TMI Blog2019 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... Bright Line Test should not have been applied by the TPO. We find that the Tribunal after relying on its earlier order in the case of Thomas Cook India Ltd. [ 2016 (7) TMI 318 - ITAT MUMBAI] , had therein decided the issue in favour of the assessee Adjustment in respect of such reimbursement of expenses - admission of admission evidence - HELD THAT:- Neither of the lower authorities had at any stage directed the assessee to place on record the complete supporting documentary evidence as regards the reimbursement of expenses therefore, there is a justifiable reason for the assessee for not submitting the supporting documentary evidence in respect of the balance reimbursement of expenses before them. Accordingly, in our considered view the additional evidence i.e the copies of invoices along with backup documents supporting reimbursement of expenses that has been filed by the assessee before us, merits admission on our part. However, we also cannot remain oblivious of the fact that as the said additional evidence which as claimed by the assessee substantiates the cost to cost nature of reimbursement of expenses to its AEs cannot be summarily accepted on the very face of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year under consideration. Accordingly, the TPO is directed to consider the foreign exchangegain/loss as operating in nature while computing the margin of the assessee for the year under consideration. Selection of comparable - we find no infirmity in the view therein taken and accordingly uphold the same. As regards the claim of the assessee that the TPO/DRP had erred in adopting the annual report of Confident Sales India Pvt. Ltd. for financial year 2014-15, for determining the PLI of the said comparable for the year under consideration i.e financial year 2013- 14, we are unable to accept the claim of the assessee that the lower authorities had erred in adopting the said approach. As observed by the lower authorities, as sufficient data for financial year 2013-14 was available in the annual report of the assessee for financial year 2014- 15, therefore, in our considered view the said company on account of of availability of the relevant data was rightly selected as a comparable by the TPO/DRP. We thus in terms of our aforesaid observations uphold the view taken by the DRP as regards the inclusion/exclusion of the aforementioned two companies from the final list o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the block of asset and the same was accepted by the A.O, thereafter, in the subsequent years the claim of consequential depreciation on the said block of asset could not be disturbed, despite the fact that some of the assets forming part of such block of asset were no more used for the purpose of business. See M/S. SONIC BIOCHEM EXTRACTIONS PVT. LTD. [ 2015 (12) TMI 112 - BOMBAY HIGH COURT] - Depreciation would be allowable even in case of sale/distribution of the asset, as long as the block of asset remains in existence. In sum and substance, it was observed by the Hon ble High Court that the test of user has to be applied on the block of assets as a whole and not on the individual assets. Payment of convention expenses - expenses incurred by the assessee in the normal course of its business for creating a market for its products across the country - HELD THAT:- In the absence of any sanction or authority of law on the basis of which it could safely be concluded that the expenditure incurred by the assessee company on sales promotion expenses by way of distribution of articles to the stockists, distributors, dealers, customers and doctors, is in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as in law, the learned AO/ Joint Commissioner of Income-tax (Transfer Pricing) - 2(3) ( TPO )/Hon'ble DRP, in fact and in law: Grounds 1. erred in assessing the total income of the Appellant at INR 2,30,29,38,703 as against INR 37,21.04,250 as computed by the Appellant; Transfer pricing grounds on Advertising, Marketing and Promotion ( AMP ) adjustment 2. erred in making transfer pricing adjustment of INR 101,26,73,186 on account of AMP expenses incurred by the Appellant; AMP is not an international transaction 3. erred in considering the function of AMP as a separate purported international transaction for the purpose of transfer pricing adjustment; 4. erred in ignoring that the alleged AMP expenses incurred by the Appellant represents only domestic transactions undertaken with third parties/employees and are outside the purview of Section 92B of the Act and is thus in excess of his jurisdiction; 5. erred in erroneously stating that there exist an explicit arrangement between the Appellant and its AEs for incurring AMP expenses; 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Without prejudice to the above, erred in cherry picking up of the comparable companies and has selected comparable companies of the preceding year without conducting a fresh search and thereby violated the principles of natural justice; 13. Without prejudice to the above, erred in considering Adinath Bio-Labs Limited as a comparable company not having