Tribunal rules AMP not international transaction, directs deletion of TPO's adjustment. Scientific charges remanded. Interest deduction allowed.

The Tribunal held that Advertising, Marketing, and Promotion (AMP) expenses do not constitute an international transaction, as per the decision in Maruti Suzuki India Ltd vs CIT. The Tribunal directed the deletion of the upward adjustment made by the Transfer Pricing Officer (TPO) for AMP expenditure. The issue of Scientific Session Charges was remanded to the Assessing Officer (AO) for verification, and the deduction for interest on service tax was allowed by the Tribunal.

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Issues Involved:
1. Determination of Arm's Length Price (ALP) for Advertising, Marketing, and Promotion (AMP) Expense
2. Disallowance of Scientific Session Charges
3. Disallowance of Interest on Service Tax

Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for Advertising, Marketing, and Promotion (AMP) Expense:

Facts:
The assessee company, engaged in manufacturing and distribution of pharmaceutical formulations, filed its return of income for AY 2012-13 declaring a total income of Rs. 32,99,14,180/-. The case was referred to the Transfer Pricing Officer (TPO) for determining the ALP of international transactions with its Associated Enterprises (AEs). The TPO observed that the assessee had incurred AMP expenses for developing the brands and products owned by the Merck Group without being compensated for such activity. The TPO proposed an adjustment of Rs. 8,35,50,666/- on account of marketing intangibles.

Assessee's Arguments:
- AMP expenses do not constitute an international transaction.
- AMP expenses were incurred for its own business purposes, and any benefit to AEs was incidental.
- The assessee had sufficient gross operating margin to compensate for any alleged AMP expenses.
- The application of Bright Line Test (BLT) is not in consonance with Indian TP regulations.
- Selling and distribution expenses should not be considered while computing the AMP spend ratio.

TPO's Observations:
The TPO concluded that the entire amount of AMP expenses of Rs. 6,73,86,252/- was for creating marketing intangibles for the AE and should be compensated. A mark-up of 5% was added, resulting in an upward adjustment of Rs. 7,07,55,565/-.

Tribunal's Findings:
The Tribunal held that AMP expenditure is not an international transaction and hence does not require ALP determination. The Tribunal relied on the decision in Maruti Suzuki India Ltd vs CIT, which held that AMP expenses do not constitute an international transaction. The Tribunal also found that the assessee's products were sold under their relevant names and not by the manufacturer's name, negating the need for compensation for brand promotion. The Tribunal directed the deletion of the upward adjustment made by the TPO.

2. Disallowance of Scientific Session Charges:

Facts:
The AO noticed that the assessee had debited an amount of Rs. 32,50,000/- on account of 'Scientific Session Charges' and Rs. 3,48,000/- for journals. The AO disallowed Rs. 12,50,000/- as it pertained to the previous year according to the TDS certificates.

Assessee's Arguments:
The assessee argued that the expenses were incurred for business purposes and should be allowed. The assessee requested verification to ensure that no deduction was claimed in the previous year.

Tribunal's Findings:
The Tribunal remanded the issue to the AO for verification. If the expenses were not claimed in the previous year, the assessee should be granted the deduction for the current year as the expenditure was incurred for business purposes and there was no change in tax rates.

3. Disallowance of Interest on Service Tax:

Facts:
The AO disallowed Rs. 1,257/- debited under 'Finance cost' towards 'Interest on Service Tax', considering it penal in nature.

Assessee's Arguments:
The assessee argued that the interest was compensatory in nature and allowable as a deduction.

Tribunal's Findings:
The Tribunal found that the interest was charged under section 75 of the Service Tax Rules, which is compensatory in nature and thus allowable as a deduction. The Tribunal allowed the deduction.

Conclusion:
The Tribunal allowed the appeal for statistical purposes for AY 2012-13 and allowed the appeal for AY 2013-14, directing deletion of the upward adjustment made by the TPO for AMP expenditure and allowing the deduction for interest on service tax. The issue of scientific session charges was remanded to the AO for verification.

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