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TMI Blog2014 (2) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the reimbursement which was also covered under the markup – thus, TPO was right in adding a markup as not independent and prudent entrepreneur will provide any service free of cost – Decided against Assessee. Disallowance u/s 14A of the Act – Expenses incurred for earning dividend income – Held that:- The decision in Maxopp Investment Ltd. v. CIT [2011 (11) TMI 267 - Delhi High Court ] followed - the Rule 8D is applicable w.e.f. 1st April, 2007 and, therefore, the computation made by CIT(A) by applying Rule 8D for AY 2002-03 was not justified – order of the CIT(A) set aside – Decided in favour of Assessee. - ITA No.4727/Del/2009 - - - Dated:- 2-8-2013 - S.V. MEHROTRA AND DIVA SINGH , JJ. For the Appellant : Tarandeep Singh. For the Respondent : Peeyush Jain. ORDER:- PER : S.V. Mehrotra This appeal, filed by the assessee, is directed against the order dated 17/11/2009 of CIT(A)-XX, New Delhi for A.Y. 2002-03. 2. Brief facts of the case are that the assessee, a media company, had three distinct lines of business activities in the relevant assessment year, which were as under: (a) Preparing and selling contents to various TV channels including C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that assessee had earned an operating revenue of 8.07m as against the operating costs of Rs. 8.03m leaving a meager profit of Rs. 42,493/-. He noted that this low level of profitability was on account of heavy expenditure of Rs. 4.9m on advertising and marketing promotion. 4.1 The TPO examined the identical contract involving another TV Channel and unrelated media agency and noted that the same provided for 15% commission for procuring and soliciting advertisements. He further noted that the contract did not impose any obligation on the marketing agent to undertake marketing and promotion activity for the Channel. He observed that such advertisement is usually carried out under the distribution agreement where the earning of the distributor are directly dependent on the subscription fees received from cable operators. However, in marketing situation, the target audience of the marketing activity is not the general public but the potential clients, advertisers and ad agencies. Potential customers and ad agencies are sophisticated enough to understand the advertising and are not amenable to general advertising and marketing promotion carried out to promote the Channel. The TPO fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of independent marketing agents (for telecasting companies). As stated elsewhere, advertising and publicity targeted towards viewers is done under the ambit of distribution activity and not under ad sales activity. The distribution activity involves expansion of subscriber base leading to higher subscriber fees and ad sales activity involves attracting potential clients and ad agencies through specific sales pitch. While the former entails use of mass media, the latter is more about handling sophisticated well informed clients through presentations. This fact also refutes the arguments taken by the assessee that it was acting as a normal entrepreneurial capacity by performing advertisement services. Undoubtedly advertising efforts arise of entrepreneurial profile of the assessee but at a specific level it relates to the distribution activity and not marketing agency activity." 6. In view of aforementioned findings, the TPO observed that for additional function performed by assessee in regard to carrying out advertising and marketing for CNBC Channel, suitable adjustment was to be made in the uncontrolled price to reflect the difference. He, accordingly, determined the arm's lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease viewership is not a normal job profile of the appellant; b. That the appellant is not acting in a normal entrepreneurial capacity by performing advertisement services; 3.2 That on facts and in law the CIT(A) erred in upholding the action of TPO in adding a markup of 8.53% to the cost of advertisement incurred by the appellant and then subjecting it to transfer pricing adjustment. 4. That on facts and in law the CIT(A) erred in not addressing the grievance of the appellant that name, financial statements and market agency agreement of the anonymous television channel referred to by the TPO in para 4.4 of its order be provided to it. 5. That on facts and in law the CIT(A) erred in holding that the benefit for adjustment of the Arms Length Price as per the proviso to sec. 92C(2) is not available to the appellant. 5.1 That on facts and in law the CIT(A) erred in holding that the amended provisions of sec. 92C(2) by Finance No. 2 (Act) of 2009 w.e.f. 1st October, 2009 are retrospective. 5.2 That on facts and in law the CIT(A) erred in not following the direct judicial pronouncements of Hon'ble Income Tax Appellate Tribunal on the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage restructuring of legitimate business transactions. The reason for characterization of such restructuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form; and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner." 10. Ld. DR submitted that decision of Hon'ble Supreme Court in the case of B.M. Kharwar (supra) is not relevant because the same has not been rendered with reference to transfer pricing issues. As regards, the decision in EKL Appliances Ltd's case (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due from its AE. However, the only dispute is whether a further markup was required to be added to the reimbursement which assessee was entitled for. Admittedly, the assessee was not acting only as a marketing agent and merely doing billing of the add revenue's and conclusion thereof but it was also obliged to undertake channel promotion activities so as to promote the channel and increase the reach thereof, there by attracting the higher advertisement revenue's for the channel. We are in agreement with the findings of ld.CIT(A) that carrying out advertising to increase the viewership is not the part of normal job profile of independent marketing agents (for telecast companies). It has rightly been observed by TPO as confirmed by ld. CIT(A) that advertising and publicity targeted towards viewers is done under the ambit of distribution activity and not under the advertisement sales activity. The distribution activity involves expansion of subscriber base leading to higher subscriber fees and add sales activity involves attracting potential clients and add agency through specific sales pitch. Therefore, it has rightly been held that it was not the normal entrepreneur activity. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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