The income tax appellate tribunal (ITAT) has dismissed an appeal filed by the revenue department in a transfer pricing case against BBC World (India) Pvt Ltd for the assessment year 2004-05.

The Delhi bench of the ITAT has upheld the ruling handed down by the commissioner of income tax (appeals) that the advertisement expenses between BBC group entities should be treated as pass-through costs for AY 2004-05.

“The expenses relating to advertisement were on buying of advertisement space in the newspapers; that in such activities, the cost involved is too high and the effort required to buy such space is not much. On the basis of this reasoning, the learned CIT (A) held that they should be treated as a pass-through cost,” the ITAT said in its order while dismissing the revenue department’s appeal.

This matter is understood to be unrelated to the search operation conducted at BBC’s offices in New Delhi and Mumbai in February this year. Those searches, which came weeks after the BBC aired a documentary critical of Prime Minister Narendra Modi, relate to a different period though they also arise from apparent “discrepancies and inconsistencies in transfer pricing documentation”.

In November 1998, BBC World Division — which operates the international channel aired by BBC — appointed BBC Worldwide India Pvt Ltd (BWIPL) as its authorised agent in India.

BWIPL was asked to buy advertisement space in newspapers. The effort that BWIPL was making to acquire the advertisement space was adjudged to be insignificant and, therefore, no cost on that account was tacked on to the expense bill for the overseas subsidiary of BBC during the assessment year 2004-05.

The income tax department, however, has consistently argued that these costs should have been considered as part of the expenses.

The tax department said by failing to add on these costs to the bill, BWIPL was dodging transfer pricing rules and thereby depriving the revenue department of appropriate tax.

Nitin Narang, partner (transfer pricing) at Nangia Andersen India said: “The Delhi Tribunal’s recent ruling in the case of BBC World (India) Pvt Ltd…agrees to consider expenses related to advertisements as pass-through costs. Therefore, this cost will not be considered as part of the cost base for charging a markup. The issue of pass-through costs has been vexed, leading to protracted litigation. The order pertains to AY 20004-05, and the Tribunal highlights the importance of robust documentation supporting inter-company transactions.”