CHANNEL MUSIC NETWORKS LTD PARTNERSHIP,MUMBAI vs. DCIT (IT) 2(1)(1), MUMBAI

Assessee by: Shri. Porus Kaka Revenue by : Shri. Pavan K Beerla (DR) सुनवाई की तारीख /Date of Hearing : 22-04-2019 घोषणा की तारीख /Date of Pronouncement : 22-07-2019 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member & 1637/Mum/2016 These two appeals, filed by two separate assessee‟s, being ITA No. 1519 & 1637/Mum/2016 respectively , both for assessment year 2011-12 , involves common issues and hence these two appeals were heard together and disposed off by this common order. First , we shall take up appeal of the assessee in AY 2011-12 , which appeal filed by the assessee has arisen against assessment order dated 14.01.2016 passed by learned Assessing Officer( hereinafter called “ the AO”) u/s 144C(13) read with Section 143(3) of the Income-tax Act,1961 ( hereinafter called “ the Act”), which in turn was passed in pursuance to Directions issued by learned Dispute Resolution Panel-1, Mumbai( hereinafter called “ the DRP”) dated 22.12.2015 issued u/s 144C(5) of the 1961 Act . Earlier, the AO issued draft assessment order dated 25.03.2015 u/s 144C(1) read with Section 143(3) of the 1961 Act , wherein transfer pricing additions were made by the AO in the aforesaid draft assessment order based on order passed by learned Transfer Pricing Officer, Mumbai (hereinafter called “the TPO”) u/s 92CA(3) of the 1961 Act. Subsequently, the assessee filed objections before learned DRP against the aforesaid draft assessment order dated 25.03.2015 passed by the AO , which were disposed off by learned DRP by issuing directions dated 22.12.2015 u/s 144C(5) of the 1961 Act.

2. The grounds of appeal

raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) in ITA no. 1519/Mum/2016 for AY 2011-12, read as under:- ―Based on the facts and circumstances of the case, Channel V Music Networks Limited Partnership (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income-tax (International Taxation) -2(1)(1) ('AO') in pursuance of the directions issued by Dispute Resolution Panel -1 ('DRP'), Mumbai, under Section 253 of the Income-tax Act, 1961 ('Act') on the following grounds which are independent and without prejudice to each other: On the facts and in the circumstances of the case and in law, the learned DRP/ learned Joint Commissioner of Income-tax (Transfer Pricing) - 2(2) ('TPO') and the learned AO has – Ground number

1. I.T.A. No.1519 & 1637/Mum/2016 erred in determining the taxable income of the Appellant at INR 8,96,44,590 instead of loss of INR 19,78,03,073 as determined by the Appellant in its revised return of income. Ground number 2 erred in not giving effect to the directions of the Ld. DRP which are binding on the AO as per Section 144C(10) of the Act. . Ground number 3 erred in applying transfer pricing provisions to profit arrived after the application of Profit Split Method ('PSM') ignoring that such profit effectively represents profits from transactions with third parties. Ground number 4 erred in determining the arm's length profitability rate ('ALP rate') of 21.26 percent as against the ALP rate of 15.81 percent computed by the Appellant and its Group Entities (together referred to as STAR Group Entities).(The assessee has in its foot notes declared entities, namely Satellite Television Asian Region Limited(‗STAR Ltd‘), STAR International Movies Limited(‗SIMIL‘), STAR Asian Movies Limited (‗SAML‘) , STAR Asia region FZ LLC(‗SAR‘) and STAR Television Entertainment Limited(‗STEL‘)) Ground number 5 erred in rejecting the comparable companies identified by the Appellant for determining the ALP rate. Ground number 6 erred in computing the arm's length price for the international transactions by ignoring the provisions of the Rule 10B(4) of the Income-tax Rules, 1962, which authorizes usage of multiple year data of comparable companies for the purpose of determination of arm's length price under Section 92F of the Act. Ground number 7 erred in holding that PSM is applicable to determine the arm's length profits in respect of revenues from Associated Enterprises ('AE') only and not applicable for determining arm's length profits In respect of transactions with non-AEs. Ground number 8 erred in applying an arbitrary profitability rate of 28 percent to Advertisement revenues from non-AEs without appreciating the fact that the ALP rate of 21.26 percent determined by the learned TPO should equally apply to the revenues received by the Appellant from non-AEs. Ground number 9 & 1637/Mum/2016 erred in disregarding the arms' length profit computed by the learned TPO in hands of the Appellant and in re-determining the ALP of the international transactions, thereby exceeding his jurisdiction provided under Section 92CA(4) of the Act. Ground number 10 erred in not following/disregarding the findings of the learned TPO that based on Functions, Assets and Risks ('FAR') analysis, only 50 percent of the entire business profits of the Appellant from India sourced revenues should be apportioned in the hands of the Appellant and the balance 50 percent be apportioned in the hands of STAR Ltd. Ground number 11 erred in assessing total India source revenues of INR 3,65,32,08,142 in the hands of the Channel Companies( the assessee has in foot notes specified namely, itself , SIML, SAML and STEL as channel companies) after having taxed 50 percent of the India sourced revenues amounting to INR 1,82,66,04,071 (i.e. 50 percent of INR 3,65,32,08,142, being total India sourced revenues earned by the Channel Companies) in the hands of STAR Ltd, thereby double taxing India sourced revenues to the extent of INR 1,82,66,04,071 in the case of STAR Group entities. Ground number 12 erred in granting short credit of taxes deducted at source amounting to INR 87,94,972. Ground number 13 erred in granting short credit of Advance tax amounting to INR 2,69,275. Ground number 14 erred in granting short credit of self-assessment tax amounting to INR 1,10,925. Ground number 15 erred in levying interest of INR 7,96,638 under Section 234C of the Act. Ground number 16 erred in computing levy of interest under Section 234D of the Act at INR 63,95,161. Ground number 17 erred in initiating penalty proceedings under Section 271(1)(c) of the Act without appreciating the fact that the Appellant has not concealed any income nor furnished any inaccurate particulars of its income. & 1637/Mum/2016 The Appellant craves leave to add, alter, amend or delete one or more of the ground at any time before, or at the time of, hearing.‖

3. The brief facts of the case are that the assessee is a non-resident limited liability partnership firm and is a tax resident of Hong Kong belonging to Star Television group of cases. The assessee owned satellite television „Channel‟ being Channel V. The assessee also owned the content broadcast on this Channel. The dispute between rival parties have its germane to additions made to income by invocation of transfer pricing provisions wherein Arms Length Price was computed of international transactions entered into by assessee with its Associated Enterprises (AE‟s) and consequently additions were made to the income of the assessee . The AO made reference to Transfer Pricing Officer , with regard to the international transactions undertaken by the assessee with its AE. The TPO passed order u/s 92CA(3) of the 1961 Act , dated 28th January 2015 proposing TP additions to the income of the assessee. There were also additions made by the AO with respect to transactions entered into by assessee with its non AE‟s. 3.2.1The Star Group consisted of Satellite Television Asian Region Limited(Star Limited) and channel companies, namely : a) Star Television Entertainment Limited(STEL) b) Star International Movies Limited(SIML) c) Star Asian Movies Limited(SAML) d) Star Asia Region FZ LLC(SAR) e) Channel V Networks Limited Partnership (Channel V) The companies at (a) to (d) above were merged with Star India Private Limited(SIPL) with effect from 1st April 2009 vide Hon‟ble Bombay High Court judgment dated 18.02.2010. 3.2.2 During financial year ended 31st March ,2011 , Channel V , had, inter- alia entered into following transactions with the other entities within Star Group: & 1637/Mum/2016 a) Agency services provided by Star Limited to Channel Companies in connection with sale of advertisement airtime, distribution of channels and syndication of content including services relating to pre-production, post production, playout , uplinking and transmission of the channel; b) Agency Services provided by SIPL to STAR Limited in connection with sale of advertisement airtime, distribution of channels and syndication of content in India; c) Grant of licence by STAR Ltd. to the Channel Companies for use of ‗Star Mark‘ in combination with Channel Mark; d) Provision of management services by Star Ltd. to Channel Companies; e) Provision of broadcast operations related services by Star Ltd. to Vijay Television Private Limited (VTPL) Thus, Star Limited , has rendered agency services in relation to advertising and distribution of the respective channels of various Channel Companies. The Star Limited has also rendered management services to the Channel Companies during the relevant period. 3.2.3 The TPO observed that of the Channel Companies, SIML and Channel V are foreign companies and STEL,SAML and SARF have merged with SIPL w.e.f. 01.04.2009 vide Hon‟ble Bombay High Court judgment dated 18th February 2010. The TPO observed that all the above Channel companies are engaged in the satellite television business. The TPO observed that these companies including assessee derived revenue from various markets , a significant portion arising from the Indian market , inter-alia, from the following : a) Sale of Advertisement time of the television channels. b) Distribution of television channels c) Syndication of content on the channels.

