2017 (8) TMI 1484 - AT - Income Tax

TPA - AMP expenses - whether is an international transaction as per the provisions of section 92B of the Act or not? - Held that - As the issue is covered in favour of assessee respectfully following Tribunal s decision in assessee s own case for AY 2008-09 and 2009-10 2016 (4) TMI 1146 - ITAT MUMBAI we also hold that the AMP expenses and transaction arising out of the same is not international transaction and cannot be subject matter of TP adjustment u/s 92C of the Act. - Decided in favour of assessee.

Summary

Issues:
Whether AMP expenses incurred by the assessee constitute an international transaction under section 92B of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the Assessment Year 2006-07, challenging the order of DRP-I, Mumbai, regarding the categorization of AMP expenses as an international transaction. The primary contention raised by the assessee was that the AMP expenditure was solely for its own business interests and not for promoting the brands of its overseas associated enterprises (AEs). The assessee relied on a Special Bench ruling and argued that in the absence of an agreement with AEs, the transactions cannot be considered international. The Tribunal examined the issue in light of previous rulings and held that the AMP expenses were incurred to benefit the assessee's business, not the AEs. The Tribunal emphasized that the TPO failed to establish that the expenses were aimed at enhancing the brand value of AEs. It referenced a judgment by the Delhi High Court to support its decision.

The Tribunal also reviewed the TPO's confirmation of the addition based on the principle laid down by a Special Bench ruling. The TPO considered the percentage of net sales spent on AMP by comparables and deemed any expenditure above the average as enhancing the value of brand intangibles of AEs. Despite the TPO and DRP's confirmation of the addition, the Tribunal found that the facts of the case were akin to previous years where the issue was decided in favor of the assessee. The Tribunal noted that the issue had been consistently ruled in favor of the assessee in various cases, indicating a precedent. Consequently, the Tribunal held that the AMP expenses did not constitute an international transaction and could not be subject to transfer pricing adjustments under section 92C of the Act.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the consistency of decisions in similar cases and the absence of evidence supporting the characterization of AMP expenses as international transactions. The order was pronounced on 18-08-2017, in favor of the assessee.