Income Tax, Issue Update

Benchmarking Advertisement, Marketing and promotion expenses

Case: Kellogg India Pvt Ltd vs. Asst. CIT, Mumbai ITAT

This case revolves around the issue of benchmarking of Advertisement, Marketing and Promotion (AMP) Expenses.

One of the points that came strongly in favour of Kellogg in this case is that Kellogg not only sold products manufactured by the Associated Enterprise but also sold products manufactured by itself in India and thus the AMP expenses incurred by it was found to be incurred for promoting its own manufactured products (as opposed to products manufactured by AE). Does this mean that the AMP benchmarking requirement should apply differently to companies which are locally manufacturing goods sold under a common international brand?

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Facts

  • The Assessee incurred Advertisement, Marketing & Promotional (AMP) expenditure aggregating to Rs.11,537.80 lacs during the year under consideration.
  • However, the Transfer Pricing Officer (TPO) was of the view that the said transaction constituted international transaction as the Assessee was contractually required to promote the sale of Kellogg products in India.
  • Thus, the TPO proceeded to determine the Arm’s Length Price of the same using other method since the Assessee could not submit benchmarking information as called for by the TPO.

Key points

  • The Tribunal placed reliance on the decision in Assessee’s own case for a different assessment year, wherein it was held that as there was no express arrangement/ agreement between the Assessee and the Associated Enterprise for incurring such expenditure to promote the brand of the Associated Enterprise, hence, the said transaction would not constitute international transaction relating to AMP expenditure.
  • It was observed that the Assessee was not merely a distributor of the products manufactured by its Associated Enterprise but the Assessee itself was manufacturing its own products in India under license from the Associated Enterprise. Further, with a view to market and promote its own manufactured products, the Assessee incurred AMP expenditure by making payments to third parties in India.
  • Therefore, facts being pari-materia the same, respectfully following the said decisions of Tribunal in Assessee’s own case, the impugned Transfer Pricing adjustment against AMP expenditure was to be deleted.

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