SATELLITE TELEVISION ASIAN REGION LTD, MUMBAI V. DDIT (IT) 2(1), MUMBAI

ITA 8683/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4026 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 08-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: PORUS KAKA SHRI DIVESH CHAWALA
• Keywords: Transfer pricing; International transaction; Retrospective amendment
• Section: 143(3); 234B; 10B; 92

Judgement Text

1 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI ASHWANI TANEJA , ACCOUNTANT MEMBER ITA NO. : 8683 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) M/S SATELLITE TELEVISION ASIAN REGION LIMITED, C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AAACS 5680 D VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND ITA NO. : 8684 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) SGL ENTERTAINMENT LTD, C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AA J CS 6874 N VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND ITA NO. : 8685 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) STAR INTERNATIONAL MOVIES LTD, C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AA I CS 3256 P VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND 2 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ITA NO. : 8693 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) STAR ASIA REGIONAL FZLLC (SINCE AMALGAMATED WITH STAR INDIA PVT LTD), C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AA ACN 1335 Q VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND ITA NO. : 8694 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) STAR ASIAN MOVIES LTD (SINCE AMALGAMATED WITH STAR INDIA PVT LTD), C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AA ACN 1335 Q VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND ITA NO. : 8695 /MUM/20 11 (ASSESSMENT YEAR: 200 7 - 0 8 ) STAR TELEVISION ENTERTAINMENT LTD (SINCE AMALGAMATED WITH STAR INDIA PVT LTD), C/O. STAR INDIA PRIVATE LIMITED, STAR HOUSE, OFF DR. E MOSES ROAD, MAHALAXMI, MUMBAI - 400 011 .: PAN: AA ACN 1335 Q VS DDIT(IT) - 2(1) , SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PORUS KAKA SHRI DIVESH CHAWALA RESPONDENT BY : SHRI N K CHAND /DATE OF HEARING : 08 - 10 - 2015 / DATE OF PRONOUNCEMENT : 02 - 02 - 2016 ORDER : . . : PER AMIT SHUKLA, JM : THE AFORESAID APPEALS HAVE BEEN FILED BY THE DIFFERENT ASSESSEES AS MENTIONED ABOVE AGAINST SEPARATE IMPUGNED FINAL 3 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ASSESSMENT ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) RANGE - 2(1), MUMBAI, HEREINAFTER REFERRED TO AS ASSESSING OFFICER (AO), UNDER SECTION 144C(13) R.W.S. 143(3) FOR THE ASSESSMENT YEAR 2007 - 08, IN PURSUANCE OF DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL II (DRP). 2. SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE IDENTICAL ARISING OUT OF SAME SET OF FACTS, WHICH ARE PERMEATING THROUGH IN ALL THE APPEALS, THEREFORE, THE SAME WERE CLUBBED AND HEARD TOGETHER AND ARE B EING DISPOSED OFF FOR THE SAKE OF CONVENIENCE BY WAY OF THIS CONSOLIDATED ORDER. 3. TO UNDERSTAND THE FACTS AND ITS IMPLICATION ON THE ISSUES INVOLVED, WE ARE FIRST DISCUSSING THE CASE OF M/S SATELLITE TELEVISION ASIA REGION LTD IN ITA NO. 8683/MUM/2011, WHICH IS THE MAIN APPEAL AND HAS A BEARING IN ALL THE OTHER APPEALS OF THE AFOREMENTIONED ASSE SSEES. IN THE GROUNDS OF APPEAL AS MANY AS 29 GROUNDS HAVE BEEN RAISED AND BESIDES THIS, THREE ADDITIONAL GROUNDS HAVE ALSO BEEN RAISED VIDE SEPARATE PETITION. SI NCE GROUNDS ARE VERY ARGUMENTATIVE IN NATURE AND NOT SPECIFIC AS IS REQUIRED UNDER THE RULES THEREFORE, WE ARE PROCEEDING ON THE BASIS OF ISSUES RAISED IN VARIOUS GRO U NDS , WHICH ARE SUMMARIZED AS UNDER: (I) GROUND NO. 1 IS GENERAL IN NATURE; (II) IN GROUND NO.2 TO 5, THE ASSESSEE HAS CHALLENGED THAT, THE LD. DRP AS WELL AS AO HAS ERRED IN LAW AND ON FACTS IN NOT APPLYING THE PROFITS SPLIT METHOD (PSM) WHICH WAS APPROVED BY THE TPO, ON NON - AE TRANSACTIONS AND THEREBY HOLDING THAT REVENUE OF RS. 118,59, 30,000/ - FROM SALE OF ADVERTISEMENT AIR TIME FROM NON - AE NEEDS TO BE SEPARATELY COMPUTED AND ON SUCH REVENUE APPLYING 28% OF PROFIT; 4 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 (III) IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED THAT, THERE IS AN ERROR IN COMPUTATION OF INCOME INASMUCH AS DISTRIBUTI ON REVENUE AMOUNTING TO RS 124,82,45,000/ - HAS SUBJECTED TO DOUBLE TAXATION WITHOUT APPRECIATING THAT INCOME COMPRISED THEREIN ON THE SAID AMOUNT HAS ALREADY BEEN ASSESSED; (IV) IN GROUND NO. 7 & 8, THE ASSESSEE HAS CHALLENGED THE TAXATION OF SERVICE FEE INCOME @ 41.82% ON THE GROSS BASIS AS AGAINST APPLICABLE @ 10.455% ON GROSS BASIS; (V) IN GROUND NO. 9, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE AO IN MAKING THE DOUBLE DISALLOWANCE U/S 40(A)(I), WITHOUT CONSIDERING THE FACT THAT SAME HAS ALREADY BEE N FACTORED INTO PSM PROFIT @ 27.18% AND SUCH DOUBLE DISALLOWANCE CONSTITUTES : - ( A ) DISALLOWANCE OF PAYMENT TO ASIA SATELLITE TELECOMMUNICATIONS LTD ( ASIA SAT ) FOR PLANT TRANSPONDER HIRE CHARGES AS ROYALTY (RS. 37,94,29,655/ - ) [G ROUNDS 15 TO 19]; ( B ) PAYMENT FOR FOREIGN CONTENT PROCURING CHARGES U/S 40(A)(I) (RS. 69,91,76,571/ - )[GROUND NO. 20 TO 22]; ( C ) PAYMENT FOR TECHNICAL COST U/S 40(A)(I) (RS. 10,89,68,117/ - ) [GROUND NO. 23 TO 25]; (VI) IN GROUND NO. 10, THE ASSESS EE HAS CHALLENGED DOUBLE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 30,08,28,766/ - ; (VII) IN GROUND NO.11 TO 14, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF COST ADVERTISING AIR - TIME U/S 40(A)(I) AMOUNTING TO RS. 896,13,47,000/ - ; 5 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 (VIII) IN GROUND NO. 26, THE ASSESSEE HAS RAISED THE ISSUE ON NON - GRANT OF REVERSAL OF DISALLOWANCE OF COST OF AT AIR - TIME U/S 40(A)(I) FOR AY 2005 - 06 UPON THE PAYMENT OF TAXES THEREIN IN THE INSTANT ASSESSMENT YEAR [RS. 665,41,36,516/ - ]; (IX) IN GROUND NO. 27, THE ASSESSEE HAS CHALLENGED DENIAL OF SET OFF OF BROUGHT FORWARD LOSSES AND AMOUNTING TO RS.1004,27,61,307 / - FOR AY 2006 - 07. 