STAR INDIA PVT .LTD, MUMBAI V. ASST CIT 16(1), MUMBAI

MA 88/MUM/2022

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Star India Pvt. Ltd. filed a Miscellaneous Application under Section 254(2) of the Income Tax Act, 1961, seeking recall of an order dated 25/11/2021 concerning the arm's length price determination for a transaction involving the acquisition of sports rights. The Tribunal had previously remanded the matter for obtaining a fresh valuation report, which Star India contested as erroneous and contrary to law. The Tribunal, after considering the submissions and relevant legal precedents, concluded that the application for recall did not meet the criteria for rectification under Section 254(2) and dismissed the application.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299638 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 10-11-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 19-04-2022
• Other Referred Cases: Coca Cola India (P) Ltd. vs Assistant Registrar representing Income Tax Appellate Tribunal, CIT vs Reliance Telecom Ltd., CIT vs Ramesh Electric & Trading Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Valuation report
• Section: 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER, AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER M.A. no.88/Mum./2022 IN ITA no.6649/Mum./2018 (Assessment Year : 2014–15) Star India Pvt. Ltd. Star House, Urmi Estate 95, Ganpat Rao Kadam Marg Lower Parel (West), Mumbai 400 013 PAN – AAACN1335Q ................ Applicant (Original Appellant) v/s Asstt. Commissioner of Income Tax Circle–16(1), Mumbai ................Respondent (Original Respondent) Assessee by : Shri Porus Kaka, Shri Divesh Chawla Revenue by : Smt. Samruddhi Dhananjay Hande Date of Hearing – 11/11/2022 Date of Order – 07/02/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. By way of this Miscellaneous Application filed under section 254(2) of the Income Tax Act, 1961 ("the Act"), the assessee seeks recall of the order dated 25/11/2021, passed under section 254(1) of the Act by the coordinate bench of the Tribunal in assessee’s appeal being ITA no.6649/Mum./2018, for the assessment year 2014-15, to the extent of adjudication of grounds no.2 to 12. Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 2 2. The assessee made the following submissions in the present miscellaneous application: (a) Blanket remand to lower authorities without considering the evidence on record. and opportunities to the Department is wholly erroneous as it is not in accordance with law and the provisions of the Act. (b) Blanket remand enlarging the subject matter of the appeal without adjudicating the narrow issue before Hon'ble Tribunal without there being any appeal/ground or dispute before the Hon'ble Tribunal. (c) The Department has partly accepted the valuation report and completed assessments for more than 5 assessment years. However, the Department has not brought any valuation report, nor any appeal/ground was raised before the Tribunal. Therefore, a blanket remand to obtain a valuation report after 8 years to obtain fresh evidence is wholly erroneous, contrary to law and the provisions of the Act. (d) The Appellant submits that it is a settled judicial precedent that the power to remand the case has to be exercised on judicial principles. Where all evidence has been produced, the Department, after a full investigation of the evidence etc., has given a definite finding on the issue, the Tribunal should not remand the matter, and in such case, the remand would be invalid. (e) Contrary to the statute as no power to abdicate appellate role to a person not contemplated by the statute. (f) Non-adjudication of the specific argument of the Appellant on the applicability of CUP available in the form of the price paid to a third party. i.e. ISB by the Appellant for which remand is wholly extraneous. (g) Non-adjudication of the argument of the Appellant on the use of terminal value by the Revenue itself for a finite period agreement in AY 2009-10 being a purely legal issue a blanket remand is erroneous. (h) Non-adjudication on merits of the appropriateness of valuation exercise undertaken by the Appellant despite Appellant submitting two independent valuation reports and two expert opinions. (i) There was no adjudication on the ground of erroneous comparison of the projected profitability with the actual profitability (j) There was no adjudication on the grounds of withholding taxes that were not connected with the valuation report. 3. During the hearing, learned Sr. Counsel, appearing for the assessee, by referring to the miscellaneous application submitted that the coordinate bench Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 3 of the Tribunal instead of deciding the issue raised in the appeal remanded the matter for obtaining a valuation report after 8 years, which is wholly erroneous, contrary to law and provisions of the Act. The learned Sr. Counsel referred to the decision of the Hon’ble jurisdictional High Court in Coca Cola India (P) Ltd. vs Assistant Registrar representing Income Tax Appellate Tribunal, [2014] 368 ITR 487 (Bom.), wherein it has been held that when the material is available on record, the Tribunal instead of remanding the matter should decide the issue involved. The learned Sr. Counsel submitted that the coordinate bench by seeking