2016 (11) TMI 1653 - AT - Income Tax

TP Adjustment on account of AMP expenses - International transaction - HELD THAT - On perusal of the order of the TPO it emerges that while holding the AMP expenses to be an international transaction he did not have the benefit of the judicial precedents now available for consideration in some of which the transaction of AMP has been held as an international transaction in others as not an international transactions while still in some others the matter has been restored for fresh consideration in the light of the judgment in Sony Ericsson 2015 (3) TMI 580 - DELHI HIGH COURT in which the AMP expenses as an international transaction has been accepted. Respectfully following the predominant view of the Hon ble High Court we are of the considered opinion that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved the matter would end there and then calling for no transfer pricing addition. If on the other hand the international transaction is found to be existing then the TPO would determine the ALP of such an international transaction in the light of the relevant judgments of the Hon ble High Court after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Disallowance of transfer pricing adjustment on account of AMP expenses.

Analysis:
The appeal was against the final assessment order passed by the Assessing Officer under sections 143(3) and 144C of the Income-tax Act, 1961 for the assessment year 2010-11. The primary argument presented was that the assessee did not incur any expenditure on advertisement, marketing, and promotion (AMP), and the expenses noted were selling expenses, citing legal provisions that restrict advertisement expenses. Additionally, it was contended that AMP expenses were not an international transaction, thus questioning the determination of arm's length price and any addition based on it. Reference was made to judgments of the Hon'ble Delhi High Court to support the argument that AMP expenses should not be considered an international transaction.

On the contrary, the Department argued that AMP expenses were an international transaction, referring to a judgment where AMP expenses were held to be international. They highlighted that the issue had been restored for fresh determination in various cases based on the judgment regarding AMP expenses as an international transaction. The Tribunal considered both arguments and found that the contention solely based on legal provisions did not prove the absence of AMP expenses. The Tribunal directed the Transfer Pricing Officer (TPO) to verify if AMP expenses were actually incurred and determine accordingly to avoid disallowance.

Regarding the argument that AMP expenses were not an international transaction, the Tribunal acknowledged the evolving judicial precedents on this matter. Considering the differing views on whether AMP expenses constituted an international transaction, the Tribunal decided to set aside the order and referred the matter back to the TPO for a fresh determination. The TPO was instructed to establish the existence of an international transaction of AMP expenses and determine the arm's length price accordingly, following relevant High Court judgments. The Tribunal dismissed other grounds not argued by the assessee, allowing the appeal for statistical purposes.