ACIT Vs Bacardi India Pvt. Ltd. (ITAT Delhi)
Bacardi India Pvt. Ltd. and the Revenue filed cross-appeals against orders of the CIT(A)-42, New Delhi dated 28.02.2019 concerning Assessment Year 2009-10. The appeals were heard together as the issues were identical.
Bacardi India, a 74:26 joint venture between Bacardi International Limited and Gemini Distilleries, was engaged mainly in manufacturing and selling alcoholic beverages under the BACARDI brand. For AY 2009-10, it filed its return declaring a loss of INR 19,40,16,060. The assessment under Section 143(3) resulted in additions aggregating to INR 36,14,92,303, comprising an AMP expenses mark-up adjustment of INR 36,12,24,752 and interest on receivables of INR 2,67,551. After setting off brought-forward losses of INR 16,74,76,243, assessed income was determined at NIL.
The TPO treated AMP expenditure as a separate international transaction. According to the TPO, the brands manufactured and sold by Bacardi India were owned by its associated enterprises, and the substantial AMP expenditure promoted those brands and created marketing intangibles for the AEs. The TPO also relied on the high AMP-to-sales ratio and the involvement of the foreign AE in marketing and business decisions. A bright line limit of 7.52% was applied to determine excess AMP expenditure, along with a 15% mark-up, resulting in the transfer pricing adjustment.
