9911796707
TMI Blog2019 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Hon'ble Dispute Resolution Panel - 1 (WZ), (hereinafter referred to as the 'Hon'ble DRP') on the following grounds, each of which are without prejudice to one another: On the facts and in the circumstances of the case as well as in law, the learned AO/ Joint Commissioner of Income-tax (Transfer Pricing) - 2(3) ('TPO")/Hon'ble DRP, in fact and in law: Grounds 1. erred in assessing the total income of the Appellant at INR 2,30,29,38,703 as against INR 37,21.04,250 as computed by the Appellant; Transfer pricing grounds on Advertising, Marketing and Promotion ('AMP') adjustment 2. erred in making transfer pricing adjustment of INR 101,26,73,186 on account of AMP expenses incurred by the Appellant; AMP is not an international transaction 3. erred in considering the function of AMP as a separate purported international transaction for the purpose of transfer pricing adjustment; 4. erred in ignoring that the alleged AMP expenses incurred by the Appellant represents only domestic transactions undertaken with third parties/employees and are outside the purview of Section 92B of the Act and is thus in excess of his jurisdiction; 5. erred in erroneously stating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picking up of the comparable companies and has selected comparable companies of the preceding year without conducting a fresh search and thereby violated the principles of natural justice; 13. Without prejudice to the above, erred in considering Adinath Bio-Labs Limited as a comparable company not having similar product/ brand profile as the Appellant; Mark-up on AMP expenses 14. Without prejudice to the above, erred in disregarding that that even if the Appellant had to be compensated for the excessive AMP, in absence of any services element, the Appellant should be entitled to reimbursement of "actual" excessive AMP expenses incurred, rather than a mark-up on the same; 15. Without prejudice to the above, erred in holding that the Appellant should have earned a mark-up of 23.71% on the alleged excessive AMP expenses in relation to distribution segment, which are to be reimbursed to the Appellant; 16. Without prejudice to the above, erred in not adopting a scientific search process to identify companies for computing the mark-up to be applied to the alleged excessive AMP expenses; 17. Without prejudice to the above, erred in considering inappropriate comparables compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenses 27. erred in not following the binding directions issued by the Hon'ble DRP, wherein the Hon'ble DRP has directed to delete the transfer pricing adjustment of INR 1,32,76,277 on account of recovery of expenses, thereby exceeded its jurisdiction. Transfer Pricing Adjustment on account of reimbursement of expenses 28. erred in partly confirming the transfer pricing adjustment of INR 4,05,62,976 on account of reimbursement of expenses to the AEs by the Appellant by ignoring that the expenses were incurred by the AEs merely for facilitation and were reimbursed by the Appellant on cost to cost basis, thereby erred in holding that the expenses reimbursed by the Appellant are not in the nature of business expenses anddisallowing the same: 29. erred in determining the ALP of the transaction as Nil, without appreciating the sample evidence submitted by the Appellant during the transfer pricing assessment proceedings as well as remand proceedings to substantiate the nature of expenditure reimbursed; 30. Without prejudice to the above, erred in making a separate transfer pricing adjustment on account of reimbursement of expenses to the AEs by the Appellant, as such costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computing the operating margin of comparable companies for the purpose of determination of the ALP of the impugned international transaction: 40. Without prejudice to the above, erred in considering the reimbursement of expenses of INR 4,05,62,976 as part of operating cost, without appreciating that the value of said expense is taken as Nil by the TPO himself, thereby leading to double adjustment on the same; 41. erred in law in not applying the proviso to section 92C and not allowing the Appellant the benefit of variation of +/-3% in determining the ALP. Other direct tax disallowances Disallowance of depreciation on building 42. erred in disallowing an amount of INR 75,886 being depreciation on building without appreciating the fact that the assets were forming part of block of assets and continued to exist even after the manufacturing unit was discontinued; Disallowance of payment to doctors 43. erred in disallowing an amount of INR 36,34,64,058 on account of payment of convention expenses without appreciating the fact that the code of conduct laid down in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (MCI Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in not appreciating the fact that the payment for the accommodation expenses had been directly made to medical associations and third party service providers and not to the medical practitioners, accordingly, the same is outside the purview of the MCI Regulations and CBDT circular; Continuing Medical Education Meetings ('CME Meetings') 52. without prejudice to the above, erred in not appreciating the fact that out of the convention expenses of INR 36,34,64,058, expenditure incurred