M/s. MSD Pharmaceuticals Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1382/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3186 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 28-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 143(3); 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 1382/DEL/2016 : ASSTT. YEAR : 2011 - 12 M/S MSD PHARMACEUTICALS PVT. LTD., 1544, LEVEL 15, EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI - 110019 VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 17(1), NEW DELHI - 110002 (APPELLANT) (RESPONDENT) PAN NO. A A ECM1106C ITA NO. 1563/DEL/2016 : ASSTT. YEAR : 2011 - 12 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 17(1), NEW DELHI - 110002 VS M/S MSD PHARMACEUTICALS PVT. LTD., 1544, LEVEL 15, EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI - 110019 (APPELLANT) (RESPONDENT) PAN NO. AAECN1106C ASSESSEE BY : MS. R ASHMI CHOPRA, ADV. REVENUE BY : SH. AMRENDRA KUMAR, CIT DR DATE OF HEARING : 28 .0 2 . 201 7 DATE OF PRONOUNCEMENT : 25 . 05 .201 7 ORDER PER N. K. SAINI, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPARTMENT ARE DIRECTED AGAINST THE O RDER DATED 28.01.2016 OF THE AO, U/S 143(3) R.W.S. 144 C OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) ON THE DIRECTIONS ISSUED BY THE LD. DRP U/S 144C(5) OF THE ACT. ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 2 2. IN THE ASSESSEE S AP PEAL, F OLLOWING GROUNDS HAVE BEEN RAISED: 1. THE LEARNED ASSESSING OFFICER ('LD. AO') FOLLOWING THE DIRECTIONS OF HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') HAS ERRED IN ASSESSING THE RETURNED INC OME OF THE APPELLANT OF INR 915,21,757 AT INR 95,5 7,51, 350. CORPORATE TAX ISSUES 2. THE LD. AO HAS ERRED IN DISALLOWING THE AMOUNT OF RS, 4,98,600 ON ACCOUNT OF SHORT DEDUCTION OF TAX INCLUDING INTEREST THEREON AS PER ANNUAL INFORMATION RETURN ('AIR') REPORT. 3. THE LD. AO HAS DISREGARDED THE DIRECTI ONS BY HON'BLE DRP AND HAS ERRED IN NOT GIVING ANY OPPORTUNITY OF BEING HEARD TO THE APPELLANT TO PRESS FOR ITS CASE. TRANSFER PRICING ISSUES 4. THE ORDER/DIRECTIONS PASSED BY LD. AO/ LEARNED TRANSFER PRICING OFFICER ('LD. TPO')/ HON'BLE DRP ARE BAD IN L AW AND FACTS, TO THE EXTENT OF ADJUSTMENT OF INR 86,37,30,996 MADE IN THE IMPUGNED ASSESSMENT ORDER. 5. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE DISREGARDED THE JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 6. THE LD. AO/LD. TPO/ HON'BL E DRP HAS GROSSLY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 3 INR 2,17,50,135 ON ACCOUNT OF SELECTION OF TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE DISTRIBUTION FUNCTIONS OF THE APPELLANT AND IN DOING SO HAVE GROSSLY ERRED ON THE FOLLOWING AND NOT LIMITED TO: 6.1 DISREGARDING THE RESALE PRICE METHOD ('RPM') AS THE MOST APPROPRIATE METHOD TO BENCHMARK THE DISTRIBUTION ACTIVITIES OF THE APPELLANT; 6.2 NOT UNDERTAKING ANY BEST METHOD ANALYSIS FOR SELECTION OF MOST APPROPRIATE METHOD; 6.3 FACTS AND IN LAW IN NOT APPRECIATING THAT THE COMPARABLES SELECTED BY THE APPELLANT IN ITS TRANSFER PRICING ('TP') DOCUMENTATION ARE FUNCTIONALLY COMPARABLE WITH THE DISTRIBUTION ACTIVITY UNDERTAKEN BY THE APPELLANT; 6.4 I NCLUDING CERTAIN COMPANIES TO BENCHMARK THE DISTRIBUTION ACTIVITY OF THE APPELLANT, WHICH ARE, NEITHER FUNCTIONALLY COMPARABLE, NOR INTO SIMILAR BUSINESS ACTIVITIES; 6.5 INCLUDING CERTAIN NON - OPERATING EXPENSES AND EXCLUDING OPERATING INCOME FOR THE PURPO SE OF COMPUTING THE OPERATING MARGIN OF THE APPELLANT; 6.6 DISREGARDING THE APPROACH ADOPTED BY THE APPELLANT OF USING THE MULTIPLE YEAR DATA IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E FY 2010 - 11) DATA FOR COMPARABLE COMPANIES SHOULD BE US ED DESPITE THE FACT THAT THE SAME WAS NOT ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 4 NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; AND 6.7 NOT DEDUCTING SUBVENTION INCOME FROM AMOUNT OF OPERATING EXPENDITURE. 