AMP Expenditure Incurred for Taxpayers Own Business Cannot Be Disallowed on Presumed Reimbursement: ITAT [Read Order]

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the Advertisement, marketing, and promotion (AMP) expenditure incurred for the taxpayers own business cannot be disallowed on presumed reimbursement.

The assessee, Hariom Mobile Private Limited, originally filed its return of income for AY 2019-20 declaring income of Rs. 6.53 crores, which was processed under Section 143(1) of the Income Tax Act. Following a search under Section 132 of the Income Tax Act conducted in the Oppo Mobile India Group cases, reassessment proceedings were initiated under Section 148 of the Income Tax Act.

During the assessment, the AO disallowed Rs. 11.55 crores towards advertisement, marketing, and brand promotion expenses and Rs. 8.43 crores towards price drop expenses under Section 37(1) of the Income Tax Act, holding that these expenditures were incurred on behalf of the brand owner and another group entity and were not allowable business expenses of the assessee. Accordingly, additions aggregating to Rs. 19.98 crores were made. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted both additions.

The Departmental Representative (DR) strongly supported the assessment order and the additions made by the Assessing Officer (AO). In response, the Authorised Representative (AR) for the assessee submitted that the Commissioner of Income Tax (Appeals) [CIT(A)] had rightly deleted the additions after due consideration of the facts and applicable law, and therefore the appellate order deserved to be upheld.

The Tribunal of S Rifaur Rahman, Accountant Member and Sudhir Kumar, Judicial Member noted that

“There is no finding that the expenses are fictitious, inflated, or not incurred. The only ground for disallowance is the presumption of reimbursement, an assumption now proven incorrect by third-party confirmation. Based on the contractual framework, factual evidence, industry practice, third-party statements, and the clear absence of reimbursement, the CIT(A) has rightly held that the AMP expenses incurred by the assessee were genuine, necessary, and for the purposes of its own business, the hence, the same are squarely allowable under Section 37(1) of the Act.”

Accordingly, the Tribunal found no infirmity in the order of the CIT(A) deleting the disallowance of Rs. 11,35,11,349/-. Consequently, the ground raised by the Revenue was dismissed.

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