Transfer pricing on AMP expenses requires functional analysis, while legal expense disallowance needs fresh voucher-based verification.

AMP transfer pricing adjustments cannot be made mechanically on a bright line test; they require a fresh functional and comparability analysis of the actual agreements, conduct, risks, functions and assets, so the matter was remitted for de novo consideration under the jurisdictional High Court ruling. The disallowance of legal and professional expenses also required verification because the allowability could not be decided from the narration of entries alone without examining supporting vouchers and evidence, so that issue too was sent back for fresh decision after hearing the assessee. The disputed additions were therefore not sustained in full.

---

---

Issues: (i) whether the transfer pricing adjustment made in respect of advertising, marketing and promotion expenses required fresh examination in the light of the jurisdictional High Court decision; (ii) whether the disallowance of legal and professional expenses was sustainable or required reconsideration.

Issue (i): whether the transfer pricing adjustment made in respect of advertising, marketing and promotion expenses required fresh examination in the light of the jurisdictional High Court decision.

Analysis: The adjustment had been made on the footing of the earlier Special Bench approach, including the bright line test and a segregation of AMP expenditure as a separate international transaction. The later High Court ruling had, however, rejected the broad-brush application of that approach and emphasized that transfer pricing in such matters requires a detailed functional analysis, proper comparability analysis, and examination of the actual agreements, conduct, risks, functions, and assets. The record showed that the tax authorities had proceeded under a legal position that was no longer tenable and that the relevant facts had not been examined afresh under the revised legal framework.

Conclusion: The AMP transfer pricing issue was remitted to the Assessing Officer / Transfer Pricing Officer for de novo consideration in accordance with law and the High Court ruling.

Issue (ii): whether the disallowance of legal and professional expenses was sustainable or required reconsideration.

Analysis: The disallowance was made on the premise that certain items debited under legal and professional expenses were not of that nature. The entries extracted from the assessment and DRP orders indicated business-related outgoings, but the allowability could not be conclusively decided merely from the narration of entries without examining the supporting vouchers and evidence. Since the primary material was stated to be available, a fresh verification was necessary.

Conclusion: The disallowance issue was also remitted to the Assessing Officer for fresh decision after verification and granting an opportunity of hearing.

Final Conclusion: The assessment was not upheld in full and the disputed additions were sent back for reconsideration, leaving the assessee with a partial substantive success and the appeal disposed of for statistical purposes.

Ratio Decidendi: AMP expenditure cannot be subjected to a mechanical bright line adjustment; transfer pricing in such cases must be determined through proper functional and comparability analysis on the actual facts, and where the record was examined under an outdated legal approach, a de novo remand is warranted.

---