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2025 (4) TMI 478 - HC - Income TaxTP adjustment towards AMP expenditure - International transaction or not? - Tribunal has observed that since the judgment of our Court in Maruti Suzuki India Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT had not been taken into consideration the matter would merit being remanded to the Transfer Pricing Officer (TPO) to determine whether AMP would qualify as an international transaction. HELD THAT - As decided in order passed by the Tribunal for Assessment Year 2010-11 2019 (4) TMI 1774 - ITAT DELHI AMP expenditure cannot be treated as separate international transaction which needs separate benchmarking and accordingly we delete the entire AMP adjustment made by the Assessing Officer. A similar view came to be expressed by the Tribunal while dealing with the appeal pertaining to AYs 2011-12 2012-13 and 2013-14 held once found that AMP expenditure is not an international transaction at all then there is no question of any separate fact or transfer pricing adjustment. Accordingly the adjustment on account of AMP expenditure in all the years is directed to be deleted. Since the Tribunal appears to have consistently followed and adopted the principle enunciated in Sony Ericson Mobile Communication India P. Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT we find that absent AMP being liable to be treated as an international transaction the remit was clearly unwarranted. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment were: (a) Whether the remand by the Income Tax Appellate Tribunal (ITAT) to the Transfer Pricing Officer (TPO) was justified in law, and whether the appellant was entitled to a final and conclusive determination by the ITAT regarding the validity of the Transfer Pricing adjustment towards Advertisement, Marketing, and Promotion (AMP) expenditure. (b) Whether the impugned order was unjust and bad in law for not conclusively deleting the Transfer Pricing adjustment made towards AMP expenditure. 2. ISSUE-WISE DETAILED ANALYSIS For the issue of whether AMP expenses qualify as an international transaction, the following analysis was conducted: Relevant Legal Framework and Precedents: The legal framework involved the interpretation of the provisions under Chapter X of the Income Tax Act concerning Transfer Pricing adjustments. The precedents primarily involved the judgments in Maruti Suzuki India Ltd. vs. Commissioner of Income Tax and Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT, which addressed the characterization and treatment of AMP expenses as international transactions. Court's Interpretation and Reasoning: The Court noted that the ITAT had remanded the matter to the TPO, citing the need to consider the judgment in Maruti Suzuki India Ltd. The Court observed that the Tribunal had not conclusively determined whether AMP expenses constituted an international transaction and had instead remanded the matter for fresh determination. Key Evidence and Findings: The Court referred to the Tribunal's findings, which indicated that the TPO had initially held AMP expenses to be an international transaction without considering relevant judicial views. The Tribunal had set aside the impugned order for fresh determination by the TPO. Application of Law to Facts: The Court applied the principles from the Sony Ericsson and Maruti Suzuki judgments, emphasizing that the existence of an international transaction involving AMP expenses must be established independently of the Bright Line Test (BLT). The Court highlighted that the BLT had been expressly negated as a legitimate means of determining the Arm's Length Price (ALP) of an international transaction involving AMP expenses. Treatment of Competing Arguments: The appellant argued that the remand was unjustified, citing subsequent Tribunal orders and High Court decisions that had consistently held AMP expenses did not constitute an international transaction. The Court acknowledged these arguments and noted the consistent application of the principle that AMP expenses should not be treated as international transactions absent clear evidence of such a transaction. Conclusions: The Court concluded that the remand was unwarranted, as the Tribunal had consistently followed the principle that AMP expenses did not qualify as an international transaction. The Court found that the absence of AMP being liable to be treated as an international transaction rendered the remand unnecessary. 3. SIGNIFICANT HOLDINGS The Court preserved the following crucial legal reasoning: "The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction." The core principles established included: (i) International transactions cannot be presumed solely based on excess AMP expenditure. (ii) The BLT is not a legitimate method for determining the ALP of an international transaction involving AMP expenses. (iii) The existence of an international transaction must be established independently of the BLT. The final determination on the issues was that the appeal was allowed, and the direction of remand by the ITAT was set aside, as the Tribunal's consistent application of principles from relevant precedents indicated that AMP expenses did not constitute an international transaction.
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