2019 (1) TMI 796 - AT - Income Tax

TPA - AMP expenses determination - following the BLT method - Held that - Addition on protective basis by following the BLT method cannot be sustained. We answer the issue accordingly in favour of the assessee.See SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (NOW KNOWN AS SONY INDIA LIMITED) & OTHERS VERSUS COMMISSIONER OF INCOME TAX III 2015 (3) TMI 580 - DELHI HIGH COURT

Summary

Issues:
1. Challenge to the order dated 25.10.2018 for the Asstt. Year 2014-15 passed by the Dy. Commissioner of Income-tax.
2. Determination of arm’s length price for international transactions.
3. Dispute regarding AMP expenditure as an international transaction.
4. Proposed enhancement of income by the TPO.
5. Directions given by the learned DRP.
6. Addition on protective basis following the BLT method.
7. Application of BLT method and statutory mandate.
8. Consistency in judgments and decision-making.

Analysis:

1. The appeal was filed challenging the order passed by the Dy. Commissioner of Income-tax for the Asstt. Year 2014-15, following directions from the Dispute Redressal Panel.

2. The case involved the determination of the arm’s length price for international transactions conducted by the assessee, a Japanese technology company engaged in various sectors.

3. The issue of whether the AMP (advertising, marketing, and promotional) expenditure incurred by the assessee constituted an international transaction was raised. The assessee argued that it played a significant role as the economic owner of the brand and was entitled to residual profits.

4. The TPO proposed to enhance the income of the assessee based on certain calculations, leading to a substantial addition to the draft assessment order under the Income-tax Act.

5. The learned DRP provided directions to the TPO, resulting in revisions to the proposed adjustments to the income of the taxpayer, particularly concerning the AMP expenditure and the BLT method.

6. The addition on a protective basis following the BLT method was a key point of contention. The Tribunal considered previous judgments, including one related to Sony Ericsson, and concluded that such an addition could not be sustained.

7. The application of the BLT method and the absence of a statutory mandate for adjustments on a protective basis were crucial in determining the outcome of the case.

8. Upholding the rule of consistency in judgments, the Tribunal ruled in favor of the assessee, citing previous decisions and the principles laid down by the Hon’ble Apex court.

In conclusion, the appeal of the assessee was allowed, and the Tribunal pronounced the order in favor of the assessee on 10th January 2019.