Warranty Expenses and Delivery Cost are Activities Post-Sales, not AMP Expenditure For Amazon India: ITAT [Read Order]

In a recent ruling, the Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) has clarified that delivery costs and warranty expenses should not be categorized as advertising, marketing, and promotion ( AMP ) expenditures. The bench held that despite a detailed inquiry by the Transfer Pricing Officer ( TPO ) during TP proceedings, these costs were deemed separate from AMP expenditure. The Tribunal reasoned that these expenses, related to post-sales activities and considered part of sales expenditure, cannot be deemed as contributing to brand development. The appellant/assessee, a wholly-owned subsidiary of Amazon Corporate Holdings Private Limited, provides marketing support services, marketplace services, and engages in wholesale trading of e-book reader devices ( kindles ) and accessories.

The case underwent scrutiny through CASS, with statutory notices served on the assessee, leading to a TPO order and subsequent final assessment by the Assessing Officer. The Commissioner of Income Tax ( Transfer Pricing ) [CIT (TP)], upon examination, identified discrepancies in the TPO’s order. Specifically, the TPO excluded delivery charges and warranty expenses from AMP expenses without proper inquiry, while also allowing the exclusion of share-based compensation ( SBC ) and depreciation without due verification.

In response, the CIT ( TP ) deemed the TPO’s order as erroneous and prejudicial to revenue interests, issuing a show cause notice for revision under Section 263 of the Income Tax Act. The CIT ( TP ) set aside the TPO’s order, directing a fresh assessment. However, the Tribunal disagreed with the CIT ( TP )’s stance on the inclusion of delivery costs and warranty expenses in AMP expenditure. The tribunal of George George K. ( Vice President ) and Laxmi Prasad Sahu ( Accountant Member ) held that these costs should not be considered as part of AMP expenditure, concluding that the CIT (TP) was not justified in revising the order under Section 263 on this specific issue.

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