similar product/ brand profile as the Appellant; Mark-up on AMP expenses 14. Without prejudice to the above, erred in disregarding that that even if the Appellant had to be compensated for the excessive AMP, in absence of any services element, the Appellant should be entitled to reimbursement of actual excessive AMP expenses incurred, rather than a mark-up on the same; 15. Without prejudice to the above, erred in holding that the Appellant should have earned a mark-up of 23.71% on the alleged excessive AMP expenses in relation to distribution segment, which are to be reimbursed to the Appellant; 16. Without prejudice to the above, erred in not adopting a scientific search process to identify companies for computing the mark-up to be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Without prejudice to the above, erred in making disallowance/addition of convention expenses as a part of transfer pricing adjustment as well as corporate tax disallowance, thereby making double addition/disallowance, which is not permissible as per the law; Transfer Pricing Adjustment on account of recovery of expenses 27. erred in not following the binding directions issued by the Hon ble DRP, wherein the Hon ble DRP has directed to delete the transfer pricing adjustment of INR 1,32,76,277 on account of recovery of expenses, thereby exceeded its jurisdiction. Transfer Pricing Adjustment on account of reimbursement of expenses 28. erred in partly confirming the transfer pricing adjustment of INR 4,05,62,976 on account of reimbursement of expenses to the AEs by the Appellant by ignoring that the expenses were incurred by the AEs merely for facilitation and were reimbursed by the Appellant on cost to cost basis, thereby erred in holding that the expenses reimbursed by the Appellant are not in the nature of business expenses anddisallowing the same: 29. erred in determining the ALP of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, without appreciating that the financial statements for current year are not available in public domain and hence, without examination of various quantitative and qualitative data which are essential for comparability analysis, the same cannot be considered as a comparable; 38. erred by not granting working capital adjustment while computing the operating margin of comparable companies for the purpose of determination of the ALP of the impugned international transaction; 39. erred by not granting risk adjustment while computing the operating margin of comparable companies for the purpose of determination of the ALP of the impugned international transaction: 40. Without prejudice to the above, erred in considering the reimbursement of expenses of INR 4,05,62,976 as part of operating cost, without appreciating that the value of said expense is taken as Nil by the TPO himself, thereby leading to double adjustment on the same; 41. erred in law in not applying the proviso to section 92C and not allowing the Appellant the benefit of variation of +/-3% in determining the ALP. Other direct tax disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the convention expenses of INR 36,34,64,058, printing and equipment hire charges ofINR 16,21,578 are paid to independent third party service providers in the normal course of business and accordingly, the same is not covered under the MCI Regulations and CBDT circular; Accommodation expenses 50. without prejudice to the above, erred in disallowing accommodation expense of INR 5,79,40,945 out of the convention expenses of INR 36,34,64,058, without appreciating the fact that the same was incurred for various medical practitioners attending the meeting/conference in the capacity of 'instructors/consultants' of the medical device company and not as 'delegates', the same would clearly fall outside the purview of the CBDT circular, 51. without prejudice to the above, erred in not appreciating the fact that the payment for the accommodation expenses had been directly made to medical associations and third party service providers and not to the medical practitioners, accordingly, the same is outside the purview of the MCI Regulations and CBDT circular; Continuing Medical Education Meetings ( CME Meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the Appellant and accordingly, the same is outside the purview of the MCI Regulations and CBDT circular; Car hire charges 58. without prejudice to the above, erred in not appreciating the fact that out of the convention expenses of INR 36,34,64,058, car hire charges of INR 48,24,358 was incurred by IMPL for smooth conduct of the medical conference/symposium in the normal course of business and they are outside the purview of MCI Regulations and CBDT circular. 