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2021 (5) TMI 213 - AT - Income TaxTP Adjustment - adjustment on account of AMP expenses - HELD THAT - As decided in own case 2020 (4) TMI 91 - ITAT DELHI According to the Rule under the PSM combined net profit of the AEs arising from the international transaction has to be determined and thereafter if incurrence of AMP expenses is to be considered from the value of such international transaction then the combined profit has to be determined from the value of such international transaction. No FAR analysis of AE has been carried out or even demonstrated that any kind of profit has been derived by the AE from the AMP expenses incurred in India. Otherwise also the profit earned on account of AMP expenses incurred by the assessee by way of economic exploitation of the trademark/brand in India already stands captured in the profit and loss account for the assessee company and the same has duly offered to tax and hence there was no logic to compute or make any Transfer Pricing Adjustment on this score. As rightly observed by the Ld. DRP in its order these issues are covered in assessee s own case for the assessment year 2006-07 to 2013-14 2018 (12) TMI 277 - ITAT DELHI . Since the matter stands covered in favour of the assessee and in the absence of any material change in the facts of the case brought to our notice we hereby direct that the addition be deleted.
Issues Involved:
1. Transfer Pricing Adjustment on account of Advertisement, Marketing, and Promotion (AMP) Expenses. 2. Consequential grounds related to interest levied under sections 234A and 234B, refund adjustments under section 244A, and penalty proceedings under section 271(1)(c). Detailed Analysis: Transfer Pricing Adjustment on AMP Expenses: The primary issue in this appeal pertains to the transfer pricing adjustment on account of AMP expenses. The assessee, a subsidiary of a foreign company, incurred AMP expenses amounting to INR 920,27,38,000/- during the assessment year 2016-17. The Transfer Pricing Officer (TPO) determined that these expenses benefitted the associated enterprises (AEs) by promoting their brands and trademarks, thus constituting an 'international transaction' under section 92B(1) read with section 92F(v) of the Income Tax Act, 1961. Consequently, the TPO computed an adjustment of INR 571,69,91,000/-. The Dispute Resolution Panel (DRP) acknowledged the previous Tribunal decisions in favor of the assessee for earlier years (2006-07 to 2015-16), which held that AMP expenses do not qualify as an 'international transaction' for the purposes of section 92B of the Act. The DRP directed the AO to verify if the Tribunal's orders were contested by the department before higher courts and to retain the adjustment if they were. The Tribunal reiterated its findings from earlier years, emphasizing that: 1. International Transaction Identification: AMP expenditure alone does not establish the existence of an international transaction. 2. Bright Line Test (BLT): The BLT is not a valid method under the Act or Rules for determining the arm's length price (ALP) of AMP expenses. 3. Brand Building: The concept of brand building through AMP expenses does not necessarily benefit the AE; rather, it benefits the assessee in India. 4. OECD Guidelines: Legal ownership of intangibles by itself does not entitle the AE to returns unless it performs relevant functions, uses assets, or assumes risks. The Tribunal concluded that no international transaction existed concerning AMP expenses and that no benefit accrued to the AE from these expenses. Consequently, the transfer pricing adjustment made by the revenue authorities was directed to be deleted. Consequential Grounds: 1. Interest under Section 234A and 234B: The AO erred in levying interest under sections 234A and 234B of the Act. 2. Refund Adjustments under Section 244A: The AO erred in adding back the amount already refunded to the assessee, including interest under sections 244A(1) and 244A(1A). 3. Penalty Proceedings under Section 271(1)(c): The AO/DRP erred in initiating penalty proceedings under section 271(1)(c) of the Act. Conclusion: The Tribunal allowed the appeal of the assessee, directing the deletion of the transfer pricing adjustment on AMP expenses. Consequently, the stay application filed by the assessee was dismissed as infructuous. The Tribunal's order was pronounced in the open court on 04/05/2021.
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