9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (8) TMI 1649 - AT - Income TaxWeighted deduction u/s 35(2AB) - amount was not approved by DSIR - HELD THAT - We find that once the facility is approved by DSIR, the assessee is entitled for weighted deduction u/s 35(2AB) of the Act and there is no requirement as per the Act that the expenses need to be approved by DSIR. In this regard, the amendment has been brought in Rule 6(7A) of the IT Rules with effect from 1.7.2016 that even the expenses need to be approved by DSIR. Since this is applicable only from Asst Year 2017-18 onwards, the same cannot be made applicable for Asst Year 2013-14. We find that this issue is no longer res integra and is covered by the decision of this tribunal in the case of Inventia Health Care Pvt Ltd 2016 (8) TMI 1525 - ITAT MUMBAI Since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. See Claris Lifesciences Ltd. 2008 (8) TMI 579 - GUJARAT HIGH COURT - we direct the ld AO to grant weighted deduction u/s 35(2AB) - Decided in favour of assessee. Disallowing expenses u/s 37(1) - expenses were incurred by the assessee company for providing freebies to medical practitioners and their professional associations in violation of the regulations issued by the Medical Council of India (MCI) which is a regulatory body constituted under the Medical Council Act, 1956 - HELD THAT - We find that MCI guidelines cannot decide the allowability or otherwise of an expenditure in the hands of drug manufacturing companies or individuals other than doctors under the Act. In any case, we find that the ld AO had only made an adhoc disallowance by applying 1.32% on turnover to have been incurred towards the freebies, gifts. This, in our considered opinion, cannot be sustained in the eyes of law, more particularly when the assessee had given complete details of expenses together with supporting evidences before the ld AO. We find that the ld AO had not identified the fact as to whether any expenses was incurred during the year towards freebies, gifts etc given to medical practitioners. Hence the disallowance of expenses u/s 37(1) of the Act deserves to be deleted on that count also apart from various judicial precedents. We are also informed that MCI had filed an affidavit before the Hon ble Delhi High Court that their guidelines are applicable only to doctors and not to others in Max Hospital case during their writ proceedings. In view of our aforesaid observations, we hold that no disallowance of expenses could be made in the instant case by applying the MCI guidelines which are applicable only to doctors and not to pharma companies such as assessee herein. Adjustment made on account of comfort guarantee by holding that these guarantee involve no cost and hardly any risk to the guarantor - HELD THAT - Since the assessee had charged already guarantee fee at 1% from its AEs which is more than the rate approved by the tribunal in its own case for the Asst Yea₹ 2008-09 and 2009-10, no adjustment need to be made on account of guarantee fees. As guarantee fee charged by the assessee at 1% from its AEs should be considered at ALP and no adjustment thereon is warranted in the facts and circumstances of the case. Hence we hold that the ld CITA had rightly deleted the adjustment to ALP and rightly granted relief to the assessee, which does not require any interference. Accordingly, the Grounds raised by the revenue are dismissed.
Issues Involved:
1. Disallowance of weighted deduction under Section 35(2AB). 2. Disallowance of expenses under Section 37(1). 3. Adjustment on account of comfort guarantee. Issue-wise Detailed Analysis: 1. Disallowance of Weighted Deduction under Section 35(2AB): The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the Assessing Officer's (AO) action of disallowing the weighted deduction of ?8,27,97,000 under Section 35(2AB) on the grounds that the amount was not approved by the Department of Scientific and Industrial Research (DSIR). The Tribunal noted that the AO did not doubt the genuineness of the expenditure. The AO granted deduction under Section 35 but denied the weighted deduction under Section 35(2AB) because DSIR had not approved the expenses. The Tribunal held that once the facility is approved by DSIR, the assessee is entitled to weighted deduction, and there is no requirement in the Act for the expenses to be approved by DSIR. This provision is applicable from Assessment Year (AY) 2017-18 onwards and not for AY 2013-14. The Tribunal referred to its decision in Inventia Health Care Pvt Ltd vs DCIT, holding that the amount of expenditure approved by DSIR does not restrict the weighted deduction. The Tribunal directed the AO to grant the weighted deduction of ?8,27,97,000, allowing the assessee's appeal on this ground. 2. Disallowance of Expenses under Section 37(1): The second issue was whether the CIT(A) was justified in confirming the AO's action of disallowing expenses amounting to ?25,73,08,067 under Section 37(1). The AO disallowed these expenses, asserting they were incurred for providing freebies to medical practitioners in violation of Medical Council of India (MCI) regulations, which is prohibited by law. The Tribunal observed that the MCI guidelines apply only to medical practitioners, not to pharmaceutical companies. The AO made an ad hoc disallowance by applying a percentage of turnover, which the Tribunal found unsustainable since the assessee provided complete details of expenses. The Tribunal noted that the AO did not identify any specific expenses incurred towards freebies and gifts to medical practitioners. The Tribunal held that MCI guidelines could not determine the allowability of expenses for pharmaceutical companies under the Income Tax Act. Consequently, the Tribunal deleted the disallowance of expenses under Section 37(1), allowing the assessee's appeal on this ground. 3. Adjustment on Account of Comfort Guarantee: The third issue was whether the CIT(A) was justified in deleting the adjustment made on account of comfort guarantee. The AO determined the Arm's Length Price (ALP) of the guarantee fee at 1.5%, while the assessee charged a 1% guarantee fee from its Associated Enterprises (AEs). The CIT(A) followed the Tribunal's earlier decisions and held that a 0.5% guarantee fee should be accepted as ALP. The Tribunal noted that the AO's adjustment was not warranted since the assessee charged a 1% guarantee fee, which is more than the rate approved by the Tribunal in earlier years. The Tribunal referenced the decision in CIT vs Glenmark Pharmaceuticals Ltd, where the Bombay High Court and subsequently the Supreme Court upheld that the guarantee fee charged by the assessee at 1% should be accepted as ALP. The Tribunal affirmed the CIT(A)'s decision, dismissing the revenue's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal regarding the weighted deduction under Section 35(2AB) and the disallowance of expenses under Section 37(1), while it dismissed the revenue's appeal concerning the adjustment on account of comfort guarantee. The Tribunal's decision emphasized the correct interpretation of statutory provisions and judicial precedents, ensuring that the assessee's entitlements and obligations were accurately assessed.
|