7. THE LD. AO/LD. TPO/ HON'BLE DRP HAS GROSSLY ERRED, BOTH IN FACTS & LAW, IN ENHANCING THE INCOME OF THE APPELLANT BY IN R 84,19,80,861 ON ACCOUNT OF NON - RECEIPT OF THE INCOME FOR ' 'ALLEGEDLY EXCESSIVE' ADVERTISING, MARKETING AND PROMOTION ('AMP') EXPENSES INCURRED BY THE APPELLANT AND IN DOING SO HAV E GROSSLY ERRED ON THE FOLLOWING AND NOT LIMITED TO: 7.1. ASSUMING JURISDICTION IN RESPECT OF THE AMP EXPENDITURE WHEN SUCH EXPENDITURE DID NOT SATISFY THE REQUISITES OF BEING AN INTERNATION AL TRANSACTION UNDER SECTION 92B READ WITH SECTION 92F(V) OF THE INCOME TAX ACT, 1961 ('THE ACT'); 7.2. NOT GIVING COGNIZANCE TO THE FACT THAT THE APPELLANT IS EARNING A RETURN COMMENSURATE WITH THE COMPARABLE COMPANIES EVEN AFTER INCURRING THE AMP EXPENSES AND ANY ADDITION ON THIS ACCOUNT WOULD ABNORMALLY DRIVE UP THE MARGINS LEADING TO AN ANOMALY; 7.3. CONSIDERING THE EXPENDITURE INCURRED IN THE NATURE OF NORMAL BUSINESS FUNCTION AS A SERVICE AND ERRONEOUSLY BIFURCATING THE EXPENDITURE INTO ROUTINE AND NON - ROUTINE EXPENDITURE; 7.4. CONSIDERING THE SALARY OF SALES AN D MARKETING TEAM AND SELLING AND DISTRIBUTION EXPENSES INCURRED ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 5 BY THE APPELLANT AS PART OF AMP EXPENSES WHILE PROPOSING THE ADJUSTMENT; 7.5. MISCONCEIVING THE FACTS THAT THE APPELLANT WAS 'PROMOTING' MERCK BRAND AND CREATING MARKETING INTANGIBLES FOR THE PARENT COMPANY INSTEAD OF APPRECIATING THAT THE APPELLANT WAS ONLY CARRYING OUT ITS BUSINESS BY USING THE WELL - ESTABLISHED BRAND NAME OF MERCK; 7.6. HOLDING THAT THE APPELLANT IS ADDING VALUE TO THE PRODUCTS SOLD IN INDIA BY INCURRING AMP EXPENSES WITHOUT APPRECIATING THAT FACT THAT AMP EXPENSES INCURRED BY THE APPELLANT ARE PRIMARILY FOR THE PURPOSE OF SELLING THE PRODUCTS AND NOT TOWARDS BRAND BUILDING ACTIVITY; 7.7. HOLDING THAT THE APPELLANT IS ENGAGED IN BRAND BUILDING ACTIVITY WITHOUT APPRECIATING T HE FACT THAT THE APPELLANT, BEING A DISTRIBUTOR OF PHARMACEUTICAL PRODUCTS; 7.8. CONSIDERING THAT THE PRIMARY BENEFIT OF INCURRING AMP EXPENSE IS TO APPELLANT'S ACCOUNT AND NOT APPRECIATING THAT INCIDENTAL BENEFIT, IF ANY DOES NOT WARRANT A REIMBURSEMENT; 7.9. NOT APPRECIATING THE FACT THAT AMP EXPENSES IS A FUNCTION PERFORMED BY THE APPELLANT AND NOT A TRANSACTION UNDERTAKEN BY THE APPELLANT; 7.10. COMPUTING THE VALUE OF THE ALLEGED INTERNATIONAL TRANSACTION ON ACCOUNT OF AMP EXPENDITURE SINCE NO COST/I NCOME CAN BE ATTRIBUTED ONLY TO 'BRAND PROMOTION' BY THE APPELLANT; ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 6 7.11. APPLYING COST PLUS METHOD ('CPM') FOR THE DETERMINATION OF THE IMPUGNED AMP TRANSACTION WITHOUT PROVIDING ANY COGENT REASONING OF ACCEPTING CPM AND REJECTING OTHER METHODS AS SPECIF IED UNDER SECTION 92C OF THE ACT; 7.12. DISREGARDING THE METHODOLOGY PROVIDED BY THE HON'BLE DRP VIDE DIRECTIONS WHILE COMPUTING THE TP ADJUSTMENT IN CONNECTION TO AMP; 7.13. CONSIDERING GP RATE AS THE RATE TO CALCULATE THE MARK - UP ON THE AMP EXPENSES IN CURRED BY THE APPELLANT AS THE GP RATE CONSIDERED IS SYMBOLIC OF THE DISTRIBUTION FUNCTIONS CARRIED OUT BY THE APPELLANT AND DOES NOT REFLECT THE RETURN ON ALLEGE AMP TRANSACTION OF THE APPELLANT; 7.14. WITHOUT PREJUDICE, EVEN