In the realm of transfer pricing, the Income-tax Act, 1961 plays a crucial role in regulating international transactions. The Assessment Year 2006-07 witnessed a notable case where the Transfer Pricing Officer (TPO) scrutinized Advertisement, Marketing, and Promotion (AMP) expenses incurred by an assessee. The TPO contended that these expenses were aimed at creating marketing intangibles belonging to the Associated Enterprise (AE). This article delves into the details of the case and the subsequent legal implications.
The Income Tax Appellate Tribunal (ITAT) dated 27 May 2019, became the focal point of contention. The TPO had made additions to the assessee’s income, treating AMP expenses as an international transaction. The benchmarking of these expenses involved the application of the Bright Line Test (BLT). However, the ITAT took a divergent stance, rejecting the Bright Line approach. The crux of the matter rested on whether substantial questions of law arose for consideration.
Proposed Questions of Law
The Department brought forward several questions for consideration:
A. Deletion of TPO’s Addition on AMP Adjustment
B. Viability of ITAT’s Decision on Bright Line Test
C. Rejection of TPO’s Bright Line Approach
D. Disagreement with TPO on Internationally Accepted Bright Line Concept
E. Insistence on Establishing International Transaction based on High Court Precedents
F. Legitimacy of ITAT’s Decision on the Sub-Judice Matter
Analysis of ITAT's Order
The ITAT’s order leaned heavily on the precedent set by the Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. Commissioner of Income-tax-III [2015 SCC Online Del 8083]. The court in Sony Ericsson had categorically rejected the application of the Bright Line Test in all circumstances. The ITAT’s stance was evident in its statement, “We reject the application of Bright Line Test, respectfully following the decision of the Hon’ble Delhi High Court in the case of Sony Ericsson India P Ltd. (supra).”