4. IN ADDITIONAL GROUNDS, AGAIN ASSESSEE HAS RAISED FOLLOWING GROUNDS: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED DRP AND THE LEARNED AO - GROUND NUMBER 30: ERRED IN CONSIDERING THE PROFITABILITY RATE OF 27.18% [ARRIVED AT AFTER CONSIDERATION OF SUO MOTO DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT BY THE APPELLANT], INSTEAD OF PROFITABIL ITY RATE OF 14.04% AND 13.14% TOWARDS SPECIFIC TAX ADJUSTMENTS UNDER SECTION 40(A)(I) OF THE ACT AS DETERMINED BY THE ADDITIONAL COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 11(4) ('TPO') FOR COMPUTING THE ARMS' LENGTH PRICE ('ALP') UNDER PROFIT SPLIT M ETHOD ('PSM'). GROUND NUMBER 31: WITHOUT CONSIDERING THE SIMILARITY IN THE FACTS AND RETURN FILING POSITIONS IN CASE OF THE APPELLANT IN AY 2007 - 08 AND AY 2008 - 09, ERRED IN ADOPTING A DIVERGENT POSITION WITH RESPECT TO ADJUSTMENTS PRESCRIBED UNDER SECTI ON 40(A)(I) OF THE ACT, WHILE CONSIDERING THE PROFITABILITY RATE. GROUND NUMBER 32: ERRED IN NOT SPECIFYING THAT AFTER ACCEPTING IN CASE OF THE APPELLANT (ALONG WITH ITS AES1), THE PROFITABILITY OF 27.18% (EQUIVALENT TO RS 3,452,612,000) OF THE INDIA REV ENUES COMPRISING OF 14.04% (RS. 1,783,683,000) BEING THE ALP AND 13.14% (RS. 1,668,929,000) BEING ADJUSTMENT UNDER SECTION 40(A)(I) OF THE ACT . 5. BEFORE US, THE LD. SENIOR COUNSEL, SHRI PORUS KAKA SUBMITTED THAT, THE WHOLE CONTROVERSY IN ALL THE APPEA LS IS THAT, PROFITS SPLIT METHOD (PSM) HAS NOT BEEN PROPERLY APPLIED AND HAS NOT BEEN APPRECIATED BY THE AO AND THE DRP IN A PROPER PERSPECTIVE, WHICH HAS LED TO VARIOUS DISALLOWANCES AND DOUBLE 6 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 DISALLOWANCES. AFTER REFERRING TO THE MATERIAL PLACED BEFORE US AND THE IMPUGNED ORDERS, HE BRIEFLY EXPLAINED THE RELEVANT FACTS AND THE BACKGROUND OF THE CASE, WHICH ARE DISCUSSED HEREINAFTER. M/S SATELLITE TELEVISION ASIA REGION LTD. (STAR LTD.) AND STAR CHANNEL COMPANIES DERIVE REVENUES FROM THE INDIAN MARKET FRO M THE DISTRIBUTION OF TELEVISION CHANNELS AND SALE OF ADVERTISEMENT TIME TO BE AIRED ON THESE CHANNELS. THE STAR LTD AND THE CHANNEL COMPANIES, EACH UNDERTOOK UNIQUE FUNCTIONS, BEAR UNIQUE RISKS AND OFFER UNIQUE ASSETS TO JOINTLY GENERATE THESE REVENUES. S GL ENTERTAINMENT LTD (SGL) PROCURES THE CONTENT REQUIRED FOR THE CHANNELS FOR THE ENTIRE STAR GROUP THAT IS, IT PERFORMS A SUBSET OF STAR LTD FUNCTIONS NECESSARY FOR GENERATING REVENUES. ALL THESE COMPANIES OF STAR GROUP CAN BE CLASSIFIED ON THE BASIS OF F UNCTIONS PERFORMED INTO THREE CATEGORIES: - ( I ) FIRSTLY , THE STAR LTD, WHICH IS PRIMARILY ENGAGED IN PRODUCTION AND BROADCASTING OF TELEVISION PROGRAMMING ACROSS THE ASIA REGION. MORE SPECIFICALLY, IT HAS INVOLVED IN THE SALE OF BROADCASTING AIR - TIME, THE DISTRIBUTION OF CHANNELS, THE PROVISION FOR INFRASTRUCTURE SERVICES, THE SUPPLY OF TRANSPONDER CAPACITY AND THE PROVISION OF MANAGEMENT SERVICES. IT ALSO OWNS AND OPERATES CHANNELS DIRECTLY; ( II ) SECONDLY , SGL ENTERTAINMENT LTD (SGL) WHICH IS ENGAGED IN THE CO NTENT PROCUREMENT ACTIVITIES ON BEHALF OF STAR LTD. IN DOING SO, SGL MONITORS THE MARKET, IDENTIFIES SUITABLE CONTENT PROVIDERS AND LIAISES BETWEEN CONTENT PROVIDERS AND THE CUSTOMERS. SGL ALSO OBTAINS CONTENT SAMPLES FOR CUSTOMERS AND CARRIES OUT DISTINCT AND QUALITY CONTROL ON THEM TO DETERMINE WHETHER THE CONTENT MEETS AGGREGATE STANDARDS AND SPECIFICATIONS / BROADCASTING; ( III ) THIRDLY , THERE ARE CHANNEL COMPANIES, VIZ,: - ( A ) CHANNEL INTERNATIONAL MOVIES LTD; ( B ) CHANNEL V MUSIC NETWORKS LTD; 7 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ( C ) STAR TELEVISION ENTERTA INMENT LTD; ( D ) STAR ASIA ENTERTAINMENT LTD; & ( E ) STAR ASIA REGIONAL FLLLC. THESE CHANNEL COMPANIES ARE PRIMARILY ENGAGED IN THE BUSINESS OF DEVELOPING CHANNEL CONCEPT AND CREATING, OWNING AND BROADCASTING THE CHANNELS. THEY DECIDE THE GENRE, THE LOOK AND THE FE EL OF CHANNELS I.E. NATURE OF PROGRAMMING, TARGET AGE OF AUDIENCE ETC. THEY ALSO DECIDE THE SEQUENCING OF THE PROGRAMME AND UNDERTAKE VARIOUS ACTIVITIES IN RELATION TO THE CONTENT SO THAT THE CONTENT CAN BE BROADCAST IN THE FORM OF DIGITAL SIGNALS. EACH OF THE CHANNEL COMPANIES HAS GRANTED CHANNEL DISTRIBUTION RIGHTS TO STAR LTD, WHICH DISTRIBUTES THESE CHANNELS IN RETURN FOR SUBSCRIPTION REVENUES. THE CHANNEL COMPANIES ALSO ADVERTISE AIR - TIME ON THE CHANNEL AND RECEIVED AD REVENUE S NET OF ANY COMMISSIONS RETAINED BY AD AGENTS. ALL THE TRANSACTIONS UNDERTAKEN FOR EARNING OF THE REVENUES ARE AMONGST THESE ENTITIES ONLY. 6. GIVEN THE COMPLEX AND INTER - RELATED FUNCTIONS, THE RISKS AND ASSETS OF THESE COMPANIES, PSM WAS SELECTED AS MOST APPROPRIATE METHOD (M AM) TO DETERMINE THE REASONABLE ALLOCATION OF DEEMED TAXABLE PROFIT IN INDIA. THE PROFIT SPLIT WAS CALCULATED ON THE BASIS OF DETAIL ANALYSIS UNDERTAKEN AND ALLOCATION OF DEEMED TAXABLE INCOME BETWEEN THE SAID COMPANIES AND THE RESULTANT NET PROFIT AS WORK ED OUT TO 14.04%. THE PERCENTAGE OF ALLOCATION OF TAXABLE INCOME WAS MADE IN THE FOLLOWING MANNER: SR.N O . NAME OF THE COMPANY PERCENTAGE WISE ALLOCATION OF TAXABLE INCOME I STAR LTD. 49% II SGL 1% III STEL 33% IV SIML 4% V SAML 4% V I SARF 6% V II CHANNEL V 3% 8 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 SO FAR AS ALLOCATION OF PROPORTIONATE TAXABLE INCOME IN ABOVE RATIO, SAME IS NOT IN DISPUTE. ONE VERY IMPORTANT FACT IN ALL THESE CASES IS THAT IN THE TRANSFER PRICING PROCEEDINGS, THE TPO HAS ACCEPTED THE NET PROFIT OF 14.04% AT ARM S LENGTH. NO ADJUSTMENT WHATSOEVER WAS MADE OR SUGGESTED. THE TRANSFER PRICING ORDERS IN CASE OF ALL THESE ENTITIES HAVE BEEN PLACED IN THE PAPER BOOK FROM PAGES 234 TO 239. 