2016 (1) TMI 1234 - HC - Income Tax

High Court remands ITAT order on AMP expenses, emphasizes no Bright Line Test in international transactions

SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (NOW MERGED WITH SONY INDIA PVT LTD) Versus DEPUTY COMMISSIONER OF INCOME TAX AND PR. COMMISSIONER OF INCOME TAX - 8 NEW DELHI Versus M/s SONY MOBILE COMMUNICATIONS (INDIA) PVT. LTD

The High Court set aside the ITAT's order and remanded the case for a fresh decision regarding the existence of an international transaction involving AMP ... Advertisement, marketing and sales promotion (‘AMP’) expenses - whether there was an was an international transaction in regard to the AMP expenses incurred by the Assessee on behalf of its foreign associated enterprise (‘AE’) within the meaning of Section 92B? - Held that:- As already noticed, the earlier decision of this Court in Sony Ericsson (2015 (3) TMI 580 - DELHI HIGH COURT ) proceeded on the basis that the Assessees whose cases were being disposed of did not dispute the existence of an international transaction involving AMP expenses. This Court is not required to opine whether such concession was rightly made or not. However, as far AY 2010-11 is concerned, the Assessee appears to have raised a specific ground both before the DRP as well as the ITAT regarding existence of an international transaction and this is reiterated in this Court in the present appeal of the Assessee as well. Such plea will have to be decided by the ITAT in accordance with law. Consequently, it is ordered that the impugned order of the ITAT is set aside and the said appeal stands restored to the file of the ITAT. The ITAT will decide the aforementioned appeal afresh in light of the directions issued by this Court in Sony Ericsson (supra).The ITAT will examine all the grounds including the one regarding the existence of an international transaction involving AMP expenses. Issues Involved:1. Determination of international transaction involving advertisement, marketing, and sales promotion (AMP) expenses.2. Arm's length price (ALP) determination for the international transaction.3. Application of Bright Line Test (BLT) in determining the ALP.4. Existence of an international transaction involving AMP expenses.5. Review of earlier decision in Sony Ericsson case regarding AMP expenses.6. Dispute over the existence of an international transaction for the Assessment Year (AY) 2010-11.Analysis:1. The central issue in this case revolved around determining whether there was an international transaction concerning AMP expenses incurred by the Assessee for its foreign associated enterprise (AE) under Section 92B of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) had remanded the matter to the Assessing Officer (AO) based on a previous decision, and the High Court was tasked with reconsidering the issue in light of subsequent judgments.2. The High Court referenced the decision in LG Electronics India Pvt. Ltd. v. ACIT and the subsequent ruling in Sony Ericsson Mobile Communications India P. Ltd. v. Commissioner of Income Tax. The Court highlighted that the Bright Line Test (BLT) could not be applied to determine the existence of an international transaction involving AMP expenses or the ALP of such a transaction. Directions were given for the ITAT to reassess the issue on remand.3. The Court emphasized that the Assessees did not contest the existence of international transactions with their AEs involving AMP expenses. The decision in Sony Ericsson case set the precedent for such matters, and the present appeal for the AY 2010-11 required a specific determination regarding the existence of an international transaction involving AMP expenses.4. The Assessee argued that incurring AMP expenses was part of its role and responsibility, not constituting an international transaction under Section 92B of the Act. However, the Revenue contended that the issue had been settled in the Sony Ericsson case and revisiting it would amount to reviewing the earlier decision. The Court noted the specific ground raised by the Assessee and directed the ITAT to decide the appeal afresh considering all grounds, including the existence of an international transaction involving AMP expenses.5. In conclusion, the High Court set aside the ITAT's order and restored the appeal to the ITAT for a fresh decision in accordance with the directions provided in the Sony Ericsson case. The ITAT was instructed to examine all grounds, including the disputed existence of an international transaction involving AMP expenses for the AY 2010-11.