V Commission Media Private Limited Vs ACIT (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT), Delhi, arose from the order of the Commissioner of Income Tax (Appeals) dated 05.07.2024, which upheld various additions and disallowances made by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2015–16.
The primary issue concerned an addition of ₹2,10,00,000 under Section 40A(2)(a) on the ground that payments made by the assessee to its related party for email marketing services were excessive. The assessee, engaged in internet advertising and affiliate marketing, had subcontracted email marketing services at ₹1 per email. The AO concluded that this rate was excessive compared to an estimated average cost of ₹0.30 per email and treated the transaction as not at arm’s length. The CIT(A) upheld this view. However, the assessee argued that email marketing services differ based on whether the service provider supplies the database and technology. It was submitted that when both database and technology are provided, rates typically range between ₹1 and ₹2 per email. Supporting quotations from independent service providers were also furnished.
The Tribunal held that comparisons under Section 40A(2)(a) must be made between similar services. It found that the AO compared dissimilar services and failed to consider the nature of the services availed by the assessee. Observing that “an apple has to be compared to an apple and not an orange,” the Tribunal concluded that the addition was not supported by facts and directed deletion of ₹2,10,00,000.
