Transfer pricing on AMP spend needs proof of an international transaction; employee PF and ESI contributions stay deductible if filed on time.

AMP expenditure can be subjected to transfer pricing adjustment only if the Revenue proves, with evidence, that it arose from an international transaction involving an agreement, arrangement, understanding or concerted action for the foreign associated enterprise; in the absence of such proof, the upward adjustment and mark-up are not sustainable. Employees' contribution to provident fund and ESI remains deductible where it is remitted before the return-filing due date, even if payment was late under the welfare statutes, and the pendency of a review petition does not affect the binding force of the existing jurisdictional ruling.

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Issues: (i) Whether the upward transfer pricing adjustment on account of advertisement, marketing and promotion expenses was sustainable; (ii) Whether the disallowance of employees' contribution to provident fund and ESI for belated payment was sustainable.

Issue (i): Whether the upward transfer pricing adjustment on account of advertisement, marketing and promotion expenses was sustainable.

Analysis: The Tribunal followed the earlier decision in the assessee's own case and the Delhi High Court's ruling that the bright line test has no statutory mandate. It noted that the Revenue had not shown any agreement, arrangement, understanding, or action in concert obliging the assessee to incur AMP expenditure for the foreign associated enterprise. In the absence of evidence that the AMP spend constituted an international transaction, the upward adjustment and mark-up could not be sustained.

Conclusion: The transfer pricing adjustment on AMP expenditure was not sustainable and was deleted, in favour of the assessee.

Issue (ii): Whether the disallowance of employees' contribution to provident fund and ESI for belated payment was sustainable.

Analysis: The Tribunal followed the jurisdictional High Court decision holding that where the employees' contribution is remitted before the due date for filing the return, deduction cannot be denied merely because the payment was beyond the due date under the respective welfare statutes. The pendency of a review petition did not alter the binding force of the existing decision.

Conclusion: The disallowance of employees' contribution to provident fund and ESI was not sustainable and was deleted, in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on both issues, and the additions/disallowances made in the assessment were not upheld.

Ratio Decidendi: An AMP spend can be brought to transfer pricing adjustment only where the Revenue establishes, with evidence, the existence of an international transaction; and employees' contribution remitted before the return-filing due date is allowable notwithstanding delay under the welfare legislation.

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