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2016 (3) TMI 1105 - AT - Income TaxALP adjustments in respect of the payment of fees for technical services - Held that - . As regards the question of simple arithmetic mean versus weighted average we find that proviso to Section 92C(2) categorically states that where more than one price is determined by the most appropriate method the arm s length price shall be taken to be the arithmetical mean of such prices . There is no room for importing the concept of weighted average here. The law refers to arithmetical mean and the arithmetical mean is in plain words a mathematical representation of the typical value of a series of numbers computed as the sum of all the numbers in the series divided by the count of all numbers in the series . We are not therefore persuaded by the grievance raised by the Assessing Officer. In our considered view it was only arithmetical mean which is relevant in this context. There is no infirmity in the stand of the DRP on this issue. The impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We therefore uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services Investments in REC bonds included in the computation of disallowance under section 14A r.w.r. 8D - Held that - Issue is remitted to the file of the Assessing Officer for factual verification and resultant adjustment in the disallowance under section 14A r.w.r. 8D. If this investment does not result in a tax exempt income it cannot be taken into account in computation of disallowance under rule 8D. The Assessing Officer will therefore modify the disallowance accordingly. Deduction under section 36(1)(va) - claim declined pertaining to the payment of employees contribution for the provident fund before the due date of filing of the income tax return - Held that - This issue is now squarely covered in favour of the assessee by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Ghatghe Patil Transport Ltd 2014 (10) TMI 402 - BOMBAY HIGH COURT . In this view of the matter the impugned disallowance is hereby deleted. Disallowance on account of buy back expenses stands deleted. Disallowance in respect of sales promotion and conference expenses - no evidence of benefit from these activities and that even the expenses incurred prior to 10th December 2009 i.e. amendment in the code of conduct of the medical professionals should have been disallowed - Held that - Having heard the rival contentions and having perused the material on record however we see no reasons to interfere in the matter. The thrust of Assessing Officer s disallowance was that there was nothing to show that expenses were necessarily required to be incurred inasmuch as there was no direct cause and effect relationship between the expenses incurred and the business profits of the assessee. Obviously the Assessing Officer was swayed by irrelevant consideration. This expenses may or may not be necessary in that sense but that does not matter. As long as the expenses are incurred wholly and exclusively for the business whether necessarily or not these expenses are deductible in nature. As regards the relevance of the MCI code of conduct the disallowance is made only because the expenses are held to be hitting the provisions of Explanation to Section 37(1) of the Act. That point due to smallness of the amount has not been contested before us and we need not deal with it in detail.In the light of the above discussions as also bearing in mind entirety of the case we see no merits in the grievance of the Assessing Officer.
Issues Involved:
1. Arm's Length Price (ALP) adjustment for the purchase of raw material (Bisoprolol). 2. ALP adjustment for technical know-how fees. 3. Disallowance of expenses on account of distribution of free samples. 4. Disallowance under Section 14A. 5. Adjustment under Section 145A. 6. Disallowance under Section 43B(f). 7. Taxability of interest on income tax refund. 8. Deduction under Section 36(1)(va) for employees’ provident fund contribution. 9. Disallowance of share buyback expenses. 10. Disallowance of sales promotion expenses. Detailed Analysis: 1. Arm's Length Price (ALP) Adjustment for the Purchase of Raw Material (Bisoprolol): The assessee challenged the ALP adjustments for Bisoprolol, an active pharmaceutical ingredient (API) purchased from its associated enterprises. The Transfer Pricing Officer (TPO) used the Comparable Uncontrolled Price (CUP) method, leading to adjustments for the assessment years 2009-10 and 2010-11. The Tribunal upheld the application of the CUP method, as decided in the Serdia Pharmaceuticals case, but allowed a 10% quality adjustment due to the superior quality of the imported API. The Tribunal also directed that only domestic prices should be considered for computing the ALP and that the arithmetic mean rather than the weighted average should be used. 2. ALP Adjustment for Technical Know-How Fees: The TPO treated the ALP of technical know-how fees as NIL, arguing that the assessee did not demonstrate tangible benefits from the payments. The Tribunal found contradictions in the authorities' findings, noting that the services were indeed rendered, albeit general in nature. The Tribunal emphasized that the benefit test is irrelevant for ALP determination and that the assessee reasonably established the receipt of services. The Tribunal directed the deletion of the ALP adjustments for technical know-how fees. 3. Disallowance of Expenses on Account of Distribution of Free Samples: The Tribunal restored the issue to the Assessing Officer (AO) for fresh adjudication, following the precedent set in the assessee's case for the assessment year 2007-08. 4. Disallowance Under Section 14A: The assessee contended that investments in REC bonds, which yield taxable income, were wrongly included in the Section 14A disallowance. The Tribunal remitted the issue to the AO for factual verification and adjustment. 5. Adjustment Under Section 145A: The Tribunal remitted the issue to the AO for fresh adjudication, noting that the assessee is entitled to adjustments as per the inclusive method of accounting under Section 145A. 6. Disallowance Under Section 43B(f): The Tribunal upheld the disallowance under Section 43B(f), noting that the Calcutta High Court's decision declaring the section unconstitutional was stayed by the Supreme Court. 7. Taxability of Interest on Income Tax Refund: The Tribunal dismissed the assessee's appeal, following the Special Bench decision in Avada Trading Co Pvt Ltd Vs ACIT, which held that interest on income tax refund is taxable. 8. Deduction Under Section 36(1)(va) for Employees’ Provident Fund Contribution: The Tribunal allowed the deduction, following the jurisdictional High Court's decision in CIT Vs Ghatghe Patil Transport Ltd, which permits deduction if the payment is made before the due date of filing the income tax return. 9. Disallowance of Share Buyback Expenses: The Tribunal allowed the deduction, citing the Delhi High Court's decision in CIT Vs Selan Exploration Technology Ltd, which held that expenses incurred for buyback of shares are revenue in nature and allowable under Section 37. 10. Disallowance of Sales Promotion Expenses: The Tribunal confirmed the disallowance based on Circular No. 5 of 2012, which prohibits deductions for expenses incurred in providing freebies to medical practitioners, as it violates the Medical Council of India's regulations. Conclusion: The appeals filed by the assessee were partly allowed, and the appeal filed by the Assessing Officer was dismissed. The Tribunal provided detailed directions for fresh adjudication on several issues, ensuring compliance with legal precedents and statutory provisions.
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