Tribunal deletes transfer pricing adjustments on AMP expenses & disallowance under Section 14A.

The Tribunal allowed the appeal of the assessee, directing the deletion of transfer pricing adjustments on Advertisement, Marketing, and Sales Promotion (AMP) expenses based on precedents from higher judicial authorities. Additionally, the disallowance under Section 14A of the Income Tax Act was also deleted as the assessee had earned no exempt income during the relevant year. The Tribunal further directed the deletion of the disallowance amount and deemed the challenge to the levy of interest under Section 234B as consequential.

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Issues Involved:
1. Transfer pricing adjustment on account of Advertisement, Marketing, and Sales Promotion (AMP) expenses.
2. Disallowance under section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on AMP Expenses:

The primary grievance of the assessee pertains to the transfer pricing adjustment related to AMP expenses, which includes a protective adjustment of Rs. 158,97,37,475 and a substantive adjustment of Rs. 84,65,771.

Facts of the Case:
The assessee, a joint venture entity, reported several international transactions, including the provision and receipt of IT-enabled services. The Transfer Pricing Officer (TPO) issued a show-cause notice questioning the AMP expenditure incurred by the assessee, arguing that it promoted the brand of the associated enterprise (AE), Amadeus Global, without any cost-sharing agreement.

TPO's Findings:
The TPO concluded that the AMP expenditure incurred by the assessee was an international transaction that had not been reported or benchmarked. Using the Transactional Net Margin Method (TNMM), the TPO benchmarked the AMP expenditure against comparable companies, determining that the expenditure exceeded the "bright line" limit and should have been compensated by the AE. The TPO proposed adjustments based on the excess expenditure and applied a markup, leading to a protective adjustment of Rs. 158,97,37,475 and a substantive adjustment of Rs. 84,65,771.

DRP's Observations:
The Dispute Resolution Panel (DRP) upheld the TPO's adjustments, noting that AMP adjustments were a legacy issue and that the matter was pending before higher judicial authorities.

Tribunal's Findings:
The Tribunal considered the assessee's arguments and previous judicial decisions, including those from the Hon'ble High Court of Delhi and the Tribunal in the assessee's own case for earlier assessment years. The Tribunal found that similar issues had been resolved in favor of the assessee, with the courts holding that AMP expenses did not constitute an international transaction requiring separate benchmarking. The Tribunal noted that the TPO's approach of segregating AMP expenses and applying the bright line test was not supported by statutory provisions or judicial precedents.

Conclusion:
The Tribunal directed the Assessing Officer/TPO to delete the additions made on account of AMP expenditure, both substantive and protective, based on the binding precedents from higher judicial authorities.

2. Disallowance under Section 14A of the Income Tax Act:

Facts of the Case:
The assessee was aggrieved by the disallowance of Rs. 38,31,472 under section 14A of the Act, which pertains to expenses incurred in relation to income not includible in total income.

Tribunal's Findings:
The Tribunal observed that during the year under consideration, the assessee had earned no exempt income. Citing the Hon'ble Jurisdictional High Court's decision and the Special Bench of the Tribunal in the case of M/s Cheminvest Ltd, which was affirmed by the Hon'ble High Court of Delhi, the Tribunal concluded that no disallowance under section 14A should have been made.

Conclusion:
The Tribunal directed the Assessing Officer to delete the disallowance of Rs. 38,31,472 made under section 14A of the Act.

Consequential Issue:

3. Levy of Interest under Section 234B:

The challenge to the levy of interest under section 234B of the Act was deemed consequential, and the Tribunal directed accordingly.

Final Order:
The appeal of the assessee was allowed, with the Tribunal pronouncing the order in the open court on 08.03.2021.

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