2022 (11) TMI 981 - HC - Income Tax

TP Adjustment - adjustment on account of AMP expenditure - international transaction - Assessee has incurred huge Advertising, Marketing and Promotion ( AMP ) expenditure with the objective of expanding the reach of the AE s brand in India, who is the legal owner of the brand - HELD THAT - It is admitted on record that the contention of the Revenue that there exists an international transaction between the Assessee and its AE, is not based on any agreement executed between the said parties. The sole basis for making this adjustment was a presumption drawn by the TPO that huge AMP expenditure was incurred by the Assessee to expand the reach of its AE s brand in India. TPO has determined the existence of an international transaction on a matter of a presumption, which runs counter to the decision of this Court in Maruti Suzuki 2015 (12) TMI 634 - DELHI HIGH COURT Revenue has not brought on record any material to assail the aforesaid finding of the ITAT as regards the absence of any international transaction - In similar facts, the Court in Maruti Suzuki (supra) set aside the order of the TPO/AO, which had determined the AMP expenditure as an international transaction, without any evidence on record and only on the basis of BLT. We are unable to agree with the contention of the learned counsel for the Revenue that in the facts of the present appeal(s), the matter should be remanded to TPO in terms of Sony Ericsson 2015 (3) TMI 580 - DELHI HIGH COURT - He states that in the said decision this Court held that there exists an international transaction between the Assessee therein, who was a distributor , and its AE. We are unable to accept the said contention of the learned counsel for the Revenue that since the Assessee herein is a distributor for its AE, the corollary of this fact is that there exists an international transaction with respect to AMP expenditure, incurred by the Assessee. In the case of Sony Ericsson (Supra), the finding of this Court that the Assessee(s) therein may have an international transaction with their AE(s) for AMP expenditure was based on the terms of the agreement between the Assessee(s) and their AE(s) in the said case. The issue with respect to deletion of transfer pricing adjustment on account of AMP expenses, determined on BLT method, by the ITAT is squarely covered by the decisions of this Court in the case of Maruti Suzuki (Supra) and Bausch Lomb 2015 (12) TMI 1332 - DELHI HIGH COURT - We are, therefore, not inclined to frame any substantial question of law on this issue. The facts and law have been correctly assessed by the ITAT and we therefore, do not find any merits in the appeal and the accordingly, the same are dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing and re-filing the appeal.
2. Adjustment of Advertising, Marketing, and Promotion (AMP) expenditure as an international transaction.
3. Application of the Bright Line Test (BLT) method for AMP expenditure adjustment.
4. Existence of an international transaction between the Assessee and its Associated Enterprises (AEs).

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The court condoned the delay in filing and re-filing the appeals based on the averments in the applications, thereby disposing of the related applications.

2. Adjustment of AMP Expenditure as an International Transaction:
The Revenue challenged the ITAT's orders for AY 2009-10 and AY 2010-11, which deleted the AMP expenditure adjustment made by the Transfer Pricing Officer (TPO). The ITAT concluded that there was no material evidence suggesting an arrangement or understanding between the Assessee and its AE regarding AMP expenditure. The expenditure was deemed bona fide business expenditure in the Assessee's legitimate business interest. The ITAT emphasized that the BLT method used by the TPO to determine the AMP adjustment had already been rejected by the Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. Commissioner of Income Tax - III.

3. Application of the BLT Method:
The TPO applied the BLT method to adjust Rs. 6,64,70,841/- for AY 2009-10 and Rs. 712,19,145/- for AY 2010-11 on account of AMP expenditure. The ITAT held that the BLT method was not legally sustainable as it had been negatived by the Delhi High Court in previous judgments. The ITAT found no reason to remit the matter back to the TPO, as the Revenue had failed to provide any material evidence to justify the AMP expenditure adjustment.

4. Existence of an International Transaction:
The Revenue argued that the AMP expenses created an intangible asset for the AE in India, thus constituting an international transaction. However, the ITAT found no agreement or material evidence to support this claim. The TPO's determination was based on a presumption, which contradicted the Delhi High Court's decision in Maruti Suzuki vs. CIT. The ITAT noted that the Revenue's contention of an international transaction was not substantiated by any factual evidence or legal basis.

The ITAT's findings were supported by the Delhi High Court's decisions in Maruti Suzuki (Supra) and Bausch & Lomb Eyecare Pvt. Ltd. vs. Additional Commissioner of Income Tax, which set aside similar TPO/AO orders that determined AMP expenditure as an international transaction without evidence and solely based on the BLT method.

Conclusion:
The court dismissed the Revenue's appeals, affirming the ITAT's orders. The court held that the ITAT correctly assessed the facts and law, and there was no substantial question of law warranting further consideration. The AMP expenditure adjustment based on the BLT method was not legally sustainable, and the Revenue failed to prove the existence of an international transaction between the Assessee and its AE.