AMP transfer pricing adjustment remitted after inadequate FAR analysis failed to establish an international transaction.

AMP expenditure could not be finally adjusted without first establishing, on the parties' actual conduct and a proper FAR analysis, that the assessee was obliged to incur such spend for promoting the associated enterprise's brand. The record and the transfer pricing study did not adequately show the existence of an AMP-related international transaction or its arm's length price. The AMP adjustment was therefore set aside and the matter remitted to the Transfer Pricing Officer for fresh examination of whether an international transaction existed and, if so, whether any ALP adjustment was warranted.

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Issues: Whether the transfer pricing adjustment on account of advertising, marketing and sales promotion expenditure was sustainable and whether the matter required remand for fresh examination of the existence of an international transaction and its arm's length price.

Analysis: The assessee was an exclusive distributor of the associated enterprise and the record did not establish, on the basis of functional, asset and risk analysis, that it was obliged to incur AMP expenditure for promoting the AE's brand. At the same time, the assessee's transfer pricing study did not furnish a proper FAR analysis of the AMP functions. In these circumstances, the correct course was to examine the actual conduct of the parties and the economic substance of the arrangement before determining whether AMP expenditure constituted an international transaction and, if so, whether any compensation or ALP adjustment was warranted.

Conclusion: The AMP adjustment was set aside and the matter was remitted to the Transfer Pricing Officer for fresh examination of the existence of an international transaction and, if required, determination of arm's length price.

Final Conclusion: The assessee obtained a remand on the AMP issue, and the transfer pricing dispute was left for reconsideration on facts and law by the tax authority.

Ratio Decidendi: Where the existence of an AMP-related international transaction is not established on the basis of the parties' actual conduct and a proper FAR analysis is absent, the adjustment cannot be finally sustained without fresh examination.

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