Delivery Cost And Warranty Expenses Are Post Sales Activities Doesn't Form The Part Of AMP Expenditure For Amazon India: ITAT

The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that delivery costs and warranty expenses are not part of advertising, marketing, and promotion (AMP) expenditures.

The bench of George George K. (Vice President) and Laxmi Prasad Sahu (Accountant Member) has observed that during the course of TP proceedings, the TPO made a detailed inquiry on these issues, but it was not considered part of AMP expenditure. These expenditures cannot be regarded as having been incurred for the purpose of developing the brand since these are post-sales activities and part of a sales expenditure. It is also not a case of lack of inquiry.

The appellant/assessee is a wholly owned subsidiary of Amazon Corporate Holdings Private Limited engaged in rendering marketing support services, marketplace services, and wholesale trading of e-book reader devices (kindles) along with accessories.

The case was selected for scrutiny through CASS, and statutory notices were served on the assessee. The assessee had international transactions with its AE, and the case was referred to the TPO after approval from the competent authority. The TPO passed the order, and accordingly, the AO passed the final assessment order.

The CIT (TP) on examination of records noted that the assessee has recognized the expense on account of share-based compensation transactions, and the TPO allowed the exclusion of share-based compensation (SBC) in the form of ESOP cost from the operating cost and also excluded depreciation and amortization from the operating cost without due inquiry or verification. While delivery charges and related warranty charges are to be considered in AMP expenses, the TPO has excluded delivery charges and warranty charges from the AMP expenses without due inquiry or verification while determining the AMP adjustment. Therefore, the CIT (TP) considered the TPO's order as erroneous and prejudicial to the interests of revenue and issued a show cause notice for revision of the order under Section 263.

The CIT (TP) held the order of the TPO as erroneous insofar as it is prejudicial to the interests of revenue and set aside the order of the TPO with a direction to pass a fresh order.

The tribunal held that the delivery cost and warranty expenses are not part of AMP expenditure. Therefore, the CIT (TP) is not justified for revising the order on this issue under Section 263.

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: Pradeep Arya

Case Title: Amazon Seller Services Private Limited Versus The Commissioner of Income-Tax (TP)

Case No.: IT(TP)A No.418/Bang/2023

Click Here To Read The Order