2014 (12) TMI 925 - AT - Income Tax

Transfer pricing adjustment on AMP expenses Held that - Both the parties admit that the DRP has in a very cursory manner passed its order similar issue has been decided in L.G. Electronics India Private Ltd. Vs. ACIT 2013 (6) TMI 217 - ITAT DELHI - mere fact that no consideration moved between the associated enterprises for a transaction is not a decisive factor to have influence over its nature - Payment of consideration has not been made as a condition precedent for inclusion of any transaction within the ambit of section 92B - the simple fact that the foreign AE did not pay any consideration to the Indian AE will not take the transaction out of the purview of the transfer pricing provisions, if it is otherwise an international transaction - thus it is palpable that all the three necessary ingredients as culled out from a bare reading of section 92B are fully satisfied - the transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee for creating or improving the marketing intangible for and on behalf of the foreign AE is permissible and earning a mark-up from the Associated Enterprise in respect of AMP expenses incurred for and on behalf of the AE is also allowable - in any event as the claims of the assessee have to be examined based on the facts of the case, the matter is remitted back to the TPO for fresh adjudication Decided in favour of assessee.

Summary

Issues Involved:
Transfer pricing adjustment on account of advertising, marketing, and promotional expenses.

Detailed Analysis:

1. Facts in Brief:
The appeal was filed by the assessee against the order of the Assessing Officer (AO) passed under section 143(3) read with section 144C of the Income Tax Act. The assessee, a subsidiary of a US company, was engaged in importing, marketing, and distributing orthopedic implants in India. The international transactions undertaken by the assessee were detailed in the Transfer Pricing documentation for the financial year 2008-09.

2. Economic Analysis and Dispute:
The Appellant provided an economic analysis for its transactions, including the computation of AMP expenses. The Transfer Pricing Officer (TPO) considered comparables selected by the appellant and rejected some. The Dispute Resolution Panel rejected all contentions of the assessee, citing a Special Bench decision. The assessee then appealed, challenging the TPO's adjustment on AMP expenses.

3. Grounds of Appeal:
The assessee contended that the adjustment made by the TPO/DRP was erroneous. Issues raised included the computation of AMP expenses, exclusion of certain expenses, consideration of sponsorship and sales promotion, and the nature of AMP as an international transaction. The assessee also argued misinterpretation of international guidance on marketing intangibles and the lack of adverse inferences in previous years.

4. Tribunal Decision:
After hearing both parties, the Tribunal held that the DRP's order was cursory and did not apply propositions from a relevant Special Bench case. The Tribunal found merit in the assessee's arguments and decided to restore the issue to the TPO for fresh adjudication in line with the law and the Special Bench's ratio. The TPO was directed to consider all arguments raised by the assessee.

5. Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing the need for a detailed examination of the issue based on the facts of the case and adherence to the legal principles established by the Special Bench. The decision was pronounced in the Open Court on 30th September 2014.