SONY PICTURER NETWORKS INDIA PVT. LTD (SUCCESSOR OF MSM DISCOVERY P. LTD), MUMBAI V. DCIT 12(3)(2), MUMBAI

ITA 6676/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8407 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 22-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; TDS
• Section: 92C; 143(3); 205; 207; 13; 22

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI M. BALAGANESH ACCOUNTANT MEMBER (BY WAY OF VIRTUAL HEARING ) ITA NO.6676/MUM/2017 (ASSESSMENT YEAR 2013-14) SONY PICTURES NETWORKS INDIA PVT. LTD. [SUCCESSOR OF MSM DISCOVERY PRIVATE LTD.] INTERFACE BUILDING NO.7, 5 TH FLOOR,MALAD LINK ROAD, MALAD (WEST), MUMBAI-400064. P AN: AAGSC4253 E VS. DCIT CIRCLE-12(3)(2) ROOM NO.147 B AAYAKAR BHAWAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI .J.D.MISTRY SR ADVOCATE WITH SH. HITEN CHANDE ADVOCATE RESPONDENT BY : SHRI A. MOHAN ( CIT-DR) DATE OF HEARING : 23.06.2020 DATE OF PRONOUNCEMEN T : 29.06.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE FIN AL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C(13), PA SSED IN PURSUANCE OF DIRECTIONS OF DISPUTE RESOLUTION PENAL (DRP) DATED 27/09/2017. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: GENERAL GROUND 1. ERRED IN ASSESSING THE TOTAL INCOME OF THE APPEL LANT AT RS 544,03,97,977/- AGAINST RS 30,24,26,907/- AS COMPUTED BY THE APPELL ANT IN ITS RETURN OF INCOME; TRANSFER PRICING GROUNDS 2. ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS. 513,79,71,070/- TO THE TOTAL INCOME OF THE APPELLANT ON THE PREMISE THAT T HE INTERNATIONAL TRANSACTIONS ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 2 ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERP RISES ('AES') WERE NOT AT ARM'S LENGTH; REFERENCE MADE TO THE TRANSFER PRICING OFFICER 3. ERRED IN REFERRING THE APPELLANT'S CASE TO THE L EARNED TRANSFER PRICING OFFICER ('TPO') UNDER SECTION 92CA(I) OF THE ACT, WITHOUT S ATISFYING THE CONDITIONS SPECIFIED THEREIN; TPO ERRED IN CHARACTERIZING THE DISTRIBUTION FEE PA ID BE MSMD TO ITS AE AS ROYALTY . 4. ERRED IN CHARACTERIZING THE DISTRIBUTION FEE PAI D/ PAYABLE BY THE APPELLANT TO ITS AE TO BE IN THE NATURE OF ROYALTY. REJECTION OF ECONOMIC ANALYSIS UNDERTAKEN BY THE AP PELLANT IN ITS TRANSFER PRICING STUDY REPORT 5. ERRED IN NOT FOLLOWING THE APPELLANT'S OWN ORDER FOR AY 2010-11 WHICH WAS PASSED BY THE HON'BLE DRP ACCEPTING SOFTWARE DISTRI BUTORS AS APPROPRIATE COMPARABLE TO BENCHMARK THE APPELLANT'S INTERNATION AL TRANSACTIONS INSPITE OF THERE BEING NO CHANGE IN FACTS IN A Y 2011-12. 6. ERRED IN REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE APPELLANT UNDER SECTION 92C OF THE ACT AND DISREGARDING THE F ACT THAT SOFTWARE DISTRIBUTORS ARE APPROPRIATE COM PARABLES TO BENCHMARK MSMD'S IN TERNATIONAL TRANSACTIONS IN THE ABSENCE OF ANY DIRECT COMPARABLES. 7. ERRED IN LAW AND IN FACTS, IN REJECTING THE FOLL OWING COMPANIES FROM THE TRANSFER PRICING STUDY FOR FY 2012-13 WHICH ARE COM PARABLE TO THE APPELLANT: (I) AVANCE TECHNOLOGY LIMITED (II) INTEGRA TECHNOLOGY AND SOFTWARE LIMITED (III) SONATA INFORMATION TECHNOLOGY LIMITED (IV) TRIJAL INDUSTRIES LIMITED BENCHMARKING ANALYSIS UNDERTAKEN BY THE LEARNED TPO / HON'BLE DRP BY CONSIDERING ROYALTY AGREEMENTS AS COMPARABLE UNCONT ROLLED PRICE (CUP') TO BENCHMARK APPELLANT'S INTERNATIONAL TRANSACTIONS 8. ERRED IN SELECTING THE CUP TO BENCHMARK THE INTE RNATIONAL TRANSACTIONS OF THE APPELLANT WITHOUT APPRECIATING THAT