2021 (2) TMI 1318 - AT - Income Tax

Appeal partially allowed, directing deletion of transfer pricing adjustment & fresh examination of disallowed expenditures.

Merck Limited Versus ACIT, Circle-7 (3) (2), Mumbai

Merck Limited Versus ACIT, Circle-7 (3) (2), Mumbai - TMI Issues:1. Transfer pricing adjustment challenge2. Disallowance of expenditure towards distribution of samples3. Disallowance under section 14A of the Act4. Disallowance under section 145A of the Act5. Disallowance of club expenditure6. Disallowance under section 43B(f)Transfer Pricing Adjustment Challenge:The appeal was filed against the addition of Rs5.95,48,976/- on account of transfer pricing adjustment. The assessee, a resident company engaged in pharmaceutical and chemical products, had entered into international transactions with overseas Associate Enterprises (AEs). The Transfer Pricing Officer (TPO) applied the Comparable Uncontrolled Price (CUP) method for one raw material, Bisoprolol Fumarate, proposing an adjustment based on export prices. The Tribunal found the CUP applied by the TPO invalid and directed acceptance of the benchmarking under Transactional Net Margin Method (TNMM), deleting the addition.Disallowance of Expenditure towards Distribution of Samples:The Assessing Officer disallowed 70% of the expenditure incurred towards distribution of samples, as the assessee failed to provide necessary details. The Tribunal directed a fresh examination by the Assessing Officer, considering previous decisions and directing a review of similar cases, allowing the assessee an opportunity to substantiate the expenses.Disallowance under Section 14A of the Act:The assessee challenged the disallowance of Rs.1,09,16,789/- under section 14A of the Act, arguing for the exclusion of certain investments capable of yielding taxable income. The Tribunal directed the Assessing Officer to verify the claim, excluding investments yielding taxable income from the disallowance calculation under rule 8D(2)(iii).Disallowance under Section 145A of the Act:The disallowance of Rs.1,36,67,817 was challenged under section 145A of the Act. The Tribunal restored the issue to the Assessing Officer for a fresh examination, considering adjustments to opening stock, purchases, sales, and closing stock, following previous Tribunal directions and relevant case law.Disallowance of Club Expenditure:The disallowance of club expenditure was challenged and allowed based on a previous Tribunal decision in a similar case, leading to the deletion of the disallowance.Disallowance under Section 43B(f):The disallowance of Rs.13,50,000/- under section 43B(f) was upheld based on recent judgments, including a decision by the Hon’ble Supreme Court. The Tribunal dismissed the ground of the assessee following the legal precedent.The appeal was partly allowed, with certain disallowances upheld and others deleted based on detailed legal analysis and application of relevant case law and statutory provisions.