AMP expenditure without agreement with AE is not an international transaction

Brief of the case:

• The ITAT Mumbai in the above cited case held that Advertising, Promotion and Marketing expenses (AMP) cannot be considered as international transaction unless there exist an agreement between the assessee and its AE to share/reimburse the AMP expenditure incurred by the assessee in India.
• In absence of such an agreement the first and primary precondition of treating the transaction in question an international transaction remains un – fulfilled. Conducting functional & risk analysis or adopting an appropriate method is the second stage of transfer pricing adjustments. The first thing is to find out whether the disputed transaction in is international transaction or not. Without crossing the first threshold second cannot be approached.
• Therefore, such AMP expenses are not international transaction.
  

Facts of the case:

• During the assessment proceedings, the AO found that the assessee had entered into international transactions with its associated enterprises (AEs). During the TP proceedings, the TPO accepted all the international transactions to be at ALP except one and that was the Advertising, Marketing and Promotion expenses (AMP).
• The TPO was of the opinion that the AMP expenditure incurred by the assessee had resulted in creation of marketing intangibles for its AE, that it should have been compensated by its AEs to the extent of excess AMP incurred vis a vis comparable companies. Accordingly, he applied Bright Line Test (BLT) to determine the ALP of the AMP expenses. In the test applied the comparables suggested by the assessee was rejected. Accordingly an upward adjustment to returned income by Rs. 41.74 crores were made. DRP also confirmed the addition suggested by TPO.
• Aggrieved assessee is in appeal before the ITAT.
  

Contention of the Assessee: