M/s DQ Entertainment, Hyderabad V. Asst.CITCir1(2), Hyderabad

ITA 62/HYD/2013

• Counselvise Citation: 6222514 RSA 2013
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 09-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-01-2013
• Court: TRIBUNAL
• Department Lawyers: KONDA RAMESH
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 62/HYD/2013 ASSESSMENT YEAR: 2008-09 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD, HYDERABAD [PAN: AACCD8731C] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P.V.S.S. PRASAD , A R FOR REVENUE : S HRI KONDA RAMESH, D R DATE OF HEARING : 0 9 - 0 9 - 201 5 DATE OF PRONOUNCEM ENT : 30 - 1 0 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL PREFERRED BY ASSESSEE AGAINST TH E ORDERS OF ASSESSING OFFICER (AO) U/S. 143(3) R.W.S. 144C (5) OF THE INCOME TAX ACT [ACT] CONSEQUENT TO THE DIRECTIONS ISSUED BY DI SPUTE RESOLUTION PANEL [DRP], HYDERABAD. ASSESSEE HAS RAISED THE FO LLOWING THREE GROUNDS: I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 2 -: 2. THE LD AO/TPO/DRP ARE NOT JUSTIFIED IN TREATIN G THE ARMS LENGTH PRICE AS NIL IN RESPECT OF MANAGEMENT CONSUL TANCY FEES PAID TO ITS ASSOCIATED ENTERPRISE BY QUESTIONING COMMERC IAL WISDOM OF THE ASSESSEES DECISION TO INCUR THE EXPENDITURE FO R RS. 3,19,23,085/-. THE LD AO/TPO/DRP OUGHT TO HAVE CON SIDERED THE TANGIBLE AND DIRECT BENEFIT DERIVED BY THE ASSESSEE BY INCURRING MANAGEMENT CONSULTANCY SERVICES FEE AND ALLOWED THE SAME. 3. THE LEARNED AO/TPO/DRP ERRED IN CONCLUDING THAT THE ASSESSEE DID NOT FILE ANY DETAILED DOCUMENTATION IN RESPECT OF MANAGEMENT CONSULTANCY FEES WHEN DETAILED NOTE AND OTHER SUPPO RTING EVIDENCE WAS GIVEN EXPLAINING THE BENEFITS RECEIVED AGAINST SUCH FEES PAID. 4. THE LD AO/TPO IS NOT JUSTIFIED IN NOT ACTING UPO N THE APPLICATION FOR RECTIFICATION FILED UNDER SECTION 154 OF THE AC T, AGAINST THE ORDER OF TPO FOR DISALLOWING THE AMOUNT OF RS. 73,62,023/ - IN THE NATURE OF REIMBURSEMENT OF COMMISSION WHICH WAS NOT DEBI TED TO PROFIT AND LOSS ACCOUNT AND WAS ROUTED ONLY THROUGH THE BA LANCE SHEET AFFECTING THE SHARE PREMIUM AND SHARE CAPITAL ACCOU NT. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE AND DOES NO T REQUIRE ANY ADJUDICATION. 2. ASSESSEE IS ONE OF THE LEADING PRODUCERS OF ANI MATION, VISUAL EFFECTS, GAME ART AND ENTERTAINMENT CONTENT FOR INDIA AS WELL AS GLOBAL MEDIA AND ENTERTAINMENT INDUSTRY. ASSESS EE-COMPANY FILED ITS RETURN OF INCOME ON 29-09-2008 ADMITTING NIL INCOME AFTER CLAIMING EXEMPTION U/S. 10A OF THE ACT. A REFERENCE U/S 92CA OF THE ACT WAS MADE TO THE ADDL. CIT (TRANSFER PRICIN G) (TPO), AS ASSESSEE HAS REPORTED INTERNATIONAL TRANSACTIONS AS UNDER: S. NO. TRANSACTION AE AMOUNT METHOD APPLIED 1 PAYMENT OF MANAGEMENT CONSULTANCY SERVICES FEES DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS 3,19,23,085 TNMM 2 REIMBURSEMENT OF TRAVEL AND OTHER EXPENSES DQ ENTERTAINMENT PLC, ISLE OF MAN, IM1 1LB 2,70,57,703 CUP I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 3 -: 3 REIMBURSEMENT OF COMMISSION DQ ENTERTAINMENT (MAURITIUS), MAURITIUS 73,62,023 CUP 4 EQUITY PARTICIPATION DQ ENTERTAINMENT (MAURITIUS), MAURITIUS 106,94,55,220 CUP 2.1. WHILE ACCEPTING SOME TRANSACTIONS, THE TPO AF TER REJECTION OF TP STUDY MADE BY ASSESSEE, CONSIDERED TWO ITEMS FOR HIS DETAILED ANALYSIS I.E : I. PAYMENT OF MANAGEMENT CONSULTATION FEE OF RS. 3,19,23,085/- TO ITS HOLDING COMPANY DQ ENTERTAINME NT (MAURITIUS) LTD., ON ACCOUNT OF MANAGEMENT CONSULTA NCY SERVICES AVAILED. TPO EXAMINED THE INTRA GROUP SER VICE ASPECT AND ALSO THE DECISIONS OF/APPROACH FOLLOWED BY OTHER COUNTRIES LIKE USA, AUSTRALIA, CANADA AND GERMANY E TC., WHILE EXAMINING THE PAYMENTS MADE FOR INTRA GROUP S ERVICES AND OECD GUIDELINES. BASED ON THE ABOVE ASPECTS AN D CONSIDERING ASSESSEES OBJECTIONS, THE TPO CAME TO THE CONCLUSION THAT ASSESSEE COULD NOT SUBSTANTIATE THE QUERIES RAISED BY HIM AND COULD NOT PROVE THE SERVICES REND ERED BY THE ASSOCIATED ENTERPRISE (AE). APPLYING THE BENEF IT TEST, HE DETERMINED THE ARMS LENGTH PRICE (ALP) VALUE OF TH E SERVICES AT NIL. II. THE SECOND ASPECT WHICH THE AO CONSIDERED IS WITH R EFERENCE TO REIMBURSEMENT OF COMMISSION AT RS. 73,62,023/-. EVEN THOUGH, ASSESSEE SUBMITTED THAT THIS AMOUNT WAS NOT CHARGED TO P&L A/C AND WAS REDUCED FROM THE CONSIDE RATION PAID TO CERTAIN ERSTWHILE SHAREHOLDERS, AS A RESULT OF AN I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 4 -: AGREEMENT BY THE SHAREHOLDERS TO BEAR PART OF THE I PO EXPENSES