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TMI Blog2019 (4) TMI 1429X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation are not applicable to pharmaceutical companies. The said view was again reiterated by the Co ordinate Bench in Solvay Pharma India Ltd. [ 2018 (1) TMI 797 - ITAT MUMBAI] . The Co ordinate Bench has also held that the CBDT Circular referred to by the Departmental Authorities will not apply retrospectively. No contrary decision on the issue has been brought to our notice by the learned Departmental Representative. In view of the aforesaid, following the ratio laid down by the Co ordinate Bench in the decisions referred to above, we allow assessee s claim of expenditure Disallowance u/s 14A under rule 8D(2)(ii) - sufficient interest free funds - HELD THAT:- Assessee had sufficient interest free funds available with it to take care of the investments. That being the case, disallowance of interest expenditure under rule 8D(2)(ii) cannot be made. However, to keep track of its investments and manage the funds, the assessee must be incurring certain administrative expenditure .Reasonable disallowance under section 14A r/w rule 8D(2)(iii) has to be made. Accordingly, we direct the Assessing Officer to compute the disallowance of administrative expenditure under rule 8D(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the assessment year 2009 10. ITA no.6317/Mum./2014 Assessee s Appeal 2. In ground no.1, the assessee has challenged part disallowance out of expenditure incurred towards gift and sales promotions. 3. Brief facts are, the assessee company is engaged in manufacturing and domestic as well as export sales of pharmaceutical products and bulk drugs. For the assessment year under dispute, the assessee filed its return of income on 30th September 2009, declaring total income of ` 48,68,55,740. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of ` 2,26,34,864, to the Profit Loss account towards gift / sales promotion expenses. On calling for and verifying the details furnished by the assessee, he found that the expenditure incurred was for providing gift to Doctors / Medical Practitioners. Therefore, being of the view that as per CBDT circular no.5/2012, dated 1st August 2012, Medical Practitioners are prohibited from accepting gift, travel facility, hospitality, cash or monetary grant from pharmaceutical companies as per Indian Medical Council Regulation dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. Undisputedly, the assessee has incurred expenditure of ` 2,26,34,864, towards gifts, travel facilities and hospitality provided to doctors, customers and medical practitioners in medical conferences held both in India and abroad. Out of the aforesaid amount, the Assessing Officer has segregated an amount of ` 1,25,44,723, for computing disallowance towards expenditure incurred in India. As could be seen from the assessment order, the gift items provided by the assessee are T shirts, suit lengths, umbrella, electronic goods, etc. It is the contention of the assessee that the aforesaid gift items bearing assessee s name and logo are only for sales promotion. The aforesaid factual position has not been controverted by the Assessing Officer. The only reason for making an ad hoc disallowance of 40% is, CBDT Circular no.5/2012, dated 1st August 2012, wherein, the prohibition imposed by Indian Medical Council with regard to acceptance of gift by medical practitioner / doctor was imposed w.e.f. 10th December 2009. Thus, as could be seen, the prohibition imposed by Indian Medical Council against acceptance of gift is on the medical practitioner and doctor and not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st expenditure can be made as the assessee had sufficient interest free funds available with it to take care of the investment. In this context, he drew our attention to the Balance Sheet as at 31st March 2009, a copy of which is placed at Page 46 of the paper book. In support, he relied upon the following decisions: i) CIT v/s HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.); and ii) HDFC Bank Ltd. v/s DCIT, [2016] 383 ITR 529 (Bom.). 12. As regards disallowance of administrative expenditure under rule 8D(2)(iii), the learned Authorised Representative submitted, these are old investments, hence, the assessee does not have to incur any administrative expenditure with regard to such investment. 13. The learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 14. We have considered rival submissions and perused material on record. No doubt, the provisions of rule 8D are applicable to the impugned assessment year. However, on a perusal of the Balance Sheet of the company as at 31st March 2009, it is noticed that as against interest free fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand taken before the Departmental Authorities submitted, the provision of corporate guarantee does not come within the definition of international transaction under section 92B of the Act. In support, he relied upon some decisions of the Tribunal as submitted in the paper book. 19. The learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 20. We have considered rival submissions and perused material on record. Insofar as the issue whether the provision of corporate guarantee comes within the purview of international transaction as defined under section 92B of the Act is concerned, there is a cleavage in the view expressed by different Benches of the Tribunal on the issue. While some Benches have held that provision of corporate guarantee does not come within the meaning of international transaction, however, there are many decisions which have held that it comes within the definition of international transaction as provided under Article 92B of the Act. In fact, in many of the cases, the assessees have accepted provision of corporate guarantee as international transaction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng similar issue in assessee s own case for the preceding assessment years, the Tribunal has held that since the sale of scrap is integrally connected to the business activity of the assessee, it should form part of the turnover for computing deduction under section 80IB/10B of the Act. In fact, learned Commissioner (Appeals) accepting the aforesaid legal position has directed the Assessing Officer to allow deduction under section 80IB / 10B of the Act. However, he has wrongly quantified the amount at ` 3,92,091, which is the scrap sales relating to 80IB unit, while leaving out the scrap sales of 10B unit amounting to ` 51,51,738. In view of the aforesaid, we direct the Assessing Officer to allow assessee s claim of deduction under section 10B / 80IB on the respective sales turnover of scrap relating to the aforesaid units. This ground is allowed. 27. In the result, appeal is partly allowed. ITA no.6075/Mum./2014 Revenue s Appeal 28. The only issue arising in the aforesaid appeal is with regard to allowance of assessee s claim of deduction under section 10B/80IB of the Act in respect of sale of scrap. 29. While decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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