The case concerning Sony India Pvt Ltd involved multiple assessment years and numerous transfer pricing issues. Most of the issues were decided in Sony’s favour. Certain matters were remanded. The only substantive issue decided against Sony concerned the lower Dividend Distribution Tax rate claim.
First, the Tribunal addressed the adjustments made by the tax authorities for alleged advertisement, marketing and promotion (AMP) expenses, considering both the Bright Line Test (BLT) and the so-called ‘intensity adjustment’. The Tribunal held that neither the BLT nor the intensity adjustment is a permissible method under the Income Tax Act for benchmarking AMP expenses. Both the substantive and protective AMP adjustments were deleted.
Regarding the royalty payment, the tax authorities had determined the arm’s length price as zero under the CUP method, on the basis that the manufacturing subcontractors, rather than Sony India, should have paid the royalty. However, the Tribunal rejected this approach, relying on its own earlier decision in Sony’s AY 2016-17 case (which was upheld by the Delhi High Court). The Tribunal held that the tax authorities must use comparable data when applying the CUP method and cannot question the commercial necessity of the payment. The royalty adjustment was deleted.
Regarding advisory services, the Tribunal directed the exclusion of a company from the set of comparables as it was functionally different and ordered the tax authorities to recalculate any adjustments accordingly.
Regarding interest on outstanding receivables, the Tribunal found that the tax authorities had computed interest beyond the relevant assessment year. The matter was remanded in order to verify the correct period and make any necessary adjustments.
Regarding Sony’s request for a lower DDT rate, the Tribunal ruled against them.
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