TMI Blog2018 (5) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 - Decided in favour of assessee. Depreciation on plant and machinery and building to be allowed as relying on assessee's own case[2015 (12) TMI 1673 - ITAT MUMBAI] Disallowance of payment made to doctors(Convention Expenses) - Held that:- The Hon’ble Delhi High Court in the case of MAX Hospital, Pitampura (2014 (1) TMI 1829 - DELHI HIGH COURT) has clearly held that MCI could issue guide lines for the Doctors only and that the MCI in its affidavit admitted that it has ‘no jurisdiction’ to pass any order against the ‘Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It was brought to AY. 2010-11 (I. T. A. /1600/Mu/2015, dtd. 17. 01. 2018). we are reproducing the relevant portion of the order and it reads as under : 3. First effective Ground of appeal (GOA 2-9) is about Transfer Pricing (TP) adjustment made on account of advertisement, marketing, promotion(AMP)expenses amounting to ₹ 18. 36 crores. It was brought to our notice that identical issue was decided by the Tribunal while adjudicating the appeal for the AY. 2010-11 (ITA/1600/Mum/2015, Dtd. 17. 01/2018. )We are reproducing the relevant portion of the said order and it reads as under: 3. 1. During the TP proceedings, the TPO observed that the assessee was a part of Medtronic s Inc. , a USA based global leader in medical technology, that the parent company was engaged in developing a wide range of products and therapies mostly patented or IP protected items, that the assessee was a subsidiary of Medtronic s International Hong Kong, that in the tax audit report it had mentioned the nature of business as trading of life saving devices , that the assertion made by it was not correct, that the items dealt with by the assessee were specialised products and technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t AMP expenditure was not an IT. , that there was no understanding or agreement between the assessee and the AE in that regard, that even if there was any arrangement with the AE for incurring expenses there must be an understanding/agreement with AE for spending 'excessively' towards marketing expenses for promoting the brand in India, that the TPO had applied the brightline method to compute adjustment on account of AMP expenses, that no such method was prescribed under the Act and the Rules, that in absence of a machinery provision to benchmark the AMP expenses no adjustment could be made, that based on the principles of bundled approach , as emanated by the Delhi High Court in case of Sony India Limited (374 ITR 118)no addition should have been made. He further argued that the assessee had earned an operating margin of 5. 39% which was higher than the margins earned by comparables, that it was only carrying out its own business and any benefits derived by the AEs were purely incidental in nature, the DRP had passed a non speaking order, that the TPO had not rejected the method applied by the assessee, that it was not incurring AMP expenditure on behalf of the AE, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt in length, and it reads as under: 8. 3. We have heard the rival submissions and perused the material before us. In the earlier part of our order, we have mentioned that we would like to deal with the issue of AMP expenses for both the years at one place, as there is no change in the facts except for the amounts involved and the non adjudication of the issue in the earlier year. The arguments of the assessee for both the years are identical. We find that assessee had incurred an expenditure of ₹ 12, 25, 71, 652/-and ₹ 10, 01, 37, 032/-respectively for the earlier and current AY. under the head AMP, that it was paying name and licence fee to TCUK, that the TPO held that the assessee was spending much more than Industry average in promoting and building brand of TCUK, that he made an adjustment of ₹ 8. 09 crores and ₹ 8. 31 crores for the AY. s. 2009-10 and AY. 2010-11 towards AMP expenditure, that the assessee had filed additional evidences before the FAA, that the FAA did not admit the evidences referring to the provisions of Rule 46A of the Rules, that he upheld the order of the TPO, that for the AY. 2010-11 the assessee had filed objections befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ['Computation of income from international transactions having regard to arm's length price ] and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the ALP. 54. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 928 defines 'int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'International transaction'. This might be only an illustrative list, but significantly' it does not list AMP spending as one such transaction. 58. In Maruti Suzuki India Ltd. (supra), one of the submissions of the Revenue was: The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. This was negatived by the Court by pointing out; Even if the word 'transaction' is given its widest conno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to, cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of persons acting in concert to come into being. 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred , for the AE. In any event, after the decision in Sony Ericsson (supre), -- the question of applying the BLT to determine the existence-of aninternational transaction involving AMP expenditure doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a machinery provision particularly - in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an adjustment had to be made. The -burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 71- Since a quantitative adjustment is not permissible for the purposes of a TP adjust - ment under Chapter X, equally it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance. 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v, CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is- unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the order of the Tribunal in assessee s own case as well as the order of the lower authorities for the year under consideration. In the A. Y. 2003-04, the CIT(A) has confirmed the addition on account of depreciation on plant and machinery, building, furniture and fixtures by holding the same to be related to the discontinuity of manufacturing operation of the assessee and also holding that the same have not been used during the year. We found that exactly the similar issue was considered by the Tribunal in assessee s own case for the A. Y. 2002- 03 vide order dated 23/11/2007 also in the A. Y. 2007-08 vide order dated 30/03/2012 and for A. Y. 2009-10 vide order dated 31/12/2015. 12. Learned DR fairly conceded that issue is covered in favour of the assessee by the order of the Tribunal in assessee s own case. We also found that assessee was engaged in the business of manufacturing and trading. However, the manufacturing processes were discontinued with effect from 25 January 2002. During the year under consideration, the assessee had claimed depreciation on plant and machinery, building, furniture and fixtures and office equipment. Once the concept of block of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced here: During the assessment proceedings, the AO found that the assessee had debited ₹ 13. 26 crores, in its books of accounts, under the head invention expenses. He called for detail in that regard. After considering the same, he referred to and relied on the amendments to MCI Act. He held that amendment was effective from 10/12/2009, that same was applicable to expenses incurred by the assessee, that expenses incurred on or after 10/12/09 were in violation of MCI guidelines, that same were not allowable. Finally, he made disallowance of ₹ 6. 02 crores. 5. 1. The assessee filed objections before the DRP and referred to Circular No. 05 of 2012 and case of KAP Scan and Diagnostic Centre(344 ITR 476). After considering the available material, it held that expenditure of ₹ 5. 93 crores was related to education grants to medical association for organising conference and seminars(Rs. 2. 69 crores), printing and equipment hire charges (Rs. 16. 59lakhs)accomodation expenses(Rs. 1crores), expenses incurred for organizing medical-education meeting(Rs. 1. 75 crores)and distribution of free product samples(9. 03 lakhs). The DRP further held that a regulator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Hon ble Delhi High Court in the case of MAX Hospital, Pitampura v/s. Medical Council of India[W. P. (C) 1334/2013, dtd. 10/01/ 2014]. Relevant portion of the judgment reads as follow: 6. The Petitioner's grievance is twofold. Firstly, that since the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the Regulations) have been framed in exercise of the power conferred under Section 20-A read with Section 33 (m) of the Indian Medical Council Act, 1956, these regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 1953. It is urged that in fact, an inspection was also carried out on 22. 07. 2011 by Dr. R. N. Dass, Medical Superintendent (Nursing Home) under the Directorate of Health Services, Govt. of NCT of Delhi and the necessary equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e illegal and consequently not allowable as per the Explanation to Section 37(1) of the Income-tax Act, 1961? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of ₹ 22, 99, 72, 607/- being freebies given by the assessee to doctors observing that the prohibition by IMA is on medical practitioners and not applicable to Pharma companies without appreciating that the Prohibition of IMA is to curb the malpractices in the medical profession and equally binding on both medical practitioners and Pharma companies? 3. The appellant prays that the order of the CIT (A) on the above ground be set aside and that of the A. O. be restored. We are reproducing the relevant portion of the order which reads as under: 2. The brief facts of the case qua the issue raised in the grounds of appeal are that, the assessee is a pharmaceutical company engaged in the business of providing Pharma marketing consultancy and detailing services to develop mass market for Pharma products. . On further perusal of the details appearing in the ledger account furnished by the assessee, he further noted that there are certain exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been elaborately explained and illustrated by the assessee in its reply dated, 27. 12. 2012 before AO. The relevant portion of the reply has been incorporated by the AO from pages 3 to 6 of the assessment order. Regarding the applicability of CBDT Circular No. 5 of 2012 (supra), wherein the CBDT has referred to amendment to the Indian Medical Council Regulations, 2002 , brought from 10. 12. 2009, imposing prohibition of medical practitioner and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries, the assessee submitted that 12 firstly, cost of free samples, KAM expenses, CRM expenses are not prohibited under any law and, secondly, the CBDT Circular cannot have retrospective effect so as to be made applicable in the assessment year 2010-11 as the Circular is dated 01. 08. 2012. As required by the AO, the assessee also segregated expenses incurred after 10. 12. 2009, i. e. , the date of amendment brought in the Indian Medical Council Guidelines. After segregating the expenses, AO disallowed the expenditure aggregating to ₹ 22, 99, 72, 607/- (post 10. 12. 2009) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6. 1 to 6. 7 of the said regulation which shall be construed as unethical. Clause 6. 8 has been added (by way of amendment dated 10. 12. 2009) in terms of notification published on 14. 12. 2009 in Gazette of India. The said clause reads as under:- xxxxx 6. On a plain reading of the aforesaid notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed and adhered by medical practitioners/doctors alone. It illustrates the various kinds of conduct or activities which a medical practitioner should avoid while dealing with pharmaceutical companies and allied health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of Expressio Unius Est Exclusio Alterius is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, any impairment caused by Explanation1 will apply to that assessee only. Any impairment or prohibition by any law/regulation on a different class of person/assessee will not impinge upon the assessee claiming the expenditure under this section. 7. Before us the learned CIT DR strongly relied upon the fact that CBDT Circular, while clarifying the applicability of Explanation 1 to section 37(1) on medical practitioners and pharmaceutical companies have interpreted that Indian Medical Council Regulation is applicable for pharmaceutical companies also. He also brought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like contemporanea expositio in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t articles, as pointed out by the assessee before the authorities below and also before us are very cheap and low cast articles which bears the name of assessee and it is purely for the promotion of its product, brand reminder, etc. These articles cannot be reckoned as freebies given to the doctors. Even the free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business and profits for the assessee company. The Tribunal also recorded the fact that the spouse of the doctors also accompanied the doctors for overseas trips to Istanbul and expenses were incurred for cruise travels to island, gala dinner, cocktails, gala entertainment etc. of such doctors. In assessee s case it is an admitted fact that expenses have not been incurred for the purpose personal benefit/enjoyment of the doctors or their spouses. In the case of Liva, the question as to whether such IMC Regulations can be applicable to Pharma Companies was not argued before the Hon ble Bench. He reiterated that the Hon ble Delhi High Court in the case of Max Hospital (supra) and the Jurisdictional Tribunal in the case of Syncom (supra) have held that such IMC Regulations apply only to medical practitioners. He further submitted that the Tribunal in the case of ACIT vs. Liva Healthcare Ltd. (ITA 847/Mum/2012) for A. Y. 2008-09, has decided similar issue in favour of the assessee. However, in A. Y. 2009-10, Hon ble Tribunal while noting the fact that consistency has to be adopted, distinguished the order of A. Y. 2008-09 as under: The assessee has contended that in the immedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd exclusively for the purpose of business. 13. Apart from the aforesaid distinguishing features as highlighted by the learned senior counsel, we find that on the facts itself in the case of Liva Healthcare (2009-2010) (supra), there was a clear cut material on record that the Doctors along with their spouses were taken to foreign tours and cruise travel etc. , in lieu of expected favours from doctors. In the light of these facts and material the Tribunal has decided the issue against the assessee by not following the earlier year precedence and subsequent year orders of the same assessee. As brought on record before us, we find that similar issue of allowance of such expenditure in the case of pharmaceutical companies has been decided in favour of the assessee, in the case of UCB India Pvt. Ltd. v. ITO (ITA No. 6681/Mum/2013 order dated 13. 05. 2016, wherein it was held that CBDT circular cannot have a retrospective effect. This judgment was lost sight of by the bench. In any case on careful perusal of the Tribunal order in the case of Liva Healthcare (supra) we find that the Tribunal though has incorporated the relevant provisions and clauses of the Indian Medical Council Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of such claim the Hon ble Apex court held that, if the expenditure falls within the bare minimum it will not be caught by subsection (3A) of section 37. On the contrary, the Hon ble Apex Court observed that physicians samples are necessary to ascertain the efficacy of medicine and introduce it in the market for circulation and it is only by this method the purpose is achieved. In such cases giving a physician samples for reasonable period is essential to the business of manufacture and sale of medicine. It is only if a particular medicine has been introduced by the market and its uses are established then giving of free samples could only be the measure of sale/ promotion and development would thus be hit by subsection (3A). Said decision no way prohibits the nature of expenditure which has been incurred in the case of the assessee. Therefore, such a reference to a Hon ble Apex Court decision is not germane to the issue involved. Thus, in our opinion, the aforesaid decision of this Tribunal is clearly distinguishable and cannot be held to be applicable and also we have already given our independent finding as to allowability of expenses in the hands of the assessee as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra)has clearly held that MCI could issue guide lines for the Doctors only and that the MCI in its affidavit admitted that it has no jurisdiction to pass any order against the Petitioner hospital . Ethics Committee of MCI is authorised to pass some order about the infrastructure of any hospital. But, as far as corporate entities are concerned MCI cannot issue any guide lines. Therefore, we are not dealing with the issue as to from which AY. the guide lines would be applicable. We would also like to hold that distribution of free samples cannot be treated as violation of Expl. 1 to section 37(1). 5. 5. We would also like to prefer to follow the judgment of the Hon ble Delhi High Court delivered in the case of MAX Hospital, Pitampura and the above referred two orders of the Tribunal i. e. PHL Pharma P Ltd. (supra)and Syncom Formulations(supra)over the order of Ochoa Lab. (supra). Accordingly, third effective ground of appeal(Gs. OA 20-32)is decided in favour of the assessee. In view of above discussion, we decide Grounds no. 11-29 in favour of the assessee. 6. In the additional ground of appeal, the assessee has raised the issue of allowing consequential d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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