N.K. Pradhan, A.M.:— The captioned cross appeals-one by the Revenue and the one by the assessee — are directed against the order passed by the Asst. Commissioner of Income Tax-16(1), Mumbai(herein after the ‘AO’) u/s 143(3) r.w.s 144C(13) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience.

ITA No. 1084/MUM/2015

Assessment Year: 2010-11

2. The AO made a reference u/s 92CA(1) to the Transfer Pricing Officer (TPO) for computation of the arm's length price of the assessee. The TPO vide order u/s 92CA(3) dated 27.01.2014 made an adjustment of Rs. 23,79,87,834/- to the international transaction. The AO, accordingly, in his draft assessment order u/s 143(3) r.w.s. 144C dated 30.03.2014 made a transfer pricing adjustment by adding the above sum of Rs. 23,79,87,834/- to the income shown by the assessee along with further addition of Rs. 3,11,40,453/- (advances/deposits written off), Rs. 6,14,01,347/- u/s 40(a)(ia), Rs. 2,35,34,660/- u/s 14A, Rs. 14,96,180/-(cash expenses) and Rs. 42,00,000/- (bad debts written off). After receipt of the draft assessment order, the assessee filed its objection before the Dispute Resolution Panel (DRP). The DRP passed its order on 12.11.2014. The AO completed the assessment u/s 143(3) r.w.s 144C(13) on 30.12.2014.

3. The 1and 2ground of appeal is general in nature. The issues therein would be dealt in the subsequent grounds of appeal.

4. The 3 ground of appeal is against the addition of Rs. 13,94,07,863/- made by the AOon account of arm's length price of ‘International Licence Revenue’ of Rs. 13,94,07,863/-. We find the DRP has observed that the amount payable to the BCCI by the assessee and by the subsidiary Nimbus Sports International (NSI) to the assessee was different from the amount payable as per the agreement with BCCI. Further, the DRP found that the facts and the arguments in the impugned assessment year are same as in the earlier years. Therefore, it directed the AO to ascertain the actual number of matches played and work out the amount payable to BCCI and receivable from the AE on that basis and make any adjustment, if required.

4.1 Subsequently, the AO wrote a letter dated 20.11.2014 to the TPO for recalculating the transfer pricing adjustment as per the direction of the DRP of the above issue. The TPO vide order dated 29.12.2014 u/s 92CA(3) r.w.s. 254 computed the transfer pricing adjustment in respect of ‘International Licence Revenue’ at Rs. 13,94,07,863/-. The AO followed the above order of the TPO and made an addition of Rs. 13,94,07,863/-.

4.2 Before us, the Ld. counsel of the assessee submits that the ITAT ‘K’ Bench, Mumbai in the case of the assessee for the AY 2009-10 has allowed the appeal on the similar issue. It is submitted by him that as the DRP has also mentioned that the facts and arguments for the AY 2010-11 are same as in earlier year, the order of the above Tribunal should be followed while deciding the instant issue.

4.3 On the other hand, the Ld. DR supports the order passed by the TPO/AO.

4.4. We have heard the rival submissions and perused the relevant materials on record. We find that the ITAT ‘K’ Bench, Mumbai in the case of the assessee for AY 2009-10 (ITA No. 1424/Mum/2014) dealt with the same issue. The ground of appeal (No. 4) before the Tribunal was as under:

“4. On the basis of the facts and in the circumstance of the case and in law, the Ld. AO in pursuance of the direction given by the Ld. DRP erred in confirming the transfer pricing adjustment of Rs. 27,05,83,190/- as proposed by the TPO on account of determination of ALP of International Licence revenue receivable by the appellant in terms of the provisions of agreement with Associated Enterprise (AE).”

