AMP transfer pricing adjustments fail without tangible proof of an international transaction, not just higher marketing spend.

An AMP transfer pricing adjustment cannot rest on the Bright Line Test alone. The Tribunal noted that higher advertisement, marketing and promotion spend does not by itself establish an international transaction or permit benchmarking unless the revenue first proves, with tangible material, an arrangement or acting in concert between the assessee and its associated enterprise. In the absence of such evidence, the expenditure could not be treated as an international transaction or sustained on the revenue's adopted method, and the assessee succeeded on this issue.

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Issues: Whether the Bright Line Test could be applied to treat the assessee's advertisement, marketing and promotion expenses as an international transaction and to determine the arm's length price of such expenditure.

Analysis: The assessee was a manufacturing entity and had incurred AMP expenditure in the course of its business. The adjustment made by the Transfer Pricing Officer proceeded on the Bright Line Test and on the premise that excess AMP spend created marketing intangibles for the associated enterprise. The Tribunal noted that the Delhi High Court had disapproved the Bright Line Test as a statutory method and had held that the existence of an international transaction cannot be inferred merely from higher AMP spend without tangible material showing an arrangement or acting in concert between the assessee and the associated enterprise. In the absence of such material, the AMP expenditure could not be benchmarked on the basis adopted by the revenue.

Conclusion: The Bright Line Test was not a legally sustainable basis to treat the AMP expenditure as an international transaction or to sustain the transfer pricing adjustment, and the assessee succeeded on this issue.

Ratio Decidendi: An AMP adjustment cannot be sustained merely on the basis of the Bright Line Test; the revenue must first establish, by tangible material, the existence of an international transaction between the assessee and its associated enterprise.

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