Transfer Pricing - Adjustment for Advertisement, Marketing, and Promotion expenses cannot be made using the "Bright Line Test"
Delhi High Court Upholds Tribunal Ruling Against Bright Line Test in AMP Expenses. Court dismisses appeal by Pr. Commissioner Of Income Tax, reaffirming that AMP expenses are not international transactions without tangible evidence.
In a significant decision, the Delhi High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax against Casio India Company Pvt. Ltd., reaffirming the stance that adjustments for Advertisement, Marketing, and Promotion (AMP) expenses using the Bright Line Test method are invalid. The ruling aligns with earlier judgments, including those concerning the same assessee, emphasizing judicial consistency.
The bench, comprising Justices V. Kameswar Rao and Vinod Kumar, upheld the Income Tax Appellate Tribunal's (ITAT) order favoring Casio India for the assessment year 2017-18. The Tribunal's decision, which invalidated adjustments to AMP expenses, relied on precedents where such expenses were not deemed international transactions without substantial evidence.
The court noted that similar issues had been adjudicated in Casio India's favor in previous cases relating to different assessment years. The ruling cited the Supreme Court's decision in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT, which dismissed the Bright Line Test for evaluating AMP adjustments as a benchmark.
The appellant's counsel argued for adjustments based on AMP expenses, but the court found no substantial questions of law that warranted reconsideration. The judgment underscores the court's adherence to established precedents, ensuring consistent application of the law.
This judgment is significant for multinational corporations operating in India, providing clarity on transfer pricing and AMP expenses. It reinforces the principle that AMP expenses for brand building do not inherently constitute international transactions, thereby impacting how companies manage their financial and tax planning strategies.
Bottom Line:
Transfer Pricing - Adjustment for Advertisement, Marketing, and Promotion (AMP) expenses cannot be made using the "Bright Line Test" method, as held in previous decisions of the Delhi High Court.
Statutory provision(s): Income Tax Act, 1961
