TaxTMI 
TaxTMI 
2023 (3) TMI 546
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....mmissioner of Income-tax (TPO)-1, Ahmedabad (hereinafter referred to as the 'learned TPO')] erred in making an addition of Rs 19,31,22,890 on account of adjustment in the arm's length price of international transaction of purchase of goods from Associated Enterprises ('AE') and notional income from direct sales by AE in India". 3. "the learned AO erred in making a reference to the learned TPO without satisfying the preconditions under section 92CA of the Act necessary for making such reference". 4. "the learned AO/ TPO erred in rejecting the transfer pricing documentation maintained by the Appellant as per rule 10D (1) of the Income-tax Rules, 1962". 5. "the learned AO/ TPO erred in selecting Resale Price Method ('RPM') as the most appropriate method and in rejecting the Transactional Net Margin Method ('TNMM') selected by the appellant". 6. "the learned AO/ TPO erred in rejecting the certain comparables for the comparability analysis under TNMM". 7. "the learned AO/ TPO erred in selecting Medtronic International Limited, operations in Malaysia (a group entity - AE) as comparable for benchmarking international transaction under RPM and m....
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.... 21. "Based on facts and the circumstances of the case and in law, the Appellant prays that the education cess on income tax paid for the year under consideration ought to be allowed as a deduction under Section 37(1) of the Act while computing the total income". 3. In ITA No. 480/Ahd/2011, the assessee has raised the following grounds of appeal AY 2005-06: 1. The learned CIT(A) while adjudicating the appeal for AY 2005- 06, erred in merely following the order of learned CIT(A) for the AY 2004-05 and Honorable Dispute Resolution Panel ('DRP') for AY 2006-07 without discussing the facts of the case and legal merits for AY 2005-06". 2. "erred in facts and law in upholding the rejection of the Transactional Net Margin Method ('TNMM') as the most appropriate method for benchmarking the international transaction of import of goods from AEs made by the transfer pricing officer ('TPO')/ Assessing Officer ('AO')". 3. "erred in fact and in law in upholding that Resale Price Method ('RPM') is the most appropriate method". 4. "erred in upholding Medtronic International - Malaysia Operations ('Medtronic Malaysia') as a comparable company in respect....
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....pect of expenses incurred on gifts articles and other such expenses". 15. "erred in upholding disallowance of Rs 3,67,123 in respect of expenses incurred for catalogues and brochures". 16. "erred in upholding the disallowance of Rs 32,56,640 in respect of expenses incurred for sponsoring the foreign trips of doctors, etc. under section 37 of the Act". 17. "erred in confirming the treatment of expenses of Rs 1,09,985 being revenue expenditure incurred for the development of software as capital expenditure". 18. "erred in upholding disallowance of Rs 3,07,617 being depreciation on goodwill acquired at the time of purchase of assets from M/s. Medtech Devices Limited". 19. "without prejudice to above, further erred in not directing the AO to allocate the value of goodwill to the respective assets as the amount paid and accounted for goodwill in the books of account represented excess of amount paid over the assets purchased from M/s. Medtech Devices Limited". 20. "erred in confirming disallowance of Rs 18,82,290 being the amount of EMD written off" 21. "erred in not specifically directing the AO to compute interest under se....
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....subsequently revised its return of income on 27 March 2008 declaring a total income of Rs. 8,05,68,723. During the assessment proceedings, the Assessing Officer noticed that the Assessee had entered into various international transactions with its AE. Accordingly, he made a reference to the Transfer Pricing Officer for determining the arm's length price of such transactions. In the course of transfer pricing proceedings, the Transfer Pricing Officer on examining the audit report filed by the Assessee in Form no.3CEB as well as the transfer pricing study report, found that for benchmarking the international transactions, the Assessee had adopted TNMM as the most appropriate method with operating profit / operating revenue as the Profit Level Indicator (PLI). 8. While benchmarking the transaction under TNMM, the Assessee had selected eight comparable companies with arithmetic mean of 3.77% as against the margin shown by the Assessee @ 8.71%. Accordingly, the transaction with the AE with regard to purchase of finished goods was claimed to be at arm's length. After examining the transfer pricing study report of the Appellant, the Transfer Pricing Officer found various defect....
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....f Hon'ble ITAT in Appellant's own case for AY 2007-08 dated 16 October 2019 wherein it was held that Medtronic International Ltd., Malaysia, should not be considered as a comparable as it is a case of controlled transaction and the company is located in a different geographical location. Further, he also relied on the Hon'ble Bombay High Court's decisions in case of Audco India Ltd., ITA no.1829/2016. 11. Without prejudice to the aforesaid submission, the learned Counsel submitted, in the transfer pricing study report, the Assessee had made a proper analysis on scientific basis to show that TNMM and not RPM is the most appropriate method. He submitted, while benchmarking the transactions with the AE under TNMM, the Assessee has considered uncontrolled comparable companies. He submitted, TNMM has been accepted as the most appropriate method to benchmark the import of finished goods in Appellant's own case from assessment year 2008-09 onwards. Further, the Hon'ble tribunal has accepted TNMM as most appropriate method for AY 2007-09 vide its order dated 16 October 2019. Thus, he submitted, Hon'ble DRP was not justified in upholding the Transfer Pricing Officer's decision in rejecti....
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.... 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 International Ltd., Malaysia, could not have been considered by the Transfer Pricing Officer not only because ....
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....appropriate method should have undertaken a fresh benchmarking under RPM cannot be accepted. In such circumstances, when no other method is applicable, as a method of last resort, TNMM has to be applied as most appropriate method. 15. It is further noticed, in subsequent assessment years, not only the Assessee has benchmarked the import of finished goods from the AE by applying TNMM, but the Transfer Pricing Officer has also accepted it as the most appropriate method. For the aforesaid reasons, we do not feel the necessity to restore the issue to the Assessing Officer/Transfer Pricing Officer for fresh adjudication. The Revenue has not been able to controvert the submissions of learned counsel for the Assessee nor any decision contrary to the decision of Tribunal in Appellant's own case has been furnished by the Revenue. Thus, we find no reason to take a contrary view, hence, ground No. 4 to 7 of the appeal are allowed in similar terms.As the assessee's appeal for grounds 4 to 7 are allowed, ground no. 9 of the Assessee's appeal becomes infructuous and dismissed accordingly. 16. In ground no. 8, the Assessee has challenged the transfer pricing adjustment on account of direct ....
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....Pricing Officer and DRP. 22. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. The disputed addition on account of commission on direct sales made by the AE to third customer in India was made on notional basis. Notably, identical dispute arising in Appellant's own case for the assessment year 2002-03, came up for consideration before the Tribunal and while deciding the issue, the Tribunal held that no such addition on account of notional commission can be made without using any prescribed method, as under: "19. We have considered the submissions of the parties and perused the material available on record. On a careful reading of the order passed by the transfer pricing officer under section 92CA(3), it is patent and obvious that while determining the commission supposedly earned by the assessee towards direct sales effected by the overseas entity to hospitals in India, he has not resorted to any of the methods approved under section 92C of the Act. At least, we have not found any such observations after transfer pricing officers in order in the order passed by him. As could be seen, the tran....
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....in the business of manufacturing and trading had discontinued with its manufacturing processes w.e.f. 25.01.2002. During AY 2006-07, the assessee had claimed depreciation of Rs. 4,32,957/- on plant and machinery and Rs. 1,76,288/- on building belonging to such manufacturing unit. The claim of depreciation raised by the assessee was declined by the A.O on the ground that the said assets were not utilised during the year. The A.O while disallowing the assessee's claim for depreciation had relied on the orders passed in earlier years. We find that the aforesaid action of the A.O for the year under consideration had been upheld by the DRP. 25. It is the claim of the ld. A.R that once the asset had entered into the "block of asset‟ and the same had been accepted by the A.O, then in the subsequent years though the said asset forming part of the block may not be used for the purpose of the business, however, the claim of consequential depreciation in respect of the said „block of asset‟ cannot be disturbed and has to be accepted. The stand of the assessee is that plant and machinery and building in question forms part of the block of assets and continue to exist even ....
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....he assessee fairly mentioned that the said ground is not pressed as the AO allowed the claim of the assessee on payment / reversal basis. After hearing both the parties on this issue, we dismiss the said ground as not pressed. 30. In ground no. 12 and 13, the assessee has challenged disallowance of Rs. 3,01,066/-, being expenditure incurred on gift articles. 31. 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 and relying on the earlier year order, he disallowed the amount of Rs. 3,01,066/-, on the reasoning that it was not for the purpose of assessee's business. Assessee challenged the disallowance before the first appellate authority. The DRP holding that the Assessee was unable to adduce any evidence that the said expenditure was incurred wholly and exclusively for the purpose of the business, sustained the disallowance made by the Assessing Officer. 32. The learned Authorised Representative submitted, being a distributor d....
