2022 (11) TMI 384 - HC - Income Tax

Disallowance under Section 14A - No exempt income earned - HELD THAT - As it is admitted that no exempt income was earned by the Assessee in AYs 2012-13 and 2013-14. The ITAT following the judgment of this Court in Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has deleted the said disallowance made on account of Section 14A of the Act. TP adjustment on account of AMP expenditure - HELD THAT - As the present appeals are disposed of in terms of the judgment of the Division Bench in the aforesaid Income Tax Appeals, however, it is made clear that the present decision will abide by the judgment of the Supreme Court 2018 (5) TMI 2131 - SC ORDER preferred by the Revenue against the order passed by this Court in 2017 (5) TMI 1223 - DELHI HIGH COURT

Summary

Issues:
1. Appeal filed by Revenue under Section 260A of the Income Tax Act, 1961 against the common impugned order and judgment.
2. Addition on account of Advertisement, Marketing and Promotion (AMP) expenditure.
3. Protective and substantive addition made on account of AMP expenditure.
4. Disallowance under Section 14A of the Act.

Issue 1:
The Revenue filed an appeal under Section 260A challenging the order of the Income Tax Appellate Tribunal (ITAT) for the Assessment Years 2012-13 and 2013-14. The ITAT had deleted the addition on account of AMP expenditure and disallowance under Section 14A of the Act.

Issue 2:
The AMP expenditure issue involved protective and substantive additions by the Transfer Pricing Officer (TPO). The TPO applied the Bright Line Test and Cost Plus Method for the AMP expenditure. The ITAT observed that there was no international transaction for brand promotion between the Assessee and its Associated Enterprise (AE), leading to the deletion of the adjustments.

Issue 3:
The ITAT's decision was influenced by previous court rulings, including the Bausch & Lomb Eyecare Pvt. Ltd. case and Maruti Suzuki vs. CIT case. The ITAT upheld the deletion of transfer pricing adjustments on AMP expenditure for previous assessment years, which was also supported by the High Court.

Issue 4:
Regarding the disallowance under Section 14A of the Act, the ITAT deleted the disallowance as no exempt income was earned by the Assessee in the relevant assessment years. This decision was in line with the judgment in Cheminvest Ltd. case, and the court found the Revenue's contentions regarding the CBDT Circular to be untenable.

In conclusion, the High Court disposed of the appeals in accordance with previous judgments related to AMP expenditure and Section 14A disallowance. The decision was made pending the outcome of the Supreme Court's judgment in a related case.