7. ALL THESE COMPANIES VOLUNTARILY DECIDED TO ACCEPT THE CHARGEABILITY OF ENTIRE RECEIPTS REMITTED FROM INDIA AND NO APPORTIONMENT WAS SOUGHT BETWEEN THE ACTIVITIES IN INDIA AND OUTSIDE OF INDIA. MR. KAKA POINTED OUT THAT ALL THE SIGNIFICANT ACTIVITIES IN CON NECTION WITH TELECASTING OF THE CONTENT ON THE CHANNELS ARE CONDUCTED OUTSIDE INDIA, INCLUDING HIRING OF TRANSPONDERS, UP - LINKING, STUDIO FACILITIES, PLACEMENT OF CONTENT INTO CHANNELS, POST PRODUCTION ACTIVITIES LIKE INSERTION OF ADVERTISEMENT MATERIALS I NTO THE CHANNELS ETC. DESPITE ALL THESE ACTIVITIES CARRIED OUTSIDE INDIA, ASSESSEE OFFERED ITS INCOME FROM SUCH ACTIVITIES TO BE TAXED IN INDIA. THE ASSESSEE HAD FOLLOWED FOLLOWING STEPS WHILE DETERMINING THE COMBINED NET PROFIT UNDER PSM: - ( I ) THE AUDITED G LOBAL FINANCIAL STATEMENTS OF ALL THE ENTITIES OF STAR GROUP WERE CONSOLIDATED TO ARRIVE AT THE NET RESULT OF THE ENTITIES OPERATIONS ON CONSOLIDATED BASIS INCLUDING INDIA AND NON - INDIA REVENUES. SUCH A CONSOLIDATION OF RESULTS ENSURES THAT ALL INTER - COMP ANY COSTS, PROFITS AND LOSSES ARE ELIMINATED AND THE CORRECT QUANTUM OF PROFIT BASED ON CORRECT ANALYSIS OF THIRD PARTY REVENUES COST CAN BE ARRIVED AT. (II) THEREAFTER, THE EFFECT OF INTER - COMPANIES DOUBLE COUNTING OF REVENUE STREAM IS ELIMINATED. THIS STEP ENSURES THAT CORRECT THIRD PARTY REVENUE IS ARRIVED AT. 9 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 (III) BASED ON THE AFORESAID PROCESS / STEPS COMBINED NET PROFIT WAS ARRIVED AT 14.04%, WHICH WAS ACCEPTED BY THE TPO AT ARM S LENGTH. 8. AFTER THE DETERMINATION OF THE COMBINED NET PROFIT OF 14.04%, THE SAME WAS INCREASED TO ACCOMMODATE POSSIBLE DISALLOWANCES U/S 40(A)(I) IN RESPECT OF THE PAYMENTS MADE TO THIRD PARTIES ON ACCOUNT OF EXPENDITURE RELATED TO CONTENT SOURCED FROM FOREIGN SUPPLIERS; PAYMENTS MADE TO THIRD PARTIES FOR HIRE OF TRANS PONDERS , AND PAYMENT MADE TO THIRD PARTIES FOR UP - LINKING / MAINTENANCE OF EQUIPMENTS. BASED ON THESE, UPLIFTED RATE OF COMBINED NET - PROFIT WAS ARRIVED AT 23.98%. THIS WAS FURTHER INCREASED TO 27.18% BY DISALLOWING THE INTEREST EXPENSES INCURRED IN RESPEC T OF PAYMENT OF INDIAN TAXES. THUS, THE DISALLOWANCES OFFERED IN THE RETURN OF INCOME FILED WAS IN RESPECT OF PAYMENT MADE TO THIRD PARTIES WITHOUT WITHHOLDING THE TAXES U/S 40(A)(I). AS A RESULT THE PROFIT RATE OFFERED FOR INCOME WAS 27.18%. THIS UPLIFTED RATE OF PROFITABILITY HAS BEEN APPLIED TO INDIA SOURCED REVENUES OF STAR GROUP ENTITIES, I.E. ADVERTISING REVENUES EARNED FROM INDIAN ADVERTISING; DISTRIBUTION/SUBSCRIPTION REVENUES EARNED FROM INDIA; AND SYNDICATION/LICENSING REVENUES EARNED FROM INDIA. BEFORE US, MR. PORUS KAKA POINTED OUT THAT, THOUGH, SUCH DISALLOWANCES WERE NO LONGER REQUIRED TO BE MADE IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL BV VS. UOI, REPORTED IN 341 ITR 1 AND EVEN AFTER THE RETROSPECTI VE AMENDMENT BROUGHT BY THE FINANCE ACT, 2012, (SUBSEQUENT TO VODAFONE DECISION) VARIOUS COURTS HAVE HELD THAT, IT IS IMPOSSIBLE FOR THE ASSESSEE TO COMPLY WITH THE PROVISIONS FOR WITHHOLDING OF TAX PRIOR TO THE INTRODUCTION OF SUCH PROVISIONS . DESPITE THI S, THE ASSESSEE HAD OFFERED HIGHER COMBINED PROFIT OVER AND ABOVE ACCEPTED BY TPO. THUS, THE PROFIT ON RECEIPTS IN INDIA OFFERED FOR TAXATION WAS IN THE FOLLOWING MANNER: 10 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 PARTICULARS YEAR ENDING 31 ST MARC H, 2007 (AMOUNT IN RS. LAKHS) ADVERTISING REVENUE FROM INDIA A 1,01,472.78 DISTRIBUTION REVENUE FROM INDIA B 24,964.81 SYNDICATION REVENUES FROM INDIA C 605.35 TOTAL REVENUES FROM INDIA D=A+B+C 1,27,042.94 PROFIT PERCENTAGE AS PER (E) IN STEP 3 E 23.98% TAXABLE PROFIT F=DXE 30,464.90 ADD: INTEREST COST DISALLOWANCE G 4,061.22 TOTAL TAXABLE PROFIT H=F+G 34,526.12 I.E. 3 45,28,12,000.00 PROFIT % I=H/D 2 7 .18% 9. IN THE IMPUGNED ASSESSMENT ORDER, THE AO HELD THAT, THE ASSESSEE HAS NOT PRODUCED INDIA SPECIFIC ACCOUNTS AND AFTER DETAILED DISCUSSION OBSERVED THAT, THE METHODOLOGY ADOPTED BY THE STAR LTD BY CONSIDERING THE CONSOLIDATED GLOBAL PROFITABILITY BASED ON THE CONSOLIDATED GLOBAL FINANCIAL STATEMENTS OF ALL THE RESPECTIVE COMPANIES OF THE STAR GR OUP IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THE RULES. THE DRP DIRECTED THE AO THAT, THE PROFITS FROM NON - AE REVENUES HAS TO BE SEPARATELY COMPUTED AND WILL NOT BE COVERED UNDER PSM AND DIRECTED THE AO TO TAX THE REVENUE ON ACCOUNT OF NON - A E TRANSACTIONS @ 28%. THE RELEVANT PORTION OF THE AO FOLLOWING THE DRP S ORDER READS AS UNDER: RESPECTFULLY, FOLLOWING THE DIRECTIONS OF THE DRP, RULE 10(I) IS NOT APPLIED IN THE CASE OF THE ASSESSEE FOR AY 2007 - 08 ON TRANSACTIONS WITH ASSOCIATE ENTERPRI SES. THE ASSESSEES INCOME FROM DISTRIBUTION AND SYNDICATION IS ENTIRELY FROM THE AES. AS REGARDS THE ADVERTISEMENT REVENUE, OUT OF THE GROSS AD REVENUE OF RS. 1014,72,78,000/ - . CONSEQUENTLY, THE REVENUE IN THE ASSESSEES HAND REMAINS AT RS. 118.59 CRORES WHICH IS TAXED AT THE RATE OF 28%, AS DIRECTED BY THE DRP. INTEREST INCOME OF RS. 1,85,92,430/ - , THOUGH PARTLY FROM AE (IE STAR GAMES) IS TAXED 100% AS THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES AGAINST THE SAME. THEREAFTER, THE AO HELD THAT, PAYMENT MA DE TO CHANNEL COMPANIES, THAT IS, INTER - COMPANY TRANSACTIONS SHOULD BE DISALLOWED ONCE AGAIN UNDER SECTION 40(A)(I) FOR NON - DEDUCTION OF 11 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 TAX - AT - SOURCE AND ACCORDINGLY, HE OBSERVED THAT ON FOLLOWING PAYMENTS DISALLOWANCE UNDER SECTION 40(A)(I) SHOULD BE MAD E: - PARTICULARS COST OF ADVT. AIR TIME(RS.) STAR TELEVISION ENTERTAINMENT LIMITED 6,240,492,000 STAR ASIAN MOVIES LIMITED 696,547,000 STAR INTERNATIONAL MOVIES LIMITED 535,531,000 CHANNEL [V] MUSIC NETWORKS LIMITED PARTNERSHIP 242,969,000 STAR ASIA REGION FZ LLC 1,245,808,000 TOTAL 8,961,347,000 THUS, AMOUNT OF RS. 896,13,47,000/ - PAYABLE TO THE CHANNEL COMPANIES TOWARDS COST OF ADVERTISEMENT AIR TIME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. AFTER MAKING THE AFORESAID DISALLOWANCES, THE AO FURTHER PROCEEDED TO TAX THE SUBSCRIPTION REVENUES AMOUNTING TO RS. 124,82,45,000/ - (50% OF THE GROSS TURNOVER OF RS. 249,64,90,000/ - AS THE SAME WAS PAYABLE TO THE