FOR THE PURPOSE OF LISTING OF DQ ENTERTAIN MENT PLC IN LONDON STOCK EXCHANGE. TPO HOWEVER, WAS OF THE VIEW THAT NO TANGIBLE AND DIRECT BENEFIT COULD BE OBTAIN ED BY ASSESSEE, ACCORDINGLY TREATED THE SAME AS NIL. TPO SUGGESTED ADDITIONS OF THE ABOVE AMOUNTS AND AO SERVED DRAFT ORDER ACCORDINGLY ON ASSESSEE 3. BEFORE THE DRP, ASSESSEE MADE VARIOUS OBJECTION S WITH REFERENCE TO TREATMENT OF ALP AT NIL ON BOTH THE IS SUES TAKEN UP BY THE TPO. AS FAR AS THE PAYMENT OF MANAGEMENT CONSU LTANCY FEES IS CONCERNED, AFTER CONSIDERING THE EXPLANATION OF ASSESSEE WITH NECESSARY DOCUMENTS IN SUPPORT THEREOF, THE DRP ACC EPTED THAT THERE ARE CERTAIN SERVICES RENDERED BY THE DQ ENTER TAINMENT (MAURITIUS) LTD. IN COMING TO THE ABOVE, THE DRP A LSO TOOK INTO CONSIDERATION THE DECISION OF THE CO-ORDINATE BENCH OF ITAT, DELHI IN THE CASE OF MCCANN ERICKSON INDIA P. LTD., IN IT A NO. 5871/DEL/2011 DT. 08-06-2012. THE DECISION OF THE D RP IS AS UNDER: TAKING INTO CONSIDERATION THE FACTS AND INFORMATIO N SUBMITTED BY THE ASSESSEE AS WELL AS THE CONFIRMATI ON FROM A MAJOR CUSTOMER AND A CERTIFICATE FROM A DOMAIN EXPERT, TH IS PANEL OF THE VIEW THAT IT IS NOT POSSIBLE TO HOLD THAT NO SERVIC ES HAVE BEEN RECEIVED BY THE ASSESSEE FROM ITS AE. HENCE, APPLY ING THE PRINCIPLE OF BENEFIT TEST, ITS ALP VALUE CANNOT BE TAKEN TO B E NIL AND IT IS CERTAINLY ABOVE ZERO. THIS IS ALSO IN LINE WITH TH E DECISION OF THE HON'BLE ITAT, DELHI IN THE CASE OF MCCANN ERICKSON INDIA P LTD (ITA NO. 5871/DEL/2011) DATED 08-06-2012. THUS, THE DRP ACCEPTED THAT DQ ENTERTAINMENT (MAURI TIUS) LTD., HAS RENDERED CERTAIN SERVICES TO ASSESSEE. WITH RE FERENCE TO ALP DETERMINATION, HOWEVER, THE DRP RESTORED THE MATTER TO THE TPO I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 5 -: AGAIN FOR EXAMINING THE DETAILED BUDGETING AND DOCU MENTATION MAINTAINED FOR THE SERVICES BEING RENDERED, THE DIR ECTION OF DRP IS AS UNDER: THE MEMORANDUM OF UNDERSTANDING BETWEEN ITSELF AN D THE AE DISCUSSED ABOUT THE PAYMENT OF REMUNERATION FOR SERVICES TO BE RENDERED AS UNDER: IN CONSIDERATION FOR THE MANAGEMENT AND SUPPORTING SERVICES, WHICH DQE MAURITIUS WILL PROVIDE TO DQE INDIA, THEY AGREE TO PAY A MANAGEMENT SERVICE FEE. THIS FEE IS TO BE CALCULAT ED AS FOLLOWS: DQE MAURITIUS WILL IDENTIFY THOSE COSTS OF ITS OFFI CERS AND CONSULTANTS WHO ARE CHIEFLY INVOLVED IN PROVIDING S ERVICES TO DQE INDIA THEIR AGREED, BUDGETED FULLY LOADED COSTS FOR THE C OMING FINANCIAL YEAR WILL FORM THE ELIGIBLE COST BASE FOR THE PURPOSE OF THE MANAGEMENT CHARGE CALCULATION THEIR COSTS WILL BE ALLOCATED ACROSS DQE MAURITIUS AND DQE INDIA BASED ON SHARES OF AGREED BUDGETED SALES FOR THE COMING FINANCIAL YEAR DQE MAURITIUS WILL PASS THROUGH AT COST ANY MAJOR I TEMS OF THIRD PARTY EXPENSES TO WHICH IT HAS NOT ADDED VALU E ALL COSTS WILL BE MARKED UP WITH A PROFIT ELEMENT O F 5% DQE MAINTENANCE WILL INVOICE DQE INDIA FOR THE MANA GEMENT AND SUPPORTING SERVICES QUARTERLY ON THE LAST DAY OF EA CH MONTH. DQE WILL SETTLE THESE INVOICES IN US DOLLARS WITHIN THI RTY DAYS. THE INVOICES WILL BE SUPPORTED BY AN ANALYSIS MADE AT T HE START OF THE FINANCIAL YEAR OF THE AGREED BUDGETED COSTS TO BE I NCURRED BY DQE MAURITIUS AND THE COSTS TO WHICH THE MARK UP IS TO BE APPLIED. INTEREST AT A RATE OF 1% PER MONTH MAY BE CHARGED O N THAT PART OF THE INVOICES WHICH IS NOT PAID WITHIN THIRTY DAYS. THUS, IT IS SEEN THAT DQE MAURITIUS WILL IDENTIFY T HOSE COSTS OF ITS OFFICERS AND CONSULTANTS WHO ARE CHIEFLY INVOLV ED IN PROVIDING MANAGEMENT AND SUPPORTING SERVICES TO DQE INDIA. T HEIR COSTS WILL BE ALLOCATED ACROSS DQE MAURITIUS AND DQE INDIA BAS ED ON SHARES OF AGREED BUDGETED SALES. DQE MAURITIUS WILL PASS THROUGH AT COST ANY MAJOR ITEMS OF THIRD PARTY EXPENSES TO WHICH IT HAS NOT ADDED VALUE. ALL COSTS WILL BE MARKED UP WITH A PROFIT E LEMENT OF 5%. THUS, DETAILED BUDGETING AND DOCUMENTATION NEEDS TO BE MAINTAINED FOR THE SERVICES BEING RENDERED BY THE A E. THESE RECORDS, IF PRODUCED BEFORE THE TPO WOULD THROW MOR E CLARITY AND PROOF FOR THE ACTUAL RENDERING OF SERVICES. THEREF ORE, THIS PANEL I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 6 -: DIRECTS THAT THE TPO SHALL CALL FOR THOSE APPROPRIA TE RECORDS FOR WHICH THE ASSESSEE SHALL EXTEND FULL COOPERATION AN D THEN COME TO A DETERMINATION WHETHER THE SUM PAID OF RS. 3,19,23,0 85 TO ITS HOLDING COMPANY, DQ MAURITIUS ON ACCOUNT OF MANAGEM ENT CONSULTANCY SERVICES IS AT ARMS LENGTH OR IT SHOUL D BE LESS. CONSEQUENT TO THAT, TPO EXAMINED