DISCOVERY COMMUNICATIONS INDIA,GURGAON vs. JCIT, NEW DELHI

Brief facts of the case are that the assessee is a subsidiary of Discovery Channel Mauritius Pvt. Ltd. and acted as an agent for its Associated Enterprise (“AE”) being Discovery Asia LLC (“DALLC”)

The return of income was filed on 30.11.2013 at an income of INR 17,61,46,710/-. The case of the assessee company was selected for scrutiny under CASS and as the assessee was having following international transactions with its AEs, a reference was made to the TPO for determination of Arm Length Proce (ALP) of the such transactions. S.No. International AE Amount Method Transaction Adopted (INR) 1. Agency Commission on DALLC 64,08,54,603/- TNMM Subscription revenue and APLLC 10,39,06,053/- TNMM advertisement sale 2. Marketing Service Fee DALLC 17,93,72,537/- TNMM 3. Program Sourcing Fee DALLC 25,24,97,446/- TNMM

The assessee has benchmarked the transactions by taking Transaction Net Margin Method (TNMM) as Most Appropriate method (MAM). As per the Transfer Pricing Study report (TPSR) of the assessee, under the distribution of channel sale of Airtime and marketing services, assessee has declared OP/OC of 13.57% as against the average margin of 10.77% of the comparables and

Aggrieved by the said order, assessee filed objections before ld. DRP who in terms of its order dated 20.12.2016 has upheld the adjustment made by AO/TPO towards AMP expenses applying Cost Plus Method (“CUP”) on substantive basis and further directed not to allow the deduction of management service fee of INR 17,82,61,096/- received by the assessee. Therefore, as against the adjustment proposed by TPO at INR 25,65,19,852/- on account of AMP expenses, ld. DRP sustained the same at INR 43,47,80,948/-. Besides this, ld. DRP further directed the TPO/AO to make protective adjustment as per Bright Line Test (“BLT”) and intensity test. Thereafter, the TPO passed the appeal effect order dated 25.01.2017 wherein the following adjustments have been made by the TPO:-

Thereafter, AO passed the final assessment order u/s 143(3) r.w.s. 154 of the Act dated 07.02.2017 incorporating the order giving effect to the directions of ld. DRP and accordingly, total income of the assessee was assessed at INR 88,09,20,590/- by making addition on account of TP adjustment of INR 45,51,97,463/- as stated above and on account of income mis- match of INR 24,95,76,420/-.

Against the said order, the assessee is in appeal before the Tribunal by taking various Grounds of appeal as per the appeal memo.

Before us, ld.AR for the assessee submits that assessee has considered AMP expenses while benchmarking international transactions with respect to the agency commission on subscription

Alternatively, it is submitted that once the TPO himself has made NIL adjustment as per TNMM under intensity test therefore,

On the other hand, ld. CIT DR vehemently supported the orders of the lower authorities and submits that ld. DRP has considered all the arguments raised by the assessee and held the AMP expenditure as international transactions for which separate benchmarking is necessary. He, therefore, requested for the confirmations of the orders of lower authorities.

Heard the contentions of both the parties at length and perused the material on record. It is observed that in the instant case, assessee has entered into international transactions with respect to the agency commission on subscription revenue and advertising sales shared with its AEs namely DALLC and APLLC and further received marketing service fees towards the promotions made in India for the entertainment network carried out by its AEs. The assessee has benchmarked the transactions by adopting TNMM as MAM and since OP/OC of the assessee is higher than the average margin of comparables, no adjustment was made in TPSR of the assessee. The assessee claimed that while computing the OP/OC, it had already included the AMP expenses and since the AO/TPO has not doubted the ALP declared by the assessee for the

Further, Hon’ble jurisdictional High Court in case of Magneti Marelli Powertrain India (P.) Ltd. (supra) also expressed the similar view where Hon’ble High Court has observed as under:- "17. As far as the second question is concerned, the TPO accepted TNMM applied by the assessee, as the most appropriate method in respect of all the international transactions including payment of royalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of Rs. 38,58,80,000 only

As the facts in the instant case are identical thus, by respectfully following the aforesaid judgments of Hon’ble jurisdictional High Court (supra), we are of the view that once the AO has accepted the international transactions carried out by the assessee with its AEs with respect to the agency commission, advertising sales and marketing services at ALP where the AMP expenses had been considered under TNMM therefore, no separate benchmarking of AMP expenses is required to be made. Accordingly, the entire exercise done by the lower authorities to compute the ALP of the AMP expenses on substantive basis as well as protective basis is futile and the additions made are hereby, deleted. This will also cover assessee’s Grounds of appeal Nos. 1 to 1.12.

Grounds of appeal No.2 to 2.2 of the assessee are with respect to the adjustment made on account of interest on

Heard the contentions of both the parties at length and perused the material on record. It was the claim of the assessee that it has made working capital adjustment in the margins charged from its AEs and also necessary adjustment have been made in the financials of the comparables while benchmarking the transactions. Under these circumstances, for the purpose of verification of these facts, we sent this issue back to the file of AP/TPO with the direction that if the claim of assessee is found correct, no adjustment is required to be made in terms of the order of Hon’ble Delhi High Court in the case of PCIT vs Kusum Health Care (P.) Ltd. reported in [2017] 398 ITR 66 (Del. HC). With these directions, Grounds of appeal Nos. 2 to 2.2 raised by the assessee are allowed for statistical purposes.

Grounds of appeal Nos. 3 to 3.6 raised by the assessee are with respect to the addition of INR 24,95,76,420/- made by the AO on account of difference in income declared by the assessee in its ITR and as appearing in 26AS statement.

Heard the contentions of both the parties at length and perused the material on record. The claim of the assessee was that some of the parties have deducted and withhold tax with respect to receipt on behalf of its AEs i.e. DALLC and APLLC. The assessee has declared the income to the extent pertained to it which comes to INR 75,71,02,693/- however, the remaining amount of INR 24,95,76, 420/- relates to the income of its AE’s namely DALLC and APLLC, therefore the same was not included in the total income by the assessee. Assessee further claimed that Indian income has been assessed in terms of MAP in the case of DALLC. Further the assessment of APLLC for all the receipts with respect to taxes paid by them in the Indian income has been submitted in terms of letter dated 13.06.2025. Considering these facts and under these circumstances of the case and claim of the assessee that MAP was done by DALLC and tax on Indian income have already been assessed in the hands of AE’s, no addition could be made for the same in the hands of the assessee. However, this fact requires verification on the part of the AO, therefore, we admit additional evidences filed by the assessee containing the orders passed u/s 90 of the Act r.w. Rule 27 of the ITAT Rules, 1963 under MAP in the case of DALLC and the copies of orders passed in the case of both the AEs for year under consideration. Accordingly, this issue remitted back to the AO for making necessary verification of fact as stated above, and decide in accordance with law. Accordingly, Ground of appeal No.3 raised by the assessee is allowed for statistical purposes.

Ground of appeal No.4 raised by the assessee is with respect to the levy of interest u/s 234B and initiation of penalty proceedings which are consequential in nature needs no separate adjudication.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 19.08.2026. Sd/- Sd/-