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3. The assessee has raised the following grounds of appeal in Cross objection No. 315/Del/2011 in ITA No. 996/Del/2011 for the Assessment Year 2002-03:-

"1. On the facts and circumstances of the case and in law, we wish to rely on order dated December 30, 2010 issued under section 250 of the Income Tax Act, 1961 passed by Commissioner of Income-tax (Appeals)-XX, New Delhi."

4. Brief facts of the case for that year shows that assessee filed its return of income on 30/10/2010 declaring loss of Rs 29905615/-. During the year, the assessee has acted like as an authorised agent for BBC worldwide Ltd (UK entity) for soliciting orders for sale of Air time, advertisement on BBC world channel, besides other market support services like collection of revenue, providing marketing, public relations and distributing services for its principles.

7. The assessee has entered into an agreement with BBC worldwide Ltd to act as an exclusive agent for marketing and distribution of BBC world channel in India, to carry out research in respect of performance and viewership of BBC world channel in India and to carry out distribution and marketing activities of BBC world channel with appropriate promotional material provided by them from time to time. The assessee was primarily engaged to promote and enlarge the viewer of BBC world channel in India. For such services, the assessee charged as per terms of agreement cost +10% mark up. The assessee rendered total market support services revenue of INR 73780695/-. The learned transfer pricing officer noted that no significant assets employed for this function except normal office appliances, furniture vehicles etc. and no significant risk was also assumed apart from minor risk of fluctuation in the exchange rate for its foreign exchange loans and its use. The assessee has also entered into another international transaction with issue of media Inst for providing trainers to them for running the news journalism course at the Institute where the salaries were reimbursed to the assessee on cost to cost basis without any mark up. The total receipt from the same was INR 15.5 lakhs against the expenditure of INR 20 140 08/02/2003/-. Assessee has also taken pound dominated external commercial borrowing of INR 1,000,000 for working capital requirements where part of the loan is s interest free and other loan on interest rate of LIBOR Page | 5 +0.06 percentage. The method adopted by the assessee for benchmarking of the other international transaction was CUP Method and assessee has compared the rate of commission charged by it with the commission charged by an unrelated 3rd party in India who paid commission at the rate of 10% for marketing advertisement Air Time sponsorship for BBC world channel in India.

23. Countering the argument of the learned departmental representative the learned authorised representative submitted as under:-

i. During Financial Years 2001-02, relevant to AY 2002- 03, Assessee's function / role under the applicable agreement for provision of services, dated March 21, 2001, was as under:

"1) BWIPL ("BBC Worldwide (India) Private Limited") shall act as BBCW's (BBC Worldwide Limited) exclusive agent for marketing and distribution of the television channel BBC World to cable operators and, as and when approved by the Indian government, to any other broadcast distribution systems in India. BWIPL shall further carry out research in respect of the performance and viewership of BBC World in India and communicate the results of all such research to BBCW.

24. We have carefully considered the rival contentions and perused the orders of the lower authorities. The only dispute in this ground of appeal of the revenue is that what should be the cost for working out PLI of the assessee for benchmarking international transactions. For market support services the assessee has applied transactional net margin method with operating profit/operating cost as the profit level indicator with respect to the market support services segment. The method has been accepted by the transfer-pricing officer and there is no dispute with respect to the comparables chosen by the appellant. The fact shows that for the purpose of working out the cost base for determination of the arm's-length price in case of marketing support services, expenses of INR 2 3691597/- on sales promotion and expense of INR 6 296509 on research are specifically incurred by the assessee for undertaking certain specific activities for the associated enterprise. Such expenses are taken as out-of-pocket expenses incurred by the assessee and therefore the contention of the assessee is that it does not warrant any mark up in the context of determination of arm's- length price. The learned transfer-pricing officer held that assessee is not acting merely as an agent or intermediary in Page | 22 provision of such services for business promotion and research etc. According to the terms of the agreement assessee is responsible for conceptualization, planning and execution of the entire market support services and is not performing such services based on day-to-day instructions form associated enterprise. According to the learned transfer pricing officer, in other words, it can be said that soul of such function is present in India, as assessee is responsible for discharging its market support service function as an independent organization and a lot of effort is required to be put into it for providing business promotion and research services. Therefore it needs to be adequately compensated for such efforts. Therefore, the learned transfer-pricing officer held that such expenditure couldn't be excluded from the cost base while working out the profit level indicator in case of the assessee. The learned CIT - A held that these expenses are in the nature of pass through expenses as the appellant is just acting as a conduit between the associated enterprises and 3rd party vendor. The appellant is merely acting as an agent of the associated enterprise. Further the decision to incur these expenses has been taken by the associated enterprise and the entire budget with respect to these expenses controlled by the associated enterprise. Therefore, the learned CIT - A as per para number 20 of his order has held that the 3rd party cost incurred by the assessee do not represent any value-added activity carried out by the appellant as the appellant was engaged in rendering market support services to its associated enterprise in the capacity of an agent. He further held that the assessee operates as an agent of the associated enterprise and the relationship between the appellant and the 3rd party vendor does Page | 23 not constitute a 'principal to principal' relationship. He further reaches at the conclusion that the decisions with respect to payment are to be made to the 3rd party vendor's by the associated enterprises. He further relied upon the para number 2.93 and para number 7.36 of the 2010 OECD Transfer Pricing Guidelines to support his decision wherein the pass through costs are excluded from the cost base. This was relied upon by the assessee before him. He further accepted the argument of the assessee that if third party costs are included as part of its cost base, it would be changing the characterization of the assessee as an entrepreneur and therefore, the 3rd party cost cannot be included in the cost base of the appellant. With respect to accounting of this 3rd party cost as income and expenditure of the assessee in the profit and loss account, he held that it cannot be treated as a governing law with respect to the treatment of expenses viz a viz the transfer pricing regulation. He further held that the arm's-length nature of the international transactions is not affected by the accounting treatment. He further relied upon the decision of the coordinate bench in case of Deputy Commissioner of income tax vs Cheil communications private limited [ ITA number 712/del/2010], wherein it was held that markup is to be applied to the cost incurred by the assessee company in performing its agency function and not to the cost of rendering advertisement space on behalf of its associated enterprises. Therefore, he held that based on economic and commercial reality of the operations of the appellant, income towards agency functions performed by the appellant, the 3rd party costs are not relatable to the agency function and are liable to be excluded from the cost base. The Page | 24 assessee has produced before us an agreement dated 21st of March 2001 entered into between BBC worldwide and BBC worldwide (India) private limited. According to that agreement, assessee shall act as BBC worldwide's exclusive agent for marketing and distribution of the televised Channel BBC world to cable operators and as and when approved by the Indian government to any other broadcast distribution system in India. The assessee shall further carry out research in respect of the performance and viewership of BBC world in India and communicate the results of all such research to BBC worldwide. The BBC worldwide shall provide assessee from time to time with appropriate promotional material to assist assessee in carrying out its distribution and marketing services. In consideration for the provision of the above services by assessee, BBC worldwide shall pay assessee such amount as shall be sufficient to cover the 'operating costs' (including appropriate overhead) which shall be incurred by assessee in providing the above services, together with an additional payment of 10% of such cost. The level of such cost shall be agreed in advance by BBC worldwide and assessee on an annual basis. The terms of this agreement shall commence on 01/04/2000 and shall continue until terminated by either party on not less than 6 months prior written notice to the other party. This fact is confirmed by assessee as well as BBC worldwide Ltd as per this agreement. On plain reading of this agreement, the consideration is required to be determined which shall be sufficient to cover the operating cost, (including appropriate overhead) which shall be incurred by the assessee in providing the above services. Such cost base needs to be agreed by the Page | 25 assessee and AE in advance. Therefore, it is apparent that all expenditure incurred by the assessee for provision of the market support services to BBC worldwide shall form part of the cost base on which assessee is required to be remunerated. There is no definition of what is 'operating cost' in the agreement. No evidences were produced either before the lower authorities or before us to show how the operating cost is worked out and how both the parties have come to conclusion about the level of the operating cost of the assessee. Therefore, it is left between the parties to decide what could be the 'operating cost' on which the assessee should be remunerated and what is the meaning of the words '(including appropriate overhead)' for the purpose of remuneration. No such clarification was given by the assessee before any of the lower authorities or before us. The learned CIT