2016 (12) TMI 1894

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....e had undertaken search on prowess and capitaine databases to identify comparable companies. The arithmetic mean of unadjusted margins of the comparables was arrived at 7.31 percent. So, it concluded that the transaction of co-ordination support services was at arm's length. However, the Transfer Pricing Officer (TPO) re-characterized the assessee as a clinical research organization (CRO), undertaking clinical trial business in its own right as opposed to performing the limited activity of coordinating the clinical trials to be carried out of India. In view of that, the TPO rejected assessee's comparability analysis, adopted different comparable viz Lotus Labs and recomputed the ALP at 43.73% on operating cost. While doing so I it appears I that the TPO has wrongly considered recovery of expenses at Rs. 146,521,126/- as part of the cost base in computing the mark-up for co-ordination of clinical trial segment. The assessee sought rectification u/s 154 but did not get any response from the TPO/AO. On the Corporate tax front, inter alia, the AO disallowed expenses incurred on distribution of samples, sponsorship, fees and equipment donation at Rs 4,14,88,035 on the basis of t....

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....In the TP order for ay 2008-09 & ay 2012-13, the TPO has accepted the characterisation of the assessee as co-ordinator of clinical trial activities and have also considered the mark-up earned by it to be at arm's length. As per the financials of Lotus Labs for December 2008 sourced from Ministry of Corporate Affairs ("MCA") website & for year ended March 2009, the RPT of Lotus Labs is worked out as under: Hence, the AR pleaded that Lotus Labs should be rejected as a comparable as it has significant related party transactions ("RPT). Pointing out to the copies of materials placed in the Paper Book, the AR submitted that for ay 2010-11 & ay 2011-12, the DRP directed the TPO/AO to exclude Lotus Labs as a comparable due to significant RPT (74.92% and 73.84% for ay 2010-11 & ay 2011-12). Lotus Labs operates in 2 primary segments i.e. Analytical and Clinical. Accordingly, the segmental reporting in the financial statement discloses results as per these two segments. The TPO while considering Non-AE margins of Lotus Labs, has failed to appreciate that the revenue amount and the margins computed for Lotus Labs include both analytical and clinical trial related activities and not the....

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.... the TPO. As already mentioned, the assessee found that the TPO while recomputing the ALP has wrongly considered recovery of expenses at Rs. 146,521,126/- as part of the cost base and hence it sought a rectification u/s 154 but did not get any response from the TPO/AO. On its objections before the DRP, the DRP directed the TPO/AO to examine the factual position & if the assessee's averments are correct, then to re-compute the mark-up suitably and to dispose the petition u/s 154 within 15 days of receipt of its order. It appears that the TPO/AO has not given effect to the directions of the DRP. In the facts and circumstances, this issue also needs to be remitted back to the TPO for proper examination and due adjudication. Thus, both these issues re remitted to the TPO who after affording due opportunity to the assessee would decide them in accordance with law. To this extent, the appeal grounds are treated as allowed. 07. With regard to Corporate Tax front, the AR submitted that the assesseee had incurred the following expenditure: Particulars Amount (Rs.) Cost of samples distributed 22,466,495 Grants, sponsorship and medical donations 18,535,587 Equipmen....

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.... CIT 245 ITR 116. Based on it, it is submitted that samples provided by the assessee are not specifically prohibited by the Act, also by the CSDT circular and hence, it should not have been disallowed. 10. We have considered the rival submissions. The AO has disallowed the impugned claims in the light of the prohibition imposed by Medical Council of India (MCI)I the CBDT Circular dated 1st August 2012 and held that such expenses being prohibited by MCI is not an admissible deduction under section 37(1). Assessee pleads that MCI regulation is effective from 10th of December 2009 and therefore it cannot be applied for any period prior to such date. These expenses are not prohibited by any law and therefore the CBDT Circular has no application when such expenses were incurred before 10th of December 2009. The MCI guidelines have been issued under Section 33 of Indian Council Act of 1936. Therefore they are statutory. As provided in clause in 6.8.1, these guidelines are mandatory but they are effective from the date of their publication in the Official Gazette i.e. 10th December, 2009 only. Therefore, for the period prior to such publication, these guidelines are not operative and h....

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....the total income at Rs. 1,272.896.170 as against income of Rs. Rs. 1,105,374,500 computed by the Appellant. The impugned order erred in law and in fact, in determining a sum of Rs 84,299,533 as balance tax demand payable by the Appellant. Corporate Tax Grounds 4. 5. 6. The impugned order has erred in law and in fact, in disallowing the expenses incurred in the nature of distribution of samples, sponsorship fees and equipment donation amounting to Rs 41,488,035, on the basis of the CBDT Circular No 5/2012 ("CBDT Circular") dated August 1, 2012 without considering that the amendment to Indian Medical Council (Professional Conduct. Etiquette and Ethics) Regulations, 2002 ("IMC Regulations") is effective from December 10, 2009 (i.e. may be applicable from AY 2010-11 onwards but definitely not applicable to subject AY 2009-10). The learned AO has erred, in law and in facts in applying the CBDT Circular without appreciating that there was no violation of the IMC Regulations and therefore no part of the above amount of Rs 41,488,035 in respect of distribution of samples, sponsorship fees, grants, donations, etc. can be validly disallow....