This case involves the Deputy Commissioner of Income Tax (DCIT), Circle-1(1), New Delhi as the appellant and Adidas India Marketing Pvt Ltd as the respondent. The primary issues revolve around the adjustments made by the Transfer Pricing Officer (TPO) concerning Advertising, Marketing, and Promotion (AMP) expenses, and the disallowance of buying commissions.
The assessee, Adidas India Marketing Pvt Ltd, filed its return declaring income of Rs. 6,82,34,060 for the A.Y. 2013-14. The TPO made substantial adjustments to the AMP expenses, proposing both substantive and protective adjustments amounting to over Rs. 21 crore, which were later contested in appeals.
The Income Tax Appellate Tribunal (ITAT) held a detailed examination of the AMP expenses and the methodology adopted by the TPO. The tribunal ultimately sided with the assessee, citing previous judgments that supported the rejection of the TPO’s bright line approach. The tribunal also addressed the disallowances related to buying commissions, emphasizing the lack of adequate substantiation for treating such expenditures as non-compliant under tax deduction at source (TDS) provisions.
The tribunal’s decision underscores the ongoing debate around the arm’s length principle and its application to AMP expenses in transfer pricing assessments. By referencing similar cases and judicial precedents, the ITAT provided clarity on the handling of such complex issues, significantly favoring the assessee. This judgment is crucial for multinational companies facing similar transfer pricing challenges.
The case was rigorously argued on both sides, and the tribunal’s thorough examination led to a comprehensive ruling on September 2, 2022, aligning with prior precedents and providing a clear directive on the treatment of AMP expenses and buying commissions in transfer pricing cases.
Final Tribunal Order in DCIT vs. Adidas India Marketing Pvt Ltd – ITA 158/DEL/2021 for A.Y. 2013-14
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