ITAT provides relief to Adidas on AMP expenses

ITAT provides relief to Adidas on AMP expenses

Earlier, the Commissioner of Income Tax also rejected the contention of the revenue department

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the Advertisement, Marketing, and Promotion (AMP) expenses incurred for their own benefit will not amount to an international transaction.

The tribunal made the observation on an appeal by the revenue department for the Assessment Year 2009-2010 against the January 2019 order of the Ld. Commissioner of Income Tax (Appeals).

The assessee, Adidas, the shoes and sportswear manufacturer, had filed its Income Tax Return (ITR) declaring an income of Rs.21,14,49,000.

In March 2019, the transfer pricing officer (TPO) passed an order under the Income Tax Act, 1961, proposing an adjustment of Rs.23,90,62,090. The assessment order passed in March 2013 made an addition of Rs.20,73,93,115 as AMP expenses, Rs.3,16,68,935 as a mark up on AMP expenses, Rs.22,55,220 as an advance to the holding company, and Rs.5,40,886 as depreciation on computer peripheral.

Aggrieved by the order, the assessee appealed before the Commissioner of Income Tax (Appeals).

Vide its January 2019 order, the CIT(A) allowed the appeal and rejected the TPO's contention on the Arm's Length Price (ALP) for the AMP expenditure incurred by the assessee. The Commissioner deleted the disallowance of Rs.8,12,57,204 citing the assessee's previous returns for Assessment Years 2006-2007, 2011-2012 and 2012-2013.

Dissatisfied with the order, the revenue department approached ITAT.

The tribunal observed, "The revenue department has appealed on the Transfer Pricing Adjustment with respect to AMP expenditure amounting to Rs.8,12,57,204 and not accepting the TPO's view that the concept is an internationally accepted economic tool, which determines the expenditure incurred by a routine distributor not promoting any marketing intangibles."

The bench added, "It is not in dispute that in the assessee's own case for the earlier Assessment Years, the issue was dealt with by the Coordinate Bench of the tribunal, which decided in favor of the assessee by dismissing the appeal of the revenue department vide the 31 July 2019 order. It was held that the main purpose of incurring huge AMP expenses was largely benefiting the assessee in India, with only an incidental benefit arising to foreign AE, (unless the TPO can establish direct benefit accruing to foreign AE), it is very difficult to accept the existence of an international transaction."

While dismissing the revenue department's appeal, ITAT held, "By following the rule of consistency and judicial discipline, we are inclined to follow the binding precedent orders of the tribunal in the assessee's previous cases."