THE ISSUES AGAIN I N DETAIL AND HOWEVER, CAME TO THE SAME CONCLUSION OF NIL ALP. 4. WITH REFERENCE TO THE REIMBURSEMENT OF COMMISSI ON OF RS. 73,62,023/-, THE DRP ACCEPTED ASSESSEES CONTEN TIONS AS UNDER: THE TPO DISALLOWED THE ENTIRE AMOUNT OF RS. 73,62, 023/- STATING THAT INTRA GROUP SERVICES WHICH ARE NOT DER IVING ANY TANGIBLE AND DIRECT BENEFIT SHOULD BE TREATED AS NIL. THE NATURE OF SERVICES RELATING TO THIS PAYMENT AND ACTUAL RECEIPT OF THE SAME HAVE NOT BEEN GONE INTO BY THE TPO. IN THIS REGARD, THE ASS ESSEE FILED A RECTIFICATION LETTER U/S. 154 DATED 22-12-2012 REQU ESTING NOT TO DISALLOW THE REIMBURSEMENT OF COMMISSION OF RS. 73, 62,023/- AS IT WAS NOT CHARGED TO THE P&L A/C. HOWEVER, IT IS CLA IMED THAT THE SAME WAS NOT CONSIDERED BY THE TPO. IN VIEW OF THE ABOVE EXPLANATIONS, THE DRP IS OF TH E OPINION THAT THE PAYMENT RELATES TO A CAPITAL ITEM AND NOT INTRA GROUP SERVICES. MOREOVER, IT IS NOT CHARGED TO P&L ACCOU NT. THEREFORE, THE DETERMINATION OF NIL VALUE IS NOT CORRECT AND SHALL NOT BE GIVEN EFFECT TO BY ADDING IT TO THE TAXABLE INCOME OF THE ASSESS EE. THIS WILL HAVE IMPACT ONLY ON THE BALANCE SHEET OF THE ASSESSEE. FOR WANT OF DETAILED INFORMATION ON FACTUAL ASPECTS, THE MERITS OF DETERMINING THE VALUE AT NIL ARE NOT GONE INTO. EVEN THOUGH, THE DRP ACCEPTED ASSESSEES OBJECTIONS , IT SEEMS THE AO HAS NOT GIVEN EFFECT TO THE SAME AND DISALLOWED THE AMOUNT BY INCLUDING THE SAME IN THE TOTAL TP ADJUSTMENT. IT WAS THE GROUND RAISED BY ASSESSEE (GROUND NO. 4) THAT ASSESSEE HAS PREFERRED AN APPLICATION U/S. 154 AND THE SAME IS ALSO PENDING. ASSESSEE WANTS DIRECTION TO THE AO TO DELETE THE AMOUNT. IT WAS SUBMITTED THAT THE ACTUAL AMOUNT OF MANAGEMENT CONSULTANCY FE E WAS ONLY I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 7 -: RS. 3,19,23,085/-, WHEREAS, THE TPO INCLUDED THE RE IMBURSEMENT AMOUNT OF RS. 73,62,023/- SO AS TO MAKE IT TO RS. 3 ,92,85,108/-. EVEN THOUGH DRP HAS GIVEN CLEAR DIRECTIONS AND AS S EEN FROM THE ORDER OF TPO, HE WAS ONLY DISCUSSING ABOUT THE ALP OF MANAGEMENT CONSULTANCY SERVICES, IT SEEMS THAT TPO WRONGLY TOOK THE AMOUNT AT RS. 3,92,85,108/- WHICH INCLUDED THE ABOVE AMOUNT WHICH WAS NOT CHARGED TO P&L A/C. SINCE DRP HAS AL READY DIRECTED IT TO BE EXCLUDED, WE DIRECT THE TPO/AO TO DELETE THE ABOVE AMOUNT AND CONSIDER THE MANAGEMENT FEE PAID A T ONLY RS. 3,19,23,085/- WHICH WAS CHARGED TO P&L A/C AS STATE D BY ASSESSEE IN VARIOUS SUBMISSIONS, WHICH CAN ALSO BE VERIFIED AS APPENDIX-B TO FORM NO. 3CEB PLACED IN PAGE 71 OF THE PAPER BOO K. IN VIEW OF THIS, GROUND NO.4 IS CONSIDERED ALLOWED. 5. COMING TO GROUND NOS. 2 & 3 ON THE ISSUE OF MANAGEMENT CONSULTANCY FEES PAID TO AE, WE HAVE HEA RD BOTH LD. COUNSEL AND LD. DR IN DETAIL. 5.1. IT WAS THE SUBMISSION OF LD. COUNSEL THAT ASS ESSEE SUBMITTED BEFORE TPO THAT BOARD OF DIRECTORS OF DQ ENTERTAINMENT, PLC HAS BEEN INSTRUMENTAL IN BRINGIN G IN A NUMBER OF PROJECTS WITH IMPARTING CUSTOMERS. THESE PROJEC TS VALUED AT APPROXIMATELY RS. 64 CRORES HAVE BEEN EXECUTED BY D Q INDIA OVER A PERIOD FROM 2007-08 UPTO 2010-11. FURTHER, A STR ATEGIC DECISION WAS TAKEN TO INVEST IN METHOD ANIMATION SARL WHICH LEAD TO AN AGREEMENT BETWEEN THE ABOVE COMPANY AND DQ INDIA FO R PRODUCTION OF PROJECTS VALUED APPROXIMATELY AT RS. 105 CRORES. INSPITE OF DRP SATISFYING WITH THE BENEFIT TEST, TH E TPO HOWEVER, AGAIN REJECTED ASSESSEES CONTENTIONS AND DETERMINE D THE ALP AT NIL, WITHOUT HAVING ANY COMPARABLE CASES EVEN THOUG H THE METHOD I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 8 -: SELECTED WAS TNMM. IT WAS SUBMITTED THAT TEST OF C OMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS NECESSARY AND REASONABLE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESS MEN AND NOT OF THE REVENUE. IT WAS FURTHE R SUBMITTED THAT EXPENDITURE CAN NEVER BE LINKED TO THE INCOME EARNING ABILITY OR THE VALUE ADDITION. LD. COUNSEL RELIED ON THE D ECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIAN CES [24 TAXMANN.COM 199] (DELHI) TO SUBMIT THAT DEPARTMENT CANNOT DICTATE TO THE TAXPAYER WHETHER OR NOT TO INCUR ANY EXPENDITURE . LD. COUNSEL ALSO RELIED ON THE DECISION OF ERICSSON IND IA PVT. LTD., VS. DCIT [25 TAXMANN.COM 472] (DELHI) TO SUBMIT THAT IT IS PREROGATIVE OF THE TAXPAYER TO AVAIL SERVICES FROM ITS AE AND T HE REVENUE CANNOT QUESTION THE COMMERCIAL EXPEDIENCY OF SUCH A DECISI ON . REVENUE CANNOT DISALLOW ANY EXPENDITURE MERELY ON THE GROUN D THAT IT WAS NOT REQUIRED BY THE TAXPAYER. LD. COUNSEL ALSO RELI