2022 (10) TMI 272 - AT - Income Tax

TP Adjustment - excessive AMP expenses - whether an international transaction or not? - as per assessee existence of international transaction cannot be inferred by the T.P.O in the absence of any actual transaction and the presumption by the lower authorities that the benefit had enured to its foreign AE is merely based on the conjectures - HELD THAT:- In the absence of any agreement between the assessee and its foreign AE to incur any A & M expenses to the benefit of its foreign AE, the presumption of existence of international transaction is incorrect.

Revenue was unable to prove existence of any agreement between the assessee and the foreign AE for incurring advertisement and marketing expenses for the benefit of such foreign AE. That, no interference can be drawn as to the existence of international transaction on mere incurring excess expenditure on those items as compared to expenditure incurred by comparables as chosen by the T.P.O.

Revenue also could not demonstrate the presence of any machinery provision to compute Arm’s Length Price nor could demonstrate existence of any agreement between the assessee and its AE that the expenses on AMP was incurred for enhancing the brand value of the AE. That, even the bright line method cannot be used either to determine the existence of international transaction or ALP of international transaction.

Merely because on account of expenditure incurred by the assessee the third party also benefits thereby, the expenditure cannot be disallowed.

In this case, there does not exist any international transaction and therefore, the question of determination of ALP of such transaction does not arise. Furthermore as we have examined from the case-law cited above, the onus is on the Revenue for establishing that there is an international transaction has not been discharged in this case. Consequently, the relief provided by the learned CIT(A) to the assessee is sustained and furthermore since there is no international transaction at all, the question of determining ALP does not exist. Appeal of assessee allowed.