No addition for AMP transactions in absence of International Transaction between Taxpayer and AE: ITAT grants relief to Haier [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that no addition for advertisement, marketing and sales promotion expenses (AMP) can be made in absence of International Transaction between Taxpayer and Associate Enterprise (AE).

The assessee company, Haier Appliances India Pvt. Ltd. is a wholly owned subsidiary company of Haier Electrical and Appliances Corporation Ltd, China and is engaged in the business of distribution of consumer durable products, for example Air Conditioner, Washing Machine, refrigerator, television etc., purchased from foreign associated enterprises.

The intangible rights contained in brand name or trademark/trade name in respect of goods so purchased and distributed were owned by the foreign AE only. In the Assessment Year preceding to the two relevant Assessment Year, the assessee reported international transactions with the AE in the Transfer Pricing Audit Report submitted to the Assessing Officer.

The assessee reported purchase of finished products from the foreign AE and purchase of capital items as international transactions with the AE in the transfer pricing audit report submitted to the Assessing Officer. Thus, the AMP expenses were not submitted as international transactions.

The submission of the assessee that in order to promote sales of products, the assessee entered into agreements with various bankers and finance companies wherein the assessee agreed to buyer the cost of interest of credit period allowed to the end customers on purchase of Haier Products. But the interest costs on the installment given by the customer are directly paid by the assessee company to the banker’s finance companies.

The issue raised in this case was whether the assessing officer erred on facts and in law in making addition of Rs. 13,50,86,400 on account of arm’s length price of alleged international transactions resulting from AMP expenses incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) read with section 254 of the Act and sustained by the Dispute Resolution Panel (DRP).

The two-member bench of Judicial Member, Suchitra Kamble and Accountant Member  N.K. Billaiya held that a bright line test for bifurcation of routine and non-routine AMP expenditure, and non-routine AMP expenses is an independent international transaction which should be separately subjected to arm’s length pricing.

“This computation is not disputed by the Revenue during the course of hearing. Thus, at the best the adjustment made by the TPO/DRP ought to be restricted to Rs. 2,85,10,127/- as against Rs. 13,50,86,400/-. Therefore, we direct the TPO/DRP to restrict the adjustment to the extent of Rs. 2,85,10,127/-. Therefore, the appeal of the assessee is partly allowed,” the Tribunal said.