Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
This case delves on the issue of requirement to benchmark Advertisement, Marketing and promotion expenses.
Mumbai ITAT observed that the that merely because there was an incidental benefit to the foreign Associated Enterprise, it could not be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign Associated Enterprise. See Facts & Key Points.
- The Assessee was engaged in the manufacturing, distribution of sales of ‘Mattel’ toys.
- During the year under consideration, the Transfer Pricing Officer observed from the Profit and Loss account of the Assessee that Assessee had incurred Advertising, Marketing and Promotion (AMP) expenditure of Rs.7.94 Crores as against net sales of Rs.77.39 Crores which works out to Rs.10.25% of sales. The Transfer Pricing Officer was of the view that Assessee was incurring brand promotion expenses for promotion of brands which were owned by Associated Enterprises.
- The Assessee contended that by incurrence of the said AMP expenditure no benefit was derived by the Associated Enterprise and it did not render any services in any manner whatsoever to its Associated Enterprise.
- However, the Transfer Pricing Officer rejected the contentions of the Assessee and proceeded to make adjustment in respect of AMP expenditure of Rs. 5.97 Crs.
- The Tribunal placed reliance on the decision laid down in Assessee’s own case for different assessment year, wherein it was held that AMP expenditure was not an international transaction and hence, no adjustment could be made thereon.
- It was observed that merely because there was an incidental benefit to the foreign Associated Enterprise, it could not be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign Associated Enterprise.
- In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. Thus, where the existence of an international transaction involving AMP expense with an ascertainable price was unable to be shown to exist, even if such price was nil, Chapter X provisions could not be invoked to undertake a Transfer Pricing adjustment exercise.
- Respectfully following the said decision in the present facts of the case the AMP expenditure could not be construed as an international transaction and hence, the adjustment of Rs. 5.97 Crs was to be deleted.