Facts of the Case

The present appeal was filed by the Revenue (Pr. Commissioner of Income Tax-7) before the Delhi High Court challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 06.10.2020 for Assessment Year 2012–13.

The core issue arose from the determination of AMP expenses incurred by Yakult Danone India Pvt. Ltd. and whether such expenses constituted an international transaction under transfer pricing provisions.

The Transfer Pricing Officer (TPO) applied the Bright Line Test (BLT) to segregate routine and non-routine AMP expenses and proposed adjustments. However, the ITAT rejected this approach, relying on earlier rulings in the assessee’s own case for AY 2011–12.

Issues Involved

  1. Whether AMP expenses incurred by the assessee qualify as an “international transaction” under Section 92B?
  2. Whether the Bright Line Test (BLT) can be applied for determining transfer pricing adjustments on AMP expenses?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in rejecting the application of BLT.
  • It relied on Tribunal findings and precedents such as:
    • Pepsico India Holdings (P) Ltd. v. ACIT
  • The Revenue also referred to earlier judicial observations and indicated that appeals on similar issues were pending before the Supreme Court in:
    • Sony Ericsson Mobile Communications India (P) Ltd. v. CIT
    • Maruti Suzuki India Ltd. v. CIT

Respondent’s Arguments (Assessee)

  • The assessee argued that:
    • There was no agreement or arrangement with its Associated Enterprise (AE) requiring it to incur AMP expenses.
    • The TPO failed to establish the existence of an international transaction concerning AMP.
    • AMP expenditure was incurred for its own business purposes, not for brand building of AE.
  • It was further contended that BLT lacks statutory backing and cannot be applied.

Court’s Findings / Order

  • The Delhi High Court observed that:
    • The issue of non-applicability of Bright Line Test is already settled by binding precedents.
    • The BLT has no statutory mandate and cannot be used to determine transfer pricing adjustments.
  • The Court relied on key precedents:
    • Sony Ericsson Mobile Communications India (P) Ltd. v. CIT
    • Maruti Suzuki India Ltd. v. CIT
    • Bausch & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT
    • Dy. CIT v. Sharp Business Systems (India) (P.) Ltd.
  • It was held that:
    • No substantial question of law arises in the present appeal.
    • The appeal filed by the Revenue was dismissed/closed.

Important Clarifications

  • The Court clarified that:
    • If the Revenue succeeds in pending appeals before the Supreme Court in cases like Sony Ericsson or Maruti Suzuki, it may seek reopening of the present matter as per law.
  • This preserves the Revenue’s right contingent on future Supreme Court rulings.

 Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS28072023ITA2082023_135813.pdf 

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