FRIDAY STORYTELLERS LLP,MUMBAI vs. ITO, WARD, 4(2)(1), MUMBAI

In the fact Dispute Reso action of the 2,09,75,436, the assessee, the Id. DRP an contrary to th the addition m be deleted in 2. In the fact DRP has erred making adjus considering t consideration reflected as accordingly, n the Profit and on the taxable 3. In the fact DRP and Id. position that expenses wer profits remain 4. In the fact DRP and Id. position that, 22, when the profit, as rep Length Range the assessee. 5. In the fact DRP and Id. A companies co basis. It is comparable facts of the 2. Briefly stated, fa Liability Partnership of conversion of an e ts and circumstances of the case and in olution Panel ("DRP") has erred in confi e Id. AO, in making upward adjustme on account of Line Production Charges in during the year under consideration. The nd Id. AO is illegal, unjustified and arbitr he facts of the case. It is respectfully subm made by the Id. AO, in the final order, m its entirety. ts and circumstances of the case and in d in confirming the action of the Id. AO/I stment to the income of the assessee, wit the factual position that, during the ye n, all expenses incurred by the assessee part of the Closing Stock/Work-In no profit or loss was recognized, in this d Loss Account, and, therefore, there was e income of the assessee. ts and circumstances of the case and in AO have erred in not considering th t the Associated Enterprise (AE), wi re incurred did not earn any profit and th ned with the assessee. ts and circumstances of the case and in AO have erred in failing to appreciate th in the subsequent year, i.e., Previous Y e revenue had actually been earned/re ported by the assessee firm, fell within e in relation to the comparable entities se ts and circumstances of the case and in AO/Id. TPO have erred in rejecting the co onsidered by the assessee, without an respectfully submitted that the rejectio companies is unjustified and contrar case. acts of the case are that the ass (LLP), was constituted on 11.0 erstwhile company, namely M/ Friday Storytellers LLP 2 n law, Id. irming the ent of Rs. ncurred by e action of rary, being mitted that may please n law, Id. Id. TPO, in thout duly ear under firm were n-Progress, regard, in no impact n law, Id. he factual ith whom hat all the n law, Id. he factual Year 2021- ecognised, the Arm's elected by n law, Id. omparable ny cogent on of the ry to the essee, a Limited 04.2019 by way s Friday Movies and TV Pvt. Ltd. The and production of dig intended for exploit principal source of digital content, cop preceding years, the various digital work Season 1”, “Ancient W two short films title financial year relevan the assessee underto “Special Ops 1.5”. In into an agreement Entertainment Pvt. L consideration of ₹35 to ₹36,00,00,000/- p 27.11.2020. In order offered by the Gover incorporation of a se Storytellers Ltd. (here was engaged for th activities associated portions of the shoo Ltd. provided line pr scenes of “Special Op assessee is engaged in the busi gital content, with a specializatio tation on Over-The-Top (OTT) revenue comprises proceeds fr pyrights, and other ancillary e assessee had undertaken the ks, including the web series Warriors of India” (for Discovery d “Wrong Number” and “Ouch nt to the assessment year unde ook the production of a sequel w n connection therewith, the a dated 27.07.2020 with M/ Ltd. (popularly known as 'Hotst ,00,00,000/-, which was subse pursuant to a supplemental a r to avail benefits under the s rnment of Mauritius, the asses eparate entity in Mauritius, nam einafter referred to as “Friday Lt he purpose of undertaking l with the said web series, ot conducted in Mauritius. Acco roduction services for the shoo ps 1.5” undertaken in Mauritius Friday Storytellers LLP 3 iness of creation on in web series platforms. Its rom the sale of rights. In the e production of “Special Ops – y Channel), and h 2”.During the er consideration, web series titled ssessee entered /s Novi Digital tar'), for a fixed equently revised agreement dated subsidy scheme ssee caused the mely M/s Friday td.”). This entity line production particularly for ordingly, Friday oting of specific .

