Tribunal rules in favor of assessee, deleting entire AMP adjustment. Errors noted in lower authorities' assessment.

The Tribunal allowed the assessee's appeal, directing the deletion of the entire AMP adjustment. It held that the AMP expenses were not international transactions, noting errors by the lower authorities in their assessment. The appeal was partly allowed, with primary grounds decided in favor of the assessee, including recharacterization of activities and business expediency arguments.

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Issues Involved:
1. Transfer Pricing Adjustment on AMP Expenses
2. Recharacterisation of Appellant's Entrepreneur Activities
3. Business and Commercial Expediency
4. Most Appropriate Method for Determining ALP
5. Mark-up on AMP Expenses
6. Assessment Order being Time-barred
7. Interest under Sections 234B and 234C
8. Initiation of Penalty Proceedings under Section 270A

Summary:

1. Transfer Pricing Adjustment on AMP Expenses:
The assessee challenged the addition of Rs. 143.56 crores made under Section 92CA(3) on account of AMP expenses, arguing that these were not international transactions under Section 92B. The Tribunal noted that the lower authorities had erroneously treated AMP expenses as international transactions and ignored the fact that these expenses were incurred solely for the assessee's business in India. The Tribunal also observed that there was no arrangement between the assessee and its AEs for promoting the AE's brand. The Tribunal followed its earlier decisions in the assessee's case for AYs 2008-09 to 2017-18, where it held that AMP expenses were not international transactions and directed to delete the entire AMP adjustment.

2. Recharacterisation of Appellant's Entrepreneur Activities:
The assessee contended that it was an entrepreneur licensee in the Indian market, entitled to entrepreneurial returns, and thus AMP expenses should not be construed as international transactions. The Tribunal agreed, noting that the lower authorities had artificially bifurcated the appellant's business without cogent reasons and selected comparable companies arbitrarily.

3. Business and Commercial Expediency:
The assessee argued that AMP expenses were incurred to promote its own business and not the AE's brand. The Tribunal accepted this, stating that the expenses were for product advertisements to enable higher sales in India, not for brand promotion on behalf of the AE.

4. Most Appropriate Method for Determining ALP:
The Tribunal found that the lower authorities erred in applying the Bright Line Test (BLT) as a routine ALP determination method and in cherry-picking comparable companies without a systematic search process. The Tribunal noted that BLT does not account for functional and accounting differences between the assessee and comparable companies.

5. Mark-up on AMP Expenses:
The Tribunal held that the lower authorities erred in determining a mark-up of 7.91% on alleged excessive AMP expenses without adopting a scientific search process. The Tribunal noted that any addition should be commensurate with the agency function undertaken by the assessee.

6. Assessment Order being Time-barred:
The assessee argued that the assessment order dated 02nd August 2022 was time-barred under Section 144C(13). The Tribunal did not adjudicate this ground as the other grounds were decided in favor of the assessee.

7. Interest under Sections 234B and 234C:
The Tribunal did not specifically address the issue of interest charged under Sections 234B and 234C, as the primary grounds were decided in favor of the assessee.

8. Initiation of Penalty Proceedings under Section 270A:
The Tribunal did not specifically address the initiation of penalty proceedings under Section 270A, as the primary grounds were decided in favor of the assessee.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the AMP expenses were not international transactions and directing the deletion of the entire AMP adjustment. The Tribunal followed its earlier decisions in the assessee's case and noted that the lower authorities had erred in their assessment. The appeal was partly allowed, with the primary grounds decided in favor of the assessee.

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