Relief for L’Oreal India: ITAT Deletes ₹184.75 Cr Transfer Pricing Adjustment on AMP Expenses Incurred Wholly for India Business

L'Oreal India Private Limited (assessee) filed an appeal against the assessment order for AY 2021-22, which was passed in pursuance of the direction of the Dispute Resolution Panel (DRP).

The core of the dispute was the Transfer Pricing Officer (TPO)'s action of treating the AMP expenses incurred by the assessee as an international transaction in the nature of 'provision of brand promotion services' to its Associated Enterprises (AEs) under Section 92B of the Income Tax Act.

The TPO subsequently made a transfer pricing adjustment to the total income of the appellant. Aggrieved by the DRP’s order, the assessee filed an appeal before the ITAT.

The assessee's counsel argued that the AMP expenses were incurred wholly and exclusively for the purpose of the assessee's business in India. The counsel further stated that the assessee had not claimed any reimbursement of such expenses from its AEs.

The counsel highlighted that the issue was a recurring one and the Tribunal, on identical facts, had consistently held that the AMP expenses were not an international transaction in the assessee's own case for A.Y. 2008-09 to 2018-19.

The Revenue's counsel contended that the Tribunal's earlier orders were under challenge before the Jurisdictional High Court and had not attained finality.

The Counsel also argued that the arrangement, understanding, and "action in concert" between the assessee and its AE for incurring AMP expenses to enhance the brand value owned by the AE constituted an international transaction.

The two-member bench comprising Pawan Singh (Judicial Member) and Renu Jauhri (Accountant Member) noted the consistent decisions of the co-ordinate Mumbai Tribunal Benches from A.Y. 2008-09 to 2020-21, where the similar issue was consistently held in favour of the assessee.

The tribunal observed from the earlier precedents that the TPO had not brought any fact on record that there existed any agreement to share or reimburse the AMP expenses.

The bench observed that in the absence of any understanding or arrangement for incurring AMP expenses for the brand building of the AE, the provisions of Chapter-X of the Income Tax Act could not be invoked for a transfer pricing adjustment.

The Tribunal in earlier years had relied on the principle that the onus was on the Revenue to prove the existence of an international transaction.

The tribunal finding no material variation in facts or any contrary law shown by the Revenue relating to the transfer pricing adjustment on AMP expenses allowed the grounds of appeal and deleted the adjustment of ₹184.75 crores. The appeal of the assessee was allowed.

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