CHANNEL COMPANIES). THE SAID AMOUNT WAS TAXED ON THE GROUND THAT THE SAME WAS TAXABLE IN THE HANDS OF THE ASSESSEE AS PROFITS AND GAINS FROM BUSINESS OR PROFESSION UNDER SECTION 44DA AS 'ROYALTY'. THEREAFTER, HE ALSO PROCEEDED TO MAKE VARIOUS DISALLOWANCE UNDER SECTION 40(A)(I) ON THE PAYMENT MADE BY THE ASSESSEE TO VARIOUS DIFFERENT ENTITIES, THE DETAILS OF WHICH ARE AS UNDER: SR. NO. NATURE OF PAYMENT MADE TO THE PARTIES QUANTUM OF DISALLOWANCE IN (RS.) 1 PAYMENT MADE TO ASIA SAT FOR TRANSPONDER HIRE CHARGES 37,74,29,655 2 PAYMENT FOR FOREIGN CONTENT 69,91,76,571 3 PAYMENT FOR TECHNICAL COST 10,89,68,117 11. BESIDES THIS, THE LD. AO HAD TAXED THE SERVICE FEE INCOME AND UP - LINKING INCOME @ 41.82% ON THE GROSS BASIS WHICH AS PER THE ASSESSEE SHOULD BE APPLICABLE @ 10.45% AND 20.91% AND FURTHER DISALLOWED INTEREST EXPENSES OF RS. 30,08,28,766/ - . THE 12 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 TOTAL INCOME AFTER MAKING BY THESE ADDITIONS/DISALLOWANCES WAS COMPUTED BY THE AO IN THE FOLLOWING MANNER: - PARTICULARS AMOUNT (RS) AMOUNT(RS) ADVERTISEMENT REVENUE 10,147,277,000 DISTRIBUTION REVENUE (TAXABLE ON PROTECTIVE BASIS) 1,248,240,500 SYNDICATION REVENUE 60,534,958 OTHER INCOME (AS PER RETURN OF INCOME) 18,592,430 REVENUES RECEIVED FROM INDIA 11,474,644,888 NON - AE TRANSACTIONS ADVERTISEMENT REVENUE 1,185,930,000 TAXABLE INCOME TAXABLE PROFITS FROM INDIA OPERATION (AS APPROVED BY THE TPO) 1,720,845,001 (INCLUDED DISTRIBUTION INCOME) TAXABLE PROFITS FROM INDIA OPERATION (NON AE TRANSACTIONS) 28% OF 1,185,930,000 332,060,400 OTHER INCOME (AS PER RETURN OF INCOME) 18,592,430 TOTAL 2,071,497,831 ADD: DISALLOWANCE OF COST OF AIRTIME U/S 40(A)(I) 8,961,347,000 DISALLOWANCE ON ACCOUNT OF TRANSPONDER PAYMENT MADE TO ASIASAT U/S 40(A)(I) [1 USD = RS. 43.17] 377,429,655 DISALLOWANCE OF INTEREST COST (AS PER RETURN OF INCOME) 300,828,766 INCOME SUBSCRIPTION REVENUE 1,248,245,000 DISALLOWANCE OF CONTENT COST (AS PER RETURN OF INCOME) [1 USD = RS. 43.17] 699,176,571 DISALLOWANCE OF TECHNICAL COST (AS PER RETURN OF INCOME) [1 USD = RS. 43.17] 108,968,117 LESS: COST OF ADVERTISEMENT AIR TIME DISALLOWED IN AY 2004 - 05 NOW ALLOWED (6,242,854,000) TOTAL DISALLOWANCES 5,453,141,109 TOTAL INCOME CHARGEABLE TO TAX IN INDIA 7,524,838,940 12. BEFORE US, LD. SENIOR COUNSEL SHRI POROUS KAKA SUBMITTED THAT, HERE IN THIS CASE, NOT ONLY THERE HAS BEEN NON - APPRECIATION OF PSM METHOD BUT ALSO ASSESSEE HAS BEEN SUBJECTED TO DOUBLE DISALLOWANCES ON SEVERAL COUNTS. HE SUBMITTED THAT, IN THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT FIRSTLY, PSM IS THE MOST APPROPRIATE METHOD; SECONDLY , AMOUNTS REMITTED FROM INDIA WOULD 13 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 BE THE STARTING POINT FOR THE APPLICATION OF THE METHOD; THIRDLY , THE METHOD, THE MANNER AND APPLICATION OF DETERMINATION OF INCOME SATISFY THE ARM S LENGTH PROFIT AS PER THE TPO WHICH HAS BEEN ACCEPTED UNDER THE TRANSFER PRICING PROCEEDINGS AND LASTLY , ALL THE COMPANIES ARE TAXABLE AT THE SAME RATE AND THEIR ALLOCATION OF COMBINED NET PROFIT TO EACH ENTITY IS BASED ON THEIR ROLE AND FUNCTIONS PERFORMED. FROM THE HELP OF A CHART, HE EXPLAINED THAT FIRST OF ALL, ALL THE INCOME AND EXPENSES OF THE STAR GROUP WERE CONSOLIDATED TO ARRIVE AT NET RESULTS OF THE ENTITIES OPERATION ON A CONSOLIDATED BASIS INCLUDING INDIA AND NON - INDIA REVENUE S. THEREAFTER, THE EFFECTS OF INTER - COMPANY TRANSACTIONS HAVE BEEN ELIMINATED SO THAT CORRECT THIRD PARTY REVENUE IS ARRIVED AT. BASED ON SUCH ANALYSIS AND DETERMINATION, GLOBAL COMBINED PROFIT WAS ARRIVED AT 14.04% WHICH HAS BEEN FOUND TO BE AT ALP BY THE TPO. IN THE NEXT STEP, THE ASSESSEE HAS MADE CERTAIN SUO - MOTTO DISALLOWANCE AND UPLIFTED PROFIT RATE TO 27.18% WHICH HAS BEEN APPORTIONED TO VARIOUS COMPANIES IN THE PSM, (THE RATIO OF WHICH HAS ALREADY BEEN INCORPORATED ABOVE). HE FURTHER SUBMITTED THAT, UNDER THE PSM, THE COMBINED NET PROFIT OF THE GROUP IS TO BE DETERMINED AT THE TRANSACTIONAL LEVEL OF THE ENTITIES FROM ALL THE INTERNATIONAL TRANSACTIONS. HERE THE COMBINED NET PROFIT HAS BEEN DETERMINED ON THE INTER - SE TRANSACTION AS THERE ARE NO OTHER TRANSACTION WHICH IS EVIDENT FROM THE FUNCTIONS PERFORMED AND REVENUE GENERATED IN SUCH TRANSACTION. THUS, ALL THE TRANSACTIONS IN RESPECT OF DISTRIBUTION STREAM AND ADVERTISEMENT STREAM CANNOT BE SEGREGATED NOR CAN BE THE EXPENSES. THE ASSESSEE WAS NOT RE QUIRED TO MAKE ANY DISALLOWANCE IN RESPECT OF THE PAYMENT MADE TO THIRD PARTIES IN VIEW OF SETTLED LEGAL POSITIONS BY THE DECISION OF HON BLE APEX COURT IN THE CASE OF VODAFONE INTERNATIONAL BV (SUPRA), G E INDIA PVT. LTD. AND DELHI HIGH COURT DECISION IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. VS DIT. NOT ONLY THAT, EVEN AFTER THE RETROSPECTIVE AMENDMENT BROUGHT BY FINANCE 14 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ACT, 2012 THE SETTLED LEGAL POSITION IS THAT, THE ASSESSEE CANNOT BE MADE LIABLE TO COMPLY WITH THE PROVISIONS OF WITHHOLDING OF TAX WHEN SUCH PROVISIONS DID NOT EXISTED IN STATUTE BOOK AT THE TIME OF MAKING THE PAYMENTS. THUS, THE COMBINED PROFIT OF 27.18% ON ALL THE TRANSACTIONS WAS FAR TOO HIGH TO REFLECT THE COMBINED PROFIT OF THE ENTIRE REVENUE AND THE COST. HERE IN THIS CA SE, THE DRP HAS ACCEPTED THAT ASSESSEE S INCOME FROM DISTRIBUTION AND SYNDICATION ARE ENTIRELY FROM AES AND EVEN THE ADVERTISEMENT REVENUES OF MORE THAN 80% ARE FROM AES ONLY, HOWEVER DRP HELD THAT BALANCE REVENUE FROM ADVERTISEMENT ARE FROM NON - AES WHICH IS TO BE TAXED @ 28% UNDER RULE 10. IN SUCH AN APPROACH HE SUBMITTED THAT THERE IS GREAT FOLLY, FIRSTLY , ALREADY WHOLE OF ADVERTISEMENT REVENUE IS PART OF COMBINED PROFIT AND IS IN THE PSM POOL AND THEREFORE, THE EXPENSES OF WHOLE STREAM CANNOT BE SEGREGAT ED AND SECONDLY , IT AMOUNTS TO DOUBLE TAXATION, BEING PART OF COMBINED PROFIT OF 27.18% AND THEN AGAIN TAXED SEPARATELY @ 28%. IF IT IS ACCEPTED THAT TRANSACTION ARE CLOSELY INTER - RELATED AND ALL