ED ON THE FOLLOWING DECISIONS: I. DRESSER RAND INDIA PVT. LTD., VS. ADDL. CIT [47 S OT 423 (MUM)]; II. SASSON J. DAVID AND CO., PVT. LTD., [118 ITR 261]; III. CIT VS. KIRLOSKAR TRACTORS LTD., [231 ITR 849 (MUM) ]; IV. SOCIAL MEDIA INDIA LTD., VS. ACIT (ITA NO. 1711/HY D/2012, HYDERABAD BENCH); V. THYSSEN KRUPP INDUSTRIES INDIA (P) LTD., VS. ACIT M UMBAI [27 TAXMANN.COM 334 (MUM)]; VI. CASTROL INDIA LTD., VS. ACIT [29 TAXMANN.COM 62 (MU M)]; VII. SC ENVIRO AGRO INDIA LTD., VS. DCIT MUMBAI [34 TAXMANN.COM 127]; VIII. FESTO CONTROLS (P) LTD., DCIT BANGALORE [30 TAXMAN N.COM 16]; I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 9 -: IX. LG POLYMERS (P) LTD., VS. ADDL. CIT [48 SOT 269/15 TAXMANN.COM 79]; X. QUINTILES RESEARCH (INDIA) PRIVATE LTD VS. DEPUTY COMMISSIONER OF INCOME TAX (1605/BANG/2012); XI. ATOTECH INDIA LIMITED VS. ACIT (ITA NO. 104/DEL/201 2); AND XII. AWB INDIA PVT. LTD., VS. ACIT (ITA NO. 4454/DEL/201 1) 5.2. LD. DR HOWEVER, REFERRED TO THE ORDER OF TPO AND SUBMITTED THAT ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS AND JUSTIFICATION OF THE PAYMENT WAS NOT MADE. HE RELI ED ON THE ORDERS OF THE TPO. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DOCUMENTS PLACED ON RECORD AND ORDERS OF THE AUTHOR ITIES. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE HAS AVAILED INTRA GROUP SERVICES FROM THE DQ MAURITIUS WHICH IN TURN HAS ENTERED INTO ANOTHER AGREEMENT WITH DQE, PLC, ISLE OF MAN. THERE ARE TWO ISSUES IN THE ANALYSIS OF TRANSFER PRICING FOR THE INTRA GROUP SERVICES. FIRST ISSUE IS WHETHER INTRA GROUP SERVICES HAVE IN FACT BEEN PROVIDED? THE OTHER ISSUE IS WHAT COULD BE THE INTRA GROUP CH ARGE FOR SUCH SERVICES FOR TAX PURPOSES SHOULD BE IN ACCORDA NCE WITH THE ARMS LENGTH PRINCIPLE? AS FAR AS THE ISSUE WHETHER INTRA GROUP SERVICES HA VE IN FACT BEEN PROVIDED, THERE IS NO DISPUTE WITH REFERENCE TO SAM E AS THE DRP HAS ACCEPTED THAT THERE ARE INTRA GROUP SERVICES. TO THAT EXTENT, THERE IS NO DISPUTE AND REVENUE IS NOT AGGRIEVED ON THE DRPS I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 10 - : OPINION/DIRECTION. WHAT THE DRP DID NOT DECIDE IS THE OTHER ISSUE- INTRA GROUP CHARGES FOR SUCH SERVICES. 6.1. THE ISSUE, AS STATED ABOVE BY EXTRACTI NG THE ORDER OF DRP, WAS REFERRED TO THE TPO FOR DETERMINING IN ACCORDAN CE WITH THE ARMS LENGTH PRINCIPLE. THEREAFTER THE TPO HAS EXA MINED THE ISSUE BY GIVING AN OPPORTUNITY AND OBTAINING THE DE TAILS FROM ASSESSEE. IN THE LETTER ADDRESSED TO THE AO BY THE TPO CONSEQUENT TO THAT ANALYSES THE ISSUE IN DIFFERENT PARTS. THE SAME IS EXTRACTED FOR THE SAKE OF OUR CONSIDERATION WHICH IS AS UNDER : 8. TPOS ANALYSIS: HAVING CAREFULLY GONE THROUGH THE SUBMISSIONS OF TH E TAXPAYER, THE TPO HAS ANALYSED THE INTERNATIONAL TRANSACTION IN T HE FOLLOWING MANNER. 8.1 THE TAXPAYER IS THE WHOLLY OWNED SUBSIDIARY OF ITS AE M/S. DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS WHICH IN TURN IS THE WHOLLOY OWNED SUBSIDIARY OF DQ ENTERTAINMENT PIC, I SLE OF MAN. 8.2.1 THE MANAGEMENT CONSULTANCY SERVICE FEES OF RS . 3,92,85,108/- PAID BY THE TAXPAYER TO ITS AE IS CAL CULATED IN THE FOLLOWING MANNER: SL. NO. NATURE OF COST US$ IN 000 1 FOREIGN EXCHANGE LOSS 321 2 ADMINISTRATION CHARGES 9 3 AUDIT FEE 4 4 MANAGEMENT CONSULTANCY CHARGES 427 ADD: 5% TOTAL: 761 38 TOTAL: 799 8.2.2 IN THE ABOVE TABLE, THE MANAGEMENT CONSULTANC Y SERVICE FEES OF US$ 427,000/- IS ACTUALLY THE EXPENDITURE INCURR ED BY DQ ENTERTAINMENT PLC, ISLE OF MAN. THE BREAK UP OF TH E SAME IS GIVEN AS UNDER: I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 11 - : SL. NO. NAME OF THE SUPPLIER NA TURE OF COST US$ IN 000 1 HEMSCOTT GROUP LTD WEBSI TE MAINTENANCE 10 2 EVOLUTION SECURITIES LTD NOMAD RETAINERSHIP 22 3 BELL POTTING ER PR RETAINERSHIP 24 4 GRANT THORNTON UK LLP VAT SERVICES 5 5 HEMSCOTT GROUP LTD WEBSITE MAINTENANCE 1 6 BERWIN LEIGHTON PAISNER LLP LEGAL RELATIONSHIP 4 7 LONDON STOCK EXCHANGE PLC RNS SERVICES 2 8 DELOITTE TOUCHE TOHMATSU ADUDIT FEE 60 9 EQUITY L IMITED ADMINISTRATION SERVICES 8 10 EQUITY LIMITED ADMINISTRATION SERVICES 1 11 BOARD MEETING EXPENSES BOARD MEETING EXPENSES 5 12 COMPUTER SHARE REGISTRAR SERVICES 3 13 BANK CHARGES BANK CHARGES 2 14 GRANT THORNTON INDIA INTERIM RESULTS REVIEW 13 15 EVOLUTION SECURITIES LTD NOMAD RETAINERSHIP 3 16 DIRECTORS FEE DIRECTORS FEE 230 17 MARSH LIMITED INSURANCE 13 TOTAL 406 ADD: 5% 20 TOTAL 427 8.3 THE EXPENDITURE WHICH ARE PURELY RELATED TO THE A.E. DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS ARE ONLY TWO, I.E., (I) THE ADMINISTRATION CHARGES OF US$ 9,000/- AND (II) AUDI T FEE OF US$ 4000/-. THE FOREIGN EXCHANGE LOSS OF US$ 321000/- PERTAINS TO RE- EVALUATION OF THE FOREIGN CURRENCY LOAN TAKEN BY TH E AE, MAURITIUS FROM AE, ISLE OF MAN. THEREFORE, THE EXPENSES WHIC H PERTAIN TO THE AE, MAURITIUS ARE ONLY US$ 13000/- WHICH INCLUDE AD MINISTRATION CHARGES OF US$ 9000/- AND AUDIT FEE OF US$ 4000/-. SINCE THE FOREIGN EXCHANGE LOSS OF US$ 321000/- DOES NOT PERT AIN TO ANY MANAGEMENT AND CONSULTANCY SERVICES, IT CANNOT BE A LLOWED TO BE INCLUDED IN THE TOTAL EXPENSES UNDER THE HEADING M ANAGEMENT CONSULTANCY SERVICES. THE BALANCE AMOUNT OF MANA GEMENT AND CONSULTANCY SERVICES IS ANALYSED IN THE SUBSEQUENT PARAS. 9. IT IS THEREFORE CLEAR THAT THE DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS HAS NOT INCURRED ANY EXPENDITURE PERTAINI NG TO MANAGEMENT OR CONSULTANCY SERVICES. THE ENTIRE MAN AGEMENT I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 12 - : CONSULTANCY CHARGES PERTAIN TO EXPENDITURE INCURRED BY DQ ENTERTAINMENT PLC. AS PER THE MEMORANDUM OF UNDERS TANDING BETWEEN THE TAXPAYER AND DQ ENTERTAINMENT (MAURITIU S) LTD., MAURITIUS, THE REMUNERATION PAYABLE BY THE TAXPAYER TO THE AE DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS ON ACCOUN T OF MANAGEMENT AND CONSULTANCY SERVICES IS DISCUSSED IN THE FOLLOW ING WORDS: REMUNERATION IN CONSIDERATION FOR THE MANAGEMENT AND SUPPORTING SERVICES, WHICH DQE MAURITIUS WILL PROVIDE TO DQE INDIA, THEY AGREE TO PAY A MANAGEMENT SERVICE FEE. THIS FEE IS TO BE CALCULAT ED AS FOLLOWS: DQE MAURITIUS WILL IDENTIFY THOSE COSTS OF ITS OFFI CERS AND CONSULTANTS WHO ARE CHIEFLY INVOLVED IN PROVIDING S ERVICES TO DQE INDIA. THEIR AGREED, BUDGETED FULLY LOADED COSTS FOR THE C OMING FINANCIAL YEAR WILL FORM THE ELIGIBLE COST BASE FOR THE PURPOSE OF THE MANAGEMENT CHARGE CALCULATION. THEIR COSTS WILL BE ALLOCATED ACROSS DQ MAURITIUS A ND DQE INDIA BASED ON SHARES OF AGREED BUDGETED SALES FOR THE COMING FINANCIAL YEAR. DQE MAURITIUS WILL PASS THROUGH AT COST ANY MAJOR I TEMS OF THIRD PARTY EXPENSES TO WHICH IT HAS NOT ADDED VALU E. ALL COSTS WILL BE MARKED UP WITH A PROFIT ELEMENT O F 5%. DQE MAURITIUS WILL INVOICE DQE INDIA FOR THE MANAGE MENT AND SUPPORTING SERVICES QUARTERLY ON THE LAST DAY OF EA CH MONTH. DQE INDIA WILL SETTLE THESE INVOICES IN U/S. DOLLARS WI THIN THIRTY DAYS. THE INVOICES WILL BE SUPPORTED BY AN ANALYSIS MADE AT THE START OF THE FINANCIAL YEAR OF THE AGREED BUDGETED COSTS TO BE INCURRED BY DQE MAURITIUS AND THE COSTS TO WHICH THE MARK UP IS TO BE APPLIED. 10.1 AS PER THE MOU SIGNED BETWEEN THE TWO, THE MAN AGEMENT CONSULTANCY FEES PAYABLE TO AE DQ ENTERTAINMENT (MA URITIUS) LTD., MAURITIUS IS CONTINGENT ON THE FOLLOWING: DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS WILL I DENTITY THE COSTS OF ITS OFFICERS AND CONSULTANCY SERVICES WHO ARE INVOLVED IN PROVIDING THE SERVICES TO THE TAXPAYER. DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS WILL P ASS THROUGH AT COST IN MAJOR ITEMS OF THEIR PARTY EXPEN SES TO WHICH IT HAS NOT ADDED VALUE. 10.2 AS IS EVIDENT FROM THE MOU ABOVE, IT IS NECESS ARY THAT THE AE DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS INVOIC ES THE TAXPAYER FOR THE FOLLOWING TWO MAIN SERVICES AND THE ASSOCIA TED EXPENSES: I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 13 - : (I) SERVICES RENDERED BY ITS OWN OFFICERS AND CONSULTAN TS AND (II) ANY THIRD PARTY EXPENSES TO WHICH THE AE DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS HAS NOT A DDED VALUE WILL BE PASSED THROUGH AT COST TO THE TAXPAYE R. 10.3 AS REGARDS THE EXPENSES TOTALING TO US$427,000 /- THE AE DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS HAS NOT A DDED ANY VALUE WHATSOEVER. THE ENTIRE VALUE OF DQ MAURITIUS US$ 4 06,000/- IS BASICALLY CURRENCY CONVERSION OF GBP2,13,793/- CHAR GED BY DQ ENTERTAINMENT PLC, ISLE OF MAN TO DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS. 10.4 IT IS NOTEWORTHY THAT THERE ARE ONLY THE FOLLO WING 3 PERSONS WORKING IN THE DQ ENTERTAINMENT (MAURITIUS) LTD., M AURITIUS (I) MR. TAPAAS CHAKRAVARTI, CHAIRMAN AND CHIEF EXECUTIV E OFFICER, (II) MR. KAM YOUNG MEMBER OF THE ACCA IN CHARGE OF THE FINANCE AND ACCOUNTS, AUDIT AND FOREIGN EXCHANGE TRANSACTIONS MANAGEMENT, BUDGETING AND MIS ETC. (III) MR. MARO EDDY LEVEL 1 ACCA : HE IS THE IN-CHARGE OF BOOK KEEPING AND ACCOUNTANCY, COMPUTATION, FILING OF VAT RETURNS, IT RETURNS ETC., IT IS NOTEWORTHY. 