In a major relief to M/s. Motorola Mobility India Private Limited, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that AMP expenses and warranty expenses not separate international transaction.
The assessee, M/s. Motorola Mobility India Private Limited is primarily engaged in the business of software development services and trading of mobile phones. The assessee filed the return of income for Assessment Year 2017-18 declaring a total income of Rs.235,41,08,150. The case was selected for scrutiny under CASS and accordingly notice under section 143(2) was duly served on the assessee. Since the assessee had international transactions with its AE, a reference was made to the TPO for the purpose of computing the ALP of the international transactions.
The TPO held that the assessee in the trading segment has not confined itself just to distribution of trading goods but has performed additional functions in the form of advertisement, marketing and sales promotion for which the assessee needs to be adequately compensated. The TPO proceeded to treat the AMP as a separate international transaction and made an adjustment of Rs.12,85,77,521.
With regard to the warranty expenses, the TPO noticed that the assessee has made a provision of Rs.145,79,52,674/- and out of this provision, the assessee has reversed Rs.66,95,53,353/- which included the reimbursement of warranty expenses of Rs.50,73,76,084 to its AE. Aggrieved the assessee is in appeal before the Tribunal.
A Division Bench of the Tribunal consisting of N V Vasudevan, Vice President and Padmavathy S, Accounatnt Member observed that “We hold that the AMP expenses and warranty expenses cannot be treated as a separate international transaction when the TPO has not otherwise rejected the margins of the assessee in the trading segment. Therefore, the adjustments made in this regard is deleted.”
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