Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
Transaction: Advertisement, Marketing and promotion expenses
- The Assessee was engaged in the business of manufacturing of cosmetic, marketing and sale of product, filed its return of income for relevant AY on 29.11.2015 declaring income of Rs. 153.60 crores. The Assessee had incurred huge expenses of Rs. 711.57 crore on Advertising and Marketing and Promotion expenses (AMP).
- The Transfer Pricing Officer was of the view that the said expenses created valuable marketing intangible by incurring huge expenses for L’oreal brand as the Assessee was not the legal owner of the brand in India and by way of huge marketing expenses it contributed to development of Associated Enterprise’s brand.
- Therefore, the Assessing Officer made addition of Rs. 256.56 crores on account of AMP expenses.
- The Tribunal placed reliance on the decision in the Assessee’s own case, wherein it was observed that there was no agreement between the Assessee and the Associated Enterprises for sharing the expenses and the payments made by the Assessee for the expenses of AMP. The Transfer Pricing Officer had not brought any fact on record that there existed any agreement between the Assessee and its Associated Enterprise to share or reimburse the AMP expenses.
- In the present facts of the case, no factual difference for the year under consideration was brought to the notice of Tribunal nor any contrary law was shown to the Tribunal.
- Therefore, as the revenue had failed to discharge the onus that was cast upon it as regards proving that there existed an ‘understanding’ or an ‘arrangement’ or ‘action in concert’ as per which the Assessee had agreed for incurring of AMP expenses for brand building of its Associated Enterprise, the transfer pricing adjustment in respect of AMP expenses could not be sustained.