Taxpayer wins appeal on AMP expenses and interest, Revenue appeal dismissed on BLT method and comparables

The Tribunal allowed the taxpayer's appeal, deleting the disallowance of AMP expenses and correcting computation errors in interest. It dismissed the Revenue's appeal, affirming the rejection of the BLT method and the inclusion/exclusion of certain comparables. The Tribunal's decision was pronounced on December 13, 2019.

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Issues Involved:
1. Disallowance of advertisement expenses under Section 37(1) of the Income Tax Act.
2. Errors in computing tax demand and interest under Sections 234B and 234C.
3. Rejection and inclusion of certain comparables by the DRP.
4. Verification of OP/sales and intensity of AMP functions.
5. Exclusion of routine selling and distribution expenses from AMP expenses.

Detailed Analysis:

1. Disallowance of Advertisement Expenses under Section 37(1)
The taxpayer, M/s. Moet Hennessy (I) Pvt. Ltd., contested the disallowance of Rs.6,64,24,161 in advertisement expenses under Section 37(1) of the Act. The TPO initially proposed an adjustment using the Bright Line Test (BLT), which was discarded by the DRP. However, the DRP disallowed the expenses under Section 37(1), stating they were prohibited by law. The Tribunal noted that the DRP cannot introduce new issues not raised by the AO. It held that the DRP's action amounted to an indirect remand, which is not permissible under Section 144C(8). On merits, the Tribunal found that the AMP expenses were revenue in nature and incurred for commercial expediency, citing previous judgments and the taxpayer's consistent treatment of such expenses in earlier years. It concluded that the disallowance was not sustainable and ordered its deletion.

2. Errors in Computing Tax Demand and Interest
The taxpayer highlighted errors in the computation of interest under Sections 234B and 234C, contending that the correct amounts should be Rs.1,68,37,706 and Rs.5,21,961, respectively, instead of Rs.1,94,50,024 and Rs.9,72,092. The Tribunal acknowledged this as a calculation error and directed the AO to correct it by giving credit for TDS.

3. Rejection and Inclusion of Certain Comparables by the DRP
The Revenue challenged the DRP's rejection of certain comparables accepted by the TPO and the inclusion of others. The Tribunal noted that the BLT method used by the TPO was not legally sustainable, as established by multiple judgments, including those in the taxpayer's own case for previous years. The Tribunal upheld the DRP's decision to discard the BLT and rejected the Revenue's appeal.

4. Verification of OP/Sales and Intensity of AMP Functions
The Revenue's appeal included objections to the DRP's direction to verify OP/sales and the intensity of AMP functions. The Tribunal did not find merit in these objections, noting that the DRP's directions were consistent with established legal principles and prior decisions.

5. Exclusion of Routine Selling and Distribution Expenses from AMP Expenses
The Revenue also contested the exclusion of routine selling and distribution expenses from AMP expenses. The Tribunal upheld the DRP's decision, aligning with its stance on the nature of AMP expenses and their treatment as revenue expenditure.

Conclusion:
The Tribunal allowed the taxpayer's appeal, deleting the disallowance of AMP expenses and correcting the computation errors in interest. It dismissed the Revenue's appeal, affirming the DRP's rejection of the BLT method and the inclusion/exclusion of certain comparables. The Tribunal's decision was pronounced on December 13, 2019.

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