ITAT Delhi: AMP Expenses Included in TNMM Cannot Be Separately Benchmarked

Overview

The Delhi ITAT held that AMP expenses already included in operating costs under TNMM cannot be separately benchmarked as an international transaction. The ruling provides important guidance on transfer pricing treatment of AMP expenditure, interest on receivables and income mismatches involving MAP assessments.

The Income Tax Appellate Tribunal (ITAT), Delhi, in Discovery Communication India vs JCIT, Special Range-3, New Delhi (AY 2012-13) [2026-VIL-1558-ITAT-DEL], held that AMP expenses, already factored into the operating cost under the Transactional Net Margin Method (TNMM), could not be separately benchmarked as an international transaction.

Background

Discovery Communication India, a subsidiary of Discovery Channel Mauritius, acted as an agent for its Associated Enterprises (AEs) - Discovery Asia LLC (DALLC) and Animal Planet Asia LLC (APLLC). Its activities included marketing and distributing channels, selling commercial airtime, and providing program sourcing services. The company benchmarked its international transactions using TNMM, declaring an OP/OC margin of 13.57% against comparables at 10.77%. AMP expenses of over ₹52 crore were included in operating costs.

Despite TNMM acceptance, the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) treated AMP expenses as separate international transactions, applying the Cost Plus Method on a substantive basis and the Bright Line Test (BLT) on a protective basis. This resulted in substantial additions.

Tribunal's Findings

The ITAT held that once AMP expenses are included in the operating cost under TNMM and transactions are found at Arm’s Length Price (ALP), separate benchmarking of AMP expenses is impermissible. Citing Sony Ericsson Mobile Communications India Pvt. Ltd. (Delhi HC, 2015) and Magneti Marelli Powertrain India Pvt. Ltd. (Delhi HC, 2016), the Tribunal emphasized that TNMM is a holistic method. Segregating one cost element like AMP distorts the analysis and leads to incongruous results. Consequently, the additions made on substantive and protective bases were deleted.

Other Issues

• Interest on Receivables: The Tribunal remitted the issue back to the AO/TPO to verify whether working capital adjustments had already been factored in. If so, no separate adjustment was warranted, following PCIT vs Kusum Health Care Pvt. Ltd. (Delhi HC, 2017).
• Income Mismatch: The AO had added ₹24.95 crore citing differences between the assessee’s return and Form 26AS. The assessee argued this income pertained to its AEs and was already assessed under the Mutual Agreement Procedure (MAP). The Tribunal remitted the matter for verification.

Conclusion

The ruling reinforces the principle that once TNMM is accepted and AMP expenses are part of operating costs, separate benchmarking is unwarranted. It provides clarity for taxpayers facing AMP-related transfer pricing disputes, while also underscoring the importance of proper verification in cases involving receivables and MAP assessments.