AMP expenditure was not an international transaction where no material linked the spend to the foreign associated enterprise.

AMP expenditure on the facts did not constitute an international transaction under section 92B read with section 92F(v) of the Income-tax Act, 1961, because the record showed no agreement, arrangement, understanding, invoice or other material linking the spend to the foreign associated enterprise. Transfer pricing methods such as the bright line test and residual profit split method could not by themselves establish the existence of an international transaction. The expenditure was treated as part of the assessee's own business functions in selling IT products and services in India, and the proposed transfer pricing adjustment on this account was therefore unsustainable.

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Issues: Whether the expenditure on advertisement, marketing and promotion was an international transaction requiring transfer pricing adjustment and, if not, whether the additions made on substantive and protective bases could survive.

Analysis: The assessee had not reported any international transaction in relation to the disputed AMP spend. The record did not show any agreement, arrangement, understanding, invoice, work order or other tangible material indicating that the assessee incurred AMP expenses at the instance of the foreign associated enterprise or in concert with it. The transfer pricing authorities relied on assumptions drawn from the quantum of AMP spend and on methods such as the bright line test and residual profit split method, but those methods could not themselves establish the existence of an international transaction. The expenditure was held to be part of the assessee's own business functions in selling IT products and services in India, and the authorities failed to demonstrate that the spend was for brand building or enhancement of the foreign associated enterprise in a manner attracting Chapter X.

Conclusion: AMP expenditure, on the facts, did not constitute an international transaction under section 92B read with section 92F(v) of the Income-tax Act, 1961, and the transfer pricing adjustment on this count was unsustainable.

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