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Merck Limited Versus Dy. Commissioner of Income Tax, Range 6 (3) , Mumbai and Vica-Versa

2016 (3) TMI 1105 - ITAT MUMBAI

ALP adjustments in respect of the payment of fees for technical services - Held that:- . As regards the question of simple arithmetic mean versus weighted average, we find that proviso to Section 92C(2) categorically states that “where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices”. There is no room for importing the concept of weighted average here. The law refers to arithmetical mean and the ar .....

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he scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical services - Investments in REC bonds included in the computation of disallowance under section 14A r.w.r. 8D - Held that:- Issue is remitted to the file of the Assessing Officer for factual verification and result .....

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arely covered, in favour of the assessee, by Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs Ghatghe Patil Transport Ltd [2014 (10) TMI 402 - BOMBAY HIGH COURT ]. In this view of the matter, the impugned disallowance is hereby deleted. - Disallowance on account of buy back expenses stands deleted. - Disallowance in respect of sales promotion and conference expenses - no evidence of benefit from these activities and that even the expenses incurred prior to 10th December .....

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its of the assessee. Obviously, the Assessing Officer was swayed by irrelevant consideration. This expenses may or may not be necessary in that sense but that does not matter. As long as the expenses are incurred wholly and exclusively for the business, whether necessarily or not, these expenses are deductible in nature. - As regards the relevance of the MCI code of conduct, the disallowance is made only because the expenses are held to be hitting the provisions of Explanation to Section 37 .....

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od Kumar, AM: 1. These three appeals pertain to the same assessee, involve some common and interconnected issues and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed of by way of this consolidated order. 2. We will first take up the ITA No. 1946/Mum/14, i.e. assessee s appeal for the assessment year 2009-10. 3. This appeal, filed by the assessee, is directed against the order dated 31st January 2014 passed by the Assessing Officer under section .....

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ievance for the assessment year 2010-11, which is raised in ground no. 2.1 in the appeal for that assessment year, the assessee is aggrieved that the Transfer Pricing Officer was in error in proposing an arm s length price adjustment of ₹ 1,03,05,503 in respect of the same active pharmaceutical ingredient, and the DRP was also in error in confirming this adjustment to the extent of ₹ 67,69,943 in respect of the same. Ground no. 1 taken by the Assessing Officer s appeal for the assess .....

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nces together. 6. So far as this grievance of the assessee is concerned, the relevant material facts, as necessary for adjudicating upon this grievance, are as follows. The assessee before us is a company, one of the pioneer in pharmaceutical industry in India- and in fact in Asia, and is a subsidiary of Merck KgaA, Germany. During the relevant financial period, the assessee imported Bisoprolol Fumerate, an active pharmaceutical ingredient (API) used in manufacturing of finished dosage form (FDF .....

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e assessee was 12.17% in the pharmaceutical segment, as against the arithmetic mean of 64 comparables which came to 12.30%. However, relying upon the decision of this Tribunal in the case of Serdia Pharmaceuticals India Pvt Ltd Vs ACIT [(2011) 44 SOT 391 (Mum)] holding that CUP method is the most appropriate method for determining arm s length price in the case of generic APIs and armed with the requisite CUP inputs gathered by him under section 133(6), the Transfer Pricing Officer proceeded to .....

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excess of this amount, i.e. ₹ 1,03,05,503 was recommended for an arm s length price adjustment. When the Assessing Officer proposed to make this ALP adjustment in the daft assessment order, assessee raised an objection before the Dispute Resolution Panel. While the DRP upheld the application of CUP as the most appropriate method, and the course thus adopted by the TPO, the DRP did direct that appropriate adjustment for the quality difference be given. This was to be done in the light of th .....

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ssessing Officer, in response to these directions, computed a relief of ₹ 35,35,560 since the ALP based on the simple arithmetic mean was ₹ 47,079, as against the ALP based on weighted arithmetic mean which was ₹ 36,831, and this difference of ₹ 10,248 per kg, for 345 kgs. of imports worked out to ₹ 35,35,560. The balance ALP adjustment, i.e. ₹ 1,03,05,503 minus ₹ 35,35,560, of ₹ 67,69,943 was thus confirmed for the assessment year 2010-11. As rega .....

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ting that the arm s length price adjustment being restricted to actual consumption of the API from the AE rather than the total imports of the API from the AE. 7. We have heard the rival contentions, perused the material on record and duly consider facts of the case in the light of the applicable legal position. 8. As regards the application of CUP method on the facts of this case, learned counsel for the assessee has fairly accepted that the issue is covered against the assessee by a coordinate .....

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quality of products of the assessee is inherently superior, as it is manufactured in a German plant where quality control requirements are much more stringent than in India, and since the quality of the product is said to be physically superior, as evidenced by the independent laboratory test by Bee Pharma Lab, the assessee should be allowed quality adjustment in the prices vis-à-vis the same generic product manufactured in India. It is also pointed out that it is for this reason of API s .....

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of the product. As for the lab report, he submits that the samples for analysis were not independently obtained and that, even on these handpicked samples, there is a small variation only on two parameters. He submits that there are no reasons to proceed on the basis that the products manufactured in Indian facilities are any but inferior in quality. It is also submitted that there is no cogent basis for the claim of product superiority. As regards the higher sale price of the end products, acc .....

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ransaction are very significant or even real, because as long as these differences, whether having intrinsic value or merely in perceptions, could materially affect the price in the open market , these differences are required to be taken into account. Even though the generic product may be the same, the same generic product manufactured in a plant, with higher and more stringent quality control requirements, command a premium in the market and greater acceptability with the end consumers of the .....

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standards and in terms of the lower standards of manufacturing facilities of Nivedita Chemicals. The highest of differences between products as per Japanese Pharmocopia standards, as was being manufactured by Nivedita Chemicals and the same product as per British Pharmocopia standards, as was the product imported by the assessee from its AE, worked out to ₹ 4,850. In addition to the CUP of ₹ 12,000 per kg., the TPO allowed ₹ 4,850 per kg. for higher quality standard as also an .....

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ure, and, to this extent, the issue is left open. Subject to these observations, in our considered view and on the given facts, these adjustments reasonably cover the variations in quality of API manufactured by Nivedita Chemicals vis-a-vis API manufactured by Servier Egypt which was purchased by the assessee for ₹ 52,546 per kg 11. It will be being too detached from the ground realities to be oblivious of the inherent edge that the same products, as manufactured in India, manufactured in .....

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anada vis-à-vis Glaxo s manufacturing facilities in Singapore, around 10% of quality adjustment was allowed. As the assessee has settled the matter with the tax authorities, upon the case having been restored to the file of the Tax Court of Canada by Canadian Supreme Court, this aspect has reached finality. In Indian context, the quality adjustment at around 40% has been allowed at the stage of transfer pricing scrutiny proceedings itself. In any event, it is an undisputed position that o .....

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ed by the Transfer Pricing in the assessment year 2011-12, in these assessment years as well. Accordingly, the ALP computed by the Assessing Officer, in the light of the CUP inputs, is to be adjusted by 10% for the quality difference as the product in manufactured by a globally reputed company and an industry pioneer in its own facilities in Germany. To this extent, we modify the manner in which the ALP adjustment is to be recomputed. This also take account the assessee s claim that the product .....

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ort of the same, in any subsequent assessment year. To that extent, the issue is left open. 13. The next point raised by the assessee, with regard to the application of CUP, is that only the domestic prices of the product should have been taken into account and not the export price. The contention of the assessee is that not only the markets are different, even the pricing considerations, which are influenced by many other considerations in the case of export prices, are different. 14. This plea .....

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ken into account for computing the arm s length price under the CUP method. However, as we direct so, we must add that only such transactions, as are in respect of a reasonable quantity- at 20 kg as adopted by the TPO, will be taken into account so as to ensure that these are bonafide commercial transactions in the regular course of business. We see no reasons to disturb this quantity filter of 20 kgs., nor any arguments in respect of the same have been addressed before us. The average of compar .....

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e arithmetical mean is, in plain words, a mathematical representation of the typical value of a series of numbers, computed as the sum of all the numbers in the series divided by the count of all numbers in the series . We are not, therefore, persuaded by the grievance raised by the Assessing Officer. In our considered view, it was only arithmetical mean which is relevant in this context. There is no infirmity in the stand of the DRP on this issue. 16. As regards other points raised by the asses .....

