ITAT dismisses I-T dept's appeal in BBC India case of AY 2004-05

ITAT dismisses I-T dept's appeal in BBC India case of AY 2004-05

The Income Tax Appellate Tribunal (ITAT) has dismissed the revenue department's appeal in a transfer pricing case related to BBC World (India) Pvt Ltd for AY 2004-05. The Delhi bench of ITAT upheld the CIT(A)'s ruling that advertisement expenses between group entities should be treated as pass-through costs for AY 2004-05.

"The expenses relating to advertisement were on buying of advertisement space in the newspapers; that in such activities, the cost involved is too high and the effort required to buy such space is not much. On these reasonings, ld. CIT (A) held that they should be treated as a pass-through cost," the ITAT said in its order while dismissing the revenue department's appeal. Nangia Andersen India Partner – Transfer Pricing – Nitin Narang said the Delhi Tribunal, in a recent ruling in the case of BBC World (India) Pvt Ltd for AY 2004-05, agreed to consider expenses relating to the advertisement as pass-through cost and not to be considered as part of the cost base for the purpose of charging a mark-up. The issue of pass-through cost has been vexed, and there has been protracted litigation in relation to this.

The tribunal noted that the inter-company agreement was clear in terms of the activities on which the Indian entity is expected to provide the services to its associated enterprises. It further said that expenses relating to advertisement were on buying of advertisement space in the newspapers and that in such activities, the cost involved is too high and the effort required to buy such space is not much. "Thus, the Tribunal treated such costs as pass-through costs and that other than these all-other costs were considered as part of the cost base and be marked up. The ruling again emphasises the importance of robust backup documentation supporting the inter-company transactions," Narang said.