M/s MSD Pharmaceuticals (P) Ltd, New Delhi V. DCIT, New Delhi

ITA 1423/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6636 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 21-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.1423/DEL/2015 ASSESSMENT YEAR : 2010-11 MSD PHARMACEUTICALS (P) LTD., 15444, LEVEL 15 EROS CORPORATE TOWERS, NEHRU PLACE, NEW DELHI. PAN: AAECM1106C VS. DCIT, CIRCLE 17(1), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS RASHMI CHOPRA, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 21.11.2016 DATE OF PRONOUNCEMENT : 22.11.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143( 3) READ WITH SECTION ITA NO.1423 /DEL/2015 2 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE ARGUED BY THE LD. AR IN THIS AP PEAL IS AGAINST THE ADDITION OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE A SSESSEE DID NOT INCUR ANY EXPENDITURE ON ADVERTISEMENT, MARKETING AND PRO MOTION (AMP) AND ALL THE EXPENSES TAKEN NOTE OF BY THE AUTHORITIES B ELOW WERE IN THE NATURE OF SELLING EXPENSES. SHE REFERRED TO THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) ACT, 1954 AND THE D RUGS 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 ARMS LENGTH PRICE OF THIS TRANSACTION OR MAKING AN Y ADDITION THEREON. ITA NO.1423 /DEL/2015 3 SHE RELIED ON SOME OF THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT INCLUDING CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 D EL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSI DERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE J UDGMENTS, IT WAS SUBMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTI ON OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN IN THESE JUDGM ENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQU ENTLY, THE MAKING TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 5. AU CONTRAIRE , THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE 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 TH E MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. IT WAS SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON-INT ERNATIONAL TRANSACTION. HE FURTHER STATED THAT THE HONBLE HI GH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PRO PERLY WEIGHED FOR ASCERTAINING IF AN INTERNATIONAL TRANSA CTION OF AMP ITA NO.1423 /DEL/2015 4 EXPENSES, EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDE D AFRESH IN THE LIGHT OF THE JUDGMENT OF THE HONBLE 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 HONBLE 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 TRANSACTIO N, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERR ED TO THREE RECENT JUDGMENTS OF THE HONBLE 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 R ESTORED 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 HONBLE DELHI HIGH COURT IN ITS EARLIER DECISIO N IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (20 15) 374 ITR 118 ITA NO.1423 /DEL/2015 5 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSA CTION. IT WAS ARGUED THE MATTER SHOULD BE RESTORED FOR A FRESH DE TERMINATION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE ARE NOT INCLINED TO ACCEPT T HE PRIMARY CONTENTION THAT THE ASSESSEE DID NOT INCUR ANY AMP EXPENSES SI MPLY ON THE BASIS OF THE PROVISIONS OF THE DRUGS AND MAGIC REMEDIES (OBJ ECTIONABLE ADVERTISEMENTS) ACT, 1954 AND THE DRUGS AND MAGIC REMEDIES (OBJECTIONABLE ADVERTISEMENTS) RULES, 1955, DEBARRI NG NOT INCURRING OF ADVERTISEMENT EXPENSES IN CERTAIN CIRCUMSTANCES. TH IS, IN ITSELF, CANNOT LEAD TO A PRESUMPTION THAT THE ASSESSEE DID NOT INC UR ANY AMP EXPENSES. IT IS THE REALITY OF THE ACTUAL FACTS AND CIRCUMSTA NCES WHICH NEEDS TO BE SEEN. AS SUCH, WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE TPO/AO TO VERIFY THE ASSESSEES CONTENTION IN THIS REGARD THAT NO AMP EXPENSES WERE INCURRED. IF, IN REALITY, THE ASSESSEE INCURRE D ONLY SELLING EXPENSES AND NOT AMP EXPENSES, THEN, OF COURSE, THERE CANNOT BE ANY QUESTION OF DISALLOWANCE. IF THE TOTAL BUCKET OF THESE EXPENSE S INCLUDES CERTAIN ITA NO.1423 /DEL/2015 6 AMP EXPENSES ALSO, THEN, TO THAT EXTENT, THE CONTEN TION OF THE LD. AR BECOMES MEANINGLESS. 7. COMING TO THE WITHOUT PREJUDICE CONTENTION O F THE LD. AR AND SAVE AS HELD IN THE PRECEDING PARA, WE FIND THAT SHE TRI ED TO FORTIFY HER ARGUMENT THAT THERE WAS NO INTERNATIONAL TRANSACTIO N 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 AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABLE FO R CONSIDERATION, IN SOME OF WHICH THE TRANSACTION OF AMP HAS BEEN HELD AS AN INTERNATIONAL TRANSACTION, IN OTHERS AS NOT AN INTERNATIONAL TRAN SACTIONS, 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 A CCEPTED. RESPECTFULLY FOLLOWING THE PREDOMINANT VIEW OF THE HONBLE HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITN ESS OF THINGS IF THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTO RED TO THE FILE OF ITA NO.1423 /DEL/2015 7 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, TH E MATTER WOULD END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADD ITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WOULD DETERMINE THE ALP OF SUCH AN INTERNATIONAL TR ANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT , AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 8. NO OTHER GROUND WAS ARGUED BY THE LD. AR. THESE GROUNDS ARE, THEREFORE, DISMISSED AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.11.201 6. SD/- SD/- [LALIET KUMAR] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 22 ND NOVEMBER, 2016. DK ITA NO.1423 /DEL/2015 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.