The Income Tax Appellate Tribunal, Kolkata, has decisively held that Advertisement, Marketing and Promotion (AMP) expenses incurred by an Indian subsidiary for its own business cannot be treated as international transactions under Section 92B of the Income Tax Act, thereby invalidating transfer pricing adjustments made by the Tax Officer. This ruling reaffirms established jurisprudence and provides critical clarity for multinational enterprises operating in India.
Background & Facts
The Dispute
The appellant, Akzo Nobel India Ltd., a manufacturer and distributor of paints and coatings, faced transfer pricing adjustments by the Transfer Pricing Officer (TPO) for Assessment Years (AY) 2014-15 to 2020-21. The TPO contended that the company’s AMP expenses constituted international transactions with its Associated Enterprises (AEs), warranting an arm’s length adjustment. The TPO proposed an adjustment of Rs. 137.97 crores for AY 2014-15 alone, based on the presumption that AMP spending benefited AEs abroad.
Key Facts
- The assessee incurred AMP expenses wholly on its own account for promoting its products in the Indian market.
- No formal agreement existed between the assessee and its AEs for rendering marketing or distribution services.
- The expenses were not reimbursable by any AE and were not linked to any service provision abroad.
- The assessee’s business model involved manufacturing and local sales, with no evidence of services rendered to AEs.
- Similar AMP issues were litigated across multiple AYs, with consistent findings in prior years.
- For AY 2013-14, the Tribunal had already held in ITA No. 114/Kol/2018 that AMP expenses were not international transactions.
- The DRP upheld the TPO’s adjustments for AYs 2014-15 to 2020-21, prompting the present appeals.
Procedural History
- 27.10.2017: TPO issued order proposing AMP adjustment of Rs. 137.97 crores for AY 2014-15.
- 20.09.2018: DRP order upheld TPO’s adjustment for AY 2014-15.
- 30.08.2019: DRP order upheld adjustment for AY 2015-16.
- 09.12.2020: DRP order upheld adjustment for AY 2016-17.
- 12.01.2022: DRP order upheld adjustment for AY 2017-18.
- 04.03.2022: DRP order upheld adjustment for AY 2018-19.
- 30.06.2024: DRP order upheld adjustment for AY 2020-21.
- 16.03.2026: Hearing held before ITAT Kolkata.
- 03.06.2026: Judgment pronounced.
The Parties' Positions
For the Appellant
- Argued that AMP expenses were incurred domestically for its own business, with no service rendered to AEs.
- Relied on prior favorable decisions in its own cases: ITA No. 114/Kol/2018 (AY 2013-14), ITA No. 621/Kol/2017 (AY 2012-13), and ITA No. 315/Kol/2016 (AY 2011-12).
- Cited Maruti Suzuki India Ltd. v. CIT (381 ITR 117) and Philips India Ltd. v. DCIT (ITA Nos. 863 & 539/Kol/2016) to establish that AMP cannot be deemed an international transaction absent a service agreement.
- Emphasized that the DRP and TPO failed to demonstrate any service rendered to AEs.
For the Respondent
- Contended that AMP spending by the assessee conferred indirect benefits on AEs by enhancing brand value globally.
- Relied on the presumption that multinational enterprises benefit from coordinated global marketing.
- Argued that the assessee, as a distributor, was acting as a conduit for AE interests.
- Failed to produce any contractual or operational evidence linking AMP spending to services rendered to AEs.
Relief Sought
The appellant sought deletion of all transfer pricing adjustments relating to AMP expenses, intra-group services, R&D re-characterization, royalty capitalization, depreciation disallowances, CSR disallowances, and DDT rate issues. The relief sought was primarily deletion of additions and restoration of deductions claimed.
The Legal Issue
The central question was whether Section 92B of the Income Tax Act, 1961 treats domestic Advertisement, Marketing and Promotion (AMP) expenses incurred by an Indian subsidiary for its own business as an international transaction when no service is rendered to its Associated Enterprises.
Arguments Presented
For the Appellant
The appellant relied on the principle that an international transaction under Section 92B requires a transaction between associated enterprises involving the transfer of goods, services, or use of property. It argued that AMP expenses were purely domestic, incurred for local market promotion, with no contractual obligation or service flow to AEs. The appellant cited Maruti Suzuki India Ltd. v. CIT (381 ITR 117), where the Delhi High Court held that mere quantum of AMP spending cannot constitute an international transaction. It further relied on its own prior favorable decisions in ITA No. 114/Kol/2018 and ITA No. 621/Kol/2017, where the Tribunal had consistently held that AMP expenses are not international transactions in the absence of service provision. The appellant also invoked the doctrine of consistency and the binding nature of coordinate bench decisions under stare decisis.
For the Respondent
The Revenue contended that AMP spending enhanced the global brand value of the parent companies, thereby conferring an indirect benefit on AEs. It argued that such expenditures should be treated as services rendered to AEs under the broad interpretation of "deemed international transaction" under Section 92B. However, the Revenue failed to produce any agreement, documentation, or factual evidence demonstrating that services were rendered to AEs. The argument was largely speculative and unsupported by the record.
The Court's Analysis
The Tribunal conducted a detailed analysis of Section 92B, which defines an international transaction as one between two or more associated enterprises involving the transfer of property, provision of services, or lending/borrowing of money. The Court emphasized that the mere fact that a company incurs marketing expenses does not, by itself, constitute a service rendered to an AE. The Tribunal observed:
"The TPO has not demonstrated any service rendered by the assessee to its AEs. The AMP expenditure is incurred wholly and exclusively for the purpose of its own business in India. There is no agreement, no service contract, no reimbursement mechanism, and no evidence of benefit flowing to the AEs."
The Court distinguished the facts of the case from those in Sony Ericsson Mobile Communications India (P.) Ltd., where the assessee had a formal agreement with AEs for marketing support. In contrast, Akzo Nobel India had no such arrangement. The Tribunal also relied on the decision of the Hon’ble Supreme Court in PCIT v. Amadeus India (Pvt) Ltd. (171 taxmann.com 129), which upheld the Delhi High Court’s view that AMP expenses are not international transactions.
The Court further noted that the Revenue’s argument was based on a presumption, not evidence. It held that the burden of proving an international transaction lies with the Revenue, and that burden was not discharged. The Tribunal reiterated that the doctrine of consistency must prevail where facts and law remain unchanged across assessment years. The prior decisions of coordinate benches in the same assessee’s cases were binding and could not be ignored without a change in facts or law.
The Court also addressed the issue of intra-group services, R&D re-characterization, royalty capitalization, and CSR disallowances, consistently applying the same reasoning: where prior favorable decisions existed and no material change occurred, the Revenue could not unilaterally reverse settled positions.
The Verdict
The appellant succeeded on all material grounds. The Tribunal deleted the transfer pricing adjustment of Rs. 137.97 crores relating to AMP expenses for AY 2014-15 and corresponding adjustments for subsequent years. It also allowed deductions for intra-group services, R&D expenses, and CSR expenditures, and restored depreciation claims. For issues requiring factual verification - such as bad debt write-offs, foreign tax credit, and DDT treaty benefits - the Tribunal restored the matters to the Assessing Officer for fresh adjudication in accordance with law. The appeal was allowed in part, with all additions relating to AMP and other transfer pricing issues deleted.
What This Means For Similar Cases
AMP Expenses Cannot Be Presumed as International Transactions
- Practitioners must challenge any TP adjustment based solely on the quantum of AMP spending.
- The Revenue must prove a service was rendered to an AE - mere brand enhancement is insufficient.
- No adjustment under Section 92 can be made unless a transaction under Section 92B is established with evidence.
Precedent and Consistency Are Binding
- A favorable decision in an assessee’s own case for a prior year binds the Revenue in subsequent years unless facts change.
- Coordinate bench decisions within the same Tribunal are binding under the doctrine of stare decisis.
- Revenue cannot arbitrarily reverse settled positions without new evidence or legal change.
Burden of Proof Rests on the Revenue
- The onus is on the tax authority to demonstrate the existence of an international transaction.
- Speculative arguments about global brand benefit will not suffice.
- Absent a service agreement or demonstrable benefit flow, AMP expenses are domestic and non-transfer pricing relevant.
