PCIT Vs Wrigley India Pvt. Ltd. (Delhi High Court)
Delhi High Court has rejected an appeal filed by the tax authorities challenging a tribunal’s decision that advertising, marketing, and promotional (AMP) expenses incurred by Wrigley India Pvt. Ltd. did not constitute a separate international transaction. The court’s ruling reinforces its earlier pronouncements on the treatment of AMP expenses in transfer pricing assessments, particularly the limited applicability of the Bright Line Test (BLT).
The judgment by the High Court concerned the assessment year 2012-13 and arose from an order passed by the Income Tax Appellate Tribunal (ITAT) on July 24, 2024. The ITAT had dismissed the Revenue’s appeal against an order by the Commissioner of Income Tax (Appeals) [CIT(A)], which held that AMP expenses were not a separate international transaction and that benchmarking these expenses using the BLT was incorrect.
The dispute originated during the transfer pricing assessment of Wrigley India Pvt. Ltd. The Transfer Pricing Officer (TPO) had taken the view that the AMP expenses incurred by the Indian subsidiary were not merely for promoting its own sales in India but also aimed at promoting the brand owned by its associated enterprises (AEs) within the global Wrigley group. The TPO, therefore, treated these AMP expenses as a separate international transaction between Wrigley India and its AEs. To determine the arm’s length price for this purported transaction, the TPO applied the Bright Line Test, which compares the AMP spending of the tested party (Wrigley India) with that of comparable uncontrolled entities. Any expenditure exceeding the “bright line” (the average AMP spending of comparable companies) is considered to be for the benefit of the foreign AE and treated as an international transaction requiring arm’s length adjustment.