IF THE EXPENDITURE ON AMP WE RE TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION, THE HON'BLE DRP/LD. TPO ERRED IN NOT CONSIDERING THE SAME TO BE INTERLINKED AND INTER - CONNECTED TO THE DISTRIBUTION BUSINESS OF THE APPELLANT AND DISREGARDING THAT IT DOES NOT WARRANT A SEPARATE BENCHMAR KING AND HENCE DISREGARDING THE JUDICIAL PRECEDENCE IN THIS REGARD; 7.15. WITHOUT PREJUDICE, LD. AO/ LD. TPO/ HON'BLE DRP HAS ERRED ON FACTS AND IN LAW IN GIVING AN ERRONEOUS FINDING OF USING COMPANIES SELECTED BY LD. TPO, WHICH ARE, NEITHER FUNCTIONALLY COMPARABLE, NOR INTO SIMILAR BUSINESS ACTIVITIES TO BENCHMARK THE AMP EXPENSES OF THE APPELLANT AND ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 7 7.16. MAKING AN ADJUSTMENT ON AMP EXPENSES WHICH HAS LED TO DOUBLE TAXATION IN THE HANDS OF THE APPELLANT. OTHERS 8. THE LD. AO/HON'BLE DRP HAS ERRED IN H OLDING THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF EACH ITEM OF DISALLOWANCE/ADDITIONS AND IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1 ) (C) OF THE ACT. 9. THE LD. AO HAS GROSSLY ERRED IN NOT PROVIDING THE S E T OFF OF REFUND OF RS 19,99,869/ - DUE TO THE APPELLANT FOR AY 2008 - 09 WHILE DETERMINING THE AMOUNT OF DEMAND TO BE PAID BY THE APPELLANT. THE LD. AO HAS ERRED IN NOT CONSIDERING THE RECTIFICATION APPLICATION FILED BY THE APPELLANT SUBSEQUENT TO WHICH THE DEMAND RAISED ON ACCOUNT OF FRINGE BENEFIT TAX ('FBT') WOULD BE VACATED AND REFUND WOULD BE DUE. 10. THE LD. AO HAS WHILE CALCULATING THE AMOUNT OF DEMAND DUE FROM THE APPELLANT, COMPUTED THE INTEREST TO BE LEVIED ON THE APPELLANT ERRONEOUSLY. 11. THAT T HE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF OBJECTIONS EITHER BEFORE OR AT THE TIME OF HEARING OF THESE OBJECTIONS. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WI THDRAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 8 FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING. 3. THE GROUNDS RAISED BY THE DEPARTMENT IN ITS APPEAL I.E. ITA NO. 1563/DEL/2016 READ AS UNDER: 1. WHETHER ON THE FAC TS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DISPUTE RESOLUTION PANEL (DRP) IS JUSTIFIED IN NOT APPRECIATING THE FACT THAT BRIGHT LINE IS A MERE STEP (OF THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE AMP SERVICES) CARRIED OUT TO ESTIMATE AND BIF URCATE EXPENDITURE PERTAINING TO THE TAXPAYER FOR ITS OWN ROUTINE DISTRIBUTION FUNCTION AND THE EXPENDITURE INCURRED ON AMP SERVICE PROVIDED TO THE AE IN A SITUATION WHERE THE ASSESSEE HAS NOT REPORTED THE INTERNATIONAL TRANSACTION PERTAINING TO MARKETING FUNCTION? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN STATING THAT ROUTINE SELLING AND DISTRIBUTION EXPENSES WOULD NOT FORM PART OF AMP EXPENSE (DISREGARDING THE FACT THAT THESE EXPENSES CONTRIBUTE TO CREATION OF MARKETING INTANGIBLE) EVEN WHILE THE SAME IS A FACTOR FOR COMPARABILITY ANALYSIS AS DIFFERENT ENTITIES ACCOUNT FOR SUCH EXPENDITURE UNDER DIFFERENT HEADS? 3. WHETHER ON THE FACTS AND ON CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTE RESOLUTION PANE L (DRP) IS JUSTIFIED IN HOLDING THAT PLR CANNOT BE BASIS FOR COMPUTING MARK UP ON AMP EXPENSES WITHOUT APPRECIATING THE REVENUE S CASE WHEREIN THE PLR OF BANKS HAS BEEN USED AS AN UNCONTROLLED COMPARABLE TO BENCHMARK THE OPPORTUNITY COST OF MONEY INVOLVED AND LOCKED UP IN AMP EXPENSE? ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 9 4. THAT THE ORDER OF THE LD. DRP IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FORGO ANY GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 4. THE MAIN ISSUE IN BOTH THESE APPEALS RELATES TO THE EXPENDITURE ON ADVERTISEMENT MARKETING AND PROMOTION (AMP) WHICH WERE RELATED TO THE SELLING AND DISTRIBUTION. 5 . DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THE ISS UES RAISED IN THESE APPEAL S RELATING TO AMP EXPENSES, ARE COVERED BY THE DECISION DATED 22.11.2016 OF THIS BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO.1423/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). THE LD. CIT DR ALTHOUGH STRONGLY SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 6 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND MATERI AL ON RECORD, IT IS NOTICED THAT THE MAIN ISSUE RELATING TO AMP EXPENSES AGITATED BY BOTH THE PARTIES HAS BEEN RESTORED TO THE FILE OF THE TPO/AO FOR FRESH DETERMINATION IN ASSESSEE S OWN CASE IN ITA NO. 1423/DEL/2015 FOR THE ASSESSMENT YEAR ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 10 2010 - 11 VIDE O RDER DATED 22.11.2016. THE RELEVANT FINDINGS ARE GIVEN IN PARAS 3 TO 7 OF THE SAID ORDER WHICH READ AS UNDER: 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE ON ADVERTISEMENT, MARKETING AND PROMOTION (AMP) AND ALL TH E EXPENSES TAKEN NOTE OF BY THE AUTHORITIES BELOW WERE IN THE NATURE OF SELLING EXPENSES. SHE REFERRED TO THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) ACT, 1954 AND THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) RULES, 1955, TO BUTTRESS THAT THE ASSESSEE, UNDER LAW, IS DEBARRED FROM INCURRING ANY EXPENDITURE ON ADVERTISEMENT, MARKETING AND PROMOTION. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THE DISALLOWANCE WAS NOT WARRANTED. 4. WITHOUT PREJUDICE TO THE ABOVE ARGUMENT, THE LD. AR ALSO CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARM S LENGTH PRICE OF THIS TRANSACTION OR MAKING ANY ADDITION THEREON. SHE RELIED ON SOME OF THE JUDGMENTS OF THE HON BLE DELHI HIGH COURT INCLUDING CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL - HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE JUDGMENTS, IT WAS SUBMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, THE MAKING TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 5 . AU CONTRAIRE, THE LD. DR RELIED ON THE JUDGMENT OF THE HON BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRANSACTION AND THE MATTER OF ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 11 DETERMINATION OF ITS ALP HAS BEEN RESTORED. IT WAS SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON - INTERNATIONAL TRANSACTION. H E FURTHER STATED THAT THE HON BLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGH ED FOR ASCERTAINING IF AN INTERNATIONAL TRANSACTION OF AMP EXPENSES, EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGMENT OF THE HON BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS. HE ALSO RELIED ON STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HON BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010 - 11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERRED TO THREE RECENT JUDGMENTS OF THE HON BLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD. (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA). THE LD. DR ARGUED THAT THE HON BLE DELHI HIGH COURT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO B E AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE ARE NOT INCLINED TO ACCEPT THE PRIMARY CONTENTION THAT THE ASS ESSEE DID NOT INCUR ANY AMP EXPENSES SIMPLY ON THE BASIS OF THE ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 12 PROVISIONS OF THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) ACT, 1954 AND THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) RULES, 