2022 (8) TMI 1539 - HC - Income Tax

Determining the quantum of AMP expense - Bright Line Test rejected - HELD THAT - This Court in Sony Ericsson 2015 (3) TMI 580 - DELHI HIGH COURT has categorically held that Bright Line Test has no statutory mandate. Further, 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 2015 (3) TMI 580 - DELHI HIGH COURT 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.

Summary

Issues:
Challenge to ITAT order on AMP expense determination using Bright Line Test, exclusion of routine sales and distribution expenses, AMP expense under brand name 'SHARP', rejection of AMP adjustment using Bright Line method pending Supreme Court adjudication.

Analysis:
The High Court heard an Income Tax Appeal challenging the ITAT's Order regarding the Assessment Year 2011-12. The appellant argued that the ITAT erred in rejecting the Bright Line Test for determining the quantum of AMP expense, emphasizing the larger issue of reimbursement of AMP expenses by the AE to the assessee. The appellant contended that the exclusion of routine sales and distribution expenses was improper as the intangible benefits accrued to the AE due to trading branded products. Additionally, the ITAT's failure to appreciate that the AMP expenses were under the brand name 'SHARP' and not 'SHARP India' was highlighted.

The appellant further argued that the ITAT's rejection of the AMP adjustment using the Bright Line method based on the judgment in Sony Ericsson was erroneous, especially when a pending appeal on the matter was before the Supreme Court. The Court referenced the Sony Ericsson case, stating 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 also cited the Bausch & Lomb Eyecare case, reiterating that the Bright Line Test is not applicable to determine international transactions involving AMP expenditure.

Despite the pending challenges to the Court's judgments before the Supreme Court, the High Court dismissed the present appeal, citing precedents and emphasizing that there is no stay on the judgments. The dismissal was based on the judgments in Sony Ericsson and Bausch & Lomb Eyecare cases. However, it was clarified that the order in the present appeal would abide by the final decision of the Supreme Court in the SLP filed in the Sony Ericsson case.