On July 11, 2022, the Income Tax Appellate Tribunal delivered a significant judgment in the case of Whirlpool of India Ltd. vs. National e-Assessment Centre, concerning the assessment year 2016-17. The appellant challenged the final assessment order which involved significant adjustments made to the arms length price (ALP) of Advertisement, Marketing, and Promotion (AMP) expenses incurred by the appellant on behalf of its Associated Enterprises (AEs).
The dispute centers on whether the AMP expenses incurred by Whirlpool of India should be treated as an international transaction. The Transfer Pricing Officer (TPO) had initially accepted the appellant’s benchmarking analysis but questioned the AMP expenses, leading to a proposed adjustment. This adjustment was contested up to the tribunal level, citing previous rulings from the Delhi High Court that favored the taxpayer in similar disputes.
The tribunal’s detailed analysis reaffirmed the non-applicability of the Bright Line Test (BLT) and emphasized the need for tangible evidence to classify expenses as international transactions. The judgment referenced several precedents, highlighting the consistent approach taken in earlier years that aligned AMP expenses with normal business operations, not warranting an ALP adjustment.
The tribunal ultimately decided in favor of Whirlpool of India, citing lack of substantial evidence to prove that AMP expenses were incurred for the benefit of AEs, thereby not constituting an international transaction. This ruling is pivotal as it upholds the principle that not all expenditures incurred by a subsidiary on behalf of an AE qualify as international transactions under the Indian Transfer Pricing regulations.
This decision is significant for multinational corporations operating in India, as it clarifies the criteria for considering corporate expenses as international transactions. It provides a precedent that could influence how similar cases are handled, potentially reducing the transfer pricing adjustments multinational companies face on routine corporate expenses.
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