2021 (10) TMI 1403 - AT - Income Tax

Tribunal Ruling: Assessee wins on key issues like stock obsolescence, marketing expenses, but loses on market claims.

M/s GlaxoSmithKline Asia Pvt. Verus The A.C.I.T., LTU, New Delhi Now jurisdiction at DCIT, Circle 4 (1), Chandigarh., The A.C.I.T., Circle 4 (1), Chandigarh. Versus M/s GlaxoSmithKline Asia Pvt, Vice Versa, And M/s GlaxoSmithKline Asia Pvt. Versus The D.C.I.T., Circle 4 (1), Chandigarh.

M/s GlaxoSmithKline Asia Pvt. Verus The A.C.I.T., LTU, New Delhi Now jurisdiction at DCIT, Circle 4 (1), Chandigarh., The A.C.I.T., Circle 4 (1), ... Issues Involved:1. Disallowance of provision for stock obsolescence.2. Disallowance of 1/3rd of the expenditure on advertisement and promotion.3. Disallowance of purchase of vaccine u/s 40(a)(i) of the Act.4. Disallowance of Product Development Expenses.5. Disallowance of market research expenses.6. Disallowance of post-retirement medical benefit.7. Disallowance of CENVAT recoverable.8. Disallowance of provision for market claims.9. Claim of surcharge and education cess.10. Adjustment on account of interest on receivables.11. Transfer Pricing Adjustment in relation to export of goods.Detailed Analysis:Issue 1: Disallowance of Provision for Stock ObsolescenceThe Tribunal noted that the issue was identical to the one adjudicated in the assessee's appeal for A.Y. 2005-06. The Tribunal found that the assessee had provided evidence for the write-off of stock, including emails and stock write-off sheets. The Tribunal held that the claim could not be denied for want of further evidence and allowed the claim, stating that the write-off of vaccines nearing expiry and Aquafresh toothbrushes was justified. Consequently, the disallowance of provision for stock obsolescence was decided in favor of the assessee.Issue 2: Disallowance of 1/3rd of the Expenditure on Advertisement and PromotionThe Tribunal found that the issue was identical to the one adjudicated in the assessee's appeals for A.Y. 2005-06 and 2006-07. The Tribunal held that the Revenue had not established that the advertisement expenses benefited the parent AE. The Tribunal emphasized the distinction between brand building and advertising & marketing, stating that the entire benefit inured to the assessee alone. The Tribunal directed the deletion of the disallowance made on account of brand building expenses, deciding the issue in favor of the assessee.Issue 3: Disallowance of Purchase of Vaccine u/s 40(a)(i) of the ActThe Tribunal found that the issue was identical to the one adjudicated in the assessee's appeals for A.Y. 2005-06 and 2006-07. The Tribunal noted that the AO's findings were based on data extracted from websites and not on relevant facts. The Tribunal restored the issue back to the AO for adjudication afresh, directing the AO to consider all factual and legal contentions raised by the assessee. The issue was allowed for statistical purposes.Issue 4: Disallowance of Product Development ExpensesThe Tribunal found that the issue was identical to the one adjudicated in the assessee's appeal for A.Y. 2006-07. The Tribunal restored the issue back to the AO for adjudication afresh, directing the AO to examine the nature and impact of the expenses vis-à-vis the existing business of the assessee. The issue was allowed for statistical purposes.Issue 5: Disallowance of Market Research ExpensesThe Tribunal noted that the issue was covered by the order of the Tribunal in the case of GlaxoSmithKline Consumer Healthcare Ltd. The Tribunal held that the market research expenses were revenue in nature, incurred to remain competitive in the market. The Tribunal directed the deletion of the disallowance, deciding the issue in favor of the assessee.Issue 6: Disallowance of Post-Retirement Medical BenefitThe Tribunal noted that the issue was covered by the order of the Tribunal in the case of GlaxoSmithKline Consumer Healthcare Ltd. The Tribunal held that the provision for post-retirement medical benefits, valued by an actuary and created in terms of the scheme of employment and Accounting Standard-15, was an allowable deduction. The Tribunal directed the deletion of the disallowance, deciding the issue in favor of the assessee.Issue 7: Disallowance of CENVAT RecoverableThe Tribunal noted that the CENVAT credits represented the cost of services availed, which was not claimed in the relevant years since they were eligible to be set off against output service tax. The Tribunal held that the write-off of CENVAT credit recoverable was allowable as revenue expenditure in the year written off. The Tribunal directed the deletion of the disallowance, deciding the issue in favor of the assessee.Issue 8: Disallowance of Provision for Market ClaimsThe Tribunal noted that the assessee had not filed documentary evidence to substantiate its claim. The Tribunal held that the liability could not be said to be a present obligation without evidence. However, the Tribunal directed the revenue authorities to allow the reduction of the provision reversed in subsequent years from the taxable income. The issue was adjudicated against the assessee.Issue 9: Claim of Surcharge and Education CessThe Tribunal admitted the additional ground for adjudication but dismissed it, holding that education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii) of the Act, following the decision of the Hon'ble Apex Court in the case of K. Srinivasan.Issue 10: Adjustment on Account of Interest on ReceivablesThe Tribunal noted that the TPO had treated the delayed receipts of payments for receivables beyond 60 days as international transactions. The Tribunal, following the decision of the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd., held that the receivables could not be automatically characterized as international transactions. The Tribunal restored the issue back to the TPO for determination in accordance with law, allowing the issue for statistical purposes.Issue 11: Transfer Pricing Adjustment in Relation to Export of GoodsThe Tribunal noted that the assessee's contention regarding the end purpose of the transaction being philanthropic was not relevant. The Tribunal directed the TPO to reconsider the exclusion of certain comparables from the list of comparables selected by the TPO, passing a speaking order detailing the reasons for rejecting the comparables. The issue was allowed for statistical purposes.