Television Eighteen India Ltd, New Delhi V. ACIT, New Delhi

ITA 4727/DEL/2009

• Counselvise Citation: 472720114 RSA 2009
• Duration Of Justice: 3 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 08-07-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 15-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN TP
• Keywords: Transfer pricing; International transaction; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER & SMT. DIVA SINGH, JUDICIAL MEMBER ITA NO.4727/DEL/2009 ASSESSMENT YEAR: 2002-03 TELEVISION EIGHTEEN INDIA LTD., 601, 6 TH FLOOR, HOTEL LE MERIDIEN, COMMERCIAL TOWER, NEW DELHI. AAACT2659P VS. ACIT, CIRCLE 16(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARANDEEP SINGH, CA RESPONDENT BY: SH. PEEYUSH JAIN, CIT/DR(TP) O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED A GAINST THE ORDER DATED 17/11/2009 OF CIT(A)-XX, NEW DELHI FOR A.Y. 2 002-03. 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 CHANNE LS INCLUDING CNBC (THROUGH TV 18 MAURITIUS); B) TO ACT AS MARKETING AGENTS FOR CNBC CHANNEL AND PRO CURE ADVERTISEMENTS FROM CLIENTS AND AD AGENCIES, AND; ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 2 C) TO ACT AS A DISTRIBUTOR AND PROMOTER OF CNBC CHANN EL IN INDIA. 3. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME OF RS. 2,23,01,518/-. IN COURSE OF ASSESSMENT PROCEED INGS, THE AO NOTICED THAT ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIO NAL TRANSACTIONS AND, THEREFORE, MADE A REFERENCE TO TRANSFER PRICING OFF ICER (TPO) TO DETERMINE THE ARMS LENGTH PRICE: S.NO. INTERNATIONAL TRANSACTION METHOD VALUE (IN RS.) 1. SALE OF TELEVISION CONTENT TNMM 249,155,107 2. AGENCY ARRANGEMENT FOR MARKETING OF SPONSORSHIP TIME ON THE CNBC CHANNEL BY THE ASSESSEE CUP 80,73,785 3. REVENUE SHARING ARRANGE- MENT FOR DISTRIBUTION OF CNBC CHANNEL IN INDIA CUP 2,49,90,000 4. INTEREST ON UNSECURED LOAN CUP 9,262,582 THE TPO NOTED THAT ASSESSEE IS FASTEST GROWING MEDI A COMPANIES IN INDIA AND HAS, OVER THE YEARS, BUILT A FORMIDABLE R EPUTATION AS A LEADING CONTENT PROVIDER TO ALMOST EVERY CHANNEL AND NETWOR K IN INDIA. HE OBSERVED THAT TV 18 HAD SET UP A WHOLLY OWNED SUBSI DIARY IN MAURITIUS BY THE NAME OF TELEVISION EIGHTEEN MAURITIUS. THIS SU BSIDIARY OWNS 49% EQUITY OF CNBC INDIA LTD., A MAURITIUS BASED JOINT VENTURE BETWEEN TV 18 GROUP AND CNBC GROUP. CNBC INDIA OPERATES THE POPU LAR INFORMATION AND NEWS CHANNEL CNBC. 4. TPO NOTED THAT AS REGARDS MARKETING AGENT ARRANG EMENT, THE ASSESSEE HAS BEEN APPOINTED AS THE SOLE MARKETING A GENT OF CNBC CHANNEL. FOR THIS IT GETS 15% OF THE GROSS REVENUE S COLLECTED FROM THE ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 3 ADVERTISERS. THE BALANCE OF 85% IS REMITTED TO TV 18 MAURITIUS. THE ASSESSEE HAD RELIED UPON COMPARABLE UNCONTROLLED PR ICE (CUP) METHOD TO JUSTIFY THE TRANSFER PRICE IN THIS REGARD. THE TPO OBSERVED THAT GENERAL MARKET PRACTICE OF ADVERTISING AGENCIES AND MARKETI NG AGENTS WAS TO RETAIN 15% OF REVENUES AS REMUNERATION AND, THEREFO RE, HE CONCLUDED THAT THERE WAS NO REASON TO INTERFERE WITH THIS CONCLUSI ON. HOWEVER, IN ORDER TO EXAMINE WHETHER THE ASSESSEE ACTED IN THE CAPACI TY OF THE MARKETING AGENT OR RENDERED ANY EXTRA SERVICES, HE EXAMINED T HE SEGMENTAL ACCOUNTS OF MARKETING SALE ACTIVITY AND THE MARKETI NG CONTRACT ENTERED INTO IN THIS REGARD. HE NOTED THAT ASSESSEE HAD EA RNED 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 INVOLVI NG ANOTHER TV CHANNEL AND UNRELATED MEDIA AGENCY AND NOTED THAT T HE SAME PROVIDED FOR 15% COMMISSION FOR PROCURING AND SOLICITING ADV ERTISEMENTS. HE FURTHER NOTED THAT THE CONTRACT DID NOT IMPOSE ANY OBLIGATION ON THE MARKETING AGENT TO UNDERTAKE MARKETING AND PROMOTIO N ACTIVITY FOR THE CHANNEL. HE OBSERVED THAT SUCH ADVERTISEMENT IS US UALLY CARRIED OUT UNDER THE DISTRIBUTION AGREEMENT WHERE THE EARNING OF THE DISTRIBUTOR ARE DIRECTLY DEPENDENT ON THE SUBSCRIPTION FEES RECEIVE D FROM CABLE ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 4 OPERATORS. HOWEVER, IN MARKETING SITUATION, THE TA RGET AUDIENCE OF THE MARKETING ACTIVITY IS NOT THE GENERAL PUBLIC BUT TH E POTENTIAL CLIENTS, ADVERTISERS AND AD AGENCIES. POTENTIAL CUSTOMERS A ND AD AGENCIES ARE SOPHISTICATED ENOUGH TO UNDERSTAND THE ADVERTISING AND ARE NOT AMENABLE TO GENERAL ADVERTISING AND MARKETING PROMOTION CARR IED OUT TO PROMOTE THE CHANNEL. THE TPO FURTHER OBSERVED FROM PARA 4.5 TO 4.8 AS UNDER: 4.5 THE FUNCTION, ASSETS AND RISKS ANALYSIS OF THIS INTERNATIONAL TRANSACTION HAS BEEN GIVEN ON PAGE 36 OF THE TRANSFER PRICING REPORT (PREPARED BY RSM & CO.). THE ANALYSIS EXPLAINS IN DETAILS THE FUNCTIONS OF TV 18 IN THIS REGARD. IT STATES THAT THE ASSESSEE SOLICITS ADVERTISING AND BOOKING OF AIRTIME IS DONE UNDER A TRIPARTITE AGREEMENT INVOLVING ADVERTISING AGENCY, ADVERTISER AND TV 18 MAURITIUS. TV 18 MERELY ACTS AS A FACILITATOR AND IS NOT A PARTY TO THIS AGREEMENT. 4.6 MOST SIGNIFICANTLY, THE CONTRACT BETWEEN THE ASSESSEE AND TV 18 MAURITIUS STIPULATES THAT IN THE EVENT OF ANY EXPENDITURE BY TV 18 ON ADVERTISEMENT, THE SAME SHALL BE REIMBURSED BY THE AE. PARA 7.14 OF THE TP REPORT STATES: WITH A VIEW TO SOLICIT MORE ADVERTISEMENTS AS WELL AS TO INCREASE SUBSCRIBER BASE, TV 18 INCURS MARKETING AND DISTRIBUTION EXPENSES WHICH IS ENTITLED TO GET REIMBURSED FROM TV 18 MAURITIUS UNDER THE MARKETING AGENT ARRANGEMENT. ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 5 4.7 THE CLAUSE IN THE AGREEMENT CASTS AN OBLIGATION ON THE AE TO REIMBURSE THE ASSESSEE FOR THE EXPENDITURE ON ADVERTISING AND MARKETING. THIS OBLIGATION HAS NOT BEEN DISCHARGED BY THE AE AS NO SUCH REIMBURSEMENT HAS BEEN RECEIVED. 4.8 EVEN IN THE ABSENCE OF THIS CLAUSE IN THE AGREEMENT, IT CAN BE REASONABLY ARGUED THAT THE ASSESSEE WAS ENTITLED TO REIMBURSEMENT OF THE AD EXPENDITURE. FURTHERMORE, THE ARMS LENGTH PRINCIPLE DEMANDS THAT OVER AND ABOVE THE REIMBURSEMENT, A SERVICE FEE SHOULD BE PAID FOR CARRYING OUT THE ADDITIONAL FUNCTION WHICH IS BEYOND THE TRADITIONAL ROLE OF A MARKETING AGENT. NO UNRELATED PARTY WOULD AGREE TO PERFORM THE FUNCTION WITHOUT GETTING ADEQUATELY REMUNERATED FOR IT. 5. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, LD . TPO OBSERVED IN PARA 5.1 AS UNDER: 5.1 THESE ARGUMENTS DONT ADDRESS THE CORE ISSUE OF THE ASSESSEE NOT GETTING REMUNERATED FOR THE ADVERT ISING ACTIVITY CARRIED OUT. THE CONTENTION THAT THE ASSE SSEE WAS OBLIGED TO SPEND ON ADVERTISING IS NOT BORNE BY THE CONTRACT. THE CONTRACT MERELY STATED THAT IN CASE THE ASSESSEE SPENDS ON ADVERTISING, THE AE SHALL REIMBU RSE THE AMOUNT TO TV 18. THERE IS NO OBLIGATION TO CAR RY OUT SUCH ACTIVITY AND EVEN IF IT IS CARRIED OUT IT HAS TO BE REIMBURSED (WHICH HAS NOT BEEN DONE). SECONDLY, CARRYING OUT ADVERTISING TO INCREASE VIEWERS IS NOT THE PART OF A NORMAL JOB PROFILE OF INDEPENDENT MARKETI NG ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 6 AGENTS (FOR TELECASTING COMPANIES). AS STATED ELSEWHERE, ADVERTISING AND PUBLICITY TARGETED TOWAR DS VIEWERS IS DONE UNDER THE AMBIT OF DISTRIBUTION ACT IVITY AND NOT UNDER AD SALES ACTIVITY. THE DISTRIBUTION ACTIVITY INVOLVES EXPANSION OF SUBSCRIBER BASE LEAD ING TO HIGHER SUBSCRIBER FEES AND AD SALES ACTIVITY INV OLVES ATTRACTING POTENTIAL CLIENTS AND AD AGENCIES THROUG H 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 ARGUMENT S TAKEN BY THE ASSESSEE THAT IT WAS ACTING AS A NORMA L ENTREPRENEURIAL CAPACITY BY PERFORMING ADVERTISEMEN T SERVICES. UNDOUBTEDLY ADVERTISING EFFORTS ARISE OF ENTREPRENEURIAL PROFILE OF THE ASSESSEE BUT AT A SP ECIFIC LEVEL IT RELATES TO THE DISTRIBUTION ACTIVITY AND N OT MARKETING AGENCY ACTIVITY. 6. IN VIEW OF AFOREMENTIONED FINDINGS, THE TPO OBSE RVED THAT FOR ADDITIONAL FUNCTION PERFORMED BY ASSESSEE IN REGARD TO CARRYING OUT ADVERTISING AND MARKETING FOR CNBC CHANNEL, SUITABL E ADJUSTMENT WAS TO BE MADE IN THE UNCONTROLLED PRICE TO REFLECT THE DI FFERENCE. HE, ACCORDINGLY, DETERMINED THE ARMS LENGTH PRICE AS U NDER: DETERMINATION OF ARMS LENGTH PRICE AMOUNT RECEIVED (VALUE OF INTERNATIONAL TRANSACTION ) RS. 8,073,785 ADVERTISEMENT EXPENDITURE RS. 4,976,015 AMOUNT OF ADJUSTMENT (108.53% OF AD EXPENDITURE) R S. 5,400,469 ARMS LENGTH PRICE RS. 13,474,254 DIFFERENCE BETWEEN THE ARMS LENGTH PRICE AND 40% ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 7 VALUE OF INTERNATIONAL TRANSACTION IN% TERMS ACCORDINGLY, THE AO MADE AN ADDITION OF RS. 54,00,4 69/-. 7. THE AO FURTHER NOTED THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 20,83,632/- WHICH WAS CLAIMED AS EXEMPT INCOME U/S 10(33). HOWEVER, ASSESSEE HAD NOT DISALLOWED ANY EXPENSE RE LATED TO THIS INCOME U/S 14A OF THE ACT. HE ATTRIBUTED 5% OF DIV IDEND INCOME TOWARDS EXPENSES INCURRED THEREON FOR EARNING THE SAME ON A CCOUNT OF EXPENDITURE ON MANAGERIAL AND ACCOUNTING SKILL. HE , THEREFORE, MADE A DISALLOWANCE OF RS. 1,04,182/-. 8. BEING AGGRIEVED WITH THE ORDER OF AO, THE ASSESE E PREFERRED APPEAL BEFORE LD. CIT(A) WHO CONFIRMED THE ADDITION OF RS. 54,00,469/- ON ACCOUNT OF TP ADJUSTMENTS. AS REGARDS DISALLOWANCE U/S 14A, FOLLOWING THE DECISION OF SPL. BENCH IN THE CASE OF DAGA CAPI TAL MANAGEMENT (117 ITD 169). LD. CIT(A) APPLYING THE RULE 8D COMPUTED THE DISALLOWANCE AT RS. 50,89,404/- AGAINST THE DISALLOWANCE OF RS. 1,0 4,182/- MADE BY AO. 8.1 BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY TH E AO/COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTE R REFERRED AS CIT(A)]/TRANSFER PRICING OFFICER [HEREINAFTER REFERRED AS TPO] ARE BAD IN LAW AND VOID AB-INITIO. 1.1THAT ON THE FACTS AND IN LAW THE AO/CIT(A)/TPO E RRED IN NOT PROVIDING A PROPER AND ADEQUATE OPPORTUNITY OF ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 8 BEING HEARD AND IN VIOLATING THE PRINCIPLES OF NATU RAL JUSTICE. 2. THAT ON FACTS AND IN LAW, THE ASSUMPTION OF JURI SDICTION BY AO/TPO TO DETERMINE ARMS LENGTH PRICE IS BAD INLAW AND VOID AB-INITIO. 3. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN UPH OLDING ADDITION TO INCOME OF RS. 54,00,469/- UNDER CHAPTER X OF THE INCOME TAX ACT, 1961. 3.1 THAT WITHOUT PREJUDICE ON FACTS AND IN LAW THE AO/TPO ERRED AND THE CIT(A) INTER ALIA ERRED IN UPHOLDING/OBSERVING A. THAT CARRYING OUT ADVERTISING TO INCREASE VIEWERSHI P IS NOT A NORMAL JOB PROFILE OF THE APPELLANT; B. THAT THE APPELLANT IS NOT ACTING IN A NORMAL ENTREPRENEURIAL CAPACITY BY PERFORMING ADVERTISEMEN T SERVICES; 3.2 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLD ING THE ACTION OF TPO IN ADDING A MARKUP OF 8.53% TO TH E 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 HOL DING THAT THE BENEFIT FOR ADJUSTMENT OF THE ARMS LENGTH PRICE AS PER THE PROVISO TO SEC. 92C(2) IS NOT AVAILABLE TO THE APPELLANT. ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 9 5.1 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN HO LDING THAT THE AMENDED PROVISIONS OF SEC. 92C(2) BY FINANCE NO . 2 (ACT) OF 2009 W.E.F. 1 ST OCTOBER, 2009 ARE RETROSPECTIVE. 5.2 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN NO T FOLLOWING THE DIRECT JUDICIAL PRONOUNCEMENTS OF HON BLE INCOME TAX APPELLATE TRIBUNAL ON THE INTERPRETATION OF PROVISO TO SEC. 92C(2). 6. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN APP LYING THE PROVISIONS SUB-SECTION (2) & (3) OF SEC. 14A INSERT ED BY THE FINANCE ACT, 2006, W.E.F. 1 ST APRIL, 2007 TO AY 2002- 03 I.E. THE ASSESSMENT YEAR UNDER CONSIDERATION. 6.2THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN APP LYING THE PROVISIONS OF RULE 8D(2) OF THE INCOME TAX RULES, 1 962 INSERTED BY IT (FIFTH AMENDMENT) RULES 2008 W.E.F. 24 TH MARCH, 2008. 6.3 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN AS SUMING JURISDICTION U/S 14A READ WITH RULE 8D(2). 6.4 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN NO T APPRECIATING THAT NO DISALLOWANCE U/S 14A IS CALLED FOR. 9. AS REGARDS THE TP ADJUSTMENT, LD. COUNSEL FOR TH E ASSESSEE FAIRLY CONCEDED THAT AS FAR AS THE REIMBURSEMENT OF EXPENS ES IS CONCERNED, IN VIEW OF THE DECISION IN THE CASE OF LG ELECTRONICS, THE SAME IS TO BE DECIDED AGAINST ASSESSEE. HOWEVER, HE SUBMITTED TH AT THE MARK UP OF 8.53% ON REIMBURSEMENT OF ADVERTISEMENT EXPENDITURE IS UNWARRANTED. HE SUBMITTED THAT ASSESSEE HAS RECEIVED COMMISSION SEPARATELY AND, THEREFORE, MARK UP SHOULD NOT BE ADDED. AS REGARDS THE TP ADJUSTMENT ISSUE, LD. COUNSEL RELIED ON THE DECISION OF HONBL E SC IN THE CASE OF CIT ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 10 VS. B.M. KHARVA 72 ITR 603, WHEREIN IT HAS BEEN, IN TER-ALIA, HELD THAT THE LEGAL EFFECT OF A TRANSACTION CANNOT BE DISPLACED B Y PROBING INTO THE SUBSTANCE OF THE TRANSACTION. THIS PRINCIPLE APPLI ES ALIKE TO CASES IN WHICH THE LEGAL RELATION IS RECORDED IN A FORMAL DO CUMENT, AND TO CASES WHERE IT HAS TO BE GATHERED FROM EVIDENCE ORAL AN D DOCUMENTARY AND CONDUCT OF THE PARTIES TO THE TRANSACTION. LD. COU NSEL SUBMITTED THAT AS PER AGREEMENT THE ASSESSEE WAS ENTITLED ONLY FOR TH E REIMBURSEMENT OF ADVERTISEMENT EXPENSES AND NOT THE MARK UP THEREON. THEREFORE, MARK UP SHOULD NOT HAVE BEEN ADDED TO THE REIMBURSEMENT OF THE ADVERTISEMENT EXPENSES. LD. COUNSEL FURTHER REFERR ED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD., WHEREIN, INTER-ALIA, IT HAS BEEN OBSERVED AS UNDER: 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LIES IN THE FACT THAT THEY RECOGNIZE THAT BARRING EXCEPT IONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONTROLLED TRANSACTIO N SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICA NCE THAT THE GUIDELINES DISCOURAGE RESTRUCTURING OF LEGITIMA TE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERIZA TION OF SUCH RESTRUCTURING AS AN ARBITRARY EXERCISE, AS GIV EN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CRE ATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT S HARE THE ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 11 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 SUBST ANCE OF A TRANSACTION DIFFERS FROM ITS FORM; AND (II) WH ERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, V IEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HA VE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 10. LD. DR SUBMITTED THAT DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF B.M. KHARVA IS NOT RELEVANT BECAUSE THE SAME HAS NOT BEEN RENDERED WITH REFERENCE TO TRANSFER PRICING ISSUES. AS REGA RDS, THE DECISION IN EKL APPLIANCES LTD., LD. DR SUBMITTED THAT HONBLE DELH I HIGH COURT HAD HELD THAT FINANCIAL HEALTH OF THE ASSESSEE COULD NEVER B E A CRITERION TO JUDGE THE ALLOWABILITY OF AN EXPENSE. SO LONG AS THE EXP ENDITURE OR PAYMENT HAD BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID DOWN FOR THE PURPOSES OF BUSINESS, IT WAS NO CONCERN OF THE TRAN SFER PRICING OFFICER TO DISALLOW IT OR ANY EXTRANEOUS REASON. THE TPO WAS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION AS HE ACTUALLY FOUND THEM AND THEN MAKE SUITABLE ADJUSTMENT BUT A TOTAL DISALLOWANCE OF THE EXPENDITURE WAS NOT WARRANTED. HE SUBMITTED THAT THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. LD. DR, IN ORDER TO JUSTIFY THE MARKU P ADDED BY TPO, SUBMITTED THAT FOR ACTIVITIES COVERED BY REIMBURSEM ENT THERE IS AN ELEMENT ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 12 OF SERVICE. HE FURTHER SUBMITTED THAT MARKUP ALSO COVERS COST OF FUNDS EMPLOYED BY ASSESSEE IN INCURRING THE ADVERTISEMENT EXPENSES. 9.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. AN AGENCY AGREEMENT HAD BEEN E NTERED INTO ON 1 ST OCTOBER, 2001 BETWEEN TV-18 MAURITIUS LTD. (TEML) A ND TV-18 INDIA LTD., (TEIL) WHEREBY TEML ENGAGED THE SERVICE OF TE IL FOR FOLLOWING SERVICES: A. TEIL WILL CANVASS AND SOLICIT SPONSORSHIP/ENDORSEME NT OF PROGRAMS/SEGMENTS IN PROGRAMS TELECAST ON CNBC INDIA, FROM ADVERTISERS WHO ARE SO ENTITLED AND HAV E THE VALID DOCUMENTATION REQUIRED UNDER INDIAN LAWS TO ADVERTISE ON FOREIGN TELEVISION CHANNELS, ON THE TE RMS AND CONDITIONS NOTIFIED BY TEML. B. TEIL WILL BE RESPONSIBLE FOR GENERALLY INCREASING AWARENESS OF THE CHANNEL AND ITS VISIBILITY IN THE MEDIA. TEIL, FOR THIS PURPOSE MAY ASSOCIATE, PROMOTE, ORGA NIZE AND ARRANGE SPECIAL EVENTS, SEMINARS, CONTESTS WHIC H MAY BE BRANDED AS CNBC INDIA EVENTS. C. TEIL MAY EMPLOY ANY OTHER MEANS THOUGHT FIT BY IT W ITH A VIEW TO HELP ACHIEVEMENT OF BRANDING ETC. OF THE CN BC INDIA CHANNEL, SUBJECT TO TEMLS APPROVAL. 10.2 ADMITTEDLY THE ASSESSEE HAD RECEIVED MARKETING COMMISSION OF 15% OF GROSS ADVERTISEMENT REVENUES AGGREGATING TO RS. 80,73,785/-. HOWEVER, NO REIMBURSEMENT WAS RECEIVED IN RESPECT O F ADVERTISEMENT EXPENSES INCURRED BY ASSESSEE THOUGH, AS PER THE TE RMS OF AGREEMENT ,ASSESSEE WAS ENTITLED TO THE SAME. THEREFORE, THE RE CANNOT BE ANY ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 13 DISPUTE, WHICH IS NOT, AS REGARDS THE SUM OF RS. 49 ,79,105/- ADDED BY AO ON ACCOUNT OF REIMBURSEMENT OF MARKETING AND DISTRI BUTION EXPENSES DUE FROM ITS AE. HOWEVER, THE ONLY DISPUTE IS WHETHER A FURTHER MARKUP WAS REQUIRED TO BE ADDED TO THE REIMBURSEMENT WHICH ASS ESSEE WAS ENTITLED FOR. ADMITTEDLY, THE ASSESSEE WAS NOT ACTING ONLY AS A MARKETING AGENT AND MERELY DOING BILLING OF THE ADD REVENUES AND C ONCLUSION THEREOF BUT IT WAS ALSO OBLIGED TO UNDERTAKE CHANNEL PROMOTION ACT IVITIES SO AS TO PROMOTE THE CHANNEL AND INCREASE THE REACH THEREOF, THERE BY ATTRACTING THE HIGHER ADVERTISEMENT REVENUES FOR THE CHANNEL. WE ARE IN AGREEMENT WITH THE FINDINGS OF LD.CIT(A) THAT CARRYING OUT AD VERTISING TO INCREASE THE VIEWERSHIP IS NOT THE PART OF NORMAL JOB PROFILE OF INDEPENDENT MARKETING AGENTS (FOR TELECAST COMPANIES). IT HAS RIGHTLY BE EN OBSERVED BY TPO AS CONFIRMED BY LD. CIT(A) THAT ADVERTISING AND PUBLIC ITY TARGETED TOWARDS VIEWERS IS DONE UNDER THE AMBIT OF DISTRIBUTION ACT IVITY AND NOT UNDER THE ADVERTISEMENT SALES ACTIVITY. THE DISTRIBUTION ACT IVITY INVOLVES EXPANSION OF SUBSCRIBER BASE LEADING TO HIGHER SUBSCRIBER FEE S AND ADD SALES ACTIVITY INVOLVES ATTRACTING POTENTIAL CLIENTS AND ADD AGENC Y THROUGH SPECIFIC SALES PITCH. THEREFORE, IT HAS RIGHTLY BEEN HELD THAT IT WAS NOT THE NORMAL ENTREPRENEUR ACTIVITY. SUCH AN ACTIVITY IS NOT PER FORMED BY A PRUDENT BUSINESSMAN FREE OF COST AND WITHOUT ANY MARKUP. T HEREFORE, IT WAS NOT A MERE CASE OF REIMBURSEMENT OF ADVERTISEMENT EXPEN SES BUT A MARKUP WAS ALSO REQUIRED TO BE ADDED AS ASSESSEE WAS RENDE RING SPECIFIC ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 14 SERVICE IN THIS REGARD. FURTHER, AS RIGHTLY POINTE D OUT BY LD. DR, COST OF FUNDS HAD TO BE SEPARATELY CHARGED OVER AND ABOVE T HE REIMBURSEMENT WHICH WAS ALSO COVERED UNDER THE MARKUP. WE, THERE FORE, UPHOLD THE ORDER OF LD. CIT(A) IN HOLDING THAT TPO WAS RIGHT I N ADDING A MARKUP AS NOT INDEPENDENT AND PRUDENT ENTREPRENEUR WILL PROVI DE ANY SERVICE FREE OF COST. 11. IN THE RESULT, THE GROUNDS RELATING TO TP ADJUS TMENT IS DECIDED AGAINST THE ASSESSEE. 12. AS REGARDS, THE SECOND ISSUE RELATING TO DISALL OWANCE OF EXPENSES INCURRED IN CONNECTION WITH EARNING OF DIVIDEND INC OME, WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP. INV ESTMENT LTD. 347 ITR 272 HAS HELD THAT THE RULE 8D IS APPLICABLE W.E.F. 1 ST APRIL, 2007 AND, THEREFORE, THE COMPUTATION MADE BY LD. CIT(A) BY AP PLYING RULE 8D FOR AY 2002-03 WAS NOT JUSTIFIED. WE, THEREFORE, SET ASID E THE ORDER OF LD. CIT(A) AND UPHOLD THE ORDER OF AO IN MAKING A DISALLOWANCE OF RS. 1,04,182/-. 13. IN THE RESULT, THE GROUND NOS. 6.1 TO 6.3 ARE A LLOWED AND GROUND NO. 6.4 IS PARTLY ALLOWED. 14. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/08/2013 SD/- SD/- (DIVA SINGH) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 02/08/2013 *KAVITA ITA NO. 4727/DEL/2009- TELEVISION EIGHTEEN INDIA LTD. 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR