Tribunal remands case for fresh determination on international transaction concerning AMP expenses

The Tribunal set aside the order, remanding the case to the TPO/AO for a fresh determination on the existence of an international transaction regarding AMP expenses. The TPO is directed to ascertain the ALP with consideration to relevant precedents, ensuring the assessee's right to be heard. The appeal was partly allowed for statistical purposes.

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Issues Involved:
1. Transfer Pricing Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses.
2. Jurisdiction of the Transfer Pricing Officer (TPO) in determining the Arm’s Length Price (ALP) of AMP expenses.
3. Retrospective application of CBDT Instruction No. 3/2016.
4. Set-off of brought forward loss and unabsorbed depreciation.

Detailed Analysis:

1. Transfer Pricing Adjustment on AMP Expenses:
The primary issue revolves around the addition of Rs. 4,48,09,156/- on account of transfer pricing adjustment towards AMP expenses. The assessee, an Indian subsidiary of a French company, incurred AMP expenses, which the TPO treated as an international transaction. The TPO applied the bright line test, comparing the ratio of the assessee’s operating income to AMP expenses with that of comparable companies, resulting in the proposed adjustment. The Dispute Resolution Panel (DRP) upheld this adjustment, leading to the assessee's appeal.

2. Jurisdiction of the TPO:
The assessee contended that the TPO exceeded his jurisdiction by determining the ALP of AMP expenses without a specific reference from the AO. However, the Tribunal noted the insertion of sub-section (2A) to section 92CA by the Finance Act, 2011, which allows the TPO to consider any international transaction that comes to his notice during proceedings. Since the reference was made post-1.6.2011, the TPO was justified in assuming jurisdiction over the AMP expenses.

3. Retrospective Application of CBDT Instruction No. 3/2016:
The assessee argued that the AO should have provided an opportunity for a hearing before referring the AMP expenses to the TPO, based on Instruction No. 3/2016. The Tribunal clarified that this Instruction, effective from 10th March 2016, is prospective and not retrospective. Consequently, the procedural requirements outlined in the Instruction do not apply to assessments completed before its issuance.

4. Set-off of Brought Forward Loss and Unabsorbed Depreciation:
The assessee raised an additional ground regarding the AO’s failure to grant set-off of brought forward loss and unabsorbed depreciation. The Tribunal directed the AO to examine and allow the necessary relief as per law.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the TPO/AO for a fresh determination of whether an international transaction of AMP expenses exists. If such a transaction is found, the TPO is to determine its ALP in light of relevant judgments, after providing a reasonable opportunity for the assessee to be heard. The appeal was partly allowed for statistical purposes.

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