2023 (4) TMI 727 - AT - Income Tax

TP Adjustment - addition of AMP Expenses applying Bright line test - HELD THAT - There is no substantial difference between the agreement came into effect from 01/07/2005 and that of Agreement came into effect from 01/04/2010. TPO/A.O have already considered the agreement dated 01/07/2005 in earlier round of litigation and only after the remand by the Tribunal for the second time, wrongly considered the agreement which was came into effect from 01/04/2010. It is not the case of the revenue that the assessee has misled the TPO by providing the wrong agreement which ultimately resulted in considering the wrong agreement. Also observed that the relevant agreement which is applicable for the year under consideration was already on record of the TPO, but the Ld. TPO has reproduced the agreement which is not applicable for the year under consideration for which the assessee cannot be penalized. Remitting the issue to the file of Lower Authorities once again for the third time will not serve any purpose which would only result in dragging the proceedings for no fault of the assessee, therefore, in our opinion, the same shall be avoided in the interest of justice. Thus by following the order of the Tribunal in Assessee s own case for the Assessment Year 2016-17 2021 (11) TMI 647 - ITAT DELHI , we are of the opinion that it cannot be held that there was any kind of understanding or arrangement with the A.E. which can be lead to interference that AMP expenditure incurred by the assessee is an intentional transaction nor there is any iota of material that there was any action in concert. Accordingly, we hold that there is no international transaction of incurring any AMP expenditure and direct the A.O/TPO to allow the claim of the assessee.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on account of Advertising, Marketing, and Promotion (AMP) expenses.
2. Protective TP Adjustment on account of AMP Expenses applying the Bright Line Test (BLT).
3. Deduction on account of education cess (dismissed as not pressed).

Issue-Wise Detailed Analysis:

1. Transfer Pricing Adjustment on account of AMP Expenses:
The core issue was whether AMP expenses incurred by the assessee constituted an international transaction with its Associated Enterprises (AEs). The Tribunal referenced its previous decision for the Assessment Year (AY) 2016-17, where it was determined that there was no arrangement or understanding that AMP expenses were an international transaction. It was noted that the AMP expenses were solely for the local market needs and were not incurred at the behest of the overseas AE. The Tribunal emphasized that the entire risk of profit and loss from sales or AMP expenses lay with the assessee company. The relevant legal provisions, including Section 92B and 92F of the Income Tax Act, were cited to assert that a transaction must involve a bilateral arrangement or contract, which was not present in this case. The Tribunal concluded that the AMP expenses incurred by the assessee did not constitute an international transaction.

2. Protective TP Adjustment on account of AMP Expenses applying BLT:
The Tribunal criticized the Transfer Pricing Officer (TPO) for applying the Bright Line Test (BLT) and making substantive adjustments using a profit split method (PSM). The Tribunal reiterated that the AMP expenses were incurred solely for the benefit of the assessee's business in India and not for the AE. The Tribunal referenced the Delhi High Court's judgment in the case of Maruti Suzuki India Pvt. Ltd., which held that the onus was on the Revenue to demonstrate an arrangement between the assessee and its AE regarding AMP expenses. The Tribunal found no evidence of such an arrangement or any action in concert. Furthermore, it was noted that the TPO had erroneously considered an agreement effective from April 1, 2010, which was not applicable to the assessment year under consideration. The Tribunal decided not to remit the issue back to the lower authorities, as it would only prolong the proceedings without any fault of the assessee.

3. Deduction on account of education cess:
The assessee's counsel did not press this ground, and hence, it was dismissed.

Conclusion:
The Tribunal held that there was no international transaction of incurring AMP expenditure between the assessee and its AE. The TPO's adjustments were based on incorrect agreements and misapplications of the law. The Tribunal directed the TPO to allow the assessee's claim, consistent with the decision for AY 2016-17. The appeal was partly allowed, with the specific issue of AMP expenses being decided in favor of the assessee.