TRANSACTIONS ARE FROM THE FUNCTIONS PERFORMED BY AES ONLY TH EN ALL TRANSACTIONS GET INCLUDED UNDER THE PSM. THE AO HAS MIS - CONSTRUED THAT THE PROFITS EARNED FROM NON - AE ARE AT 28% AS THERE CANNOT BE SEPARATE EARNING AND SEPARATE PROFIT WITH THE TRANSACTION WITH AE AND NON - AE ESPECIALLY WHEN THE ARM S LENGTH PRICES HAVE BEEN DETERMINED BY THE TPO AT 14.01% AT ALL THE TRANSACTIONAL LEVEL AND THE ENTIRE REVENUE HAS BEEN CONSIDERED. IN FACT THERE ARE NO NON - AES REVENUES SEPARATELY. MR. KAKA REITERATED THAT, OTHERWISE ALSO THE INCOME OF RS. 118,59,30,000/ - HAS BEEN TAXED TWICE, ONCE WHEN THE PROFIT OF THE WHOLE TRANSACTIONS WHICH HAS BEEN TAKEN AT 27.18% BEING PART OF PSM COMPUTATION AND SECOND, TAXED SEPARATELY AGAIN BY APPLYING PROFIT RATE OF 28%. PSM IS APPLIED ONLY WHEN THERE IS CONTRIBUTION FROM MULTIPLE ENTITIES AND REVENUE GENERATED OUT OF OPERATIONS THAT ARE HIGHLY INTEGRATED. 15 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 13. REGARDING DOUBLE TAXATION OF DISTRIBUTION REVENUE OF RS. 124,82,45,000, HE SUBMITTED THAT THE 50% OF TOTAL DISTRIBUTION REVENUE IS BEING TAXED ON PROTECTIVE BASIS IN THE HANDS OF THE STAR LTD., WHICH IN FACT IS THE PART OF THE PSM PROFIT RATE OF 27.18%. ONCE, THAT IS SO, THEN AGAIN 50% OF THE DISTRIBUTION CANNOT BE TAXED ON SUBSTANTIVE BASIS, THEREFORE, IT IS AMOUNTS TO DOUBLE DISALLOWANCE. REGARDING TAXATION OF SERVICE FEE AND UP - LINKING INCOME, HE SUBMITTED THAT, THE ASSESSEE HAD OFFERED TAX @ 10.45% AND 20.91%, RESPECTIVELY IN THE RETURN OF INCOME WHICH IS IN ACCORDANCE WITH SECTION 115A AND THE SAME HAS BEEN TAXED BY THE AO AT 42.82% WHICH IS NOT CORRECT. AS REGARDS, DOUBLE D ISALLOWANCE OF INTEREST EXPENSE ALSO OF RS. 30,08,28,766/ - , HE SUBMITTED THAT, AGAIN IT AMOUNTS TO DOUBLE DISALLOWANCE, BECAUSE IT ALREADY CONSTITUTE DISALLOWANCE MADE BY THE ASSESSEE WHILE ARRIVING AT PROFIT RATE OF 27.18%. ON VARIOUS OTHER DISALLOWANCES MADE UNDER SECTION 40(A)(I), HE SUBMITTED THAT, FIRSTLY , NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF RETROSPECTIVE AMENDMENT IN VIEW OF THE VARIOUS JUDICIAL PRECEDENCE; SECONDLY , NO DISALLOWANCE CAN BE MADE WHEN THE RECIPIENT HAS DULY DISCHARGED ITS LIABIL ITY TO PAY THE TAX ON THE SAID INCOME; THIRDLY , ALREADY THE DISALLOWANCE U/S 40(A)(I) HAS BEEN MADE WHILE COMPUTING THE PSM PROFIT OF 27.18% AND, THEREFORE, NO SEPARATE DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I); FOURTHLY , THE WHOLE OF THE TRANSACTION S UNDERTAKEN BY THE ENTITIES ARE TAKEN FOR ARRIVING AT THE COMBINED NET PROFIT OF THE GROUP TAKING INTO ACCOUNT ALL THE REVENUES GENERATED THROUGH AE AND ALSO NON - AE TRANSACTIONS IF THEY ARE PART OF THE INTERRELATED TRANSACTIONS; FIFTHLY , ALL THE EXPENSES HAVE TO BE TAKEN INTO ACCOUNT AND CANNOT BE SEGREGATED DUE TO NATURE OF INTEGRATED AND COMPLEX TRANSACTIONS AND LASTLY , RULE 10 CANNOT BE MADE APPLICABLE ONCE THE INTERNATIONAL TRANSACTIONS ARE COVERED BY THE PROVISIONS OF SECTION 92 OF THE ACT. 14. REGAR DING NON - GRANT OF REVERSAL OF DISALLOWANCE OF COST OF AD - AIR - TIME U/S 40(A)(I) FOR AY 2005 - 06 UPON THE PAYMENT OF TAXES 16 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 THEREIN IN THE INSTANT ASSESSMENT YEAR AS RAISED VIDE GROUND NO.26, HE SUBMITTED THAT, MAINLY DIRECTION IS SOUGHT FOR THAT AO SHOULD G IVE PROPER EFFECT ON THE ISSUE OF DENIAL OF SET OFF OF BROUGHT FORWARD RETURN LOSS OF AY 2006 - 07 IN ACCORDANCE WITH THE LAW. 14. ON THE ISSUE OF LEVY OF INTEREST U/S 234B, HE SUBMITTED THAT THE SAME IS NOT CHARGEABLE IN THE CASE OF THE ASSESSEE IN VIEW OF THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT(IT) V NGC ASIA NETWORK LLC, BOMBAY REPORTED IN 313 ITR 187 (BOM). 15. ON THE ADDITIONAL GROUNDS, HE SUBMITTED THAT SAME NEED NOT BE REQUIRED TO BE ADJUDICATED IF OVERALL CONTENTION OF T HE ASSESSEE IS ACCEPTED. BY WAY OF AN ALTERNATIVE ARGUMENT, HE SUBMITTED THAT THOUGH ASSESSEE S GLOBAL PROFITABILITY RATE IS 14.04% OF STAR GROUP LTD WHICH HAS BEEN ACCEPTED BY THE TPO THEN ONLY SUCH PROFIT ALONE FOR COMPUTING ARM S LENGTH PRICE SHOULD HAV E BEEN ACCEPTED AND DISALLOWANCE UNDER SECTION 40(A)(I) MADE BY THE ASSESSEE IN THE RETURN OF INCOME SHOULD NOT BE CONSIDERED. FURTHER, IF THE ASSESSEE HAS PAID THE TAX IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 40(A)(I) IN THE RETURN OF INCOME, THE AO SHOULD BE DIRECTED TO GRANT REVERSAL OF GRANT OF SUCH DISALLOWANCE IN THE YEAR IN WHICH THE TAXES WERE CONSEQUENTLY PAID IN ACCORDANCE WITH THE LAW. 16. ON THE OTHER HAND, LD. CIT DR, ACCEPTED THAT, PSM IS MOST APPROPRIATE METHOD (MAM) FOR DETERMINING THE COMBINED PROFIT OF THE ENTITIES. HOWEVER ON THE ISSUE OF SEGREGATION OF NON - AE ADVERTISEMENT REVENUES FROM THE PSM POOL, HE STRONGLY RELIED UPON THE ORDER OF THE DRP AND SUBMITTED THAT UNDER PSM ONLY AE TRANSACTION HAVE TO CONSIDERED FOR THE COMBINED PROF IT AND NOT AT ENTITY LEVEL. REGARDING VARIOUS DISALLOWANCE MADE UNDER SECTION 40(A)(I), HE SUBMITTED THAT, THE SAME WILL BE APPLICABLE 17 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 RETROSPECTIVELY IN VIEW OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2012. 17. SO FAR AS THE CHARGEABILITY OF INTERE ST U/S 234B, HE RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF DIT VS ALCATELL LUCENT USA, REPORTED IN (2014) 264 CTR 240. ONCE IT HAS BEEN ACCEPTED THAT THE ASSESSEE HAS A BUSINESS CONNECTION IN INDIA, THEN INTEREST UNDER SECTION 234B IS CHAR GEABLE. ON OTHER DISALLOWANCES, HE STRONGLY RELIED UPON THE ORDER OF THE AO. 18. ON THE ISSUES RAISED IN THE ADDITIONAL GROUNDS, IT HAS BEEN SUBMITTED THAT, IT IS ONLY A MATTER OF CALCULATION UNDER THE PSM AND WHEN ASSESSEE ITSELF HAS OFFERED PROFIT RATE OF 27.14%, THEN SUCH A PROFIT CANNOT BE LOWERED NOW . 19. MR. KAKA, ON THE ISSUE OF LEVY OF INTEREST UNDER SECTION 234B, SUBMITTED THAT, THE DECISION OF ALCATEL LUCENT (SUPRA) NOW HAS BEEN DISTINGUISHED BY THE DELHI HIGH COURT ITSELF IN THE CASE OF DIT VS. GE PACKAGED POWER INC. REPORTED IN 373 ITR 365 WHEREIN THIS MATTER OF CHARGEABILITY OF 234B HAS BEEN DECIDED IN FAVOUR. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS RAISED BY THE PARTIES, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND MATER IAL PLACED ON RECORD. WE HAVE ALREADY DISCUSSED SUCCINCTLY THE RELEVANT FACTS AND THE BACKGROUND OF THE CASE. THE WHOLE ISSUE BOILS DOWN TO THE MANNER IN WHICH PROFITS SPLIT METHOD (PSM) IS TO BE APPLIED. STAR LTD AND STAR CHANNEL COMPANIES DERIVE REVENUES FROM THE DISTRIBUTION OF T . V. CHANNELS AND SALE OF ADVERTISEMENT TIME TO BE AIRED ON THESE CHANNELS. THE ROLE AND FUNCTIONS PERFORMED BY THESE COMPANIES HAVE BEEN ELABORATED IN THE EARLIER PART OF THE ORDER. ALL THE TRANSACTIONS LEADING TO THE EARNING OF VARIOUS STREAMS OF REVENUES ARE AMONGST THE ENTITIES ONLY AND ARE HIGHLY INTEGRATED. THAT IS WHY, THERE IS NO DISPUTE BETWEEN THE REVENUE AND THE ASSESSEE THAT THE MOST APPROPRIATE METHOD (MAM) FOR BENCHMARKING THE PROFITS OF THE 18 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ENTITIES IS PSM AND THE A LLOCATION OF THE COMBINED NET PROFIT AMONGST THE ENTITIES HAVE BEEN APPORTIONED ON THE BASIS OF THEIR ROLE AND FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS DEPLOYED AND ALL THE COMPANIES ARE TAXABLE AT THE SAME RATE. NOT ONLY THAT, THE COMBINED NET PROFIT DETERMINED UNDER THE PSM HAS BEEN ARRIVED AT 14.04% WHICH HAS BEEN ACCEPTED TO BE AT ARM S LENGTH BY THE TPO IN THE REFERENCE MADE UNDER SECTION 92(CA). THEREAFTER, THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE UNDER SECTION 40(A)(I) IN THE RETURN OF INCOME WITH REGARD TO THE PAYMENT MADE TO THE THIRD PARTY ON ACCOUNT OF EXPENDITURE RELATED TO CONTENT SOURCE FROM FOREIGN SUPPLIERS; PAYMENTS TO THIRD PARTIES FOR HIRE TRANSPONDER AND PAYMENTS FOR UP - L INKING / MAINTENANCE OF EQUIPMENTS AND LASTLY , BY DISALLOWANCE OF INTEREST EXPENSES. SUCH DISALLOWANCES HAD LED TO UPLIFTMENT OF PROFIT RATE OF 27.18%. THUS, THE TAXABLE INCOME WAS SHOWN @ 27.18% WHICH HAS BEEN APPORTIONED AMONGST ENTITIES AS PER THE PERCE NTAGE WHICH HAS BEEN INCORPORATED IN THE FOREGOING PARAGRAPHS. THE FIRST AND FOREMOST ISSUE IS, WHETHER THE DRP WAS JUSTIFIED IN SEGREGATING THE REVENUES FROM NON - AE AND DIRECTED THE AO TO TAX SEPARATELY @ 28% BY APPLYING RULE 10 OF THE INCOME - TAX RULES. F URTHER, WHETHER THE DISALLOWANCE UNDER SECTION 40(A)(I) IS REQUIRED TO BE MADE ON ACCOUNT OF VARIOUS PAYMENTS WHICH EITHER WERE ALREADY OFFERED BY THE ASSESSEE OR WERE PART OF COMBINED PROFIT DETERMINED ON ACCOUNT OF TRANSACTIONS OF THE ENTITIES AND WHETHE R SUCH A DISALLOWANCE HAS LED TO MULTIFOLD OR DOUBLE DISALLOWANCES. 21. THE PROFIT SPLIT METHOD (PSM) IS APPLIED WHERE OPERATIONS OF THE RELATED PARTIES ARE HIGHLY INTEGRATED MAKING THE EVALUATION ON INDIVIDUAL BASIS IS VERY DIFFICULT AND ALL THE PARTIE S OWNED VALUABLE NON - ROUTINE INTANGIBLE ASSETS FOR WHICH NO COMPARABLE DATA COULD BE AVAILABLE AND THEREBY MAKING IT IMPOSSIBLE TO APPLY OTHER METHODS, WHICH ARE BASED ON ESTABLISHING HIGH DEGREE OF COMPARABILITY WITH UNCONTROLLED COMPARABLES. PSM IS GENER ALLY APPLIED IN CASES INVOLVING MULTIPLE TRANSACTIONS AMONGST 19 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 ASSOCIATED ENTERPRISES (AES) WHICH ARE SO INTER - RELATED AND CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ON SEPARATE BASIS FOR THE PURPOSE OF DETERMINING ARM S LENGTH PRICE OF ANY TRANSACTION. RULE 10B(1)(D) OF THE INCOME - TAX RULES PRESCRIBES THE METHOD TO BE APPLIED IN THE FOLLOWING MANNER: - ( D) PROFIT SPLIT METHOD, WHICH MAY BE APPLICABLE MAINLY IN INTERNATIONAL TRANSACTIONS INVOLVING TRANSFER OF UNIQUE INTANGIBLES OR IN MULTIPLE INTERNATIONAL TRANSACTIONS WHICH ARE SO INTERRELATED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF ANY ONE TRANSACTION, BY WHICH (I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTERPRISES ARISIN G FROM THE INTERNATIONAL TRANSACTION IN WHICH THEY ARE ENGAGED, IS DETERMINED; (II) THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ASSO - CIATED ENTERPRISES TO THE EARNING OF SUCH COMBINED NET PROFIT, IS THEN EVALUATED ON THE BASIS OF THE FUNC TIONS PERFORME D, ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY EACH ENTERPRISE AND ON THE BASIS OF RELIABLE EXTERNAL MARKET DATA WHICH INDI CATES HOW SUCH CONTRIBUTION WOULD BE EVALUATED BY UNRELATED ENTERPRISES PERFORMING COMPARABLE FUNC TIONS IN SIMILAR CIRCU MSTANCES; (III) THE COMBINED NET PROFIT IS THEN SPLIT AMONGST THE ENTERPRISES IN PROPORTION TO THEIR RELATIVE CONTRIBU TIONS, AS EVALUATED UNDER SUB - CLAUSE (II); (IV) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM 'S LENGTH PRICE IN RE LATION TO THE INTERNATIONAL TRANSACTION: PROVIDED THAT THE COMBINED NET PROFIT REFERRED TO IN SUB - CLAUSE (I) MAY, IN THE FIRST INSTANCE, BE PARTIALLY ALLOCATED TO EACH ENTERPRISE 20 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 SO AS TO PROVIDE IT WITH A BASIC RETURN APPRO PRIATE FOR THE TYPE OF INTERNATIONAL TRANSACTION IN WHICH IT IS ENGAGED, WITH REFERENCE TO MARKET RETURNS ACHIEVED FOR SIMI LAR TYPES OF TRANSACTIONS BY INDEPENDENT ENTERPRISES, AND THEREAFTER, THE RESIDUAL NET PROFIT REMAINING AFTER SUCH ALLO CATION MAY BE SPLIT AMONGST THE ENTERPRISES IN PROPORTION TO THEIR RELATIVE CONTRIBUTION IN THE MANNER SPECIFIED UNDER SUB - CLAUSES (II) AND (III), AND IN SUCH A CASE THE AGGREGATE OF THE NET PROFIT ALLOCATED TO THE ENTERPRISE IN THE FIRST INSTANCE TOGETHER WITH THE RESIDUAL AND PROFIT APPORTIONED TO THAT ENTERPRISE ON THE BASIS OF ITS RELATIVE CONTRIBUTION SHALL BE TAKEN TO BE THE NET PROFIT ARISING TO THAT ENTERPRISE FROM THE INTERNATIONAL TRANSACTION . FROM THE PLAIN READING OF THE ABOVE METHOD, IT IS EVIDENT THAT, FIRST STEP IS TO IDENTIFY THE COMBINED NET PROFIT OF THE AE ARISING FROM THE INTERNATIONAL TRANSACTIONS, IN WHICH THEY ARE ENGAGED. SUCH A COMBINED NET PROFIT IS DETERMINED BY TAKING INTO ACCOUNT ALL THE TRANSACTIONS UNDERTAKEN BY ALL THE AES. IN THE SECOND STEP , THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ENTITIES WHICH HAVE CONTRIBUTED TO THE EARNING OF SUCH COMBINED NET PROFIT IS EVALUATED ON FAR ANALYSIS OF EACH ENTITY AND BASED ON THAT, IT IS SEEN HOW SUCH CONTRIBUTION SHOULD BE EVALUATED BY UNRELATED ENTE RPRISE PERFORMING FUNCTIONS IN SIMILAR CIRCUMSTANCES; THIRDLY , THE COMBINED NET PROFIT IS SPLIT BETWEEN THE RELATED ENTERPRISE ON THE BASIS OF ANY PROPORTION TO THEIR RELATED CONTRIBUTION WHICH HAS BEEN EVALUATED AFTER CARRYING OUT FAR ANALYSIS AND LASTLY , THE PROFIT WHICH HAS BEEN APPORTIONED TO THE ASSESSEE IS TAKEN INTO ACCOUNT TO ARRIVE AT ARM S LENGTH PRICE ANALYSIS TO THE INTERNATIONAL TRANSACTIONS. THE OBJECT OF DETAILED FUNCTIONAL ANALYSIS IN SUCH A METHOD IS TO ASSESS THE RELATED CONTRIBUTION AND R ISK TAKEN BY EACH PARTY AND THEREBY ASSIGNED INCOME ACCORDINGLY. 