2022 (9) TMI 196 - HC - Income Tax

TP adjustment - Scope of judgments of High Court as challenged and pending adjudication before the Supreme Court - Bright Line Test Application as statutory mandate - applying the Bright Line Test to determine the existence of an international transaction involving AMP expenditure - whether ITAT has erred in relying upon the judgment of this Court in Sony Ericsson Mobile Communication 2015 (3) TMI 580 - DELHI HIGH COURT as the Department has not accepted the decision passed in Sony Ericsson (supra) and has preferred an appeal against the said decision before the Supreme Court - HELD THAT - This Court in the cases of Bausch Lomb Eyecare (India) (P.) Ltd. 2015 (12) TMI 1332 - DELHI HIGH COURT following the decision in Sony Ericsson (supra) held that the question of applying the Bright Line Test to determine the existence of an international transaction involving AMP expenditure does not arise. Though the judgments of this Court have been challenged and are pending adjudication before the Supreme Court, yet there is no stay of the said judgments till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another 2000 (7) TMI 67 - SUPREME COURT and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras, 1992 (4) TMI 183 - SUPREME COURT the present appeal is dismissed being covered by the judgments passed by the learned predecessor Division Bench in Sony Ericsson (supra) Bausch Lomb Eyecare India P. Ltd. (supra).

Summary

Issues:
Challenge to ITAT order on Bright Line Test application and reliance on Sony Ericsson judgment.

Analysis:
The High Court heard an Income Tax Appeal challenging the ITAT's Order dated 22nd January, 2021 for the Assessment Year 2007-08. The appellant argued that the ITAT erred in relying on the judgment in Sony Ericsson case, as the Department had appealed against it in the Supreme Court. The appellant also contended that the ITAT incorrectly held that the Bright Line Test was not mandated by law. They argued that the Bright Line Test was used as an economic tool to determine the cost of services, not the price, and the TPO had the authority to determine such cost as a primary step in ALP determination as per the Rules.

The Court referred to the Sony Ericsson judgment, which stated that the Bright Line Test has no statutory mandate and a broad-brush approach is not prescribed. The Court disagreed with the Revenue's submission that all costs or compensation paid for AMP expenses should be treated as 'NIL'. The Court emphasized that in specific cases, zero attribution could be possible based on the facts presented. Additionally, the Court cited the Bausch & Lomb case, which followed the Sony Ericsson decision, stating that the Bright Line Test is not applicable to determine the existence of an international transaction involving AMP expenditure.

Despite the challenges to the Court's judgments pending in the Supreme Court, the High Court noted that there was no stay on the judgments. Therefore, the present appeal was dismissed, as it was covered by the decisions in Sony Ericsson and Bausch & Lomb cases. However, the Court clarified that the order in the appeal would be subject to the final decision of the Supreme Court in the SLP filed in the Sony Ericsson case.