ITAT Deletes Rs 4,665 Crore AMP Adjustment Against Samsung India

ITAT rejects AMP benchmarking

The Income Tax Appellate Tribunal has deleted a transfer-pricing adjustment of Rs 4,665 crore against Samsung India, holding that advertising, marketing and promotion expenditure could not be benchmarked in the absence of an international transaction.

The decision places the existence of an international transaction at the centre of the transfer-pricing analysis. On the facts considered by the Tribunal, AMP expenditure did not become eligible for benchmarking merely because the expenditure had been incurred. Without an international transaction involving the expenditure, the foundation for the disputed adjustment was absent.

The ruling is significant both because of the size of the adjustment and because AMP disputes can require a careful distinction between a company’s domestic business expenditure and a transaction involving an associated enterprise. The amount deleted—Rs 4,665 crore—makes the decision particularly consequential for Samsung India.

International transaction must come first

The central proposition emerging from the ruling is sequential: the tax authority must first establish the existence of an international transaction before attempting to benchmark it. Benchmarking is a method for determining an arm’s-length outcome; it cannot, by itself, establish that the underlying international transaction exists.

Applied to AMP expenditure, this means the analytical exercise cannot begin and end with the amount spent on advertising, marketing or promotion. The threshold issue is whether the expenditure represents an international transaction. The Tribunal’s decision indicates that, where this threshold is not met, a separate benchmarking exercise for AMP expenses cannot sustain a transfer-pricing adjustment.

This distinction matters because a company may incur substantial promotional expenditure for its own operations in India. The fact that such expenditure concerns branding or market development does not, without more, answer the separate question of whether there is an international transaction capable of being tested under transfer-pricing principles.

Rs 4,665 crore adjustment removed

The immediate outcome is the deletion of the Rs 4,665 crore AMP adjustment made against Samsung India. The decision therefore removes the disputed benchmarking consequence rather than merely changing the method or recalculating the amount.

That outcome also clarifies the importance of the preliminary jurisdictional and factual inquiry in an AMP dispute. If the existence of an international transaction is not demonstrated, selecting a benchmark or applying a transfer-pricing methodology cannot cure that foundational deficiency.

The decision should not be read as a statement that AMP expenditure is outside transfer pricing in every case. Its reported basis is narrower: benchmarking cannot proceed where there is no international transaction. The result consequently turns on the threshold characterisation of the expenditure and the underlying relationship or arrangement, rather than on the size of the marketing spend alone.

Implications for transfer-pricing reviews

For taxpayers, the ruling highlights the need to separate three questions that can otherwise become conflated: what AMP expenditure was incurred, whether that expenditure forms part of an international transaction, and, only if it does, how the transaction should be benchmarked.

In practical terms, businesses facing scrutiny of AMP expenses will need to focus closely on the first two questions before engaging with competing benchmarking methods. The Tribunal’s reasoning, as reflected in the reported outcome, makes clear that a methodology cannot substitute for proof of the transaction sought to be benchmarked.

Transfer-pricing teams may also need to examine how internal records describe advertising and promotional activity, which entity made the relevant decisions, and the basis on which any alleged international transaction is identified. Those factual matters may become important when determining whether the threshold for benchmarking has been crossed.

For tax authorities, the ruling underscores that the existence of an international transaction must be addressed as a distinct issue. An adjustment cannot rest only on an analysis of expenditure levels if the underlying international transaction has not first been established.

A threshold ruling, not merely a valuation dispute

The central issue in the Samsung India decision is therefore more fundamental than the selection of a comparable or the calculation of an arm’s-length price. It concerns whether there was a transaction that could lawfully be subjected to that exercise at all.

This is what gives the ruling wider professional relevance despite its case-specific outcome. It reinforces the distinction between identifying a transaction and valuing it. For CAs, tax advisers and corporate finance teams, that distinction can determine the order in which an AMP controversy should be analysed and defended.

The deletion of the adjustment also demonstrates the financial consequences of getting the threshold inquiry wrong. Where the alleged international transaction is not established, an extensive benchmarking exercise may have no sustainable basis, irrespective of the resulting adjustment.

Key takeaway

The ITAT deleted the Rs 4,665 crore AMP adjustment against Samsung India because, in the absence of an international transaction, the expenditure could not be benchmarked; the existence of the transaction must be established before any arm’s-length analysis begins.