TRANSACTION NET MARGIN ('TNMM') IS THE MOST APPROPRIATE METHOD TO BENCHMARK THE APPELLANT' S INTERNATIONAL TRANSACTIONS; ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 3 9. ERRED IN NOT APPRECIATING THAT THE DISTRIBUTION AGREEMENTS LIKE THAT ENTERED INTO BY THE APPELLANT WITH ITS AE IS DIFFERENT FROM A LICENSE/ROYALTY AGREEMENT SELECTED BY HONOURABLE DRP/THE LEARNED TPO TO BENCH MARK THE APPELLANTS INTERNATIONAL TRANSACTIONS; 10. ERRED IN CONSIDERING ROYALTY AGREEMENTS AS COMP ARABLE TO BENCHMARK THE APPELLANTS DISTRIBUTION ACTIVITY WHETHER ITS AES D ISREGARDING THE FACT THAT ALL AGREEMENTS ARE FUNCTIONALLY DIFFERENT AND ARE ENTER ED INTO IN DIFFERENT GEOGRAPHIES (IE OTHER THAN INDIA) HAS THE ECONOMIC AND COMMERCIAL CIRCUMSTANCES UNDER WHICH THEY ARE ENTERED WOULD BE DIFFERENT FROM THE DISTRIBUTION AGREEMENT ENTERED BY THE APPELLANT; 11. WITHOUT PREJUDICE TO THE ROYALTY AGREEMENTS SEL ECTED BY LEARNED TPO/HONBLE DRP NOT BEING APPROPRIATE COMPARABLES, THE LEARNED TPO/HONBLE DRP HAS ERRONEOUSLY ARRIVED AT LP OF 40 % BY CONSIDERING THE ROYALTY RATE OF THE AGREEMENT BETWEEN RUFF NATIONS FILMS AND NEW LINE TELEVISION AT 30% INSTEAD OF 70% INTERNAL COMPARABILITY 12. WITHOUT PREJUDICE TO THE OTHER GROUNDS, SHOULD SOFTWARE DISTRIBUTION ARE APPROPRIATE COMPARABLE, INTERNAL COMPARABLE ARE SUI TABLE OVER THE ROYALTY AGREEMENTS SELECTED BY THE HON'BLE DRP/ LEARNED TPO TO BENCHMARK THE APPELLANT'S INTERNATIONAL TRANSACTIONS; SELECTION OF LOCAL CABLE OPERATORS (LCO)/MULTISYST EM OPERATOR (MSO)/ DIRECT TO HOME (DTH) AS COMPARABLES 13. WITHOUT PREJUDICE TO THE OTHER GROUNDS, SHOULD SOFTWARE DISTRIBUTORS BE REJECTED AS COMPARABLES THEN LOCAL CABLE OPERATORS (LCO)/ MULTISYSTEM IS OPERATORS (MSO)/DIRECT TO HOME(DTH) COMPANIES CAN B E CONSIDERED AS APPROPRIATE COMPARABLES. SHORT GRANT OF TAX DEDUCTED AT SOURCE (TDS) 14. ERRED IN SHORT GRANTING CREDIT OF TAXES DEDUCTE D AT SOURCE OF RS 362,81,929/- WHILE COMPUTING THE TAX LIABILITY FOR THE YEAR; PENALTY PROCEEDINGS 15. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER S ECTION 271 (1)(C) OF THE ACT. 2. THE ASSESSEE VIDE ITS APPLICATION DATED 19.06.2020, HAS RAISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL; ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 4 16 - DEDUCTION OF EDUCATION AND SECONDARY AND HIGHE R EDUCATION CESS PAID ON THE INCOME-TAX LIABILITY 1. THE ASSESSEE SUBMITS THAT DEDUCTION SHALL BE GRANTE D UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION WITH RESPECT TO EDUCATION CESS AND SECONDARY HIGHER EDUCATION CESS LEVIED ON ITS INCOM E UNDER THE ACT . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS A JOINT VENTURE BETWEEN MULTI SCREEN MEDIA PRIVATE LIMITED (MSMI) AND DISCO VERY COMMUNICATIONS INDIA (DCI) DURING THE RELEVANT FINA NCIAL YEAR, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DISTRIBUTIO N OF CHANNELS TO LOCAL CABLE OPERATORS (LCOS), MULTI SYSTEM OPERATORS ( MSOS) AND DIRECT TO HOME (DTH) OPERATORS. THE ASSESSEE WHILE FILING R ETURN OF INCOME REPORTED INTERNATIONAL TRANSACTION WITH ITS ASSOCIA TE ENTERPRISES (AE) OF DISTRIBUTION FEE. THE ASSESSEE IN FORM 3CEB, REPORT ED INTERNATIONAL TRANSACTION OF LICENSE FEE PAID/PAYABLE FOR DISTRIB UTION OF TELEVISION CHANNELS IN THE FOLLOWING MANNER: SR NO. DETAILS OF TRANSACTION AMOUNT PAID OR PAYABLE AS PER BOOKS OF A/C RS. METHOD 1 PAYMENT OF DISTRIBUTION FEE 924,83,47,926/ - TNMM 2 REIMBURSEMENT OF CHANNEL PLACEMENT