In August 2025, the Income Tax Appellate Tribunal (ITAT), Delhi Bench delivered a significant decision in the case of Sony India Pvt. Ltd. The judgment consolidated three appeals—ITA No. 9080/Del/2019, ITA No. 1688/Del/2022, and ITA No. 2052/Del/2022—covering multiple assessment years.
At the heart of the dispute were several contentious transfer pricing adjustments, including advertising and marketing expenditure (AMP), royalty payments, advisory services, interest on receivables, and the rate of Dividend Distribution Tax (DDT).
The Tribunal’s ruling addressed each of these issues in detail and has wider implications for multinational taxpayers and corporate transfer pricing strategies.
AMP Expenses and the Bright-Line Test
One of the central issues was whether AMP expenses incurred by Sony India could be benchmarked using the Bright-Line Test (BLT) and intensity adjustment. The tax authorities relied on these approaches to argue that Sony had incurred excessive expenditure to promote the brand of its foreign associated enterprise.
The ITAT categorically rejected these methods. It observed that neither BLT nor intensity-based adjustments are recognized under Indian transfer pricing law. In line with earlier rulings, including Sony Ericsson and Samsung India, the Tribunal held that BLT cannot be used to establish an arm’s-length standard. Both substantive and protective AMP adjustments were deleted.
Royalty Payments
The next issue concerned royalty payments made by Sony India. The tax authorities had applied the Comparable Uncontrolled Price (CUP) method and determined the arm’s-length price of the royalty at zero. Their reasoning was that original equipment manufacturers (OEMs), rather than Sony India, should have borne the royalty.
The Tribunal disagreed. Referring to earlier rulings—upheld by the Delhi High Court—the ITAT clarified that the tax department cannot question the commercial necessity of a genuine transaction. What matters is whether the payment is benchmarked using reliable comparables. Since no valid comparables were provided to justify the “zero” valuation, the adjustment was deleted.
Advisory Services
Sony India also challenged the inclusion of a functionally different company in the set of comparables for benchmarking advisory services. The Tribunal accepted this argument, stating that comparability must be assessed based on functional similarity. It directed the exclusion of the disputed company and remanded the issue back for recalculation using a more appropriate peer group.
Interest on Outstanding Receivables
Another dispute related to interest on receivables. The tax authorities had computed interest beyond the relevant assessment years. The ITAT found this approach incorrect. It remanded the matter for proper recalculation, restricted to the applicable assessment periods, and emphasized that timing must align strictly with the statutory framework.
Dividend Distribution Tax (DDT)
Sony India also claimed entitlement to a lower rate of DDT. On this point, the Tribunal sided with the revenue authorities. It held that the standard rate applies, and no concession could be granted under the facts of this case.
Conclusion
The Sony India ruling of August 2025 is a landmark judgment that strengthens transfer pricing practice in India. It provides clarity on recurring disputes around AMP benchmarking, royalty payments, and comparable selection.
For corporates, the decision highlights the importance of robust documentation, functional analysis, and alignment with judicial precedents.
Tax professionals and multinational groups should see this ruling both as a safeguard against arbitrary adjustments and as a reminder to maintain defensible transfer pricing positions backed by evidence.
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