The Tribunal held as under:

“Regarding ground no. 4, which is on account of adjustment of Rs. 27,05,83,190/- on account of Arm's Length Price determination of International Licence revenue receivable from AE, Ld. Senior Counsel, submitted that after the order of the DRP dated 31.12.2013, the DRP has passed a corrigendum vide order dated 12.03.2014, whereby the DRP has deleted the addition relying upon the ITAT order for the AY 2008-09 in assesseee's own case. Therefore, this ground has become infructuous. Accordingly, ground no. 4 is dismissed as infructuous.”

4.5 We find that the DRP has mentioned at para 2.2 of their order dated 12.11.2014 that the facts for the AY 2010-11 are same to the earlier assessment year. Accordingly, we follow the order of the Coordinate Bench narrated at para 4.4. hereinbefore and delete the addition of Rs. 13,94,07,863/- made by the AO. Thus the 3 ground of appeal is allowed.

5. The 4 ground of appeal is against the transfer pricing adjustment of Rs. 2,48,150/- towards notional interest on the loans advances given to the AEs. We find that the DRP has held that the facts in the impugned assessment year are same as in the previous assessment year and therefore directed the AO that the SBI PLR rate which is 11.75% for the current year be applied for making adjustment on this count.

5.1 The same issue arose before the ITAT ‘K’ Bench, Mumbai in the case of the assessee for the AY 2009-10. Therein, the assessee had challenged the transfer pricing adjustment of Rs. 4,30,240/- on account of notional interest on the loans and advances given to the AEs. The Tribunal held as under:

“We find that this issue had come for consideration before the Tribunal in AY 2007-08 & 2008-09. The Tribunal had taken note of the fact that assessee had also received loans/advances on which assessee did not pay interest. For verification the matter was set aside to the AO. The relevant observation reads ad under:

25. We have heard the rival contentions, perused the findings of the authorities below as well as the materials available on records. In so far as the issue of charging of notional interest on loans and advances are concerned, it is seen that this issue had come up for consideration in assessee's own case for the assessment year 2007-08, however, this ground as taken in ground no. 3(a), (b) and (c), in that year has not been pressed. In this year, the Ld. Counsel has taken a plea that the assessee has also received various advances on which no interest is payable. This plea has not been taken either before the TPO or the before DRP, therefore, we are of the considered opinion that in so far as the adjustment on account of notional interest on loans and advances given to 2 AEs namely Nimbus India Pte. Ltd., Singapore and Nimbus Communication British Virgin Island, the matter needs to be verified and examined by the TPO and should be decided afresh in accordance with law after giving due and effective opportunity of hearing to the assessee to explain its case.

Following the same reasoning, we also set aside the matter to the file of the AO with a direction to decide this issue on similar lines. Accordingly, ground no. 6 is allowed for statistical purposes.”

5.2 Facts being similar, we set aside the matter to the file of the AO with a direction to decide the above issue on similar lines. Thus the 4 ground of appeal is allowed for statistical purposes.

6. The 5 ground of appeal is against the addition made by the AO of Rs. 4,88,93,106/- towards notional guarantee commission charges for the guarantees extended to its AEs. The DRP has held that the adjustment on this count be made by applying a commission rate of 1.5% per annum, since the facts are same as in the earlier assessment year

6.1 We find that the same issue arose before the ITAT ‘K’ Bench, Mumbai in the case of the assessee for the AY 2009-10. The Tribunal held at para 10 as under:

“We find that this issue is permeating through in all the years. This fact has been noted by the Tribunal in its order for AY 2008-09, vide para 28, to 31, wherein after referringthe Tribunal order in assessee's own case right from assessment year 2005-06 to 2007-08, held that commission chargeable for guarantee commission by the assessee to its AEs should be taken at 0.5% as ALP. Thus, respectfully following the judicial precedence which is based on the same facts applicable in this year also, we direct the AO to take 0.5% as guarantee commission to be chargeable from AE in computing Arm's Length Price. Accordingly, ground no. 7 is treated as partly allowed.”

6.2 Facts being similar, we follow the order of the Co-ordinate Bench and direct the AO to take 0.5% as guarantee commission to be chargeable from the AE in computing the ALP. Thus the 5 ground of appeal is partly allowed.

7. The 6 ground of appeal is general in nature and is covered by the other grounds of appeal.

8. The 7 ground raised in this appeal is against the addition of Rs. 6,14,01,347/- made by the AO u/s 40(a)(ia) by invoking the provisions of section 194H for the payment made by the assessee to the advertising agency.

8.1 The AO has invoked the provisions of section 40(a)(ia) in respect of money retained by the advertising agents while making payments to the assessee for broadcasting the advertisements for their clients. The AO treated such retention as constructive payment to such agents for commission to them subject to TDS u/s 194H.

8.2 The DRP observed that the issue came up for their consideration in the immediate preceding year i.e. AY 2009-10. They relied on the decision in the case of CIT v. Director, Prashar Bharti Doordarshan Kendra, 325 ITR 205 (Ker.) and held that advertising agency performs a service by mobilizing advertisement to be broadcast by the assessee. The DRP followed their decision in AY 2009-10 and dismissed the objection raised by the assessee. The AO has followed the direction of the DRP and made a disallowance of Rs. 6,14,01,347/-.

8.3 Before us, the Ld. counsel of the assessee relies on to the order of the Tribunal in the case of the assessee for the AY 2009-10. On the other hand, the Ld. DR supports the order passed by the AO.

8.4 The same issue arose before the ITAT ‘K’ Bench, Mumbai in the case of the assessee for the AY 2009-10. The Tribunal held that:

“However without going into the merits whether provisions of TDS under section 194H is application on this alleged advertising commission paid to the advertising agencies, we find that assessee has a substance in the contentions raised in the additional grounds that, if the payee has been assessed to tax and has taken into account for computing such sum at its income in the return of income, then there should not be any disallowance. The second proviso to section 40(a)(ia) which has been inserted by the Finance Act, 2012, though w.e.f. 01.04.2013, provides that, if the assessee has failed to deduct the tax in accordance the Chapter XVII-B then he cannot be treated as assessee in default under first proviso to section 201(1) and in such a case it shall be deemed as the assessee has deducted and paid the tax and consequently no disallowance u/s 40(a)(ia) can be made. In the decisions relied by the Ld. Counsel, it has been held that such an amendment is curative and clarificatory in nature and, therefore, it has to be given retrospective effect

Thus, we hold that if the payee has furnished the return of income u/s 139 and has taken into account such sum for computing the income in such return of income and has paid taxes then, assessee cannot be treated as assessee in default within the meaning of section 201(1) and accordingly, the assessee shall be deemed to have deducted the tax and accordingly, no disallowance u/s 40(a)(ia) can be made.”

8.5 Facts being similar, we follow the order of the Co-ordinate Bench and direct the AO to verify whether the payee has filed the return of income u/s 139 and has taken into account such sum for computing the income in such return of income and has paid taxes thereon. If the answer is yes, then no disallowance can be made u/s 40(a)(ia). We direct the assessee to file the relevant documents before the AO. Needless to say the AO would give reasonable opportunity of being heard to the assessee. Thus the 7 ground of appeal is allowed for statistical purposes.

9. The 8 ground raised in this appeal is against the addition of Rs. 2,35,34,660/- made by the AO u/s 14A. The DRP held that (i) the applicability of Rule 8D w.e.f. AY 2008-09 has been upheld in Godrej and Boyce Manufacturing Co. Ltd. v. DCIT, 328 ITR 81 (Bom.), (ii) Rule 8D has to be mandatorily applied whenever the funds of the assessee from various sources merge into his account which is practically the situation in assessee's case, (iii) the assessee has not made a case that the circumstances in the instant case fall into such exceptions so as to warrant the calculation in terms of a formula other than the one prescribed in Rule 8D.

The DRP thus held that the AO has correctly applied Rule 8D for working out the disallowance u/s 14A. Accordingly, the AO made a disallowance of Rs. 2,35,34,660/- u/s 14A r.w. Rule 8D.

9.1 Before us, the Ld. counsel of the assessee relies on the judgment of the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v. Commissioner Of Income Tax No. 117/2015) dated 25.02.2015.

9.2 On the other hand, the Ld. DR relies on the order passed by the AO.

9.3 We have heard the rival submissions and perused the relevant materials on record. We find that the AO has only asked the assessee to justify why disallowance u/s 14A r.w. Rule 8D should not be made in the instant case. The AO has failed to scrutinize the accounts of the assessee and no reasons were recorded by him. In a similar case in Joint Investment Pvt. Ltd. (supra), the Hon'ble Delhi High Court has held as under:

“The second aspect is there appears to have been no scrutiny of the accounts by the AO an aspect which is completely unnoticed by the CIT(A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowance expenditure “incurred by the assessee relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot be swallow the entire amount as has happened in this case.”

9.4 Respectfully following the above judgment of the Hon'ble Delhi High Court, we direct the AO to restrict the disallowance to the exempt income earned of Rs. 24,25,380/- in place of the disallowance of Rs. 2,35,34,660/- made by him. Thus the 8 ground of appeal is partly allowed.

10. The 9 ground raised in this appeal is against the addition of Rs. 1,41,120/- being 10% of the expenditure incurred food, equipment higher etc. by the assessee. As the addition is based on estimation without any basis, the AO is directed to delete the above disallowance of Rs. 1,41,120/-. Thus the 9 ground of appeal is allowed.

11. The 10 ground raised in this appeal is against the addition of Rs. 42,00,000/- made by the AO in respect of bad debts written off by the assessee. The DRP has directed the AO to examine to ensure that the conditions for allowance as bad debts are satisfied. The DRP specifically has given a direction to the AO that ‘during the verification, if the assessee clearly establishes that the debts were taken into account in the computation of business income of any year and the same has been written off in the relevant previous year, the same should be allowed after verification.’ A perusal of the assessment order dated 30.12.2014 passed by the AO shows that such verification in its entirety has not been carried out by the AO.

In view of the above, we restore the above matter to the file of the AO to follow the direction of the DRP in its entirety. We direct the assessee to file before the AO the relevant documents/evidence. Needless to say the AO would give reasonable opportunity of being heard to the assessee before finalizing the above matter. Thus, the 10 ground of appeal is allowed for statistical purposes.

12. The 11 ground of appeal is against the levy of interest u/s 234D and 234C. We hold that the charge of interest u/s 234D and 234C is mandatory though consequential.

13. The 12 ground of appeal regarding penalty u/s 271(1)(c) is premature as it has been initiated only.

14. In the result, the appeal filed by the assessee is partly allowed.

ITA No. 1062/MUM/2015

Assessment Year: 2010-11

15. The 1 ground raised by the Revenue is against the decision of the DRP in holding that rate of 11.75% is appropriate with regard to interest on loan given to AE by the assessee as against 17.5% taken by the TPO and AO.

15.1 We have dealt the above issue at para 5, 5.1 and 5.2 hereinbefore. Facts being similar, we have followed the order of the Co-ordinate Bench for the immediate previous assessment year 2009-10. As the matter has been set aside by us to the file of the AO with a direction to decide the issue afresh, the above ground of appeal is allowed for statistical purposes.

16. The 2 ground raised by the Revenue is this appeal is against the order of the DRP in holding that the rate of 1.5% is appropriate for charging commission to provide corporate guarantee on behalf of the AE as against the rate of 3% taken by the TPO and the AO.

16.1 We have dealt the above issue at para 6, 6.1 and 6.2 hereinbefore. Facts being similar, we have followed the order of the Co-ordinate Bench for the immediate previous assessment year 2009-10. The AO has been directed by us to take 0.5% as guarantee commission to be chargeable from the AE in computing the ALP. Therefore, the 2 ground of appeal is dismissed.

17. In the result, the appeal filed by the Revenue is partly allowed.

18. To sum up, the appeal filed by both the assessee and the Revenue is partly allowed.