Tribunal upholds assessment, rejects Transfer Pricing adjustment on AMP expenses, refers disallowance issue back to AO.

The Tribunal upheld the validity of the assessment order, rejected the Transfer Pricing adjustment on AMP expenses, and referred the disallowance issue under section 40(a)(i) back to the AO for further examination. The Tribunal directed the AO to delete the Transfer Pricing adjustment for both assessment years 2012-13 and 2013-14.

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Issues Involved:
1. Validity of the assessment order passed.
2. Validity of Transfer Pricing (T.P) adjustment made in respect of AMP expenses.
3. Addition made under section 40(a)(i) of the Act.
4. Levy of interest under section 234B of the Act and levy of penalty under section 271(1)(c).

Detailed Analysis:

1. Validity of the Assessment Order Passed:
The assessee contended that the assessment order was barred by limitation as per section 153 of the Act. The Tribunal examined the issue in light of the provisions of section 144C(13) and section 153. The Tribunal referred to the decision in M/s Volvo India P Ltd vs. ACIT, where it was held that section 144C(13) provides an extension of one month from the end of the month in which the direction from the Dispute Resolution Panel (DRP) was received. The Tribunal concluded that the assessment order was passed within the extended time limit and, therefore, was valid.

2. Validity of T.P Adjustment Made in Respect of AMP Expenses:
The assessee argued that the AMP expenses do not constitute an international transaction under sections 92B and 92F of the Act. The Tribunal noted that the Transfer Pricing Officer (TPO) had applied the Bright Line Test (BLT) to determine the excess AMP expenses. The Tribunal referred to the Delhi High Court decision in Sony Ericsson Mobile Communications India P Ltd vs. CIT, which rejected the BLT for determining the Arm's Length Price (ALP) of an international transaction. The Tribunal also cited the Delhi High Court ruling in Maruti Suzuki India Ltd, which emphasized that the existence of an international transaction must be established before making a T.P adjustment. The Tribunal observed that the TPO had not provided empirical evidence to prove the existence of an international transaction. Consequently, the Tribunal held that the AO/TPO was not justified in making the T.P adjustment on account of AMP expenses and deleted the addition.

3. Addition Made Under Section 40(a)(i) of the Act:
The AO treated the payments made by the assessee for the purchase of software as "Royalty" based on the Karnataka High Court decision in CIT, International Taxation vs. Samsung Electronics Co Ltd. Since the assessee did not deduct tax at source, the AO disallowed the payments under section 40(a)(i). The assessee argued that it was a reseller of software and distinguished its case from Samsung Electronics. The Tribunal, however, held that the decision in Samsung Electronics was applicable since the payments were for software purchases. The Tribunal restored the alternative contention of the assessee, that the disallowance should be restricted to the taxable portion of the payments, to the AO for examination.

4. Levy of Interest Under Section 234B and Penalty Under Section 271(1)(c):
The assessee challenged the levy of interest under section 234B, which was deemed consequential, and the ground relating to the levy of penalty under section 271(1)(c) was considered premature. The Tribunal did not provide a detailed analysis on these grounds, indicating that they were not central to the primary issues being adjudicated.

Conclusion:
The Tribunal upheld the validity of the assessment order, rejected the T.P adjustment on AMP expenses, and restored the issue of disallowance under section 40(a)(i) to the AO for further examination. The appeals were partly allowed, with the Tribunal directing the AO to delete the T.P adjustment for both assessment years 2012-13 and 2013-14.

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