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ed, we can only say that the specific directions to that effect were given by the CIT(A) in the order for the assessment year 2004-05 but the Assessing Officer did not really challenge these directions in the appeal before this Tribunal at that stage. In the present year, in any case, this question does not arise since no such adjustment seems to have been given to the assessee. It is in this background that we dismiss this grievance of the Assessing Officer as ill conceived. 18. Ground of appea .....

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,70,00,000 for the assessment year 2010-11, grievance of the assessee is that the Transfer Pricing Officer erred in treating the arm s length price of the technical know how fees as NIL and, thereby, making ALP adjustments in respect of the entire amounts paid to the parent company for technical know how fees. 20. As regards this ALP adjustment for the assessment year 2009-10, the Transfer Pricing Officer has justified the same by stating that the documents submitted by the assessee could not de .....

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o vague and as not pertaining to the relevant financial period. It was in this backdrop that the TPO proposed an ALP adjustment reducing the value of these services to nil value. When assessee carried the matter before the Dispute Resolution Panel, the DRP also confirmed the stand of the Transfer Pricing Officer. The DRP was of the view that the agreement, by itself, could be not treated as conclusive about the worth of the services rendered. What is to be really seen is whether any significant .....

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rt of engineering technology of production and quality control pertain to other period and are too general in nature. Similarly, emails in support of equipment sourcing and supplies are general in nature. Certain monthly reports have been produced regarding SAP performance. These documents do refer to the consultancy, information technology and some other corporate information services. However, DRP dismissed the same and observed that certain operation level agreement regarding IT services were .....

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justify the payment made by it during the year 21. The DRP approved this stand of the TPO on the basis of the following line of reasoning: 4.12. In their submission before us, the assessee has not produced any additional documents, except for the afore-stated e-mails/correspondences/documents relating to conference, etc, which have been presented under different headings in consonance with the scheduled services mentioned in the agreement. Under the circumstances, we cannot persuade ourselves to .....

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when the assessee is habitually reimbursing actual amounts on the basis of different specific services rendered by the AE to the on a cost to cost basis, there is no reason as to why the assessee could not have followed such direct-charge method to make payments to the AE, i.e. by paying as and when a specific service is received, instead of making a provision for a lump sum amount payable through an agreement for certain services which are not backed up with any reliable evidence. Moreover, the .....

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up services is germane to the actual existence of the services concerned, which is found, to-be absent in this case, hence there was apparently no occasion for the TPO to take the next step of benchmarking the same by adopting a MAM. Our attention has been drawn to an extract from the OECD guidelines to justify the payment made to AE, but in our considered view, the extract cited by assessee does not help its cause since, the transaction under question does not resemble nor can it be compared to .....

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in the instant case the TPO has not questioned the commercial expediency of the transaction. The transaction has been found to have yielded in no actual services being rendered to assessee by the AE as required to be provided in the agreement; hence no ALP could be attributed to it. When there are no services availed, there is no question of 'benchmarking the transaction and in such cases determination of ALP at Rs.NIL has been upheld by the Hon'ble ITAT in the following cases:. (a) Del .....

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ng Officer adopted the same approach in this year as well. While he noted that the assessee was entitled to a package of services, on as and when required basis, under the agreement, he required the assessee to submit full set of documentation to demonstrate the fulfilment of benefit test for payment of aforementioned consultancy fees and required the assessee to show cause as to why the stand of the Transfer Pricing Officer in the earlier years should not be followed in case the assessee fails .....

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any member of the assessee s team by having a check list for verification . He then posed a question by observing that the moot question that needs to be asked is whether for rendering such auditing (services), the assessee will employ an outsider and proceeded also to add If at all the answer is yes, then the next question arises as to what would be consideration to a person in 3rd party scenario . His answer to the question that he thus posed was there would hardly be any substantial payment . .....

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(Del)] . Aggrieved, assessee did raise an objection before the DRP but without any success. On the same line, as in the earlier years and broadly on the basis of the same reasoning, the DRP confirmed the action of the Transfer Pricing Officer. The assessee is not satisfied and is in further appeal before us. 23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 24. We find that there is a clear .....

