Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 4901 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 2 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-05-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Assessment Year
2012-2013
Appeal Filed On
27-03-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER IT(TP)A NO.2160/MUM/2017 ASSESSMENT YEAR : 2012-13 INDIA MEDITRONIC P VT. LTD., 1241 SOLITAIRE CORPORATE PARK, BLDG. NO.12, 4 TH FLOOR, ANDHERI GHATKOPAR LINK ROAD, ANDHERI (EAST), MUMBAI 400 093 PAN AAACI4227Q VS. ACIT 10(1)(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJAN R VORA RESPONDENT BY : SHRI JAYANT KUMAR DATE OF HEARING : 2 4 .0 4 .201 9 DATE OF PRONOUNCEMENT : 27 .0 5 .201 9 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE IMPUGNED ORDER, DATED 20.02.2017, PASSED BY THE ACI T, MUMBAI, U/S 143(3) R.W.S 144C PURSUANT TO THE DIRECTIONS OF THE DRP FO R THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, INDIA MEDTRONIC PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE 'APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME-TAX- 10(1)(1), MUM BAI (HEREINAFTER REFERRED TO AS THE 'LEARNED AO') UNDER SECTION 143( 3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER R EFERRED TO AS THE 'ACT') IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 2 RESOLUTION PANEL -1, (HEREINAFTER REFERRED TO AS TH E 'HON'BLE DRP') ON THE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUD ICE TO ONE ANOTHER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS IN LAW, THE LEARNED AO/ JOINT COMMISSIONER OF INCOME-TAX (TRANS FER PRICING) - 2(3) (TPO')/ HON'BLE DRP HAS ERRED IN FACT AND IN LAW: GROUNDS 1. ERRED IN ASSESSING THE TOTAL INCOME OF T HE APPELLANT AT RS. 86,47,57,590 AS AGAINST RS. 36,01,57,620 AS COMPUTE D BY THE APPELLANT; TRANSFER PRICING GROUNDS ON ADVERTISING, MARKETING AND PROMOTION CAMP') ADJUSTMENT 2. ERRED IN MAKING TRANSFER PRICING ADJUSTM ENT OF RS 23,58,61,099 ON ACCOUNT OF AMP EXPENSES INCURRED BY THE APPELLAN T; AMP IS NOT AN INTERNATIONAL TRANSACTION 3. ERRED IN CONSIDERING THE FUNCTION OF AMP AS A SEPARATE PURPORTED INTERNATIONAL TRANSACTION FOR THE PURPOSE OF TRANSF ER PRICING ADJUSTMENT; 4. ERRED IN IGNORING THAT THE ALLEGED AMP EX PENSES INCURRED BY THE APPELLANT REPRESENTS ONLY DOMESTIC TRANSACTIONS UND ERTAKEN WITH THIRD PARTIES/ EMPLOYEES AND ARE OUTSIDE THE PURVIEW OF S ECTION 92B OF THE ACT AND IS THUS IN EXCESS OF HIS JURISDICTION; 5. ERRED IN NOT CONSIDERING THE FACT THAT IN ABSENCE OF AN EXPLICIT ARRANGEMENT OR AGREEMENT BETWEEN THE APPELLANT AND ITS AES FOR INCURRING AMP EXPENSES, SUCH AMP EXPENSES CANNOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTIONS WITH AES; 6. ERRED IN HOLDING THAT THE APPELLANT IS DI RECTED BY THE AE AND ALSO OBLIGATED FOR CARRYING OUT THE AMP FUNCTIONS FOR TH EM; 7. ERRED IN CONCLUDING THAT THE APPELLANT HA S ENTERED INTO AN INTERNATIONAL TRANSACTION OF PROVIDING SERVICES TO THE AES; PROMOTION OF AE'S BRAND IN INDIA 8. ERRED IN HOLDING THAT BY INCURRING THE IM PUGNED AMP EXPENSES, THE APPELLANT WAS PROMOTING MEDTRONIC BRAND INSTEAD OF APPRECIATING THAT THE APPELLANT WAS ONLY CARRYING OUT ITS BUSINESS BY USING THE WELL- ESTABLISHED BRAND NAME OF MEDTRONIC AND ANY BENEFIT DERIVED BY THE AES IS PURELY INCIDENTAL IN NATURE; TRANSACTIONAL NET MARGIN METHOD ('TNMM'): BUNDLED A PPROACH IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 3 9. ERRED IN NOT APPRECIATING THAT THE APPELLANT HAS FOLLOWED A BUNDLED TRANSACTION APPROACH FOR DETERMINING THE ARM'S LENG TH PRICE OF THE TRADING TRANSACTION AND THAT IT WOULD BE ILLOGICAL AND IMPR OPER TO TREAT AMP EXPENSES, BEING ONE OF THE FUNCTIONS OF DISTRIBUTIO N ACTIVITY PERFORMED BY THE APPELLANT, AS A SEPARATE INTERNATIONAL TRANSACT ION GIVEN THAT THE INTERNATIONAL TRANSACTION OF 'TRADING OF MEDICAL DE VICES' HAVE BEEN CONSIDERED TO BE AT ARM'S LENGTH; APPLICATION OF BRIGHT LINE METHOD ('BLT') 10. ERRED IN THAT THE APPELLANT HAS RENDERED A SERVICE TO THE AES BY INCURRING THE AMP EXPENSE AND BY HOLDING THAT THE E XCESSIVE AMP EXPENSES UNDER BLT SHOULD BE REIMBURSED BY THE AES; 11. ERRED IN NOT CONSIDERING THE PRINCIPLES LA ID DOWN BY JURISDICTIONAL ITAT IN APPELLANT'S OWN CASE FOR AY 2009-10 WHICH S TATES THAT BLT IS NOT AN APPROPRIATE METHOD TO BENCHMARK THE AMP EXPENDIT URE; 12. ERRED IN NOT CONSIDERING THE DIRECTIONS L AID DOWN BY HON'BLE DRP IN APPELLANT'S OWN CASE FOR AY 2011-12 WHICH STATES THAT BLT IS NOT AN APPROPRIATE METHOD TO BENCHMARK AMP EXPENDITURE; 13. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN APPLYING THE BLT TO DETERMINE THE ARM'S LENGTH PRICE OF THE AMP EXPENSE S INCURRED BY THE APPELLANT, WITHOUT APPRECIATING THAT NO SUCH METHOD HAS BEEN PRESCRIBED UNDER THE ACT AND THE RULES; NO SCIENTIFIC APPROACH WHILE SELECTING COMPARABLE C OMPANIES FOR BRIGHT LINE TEST 14. WITHOUT PREJUDICE TO THE ABOVE, HAVING ACCEPTED THE COMPARABLES ADOPTED BY THE APPELLANT FOR BENCHMARKING IMPORT OF TRADING GOODS FROM THE AES USING TNMM ANALYSIS, ERRED IN NOT ACCEPTING THE SAME SET OF COMPARABLES FOR BENCHMARKING THE AMP EXPENSES; 15. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN CHERRY PICKING UP OF INAPPROPRIATE COMPARABLE COMPANIES ON AN AD HOC BAS IS AND NOT HAVING SIMILAR PRODUCT/ BRAND PROFILE AS THE APPELLANT AND SELECTED COMPARABLE COMPANIES OF THE PRECEDING YEAR WITHOUT CONDUCTING A FRESH SEARCH AND THEREBY VIOLATED THE PRINCIPLES OF NATURAL JUSTICE; CERTAIN EXPENSES ARE NOT IN NATURE OF AMP EXPENSES 16. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF IMPUGNED TRANSACTION IS CONSIDERED AS INTERNATIONAL TRANSACTION AND LIABLE FOR TRANSFER PRICING PROVISIONS, THERE COULD NOT BE ANY ADJUSTMENT AS EN TIRE ALLEGED AMP EXPENSES ARE IN THE NATURE OF ROUTINE BUSINESS EXPE NSES OR SELLING IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 4 EXPENSES AND THEREBY NO TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES IS JUSTIFIED; 17. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN I NCLUDING PERSONNEL COST, TRAVELLING AND CONVEYANCE EXPENSES AND DEPRECIATION ON EQUIPMENT AS PART OF AMP EXPENSES; 18. ERRED IN CONSIDERING 80% OF MANPOWER EXPE NSES AND TRAVELLING AND CONVEYANCE COSTS AS AMP EXPENSES; 19. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN CONSIDERING 80% AS AGAINST 50% OF MANPOWER EXPENSES AND TRAVELLING AND CONVEYANCE COSTS AS AMP EXPENSES AS DIRECTED BY THE HON'BLE PANEL VI DE DRP DIRECTIONS FOR AY 2009-10 AND 2010-11; 20. ERRED IN NOT PROVIDING BENEFIT OF +/-5% UN DER PROVISO TO SECTION 92C OF THE ACT FOR THE PURPOSE OF COMPUTING THE ARM 'S LENGTH PRICE; CONVENTION EXPENSES INCURRED IN NORMAL COURSE OF BU SINESS NOT IN THE NATURE OF AMP 21. ERRED IN MAKING ADJUSTMENT ON SECONDARY BA SIS BY HOLDING THAT IN CASE OF ADJUSTMENT ON AMOUNT OF AMP SPEND IS NOT SU STAINED BY THE APPELLATE AUTHORITIES, CONVENTION EXPENSES AMOUNTIN G TO RS 27,11,48,553 SHOULD BE CONSIDERED TO BE IN THE NATURE OF EXPENSE S INCURRED TOWARDS BRAND BUILDING AND BUSINESS PROMOTION AND AN ADJUST MENT SHOULD BE UNDERTAKEN TOWARDS CREATING AN INTANGIBLE IN INDIA FOR WHICH THE APPELLANT SHOULD BE COMPENSATED BY THE AE; 22. ERRED IN NOT USING ANY OF THE METHODS PRES CRIBED UNDER SECTION 92C TO UNDERTAKE ADJUSTMENT ON SECONDARY BASIS BY C ONSIDERING CONVENTION EXPENSES TO BE IN THE NATURE OF EXPENSES INCURRED TOWARDS BRAND BUILDING AND BUSINESS PROMOTION; 23. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN CONSIDERING CONVENTION EXPENSES OF RS 27,11,48,553 AS A PART OF TRANSFER P RICING ADJUSTMENT AS WELL AS CORPORATE TAX DISALLOWANCE THEREBY, MAKING DOUBLE DISALLOWANCE; OTHER DIRECT TAX DISALLOWANCES DISALLOWANCE OF DEPRECIATION ON BUILDING 24. ERRED IN DISALLOWING AN AMOUNT OF RS 93,68 6 BEING DEPRECIATION ON BUILDING WITHOUT APPRECIATING THE FACT THAT THE ASS ETS WERE FORMING PART OF BLOCK OF ASSETS AND CONTINUED TO EXIST EVEN AFTE R THE MANUFACTURING UNIT WAS DISCONTINUED; DISALLOWANCE OF PAYMENT TO DOCTORS IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 5 25. ERRED IN DISALLOWING AN AMOUNT OF RS 27,11 ,48,553 ON ACCOUNT OF PAYMENT OF CONVENTION EXPENSES WITHOUT APPRECIATING THE FACT THAT THE CODE OF CONDUCT LAID DOWN IN THE INDIAN MEDICAL COU NCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 (' MCI REGULATIONS') ISSUED WITH EFFECT FROM 10 DECEMBER 2009 APPLIES ON LY TO MEDICAL PRACTITIONERS AND NOT TO A MEDICAL DEVICE COMPANY, LIKE THE APPELLANT; 26. ERRED IN HOLDING THAT THESE EXPENSES ARE D ISALLOWABLE IN VIEW OF CIRCULAR NO. 05/2012 DATED 1 AUGUST 2012 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ('CBDT CIRCULAR') READ WITH THE AMENDM ENT MADE BY THE MCI REGULATIONS; 27. ERRED IN NOT APPRECIATING THE FACT THAT TH E MCI REGULATIONS WERE NOT APPLICABLE TO THE APPELLANT AND ACCORDINGLY, TH E QUESTION OF MAKING ANY DISALLOWANCE UNDER THE CBDT CIRCULAR DID NOT AR ISE; 28. ERRED IN NOT APPRECIATING THE FACT THAT TH E MCI REGULATIONS ARE BINDING AND APPLICABLE ONLY TO MEDICAL PRACTITIONER S AND ACCORDINGLY, THE MEDICAL DEVICE COMPANIES ARE NOT BOUND BY THESE REG ULATIONS; 29. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT AS PER THE CBDT CIRCULAR, ONLY THAT EXPENDITUR E WHICH IS INCURRED IN CONTRAVENTION OF THE MCI REGULATIONS IS TO BE DISAL LOWED AND WHETHER OR NOT THERE IS ANY CONTRAVENTION OF THE MCI REGULATIO NS IS A MATTER OF FACT WHICH CAN BE DECIDED ONLY BY THE MCI AND NOT BY THE AO. GRANTS TO MEDICAL ASSOCIATIONS 30. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, GRANTS OF RS 15,60,02,015 ARE PROVIDED TO MEDICAL ASSOCIATIONS A ND NOT TO INDIVIDUAL MEDICAL PRACTITIONERS, ACCORDINGLY, THE SAME ARE OU TSIDE THE PURVIEW OF MCI REGULATIONS AND CBDT CIRCULAR; PRINTING AND EQUIPMENT HIRE CHARGES 31. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, PRINTING AND EQUIPMENT HIRE CHARGES OF RS 17,34,576 ARE PAID TO INDEPENDENT THIRD PARTY SERVICE PROVIDERS IN THE NORMAL COURSE OF BUS INESS AND ACCORDINGLY, THE SAME IS NOT COVERED UNDER THE MCI REGULATIONS A ND CBDT CIRCULAR; ACCOMMODATION EXPENSES 32. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN DISALLOWING ACCOMMODATION EXPENSE OF RS 4,25,65,706 OUT OF THE CONVENTION EXPENSES OF RS 27,11,48,553, WITHOUT APPRECIATING T HE FACT THAT THE SAME IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 6 WAS INCURRED FOR VARIOUS MEDICAL PRACTITIONERS ATTE NDING THE MEETING/ CONFERENCE IN THE CAPACITY OF 'INSTRUCTORS/ CONSULT ANTS' OF THE MEDICAL DEVICE COMPANY AND NOT AS 'DELEGATES', THE SAME WOU LD CLEARLY FALL OUTSIDE THE PURVIEW OF THE CBDT CIRCULAR, 33. 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 SERVIC E 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 MEETING S') 34. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, EXPENDITURE INCURRED FOR ORGANIZING CME MEETINGS OF RS 2,41,00, 700 IS PAID TO THIRD PARTY AGENCIES IN THE NORMAL COURSE OF BUSINESS, WI TH THE OBJECTIVE OF DISSEMINATING EDUCATIONAL AND SCIENTIFIC INFORMATIO N TO DOCTORS AND SURGEONS AND ACCORDINGLY, THE SAME IS NOT PROHIBITE D BY THE MCI REGULATIONS; MEALS 35. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN DISALLOWING THE EXPENDITURE INCURRED FOR PROVIDING MEALS OF RS 1,43 ,37,757 OUT OF THE CONVENTION EXPENSES OF RS 17,23,59,014, WITHOUT APP RECIATING THE FACT THAT THE VALUE OF MEALS PROVIDED TO HEALTH CARE PRO FESSIONALS IS LOW, INSIGNIFICANT AND OUT OF COURTESY, ACCORDINGLY, THE SAME DOES NOT RESULT IN ANY 'FREEBIE' TO THE HEALTH CARE PROFESSIONALS; GIFTS 36. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, GIFTS ARE PROVIDED TO HCPS OF A NOMINAL VALUE OF RS 1,43,095 AND WITH THE INTENTION OF BRAND RECALL AND CREATION OF GOODWILL WHICH DOES NOT AFFECT THEIR INDEPENDENCE AND OBJECTIVITY, ACCORDINGLY, TH E SAME DOES NOT AMOUNT TO GIFTS UNDER THE MCI REGULATIONS; EXPENSES FOR TRAVEL FACILITIES 37. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, EXPENSES FOR TRAVEL FACILITIES OF RS 16,59,901 WAS INCURRED FOR VARIOUS HCPS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY, THE SAME IS OUTSIDE THE PURVIEW OF THE MCI REGULATIONS AND CBDT CIRCULAR; IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 7 38. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT FOR TRAVEL FACILITIES HAD BEEN PAI D TO TRAVEL AGENTS/ INDEPENDENT THIRD PARTY SERVICE PROVIDERS AND NOT T O MEDICAL PRACTITIONERS AND ACCORDINGLY, THE SAME IS OUTSIDE THE PURVIEW OF THE MCI REGULATIONS AND CBDT CIRCULAR; REGISTRATION CHARGES 39. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, REGISTRATION CHARGES OF RS 2,51,93,087 WAS INCURRED BY IMPL ON B EHALF OF THE HCPS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE AND ACCORDINGLY, THE SAME IS OUTSIDE THE PURVIEW OF THE MCI REGULATIONS AND CBDT CIRCULAR; CAR HIRE CHARGES 40. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THE FACT THAT OUT OF THE CONVENTION EXPENSES OF RS 27,11,48, 553, CAR HIRE CHARGES OF RS 54,11,717 WAS INCURRED BY IMPL FOR SMOOTH CON DUCT OF THE MEDICAL CONFERENCE/ SYMPOSIUM IN THE NORMAL COURSE OF BUSIN ESS AND THEY ARE OUTSIDE THE PURVIEW OF MCI REGULATIONS AND CBDT CIR CULAR. 41. 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 PRACTITI ONERS AND ACCORDINGLY, THE SAME IS OUTSIDE THE PURVIEW OF THE MCI REGULATI ONS AND CBDT CIRCULAR; DOUBLE DISALLOWANCE OF CONVENTIONAL EXPENSES 42. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN HOLDING THAT THERE IS NO DOUBLE DISALLOWANCE OF THE CONVENTION EXPENSES WITH OUT APPRECIATING THAT THE PORTION OF THE SAME HAS ALREADY BEEN DISALLOWED BY THE TPO/ AO WHILE COMPUTING THE TRANSFER PRICING ADJUSTMENT; LEVY OF INTEREST UNDER SECTION 234B OF THE ACT 43. ERRED IN LEVYING UNDER SECTION 234B OF THE ACT; LEVY OF INTEREST UNDER SECTION 234C OF THE ACT ERRED IN LEVYING UNDE R SECTION 234C OF THE ACT; LEVY OF INTEREST UNDER SECTION 234D OF THE ACT ERRED IN LEVYING UNDER SECTION 234D OF THE ACT; LEVY OF INTEREST UNDER SECTION 234C OF THE ACT 44. ERRED IN LEVYING UNDER SECTION 234C OF THE ACT. LEVY OF INTEREST UNDER SECTION 234D OF THE ACT IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 8 45. ERRED IN LEVYING UNDER SECTION 234D OF THE AC. LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT 46. ERRED IN INITIATING PENALTY UNDER SECTION 271 (1 )(C) OF THE ACT; THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF-APPEAL. THE ASSESSEE, VIDE ITS LETTER DATED 22.02.2018, HAS FILED ADDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER: ADDITIONAL ALTERNATE LEGAL GROUND OF APPEAL ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX- 10(1)(1) ('AO '); CONSEQUENTIAL DEPRECIATION ON NON-COMPETE FEE OF RS 4,73,00,000 47. ERRED IN NOT GRANTING CONSEQUENTIAL DEPRECIATIO N ON NON-COMPETE FEES AS THE SAME IS HELD TO BE CAPITAL IN NATURE IN AY 2 002-03. 3. GROUND NOS. 1 & 2 ARE GENERAL IN NATURE AND, THE REFORE, REQUIRE NO ADJUDICATION. 4. THE ISSUE RAISED IN GROUND NOS. 3 TO 23 IS IN RE SPECT OF ADVERTISING , MARKETING AND PROMOTION (AMP) EXPENSES THAT AMP IS NOT INTERNATIONAL TRANSACTIONS. THE LEARNED AR SUBMITTED BEFORE THE BENCH THAT THE ISSUE RAISED IN THESE GROUNDS IS FULLY COVERED BY THE DEC ISION OF CO-ORDINATE BENCH, VIDE ORDER DATED 02.05.2018, IN ASSESSEES OWN CASE IN ITA NO. 1246/MUM/2016 FOR A.Y. 2011-12 AND THEREFORE THE SA ME THE SAID ISSUE SHOULD BE DECIDED FOLLOWING THE ORDER OF THE COORDI NATE BENCH. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE T PO AND GROUNDS OF APPEAL. 5. WE HAVE HEARD THE BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1 246/MUM/2016 FOR A.Y. 2011-12. THE OPERATIVE PART OF THE SAID ORDER IS R EPRODUCED BELOW: IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 9 3. FIRST EFFECTIVE GROUND OF APPEAL (GS.A O-2 TO 9) IS ABOUT AMP EXPENDITURE. IT WAS BROUGHT TO OUR NOTICE THAT IDEN TICAL ISSUE WAS ADJUDICATED BY THE TRIBUNAL, WHILE DECIDING THE APP EAL FOR THE AY. 2010- 11 (I.T.A./1600/MU/2015,DTD.17.01.2018). WE ARE REP RODUCING THE RELEVANT PORTION OF THE ORDER AND IT READS AS UNDER : 3.FIRST EFFECTIVE GROUND OF APPEAL (GOA 2-9) IS AB OUT TRANSFER PRICING (TP) ADJUSTMENT MADE ON ACCOUNT OF ADVERTISEMENT, M ARKETING, PROMOTION(AMP)EXPENSES AMOUNTING TO RS.18.36 CRORES . IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECIDED BY T HE TRIBUNAL WHILE ADJUDICATING THE APPEAL FOR THE AY.2010-11 (ITA/160 0/MUM/2015, DTD.17.01/2018.)WE ARE REPRODUCING THE RELEVANT POR TION OF THE SAID ORDER AND IT READS AS UNDER: 3.1. DURING THE TP PROCEEDINGS, THE TPO OBSERVED THAT T HE ASSESSEE WAS A PART OF MEDTRONICS INC., A USA BASED GLOBAL LEAD ER IN MEDICAL TECHNOLOGY, THAT THE PARENT COMPANY WAS ENGAGED IN DEVELOPING A WIDE RANGE OF PRODUCTS AND THERAPIES MOSTLY PATENTED OR IP PROTECTED ITEMS, THAT THE ASSESSEE WAS A SUBSIDIARY OF MEDTRONICS I NTERNATIONAL HONG KONG, THAT IN THE TAX AUDIT REPORT IT HAD MENTIONED THE NATURE OF BUSINESS AS TRADING OF LIFE SAVING DEVICES, THAT THE ASSER TION MADE BY IT WAS NOT CORRECT, THAT THE ITEMS DEALT WITH BY THE ASSESSEE WERE SPECIALISED PRODUCTS AND TECHNOLOGIES WHICH REQUIRED SPECIALISE D WORKFORCE, INFRASTRUCTURE AND SYSTEM FOR MARKETING AND DISTRIB UTION. HE FURTHER OBSERVED THAT THE ASSESSEE HAD USED TNMM TO DETERMI NE THE ALP OF THE IT.S, THAT IT USED OPERATING MARGIN AS PLI ,THAT PU RCHASE SHOWN FROM AE.S WERE VALUED AT RS. 296.88 CRORES, THAT IT HAD PURCHASED FINISHED GOODS FROM MEDTRONICS INTL TRADING (SARL) MITS, ME DTRONICS SOFAMARDAMIC, USA INC., THAT PURCHASES FROM THESE T WO CONSTITUTED FOR MORE THAN 90% OF PURCHASES, HAT IT HAD NOT SUBMITTE D SEPARATE FAR ANALYSIS FOR EACH OF THE TRANSACTIONS, THAT AS PER THE GLOBAL TP REPORT OF THE GROUP PRICES WERE FIXED FOR EACH YEAR FOR EACH PRODUCT ON THE BASIS OF AVERAGE SELLING PRICE FOR LAST YEAR LESS A RESAL E DISCOUNT PERCENTAGE, THAT THE RESALE DISCOUNT PERCENTAGE WAS BASED ON CO MPARABLE RESELLERS, THAT IT HAD CONDUCTED TP STUDY IN RESPECT OF TRANSA CTIONS OF PURCHASE OF PRODUCTS, PURCHASE OF CAPITAL ASSET AND RECEIPT OF MANAGEMENT FEE BY CLUBBING THEM TOGETHER AS PART OF DISTRIBUTION WORK , THAT AS PER THE TP STUDY THE ASSESSEE HAD EARNED AN OPM OF 5.39%,AS AG AINST 4.22% EARNED BY THE COMPARABLE COMPANIES, THAT IT HAD CO NSIDERED ITSELF A DISTRIBUTION COMPANY, THAT IT WAS CARRYING OUT MARK ETING AND DISTRIBUTION ACTIVITIES IN INDIA, THAT SALES COMMISSION, SELLING AND DISTRIBUTION EXPENSES, PRODUCT GIVE-AWAY AND SAMPLES AND CONVENT ION EXPENSES WERE PART OF SALES PROMOTION EXPENSES ,THAT THE TP STUDY BY THE ASSESSEE WAS IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 10 INCORRECT AND INSUFFICIENT. THOUGH HE DID NOT REJEC T THE TNMM STUDY WITH REFERENCE TO DISTRIBUTION FUNCTION. BUT, HE HELD TH AT AMP EXPENDITURE INCURRED BY THE ASSESSEE WERE THE IT.S, THAT IT HAD CREATED BRAND AWARENESS IN ITS TERRITORIAL DOMAIN, THAT THE ULTIM ATE BENEFIT OF THE ACTIVITY DID NOT REMAIN WITH THE ASSESSEE ONLY, THAT IT PASS ED IT ON TO THE PARENT COMPANY IN THE FORM OF BETTER BRAND VALUE FOR ITS P RODUCTS. FINALLY,HE DETERMINED THE ALP OF REIMBURSEMENT FOR BRAND PROMO TION AND MARKETING INTANGIBLES AT RS.38.72 CRORES. THE AO IN HIS DRAFT ORDER PROPOSED FOR SAID ADDITION. 3.2. AGGRIEVED BY ORDER OF THE TPO/AO, THE ASSESSEE FILE D OBJECTIONS BEFORE THE DRP. VIDE ITS DIRECTIONS, DATED 16/12/20 14,THE DRP CONFIRMED THE ORDER OF THE TPO/AO RELYING UPON THE SPECIAL BE NCH DECISION DELIVERED IN THE CASE OF LG ELECTRONICS . 3.3. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE(AR)STATED THAT AMP EXPENDITURE WAS N OT AN IT., THAT THERE WAS NO UNDERSTANDING OR AGREEMENT BETWEEN THE ASSESSEE AND THE AE IN THAT REGARD, THAT EVEN IF THERE WAS ANY ARRAN GEMENT WITH THE AE FOR INCURRING EXPENSES THERE MUST BE AN UNDERSTANDING/A GREEMENT WITH AE FOR SPENDING 'EXCESSIVELY' TOWARDS MARKETING EXPENS ES FOR PROMOTING THE BRAND IN INDIA, THAT THE TPO HAD APPLIED THE BRIGHT LINE METHOD TO COMPUTE ADJUSTMENT ON ACCOUNT OF AMP EXPENSES, THAT NO SUCH METHOD WAS PRESCRIBED UNDER THE ACT AND THE RULES, THAT IN ABSENCE OF A MACHINERY PROVISION TO BENCHMARK THE AMP EXPENSES N O ADJUSTMENT COULD BE MADE, THAT BASED ON THE PRINCIPLES OF BUN DLED APPROACH, AS EMANATED BY THE DELHI HIGH COURT IN CASE OF SONY IN DIA LIMITED (374 ITR 118)NO ADDITION SHOULD HAVE BEEN MADE. HE FURTHER A RGUED THAT THE ASSESSEE HAD EARNED AN OPERATING MARGIN OF 5.39% WH ICH WAS HIGHER THAN THE MARGINS EARNED BY COMPARABLES, THAT IT WAS ONLY CARRYING OUT ITS OWN BUSINESS AND ANY BENEFITS DERIVED BY THE AES WE RE PURELY INCIDENTAL IN NATURE, THE DRP HAD PASSED A NON SPEAKING ORDER, THAT THE TPO HAD NOT REJECTED THE METHOD APPLIED BY THE ASSESSEE, TH AT IT WAS NOT INCURRING AMP EXPENDITURE ON BEHALF OF THE AE, THAT THE SELLING AND DISTRIBUTION EXPENSES WERE NOT EVEN 1% OF THE TOTAL EXPENSES, THAT THE DRP HAD FOLLOWED ORDER OF THE THEN DRP FOR 2009-10 AND HAD ADOPTED BRIGHTLINE METHOD. HE ALSO REFERRED TO CASES OF LI AND FUNG (361 ITR 85 OF HON'BLE DELHI HIGH COURT),THOMAS COOK INDIA LTD. (ITA.S/1261& 1238/ MUM/ 2015,DTD 31/5/16),LOREAL INDIA PVT. LTD.(ITA/ 7714/& ORS./MUM/12, DTD.4/5/16). THE DEPARTMENTAL REPRESENTATIVE (DR)THAT THERE WAS OBLIGATION ON PART OF THE AE TO COMPENSATE THE ASSESSEE, THAT IT WAS A N IT., THAT THE AE HAD ENTERED IN TO THREE AGREEMENTS WITH THE ASSESSEE, T HAT THE ASSESSEE WAS IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 11 ALSO CARRYING OUT MARKETING AND DISTRIBUTION ACTIVI TIES, THAT SALES COMMISSION COULD BE CATEGORISED AS AMP EXPENSE, THA T PART OF TRAVELLING EXPENSES AND MAN -POWER EXPENSES SHOULD GO TO MARKE TING, THAT THE TRIBUNAL IN THE EARLIER AY.S HAD SENT BACK THE ISSU E TO THE FILE OF THE AO/TPO(ITA/NO.2168/ MUM/14,DTD. 31/12/2015.AY-2009- 10 AND ITA 811/AHD/2008,AY.2002-03,DTD.25/10/2016),THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE TPO. HE REFERRED T O THE CASE OF LUXOTTICA INDIA EYEWARE PVT. LTD.((ITA/1492/DEL/2015 DTD. 26. 05.2017 IN HIS REJOINDER, THE AR STATED THAT AFTER A SERIES OF ORDER/JUDGMENTS OF THE TRIBUNAL AND THE HONBLE COURTS WITH REGARD TO AMP EXPENSES THERE WAS NO NEED TO FOLLOW THE ORDERS OF THE EARLIER YEA RS AS AT THAT TIME THERE WAS NOT MUCH CLARITY ON THE SUBJECT. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT T HE TPO HAD HELD THAT ASSESSEE SHOULD HAVE BEEN COMPENSATED BY ITS A E FOR THE AMP EXPENDITURE INCURRED BY IT. WE HAVE GONE THROUGH TH E AGREEMENTS ENTERED IN TO BY THE AE.S WITH THE ASSESSEE, THAT I N THE AGREEMENTS THERE IS NO CONDITION ABOUT SHARING OF AMP, THAT THE AGRE EMENTS TALKS OF USING BEST EFFORTS TO MARKET AND DISTRIBUTE THE PRODUCT O R PROMOTE THE PRODUCTS IN A COMMERCIALLY REASONABLE MANNER. IN OUR OPINION , THESE TERMS DO NOT GIVE ANY INDICATION THAT THE AE AND THE ASSESSEE HA D TO SHARE AMP EXPENSES. SECONDLY, IF THE AE WAS BENEFITTED INDIRE CTLY BY THE AMP EXPENDITURE INCURRED BY THE ASSESSEE, IT CANNOT BE HELD THAT IT HAD ENTERED INTO AGREEMENT FOR SHARING AMP EXPENSES. WE ARE ALSO OF THE OPINION THAT BRIGHT LINE METHOD SHOULD NOT HAVE BEE N APPLIED BY THE TPO. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTIO N OF THE ORDER OF THE THOMAS COOK(SUPRA),WHEREIN THE IDENTICAL ISSUE HAS BEEN DEALT IN LENGTH, AND IT READS AS UNDER: 8.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL BEFORE US. IN THE EARLIER PART OF OUR ORDER, WE HAV E MENTIONED THAT WE WOULD LIKE TO DEAL WITH THE ISSUE OF AMP EXPENSES F OR BOTH THE YEARS AT ONE PLACE, AS THERE IS NO CHANGE IN THE FACTS EXCEP T FOR THE AMOUNTS INVOLVED AND THE NON ADJUDICATION OF THE ISSUE IN T HE EARLIER YEAR.THE ARGUMENTS OF THE ASSESSEE FOR BOTH THE YEARS ARE ID ENTICAL. WE FIND THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.12,25,71 ,652/-AND RS.10,01,37,032/-RESPECTIVELY FOR THE EARLIER AND C URRENT AY. UNDER THE HEAD AMP, THAT IT WAS PAYING NAME AND LICENCE FEE T O TCUK, THAT THE TPO HELD THAT THE ASSESSEE WAS SPENDING MUCH MORE T HAN INDUSTRY AVERAGE IN PROMOTING AND BUILDING BRAND OF TCUK, TH AT HE MADE AN ADJUSTMENT OF RS.8.09 CRORES AND RS.8.31 CRORES FOR THE AY.S.2009-10 AND AY.2010-11 TOWARDS AMP EXPENDITURE, THAT THE AS SESSEE HAD FILED IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 12 ADDITIONAL EVIDENCES BEFORE THE FAA, THAT THE FAA D ID NOT ADMIT THE EVIDENCES REFERRING TO THE PROVISIONS OF RULE 46A O F THE RULES, THAT HE UPHELD THE ORDER OF THE TPO, THAT FOR THE AY.2010-1 1 THE ASSESSEE HAD FILED OBJECTIONS BEFORE THE DRP, THAT THE ADJUSTMEN T MADE BY THE TPO WERE CONFIRMED THE DRP, THAT THE ADJUSTMENT WAS MAD E/CONFIRMED BY THE TPO/DRP BECAUSE BOTH OF THEM WERE OF THE OPINIO N THAT BY INCURRING EXPENDITURE IN INDIA THE ASSESSEE WAS BENEFITTING A BRAND NAME OF TCUK. 8.3.1.FIRST OF ALL, WE WOULD LIKE TO MENTION THAT A S ON TODAY THE LEGAL POSITION IS AS CLEAR AS CRYSTAL WITH REGARD TO AMP EXPENSES. THE HONBLE DELHI HIGH COURT HAS DEALT THE ISSUE IN DEPTH AND H AS ARRIVED AT THE CONCLUSION THAT IN ABSENCE OF ANY AGREEMENT FOR SHA RING AMP EXPENSES IT CANNOT BE HELD THAT AMP EXPENDITURE WAS AN IT. PROB ABLE 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 TRANSACT TION.IN ABSENCE OF ANY DIRECT OR DIRECT EVIDENCE OF INCURRING OF AMP EXPEN SES 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 PROVIS IONS OF SECTION 92B OR 92B(1)OF THE ACT AND HENCE IS NOT AN IT. ONCE IT GO ES OUT OF THE AMBIT OF BEING AN IT,FAR ANALYSIS OF COMPARABLES OR ANY OTHE R ADJUSTMENT WILL AND CANNOT COME IN PICTURE. FOLK WISDOM OF RURAL INDIA THE SAYS THAT MOTHER(MAA)IS MUST FOR EXISTENCE OF HER SISTER(MAUS I).