While granting relief to ESPN Software India Ltd, a division bench of the Delhi High Court upheld the ITAT ruling wherein two distinct revenue streams i.e. sale of air time with distribution business, advertisements, sale business, etc., were clubbed.
A bench comprising of Justice S.Ravindra Bhat and Justice Sanjeev Sachdeva, while dismissing a departmental appeal, declared that aggregation for Arm’s Length Price (ALP) purposes are reasonable and cannot be interfered with it.
In the instant case, ESPN (Entertainment and Sports Programming Network) is a U.S.-based global cable and satellite sports television channel owned by ESPN Inc.
The TPO was opinioned that both sets of transaction were separate and distinct and could not have been clubbed. The assessee had maintained that the clubbing of these transactions for Arm’s Length Price (ALP) determination had been permitted in the past.
The TPO’s rejection of the aggregation, for ALP determination was appealed against. The CIT (A) was of the opinion that both segments were appropriately clubbed for the purposes of benchmarking international transactions.
However, on appeal, the CIT (A) upheld the assessee’s decision regarding aggregation of the sets of transactions for the purpose of ALP determination and worked out an operating profit margin of 7.82%.
During the proceedings, revenue argued that in earlier years assessee had profit on advertisement sale segment but in that year assessee recorded the same as losses. This was used as evidence to say that clubbing of the two transactions or rather their aggregation, distorted the picture. The revenue also added that assessee had overstated the purchase price of advertisement inventory which had been clearly added by the AO as the assessee had adjusted the losses incurred against profit distribution.
On perusal of record, Appellate Commissioner’s found that the transactions in question ought to be analyzed in conjunction.
The Delhi High Court agreed with the findings of the appellate authorities and proclaimed that the decision of ITAT cannot be wrong and also added that the rejection of the RBI guidelines and the TPO’s omission given due weight to the down linking guidelines were a relevant factor.
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