the fresh valuation report has abdicated its appellate role to a person not contemplated by the statute. It was further submitted that the coordinate bench though has recorded the facts regarding the application of the Comparable Uncontrolled Price (“CUP”) method for benchmarking the impugned international transaction, however, did not adjudicate the argument raised by the assessee, which is a mistake apparent from record. It was also submitted that the Revenue has not sought any remand or furnishing of fresh valuation report and therefore remand on legal issue is wrong and contrary to the law. Learned Sr. Counsel submitted that non-consideration of the decision of the Hon’ble jurisdictional High Court is a mistake apparent from record. It was further submitted that the coordinate bench also did not adjudicate on the issue of withholding taxes not connected to the valuation, which is another mistake apparent from record. Therefore, in view of the above submissions, the learned Sr. Counsel prayed for recall of the order in respect of grounds no. 2-12 raised in assessee’s appeal. Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 4 4. On the contrary, the learned Departmental Representative (“learned DR”) submitted that the coordinate bench of the Tribunal after considering all the aspects of the matter rendered its decision and restored the issue to the file of the assessing officer. The learned DR further submitted that the opinion sought by the assessee is not binding on the TPO. It was further submitted that the assessee will have an opportunity to deal with the Revenue’s valuation report and therefore, all the aspects are still open for both parties. Accordingly, learned DR vehemently opposed the prayer for recall of the order to the extent of adjudication of grounds no. 2-12 raised in assessee’s appeal. 5. We have considered the rival submissions and perused the material available on record. The relevant findings of the coordinate bench of the Tribunal, vide order dated 25/11/2021, which are sought to be recorded by the assessee, are as under: “25. We have carefully considered the detailed submissions made by the parties, both orally as well as in writing with the assistance of the factual paper book submitted by the assessee. We have also applied our mind to the decisions cited before us in the form of case law compilations. The dispute between the parties, undoubtedly, is with regard to the determination of ALP of the payment made towards acquisition of the bundle of sports rights from ESS, the AE of the assessee. It is evident, the assessee has benchmarked the subject transaction by applying CUP method. It is the case of the assessee that though ESS had obtained the bundle of rights from ISB at USD 1338 million, however, the assessee has bought the bundle of right from ESS at USD 1255 million with a discount of 9.5%. To demonstrate that the amount paid by the assessee to acquire the bundle of sports rights is at arm‟s length, the assessee has furnished a valuation report of an independent valuer, viz. D H Consultants Pvt Ltd based at DCF method determining the value at USD 1211 million. Undisputedly, the aforesaid valuation report was also furnished before the TPO. However, though, the TPO did not have much quarrel with adoption of DCF method for valuation purpose, however, he did not agree with the value determined by the independent valuer. 26. The major arena of dispute between the TPO and the valuation report of the independent valuer is with regard to the determination of terminal value for the bundle of sports rights and comparison of actual profit & loss / revenue with the projected value. The TPO has, apparently, rejected the terminal value of USD 548 million. Further, the TPO has also found fault with the spread over of cost incurred on termination of Champions League T20 tournament over a period of time instead of considering it in the year, wherein, the cost was incurred. It is evident, to support the value determined by the independent valuer, in course of proceedings before learned Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 5 DRP assessee has furnished two more expert opinions, one issued by Prof. Israel Shaked and the other by Duff & Phelps, LLC. In these expert opinions, various deficiencies/flaws in the reasoning of the TPO in rejecting the terminal value has been pointed out. Further, in one of the expert„s opinion, it has been stated that even as per market approach method, the payment made by the assessee to ESS for acquiring the bundle of sports rights is much lesser; hence, has to be considered to be at arm‟s length. 27. It is a fact on record that the valuation report of the independent valuer as well as expert opinions furnished by the assessee were available before the departmental authorities. However, no effort was made by the departmental authorities to find out the deficiencies/flaws, if any, in assessee‟s valuation with a counter valuation being made by another expert. On the contrary, the TPO on the one hand has selectively used certain observations of independent valuer to demonstrate contradictions between the observations of the independent valuer and the expert‟s opinion and on the other hand, has selectively and out of context referred to certain observations made in International Valuation Standards and book authored by Prof. Aswath Damodaran. The TPO has also referred to certain material available in a website. Further, certain allegations made by the TPO that the valuation report is a post facto justification exercise to authenticate the amount paid, in our view, is a vague and generalized observation. 