Transfer-pricing treatment of AMP and overdue receivables requires consistency, invoice-wise delay calculation, and LIBOR-based foreign-currency benchmarking.
Advertisement, marketing and promotion expenditure could not be treated as a sustainable separate transfer-pricing adjustment where earlier years had deleted the adjustment and no material change in agreements, conduct or transfer-pricing findings was shown. Overdue associated-enterprise receivables constitute independently benchmarkable capital financing, but interest must be recomputed invoice-wise for the actual delay, using an appropriate LIBOR-based rate for foreign-currency receivables. Seminar, convention, training, sponsorship and honorarium expenses involving doctors were fully disallowed as business expenditure opposed to public policy; earlier-year remand relief did not govern the relevant year.
Issues: (i) Whether the transfer-pricing adjustment for advertisement, marketing and promotion expenditure, treated as a separate international transaction, was sustainable; (ii) Whether overdue receivables from associated enterprises were a separately benchmarkable international transaction and, if so, how interest was to be computed and benchmarked; and (iii) Whether seminar and convention expenses involving doctors were allowable business expenditure.
Issue (i): Whether the transfer-pricing adjustment for advertisement, marketing and promotion expenditure, treated as a separate international transaction, was sustainable.
Analysis: Consistent coordinate-bench decisions in the assessee's own earlier assessment years had deleted the corresponding adjustment. No material change in the governing agreement, the assessee's conduct, or the transfer-pricing findings for the relevant year was established. The principle of consistency therefore required adoption of the earlier view.
Conclusion: The advertisement, marketing and promotion adjustment was unsustainable and was directed to be deleted, in favour of the assessee.
Issue (ii): Whether overdue receivables from associated enterprises were a separately benchmarkable international transaction and, if so, how interest was to be computed and benchmarked.
Analysis: The Explanation to Section 92B of the Income-tax Act, 1961 includes capital financing, including lending, within an international transaction. Allowing associated enterprises' dues to remain unpaid amounted to extension of capital financing; the receivables were therefore independently benchmarkable. However, interest had to be determined invoice-wise on the actual period of delay. For receivables denominated in foreign currency, the benchmark had to be an appropriate LIBOR-based rate rather than the State Bank of India short-term deposit rate.
Conclusion: The treatment of overdue receivables as an international transaction was sustained against the assessee; however, interest was directed to be recomputed invoice-wise by applying an appropriate LIBOR-based rate to foreign-currency receivables, in favour of the assessee.
Issue (iii): Whether seminar and convention expenses involving doctors were allowable business expenditure.
Analysis: Section 37(1) of the Income-tax Act, 1961 does not permit expenditure opposed to public policy. The expenses related to conferences, training, sponsorships and honorarium involving doctors, and were covered by the applicable Supreme Court ruling. Earlier-year relief granted while giving effect to remand directions did not govern the year under appeal, in which the governing ruling had already been applied.
Conclusion: The full disallowance of seminar and convention expenses was confirmed, against the assessee.
Final Conclusion: The advertisement, marketing and promotion adjustment was deleted; the delayed-receivables adjustment remains subject to invoice-wise recomputation using the appropriate foreign-currency benchmark; and the disallowance of seminar and convention expenditure remains intact.