Tribunal Rules AMP Expenses Not an International Transaction; Rejects Bright Line Test for AY 2010-11.

The Income Tax Appellate Tribunal ruled in favor of the respondent/assessee for AY 2010-11, similar to AY 2008-09, deciding that the AMP expenses did not constitute an international transaction. The Tribunal rejected the TPO's application of the Bright Line Test, requiring proof of a transaction between the assessee and its associated enterprise. The matter was remitted to the Assessing Officer. The appeal was closed, with a potential for revival contingent on the outcome of a pending Special Leave Petition in Sony Ericsson. An application for delay condonation was deemed unnecessary.

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Issues involved:
The appeal concerns Assessment Year (AY) 2010-11. The main issue is whether the adjustment made by the Transfer Pricing Officer (TPO) regarding Advertising, Marketing, and Promotion (AMP expenses) using the Bright Line Test was sustainable.

Summary:
In the instant appeal, the appellant/revenue challenges the order passed by the Income Tax Appellate Tribunal regarding AMP expenses. The Tribunal had ruled in favor of the respondent/assessee for AY 2008-09, stating that the excessive AMP expenditure did not constitute an international transaction. This decision was based on the finding that the respondent was primarily engaged in manufacturing operations, and the AMP expenses were for its own benefit, not for promoting the associated enterprise (AE).

The Tribunal disapproved the TPO's use of the Bright Line Test for benchmarking AMP expenses, citing judgments from previous cases. It emphasized that before determining the arms' length price for an international transaction involving AMP expenditure, the appellant/revenue must prove that such a transaction occurred between the assessee and the associated enterprise.

It was noted that the position in AY 2010-11 was not different from that in AY 2008-09, both factually and legally. The Tribunal remitted the matter to the Assessing Officer for both periods. The appellant/revenue had appealed the decision in Sony Ericsson, indicating a substantial legal question for the court to consider.

The appeal was closed, with the possibility of revival if the appellant/revenue succeeded in the pending Special Leave Petition related to Sony Ericsson. An application for condonation of delay in filing the appeal was deemed unnecessary due to the order passed. The Registry was instructed to send a copy of the order to the respondent/assessee through all available modes.

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