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Important Case Law:

• Who really benefits from L’Oréal’s ads in India—the Indian company or its French parent?

Summary of L’Oreal India (P.) Ltd. v. Deputy Commissioner of Income-tax

Case Details and Coram

• Case Title: L’Oreal India (P.) Ltd. v. Deputy Commissioner of Income-tax

• Citation: 178 taxmann.com 596 (Mumbai - Trib.)

• Date of Order: September 18, 2025

• Bench: ITAT Mumbai Bench 'K' (PAWAN SINGH, JUDICIAL MEMBER and SMT. RENU JAUHRI, ACCOUNTANT MEMBER)

• Assessment Year: 2021-22

Key Issues and Holdings

The case addressed two primary issues: the transfer pricing adjustment concerning Advertisement, Marketing and Promotion (AMP) expenses, and the claim for correction regarding double taxation and Foreign Tax Credit (FTC).

Detailed Analysis of AMP Expenses (Issue I)

1. Facts of the Dispute: The assessee-company (L’Oreal India) incurred Advertisement, Marketing and Promotion (AMP) expenses. The Revenue authorities (AO/TPO) treated these expenses as a presumed or fictitious international transaction—provision of brand promotion services—believing the expenses enhanced the brand value owned by the Associated Enterprises (AEs) (parent company). The resulting adjustment proposed was Rs 184,75,26,393.

2. Assessee’s Position: L’Oreal India argued that the AMP expenses were incurred wholly and exclusively for the purpose of its business in India. It claimed that no benefit was passed on to the AEs. Crucially, there was no agreement or understanding between the assessee and its AEs for sharing or reimbursement of such expenses.

3. Revenue's Position: The Revenue contended that there was an arrangement and understanding based on the license agreement (which stipulated royalty payments and marketing expenditures) and the fact that the expenses enhanced the AE's brand value, thus constituting an international transaction.

4. Tribunal's Rationale: The ITAT relied heavily on the principle of consistency, noting that the similar issue had been consistently held in favor of the assessee by co-ordinate benches of the Mumbai Tribunal for previous assessment years (A.Y. 2008-09 to 2020-21).

   • Following these prior decisions, the Tribunal held that in the absence of any ‘understanding’ or ‘arrangement’ or ‘action in concert’ between the assessee and its AE for incurring AMP expenses for the AE's brand building, the provisions of Chapter X (Transfer Pricing) cannot be invoked.

   • The onus was on the Revenue to prove the existence of an international transaction, and they failed to provide conclusive proof of an arrangement for the benefit of the AEs.

   • Since there was no material variation in facts, the Tribunal allowed grounds 1 to 23 (relating to the AMP adjustment).

Detailed Analysis of Rectification and FTC (Issue II)

1. Rectification Claims: The assessee filed an application under Section 154 of the Act, seeking correction for two issues:

   • Correction of double taxation of an amount chargeable under Section 41, totaling Rs. 55.25 lakhs. The assessee claimed this amount was considered twice by the AO.

   • Claim for relief of Foreign Tax Credit (FTC) of Rs. 14.46 lakhs in respect of taxes paid in Bangladesh.

2. Tribunal's Direction: Since the assessee had already filed the rectification application under Section 154, and the AO had failed to consider it, the ITAT directed the Assessing Officer to consider the application of the assessee under Section 154 and pass the order in accordance with law on both issues.

Conclusion

The appeal was allowed, primarily in favor of the assessee. The major transfer pricing adjustment regarding AMP expenses was deleted, and the matter concerning double taxation and foreign tax credit was remanded to the Assessing Officer for review under Section 154.

For Judgment,  Please click here

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