CHARGES 192,93,57,001/ - CUP 3 SHORT TERM LOAN AND ADVANCES 66,97,58,753/ - CUP TOTAL 1184,74,63,680/- 4. THE ASSESSEE BENCH MARKED THE TRANSACTION OF DISTR IBUTION FEE BY ADOPTING TRANSACTION NET MARGIN METHOD (TNMM) AND SELECTED SOFTWARE DISTRIBUTOR I.E. COMPANY ENGAGED IN SELLING INTANGI BLE PRODUCTS AS COMPARABLE ON THE GROUND THAT INFORMATION REGARDING THE COMPANIES ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 5 CARRYING ON THE SAME FUNCTION WAS NOT AVAILABLE IN THE PUBLIC DOMAIN. THE ASSESSEE SELECTED THE FOLLOWING FOUR COMPARABLE: S.NO. NAME OF THE COMPANY UPDATED OP/OR FOR F.Y. 2012-13 (%) 1. AVANCE TECHNOLOGIES LIMITED (-0.62) 2. INTEGRA TELECOMMUNICATION (-0.42) 3. SONATA INFORMATION TECHNOLOGY LIMITED 2.15 4. TRIJEL INDUSTRIES LTD .06 ARITHMETIC MEAN 0.50 5. THE ASSESSEE CLAIMED ITS MARGIN OF 2.90% FROM DISTR IBUTION OF AE CHANNEL WHICH WAS HIGHER THAN THE ARITHMETICAL MEANS OF 0.5 0% EARNED BY COMPARABLE COMPANY, HENCE, THE ASSESSEE CLAIMED THA T ITS TRANSACTION WITH ITS AE WAS AT ARMS LENGTH. THE ASSESSEE UNDERTOOK THE SEARCH AND IDENTIFY THE FOUR SOFTWARE DISTRIBUTOR AS APPROPRIATE COMPAR ABLE NAMELY (I) AVANCE TECHNOLOGY LIMITED (AVANCE), (II) INTEGRA TELECOMMU NICATION & SOFTWARE LIMITED (INTEGRA), (III) SONATA INFORMATION TECHNOL OGY LIMITED (SONATA) AND (IV) TRIJAL INDUSTRIES LIMITED (TRIJAL). THE ASSESS EE ALSO CLAIMED THAT IN AY 2010-11, THE TPO AND DRP ACCEPTED SOFTWARE DISTRIBU TOR AS APPROPRIATE COMPARABLE TO BENCHMARK THE ASSESSEES TRANSACTION. 6. THE TPO REJECTED ALL THE COMPARABLE OF THE ASSESSEE AND HELD THAT THE COMPARABLE SELECTED BY THE ASSESSEE DOES NOT FIT IN THE SOFTWARE DISTRIBUTION AND THAT THE ASSESSEE HAS SELECTED THE COMPARABLE H AVING LOW MARGIN WHICH SUITS THE REQUIREMENT OF TP STUDY. 7. HOWEVER, DURING THE TRANSFER PRICING ASSESSMENT PRO CEEDING BEFORE THE TRANSFER PRICING OFFICER (TPO), THE ASSESSEE VIDE N OTICE DATED 13.09.2016 ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 6 AND 190.09.2016 WAS ASKED AS TO WHY THE BENCH MARK CONDUCTED BY THE ASSESSEE SHOULD NOT BE REJECTED ON THE SAME BASIS A S IN THE PREVIOUS YEAR. THE ASSESSEE WAS ALSO ASKED AS TO WHY THE AGREEMENT BASED ROYALTY STAT BASED SEARCH CONDUCTED BY TPO SHOULD NOT BE CONSIDE RED AS COMPARABLE TO BENCHMARK THE DISTRIBUTION FEE PAID BY ASSESSEE TO ITS AES. THE ASSESSEE WAS ALSO SHOW CAUSED AS TO WHY THE RATE OF SUBSCRIP TION EARNED BY THE ASSESSEE FROM THIRD PARTY SHOULD BE ADOPTED. 8. IN REPLY TO THE SHOW CAUSE THE ASSESSEE EXPLAINED T HAT MARGIN EARNED BY MSMD FROM DISTRIBUTION OF THIRD PARTY CHANNEL, THE MSMD IS INVOLVED IN THE DISTRIBUTION OF CHANNELS TO LOCAL CABLE OPERATO RS (LCO)/ MULTI SYSTEM OPERATOR (MSO) AND DIRECT TO HOME (DTH) OPERATORS. FOR THIS PURPOSE, MSMD HAD CONTRACTED DIRECTLY WITH ITS AES DISTRIBUT ION OF ITS CHANNEL IN INDIA. UNDER THE SAID DISTRIBUTION AGREEMENT, MSMD COLLECTS SUBSCRIPTION REVENUES AND REMITS 90% OF THE SAME TO AES WHILE RE TAINING THE BALANCE 10%. IT WAS ALSO EXPLAINED THAT MSMD ALSO DISTRIBUT ES A FEW CHANNELS TO THIRD-PARTY CHANNELS DURING FY 2012-13 SUCH AS TV T ODAY NETWORK AND NEO SPORTS BROADCAST LIMITED. COPY OF THOSE AGREEME NTS WAS FURNISHED. THE ASSESSEE CLAIMED THAT IT HAD EARNED A MARGIN OF 2.90% FROM THE DISTRIBUTION OF AE CHANNEL VIZ-A-VIS (-) 25.26% FRO M DISTRIBUTION THIRD-PARTY CHANNELS DURING THIS YEAR. THUS, THE ASSESSEE CONTI NUES TO BE AN ARMS LENGTH MARGIN. EVEN AT THE GROSS LEVEL