TaxTMI 
TaxTMI 
2019 (10) TMI 1499
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.... deciding this particular issue. Therefore, while disposing off this issue, we will also render our finding on the arguments advanced by the learned Departmental Representative contesting certain findings of learned Commissioner (Appeals) on this issue. 4. Brief facts are, the assessee, an Indian company, was incorporated in the year 1993. The assessee is a subsidiary of Medtronic International Ltd., Hong Kong, which in turn, is a subsidiary of Medtronic USA Inc., a USA based company. As stated by the Transfer Pricing Officer, the parent company in USA is a global leader in medical technology and is engaged in developing and manufacturing of wide range of products and therapies, mostly, patented or intellectual property (IP) protected items. The assessee, on its part, is engaged in the business of distributing life saving medical devices, such as, stents, pace makers, etc. For the assessment year under dispute, the assessee filed its return of income on 29th October 2007, declaring total income of Rs. 8,09,15,807, under the normal provisions of the Act. During the assessment proceedings, the Assessing Officer noticed that the assessee had entered into various international transac....
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....ity of marketing and distribution, Resale Price Method (RPM) would be the most appropriate method to benchmark the import of finished goods. Accordingly, he compared the resale discount percentage for the F.Y.2006-07 projected @ 42% with the actual gross margin at 31.65% and determined the arm's length price of the imported finished goods. Thus, considering the gross profit margin of 42%, the Transfer Pricing Officer proposed an adjustment of Rs. 23,60,70,527. The aforesaid adjustment proposed by the Transfer Pricing Officer was added back to the income of the assessee while completing the assessment. The assessee challenged the addition before the first appellate authority. Learned Commissioner (Appeals), after considering the submissions of the assessee in the context of facts and material on record, though, agreed with the Transfer Pricing Officer that TNMM cannot be the most appropriate method to benchmark the transaction but RPM is the most appropriate method, however, he observed, application of RPM was hindered due to non-furnishing of required information by the assessee. Further, accepting assessee's contention learned Commissioner (Appeals) held that 42% re-sale price....
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....od comparables. Thus, he submitted, learned Commissioner (Appeals) was not justified in upholding the Transfer Pricing Officer's decision in rejecting TNMM. 7. Shri Jayant Kumar, the learned Departmental Representative submitted, when the first appellate authority has agreed with the Transfer Pricing Officer that TNMM is not the most appropriate method and accepted that RPM is the most appropriate method, he could not have deleted the addition made on account of Transfer pricing adjustment by saying that sufficient information for applying RPM is not available. He submitted, in the given circumstances, learned Commissioner (Appeals) should not have left the issue relating to applicability of most appropriate method un-resolved. He submitted, if learned Commissioner (Appeals) was not agreeable to the gross re-sale margin applied by the Transfer Pricing Officer, he could have himself carried out a fresh benchmarking under RPM. In support of such contention, he relied upon the Special Bench decision of Tribunal, Bangalore Bench, in Aztec Software and Technologies Services Ltd. v/s ACIT, [2007] 107 ITD 141 (Gang.)(SB). Thus, he submitted, the issue has to be restored back to the Asses....
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....7 the Transfer Pricing Officer has ultimately determined the gross margin of the assessee. However, the facts on record reveal that for the financial year 2006-07, assessee's gross margin was 31.65%. In this regard, the contention of the assessee that the re-sale discount margin of 42% is only a target margin provided by the assessee's group and is not the actual margin. The aforesaid contention of the assessee has been accepted by the learned Commissioner (Appeals). No material has been brought on record by the Revenue to demonstrate that gross profit margin of 42% is the actual margin of the assessee and is not a target margin. Moreover, the Transfer Pricing Officer while applying RPM has referred to the gross margin earned by the Medtronic International Ltd., Malaysia, for adopting gross profit margin of 42%. On examination of the provisions of rule 10B(1)(b), it is clear that even under RPM only the gross margin derived on an uncontrolled transaction can be considered for comparability analysis. Therefore, under no circumstances, the margin earned in a controlled transaction can be considered for comparability purpose. That being the case, the margin earned by Medtronic Interna....
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.... by the assessee on behalf of the AE for promoting the brand resulting in creation of marketing intangibles. However, since the Transfer Pricing Officer made adjustment to the arm's length price of imported finished goods from the AE, he did not suggest any separate adjustment on account of AMP expenditure. 12. Before the first appellate authority, the assessee had raised specific ground challenging the Transfer Pricing Officer's observation with regard to the transfer pricing adjustment on AMP expenditure. While pursuing the said ground, the assessee had submitted that firstly, the incurring of AMP expenditure in India cannot be brought within the purview of international transaction. It was submitted, the Transfer Pricing Officer made an error in including the entire salary cost while computing marketing spend. It was submitted, the salary cost comprised of salary paid to employees in various Departments besides marketing. It was submitted, marketing spend by the assessee is less than that of the comparable companies identified in the transfer pricing study report which ranges from 0.52% to 21.65% of sales. Further, it was submitted, determination of arm's length price o....
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....al Representative, though, agreed that the issue is covered in favour of the assessee by the decisions of the Tribunal in the preceding assessment years, however, he relied upon the order of learned Commissioner (Appeals). 16. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputedly, the Transfer Pricing Officer has observed that a part of AMP expenditure incurred by the assessee is towards promoting the brand of the AE, though, he did not propose any separate adjustment on account of AMP expenditure, since, such adjustment was subsumed in the adjustment proposed by him in respect of arm's length price of imported finished goods from the AE. However, the learned Commissioner (Appeals) while deleting the transfer pricing adjustment in respect of imported finished goods directed the Assessing Officer to add the adjustment on account of AMP expenditure quantified at Rs. 17,87,32,162. It is evident, the quantification/determination of the arm's length price of AMP expenditure was not by following any of the prescribed methods. Undisputedly, the assessee is a distributor of finished products, i....
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.... in India. In response, the assessee furnished the details as per which only one of the AEs had effected direct sales to third parties in India. The Transfer Pricing Officer was of the view that net profit on such sale should have been taxed in India as the assessee is the distributor of Medtronic products in India. Further, he observed, in the preceding assessment years, notional profit on such direct sale was added to the income of the assessee. Accordingly, he proceeded to compute the notional profit on the direct sales made by the AEs to third parties in India at Rs. 1,51,90,344, and suggested for addition of the said amount. Being aggrieved with such addition, the assessee challenged it before the first appellate authority. 20. The learned Commissioner (Appeals), after considering the submissions of the assessee, sustained the notional addition made by the Assessing Officer / Transfer Pricing Officer. However, accepting assessee's contention, he granted partial relief by directing the Assessing Officer/Transfer Pricing Officer to re-calculate the adjustment made considering the actual commission received instead of commission at notional rate of 13.1%. 21. The learned Counse....
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....esh adjudication in terms with the directions of the tribunal in the preceding assessment years as referred to above. Grounds are allowed for statistical purposes. 25. Ground no.24, is not pressed, hence, dismissed. 26. In grounds no.25 and 26, the assessee has challenged disallowance of Rs. 1,60,911, being expenditure incurred on gift articles. 27. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction on account of expenditure incurred towards gift articles given to customers called upon the assessee to justify the claim. After rejecting the explanation of the assessee, he disallowed the amount of Rs. 1,60,911, on the reasoning that it was not for the purpose of assessee's business. Assessee challenged the disallowance before the first appellate authority. 28. Learned Commissioner (Appeals), after considering the submissions of the assessee, noticed that similar disallowance was also made in the assessment years 2004-05 to 2006-07. Accordingly, he sustained the disallowance made by the Assessing Officer. 29. The learned Authorised Representative submitted, being a distributor dealing with life saving m....
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....c. so as to enable them to use the products sold by the assessee. The Assessing Officer observed, while dealing with identical issue in the assessment year 2006-07, the Assessing Officer had disallowed assessee's claim on the reasoning that the benefit derived from such foreign trip is by the medical professionals and not by the assessee as they are not working exclusively for the advancement of assessee's business. Accordingly, he disallowed assessee's claim of expenditure. Assessee challenged the aforesaid disallowance before the first appellate authority. 34. Learned Commissioner (Appeals), however, confirmed the disallowance made by the Assessing Officer. 35. We have considered rival submissions and perused material on record. As could be seen from the facts placed before us, identical issue arose in assessee's own case in preceding as well as subsequent assessment years. While deciding the issue, the Tribunal has consistently held that the expenditure having been incurred for the purpose of assessee's business, is allowable under section 37(1) of the Act. While doing so, the Tribunal also held that the Medical Council of India (MCI) Regulations would not be applicable to the....
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....goodwill is in the nature of any other business or commercial right or similar in nature, hence, is to be treated as intangible asset. Following the aforesaid decision, the Tribunal in assessee's own case for the assessment years 2002-03, 2003-04 and 2008-09, as referred to above, decided the issue in favour of the assessee. Therefore, following the consistent view of the Tribunal in assessee's own case, we allow assessee's claim of depreciation on goodwill. Ground raised is allowed. 42. In addition to the aforesaid grounds, the assessee has raised an additional ground being ground no.29, seeking allowance of depreciation on non-compete fee. 43. Brief facts are, during the financial year relevant to the assessment year 2002-03, the assessee had paid non-compete fee amounting to U.S. dollar one million (equivalent to Rs. 4.73 crore) to the Directors of Medtech Devices Ltd. In the return of income filed for the assessment year 2002-03, the assessee claimed the aforesaid payment as revenue expenditure under section 37(1) of the Act. However, the deduction claimed by the assessee was disallowed by the Assessing Officer and sustained by the learned Commissioner (Appeals). While decidi....