22. HERE IN THIS CASE, SO FAR AS FAR ANALYSIS OF RELATIVE CONTRIBUTION MADE BY EACH OF THE ENTITIES AND APPORTIONMENT OF COMBINED NET PROFIT BASED ON EVALUATION OF THEIR CONTRIBUTION IS 21 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 CONC ERNED, SAME IS NOT IN DISPUTE. FIRST OF ALL, FOR DETERMINATION OF COMBINED PROFIT, NET REVENUES FROM ALL THE TRANSACTION RELATING TO GENERATION OF REVENUES ARE TO BE TAKEN INTO ACCOUNT. HERE IN THIS CASE, IT HAS BEEN CONTENDED THAT ALL THE REVENUE STREAMS HAVE BEEN FROM INTER - SE TRANSACTIONS ARISING FROM THE FUNCTIONS PERFORMED AMONGST THE AES ONLY. EVEN THE GENERATION OF AD REVENUES IS PURELY FROM THE SALE OF AIRTIME IN CHANNEL COMPANIES. THUS, THE AD REVENUE IS ARISING FROM THE INTEGRATED ACTIVITIES ONLY. AFTER TAKING THE COMBINED NET PROFIT OF THE GROUP AS A WHOLE FROM ALL THE INTERNATIONAL TRANSACTIONS, THE COMBINED NET PROFIT HAS BEEN TAKEN. THEREAFTER, THE EFFECTS OF INTER - COMPANY DOUBLE ACCOUNTING OF REVENUE STREAMS ARE ELIMINATED SO THAT THE CORRECT THIRD PARTY REVENUE IS ARRIVED AT FOR THE PURPOSE OF BENCHMARKING THE PROFITABILITY. IT ALSO ENSURES THAT INTER - COMPANY COSTS, PROFITS OR LOSSES ARE ELIMINATED AND CORRECT QUANTUM OF PROFIT BASED ON THIRD PARTY REVENUE AND COSTS CAN BE ARRIVED AT. IF SUCH AN EXERCISE IS NOT DONE THEN A SITUATION WOULD ARISE WHETHER AMONG THE TRANSACTIONS BETWEEN THE RELATED ENTITIES TRUE AND CORRECT PICTURE OF THE PROFITS CAN BE DETERMINED AND WHETHER THEY ARE AT ARM S LENGTH PRICE WILL ALWAYS BE A SUBJECT MATTER OF SUSPICI ON. HERE IN THIS CASE, WHAT THE AO HAS DONE IS THAT, FIRSTLY , HE HAS TAKEN THE COMBINED NET PROFIT OF 27.18% FOR WHOLE OF THE TRANSACTIONS AND THEREAFTER, HE HAS SEGREGATED THE SO CALLED NON - AE REVENUE AND THEREBY APPLYING THE PROFIT @ 28% ON SUCH REVENUES SEPARATELY. SUCH AN APPROACH, IN OUR OPINION IS UNTENABLE; FIRSTLY , THERE IS NO SEPARATE SOURCE OR STREAM OF REVENUE FROM NON - AE TRANSACTION; SECONDLY, THE COMBINED PROFIT HAS BEEN DETERMINED BY TAKING THE GROSS REVENUES FROM ALL THE STREAMS BY EACH OF TH E ENTITIES AND ALL THE COSTS I.E. GROSS EXPENSES HAS BEEN WORKED OUT AND DEDUCTED. THE RESULTANT PROFIT PERCENTAGE OF 14.0 4 % HAS BEEN ARRIVED FROM THE REVENUES FROM ALL THE STREAMS ARE AS UNDER: - 22 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 PARTICULARS AMOUNT IN INR ADVERTISEMENT REVENUE 10,147,277,000 DISTRIBUTION REVENUES 2,496,481,000 SYNDICATION REVENUES 60,534,958 TOTAL INDIA REVENUES 12,704,292,958 PROFITABILITY PERCENTAGE (DETERMINED SEPARATELY) 14.04% ARMS LENGTH TAXABLE PROFITS 1,783,683,000 THE ABOVE INCOME HAS BEEN THEN ALLOCATED AMONGST THE VARIOUS ENTITIES AFTER CONSIDERING FURTHER DISALLOWANCES OFFERED BY ASSESSEE; THIRDLY, THE EVALUATION OF CONTRIBUTION MADE BY AES HAS BEEN DONE ON FAR ANALYSIS ON THE BASIS OF EXTERNAL FACTORS AND DATA, BECAUSE BASED ON SUCH EVALUATION BY UNRELATED ENTERPRISE PERFORMING COMPARABLE FUNCTIONS HAS BEEN BENCHMARKED TO ARRIVE AT THE ALP; AND LAS TLY , ONCE THE ASSESSEE HAS TAKEN ALL THE REVENUES AND FACTORED ALL THE COSTS TO ARRIVE AT COMBINED NET PROFIT THEN IT IS NOT PERMITTED TO SEGREGATE PART OF THE REVENUE AND TAX IT AGAIN BY APPLYING PROFIT RATE OF 28%. SUCH AN EXERCISE WILL ONLY LEAD TO DOUB LE DISALLOWANCE. THUS, ACTION OF THE AO IN PURSUANCE OF THE DIRECTION GIVEN BY THE DRP IS REJECTED. FURTHER, WE ALSO DO NOT AGREE WITH THE REVENUE THAT, NON - AE TRANSACTIONS NEEDS TO BE DETERMINED UNDER RULE 10, BECAUSE ONCE SUCH AN INTERNATIONAL TRANSACTIO NS ARE COVERED UNDER SECTION 92 THEN THERE IS NO NEED FOR SEPARATE DETERMINATION OF INCOME WHEN ALL THE REVENUES HAVE BEEN TAKEN FOR THE DETERMINATION FOR ALP. UNDER SECTION 92C(2), THE MANNER PRESCRIBED IS UNDER RULE 10B AND NOT RULE 10. OTHERWISE ALSO, R ULE 10 IS APPLICABLE ONLY WHEN THE ACTUAL AMOUNT OF THE INCOME ACCRUED OR ARISING TO A NON - RESIDENT CANNOT BE DEFINITELY ASCERTAINED, WHICH HERE IN THIS CASE IS NOT THE CASE OF THE REVENUE THAT, THE INCOME OF THE ASSESSEE CANNOT BE DETERMINED. 23. HERE, IN THIS CASE, THE DRP HAS ACCEPTED THE PSM FOR 80% OF THE AD - REVENUE IN PSM POOL, THEREFORE, IT WOULD NOT BE PROPER THAT FOR THE BALANCE, A SEPARATE DETERMINATION OF PROFIT IS REQUIRED AND THAT TO BE AT A HIGHER PROFIT RATE OF 28%. ONCE THE COMBINED NET PR OFIT HAS BEEN ARRIVED AT BY TAKING INTO ACCOUNT ALL THE 23 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 TRANSACTIONS OF AE AS WELL AS NON - AE WHICH IS FACTORED INTO ALL THE COSTS AND REVENUE THEN TO SEPARATE OUT NON - AE TRANSACTION OVER AND ABOVE SUCH A PROFIT DETERMINED IS NOT DESIRABLE. THUS, WE HOLD TH AT ANY INCOME IF AT ALL FROM NON - AE CANNOT BE TAXED SEPARATELY BY APPLYING NET PROFIT RATE OF 28%, BECAUSE IT HAS ALREADY INCLUDED IN THE COMBINED PROFIT OF ENTIRE INTERNATIONAL TRANSACTION OF THE ENTITIES AND HAVE ALREADY BEEN TAXED ON THE PROFIT RATE OF 27.18%. THUS, THE ADDITION OF RS.118,59,30,000/ - CANNOT BE SEPARATELY MADE AND WE DIRECT TO DELETE THE ADDITION. 