AMP expenditure is not an international transaction without evidence of arrangement; bright line test adjustment was deleted.

AMP expenditure cannot be treated as an international transaction, and the bright line test cannot by itself sustain a transfer pricing adjustment without material showing an arrangement with the associated enterprise; the AMP adjustment was therefore deleted. Daughter marriage fund expenditure was treated as a business-related employee welfare claim requiring verification, so the matter was remitted. Foreign tax credit was restored for factual verification from certificates and reconciliation. The warranty-related unwinding of discount claim was admitted as an additional ground and sent back for fresh examination as an ascertained business liability under the mercantile system. Overall, the appeal was partly allowed, with the principal transfer pricing addition removed and the remaining issues remitted or restored for verification.

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Issues: (i) whether the transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure, including the protective adjustment based on the bright line test, was sustainable; (ii) whether disallowance of daughter marriage fund expenditure was justified; (iii) whether foreign tax credit was to be allowed or restored for verification; (iv) whether deduction for the warranty-related unwinding of discount expenditure was to be admitted as an additional ground and examined afresh.

Issue (i): whether the transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure, including the protective adjustment based on the bright line test, was sustainable.

Analysis: The adjustment was examined in the light of the settled position that AMP expenditure, by itself, does not constitute an international transaction in the absence of a demonstrated arrangement with the associated enterprise. The bright line test was also rejected as a basis for inferring such a transaction. On the facts, no material change was shown to justify a different view from the earlier years in the assessee's own case.

Conclusion: The transfer pricing adjustment and the protective adjustment on AMP expenditure were deleted and the issue was decided in favour of the assessee.

Issue (ii): whether disallowance of daughter marriage fund expenditure was justified.

Analysis: The expenditure was treated as a business-related employee welfare claim, and the matter had earlier been sent back in the assessee's own case for verification of details. The same approach was followed here, with the claim to be examined in accordance with the earlier directions.

Conclusion: The disallowance was not finally sustained and the issue was remitted for verification, with relief granted in favour of the assessee for statistical purposes.

Issue (iii): whether foreign tax credit was to be allowed or restored for verification.

Analysis: The claim was considered to be capable of verification from the certificates and reconciliation statement, and the matter was treated as one requiring factual examination rather than outright rejection.

Conclusion: The issue was restored to the Assessing Officer for verification and was decided in favour of the assessee for statistical purposes.

Issue (iv): whether deduction for the warranty-related unwinding of discount expenditure was to be admitted as an additional ground and examined afresh.

Analysis: The additional claim was treated as arising from the same warranty liability framework and from the assessee's mercantile method of accounting. The liability was regarded as an ascertained business liability, and the claim was not treated as a wholly new issue but as one requiring proper verification and computation.

Conclusion: The additional ground was admitted and restored to the Assessing Officer for fresh examination, with the issue sustained in favour of the assessee for statistical purposes.

Final Conclusion: The appeal was partly allowed, with the AMP-related transfer pricing addition deleted and the remaining disputed claims either remitted or restored for verification.

Ratio Decidendi: AMP expenditure cannot be treated as an international transaction or adjusted by the bright line test without demonstrated material showing an arrangement with the associated enterprise, and deductible business claims requiring factual verification may be restored for fresh examination rather than rejected outright.

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