HC Grants Relief to PepsiCo India | Follows Sony Ericsson Ruling to Reject Bright Line Test to Benchmark AMP Exp.

Case Details: PCIT v. PepsiCo India Holding (P.) Ltd. - [2024] 162 taxmann.com 724 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Purushaindra Kumar Kaurav, JJ.
• Ruchir Bhatia, Sr.SC, Anant Mann, Jr.SC, Agarwal, Sr.SC, Shivansh B. Pandya, Viplav Acharya, Jr.SCs & Utkarsh Tiwari, Adv. for the Appellant. 
• Deepak Chopra, Anmol Anand, Mrs Priya Tandon & Ms Sheetal Kandpal, Advs. for the Respondent.

Facts of the Case

Assessee (PepsiCo India) was set up in India as a subsidiary of PepsiCo Inc., a US-based company. It was involved in manufacturing soft drink/juice-based concentrates for aerated and non-aerated drinks in India. The assessee obtained a license from its US parent AE for the technology to manufacture the concentrates and to use and exploit the brands owned by its AE.

In the Transfer Pricing (TP) proceedings, the Transfer Pricing Officer (TPO) held that the assessee had incurred a huge advertising, marketing and promotional (AMP) expenditure to promote its brand and trademark. He treated the AMP expenses as an international transaction and made adjustments to the AMP expenses. The matter reached the Delhi Tribunal.

High Court Held

The Delhi High Court has confirmed the Tribunal’s decision to grant relief to PepsiCo India regarding the Transfer Pricing adjustment related to advertising, marketing, and promotional (AMP) expenses.

The High Court ruled that the calculation of AMP expenses using the Bright Line Test (BLT) is not viable, considering the judgment in Sony Ericsson Mobile Communications India (P) Ltd. v. CIT [2015] 55 taxmann.com 240 (Delhi).

The Tribunal relies upon the Delhi High Court ruling in the case of Sony Ericsson Mobile Communications India (P.) Ltd. (Supra) held the TPO could not quantify the adjustment by determining the AMP expenses spent by the assessee after applying the Bright Line Test (BLT) to hold it to be excessive, thereby evidencing the existence of the international transaction involving the AE.

It was held in the Sony Ericsson case that the bright line test has no statutory mandate, and it is not obligatory to subject AMP expenses to a bright line test and consider non-routine AMP as a separate transaction.

List of Cases Reviewed

• Sony Ericsson Mobile Communications India (P) Ltd. v. CIT [2015] 55 taxmann.com 240/231 Taxman 113 (Delhi) (para 2) followed

List of Cases Referred to

• Sony Ericson v. CIT [2015] 55 taxmann.com 240/231 Taxman 113/374 ITR 118 (Delhi) (para 2).