ITAT Allows OPPO Distributor’s Claim for AMP and Price Drop Expenses While Deleting Additions Exceeding Rs. 19.98 Crore

The Income Tax Appellate Tribunal (ITAT) Delhi held that Advertisement and Brand Promotion (AMP) expenses as well as price drop losses incurred by the assessee were genuine business expenditures and allowed them under Section 37(1) of the Income Tax Act, 1961.

Hariom Mobile Private Limited is a Super Authorised Distributor (SAD) of OPPO mobile phones in Gujarat and filed its returns for assessment years 2019-20 and 2020-21. Later, a search operation under bof the Income Tax Act was conducted in December 2021 in the cases connected with Oppo Mobile India Group and reassessment proceedings were then initiated. The AO disallowed the Advertisement, Marketing and Brand Promotion (AMP) expenses amounting to Rs 11.55 crore on the ground that such expenditure had allegedly been done on behalf of the brand owner, Oppo Mobiles India Pvt. Ltd (OMIPL), and was not allowable under Section 37(1) of the Act.

The AO also disallowed price drop expenses of Rs. 8.43 crore and held that the losses had already been reimbursed by OMIPL through credit notes and, therefore, no deduction could be claimed. Aggrieved by these additions, the assessee preferred appeals before the CIT(A), which deleted both additions. The Revenue thereafter approached the Tribunal.

The Tribunal observed that the entire basis of the disallowance was that the expenses had been reimbursed by OMIPL. With respect to AMP expenses, the Tribunal observed that the AO had never disputed the genuineness of the expenditure. As there was no evidence showing reimbursement, the expenditure for promoting the assessee’s own business was rightly allowable under Section 37(1) of the Act. The assessee had produced credit notes, IMEI reconciliations, ledger extracts and other supporting documents to prove the claim. The Tribunal held that these losses constituted genuine commercial expenditure arising from business in a highly competitive mobile industry.

The Tribunal upheld the order of the CIT(A) and deleted the disallowance of Advertisement and Brand Promotion expenses amounting to Rs 11.55 crore and price drop expenses of Rs 8.43 crore. Accordingly, both the Revenue’s appeals for Assessment Years 2019-20 and 2020-21 were dismissed.