Tribunal decision: Expenses allowed, interest rate directed, education cess reconsidered, exemptions upheld.

The Tribunal allowed the assessee's appeal by setting aside the disallowance of gift and sales promotion expenses, directing the application of the EURIBOR rate for interest on loans to Associated Enterprises. The additional ground on deduction of education cess was admitted for reconsideration by the AO. The Revenue's appeal challenging exemptions on income from the sale of scrap was dismissed due to low tax effect.

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Issues Involved:
1. Disallowance of gift and sales promotion expenses.
2. Adjustment made to Arm's Length Price (ALP) for guarantee fees and interest on loan to Associated Enterprises (AE).
3. Deduction in respect of Education Cess paid on income tax and dividend distribution tax.
4. Exemption under sections 80IB and 10B of the Income Tax Act on income derived from the sale of scrap.

Detailed Analysis:

1. Disallowance of Gift and Sales Promotion Expenses:
- Issue: The assessee challenged the disallowance of Rs. 55,39,817/- for gifts and sales promotion expenses, which were considered freebies given to doctors, allegedly violating Medical Council regulations.
- Tribunal's Finding: The Tribunal referred to its earlier decision for the assessment year 2009-10, where a similar disallowance was deleted. It was held that the prohibition by the Medical Council is on medical practitioners accepting gifts, not on pharmaceutical companies giving them. The CBDT Circular No. 5 of 2012 does not apply retrospectively. The Tribunal found no reason to deviate from its previous decision and allowed the assessee’s claim, setting aside the CIT(A)'s findings.

2. Adjustment to Arm's Length Price (ALP):
- Guarantee Fees:
- Issue: The CIT(A) confirmed the use of the Comparable Uncontrolled Price (CUP) method to determine ALP for guarantee fees, resulting in an adjustment of Rs. 7,33,100/-.
- Tribunal's Finding: The Tribunal followed its earlier decision in the assessee’s case for the assessment year 2009-10, where it was held that a corporate guarantee fee of 0.5% is at arm’s length. The Tribunal partly allowed the ground in the same terms.

- Interest on Loan to AE:
- Issue: The CIT(A) directed the AO to apply the interest rate prevalent in Romania plus a spread of 300 basis points, whereas the assessee contended for the application of the EURIBOR rate since the loan was in EURO.
- Tribunal's Finding: The Tribunal observed that the loan agreement indicated the loan was in EURO and referred to the decision in Tata Autocomp Systems Ltd. vs. ACIT, where it was held that the EURIBOR rate should apply for loans in EURO. The Tribunal restored the issue to the AO to apply the EURIBOR rate plus base points if required.

3. Deduction in Respect of Education Cess:
- Issue: The assessee claimed a deduction for education cess on income tax and dividend distribution tax, which was opposed by the Department on procedural grounds.
- Tribunal's Finding: The Tribunal admitted the additional ground, noting it is legal in nature and no new evidence is required. Referring to the decision in Sesa Goa Ltd. vs. JCIT, the Tribunal restored the issue to the AO for consideration in light of this precedent.

4. Exemption on Income Derived from Sale of Scrap:
- Issue: The Revenue challenged the CIT(A)'s direction to allow exemptions under sections 80IB and 10B on income from the sale of scrap.
- Tribunal's Finding: The Tribunal dismissed the Revenue’s appeal due to the low tax effect, in accordance with the CBDT Circular No. 17/2019, which prescribes a monetary limit for filing appeals.

Conclusion:
- The assessee's appeal was partly allowed, with the Tribunal setting aside the disallowance of gift and sales promotion expenses, and directing the AO to apply the EURIBOR rate for interest on loans to AE.
- The additional ground regarding the deduction of education cess was admitted and remanded to the AO.
- The Revenue's appeal was dismissed due to the low tax effect.

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