Thursday, June 20, 2013

ITAT confirms TP adjustment for AMP expenditure; denies de-classification of an exp belonging to AMP category

If assessee had classified certain expenses in his accounts under the head "advertisement" and others under the head "Business Promotion", expenses under the former head would be treated as part of AMP expenses for TP adjustments in accordance with the SB ruling in LG Electronics. Assessee couldn’t claim that certain expenses classified by him as advertisement to be treated as business promotion expenses before the Tribunal

In the instant case, the assessee was importing electronic products from its associate enterprises. Thereafter, it marketed the said products in India through its retail chains and branded shops. Certain AMP expenses were incurred by the assessee. The TPO was of the view that assessee had promoted the aforesaid brand, since the assessee had been using the logo "Panasonic" in all correspondence, letterheads, visiting cards of its personnel, product catalogue, etc. It made TP adjustments in respect of AMP expenses, which was sustained by the DRP.

On appeal, the Tribunal held as under:

1) It had been held by the Special Bench in the case of LG Electronics that the AMP expenditures, incurred more than those in case of comparables, were transactions exigible to proceedings under Chapter X of the Act, being a case of brand building;

2) It further concluded that such expenses, even if paid to Indian entities, were covered by the definition of "transaction" within the meaning of section 92F(v) of the Act. Therefore, assessee's plea that AMP expenditure which had not been paid to overseas AEs won’t come within the purview of international transaction had no merits;

3) There was a force in the assessee's plea that as per Special Bench's decision, the expenses which were directly related to the sales won’t come within the meaning of "brand building";

4) The assessee itself had categorized the expenditure into two sub-heads, i.e., under the advertisement head comprising of expenses which had been incurred for "brand building". The other head was of business promotion expenses. Admittedly, there was no dispute about the category and nature thereof;

5) Hence, following the observations of the Special Bench (supra), the advertisement expenses had been incurred for brand building, whereas the business promotion expenses deserved to be treated as directly connected with the sales undertaken by the assessee;

6) Though the assessee had pleaded that even some of the advertisement expenses were business promotion expenses, yet, in view of the fact that since it itself had included the same under the head "advertisement", there was no reason to change the head of expenses from advertisement to business promotion. Hence, this latter plea of the assessee was to be declined. Thus, assessee’s appeal was to be partly allowed - Panasonic Sales & Services India (P.) Ltd. v. ACIT [2013] 34 276 (Chennai - Trib.)

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