59. without prejudice to the above, erred in not appreciating the fact that the payment for car hire charges had been paid to independent third party service providers and not to medical practitioners and accordingly, the same is outside the purview of the MCI Regulations and CBDT circular; Double disallowance of convention expenses 60. without prejudice to the above, erred in holding that there is no double disallowance of the convention expenses without appreciating that the portion of the same has already been disallowed by the TPO/AO while computing the transfer pricing adjustment; Consequential depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars 1. Adjustment on account of AMP expenses amounting to INR 101.26 crores 2. Adjustment on account of recovery of expenses from AEs amounting to INR 1.32 crores 3. Adjustment on account of reimbursement of expenses to AEs amounting to INR 4.78 crores 4 Alternate adjustment on account of import of finished goods amounting to INR 49.60 crores After receiving the order of the TPO under Sec. 92CA(3), dated 31.10.2017, the A.O passed a draft assessment order under Sec. 143(3) r.w.s 144(1), dated 26.12.2017. 4. The assessee aggrieved with the adjustments proposed by the A.O in his draft assessment order filed objectionswith the Dispute Resolution Panel-1 (for short DRP ). The DRP vide its order dated 17.09.2018 disposed off the objections filed by the assessee. The DRP in its order allowed certain reliefs to the assessee viz. (i) relief as regards the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c.154, dated 05.03.2019, wherein certain mistakes that had emanated while giving effect to the directions of the DRP were rectified viz. (i) treatment of the adjustment on account of import of finished goods: ₹ 49,60,24,206/- as an alternate adjustment; and (ii) deletion of the adjustment on account of recovery of expenses: ₹ 1,32,76,277/-. The A.O thereafter passed a rectification order under Sec. 154, dated 14.03.2019 and while giving effect to the directions issued by the DRP confined the adjustments/disallowances as under: Sr. No. Particulars Amount 1. Transfer pricing adjustment on account of Advertising. Marketing and promotion (AMP) expenses 101,26,73,186 2. Alternate transfer pricing adjustment on account of convention expenses (treating the entire amount of convention expenses incurred by the Appellant for brand building of the AE in India) 33,44,95,973 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59,77,57,972 5. Travelling and conveyance expense (80%) 18,42,47,518 6. Depreciation on Plant Machinery 6,33,05,274 Total 1,36,60,40,596 Sales 6,86,89,36,462 AMP to Sales 19.89% The TPO adopted the Bright Line Test and computed the AMP to sales ratio of the comparable companies at 7.97%, as hereinbelow: Sr. No. Name of the Company AMP to Sales ratio (FY 2012-13) 1. Satayjet Commercial Co. Ltd. 1.57% 2. Frontline Electro Medical Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,36,60,40,596 5. Excess expenditure incurred for developing the intangible E=D-C 81,85,86,360 6. Arm s length value of the AMP expenses F=E plus 23.71% 101,26,73,186 7. Compensation received G NIL 8. Adjustment H=F-G 101,26,73,186 Alternatively, it was observed by the TPO that in case the adjustment with respect to AMP expenses was vacated by the Tribunal then the convention expenses of ₹ 36,34,64,058/- that were incurred by the assessee were to be compensated by the AE as the same were spent by the assessee for brand building of its AE in India. 7. Aggrieved, the assessee assailed the aforesaid adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09. A perusal of the order of the Tribunal in the assesses own case for A.Y. 2010-11, viz. India Medtronic Vs. DCIT-10(1)(1), Mumbai (ITA No. 1600/Mum/2015, dated 17.01.2018) reveals that the Tribunal had observed viz. (i) that, in the agreements between the assessee and its AE there was no condition of sharing of AMP; (ii) that, the agreements only referred to using best efforts to distribute the products or promote products in a commercially reasonable manner; and (iii) that, the terms of the agreement did not provide that the assessee had to share AMP expenses; (iv) that, even if the AE was benefitted indirectly by the AMP expenditure incurred by the assessee, it could not be inferred that it had entered into an agreement for sharing AMP expenses; and (v) that, the Bright Line Test should not have been applied by the TPO. We find that the Tribunal after relying on its earlier order in the case of Thomas Cook India Ltd. (ITA No. 1261 1238/Mum/2015, dated 31.05.2016), had therein decided the issue in favour of the assessee, observing as under: 3.4. We have heard the rival submissions. We find that the TPO had held that assessee should have been compensated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position is as clear as crystal with regard to AMP expenses. The Hon ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT. Probable incidental benefit to the AE would not make such a transaction an IT. The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged internationality of the transaction. In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE, it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT. Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and cannot come in picture. Folk wisdom of rural India the says that mother (Maa)is must for existence of her sister(Mausi).Similarly the existence of an IT is the pre-requisite of applying the provisions of chapter X of the Act. The assessee from the very begi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 56.Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are nonres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression acted in concert and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were acting in concert within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO to examine the 'international transaction' as he actually finds the same. 62. In the present case, the mere fact that B L, USA through B L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also ensure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: xxxxxx 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: 75. As an analogy; and from other purpose; in thecontext of a domestic transaction involving two or more related parties, reference may' be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hatsomebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law. With reference to the submissions of the DR,we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods,so the question of slicing of expense in two portions would not arise. However,the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon ble High Court,we would like to mention that matter can be restored back in certain conditions only.Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants.It is not advisable to prolong the judicial proceedings in the name of fair play.It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee for A.Y. 2012-13 (ITA No. 2160/Mum/2017, dated 27.05.20190 and A.Y. 2013-14 (ITA No.601/Mum/2018, dated 08.05.20190. Alternatively, it was the claim of the ld. A.R that even otherwise as TPO had not used any of the prescribed methods contemplated in Sec. 92C of the Act for determining the ALP of the aforesaid transactions and had disallowed the convention expenses on an adhoc basis, therefore, his action was also not sustainable on the said ground. To sum up, it is the claim of the ld. A.R that as the convention expenses incurred by the assessee in the normal course of its business were in the nature of selling expenses and not expenses incurred for brand building of its AE, therefore, the same could not have been held as AMP expenses. Per contra, the ld. Departmental Representative (for short D.R ) had relied on the orders of the lower authorities. 10. We have given a thoughtful consideration to the aforesaid contentions advanced by the authorized representatives for both the parties and perused the orders of the lower authorities in context of the issue under consideration. Admittedly, the TPO/DRP had made a similar alternative adjustment in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, in case of a third party scenario the assessee would not have borne such expenses on behalf of its AEs. To sum up, the TPO was of the view that as the employees had travelled to foreign countries for providing services to the AEs, therefore, there was no justifiable reason for the assessee to have borne their travelling expenses. On the basis of the aforesaid observations the TPO had determined the ALP of the expenses reimbursed by the assessee to its AEs as nil and had made an adjustment in the hands of the assessee. 13. We find that the assessee in the course of the proceedings before the DRP had by way of additional evidence further submitted certain additional sample invoices and back up documents amounting to ₹ 73,19,620/- pertaining to reimbursement of expenses to its AEs. It was observed by the DRP that as there was no service element involved in the reimbursement of expenses to the AEs, therefore, the assessee was not obligated to demonstrate any benefit received or service provided for making such payments. It was also observed by the DRP that in a third party scenario the assessee would have made such payments to the person who would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfined the relief only to the extent of the additional sample invoices and backup documents amounting to ₹ 73,19,620/- which were furnished by the assessee in the course of the proceedings before it. As a matter of fact, the invoices and backup documents pertaining to expenses of ₹ 98,38,005/- that were filed by the assessee in the course of the TP proceedings had not being considered either by the TPO or the DRP. We find that the assessee had also furnished an application dated 04.07.2019 with us, seeking admission of additional evidence which comprises of the copies of the invoices along with the backup documents as regards the balance amount of expenses of ₹ 3,07,24,971/- that were reimbursed by the assessee to its AEs. It was submitted by the ld. A.R, that the complete details i.e copies of invoices along with backup documentsevidencing the expenses aggregating to ₹ 4,78,82,596/- which having been incurred by the AEs on behalf of the assessee were thereafter reimbursed to them by the assessee on cost to cost basis are available on record, as under: Particulars Ref. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to ₹ 73,19,620/- (on the basis of documents which were filed in the course of the proceedings before it), it would be entitled to benefit to the said extent on production of the supporting details during the course of the remand proceedings before the TPO. We are of the considered view that the DRP while concluding as hereinabove had lost sight of the supporting documentary evidence i.e copies of invoices and samples supporting reimbursement of expenses aggregating to ₹ 98,38,005/- that were filed by the assessee in the course of the proceedings before the TPO. Apart therefrom, we are of the considered view that as neither of the lower authorities had at any stage directed the assessee to place on record the complete supporting documentary evidence as regards the reimbursement of expenses of ₹ 4,78,82,596/-,therefore, there is a justifiable reason for the assessee for not submitting the supporting documentary evidence in respect of the balance reimbursement of expenses of ₹ 3,07,24,971/- before them. Accordingly, in our considered view the additional evidence i.e the copies of invoices along with backup documents supporting reimbursement of expenses agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,27,23,732 TNMM 2. Purchase of capital assets 10,80,53,018 TNMM 3. Receipts of management fee in respect of direct sales made by AEs in India 2,21,55,658 TNMM 4. Provision of support services to AEs 1,11,11,242 TNMM 5. Reimbursement of expenses 4,78,82,596 Other Method 6. Recovery of expenses 13,27,62,769 Other Method Total 443,46,89,015 The assessee had in its Transfer Pricing Study Report (for short TP study rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.85 It was observed by the TPO that the assessee in the course of the TP proceedings had rejected one of its comparable viz. M/s ADS Diagnostic Ltd. on the ground that its trading income was less than 75% of its total revenue i.e 73.50%. However, the TPO observing that the trading income of the said concern viz. M/s ADS Diagnostic Ltd. was 74.54% of the total revenue of its trading segment, therefore, included the same in the final list of comparables. Also, it was noticed by the TPO that the assessee had excluded another comparable viz. M/s Confident Sales Pvt. Ltd, for the reason, that the annual report of the said company for the year under consideration i.e financial year 2013-14 was not available in the public domain for the purpose of computing its margins. However, the TPO was of the view that as the PLI of the said company could be gathered from its annual report for the succeeding year viz. F.Y. 2014-15 which was available in the public domain, therefore, the said company could safely be includedin the final list of comparables. The TPO also did not find favour with the claim of the assessee that foreign exchange ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration was available in the annual report of the said company for financial year 2014-15, therefore, it could safely be considered as a comparable. As regards the objection of the assessee that foreign exchange gain/loss was wrongly treated by the TPO as non-operating in nature, the same was rejected by the DRP. Similarly, the DRP upheld the view taken by the TPO and declined the claim of working capital adjustment that was raised by the assessee. 19. We have perused the facts pertaining to the TP adjustment of ₹ 49,60,24,206/- made by the TPO/DRP as regards the international transactions of import of finished goods by the assessee during the year under consideration. As the assessee has assailed the TP adjustment in respect of the aforesaid import transactions on multiple grounds, therefore, we shall advert to and adjudicate the same in a chronological manner. 20. We shall first take up the claim of the assessee that the TPO has erred in not following the binding directions of the DRP that as the import of finished goods was a secondary adjustment, therefore, the same would be subsumed in the primary adjustment made on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange gain was not to be allowed as a part of the operating income for the purpose of computing the margin of the assessee and its comparables. As observed by us hereinabove, the TPO/DRP had concluded that foreign exchange gain was to be treated as nonoperating income while computing the margin of the assessee and the comparable companies. In fact, the DRP while concluding as hereinabove, was of the view that as the foreign exchange gain/loss was solely attributable to the variation in the exchange rate, therefore, there was no direct/immediate nexus between the operations of the assessee and the foreign exchange gain/loss. Apart there from, the DRP was of the view that the margins of two companies entering into similar transaction may also vary substantially depending upon the level of hedging of their foreign exchange transactions. Also, the DRP was of the view that as per the safe harbour rules the foreign currency fluctuations were to be excluded from the operating revenue/expenses. 23. We have given a thoughtful consideration to the aforesaid observations of the lower authorities and are unable to persuade ourselves to subscribe to the same. In f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. Vs. DCIT [ITA No. 1961/Hyd/2011]. We thus on the basis of our aforesaid deliberations are of the considered view that the TPO/DRP had erred in concluding that the foreign exchange gain was to be treated as non-operating in nature while computing the margins of the assessee for the year under consideration. Accordingly, the TPO is directed to consider the foreign exchangegain/loss as operating in nature while computing the margin of the assessee for the year under consideration. The Ground of appeal No. 35 is allowed. 