3.2.4 The assessee has transaction with its associated entities(AE‟s) within Star Group which were reported in Form No. 3CEB , as detailed hereunder :-

Sr Nature of Transaction AE Amount in original Method No. Form 3CEB 1 Star India Pvt. Ltd. INR 315,868,823 TNMM Procurement of content 2 INR 16,401,447 TNMM Grant of franchise rights Star India Pvt. Ltd. & 1637/Mum/2016

INR 234,199,645 TNMM 3 Grant of license for Star Den Media distribution of channels Services Pvt. Ltd. USD 355,565 4 Star Ltd. TNMM Availing of management services USD 3,567,972 5 Star Ltd TNMM Availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channel of the Assessee 6 INR 242,044 CUP Sale of advertisement Star India Pvt spots Ltd. and Star CJ 7 INR 1,461,153 CUP Purchase of advertisement Star India Pvt. spots Ltd. The amount also represents consideration paid by the Assessee to the associated enterprises for availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production , playout , uplinking and transmission of the channels of the Assessee. 3.2.5 The assessee also submitted details of the international transactions entered into by assessee with other entities within the Star Group, based on revised Form 3CEB , as under:-

Sr Nature of Transaction AE Amount in revised Method No. From 3CEB 1 Procurement of content Star India Pvt. INR 315,868,823 TNMM Ltd., 2 INR 16,401,447 TNMM Grant of franchise rights Star India Pvt. Ltd. 3 INR 234,199,645 TNMM Grant of license for Star Den Media distribution of channels Services Pvt. Ltd. & 1637/Mum/2016 4 USD 416,845 TNMM Star Ltd. Availing of management services 5 USD 2,662,619 TNMM Star Ltd Availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channel of the Assessee 6 INR 242,044 CUP Sale of advertisement Star India Pvt. spots Ltd. and Star CJ 7 INR 1,461, 153 CUP Purchase of Star India Pvt. Ltd. advertisement spots This amount also includes fees received by the Assessee for providing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channels owned by the associated enterprises. 3.2.6 The assessee had benchmarked its international transactions entered into with its associated enterprises situated in India (Indian AE‟s) using the Indian AEs as tested parties. With respect to the international transactions relating to availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content , including services relating to pre-production , post production , playout , uplinking and transmission of the channel of the assessee, it was submitted that similar to the past years, the transfer pricing analysis was done under Profit Split Method and TNMM with reference to the revenue generated from India. Out of the above said international transactions mentioned above, the TPO observed that transactions at nos. 1, 2,3, 6 and 7 are mirror transactions with Indian AEs and the same had been discussed in TP assessment of those Indian AEs by TPO-4(1), Mumbai. The TPO observed that transactions related to nos. 4 and 5 are covered under PSM method adopted by the assessee. The TPO observed that assessee has adopted Profit Split Method to be the most appropriate method(MAM) and consolidated global I.T.A. No.1519 & 1637/Mum/2016 profitability of channel companies were applied to the India revenues generated by the Channel Companies for the 12 month period from 1st April 2010 to 31st March 2011. 3.2.7. The TPO observed that overseas merged entities merged with SIPL with retrospective effect from April 1,2009 and their global income would be subject to tax in the hands of SIPL, the global profits earned by the Overseas Merged entities were ascertained. The TPO observed that SIML and V Partnership , being non-residents, would be subject to tax only in respect of profits earned from the Indian market. The TPO observed that no India specific financial statements were maintained by SIML and V partnership . The AO observed that the assessee has adopted a methodology to compute income chargeable to tax wherein, the consolidated profits were compared to the total of India revenues earned by SIML / V Partnership during the 6 months period April 1, 2010 to September 30, 2010 and global revenues earned by the Overseas Merged Entities for the period commencing from April 1, 2010 till such time that they continued to exist in their local jurisdiction which reflected an overall profit rate of 15.81% percent ( profit as percentage of income). A detailed computation was provided , which is reproduced as under:- & 1637/Mum/2016 Notes:

1. 1. In the case of STEL and SAML, the global advertisement, distribution and syndication revenues for the period April 1, 2010 to May 31, 2010 have been considered.

2. In the case of SIML and V Partnership, India advertisement, distribution and syndication revenues for the period April 1, 2010 to September 30, 2010 have been considered.

3. In the case of SAR the global advertisement, distribution and syndication revenues for the month of April 2010 have been considered. 3.2.8 The assessee submitted that under PSM , there is no need to further benchmark this profitability against the comparables. It was claimed that with a view to avoid litigation and to demonstrate its bonafide, the assessee compared its profitability with 9 external comparables. The assessee had claimed that average margin of the comparable was 8.47% based on weighted average for earlier year. The TPO asked assessee to give updated margins of these comparables. The updated margin of these 9 comparables for the year ended 31.03.2011 as submitted by assessee was 12.87%, which is as under:- & 1637/Mum/2016 3.2.9 The TPO after going through the annual reports of the comparables rejected four comparables out of nine comparables submitted by assessee, by observing as under:-  ―UTV Software Communications Ltd: The standalone financials of the company show (Schedule 21(h)-Revenue Recognition) that the company is also into the business of animation programming, dubbing and home video sales on delivery basis. These revenue streams are different from that of the assesse. Hence, this is not a fit comparable.  Ibn 18 Broadcast Ltd: It is a consistent loss making entity with total accumulated losses of Rs. 2,283,592,931 as on 31st March 2011  India Vision Satellite Communication Ltd: Then company does not pass the RPT Filter as out of total income of Rs.3,13,69,230, the auditor's report state that Rs. 1,48,80,000 is from a foreign company in DUBAl, United Arab Emirates. Viz. India vision International FZ LLC. The assesss holds 51% shareholding in it as per memorandum of association of the said LLC company.  Raj Television: The annual accounts of the company show that it is a consistent loss making company.‖ 3.2.10 The TPO after rejecting aforesaid four comparables, accepted five comparables of the assessee to benchmark the broadcasting transactions of the assessee, as under:- & 1637/Mum/2016 3.2.11 The average mean of the comparables was 21.26% on revenue for the year ended 31.03.2011 , as against the profitability of 15.81% earned by the assessee which did not fall within the safe limit of +/- 5%. The TPO determined ALP rate of the international transaction at 21.26% which is profit rate to be applied to revenue, leading to transfer pricing additions to the tune of Rs. 79,02,816/- proposed by TPO , vide its order dated 28.01.2015 passed u/s 92CA(3) of the 1961 Act. The said order passed by TPO was forwarded to the AO for framing draft assessment order. 3.2.12 The AO while framing draft assessment order also observed that methodology adopted by assessee i.e. considering the profitability based on the audited global financial statements is not in accordance with provisions of the 1961 Act read with Income-tax Rules, 1962. The AO rejected said methodology and proceeded to compute income as per provisions of the 1961 Act read with 1962 Rules. The AO keeping in view transfer pricing provisions of the 1961 Act accepted the additions as were made by TPO so far as its transactions with AE‟s. With respect to transactions with non AE‟s it was observed by the AO that the assessee has not maintained India specific books of accounts , the AO proceeded to compute Arms length profitability separately. The AO followed the directions of the learned DRP for AY 2007- 08 in assessee‟s own case to compute arms length price of 28% as reasonable in respect of transactions entered into by Star Group with non AE‟s. The impugned assessment year under consideration is AY 2011-12, while for preceding years , the AO observed that profitability was determined by Revenue in case of Star Group for the preceding years as provided below: & 1637/Mum/2016 AY In respect of transactions In respect of transactions with with Associated Enterprises non-Associated Enterprises 2007-08 27.18% 28% 2008-09 22.57% 28% 2009-10 13.54% 28% 2010-11 21.26% 28%

Streams of Total Revenues Revenue from the Revenue from the Revenues from India/India AE‟s Non AE‟s operations Advertisement 17,21,51,260 2,42,044 17,19,09,216 Distribution 11,78,60,320 11,78,60,320 - Franchise Fee 1,64,01,447 1,64,01,447 - TOTAL 30,64,13,027 13,45,03,811 17,19,09,216 3.12.15 The AO computed income of the assessee vide its draft assessment order dated 25.03.2015 passed u/s 143(3) read with Section 144C(1) of the 1961 Act, as under: & 1637/Mum/2016 Particulars Rs. Income(Advertisement and distribution) Rs.4,81,34,580/- received from transactions with non AE taxable@28% of Gross Turnover on Non A.E. transactions (Rs.1 7,19,09,216 * 28%) Income (Advertisement and distribution ) 2,51,08,562/- received from transactions with A.E. taxable @ 21.26% of Gross Turnover in A.E. transactions( Rs. 2,42,044 + Rs.11,78,60,320) * 21.26% Total Income 7,32,43,143/- Other income offered to tax by Assessee 1,64,01,447 in return of income Total Assessed Income 8,96,44,590/-

4. The assessee being aggrieved by draft assessment order dated 25.03.2015 passed by the AO u/s 144C(1) read with Section 143(3) of the 1961 Act, filed objection with learned DRP and made detailed submissions and learned DRP issued directions dated 22.12.2015 u/s 144C(5) of the 1961 Act , as under:-

―8. Discussions and Directions of DRP: We have considered the grounds 3, 8, 9 & 10 of objection raised by the assessee and the submission made by it. We find that it is a recurring issue and similar additions have been made by the AO/TPO in the earlier years also which have been upheld by the DRP in the respective years. Respectfully following the decision of DRP in A.Y. 2009 -10, 2008-09 and earlier years, the addition made by the AO is confirmed and grounds of objection 3,8,9 & 10 raised by the assessee are rejected.

9. Ground of objection No.4: The learned Joint Commissioner of Income-tax (Transfer Pricing) -2(2) {'TPO'} and the learned AO erred in determining the arms' length profitability rate ('ALP rate'} of 21.26% as against the ALP rate of 15.81% computed by the Assessee and Channel Companies (together referred to as STAR Group Entities); 10. Ground of objection No.5: The learned TPO has erred in rejecting the comparable companies identified by the Appellant for determining the ALP rate, 11. Ground of Objection No.6: Without prejudice to objection 4, the learned TPO and the learned AO erred in rejecting comparability analysis carried out by the .Assessee and accepted by the learned Page | 14 & 1637/Mum/2016 TPO and the learned AO in AY 2007-08 without any valid basis and In the absence of any change in facts or in law In this year 12. The assessee's submission on these grounds of objection is as under: - 1 FICAPL and the Channel Companies derive revenues from the Indian market from distribution of television channels (including syndication income) and from the sale of advertising airtime to be aired on these channels. Each of the STAR Group Entities has unique intangibles necessary to support a successful channel operation business on an overall basis, and undertake independent entrepreneurial activities. Further, the overall operations are characterised by complex and inter-related functional and risk profiles of the Channel Companies and FICAPL and the interdependent nature of activities undertaken by both parties. 2 In view of the above, PSM was considered the most appropriate method to arrive at the ALP rate. The methodology adopted by STAR Group Entities while computing its taxable income is mentioned in para 10, 3 PSM is applicable primarily in international transactions involving transfer of unique intangibles or in the case of multiple interrelated international transactions, which cannot be evaluated on a separate basis. 4 PSM first identifies the combined profit of the AEs that are to be split amongst the AEs from the controlled transactions in which the AEs are engaged. As a next step, PSM splits the combined profits between the AEs on an economically valid basis that represents the division of profits that would have been anticipated between independent entities. 5 Thus, the profit split amongst the parties to the controlled transaction reflects the actual profits that would be achieved by an independent enterprises participating in a comparable transaction. 6 Hence, it is submitted that once PSM is adopted, there is no need to further benchmark the profit so arrived at vis-a-vis the comparables since the profitability so arrived at as per PSM represents the ALP on transactions effectively with third parties. 7 Without prejudice to the submissions that once PSM is applied, there is no requirement to apply other method, it is submitted that with a view to avoid litigation and to demonstrate its bonafide, STAR Group Entities suo moto compared the consolidated global profit rate of 15.81% with the profit earned by the comparables. 8 In this regard, it is submitted that FICAPL and the Channel Companies identified the following comparables and considered their weighted average margin for benchmarking their transaction.

