Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
This case revolves around the issue of benchmarking of Advertisement, Marketing and Promotion (AMP) Expenses.
Delhi ITAT, applying the Bright Line Test, favoured the assessee as it didn’t find any conclusive evidence of an international transaction between the taxpayer and Associated Enterprise.
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- The Assessee had incurred Advertisement, Marketing and Promotion (AMP) Expenses for the products having brand name of Suzuki.
- During transfer pricing proceedings, the Transfer Pricing Officer (TPO) noticed that in the process of manufacturing and selling of goods which bear the brand and trademark of Associated Enterprise, valuable marketing intangibles have been credited by way of well developed sales network and valuable supply chain in India in favour of the Associated Enterprise calling for suitable compensation from Associated Enterprise.
- Thus, the TPO benchmarked the AMP expenses by using Bright Line Test and proposed the transfer pricing adjustment.
- The Tribunal placed reliance in the decision laid down by the Hon’ble Delhi High Court in case of Maruti Suzuki India Ltd. Vs. Commissioner of Income Tax, wherein it was held that adjustment on account of AMP expenses was not permissible within the scheme of Chapter-X of the Act.
- Further, it was observed that in the absence of Revenue demonstrating existence of international transaction, only on account of quantum of AMP expenditure incurred by a concern, it could not pre-suppose the existence of international transactions.
- Therefore, following the same in the present facts of the case, the adjustment made by the TPO by applying the Bright Line Test on account of AMP expenses in the absence of international transactions between the taxpayer and Associated Enterprise was not sustainable in the eyes of law.