Advertisement, Marketing and promotion expenses: Requirement to benchmark these expenses
- During the year the Assessee incurred Advertising, Marketing and Promotion expenses for its manufacturing and distribution segment.
- According to the Transfer Pricing Officer the said expense was incurred to build different brands of the Associated Enterprises of the Assessee.
- Hence, he treated the same to be an international transaction and made transfer pricing adjustment accordingly.
- According to the Revenue, the Assessee Company had not been able to demonstrate that there was any logic or rationale for aggregation or that the transactions of advertisement expenditure and the other transactions in the distribution activity were inter-dependent, the clubbing of transactions could not be allowed. According to the Revenue, bench marking of Advertisement, Marketing and Promotion transaction was to be carried out using segregated approach and for determination of Arm’s Length Price of such transactions, Bright Line was used as the tool.
- However, the Tribunal placed reliance on the decision laid down in the Assessee’s own case for the Assessment Year 2007-08, wherein it was concluded that there has to be some tangible evidence on record to show that two parties have “acted in concert” to infer existence of international transaction regarding Advertising, Marketing and Promotion expenses. Use of bright line test was not appropriate basis to arrive at the value of the international transaction.