Sr. No. Company name Weighted Average of 2009, 2010 and 2011 (net profit on revenue) 1 TV Today Network Ltd 15.16% & 1637/Mum/2016

Sr. No. Company name 2011 (net profit on revenue) 1 TV Today Network Ltd 12.50% 2. Zee News Ltd 13.31% 3. I/TV Software Communications 5.99% 4. ibn 18 Broadcast Ltd {TV18 4.33% Broadcast Umited) 5, Maa Television Network Ltd 19.28% 6. India Vision Satellite 20.23% Communications Ltd Zee Entertainment Enterprise Ltd 28.30% 7. 8. Malayalam Communications Ltd 32.93% 9. Raj Television Ltd -21.00% Total 12.87% & 1637/Mum/2016 10 A brief description of the business carried on by each of these companies has been provided in the ensuing paragraphs. i. TV Today Network Limited (‗TV Today' or 'the Company'} TV Today was incorporated in the year 1999. The Company operates predominantly in only one business segment viz. 'News broadcasting operations'. 'Aajtak' is a popular news channel run by the Company. ii. Zee News Limited (‗Zee News' or 'the Company‘) Zee News was incorporated in the year 1999 and operates as media and entertainment company in India. The Company broadcasts news and current affairs through its channels, including Zee News, Zee Business, Zee Marathi, Zee Bangla, Zee Punjabi , Zee Gujarati, Zee 24 Taas, Zee Kannada, and Zee Telugu, The Company also provides advertising services. iii. UTV Software Communications Ltd UTV Software Communications Limited was incorporated in the year 1990. It is an India based integrated media company. The Company started as a television content production company and has developed into a media and entertainment company. It operates in the following segments: Television, Movies, Games and interactive segments. The Television business of the Company inter-alia includes broadcasting of four speciality genre channels, UTV Action, UTV World Movies, UTV Movies and UTV Bindass, distributed throughout India and selected international markets. Accordingly, the company is engaged in the business of broadcasting and thus, for the purpose of benchmarking, the ‗Television' segment from the consolidated financial of the Company has been considered. iv. ibn18 Broadcast Ltd (TV18 Broadcast Ltd.) ibn18 Broadcast Limited was incorporated in the year 2005 as Global Broadcast News Private Limited. The Company operates in the general news and entertainment space with popular general news channels CNN-IBN, IBN7 and IBN Lokmat (a Marathi news channel in partnership with the Lokmat group). It also operates a joint venture with Viacom, called Viacom18 which houses the MTV, VH1 and Nickelodeon channels in India, Viacom18 Motion Pictures, the filmed entertainment operation and COLORS, India's leading Hindi general entertainment channel. Thus, the Company is in the business of broadcasting, telecasting, relaying and transmitting general news programs Given that the company is engaged in the business of broadcasting, for the purpose of benchmarking, we have considered the 'Broadcasting and Content' segment from the consolidated financial of the Company. v. Maa Television Limited ('Maa Television' or 'the Company'} Maa Television was formed in the year 2001 and the channel MAA TV, a leading Telugu general entertainment channel was launched in the year 2002. In a very short span of time, innovative VAS activities of the channel have gained immense popularity. Serials are a staple diet for audiences. Therefore, it is ensured that serials telecast on Maa TV & 1637/Mum/2016 are not run-of-the-mill but are sensitive, grounded, and relevant, and close to reality. vi. India Vision Satellite Communication Ltd India Vision Satellite Communication limited (‗the Company‘) was incorporated in the year 2000. The Company is in the business of television broadcasting. It currently operates a 24 hour Malayalam news channel launched in the year 2003; Indiavision Satellite Communication. The main sources of income for the Company are advertisement and sponsorship Income. Thus, the Company is engaged in the business of broadcasting and for the purpose of our analysis, the Profit and Loss account of the Company has been considered. vii.Zee Entertainment Enterprises Limited (‗Zee Entertainment‘ or ‗the Company‘) Zee Entertainment, promoted by Subhash Chandra and associates, was incorporated in the year 1982. The Company's principal activities are to produce content, distribute TV channels and provide educational services. Content production includes developing, producing and procuring television programs and film content The company distributes pay TV channels to homes through cable operators and delivers satellite and internet content on cables to homes. The Company is also engaged in distribution of software learning products and provides IT educational services. . viii. Malayalam Communications Ltd Molayalam Communications limited {'the Company') was incorporated in the year 2000 in Thiruvananthapuram. The Company is in the business of television broadcasting. The Company currently operates channels; Kairali TV; People and We. For the purpose of our analysis, the Profit and Loss account of the Company has been considered. ix. Raj Television Limited ('Raj Television' or 'the Company1) Raj Television Network Limited is one of the largest Tamil television and broadcasting Company in southern region. The Company incorporated in 1994, broadcasts twelve channels presently in various southern languages. Raj TV, its flagship television channel launched in 1994 was the first genera! entertainment channel of the Company. Besides Raj TV, the Company promotes Raj digital plus, an exclusive movie channel, three Raj Musix, Music Channels, one in each southern regional languages and three 24X7 News Channel. The Company gets its revenue primarily form advertisement and subscription of channels. 11 Based on the analysts of the comparable companies at the time of transfer pricing assessment, the comparable profit/ loss was found to be at 8.38% on a weighted average basis and profit of 12.87% on a single year data basis. TRANSFER PACING ASSESSMENT 12. The learned TPO, in his order, has accepted that PSM is the most appropriate method in the case of Assessee and its Group Entities.

I.T.A. No.1519 & 1637/Mum/2016

I.T.A. No.1519 & 1637/Mum/2016 (a} Television segment comprises television content, airtime sales, dubbing services and the television channel broadcast business: (b) Movies segment comprises the film production, distribution and syndication business; (c) Games and Interactive segment comprise the online, consul, mobile gaming business and the web & mobile business; In light of the above, since the services as provided by UTV Software Communications Limited under the said segment are similar to the activities undertaken by the STAR Group entities, we request your Honor to accept the contention of the Assessee and reinstate the comparable company for the purpose of determining the arm's length price of the subject international transaction. • Raj Television Limited The learned TPO has rejected the company stating it has consistently incurred losses. In doing so, the learned TPO has overlooked the fact that Raj Television has earned an operating margin of 1.04% during FY 2008-09, which has been considered by the learned TPO's predecessor in the transfer pricing order passed in the case of the STAR Group entities for AY 2009-10 , In this regard, it is humbly submitted that the Assesses has also applied a similar filler in its TP study for the purpose of selection of comparables, wherein any company incurring losses for 3 consecutive years (including the year under consideration) has been rejected on account of persistent operating losses. This position adopted by the Assessee is consistent with the position adopted in the previous assessment years also, which was accepted by the learned TPO. In this regard. It is submitted that the term 'consistent‘ in common parlance is understood to mean 'over a long period of time'. A company which is incurring losses consistently over a period of time (such as 3 consecutive years) can be considered to have abnormal operations, which is against the industry trend and hence it is appropriate to reject such companies. However, rejection of a company on the basis that it has incurred loss in less than 3 consecutive years would tantamount to rejection solely on account of incurring losses as against rejection on account of incurring consistent losses. Further, it is submitted that the industry trend is understood as the movement of the industry as a whole (i.e. including companies that are performing well as well as performing poorly). The trend in the revenues and profits of companies indicates that the risks of an industry are due to multiple business factors. The media industry growth in India is not only due to the existing companies but is also due to the new investments/companies being set up in the industry. If all the companies grow then the industry trend of media industry would have been abnormally high considering the approximate rate at which the top tier media companies are growing. The Act and the OECD Guidelines recognize the concept of considering the entire range of results and not rejecting the comparable companies who incur losses for the following reasons:

I.T.A. No.1519 & 1637/Mum/2016 • Proviso to sub-section (2) of section 92 of the Act provides that: "Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices...." The range of prices reflects a proper representation of the comparables functioning in the open market which are affected by market forces. If the industry includes loss making companies then the same should be included in the arm's length margin since it is nothing but as an actual representation of the prevailing market conditions in which the particular assessee is operating. Accordingly, when determining the average price/ margin of an industry, all companies in the industry (whether incurring losses or earning profits) which are comparable to the Assessee need to be considered so that the arithmetic mean is representative of the normal profits/losses earned by companies in that industry. The ALP cannot be tied to the arithmetic mean of the operating margins of only profitable comparable companies in any industry, when that industry contains some or many unprofitable companies that are equally comparable. Under the Act, the term 'income' includes profits as well as losses. Therefore, it would be prudent to consider both profit making as well as companies incurring losses as comparables as long as they satisfy the comparability criteria as specified under the Rules. Further, it weald be relevant to note that this selection criterion of rejecting companies incurring persistent operating losses is in contradiction to the learned TPO's position that data of only FY 2010- 11 should only be used for comparability analysis. Hence, the Assesses submits that rejection of a company on the basis that it has incurred losses for less than 3 consecutive prior years is not appropriate* Further, the very fact that these companies continue to operate indicates that they anticipate earning profits in future and that It is only the inherent risk in the market that is driving such companies to diminishing revenues. In this regard, it would be relevant to note that the Hyderabad Tribunal in the case of Brigade Global Services Limited (ITA No. 1494/Hyd/2010 & has held that a comparable company can only be rejected in case it has persistently incurred losses (for three years). This can be concluded from the fact that in connection to Vans information Limited and Suprawin Technologies Ltd which were considered as comparables by Brigade Global Services Limited, it was submitted by the DR that the companies were suffering losses continuously for three years. The Tribunal directed the exclusion of these companies as comparables on the ground that these companies had continuous loss year by year. can be concluded from the above judgement, that a company can be excluded as comparable if there is continuous loss year by year for 3 years consecutive years.