24. As regards the observations of the DRP that ADS Diagnostic Ltd. should be rejected as a comparable in case if its trading activity is less than 75% of its total revenue during the year under consideration, we find no infirmity in the view therein taken and accordingly uphold the same. As regards the claim of the assessee that the TPO/DRP had erred in adopting the annual report of Confident Sales India Pvt. Ltd. for financial year 2014-15, for determining the PLI of the said comparable for the year under consideration i.e financial year 2013- 14, we are unable to accept the claim of the assessee that the lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 26. We have perused the orders of the lower authorities and find that the DRP had concurred with the TPO for rejecting the working capital adjustments that was undertaken by the assessee for the purpose of comparing the margins of the comparable companies as against its margin. We have given a thoughtful consideration to the facts of the case and after necessary deliberations are persuaded to accept the aforesaid claim of the assessee. As per Rule 10B(1)(e)(iii), in a case where the international transactions are benchmarked applying TNMM the net profit margin realised by an unrelated enterprise from a comparable uncontrolled transaction is to be adjusted by taking into account the differences, if any, between the international transaction and the comparable uncontrolled transaction, or between the enterprises entering into such transactions, which could materially affect the net profit margin in the open market. As is discernible from a perusal of the Form 3CEB and the records available before us, the assessee had worked out the adjustment resulting from the different levels of working capital i.e accounts receivable, inventory and accounts payable between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the issue before us. As can be gathered from our observations recorded at Para 17 hereinabove, the adjustment made by the TPO as regards the reimbursement of expenses by the assessee to its AEs had been restored by us to his file for fresh adjudication. Accordingly, the TPO is directed to consider only those expenses as a part of the operating cost, which are accepted by himin the set aside proceedings as reimbursement of expenses on cost to cost basis by the assessee to its AEs, which were incurred by the AEs for and on behalf of the asssessee.Accordingly, the aforesaid issue is set aside to the file of the TPO for fresh adjudication in terms of our aforesaid observations. The Ground of appeal No. 40 is allowed for statistical purposes in terms of our aforesaid observations. 29. We shall now advert to the claim of the assessee that the TPO/DRP had erred in not allowing the benefit of variation of +/- 3% n determining of the ALP. As per the second proviso to Sec 92C(2) of the Act, if the variation between the ALP so determined and the price at which the international transaction has actually been undertaken does not exceed +/- 3% of the price of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statute w.e.f 01.04.1988. As such, once the asset entered into the block of asset and the same was accepted by the A.O, thereafter, in the subsequent years the claim of consequential depreciation on the said block of asset could not be disturbed, despite the fact that some of the assets forming part of such block of asset were no more used for the purpose of business. Our aforesaid view is fortified by the judgments of the Hon ble High Court of Bombay in the case viz. (i). CIT Vs. Sonic Biochem Extractions Pvt. ltd. (2015) 94 CCH 99 (Bom) ; and (ii) CIT Vs. G.R. Shipping Ltd. [ITA No. 598 of 2009; dated 28.07.2009] (Bom) . In the aforesaid decisions, it was observed by the Hon ble High Court that depreciation would be allowable even in case of sale/distribution of the asset, as long as the block of asset remains in existence. In sum and substance, it was observed by the Hon ble High Court that the test of user has to be applied on the block of assets as a whole and not on the individual assets. In fact, the aforesaid view was taken by the Hon ble Jurisdictional High Court by following its earlier view taken in viz. (i). White Anderson Vs. CIT (1971)79 ITR 613(Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io, continuous education and awareness programmes were required to be conducted across the country. As is discernible from the orders of the lower authorities, the expenses of ₹ 36,34,64,058/- which were incurred by the assessee in the normal course of its business for facilitating a market for its products were disallowed by the A.O. The A.O was of the view that as the aforesaid expenses incurred by the assessee were found to be in violation of Clause 6.8 of the MCI Regulations and CBDT Circular No. 05/2012, dated 01.08.2012, therefore, the same could not be allowed as a deduction under Sec. 37 of the Act for the purpose of working out the income of the assessee. The DRP did not find any infirmity in the view taken by the A.O and upheld the disallowance of the convention expenses of ₹ 36,34,64,058/- that was made by him under Sec. 37 of the Act. It is the claim of the ld. A.R, that the issue as regards the allowability of the convention expenses had been decided in favour of the assessee in its own case for A.Y. 2010-11 in ITA No. 1600/Mum/2015, dated 17.01.2018. It is averred by the ld. A.R that the Tribunal after relying on the decision of the Hon ble High Court of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Medical Register maintained under Sec. 21 of the said Act. Further, it was observed that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individuals registered medical practitioners and not the pharmaceutical companies or allied health sector industries. Apart there from, the Tribunal in its said order had also drawn support from the order of the Hon ble High Court of Delhi in the case of MAX Hospital., Pitampura Vs. Medical Council of India [CWP No. 1334/2013, dated 10.01.2014] . In the aforesaid case the Medical Council of India had filed an Affidavit before the High Court, wherein it was deposed by the council that its jurisdiction was limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass an order affecting the rights/interest of the petitioner hospital. In the backdrop of its exhaustive deliberations, the Tribunal had concluded that even if the assessee had incurred expenditure on distribution of freeb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon ble High Court of Delhi in the case of Max Hospital, Pitampura Vs. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an Affidavit before the High Court, wherein it was deposed by the council that its jurisdiction is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:- Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebies (freebies) to medical practitioner and their professional associations in violation of the regulations issued by Medical Council of India (the Council ) which is a regulatory body constituted under the Medical Council Act, 1956 2. The council in exercise of its statutory powers amended the Indian Medical Counci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon ble High Court of Delhi in the case of Max Hospital Vs. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier notification issued as Indian Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002 had even provided for action which shall be taken against medical practitioners in case they contravene the prohibitions placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance of ₹ 36,34,64,058/- made by the A.O in respect of the convention expenses. The Grounds of appeal Nos. 43 to 60 are allowed in terms of our aforesaid observations. 36. We shall now advert to the claim of the assessee that the A.O had erred in not granting consequential depreciation on non-compete fee which was held by the Tribunal as a capital expenditure while disposing off the appeal of the assessee for A.Y. 2002-03. As is discernible from the orders of the lower authorities, the assessee had entered into an exclusive distribution agreement with Meditech Device Ltd. (for short MDL ) on 01.05.2019 for distribution of the assesses products in India. However, the said distribution agreement was terminated vide agreement dated 31.07.2001 on account of certain financial constraints that were faced by MDL in investing the required resources to expand its business as per the requirements of the assessee. Accordingly, a non-compete agreement dated 01.01.2002 was entered into by the assessee with the three directors of MDL viz. Shri. A. Damodharan, Shri. M. Swaminathan Shri. Sandip Dave, who were retained as the consultants by the assessee for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the assesses own case for the aforementioned preceding years viz. A.Y. 2003-04 (ITA No. 1245/Ahd/2008), A.Y. 2004-05 (ITA No. 812/Ahd/2008), A.Y. 2008- 09 (ITA No. 7555/Mum/2012), A.Y. 2011-12 (ITA No. 1246/Mum/2016 ) and A.Y. 2013-14 (ITA No. 3461/Mum/2018), we herein direct the AO to allow the consequential depreciation on the non-compete fees to the assessee company. The Ground of appeal No. 61 is allowed. 38. The assessee had assailed the orders of the lower authorities on the ground that they had erred in confining the credit of TDS to an amount of ₹ 11,20,299/- as against ₹ 11,32,678/- that was claimed by the assessee in its return of income for the year under consideration. It is submitted by the ld. A.R that the claim for TDS credit of ₹ 11,32,678/- was raised on the basis of TDS certificates. We find that the aforesaid claim of the assessee requires to be verified on the part of the A.O. Accordingly, we restore the issue to the file of the A.O, who is directed to make necessary verifications, and in case the claim of the assessee is found to be in order then the credit for the deficit amount of TDS be allowed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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