1 For the assessm filed its return of inco ₹19,60,570/-. The sa provisions of the Inco statutory notices w responses thereto. In 'Line Production Ser (AE), namely M/s Assessing Officer ma to the learned Transf arm’s length price of examining the trans assessee and conside of proceedings, propo to the value of the in accordingly, incorpo assessment order d adjustment, the asse Resolution Panel (D matter, issued dire upholding the trans Pursuant thereto, th assessment order. Ag assessee is in appea reproduced hereinabo ment year under consideration ome on 30.01.2020, declaring a aid return was selected for scru ome-tax Act, 1961 (“the Act”), a were issued. The assessee fu n view of an international trans rvices' availed from its Associ Friday Storytellers Ltd. (“Frid de a reference under section 92 fer Pricing Officer (TPO) for deter f the said transaction. The lea sfer pricing documentation fu ering the submissions made du osed a downward adjustment of nternational transaction. The As orated the said adjustment ated 17.11.2023. Aggrieved by essee filed objections before the RP). The learned DRP, after ections under section 144C(5 fer pricing adjustment propose he Assessing Officer passed the ggrieved by the said final assess al before this Tribunal, raising ove. Friday Storytellers LLP 4 n, the assessee a total income of utiny under the and accordingly, urnished partial saction involving ated Enterprise day Ltd.”), the 2CA(1) of the Act rmination of the arned TPO, after urnished by the uring the course f ₹2,09,75,436/- ssessing Officer, in the draft y the proposed learned Dispute considering the 5) of the Act, ed by the TPO. impugned final sment order, the the grounds as 3. Before us, the L containing pages 1 to 4. All the grounds issue, namely, the t Ground No. 5 of comparables by the l assessee’s objection expenditure incurred claimed as a deductio under the project tit assessee challenges no shifting of profits the issue involved, adjudication. 4.1 Upon considera the controversy in t three issues: firstly learned TPO; seco Enterprise (AE) had without any mark-u adjustment unwarra transfer pricing adju incurred for line pro These issues are add

The first issue ar of two comparables b the benchmarking involving line produc 5.1 The brief facts assessee are that t Storytellers Ltd., Ma Special Purpose Veh production-related c applicable laws of Ma subsidy so received b way of cost reduction production cost of th engaged in procuring monetising the com with digital platforms 5.2 It is further su the responsibility o completing the produ transfer pricing study based on the funct assumed (FAR analys method for benchm Cost Plus Method (CP rising for consideration pertains by the learned Transfer Pricing analysis of the internation tion services. relevant to this issue, as su the Associated Enterprise (AE auritius (“Friday Ltd.”), was inc hicle (SPV) with limited objecti osts and availing subsidy ben auritius. It is the claim of the as by the SPV was eventually remi n, thereby benefiting the assess he web series “Special Ops 1.5”. g content production services f mpleted content through licens s. ubmitted that ‘Friday Ltd’. was of controlling, supervising, fa uction activities carried out in M y, the assessee conducted a fun tions performed, assets emplo sis), and determined that the m arking the international trans PM). Under the CPM, the asses Friday Storytellers LLP 6 to the rejection Officer (TPO) in nal transaction ubmitted by the E), M/s Friday corporated as a ive of incurring nefits under the ssessee that the itted to India by ee in the overall The assessee is from its AE and sing agreements entrusted with acilitating, and Mauritius. In its nctional analysis oyed, and risks most appropriate saction was the ssee adopted the Profit Level Indicator identified comparable line production activi 5.3 On this basis, average analysis o comparables, which with the 35th percen and a median of 20.8 consideration was co assessee, fell within demonstrating that length. The comput submitted by the a reproduced as under Particulars Sales (A) Less : Cost of Goods Sol (-) Actual Cost incurre 2020-21 (-) Estimated Cost (to be 2021-22 till the complet Special Ops 1.5) Gross Profit (C=A-B) Gross Profit Ratio (D=C/ 5.4 The learned T comparables relied u Pvt. Ltd. and GV F provisions of Chapte r (PLI) as gross profit to sales e Indian companies engaged in ities. the assessee undertook a thre of gross profit margins ear yielded a range between 13.40 ntile at 1.05%, the 65th percen 86%. The assessee’s margin for omputed at 15.78%, which, a n the safe harbor range of the transaction with the AE ation of gross profit margin o assessee and reproduced by t : Amount in INR Amou

