2024 (12) TMI 772 - HC - Income Tax

TP Adjustment - Advertising, Marketing and Promotional AMP expenditure - HELD THAT - As in the absence of any material or evidence which may have tended to establish the existence of an arrangement between the Indian entity and its AE, or which may have been viewed as evidence of them acting in concert, the view expressed by the TPO is untenable and the order of the Tribunal is liable to be upheld. This more so in light of the order passed by this Court in Seagram Manufacturing Private Ltd. 2016 (12) TMI 1284 - DELHI HIGH COURT and which we propose to presently review. Viewed in light of the position of law which stood enunciated in the Maruti Suzuki 2015 (12) TMI 634 - DELHI HIGH COURT and Sony Ericsson decisions 2015 (3) TMI 580 - DELHI HIGH COURT we are of the considered opinion that the appeals fail to raise any substantial questions of law in this respect. Disallowance u/s 14A - Bearing in mind the admitted position of there being no exempt income which was earned in the concerned Assessment Years (AYs). We also bear in mind the judgment rendered recently in Alchemist Ltd. 2024 (8) TMI 1371 - DELHI HIGH COURT . Disallowance of brand building expenditure u/s 37 - This issue came to be answered in favour of the respondent as would be evident from the order 2016 (12) TMI 1284 - DELHI HIGH COURT wherein held nder the Trade Mark Act, especially Section 48, as long as the arrangement existed, the assessee, who was a licensee of the products, was entitled to claim them as business expenditure though in the ultimate analysis they might have enhanced the brand of the overseas owner. No doubt, if the arrangements were terminated, the brand presence of the overseas owner of the articles/IPR would have subsisted. But that would nevertheless subsist in any event on the theory of trans- national reputation of the IPR owner. Disallowing a certain proportion on an entirely artificial and notional basis from the expense otherwise deductible, in our opinion, was not justified. The question of law is answered against the revenue. Disallowance based on seized material pertaining to the preceding years - As conceded before us that the seized material pertained to AY 2002-03 whereas the present appeals pertain to the period AY 2007-08 to 2011-12. It is in the aforesaid context that the Tribunal had followed the view expressed by the Supreme Court in Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT to hold that in the absence of any incriminating material pertaining to the concerned AYs , no disallowances would be merited.

Summary

Issues:
1. Transfer Pricing Adjustment on account of Advertising, Marketing, and Promotional AMP expenditure
2. Disallowance under Section 14A of the Income Tax Act, 1961
3. Disallowance of brand building expenditure under Section 37 of the Act
4. Disallowance of INR 10,80,000/- based on seized material pertaining to the preceding years

Transfer Pricing Adjustment on AMP Expenditure:
The court noted that the issue of AMP expenses benefiting the Associated Enterprise (AE) must be decided against the appellant, citing precedents like Maruti Suzuki and Sony Ericsson cases. The Transfer Pricing Officer's view that AMP expenses amounted to brand building for the AE was deemed untenable due to the lack of evidence of an arrangement between the Indian entity and its AE. The court upheld the Tribunal's order in this regard.

Disallowance under Section 14A:
The court found no substantial question of law raised in relation to Section 14A disallowance, especially considering the absence of exempt income in the relevant Assessment Years (AYs). The court also referred to the judgment in Principal Commissioner of Income Tax vs. Alchemist Ltd. to support its decision not to interfere with the Tribunal's view on this issue.

Disallowance of Brand Building Expenditure:
The issue of disallowance of brand building expenses was discussed, referring to the Seagram Manufacturing case where the disallowance was ruled against the revenue department. The court quoted the Seagram Manufacturing order to emphasize that disallowing a proportion of expenses on a notional basis was not justified. Consequently, the court found no reason to re-examine this issue.

Disallowance based on Seized Material:
Regarding the disallowance based on seized material from a previous year, the court noted that the seized material was from a different Assessment Year (AY) than the present appeals. Following the Supreme Court's decision in Commissioner of Income-Tax III vs. Sinhgad Technical Education Society, the court held that without incriminating material from the relevant AYs, no disallowances were warranted. As a result, the appeals were dismissed based on these findings.