24. AS REGARDS THE ADDITION ON ACCOUNT OF DISTRIBUTION REVENUES OF RS. 124,82,45,000/ - , BEING 50% OF TOTAL DISTRIBUTION REVENUES OF RS. 249,64 ,90,000/ - WHICH HAS BEEN TAXED ON PROTECTIVE BASIS UNDER SECTION 44DA AND BALANCE 50% HAS BEEN TAXED IN THE HANDS OF CHANNEL COMPANIES. SUCH AN AMOUNT CANNOT BE ADDED SEPARATELY, BECAUSE IT HAS ALREADY BEEN INCLUDED IN THE PSM POOL AND IN THE COMBINED RATE OF 27.18% AND ACCORDINGLY, THE SAME IS DIRECTED TO BE DELETED, BECAUSE IT WILL BE SUBJECT TO DOUBLE TAXATION WHEN ALL THE REVENUES HAS BEEN FACTORED INTO THE COMBINED PROFIT OF 27.18%. IT IS NOT UNDERSTOOD AS TO WHY DRP / AO IS AGAIN TAXING PART OF SAME R EVENUE AGAIN. THIS IS WHOLLY AND ARBITRARY ACTION WHICH CANNOT BE UPHELD. LIKEWISE, IN THE CASE OF THE DISALLOWANCE OF COST ON ADVERTISEMENT REVENUE, NO SEPARATE ADDITION IS CALLED FOR; FIRSTLY , THE PROVISION OF WITHHOLDING TAX CANNOT BE APPLIED ON THE BA SIS OF ANY AMENDMENT WHICH HAS COME SUBSEQUENTLY BY GIVING RETROSPECTIVE EFFECT, AS HELD BY VARIOUS COURTS, ON THE REASONING THAT ASSESSEE CANNOT BE EXPECTED TO WITHHOLD TAX WHEN THERE WAS NO SUCH PROVISION UNDER THE STATUTE AND SECONDLY , PRIOR TO SUCH AM ENDMENT, THERE WAS A JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS BV VS UOI ( SUPRA ) THAT PAYMENT MADE BY ONE NON - RESIDENT TO ANOTHER NON - RESIDENT, PROVISIONS OF TDS ARE NOT APPLICABLE; THIRDLY , WHEN INCOME HAS BEEN DETER MINED UNDER PSM, INTER - COMPANY TRANSACTIONS ARE ELIMINATED AND IN SUCH A METHODOLOGY THE 24 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 COMBINED NET PROFIT IS FIRST WORKED OUT AND THEN DIVIDED AS PER THE RELEVANT FUNCTIONS AND ROLE OF EACH ENTITY. LAST BUT NOT THE LEAST, THE CHANNEL COMPANIES HAVE BEEN SEPARATELY ASSESSED AND THEY HAVE DISCHARGED THEIR TAX LIABILITY AND, THEREFORE, THERE IS NO REQUIREMENT BY THE ASSESSEE TO DEDUCT TAX AND ACCORDINGLY, NO DISALLOWANCE CAN BE MADE. 25. LIKEWISE, VARIOUS DISALLOWANCES MADE UNDER SECTION 40(A)(I) ON ACCOU NT OF PAYMENT MADE TO ASIA SAT, PAYMENT FOR FOREIGN CONTENT AND PAYMENT FOR TECHNICAL COST, ALSO CANNOT BE MADE FOR THE REASONS GIVEN ABOVE THAT, WHILE COMPUTING THE PROFIT UNDER PSM AT 27.18%, THERE IS NO REQUIREMENT FOR MAKING SEPARATE DISALLOWANCES UNDE R SECTION 40(A)(I) AND SAME ARE DIRECTED TO BE DELETED. 26. SO FAR AS ISSUE RAISED VIDE GROUND 7 AND 8, THE ASSESSEE HAS CHALLENGED THE TAXATION OF SERVICE FEE INCOME @ 41.82% ON THE GROSS BASIS AS AGAINST APPLICABLE @ 10.455% ON GROSS BASIS. WE DIRECT TH E AO TO APPLY THE CORRECT TAX RATE IN ACCORDANCE WITH SECTION 115A AND EXAMINE THE CONTENTION OF THE ASSESSEE THAT TAX RATE OF 10.45% AND 20.91% SHOULD BE APPLIED. 27. LIKEWISE, DISALLOWANCE OF INTEREST EXPENSE AS RAISED VIDE GROUND NO.10 SHOULD ALSO BE DELETED, BECAUSE IT STANDS ALREADY DISALLOWED BY THE ASSESSEE WHILE COMPUTING PSM PROFIT. THUS, SUCH DISALLOWANCE MADE BY THE AO IN THE COMPUTATION OF INCOME, AS INCORPORATED ABOVE STANDS DELETED ON THE REASONS STATED HEREIN ABOVE. 28. ON THE ISSUE OF NON - GRANT OF REVERSAL OF DISALLOWANCE OF COST ON ADVERTISING AIR - TIME U/S 40(A)(I) FOR AY 2005 - 06 AND DENIAL OF SET OFF OF BROUGHT FORWARD LOSSES FOR AY 2006 - 07, WE DIRECT THE AO TO LOOK INTO THE MATTER AND GRANT THE RELIEF IN ACCORDANCE WITH THE LAW. 25 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 29 LASTLY, REGARDING LEVY OF INTEREST UNDER SECTION 234B, WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF NGC NETWORK LLC ( SUPRA ). AS REGARDS RELIANCE PLACED BY LD. CIT DR OF THE DELH I HIGH COURT DECISION IN THE CASE OF ALCATEL LUCENT, IT IS SEEN THAT HON BLE DELHI HIGH COURT HAS DISTINGUISHED THE RULING OF ALCATEL AND HELD THAT THE VIEW TAKEN IN ALCATEL LUCENT ( SUPRA ) WOULD NOT BE APPLIED TO THIS CASE BECAUSE IF THE PAYER DEDUCTS TAX AT SOURCE ONLY WHEN THE ASSESSEE ADMITS TAX LIABILITY, THEN DEDUCTIONS WOULD NOT BE MADE IN CASES WHERE THE ASSESSEE EITHER FALSELY OR UNDER A BONA FIDE MISTAKE DENIES TAX LIABILITY. THE HIGH COURT FURTHER HELD THAT THE PRIMARY LIABILITY OF DEDUCTING TAX W AS THAT OF THE PAYER. THE PAYER WOULD BE AN ASSESSEE IN DEFAULT, ON FAILURE TO DISCHARGE THE OBLIGATION TO DEDUCT TAX, UNDER SECTION 201 OF THE ACT AND NO INTEREST WAS LEVIABLE ON THE RESPONDENT ASSESSEES UNDER SECTION 234B, EVEN THOUGH THEY FILED RETURNS DECLARING NIL INCOME AT THE STAGE OF REASSESSMENT. 30. THE ISSUES RAISED IN ADDITIONAL GROUNDS ARE TREATED AS ACADEMIC IN VIEW OF OUR FINDING GIVEN ABOVE AND AS SUCH NO SEPARATE ADJUDICATION IS MADE . 3 1 . IN THE RESULT, APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED. 3 2 . AS REGARDS APPEAL OF THE VARIOUS OTHER ASSESSEES, SIMILAR ISSUES ARE INVOLVED AS THEY FLOW FROM SAME PROFIT DETERMINATION AND THE ENTIRE CONTROVERSY REVOLVES AROUND THE CORRECT APPLICATION OF PSM METHOD AND CHARGEABILITY OF INTEREST UNDER SECTION 234B, WHICH WE HAVE ALREADY DECIDED. THE AFORESAID FINDING GIVEN ABOVE WILL THUS APPLY MUTATIS - MUTANDIS ACCORDINGLY, NO SEPARATE ADJUDICATION IS CALLED FOR AND, THEREFORE, GROUNDS RAISED IN ALL THESES APPEALS ARE TREATED AS ALLOWED. 26 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 3 3 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND FEBRUARY, 2016. SD/ - SD/ - ( ) ( ) (ASHWANI TANEJA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 2 ND FEBRUARY, 2016 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE DRP - II / CIT(A) CONCERNED____ , MUMBAI . 4 ) THE CIT/DIT CONCERNED____ , , MUMBAI . 5 ) , , / THE D.R. K BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS 27 M/S SATELLITE TELEVISION ASIAN REGION LIMITED & FIVE OTHERS ITA NOS. 8683 TO 8685/MUM/2011 ITA NOS. 8693 TO 8695/MUM/2011 . SR.N EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT ON HANDWRITTEN MANUSCRIPT 04.01.20 1 6 . . SR.PS 2 DRAFT PLACED BEFORE AUTHOR 07.01.20 1 6 . . SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER / JM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER / AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS . . SR.PS 6 KEPT FOR PRONOUNCEMENT ON . . SR.PS 7 FILE SENT TO THE BENCH CLERK . . SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER