Can arm’s length price of AMP expenditure be determined by applying the Bright Line Test method?

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘K‘ BENCH MUMBAI
BEFORE: SHRI MAHAVIR SINGH, VICE PRESIDENT
&
SHRI M.BALAGANESH, ACCOUNTANT MEMBER

ITA No.4576/Mum/2019 (Assessment Year :2010-11)

DCIT-15(2)(1) R.No.357,

3rd Floor Aayakar Bhavan M.K.Road,

Marine Lines Mumbai – 400 020

Appellant

VS 

M/s. Kellogg India Private Limited 1001-1002,

10th Floor Hiranandani Business Park Powai, Mumbai – 400 076
PAN/GIR No.AAACK1748A

Respondent

Revenue by Shri Sushil Kumar Mishra
Assessee by Ms. Hirali Desai / Shri Karan Mehta

Date of Hearing 19/07/2021
Date of Pronouncement 23/07/2021

ORDER

This appeal in ITA No.4576/Mum/2019 for A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-56, Mumbai in appeal No.CIT(A)-56, Mumbai/10261/2014-15 dated 30/04/2019.

2. The ground Nos.1 to 3B raised by the Revenue are with regard to deletion of transfer pricing adjustment by the ld. CIT(A) made on account of Advertisement, Marketing and Promotion (AMP) expenses.

We have heard rival submissions and perused the materials available on record. We find that assessee is an Indian company incorporated in the year 1990 and engaged in the business of manufacturing and sale of ready to eat cereal products in India. The assessee company is wholly owned subsidiary of Kellogg, USA and operated as licensed manufacturer in India by utilizing the technology and marketing intangibles of Kellogg, USA. During the year under consideration, the assessee entered into various international transactions with its associated enterprises (AEs). After making a detailed analysis of international transaction with AE in the transfer pricing study report, the assessee found them to be at arm’s length price. The ld. TPO after examining TP study report as well as other materials on record issued a show-cause notice to the assessee to explain why the arm’s length price (ALP) of the AMP expenditure should not be determined by applying the Bright Line Test (BLT) method.

4. The ld. TPO proceeded to determine the ALP of reimbursement for brand promotion and marketing intangible of AE in India and made an arm’s length price adjustment of Rs.22.58 Crores.

5. The ground No.4 raised by the revenue is challenging the action of the ld. CIT(A) holding that expenditure incurred on product development is revenue in nature.

6.  Respectfully following the aforesaid decision, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.4 raised by the Revenue is dismissed.

7. The ground No.5 raised by the Revenue is challenging the action of the ld CIT(A) in deleting the disallowance made u/s.40(a)(i) of the Act by the ld. AO for royalty expenditure. The ground raised by the Revenue in this regard.

8. Respectfully following the aforesaid decision, the ground No.5 raised by the Revenue is dismissed.

9. In the result, appeal of the Revenue is dismissed.

Please find attached the enclosed file for the full judgement