for organizing CME Meetings of INR 67,39,275 is paid to third party agencies in the normal course of business, with the objective of disseminating educational and scientific information to doctors and surgeons and accordingly, the same is not prohibited by the MCI Regulations; Meals 53. without prejudice to the above, erred in disallowing the expenditure incurred for providing meals of INR 3,14,58,704 out of the convention expenses of INR 36,34,64,058, without appreciating the fact that the value of meals provided to health care professionals is low, insignificant and out of courtesy, accordingly, the same does not result in any 'freebie' to the health care professionals; Gifts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the TPO/AO while computing the transfer pricing adjustment; Consequential depreciation on non-compete fee 61. erred in not granting consequential depreciation on non-compete fee held as capital expenditure in AY 2002-03 by the Hon'ble Income-tax Appellate Tribunal. Non-grant of credit of TDS amounting to INR 12,379 62. erred in granting credit of TDS amounting to INR 11,20,299 instead of INR 11,32,678 as claimed in the return of income. Levy of interest under section 234B of the Act 63. erred in levying under section 234B of the Act. Levy of penalty under section 271(1)(c) of the Act 64. erred in initiating penalty under section 271(1)(c) of the Act; The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 2. Briefly stated, the assessee is a part of Medtronic Inc., a USA based global leader in medical technology which is engaged in developing and manufacturing a wide range of products and therapies i.e mostly patented or IP protected items. The assessee company is a subsidiary of Medtronic International Ltd., Hongkong, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) r.w.s 144C(13), dated 31.10.2018 after making the following adjustments/disallowances: Sr. No. Particulars Amount (in INR) Transfer Pricing adjustment 1. Adjustment on account of AMP expenses 101,26,73,186 2. Adjustment on account of recovery of expenses from AEs 1,32,76,277 3. Adjustment on account of reimbursement of expenses to AEs 4,05,62,976 4. Alternate adjustment on account of import of finished goods 49,60,24,206 Total 156,25,36,645 Otheradjustments. 1. Disallowance of payments to doctors 36,34,64,058 2. Disallowance of depreciation on building 75,886 3. Disallowance of provision for commission on sales 47,57,859 Total 36,82,97,803 As there were certain mistakes apparent from the order passed by the A.O under Sec. 143(3) r.w.s 144(13), therefore, the assessee filed a rectification application dated 22.11.2018 with him. In the meantime the TPO issued a rectified order under Sec.154, dated 05.03.2019, wherein certain mistakes that had emanated while giving effect to the directions of the DRP were rectified viz. (i) treatment of the adjustment on account of import of finished goods: Rs. 49,60,24,206/- as an alternate adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conveyance expense (80%) 18,42,47,518 6. Depreciation on Plant & Machinery 6,33,05,274 Total 1,36,60,40,596 Sales 6,86,89,36,462 AMP to Sales 19.89% The TPO adopted the 'Bright Line Test' and computed the AMP to sales ratio of the comparable companies at 7.97%, as hereinbelow: Sr. No. Name of the Company AMP to Sales ratio (FY 2012-13) 1. Satayjet Commercial Co. Ltd. 1.57% 2. Frontline Electro Medical Limited 12.54% 3. Adinath Bio-Labs Limited 1.10% 4. Hicks Thermometers India Ltd. 10.43% 5. ADS Diagnostic Ltd. 19.71% 6. Confident Sales India Private Limited 2.44% Average 7.97% Also, the TPO worked out a mark-up on the AMP expenses @ 23.71% of the reimbursement cost for brand promotion carried out by the assessee for its AEs in India, as under: Name of the Company Operating profit/Operating Cost (FY 2013-14) Axis Integrated Systems Ltd. 27.46% BVG India Ltd. 19.91% Average 23.71% Accordingly, the TPO made an adjustment of Rs. 101,26,73,186/- towards excessive AMP expenses incurred by the assessee, which as per him were required to be reimbursed by its AEs (along with markup), as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is for adjudicating as to whether the AMP expenses incurred by the assessee is to be construed as an international transaction, or not. We have given a thoughtful consideration to the facts before us and find that the aforesaid issue under consideration is squarely covered by the order passed by the Tribunal in the assesses own case for A.Y. 2010-11 in India Medtronics Pvt. ltd. Vs. DCIT-10(1)(1), Mumbai (ITA No. 1600/Mum/2015, dated 17.01.2018). Admittedly, the "distribution agreement" which had been effective from 28.04.2007 was renewable automatically on year-to-year basis and involving the same terms and conditions it was applicable during the period relevant to A.Y.2014-15. Accordingly, the terms of the distribution agreement had not changed/modified. Also, we find that a similarly placed "distribution Agreement" was relied upon by the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09. A perusal of the order of the Tribunal in the assesses own case for A.Y. 2010-11, viz. India Medtronic Vs. DCIT-10(1)(1), Mumbai (ITA No. 1600/Mum/2015, dated 17.01.2018) reveals that the Tribunal had observed viz. (i) that, in the agreements between the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d licence fee to TCUK, that the TPO held that the assessee was spending much more than Industry average in promoting and building brand of TCUK, that he made an adjustment of Rs. 8.09 crores and Rs. 8.31 crores for the AY.s.2009-10 and AY.2010-11 towards AMP expenditure, that the assessee had filed additional evidences before the FAA, that the FAA did not admit the evidences referring to the provisions of Rule 46A of the Rules, that he upheld the order of the TPO, that for the AY.2010-11 the assessee had filed objections before the DRP, that the adjustment made by the TPO were confirmed the DRP, that the adjustment was made/confirmed by the TPO/DRP because both of them were of the opinion that by incurring expenditure in India the assessee was benefitting a brand name of TCUK. 8.3.1.First of all, we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses. The Hon'ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT. Probable incidental benefit to the AE would not make such a transaction an IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 92B defines 'international transaction' as under: "Meaning of international transaction. 92B.(1) For the purposes of this section and sections 92,92C,92D and 92E ,"international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents; in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue was: "The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. "This was negatived by the Court by pointing out;"Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred, for the AE. In any event, after the decision in Sony Ericsson (supre), -- the question of applying the BLT to determine the existence-of aninternational transaction involving AMP expenditure does not arise. 61. There is merit in the contention of the Assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. " 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present. case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Ltd. v, CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore,where the existence of an international transaction involving AMP expense with an ascertainable price is- unable to be shown to exist, even if such price is nil,Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. 1261 & 1238/M/15 Thomas Cook 33 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned-in- Sassoon -J David-(supra)- "the- -fact thatsomebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law." With reference to the submissions of the DR,we would like mention that 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. However,the other part of the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee were in the nature of selling expenses and could not have been considered as part of its AMP expenses. In order to buttress his aforesaid contention, it was submitted by the ld. A.R,that the aforesaid claim of the assessee had been accepted by the Tribunal in the assesses own case for A.Y 2011-12 viz. India Medtronics Pvt. Ltd. Vs. DCIT 10(1)(1), Mumbai (ITA No. 1246/Mum/2016), dated 02.05.2018. Apart therefrom, it was submitted by the ld. A.R that a similar view had thereafter been taken by the Tribunal in the case of the assessee for A.Y. 2012-13 (ITA No. 2160/Mum/2017, dated 27.05.20190 and A.Y. 2013-14 (ITA No.601/Mum/2018, dated 08.05.20190. Alternatively, it was the claim of the ld. A.R that even otherwise as TPO had not used any of the prescribed methods contemplated in Sec. 92C of the Act for determining the ALP of the aforesaid transactions and had disallowed the convention expenses on an adhoc basis, therefore, his action was also not sustainable on the said ground. To sum up, it is the claim of the ld. A.R that as the convention expenses incurred by the assessee in the normal course of its business were in the nature of selling expenses and not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were reimbursed to the AEs. As is discernible from the order of the TPO, it was observed by him that the expenses claimed to have been incurred by the AEs on behalf of the assessee were mostly in the nature of travelling expenses pertaining to the employees of the assessee. In the backdrop of the aforesaid facts, the TPO was of the view that as the employees of the assessee had travelled to foreign countries for providing services to the AEs, therefore, in case of a third party scenario the assessee would not have borne such expenses on behalf of its AEs. To sum up, the TPO was of the view that as the employees had travelled to foreign countries for providing services to the AEs, therefore, there was no justifiable reason for the assessee to have borne their travelling expenses. On the basis of the aforesaid observations the TPO had determined the ALP of the expenses reimbursed by the assessee to its AEs as nil and had made an adjustment in the hands of the assessee. 13. We find that the assessee in the course of the proceedings before the DRP had by way of 'additional evidence'further submitted certain additional sample invoices and back up documents amounting to Rs. 73,19,62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is discernible from the orders of the lower authorities, the TPO had failed to take cognizance of the documentary evidence,which as claimed by the assessee supported the incurring of the abovementioned expenses amounting to Rs. 98,38,005/- by the AEs for and on behalf of the assessee. Also, the DRP while disposing off the objections of the assessee had confined the relief only to the extent of the additional sample invoices and backup documents amounting to Rs. 73,19,620/- which were furnished by the assessee in the course of the proceedings before it. As a matter of fact, the invoices and backup documents pertaining to expenses of Rs. 98,38,005/- that were filed by the assessee in the course of the TP proceedings had not being considered either by the TPO or the DRP. We find that the assessee had also furnished an application dated 04.07.2019 with us, seeking admission of 'additional evidence'which comprises of the copies of the invoices along with the backup documents as regards the balance amount of expenses of Rs. 3,07,24,971/- that were reimbursed by the assessee to its AEs. It was submitted by the ld. A.R, that the complete details i.e copies of invoices along with backup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the supporting details during the course of the remand proceedings before the TPO. We are of the considered view that the DRP while concluding as hereinabove had lost sight of the supporting documentary evidence i.e copies of invoices and samples supporting reimbursement of expenses aggregating to Rs. 98,38,005/- that were filed by the assessee in the course of the proceedings before the TPO. Apart therefrom, we are of the considered view that as neither of the lower authorities had at any stage directed the assessee to place on record the complete supporting documentary evidence as regards the reimbursement of expenses of Rs. 4,78,82,596/-,therefore, there is a justifiable reason for the assessee for not submitting the supporting documentary evidence in respect of the balance reimbursement of expenses of Rs. 3,07,24,971/- before them. Accordingly, in our considered view the 'additional evidence' i.e the copies of invoices along with backup documents supporting reimbursement of expenses aggregating to Rs. 3,07,24,971/- [Rs. 4,78,82,596/- (-) Rs. 98,38,005/- (-) Rs. 73,19,620/-] that has been filed by the assessee before us, merits admission on our part. However, we also cannot re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y report') benchmarked the international transactions of import of goods from its AEs by adopting 'Transaction Net Margin Method' (for short 'TNMM') as the most appropriate method. The 'Profit Level Indicator' (for short 'PLI') adopted by the assessee was Operating profit to Operating revenue (OP/OR). The assessee had taken itself as the tested party. The assessee had in its TP study report identified 7 companies as comparables for benchmarking its international transactions. The arithmetic mean of the 7 comparables on the basis of three years adjusted weighted average margin was worked out by the assessee in its TP study report 0.82%. As the PLI of the assessee was worked out at 2.85%, therefore, it had claimed its international transactions of import of goods to be at arm's length. During the TP proceedings the TPO had directed the assessee to submit the PLI of the comparable companies after confining itself to their financials for the year under consideration i.e F.Y. 2013-14 only. Accordingly, the assessee after considering the financials of its comparables for the year under consideration worked out its PLI at 2.35%, as herein below: Sr. No. Name of the comparable company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm's length mean margin C 9.90% 4. Arm's length price D=B*(1-C) 6,25,09,11,940 5. Adjustment E=B-C 49,60,24,206 18. Objecting to the aforesaid TP adjustment carried out by the TPO, the assessee carried the matter before the DRP. The DRP did not find favour with the contentions advanced by the assessee and upheld the view taken by the TPO. However, the DRP was of the view that ADS Diagnostic Ltd (segmental) was to be rejected as a comparable for benchmarking the international transaction of the assessee for the year under consideration if its trading activity was less than 75% of its total revenue. Insofar the other comparable viz. Confident Sales India Pvt. ltd. was concerned, the DRP did not find favour with the claim of the assessee and concluded that as sufficient data for the year under consideration was available in the 'annual report' of the said company for financial year 2014-15, therefore, it could safely be considered as a comparable. As regards the objection of the assessee that foreign exchange gain/loss was wrongly treated by the TPO as non-operating in nature, the same was rejected by the DRP. Similarly, the DRP upheld the view taken by the TPO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing analysis had in any way influenced the determination of the transfer prices in relation to the transactions of import of goods by the assessee from its AEs during the year under consideration. Our aforesaid observations are fortified by the judgment of the Hon'ble High Court of Bombay in the case of PTC Software (I) Pvt. Ltd., (2016) 75 taxmann.com 31 (Bom). Accordingly, finding no infirmity in the order of the DRP which had rightly concurred with the TPO as regards rejection of the multiple year data used by the assessee for computing the ALP of its transactions of import of goods from the AEs, we uphold the same. The Ground of appeal No. 34 is dismissed. 22. We shall now advert to the view taken by the TPO/DRP that the foreign exchange gain was not to be allowed as a part of the 'operating income' for the purpose of computing the margin of the assessee and its comparables. As observed by us hereinabove, the TPO/DRP had concluded that foreign exchange gain was to be treated as nonoperating income while computing the margin of the assessee and the comparable companies. In fact, the DRP while concluding as hereinabove, was of the view that as the foreign exchange gain/loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Separator India Pvt. Ltd. Vs. ACIT [ITA No.4446/Del/2007]; vii. M/s Cisco Systems Services B.E. India Branch Vs. ADIT [ITA (TP) No. 270/Bang/2014]; viii. M/s Kenexa Technologies Pvt. Ltd. Vs. Dy. CIT [ITA No. 243/HYD/2014]; ix. M/s Bearing Point Business Consulting Pvt. Ltd. Vs. DCIT [ITA No. 1124/Bang/2011]; x. M/s Trilogy E-Business Software India Pvt. Ltd. Vs. DCIT [ITA No. 1054/Bang/2011]; xi. M/s Brigade Global Services Pvt. ltd. Vs. ITO [ITA No. 1494/Hyd/2010]; and xii. M/s Capital IQ Information Systems (India) Pvt. Ltd. Vs. DCIT [ITA No. 1961/Hyd/2011]. We thus on the basis of our aforesaid deliberations are of the considered view that the TPO/DRP had erred in concluding that the foreign exchange gain was to be treated as non-operating in nature while computing the margins of the assessee for the year under consideration. Accordingly, the TPO is directed to consider the foreign exchangegain/loss as operating in nature while computing the margin of the assessee for the year under consideration. The Ground of appeal No. 35 is allowed. 24. As regards the observations of the DRP that ADS Diagnostic Ltd. should be rejected as a comparable in case if its trading ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it period granted to the customers. Also, in return of a longer credit period granted a firm would be willing to pay a higher purchase price which would add to the costs of the goods sold. In the backdrop of its aforesaid submissions, it is the claim of the assessee that high level of accounts receivable and inventory tend to overstate the operating results, while for the high levels of accounts payable tend to understate them, which factors would thus necessitate appropriate adjustment. 26. We have perused the orders of the lower authorities and find that the DRP had concurred with the TPO for rejecting the working capital adjustments that was undertaken by the assessee for the purpose of comparing the margins of the comparable companies as against its margin. We have given a thoughtful consideration to the facts of the case and after necessary deliberations are persuaded to accept the aforesaid claim of the assessee. As per Rule 10B(1)(e)(iii), in a case where the international transactions are benchmarked applying TNMM the net profit margin realised by an unrelated enterprise from a comparable uncontrolled transaction is to be adjusted by taking into account the differences, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in case the ALP of the expenses which were claimed by the assessee to have been reimbursed on cost to cost basis to its AEs was taken by the TPO at Nil, with a consequential separate addition on the said count in the hands of the assessee, then, there would had been no occasion for considering the said expenses as a part of the operating cost while determining the margins of the assessee. We have given a thoughtful consideration to the issue before us. As can be gathered from our observations recorded at Para 17 hereinabove, the adjustment made by the TPO as regards the reimbursement of expenses by the assessee to its AEs had been restored by us to his file for fresh adjudication. Accordingly, the TPO is directed to consider only those expenses as a part of the operating cost, which are accepted by himin the 'set aside' proceedings as reimbursement of expenses on cost to cost basis by the assessee to its AEs, which were incurred by the AEs for and on behalf of the asssessee.Accordingly, the aforesaid issue is 'set aside' to the file of the TPO for fresh adjudication in terms of our aforesaid observations. The Ground of appeal No. 40is allowed for statistical purposes in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urbed and has to be accepted. On the basis of his aforesaid contention, it is averred by the ld. A.R. that the A.O had erred in disallowing its claim for depreciation on building. 31. We have given a thoughtful consideration to the aforesaid claim of the assessee and find substantial force in the same. Admittedly, the concept of 'block of assets' was made available on the statute w.e.f 01.04.1988. As such, once the asset entered into the 'block of asset' and the same was accepted by the A.O, thereafter, in the subsequent years the claim of consequential depreciation on the said 'block of asset' could not be disturbed, despite the fact that some of the assets forming part of such 'block of asset' were no more used for the purpose of business. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Bombay in the case viz. (i). CIT Vs. Sonic Biochem Extractions Pvt. ltd. (2015) 94 CCH 99 (Bom); and (ii) CIT Vs. G.R. Shipping Ltd. [ITA No. 598 of 2009; dated 28.07.2009] (Bom). In the aforesaid decisions, it was observed by the Hon'ble High Court that depreciation would be allowable even in case of sale/distribution of the asset, as long as the 'block of asset' re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BDT Circular 05/2012, dated 01.08.2012 did not arise. 33. Briefly stated, the facts pertaining to the issue under consideration lies in a narrow compass. The assessee company deals in life saving medical devices.In order to bring awareness and create a market for the said products in the highly competitive market scenario, continuous education and awareness programmes were required to be conducted across the country. As is discernible from the orders of the lower authorities, the expenses of Rs. 36,34,64,058/- which were incurred by the assessee in the normal course of its business for facilitating a market for its products were disallowed by the A.O. The A.O was of the view that as the aforesaid expenses incurred by the assessee were found to be in violation of Clause 6.8 of the MCI Regulations and CBDT Circular No. 05/2012, dated 01.08.2012, therefore, the same could not be allowed as a deduction under Sec. 37 of the Act for the purpose of working out the income of the assessee. The DRP did not find any infirmity in the view taken by the A.O and upheld the disallowance of the convention expenses of Rs. 36,34,64,058/- that was made by him under Sec. 37 of the Act. It is the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope and ambit of the statutory provisions relating to professional misconduct of registered medical practitioners under the Indian Medical Council Act, 1956, is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name is entered in the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observed that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individuals registered medical practitioners and not the pharmaceutical companies or allied health sector industries. Apart there from, the Tribunal in its said order had also drawn support from the order of the Hon'ble High Court of Delhi in the case of MAX Hospital., Pitampura Vs. Medical Council of India [CWP No. 1334/2013, dated 10.01.2014]. In the aforesaid case the Medical Council of India had filed an 'Affidavit' before the High Court, wherein it was deposed by the council that its jurisdiction was limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon'ble High Court of Delhi in the case of Max Hospital, Pitampura Vs. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an 'Affidavit' befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim "Expressio Unius Est Exclusio Alterius", which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:- "Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebies (freebies) to medical practitioner and their professional associations in violation of the regulations issued by Medical Council of India (th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon'ble High Court of Delhi in the case of Max Hospital Vs. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier notification issued as "Indian Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002" had even provided for action which shall be taken against m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance of Rs. 36,34,64,058/- made by the A.O in respect of the convention expenses. The Grounds of appeal Nos. 43 to 60 are allowed in terms of our aforesaid observations. 36. We shall now advert to the claim of the assessee that the A.O had erred in not granting consequential depreciation on non-compete fee which was held by the Tribunal as a 'capital expenditure' while disposing off the appeal of the assessee for A.Y. 2002-03. As is discernible from the orders of the lower authorities, the assessee had entered into an exclusive distribution agreement with Meditech Device Ltd. (for short 'MDL') on 01.05.2019 for distribution of the assesses products in India. However, the said distribution agreement was terminated vide agreement dated 31.07.2001 on account of certain financial constraints that were faced by MDL in investing the required resources to expand its business as per the requirements of the assessee. Accordingly, a non-compete agreement dated 01.01.2002 was entered into by the assessee with the three directors of MDL viz. Shri. A. Damodharan, Shri. M. Swaminathan & Shri. Sandip Dave, who were retained as the consultants by the assessee for a period of 3 years,su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng years viz. A.Y. 2003-04 (ITA No. 1245/Ahd/2008), A.Y. 2004-05 (ITA No. 812/Ahd/2008), A.Y. 2008- 09 (ITA No. 7555/Mum/2012), A.Y. 2011-12 (ITA No. 1246/Mum/2016 ) and A.Y. 2013-14 (ITA No. 3461/Mum/2018), we herein direct the AO to allow the consequential depreciation on the non-compete fees to the assessee company. The Ground of appeal No. 61 is allowed. 38. The assessee had assailed the orders of the lower authorities on the ground that they had erred in confining the credit of TDS to an amount of Rs. 11,20,299/- as against Rs. 11,32,678/- that was claimed by the assessee in its return of income for the year under consideration. It is submitted by the ld. A.R that the claim for TDS credit of Rs. 11,32,678/- was raised on the basis of TDS certificates. We find that the aforesaid claim of the assessee requires to be verified on the part of the A.O. Accordingly, we restore the issue to the file of the A.O, who is directed to make necessary verifications, and in case the claim of the assessee is found to be in order then the credit for the deficit amount of TDS be allowed to the assessee. The Ground of appeal No. 62 is allowed for statistical purposes. 39. The assessee has also ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
