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2018 (5) TMI 507 - AT - Income TaxTPA - AMP expenditure - Held that - As gone through the agreements entered in to by the AE s with the assessee, that in the agreements there is no condition about sharing of AMP, that the agreements talks of using best efforts to market and distribute the product or promote the products in a commercially reasonable manner. In our opinion, these terms do not give any indication that the AE and the assessee had to share AMP expenses. If the AE was benefitted indirectly by the AMP expenditure incurred by the assessee, it cannot be held that it had entered into agreement for sharing AMP expenses. Bright Line Method should not have been applied by the TPO. Thus First of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods, so the question of slicing of expense in two portions would not arise. The other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG 2013 (6) TMI 217 - ITAT DELHI and did not have benefit of later judgments of the Hon ble High Court, we would like to mention that matter can be restored back in certain conditions only. Restoration of matters to the AO s is not a tool to give one more opportunity of hearing to the litigants. It is not advisable to prolong the judicial proceedings in the name of fair play. It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment. It is not also a matter wherein some ground of appeal has remained un-adjudicated. There is violation of principles of natural justice. So, we hold that it is not a fit case to be sent back to the TPO for fresh adjudication - Decided in favour of assessee. Depreciation on plant and machinery and building to be allowed as relying on assessee s own case 2015 (12) TMI 1673 - ITAT MUMBAI Disallowance of payment made to doctors(Convention Expenses) - Held that - The Hon ble Delhi High Court in the case of MAX Hospital, Pitampura (2014 (1) TMI 1829 - DELHI HIGH COURT) has clearly held that MCI could issue guide lines for the Doctors only and that the MCI in its affidavit admitted that it has no jurisdiction to pass any order against the Petitioner hospital . Ethics Committee of MCI is authorised to pass some order about the infrastructure of any hospital. But, as far as corporate entities are concerned MCI cannot issue any guide lines. Therefore, we are not dealing with the issue as to from which AY. the guide lines would be applicable. We would also like to hold that distribution of free samples cannot be treated as violation of Expl. 1 to section 37(1). Additional ground of appeal - allowing consequential depreciation on non compete fee - as argued that while deciding the appeal for the AY. 2002- 03, the Tribunal had directed the AO to allow depreciation on payment made for non compete fee treating the same as capital expenditure. Following the above order of the Tribunal, we allow the additional ground raised by the assessee. Non upholding the adjustment based on BLT on the premises that it was not the most appropriate method - Held that - While deciding the appeal filed by the assessee, we have held that AMP expenses was not an International transaction. Therefore, the issue of applying BLT as the MAM would not arise. Tribunal had taken the same view while deciding the appeal for the AY. 2010-11. Accordingly, we decide the effective ground of appeal, raised by the AO, against him.
Issues Involved:
1. Transfer Pricing Adjustment on AMP Expenditure 2. Disallowance of Depreciation on Plant and Machinery and Building 3. Disallowance of Payment Made to Doctors (Convention Expenses) 4. Depreciation on Non-Compete Fee Detailed Analysis: 1. Transfer Pricing Adjustment on AMP Expenditure: The primary issue was the Transfer Pricing (TP) adjustment related to Advertisement, Marketing, and Promotion (AMP) expenses amounting to ?18.36 crores. The Tribunal noted that the assessee, a subsidiary of Medtronic’s International Hong Kong, used the Transactional Net Margin Method (TNMM) to determine the Arm's Length Price (ALP) of its international transactions. The Transfer Pricing Officer (TPO) argued that the AMP expenses incurred by the assessee created brand awareness benefiting the parent company, Medtronic’s Inc., and applied the Bright Line Test (BLT) method to determine the ALP, which was not prescribed under the Act. The Tribunal found no agreement between the assessee and its Associated Enterprises (AE) regarding sharing AMP expenses and held that the TPO should not have applied the Bright Line Method. Citing the Delhi High Court's judgments, it was concluded that AMP expenditure was not an international transaction and thus, no adjustment could be made. Consequently, the Tribunal decided this issue in favor of the assessee. 2. Disallowance of Depreciation on Plant and Machinery and Building: The issue pertained to the disallowance of depreciation amounting to ?2.96 lakhs. The Tribunal referred to its earlier orders, which allowed depreciation on plant and machinery, building, furniture, and fixtures even though the manufacturing operations had been discontinued. It was emphasized that under the concept of block of assets, depreciation is allowable on the aggregate Written Down Value (WDV) of all the assets in the block. The Tribunal concluded that the disallowance made by the Assessing Officer (AO) was not justified and decided this issue in favor of the assessee. 3. Disallowance of Payment Made to Doctors (Convention Expenses): The AO disallowed ?17.23 crores claimed as convention expenses, citing violations of Medical Council of India (MCI) guidelines. The Tribunal noted that the MCI guidelines apply to medical practitioners and not to pharmaceutical companies. It was observed that the CBDT Circular, which disallowed such expenses, was applicable from 1st August 2012 and not retrospectively. The Tribunal referred to various judgments, including the Delhi High Court's decision in Max Hospital, which clarified that MCI regulations govern doctors, not pharmaceutical companies. It was concluded that the expenses incurred were for business promotion and not in violation of any law, thus allowable under Section 37(1) of the Income Tax Act. This issue was decided in favor of the assessee. 4. Depreciation on Non-Compete Fee: The additional ground raised by the assessee was regarding the allowance of depreciation on non-compete fees. The Tribunal, following its earlier order for AY 2002-03, directed the AO to allow depreciation on the payment made for non-compete fees, treating it as capital expenditure. This issue was also decided in favor of the assessee. Conclusion: The Tribunal allowed the appeal filed by the assessee, dismissed the appeal of the AO, and treated the Cross Objection (CO) of the assessee as infructuous. The order was pronounced in the open court on 2nd May 2018.
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