AMP expenditure of Samsung India Electronics can’t be considered as an International Transaction: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that the Advertisement, Marketing and Promotion (AMP) of  Samsung India cannot be considered as an international transaction.

The assessee company, Samsung India is engaged in manufacturing and distributing various Samsung Products of Consumer Electronics & Home Appliances category. The assessee is also engaged in the business of computer software development on behalf of its AEs.

The issue was raised relating to the adjustment on account of AMP. The assessee submitted that the issue is squarely covered in favor of the assessee in the assessee’s own case from Assessment Years 2005-06 to 2012-13 and 2014-15.

The assessee further submitted that the TPO made adjustment on account of AMP to the IT Segment (Contract Software Segment) using the intensity-based a project wherein the Selling, General and Administrative (SG&A)/sales ratio of each comparable was compared with that of the assessee.

The shortfall as computed is added to the operating cost of the comparable, thereby arriving at the adjusted operating cost. At the next step, the revenues of the comparables are adjusted upwards by a mark-up based on the mean profit margin of marketing supporting companies. The quantum of operating cost is accordingly added on account of differences in intensity of Selling, General and Administrative (SG&A) spend with further corresponding upwards adjustment as mark-up to operating cost to arrive at an adjusted operating revenue.

The ALP of international transactions is determined based on adjusted operating revenue and adjusted operating cost, to be compared with the assessee. The TPO also made protective adjustments based on the Bright Line Test (BLT) approach, firstly on Non-IT Segment comprising Licensed Manufacturing Segment, Trading Segment and Network Segment as well as secondly, to IT Segment comprising Contracts Software Development Segment. The DRP upheld the approach adopted by the TPO and directed a modification of comparables by further directing the TPO for the inclusion of three comparables forming part of the TP Report.

The coram consisting of Anil Chaturvedi and Suchitra Kamble held that merely by applying the BLT method which has no legal existence and merely on the basis of MDF agreement vide which taxpayer has received part reimbursement of the AMP expenses incurred by it duly disclosed this expenditure in Form 3CEB and in TP study, so-called excessive AMP expenditure of the taxpayer cannot be treated as international transactions u/s 92B of the Act.