10.5 SRI TAPAS CHAKRAVARTI, CHAIRMAN & CHIEF EXECUT IVE OFFICER, IS ALSO A DIRECTOR IN THE TAXPAYERS COMPANY AS WELL A S IN DQ ENTERTAINMENT PLC, ISLE OF MAN. IN THE TABLE CONTA INING THE LIST OF EXPENSES INCURRED BY DQ ENTERTAINMENT PLC, ISLE OF MAN, THERE IS NO EXPENSE ASSOCIATED WITH HIM. IN OTHER WORDS, THERE ARE ONLY THIRD PARTY EXPENSES. WITH RESPECT TO THE THIRD PARTY EX PENSES, THE MOU SIGNED BETWEEN THE TAXPAYER AND THE AE MENTIONS THE FOLLOWING: DQE MAURITIUS WILL PASS THROUGH AT COST ANY MAJOR I TEMS OF THIRD PARTY EXPENSE TO WHICH IT HAS NOT ADDED VALU E. 11.1 SINCE, THE THIRD PARTY EXPENSES ARE ONLY PASS- THROUGH COSTS, NO MARK UP OF FIVE PERCENT CAN BE ALLOWED ON THESE EXPENSES. 11.2 NOW, LET US ANALYSE THE THIRD PARTY COSTS WHIC H ARE PERTAINING TO MANAGEMENT AND CONSULTANCY SERVICES. THE DETAIL S OF THE COSTS INCURRED BY AE, ISLE OF MAN, ARE AGAIN REPRODUCED B ELOW: SL. NO. NAME OF THE SUPPLIER NATURE OF COST US$ IN 000 1 EQUITY LIMITED ADMINISTRATION SERVICES 8 2 EQUITY LIMITED ADMINISTRATION SERVICES 1 3 DELOITTE TOUCHE AUDIT FEE 60 I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 14 - : TOHMATSU 4 BANK CHARGES BANK CHARGES 2 5 BOARD MEETING EXPENSES BOARD MEETING EXPENSES 5 6 MARSH LIMITED INSURANCE 13 7 GRANT THORNTON INDIA INTERIM RESULTS REVIEW 13 8 GRANT THORNTON UK LLP VAT SERVICES 5 9 LONDON STOCK EXCHANGE PLC RNS SERVICES 2 10 COMPUTER SHARE REGISTRAR SERVICES 3 11 HEMSCOTT GROUP LTD WEBSITE MAINTENANCE 10 12 HEMSCOTT GROUP LTD WEBSITE MAINTENANCE 1 13 BERWIN LEIGHTON PAISNER LLP LEGAL RETAINERSHIP 4 14 EVOLUTION SECURITIES LTD NOMAD RETAINERSHIP 22 15 EVOLUTION SECURITIES LTD NOMAD RETAINERSHIP 3 16 BELL POTTINGER PR RETAINERSHIP 24 17 DIRECTORS FEE DIRECTORS FEE 230 TOTAL 406 ADD: 5% 20 TOTAL 427 11.3 IN THE ABOVE TABLE, THE ITEMS OF EXPENSES AT S RL. NO. 1 TO 10 ARE ROUTINE ADMINISTRATIVE EXPENSES WHICH ARE IN NO WAY RELATED TO MANAGEMENT AND CONSULTANCY. FOR INSTANCE, EXPENSES AT SERIAL NO. 1 & 2 ARE ADMINISTRATIVE EXPENSES, AT SERIAL NO. 3 IS AUDIT EXPENSES, 4 AND 5 ARE BANKING CHARGES AND BOARD MEETING EXPEN SES. SIMILARLY THE EXPENSES AT SERIAL NO. 6 TO 10 ARE RO UTINE ADMINISTRATIVE EXPENSES ARE NOT RELATED TO ANY MANA GEMENT CONSULTANCY. THE OTHER EXPENSES AT SERIAL NO. 11 T O 17 ARE PERTAINING TO RETAINERSHIP FEE ETC PAID TO LEGAL AD VISIORS, PR CONSULTANTS ETC. THE EVOLUTION SECURITIES LTD IS A N INTERNATIONAL INVESTMENT BANKER, BERWIN LEIGHTON PAISNER LLP IS A LEGAL FIR, AND BELL POTTINGER IS IN PUBLIC RELATIONS. THE TOTAL E XPENSES FROM SERIAL NO. 11 TO 17 ARE US$ 294000/-. THUS, IT IS EVIDENT THAT ONLY US$ 294000/- PURPORTEDLY PERTAINS TO MANAGEMENT AND CON SULTANCY SERVICES WHEREAS THE BALANCE US$ 133000/- ARE ROUTI NE ADMINISTRATIVE EXPENSES WHICH ARE PERTAINING TO THE AE, DQ ENTERTAINMENT, ISLE OF MAN. 12.1 NOW, THE NEXT QUESTION ARISES IS WHETHER THE U S$ 294000/- INCURRED BY DQ ENTERTAINMENT, ISLE OF MAN, REPRESEN T ANY SERVICES PROVIDED BY THESE EXPERTS OR CONSULTANTS TO THE TAX PAYER, DQ I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 15 - : ENTERTAINMENT INDIA, IN SUPPORT OF ITS CONTENTION T HAT THE EXPENSES PASSED ON THE TAXPAYER WERE IN FACT INCURRED FOR TH E BENEFIT OF THE TAXPAYER, THE TAXPAYER HAS SUBMITTED TWO CERTIFICAT ES, ONE FROM MR. NICOLAS GOLDSTEIN AND THE OTHER FROM METHOD ANIMATI ON SAS. THE RELEVANT PARA OF THE CERTIFICATES SIGNED BY MR. NIC OLAS GOLDSTEIN IS AS UNDER: MR. NICOLAS GOLDSTEIN : I HAVE SEEN DIRECT GUIDELINES, ADVISE AND SUPPORT GIVEN BY BOARD OF DIRECTORS OF DQ ENTERTAINMENT PLC RESULTING IN THE DQ ENTERTAINMENT (INTERNATIONAL) LIMITED HAVING FINALIZED VARIOUS PR OJECTS OVER A NUMBER OF YEARS SINCE 2007. 12.2 THE RELEVANT PARA OF THE CERTIFICATES SIGNED B Y METHOD ANIMATION SAS IS AS UNDER: METHOD ANIMATION SAS : METHOD ANIMATION AND BOARD OF DIRECTORS OF DQ ENTE RTAINMENT PLC HAVE HAD BEEN JOINTLY INTERACTING ON VARIOUS PRODUC TIONS. THIS RELATIONSHIP WAS MADE STRONG BY WAY OF THE AGREEMENT ENTERED INT O BETWEEN METHOD ANIMATION AND DQ ENTERTAINMENT PLC WHEREBY METHOD A NIMATION AGREED TO MAKE FIRST OFFER TO DQ ENTERTAINMENT INTERNATION AL LIMITED BEFORE ENTERING INTO PRODUCTION SERVICE AGREEMENT FOR ANY PROJECT STARTED BY METHOD ANIMATION SAS BEING INITIATED, DEVELOPED AND PRODUCED BY THE COMPANY AS DELEGATE PRODUCER, AND FOR WHICH THE COM PANY IS IN CHARGE OF THE FABRICATION. 