Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
Transaction: Advertisement, Marketing and Sales Promotion expenses
Industry: Document management
- During the year under consideration, the Assessee had incurred Rs.16.79 Crs on Advertisement, Marketing and Promotion (AMP) expenses which in the view of Assessing Officer had created market intangibles including brand value in favour of Associated Enterprises and thus, being an international transaction same was needed to be benchmarked.
- The Transfer Pricing Officer applied Bright Line Test (BLT) for computing the AMP adjustment. The Transfer Pricing Officer allowed the AMP expenses of Rs. 3.08 Crs and balance AMP expenses of Rs. 13.70 Crs were considered as incurred for creating marketing intangibles in favour of the Associated Enterprises. After that a markup of 12.5% on the said amount was applied and a total AMP adjustment of Rs. 15.42 Crs was benchmarked.
- Therefore, in the draft assessment order the Assessing Officer included the adjustment proposed by the Transfer Pricing Officer on account of AMP expenses treating it to be an international transaction.
- The Tribunal placed reliance on the decision in Assessee’s own case, wherein further reliance was placed on the decision in the case of Valvoline Cummins (P.) Ltd. vs. Deputy Commissioner of Income Tax. It was held that mere use of brand name or logo owned by the Associated Enterprises by the taxpayer will not automatically lead to influence that any expenses that the taxpayer incurred towards AMP was only to enhance the brand.
- It was observed that the BLT was not an appropriate yardstick for determining the existence of an international transaction or for that matter for calculating the Arm’s Length Price of such transaction.
- Therefore, following the same in the present facts of the case, adjustment made on account of AMP transaction was to be deleted.