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2016 (12) TMI 1894 - AT - Income TaxTP Adjustment - inclusion of reimbursed expenses in the cost base for the purpose of mark-up - Comparable - HELD THAT:- Comparable i.e. whether Lotus Labs's RPT is significant or not deserved to be examined properly for this ay and hence this issue needs to be remitted back to the TPO. As already mentioned, the assessee found that the TPO while recomputing the ALP has wrongly considered recovery of expenses 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 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. Expenses by pharma companies - 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) - HELD THAT:- The CBDT circular is issued to clarify the allowability of expenses on medical freebies which are prohibited by MCI. Expenses incurred and claimed by an assessee but prohibited by law, cannot be allowed as deduction neither under section 37(1) nor under any other provisions of Act. The CBDT circular only reiterates and clarifies the allowability of expenses prohibited under MCI guidelines. Therefore, CSDT circular is clarificatory and hence it is retrospective in operation. however, the CBDT circular has no application for a period in which the MCI guidelines are not operative. AO has not disputed the genuineness of the expenses claimed. The only reason for the disallowance is that the impugned expenses are prohibited by MCI guidelines and therefore they are illegitimate. Therefore, the deduction claimed by the assessee other than the cost of samples distributed for the period prior to MC! guidelines, is an admissible deduction and accordingly, the AO is directed to allow them. As held by the DRP in the assessee's own case for a y 2010-11 and ay 2011-12 , the cost of samples distributed is also an allowable claim based on the rationale of the decision of Eskayef [2000 (7) TMI 1 - SUPREME COURT] and accordingly the AO is directed to allow it too. In the result, the grounds of appeal on these issues are allowed.
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