TMI Blog2016 (11) TMI 1453X X X X Extracts X X X X X X X X Extracts X X X X ..... on receivables in accordance to the decision of Hon’ble Delhi High Court in the case of CIT vs. Cotton Naturals India private limited [2015 (3) TMI 1031 - DELHI HIGH COURT]. - Matter restored before the TPO. Disallowances u/s 37(1)- assessee could not discharge burden of proving that the advertisement, business promotion expenses, and travel expenses to doctors and other medical personnel are business expenses - Held That:- assessee has incurred expenses in the garb of marketing the cardiac machine, onus is upon the assessee to prove that the expenses incurred do not violate any law that may be applicable. we are of the considered opinion that entertaining doctors inside/abroad and luring doctors to solicit business by, which is prohibited under Regulation 6.8.1 of the MCI Regulations, and hence is clearly not allowable - Decided against assessee. - ITA No. 6806/Del/2015 - - - Dated:- 30-11-2016 - SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER Appellant by : Shri Rohit Tiwari, CA Shri Ravi Sharma, CA Shri Amitav Sen, CA Ms. Shruti Khimta, Advocate Respondent by : Shri Amrendra Kumar, CIT DR Shri Neeraj Kumar, Sr. DR. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of the Assessee on an ad hoc basis, while completely disregarding the detailed submissions made by the Assessee to explain that such adjustments are not mandated under the facts and circumstances of the Assessee; 2.8 disregarding the actual date of the invoice and taking an arbitrary date of October 1, 2010 as the date of invoice raised for provision of marketing support services, for computation of interest on receivables outstanding on the last date of the year ; 2.9 not appreciating the fact that the said advances were nothing but mere balances recoverable from the Associated Enterprises ( AE ) on account of genuine business transactions in the regular course of business and concluding that the Assessee has made interest free advances to its AEs; and 2.10 not appreciating the fact that working capital adjustment adjusts the mark-up of comparable companies on account of variation in the working capital of the Appellant. Grounds relating to corporate tax disallowances 3. The Ld. DRP has erred in law in directing the AO to enhance the income of the applicant by invoking the provisions of Section 1440(8) of the Act without appreciating that there is no disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit of ₹ 36,27,614/- under the provisions of section 115 JB of the Act. The case was selected for scrutiny and notices under section 143 (2) was issued to assessee along with questionnaire and notice under section 142(1), requiring assessee to submit various information as called for. The assessing officer observed that during the year under consideration, assessee has entered into international transaction with its associated enterprises and thus the case was referred to transfer pricing officer for determination of arms length price under section 92C(1) of the Act. 4. The Ld. TPO issued notice to the assessee calling for various documents to be filed along with documentation under rule 10 D of the Income tax Rules 1962. 5. The ld.TPO observed that assessee is engaged in marketing, presale and related activities for customers (hospital and doctors) for medical products in India. It was observed that w.e.f. 25/11/2008 the associated enterprise, Ireland entered into an exclusive distributorship agreement with independent distributor, being Trivitron Healthcare Private Ltd. (Trivitron), for sale, marketing, distribution and delivery of products and services. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45.53% 4. Quadrant Communication Ltd. 14.58% Average 29% 9. Further the ld.TPO benchmark the delay in receipt of the payment for receivables. The ld.TPO thus made the following adjustments: S.No Nature of international transaction Amount of Adjustment (In INR) 1. Provision of marketing support services 1,26,29,135 2. Interest impound on 24,47,587 Total 1,50,76,722 10. Aggrieved by the order of the ld.TPO the assessee filed proceedings before the DRP. The DRP directed for exclusion of Apitco Ltd from the final set of comparables as being functionally dissimilar but directed inclusion of entertainment network India Ltd if it passes through the related party transaction filter as well as the other filters applied by the TPO as it was functionally comparable to the assessee. The DRP also directed for inclusion of IDC In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Ld. AO the assessee is in appeal before us now. We shall 1st deal with the transfer pricing adjustments made by the Ld. TPO. The Ld.AR is disputing inclusion of two companies being; Global Procurement Consultant Ltd., and Info Edge India Ltd., and He submitted in furtherance that the margin that needs to be corrected in case of Priya International Ltd. 15. Before dealing with the compatibility it is sine qua non to analyze the functional profile of the assessee before us. 16. From the TP study Assessee has been characterized as a subsidiary of Boston scientific International B.V (Netherlands) and was set up in 2006 to carry out marketing, promotion, sales and distribution in India of Boston Scientifics products and assumes normal risk associated with carrying out such business. w.e.f. 25/11/2008 Guidant, Ireland and other AE s (group companies), entered into an exclusive distributorship agreement with an independent distributor, Trivitron Healthcare Pvt. Ltd., for sales, marketing, distribution and delivery products and services. Accordingly, Cardiac Rhythm Management (CRM) products have been directly shipped to the distributors from outside India. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it does not own, create or develop any scientific commercials/marketing intangibles. 18. In terms of the risk assumed, assessee does not have any significant exposure to risk as its service fee is guaranteed by its holding company, regardless of sale of product in the market. 19. Thus in the light of the above the assessee has been characterised as a pure market support service provider exposed to less art normal risk associated with carrying out such businesses in the TP study. 20. We shall now deal with the objections raised by the assessee in respect of the comparables. Global procurement consultant Ltd 21. The Ld. AR is aggrieved by inclusion of this company into the final list of comparables as it is submitted that this company is not into marketing segment. The TP study in respect of this comparable has been placed at page 211 of the paper book, Annual Reports Compendium wherein, this company has been characterised as providing technical assistance and enhancing quality, transparency, efficiency and effectiveness of procurement and project implementation services to help attain desired institutional and corporate objectives. It is engaged in assisting finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. 22.1. On the contrary Ld. DR submits that this company is functionally comparable and that the authorities below were right in including it in the final list of comparables 22.2. It is observed that this company is into interner based services, which cannot be compared to the kind of marketing carried on by assessee. We therefore direct the ld.TPO to exclude this company from the final list of comparables. Priya International Ltd. 23. It has been submitted by the Ld. AR that this company earns its revenues from 2 basic segments that is trading and indenting. Ld.AR has submitted that the indenting segment of this company was included in the final list of comparables, post DRP directions. He submitted that as per the standard methodology for allocation of allocable expenses, they are to be initially allocated between the 2 segments on the basis of turnover. The Ld.AR further submitted that in the immediately subsequent year, the margins of this comparables have been computed by apportioning the un-allocable expenses on gross profit basis as against turnover basis used in the instant year. He also submitted that the Ld. TPO has accepted the computation methodolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has inserted explanation to section 92B with retrospective effect from 1/04/2002 to include notional interest charged on the receivables as an international transaction. He placed is reliance upon the order dated 12/08/2015 passed by coordinate bench this Tribunal in the case of Ameriprise India vs. DCIT in ITA No. 2010/del/2014 and ITA No. 2575/del/2014 for assessment year 2009-10, wherein it has been held that interest payable on delayed credits/receivables is an international transaction. The Ld.DR has placed reliance upon paragraphs 22 to 25 of this decision which has been reproduced hereunder: 22. On going through the relevant part of the Explanation inserted with retrospective effect from 2, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long-term or short-term lending or borrowing, etc., or any type of advance payments or deferred payments, 'any other debt arising during the course of business' has also been expressly recognized as an international transaction. That being so, the payment/nonpayment of interest or receipt/non-receipt of interest on the loans accepted or allowed in the circumstances as men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. We have perused the contentions raised by both the parties in the light of the records placed before us. The details of the invoices raised and the payments received by assessee from its AE are as under: S. No Invoice No Date of invoice Amount (INR) Date of receipt Credit period (in days) Period exceeding 60days Interest @10.84% 1 IN/1C 10-002 31 -Mar-11 86855188 26-July-11 117 57 1470303.659 2 IN/IC 10-003 31 -Mar-11 12705278 13-Feb-12 319 259 977283.022 Total 2447587 28. Copies of the invoices raised are placed at page 264 and the payment thereof are placed at page 265 and 266 of the paper book Ld. AR has raised primary contention that as the invoices has been raised on the last day of the financial year, there is delay of payment of the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o all of GIPL's costs and expenses incurred in providing the MSS rendered during the fiscal year to BSI, plus a mark-up of such costs and expenses at a rate to be agreed on from time to time according to arm's-length principles (the Service Fee ). (b) For this purpose, the cost of GIPL in providing the MSS shall mean the allocablc share of GIPL's direct and indirect costs that are incurred in relation to providing the MSS. Further, revision of cost calculations, if any, pursuant to the audit of books of accounts of GIPL shall be considered as a revision of the cost of GIPL in providing the above services. (c) Service tax or other Indian indirect taxes if any that may become applicable on the services shall be reimbursed by BSI to GIPL in addition to the Service Fees. (d) On a monthly or other periodic basis as agreed by the parties, GIPL shall submit written invoices to BSI of the Service Fee then due and the basis of such fee. BSI shall pay GIPL the amounts invoiced within 60 days or receiving such invoices (or such other period as agreed by the parties). Such invoices and payments shall be made in GIPL's functional currency unless otherwise agreed betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils before the ld.TPO and the TPO shall grant proper opportunity to the assessee before calculating the interest on receivables in accordance with law for the year under consideration. Corporate Issue: 40. Assessee in Ground No. 3 and 4 has raised issue relating to disallowance of expenses under section 37 (1) of the Act. The assessee during the year under consideration had incurred certain expenses alleged to have been for the purposes of business and had claimed as an expenditure under section 37 (1) of the Act. The expenses incurred by the assessee are as under Particulars Amount (in Rs.) Major head under which expense booked Honorarium fees paid to Dr Anil Saxena 1,72,800 Legal and professional expenses Airfare for Dr. Anil Saxena's Japan visit 1,92,451 Travelling and conveyance expenses Registration fee for Dr. Shakir Hussain 42,590 Advertisement Marketing and sales promotion expenses Registration charges for Dr. Joseph 57,399 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal course of business for marketing of its products and sponsorship of conferences etc which are not covered in the specified payments mentioned in the MCI regulation, consequently there is no question of disallowing the same under section 37 (1). 44. On contrary the Ld. DR submitted that as per the MCI regulation doctors are not allowed to accept any travel facility inside or outside the country including rail, air, ship, cruise tickets paid vacation etc from any pharmaceutical or allied healthcare industry or their representatives for self and family members certification or for attending conferences seminars workshops, CME program etc., as a delegate and it is also prohibited under the MCI regulation for a medical practitioner from accepting any hospitality like Luke hotel accommodation for self or family member under any pretext. Ld. DR submitted that the payments made by the assessee are prohibited under the MCI regulations, which has been amended vide notification dated 10/12/2009. He submitted that the assessing officer has rightly disallowed these expenses under section 37 (1) read with explanation 1. 45. We have perused the contentions raised by both the parties in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below:- a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. b) Travel facilities: A medical practitioner shall not accept any travel facility inside the country or outside, including rail, air, ship , cruise 9 ITA 904 and 945/Mum/2013 tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc as a delegate. c) Hospitality: A medical practitioner shall not accept individually any hospitality like hotel accommodation for self and family members under any pretext. d) Cash or monetary grants: A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied healthcare industry for individual purpose in individual capacity under any pretext. Funding for medical research, study ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are within the law. (iv) Ensure that such affiliations / employments are fully transparent and disclosed. h) Endorsement: A medical practitioner shall not endorse any drug or product of the industry publically. Any study conducted on the efficacy or otherwise of such products shall be presented to and / or through 11 ITA 904 and 945/Mum/2013 appropriate scientific bodies or published in appropriate scientific journals in a proper way . 50. It has been contended by Ld.AR that during the year under consideration, assessee has incurred expenditure for sponsoring doctors overseas and within India tour for attending seminars which helped in creating a relationship with the doctors, who may, in turn, understand the utility and creat awareness of such machines which was marketed by the assessee. Hence, such expenses were allowable under section 37(1) of the Act, being revenue in nature and incurred for the purpose of business as explained above. 51. The assessee in the paper book has filed brochure, bills and travel details of the doctors and the destination where the seminars have been conducted but did not bring anything on record to show that such seminars were actually ..... X X X X Extracts X X X X X X X X Extracts X X X X
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