1955, DEBARRING NOT INCURRING OF AD VERTISEMENT EXPENSES IN CERTAIN CIRCUMSTANCES. THIS, IN ITSELF, CANNOT LEAD TO A PRESUMPTION THAT THE ASSESSEE DID NOT INCUR ANY AMP EXPENSES. IT IS THE REALITY OF THE ACTUAL FACTS AND CIRCUMSTANCES WHICH NEEDS TO BE SEEN. AS SUCH, WE SET ASIDE THE IMPUG NED ORDER AND DIRECT THE TPO/AO TO VERIFY THE ASSESSEE S CONTENTION IN THIS REGARD THAT NO AMP EXPENSES WERE INCURRED. IF, IN REALITY, THE ASSESSEE INCURRED ONLY SELLING EXPENSES AND NOT AMP EXPENSES, THEN, OF COURSE, THERE CANNOT BE ANY QUESTION OF DISALL OWANCE. IF THE TOTAL BUCKET OF THESE EXPENSES INCLUDES CERTAIN AMP EXPENSES ALSO, THEN, TO THAT EXTENT, THE CONTENTION OF THE LD. AR BECOMES MEANINGLESS. 7. COMING TO THE WITHOUT PREJUDICE CONTENTION OF THE LD. AR AND SAVE AS HELD IN THE PRECEDING PARA , WE FIND THAT SHE TRIED TO FORTIFY HER ARGUMENT THAT THERE WAS NO INTERNATIONAL TRANSACTION ON ACCOUNT OF AMP EXPENSES IN TERMS OF THE JUDGMENT IN THE CASE OF WHIRLPOOL (SUPRA) ETC. ON PERUSAL OF THE ORDER OF THE TPO, IT EMERGES THAT WHILE HOLDING THE AM P EXPENSES TO BE AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABLE FOR CONSIDERATION, IN SOME OF WHICH THE TRANSACTION OF AMP HAS BEEN HELD AS AN INTERNATIONAL TRANSACTION, IN OTHERS AS NOT AN INTERNATIONAL TRANSACTIONS, WHILE STILL IN SOME OTHERS, THE MATTER HAS BEEN RESTORED FOR FRESH CONSIDERATION IN THE LIGHT OF THE JUDGMENT IN SONY ERICSSON (SUPRA), IN WHICH THE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION HAS BEEN ACCEPTED. RESPECTFULLY FOLLOWING THE PR EDOMINANT VIEW OF THE HON BLE HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 13 ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WOULD END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSA CTION IS FOUND TO BE EXISTING, THEN THE TPO WOULD DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HON BLE HIGH COURT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. SINC E FACTS FOR THE YEAR UNDER CONSIDERATION RELATING TO AMP EXPENSES ISSUE ARE SIMILAR TO THE FACTS INVOLVED IN AFORESAID REFERRED TO CASE. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 22.11.2016 IN ITA NO. 1423/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 IN ASSESSEE S OWN CASE , THE ISSUE RELATING TO TRANSFER PRICING I.E. AMP EXPENSES, IS RESTORED TO THE FILE OF THE AO/TPO FOR FRESH ADJUDICATION AS DIRECTED IN THE SAID ORDER, AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8 . AS REGARDS TO ANOTHER ISSUES I.E. CORPORATE TAX ISSUE RELATING TO THE SHORT DEDUCTION OF TAX INCLUDING INTEREST THEREON AND NOT CONSIDERING THE DIRECTION GIVEN BY THE DRP RAISED BY THE ASSESSEE IN GROUND NOS. 2 & 3 AND ANOTHER ISSUE RELATING TO SET OFF OF REFUND DUE TO THE ASSESSEE FOR THE ASSESSMENT YEAR ITA N OS. 1383 & 1563 /DEL /201 6 MSD PHARMACEUTICALS PVT. LTD. 14 2008 - 09 WHILE DETERMINING THE AMOUNT OF DEMAND TO BE PAID BY THE ASSESSEE . IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT THESE ISSUES MAY ALSO BE RESTORED TO THE FILE OF THE AO FOR V ERIFICATION FROM THE RECORD AND ADJUDICATION IN ACCORDANCE WITH LAW. WE, THEREFORE, DIRECT THE TPO/AO TO DECIDE ALL THE LEGAL AS WELL FACTUAL ISSUE S, DE NOVO IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 9 . IN THE RESULT, BOTH THE APPEAL S OF THE ASSESSEE AND THE DEPARTMENT ARE ALLOWED FOR STATISTICAL PURPOSES . ( ORDER PRON OUNCED IN THE COURT ON 25 /05 /2017 ) SD/ - SD/ - (SUCHITRA KAMBLE ) (N. K. SAINI) JUDICIAL M EMBER ACCOUNTANT MEMBER DAT ED: 25 /05 /2017 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR