The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently held that Section 92B of the Income Tax Act, 1961, which defines International Transactions, does not apply to advertisement, marketing and promotion (AMP) expenses incurred for business purposes in India. As a result, relief was granted to L’Oreal India Private Limited, a subsidiary of the French conglomerate and leading supplier in the global cosmetic industry.
L’Oreal India Private Limited is a 100% foreign-owned company engaged in manufacturing cosmetic products, marketing and sales of such products, and importing from overseas associated enterprises (AEs). The company is an entrepreneur licensee for the Indian market, where key decisions related to the business in India are made and bears the entrepreneur risk in India.
The case of the Assessee was selected for scrutiny due to TP risk parameter, and the case was referred to the Transfer Pricing Officer (TPO), who made an addition and passed an order under Section 92CA(3) of the Income Tax Act.
The assessee filed an appeal before the Dispute Resolution Panel (DRP), which rejected the objections raised by the assessee. The Assessing Officer (AO) then passed an assessment order, determining the total income after making Transfer Pricing adjustments.
The appeal filed by the aggrieved assessee before the ITAT pertained to the AMP expenses incurred, which were held to be an international transaction under Section 92B of the Income Tax Act.
The counsel for the assessee, Niraj Sheth, submitted before the bench that the assessee had not rendered any service to the AEs, and the lower authorities had erroneously treated the AMP expenses as an international transaction in the nature of provision of brand promotion services between the assessee and its AEs. Sheth further submitted that these expenses were incurred solely for the purpose of the business of the assessee in India, and were not beneficial to the AEs nor did they result in reimbursement of such expenses.
Yogesh Kamat, counsel for the revenue, supported the decision of the lower authorities.
The tribunal bench observed that there was no arrangement between the assessee and the AEs pertaining to AMP expenses. Furthermore, the proposition laid down in the case of Maruti Suzuki India Ltd. determined that “in absence of a machinery provision qua AMP expenses, the A.O. is not at liberty to levy tax on an imagined transaction”.
Hence, the impugned transaction was not an international transaction for which the TPO was entitled to invoke the provision of Chapter X of the Act.
The two-member bench of Om Prakash Kant (Accountant Member) and Kavitha Rajagopal (Judicial Member) allowed the appeal filed by the assessee and observed that the AMP transaction incurred by the assessee for the purpose of business was not an international transaction as per Section 92B of the Income Tax Act.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
