The tax court held that the expenses incurred on advertisement, market and business promotion (‘AMP’) did not constitute an international transaction. It was observed that the law on the issue of AMP has been well-settled and consistently applied by various tax courts in the past. Therefore, it was concluded that the facts and laws were correctly evaluated and directed the deletion of the transfer pricing adjustment. As a result, the appeal of the lower tax authorities was dismissed.
The tax court categorically dismissed the appeal of the lower tax authority by placing reliance on the prior ruling of a tax court on the selection of comparables, wherein it was provided that the issue of comparables is essentially a ‘fact-finding exercise’. It was expressly provided that the intervention of the tax court is preferred solely on ‘questions of law’ and that too a substantial one. Accordingly, the appeal of the lower tax authority was dismissed.
The tax court has remitted TP adjustments related to marketing and business support services segment and warranty charges in the case of taxpayer. The tax court noted that officer erred in bifurcating the ‘Marketing and Business Support Services segment’ into ITeS segment and MSS segment and benchmarked them separately. The court restored the matter for fresh consideration relying on taxpayer’s own case, wherein the court had held that the issue needs to be examined afresh in the light of DRP’s direction and held that the officer cannot charge a markup on warranty amount.
The tax court upheld the dispute resolution panel’s direction to recompute the ALP of a transaction related to agency support services. The tax court held that clubbing the two transactions and substituting the denominator with total cost was fundamentally wrong and against statutory provisions. The court directed to recompute ALP only for international transactions with AEs.