES TO ADDITION OF ` 16,40,24,000 ON ACCOUNT OF PAYMENT MADE TO THE BCCI TOWARDS ACQUISITION OF SPORTS RIGHTS. IN ADDITION TO THIS, THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITION AL GROUNDS ON THIS ISSUE. ON THE BASIS OF THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT SHOULD BE GIVEN FULL DEDUCTION OF INR 82,01,20,000 BEING THE PAYMENT MADE TO BCCI TOWARDS ACQUISITION OF SPORTS RIGHTS FOR THE THREE MATCHES PLAYED ON 26.6.2007, 29.6.2007 AND 1.7.2007. 45 . THE A SSESSEE HAD ACQUIRED SPORTS RIGHTS FROM THE BCCI FOR THREE MATCHES PLAYED ON 26 TH JUNE 2007, 29 TH JUNE 2007 AND 1 ST JULY 2007 FOR ` 82,01,20,000. THE ASSESSEE HAS CLAIMED 80% OF THE AMOUNT IN THE CURRENT YEAR AND THE BALANCE 10% EACH IN THE NEXT TWO YEARS. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED AS UNDER: IT IS SUBMITTED THAT ` 82,01,20,000 WAS PAID TO BCCI PURSUANT TO AN AGREEMENT FOR ACQUISITION OF SPORTS RIGHT (REFER ANNEXURE 4) FOR THREE MATCHES PLAYED ON 26.0 6.2007, 29.06.2007 & 01.07.2007. THE AGREEMENT WITH BCCI IS FOR 3 YEARS OUT OF WHICH RIGHTS FOR THE FIRST YEAR ARE EXCLUSIVE AND FOR THE SUBSEQUENT TWO YEARS ARE NON EXCLUSIVE. IT IS SUBMITTED THAT ALL THE THREE MATCHES WERE OVER IN THE FIRST YEAR I.E., FI NANCIAL YEAR 2007 08 AND THERE WERE NO DIRECT TELECAST IN THE SUBSEQUENT TWO YEARS EXCEPTS SOME BENEFITS DERIVED IN THOSE TWO YEARS. CONSIDERING GENERAL PRINCIPLE OF COMPUTATION OF INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE HAS APPORTIO NED 80% ( ` 65,60,96,000) TO THE FINANCIAL YEAR RELEVANT TO THE A.Y. 2008 09 AND THE BALANCE 20% ( RS 16,40,24,000) IS CARRIED FORWARD TO THE SUBSEQUENT YEARS AND APPORTIONED IN SUBSEQUENT YEARS . 46 . THE ASSESSING OFFICER HELD THAT IT IS A REVENUE EXPENDITURE BUT WAS OF THE VIEW THAT THE APPORTIONMENT OF THE EXPENSES HAVE TO BE DONE @ 60% IN THE CURRENT YEAR AND 20% & 20% FOR THE NEXT TWO YEARS. THE REASON FOR APPORTIONING IN SUCH A RATIO WAS THAT CRICKET MATCHES HAS HUGE FOLLOWING AND RE TELECASTING HAS A HUG E DEMAND, THEREFORE, CONSIDERING THESE FACTORS AND THE RE TELECASTING VALUE OF CRICKET ING RIGHTS SUCH AN APPORTIONMENT WOULD BE REASONABLE. 47 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD INITIALLY AMORTIZED AS DEFERRED REVENUE EXPENDITURE FOR THREE YEARS BY CLAIMING 80% OF THE EXPENDITURE IN THE CURRENT YEAR PLUS 10% FOR THE NEXT NIMBUS COMMUNICATION LTD. 29 TWO YEARS. HOWEVER, HE SUBMITTED THAT THE WHOLE AMOUNT IS ALLOWABLE IN THIS YEAR ONLY AS IT IS AN UNDISPUTED FACT THAT IT IS A REVENUE EXPENDITURE. IN SUPPORT OF H IS CONTENTION, HE PLACED RELIANCE UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN ACIT V/S KOPRAN LTD., [2011] 48 SOT 225 (MUM.). 48 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER, WH ICH HAS BEEN PASSED IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DRP. 49 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS UNDISPUTED THAT THE ASSESSEE HAS MADE THE PAYMENT T O THE BCCI FOR ACQUISITION OF SPORTS RIGHTS TO THE BCCI IN RESPECT OF THREE MATCHES IN THIS YEAR. SUCH A PAYMENT IS A REVENUE EXPENDITURE WHICH IS ALLOWABLE UNDER SECTION 37(1). JUST BECAUSE THE ASSESSEE HAS DEFERRED THE EXPENDITURE FOR THREE YEARS IN THE RATIO OF 80% (+) 10% (+) 10%, IT CANNOT BE HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN PUTTING HIS OWN APPORTIONMENT IN THE RATIO OF 60 % :20 % :20 % . ONCE THE EXPENDITURE HAS BEEN INCURRED IN THIS YEAR WHICH IS ALLOWABLE AS REVENUE EXPENDITURE, THE SAME SH OULD BE ALLOWED IN THIS YEAR ONLY. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE ENTIRE CLAIM OF THE ASSESSEE IN THIS YEAR ONLY. ACCORDINGLY, THE ASSESSEES GROUND NO.14 ALONG WITH THE ADDITIONAL GROUND IS TREATED AS ALLOWED. 50 . IN GROUND NO.15, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 23,39,082, TOWARDS WEBSITE DEVELOPMENT EXPENDITURE BY TREATING THE SAME AS CAPITAL EXPENDITURE. ALTERNATIVELY, IT HAS BEEN CLAIMED THAT DEPRECIATION SHOULD BE ALLOWED IF IT IS TO BE TREATED AS CAPITAL EXPENDITU RE. 51 . THE ASSESSING OFFICER HAS DISALLOWED THESE EXPENSES ON THE GROUND THAT THESE ARE THE CAPITAL IN NATURE AS IT HAS ENDURING BENEFIT. HE ALSO TRIED TO DISTINGUISH THE DECISION OF THE HONBLE DELHI HIGH COURT IN INDIAN VISIT.COM, [2009] 176 TAXMAN 164 (DE L.), WHICH WAS HEAVILY RELIED UPON BY THE LEARNED COUNSEL. NIMBUS COMMUNICATION LTD. 30 52 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THIS EXPENDITURE HAS NOT BEEN INCURRED FOR CREATION OF A WEBSITE BUT FOR UPDATING THE WEBSITE WHICH IS ESSENTIAL TO MEET THE REQUIREMENT OF DAY TO DAY BUSINESS OPERATIONS. HE SUBMITTED THAT THE DECISION OF THE DELHI HIGH COURT IN INDIAN VISIT.COM (SUPRA) IS DIRECTLY APPLICABLE TO THE FACTS OF THE PRESENT ISSUE AND THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISTINGUISHING THE SAID JUDGMENT. 53 . LEARNED DEPAR TMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER. 54 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEES CONTENTION THA T THE ASSESSEE HAS INCURRED WEBSITE EXPENDITURE FOR UPDATING THE WEBSITE AND NOT FOR CREATION OF A NEW WEBSITE HAS NOT BEEN REBUTTED. THE WEBSITE IS MEANT FOR DISSEMINATION OF VARIOUS INFORMATION AND IN CASE OF THE ASSESSEE IT IS ONE OF THE VERY IMPORTANT FACTOR IN CARRYING OUT ITS BUSINESS OPERATION AS THE ASSESSEE IS MAINLY ENGAGED IN MEDIA AND ENTERTAINMENT BUSINESS. UPDATING OF WEBSITE IS THE MOST ESSENTIAL PART FOR RUNNING OF DAY TO DAY BUSINESS. IF SUCH AN UPDATING IS NOT CARRIED OUT FROM TIME TO TIME THEN THE WEBSITE ITSELF BECOMES REDUNDANT AND UNPOPULAR. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT SUCH AN EXPENDITURE FOR UPDATING THE WEBSITE IS NO ENDURING BENEFIT BUT ESSENTIAL FOR DAY TO DAY BUSINESS AND IT IS ALLOWABLE AS REVENUE EXPENDI TURE. THE DELHI HIGH COURT AFTER, APPLYING THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD, [1980] 124 ITR 001 AND ALEMBIC CHEMICAL WORKS LTD. V/S CIT, [1989] 177 ITR 377, OBSERVED AND HELD AS UNDER: CONSIDERED IN THE LIGHT O F THESE PRINCIPLES ENUNCIATED BY THE SUPREME COURT, IT IS CLEAR THAT JUST BECAUSE A PARTICULAR EXPENDITURE MAY RESULT IN AN ENDURING BENEFIT WOULD NOT MAKE SUCH AN EXPENDITURE OF A CAPITAL NATURE. WHAT IS TO BE SEEN IS WHAT IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND AS TO WHETHER THERE IS ANY ACCRETION TO THE FIXED CAPITAL OF THE ASSESSEE. IN THE CASE OF EXPENDITURE ON A WEBSITE, THERE IS NO CHANGE IN THE FIXED CAPITAL OF THE ASSESSEE. ALTHOUGH THE WEBSITE MAY PROVIDE AN ENDURING BENEFIT TO AN A SSESSEE, THE INTENT AND PURPOSE BEHIND THE PURPOSE (SIC) FOR A WEBSITE IS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE INFORMATION ABOUT THE ASSESSEE. THE SAME COULD VERY WELL HAVE BEEN ACHIEVED AND, INDEED, IN THE PAST, IT WAS ACHIEVED BY PRINTING TRAVEL BROCHURES AND OTHER PUBLISHED MATERIALS AND PAMPHLETS. THE ADVANCE OF NIMBUS COMMUNICATION LTD. 31 TECHNOLOGY AND THE WIDE SPREAD USE OF THE INTERNET HAS PROVIDED A VERY POWERFUL MEDIUM TO COMPANIES TO PUBLICIZE THEIR ACTIVITIES TO A LARGER SPECTRUM OF PEOP LE AT A MUCH LOWER COST. WEBSITES ENABLE COMPANIES TO DO WHAT THE PRINTED BROCHURES DID BUT, IN A MUCH MORE' EFFICIENT MANNER AS WELL AS IN A MUCH SHORTER PERIOD OF TIME AND COVERING A MUCH LARGER SET OF PEOPLE WORLDWIDE . 55 . THUS, APPLYING THE RATIO LAID DO WN BY THE DELHI HIGH COURT, IN THE PRESENT CASE, WE ARE OF THE OPINION THAT THIS EXPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDITURE. WE ORDER ACCORDINGLY. GROUND NO.15, RAISED BY THE ASSESSEE IS THUS TREATED AS ALLOWED. 56 . GROUND NO.16 RELATES TO THE ADDITI ON OF ` 6,88,43,281 U/S 14A. 57 . THE A .O. OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 27,88,996, WHICH WAS CLAIMED AS EXEMPT AND THE ASSESSEE HAS NOT OFFERED ANY EXPENDITURE ALLOCABLE TO EARNING OF SUCH INCOME UNDER SECTION 14A. TH E INVESTMENT AS ON 31 ST MARCH 2008 WAS ` 488.45 CRORES AND AT THE SAME TIME, THE ASSESSEE HAS ALSO CLAIMED FINANCIAL EXPENDITURE OF ` 13,72,85,822. 58 . BEFORE THE A .O. , THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN THE MUTUAL FUNDS WERE MADE FROM OWN FUNDS AN D NOT FROM THE BORROWED FUNDS. THEREFORE, NO EXPENDITURE CAN BE SAID TO BE ATTRIBUTABLE TO THE EARNING OF THE SAID DIVIDEND. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION A N D AFTER ANALYZING THE VARIOUS ADMINISTRATIVE EXPENSES HE WORKED OUT THE DISALLOWANCE AS PER RULE 8D IN THE FOLLOWING MANNER: A. INTEREST PAID 9,20,42,610 B. AVERAGE OF INVESTMENTS OPENING 471 , 81 , 13 , 187 CLOSING 458,45,49,909 C AVERAGE VALUE OF TOTAL ASSETS 01.04.2007 954,37,29,596 31.03.2008 923,90,03,296 939,13 ,66,446 DISALLOWANCE U/S 14A R/W RULE 8D = A X B C = 9,20,42,610 X 465,13,31,548 939,13,66,446 = ` 4,55,86,624 0.5% OF ` 465,13,31,548 = ` 2 ,32,56,657 TOTAL DISALLOWANCE U/S 14A = ` 6,88,43,281 NIMBUS COMMUNICATION LTD. 32 59 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD MADE INVESTMENT OF MORE THAN ` 458 CRORES AND SECURED LOANS WERE ONLY ` 66 CRORES. THE ASSESSEE HAD RECEIVED HUGE DEBENTURES OF ZERO COUPON FULLY CONVERTIBLE DEBENTURES, WHICH HAD NO FINANCIAL COSTS. THIS IS EVIDENT FROM THE AUDITED BALANCE SHEET AND SCHEDULES GIVEN THEREIN. MOREOVER, THE ASSESSEE HAD HUGE RESERVE AND SURPLUS OF ` 276,12,01,113. THUS, THE ASSESSEE HAD MORE THAN SUFFICIE NT FUNDS FOR MAKING THE INVESTMENT WHICH HAD NO FINANCIAL OR INTEREST COST. MOREOVER, THE INVESTMENT MADE BY THE ASSESSEE WERE MEANT FOR THE BUSINESS PURPOSE AS THE NETWORTH OF THE NEO SPORTS IN WHICH THE INVESTMENT WAS MADE WAS WIPED OUT AND WAS AS INCAPA BLE OF YIELDING ANY INCOME. IT WAS SOLELY MEANT FOR THE BUSINESS PURPOSE AND NOT FOR EARNING ANY EXEMPT INCOME. IN ANY CASE, HE SUBMITTED THAT THE DISALLOWANCE SHOULD NOT EXCEED THE DIVIDEND INCOME AND IF AT ALL THE DISALLOWANCE IS CALLED FOR, THE SAME SHO ULD BE RESTRICTED TO DIVIDEND INCOME OF ` 27,88,996. 60 . LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER. 61 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. FROM THE DETAILS AS PLACED IN THE PAPER BOOK IN THE FORM OF AUDITED ACCOUNTS, IT IS SEEN THAT THE ASSESSEE HAS FUNDS OF SUMS AGGREGATING TO ` 546,48,97,138 IN THE FORM OF ZERO COUPON FULLY CONVERTIBLE DEBENTURE ON WHICH THERE WAS NO INTEREST COST. BESIDES THIS, THE ASSESSEE ALSO HAD A HUGE RESERVE AND SURPLUS. ONCE THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS, THEN IT CAN BE HELD THAT THE DISALLOWANCE ON ACCOUNT OF INTEREST COST CANNOT BE MADE. THIS PROPOSITION HAS BE EN LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD., [2009] 313 ITR 340 (BOM.). THUS, IN THE WORKING OF RULE 8D, THE INTEREST COMPONENT HAS TO BE REMOVED. HOWEVER, FOR THE OTHER COST RELATING TO ADMINISTRATIVE COST AND OTHER EXPENDITURE, THE WORKING AS PER RULE 8D HAS TO BE MADE BECAUSE THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A. ACCORDINGLY, WE HOLD THAT THE ASSESSING OFFICER WILL RE WORK THE DISALLOWANCE UN DER SECTION 14A AFTER APPLYING THE PROVISIONS OF RULE 8D NIMBUS COMMUNICATION LTD. 33 AFTER REMOVING THE COMPONENT OF INTEREST PAID AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND WORKOUT THE DISALLOWANCE FOR THE ADMINISTRATIVE AND OTHER EXPENDITURE. CONSEQUENTLY, GROUND NO.16 RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 62 . 62 . IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 20 TH DECEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER 2013 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 20 TH DECEMBER 2013 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI