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13-03-2020, Sony Pictures Networks India, Section 254(1), Tribunal Mumbai

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1 year 7 months ago #12378 by amit
Section - 254(1), 92CA(I), 92C, 234B, 271(1)(c)
Order Date - 13-03-2020
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - Sony Pictures Networks India Pvt. Ltd.
Respondent - DCIT
Justice - PRAMOD KUMAR VP & PAWAN SINGH JM
Citation - 320Taxpundit666
Appeal No. - ITA No.971/Mum/2016
Asstt. Year - 2011-12

Order

PER : PAWAN SINGH

1. This appeal was adjudicated vide order dated 26.07.2017. Thereafter, the assessee filed a miscellaneous application (MA) under section 254(2) of the Ac for seeking rectification of certain mistake in the order. In the said MA, the assessee sought consideration of issue; viz character of distribution fees whether Royalty or not. The MA was dismissed by Tribunal vide its order dated 13.04.2018.

2. The assessee challenged the order of Tribunal’s dated 13.04.2018 before Hon’ble Bombay Hon’ble High Court in Writ Petition before the; vide W.P. No. 3508/2018. The Hon’ble High Court vide order dated 03.01.2019 set aside the order of Tribunal dated 28.07.2017 and restored the matter back to the Tribunal for fresh adjudication. The Hon’ble High Court also directed to decide the characterization of distribution fee i.e. Royalty or not.

3. Accordingly, as per the direction of Hon’ble High Court the appeal was heard afresh. The assessee has raised following grounds of appeal: General Ground

1. erred in assessing the total income of the Appellant at Rs 344,89,29,574 against Rs 47,26,78,397 as computed by the Appellant in its return of income; Transfer Pricing Grounds

2. erred in making a transfer pricing adjustment of Rs. 297,62,51,177 to the total income of the Appellant on the premise that the international transactions entered by the Appellant with its associated enterprises ('AES') were not at arm's length;

Reference made to the Transfer Pricing Officer

3. erred in referring the Appellant s case to the Learned Transfer Pricing Officer ('TPO') under Section 92 A(I) f the Act, without satisfying the conditions specified therein;

Rejection of economic analysis undertaken by the Appellant in its transfer pricing study report

4. erred in not following the Appellant's own order for AY 2010-11 which was passed by he Hon'ble DRP accepting software distributors as appropriate comparable to benchmark the Appellant's international transactions inspite of there being no change in facts in A Y 2011-12.

5. erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act and disregarding the fact that software distributors are appropriate com parables to benchmark MSMD's international transactions in the absence of any direct comparables.

6. erred in law and in facts, in rejecting the following companies from the Transfer Pricing Study for FY 2010-11 which are comparable to the Appellant:

(i) Advance Technology Limited
(ii) Empower Industries India Limited
(iii) Sonata Information Technology Limited
(iv) Svam Software Limited

Benchmarking analysis undertaken by the learned TPO/ Hon'ble DRP by considering royalty agreements as Comparable Uncontrolled Price (CUP') to benchmark Appellant's international transactions

7. erred in selecting the CUP to benchmark the international transactions of the Appellant without appreciating that Transaction Net Margin ('TNMM') is the most appropriate method to benchmark the Appellant's international transactions;

8. without prejudice to the above, erred in characterizing the distribution fee paid/ payable by the Appellant to its AES to be in the nature o royalty;

9. without prejudice to the above, erred in not appreciating that a 'distribution' agreement like that entered into by the Appellant with its AE is different from a 'license/ royalty' agreement selected by the Hon'ble DRP/ learned TPO to benchmark the Appellant's international transactions;

10. without prejudice to the above, erred in considering royalty agreements as comparable to Appellant's international transactions without appreciating that sufficient information is not available in the public domain to rely on their comparability;

11. without prejudice to the above, erred in considering royalty agreements as comparable to benchmark the Appellant's distribution activity with its AEs disregarding the fact that all agreements are functionally different and are entered into in ifferent geographies (ie other than India) hence the economic and comme cial circumstances under which they are entered would be different from the dis ribution agreement entered into by MSMD;

Internal comparability

12 erred in observing that third party channels distributed by the Appellant in FY 2010-11 are comparable to AE channels distributed by the Appellant during the year without appreciating that they are not comparable;

13. without prejudice to the above, erred in not appreciating that while software distributors are appropriate comparables, internal comparables are suitable over the royalty agreements selected by the Hon'ble DRP/ learned TPO to benchmark the Appellant's international transactions;

14. without prejudice to the above, erred in making a transfer pricing adjustment using royalty agreements as CUP after observing that margin earned by the

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