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11. On 23rd October 2009, the TPO passed an order in which inter alia¸ it was noted that the Assessee had entered into an agreement with its AE, B&L USA, for distribution of the product manufactured by its group companies, in terms of which the Assessee was required to promote the B&L brand and to develop marketing intangibles for B&L products in India by incurring expenditure on AMP. Relying on a press article dated 19th November 2004 the TPO segregated the AMP expense as an international transaction. He benchmarked the said transaction by applying the BLT. The TPO concluded that the Assessee had developed marketing intangibles for its AE and was in the process of making the intangible even more valuable by incurring huge AMP expenses, bearing risks and using both its tangible assets and skilled, trained man power. The Assessee was described as a limited risk distributor. The TPO held that the AMP expenses did not benefit the Assessee as it had incurred a loss in AY 2006-07. The TPO noted that the Assessee did not receive any reimbursement from its AE for the AP expenses. Further the TPO applied a mark-up of 10% and determined the ALP of the AMP expenses at Rs. 19,59,90,441. This was to be added to the income of the Assessee for the AY in question, i.e., 2006-07. Similarly, additions of Rs. 25.86 crores, Rs. 13.53 crores, Rs. 9.90 crores and Rs. 6.24 crores were made in AYs 2007-08, 2008-09, 2009-10 and 2010-11 respectively including different mark-up percentages determined by the TPO.

19. The following questions were addressed by the Division Bench in Sony Ericsson (supra):

"(i) Whether the additions suggested by the Transfer Pricing Officer on account of Advertising/Marketing and Promotion Expenses (AMP Expenses' for short) was beyond jurisdiction and bad in law as no specific reference was made by the Assessing Officer, having regard to retrospective amendment to Section 92CA of the Income Tax Act, 1961 by Finance Act, 2012.

(ii)Whether AMP Expenses incurred by the assessee in India can be treated and categorized as an international transaction under Section 92B of the Income Tax Act, 1961?

38. Mr. Rao submitted that the TPO's action in marking up the AMP expenses was also impermissible in law. A cost mark-up was permissible in a situation where the provision of AMP was part of the Assessee's business. This was not even the Revenue's case. Elaborating these submissions, Mr. Rao pointed out that there was no arrangement for cost contribution to the AMP expenses and therefore the question of applying a mark-up did not arise. In any event, expenses relating to selling and distribution have been held in Sony Ericsson (supra) to not form part of AMP.

Submissions of counsel for the Revenue

42. Mr. G.C. Srivastava, learned counsel for the Revenue, relied on the TP study itself to show that the inference drawn about the existence of international transaction involving AMP expenses was justified. He reiterated that the Assessee was only a limited risk distributor and was unlikely to incur such huge expenses on AMP without being compensated. He pointed out that the import of finished goods constitutes a major portion of the Assessee's business and that the manufacturing activity is relatively small. Since the comparables chosen were only of Indian companies involved in distribution of the products of foreign AEs, there was justification in seeking remand of the matter to the TPO for a fresh determination. It is submitted that the question of whether the AMP expenses is to be treated as 'function' or 'separate transaction' should also be sent back to the TPO.