VCOMMISSION MEDIA PRIVATE LIMITED,NEW DELHI vs. ACIT, CIRCLE 26(1), NEW DELHI

PER AMITABH SHUKLA, AM, This appeal filed by the assessee is against order dated 05.07.2024 of the National Faceless Appeal Centre/Learned Commissioner of Income Tax (Appeals), New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 22.12.2017 passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2015-16. The word ‘Act’ herein this order would mean Income Tax Act, 1961. 2. The assessee has raised following grounds of appeal:- Page 2 of 9

1 That the Ld. CIT (Appeals) erred on facts and in law in dismissing the appeal against the assessment order u/s 143(3), by sustaining the addition of Rs. 2,12,05,483/-.
2 That the Ld. CIT (Appeals) has erred in law and on facts in disallowing the depreciation expenses of Rs. 1,01,982 - on vehicles by wrongly treating depreciation to be a volitional expense allowed on actual usage.
3 That the Ld. CIT (Appeals) has erred in law and on facts in disallowing the interest on car loan of Rs. 18,110/- continuing from preceding years.
4 That the Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of Rs. 68,731 in respect of HR Recruitment &
placement expenditure of Rs. 48,250 and Staff Welfare expenses of Rs. 20,481. 5 That the Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of Rs. 2,10,00,000 u/s 40A (2)(a) in respect of payment to sister concern for email marketing at rates lower than those charged by govt. PSU.
6. That the Ld. CIT(A) has failed to appreciate, while sustaining the aforesaid disallowance u/s 40A(2)(a), that the AO has used comparative rates for a different service which was emphatically distinguished by assessee.
7. That the Ld. CIT(A) has failed to appreciate, while sustaining the aforesaid disallowance u/s 40A(2)(a), that the payment is revenue neutral in nature.
3. The first issue raised by the appellant assessee is regarding an addition of Rs.2,10,00,000/- made by the ld. AO under section 40A(2)(a) of the Act on the premise of excessive payment made to a sister concern and its confirmation by the ld. CIT(A). As per brief factual matrix of the case the assessee, a company incorporated under the Companies Act, 1956, is engaged in the business of internet advertising and affiliate marketing. The assessee had filed its original return of income u/s 139 of the Income Tax Act, 1961("the Act") for the Page 3 of 9

relevant AY on 30.09.2015 at the total income of Rs.3,72,56,170. The case of assessee was selected for scrutiny assessment. The assessment of the same was completed under section 143(3) on 22.12.2017 at an income of Rs. 5,84,61,653
after making an addition of Rs. 2,12,05,483. The assessee is engaged in the business of providing internet advertising and affiliate marketing services. The assessee provides services as a global affiliate marketing network providing performance-based advertising model where payment is made only when a specific action is successfully completed, making it a cost-effective and results- driven strategy. During the relevant assessment year, the assessee had subcontracted email marketing to its holding company, Adways VC India
Private Limited vide Release order VC/2014-15/1000 dt. 01.04.2014 to provide
3,00,00,000 impressions at the rate of Rs. 1 per email. An impression is counted each time an affiliate link, widget, or other marketing tool is actually displayed to the viewers. The ld. AO upon examination of the varied facts of the case concluded that the amount was excessive within the meanings of section 40A(2)(a) of the Act. The ld. AO concluded that the amount with a related party was not at Arm’s Length. The AO conducted online enquiries and devised his own algorithm to conclude that the payment of Rs.1 per email was excessive as the average cost was merely 0.30 paise. The AO therefore made addition of Rs.2,10,00,000/-. The ld. Counsel submitted that the ld. CIT(A) confirmed the findings of the ld. AO holding as under:-
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"…..The plea taken by the appellant is that it has paid a higher rate because both the data base as well as the SMTP server used were of the Adways Inc. On the one hand appellant is saying that service was taken from sister concern on the other hand it is saying that it has paid a higher amount because database and SMTP server were their own, these are two contradictory statements. In view of the above the conclusion drawn by the assessing officer is correct that appellant has paid an amount which is higher than market value and hence the addition made on account of inter-company purchase is upheld and the third ground of the appeal taken by the appellant is dismissed…."
4. The ld. Counsel for the assessee, Shri Pulkit Saini, Advocate vehemently argued against the decisions of the ld. AO and the ld. First Appellate Authority explaining the modalities of the business it was argued that there are two type of services and pricing modules available in this area of activity. Thus, it was submitted that Email services are of 2 types. Firstly, where buyer uses its own database and ESP (email service provider) provided its SMTP server &
technology. This type of services generally cost between Re 0.10 to 30 paisa per email and secondly where buyer does not have any database of its own and uses other party's database as well as technology to send emails. This type of services generally cost between Rs. 1 to 2 per email. The ld. Counsel submitted that the service of the latter type was availed by the assessee wherein the database as well as server and technology of Adways VC India P. Ltd. was used for email marketing. Adways VC India P. Ltd. has a quality database of over 50
lakh plus IDs on which the email marketing was conducted. It was further informed that the pricing model selected for the above contract was CPM- Cost
Per Mille which refers to cost-per-impression model in digital advertising,
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where the advertiser/publisher is paid a fixed rate for the number of times the advertisement is displayed to the customers. An impression is counted each time an affiliate link, widget, or other marketing tool is displayed to the viewers. The number of impressions created is distinct from the number of emails sent. In support of its contentions, the ld. Counsel drew our attention to a paper book filed, which was also filed before the lower authorities. It was argued that in support of his contentions of the adequacy of the amounts paid the assessee had even produced before the Id. AO the email quotation from 2
independent competitors providing the same service at the rate of Rs 1.5 (M/s
Lucini & Lucini communications) and Rs. 2 per email (M/s Netcore Solution P.
Ltd.) even though the service was not taken from them. Before the ld. CIT(A), the assessee had further submitted the quotation of IRCTC, a government PSU, for email marketing which charges upto Rs. 1 per email sent to email ID of users transacting on its platform so as to justify veracity of its claims.
5. The ld. Counsel further argued that the ld. AO in the instant case, incorrectly invoked the provisions of section 40A(2)(a) of the Act to hold the payment made by the assessee as unreasonable and by keeping the assessee in the dark, picked up some comparable providing different services of the 1st type, that is, email marketing without the database or with very insignificant database. It was submitted that the pricing page of the comparable selected by the Id. AO clearly provide that database will have to be provided by the user.
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The ld. Counsel argued that the comparison of the case of "Pro-Marketer' was untenable as it was having a small/insignificant database of only 2000
subscribers and was charging 0.92 paise/per email. It is the case of the appellant assessee that the pricing rate selected for comparison was the rate per email sent of Rs.0.30/email as opposed to the rate per impression charged by assessee of Rs. 1/email. If the rate charged by assessee is converted to the same base of rate per email sent then this would tantamount to rate of Rs.
1764/10000) = 0.18 per email sent much lower than the rate of Rs. 0.30/email worked out by the ld. AO. The ld. CIT(A) failed to appreciate the submissions of the assessee in the right perspective as only the observations of the ld. AO have been reiterated on account of an incorrect assumption of facts.
6. Per Contra, ld. DR placed reliance upon the orders of the authorities below.
7. We have heard rival submission and perused the material available on record. Upon consideration of the facts of the case, we find credence in the hypothesis propounded by the appellant assessee. Whereas, an assessing authority is entitled to invoke provisions of section 40A(2)(a) to determine
Arm’s length Pricing of a service, the comparison of the service in question is to be done only with a like service. An apple has to be compared to an apple only and not an orange. In the present case, we have noted that the rate of 30
paise calculated by the ld. AO as against Rs.1 claimed by the assessee, was Page 7 of 9

distinguished on facts. The charges for data services will have to be higher than the cases where the buyer uses his own data base. Thus, we have noted that the comparisons made by the ld. AO are distinguished on facts. We have also noted the conclusion drawn by the ld. CIT(A) are also bereft of any independent analysis and is merely dependent upon the order of the ld. AO. We are therefore are of the considered view that the addition made by the ld. AO is not supported by facts on records. We therefore set-aside the order of the ld. CIT(A) and direct the ld. AO to delete the impugned addition of Rs.2,10,00,000/- made invoking provisions of section 40A(2)(a) of the Act. The ground of the appeal raised by the assessee no.6 to 8 are therefore allowed.
8. The next issue raised by the assessee through ground of appeal no.3 to 4
is regarding disallowance of depreciation of Rs.1,01,982/-, and interest on car loan of Rs.18,110/-. The ld. AO had denied the claim of depreciation on the premise that the impugned vehicles were not used during the year under consideration. The ld. Counsel for the assessee submitted that non-use of the asset for business purpose would not be a ground to deny claim of depreciation and interest. In support of its contentions, the ld. Counsel placed reliance upon the decision of Hon’ble Delhi High Court in the case of Escorts Tractors Ltd.
(230 taxman 584) and Capital Bus Service Pvt. Ltd. 123 ITR 404. The ld. DR argued in favour of the orders of the lower authorities.
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employees because of the limited skills could not be hired from the William
Consulting Services. It has however been said that the said party was made payment of Rs.48,250/-. Similarly, as regards staff welfare expenses, it was stated that the same were towards purchase of coffee beans, tea sachet, etc. We have noted that the impugned amount was itself offered by the assessee for admission during the assessment proceedings and this fact has not been disputed. Accordingly, we confirm the addition made by the ld. AO and dismiss the ground of appeal no.5 raised by the assessee.
12. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 20th March, 2026. [SATBEER SINGH GODARA] [AMITABH SHUKLA]
JUDICIAL MEMBER

ACCOUNTANT MEMBER
Dated: 20.03.2026
Shekhar