Michelin India not eligible for Deduction of Expenses incurred for Sales Promotion in Indian Market: ITAT [Read Order]

In a setback to Michelin, world-renowned tires of cars, the Income Tax Appellate Tribunal (ITAT), Delhi has held that the Company is not eligible for a deduction of expenses incurred for sales promotion in the Indian market.

The assessee is a trader in tires of the “Michelin” brand in India. The assessee claimed that it was incurring said expenditure wholly and exclusively for carrying on its business in India. the Assessing Officer, while completing the assessment against the assessee held that the expenditure incurred by the assessee needs to be disallowed on two counts i.e. first it was not incurred wholly and exclusively for the purpose of business and second it was benefiting the assessee in long run hence, capital in nature.

Before the Tribunal, the assessee claimed that it was incurring said expenditure wholly and exclusively for carrying on its business in India. Similar expenses to the tune of Rs.4.44 crores (approx.) were also incurred in the earlier years and no disallowance u/s 37(1) of the Act was made in the hands of the assessee in the earlier years. However, transfer pricing adjustment was made on account of the aforesaid expenditure incurred on advertisement and publicity.

The Tribunal observed that the aforesaid expenditure under the head advertisement & publicity has been incurred by the assessee for the following purposes:- I. Dealer signage and boards; II. Printing of Brochures, tire technical guides, merchandise; III. Product Launches; IV. Print adverts in newspapers and magazines; V. Seminars and Exhibitions; VI. Hoarding etc;

“This fact was brought to the knowledge of the Assessing Officer but has not been considered by the Assessing Officer. Looking at the nature of expenses incurred, it is apparent that the same primarily pertain, to sales promotion of the products in the Indian market. The expenditure being essentially incurred with the object to boost the sales of the assessee though the brand is owned by the AE does not warrant any disallowance in the hands of the assessee,” the Tribunal said.