Court excludes certain expenses from AMP base for Transfer Pricing adjustments. Only promotion-related expenses for sales considered.

The court directed the exclusion of certain expenses from the overall base of advertising, marketing, and promotion (AMP) expenses for Transfer Pricing adjustment for the assessment years 2008-09 and 2009-10. The Assessing Officer's inclusion of specific expenses in the AMP expenses was challenged, with the court clarifying that only promotion-related expenses promoting sales leading to brand building should be considered for determining transfer pricing adjustments. The matter was remitted for a fresh determination in line with the court's directions for both assessment years, and the appeals were allowed for statistical purposes.

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Issues:
- Inclusion of certain expenses in the overall base of advertising, marketing, and promotion (AMP) expenses for Transfer Pricing adjustment for the assessment years 2008-09 and 2009-10.

Analysis:
Assessment Year 2008-09:
1. The assessee challenged the inclusion of specific expenses in the AMP expenses for Transfer Pricing adjustment. The Assessing Officer included selling expenses within AMP expenses using the bright line test, except for 'Liquidated damages claimed by customers.' The ld. CIT(A) directed the exclusion of Installation commission and Employees sales incentive from the overall base of AMP expenses based on a Special Bench order. The Special Bench clarified that AMP expenses are only those promoting sales leading to brand building, excluding expenses directly connected with sales. The ld. CIT(A) erred in focusing on 'marketing intangibles' instead of 'brand promotion,' contrary to the Special Bench's mandate.

2. The TPO applied the bright line test incorrectly, including both sales-specific expenses and promotion-related expenses in the base of AMP expenses. The AO's action was due to the absence of the Special Bench decision's guidance. The Tribunal set aside the impugned order, directing the AO/TPO to reevaluate the issue, excluding expenses directly linked to sales and only considering promotion-related expenses for determining transfer pricing adjustments. The assessee will have a hearing in the fresh proceedings.

Assessment Year 2009-10:
1. The facts for the assessment year 2009-10 mirrored those of 2008-09. The Tribunal, following the decision for 2008-09, remitted the matter to the AO/TPO for a fresh determination in line with the directions provided for the previous assessment year.

2. Both appeals were allowed for statistical purposes, and the order was pronounced on 28/8/2014.

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