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....pose. The Department has not filed an appeal against the relief granted by the CIT(A) of INR 80,000. Since the expenditure was incurred wholly and exclusively for the purpose of business, we do not find any merit for the disallowance of Rs.20,000/-." 36. Following the consistent view of the Tribunal in assessee's own case, we delete the addition made by the Assessing Officer. Thus, the ground is allowed. 37. In ground No. 14 and 15, the assessee has challenged disallowance of expenditure incurred in respect of foreign trip of doctors. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of Rs. 41,88,153/-, on account of foreign trip of doctors, called upon the assessee to justify its claim. In response, it was submitted by the assessee that the expenditure had to be incurred for foreign trip of doctors to attend seminars, meetings, conferences etc. so as to enable them to use the products sold by the assessee. The AO disallowed the said expenditure relying on the assessment order for earlier years holding that same were not incurred wholly and exclusively for the purpose of business and stated that the bene....
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....n the form of distribution of freebies, gifts, etc. has been held not allowable u/s. 37(1) of the Act. 40. We have heard the submissions made by rival sides. The ld. Authorized Representative for the assessee has made short submissions that the grounds raised in ground No.14 and 15 in respect of expenditure on foreign trip of doctors that the same is incurred for purpose of business and is only to be disallowed for the expenditure incurred post 14 December 2009. TheHon'ble SC of India in the case of Apex Laboratories Pvt. Ltd. vs. DCIT, (supra) in its order has observed as follows: "19.The CBDT circular dated 01.08.2012 is set out below: 1. It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956. 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 200....
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....atedly relied on T.A. Quereshi (supra), M/s K.M. Jain (supra) and CIT v. Pt. Vishwanath Sharma31. We find that none of these judgments find much favour with the case of the appellant. T.A. Quereshi addressed a business 'loss', not a business 'expenditure' as envisioned under Section 37(1). In M/s K.M. Jain, the ransom money paid to kidnappers of the employee of the assessee company was allowed deduction primarily based on the fact that the assessee was helpless and coerced to pay the amount in order to save its employee's life. Thus, the assessee was not a wilful participant in commission of an offence or activity prohibited by law. The same is not applicable to the present facts. Pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence. In Pt. Vishwanath Sharma, a Division Bench of the Allahabad High Court was faced with the question of whether payment of commission to government doctors could be exempted under Section 37(1). At the time, there was no statutory provision prohibiting doctors engaged in private practice from accepting such commission. Hence, the High Court held that while the Assessing Officer had correctly allowed ....
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....missioner (Appeals) and the Assessing Officer. 45. We have considered rival submissions and perused material on record. The issue relating to depreciation on goodwill by treating it as an intangible asset under section 32(1)(ii) of the Act is no more res integra in view of the decision of the Hon'ble Supreme Court in CIT v/s Smifs Securities Ltd., [2012] 348 ITR 302 (SC). In this decision the Hon'ble Supreme Court has held that 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, 2007-08 and 2008-09, as referred to above, decided the issue in favour of the assessee. 46. The Tribunal while deciding the similar issue for AY 2008-09 has held as follows: "6. Ground No. 18 is related with disallowance of depreciation on Goodwill for Rs.1,29,776/-. The same has been disallowed on the premise that the goodwill did not fall under specific intangible assets as mentioned in Section 32. However, we find that the issue stood squarely covered in assessee's favor by the decision o....
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.... amount of INR 5,62,492 in AY 2006-07, we direct the AO that in respect of the reversal of the amount in the books of accounts to the extent of INR 5,62,492, not to treat the same as income of AY 2006-07 as offered by assessee in the return of income as it would amount to double taxation. We direct accordingly." 51. Notably, as Tribunal has directed to not the treat the same as income in AY 2006-07, we direct the AO to delete the addition made accordingly. This ground is allowed. 52. In ground No. 18 of appeal, the assessee has assailed charging of interest u/s. 234B and 234C of the Act. Charging of interest under the aforesaid section, is mandatory and consequential, hence, ground No. 18 is dismissed. 53. In ground No. 19 of appeal, the assessee has assailed levy of penalty under section 271(1)(c) of the Act. We are of the considered view that as the aforesaid ground of appeal is premature, therefore, the same merits to be dismissed. The Ground of appeal No. 19 is dismissed as being premature in nature. 54. In addition to the aforesaid grounds, the assessee has raised an additional ground being ground no.20, seeking allowance of depreciation on non-compete fee. 55. ....
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....al is as under: "37. We have perused the orders of the Tribunal in the assesses own case for the aforementioned preceding years and are persuaded to subscribe to the claim of the ld. A.R that the issue as regards the allowability of depreciation on non-compete fees is squarely covered in favour of the assessee. A perusal of the orders of the Tribunal for the preceding years reveals that the assessee was held to be eligible for depreciation on non-compete fees. Accordingly, respectfully following the view taken by the Tribunal in the assesses own case for the aforementioned preceding years viz. A.Y. 2003-04 (ITA No. 1245/Ahd/2008), A.Y. 2004-05 (ITA No. 812/Ahd/2008), A.Y. 2008- 09 (ITA No. 7555/Mum/2012), A.Y. 2011-12 (ITA No. 1246/Mum/2016 ) and A.Y. 2013-14 (ITA No. 3461/Mum/2018), we herein direct the AO to allow the consequential depreciation on the non-compete fees to the assessee company. The Ground of appeal No. 61 is allowed". 58. Therefore, following the consistent view of the Tribunal, we direct the Assessing Officer to allow depreciation on the opening WDV of the non- compete fee. This ground is allowed. 59. The assessee has raised additional ground no. 21....
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....% on revenue in AY 2005-06 which is higher than the margins earned by comparable companies considered by the Assessee in its transfer pricing study, i.e., 2%. Hence, the Assessee submitted that any difference/ excessive price charged by the AEs has already been considered in the TNMM. Accordingly, the same should be considered to be at arm's length and no separate adjustment on account of price differences is not warranted. 66. Further, the Assessee submitted that the Transfer Pricing Officer erred in making a separate transfer pricing adjustment on account of excessive purchase price charged to the Assessee by the AEs, without appreciating that such differences are related to the trading segment and already benchmarked by the Assessee under TNMM where the Transfer Pricing Officer tried to apply RPM. Accordingly, once the transaction is benchmarked specifically by the Assessee and Transfer Pricing Officer under one method, same transaction cannot be again benchmark under different method to make further adjustment as it will lead to double adjustment for the same transaction. 67. The Assessee further submitted that, the learned Commissioner (Appeals) in its order relied upon ....
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....rdingly, we agree with the Appellants contentions and the said ground is allowed in favour of the Appellant. 72. Ground No.12 with regard to depreciation on plant and machinery and building is common as taken in Ground of appeal No. 10 for the AY 2006-07. Following the reasoning given in the AY 2006-07, we direct the AO to allow assessee's claim of depreciation of Rs. 7,73,152/-. 73. Ground No.13 was not pressed by learned AR, the same is therefore, dismissed as not pressed. 74. Ground No. 14 relates to disallowance of expenditure incurred on gift articles of Rs. 3,28,355/-. Similar ground has been discussed in Ground of appeal No. 12 & 13 for the AY 2006-07. Following the same reasoning, we direct the AO to allow the entire expenditure incurred on gift article. We direct accordingly. 75. Ground No. 15 relates to disallowance of expenditure incurred on purchase of catalogues and brochures. During the year under consideration, the Assessee had imported and purchased catalogues and brochures separately because the catalogues and brochures could not be imported along with the devices as the same could not be retrieved without damaging the sterile package rendering the ....
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....owed the expenditure relying on earlier year order and hold that the expenditure incurred by the Assessee was of capital nature and accordingly depreciation at the rate of 25% is allowable on the expenditure incurred. Learned Commissioner (Appeals) held that the expenses were of a capital nature and had allowed depreciation on the same at the rate of 60%. 81. Learned AR for assessee submitted that the expenditure of Rs. 1,00,000/- was incurred by the Assessee was towards software development for retrieving the information about heart valve implant surgeries carried out by Bombay Hospital during the period from 1999 to 2004. Other expenses amounting to Rs. 9,985/- was towards the routine maintenance/ consumable expenses for maintaining the website of the Assessee. Further, he submitted that the amount incurred was small. Reliance was placed in the case of ACIT vs Asahi India Safety glass (2006) 6 SOT 0656, Empire Jute Co Ltd v CIT (1980) (124 ITR 1)(SC) and Alembic Chemical Works Co. Ltd. v. CIT [177 ITR 377 (SC)]. The ld. Departmental Representative relied on the assessment order. 82. We have considered rival submissions and perused material on record. Relying on the submissi....
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....ckers H.P. & Co. vs. CIT (10 Taxman 187) iii. Narandas Mathuradas & Co (35 ITR 0461) (Bom HC) iv. Social Media India Ltd (ITA No 390/Hyd/2013) (Hyderabad ITAT) 86. The Learned Departmental Representative relied on the assessment order and observations of Learned Commissioner (Appeals). 87. We have considered rival submissions and perused material on record. Relying on the details submitted, arguments put forth by the Ld. AR for the assessee and the decisions relied upon by the assessee, we are of the considered view that the Earnest Money Deposit written off is revenue in nature and allowable as expenditure in the event of forfeiture. Accordingly, AO is directed to delete the addition made. 88. In ground No. 21 appeal, the assessee has assailed charging of interest u/s. 234C of the Act. However, the Ld. AR for assessee submitted that Pursuant to rectification application filled by the Assessee, the AO has passed rectification order under section 154 of the Act rectifying the calculation of interest levied under section 234C of the Act. In this regard, Ld Counsel for the assessee fairly mentioned that the said ground is not pressed. Accordingly, the ground....