Coca-cola India Inc., V. DCIT, Gurgaon Circle,

ITA 2179/DEL/2006

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5750 (ITAT-DELHI)
• Duration Of Justice: 12 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-07-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 14-06-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T RIBU NAL VIDE
• Assessee Lawyers: THIS APPEAL HAS BEEN RECALLED
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B , NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO . 2179 /DE L/ 2006 ASSESSMENT YEAR: 2001 - 02 COCA - COLA INDIA INC., ENKAY TOWERS, UDYOG VIHAR, PHASE - V, GURGAON VS. DCIT, GURGAON CIRCLE, GURGAON PAN : AAACC2638K ( APPELLANT ) (RESPONDENT) ORDER PER O.P. KANT , A. M. : WHILE DISPOSING THE M ISCELLANEOUS APPLICATION NO. 652/D EL/2009 FILED BY THE ASSESSEE, THIS APPEAL HAS BEEN RECALLED BY THE T RIBU NAL VIDE ORDER DATED 30/09/2009 , FOR A LIMITED PURPOSE OF ADJUDICATING GROUND NUMBER 2.2 TO 2.6 OF THE APPEAL . THE SAID GROUNDS OF APPEAL RAISED IN ITA NO. 2179/DEL/2006 ARE REPRODUCED AS UNDER: 2.2 THE CIT(A) FAILED TO APPRECIATE THAT THE ONLY ADJUSTMENTS MADE TO INCOME COMPUTED PROTE CTIVELY IS FOR ITEMS DISCUSSED IN PARAS 18,19,20 OF THE ASSESSMENT ORDER WHICH DOES NOT INCLUDE ANY ADDITION OF NOTIONAL INCOME AT 5% OF MARKETING EXPENDITURE. THE CIT (A) THEREFORE GROSSLY ERRED IN UPHOLDING THIS ADDITION OF THE NOTIONAL INCOME TO THE PRO TECTIVE PART OF ASSESSMENT ORDER. APPELLANT BY S H. AJAY VOHRA, ADV. & SH. GAURAV JAIN, ADV. RESPONDENT BY SH. G.K. DHALL, CIT(DR) DATE OF HEARING 30.05.2018 DATE OF PRONOUNCEMENT 27.06.2018 2 ITA NO.2179/DEL/2006 2.3 THE CIT (A) ERRED IN WRONGLY PRESUMING THAT MARKETING EXPENDITURE IN QUESTION, WHICH WAS INCURRED BY SERVICE RECEIVING PARTIES, TO BE A REIMBURSEMENT IN THE HANDS OF THE APPELLANT. 2.4 WITHOUT PREJUDICE, THE CIT(A) E RRED IN UPHOLDING ADDITION OF NOTIONAL SUMS TO THE INCOME COMPUTED, PURELY BASED ON PRESUMPTIONS AND CONTRARY TO EXPRESS WRITTEN UNDERSTANDING. 2.5 WITHOUT PREJUDICE, THE CIT(A) ERRED IN HOLDING THAT APPELLANT SHOULD HAVE CHARGED 5% MARK - UP ON THE ABOVE D IRECT EXPENDITURE OF THE SERVICE RECEIVING ENTITIES FAILING TO APPRECIATE THAT THE APPELLANT COMPANY CAN ONLY CHARGE 5% OF COST LIKE SALARY OF EMPLOYEES ETC., INCURRED BY THE APPELLANT ITSELF IN RENDERING THESE SERVICES. 2.6 WITHOUT PREJUDICE, THE CIT(A) ERRED IN FAILING TO APPRECIATE THAT THE APPELLANTS HAVE ALREADY BILLED THE RESPECTIVE SERVICE RECEIVING ENTITIES FOR EXPENSES INCURRED BY APPELLANT COMPANY IN RENDERING ANY SERVICES IN CONNECTION WITH THE RESPECTIVE ENTITIES MARKETING ACTIVITIES TOGETHER W ITH THE AGREED MARK - UP, WHICH INCOME HAS BEEN OFFERED TO TAX. 2. IN THE ABOVE GROUND NOS. 2.2 TO 2.6 OF THE APPEAL, THE O NLY ISSUE OF ADDITION OF RS. 10,56,00,755/ - SUSTAINED BY THE LD. CIT(A) TOWARDS MARKUP 5% ON MARKETING EXPENDITURE , IS INVOLVED. 2.1 F ACTS OF THE CASE HAVE ALREADY BEEN NARRATED IN DETAIL S IN THE ORDER OF THE T RIBUNAL , DATED 09/10/2009 AND HENCE , W E ARE NOT REPEATING THOSE FACTS AGAIN HERE. 2.2 THE FACTS QUA THE ISSUE IN DISPUTE ARE THAT THE AS SESSEE I.E. COCA - COLA INDIA INC, USA (CCI) , A FOREIGN COMPANY , HAVING BRANCH OFFICE IN INDIA, ENTERED INTO THREE SEPARATE A GREEMENTS WITH COCA - COLA INDIA PRIVATE L IMITED (CCIPL), HIN DUSTAN COCA - COLA BEVERAGES P RIVATE L IMITED (HCCBPL), AND THE HINDUSTAN 3 ITA NO.2179/DEL/2006 COCA - COLA MARKETING COMPANY PRIVATE L IMITED (HCCMCPL) , FOR PROVIDING MARKETING SUPPORT AND OTHER SERVICES. IN VIEW OF THE SERVICE AGREEMENT S , THE ASSESSEE MANAGED ENTIRE ADVERTISING AND MARKETING WORK OF THESE COMPANIES THROUGH ITS EMPLOYEES. THE ADVERTISEMENT AND MARKETING WORK , INTER ALIA, INCLUDE D FOLLOWING : ( A ) D EVELOPMENT OF CREATIVE ADVERTISEMENT CAMPAIGN, MEDIA PLANNING, MEDIA BUYING, DEVELOPMENT OF MARKETING STRATEGY AND OTHER ANCILLARY ACTIVITIES RELATED TO SELLING PRODUCTS ( B ) S ELECTION OF SPOTS ON ADVERTISING MEDIA SUCH AS RADIO, TV, NEWSPAPERS A ND BOOKING OF SPOTS ON SUCH MEDIA, ENGAGING OF CELEBRITIES, ( C ) D EVELOPMENT OF REGIONAL SALES PROMOTION AND LOCAL CAMPAIGN, DEVELOPMENT OF MARKETING STRATEGY AND OTHER ANCILLARY ACTIVITIES RELATED TO SELLING OF THE PRODUCTS AND DEVELOPMENT OF THE BRANDS. 2.3 T HUS , THE COST OF THE ADVERTISING AND MARKETING CONSIST OF THE COST OF THE EMPLOYEES OF THE ASSESSEE COMPANY FOR SUPERVISION OF THE WORK AND THE COST PAID TO OTHER AGENCIES LIKE MEDIA AGENCIES, CELEBRITIES ETC. THE COST OF EMPLOYEES AND RELATED EXPENSES HAV E BEEN DEBITED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS WHEREAS THE EXPENSES PAID DIRECTLY TO MEDIA AGENCIES, CELEBRITIES ETC HAVE BEEN PAID FROM THE BANK ACCOUNTS OF THE THREE COMPANIES. THESE BANK ACCOUNTS, ISSUE OF CHEQUES , MONTOTING OF WORK ETC. , WERE MANAGED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. 2.4 THE ASSESSEE RAISED INVOICES ON THOSE THREE COMPANIES FOR REIMBURSEMENT OF THE EMPLOYEE AND OTHER RELATED COSTS INCURRED 4 ITA NO.2179/DEL/2006 BY THE ASSESSEE ALONG WITH A MARKUP 5% ON SUCH COST, AND ACCORDINGLY SHOWN INCO ME IN ITS BOOKS OF ACCOUNTS. 2.5 HOWEVER , ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE WAS REQUIRED TO CHARGE MARKUP OF 5% ON THE ENTIRE COST OF ADVERTISEMENT AND MARKETING, INCLUDING THE COST INCURRED DIRECTLY FROM THE BANK ACCOUNT OF THOSE 3 COMPAN IES. ACCORDINGLY, HE HELD THAT THE ASSESSEE IS EXCLUSIVELY RESPONSIBLE FOR MARKETING STRATEGIES, ADVERTISE AND PUBLICITY AND SALES PROMOTION. HE OBSERVED THAT THE CCIL CL AIMED MARKETING EXPENSES OF RS.127,69,54, 968/ - , HCCBPL CLAIMED ADVERTISEMENT PUBLICITY IN SALES PROMOTION EXPENSES OF RS. 77,88,63,238/ - AND HCCMCPL CLAIMED ADVERTISEMENT PUBLICITY IN SALES PROMOTION EXPENSES OF RS.5,61,96,933/ - . ACCORDINGLY, HE WORKED OUT 5% OF THE EXPENSES INCURRED ON MARKETING BY THESE THREE COMPANIES EXPENSES (RS. 6,38,4 7,748 / - FOR CCIL, RS.3, 89,43,161/ - FOR HCCBPL AND RS. 28,09,846/ - F OR HCCMCPL) AGGREGATING TO RS. 10,56,00,755/ - 2.6 ON FURTHER APPEAL, THE LD. CIT(A) UPHELD THE ADDITION. THE SUBMISSION OF THE ASSESSEE AND FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE ARE REPRODUCED AS UNDER: 15.5 AGAINST THE ABOVE, THE ASSESSEE SUBMITTED THE FOLLOWING: - (1) AS PER THE AGREEMENTS THE APPELLANT RECEIVES A REIMBURSEMENT OF ACTUAL COST INCURRED BY IT IN .PROVIDING THE AGREED SERVICES PLUS A MARK UP OF 5% OF SUCH COSTS INCURRED BY IT. IN OTHER WORDS, THE SERVICE RECEIVING COMPANIES LIKE CCIPL ETC. REIMBURSE THE APPELLANT FOR THE ACTUAL COSTS INCURRED BY THE APPELLANT COMPANY PLUS A MARK UP OF 5%. (2) BY NO STRETCH OF IMAGINATION CAN APPELLANT BE EN TITLED TO A MARK UP ON THE DIRECT AND ACTUAL MARKETING EXPENSES INCURRED BY THE SERVICE RECEIVING COMPANIES. 5 ITA NO.2179/DEL/2006 (3) FURTHER, THE COST OF SUCH SERVICES, IF ANY, PROVIDED BY THE APPELLANT TO FACILITATE INCURRING OF THE SAID MARKETING EXPENDITURE DIRECTLY BY TH E SERVICE RECEIVERS, ARE ALREADY INCLUDED IN THE SERVICE CHARGES WITH AGREED MARK UP, WHICH HAVE ALREADY BEEN OFFERED TO TAX. (4) ADHOC ADDITION HAS BEEN MADE ON PRESUMPTION. (5) EXPENSES ARE DIRECTLY INCURRED BY SERVICE RECEIVING COMPANIES. THE ASSESS EE ONLY DOES THE FOLLOWING JOBS: - '... FOR CO - ORDINATING WITH MARKETING AGENCIES ENGAGING CELEBRITIES ENTERING INTO AGREEMENT WITH CELEBRITIES, MARKETING AGENCIES, MEDIA ETC. MAKING PAYMENT FOR THE ABOVE FROM THE BANK ACCOUNTS OF SERVICE RECEIVING COMPA NIES VIZ., MAKING THE VOUCHERS, CHECKING THAT SERVICES ARE RECEIVED, COMPLYING WITH TDS AND OTHER FORMALITIES ETC. .... WHEN THE ASSESSEE INCURS EXPENDITURE IN THE FORM OF SALARY OF STAFF, OVERHEADS, DEPRECIATION ETC., THE SAME ARE RECOVERED FROM THE S ERVICE RECEIVING ENTITIES IN THE FORM OF SERVICE CHARGES AND OFFERED TO TAX IN THE RETURNED INCOME. (6) THE PAYMENT OF THE MARKETING EXPENDITURE INCURRED BY CCIPL HAS BEEN MADE BY THEM EITHER DIRECTLY OR BY USING THE ASSESSEE COMPANY S SERVICES FOR PREPAR ATION OF CHEQUES, ACCOUNTING AND PROCESSING OF PAYMENTS, AUDITING ETC., HOWEVER, AGAIN THESE PAYMENTS WERE MADE DIRECTLY FROM CCIPL S OWN BANK ACCOUNTS. IN CASE OF THE OTHER SERVICE RECEIVING COMPANIES THE MARKETING AND SALES PROMOTION EXPENSES WERE ALSO D IRECTLY INCURRED BY THEM WITHOUT EVEN THE SUPPORT OF ANY SERVICES FROM THE ASSESSEE S END. (7) THE ASSESSING OFFICER HAS NOT DISPUTED THAT THESE EXPENSES WERE THE DIRECT EXPENDITURE INCURRED BY THESE COMPANIES (I.E.CCIPL, HCCMPL & HCCBPL). 15.6 I HAVE VE RY CAREFULLY CONSIDERED THE FACTS AND SUBMISSIONS MADE. THE THREE SEPARATE AGREEMENTS HAVE BEEN PERUSED. TO EXPLAIN THIS ISSUE, IT IS NECESSARY TO POINT OUT THE RELEVANT PARTS OF THE AGREEMENT BETWEEN THE CCI LIMITED AND THE ASSESSEE COMPANY. THE FIFTH PA RA(PAGE 1) OF THE AGREEMENT STATES: - WHEREAS, CCI HAS EXPERTISE AND KNOW - HOW IN THE FIELD OF MANUFACTURE, SALE AND MARKETING OF BEVERAGES, SYRUPS AND FOODSTUFFS IN GENERAL AND THE PRODUCTS IN PARTICULAR AND IN PROVIDING SERVICES IN CONNECTION THEREWI TH; AND IS AUTHORIZED TO: 6 ITA NO.2179/DEL/2006 A) DEVELOP AND PROMOTE THE EXPORT ACTIVITIES AMONGST OTHERS OF CCIL B) CO - ORDINATE ACTIVITIES OF THE LICENSED BOTTLERS IN INDIA WITH CCIL. C) RENDER SUPPORT SENDEES TO CCIL IN TERMS OF THE RESERVE BANK OF INDIA APPROVAL LETTERS DATED OCTOBER 21ST 1994, 11TH JANUARY 1995 AND 12TH FEBRUARY 1995 (HEREINAFTER RBI APPROVALS ). .... 15.7 IT IS, THUS, ACKNOWLEDGED, THE ASSESSEE COMPANY HAS THE EXPERTISE IN THE FIELD OF MARKETING OF BEVERAGES, SYRUPS AND FOODSTUFFS ETC. AND IN PROVIDING SERVICES IN CONNECTION THEREWITH. 15.8 IN THIS REGARD, THE ASSESSEE COMPANY IS TO PROVIDE: - * ....ADVISE, MONITOR AND CO - ORDINATE THE ACTIVITIES OF BOTTLERS IN THE COUNTRY WITH CCIL AND PROVIDE.... * .ASSISTANCE AND GUIDANCE TO BOTTLERS AND CCIL, ON ADVERTISING AND PROMOTION.... * ACTIVELY LOOK FOR THE KEEP CCIL INFORMED OF POTENTIAL BUSINESS OPPORTUNITIES AND THE GENERAL MARKET SITUATION IN THE COUNTRY AS FAR AS IS RELEVANT FOR ITS PRODUCTS AND ITS SCOPE OF ACTIVITIES, AND ADVISE THEM ON APPLICABLE LAWS AND REGULATIONS. .. 2.7 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING PAGES 1 TO 76 AND REFERRED RELEVANT PAGES OF THE SERVICE AGREEMENTS BETWEEN THE ASSESSEE AND THOSE THREE COMPANIES AND THE EXHIBITS ENCLOSED WITH THOSE AGREEMENTS. THE LD. COUNSEL SUBMITTED THAT ACCORDING TO THE RELEVANT CLAUSES OF THE SERV ICE AGREEMENTS THOSE COMPANIES WERE REQUIRED TO PAY A FEE ON THE BASIS OF THE ACTUAL COST INCURRED BY THE ASSESSEE UNDER EXPENSES LISTED IN THE EXHIBIT - A IN PROVIDING SUCH SERVICES PLUS A MARKUP OF THE 5% ON SUCH ACTUAL COST. THE LD. COUNSEL REFERRED TO TH E EXHIBIT - A IN CASE OF SERVICE AGREEMENT WITH CCIL, WHICH IS AVAILABLE ON PAGE - 52 OF THE PAPER BOOK , WHICH COMPRISES OF EXPE NSES ON SALARY AND ALLOWANCES ( INCLUDING CONTRIBUTION TO 7 ITA NO.2179/DEL/2006 PROVIDENT ANOTHER FUNDS), MOVING AND RELOCATION, SERVICE CHARGES FOR USE O F THE ASSETS, STAFF WELFARE EXPENSES. HE ALSO REFERRED TO RELEVANT CLAUSES AND EXHIBIT - A AVAILABLE IN PAPER BOOK IN CASE OF THE OTHER TWO COMPANIES. IN VIEW OF THE SUBMISSIONS, THE LD. COUNSEL ARGUED THAT ACTUAL COST FOR THE PURPOSE OF MARKUP OF 5% WAS LIM ITED ONLY TO THE COST AS PER EXHIBIT - A AND NOT THE COST INCURRED DIRECTLY BY THOSE COMPANIES ON ADVERTISING AND MARKETING AND SALES PROMOTION. 2.8 ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT SO - CALLED TASK S OF BOOKING OF SPOTS IN MEDIA OR ENGAGING OF CELEBRITIES ETC HAVE BEEN CARRIED OUT BY THE EMPLOYEES OF THE ASSESSEE COMPANY AND EXECUTION OF THESE WORKS HAVE ALSO BEEN SUPERVISED BY THE EMPLOYEE OF THE ASSESSEE. HE SUBMITTED THAT NOT ONLY BANK ACCOUNTS BU T ACCOUNTING WORK OF THESE THREE COMPANIES, IN RESPECT OF ADVERTISEMENT AND MARKETING WAS MANAGED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. THUS , ACCORDING TO HIM, THE ASSESSEE CLAIMED TO BE EXPERT OF MARKETING IN THE FIELD OF COLD DRINKS AND OTHER BEVERA GES AND IT MANAGED THE ENTIRE MARKETING PORTFOLIO OF THE THREE COMPANIES AND THEREFORE THE ACTUAL COST INCURRED TOWARDS ADVERTISEMENT AND MARKETING FOR THE PURPOSE OF MARKUP 5% , INCLUDE THE ENTIRE COST ON ADVERTISING AND MARKETING AND SALES PROMOTION DEBI TED IN THE PROFIT AND LOSS ACCOUNT OF THESE THREE COMPANIES. 2.9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE RELEVANT PARTS OF THE SERVICE AGREEMENT BETWEEN THE ASSESSEE AND THE THREE COMPANIES REPRODUCED IN THE O RDER OF THE LD. CIT(A), HAVE ALREADY BEEN EXTRACTED ABOVE. AS FAR AS THE ISSUE OF PROVIDING MARKETING 8 ITA NO.2179/DEL/2006 SUPPORT BY THE ASSESSEE COMPANY TO THESE TH R EE COMPANIES IS CONCERNED , ALL THE THREE SERVICE AGREEMENTS ARE SIMILARLY WORDED. THE CLAUSE 3, 4 AND 6 OF THE SERVICE AGREEMENT BETWEEN THE ASSESSEE AND CCIL IS REPRODUCED AS UNDER AGAIN FOR CLARIFICATION OF THE ISSUE IN DISPUTE: 3. PROVIDE MARKETING SUPPORT TO CCIL INCLUDING DEVELOPMENT OF CREATIVE, DEVELOPMENT OF THE ADVERTISING CAMPAIGN, MEDIA PLANNING, MEDI CAL BUYING, DEVELOPMENT OF MARKET STRATEGY AND OTHER ANCILLARY ACTIVITIES RELATED TO SELLING OF THE PRODUCTS. 4. PROVIDE ACCOUNTING ASSISTANCE INCLUDING GUIDANCE AND SUPPORT ON BUDGETING, DEVELOPMENT AND IMPLEMENTATION OF MANAGEMENT INFORMATION SYSTEMS (M IS) FOR FINANCIAL ANALYSIS, PLANNING, COSTING AND MONITORING OF THE TRANSACTION WITH THE BOTTLERS AND EXPORT TRANSACTIONS. 6. IN CONSIDERATION OF THE SERVICES PROVIDED BY CCI, CCIL SHALL REIMBURSE THE OUT OF THE POCKET EXPENSES INCURRED IN RENDERING THE SERVICES ON THE PRODUCTION OF SUPPORTING. IN ADDITION, CCIL SHALL PAY TO CCI A FEE ON THE BASIS OF ACTUAL COSTS INCURRED BY CCI UNDER EXPENSE HEADS LISTS IN EXHI BIT A, IN PROVIDING SUCH SERVICES PLUS A MARK UP TO 5% ON SUCH ACTUAL COSTS. 2.10 THUS , ACC ORDING TO THE SERVICE AGREEMENT, THE ASSESSEE WAS REQUIRED TO RENDER CERTAIN SERVICES OF MARKETING SUPPORT AND IN CONSIDERATION OF THE SERVICES; THE CCIL WAS REQUIRED TO REIMBURSE OUT - OF - POCKET EXPENSES INCURRED IN RENDERING THE SAID SERVICES ON PRODUCTION OF SUPPORTING. IN ADDITION TO THE OUT - OF - POCKET EXPENSES, THE CCIL WAS ALSO REQUIRED TO PAY A MARKUP OF 5% ON THE BASIS OF THE ACTUAL COST INCURRED BY THE ASSESSEE UNDER EXPENSES HEADS LISTED IN EXHIBIT - A. FOLLOWING EXPENSES ARE LISTED IN EXHIBIT - A, A COPY OF WHICH IS AVAILABLE ON PAGE 52 OF THE PAPER BOOK: 9 ITA NO.2179/DEL/2006 1 . SALARIES AND DISALLOWANCES (INCLUDING CONTRIBUTION TO PROVIDENT AND OTHER FUNDS) 2 . MOVING AND RELOCATION 3 . SERVICE CHARGES FOR USE OF ASSETS 4 . STAFF WELFARE EXPENSES . 2.11 THUS , ACCORDING TO THE SERVICE AGREEMENT, THE CCIL WAS REQUIRED TO PAY 5% MARKUP ON THE ACTUAL COST INCURRED BY THE ASSESSEE UNDER THE EXPENSES HEAD LISTED IN THE EXHIBIT - A. T HE CONTEN TION OF THE R EVENUE IS THAT ALL THE EXPENSES EVEN PAID DIRECTLY TO THE MEDIA OR T HE CELEBRITIES ETC BY THE CCIL ( AND OTHER TWO COMPANIES) SHOULD BE INCLUDED IN THE ACTUAL COST FOR THE PURPOSE OF MARKUP 5%. IN OUR OPINION THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS NOT CORRECT. WHEN THE AGREEMENT BETWEEN THE ASSESSEE AND THE CCIL ( ALSO OTHER T WO COMPANIES) HAS CLEARLY SPECIFIED THAT MARKUP WILL BE CHARGED ON THE ACTUAL COST OF THE EXPENSES MENTIONED IN THE EXHIBIT - A, THE R EVENUE CANNOT DIRECT THE ASSESSEE TO CHARGE 5% MARKUP ON THE ENTIRE EXPENDITURE ON MARKETING AND ADVERTISEMENT INCURRED BY T HE CCIL AND OTHER 2 COMPANIES. THE PARTIES TO THE AGREEMENT ARE BOUND BY THE TERMS AND CONDIT IONS MENTIONED THEREIN AND THE R EVENUE CANNOT INTERPRET THE SAID AGREEMENT IN ITS OWN WAY TO INCLUDE THE OTHER COSTS. EVEN OTHERWISE, IF THE 5% MARKUP ON OTHER COS T IS CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE, THEN THE SAME WOULD HAVE TO BE ALLOWED AS EXPENDITURE IN THE HAND OF THOSE 3 COMPANIES AND THUS ENTIRE EXERCISE WOULD BE REVENUE NEUTRAL EXERCISE. THE LD. CIT(A) HAS PLACED RELIANCE ON THE LE TTER DATE D 12/01/1995 AND 21/02/ 1995 ADDRESSED BY THE 10 ITA NO.2179/DEL/2006 ASSESSEE TO THE RBI, TO SUPPORT THAT THE SERVICES RENDERED BY THE ASSESSEE INCLUDES DEVELOPMENT OF CREATIVE, MEDIA BUYING AND MIS AND THUS THE ASSESSEE HAS RENDERED THE ENTIRE SERVICES OF MARKETING TO THE 3 COMPANIES. IN OUR OPINION, THERE IS NO DISPUTE AS FAR AS RENDERING OF SERVICES ARE CONCERNED. BUT THE SERVICE AGREEMENT HAS SPECIFIED 5% MARKUP ONLY ON THE ACTUAL COST RELATED TO THE SALARIES AND ALLOWANCES OF EMPLOYEES, THEIR MOVING AND RELOCATION EXPENSES , STAFF WELFARE, SERVICE CHARGES FOR THE USE OF THE ASSETS. IN VIEW OF THE ABOVE, IN OUR OPINION, THE LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION MADE BY THE LD. ASSESSIN G OFFICER, AND THUS ACCORDINGLY , WE REVERSE THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND DELETE THE ADDITION O F RS.10,56,00, 755/ - . 3. ACCORDINGLY, THE RELEVANT GROUNDS OF THE APPEAL ARE ALLOWED. 4. IN THE RESULT, APPEAL RECALLED FOR THE LIMITED PURPOSE OF GROUND NOS. 2.2 TO 2.6 , IS ALLOWED. D ECISION IS PRONOUN CED IN THE OPEN COURT ON 2 7 T H JUNE , 201 8 . S D / - S D / - ( AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H JUNE , 201 8 . RK / - (D.T.D . ) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI