2018 (5) TMI 587 - AT - Income Tax

Transfer Pricing TP adjustment against Advertising, Marketing & Sales Promotion Expenses AMP - Held that - We find that similar issue of AMP adjustment arose in assessee s own case for AY 2010-11 wherein the Tribunal 2018 (1) TMI 1033 - ITAT MUMBAI deleted the impugned adjustment, inter-alia, on the premise that in the absence of any agreement / arrangement between assessee and its Associated Enterprises AE , the aforesaid transaction could not be termed as international transaction. Expenditure incurred by assessee in respect of foreign trips of doctors - allowable busniss expenditure - Held that - The nature of expenses incurred by the assessee is not clear i.e. whether the same has been incurred to sponsor foreign visits of doctors to attend seminars or conferences relating to assessee s products or whether the same are in the nature of freebies to the doctors. In our opinion, the expenditure incurred by the assessee to sponsor foreign visit to generate knowledge about the company s products was clearly allowable u/s 37(1) and there was no restriction per-se regarding allowability of the same. Therefore, the matter stands remitted back to the file of Ld. AO for appreciation of the factual matrix and to be decided as per law after providing opportunity to the assessee to demonstrate the nature of these expenses. Disallowance of depreciation on Goodwill - Goodwill did not fall under specific intangible assets as mentioned in Section 32 - Held that - This issue stood squarely covered in assessee s favor by the decision of Hon ble Apex Court rendered in CIT Vs. Smifs Securities Limited 2012 (8) TMI 713 - SUPREME COURT wherein it was held that Goodwill was an intangible asset eligible for depreciation u/s 32. Accordingly, by deleting this addition, we allow this ground of appeal. Depreciation on Plant & Machinery & Building - claim disallowed since these assets remained idle since manufacturing process stood discontinued - Held that - We are of the opinion that once an asset forms part of block of asset, it loses its individual identity and further, there is no requirement that each and every item in the said block should actually be used in the impugned AY so as to entitle the assessee to claim depreciation thereupon. Otherwise also, this issue stood covered in assessee s favor by the cited order of the Tribunal in assessee s own case for AY 2010-11. Therefore, this addition stand deleted. Advances written-off allowability - Held that - Advances are primarily in the nature of advance for shipping & handling charges, advertising material, freight, packing, hotel booking, project hiring, consultancy charges, booking charges etc. which are primarily in relation to business activities carried out by the assessee in normal course of business and hence, allowable as Business Loss u/s 28 as per the decision of Hon ble Bombay High Court rendered in Harshad J Choksi Vs CIT 2012 (8) TMI 710 - BOMBAY HIGH COURT . Respectfully following the same, the impugned addition is deleted. Trading advances (bad debts) written off - Held that - We find that since the said disallowance has been made by lower authorities for want of adequate information / details, the issue needs to be remitted back to the file of Ld. AO in the light of additional evidences submitted by the assessee hat the impugned expenditure was nothing but bad debts written-off and hence allowable in terms of decision of Hon ble Apex Court rendered in TRF Ltd. Vs. CIT 2010 (2) TMI 211 - SUPREME COURT .

Issues:
1. Assessment order challenge for AY 2008-09.
2. Transfer Pricing adjustment on AMP expenses.
3. Disallowance of foreign trips expenditure for doctors.
4. Disallowance of depreciation on Goodwill.
5. Disallowance of depreciation on idle Plant & Machinery and Building.
6. Advances written-off treatment.
7. Trading advances (bad debts) written off.
8. Disallowance of expenditure on gift articles.
9. Depreciation on non-compete fees.

Assessment Order Challenge for AY 2008-09:
The appeal contested the final assessment order passed by the Deputy Commissioner of Income Tax-8(2) pursuant to DRP directions. The assessee, engaged in trading Life Saving Devices, was assessed at ?71.21 Crores after adjustments. The appeal included additional grounds filed later. The AR argued that previous Tribunal decisions in the assessee's favor should apply, while the DR relied on lower authorities. The Tribunal proceeded to adjudicate the issues raised in the appeal.

Transfer Pricing Adjustment on AMP Expenses:
The TP adjustment of ?13.53 Crores against AMP expenses was contested. The TPO suggested the adjustment based on Bright Line Test, reducing it to ?13.53 Crores after DRP relief. The Tribunal referred to a previous case where a similar issue was decided in the assessee's favor, deleting the adjustment. Consequently, Ground No. 2 was allowed, rendering other grounds infructuous.

Disallowance of Foreign Trips Expenditure for Doctors:
Expenditure of ?49,15,181 on foreign trips for doctors was disallowed due to ethical concerns. The AR argued the necessity of such trips for product knowledge dissemination. The Tribunal found the nature of expenses unclear and remitted the matter to the AO for further examination. Ground No. 16 was allowed for statistical purposes.

Disallowance of Depreciation on Goodwill:
Depreciation on Goodwill was disallowed, but the Tribunal, following a Supreme Court decision, allowed the appeal as Goodwill was held eligible for depreciation under Section 32.

Disallowance of Depreciation on Idle Plant & Machinery and Building:
The disallowance of depreciation on idle assets was overturned as the assets were part of a block and previous Tribunal decisions favored the assessee.

Advances Written-off Treatment:
Advances primarily related to business activities were allowed as Business Loss under Section 28 following a Bombay High Court decision.

Trading Advances (Bad Debts) Written Off:
The issue was remitted back to the AO for further examination based on additional evidence submitted by the assessee.

Other Disallowances and Allowances:
The Tribunal dismissed certain grounds not pressed by the AR and found some disallowances infructuous. Grounds related to gift articles expenditure were dismissed as the addition was deleted by the AO. The issue of depreciation on non-compete fees was remitted back to the AO for verification based on previous Tribunal orders.

Conclusion:
The Tribunal partly allowed the appeal, disposing of all grounds based on the detailed analysis and legal precedents cited in each issue.

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