9911796707
TMI Blog2016 (11) TMI 1453X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the Appellant by INR 1,80,67,400 by holding that the Appellant's international transactions does not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in commuting Transfer Pricing (TP) adjustments: A. in relation to provision of marketing support services by: 2.1 disregarding the arm's length price ("ALP") as determined by the Appellant in the Transfer Pricing ("TP") documentation maintained by it in terms of Section 920 of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.2 disregarding multiple year and prior years' data as used by the Appellant in its TP documentation and holding that current year (i.e. FY 2010-11) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 2.3 disregarding the quantitative and qualitative filters applied by the Appellant in the TP documentation, arbitrarily applying additional quantitative filters, and conducting a comparability analysis; 2.4 erroneously including certain functionally dissimilar companies that are not y comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar No. 5/2012. While doing so, the Ld. AO failed to appreciate that these expenses were not in the nature of 'freebies' which were provided to doctors/ medical practitioners. 4.2 disallowing meeting, seminar and conference expense a amounting to INR 1,906,000 under Section 37(1) of the Act on the grounds that no documentary evidence was furnished by the Appellant. While doing so, the Ld. AO failed to appreciate that these were genuine business expenditure and the Appellant was unable to provide documentary evidence only due to paucity of time. 4.3 disallowing payment made towards sponsorship of event, amounting to INR 800,000, on the ground that the payment was made by the Appellant after the event had taken place. While doing so, the Ld. AO failed to appreciate that the delay in payment was on account of certain business exigencies which the Appellant was unable to justify due to paucity of time. 5. Ld. AO erred in initiating penalty proceedings under Section 271(1X0) of the Act. 6. The Ld. AO erred in charging interest under Section 234A, 234A, 234B and 234C of the Act. 2. The Ld. AR at the outset submits that ground No. 1 is general ground No. 2.1, 2.2, 2.3, 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. 7. The Ld.TPO observed that assessee had selected 5 comparables which are as under: S.No. Name of the Company OP/TC 1. IDC (India) Ltd. 12.57% 2. Quadrant Communications Ltd. 9.14% 3. Empire Industries Ltd. [Trading & Indenting] 18.39% 4. Entertaining Network (India) Ltd. [Events (consolidated)] 2.11% 5. Priya International Ltd. [Indenting] 19.89% Mean 12.4% Median 12.5% Upper Quartile 18.39% Lower Quartile 9.14% 8. The ld.TPO using various filters prepared a final list of comparables which are as under: S. No. Name of the company OP/TC 1. Apitco Ltd 25.17% 2. Global Procurement Consultants Ltd. 30.86% 3. Info Edge India Ltd. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of business. 14. Aggrieved by the final order passed 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as customer relationships and market intangibles but 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 obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case with the assessee before 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act 2012, 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 circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned." 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 receivables only by one day, and therefore the question of nonrealisation of the receivables beyond normal credit period during the relevant financial year under consideration does not arise. He has also argued that the interest is an inbuilt item in the prize charged is not an international transaction by placing reliance upon the decision of this tribunal as referred to herein above. On the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 between parties. 31. Sub-clause (d) deals with mandate in which the invoices would be raised, in lieu of which payments shall be made by AE. It has been agreed herein that assessee would be raising written invoices to its AE on a monthly or a periodic basis of the service fee and the amount invoiced shall be paid by the AE within 60 days of receiving such invoices. Sub-clause (d) requires the assessee to raise i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Advertisement Marketing and sales promotion expenses 41. The DRP was of the opinion that assessee could not discharge burden of proving that the advertisement, business promotion expenses, and travel expenses debited to the P&L account were exclusively for the purposes of business in terms of section 37(1). The DRP therefore in terms of explanation to section 37(1) and CBDT Circular No. 5/2012 disallowed the expenses claimed by the assessee the DRP set aside the issue with certain directions to the Ld. AO which is as under: " The AO is directed to give an opportunity to the assessee to furnish complete details of advertising an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the light of the records placed before us and the judicial pronouncements relied upon by them. 46. Reliance has been placed by both the sides on the notifications issued by the medical Council of India and the CBDT Circular No. 5/2012 which is placed at page 321 and 322 of the paper book. The issue of admissibility of deduction of such payments made by assessee to doctors/medical practitioners, has to be considered in regard to section 37 (1) of the Act. It is a residuary provision, and assessee would be entitled to deduction of all expenditure which is wholly and conclusively laid out for all expended for the purposes of the business which has not been expressly covered by any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 etc. can only be received through approved institutions by modalities laid down by law / rules / guidelines adopted by such approved institutions, in a transparent manner. It shall always be fully disclosed. e) Medical Research: A medical practitioner may carry out, participate in, work in research projects funded by pharmaceutical and allied healthcare industries. A medical practitioner is obliged to know that the fulfillment of the following items (i) to (vii) will be an imperative for undertaking any research assignment / project funded by industry - for being proper and ethical. Thus, in accepting such a position a medical practitioner shall:- (i) Ensure that the particular research pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conducted at the respective venues (inside and outside the country) during the respective doctors' trips. Further the Ld.AR referred to consulting agreement that has been entered into between the assessee and one Dr. Anil Saxena which has been placed at page 405 to 407 of the paper book. As per this agreement Dr. Anil Saxena would be paid a minimum amount of USD 1800 per day or pro-rata per hour, of the services rendered which represents the fair market value. It also says that the invoice shall include an itemised list of the services rendered and all appropriate supporting documents for the services provided by Dr Anil Saxena. However from the records placed before us we do not find any search details ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
