Callaway Golf India Private Limited Vs ITO (ITAT Delhi)
Conclusion: Bright Line Test (BLT) could not be applied for determining the Arm’s Length Price (ALP) of Advertisement, Marketing, and Promotion (AMP) expenditure under the transfer pricing provisions.
Held: Assessee was engaged in the distribution of golf equipment, balls, and accessories in India. For the Assessment Year 2012-13, assessee had disclosed international transactions with its Associated Enterprise (AE) in the area of marketing and distribution of the goods of the assessee. During the transfer pricing proceedings, Transfer Pricing Officer (TPO) observed that assessee has incurred significant AMP expenditure of ₹2.39 crores, which formed a substantial part of the sales made by assessee. TPO had proposed the ALP adjustment of ₹4.32 crores using the Cost Plus Method and had further proposed the application of the Bright Line Test in a protective manner. Dispute Resolution Panel (DRP) had followed the approach of the TPO and had directed the computation of the ALP using various methods including the application of the Bright Line Test and the Adjusted TNMM. It was contended that assessee was merely a distributor of products in India, and the AMP expenditure was incurred in the course of normal business to boost sales. It was further contended that these expenditures were inextricably linked with the activity of distribution and could not be treated as a separate international transaction in the context of brand promotion of AE. Further,assessee stated that the decision of the Delhi High Court in Sony Ericsson Mobile Communications India (P) Ltd. v. CIT was relevant in the present case, wherein it was held that the Bright Line Test had no statutory mandate in transfer pricing. It was held that Bright Line Test was not a legally sustainable method of benchmarking AMP expenditure. It was further observed that assessee was merely a distributor of products in India, and the AMP expenditure was incurred primarily to boost sales in India. In rejecting the BLT-based adjustment method and the application of the Cost Plus Method it was held by Tribunal that benchmarking should be performed on an aggregate basis by the Transactional Net Margin Method (TNMM).
