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TMI Blog2016 (12) TMI 1894X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of pharmaceutical products and co-ordination of clinical trial services. During the a y 2009-10, it has been engaged to provide coordination services in relation to clinical trial activities on behalf of its associated enterprise (AE), AstraZeneca AB Sweden ("AstraZeneca Sweden"). For its services, it is remunerated on a cost plus mark up of 9 percent. In its transfer pricing (TP) study, the assessee had undertaken search on prowess and capitaine databases to identify comparable companies. The arithmetic mean of unadjusted margins of the comparables was arrived at 7.31 percent. So, it concluded that the transaction of co-ordination support services was at arm's length. However, the Transfer Pricing Officer (TPO) re-characterized the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal with following grounds of appeal. GROUNDS OF APPEAL 03. Further, under Rule 11 of the ITAT Rules, 1963, the assessee requested to modify/rectify its ground no 19 as under: ADDITIONAL GROUND OF APPEAL 1 The learned TPO/AO/DRP have erred, in law and in facts, in computing the transfer pricing adjustment amount by wrongly including unrelated expenses amounting to Rs. 14,55,21,126 reimbursed by the AE and reimbursement received of Rs. 11,48,80,935 towards payment made to in cost base for markup purposes and third party expenses of Rs. i1,48,80,935 made to hospitals! sites/investigators etc. in the cost base for mark up purposes. The Petitioner submits that the above additional ground is being raised by way of abundant caution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions ("RPT). Pointing out to the copies of materials placed in the Paper Book, the AR submitted that for ay 2010-11 & ay 2011-12, the DRP directed the TPO/AO to exclude Lotus Labs as a comparable due to significant RPT (74.92% and 73.84% for ay 2010-11 & ay 2011-12). Lotus Labs operates in 2 primary segments i.e. Analytical and Clinical. Accordingly, the segmental reporting in the financial statement discloses results as per these two segments. The TPO while considering Non-AE margins of Lotus Labs, has failed to appreciate that the revenue amount and the margins computed for Lotus Labs include both analytical and clinical trial related activities and not the revenue of clinical trial segment alone as mentioned in the TP order. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , workmen and staff welfare, rent, travel and conveyance, power and fuel, legal and professional fees, etc , as per Page 1039 and 1040 of the Paperbook. In view of that the internal costs should be considered as a pass through cost as they are paid to third parties which already factors the arm's length margin in the costs charged by them. In this regard, the AR relied on the decision of Mumbai ITAT in FedEx Express Transportation and Supply Chain Services India Private Limited Vs. Dy Commissioner of Income Tax Range 8(1), Mumbai ITA No 435/Mum/2014 dt 10.12.14. 06. We have considered the rival submissions. From the above, it is clear that the comparable ie whether Lotus Labs's RPT is significant or not deserved to be examined prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) Regulations, 2002 (IMe Regulations") is effective from 10th December 2009 which may be applicable from a y 2010-11 onwards but definitely not applicable for ay 2009-10. The CBDT circular should not be applied retrospectively as the amendment to the IMC Regulations was effective from 10th December 2009. The AR placed reliance on the decision of the Hon'ble ITAT of Panaji in the case of ACIT vs M/s. Geno Pharmaceuticals Limited in ITA No.12/PNJ/2014 dt 30.5.2014 for ay 2010-11 and the ITAT Mumbai ruling in Syncom Formulations (1) Ltd vs DCIT (ITA No 6429 and 6428/Mum/2012) ays 2010- 11& 2011-12 which held that the CSDT Circular would be applicable only from ay 2013-14 and not on the expenses incurred during ay 2009-10. 09. Hence, if o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hibited by the Act, also by the CSDT circular and hence, it should not have been disallowed. 10. We have considered the rival submissions. The AO has disallowed the impugned claims in the light of the prohibition imposed by Medical Council of India (MCI)I the CBDT Circular dated 1st August 2012 and held that such expenses being prohibited by MCI is not an admissible deduction under section 37(1). Assessee pleads that MCI regulation is effective from 10th of December 2009 and therefore it cannot be applied for any period prior to such date. These expenses are not prohibited by any law and therefore the CBDT Circular has no application when such expenses were incurred before 10th of December 2009. The MCI guidelines have been issued under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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