Sec. 92B of Income Tax Act, 1961—Transfer Pricing—There is no machinery provision in Act to bring an international transaction involving AMP expense under ambit of transfer pricing provision if it cannot be shown that such an international transaction was entered into by the assessee.

Facts: DRP / AO / TPO erred in making a transfer pricing adjustment on account of (i) advertising, marketing and promotion (“AMP”) expenses incurred by the Appellant and (ii) interest accrued on outstanding receivables due to the Appellant from its Associated Enterprises (“AE”) alleging the same to be not at arm’s length in terms of the provisions of section 92C read with Rule 10D of the Income-tax Rules, 1962.

Held, that it has been vehemently argued from the side ofassessee that assessee-company had incurred expenditure on AMP to cater to the needs of the customers in the local market and such an expenditure was neither incurred at the instance or behest of overseas AE nor there was any mutual understanding or arrangement or allocation or contribution by the AE towards reimbursement of any part of AMP expenditure incurred by it for the purpose of its business. If assessee is a full fledged risk bearing manufacturer and is carrying out sales through the territory of India on its own with all the risks and rewards, then in our opinion, AMP expenditure incurred by an assessee is demonstrative of its marketing and advertising function. This function is carried out by assessee with the intention of driving its sales in India and resultant profit and loss. AMP expenditure incurred is meant to aid and facilitate the main sales function. The question before us is that, whether this function can be characterized as a transaction which falls under the ambit of an “international transaction” u/s 92B. Ordinarily, AMP expenditure is manifested in the form of third-party transactions by way of payments for advertisement and brand promotion activities. These transactions cannot per se partake the character of an “international transaction” within the meaning of Section 92B unless the conditions laid down in the provision are met.In the absence of clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction could be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. - SAMSUNG INDIA ELECTRONICS (P.) LTD. V/s ADDI. CIT - [2020] 182 ITD 312 (ITAT-DELHI)