AMP advertising and marketing spend by distributor for alleged AE brand promotion-transfer pricing adjustment struck down; appeal dismissed

Transfer pricing adjustment on alleged AMP-related international transaction was rejected because the Revenue failed to show any agreement, arrangement, or material evidencing that the assessee incurred AMP expenditure for its AE's brand promotion. The TPO's inference of an international transaction based merely on the quantum of AMP spend and application of the BLT was held impermissible, being contrary to the HC rulings in Maruti Suzuki and Bausch Lomb. The Revenue's plea for remand on the basis that the assessee was a distributor was declined since, unlike Sony Ericsson, no contractual terms were shown to support an AMP transaction. The ITAT's deletion of the AMP adjustment was upheld and the appeal was dismissed.

---

---

Issues Involved:
1. Condonation of delay in filing and re-filing the appeal.
2. Adjustment of Advertising, Marketing, and Promotion (AMP) expenditure as an international transaction.
3. Application of the Bright Line Test (BLT) method for AMP expenditure adjustment.
4. Existence of an international transaction between the Assessee and its Associated Enterprises (AEs).

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The court condoned the delay in filing and re-filing the appeals based on the averments in the applications, thereby disposing of the related applications.

2. Adjustment of AMP Expenditure as an International Transaction:
The Revenue challenged the ITAT's orders for AY 2009-10 and AY 2010-11, which deleted the AMP expenditure adjustment made by the Transfer Pricing Officer (TPO). The ITAT concluded that there was no material evidence suggesting an arrangement or understanding between the Assessee and its AE regarding AMP expenditure. The expenditure was deemed bona fide business expenditure in the Assessee's legitimate business interest. The ITAT emphasized that the BLT method used by the TPO to determine the AMP adjustment had already been rejected by the Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. Commissioner of Income Tax - III.

3. Application of the BLT Method:
The TPO applied the BLT method to adjust Rs. 6,64,70,841/- for AY 2009-10 and Rs. 712,19,145/- for AY 2010-11 on account of AMP expenditure. The ITAT held that the BLT method was not legally sustainable as it had been negatived by the Delhi High Court in previous judgments. The ITAT found no reason to remit the matter back to the TPO, as the Revenue had failed to provide any material evidence to justify the AMP expenditure adjustment.

4. Existence of an International Transaction:
The Revenue argued that the AMP expenses created an intangible asset for the AE in India, thus constituting an international transaction. However, the ITAT found no agreement or material evidence to support this claim. The TPO's determination was based on a presumption, which contradicted the Delhi High Court's decision in Maruti Suzuki vs. CIT. The ITAT noted that the Revenue's contention of an international transaction was not substantiated by any factual evidence or legal basis.

The ITAT's findings were supported by the Delhi High Court's decisions in Maruti Suzuki (Supra) and Bausch & Lomb Eyecare Pvt. Ltd. vs. Additional Commissioner of Income Tax, which set aside similar TPO/AO orders that determined AMP expenditure as an international transaction without evidence and solely based on the BLT method.

Conclusion:
The court dismissed the Revenue's appeals, affirming the ITAT's orders. The court held that the ITAT correctly assessed the facts and law, and there was no substantial question of law warranting further consideration. The AMP expenditure adjustment based on the BLT method was not legally sustainable, and the Revenue failed to prove the existence of an international transaction between the Assessee and its AE.

---