2022 (12) TMI 1257 - AT - Income Tax

Assessee's Appeal Allowed on AMP Expenses & Benchmarking; Some Grounds Dismissed

Casio India Company Pvt. Ltd. Versus DCIT Circle-5 (2) New Delhi

The Tribunal allowed the appeal of the assessee, deleting the adjustments related to AMP expenses and rejecting the use of BLT and RPSM for benchmarking. ... TP Adjustment - benchmarking qua AMP expenditure - HELD THAT:- Similar views have also been taken in previous years by this Tribunal [2019 (4) TMI 1774 - ITAT DELHI], wherein this Tribunal has also looked into the all the records and materials including ‘memorandum of understanding for basic transaction entered into between the assessee and its AE dated 01/06/2009’. Therefore, the contention of the Ld. DR that, the Tribunal has not looked into the ‘memorandum of understanding for basic transaction rules” is not correct. In view of the above binding decisions of this Tribunal mentioned supra and in the light of the discussion made above, we are of the opinion that, when there is no international transaction, no separate benchmarking qua AMP expenditure can be made; hence the adjustments are liable to be deleted. Appeal of the assessee is allowed. Issues Involved:1. Validity of the final assessment order.2. Treatment of Advertising, Marketing & Promotion (AMP) expenses as an international transaction.3. Protective adjustment using the Bright Line Test (BLT).4. Substantive adjustment using the Residual Profit Split Method (RPSM).5. Penalty proceedings under section 271(1)(c).Detailed Analysis:1. Validity of the Final Assessment Order:The appellant challenged the final assessment order dated 30/04/2021, arguing it was invalid and void ab initio for not following the procedure under section 144B of the Income-tax Act, 1961. However, Grounds No. 1 to 4 were deemed too general in nature and required no adjudication.2. Treatment of AMP Expenses as an International Transaction:The appellant contested the addition of INR 17,40,55,504 to its total income, arguing that the AMP expenses should not be treated as an international transaction under section 92B of the Act. The Tribunal referred to previous decisions in the appellant’s own cases for AY 2010-11, 2011-12, 2012-13, 2013-14, and 2015-16, where it was held that AMP expenses could not be treated as a separate international transaction. The Tribunal reiterated that there was no material evidence to prove any explicit arrangement between the appellant and its associated enterprises (AEs) regarding AMP expenses. Consequently, the adjustments on AMP expenses were deleted.3. Protective Adjustment Using the Bright Line Test (BLT):The Tribunal noted that the Bright Line Test (BLT) had been rejected by the Hon'ble Delhi High Court in multiple cases, including Sony Ericsson Mobile Communications India Pvt. Ltd. and Maruti Suzuki India Ltd. The Tribunal emphasized that the Revenue had failed to bring on record any material to treat AMP expenses as an international transaction, especially since the BLT is not a legally sustainable method. The Tribunal followed its previous rulings and deleted the AMP adjustments made using the BLT.4. Substantive Adjustment Using the Residual Profit Split Method (RPSM):The Tribunal addressed the appellant's contention against using the Residual Profit Split Method (RPSM) for benchmarking AMP expenses. The Tribunal noted that the first step for computing non-routine AMP expenses using RPSM is the BLT, which has been held unlawful. Therefore, the Tribunal found the application of RPSM inappropriate and deleted the substantive adjustments made using this method.5. Penalty Proceedings Under Section 271(1)(c):The appellant also challenged the initiation of penalty proceedings under section 271(1)(c). However, this ground was considered consequential and did not require separate adjudication.Conclusion:The Tribunal allowed the appeal of the assessee, deleting the adjustments related to AMP expenses and rejecting the use of BLT and RPSM for benchmarking. Grounds No. 1 to 4 and 19 were dismissed as they were either too general or consequential in nature. The order was pronounced in the open court on 26th May 2022.