28. As could be seen, the bone of contention between the assessee and revenue is the determination of terminal value. The case of the revenue is, when the rights are for finite period and would be expiring after certain time limit, how can the valuer determine the terminal value for infinite period. More so, when there is no certainty that the sports rights would be renewed in favour of the assessee. There can be some truth in the aforesaid objection raised by the revenue. Further, it is a fact that for terminating the contract for Champions Trophy T20 league the assessee has paid compension of USD 366 million. In the valuation report of the independent valuer, this cost has been distributed over the life of the event. This is also a grey area which requires examination. At this stage, we are not in a position to either accept or reject the objections of the revenue. 29. Though, detailed submissions have been made from both sides in favour and against the value determined by the independent valuer, however, it has to be stated that valuation of an asset is a highly technical job, which requires expertise in technical knowledge and skill on the subject. Undoubtedly, the assessee has furnished independent valuer‟s report and expert opinion to support the value of the bundle of sports rights for which payment has been made to ESS. Whereas, no such exercise has been undertaken by the revenue to counter assessee‟s valuation. Instead of entrusting the job of finding out the correctness in assessee‟s valuation as per the independent valuer‟s report, the departmental authorities have taken up the task themselves in pointing out various deficiencies in the valuation report. In the process, the TPO has referred to certain materials available in the some valuation book and had used them selectively to reject the valuation of the assessee. In our view, this is a thoroughly incorrect approach. Since, the subject of valuation is highly technical, and can only be done by a person having expertise over the subject, a person having no technical knowledge/expertise cannot be in a position to decide whether the value determined by the independent valuer and the expert‟s opinion in support, are incorrect. Thus, if the valuation report of the assessee is not acceptable to the revenue, the better course would have been to get the valuation of the transaction done through an expert. Therefore, in our considered opinion, the revenue must ascertain the correctness in assessee‟s valuation reports by getting the valuation done through its own expert. 30. We must observe, in course of hearing learned Counsel for the assessee had opposed restoration of the issue for valuation purpose. However, we are unable to accept the objections of the assessee. As we have discussed earlier, valuation is a highly technical subject and can be done by a person having expertise on the subject. Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 6 If we undertake the exercise of either accepting or rejecting the valuation report of the assessee, we would be committing the same error as was committed by the departmental authorities by assuming the role of a valuer. It is further to be noted, various contentions of the assesse that in subsequent assessment years, the independent value was summoned by the assessing officer / TPO and examined on the issue of valuation needs to be examined. Further, the contention of the assessee that in assessee‟s own case in assessment year 2009-10, the revenue itself has determined the terminal value, has to be examined. One more issue, which also requires consideration, is the alternative contention of the assessee to exclude the withholding of tax from the amount payable to ISB / ESS by the assessee for making ALP adjustment. 31. Thus, upon overall consideration of facts and circumstances of the case, we are of the opinion that the issue has to be restored back to the assessing officer for fresh adjudication in the light of observations made by us hereinabove. Needless to mention, the assessee must be provided reasonable opportunity of being heard before deciding the issue. Since, we have restored the issue to the assessing officer for the reasons stated above, it is not necessary for us to deal with the various judicial precedents cited before us. With the aforesaid observations, grounds are allowed for statistical purpose.” 6. From the perusal of the order passed by the coordinate bench, we find that the issue before the Tribunal was pertaining to the determination of arm’s length price of the payment made towards the acquisition of the bundle of sports rights from the associated enterprise (“AE”) of the assessee. In order to substantiate the payment made to the AE, the assessee submitted the valuation report from an independent valuer. It was also the claim of the assessee that since the price paid to the AE is less than the price at which AE acquired the bundle of rights from third-party, therefore, the transaction is at arm’s length. As is evident from the order passed by the coordinate bench, the TPO did not have much quarrel with the adoption of Discounted Cash Flow (“DCF”) method for valuation purposes, however, the TPO did not agree with the value determined by the independent valuer and highlighted various discrepancies in the valuation report submitted by the assessee. In support of its submissions, the assessee also furnished two more expert opinions before the learned DRP. Since the Revenue made no effort to find out the deficiencies/flaws with a counter valuation being made by another expert and Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 7 rather selectively referred to some observations in the assessee’s valuation report and made reference to International Valuation Standards, book, and Internet, therefore, the coordinate bench considered it appropriate to restore the issue to the file of the assessing officer after obtaining valuation report from an expert and ascertain the correctness in assessee’s valuation reports. We find that the coordinate bench also took into consideration the objections of the assessee against the restoration of the issue for valuation purposes, however, found the same to be not acceptable. Further, as regards the issue of excluding the withholding tax from the amount payable to the AE for making the arm’s length price adjustment, the said issue was also restored to the file of the assessing officer. 7. Broadly, it is the plea of the assessee that remand by the coordinate bench of the Tribunal vide aforesaid order is a blanket remand, which is contrary to the law and therefore needs to be recalled under section 254(2) of the Act. It is also the submission of the assessee that some of the arguments raised by the assessee are not dealt with by the coordinate bench and therefore the same results in mistake apparent from the record. It is also the plea of the assessee that the non-consideration of the decision of the Hon’ble jurisdictional High Court, wherein the practice of remand to lower authorities was depreciated when all the facts pertaining to the adjudication of the issue are available on record, also results in mistake apparent from record rectifiable under section 254(2) of the Act. 8. Section 254(2) of the Act provides that the appellate tribunal may with a view to rectify any “mistake apparent from the record” amend the order Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 8 passed under section 254(1) of the Act. The term “mistake apparent from the record” has been the subject matter of interpretation before various courts including the Hon’ble Supreme Court. We find that the Hon’ble Supreme Court in CIT vs Reliance Telecom Ltd., [2022] 440 ITR 1 (SC), observed as under: “In exercise of powers under section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under section 254(2) of the Act are akin to Order XLVII Rule 1 CPC. While considering the application under section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under section 254(2) of the Act are only to rectify/correct any mistake apparent from the record.” (emphasis supplied) 9. The Hon’ble Supreme Court further held that if the assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the assessee was to prefer the appeal before the High Court. We find that the assessee in its miscellaneous application in para 2 claimed that the coordinate bench of the Tribunal has exceeded its jurisdiction and passed an erroneous, arbitrary and contrary to law order dated 25/11/2021. Further, the recall of the order will result in the review of the earlier order passed by the coordinate bench, which has held by Hon’ble Courts is not permissible under section 254(2) of the Act. Thus, respectfully following the aforesaid decision of the Hon’ble Supreme Court, we are of the considered opinion that the relief claim by the assessee vide present miscellaneous application is outside the scope of section 254(2) of the Act. As regards the non-consideration of the decision of the Hon’ble jurisdictional High Court, we find that the coordinate bench had taken note of the decisions in para 18 of its order, however, did not accept the objections of the assessee in para 30 of its order. Further as regards the non-adjudication of various Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 9 arguments raised by the assessee, we find that the Hon’ble jurisdictional High Court in CIT vs Ramesh Electric & Trading Co., [1993] 203 ITR 497 (Bom.) held that failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may have been an error of judgment. Therefore, respectfully following the decision of the Hon’ble Supreme Court in Reliance Telecom Ltd. (supra), we are of the considered opinion that the relief sought by the assessee by way of the present miscellaneous application is completely outside the ambit of section 254(2) of the Act since the same will result in revisiting the view taken earlier by the coordinate bench of the Tribunal after consideration of the facts. Thus, in view of our aforesaid findings, we find no merits in the present Miscellaneous Application filed by the assessee. Accordingly, the same is dismissed. 10. In the result, the Miscellaneous Application by the assessee is dismissed. Order pronounced in the open Court on 07/02/2023 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 07/02/2023 Star India Pvt. Ltd. M.A. no.88/Mum./2022 Page | 10 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai