IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, I: NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.5929/Del/2024 [Assessment Year: 2021-22]

Swatch Group (India) Private Deputy Commissioner of Income Limited, Tax, 4th Floor, Rectangle-I, Plot No. D- Vs Circle 22(2), 4, Saket District Centre, C.R. Building, I.P. Estate, Delhi, New Delhi -110017. 110002.

PAN- AAFCS7516R Assessee Revenue Assessee by Shri Rohit Tiwari, Adv.

Ms. Tanya, Adv.

Revenue by Shri Dharm Veer Singh, CIT(DR)

Date of Hearing 09.01.2026 Date of Pronouncement 14.01.2026

ORDER

PER BRAJESH KUMAR SINGH, AM:

This appeal has been preferred by the assessee against the Final Assessment Order dated 29.10.2024 passed by the Learned Assessing Officer (AO) under Section 143(3) read with Sections 144C(13), r.w.s. 144B of the Income-tax Act, 1961 (“the Act”), pursuant to the directions of the Hon'ble Dispute Resolution Panel (DRP) order dated 09.09.2024 for the Assessment Year 2021-22.

2. Brief facts of the case: The Swatch Group Limited is based in Switzerland and the ultimate holding company of the Swatch Group, world's largest manufacturer and distributor of luxury watches. The Swatch Group Ltd. is the number one manufacturer of finished watches in the world. The Group is active in the manufacture of finished watches, jewellery and watch moments and components. Swatch Group India Pvt. Ltd. is a part of the Swatch Group and it commenced operations during the financial year 2002-03. Swatch India as distributor is primarily engaged in the import and resale of watches and spare parts of watches. Some of the major brands under which luxury watches are imported and resold by Swatch group India are Omega, Rado, Tissot, Breguet Balmain, Jaquet Droz, Blancpain, Calvin Klein, Longines and Swatch.

3. The TPO based on the FAR profile of the assessee as discussed in his order observed that there was sufficient evidence that it was discharging marketing function, function of market development including adding value to the intangibles of its AE and was not merely engaged in purchase and sale of goods with insignificant promotional activities. Accordingly, the TPO was of the view that the marketing function carried out by the assessee was required to be considered while carrying out the benchmarking of the international transactions. The TPO further observed that the contribution that the assessee had made must be treated as part of the brand building exercise in respect of the brands which were owned by its AE.

The TPO further was of the view that AE should have reimbursed the cost that was incurred by the assessee towards advertising which led to brand building. Placing all these facts in a logical sequence, The TPO was of the view that the assessee was entitled to a reimbursement from the AE and the final beneficiary was the AE as the brand owned by it was gaining in value due to the marketing efforts of the assessee. The TPO observed that assessee was in effect creating a marketing intangible in favour of the AE by the AMP efforts that it carries out in the Indian sub-continent.

4. In view of the discussions made by the TPO in his order u/s 92CA(3) of the Act dated 10.11.2022, the TPO issued a show cause notice dated 05.10.2023 and 11.10.2023 (as referred in para 12 of page no. 11 of its order placed at pg. no. 119- 120 of the Appeal set) as to why adjustment in the AMP expenses should not be made by applying Bright Line Test. The relevant extract of the said show cause notice is reproduced as under:

“Advertising, marketing expenditure incurred on behalf of AE On perusal of information submitted by Assessee it is seen that it is actively promoting brands of AEs such as Omega, Rado, Tissotetc and also ensures spare parts are available with service centers and by doing so it is increasing customer satisfaction and brand value of such brands in India and thereby creating valuable intangible. It is not clear from information su