MSMD HAS AND A MARG IN OF 10% VIS-A-VIS 6.54% EARNED FROM DISTRIBUTION OF THIRD-PARTY CHANN ELS. THUS, EVEN AT THE ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 7 GROSS LEVEL THE MARGIN EARNED BY MSMD FROM DISTRIBU TION OF A CHANNEL IS AT ARMS LENGTH. ASSESSEE FURTHER SUBMITTED THAT MARGI N EARNED BY MSMD FROM DISTRIBUTION OF AE IS 1.71% AS COMPARED TO THE MARGINS EARNED FROM NON-AE CHANNELS OF (-)1.53% WHERE OTHER INCOME AND ALL EXPENSES (OTHER THAN SUBSCRIPTION PAY OUT) ARE ALLOCATED ON SUBSCRI PTION BASIS. 9. THE TPO AFTER CONSIDERING THE REPLY SUMMARILY REJEC TED THE CONTENTION OF THE ASSESSEE, WITHOUT EXAMINING THE BENCHMARKING OF COMPARABLES AND HELD THAT DISTRIBUTION FEE PAID BY ASSESSEE IS IN THE NA TURE OF ROYALTY AND ACCORDINGLY BENCHMARKED THE INTERNATIONAL TRANSACTI ON ON THE BASIS OF 2 ROYALTY-STAT DATABASE IN THE FOLLOWING MANNER: NAME OF LICENSOR NAME OF LICENSEE ROYALTY RATE RUFFNATION FILMS, LLC NEW LINE TELEVISION, INC. 30.00% AMERICAN BROADCASTING COMPANIES INC. RADIO NETWORKS, LLC 50.00% AVERAGE (%) 40% 10. THE TPO MADE THE ADJUSTMENT IN THE FOLLOWING MANNER : THE ADJUSTMENT AMOUNT IN THE CASE OF ASSESSE E IS WORKED OUT AS UNDER: PARTICULARS AMOUNT (RS.) DISTRIBUTION FEES PAYOUT @ 90% OF TOTAL REVENUES (A) 924,83,47,926/- (B) =A DIVIDED BY 0.9 102,759,42,140/- DISTRIBUTION FEES PAYOUT @ 40% OF TOTAL REVENUES ARMS LENGTH PAYOUT (C)=(B)0.4000* 411,03,76,856/- PAYOUT IN EXCESS OF ARMS LENGTH (A-B) (D)=(A)-(C) 513,79,71,070/- ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 8 11. THUS, THE TPO SUGGESTED UPWARD ADJUSTMENT OF RS. 51 3,79,71,070/- ON ACCOUNT OF DISTRIBUTION FEE TO ITS AE. THE ADJUSTME NT WAS RECTIFIED BY TPO VIDE ORDER DATED 27 TH MARCH 2018 UNDER SECTION 92CA(5) AND WAS REDUCED TO RS. 308,27,82,462/-. ON RECEIPT OF REPORT OF TP O, THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER UNDER SECTION 143 (3) R.W.S. 144C(1) DATED 27.02.2015. THE COPY OF DRAFT ASSESSMENT ORDER WAS SERVED UPON THE ASSESSEE. THE ASSESSEE EXERCISED ITS OPTION FOR FIL ING OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE LD. DRP AFFIRM THE ACTION OF TPO IN REJECTING THE COMPARABLE SELECTED BY ASSESSEE TO SU BSTANTIATE ITS BENCHMARKING UNDER TNMM. THE DRP ALSO AFFIRMED THE ACTION OF TPO IN TREATING THE PAYMENT OF DISTRIBUTION FEE AS ROYALTY BY TAKING VIEW THAT THERE IS NO CHANGE IN THE FACTS AS OF IN EARLIER YEARS (A Y 2012-13), WHEREIN THEY HAVE A AFFIRMED THE ORDER OF TPO. 12. ON RECEIPT OF THE DIRECTION OF THE DRP, THE ASSESSI NG OFFICER PASSED THE FINAL ASSESSMENT ORDER DATED 23.10.2017 UNDER SECTION 143 (3) READ WITH SECTION 144C(13), IN PURSUANCE OF DIRECTION OF LD DRP, BY M AKING T.P. ADJUSTMENT TO RS. 513,79,71,070/-, (WHICH LATER ON REDUCED TO RS. 308,27,82,462/-). FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THIS APPE AL BEFORE THIS TRIBUNAL. 13. WE HAVE HEARD THE SUBMISSIONS OF LEARNED SENIOR CO UNSEL SH. J.D. MISTRY (LD. AR), OF THE ASSESSEE AND THE LEARNED CIT-DR FO R THE REVENUE. AT THE OUTSET THE LEARNED SR COUNSEL MR. MISTRY SUBMITS TH AT THE GROUNDS OF APPEAL RELATED WITH THE TRANSFER PRICING (TP) ADJUSTMENT A RE COVERED IN FAVOUR OF ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 9 ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2011-12 (ITA NO. 971/MUM/2016) DATE D 16 TH MARCH 2020, WHEREIN THE ASSESSEE RAISED IDENTICAL GROUNDS OF AP PEAL. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITS THE LOWER AUTHORITIES WHILE PASSING THE ORDERS HAVE RELIED ON THE ORDERS FOR AY 2012-13, WHICH IN TURN HAS RELIED ON THE ORDERS FOR AY 2011-12. IN AY 2011-12, THE TRIBUNAL CATEGORICALLY HELD DISTRIBUTION FEES PAID BY THE ASSESSEE TO ITS ASSOC IATED ENTERPRISES (AE) IS NOT ROYALTY. THE LD. AR OF THE ASSESSEE FURTHER SUBMI TS THAT DISTRIBUTION FEES IS NOT IN THE NATURE OF ROYALTY HAS BEEN UPHE LD BY TRIBUNAL AND AFFIRMED BY HONBLE BOMBAY HIGH COURT IN THE HANDS OF PAYER AS WELL AS THE RECIPIENT OF DISTRIBUTION FEES IN CASE OF SET I NDIA PRIVATE LIMITED (ITA NO. 1347/2013 AND IN CASE OF RECIPIENT OF DISTRIBUT ION FEES IN CIT VS. MSM SATELLITE (SINGAPORE) PTE LIMITED (ITA NO. 103 & 20 7/2017. THE LEARNED AR FURNISHED THE COPY OF DECISION OF TRIBUNAL AND C OPY OF DECISION OF HONBLE BOMBAY HIGH COURT. 14. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES. WE HAVE SEEN TH AT ON SIMILAR SET OF FACTS THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 201-12 ON THE ISSUE HELD THAT THE DISTRIBUTION FEE PAID BY THE ASSESSEE TO ITS AE IS ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 10 NOT ROYALTY. THE COORDINATE BENCH (AUTHORED BY JM ) PASSED THE FOLLOWING ORDER; 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF T HE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE FI RST ISSUE FOR OUR CONSIDERATION IS WHETHER THE DISTRIBUTION FEE IS IN THE NATURE OF ROYALTY OR NOT. BEFORE US THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED TH AT THE TPO WRONGLY CHARACTERIZED THE CHANNEL DISTRIBUTION FEE AS ROYAL TY. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE ACTS AS A INTERMEDIARY BETWEEN TH E BROADCASTER AND THE ULTIMATE CUSTOMERS WHO USES THE CHANNELS. THUS, DIS TRIBUTION FEE PAID BY THE ASSESSEE CANNOT BE TERMED AS ROYALTY. THIS FACT IN NOT CONTROVERTED BY LD. DR FOR THE REVENUE NOR ANY CONTRARY FACTS WERE BROUGHT ON RECORD BY THE LOWER AUTHORITIES. THE LD. DRP IN ASSESSEES MSM SATELLIT E (SINGAPORE) PTE LTD IN ITS ORDER DATED 19.12.2014 FOR AY 2010-11 BY FOLLOWING THE ORDER OF TRIBUNAL FOR AY 2005-06 & 2006-07 DATED 28.08.2015 HELD THAT DIS TRIBUTION REVENUE IS NOT ROYALTY INCOME. THE HONBLE BOMBAY HIGH COURT IN CI T VS SET INDIA PVT LTD (ITA NO. 1347 OF 2013) HELD THAT THE DISTRIBUTI ON FEE PAID IS NOT IN THE NATURE OF ROYALTY. SIMILAR VIEW WAS AFFIRMED BY HO NBLE BOMBAY HIGH COURT IN CIT VS MSM SATELLITE (SINGAPORE) PTE LTD (ITA NO . 103 OF 2017). CONSIDERING THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT AND RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE VIEW THAT THE PAYMENT OF DISTRIBUTION FEE CANNOT BE TERMED AS ROYALTY. SIN CE, WE HAVE HELD THAT DISTRIBUTION FEE CANNOT BE TERMED AS ROYALTY THUS ; DISCUSSION ON THE ROYALTY AGREEMENT SELECTED FOR COMPARABILITY HAS BECOME ACA DEMIC . 16. ON THE REJECTION OF COMPARABLES, THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE SELECTED FOUR COMPARABLE TO BENCHMARK ITS TRANSACTION UNDER TNMM METHOD. THE LOWER AUTHORITIES REJECTED ALL FO UR COMPARABLES. THE LEARNED AR FOR THE ASSESSEE FURTHER SUBMITS THAT TW O COMPARABLE COMPANIES NAMELY AVANCE AND SONATA ARE COMMON WITH THE SET OF COMPARABLE WITH AY 2011-12, WHICH HAVE BEEN HELD AS ENGAGED IN SOFT WARE DISTRIBUTION ACTIVITY AND COMPARABLE WITH THE ASSESSEE. FURTHER, REMAINING TWO ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 11 COMPARABLE; NAMELY INTEGRA TELECOMMUNICATION AND SO FTWARE LTD AND TRIJEL INDUSTRIES LTD ARE ACCEPTED AS A VALID COMPA RABLE BY DELHI TRIBUNAL IN TURNER INTERNATIONAL PRIVATE LTD. VS DCIT (ITA NO.2 18/ DELHI/2017 AND ITA NO. 1069/DELHI/2014 FOR AY 2009-10 AND 2012-13) . THE DELHI TRIBUNAL ACCEPTED BOTH THESE COMPARABLE WITH CHANNE L DISTRIBUTOR. TRIJAL WAS ALSO HELD TO BE VALID COMPARABLE IN TURNER INTE RNATIONAL PRIVATE LTD. FOR AY 2010-11. 