ITAT Mumbai Bench: AMP Expenditure Not an International Transaction, No Arm’s Length Price Adjustment

ITAT Mumbai Bench Rules in Favor of Mattel Toys (India) Pvt. Ltd.: AMP Expenditure Not an International Transaction, No Adjustment for Arm’s Length Price

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a favorable ruling for M/s Mattel Toys (India) Pvt. Ltd., stating that Advertising Marketing and Promotion (AMP) expenditure does not qualify as an international transaction. Consequently, the tribunal concluded that no adjustment for the arm’s length price could be made in relation to the said transaction. This decision aligns with an earlier order on the matter.

M/s Mattel Toys (India) Pvt. Ltd. is an Indian company and an indirectly wholly owned subsidiary of Mattel Inc., USA. The company is primarily engaged in the manufacturing and sales of Mattel’s toy products within India. For the relevant assessment year, the assessee filed its income tax return on November 29, 2012, declaring a total income of Rs. 9,59,73,110/-.

In the assessment order issued under Section 143(3) read with Section 144C(3) of the Income Tax Act, the Assessing Officer made an addition for transfer pricing adjustment regarding advertising marketing and promotion (AMP) expenses. Additionally, a disallowance of depreciation on unused plant and machinery amounting to Rs. 1,73,829/- was imposed. Subsequently, the Assessing Officer rectified the transfer pricing adjustment. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the transfer pricing adjustment. Displeased with this decision, the Revenue filed an appeal.

The assessee contended that the AMP expenses were not incurred on behalf of or for the benefit of the Associated Enterprises, and any such expenses were incidental. According to the definition of international transactions provided in Section 92B of the Income Tax Act, an international transaction refers to a transaction between two or more associated enterprises, where at least one of them is a non-resident, involving purchases, sales, or other transactions affecting the profit, income, or loss of such enterprises. International transactions also encompass mutual agreements or arrangements for the allocation, apportionment, or contribution of costs or expenses incurred or to be incurred in connection with a benefit, service, or facility provided or to be provided by one or more of the enterprises.

The ITAT bench observed that AMP expenditure does not fall under the category of international transactions. Consequently, any adjustment for the arm’s length price in relation to such a transaction becomes irrelevant and cannot be made. Therefore, the ITAT ruled in favor of the assessee.

This decision, in the case of DCIT v. Mattel Toys (India) Pvt. Ltd., brings clarity to the treatment of AMP expenditure as an international transaction for transfer pricing purposes. The ITAT affirmed that the adjustment to the transaction’s arm’s length price was unwarranted, as the AMP expenditure did not qualify as an international transaction. This ruling is applicable to the assessment year 2012-13 and is in line with the earlier order on the matter

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