Tribunal directs deletion of AMP expenditure, emphasizes compliance with DRP directions

The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made on account of AMP expenditure and instructing the AO to examine the claim for unabsorbed depreciation. The Tribunal emphasized the need for compliance with the DRP's directions and appropriate benchmarking methods, highlighting the absence of an international transaction in the AMP expenses.

---

---

Issues Involved:
1. Determination of AMP expenses as an international transaction.
2. Exclusion of routine selling and distribution expenses from AMP.
3. Selection and application of comparables and methods for benchmarking AMP transactions.
4. Adjustment towards AMP expenditure and mark-up.
5. Credit for unabsorbed depreciation brought forward from previous years.
6. Charging of interest under sections 234B and 234D of the Income Tax Act.

Detailed Analysis:

1. Determination of AMP Expenses as an International Transaction:
The assessee contended that AMP expenses should not be treated as a separate international transaction under Chapter-X of the Income Tax Act. The assessee argued that the AMP expenditure was not mentioned as a separate transaction in their TP Study but was considered as a function for benchmarking import and trading business. The TPO, however, treated AMP expenses as an international transaction, applying the Bright Line Test (BLT) and Cost Plus Method (CPM) to determine the arm's length price (ALP).

The Tribunal referred to the Delhi High Court's decision in Bausch and Lomb Eyecare (India) Pvt. Ltd., which emphasized that the existence of an international transaction requires an arrangement or understanding between the associated enterprises (AEs). The mere benefit to the AE from the AMP expenses does not constitute an international transaction. The Tribunal found that there was no agreement obliging the assessee to incur AMP expenses for the AE's benefit. Thus, the AMP expenses could not be treated as an international transaction.

2. Exclusion of Routine Selling and Distribution Expenses from AMP:
The assessee argued that routine selling and distribution expenses should be excluded from AMP expenses. The DRP had directed the exclusion of such expenses, but the TPO failed to comply. The Tribunal noted the clear directions of the DRP and found that the TPO had incorrectly included routine selling expenses in the AMP calculation. The Tribunal directed the exclusion of these expenses.

3. Selection and Application of Comparables and Methods for Benchmarking AMP Transactions:
The TPO had selected comparables and applied the Cost Plus Method (CPM) with the State Bank of India Prime Lending Rate (SBI PLR) as the markup. The DRP retained the comparables but rejected the SBI PLR, directing the use of the gross profit/AMP ratio of comparables as the markup. The Tribunal upheld the DRP's directions, emphasizing the need for appropriate comparables and methods.

4. Adjustment Towards AMP Expenditure and Mark-up:
The assessee challenged the adjustment made towards AMP expenditure and the mark-up applied. The Tribunal found that the TPO had incorrectly computed the AMP expenditure and the resulting adjustment. The Tribunal directed the deletion of the addition made on account of AMP expenditure, as there was no international transaction.

5. Credit for Unabsorbed Depreciation Brought Forward from Previous Years:
The assessee sought directions for the AO to give credit for unabsorbed depreciation brought forward from previous years. The Tribunal directed the AO to examine the claim and decide in accordance with the law after giving due opportunity of hearing to the assessee.

6. Charging of Interest Under Sections 234B and 234D:
The assessee contested the charging of interest under sections 234B and 234D. The Tribunal did not specifically address this issue in detail but allowed the appeal in favor of the assessee, implying that the interest charges would be reconsidered in light of the main issues being resolved.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made on account of AMP expenditure and instructing the AO to examine the claim for unabsorbed depreciation. The Tribunal emphasized the need for compliance with the DRP's directions and appropriate benchmarking methods, highlighting the absence of an international transaction in the AMP expenses.

---