ITAT rules on transfer pricing: AMP expenditure not international transaction, IT services need separate benchmarking

The ITAT New Delhi ruled on three transfer pricing issues. For AMP expenditure treated as international transaction under section 92B(1) read with section 92F(v), the Tribunal held in favor of the assessee. The DRP failed to provide tangible material evidence demonstrating that AMP expenditure constituted an international transaction, despite being aware of the Delhi HC's Maruti Suzuki precedent. The Tribunal rejected revenue's request for remand, stating remands cannot be routine without justifiable circumstances. Regarding IT Support Services transaction benchmarking, the Tribunal remitted the matter to AO/TPO for fresh ALP determination, requiring separate benchmarking distinct from purchase transactions, following similar treatment in AY 2010-11. For revenue expenses related to services from Bhumi Consultants, the Tribunal remitted to AO as the assessee failed to provide documentary evidence proving actual receipt of services, despite establishing the vendor's identity and payment through banking channels with TDS deduction.

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Issues Involved:
1. Additions/adjustments on account of Advertisement, Marketing, and Promotion (AMP) expenditure.
2. Enhancement of income by Rs. 1,71,32,019/- due to the transaction pertaining to receipt of Information Technology Support Services not satisfying the Arm’s Length Price.
3. Disallowance of Rs. 83,70,085/- being payment made to M/s Bhumi Consultants.

Detailed Analysis:

1. Additions/Adjustments on Account of AMP Expenditure:
The assessee was aggrieved by the adjustments made by the TPO regarding AMP expenditure, which was treated as an international transaction under Section 92B(1) read with clause (v) of Section 92F of the Income-tax Act, 1961. The TPO used the Bright Line Test (BLT) to benchmark the AMP expenditure and determined that the expenditure in excess of the bright line should be compensated by the AE. The DRP upheld the TPO's approach, leading to an addition of Rs. 53,11,37,361/-.

The Tribunal noted that the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT discarded the BLT. The Tribunal emphasized that the existence of an international transaction must be demonstrated by tangible evidence and cannot be inferred merely based on the BLT. The Tribunal further referred to the judgments of the Hon’ble Delhi High Court in Maruti Suzuki India Ltd, Whirlpool of India Ltd, and Mary Kay Cosmetic Pvt Ltd, which held that the Revenue must establish the existence of an international transaction before undertaking benchmarking of AMP expenses. The Tribunal concluded that the Revenue failed to demonstrate the existence of an international transaction regarding AMP expenditure and allowed the assessee's ground on this issue.

2. Enhancement of Income by Rs. 1,71,32,019/- Due to IT Support Services:
The assessee received IT support services from its AE, BMW Group, for which it paid certain charges. The TPO treated this as a separate international transaction and determined the ALP separately rather than aggregating it with other transactions under TNMM. The DRP upheld the TPO's findings.

The Tribunal referred to its decision in the assessee's own case for A.Y. 2010-11, where the matter was remitted to the AO/TPO for fresh determination of the ALP of the international transaction of receipt of IT support services. Following the coordinate bench's findings, the Tribunal directed the AO/TPO to determine the ALP of this international transaction afresh as per law after allowing a reasonable opportunity of being heard to the assessee. This ground was treated as allowed for statistical purposes.

3. Disallowance of Rs. 83,70,085/- Being Payment Made to M/s Bhumi Consultants:
The assessee claimed legal and professional expenses, including payments made to M/s Bhumi Consultants. The Assessing Officer disallowed the expenditure after an Inspector's report indicated that the company did not exist at the given address. The DRP upheld the disallowance, stating that the assessee failed to discharge the onus satisfactorily.

The Tribunal noted that the impugned transaction took place in F.Y. 2010-11, while the inspection was conducted in March 2015. There was a possibility that M/s Bhumi Consultants had moved from the given address. However, the assessee failed to provide conclusive evidence that services were received from M/s Bhumi Consultants. The Tribunal remitted the issue to the Assessing Officer, directing the assessee to demonstrate that the payment was for services received from M/s Bhumi Consultants. The Assessing Officer was instructed to examine the claim and decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. This ground was treated as allowed for statistical purposes.

Conclusion:
The appeal by the assessee was allowed in part for statistical purposes, with directions for fresh determination of certain issues by the Assessing Officer/TPO. The Tribunal emphasized the necessity of tangible evidence to establish the existence of international transactions and adherence to judicial precedents.

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