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s held that arm s length price of these services is zero value, and, in the same breath, it is held that there would hardly be any substantial payment for these services. Clearly, services are rendered on the facts of the present case. There is sufficient material on record to show that the assessee was, under the agreement, entitled to receive a package of services on as and when required basis. The emails and other documentary evidences show that the assessee was in receipt of these services. .....

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ive all these services, as and when required, under the agreement. The payment is made for the rights accruing to the assessee for the bundled services under the contract and not for each service on ala carte basis. The reason that the assessee did not use a particular service cannot justify holding that no payment was warranted for such services. To give an example from day to day life, if an assessee is paying for having right to view a bouquet of television channels, which come as a package, .....

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gth price ascertainment. When evaluating the ALP of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. In case TPO can demonstrate that the consideration for similar services, under the CUP method, is NIL, he can very well do so. That s not, however, his case. He only states that these services are not w .....

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of, a coordinate bench of this Tribunal, in the case of AWB India Pvt Ltd VS DCIT [(2015) 152 ITD 570 (Del)], has observed as follows: 11. In ground nos. 5 to 9, which we will take up together, the assessee has raised the following grievances: 5. That, on the facts and circumstances of the case, the DRP and TPO/AO have failed to appreciate the business model and business realities of the appellant and role of its AE, while conducting the economic analysis, and concluding that no service is rece .....

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rming that the TPO has discharged his statutory onus by establishing the conditions specified in (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm s length price determined by the appellant and proceeding to decide the arm s length price himself. 8. That, on the facts and circumstances of the case, the DRP and TPO/AO have erred in conducting economic analysis of the international transactions without relying on any comparable transaction/companies using inap .....

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% equity is held by another group company, namely AWB Investments Limited. One of the international transactions that the assessee entered into with its AEs was payment of ₹ 58,20,571 towards management services . On an analysis of the details of the payments made under this head, the TPO was of the view that the benefit of some of the services availed under the head management services was not commensurate with the payments made for the same. He was also of the view that as against the us .....

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TPO was also of the view that a minor clarification or seeking of certain guidance on verify basic issue does not call for a payment of ₹ 20 lakhs. Therefore, the ALP of these services was taken as NIL . He further noted that while the assessee has made a payment of ₹ 1,23,476 towards human resources services, the assessee has not furnished any specific input on training and development of human resources and it is also noticed that these services are of routine nature and duplicate .....

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ts for other services. Accordingly, no arm s length value was assigned to these services also. In respect of these cases TNMM was rejected and CUP was applied- though, even under CUP method, value assigned was nil as, in the opinion of the TPO, these services were worthless. 13. When Assessing Officer proposed to make disallowance in respect of payments for the above services, arm s length value of which was taken at zero , aggregating to ₹ 31,23,325, as against total management fees of &# .....

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of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrol .....

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ercially expedient. As held by Hon ble jurisdictional High Court in the case of CIT Vs EKL Appliances Limited (345 ITR 241), Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same . 16. The very foundation of the action of the TPO is thus devoid of legally sustainable merits. There is no dispute that the impugned payments are made under an arrangement with the AE to provide certain servi .....

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ices, are actually rendered in the uncontrolled conditions. 17. As for the evidence for each of the service stated in the agreement, it is not even necessary that each of the service, which is specifically stated in the agreement, is rendered in every financial period. The actual use of services depends on whether or not use of such services was warranted by the business situations whereas payments under contracts are made for all such services as the user may require during the period covered. .....

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ing absent in the present case, it was not open to the TPO to disregard the TNMM employed by the assessee. No defects have been pointed out in application or relevance of TNMM in this case. Under these circumstances, the TPO s impugned action cannot meet our judicial approval. 19. For the detailed reasons set out above, we uphold the grievance of the assessee and direct the AO to delete the impugned ALP adjustment of ₹ 31,23,325. The assessee gets the relief accordingly. 25. We see no reas .....

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ducted in the course of ascertaining the arm s length price. 27. In view of the above discussions, as also bearing in mind entirety of the circumstance, it is clear that the impugned ALP adjustment is contrary to the scheme of the Act. The authorities below have been swayed by the considerations which were not germane to the issue. We, therefore, uphold the grievances of the assessee and direct the Assessing Officer to delete the ALP adjustments in respect of the payment of fees for technical se .....

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,39,59,527. 30. We find that identical issue, for the assessment year 2007-08, has been set aside to the file of the Assessing Officer vide coordinate bench s order dated 2nd August 2013. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the grievance of the assessee to the limited extent that the matter is restored to the file of the Assessing Officer for adjudication de novo after giving yet another .....

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ion of disallowance under section 14A r.w.r. 8D even though the income of the REC bonds is taxable in nature. 34. With the consent of the parties, this issue is remitted to the file of the Assessing Officer for factual verification and resultant adjustment in the disallowance under section 14A r.w.r. 8D. If this investment does not result in a tax exempt income, it cannot be taken into account in computation of disallowance under rule 8D. The Assessing Officer will, therefore, modify the disallo .....

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rcumstances of the case and in law, the learned AO/ Hon ble DRP erred in: a) applying the provisions of Section 145A of the Act, though however it was contended by the appellant that the provisions of the Act were not applicable in their case as they followed net method of accounting; b) confirming the application of gross method of accounting under section 145A of the Act and making addition of ₹ 1,40,24,617; and c) and further not rectifying the mistake apparent from record by not granti .....

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er being restored to the file of the Assessing Officer for adjudication de novo by way of a speaking order, in accordance with the law and after giving an opportunity of hearing to the assessee: 1. An addition of ₹ 1,36,67,817/- was made in the assessment order for the assessment year 2008-09 under Section 145A of the Act representing the balance of "Unutilized Modvat Credit" outstanding at the year end (31-03-2008). The Commissioner of Income Tax (Appeals) in his Order also has .....

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f the opening stock of ₹ 1,36,67,817/- is allowable by way of adjustment in the value of the opening stock in assessment year 2009-10.(Para No. 7.11 and Para No. 7.19). It is therefore submitted that the same is allowable as deduction in the said year, 4. It is submitted that the appellant is entitled to deduction of Rs.l,03,62,063/- instead of addition of ₹ 1,40,24,617/-, if the "Gross Method" as followed by the AO and confirmed by the Hon'ble DRP has to be followed un .....

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7/- is upheld, the same should be allowed as deduction in the assessment year 2010-11, the same should be allowed as deduction on the ground that the said amount is included in the payments made against excise duty/sales tax collected in the earlier year. 38. Learned Departmental Representative does not oppose this prayer. 39. In view of the above, we hereby remit the matter to the file of the Assessing Officer for adjudication de novo by way of a speaking order, in accordance with the law and a .....

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ent in the case of Exide Industries Ltd Vs Union of India [(2007) 292 ITR 470 (Cal)] but the said decision, holding section 43B(f) to be constitutionally invalid, is stayed by Hon ble Supreme Court. As the said decision is stayed by Hon ble Supreme Court, we see no reasons to interfere in the matter. The disallowance must stand confirmed for the time being. 43. Ground no. 6 is, accordingly, dismissed. 44. In ground no. 7, the assessee is aggrieved of the addition on account of interest on income .....

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10-11 must also stand dismissed for the same reason. 47. No specific arguments were addressed in support of ground nos 8 and 9, and, accordingly, these grounds are dismissed. In any case, these grounds only seek consequential relief. 48. In the result, appeal of the assessee for the assessment year 2009-10 is partly allowed in the terms indicated above. 49. We now take up the assessee s appeal for the assessment year 2010-11, i.e. ITA No. 1222/Mum/2011. 50. Ground no. 1 is general in nature and .....

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e due date of filing of the income tax return. 53. Learned representatives fairly agree that this issue is now squarely covered, in favour of the assessee, by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Ghatghe Patil Transport Ltd [(2014) 368 ITR 749 (Bom)]. In this view of the matter, the impugned disallowance is hereby deleted. 54. Ground no. 3 is thus allowed. 55. Ground no. 4, with respect to section 14A disallowance of ₹ 21,44,477, is not pressed before us. 56. .....

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served as follows: 5. Insofar as the amount of ₹ 20,40,000 is concerned, it was paid by the assessee to HSBC Securities and Capital Markets (India) (P) Ltd. for advisory services in regulatory compliance undertaken by them to enable the assessee to prove exist opportunity to the shareholders of the company by buyback of the shares. According to the assessee, the payment was made as a normal business activity for the aforesaid purpose in order to maintain good and cordial relationship with .....

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he earnings per share of the company in the future and creates long-term shareholder value and also prevents outflow of funds in the shape of dividends by reducing capital base of the company. The AO, however, was not satisfied with this explanation and, according to him, expenses were incurred for the buyback of the shares, which is directly related to the capital of the assessee. Therefore, he treated it as capital expenditure. 7. The Tribunal differed with the AO and CIT(A) holding that the e .....

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in. Under these facts, the apex Court held that since there is no flow of funds or increase in the capital employed, it cannot be said that the company had acquired benefit or advantage of enduring nature. 8. We may also mention at this stage that to the same effect is the judgment of the Supreme Court in Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) wherein the following principle of law was enunciated : "In short, what has been held in this case is that if th .....

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case of Brooke Bond India Ltd. vs. CIT (1997) 140 CTR (SC) 598 : (1997) 225 ITR 798 (SC) and Punjab State Industrial Development Corporation Ltd. vs. (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC). Distinguishing these two judgments, the Supreme Court pointed out that those cases related to the issue of fresh shares which led to an inflow of fresh funds into the company, which expands or adds to its capital employed in the company resulting in the expansion of its profit making apparatus. Th .....

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that case the company had acquired benefit or addition of enduring nature because the total funds available with the assessee company would remain the same. 10. It is clear from the aforesaid judgments that a fine distinction is made by the Supreme Court in classifying the expenditure under two categories : (a) When the expense incurred relates to the issue of fresh shares, which leads to an inflow of fresh funds into the company, such expenditure is to be treated as capital expenditure. (b) On .....

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l rightly held that the assessee had not acquired the benefit or addition of enduring nature because after the buyback, benefit or addition of enduring nature would not arise as capital employed had, in fact, gone down. The expenditure incurred had not resulted into bringing into existence any asset. Therefore, it was rightly held to be an expense of revenue nature. 12. The contention of learned counsel for the Revenue that with lesser capital dividend in future payable shall be less and, theref .....

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BI guidelines with regard to buyback of shares. The buyback of shares is stated to be for the purpose of providing an exit opportunity to the existing shareholders who so desire. This Tribunal is taking a consistent view that expenditure incurred with regard to AGM is business expenditure. The AGM is held by a company for the benefit of existing shareholders. On the same reasoning, the impugned expenditure which were also incurred for the benefit of existing shareholders in the ordinary course o .....

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77; 36,70,816 on account of buy back expenses stands deleted. 60. Ground no. 5 is thus allowed. 61. In ground no. 7, the assessee is aggrieved of the disallowance of ₹ 1,48,998 on account of sales promotion expenses. 62. The sole basis for the impugned disallowance is circular no. 5 of 2012 which provides as follows: It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and thei .....

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, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which .....

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esaid freebees and claimed it as a deductable expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be b .....

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we, therefore, leave it open for adjudication in an appropriate case. To this extent, the confirmation of disallowance will have no precedence value. 65. Ground no. 7 is thus dismissed. 66. In the result, the appeal of the assessee for the assessment year 2010-11 is partly allowed in the terms indicated above. 67. We now take up the appeal of the Assessing Officer for the assessment year 2010-11. 68. In the light of discussions earlier in this order, ground no. 1 and 2 are already dismissed. 69. .....

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see no reasons to interfere in the matter. The thrust of Assessing Officer s disallowance was that there was nothing to show that expenses were necessarily required to be incurred inasmuch as there was no direct cause and effect relationship between the expenses incurred and the business profits of the assessee. Obviously, the Assessing Officer was swayed by irrelevant consideration. This expenses may or may not be necessary in that sense but that does not matter. As long as the expenses are inc .....

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s Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council of Law Reporting (1914) 6 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the .....

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issible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." 71. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively . Explaining this principle, Hon ble Supreme Court has, in the case of Sassoon J David & Co. (P) Ltd. vs. CIT [(1979) 118 ITR 261 (SC)] in .....

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