NEW DELHI: In a setback to the tax department, the Income Tax Appellate Tribunal (ITAT) on Friday rejected the I-T department’s appeal in a case relating to transfer pricing adjustment against BBC India.
The Delhi ITAT upheld Commissioner of Income Tax (Appeals) treatment of expenses relating to advertisement as pass through cost in case of BBC World (India) for assessment year 2004-05. BBC India, a subsidiary of BBC Group, is engaged in provision of marketing support services and other miscellaneous services. For these, it is paid on a cost plus basis.
During AY 2004-05, BBC India incurred certain expenses relating to advertisement for buying of advertisement space in newspapers. For this, the cost involved was too high and the effort required to buy such space was not much. The budget related to the said expenses was controlled by the overseas group entities and that risk and reward of these expenses were borne by the overseas entities.
BBC India did not include such costs in its cost base for the purpose of charging a mark-up to overseas group entities, but took a cost-to-cost reimbursement of such expenses, as these were not incurred in relation to provision of services. I-T department considered such cost as part of the cost incurred towards provision of services, and included them for mark-up. Thus, the department proposed a transfer pricing adjustment, which was challenged by BBC India before the CIT(A).
Nitin Narang, Partner, Nangia Andersen India, said the ruling again emphasises the importance of robust back-up documentation supporting the inter-company transactions.