Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 10.01.2025 passed by the Income Tax Appellate Tribunal for Assessment Year 2018–19. The Tribunal had allowed the appeal of the assessee, Amadeus India Pvt. Ltd., deleting transfer pricing adjustment on account of Advertisement, Marketing and Promotion (AMP) expenses and disallowance made under Section 14A read with Rule 8D. The Assessing Officer and the Transfer Pricing Officer had treated AMP expenditure as an international transaction and proposed adjustment applying the Bright Line Test. Disallowance under Section 14A was also made despite absence of exempt income.

Issues Involved

Whether AMP expenses incurred by the assessee constituted an international transaction under transfer pricing provisions, whether the Bright Line Test could be applied, whether disallowance under Section 14A was permissible in the absence of exempt income, and whether the amendment to Section 14A introduced by the Finance Act, 2022 could be applied retrospectively.

Petitioner’s Arguments

The Revenue fairly conceded that the issue relating to AMP expenses was covered against it and in favour of the assessee by earlier judgments of the Delhi High Court in the assessee’s own case. However, it was argued that in view of the amendment to Section 14A introduced by the Finance Act, 2022, the disallowance under Section 14A ought to be sustained even where no exempt income was earned.

Respondent’s Arguments

The assessee submitted that AMP expenses had consistently been held not to constitute an international transaction in its own cases by the Delhi High Court, and therefore no substantial question of law arose. With respect to Section 14A, it was argued that the amendment introduced by the Finance Act, 2022 was expressly prospective and applicable only from Assessment Year 2022–23 onwards. Reliance was placed on binding judgments including Era Infrastructure (India) Ltd., Cheminvest Ltd., and Supreme Court decisions holding that amendments “for removal of doubts” cannot be presumed to be retrospective if they alter the law.

Court Order / Findings

The Delhi High Court held that the issue relating to AMP expenses stood conclusively covered against the Revenue by earlier decisions in the assessee’s own case and other binding precedents, and therefore no substantial question of law arose on that issue. On the question of Section 14A, the Court relied on its earlier judgment in Era Infrastructure (India) Ltd. and held that the amendment to Section 14A by the Finance Act, 2022 is prospective and applicable only from Assessment Year 2022–23 onwards. The Court reiterated that even an amendment stated to be “for removal of doubts” cannot be applied retrospectively if it changes the law as it earlier stood. The Court also noted that although the Revenue had filed appeals before the Supreme Court against earlier judgments, there was no stay operating against those decisions.

Important Clarification

The Court clarified that judicial consistency requires that where issues are squarely covered by binding precedents of the jurisdictional High Court, subsequent appeals raising identical issues do not give rise to any substantial question of law, irrespective of pendency of appeals before the Supreme Court in the absence of a stay.

Final Outcome

The appeal filed by the Revenue was dismissed. The order dated 10.01.2025 passed by the Income Tax Appellate Tribunal deleting AMP adjustment and disallowance under Section 14A for Assessment Year 2018–19 was upheld. It was held that no substantial question of law arose for consideration, and the decision was rendered in favour of the assessee and against the Revenue.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769505739_PR.COMMISSIONEROFINCOMETAXDELHI1VsAMADEUSINDIAPVT.LTD..pdf

 

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