On 26 May 2026, the Supreme Court dismissed the Income Tax Department's special leave petition in Principal Commissioner of Income Tax Central 3 v. Pernod Ricard India Private Limited. The dismissal rested on two grounds: a 384-day delay in filing the SLP, and the Court's conclusion that there was no sufficient reason to interfere with the Delhi High Court's order dated 29 August 2024.
That makes the order worth reading for more than limitation alone. The Supreme Court did not write a long transfer pricing judgment. But by declining interference on delay as well as merits, it left undisturbed an important Delhi High Court ruling on advertising, marketing and promotion expenditure, commonly called AMP expenditure, and the limits of Revenue-driven brand-building adjustments.
The Dispute
The controversy related to assessment years 2007-08 to 2011-12. The Revenue had carried multiple issues: a transfer pricing adjustment on AMP expenditure, disallowance of brand-building expenses, disallowance under Section 14A, and additions based on seized material. The core transfer pricing allegation was familiar: that the Indian entity's AMP spend created or promoted brand value for its foreign associated enterprise, and therefore required an adjustment.
The Delhi High Court rejected that approach because the Revenue could not point to material showing an arrangement, understanding, or concerted action between Pernod Ricard India and its associated enterprise for brand promotion. In other words, high AMP spend by itself was not enough. The Revenue needed evidence of an international transaction.
Why The AMP Finding Matters
AMP disputes have often suffered from a conceptual shortcut. The TPO sees substantial advertising spend, assumes brand benefit to the overseas group, and then treats the Indian entity as having rendered brand-building services to the associated enterprise. The Delhi High Court's approach cuts through that shortcut.
The principle is straightforward: an AMP adjustment cannot be built on inference alone. The Revenue must first establish the existence of an international transaction. That requires evidence of an arrangement or action in concert, not merely a conclusion that the expenditure incidentally benefited a foreign brand owner. A business can advertise to grow its Indian sales. The tax consequence changes only when the facts show that the Indian entity was, in substance, performing a brand-promotion function for the associated enterprise.
This fits the post-Maruti Suzuki and Bausch & Lomb line of Delhi High Court reasoning: AMP expenditure does not automatically become an international transaction simply because it may produce group-level brand visibility. Evidence is the entry ticket.
Section 14A: No Exempt Income, No Disallowance
The High Court also upheld the Tribunal's finding that Section 14A disallowance could not be made where the assessee had earned no exempt income in the relevant years. This point is now well-settled in many strands of authority, but it remains practically important because mechanical Rule 8D computations still appear in assessments.
The practical proposition is simple: Section 14A is tied to expenditure incurred in relation to exempt income. If there is no exempt income for the relevant year, the foundation for the disallowance is absent. The provision cannot be used as a standalone expense-pruning tool.
Seized Material Cannot Travel Without Year-Specific Linkage
The third important aspect concerns additions based on seized material. The High Court held that material pertaining to assessment year 2002-03 could not sustain additions for later years unless there was incriminating material relatable to those later assessment years.
This is a recurring issue in search assessments. Revenue authorities sometimes treat one year's seized material as a pattern, and then extrapolate it across other years. Courts have repeatedly insisted on year-specific linkage. If the addition is for a particular assessment year, the incriminating material must connect to that year. Suspicion, continuity, or business-pattern reasoning cannot replace the statutory requirement.
The Limitation Lesson For The Department
The Supreme Court's first reason was procedural: a 384-day delay that was not satisfactorily explained. For tax litigation, this is not a small administrative footnote. Revenue appeals often assume that institutional delay will be condoned as a matter of course. The order is a reminder that limitation discipline applies to the State too.
What makes this order sharper is that the Supreme Court also said it saw no good ground to interfere with the High Court's decision. So the dismissal was not merely a limitation disposal. It also leaves the substantive reasoning untouched.
Takeaways
- AMP spend is not enough by itself. The Revenue must prove an arrangement or concerted action with the associated enterprise before making a brand-building TP adjustment.
- Section 14A needs exempt income. In the absence of exempt income, a mechanical disallowance should not survive.
- Search additions need year-specific material. Seized material for one assessment year cannot automatically justify additions for later years.
- Delay remains real. A departmental appeal with unexplained delay can fail even in a high-value tax dispute.
The AS Lex View
This is not a dramatic Supreme Court pronouncement, but it is useful litigation ammunition. For assessees facing AMP adjustments, the Delhi High Court's insistence on evidence of an international transaction remains the central defence. For Revenue, the lesson is equally clear: a sustainable AMP adjustment must begin with documents, conduct, or arrangements showing that the Indian entity was acting for the foreign AE, not merely advertising its own business in India.
Procedurally, the order is also a warning that delay cannot be treated as a clerical inconvenience. Substantively, it strengthens three clean propositions: evidence before AMP adjustment, exempt income before Section 14A disallowance, and assessment-year linkage before search-based additions.
Sources: Supreme Court order in SLP (Civil) Diary No. 74598/2025 dated 26 May 2026; Delhi High Court judgment in ITA 872/2019 and connected matters dated 29 August 2024; LiveLawBiz report dated 26 May 2026.