78 TPO, however, observed tha upon by the assessee, namely Films Ltd., were not suitable i r X of the Act. With respect to Friday Storytellers LLP 7 (GP/Sales) and broadly similar e-year weighted rned by such 0% and 55.47%, ntile at 26.37%, r the year under according to the f ±5%, thereby E was at arm’s of the assessee the Ld. TPO is unt in INR 0,00,000 ,79,436 20,564 8% at two of the Line Production n terms of the Line Production

The second iss contention that no p and that the entire negating any allega Resolution Panel (DR assessee, recorded directions as under: “8.3 Discussion an 8.3.1 The assessee to Mauritius and the that Friday Ltd is o purely to incur loca Film Rebate Schem production. Even th Government is trans of series production. then also the cost incurred by Friday resulted in lower pro 8.3.2 The panel has facts of the case. Th associated enterpris As per Section 92 of Any income arising having regard to the 8.3.3 For determina been prescribed as been prescribed for c 8.3.4 The contention any profit has to be transaction was at a 8.3.5 In view of t action of the TPO sue raised by the assessee p profit accrued to the Associated profit remained with the as ation of profit shifting. The le RP), after considering the sub its observations at paragra nd Directions of the DRP: contends that there is no shifting of prof ere is no tax avoidance. The assessee fur only a special purpose vehicle whose e l costs at NIL margin and apply for sub me in Mauritius which shall reduce he subsidy received by the SPV from sferred to FST LLP, which results in redu If FST LLP would have produced the se of production would have been highe Ltd. for the same which would hav ofits. considered the submissions of the asses he assessee and the Mauritian entity Fri es which have undertaken international t f the Income Tax Act g from international transaction shall b arm's length price " ation of the arm's length price, various m per section 92C of the Act. Also variou computation of the arm's length price. n of the assessee that there was no inte proved through rigorous methods prescr arm's length. the above, we do not find any infirm in benchmarking the international Friday Storytellers LLP 11 pertains to the Enterprise (AE) ssessee, thereby earned Dispute missions of the aph 8.3 of its fit from India rther submits endeavour is bsidy as per the cost of m Mauritius uction in cost ries in India, er than that ve ultimately ssee and the iday Ltd. are transactions. be computed methods have s rules have ntion to shift ribed that the mity in the transaction using Cost Plus M assessee is rejected 6.1 Before us, the l the AE, namely M/s pass-through entity. any profits and oper as per the terms of this submission, reli amounting to ₹2.72 c Film Rebate Scheme subsequent year. A demonstrated the ab substantiated the reimbursement condu 6.2 Per contra, submitted that the a by the AE is not re (ALP) under section 9 pricing analysis, it w distribution of profit assessee to the AE been paid under sim Department further s on a cost-to-cost b absolve the asses

46% 2CA(3) of Income Tax Act 1961 dated 2 No: ITBA/TPO/F/92CA3/2023-24/1057 ected the following two companies from anies: ions Pvt. Ltd above two companies, the Ld. TPO dete le: 20.86% le: 26.37% percentile): 21.61% Friday Storytellers LLP 15 eration and that outcomes post- of the assessee as under: TPO that the nsaction of n estimation Form 3CEB ed now. The e calculated T LLP of FY nt in INR 00,000 31,060 8,940 % 8/10/2023 7475177(1), the dataset ermined the Without prejudice to assessee considers margin calculation of margin on sales of 2 length range of 35th 26.37% which is we Ld. TPO. Hence, it can be said warranted in the cas 7.2 The Ld. DRP a rejected such observa “10.3.1 The panel h the facts of the case that the benchmarki unless the entire pro assessee contends completed in the fo taking all the transa 10.3.2 This argumen series takes 5 year international transa transactions of all transfer pricing law. 10.3.4 Moreover, th study and benchm scrutinized and mad is taking such an a 7.3 Before us, learn entire expenditure of was capitalised in ac and no deduction wa relevant year. It wa