Appeals partly allowed, expenses recomputed, disallowances deleted, Transfer Pricing adjustment removed, gift card expenses remitted

The Tribunal partly allowed both appeals, directing the AO to recompute disallowed expenses for loaner sets, advertisement and sales promotion, recruitment and training, and conference expenses. The Tribunal deleted disallowances based on earlier orders and judicial pronouncements. The Transfer Pricing adjustment for AMP expenses was deleted as no agreement with the AE existed. The Tribunal remitted the issue of disallowed gift card expenses back to the AO for re-adjudication. The Tribunal's order was pronounced on 06th June 2019.

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Issues Involved:
1. Disallowance of amortised expense of loaner set.
2. Disallowance of 50% of advertisement and sales promotion expenses.
3. Disallowance of 4/5th of recruitment and training expenses.
4. Disallowance of conference expenses.
5. Transfer Pricing adjustment in respect of AMP expenses.
6. Levy of interest u/s 234B and initiation of penalty u/s 271(1)(c).

Detailed Analysis:

1. Disallowance of amortised expense of loaner set:
The assessee loaned medical instruments to hospitals/doctors on a returnable basis, amortizing the expense over three years and claiming deductions under Section 37(1). The AO disallowed this, treating it as capital expenditure and allowing only depreciation. The DRP upheld this disallowance. However, the Tribunal found that this issue was covered by earlier orders for AYs 2007-08 and 2008-09, where it was concluded that such expenses should not be treated as capital expenditure. Therefore, the Tribunal deleted the addition of Rs. 8.15 Crores and directed the AO to recompute the same.

2. Disallowance of 50% of advertisement and sales promotion expenses:
The AO disallowed 50% of the advertisement and sales promotion expenses, treating them as deferred revenue expenditure. The DRP upheld this disallowance. The Tribunal, referring to earlier orders for AYs 2007-08 and 2008-09, found no basis for restricting the expenditure to 50% and deleted the disallowance of Rs. 9.08 Lacs.

3. Disallowance of 4/5th of recruitment and training expenses:
The AO disallowed 4/5th of the recruitment and training expenses, treating them as enduring in nature. The DRP upheld this disallowance. The Tribunal, referring to earlier orders for AY 2008-09, found that no asset was created by incurring these expenses and allowed the full expenditure of Rs. 55.95 Lacs for the impugned AY.

4. Disallowance of conference expenses:
The AO disallowed conference expenses amounting to Rs. 5.32 Crores, treating them as indirect benefits to doctors and not allowable under the Medical Council guidelines. The DRP upheld this disallowance. The Tribunal, referring to earlier orders and other judicial pronouncements, found that these expenses were incurred for business purposes and deleted the disallowance.

5. Transfer Pricing adjustment in respect of AMP expenses:
The AO made a TP adjustment of Rs. 7.27 Crores for AMP expenses, treating them as international transactions. The DRP upheld this adjustment to protect the department's interest. The Tribunal found that in the absence of any agreement between the assessee and its AE, these transactions could not be termed as international transactions. Referring to earlier orders for AY 2009-10, the Tribunal deleted the TP adjustment.

6. Levy of interest u/s 234B and initiation of penalty u/s 271(1)(c):
These grounds were considered consequential/premature and did not require any indulgence from the Tribunal.

Additional Issue for AY 2013-14:
For AY 2013-14, the AO disallowed 50% of advertisement and sales promotion expenses amounting to Rs. 28.62 Lacs, proposing an addition of Rs. 14.31 Lacs. The DRP deleted most of the additions except Rs. 11.66 Lacs for gift cards, which were treated as bribes. The Tribunal remitted this matter back to the AO for re-adjudication, directing the assessee to substantiate their stand.

Conclusion:
Both appeals were partly allowed, with specific directions for re-adjudication where necessary. The Tribunal's order was pronounced on 06th June 2019.

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