Transfer pricing adjustments fail where AMP and service payments are tested by benefit analysis instead of prescribed arm's length methods.

Transfer pricing adjustments for AMP expenditure in the manufacturing and distribution segments were unsustainable because no arrangement, understanding, or concerted action showed that the assessee incurred such spend for brand building of the associated enterprise; the AMP additions were deleted. Alternative adjustments for royalty, marketing support services, and consultancy services also failed because the Transfer Pricing Officer applied a benefit-based test rather than determining arm's length price through the prescribed Chapter X methods; those additions were deleted as well. The assessment was set aside to the extent of the disputed transfer pricing additions, granting full relief to the assessee.

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Issues: (i) Whether the transfer pricing adjustment on account of AMP expenses in the manufacturing and distribution segments was sustainable. (ii) Whether the alternative adjustments on royalty, marketing support services and consultancy services could survive when the Transfer Pricing Officer applied a benefit-based approach instead of the prescribed arm's length methods.

Issue (i): Whether the transfer pricing adjustment on account of AMP expenses in the manufacturing and distribution segments was sustainable.

Analysis: The AMP issue was held to be covered by the assessee's own earlier years. The reasoning adopted in those years was followed, namely that absent any arrangement, understanding, or action in concert obligating the assessee to incur AMP expenditure for brand building of the associated enterprise, the Chapter X machinery could not be invoked to make a transfer pricing adjustment on that basis. The same factual pattern and legal conclusion applied to both the manufacturing segment AMP adjustment and the distribution segment AMP adjustment.

Conclusion: The AMP adjustments in both segments were deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the alternative adjustments on royalty, marketing support services and consultancy services could survive when the Transfer Pricing Officer applied a benefit-based approach instead of the prescribed arm's length methods.

Analysis: The alternative adjustments were found unsustainable because the Transfer Pricing Officer examined the need for services, proof of rendition, commercial expediency and benefit derived, rather than determining arm's length price by one of the methods prescribed under Chapter X. The jurisdictional High Court authority relied upon by the assessee was applied to hold that the benefit test is not for the Transfer Pricing Officer to apply in this manner. As the officer had not carried out proper benchmarking under the statutory methods, the alternative adjustments could not stand.

Conclusion: The alternative adjustments on royalty, marketing support services and consultancy services were deleted and the issue was decided in favour of the assessee.

Final Conclusion: The assessment was set aside to the extent of all transfer pricing additions in dispute, resulting in full relief to the assessee.

Ratio Decidendi: A transfer pricing adjustment must be made by applying the statutory arm's length methods under Chapter X, and not by rejecting expenditure on a benefit test or on the supposed excessive nature of the payment when no arrangement for AMP brand-building is shown.

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