I.T.A. No.1519 & 1637/Mum/2016 The above principle has also been enunciated in the following case laws: • Goldman Sachs (India) Securities Private Limited vs ACIT (ITA No. 7724/Mum/2011) • Vodafone India Services (P) Ltd vs DC1T (ITA No. 7140/Mum/2012 & » Welspun Zucchi Textiles Ltd vs ACIT (ITA No. 587/Mum/2013} • Cummins Turbo Technologies Ltd vs DDIT (ITA No. 118/PN/2011) In addition to the above, it is relevant to note that the Assessee and Raj Television operate in the media Industry, where the profitability is linked to the viewership which could fluctuate thus resulting in a volatile profitability on a year-on-year basis. Accordingly, just because a company suffers losses in certain years, it cannot be considered to be consistently loss making. Thus, the industry in which a particular company operates shall also be given due consideration. Accordingly, it is prayed that the submission made by the Assessee should be accepted and Raj Television Limited dropped by the learned TPO be directed to be reinstated / accepted. iii. Ibn 18 Broadcast Limited The learned TPO rejected Ibn 18 Broadcast Ltd on the grounds of the company being a consistently loss making company. Further, the learned TPO has also stated that the company has accumulated lasses of Rs 2,28,35,92,931/~ as on 31st March 2011. In this regard, we wish to submit that the contention of the learned TPO that the company is a consistently loss making company is not appropriate. The TPO has considered the fact that the company has been toss making in the previous two years i.e. FY 2008-09 and FY 2009-10 and has categorised the company to be a persistent loss maker. However, we wish to bring it to your Honour's notice the fact that in the year under consideration i.e. FY 2010-11, the company has made a profit of 4.33%. Further, on the basis of the arguments raised by us in connection with the rejection of Raj Television Ltd, it can be concluded that a company is a consistent loss maker only if it has incurred a loss for consecutive 3 previous years including the year under consideration. Thus, given the fact that the company has a profit in the concerned year and has not been incurring losses for 3 consecutive years, it is not appropriate for the learned TPO to consider it as a consistent loss maker. The learned TPO has also stated that the company has accumulated losses as on March 2011. In this regard, we wish to submit that a company can be categorised as a persistent loss maker if it has been incurring operating losses continuously year on year. A company cannot be a consistent loss maker merely on the basis of the fact that a company has accumulated losses. Accumulated losses do not impact the operating results of the company. A company, which has negative operating results continuously years on year, is a persistent loss making company. Further, we wish to submit that for the benchmarking of a transaction using TNMM method, the Assessee used the operating profit as a profit level indicator. The accumulated losses of the comparable company Page | 24 & 1637/Mum/2016 are not relevant, as it does not impact the operating results of a company. Hence the learned TPO has erred in considering the accumulated losses while only the operating profit of the company is relevant for determining its comparability. Further, it would be relevant to note that this selection criterion of rejecting companies incurring persistent operating losses based on data of FY 2008-09 and FY 2009-10 is in contradiction to the learned TPO's position that data of only FY 2010-11 should only be used for comparability analysis. We humbly request Your Honors to consider the above contentions of the Assessee and accordingly include Ibn 18 Broadcast Ltd in the list of comparable companies. 21 In view of the above submissions, it is respectfully submitted that the learned TPO be directed to compute the comparable profit margin after including the above three .functionally comparable companies selected by STAR Group Entities 22 Further, we have to submit before Your Honours that for AY 2007-08, the learned TPO had accepted the entire comparable set considered by the STAR Group Entities in its Transfer Pricing Study. However, in AY 2011-12, the learned TPO rejected, UTV Software Communications Limited, Ibn 18 Broadcast Limited and Raj Television Limited on the ground that the comparables are loss making or are non-comparable to the STAR Group Entities. Thus, it is submitted that the learned TPO has adopted a pick and choose approach in respect of selection of comparables for AY 2011-12, which is not in accordance with the law. It is submitted that the action of the learned TPO in rejecting the above three comparables for AY 2011-12 is not in line with the 'principle of consistency', 23 In this connection, the Assessee humbly submits that 'consistency' is generally considered as the hallmark of law and justice, and the taxpayers are thus entitled to organize their affairs in a manner they perceive to have been accepted by the authorities over a period of time. If the learned authorities under the Act wish to take a different view for the two periods in question from the periods proceeding thereto and following thereafter, adequate justification regarding the same should be provided to the taxpayer. 24 In this regard, we invite Your Honour's attention to the following decisions: * Radhasoami Satsang vs. CIT 193 ITR 321 (SC) "Each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspects permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year,"

* Bharat Sanchar Nigam Ltd Vs Union of India (2006) (3 SCC 1) (SC) "Res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of & 1637/Mum/2016 action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to be the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or precedential value of the earlier pronouncement. Where the facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view." 25 Given the above principles laid down by the Supreme Court, the Assessee humbly submits that the approach adopted by the learned TPO during the previous years alongwith a set of comparable companies applied in the case of the Assessee in the preceding year should be applied even in the year under consideration on the basis of the facts remaining the same. This is without prejudice to the grounds of appeal raised by the Assessee during A Y 2007-08.

26. Further, reliance is also placed on the following judgements establishing that if the facts remain constant, a contrary view cannot be adopted for the year under consideration as against the year for which the order has been passed; * ACIT Vs NGC Network (India) Pvt. Ltd (Mum Tribunal) "These comparables and the method of computation of arms length price has been accepted by the department In the subsequent assessment year i.e. 2004-05. Therefore in our view comparables selected by the assesses have to be adopted for the purpose of computation of transfer pricing adjustments this year also." Thus, this shows that if the learned TPO has used a comparable set in a subsequent year for the purpose of benchmarking the transaction similar to one in a preceding year, so long as the fact pattern and the FAR remains the same, the same set of comparables should be used. * Sony India Pvt Ltd Vs ACIT (Delhi Tribunal) "We further find that the Tribunal reiterated the same order in assessment years 2003-04 and 2004-05, The order, reproduced above, deals with the controversy at length. These preceding orders are in the nature of binding precedent for us and even for the ld. CIT(A).‖ Birlasoft (India) ltd Vs DCIT (Delhi Tribunal) "In the present order passed by the TPO, he has not given any reason to deviate from the method accepted by him in the immediately preceding assessment year, in the course of hearing of this appeal, the learned DR has also not been able to point out any reason for such deviation except contending that the segmental result submitted by the assessee by making in internal comparables was not reliable as the assessee has not maintained separate account of each segmental. We have already held above that in terms of AS-17, the assessee was not required to maintain separately segmental account inasmuch as the nature of services and product in respect of transactions undertaken with related parties and unrelated parties are same and identical. Therefore, to maintain consistency, the Transfer Pricing Officer should have adopted the method of internal bench marking for determining I.T.A. No.1519 & 1637/Mum/2016 the arm's length price of the transaction entered into with the related parties as so done by him in the immediately preceding assessment year 2005-06." *Brintons Carpets Asia (P) ltd Vs DCIT (139 TTJ 177} (Pune) "Regarding the 'rule of consistency‘ and the relevant decisions on the topic, we have examined the facts for the assessment years 2006-07 and 2007-08. So far as the external comparables, turn over details of export and domestic segments and other relevant facts are concerned, we find similarity of the facts between both the years. The argument of the assessee is that the external comparable prices for the impugned assessment year 2006-07 supplied by the assessee, when accepted by the Assessing Officer for the assessment year 2007-08, must be accepted for that year in view of the absence of material facts and also in view of the rule of consistency. We have considered this argument and in our opinion, it is a settled law that the principle of res judicaia is inapplicable to Income-tax matters. However, the same is true as long as the facts of different in different assessment years. Otherwise, the rule of consistency is relevant to Income-tax matters and Assessing Officer cannot be ignore the same. There ought to be uniformity in treatment and consistency when the facts and circumstances are identical as held by the Mumbai Tribunal in Gopal Purohit v. Jt. CIT (2009] 122 TTJ 87/29 SOT 117." • Kuehne Nagel Private Limited vs. ACTT (ITA No. 5648/Del/2010) "4.34. The Department has accepted assesses working of international transactions at an arms length for assessment years A Y 2003-04, A Y 2004-05 and A Y 2005-06 and also the next two assessment years AY 2007-08 and AY 2008-09. Therefore, a different treatment can not be given to assessee's international transactions for the assessment year under appeal under the well accepted principles of rule of consistency as propounded by Hon'ble Supreme court judgement in the case of Radhasoami Satsang 82 ITR ..., The nature of the assesses international transactions being same for the last six years an unjustified approach adopted by TPO/DRP is unsustainable" 27 Without prejudice to the above objections, it is also submitted that it is a settled position in law that when the extreme loss making companies are excluded, at the same time even, the extreme profit making companies are also to be excluded. For this proposition, the Assessee relies on the following case laws: • DCIT vs. Quark Systems Private Limited {Chandigarh} (SB) (38 SOT 207} "Even if the taxpayer or its counsel had taken Datamatics as comparable in its T. P. Audit, the taxpayer is entitled to point out to the Tribunal that above enterprise has wrongly been taken as comparable. In fact there are vast differences between tested party and the Datamatics. The case of Datamatics is like that of "imercius Technologies" representing extreme positions. If Imercius Technologies has suffered heavy losses and, therefore, it is not treated as comparable by the tax authorities, they also have to consider that the Datamatics has earned extraordinary profit and has a huge turnover, besides differences in assets and other characteristics referred to by Shri Aggarwal " * SAP Labs India Private Limited (2010 –TII-44-ITAT-Bang-TP) & 1637/Mum/2016 "86. At the cost of repetition, we have to say that extreme cases should not be included in samples and extreme comparables mean not only the positive higher side but also the lower side. In the list of 22 comparables, many of them are having very low margin rate, not only less than 10 or 5, even below that. We have already considered that the agreement entered into by the assessee with its German associate concern has contemplated a compensation of cost plus 6 per cent, or 1.5 times of the total wages bill, whichever is higher. This point we have to consider in the light of the fact that the assessee is working in a risk mitigated environment. That is why we have agreed with the argument of the assesses-company that there may not be extreme profits in the case of the assessee. When extremes are excluded from the samples, all sorts of extremes should be avoided. Otherwise, samples selected for comparative study may not be representative. 28 in view of the above case laws, it is submitted that the action of the learned TPO in selecting the comparables which are earning a higher profitability margin, such as Malayalam Communications Limited, Zee Entertainment Enterprise etc and rejecting comparable companies which are incurring losses is not justified. 29 In view of the above, the learned TPO be directed to accept the comparable companies selected by the Assessee after excluding India Vision Satellite Communications Limited as the same is rightfully rejected by the learned TPO.‖ 5. The learned DRP after considering submissions of the assessee , issued directions dated 22.12.2015 u/s 144C(5) of the 1961 Act , with respect to comparables, by holding as under:

