ACIT Vs Hariom Mobile Private Limited (ITAT Delhi)
Price Drop Losses Allowed Because Distributor Bore Unreimbursed Margin Loss; ITAT Deletes AMP Disallowance Because Advertisement Expenses Were for Distributor’s Own Business; Section 37 Deduction Allowed Because AMP Expenses Were Not Reimbursed by Brand Owner; ITAT Upholds Deletion of Price Drop Disallowance Because Commercial Loss Was Genuine.
The Income Tax Appellate Tribunal (ITAT), Delhi, dismissed the Revenue’s appeals for Assessment Years 2019-20 and 2020-21 and upheld the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting disallowances relating to advertisement, marketing and brand promotion (AMP) expenses and price drop expenses claimed by the assessee, a Super Authorised Distributor (SAD) of OPPO mobile phones. The assessee’s cross-objections were dismissed as not pressed.
For AY 2019-20, the Assessing Officer (AO) had disallowed ₹11,55,11,349 towards AMP expenses under Section 37(1), holding that the expenditure was either reimbursed by OPPO Mobile India Pvt. Ltd. (OMIPL) or incurred for the exclusive benefit of the brand owner. The AO also disallowed ₹8,43,23,780 towards price drop expenses on the ground that such losses had already been reimbursed by OMIPL through credit notes.
The CIT(A) examined the distributorship agreement and found that the assessee was responsible for distribution, market development, territory management, and regional brand promotion. The agreement permitted the assessee to use the OPPO brand for advertising and promotional campaigns but did not impose any obligation on OMIPL to reimburse AMP expenses. The CIT(A) accepted the assessee’s explanation that OMIPL compensated distributors by offering a lower selling price instead of reimbursing advertisement expenses. This position was corroborated by the statement of OMIPL’s Finance Head, who confirmed that there was no policy for reimbursement of advertisement expenses and that such costs were embedded in the pricing structure. The assessee also produced advertisement invoices, promotional materials, vendor payments, and newspaper advertisements demonstrating that the expenditure had been incurred independently for its own regional business. The CIT(A) noted that the AO had not disputed the genuineness of the expenditure and had based the disallowance solely on a presumption of reimbursement. Accordingly, the disallowance of AMP expenses was deleted.