12.3 IN THE FIRST CERTIFICATE IS IS MENTIONED THAT WITH THE ADVICE AND GUIDANCE OF DIRECTORS OF DQ ENTERTAINMENT PLC, ISLE OF MAN, THE TAXPAYER COULD FINISH CERTAIN PROJECTS. THIS STATE MENT IS VAGUE AND DOES NOT MENTION ANY SPECIFIC BUSINESS OR PROJECT B AGGED BY THE TAXPAYER ON THE BASIS OF MANAGERIAL SUPPORT GIVEN B Y THE DIRECTORS OF DQ ENTERTAINMENT PLC, ISLE OF MAN. IT IS STATED IN THE SECOND CERTIFICATE MENTIONED ABOVE THAT THE BOARD OF DIREC TORS OF DQ ENTERTAINMENT, PLC, ISLE OF MAN, HAVE INTERACTED WI TH PROSPECTIVE CLIENTS RESULTING IN THE DQ ENTERTAINMENT PLC, ISLE OF MAN, AND THE TAXPAYER COMPANY GETTING BUSINESS FORM THE CLIENTS. 13. IT IS IMPORTANT TO NOTE HERE THE DQ ENTERTAINME NT PLC, ISLE OF MAN IS THE ULTIMATE HOLDING COMPANY OF THE TAXPAYER AND THE SERVICES PROVIDED BY THE SERVICES, IF ANY, PROVIDED BY THE DIRECTORS OF DQ ENTERTAINMENT PLC, ISLE OF MAN, TO THE TAXPAY ER ARE NOTHING BUT PART OF THE SHAREHOLDER ACTIVITY. IT IS BUT NATURA L THAT ANY HOLDING COMPANY AND ITS DIRECTORS WILL PROVIDE ADVICE AND G UIDANCE TO ITS STEP DOWN SUBSIDIARY. SUCH SERVICES DO NOT FORM PA RT OF THE INTRA- GROUP SERVICES AS PER THE OECD GUIDELINES. THE TA XPAYER HAS NO I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 16 - : DOUBT BENEFITTED FROM ITS PASSIVE ASSOCIATION WITH THE HOLDING COMPANIES. HOWEVER, NO DOCUMENTARY EVIDENCE HAS BE EN SUBMITTED BEFORE THE TPO TO SHOW THAT TAXPAYER BENEFITTED FRO M ANY DIRECT SERVICE PROVIDED BY THE AES TO THE TAXPAYER. 14. IN THIS CONTEXT, IT IS PERTINENT TO REFER TO PA RA 7.13 OF THE OECD GUIDELINES WHICH IS REPRODUCED BELOW- 7.13 SIMILARLY, AN ASSOCIATED ENTERPRISE SHOULD NOT BE CONSIDERED TO RECEIVE AN INTRA-GROUP SERVICE WHEN IT OBTAINS INCIDENTAL B ENEFITS ATTRIBUTABLE SOLELY TO ITS BEING PART OF A LARGER CONCERN, AND NO TO AN Y SPECIFIC ACTIVITY BEING PERFORMED. FOR EXAMPLE, NO SERVICE WOULD BE RECEIV ED WHERE AN ASSOCIATED ENTERPRISE BY REASON OF ITS AFFILIATION ALONG HAS A CREDIT-RATING HIGHER THAN IT WOULD IF IT WERE UNAFFILIATED, BUT AN INTRA-GROUP S ERVICE WOULD USUALLY EXIST WHERE THE HIGHER CREDIT RATING WERE DUE TO A GUARAN TEE BY ANOTHER GROUP MEMBER, OR WHERE THE ENTERPRISE BENEFITTED FROM THE GROUPS REPUTATION DERIVING FROM GLOBAL MARKETING AND PUBLIC RELATIONS CAMPAIGNS. IN THIS RESPECT, PASSIVE ASSOCIATION SHOULD BE DISTINGUISHE D FROM ACTIVE PROMOTION OF THE MNE GROUPS ATTRIBUTES THAT POSITIVELY ENHAN CES THE PROFIT MAKING POTENTIAL OF PARTICULAR MEMBERS OF THE GROUP. EACH CASE MUST BE DETERMINED ACCORDING TO ITS OWN FACTS AND CIRCUMSTANCES. 15. THE TAXPAYER HAS NOT FILED ANY SUPPORTING DOCUM ENT AS WAS DISCUSSED BY THE HON'BLE DRP IN THE DIRECTIONS ISSU ED U/S. 144C VIDE ITS ORDER 14.09.2012. THE RELEVANT PORTION OF THE ORDER IS AS UNDER: THUS, DETAILED BUDGETING AND DOCUMENTATION NEEDS T O BE MAINTAINED FOR THE SERVICES BEING RENDERED BY THE AE. THESE RECOR DS, IF PRODUCED BEFORE THE TPO WOULD THROW MORE CLARITY AND PROOF FOR THE ACTU AL RENDERING OF SERVICES. 16. THE TAXPAYER HAS NOT FILED ANY DETAILED BUDGETI NG OR DOCUMENTATION BY EITHER THE TAXPAYER OR ANY OF THE TWO AE I.E., DQ ENTERTAINMENT (MAURITIUS) LTD., MAURITIUS OR DQ ENT ERTAINMENT PLC, ISLE OF MAN TO SHOW HOW AND WHAT PART OF THE DIRECT ORS FEES INCURRED BY THE DQ ENTERTAINMENT PLC, ISLE OF MAN, SHOULD BE CONSIDERED AS MANAGEMENT AND CONSULTANCY SERVICES P ROVIDED TO TAXPAYER. IN THIS REGARD THE PARA 7.18 OF THE OECD GUIDELINES STATES THE FOLLOWING- 7.18. THE FACT THAT A PAYMENT WAS MADE TO AN ASSOCI ATED ENTERPRISE FOR PURPORTED SERVICES CAN BE USEFUL IN DETERMINING WHE THER SERVICES WERE IN FACT PROVIDED, BUT THE MERE DESCRIPTION OF A PAYMEN T AS FOR EXAMPLE, MANAGEMENT FEES SHOULD NOT BE EXPECTED TO BE TREA TED AS PRIMA FACIE EVIDENCE THAT SUCH SERVICES HAVE BEEN RENDERED. AT THE SAME TIME, THE ABSENCE OF PAYMENTS OR CONTRACTUAL AGREEMENTS DOES NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT NO INTRA-GROUP SERVICES HAVE BEEN RENDERED. I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 17 - : 17. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, THE ARMS LENGTH PRICE OF THE MANAGEMENT CONSULTANCY SERVICES PAID B Y THE TAXPAYER TO ITS AE, DQ MAURITIUS, IS HELD AS RS. NIL. ACCOR DINGLY, THE AMOUNT OF THE FEE FOR MANAGEMENT CONSULTANCY SERVICES OF R S. 3,92,85,108/- IS HELD AS EXCESS PAID BEING ADJUSTMENT U/S. 92CA. 6.2. AS CAN BE SEEN FROM THE ABOVE, THE TPO ANALYS ED THE ACCOUNTS OF DQ ENTERTAINMENT PLC AND DQE MAURITIUS IN ANALYZING THE NATURE OF PAYMENT. OUT OF THE TOTAL AMOUNT OF US$ 7,99,000 PAID, THE ACTUAL MANAGEMENT CONSULTATION CHARGES WE RE ONLY US$ 4,27,000 ALONG WITH ADMINISTRATIVE AND AUDIT FEE OF US$ 14,000. AS PER THE AGREEMENT, THERE IS A MARKUP OF 5%. THI S EXPENDITURE ONLY CAN BE CONSIDERED, IN OUR VIEW, AS THE MANAGEM ENT CONSULTANCY SERVICE FEE, WHEREAS THE FOREIGN EXCHAN GE LOSS OF US$ 3,21,000 CANNOT BE CONSIDERED AS INTRA GROUP SERVIC E. WE NOTICE FROM THE DOCUMENTS PLACED ON RECORD THAT INSTEAD OF QUARTERLY BILLS BEING RAISED AS PER THE AGREEMENT, DQE MAURITIUS HA S RAISED ONLY ONE BILL FOR THE WHOLE OF THE YEAR, WHICH WAS PLACE D AT PAGE 170 OF THE PAPER BOOK. AS CAN BE SEEN FROM THE DETAILS OF PAYMENTS MADE, PLACED AT PAGE 171 OF THE PAPER BOOK, THE AMO UNT OF US$ 799,174 CHARGED ON 31-03-08 WAS PAID IN THREE INSTALLMENTS OF US$ 3,00,000 ON 14-09-2010, US $ 1,99,174 ON 25-10 -2010 AND US$ 3,00,000 ON 04-01-2011. IT IS NOTICED THAT EVE N THOUGH INVOICE WAS RAISED ON 31-03-2008 FOR WHOLE YEAR INS TEAD OF QUARTERLY BILLING, THE PAYMENTS WERE MADE FROM SEPT EMBER, 2010 TO JANUARY, 2011 WITH SUBSTANTIAL DELAY. THE REASO NS FOR SUCH DELAYED PAYMENTS WERE NOT EXPLAINED. THEREFORE, WE ARE OF THE VIEW, THAT IN THE GIVEN CIRCUMSTANCES, THE FOREIGN EXCHANGES LOSSES OR GAINS IN THE HANDS OF DQE MAURITIUS CANNOT BE CO NSIDERED AS SERVICES RENDERED BY THE DQE MAURITIUS TO ASSESSEE WHICH SHOULD BE ON ITS OWN ACCOUNT. TO THE EXTENT OF THE ABOV E AMOUNT, WE ARE IN AGREEMENT WITH THE OBSERVATION OF THE TPO IN PAR A 8.3 OF HIS I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 18 - : LETTER DT. 08-11-2012, THAT FOREIGN EXCHANGE LOSS D OES NOT PERTAIN TO ANY MANAGEMENT AND CONSULTANCY SERVICES. TO THA T EXTENT HIS ORDER HAS TO BE APPROVED. 6.3. WHAT THE TPO HAS MISSED IS WITH REFERENCE THE AMOUNTS OTHER THAN FOREIGN EXCHANGE LOSS. IN THE ABSENCE O F ANY COMPARABLE FIGURES AND IN THE ABSENCE OF ANY FURTHE R ENQUIRY AND HAVING THE FACT THAT SERVICES HAVE BEEN RENDERED TO ASSESSEE AS ACCEPTED BY DRP ALSO, TPO CANNOT TAKE THE AMOUNT OF ALP AT NIL, IGNORING THE PAYMENT BY ASSESSEE OF US$ 4,27,000. AS PER THE AGREEMENT, ALL THE COSTS INCURRED BY THE DQE MAURIT IUS WITH 5% MARKUP HAD TO BE CHARGED TO ASSESSEE. THEREFORE, A S PER THE DETAILS FURNISHED BY ASSESSEE BEFORE THE TPO, THE A CTUAL MANAGEMENT FEE OF US$ 4,27,000 WITH ADMINISTRATION CHARGES OF US$ 14000 AND MARKUP OF 5%, AT THE EXCHANGE VALUE A S ON THE DATE OF 31-03-2008, CAN BE CONSIDERED AS SERVICE CHARGES FOR THE INTRA GROUP SERVICES RENDERED. THIS CAN BE TAKEN AS ALP. THEREFORE, MODIFYING THE ORDER OF TPO, WE DETERMINE THE MANAGEMENT CONSULTANCY FEE AS DETAILED ABOVE AND AO IS DIRECTED TO MODIFY THE ORDER ACCORDINGLY. 7. IN ARRIVING AT THE ABOVE, WE HAVE CONSIDERED TH E OECD TRANSFER PRICING GUIDELINES 2010, CHAPTER-VII PERTA INING TO SPECIAL CONSIDERATIONS FOR INTRA GROUP SERVICES. CONSIDER ING THE ASSESSEES AGREEMENT WITH DQE MAURITIUS WHICH IN TURN HAS AN A GREEMENT WITH DQ ENTERTAINMENT PLC, AND THE REIMBURSEMENT OF COST FROM ONE COMPANY TO ANOTHER, WE AGREE WITH THE TPOS OBS ERVATION THAT FOREIGN EXCHANGE LOSS IN FINANCIAL TRANSACTIONS CAN NOT BE CONSIDERED AS SERVICE CHARGE FOR THE INTRA GROUP AND THEREFORE, WE AFTER CONSIDERING THE FACTS OF THE CASE, RESTRICT T HE AMOUNT TO THE I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 19 - : ACTUAL MANAGEMENT FEES CHARGED BY THE DQE MAURITIUS ALONG WITH OTHER COST OF ADMINISTRATION AND AUDIT AND MARK UP AT 5%. 8. WE HAVE ALSO KEPT IN MIND THE VARIOUS PRINCIPLE S LAID DOWN BY THE CO-ORDINATE BENCHES AND ALSO HON'BLE HI GH COURTS AS RELIED ON BY ASSESSEE IN ARRIVING AT THE ABOVE CONC LUSIONS. SUFFICE TO SAY THAT PRINCIPLES LAID DOWN BY THE VARIOUS ORD ERS/JUDGMENTS HAVE BEEN KEPT IN MIND IN ARRIVING AT THE ABOVE CON CLUSIONS. WITH THESE OBSERVATIONS AND DIRECTIONS, WE ALLOW THE GRO UNDS RAISED BY ASSESSEE (GROUND NOS. 2 & 3) PARTLY AS STATED ABOVE . 9. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 30 TH OCTOBER, 2015 TNMM I.T.A. NO. 62/HYD/2013 M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., :- 20 - : COPY TO : 1. M/S. DQ ENTERTAINMENT (INTERNATIONAL) LTD., 644, AURORA COLONY, ROAD NO.3, BANJARA HILLS, HYDERABAD. C/O. PRASAD & PRASAD CHARTERED ACCOUNTANTS, FLAT NO . 301, MJ TOWERS, 8-2-698, ROAD NO. 12, BANJARA HILLS , HYDERABAD. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 1(2), HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATI ON, INCOME TAX TOWERS, HYDERABAD. 5. THE ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICING), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.