― 13. Discussions and Directions of DRP: Grounds 4 & 5 the objection challenge the rejection of certain comparables included by the assessee in its transfer pricing study. These comparables are discussed hereunder: — IBN18 Broadcast ltd. The TPO has rejected this comparable because it has been incurring losses in last two years and it has also incurred losses in the F.Y. under consideration. However, it is the claim of the assessee that the company has made a profit of 4.33% on its revenue in the Broadcasting and Content segment. The assessee has not submitted any working in support of claim. From the examination of annual report of the company we are unable to accept the claim of the assessee because income from operations reported by the company is Rs. 2,43,25,58,348/- whereas its production administrative and other cost is Rs, 1,69,72,26,570/- and personal expenses are Rs, 80,53,27,884/-. Other income of Rs. 9,51,3 9,418/- reported by the company is not at all related to the operations of the company, However, AO/TPO is directed to accept the company is a valid comparable if the assessee is able to demonstrate that the company has earned a profit in the F.Y. under consideration, UTV Software Communications ltd. The TPO has rejected this comparable because the company is not functionally comparable with the assessee whereas it is the claim of the assessee that it has considered accounts of only television & 1637/Mum/2016 segment of the company which is comparable to the business of the assessee. In this regard, it is seen from the page 50 of the annual report of the company that "Television segment involves four main functions (1) production of television content (2) airtime sales, which includes managing slots and selling commercial air time on other broadcasting networks, (3) dubbing; and (4) broadcasting of four speciality genre channels, UTV Action, UTV World Movies, UTV Movies and UTV Bindass distributed through out India and selected international markets". . Thus, the revenues of the television segment include the revenue from production of television content also. Clearly, the company cannot be said to be functionary comparable to the assessee. Therefore, rejection of this comparable by the TPO is upheld. Raj Television ltd. This comparable has been rejected by the TPO because the company has incurred losses in the F.Y. under consideration as well as in the previous financial year, thus, it was a persistent loss maker. The contention of the assessee is that it is not a persistent loss maker because it has reported profit in the year prior to the previous financial year. We have considered the contention of the assessee. We are in agreement with the finding of the TPO that the company is a persistent loss maker because it has reported loss in two consecutive years including the financial year under consideration. Rejection of this comparable by the TPO is, therefore, upheld.‖ 5.2 So far as applicability of Rule 10B(4) , the Ld. DRP issued directions by holding as under:-

―14.1 Discussions and directions of DRP: In sixth ground of objection the assessee has claimed that the TPO and the AO have erred in rejecting the compatibility analysis carried out by the assessee because the same was accepted in A.Y. 2007-08 and there was no change in facts or in the law in this year. We are unable to appreciate the objection raised by the assessee because the assessee has not demonstrated its claim with supporting evidences. Neither the transfer pricing study of A.Y, 2007-08 has been filed earlier year nor the orders of the AO and TPO of that year. In any case, every assessment year is a different assessment year and principles of res judicata do not apply to the income tax proceedings. Therefore, this ground of objection is rejected. 14.1.2 So far as seventh ground of objection regarding use of only current financial year's data by the TPO is concerned, in this regard it will be sufficient to point out that the TPO not only has the power but also bounden duty to determine ALP by using the current financial year data in the comparability analysis, even if such data was not available to the assessee in the public database at the time of preparation of transfer pricing report. In the case of CIT vs British Paints India Ltd reported in 188 ITR 44, it has been held that it is not only the right but the duty of the Assessing Officer, to act in exercise of his statutory power, for determining, what in his opinion, is the correct taxable income. The analysis of the assessee has been duly examined before arriving at an opinion regarding the study carried out by the assessee. The TPO has commented on the use of multiple year data. He has dealt with each of the comparable selected by the assessee Page | 29 & 1637/Mum/2016 and has pointed out the defects in it. In any case, the disputed comparables are being dealt with us subsequently. In view of the facts and details narrated in the order, it is clear that the assessee does not comply with the provisions of section 92C(3) of the Act. So far as the use of single year data is concerned, Rule 10B(4) very clearly states that the data of the comparable transactions should be the data pertaining to the financial year in which the taxpayer has entered into international transaction The word used is ―shall‖ and not ―may‖. It implies that neIther the tax payer nor the department has any choice regarding the use of relevant financial year data. 14.1.3 Further, proviso to Rule 10B(4} says that earlier period data may also be considered only if it reveals certain facts which have an influence on the determination of transfer prices in relation to the transactions being compared. This implies that earlier year data is in addition to the data pertaining to relevant financial year and moreover, earlier year data can be used only for taking a decision on how much the factors in earlier years have had an impact on the profit in the present year, either of the tax payer or of the comparable. Hence, when either the tax payer or the department takes earlier period data, onus is on the tax payer or department, respectively, to prove how the earlier years' conditions had an influence on the profit of the relevant financial year. 14.1.4 In this case, the tax payer has not given any details as to how earlier years' data has an impact on the profits in the current F.Y. 2010-11 of the tax payer or of the comparables and even if there is such an effect, it has to be quantified and adjustment has to be made to the profit margins of either the tax payer or comparables. Even a reference to the Revision of Chapter I, II and III of the Transfer Pricing Guidelines issued by the OECD indicates the caution that "use of multiple year data does not necessarily imply the use of multiple year averages." The OECD has laid downs clear guideline that use of multiple year data does not necessarily imply that multiple year averages be used for the purpose of benchmarking. As per well settled law, single year data has to be considered unless the assessee demonstrates that prior year's data has had an influence on the setting of transfer price of international transaction either at the time of setting of transfer price of international transaction either at the time of setting them or by way of adjusting them subsequent to entering into the international transaction to align them to the arm's length price. This Is a condition precedent for user of the multiple year financial data. Reliance is placed on various decisions in this regard including (i) AZTEC Software 107 ITD (AT) 141 (SB) (Bang), (it) Mentor Graphic 109 ITD 101 (Del) and (iii) Honeywell Ltd. 209-TI0L-104 (AT) (Pune). In view of the same, the assessee's contention is rejected. It may be mentioned that the issue is also covered against the assessee by the judgement delivered by the Hon'ble High Delhi in the case of Chryscapital Investment Advisors (India) Pvt. Ltd. in ITA NO 417/2014.‖ The DRP has also confirmed application of arm length profit @28% on assessee‟s transactions with non AE based on the decision of learned DRP for earlier years. The AO after considering the directions of DRP u/s. 144C(5) dated 22.12.2015, passed assessment order I.T.A. No.1519 & 1637/Mum/2016 dated 14.01.2016 u/s 144C(13) read with Section 143(3) of the 1961 Act.

I.T.A. No.1519 & 1637/Mum/2016

3. The DRP rejected all other objections of the Assessee and upheld the order of the Assessing Officer.

4. Accordingly, the Transfer Pricing Officer - 2(1)(1), Mumbai vide this office Setter dated 19.01.2016 was requested to give effect to the aforementioned DRP directions and forward the same to the undersigned. The TPO vide his letter dated 25/01/2016 submitted that as per the directions of the DRP, IBN 18 was accepted as a comparable For the AY 2011-12 and after recalculating the average operating margin as well as ALP, it was found that the operating margin of the assessee fell in the range of (+](-)5%. Hence, as per provisions of proviso to section 92C(2) of the Act, no adjustment was proposed by the TPO.‖ 6.2 The leaned senior counsel for assessee also drew our attention to the Balance Sheet of the IBN18 Broadcast Limited( TV18 Broadcast Ltd.) which is placed in paper book at age 1-129, and it was submitted that perusal of the aforesaid Balance Sheet will show that it is not a persistent loss making company , as this company has made operating profits during the year under consideration . Our attention was also drawn to page no. 401 and 403/paper book filed with tribunal, wherein it was submitted that the assessee duly submitted before learned DCIT vide rectification application dated 04.03.2016 filed with department, that the said IBN18 Broadcast Ltd. (TV18 Broadcast Ltd.), had OP/Sales(PLI) of 4.33% which was accepted by the AO/DRP in the case of group company viz. Star Limited. It was submitted that there was a operating profit earned by IBN18 Broadcast Limited in this segment during the year under consideration, otherwise at overall level there was a loss in three years. Similar contentions were raised for inclusion of Raj TV as comparable while computing ALP. So far as second issue , it was submitted that Rule 10 of the 1962 Rules was applied by the authorities below and arm length profit was applied @28% on non AE transactions entered into by the assessee. The assessee drew our attention to order dated 02.02.2016 passed by tribunal for AY 2007-08 in in the case of group company viz. Star Limited which is placed in the legal paper book. Our attention was drawn to conclusions arrived at by tribunal at para. 20-23 of the said order placed in the legal paper book wherein the tribunal ordered for deletion of adjustment to profit by applying a profit rate of 28% to its transactions with non-AE‟s, in the case of the aforesaid order of Star Limited, which is reproduced here under:-

I.T.A. No.1519 & 1637/Mum/2016 “20. We have considered the rival contentions raised by the parties, perused the relevant finding given in the impugned order and material placed on record. We have already discussed succinctly the relevant facts and the background of the case. The whole issue boils down to the manner in which Profits Split Method (PSM) is to be applied. STAR Ltd and Star Channel companies derive revenues from the distribution of T. V. Channels and sale of advertisement time to be aired on these channels. The role and functions performed by these companies have been elaborated in the earlier part of the order. All the transactions leading to the earning of various streams of revenues are amongst the entities only and are highly integrated. That is why, there is no dispute between the Revenue and the assessee that the Most Appropriate Method (MAM) for benchmarking the profits of the entities is PSM and the allocation of the combined net profit amongst the entities have been apportioned on the basis of their role and functions performed, risks assumed and assets deployed and all the companies are taxable at the same rate. Not only that, the combined net profit determined under the PSM has been arrived at 14.04% which has been accepted to be at Arm’s Length by the TPO in the reference made under section 92(CA). Thereafter, the assessee has made suo moto disallowance under section 40(a)(i) in the return of income with regard to the payment made to the third party on account of expenditure related to content source from foreign suppliers; payments to third parties for hire transponder and payments for up- linking / maintenance of equipments and lastly, by disallowance of interest expenses. Such disallowances had led to upliftment of profit rate of 27.18%. Thus, the taxable income was shown @ 27.18% which has been apportioned amongst entities as per the percentage which has been incorporated in the foregoing paragraphs. The first and foremost issue is, whether the DRP was justified in segregating the revenues from non-AE and directed the AO to tax separately @ 28% by applying Rule 10 of the Income-tax Rules. Further, whether the disallowance under section 40(a)(i) is required to be made on account of various payments which either were already offered by the assessee or were part of combined profit determined on account of transactions of the entities and whether such a disallowance has led to multifold or double disallowances.

