2023 (12) TMI 771 - HC - Income Tax

TP adjustment - Advertising, Marketing and Promotion (AMP expenses) by applying the Bright Line Test was sustainable - international transaction or not? - HELD THAT - Tribunal ruled in AY 2008-09 that the excessive AMP expenditure did not fall in the category of an international transaction and, therefore, the adjustment made qua the same was unsustainable in the eyes of law. This conclusion was based on a finding of fact that the respondent/assessee was primarily engaged in manufacturing operations and that AMP expenditure had been incurred to benefit its own operation, and not for promoting an associated enterprise (AE). Tribunal also disapproved the TPO s approach of applying the Bright Line Test in benchmarking the AMP expenses. This view was based on a judgment rendered in Sony Ericsson India Pvt. Ltd. V. CIT 2015 (3) TMI 580 - DELHI HIGH COURT and Maruti Suzuki India Ltd. v. CIT 2015 (12) TMI 634 - DELHI HIGH COURT Tribunal also highlighted the fact that before ascertaining the arms length price on an international transaction concerning AMP expenditure, the appellant/revenue would have to discharge the onus that an international transaction had occurred between the assessee and the associated enterprise. This view was also founded on the decision of the coordinate benches of this court rendered in Bausch Lamb Eye Care (India) Pvt. Ltd. 2015 (12) TMI 1332 - DELHI HIGH COURT and Honda Siel Power Products Ltd. v. Dy. CIT 2015 (12) TMI 1333 - DELHI HIGH COURT Tribunal both in the period in issue i.e., AYs 2010-11, and in 2008-09, has remitted the matter to the file of the Assessing Officer (AO).We are also informed that the appellant/revenue has lodged an appeal against the decision rendered by this court in Sony Ericsson 2015 (3) TMI 580 - DELHI HIGH COURT Therefore, this appeal is closed as according to us, a substantial question of law arises for consideration by this court.

Summary

Issues involved:
The appeal concerns Assessment Year (AY) 2010-11. The main issue is whether the adjustment made by the Transfer Pricing Officer (TPO) regarding Advertising, Marketing, and Promotion (AMP expenses) using the Bright Line Test was sustainable.

Summary:
In the instant appeal, the appellant/revenue challenges the order passed by the Income Tax Appellate Tribunal regarding AMP expenses. The Tribunal had ruled in favor of the respondent/assessee for AY 2008-09, stating that the excessive AMP expenditure did not constitute an international transaction. This decision was based on the finding that the respondent was primarily engaged in manufacturing operations, and the AMP expenses were for its own benefit, not for promoting the associated enterprise (AE).

The Tribunal disapproved the TPO's use of the Bright Line Test for benchmarking AMP expenses, citing judgments from previous cases. It emphasized that before determining the arms' length price for an international transaction involving AMP expenditure, the appellant/revenue must prove that such a transaction occurred between the assessee and the associated enterprise.

It was noted that the position in AY 2010-11 was not different from that in AY 2008-09, both factually and legally. The Tribunal remitted the matter to the Assessing Officer for both periods. The appellant/revenue had appealed the decision in Sony Ericsson, indicating a substantial legal question for the court to consider.

The appeal was closed, with the possibility of revival if the appellant/revenue succeeded in the pending Special Leave Petition related to Sony Ericsson. An application for condonation of delay in filing the appeal was deemed unnecessary due to the order passed. The Registry was instructed to send a copy of the order to the respondent/assessee through all available modes.