Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
Issue Outcome: In favour of Assessee
- During the year under consideration, the Assessee incurred Rs.92.61 Crs towards Advertisement, Marketing and Promotion (AMP) expenditure.
- The Assessing Officer was of the view that created marketing intangible and hence, treated it as an international transaction and transfer pricing adjustment was proposed.
- Reliance was placed on the decision in the case of Maruti Suzuki India Ltd and Bausch & Lomb Eyecare (India) Pvt. Ltd., wherein it was held that the existence of an international transaction will have to be established de hors the Bright Line Test, the – burden was on the Revenue to first show the existence of an international transaction. The objective of Chapter X was to make adjustments to the price of an international transaction which the Associated Enterprises involved may seek to shift from one jurisdiction to another. An ‘assumed’ price could not form the reason for making an Arm’s Length Price adjustment. Since a quantitative adjustment was not permissible for the purposes of a transfer pricing adjustment under Chapter X, equally it could not be permitted in respect of AMP expenses.
- It was observed that the basic purpose of introducing the various provisions of chapter X, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas Associated Enterprise. A perceived/ notional indirect benefit to the Associated Enterprise, due to incurring of certain expenditure by an Assessee in India, was not covered by the transfer pricing provisions. It was a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India.
- Respectfully following the said decisions in the present facts of the case, it could be concluded that the AMP expenditure was not an international transaction for the instant year and hence, no adjustment to Arm’s Length Price need to be made thereon.
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