21. The Profit Split Method (PSM) is applied where operations of the related parties are highly integrated making the evaluation on individual basis is very difficult and all the parties owned valuable non-routine intangible assets for which no comparable data could be available and thereby making it impossible to apply other methods, which are based on establishing high degree of comparability with uncontrolled comparables. PSM is generally applied in cases involving multiple transactions amongst associated enterprises (AEs) which are so inter-related and closely linked or continuous that they cannot be evaluated on separate basis for the purpose of determining Arm’s Length Price of any transaction. Rule 10B(1)(d) of the Income-tax Rules prescribes the method to be applied in the following manner:-

I.T.A. No.1519 & 1637/Mum/2016 “(d) profit split method, which may be applicable mainly in international transactions involving transfer of unique intangibles or in multiple international transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction, by which— (i) the combined net profit of the associated enterprises arising from the international transaction in which they are engaged, is determined; (ii) the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable external market data which indicates how such contribution would be evaluated by unrelated enterprises performing comparable functions in similar circumstances; (iii) the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii); (iv) the profit thus apportioned to the assessee is taken into account to arrive at an arm's length price in relation to the international transaction: Provided that the combined net profit referred to in sub- clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual and profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction”. From the plain reading of the above method, it is evident that, first step is to identify the combined net profit of the AE arising from the international transactions, in which they are engaged. Such a combined net profit is determined by taking into account all the transactions undertaken by all the AEs. In the second step, the relative contribution made by each of the entities which have contributed to the earning of such combined net profit is evaluated on FAR analysis of each entity and based on that, it is seen how such contribution should be evaluated by unrelated enterprise performing functions in similar circumstances; thirdly, the combined net profit is split between the related enterprise on the basis of any proportion to their & 1637/Mum/2016 related contribution which has been evaluated after carrying out FAR analysis and lastly, the profit which has been apportioned to the assessee is taken into account to arrive at Arm’s Length Price analysis to the international transactions. The object of detailed functional analysis in such a method is to assess the related contribution and risk taken by each party and thereby assigned income accordingly.

22. Here in this case, so far as FAR analysis of relative contribution made by each of the entities and apportionment of combined net profit based on evaluation of their contribution is concerned, same is not in dispute. First of all, for determination of combined profit, net revenues from all the transaction relating to generation of revenues are to be taken into account. Here in this case, it has been contended that all the revenue streams have been from inter-se transactions arising from the functions performed amongst the AEs only. Even the generation of ad revenues is purely from the sale of airtime in Channel companies. Thus, the ad revenue is arising from the integrated activities only. After taking the combined net profit of the group as a whole from all the international transactions, the combined net profit has been taken. Thereafter, the effects of inter-company double accounting of revenue streams are eliminated so that the correct third party revenue is arrived at for the purpose of benchmarking the profitability. It also ensures that inter-company costs, profits or losses are eliminated and correct quantum of profit based on third party revenue and costs can be arrived at. If such an exercise is not done then a situation would arise whether among the transactions between the related entities true and correct picture of the profits can be determined and whether they are at Arm’s Length Price will always be a subject matter of suspicion. Here in this case, what the AO has done is that, firstly, he has taken the combined net profit of 27.18% for whole of the transactions and thereafter, he has segregated the so called non-AE revenue and thereby applying the profit @ 28% on such revenues separately. Such an approach, in our opinion is untenable; firstly, there is no separate source or stream of revenue from Non-AE transaction; secondly, the combined profit has been determined by taking the gross revenues from all the streams by each of the entities and all the costs i.e. gross expenses has been worked out and deducted. The resultant profit percentage of 14.04% has been arrived from the revenues from all the streams are as under:- Particulars Amount in INR Particulars Amount in INR Advertisement revenue 10,147,277,000 Distribution revenues 2,496,481,000 Syndication revenues 60,534,958 Total India revenues 12,704,292,958 Profitability percentage (determined 14.04% separately Arm’s length taxable profits 1,783,683,000 The above income has been then allocated amongst the various entities after considering further disallowances offered by assessee; Thirdly, the evaluation of contribution made by AEs has been done on FAR analysis on the basis of external factors and data, because based on such evaluation by & 1637/Mum/2016 unrelated enterprise performing comparable functions has been benchmarked to arrive at the ALP; and lastly, once the assessee has taken all the revenues and factored all the costs to arrive at combined net profit then it is not permitted to segregate part of the revenue and tax it again by applying profit rate of 28%. Such an exercise will only lead to double disallowance. Thus, action of the AO in pursuance of the direction given by the DRP is rejected. Further, we also do not agree with the revenue that, non-AE transactions needs to be determined under Rule 10, because once such an international transactions are covered under section 92 then there is no need for separate determination of income when all the revenues have been taken for the determination for ALP. Under section 92C(2), the manner prescribed is under Rule 10B and not Rule 10. Otherwise also, Rule 10 is applicable only when the actual amount of the income accrued or arising to a non-resident cannot be definitely ascertained, which here in this case is not the case of the revenue that, the income of the assessee cannot be determined.

23. Here, in this case, the DRP has accepted the PSM for 80% of the ad- revenue in PSM Pool, therefore, it would not be proper that for the balance, a separate determination of profit is required and that to be at a higher profit rate of 28%. Once the combined net profit has been arrived at by taking into account all the transactions of AE as well as non-AE which is factored into all the costs and revenue then to separate out non-AE transaction over and above such a profit determined is not desirable. Thus, we hold that any income if at all from non-AE cannot be taxed separately by applying net profit rate of 28%, because it has already included in the combined profit of entire international transaction of the entities and have already been taxed on the profit rate of 27.18%. Thus, the addition of Rs.118,59,30,000/- cannot be separately made and we direct to delete the addition.” 6.3 Our attention was also drawn by learned Senior Counsel for the assessee to order dated 16.09.2016 passed by tribunal in assessee‟s own case in ITA No. 7679/Mum/2012 for AY 2008-09, which is reproduced as here under:-

―4. Ground No.5 to 9 relate to determination of higher profitability for advertisement receipts received by STAR Ltd. on the ground that it was a Non-Associated Enterprise (Non-AE) receipt, hence, outside PSM. 4.1 We have heard the rival contention and found that the TPO on the basis of directions of the DRP, while passing the final assessment order, did not apply Rule 10(i) in case of assessee for A.Y.2007-08 as all the revenues generated by the assessee during relevant year were from the transactions with AEs and the returned income of the assessee was accepted. 4.2 The DRP followed its order for assessment year 2007-08 on the reason of consistency. 4.3 Ld. AR for the assessee has submitted before us that the sale of advertisement airtime by STAR Ltd to AEs is an international transaction which is closely related to apply the PSM has not been disputed by the TPO/DRP. Therefore, advertisement revenues from Non-AEs could not be Page | 37 & 1637/Mum/2016 excluded from the computation of income under the PSM. The starting point of the PSM is to determine the combined net profit. This net profit finally represents the receipts from the third parties and Non-AEs as all inter- company transactions are eliminated/non-recognised. The PSM is to determine prior to its application whether international transactions are so inter-related that they can not be evaluated separately “see Rule 10B (1) (d)” of the Rules. Once it is accepted that the transaction is so interrelated, the combined net profit has to be determined of the group. The TPO has accepted and DRP has not disputed that the transaction in respect of advertisement revenue is to be included under PSM. The DRP has however, only excluded one stream and that also in parts namely, receipts by STAR Ltd but not what has been received thereafter by the channel companies in respect of same advertisement stream from STAR Ltd. The TPO has totally approved the computation methodology of the PSM of benchmarking of transactions with AE including all inter-related international transactions relating to advertisement and distribution streams of income. The Assessee made full disclosure of the fact that its commercial uplifted profitability is 17.30% as per PSM which is as per section 92CA (4) of the Act. Once the TPO has accepted the methodology neither the AO nor the DRP can change the same in view of Section 92CA (4). The combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. The DRP`s reliance on Rule 10 of the Rules is contrary to the provisions of the Act and Law since if it is accepted that transactions are closely inter related then they must be included under PSM in accordance with the Act The arm`s length price determined by the TPO is 22.57% and considering the profits earned from Non-AE`s arbitrarily at 28%, is unjustified as there can not be such variation between profit from transactions with AEs and transactions with Non-AEs. If it is a Non-AE transaction then the question of estimation cannot arise. The assessee also relied on the decision in the case of Globe One India Pvt Ltd. 44 Taxmann.com 100 ( ITAT Del). 4.4 On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand of the DRP/TPO,which we have already noted in earlier paras and is not being repeated for the sake of brevity. 4.5 We have heard the rival parties at length and considered the same carefully. We noticed merit in the submissions of the Ld. AR for the assessee, as the combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. We therefore set aside the orders of lower authorities on this issue and restored the same back to AO/TPO for deciding afresh in terms of our above discussion. 4.6 In the result, the ground taken by the assessee is allowed for statistical purposes.

I.T.A. No.1519 & 1637/Mum/2016 4.7 The same and identical issue are involved in ground no. 6 of ITA no. 7681/M/12 , ITA no. 7683/M/12 , ITA no. 7684/M/12, and ITA no. 7679/m/12, all pertaining to AY 2008-09, therefore, following our above contention the appeals filed by the assessee on this ground, are allowed for statistical purposes.” 6.4 It was also submitted by learned counsel for assessee that for AY 2011- 12 , the assessee had computed ALP @ 15.81% by following Profit Split Method and to compute profit arising out of transactions with non AE @ 28% is not justified as it defies all logics. It was submitted that no benchmarking is to be separately done for non-AE transactions as based on law and facts, it is illegal to compute ALP in the case of non AE. Our attention was also drawn to para 4.5 of tribunal order for AY 2007-08 and it was submitted that Rule 10 is not applicable in the instant case. It was submitted that assessees case will fall within limit of (+)(-)5% if the comparables namely IBN18 and Raj TV are included and hence no TP adjustments are required , in case aforesaid contentions of the assessee stood accepted by Bench . It was also submitted that with respect to other appeal in ITA no. 1637/Mum/2016 for AY 2011-12 in the case of Star International Movies Limited, facts are similar to appeal in and similar contentions shall apply .

6.5 The Ld. DR on the other hand submitted that the issue be decided on merits in accordance with law and the learned DR would place reliance on orders/directions passed by the authorities.

7.5 The assessee has transaction with its associated entities(AE‟s) within Star Group which were reported in Form No. 3CEB but later revised Form No. 3CEB was submitted by assessee, as detailed hereunder vide Revised Form No. 3CEB :-

Sr Nature of Transaction AE Amount in revised Method No. From 3CEB 1 Procurement of content Star India Pvt. INR 315,868,823 TNMM Ltd., 2 INR 16,401,447 TNMM Grant of franchise rights Star India Pvt. Ltd. 3 INR 234,199,645 TNMM Grant of license for Star Den Media distribution of channels Services Pvt. Ltd. 4 USD 416,845 TNMM Star Ltd. Availing of management services 5 USD 2,662,619 TNMM Star Ltd Availing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channel of the Assessee & 1637/Mum/2016 6 INR 242,044 CUP Sale of advertisement Star India Pvt. spots Ltd. and Star CJ 7 INR 1,461, 153 CUP Purchase of Star India Pvt. Ltd. advertisement spots This amount also includes fees received by the Assessee for providing services in connection with sale of advertisement airtime, distribution of channels and syndication of content, including services relating to pre-production, post production, playout, uplinking and transmission of the channels owned by the associated enterprises.

7.6 The assessee had benchmarked its international transactions entered into with its associated enterprises situated in India (Indian AE‟s) using the Indian AEs as tested parties. The transfer pricing analysis was done under Profit Split Method and TNMM with reference to the revenue generated from India. Out of the above said international transactions mentioned above, the TPO observed that transactions at nos. 1, 2,3, 6 and 7 are mirror transactions with Indian AEs and the same had been discussed in TP assessment of those Indian AEs by TPO-4(1), Mumbai. The TPO observed that transactions related to nos. 4 and 5 are covered under PSM method adopted by the assessee. The TPO observed that assessee has adopted Profit Split Method to be the most appropriate method(MAM) and consolidated global profitability of channel companies were applied to the India revenues generated by the Channel Companies for the 12 month period from 1st April 2010 to 31st March 2011. 7.7 The assessee has not maintained India specific financial statements. The overall profit rate of 15.81% percent (profit as percentage of income) was computed attributable to assessee based on contribution made by assessee to group activities . While computing profitability by adopting PSM method, all intra group transactions were eliminated. A detailed computation as furnished by assessee is reproduced as under:-

I.T.A. No.1519 & 1637/Mum/2016 Notes:

1. 1. In the case of STEL and SAML, the global advertisement, distribution and syndication revenues for the period April 1, 2010 to May 31, 2010 have been considered.

2. In the case of SIML and V Partnership, India advertisement, distribution and syndication revenues for the period April 1, 2010 to September 30, 2010 have been considered.

3. In the case of SAR the global advertisement, distribution and syndication revenues for the month of April 2010 have been considered. 7.8 The assessee had claimed that average margin of the comparable was 8.47% based on weighted average for earlier years while based on the & 1637/Mum/2016 financials for the year under consideration , the arithmetic mean of comparables was computed @ 12.87% , which is as under:-

7.9 The TPO after going through the annual reports of the comparables rejected four comparables out of nine comparables submitted by assessee, by observing as under:-  ―UTV Software Communications Ltd: The standalone financials of the company show (Schedule 21(h)-Revenue Recognition) that the company is also into the business of animation programming, dubbing and home video sales on delivery basis. These revenue streams are different from that of the assesse. Hence, this is not a fit comparable.  Ibn 18 Broadcast Ltd: It is a consistent loss making entity with total accumulated losses of Rs. 2,283,592,931 as on 31st March 2011  India Vision Satellite Communication Ltd: Then company does not pass the RPT Filter as out of total income of Rs.3,13,69,230, the auditor's report state that Rs. 1,48,80,000 is from a foreign company in DUBAl, United Arab Emirates. Viz. India vision International FZ LLC. The assesss holds 51% shareholding in it as per memorandum of association of the said LLC company.  Raj Television: The annual accounts of the company The TPO accepted rest of the five comparables and margin on revenue was computed @21.26% (PLI), as detailed hereunder: & 1637/Mum/2016 7.10 The assessee is aggrived by exclusion of IBN18 Broadcast and Raj Television Limited before us. 7.11 The AO while framing draft assessment order also observed that methodology adopted by assessee i.e. considering the profitability based on the audited global financial statements is not in accordance with provisions of the 1961 Act read with Income-tax Rules, 1962. The AO rejected said methodology and proceeded to compute income as per provisions of the 1961 Act read with 1962 Rules. The AO keeping in view transfer pricing provisions of the 1961 Act accepted the additions as were made by TPO so far as its international transactions with Indian AE‟s are concerned. 7.12 With respect to transactions with non AE‟s it was observed by the AO that the assessee has not maintained India specific books of accounts , the AO proceeded to compute Arms length profitability separately. The AO followed the directions of the learned DRP for AY 2007-08 in assessee‟s own case to compute arms length price of 28% as reasonable in respect of transactions entered into by Star Group with non AE‟s. This is the second grievance of the assessee before us as to application of profitability rate of 28% to transactions of the assessee with its non-AE‟s. The impugned assessment year under consideration is AY 2011-12, while for preceding years , the AO observed that profitability was determined by Revenue in case of Star Group for the preceding years as provided below:

AY In respect of transactions In respect of transactions with with Associated Enterprises non-Associated Enterprises 2007-08 27.18% 28% & 1637/Mum/2016 2008-09 22.57% 28% 2009-10 13.54% 28% 2010-11 21.26% 28% 7.13 The AO had observed that the Star Group has offered for taxation income pertaining to entire India specific Revenues( from AE and non AE‟s) by applying the arms length profitability rate of 15.81%. The AO followed directions of learned DRP for AY 2007-08 and held that so far as transactions of the assessee with AE is concerned directions of the TPO are binding , but for transaction of the assessee with non AE‟s , Rule 10(i) of the 1962 Rules is applicable and as details of India specific were not forthcoming from assessee, the AO computed income @28% for taxing its transactions with non-AE. The AO adopted profitability of 28% for non-AE receipts while profitability rate of 21.26% was determined and applied by AO in respect of business income( Advertisement and distribution income) with reference to its international transactions with AE‟s. 7.13 The AO observed that the assessee has provided following details of its total Revenue with AE‟s and non AE‟s during AY 2011-12, as under: (In Rs.)

Streams of Total Revenues Revenue from the Revenue from the Revenues from India/India AE‟s Non AE‟s operations Advertisement 17,21,51,260 2,42,044 17,19,09,216 Distribution 11,78,60,320 11,78,60,320 - Franchise Fee 1,64,01,447 1,64,01,447 - TOTAL 30,64,13,027 13,45,03,811 17,19,09,216 7.14. The assessee being aggrieved by draft assessment order dated 25.03.2015 passed by the AO u/s 144C(1) read with Section 143(3) of the 1961 Act, filed objection with learned DRP which were overruled by learned DRP and order of learned DRP is reproduced by us in preceding para‟s of this order and is not repeated here. The learned DRP, however, directed for inclusion of IBN18 as comparable provided assessee is able to demonstrate & 1637/Mum/2016 that it has earned profits during the year under consideration. The DRP had also confirmed application of arm length profit @28% on assessee‟s transactions with non AE based on the decision of learned DRP for earlier years. The AO after considering the directions of DRP u/s. 144C(5) dated 22.12.2015, passed assessment order dated 14.01.2016 u/s 144C(13) read with Section 143(3) of the 1961 Act. 7.15 The assessee is now before the tribunal being aggrieved by an assessment framed as aforesaid by the AO. The learned counsel for the assessee has prayed for dismissal of ground number 1-4 ,6,8-17 raised by the assessee in memo of appeal filed with tribunal as not being pressed. The learned DR did not objected for dismissal of the aforesaid grounds. After hearing both the parties, we hereby dismiss ground number 1-4,6,8-17 raised by assessee in memo of appeal filed with tribunal, as not being pressed. 7.16 The two main grievances of the assessee are firstly as to non inclusion of two comparables namely IBN18 Broadcast Limited and also Raj Television Limited and second grievance is applying profitability of 28% on transactions of the assessee with its non-AE‟s. 7.17 Firstly with respect of non inclusion of IBN18 Braodcast Limited, we have observed that the Revenue while framing assessment order in the case of Star Ltd. ( Fox International Channels Asia Pacific Limited) , dated 29.01.2016 passed u/s. 144C(13) r.w.s. 143(3) of the 1961 Act for AY 2011- 12 which is placed on record that DRP directed AO in this case to accept IBN18 Broadcast Ltd if the said tax-payer is able to demonstrate that the said company has earned a profit for F.Y. under consideration, which was accepted by AO while framing aforesaid assessment order dated 29.01.2016 passed u/s 143(3) read with Section 144C(13) of the 1961 Act based on TPO agreeing that this comparable is to be included while computing ALP as IBN18 Braodcast Limited is not a persistent loss making company. We have observed that wherein in vide said assessment order dated 29.01.2016 in the case of Star Limited, the AO accepted the directions of DRP , by holding as under:- ―2. The assessee approached the Dispute Resolution Panel-1, Mumbai (the DRP] by filing objections against & 1637/Mum/2016 the above draft assessment order. The DRP issued direction under 144C(5) of the Act vide its order dated 22.12.2015, received in this office on 30.12.2015, as under: **** 12. IBN 18 Broadcast Ltd. The TPO has rejected this comparable because It has been incurring losses in lost two years and it has also incurred losses in the F.Y. under consideration. However, it is the claim of the assessee that the company has made a profit of 4.33% on its revenue in the Broadcasting and Content segment. The assessee has not submitted any working in support of claim. From the examination of annual report of the company we are unable to accent the claim of the assessee because income from operations reported by the company is Rs.2,43,25,58,348/- whereas its production administrative and other cost is Rs. 1,69,72,26,570/- and personal expenses are Rs. 80,53,27,884/- Other income of Rs. 9,51,39,418/- reported by the company is not at all related to the operations of the company. However, AO/T'PO is directed to accept the company is a valid comparable if the assessee is able to demonstrate that the company has earned a profit in the F.Y. under consideration.

3. The DRP rejected all other objections of the Assessee and upheld the order of the Assessing Officer.

―Financial Results: The Financial Performance of your Company for the year ended March 31. 2011 is summarized below:

Particulars For the year ended 31 March 31* March 2011 2010 Total Income 4509.53 4617.68 Total Expenses 5105.72 5854.54 Operating Profit / (Loss) (EBIDTA) (596.19) (1236.86) Profit / (Loss) alter Depreciation and financial (996.84) (1621.57) charge Prior Period Adjustment 5.29 2.12 Profit/ (Loss) Before tax (1002.12) (1623.69) Provision for Taxation {net} (20.77) (46.12) Profit / (Loss) after Tax (981.35) (1577.58) Oper ations Review: The Company achieved revenue of Rs. 4509.53 Lakhs as agains! Rs.4617.68 lakhs in the previous year. Net loss after tax stood at Rs. 981.35 lakhs as compared to Loss after tax of Rs.1577.58 Lakhs in the previous year. The loss in current year was on account of low transaction volumes coupled with expenditure of exceptional nature, amounting to Rs.1629 Lakhs.‖ 7.19.2 The aforesaid financial results clearly reveals that the said comparable has incurred losses at operating levels but at the same time , it is mentioned in operations review that there are exceptional expenses to the tune of Rs. 1629 lacs incurred by said company Raj TV.The note number 15 at page 164/pb stipulate that this loss is due to expenditure of exceptional nature of Rs. 1628.79 lacs being recoverable from MSO operator and cable operators which led to operational loss. This losses/expenditure of Rs. 1628.79 lacs are considered by Raj TV itself to be „exceptional‟ in nature and these exceptional expenditure/losses need to be excluded while computing operating profits and PLI of Raj TV. The word exceptional means „unusual‟ , & 1637/Mum/2016 „abnormal‟ and „extraordinary‟. Thus, this company Raj TV cannot be excluded as it is not persistent loss making company because after the exclusion of exceptional losses , the said company Raj TV is in profits in the year under consideration while for immediately preceding year admittedly it was in losses. Thus, we direct inclusion of Raj TV after making adjustment of these exceptional expenses to the tune of Rs. 1628.79 lacs, wherein PLI is to be recomputed by AO/TPO. The AO/TPO are directed to include Raj TV as comparable after making adjustment for exceptional item of expenses to the tune of Rs. 1628.79 lacs.We order accordingly.

7.20 So far as second issue is concerned , it was submitted that Rule 10 of the 1962 Rules was applied by the authorities below and arm length profit was applied @28% on non AE transactions entered into by the assessee. The assessee had drawn our attention to order dated 02.02.2016 passed by Mumbai-tribunal for AY 2007-08 in in the case of group company viz. Star Limited, which order of the tribunal is placed in the legal paper book. We have observed that tribunal in its order at para 20-23 in the case of the aforesaid Star Limited, has held as hereunder:-

―20. We have considered the rival contentions raised by the parties, perused the relevant finding given in the impugned order and material placed on record. We have already discussed succinctly the relevant facts and the background of the case. The whole issue boils down to the manner in which Profits Split Method (PSM) is to be applied. STAR Ltd and Star Channel companies derive revenues from the distribution of T. V. Channels and sale of advertisement time to be aired on these channels. The role and functions performed by these companies have been elaborated in the earlier part of the order. All the transactions leading to the earning of various streams of revenues are amongst the entities only and are highly integrated. That is why, there is no dispute between the Revenue and the assessee that the Most Appropriate Method (MAM) for benchmarking the profits of the entities is PSM and the allocation of the combined net profit amongst the entities have been apportioned on the basis of their role and functions performed, risks assumed and assets deployed and all the companies are taxable at the same rate. Not only that, the combined net profit determined under the PSM has been arrived at 14.04% which has been accepted to be at Arm‘s Length by the TPO in the reference made under section 92(CA). Thereafter, the assessee has made suo moto disallowance under section 40(a)(i) in the return of income with regard to the payment made to the third party on account of expenditure related to content source from foreign suppliers; payments to third parties for hire transponder and payments for up-linking / maintenance of equipments and lastly, by disallowance of interest expenses. Such disallowances had led to upliftment of & 1637/Mum/2016 profit rate of 27.18%. Thus, the taxable income was shown @ 27.18% which has been apportioned amongst entities as per the percentage which has been incorporated in the foregoing paragraphs. The first and foremost issue is, whether the DRP was justified in segregating the revenues from non-AE and directed the AO to tax separately @ 28% by applying Rule 10 of the Income-tax Rules. Further, whether the disallowance under section 40(a)(i) is required to be made on account of various payments which either were already offered by the assessee or were part of combined profit determined on account of transactions of the entities and whether such a disallowance has led to multifold or double disallowances.

I.T.A. No.1519 & 1637/Mum/2016 ―4. Ground No.5 to 9 relate to determination of higher profitability for advertisement receipts received by STAR Ltd. on the ground that it was a Non-Associated Enterprise (Non-AE) receipt, hence, outside PSM. 4.1 We have heard the rival contention and found that the TPO on the basis of directions of the DRP, while passing the final assessment order, did not apply Rule 10(i) in case of assessee for A.Y.2007-08 as all the revenues generated by the assessee during relevant year were from the transactions with AEs and the returned income of the assessee was accepted. 4.2 The DRP followed its order for assessment year 2007-08 on the reason of consistency. 4.3 Ld. AR for the assessee has submitted before us that the sale of advertisement airtime by STAR Ltd to AEs is an international transaction which is closely related to apply the PSM has not been disputed by the TPO/DRP. Therefore, advertisement revenues from Non-AEs could not be excluded from the computation of income under the PSM. The starting point of the PSM is to determine the combined net profit. This net profit finally represents the receipts from the third parties and Non-AEs as all inter-company transactions are eliminated/non-recognised. The PSM is to determine prior to its application whether international transactions are so inter-related that they can not be evaluated separately ―see Rule 10B (1) (d)‖ of the Rules. Once it is accepted that the transaction is so interrelated, the combined net profit has to be determined of the group. The TPO has accepted and DRP has not disputed that the transaction in respect of advertisement revenue is to be included under PSM. The DRP has however, only excluded one stream and that also in parts namely, receipts by STAR Ltd but not what has been received thereafter by the channel companies in respect of same advertisement stream from STAR Ltd. The TPO has totally approved the computation methodology of the PSM of benchmarking of transactions with AE including all inter- related international transactions relating to advertisement and distribution streams of income. The Assessee made full disclosure of the fact that its commercial uplifted profitability is 17.30% as per PSM which is as per section 92CA (4) of the Act. Once the TPO has accepted the methodology neither the AO nor the DRP can change the same in view of Section 92CA (4). The combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. The DRP`s reliance on Rule 10 of the Rules is contrary to the provisions of the Act and Law since if it is accepted that transactions are closely inter related then they must be included under PSM in accordance with the Act The arm`s length price determined by the TPO is 22.57% and considering the profits earned from Non-AE`s arbitrarily at 28%, is unjustified as there can not be such variation between profit from transactions with AEs and transactions with Non- AEs. If it is a Non-AE transaction then the question of estimation cannot arise. The assessee also relied on the decision in the case of Globe One India Pvt Ltd. 44 Taxmann.com 100 ( ITAT Del). 4.4 On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand of the DRP/TPO,which we have already noted in earlier paras and is not being repeated for the sake of brevity.

I.T.A. No.1519 & 1637/Mum/2016 4.5 We have heard the rival parties at length and considered the same carefully. We noticed merit in the submissions of the Ld. AR for the assessee, as the combined net profit as per the PSM under Rule 10B (1) (d) at 17.30% has been found to be at arm`s length except for the exclusion of 3 companies for 10% turnover filter applied by the TPO. On the present facts, all the international transactions in respect of the advertisement and distribution stream cannot be separated. We therefore set aside the orders of lower authorities on this issue and restored the same back to AO/TPO for deciding afresh in terms of our above discussion. 4.6 In the result, the ground taken by the assessee is allowed for statistical purposes. 4.7 The same and identical issue are involved in ground no. 6 of ITA no. 7681/M/12 , ITA no. 7683/M/12 , ITA no. 7684/M/12, and ITA no. 7679/m/12, all pertaining to AY 2008-09, therefore, following our above contention the appeals filed by the assessee on this ground, are allowed for statistical purposes.‖ 7.20.3 Respectfully following aforesaid decisions of the ITAT in assessee‟s own case and keeping in view similar facts and circumstances for the year under consideration before us, we hold that no adjustment to income is required by computing ALP @28% on transactions of the assessee with non AE‟s. We order accordingly.

8.. This appeal of the assessee in AY 2011- 12 is partly allowed as indicated above. We order accordingly

9. Our above decision in AY 2011-12 shall apply mutatis mutandis to appeal in for AY 2011- 12 filed by Star International Movies Limited.This appeal is also partly allowed as indicated above. We order accordingly.