The Mumbai Bench of the Income-tax Appellate Tribunal in the case of: L’Oreal India Pvt. Ltd. v. DCIT [ITA Nos. 7714, 1119; 976/Mum-2014 and 518, 335/Mum-2015], held that the tax officer must prove that the taxpayer’s real intention in incurring an advertising, marketing, and promotion (AMP) expenditure was to benefit related parties, and not the taxpayer’s own business. Because this proof was not shown, the tribunal held that the advertising, marketing, and promotion was not an international transaction, and thus a transfer pricing adjustment was not appropriate.
The Tribunal decided that, in the absence of an agreement between the taxpayer and its Associated Enterprise on Advertisement Marketing and Promotion expenditure, the first and primary precondition of treating the transaction in question an international transaction remained unsatisfied. Without crossing the first threshold, the second threshold of application of principles of: Sony Ericsson Mobile Communication India Private Limited v. CIT [2015], could not be approached. Therefore, when Advertisement Marketing and Promotion expenditure itself was not an international transaction, the matter was not required to be restored to the file of the tax officer.
