ITAT Delhi Deletes ₹5.19 Crore AMP Adjustment Against Fujifilm India Following Sony Ericsson Ruling

The Delhi Income Tax Appellate Tribunal (ITAT) on 20 July held that a transfer pricing adjustment for Advertising, Marketing and Promotion (AMP) expenditure cannot be sustained when it is computed by applying the Bright Line Test (BLT), following the Delhi High Court's ruling in Sony Ericsson Mobile Communications India Pvt. Ltd.

A Bench of Accountant Member Ramit Kochar and Judicial Member Sudhir Kumar partly allowed the appeal filed by Fujifilm India Pvt. Ltd. and deleted the Rs. 5.19 crore transfer pricing adjustment made by the authorities. It clarified that the parties would remain bound by the outcome of the Revenue's pending Special Leave Petition before the Supreme Court against the Sony Ericsson judgment. It observed:

“We have observed that Hon'ble Delhi High Court in the case of Sony Ericsson has rejected Bright Line Test for computing transfer pricing additions while computing the arm's length price of the international transactions of AMP expenditure incurred towards building of brands of associated enterprises. Respectfully following the aforesaid judgment, we delete the transfer pricing addition of ₹5,19,00,000 made by the authorities below by applying Bright Line Test.”

Fujifilm India, a subsidiary of the Fujifilm Group, is engaged in trading medical imaging equipment, photo imaging products, digital cameras, graphic printing solutions, data storage products and other industrial products imported from its associated enterprises (AEs) for resale in India. For Assessment Year 2020-21, the company filed its return declaring taxable income of Rs. 51.29 crore. During scrutiny proceedings, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) to determine the arm's length price of Fujifilm India's international transactions.

The TPO noted that Fujifilm India had incurred substantial AMP expenditure, which according to the Revenue, promoted the “Fuji” brand owned by its Japanese parent company. Treating the AMP expenditure as an international transaction that was not reported in Form 3CEB, the TPO applied the BLT and initially proposed a protective adjustment of Rs. 12 crore. The TPO also computed a substantive adjustment using the intensity method.

Following directions issued by the Dispute Resolution Panel (DRP), the substantive adjustment under the intensity method was reduced to nil, while the BLT-based adjustment was reduced to Rs. 5.19 crore and included in the final assessment order.

Before the Tribunal, Fujifilm India argued that the adjustment was unsustainable as the Delhi High Court in Sony Ericsson Mobile Communications India Pvt. Ltd. had rejected the BLT as a method for determining the arm's length price of AMP expenditure. It also relied on the Delhi High Court's subsequent decision in DCIT v. Casio India Company, which followed the same principle.

The Revenue contended that AMP expenditure constituted an international transaction and argued that the issue remained pending since its challenge to the Sony Ericsson judgment was before the Supreme Court.

The Tribunal noted that the only surviving transfer pricing adjustment was based on the BLT. It observed that although the Revenue's Special Leave Petition against the Sony Ericsson judgment was pending before the Supreme Court, there was no stay against the High Court's ruling and no contrary decision by a superior court had been brought to its notice. The Bench added:

“No contrary decision of the superior courts has been brought to our notice. None of the parties brought to our notice any directions or stay order issued by the Hon'ble Supreme Court staying the operation of the judgment of the Hon'ble Delhi High Court in Sony Ericsson. Since the Special Leave Petition filed by the Revenue is pending for adjudication before the Hon'ble Supreme Court, we direct that both the parties shall be bound by the outcome of the said Special Leave Petition.”

Accordingly, the ITAT deleted the Rs. 5.19 crore transfer pricing adjustment made by applying the BLT and directed the Assessing Officer to implement its directions, subject to the final outcome of the Revenue's appeal before the Supreme Court.

For the Assessee: Shri Kamal Sawhney, Advocate and Shri Puru Medhira, Advocate

For the Revenue: Shri Dharm Veer Singh, CIT-DR