o anything stated in the above grounds, the dataset of comparable companie of comparables suggested by the Ld. TPO 21.46% earned by FST LLP lies between h percentile i.e. 20.86% and the 65th pe ll within the arm's length range as sugge d that the TP Adjustment of Rs. 2,09,75,4 se of the assessee.” after considering the objection ation as under: as considered the submissions of the as e. The panel does not find any merit in th ing and consequent adjustment cannot b oduction process of the web series is com that since the production of the web following year, benchmarking should b actions of the two years. nt of the assessee is flawed. Suppose in rs to complete, then will the benchmar action be done after 5 years and by com the 5 years ?! There is no such provi he assessee itself has undertaken trans marked the transaction. Only when the de some corrections in the TP analysis, th argument.” ned counsel for the assessee sub f ₹9.43 crores incurred towards ccordance with standard accoun as claimed in the profit and loss as submitted that the obivious Friday Storytellers LLP 16 even if the es and the O, the gross n the arm's ercentile i.e. ested by the 436/- is not of the assessee sessee and he argument be done for mplete. The series was be done by n a case, a rking of the mbining the ision in the sfer pricing e TPO has he assessee bmitted that the line production nting principles, account for the s facts like AE operated at Nil marg and no deduction wa the department, resu of well-settled legal assessee submitted profitability analysis submitted that upon margin was of 21.46% therefore, the Depar year 2020-21 and i incorrect as profi transaction. 7.4 On the other h contended that the misplaced in the co enquiry under Chapt the international tra conducted at arm’s le accounting or reve transfer pricing is tr inapplicable merely completion method was argued that ben to the year in which gin, the expenses capitalized b as claimed for such expenses, w ulted in taxing hypothetical inco principles. Further, the Ld. c that Department overlooked s for financial year 2021-22. n completion of the project, t %, which is within the TPO’s be rtment’s adjustment based sole incomplete data stands legally itability analysis must refl and, the learned Departmental arguments advanced by the ontext of transfer pricing law ter X of the Act, it was submit ansaction with the associated ength, independent of the asses nue recognition. The DR em ansactional in nature and cann because the assessee follow or deferred revenue recognitio nchmarking must be carried ou the transaction occurred and c Friday Storytellers LLP 17 by the assessee were ignored by ome, in violation counsel for the the assessee’s It was further the gross profit nchmark range, ely on financial y and factually lect completed l Representative assessee were w. The primary tted, is whether enterprise was ssee’s method of mphasized that not be rendered wed the project on. Moreover, it ut with reference cannot await the financial outcome o international transac transaction occurred 7.5 The DR further expenses incurred by lack of proper suppo bill numbers, especia expenses. These, acc verifiability and genu 7.6 In rejoinder, lea all relevant supportin and other evidence— transfer pricing p Department’s objectio identify any specifi emphasized that th accommodation, foo production operation services rendered by 7.7 We have cons perused the record. DR regarding the concerned, we find of subsequent years. The a ction must be examined in the i.e. AY 2021-22 in the case. r submitted that a detailed ver y the AE revealed serious deficie rting documentation such as in ally in relation to hotel, food, a cording to the Department, cas uineness of the underlying trans arned counsel for the assessee ng documentation—including in —was furnished both during the a proceedings. It was conten ons were based on generalizatio ic unverifiable expenditure. I he nature of the expenses—b od, and artist fees—was t ns and formed a necessary com the AE. sidered the rival submissions Insofar as the objection raised alleged lack of verification o that this aspect has not bee Friday Storytellers LLP 18 arm’s length of e year, in which rification of the encies, including nvoice dates and and junior artist st doubt on the actions. submitted that nvoices, ledgers, assessment and ded that the ons and failed to It was further being for hotel typical of line mponent of the s and carefully d by the learned of expenses is en examined or commented upon by proceedings. Under t Pricing Officer is con price of international or allowability of exp is to be considered b the present case, no Assessing Officer. Co the learned DR in thi 7.8 As regards the expenditure was ca deduction, we are of transfer pricing pro method of accountin method or the perce that international consideration, and subject to benchmark 7.9 In cases where method, any transfer corresponding incre progress, which wou in the year in which percentage completio y the Assessing Officer during the statutory scheme, the role nfined to the determination of t l transactions. The question of t penses falls outside the domain by the Assessing Officer during such adverse finding has been onsequently, we find no merit in is regard, and the same is reject primary contention of the as apitalized and therefore not f the considered view that the ovisions does not hinge upon ng—whether it adopts the pro entage completion method. Wha transactions occurred in th once so established, such tr king as per the mandate of Chap e the assessee follows the pro r pricing adjustment would typi ease or decrease in the valu ld ultimately impact the compu the project is completed. Conve on method, profits are recognise Friday Storytellers LLP 19 the assessment of the Transfer the arm’s length the genuineness of the TPO and assessment. In recorded by the the objection of ted. sessee that the claimed as a applicability of the assessee’s oject completion at is relevant is he year under ransactions are pter X. oject completion ically result in a ue of work-in- utation of profits rsely, under the ed in proportion to the stage of compl in each year based recognised. In the recognised neither consideration. How arrangement for sale risks and rewards, compute profits bas consistent with the Institute of Chartere the principles laid accrual of income. Th after comparison of t margin of comparable 7.10 We are further o the international t assessee has applied Plus Method calcul appropriate gross p supplier in a controll functions performed supplier. The gross p products or services comparables, but in letion, and adjustments are app d on the extent of revenue present case, the assessee ap revenue nor profit for th wever, having entered into e of the project and transferred the assessee was under an sed on the percentage of com e accounting standards pres ed Accountants of India and h down under section 5 of the he transfer pricing adjustment true profit margin of the assess es. of the view that the assessee’s b transaction requires reconsid d cost plus method for benchma lates an arm’s length price rofit mark-up to the costs in ed transaction. This mark-up sh d, risks assumed, and assets profit margin of party who suppl are compared with gross profit the case, gross profit margin Friday Storytellers LLP 20 plied accordingly and expenses ppears to have he year under a contractual d the attendant n obligation to pletion. This is scribed by the harmonises with e Act regarding has to be made see with median benchmarking of deration. The arking. The Cost by adding an ncurred by the hould reflect the s used by the ly or exports the margin of other of the assessee who is importer of se in providing similar appropriately reflecte into by the assesse reconsideration. 7.11 In light of the f incomplete evaluatio appropriate to set as the Assessing Officer TPO for de novo con light of the observatio 7.12 The ground no statistical purposes. statistical purposes, merely academic. 8. In the result, statistical purposes. Order pronoun 1963 by way of plac (RAHUL CHA JUDICIAL M Mumbai; ervices has been compared with r services. Thus, whether th ed the comparability of the tran e with its AE vis-à-vis other foregoing discussion and havin on by the lower authorities side the transfer pricing adjus r/TPO. The matter is remanded nsideration in accordance with ons contained herein. o. 3 of the appeal is accordin . Since, we allowed the grou our findings on other groun the appeal of the assessee nced under Rule 34(4) of th cing result on notice board on /- S AUDHARY) (OM PRAK MEMBER ACCOUNTA Friday Storytellers LLP 21 parties engaged is method has nsaction entered methods, need ng regard to the s, we deem it stment made by to the file of the law and in the ngly allowed for und no. 3 for nds is rendered is allowed for he ITAT Rules, 30.05.2025. KASH KANT) ANT MEMBER