TaxTMI 
TaxTMI 
2023 (3) TMI 655
X X X X Extracts X X X X
X X X X Extracts X X X X
....edtronic Inc. USA. The parent company is a global leader in medical technology and is engaged in the business of manufacturing wide range of products and therapies. The assessee is engaged in the business of marketing and distributing products of group companies relating to Cardiac Rhythm Disease Management(CRDM), Neuro-modulation, Spinal and Biologics, Diabetics, Cardio-vascular, Surgical technologies and Physio-control. During the period relevant to the assessment year under appeal the assessee entered into following international transactions with its AE: Sr.No. Nature of International Transactions Amount (Rs.) Method Adopted 1 Purchase of finished goods for Resale 3,914,881,870 TNMM 2 Purchase of capital assets 115,064,572 TNMM 3 Receipt of Management fee in respect of direct sales made by AEs in India 25,887,867 TNMM 4 Provision of contract research and development support services to AEs 89,227,639 TNMM 5 Provision of clinical trial support services to AEs 12,722,303 TNMM 6 Provision of IT management and related support services to AEs 42,464,251 TNMM 7 Reimbursement of expenses to AEs 40,453,709 Other method 8 Recovery of expenses from AEs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... expenses incurred by assessee are excessive and benefited the group entities, hence, the assessee should have been compensated by the Associated Enterprise (AE) for incurring AMP expenses. The DRP relying on the direction of DRP in Assessment Year 2014-15 held that AMP is an international transaction and upheld the adjustment. We find that the issue is perennial. The adjustment on account of AMP expenses has been made in case of assessee since Assessment Year 2008-09. In each of the Assessment Years since assessment year 2008-09 the issue travelled to the Tribunal. The Tribunal consistently decided the issue in favour of the assessee. The assessee referred to the order of Tribunal for Assessment Year 2010-11, wherein identical issue has been examined. For the sake of completeness the relevant extract of the said Tribunal order is reproduced herein under: 3.4.We have heard the rival submissions.We find that the TPO had held that assessee should have been compensated by its AE for the AMP expenditure incurred by it.We have gone through the agreements entered in to by the AE.s with the assessee,that in the agreements there is no condition about sharing of AMP,that the agreements ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld not make such a transaction an IT.The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged 'internationality' of the transacttion.In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE,it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT.Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and cannot come in picture.Folk wisdom of rural India the says that mother(Maa)is must for existence of her sister(Mausi).Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee from the very beginning was arguing that it is not an IT,but,the TPO and the DRP did not deal with the core issue.In these circumstances,we are of the opinion that the matter should not be remitted back to the file of the TPO/ AO. Litigation has to be put to an end at some stage.Judicial time of every authority, including the TPO/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 56.Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are nonresident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: "The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki dia Ltd. (supra) as under: xxxxxx 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an* exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot stop here.Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy; and forno other purpose; in the- context of a domestic transaction involving two or more related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver, the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon'ble High Court, we would like to mention that matter can be restored back in certain conditions only. Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants. It is not advisable to prolong the judicial proceedings in the name of fair play. It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment. It is not also a matter wherein some ground of appeal has remained un-adjudicated. There is violation of principles of natural justice. So, we hold that it is not a fit case to be sent back to the TPO for fresh adjudication." Considering the above, we decide the first effective ground of appeal (GOA-1-16)in favour the assessee" 7. The ld.Authorized Representative for the assessee pointed that the distribution agreement in the impugned assessment year is the same and is renewed automatically on year to year basis. There is no change/modification in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was submitted by the ld. A.R that the „convention expenses‟ incurred by the assessee in the normal course of its business had wrongly been held by the TPO/DRP as AMP expenses. It is the claim of the ld. A.R that the convention expenses incurred by the assessee were in the nature of selling expenses and could not have been considered as part of its AMP expenses. In order to buttress his aforesaid contention, it was submitted by the ld. A.R,that the aforesaid claim of the assessee had been accepted by the Tribunal in the assesses own case for A.Y 2011-12 viz. India Medtronics Pvt. Ltd. Vs. DCIT 10(1)(1), Mumbai (ITA No. 1246/Mum/2016), dated 02.05.2018. Apart therefrom, it was submitted by the ld. A.R that a similar view had thereafter been taken by the Tribunal in the case of the assessee for A.Y. 2012-13 (ITA No. 2160/Mum/2017, dated 27.05.20190 and A.Y. 2013-14 (ITA No.601/Mum/2018, dated 08.05.20190. Alternatively, it was the claim of the ld. A.R that even otherwise as TPO had not used any of the prescribed methods contemplated in Sec. 92C of the Act for determining the ALP of the aforesaid transactions and had disallowed the convention expenses on an adhoc basis, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant to the assessment year under appeal are only to the tune of Rs.36,78,644/-. The assessee is ready for the examination of the aforesaid amount. The remaining amount has already been examined by the TPO. The DRP has made enhancement on the remand report of the TPO. Before enhancing the adjustment, no show cause notice was issued to the assessee by the DRP. The ld.Authorized Representative for the assessee further submitted that the expenses are reimbursed on cost to cost basis and there was no mark-up. The ld.Authorized Representative for the assessee submitted that the issue can be restored to the Assessing Officer /TPO for examination as prayed aforesaid. 11. The ld. Departmental Representative strongly supported the findings of theAssessing Officer and DRP. The ld. Departmental Representative prayed for upholding the findings of Assessing Officer and dismissing the ground raised by the assessee. 12. We have examined the orders of authorities below on this issue. The assessee has given working of reimbursement expenses. The same is reproduced herein below: Particulars Reference Amount in INR Total reimbursement of expenses during AY 2015-16 4,04,53,708 Less: Val....
X X X X Extracts X X X X
X X X X Extracts X X X X
....justment while computing operating margin of comparable companies. We find that similar issue was considered by the Tribunal in assessee's own case in assessment year 2014-15. The Tribunal restored the issue back to the file of Assessing Officer /TPO by observing as under: "25. We shall now advert to the claim of the assessee that the TPO/DRP had erred in not granting working capital adjustment while computing the operating margin of the comparable companies for the purpose of determining the ALP of the international transactions of import of goods by the assessee from its AEs during the year under consideration. It is the claim of the assessee that working capital adjustments is an adjustment for the opportunity cost of capital for investments made in working capital. It is stated by the assessee that investment in working capital (i.e inventories, gains receivable/debtors and accounts payable) would require capital and operating assets, and an uncontrolled entity is expected to earn a market rate of return on that required capital independent of the services that it provides. It is the claim of the assessee that working capital yields a return resulting from viz. (i). higher sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofit margin in the open market. Apart there from, the assessee has also assailed the correctness of the observation of the DRP that ther was a cessation of the agency business of the assessee in December, 2012. We thus are of the considered view that the matter in all fairness requires to be revisited by the DRP for afresh adjudication on the issue pertaining to working capital adjustment in the hands of the assessee. Needless to say, the TPO in the course of the „set aside‟ proceedings shall afford a reasonable opportunity of being heard to the assesse who shall remain at a liberty to substantiate its claim. The Ground of appeal No. 38 is allowed for statistical purposes." We further observe that the Assessing Officer while giving effect to the order of Tribunal has sought comments from the TPO. After allowing working capital adjustment the operating margin of the assessee company was within permissible 3% range of tolerance limit of revised arm's length mean of comparable companies. Consequently, the adjustment in assessment year 2014-15 was deleted. In the impugned assessment year the ground of appeal No.33 to 35 are restored back to the file of Assessing Officer w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this issue is squarely covered by the decision of Tribunal in assessee's own case in ITA No.7555/Mum/2012 for assessment year 2008-09 decided on 04/05/2018. 20. We find that in the impugned assessment year, the assessee's claim of depreciation of building Rs.58,298/- has been disallowed by Assessing Officer for the reason that the building was not put to use during the period under assessment. The stand of the assessee is that building in question forms part of the block of assets and continue to exist even after manufacturing was discontinued. We find that for similar reasons in assessment year 2008-09 assessee's claim on depreciation on plant, machinery and building was disallowed by the Assessing Officer. The Tribunal deleted the addition by observing as under:- "7. Ground No. 19 is related with depreciation on Plant & Machinery & Building for Rs.4,55,605/-.The same has been disallowed since these assets remained idle since manufacturing process stood discontinued. We are of the opinion that once an asset forms part of block of asset, it loses its individual identity and further, there is no requirement that each and every item in the said block should actually be used in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeals for the assessment years 2008-09, 2011-12, 2012-13 and 2013-14, assessee's claim of depreciation on non-compete fee was allowed while entertaining the additional ground raised by the assessee. 44. We have considered rival submissions and perused material on record. At the outset, we must observe that the issue raised in the additional ground can be decided without making investigation into fresh facts. Therefore, we are inclined to admit the additional ground raised by the assessee. Undisputedly, in the year of payment of non-compete fee i.e., A.Y. 2002-03, the assessee had claimed it as revenue expenditure. However, the Departmental Authorities as well as the Tribunal held that the expenditure incurred by the assessee is capital in nature. Of course, the Tribunal allowed depreciation on noncompete fee by treating it as an intangible asset. Notably, in subsequent assessment years i.e., 2003-04, 2004-05, 2008-09, 2011-12, 2012-13 and 2013-14, the Tribunal has allowed assessee's claim of depreciation on non-compete fee while entertaining additional ground raised by the assessee. Therefore, following the consistent view of the Tribunal, we direct the Assessing Offi....