High Court gives relief to Pepsico India over Rs 2,800 crore tax demand

Pepsico (Photo:Bloomberg)

The Delhi high court has dismissed an appeal by the tax authorities against Pepsico India in a case related to the taxation of its advertising, marketing, and promotion (AMP) expenses.

The tax authorities went to the high court against the Delhi-based Income Tax Appellate Tribunal’s (ITAT) order of deleting an addition of more than Rs 2,800 crore made by the assessing officer on AMP expenses of Pepsico.

The AO came to this conclusion on the basis of the bright line test (BLT) in transfer pricing.

Under BLT, AMP expenses are compared with the industry average and excess expenses are taken as brand-building expenses of foreign parents which are to be taxed.

Earlier in a Sony Ericsson case, the Delhi high court had held that BLT is not a valid methodology under transfer pricing rules in India.

The court followed that judgement to dismiss the appeal by the tax authorities against Pepsico Holdings.

Garg said the AMP issue has been one of the most litigative and intriguing issues in the transfer pricing landscape. There is no clarity in the law over the AMP issue and the entire jurisprudence has evolved in the last many years based on court and tribunal orders only.