Tribunal remits transfer pricing and software expenses issues for fresh examination

The Tribunal partly allowed the appeal, remitting the issues of transfer pricing adjustment on AMP expenses and determination of software expenses back to the respective authorities for fresh examination. The Tribunal emphasized the need for the assessee to provide complete details to substantiate the nature of expenses in both cases and granted the assessee an opportunity for a hearing in the fresh proceedings.

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Issues:
1. Transfer pricing adjustment on account of AMP expenses.
2. Determination of software expenses as capital or revenue.

Transfer Pricing Adjustment on Account of AMP Expenses:
The appeal pertains to a final assessment order passed by the Assessing Officer under the Income Tax Act, 1961. The Tribunal had previously restored certain issues of transfer pricing adjustment on AMP expenses for fresh determination. The TPO proposed an adjustment of Rs. 81.85 crore, which was later revised to Rs. 10.56 crore. The Tribunal directed the TPO to consider credit notes, global transfer pricing policy, and other documents to substantiate the compensation for brand promotion. However, it was found that the credit notes were related to product sales and not AMP expenses. The Tribunal also examined the nature of expenses, distinguishing between expenses for sales promotion and sales-related expenses. The Tribunal set aside the order and remitted the matter for fresh examination by the TPO to properly categorize expenses as selling or AMP expenses. The Tribunal held that excessive AMP spend is an international transaction, rejecting the argument that AMP expenses are not an international transaction. The impact of non-payment of royalty on the transfer pricing adjustment was also directed to be considered.

Determination of Software Expenses:
Regarding software expenses, the AO treated them as capital in nature, and the Tribunal remitted the matter for further examination. The AO required the assessee to produce bills to substantiate the revenue nature of expenses. As the bills were not furnished, the expenses were treated as capital, and depreciation was allowed accordingly. The Tribunal found that only 60% of the bills were submitted, indicating incomplete details provided by the assessee. The Tribunal set aside the order and remitted the matter to the AO for a fresh examination, emphasizing that the assessee must submit all required details. Failure to do so may lead to adverse inferences being drawn against the assessee.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, sending both the issues back to the respective authorities for fresh determination. The assessee will be given an opportunity of hearing in the fresh proceedings, and it is emphasized that complete details must be provided to substantiate the nature of expenses in both cases.

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