Delhi High Court Dismisses Tax Dept. Appeals Against Suzuki Motorcycle Over AMP Adjustment Using Bright Line Test

The Delhi High Court has dismissed appeals filed by the Income Tax Department against Suzuki Motorcycle India, challenging the Income Tax Appellate Tribunal's rejection of an Advertising, Marketing and Promotion (AMP) adjustment based on the Bright Line Test

The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta followed the High Court's earlier decisions in Sony Ericsson Mobile Communications India Pvt. Ltd. v. Commissioner of Income Tax and Maruti Suzuki Ltd. v. Commissioner of Income Tax which held that the Bright Line Test is not a method sanctioned by law for determining transfer pricing adjustments concerning AMP expenses.

For context, the Bright Line Test is a transfer pricing method under which an assessee's AMP expenditure is compared with that of comparable independent entities.

Expenditure exceeding the “bright line” or benchmark is treated as having been incurred for promoting the brand of the foreign associated enterprise and may be considered for transfer pricing adjustment.

Revenue argued that ITAT was not justified in rejecting the AMP adjustment by relying on the High Court's decisions in Sony Ericsson and Maruti Suzuki when the issue relating to AMP expenses was pending before the Supreme Court.

It contended that the issue of whether the Bright Line Test could be used to determine whether the incurring of AMP expenses itself resulted in an international transaction was pending consideration.

The Court nevertheless dismissed the Department's appeals, following its judgments in Sony Ericsson and Maruti Suzuki.

However, it clarified that the Revenue would not be required to file separate appeals against the present order if the Supreme Court allows the SLPs and the law so declared would apply to Suzuki.

For Appellant: Senior Standing Counsel Puneet Rai; Junior Standing Counsel Ashvini Kumar and Rishab Nangia; Advocates Nikhil Jain and Nancy Jain.

For Respondent: Senior Advocate Ajay Vohra; Advocates Neeraj Jain and Aniket D. Agrawal.