“AMP expenditure”
The decision most relied on for AMP expenditure is Sony Ericsson Mobile Communications India Pvt. Ltd. v. CIT (374 ITR 118), cited in 499 judgments on BharatTax.
Leading authorities on AMP expenditure
The existence of an international transaction for Advertising and Marketing Promotion (AMP) expenditure requires the revenue to discharge the burden of proof. An explanation inserted under Section 92B does not automatically make AMP expenditure an international transaction.
An expense incurred by an assessee for its own business, such as advertising, marketing, and promotional (AMP) expenses, cannot be disallowed merely because it incidentally or indirectly benefits the assessee's sister concerns or associated enterprises.
The Bright Line Test (BLT) is not a recognized method under the Income-tax Act and Rules for benchmarking advertising, marketing, and promotion (AMP) expenses or for determining the existence of an international transaction or its Arm's Length Price. The Revenue must first establish the existence and price of an international transaction before seeking an ALP adjustment.
For transfer pricing purposes, functionally dissimilar entities that have significant business differences must be excluded from the list of comparables for benchmarking analysis. It also provides guidance on the non-allocation of advertisement, marketing, and promotion (AMP) expenses to other entities when incurred solely for the assessee's business.
The existence of an international transaction must be established before its arm's length price can be determined. An alleged 'excessive' AMP expenditure cannot unilaterally expand the scope of an international transaction if its existence is contested.
Advertisement, Marketing, and Promotion (AMP) expenditure incurred by an Indian entity directly benefits its own business and cannot be automatically treated as an international transaction for global brand building by associated enterprises without specific statutory provisions or proper analysis.
AMP expenditure is not an international transaction. The Bright Line Test is not a valid basis for determining the existence of an international transaction or computing the arm's length price.
The Delhi High Court holds that expenditure on Advertisement, Marketing, and Promotion (AMP) by a taxpayer is not an international transaction under Section 92B of the Income Tax Act. Consequently, adjustments for AMP expenses in transfer pricing cannot be made without specific statutory provisions.
