AMP expenditure needs tangible proof of an international transaction before any transfer pricing adjustment can stand.

AMP expenditure could not be treated as an international transaction for transfer pricing purposes merely because it was higher than that of comparables. The ITAT Delhi held that the Revenue must first establish, with tangible material, an arrangement, understanding, or conduct in concert between the assessee and its associated enterprise before making any arm's length price adjustment. The bright line test could not be used to infer the existence of the transaction at the threshold, and prior orders in the assessee's own case had already accepted that no AMP international transaction existed. The transfer pricing adjustment on account of AMP was therefore deleted.

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Issues: Whether the AMP expenditure incurred by the assessee constituted an international transaction with its associated enterprise so as to justify an arm's length price adjustment.

Analysis: The adjustment was founded on the premise that excessive advertisement, marketing and promotion spend created marketing intangibles for the foreign associated enterprise. The decision notes that prior orders in the assessee's own case for earlier assessment years had already held that no international transaction of AMP existed. It further follows the settled position that existence of such a transaction cannot be inferred merely because AMP expenditure is higher than that of comparables, and that the bright line test is not a valid basis for first establishing the transaction. In the absence of any tangible material showing an arrangement, understanding, or conduct in concert between the assessee and its associated enterprise, the alleged AMP transaction could not be sustained.

Conclusion: No international transaction of AMP existed in the assessee's case, and the transfer pricing adjustment on that account was deleted.

Ratio Decidendi: An AMP adjustment cannot be made unless the Revenue first proves, with tangible material, the existence of an international transaction under the transfer pricing provisions; higher AMP expenditure alone and the bright line test are insufficient.

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