TaxTMI 
TaxTMI 
2023 (1) TMI 1114
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....011. During the course of assessment proceedings, it was noticed that the assessee had entered into several international transactions with its Associate Enterprises (AEs), which had exceeded Rs.15 crore. The A.O. referred the matter to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transactions undertaken by the assessee with its AEs. The TPO passed order u/s 92CA of the I.T.Act dated 29.01.2014 proposing Transfer Pricing adjustment of Rs.11,84,06,803. Pursuant to the TPO's order, draft assessment order was passed dated 28.02.2014, wherein the A.O. incorporated the TP adjustment suggested by the TPO. The A.O. also made disallowance on corporate tax matters. The corporate tax disallowance was on account of freebies provided to medical practitioners. The Assessing Officer based on Circular 5/2012 dated 01.08.2012, disallowed the following expenses:- Cost of samples distributed Rs.3,71,20,122 Travel and conveyance provided to Doctors. Rs.11,04,735 Gifts and donations provided to Doctors Rs.1,11,39,591 Total Rs.4,93,64,448 3. On receipt of the draft assessment order, the assessee filed objections before the Dispute Resolution....
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....ot given opportunity of hearing to the Revenue. In this context, it is to be mentioned that the AO / TPO filed rectification application before the DRP raising certain contentions on merits. The DRP has noted that the notices were issued to the AO, however, the AO failed to appear on the date of hearing. The DRP rejected the rectification application vide order dated 05.01.2015. Copy of the same is placed on record at page 7 to 10 of the paper book-I filed by the assessee. Since notice of hearing was given to the AO / TPO and he had failed to appear, we see no merit in the contention raised in grounds 1 and 2. Therefore, we dismiss grounds 1 and 2 raised by the Revenue. 7. As regards the issue of exclusion of Lotus Labs as a comparable by the DRP, it is necessary to briefly recapitulate the facts. As mentioned earlier, the assessee had entered into several international transactions, which are detailed at page 2 of the TPO's order dated 29.01.2014. One of such transactions is "provision of global clinical trial services". The profile of the assessee in respect of global clinical trial coordination is detailed in TP study of assessee, which is placed on record at page 338 of the pa....
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....the Tribunal in assessee's own case for assessment year 2009-2010, has remanded the issue of Lotus Labs RPT to the files of the TPO for verification. The TPO while giving effect to the Tribunal order for assessment year 2009-2010, had excluded Lotus Labs as a comparable after verifying the facts from the financial statement and noting that the company has significant RPT transaction. Therefore, in the light of the aforesaid reasoning, the Revenue's appeal is dismissed. IT(TP)A No.170/Bang/2015 (Assessee's appeal) 12. The assessee has raised 11 grounds. Grounds 1 to 3 are general and no specific adjudication is called for, hence, they are dismissed. The other grounds, namely, grounds 4 to 11 read as follows:- Corporate Tax Grounds: 4. The learned AOI DRP has erred, in law and in facts in applying the CBDT Circular No 5/2012 ("CBDT circular") without considering whether there has been any violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ("!MC Regulation") and disallowed an amount of Rs 1,22,44,326 in respect of travel, conveyance, gifts and donations provided to Doctors without granting sufficient opportunity to submit the....
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....ands of non-resident shareholders, ought to have been restricted to the rate prescribed under the India-Sweden DTAA Double Taxation Avoidance Agreement (DTAA). 14.2 Based on facts and the circumstances of the case and in law, the rate of tax on the dividend paid by the Appellant ought to have been restricted to lower tax rate provided in the DTAA entered by India with another country which is a member of the Organisation for Economic Co-operation and Development (OECD) in view of provision of Article 10 and the Protocol between India-Sweden DTAA. 14.3 Based on facts and the circumstances of the case and in law, the Appellant prays that it is eligible for refund of the excess Dividend Distribution Tax paid by the Appellant." Grounds 4 to 8 (Corporate Tax Issues - Disallowances / Additions) 14. During the relevant financial year, the assessee had incurred the following expenditure:- Particulars Amount (Rs.) Cost of samples distributed 3,71,20,122 Travel and conveyance provided to Doctors 11,04,735 Gifts and donation provided to Doctors which includes the following expenses- -Publicity and literature amounting to Rs.22,19,263 - Conference and symposium amounti....
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....39;s case also. After decision of Hon'ble Supreme Court it has become necessary to critically evaluate each of the expenditure to see if disallowance is justified. Without prejudice to above. during the course of assessment proceedings for assessment year 2016-17. AO specifically raised a query in relation to expenses incurred on doctors (notice enclosed as Annexure 6 to application for admission of additional evidences @ Pg 65-67) and Appellant filed details/ information in response to such notice/query (submission enclosed as Annexure 6 to application for admission of additional evidences @ Pg 69-77). It may kindly be appreciated that the assessing officer after analysing the nature of expenses (similar to expenses incurred in assessment year 2010-11) in the context of MCI guidelines and the CBDT Circular 05/2012 dated 01.08.2012 accepted the claim of the assessee and did not make any disallowance in the assessment order (enclosed as Annexure 7 to application for admission of additional evidences @ Pg 78-86). This is because even if criteria as laid down in CBDT circular as also MCI regulation (as now affirmed in decision by Hon'ble Supreme Court) is applied. expenditu....
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....facility inside the country or outside, including rail, air. ship, cruise 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. * Travel and conveyance expense was incurred majorly for doctors. who are on the payroll of Appellant and a declaration from the Appellant confirming the same has been enclosed as Annexure 3 to application for admission of additional evidences @ Pg 50. * Considering the above, Appellant wishes to mention that any expenditure like travel etc incurred on doctors in the capacity of them being employees/ contractual service providers of the Appellant and not 'delegates' would not be violative of MCI regulations and deserves to be allowed as business expenditure. * Even otherwise, Appellant also submits that travelling and accommodation facility is provided to certain doctors under agreement (apart from the employees) are not in the nature of freebies as the same have been incurred for availing the services of the doctors under a contractual obligation/ arrangement MCI....
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..... audio visual set up hired. etc. On perusal of such details. it may kindly be appreciated that expenses in the nature of meals, accommodation, travel, conveyance,. etc. incurred on doctors are covered under the contractual agreement entered with them or are expenses incurred on employee doctors who are otherwise not covered within the prohibitions imposed under the MCI regulations. That apart. expenses in the nature of books, literature, sponsorship, audio visual set up, etc. are not incurred on any doctor in order to promote the Applicant's products. These expenses are incurred in the course of business and cannot be treated as freebies. * Publicity and literature expenses also includes webcast charges. which are not specifically prohibited under the MCI regulations. Sample copy of invoices are enclosed as Annexure 5 to application for admission of additional evidences @ Pg 63- 64. * In Appellant's own case for A Y 2011-12 (Page 816 to 859 of the paperbook) and AY 2012-13 (Page 860 to 881 of the paperbook). DRP has directed the learned AO to allow deduction of expenses pertaining to Publicity and Literature. basis the reason that such expenses are not specifically c....
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....arly not in violation of the regulations framed by the Medical Council. Accordingly, it is prayed that the same deserve to be allowed. Ground of appeal no. 7: Without prejudice to the above, Amendment to IMC Regulations are not applicable prior to 10 December 2009 Hon'ble ITAT in Assessee's own case for A Y 2009-10 has held that no disallowances of expenditure incurred by the Assessee on doctors prior to the amendment of IMC regulations i.e. prior to 10 December 2009 can be made (Page 1251 of Legal Paperbook - IV) Assessee submits that the CBDT Circular dated should not be applied retrospectively as the amendment to the IMC Regulations was effective from 10 December 2009. The breakup of expenses are as follows (refer page 1500 of Legal Paperbook Vol 5): Particulars Pre Amendment Post Amendment Total Travel and Conveyance provided to doctors 7,64,447 3,40,288 11,04,735 Conferen & Symposia and other marketing expenses 14,16,528 75,03,799 89,20,327 Publicity and 8,54,977 13,64,286 22,19,263 Total 30,35,953 92,08,373 1,22,44,3 Reliance in this regard is placed on the below decisions: * ACIT vs M/s. Geno Pharmaceuticals Limited (ITA....
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....ught to be admitted even at the second appellate stage are of a nature and qualitatively such that they render assistance to the Tribunal in passing orders or required to be admitted for any other substantial cause, it would rather be the duty of the Tribunal to admit them. Learned Judicial Member has rightly made reference to the Tribunal's decision in Rajmoti Industries' case (supra) wherein on an analysis of various decisions, it was held that is the receipt or admission of additional evidence was vital and essential for the purpose of consideration of the subject-matter of appeal and arrive at a final and ultimate decision, the Tribunal was amply empowered to admit additional evidence under rule 29 referred to supra." (emphasis supplied). The Hon'ble ITAT of Delhi in the case of Sikander Publishing (P) Ltd vs DCIT (81 TTJ 249), held that, if the evidence is genuine, reliable and proves the assessee's case, then the assessee is not to be denied the opportunity to produce the same before the appellate authority, as an additional evidence." 18. The learned DR, on the other hand, submitted that the issue raised is squarely covered by the judgment of the Hon'ble....
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....s applied), the expenditure incurred towards contractual obligation with Doctors and employees of pharmaceutical companies does not call for disallowance. In the present case, the A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of the latest judgment of the Hon'ble Apex Court, which has examined the very same issue, it becomes necessary to examine the exact nature of expenses incurred by the assessee for Doctors from all angles. Therefore, for substantial question and cause, the additional evidence are taken on record. Since the additional evidence is taken on record, necessarily, the matter needs fresh verification by the A.O., especially in the light of the recent judgment of the Hon'ble Supreme Court in the case of M/s.Apex Laboratories Pvt. Ltd. v. DCIT (supra). For the aforesaid purpose, the issues raised in grounds 4 to 8 are allowed for statistical purposes. It is ordered accordingly. Ground 10 and 11 (TP Adjustment) 20. In ground 10, the issue raised is with reference to recharacterization of a....