Appeal partly allowed, re-compute ALP, expenses allowed, penalty proceedings without merit.

The appeal was partly allowed, with directions to re-compute the Arm's Length Price (ALP) and allow certain expenses and depreciation claims. The disallowance under section 37(1) was upheld, referencing a Supreme Court judgment. Penalty proceedings were initiated without merit.

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Issues Involved:
1. Validity of the final assessment order.
2. Transfer pricing adjustments.
3. Corporate tax disallowances.
4. Depreciation disallowance.
5. Disallowance of clinical trial expenses.
6. Credit of advance tax.
7. Initiation of penalty under section 271(1)(c).

Summary:

Validity of the Final Assessment Order:
The assessee contested that the final assessment order dated 22 June 2021 under section 143(3) r.w.s. 144C(i) and s. 144B of the Income-tax Act, 1961, was bad in law.

Transfer Pricing Adjustments:

1. Trading Segment Adjustment:
The assessee objected to an upward adjustment of INR 11,22,76,671 in the trading segment, which was previously reduced to NIL by the TPO's rectification order dated 18 December 2019 and the TPO's order dated 16 April 2021.

2. Business Support Services:
The TPO selected comparables and determined an ALP margin of 15.81%, resulting in an adjustment of INR 1,75,15,590. The Tribunal directed the AO to re-compute ALP, excluding certain comparables.

3. Recovery of Expenses:
An adjustment of INR 3,33,740 was made on the recovery of expenses. The Tribunal reduced the mark-up to 8% from 15% and directed the AO to re-compute the ALP.

Corporate Tax Disallowances:

1. Disallowance under section 37(1):
The AO disallowed INR 3,27,74,708 incurred in relation to doctors, citing CBDT Circular No. 5/2012. The Tribunal upheld the disallowance, referencing the Supreme Court judgment in M/s Apex Laboratories P. Ltd. Vs DCIT, which prohibits such expenses as they are considered as prohibited by law.

2. Clinical Trial Expenses:
The AO disallowed INR 1,04,72,741 for clinical trial expenses, stating they were not solely for the assessee's business. The Tribunal allowed the expenses, recognizing them as integral to the business.

Depreciation Disallowance:
The AO disallowed depreciation of INR 1,38,45,026 on assets placed with hospitals, alleging the transactions were in the nature of hire purchase. The Tribunal allowed the depreciation, affirming the assets were used for business purposes.

Credit of Advance Tax:
The AO failed to grant credit for advance tax paid of INR 2,75,00,000. This issue was not elaborated upon in the judgment.

Initiation of Penalty under Section 271(1)(c):
The AO initiated penalty proceedings without appreciating that the assessee had neither concealed income nor furnished inaccurate particulars. This issue was not elaborated upon in the judgment.

Conclusion:
The appeal was partly allowed, with directions to re-compute ALP and allow certain expenses and depreciation claims. The disallowance under section 37(1) was upheld.

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