17. THE LEARNED AR SUBMITS THAT IN CASE TWO COMPARABLES , WHICH ARE COMMON IN AY 2011-12, ARE ACCEPTED, THE ARITHMETIC MEAN OF COMPARABLE SET WOULD BE IN WITHIN TOLERANCE RANGE. AND REMAINING TWO COM PARABLE WAS HELD AS VALID COMPARABLE FOR CHANNEL DISTRIBUTION COMPANY. ACCORDINGLY, IF ALL FOUR COMPARABLE ARE REINSTATED AS VALID COMPARABLE, THE ARITHMETIC MEAN OF THE COMPARABLE WOULD BE WITH TOLERANCE RANGE OF ASS ESSEES MARGIN. 18. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE SU PPORTED THE ORDER OF LOWER AUTHORITIES. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE AL SO CONSIDERED THE WRITTEN SUBMISSIONS FILED BY LD. BRIEFING COUNSEL SH. HITEN CHANDE, ADVOCATE ON 26.06.2020. WE HAVE ALSO DELIBERATED ON THE CASE LA WS RELIED BY LEARNED SR COUNSEL OF THE ASSESSEE. WE HAVE SEEN THAT IN ASSE SSEES OWN CASE FOR AY 2011-12, (ITA NO. 971/MUM/2016) THE COORDINATE BENC H WHILE EXAMINING ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 12 AND ACCEPTING THE VALIDITY OF COMPARABILITY OF AVA NCE AND SONATA PASSED THE FOLLOWING ORDER; 25. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTIES AND PERUSED THE RECORD. THE TPO DURING THE TP ADJUSTMENT PROCEEDING REJECTED AVANCE ON THE GROUND THAT THIS COMPANIES IS ENGAGED IN SOFTWA RE TRADING, SALES OF HARDWARE AND OTHER SERVICES AND NO SEGMENTAL INFORM ATION IS AVAILABLE. DRP UPHELD THE ACTION OF ON THE BASIS OF ORDER FOR A.Y. 2010-11.BEFORE TRIBUNAL, THE ASSESSEE HAS PLACED ON RECORD THE FINANCIAL STA TEMENT OF AVANCE. PERUSAL OF FINANCIAL STATEMENT REVEALS THAT THIS COMPANY HA S EARNED RS. 140 CRORE FROM SALE OF SOFTWARE OUT OF TOTAL SALES OF RS. 176 CRORE. THIS COMPANY HAS APPROXIMATELY 80% OF ITS INCOME FROM SOFTWARE PRODU CT. THUS, SEGMENTAL INFORMATION AS PLACED BEFORE US IS AVAILABLE AT (PA GE NO. 204 TO 205 OF PAPER BOOK). FURTHER, WHILE REJECTING EMPOWER, THE TPO HE LD THAT THIS COMPANY IS ENGAGED IN SELLING OF HARDWARE AND NO SEGMENTAL ARE AVAILABLE. FROM THE FINANCIAL STATEMENT PLACED BEFORE TRIBUNAL AT (PAGE NO. 207 TO 219 OF THE PAPER BOOK) AS PER DISCUSSION AVAILABLE ON PAGE NO. 22 OF ANNUAL REPORT OF THIS COMPARABLE (PAGE NO. 209) THE COMPANY HAS EARN ED MORE THAN 80% OF ITS REVENUE FROM SOFTWARE SALES. SIMILARLY, SONATA WAS REJECTED BY TPO BY TAKING VIEW THAT THIS COMPANY IS ENGAGED IN SOFTWARE TRADI NG, CONSULTANCY SERVICES. WE HAVE NOTED THAT THIS COMPARABLE WAS ACCEPTED IN A.Y. 2020-11 BY TPO HIMSELF IN ITS ORDER DATED 29.01.2014. FURTHER, FIN ANCIALS OF THIS COMPARABLE SHOWN THAT THIS COMPANY HAS EARNED RS. 584 CRORE FR OM DISTRIBUTION OF SOFTWARE PRODUCT OUT OF TOTAL SALES OF RS. 597 CROR E, THUS, EARNED 97.49% OF ITS TOTAL REVENUE FROM SOFTWARE PRODUCT (PAGE NO. 224 O F THE PAPER BOOK). SVAM SOFTWARE WAS REJECTED BY TPO ON THE GROUND THA T THIS COMPARABLE IS ENGAGED IN SOFTWARE DEVELOPMENT, SALE PURCHASE OF S OFTWARE AND COMPUTER RELATED HARDWARE. THE REVENUE OF SOFTWARE IS ONLY R S. 2 CRORE AGAINST THE TOTAL REVENUE OF RS. 20 CRORE. FROM THE FINANCIAL OF THIS COMPANY IT IS NOTED THAT ENTIRE INCOME OF RS. 2.09 CRORE IS SHOWN FROM SALES (SALE OF PRODUCT). CONSIDERING THE NATURE AND ACTIVITIES CARRIED OUT B Y ALL THESE 4 COMPARABLE COMPANY WHICH ARE PRIMARILY ENGAGED IN DISTRIBUTION OF SOFTWARE PRODUCT AS NOTED ABOVE. THE SOFTWARE DISTRIBUTION COMPANY ARE HELD TO BE GOOD COMPARABLE TO DISTRIBUTOR SATELLITE CHANNELS IN TUR NER INTERNATIONAL INDIA (P.) LTD. VS. ACIT (SUPRA). THEREFORE, WE ACCEPT THE SUB MISSION OF LD. AR OF THE ASSESSEE TO ACCEPT THESE COMPARABLE AS COMPARABLE W ITH ASSESSEE AND DIRECT THE AO/TPO TO WORK OUT THE T.P. ADJUSTMENT AFRESH. NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER, THE TPO/ASSESSING OFFICER SHALL GRANT OPPORTUNITY TO THE ASSESSEE. IN THE RESULT, THE GROUNDS RELATED TO COMPARABILITY OF COMPARABLE ARE ALLOWED IN ACCORDANCE WITH THE AFORESAID DIRECT IONS. CONSIDERING THE FACT THAT WE HAVE ALLOWED THE FUNCTIONAL COMPARABILITY, THEREFORE, DISCUSSIONS ON ALTERNATIVE ADJUSTMENT HELD BY DRP HAVE BECOME ACAD EMIC. ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 13 20. WE HAVE FURTHER SEEN THAT DELHI TRIBUNAL IN TURNER INTERNATIONAL INDIA PRIVATE LIMITED (SUPRA) FOR AY 2012-13 HAS ACCEPTED INTEGRA AND TRIJAL AS VALID COMPARABLE AGAIN IN TURNER INTERNATIONAL INDI A PRIVATE LIMITED (SUPRA) FOR AY 2010-11 (2019 101 TAXMANN.COM 446 DEL TRI) A ND IN AY 2006-07 (ITA NO.1204/DEL/2014, WITH CHANNEL DISTRIBUTOR. 21. CONSIDERING THE FACTS THAT THE AVANCE AND SONATA WE RE ACCEPTED AS VALID COMPARABLE IN ASSESSEES OWN CASE IN AY 2011-12 IN ITA NO. 971/MUM/2016 AND TRIJEL AND INTEGRA WAS HELD AS VAL ID COMPARABLE WITH CHANNEL DISTRIBUTION, THEREFORE, WE IN PRINCIPAL AG REE AND ACCEPT THE SUBMISSION OF LD. AR OF THE ASSESSEE TO ACCEPT THES E FOUR COMPARABLE AS COMPARABLE WITH ASSESSEE. HOWEVER, WE HAVE SEEN THA T THE TPO REJECTED THE COMPARABILITY OF THESE COMPARABLE SUMMARILY, WITHOU T EXAMINING THEIR SEGMENTAL DATA, HENCE WE DIRECT THE AO/TPO TO VERIF Y THE SEGMENTAL DATA OF THESE FOUR COMPARABLE FOR THE RELEVANT FINANCIAL YE ARS AS PER RULE 10B(4) AND RECOMPUTE THE TP ADJUSTMENT AFRESH AND ALLOW AP PROPRIATE RELIEF TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PROVIDE ALL NECESSARY INFORMATION AND EVIDENCE TO THE TPO/AO. NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER, THE TPO/ASSESSING OFFICER SHALL GRANT OPPORT UNITY TO THE ASSESSEE. IN THE RESULT, THE GROUNDS RELATED TO COMPARABILITY OF COMPARABLE ARE ALLOWED IN ACCORDANCE WITH THE AFORESAID DIRECTIONS. 22. GROUND NO. 14 RELATES TO SHORT DEDUCTION OF TDS. TH E LD AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS ALREADY FILE D AN APPLICATION FOR ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 14 RECTIFICATION, HOWEVER, NO ORDER HAS BEEN PASSED BY THE ASSESSING OFFICER TILL NOW, THEREFORE, THE ASSESSING OFFICER BE DIRECTED T O EXPEDITE THE ORDER. CONSIDERING THE SUBMISSIONS OF THE LD. AR FOR THE A SSESSEE THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE TDS DETAILS AND G RANT APPROPRIATE RELIEF TO THE ASSESSEE AFTER VERIFYING THE DETAILS AS EARLY A S POSSIBLE. 23. GROUND NO.15 RELATES TO INITIATION OF PENALTY U/S 2 71(1)(C). THIS GROUND OF APPEAL IS PREMATURE AND NEEDS NO SPECIFIC DIRECTION . 24. GROUND NO. 16 (ADDITIONAL GROUND OF APPEAL) RELATE S TO DEDUCTION OF EDUCATION SECONDARY AND HIGHER EDUCATION CESS. 25. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT ASSESSE E HAS RAISED ADDITIONAL GROUND OF APPEAL, WITH REGARD TO DEDUCTION OF EDUCA TION SECONDARY AND HIGHER EDUCATION CESS PAID ON THE INCOME TAX LIABIL ITY. THE ASSESSEE WHILE FILING RETURN OF INCOME FOR A.Y. 2013-14, HAD PAID EDUCATION CESS AND HIGHER EDUCATION CESS LEVIED BY VIRTUE OF THE FINAN CE ACT, 2013. THE ASSESSING OFFICER AFTER MAKING THE ADDITION OF RS. 513,79,71,070/- IN THE FINAL ASSESSMENT ORDER COMPUTED THE EDUCATION CESS AND HIGHER EDUCATION CESS AT RS. 5,14,11,761/- WHICH WAS SUBSEQUENTLY RE CTIFIED VIDE ORDER DATED 13.04.2018 TO RS. 3,19,90,320/-. THE JURISDICTIONAL HIGH COURT IN SESA GOA LTD VS JCIT (107 CCH 0376 BHC) HAVE TAKEN A VIEW TH AT THE EDUCATION CESS AND SECONDARY HIGHER EDUCATION CESS IS DEDUCTI BLE AS AN EXPENDITURE WHILE COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. THEREFORE, CONSIDERING THE DECISIONS OF BOMBAY ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 15 HIGH COURT, THE ASSESSEE HAS RAISES AN ADDITIONAL G ROUND OF APPEAL WITH RESPECT TO DEDUCTION OF EDUCATION CESS AND SECONDAR Y HIGHER EDUCATION CESS LEVIED ON ITS INCOME. NO ADDITIONAL FACTS ARE REQUIRED TO BE BROUGHT ON RECORD. ALL THE FACTS RELATED WITH THE ADDITIONAL G ROUND OF APPEAL ARE EMANATING FROM THE RECORD OF LOWER AUTHORITIES. 26. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE SU BMITS THAT NO SUCH ADDITIONAL GROUND OF APPEAL OR PLEA WAS RAISED BY A SSESSEE WAS RAISED BEFORE THE LOWER AUTHORITIES. THE ADDITIONAL GROUND OF APP EAL IS RAISED BELATEDLY AND NEED NO CONSIDERATION AT THIS STAGE. 27. IN THE REJOINDER SUBMISSIONS THE LD. AR FOR THE AS SESSEE SUBMITS THAT HIS CONTENTION WAS ALSO CONSIDERED BY HONBLE HIGH COUR T AND HELD THAT THE TRIBUNAL WAS DUTY BOUND TO CONSIDER SUCH CLAIMS. AF TER SEEKING PERMISSIONS TO FURTHER REPLY, THE LEARNED DR FURTHER SUBMITS TH AT IN CASE THE HONBLE TRIBUNAL CONSIDERED IT NECESSARY FOR ADMITTING THE ADDITIONAL GROUND OF APPEAL, THE ISSUE RAISED IN ADDITIONAL GROUND OF AP PEAL MAY BE RESTORED TO THE FILE OF LOWER AUTHORITIES FOR VERIFICATION OF FACT AND CONSIDERATION IT AT THE END OF LOWER AUTHORITIES. 28. WE HAVE CONSIDERING THE RIVAL SUBMISSIONS OF THE P ARTIES AND GONE THROUGH THE COPY OF INCOME TAX RETURN FURNISHED BY THE ASSE SSEE AND THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AND THE WORKI NG OF INCOME TAX CALCULATED AND RECTIFIED BY ASSESSING OFFICER. CONS IDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS OF LD REPRESENTATIVES OF THE ITA NO. 6676 MUM 2017- SONY PICTURES NETWORKS INDIA PVT. LTD. 16 PARTIES THAT NO ADDITIONAL FACTS ARE REQUIRED TO TH E BROUGHT ON RECORD AND THE NECESSARY FACTS FOR ADJUDICATING THE ADDITIONAL GR OUNDS OF APPEAL ARE ALREADY AVAILABLE ON RECORD, WE ADMITS THE ADDITIONAL GROUN D OF APPEAL. FURTHER CONSIDERING THE FACTS THAT THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND FOR THE FIRST TIME BEFORE THE TRIBUNAL, THEREFORE, WE D IRECT THE ASSESSING OFFICER TO VERIFY THE FACTS AND PASS THE ORDER AFRESH ON TH IS ISSUE (CLAIM), AFTER CONSIDERING THE DECISION OF BOMBAY HIGH COURT IN SI SA GOA LTD (SUPRA). NEEDLESS TO ORDER THAT BEFORE PASSING THE ORDER THE ASSESSING OFFICER SHALL GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE. IN TH E RESULT, THE ADDITIONAL GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE . 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 29/06/2020. SD/- SD/- M. BALAGANESH PAWAN SINGH ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATE: 29.06.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI