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2019 (4) TMI 1429 - AT - Income TaxDisallowance of expenditure incurred towards gift and sales promotions - reason for making an ad–hoc disallowance of 40% is, CBDT Circular no.5/2012, dated 1st August 2012, wherein, the prohibition imposed by Indian Medical Council with regard to acceptance of gift by medical practitioner / doctor was imposed w.e.f. 10th December 2009 - HELD THAT:- Prohibition imposed by Indian Medical Council against acceptance of gift is on the medical practitioner and doctor and not on the pharmaceutical companies. The applicability of the aforesaid CBDT Circular as well as prohibition imposed by Indian Council on Pharmaceutical companies came up for judicial scrutiny before the Tribunal in DCIT v/s PHL Pharma Pvt. Ltd. [2017 (1) TMI 771 - ITAT MUMBAI] after examining the regulation issued by the Medical Council of India as well as the CBDT Circular referred to above, ultimately concluded that the prohibition imposed by the Indian Medical Council Regulation are not applicable to pharmaceutical companies. The said view was again reiterated by the Co– ordinate Bench in Solvay Pharma India Ltd. [2018 (1) TMI 797 - ITAT MUMBAI] . The Co–ordinate Bench has also held that the CBDT Circular referred to by the Departmental Authorities will not apply retrospectively. No contrary decision on the issue has been brought to our notice by the learned Departmental Representative. In view of the aforesaid, following the ratio laid down by the Co–ordinate Bench in the decisions referred to above, we allow assessee’s claim of expenditure Disallowance u/s 14A under rule 8D(2)(ii) - sufficient interest free funds - HELD THAT:- Assessee had sufficient interest free funds available with it to take care of the investments. That being the case, disallowance of interest expenditure under rule 8D(2)(ii) cannot be made. However, to keep track of its investments and manage the funds, the assessee must be incurring certain administrative expenditure .Reasonable disallowance under section 14A r/w rule 8D(2)(iii) has to be made. Accordingly, we direct the Assessing Officer to compute the disallowance of administrative expenditure under rule 8D(2)(iii) after excluding from the average value of investment, the investments which have not yielded any exempt income during the financial year relevant to assessment year under dispute. This ground is partly allowed. Determination of arm's length price of corporate guarantee given to the AE - assessee has provided corporate guarantee to its overseas AE without charging any fees - show cause notice to the assessee to explain why arm's length price of corporate guarantee fee should not be determined - HELD THAT:- In many of the cases, the assessees have accepted provision of corporate guarantee as international transaction under section 92B of the Act. In one of such cases viz. Everest Kanto Cylinders Ltd., [2015 (5) TMI 395 - BOMBAY HIGH COURT] has upheld the decision of the Tribunal in computing the arm's length price of corporate guarantee fee @ 0.5%. Following the aforesaid decision we direct the Assessing Officer to determine the arm's length price of corporate guarantee fee by applying the rate of 0.5%. This ground is partly allowed. Deduction claimed u/s 10B on the turnover of scrap sales - HELD THAT:- While deciding similar issue in assessee’s own case for the preceding assessment years, the Tribunal has held that since the sale of scrap is integrally connected to the business activity of the assessee, it should form part of the turnover for computing deduction under section 80IB/10B. Commissioner (Appeals) accepting the aforesaid legal position has directed the AO to allow deduction under section 80IB / 10B of the Act. However, he has wrongly quantified the amount which is the scrap sales relating to 80IB unit, while leaving out the scrap sales of 10B unit. We direct the Assessing Officer to allow assessee’s claim of deduction under section 10B / 80IB on the respective sales turnover of scrap relating to the aforesaid units. This ground is allowed.
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