The case of Perfetti Van Melle India Pvt. Ltd., Gurgaon (Appellant) vs ACIT, Circle-3(1), Gurgaon (Respondent), case number ITA 888/DEL/2021, is a notable dispute that addresses significant issues related to transfer pricing adjustments and the application of the Bright Line Test (BLT) for the assessment year 2009-10.
The appellant, Perfetti Van Melle India Pvt. Ltd. (Perfetti), filed its return for the assessment year 2009-10, declaring a total income of Rs. 13,19,79,440. The case was selected for scrutiny, and a draft assessment order u/s 144C of the Income Tax Act, 1961, was passed on March 6, 2013, proposing a transfer pricing adjustment of Rs. 1,63,04,12,982. Perfetti filed objections before the Dispute Resolution Panel (DRP), which confirmed the adjustments proposed in the draft assessment order on December 18, 2013.
Subsequently, the assessment order u/s 143(3) read with Section 144C (13) of the Act was passed on January 7, 2014, assessing the total income of the assessee at Rs. 1,76,23,92,422. Perfetti appealed to the Income Tax Appellate Tribunal (ITAT), which remanded the matter to the Assessing Officer (A.O.)/Transfer Pricing Officer (TPO) to decide the issue afresh in conformity with the Special Bench decision in the case of LG Electronics.
The TPO, in compliance with the Tribunal’s order, recalculated the TP adjustments, making an adjustment of Rs. 1,23,62,76,959. This led to the passing of a new draft assessment order on February 29, 2016, with the TP adjustment of Rs. 1,23,62,76,959, and the proposed assessed income of Rs. 1,36,82,74,400. Perfetti filed objections against this draft assessment order, and the DRP disposed of these objections, leading to a recomputation of the TP adjustment at Rs. 2,05,31,96,324. Aggrieved, Perfetti filed another appeal before the Tribunal, which once again remitted the matter to the TPO.
The core issue in this case is whether there exists an international transaction involving AMP (Advertising, Marketing, and Promotion) expenditure between Perfetti and its associated enterprises (A.Es). The appellant contends that the AMP expenses do not constitute an international transaction, as there was no arrangement or understanding with the A.E. regarding these expenses.
Perfetti’s counsel argued that the issue was already covered in the appellant’s favor in the Tribunal’s order dated September 22, 2021, for the assessment year 2016-17, in ITA No. 463/Del/2021. The Tribunal had held that there was no international transaction of incurring AMP expenditure between Perfetti and its A.Es.
The Tribunal, while deciding the case for the assessment year 2016-17, observed that there was no material to suggest any arrangement or action in concert between Perfetti and its A.Es concerning AMP expenditure. The Tribunal noted that the entire expenditure was incurred by Perfetti for its business in India, and there was no obligation from the A.E. to incur these expenses. The Tribunal also dismissed the application of the Bright Line Test (BLT), as it found that the test did not have a legal basis in determining the arm’s length nature of AMP expenses.
One of the critical aspects of the case was the comparison between the two agreements: the Technology and Trade Market Licence Agreement effective from July 1, 2005, and the subsequent agreement effective from April 1, 2010. The Tribunal found no substantial difference between the two agreements that would affect the assessment year under consideration. The Tribunal noted that the agreement applicable for the year under consideration was already on record, but the TPO had erroneously considered the subsequent agreement.
The Tribunal reiterated its findings from the assessment year 2016-17, holding that there was no international transaction of incurring AMP expenditure between Perfetti and its A.Es. It directed the A.O./TPO to allow the claim of the assessee, as there was no arrangement or understanding that could lead to the inference of an international transaction.
The Tribunal also highlighted that remitting the issue back to the lower authorities for the third time would not serve any purpose and would only prolong the proceedings unnecessarily. Therefore, in the interest of justice, the Tribunal decided to follow its earlier decision and allow the appeal partly in favor of Perfetti.
This judgment has significant implications for transfer pricing law, especially concerning AMP expenses. It underscores the importance of examining the factual matrix of each case and the necessity of having substantial evidence to prove the existence of an international transaction involving AMP expenditure.
The Tribunal’s decision also reinforces the principle of consistency in judicial decisions, as it relied on its previous ruling in Perfetti’s own case for a subsequent assessment year. This approach ensures that similar issues are decided similarly, promoting predictability and stability in tax jurisprudence.
In conclusion, the case of Perfetti Van Melle India Pvt. Ltd. vs ACIT highlights the complexities involved in transfer pricing disputes and the critical role of evidence and consistent judicial interpretation in resolving such matters. The Tribunal’s decision to rule in favor of Perfetti reaffirms the need for a thorough and fact-based analysis in determining the arm’s length nature of transactions, particularly in cases involving AMP expenses.
The order was pronounced in the open court on February 1, 2023, by Shri Anil Chaturvedi, Accountant Member, and Shri Yogesh Kumar U.S., Judicial Member. The appeal of the assessee, Perfetti Van Melle India Pvt. Ltd., was partly allowed.
This case sets a precedent for similar disputes, providing clarity on the treatment of AMP expenses and the application of transfer pricing adjustments under Indian tax law.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform