TaxTMI 
TaxTMI 
2016 (11) TMI 1453
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....DRP and Ld. AO have erred on facts and in law in enhancing the income of the Appellant by INR 1,80,67,400 by holding that the Appellant's international transactions does not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in commuting Transfer Pricing (TP) adjustments: A. in relation to provision of marketing support services by: 2.1 disregarding the arm's length price ("ALP") as determined by the Appellant in the Transfer Pricing ("TP") documentation maintained by it in terms of Section 920 of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.2 disregarding multiple year and prior years' data as used by the Appellant in its TP documentation and holding that current year (i.e. FY 2010-11) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 2.3 disregarding the quantitative and qualitative filters applied by the Appellant in the TP documentation, arbitrarily applying additional quantitative filters, and conducting a comparability analysis; ....
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.... of the regulations framed by the Medical Council of India and hence disallowable under Section 37(1) of the Act read with Central Board of Direct Taxes C'CBDT') Circular No. 5/2012. While doing so, the Ld. AO failed to appreciate that these expenses were not in the nature of 'freebies' which were provided to doctors/ medical practitioners. 4.2 disallowing meeting, seminar and conference expense a amounting to INR 1,906,000 under Section 37(1) of the Act on the grounds that no documentary evidence was furnished by the Appellant. While doing so, the Ld. AO failed to appreciate that these were genuine business expenditure and the Appellant was unable to provide documentary evidence only due to paucity of time. 4.3 disallowing payment made towards sponsorship of event, amounting to INR 800,000, on the ground that the payment was made by the Appellant after the event had taken place. While doing so, the Ld. AO failed to appreciate that the delay in payment was on account of certain business exigencies which the Appellant was unable to justify due to paucity of time. 5. Ld. AO erred in initiating penalty proceedings under Section 271(1X0) of th....
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....for benchmarking its international transactions and operating profit/total cost (OP/TC) to determine the profit level indicator (PLI) for the purposes of calculating the margin of such transactions which has not been disputed by the Ld. TPO. 7. The Ld.TPO observed that assessee had selected 5 comparables which are as under: S.No. Name of the Company OP/TC 1. IDC (India) Ltd. 12.57% 2. Quadrant Communications Ltd. 9.14% 3. Empire Industries Ltd. [Trading & Indenting] 18.39% 4. Entertaining Network (India) Ltd. [Events (consolidated)] 2.11% 5. Priya International Ltd. [Indenting] 19.89% Mean 12.4% Median 12.5% Upper Quartile 18.39% Lower Quartile 9.14% 8. The ld.TPO using various filters prepared a final list of comparables which are as under: S. No. Name of the company OP/TC 1. Apitco Ltd 25.17% 2. Global Procurement Consultants Ltd. 30.86% 3. Info Edge India Ltd. 45.53% 4. Quadrant Communication Ltd. 14.58% Average 29% 9. Further the ld.TPO benchmark the delay in receipt....
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.... direction of DRP, increased the margin of Priya International 92.62% along with the other comparables included by the DRP. In respect of the interest on outstanding receivables that the Ld.AO calculated the adjustment at Rs. 34,64,076/. 13. There were certain corporate additions that were made by the Ld. AO in respect of the disallowance of the expenses incurred by the assessee alleged to have been made for the purposes of business. 14. Aggrieved by the final order passed by the Ld. AO the assessee is in appeal before us now. We shall 1st deal with the transfer pricing adjustments made by the Ld. TPO. The Ld.AR is disputing inclusion of two companies being; • Global Procurement Consultant Ltd., and • Info Edge India Ltd., and He submitted in furtherance that the margin that needs to be corrected in case of Priya International Ltd. 15. Before dealing with the compatibility it is sine qua non to analyze the functional profile of the assessee before us. 16. From the TP study Assessee has been characterized as a subsidiary of Boston scientific International B.V (Netherlands) and was set up in 2006 to carry out marketing, promotion, sales ....
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....ed, it is the holding company that has created and utilised its land and building, office premises communication facilities etc for the purposes of its business. Assessee utilises its office premises for purposes of its operation. The group companies has over the years created and developed several intangibles like corporate logo, brand name, technical know-how, quality standards, customer and supplier is less, workforce etc whereas the assessee as a marketing support service provider in the course of its routine operations builds and has customer relationships and market intangibles but it does not own, create or develop any scientific commercials/marketing intangibles. 18. In terms of the risk assumed, assessee does not have any significant exposure to risk as its service fee is guaranteed by its holding company, regardless of sale of product in the market. 19. Thus in the light of the above the assessee has been characterised as a pure market support service provider exposed to less art normal risk associated with carrying out such businesses in the TP study. 20. We shall now deal with the objections raised by the assessee in respect of the comparables. Global procureme....
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....ny is an Internet-based service provider operating in back portals namely Naukry.com for recruitment related services, Jeevan Satie.com for matrimony related services, 99 acres.com for real estate related services and Shiksha.com for education and related services. He is submitted that this comparable is spread across wide spectrum of domains in the Indian Internet space is and significant revenue from these portals. It is observed from the TP study of this comparable that all the risks associated to the business is borne by the comparable which is not the case with the assessee before us. 22.1. On the contrary Ld. DR submits that this company is functionally comparable and that the authorities below were right in including it in the final list of comparables 22.2. It is observed that this company is into interner based services, which cannot be compared to the kind of marketing carried on by assessee. We therefore direct the ld.TPO to exclude this company from the final list of comparables. Priya International Ltd. 23. It has been submitted by the Ld. AR that this company earns its revenues from 2 basic segments that is trading and indenting. Ld.AR has submitted that t....
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.... hence cannot accrue in the current assessment year. Hence the question of non-realisation of service fee beyond normal credit period during the financial year under consideration does not arise. In the synopsis Ld.AR has further objected the DRP is observation in restricting the computation of interest till 31/03/2011, and taking the actual date of invoice as 01/10/2010, being the midpoint of the year as the date of invoice for the provision of marketing support service for computation of interest on receivables. 26. On the contrary the Ld. DR submitted that Finance Act 2012, has inserted explanation to section 92B with retrospective effect from 1/04/2002 to include notional interest charged on the receivables as an international transaction. He placed is reliance upon the order dated 12/08/2015 passed by coordinate bench this Tribunal in the case of Ameriprise India vs. DCIT in ITA No. 2010/del/2014 and ITA No. 2575/del/2014 for assessment year 2009-10, wherein it has been held that interest payable on delayed credits/receivables is an international transaction. The Ld.DR has placed reliance upon paragraphs 22 to 25 of this decision which has been reproduced hereunder: ....
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....h Court noticed that an amendment to section 926 has been carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside the view taken by the Tribunal, the Hon'ble High Court restored this issue to the file of the Tribunal for fresh decision in the light of the legislative amendment. _ 1 25. The foregoing discussion discloses that non-charging or under- charging of interest on the excess /period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined." 27. We have perused the contentions raised by both the parties in the light of the records placed before us. The details of the invoices raised and the payments received by assessee from its AE are as under: S. No Invoice No Date of invoice Amount (INR) Date of receipt Credit period (in days) Period exceeding 60days Interest @10.84% 1 IN/1C 10-002 31 -Mar-11 86855188 26-July-11 117 57 1470303.659 2 IN/IC 10-003 31 -Mar-11 12705278 13-Feb-12 319 259 977283.022 Total 2447587 28. Co....
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.... and its AE. placed at page 116 to 118 of the paper book. The relevant clauses 3 deals with the payment for services which reads as under: "3. Payment for services: (a) In consideration for GIPL's services under this Agreement, BSI shall pay to GIPL a fee equal to all of GIPL's costs and expenses incurred in providing the MSS rendered during the fiscal year to BSI, plus a mark-up of such costs and expenses at a rate to be agreed on from time to time according to arm's-length principles (the "Service Fee"). (b) For this purpose, the cost of GIPL in providing the MSS shall mean the allocablc share of GIPL's direct and indirect costs that are incurred in relation to providing the MSS. Further, revision of cost calculations, if any, pursuant to the audit of books of accounts of GIPL shall be considered as a revision of the cost of GIPL in providing the above services. (c) Service tax or other Indian indirect taxes if any that may become applicable on the services shall be reimbursed by BSI to GIPL in addition to the Service Fees. (d) On a monthly or other periodic basis as agreed by the parties, GIPL shall submit written invo....
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....is issue to the files of the ld.TPO to examine the facts and to ascertain on the basis of the documentation is provided by the assessee regarding the exact period during which the services have been rendered for the purposes of calculating interest. The assessee is directed to submit all necessary details before the ld.TPO and the TPO shall grant proper opportunity to the assessee before calculating the interest on receivables in accordance with law for the year under consideration. Corporate Issue: 40. Assessee in Ground No. 3 and 4 has raised issue relating to disallowance of expenses under section 37 (1) of the Act. The assessee during the year under consideration had incurred certain expenses alleged to have been for the purposes of business and had claimed as an expenditure under section 37 (1) of the Act. The expenses incurred by the assessee are as under Particulars Amount (in Rs.) Major head under which expense booked Honorarium fees paid to Dr Anil Saxena 1,72,800 Legal and professional expenses Airfare for Dr. Anil Saxena's Japan visit 1,92,451 Travelling and conveyance expenses Registration fee for Dr. Shakir Hussain 42,590 ....
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....t has been submitted that these payments are incurred by the assessee in the normal course of business for marketing of its products and sponsorship of conferences etc which are not covered in the specified payments mentioned in the MCI regulation, consequently there is no question of disallowing the same under section 37 (1). 44. On contrary the Ld. DR submitted that as per the MCI regulation doctors are not allowed to accept any travel facility inside or outside the country including rail, air, ship, cruise tickets paid vacation etc from any pharmaceutical or allied healthcare industry or their representatives for self and family members certification or for attending conferences seminars workshops, CME program etc., as a delegate and it is also prohibited under the MCI regulation for a medical practitioner from accepting any hospitality like Luke hotel accommodation for self or family member under any pretext. Ld. DR submitted that the payments made by the assessee are prohibited under the MCI regulations, which has been amended vide notification dated 10/12/2009. He submitted that the assessing officer has rightly disallowed these expenses under section 37 (1) read with expl....
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.....8 Code of conduct for doctors and professional association of doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below:- a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. b) Travel facilities: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, air, ship , cruise 9 ITA 904 and 945/Mum/2013 tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc as a delegate. c) Hospitality: A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext. d) Cash or monetary grants: A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied....
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....ays: (i) Ensure that his professional integrity and freedom are maintained. (ii) Ensure that patients interest are not compromised in any way. (iii) Ensure that such affiliations are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. h) Endorsement: A medical practitioner shall not endorse any drug or product of the industry publically. Any study conducted on the efficacy or otherwise of such products shall be presented to and / or through 11 ITA 904 and 945/Mum/2013 appropriate scientific bodies or published in appropriate scientific journals in a proper way". 50. It has been contended by Ld.AR that during the year under consideration, assessee has incurred expenditure for sponsoring doctors' overseas and within India tour for attending seminars which helped in creating a relationship with the doctors, who may, in turn, understand the utility and creat awareness of such machines which was marketed by the assessee. Hence, such expenses were allowable under section 37(1) of the Act, being revenue in nature and incurred for the purpose of business as explained above. 51. The as....