Court dismisses Income Tax Appeal challenging ITAT's Order on AMP expenses for AY 2007-08, emphasizing non-mandatory Bright Line Test.

The High Court dismissed the Income Tax Appeal challenging the ITAT's Order for the Assessment Year 2007-08, which relied on the Sony Ericsson judgment and rejected the Bright Line Test application. The Court emphasized that zero attribution in AMP expenses could be possible in specific cases and that the Bright Line Test is not a statutory mandate. Despite pending challenges in the Supreme Court, the appeal was dismissed as it aligned with the decisions in Sony Ericsson and Bausch & Lomb cases, with the order subject to the final decision of the Supreme Court in the Sony Ericsson case.

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Issues:
Challenge to ITAT order on Bright Line Test application and reliance on Sony Ericsson judgment.

Analysis:
The High Court heard an Income Tax Appeal challenging the ITAT's Order dated 22nd January, 2021 for the Assessment Year 2007-08. The appellant argued that the ITAT erred in relying on the judgment in Sony Ericsson case, as the Department had appealed against it in the Supreme Court. The appellant also contended that the ITAT incorrectly held that the Bright Line Test was not mandated by law. They argued that the Bright Line Test was used as an economic tool to determine the cost of services, not the price, and the TPO had the authority to determine such cost as a primary step in ALP determination as per the Rules.

The Court referred to the Sony Ericsson judgment, which stated that the Bright Line Test has no statutory mandate and a broad-brush approach is not prescribed. The Court disagreed with the Revenue's submission that all costs or compensation paid for AMP expenses should be treated as 'NIL'. The Court emphasized that in specific cases, zero attribution could be possible based on the facts presented. Additionally, the Court cited the Bausch & Lomb case, which followed the Sony Ericsson decision, stating that the Bright Line Test is not applicable to determine the existence of an international transaction involving AMP expenditure.

Despite the challenges to the Court's judgments pending in the Supreme Court, the High Court noted that there was no stay on the judgments. Therefore, the present appeal was dismissed, as it was covered by the decisions in Sony Ericsson and Bausch & Lomb cases. However, the Court clarified that the order in the appeal would be subject to the final decision of the Supreme Court in the SLP filed in the Sony Ericsson case.

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