ITAT rejects the appeal of the I-T department in the BBC India case AY 2004–05

 ITAT rejects the appeal of the I-T department in the BBC India case AY 2004–05

The CIT(A)'s decision that advertising expenditures amongst group businesses for AY 2004–05 should be recognized as pass-through costs was maintained by the Delhi bench of the ITAT.

The revenue department's appeal in a transfer pricing matter involving BBC World (India) Pvt Ltd for AY 2004–05 has been denied by the Income Tax Appellate Tribunal (ITAT). The CIT(A)'s decision that advertising expenditures amongst group businesses for AY 2004–05 should be recognized as pass-through costs was maintained by the Delhi bench of the ITAT.

"The costs associated with advertising were spent on purchasing newspaper ad space; in these kinds of endeavors, the expenditure is excessive and the work needed to get such space is little. In its ruling, the ITAT denied the tax department's appeal and said that "ld. CIT (A) held that they should be treated as a pass-through cost." According to Nitin Narang, Partner at Nangia Andersen India for Transfer Pricing, the Delhi Tribunal recently ruled in the BBC World (India) Pvt Ltd case for AY 2004–05, agreeing to treat advertising costs as pass-through costs rather than part of the cost base for markup purposes. There has been a lot of litigation around the complex topic of pass-through costs.

The Indian corporation is required to deliver services to its linked firms on a clear and unambiguous basis, as highlighted by the tribunal, regarding the inter-company agreement. It went on to say that advertising costs were incurred by purchasing newspaper ad space, and that these kinds of activities come at an excessively high cost with little effort needed to get such space. Therefore, the Tribunal regarded these expenses as pass-through expenses, with the other expenses being regarded as part of the cost base and subject to markup. The decision highlights once again how crucial it is to have strong backup documentation for intercompany transactions, according to Narang.