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 BE GINNING WAS ARGUING THAT IT IS NOT AN IT, BUT, THE TPO AND THE DRP DID NOT DEAL WITH THE CORE ISSUE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINIO N THAT THE MATTER SHOULD NOT BE REMITTED BACK TO THE FILE OF THE TPO/ AO. LITIGATION HAS TO BE PUT TO AN END AT SOME STAGE. JUDICIAL TIME OF EV ERY AUTHORITY, INCLUDING THE TPO/DRP,IS VERY PRECIOUS AND IT SHOULD NOT BE W ASTED FOR DEALING WITH MERE ACADEMIC ARGUMENTS. THE RECOURSE OF REMAN DING OF MATTERS/ISSUE TO THE AO.S HAS TO RESORTED RARELY AN D SELECTIVELY. IN THE CASE BEFORE US, NO REASONABLE CAUSE HAS BEEN SHOWN TO JUSTIFY THE SETTING ASIDE THE ISSUE. HERE, WE WOULD ALSO LIKE T O REFER TO THE CASE OF BOSCH AND LOMB (SUPRA) WHEREIN ALL THE ARGUMENTS RA ISED BY THE TPO & FAA/DRP HAVE BEEN DELIBERATED UPON IN LENGTH AND TH E RELEVANT PORTION OF THE ORDER READS AS UNDER: 53.A READING OF THE HEADING OF CHAPTER X['COMPUTAT ION OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ARM'S L ENGTH PRICE']AND SECTION 92 (1) WHICH STATES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP AND SECTION 92C IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 13 (1) WHICH SETS OUT THE DIFFERENT METHODS OF DETERMI NING THE ALP, MAKES IT CLEAR THAT THE TRANSFER PRICING ADJUSTMENT IS MADE BY SUBSTITUTING THE ALP FOR THE PRICE OF THE TRANSACTION. TO BEGIN WITH THE RE HAS TO BE AN INTERNATIONAL TRANSACTION WITH A CERTAIN DISCLOSED PRICE. THE TRANSFER PRICING ADJUSTMENT ENVISAGES THE SUBSTITUTION OF TH E PRICE OF SUCH INTERNATIONAL TRANSACTION WITH THE ALP. 54. UNDER SECTIONS 92B TO 92F, THE PRE-REQUISITE FO R COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATION AL TRANSACTION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRANSACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE OF THE FIVE PRICE DISCOVERY METHODS SPECIFIED IN SECTION 92C. THE FOURTH STEP W OULD BE TO COMPARE THE PRICE OF THE TRANSACTION THAT IS SHOWN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUBSTITUTING THE ALP FOR THE CONTRACT PRICE. 55. SECTION 928 DEFINES 'INTERNATIONAL TRANSACTION' AS UNDER: 'MEANING OF INTERNATIONAL TRANSACTION. 928.(1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92,92C,92D AND 92E ,'INTERNATIONAL TRANSAC TION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS; IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES, 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 PROV IDED TO ANYONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, F OR THE PURPOSES 'OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTE RED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGR EEMENT IN RELATION TO' THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTIO N ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIA TED ENTERPRISE.' 56.THUS, UNDER SECTION 92B(1) AN 'INTERNATIONAL TRA NSACTION' MEANS- (A) A TRANSACTION BETWEEN TWO OR MORE AES, EITHER OR BOTH OF WHOM ARE NON- RESIDENT (B) THE TRANSACTION IS IN THE NATURE OF PU RCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SER VICE OR LENDING OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING A B EARING ON THE PROFITS, INCOMES OR LOSSES OF SUCH ENTERPRISES, AND (C) SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE AES FOR ALLOCATION OR APPORTIONMENT OR CONTRIBUTION TO THE ANY COST OR EXPENSES IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 14 INCURRED OR TO BE INCURRED IN CONNECTION- WITH THE - BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ONE OR MORE OF SUCH ENTERPRISES. 57. CLAUSES (B) AND (C) ABOVE CANNOT BE READ DISJUN CTIVELY. EVEN IF RESORT IS HAD TO THE RESIDUARY PART OF CLAUSE (B) TO CONTE ND THAT THE AMP SPEND OF BLI IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCOMES OR LOSSES, FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURPOSES OF THE 'MEANS' PART OF CLAUSE (B) AND THE 'INCLUDES' PART. OF CLAUSE (C), THE REVENUE HAS TO SHOW THAT THERE EXIS TS AN 'AGREEMENT' OR 'ARRANGEMENT' OR' 'UNDERSTANDING' BETWEEN BLI -AND B&L, USA WHEREBY BLI IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PROMOTE THE BRAND OF B&L, USA. AS FAR AS THE LEGISLATIVE INTENT IS CO NCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDE R CLAUSES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS AN 'INTERNATIONAL T RANSACTION'. THIS MIGHT BE ONLY AN ILLUSTRATIVE LIST, BUT SIGNIFICANTLY' IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 58. IN MARUTI SUZUKI INDIA LTD. (SUPRA), ONE OF THE SUBMISSIONS OF THE REVENUE WAS: 'THE MERE FACT THAT THE SERVICE OR BEN EFIT HAS BEEN PROVIDED BY ONE PARTY TO THE OTHER WOULD BY ITSELF CONSTITUTE A TRANSACTION IRRESPECTIVE OF WHETHER THE CONSIDERATION FOR THE S AME HAS BEEN PAID OR REMAINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO N OT CHARGE ANY COMPENSATION FOR THE SERVICE OR BENEFIT. THIS WAS NEGATIVED BY THE COURT BY POINTING OUT; 'EVEN IF THE WORD 'TRANSACTION' IS GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF M ONEY OR A WRITTEN AGREEMENT AS SUGGESTED BY THE REVENUE, AND EVEN IF RESORT IS HAD TO SECTION 92F (V), WHICH DEFINES 'TRANSACTION' TO INC LUDE 'ARRANGEMENT', 'UNDERSTANDING' OR 'ACTION IN CONCERT', 'WHETHER FO RMAL OR IN WRITING', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENC E OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN C ONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. I N OTHER WORDS, FOR BOTH THE 'MEANS', PART AND THE 'INCLUDES' PART OF S ECTION 928 (1) WHAT HAS TO BE DEFINITELY SHOWN IS THE EXISTENCE OF TRANSACT ION WHEREBY MSIL HAS BEEN OBLIGED TO INCUR AMP OF A CERTAIN LEVEL FOR SM C FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC.' 59. IN WHIRLPOOL OF INDIA LTD. (SUPRA), THE COURT I NTERPRETED THE EXPRESSION 'ACTED IN CONCERT' AND IN THAT CONTEXT R EFERRED TO THE DECISION OF THE SUPREME COURT IN DAIICHI SANKYO COMPANY LTD. V.. JAYARAM CHIGURUPATI 2010(6)MANU/SC/0454/2010, WHICH AROSE I N THE CONTEXT OF ACQUISITION OF SHARES OF ZENOTECH LABORATORY LTD. B Y THE RANBAXY GROUP. THE QUESTION THAT WAS EXAMINED WAS WHETHER AT THE R ELEVANT TIME THE APPELLANT, I.E., 'DAIICHI SANKYO COMPANY AND RANBAX Y WERE 'ACTING IN IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 15 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 O BSERVED AS UNDER: 'THE OTHER LIMB OF THE CONCEPT REQUIRES TWO OR MORE PERSONS JOINING TOGETHER WITH THE SHARED COMMON OBJECTIVE AND PURPO SE OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF A- CERTAIN TARGET COM PANY, THERE CAN BE NO 'PERSONS ACTING IN CONCERT' UNLESS THERE IS A SHARE D COMMON OBJECTIVE OR PURPOSE BETWEEN TWO OR MORE PERSONS OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY, FOR, DE HORS THE ELEMEN T OF THE SHARED COMMON OBJECTIVE' OR PURPOSE THE IDEA OF 'PERSON AC TING IN CONCERT' IS AS MEANINGLESS AS CRIMINAL CONSPIRACY WITHOUT ANY AGRE EMENT TO COMMIT A CRIMINAL OFFENCE. THE IDEA OF 'PERSONS ACTING IN CO NCERT' IS NOT ABOUT A FORTUITOUS RELATIONSHIP COMING INTO EXISTENCE BY AC CIDENT OR CHANCE. THE RELATIONSHIP' CAN COME INTO BEING ONLY BY DESIGN, B Y MEETING OF MINDS BETWEEN TWO OR MORE PERSONS LEADING TO THE SHARED COMMON OBJECTIVE OR PURPOSE OF ACQUISITION OF SUBSTANTIAL ACQUISITIO N OF SHARES ETC. OF THE TARGET COMPANY. IT IS ANOTHER MATTER THAT THE COMMO N OBJECTIVE OR PURPOSE MAY BE IN PURSUANCE OF AN AGREEMENT' OR AN UNDERSTANDING, FORMAL OR INFORMAL; 'THE ACQUISITION OF SHARES ETC. MAY BE DIRECT OR INDIRECT OR THE PERSONS ACTING IN CONCERT MAY COOPERATE IN A CTUAL ACQUISITION OF SHARES ETC. OR THEY MAY AGREE TO, COOPERATE IN SUCH ACQUISITION. NONETHELESS, THE ELEMENT OF THE SHARED COMMON OBJEC TIVE OR PURPOSE IS THE SINE QUA NON FOR THE RELATIONSHIP OF 'PERSONS A CTING IN CONCERT' TO COME INTO BEING. ' 60. THE TRANSFER PRICING ADJUSTMENT IS NOT EXPECTED TO BE MADE BY DEDUCING FROM THE DIFFERENCE BETWEEN THE 'EXCESSIVE ' AMP EXPENDITURE INCURRED BY THE ASSESSEE AND THE AMP EXPENDITURE OF A COMPARABLE ENTITY THAT AN INTERNATIONAL TRANSACTION EXISTS AND THEN P ROCEEDING TO MAKE THE ADJUSTMENT OF THE DIFFERENCE IN ORDER TO DETERMINE THE VALUE OF SUCH AMP EXPENDITURE INCURRED, FOR THE AE. IN ANY EVENT, AFT ER THE DECISION IN SONY ERICSSON (SUPRE), -- THE QUESTION OF APPLYING THE B LT TO DETERMINE THE EXISTENCE-OF AN-INTERNATIONAL TRANSACTION INVOLVING AMP EXPENDITURE DOES NOT ARISE. 61. THERE IS MERIT IN THE CONTENTION OF THE ASSESSE E THAT A DISTINCTION IS REQUIRED TO BE DRAWN BETWEEN A 'FUNCTION' AND A 'TR ANSACTION' AND THAT EVERY EXPENDITURE FORMING PART OF THE FUNCTION, CAN NOT BE CONSTRUED AS A 'TRANSACTION'. FURTHER, THE- REVENUE'S ATTEMPT AT R E-CHARACTERISING THE AMP EXPENDITURE INCURRED AS A TRANSACTION BY ITSELF WHEN IT HAS NEITHER BEEN IDENTIFIED AS SUCH BY THE ASSESSEE OR LEGISLAT IVELY RECOGNISED IN THE EXPLANATION TO SECTION 92 B RUNS COUNTER TO LEGAL P OSITION EXPLAINED IN IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 16 CIT VS. EKL APPLIANCES LTD. (SUPRA) WHICH REQUIRED A TPO 'TO EXAMINE THE 'INTERNATIONAL TRANSACTION' AS HE ACTUALLY FIND S THE SAME.' 62. IN THE PRESENT CASE, THE MERE FACT THAT B&L, US A 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, NAME LY THE FACT THAT EVEN IF THERE IS NO EXPLICIT ARRANGEMENT, THE FACT THAT THE BENEFIT OF SUCH AMP EXPENSES WOULD ALSO ENCURE TO THE AE IS ITSELF SELF SUFFICIENT TO INFER THE EXISTENCE OF AN INTERNATIONAL TRANSACTION HAS B EEN NEGATIVED BY THE COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) AS UNDER: XXXXXX 68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURMISE S AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SENDING THE TA X AUTHORITIES THEMSELVES ON A WILD-GOOSE CHASE OF WHAT CAN AT BES T BE DESCRIBED AS A 'MIRAGE'. FIRST OF ALL, THERE HAS TO BE A CLEAR STA TUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE TO FIND ONE. TO T HE QUESTION WHETHER THERE IS ANY 'MACHINERY' PROVISION FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, M R. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WHICH DEFINES ALP TO M EAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER THAN AES IN UNCONTROLLED CONDITIONS' ,SINCE THE REF ERENCE IS TO 'PRICE' AND TO 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS I NTO PLAY THE BLT. IN OTHER WORDS, IT EMPHASISES THAT WHERE THE PRICE IS SOMETH ING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DO ES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY -IN-LIGHT OF THE F ACT THAT -THE-BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERICS SON. THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT, 70. WHAT IS CLEAR IS THAT IT. IS THE 'PRICE' OF AN INTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED: THE VERY EXISTENC E OF AN INTERNATIONAL TRANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PR ICE TO IT AND THEN DEDUCING THAT SINCE IT IS NOT AN ALP, AN ADJUSTMENT HAD TO BE MADE. THE -BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXISTEN CE OF AN INTERNATIONAL TRANSACTION. NEXT, TO ASCERTAIN THE DISCLOSED 'PRIC E' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS AN ALP. IF THE ANS WER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW.THE OBJECT IVE OF CHAPTER X IS TO MAKE ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL T RANSACTION WHICH THE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 17 AES INVOLVED MAY SEEK TO SHIFT FROM ONE JURISDICTIO N TO ANOTHER. AN 'ASSUMED' PRICE CANNOT FORM THE REASON FOR MAKING A N ALP ADJUSTMENT. ' 71- SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSI BLE FOR THE PURPOSES OF A TP ADJUST - MENT UNDER CHAPTER X, EQUALLY IT CANN OT BE PERMITTED IN RESPECT OF AMP EXPENSES EITHER. AS ALREADY NOTICED HEREINBETORE, WHAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT. CASE I S TO RESORT TO A QUANTITATIVE ADJUSTMENT BY FIRST DETERMINING WHETHE R THE AMP SPEND OF THE ASSESSEE ON- APPLICATION OF THE BLT, IS EXCESSI VE, THEREBY EVIDENCING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOL VING THE AE. THE QUANTITATIVE DETERMINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE. 74.THE PROBLEM WITH THE REVENU E'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIA N ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRES UMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDIN G 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 H ERE. 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 AG REEMENTS 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 M ARUTI SUZUKI INDIA LTD. '(SUPRA) THE COURT FURTHER EXPLAINED THE ABSEN CE OF A 'MACHINERY PROVISION QUA AMP EXPENSES BY THE FOLLOWING ANALOGY : '75. AS AN ANALOGY; AND FOR-NO OTHER PURPOSE; IN THE- CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY' BE MADE TO SECTION 40 A (2) (A) UNDER WHICH CERTAIN TY PES OF EXPENDITURE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NO T DEDUCTIBLE WHERE THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCES SIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS .' IN SUCH EVENT, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOYS THE 'BEST JUDGMENT' ASSESSMENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCESSIVE EXPENDITURE. T HERE IS NO CORRESPONDING 'MACHINERY' PROVISION IN CHAPTER X WH ICH ENABLES' AN AO TO DETERMINE WHAT SHOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE ENTITLED TO IF IT IS FOUND' THAT THERE IS AN INT ERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, ABSENT A CLEAR STA TUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH OF A BRAND, WHICH COULD BE PRODUCT SPECIFIC, MAY BE 'IMPACTED BY NUMEROUS O THER IMPONDERABLES NOT LIMITED TO THE NATURE OF THE INDUSTRY, THE GEOG RAPHICAL PECULIARITIES, ECONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, TH E CONSUMPTION IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 18 PATTERNS, MARKET BEHAVIOUR AND SO ON. A SIMPLISTIC APPROACH USING ONE OF THE MODES SIMILAR TO THE ONES CONTEMPLATED BY SECTI ON 92C MAY NOT ONLY BE LEGALLY IMPERMISSIBLE BUT WILL LEND ITSELF TO AR BITRARINESS. WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATING TH E LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECESSARY CHECKS AGA INST ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE. 64. IN THE ABSENCE OF ANY MACHINERY PROVISION, BRIN GING AN IMAGINED TRANSACTION TO TAX IS NOT POSSIBLE. THE DECISIONS I N CIT V. B.C. SRINIVASA SETTY (1981) 128 ITR 294 (SC) AND PNB FINANCE LTD. V, CIT (2008) 307 ITR 75 (SC) MAKE THIS POSITION EXPLICIT. THEREFORE, WHERE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSE WITH AN ASCERTAINABLE PRICE IS- UNABLE TO BE SHOWN TO EXIST, EVEN IF SUCH PRICE IS NIL, CHAPTER X PROVISIONS CANNOT BE INVOKED TO UNDERTAKE A TP ADJU STMENT EXERCISE. AS ALREADY MENTIONED, MERELY BECAUSE THERE IS AN INCID ENTAL BENEFIT TO THE FOREIGN AE, IT CANNOT BE SAID THAT THE AMP EXPENSES INCURRED BY THE INDIAN ENTITY WAS FOR PROMOTING THE BRAND OF THE FO REIGN AE. AS MENTIONED-IN- SASSOON -J DAVID-(SUPRA)- 'THE--FACT THAT- SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITTED BY THE EXPENDI TURE 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 A CT, 1922) IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY THE LAW'. WITH REFERENCE TO THE SUBMISSIONS OF THE DR, WE WOU LD 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 FOLLOWI NG 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 B ACK 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 .I T IS NOT ADVISABLE TO PROLONG THE JUDICIAL PROCEEDINGS IN THE NAME OF FAI R PLAY. IT IS NOT A CASE WHERE NEW EVIDENCES HAVE BEEN PLACED ON RECORD BY T HE ASSESSEE, THAT WERE NOT MADE AVAILABLE TO THE AO AT THE TIME OF OR IGINAL ASSESSMENT. IT IS NOT ALSO A MATTER WHEREIN SOME GROUND OF APPEAL HAS REMAINED UN- ADJUDICATED.T HERE IS VIOLATION OF PRINCIPLES OF NA TURAL JUSTICE. SO, WE HOLD THAT IT IS NOT A FIT CASE TO BE SENT BACK TO THE TP O FOR FRESH ADJUDICATION. CONSIDERING THE ABOVE, WE DECIDE THE FIRST EFFECTIV E GROUND OF APPEAL (GOA-1-16)IN FAVOUR THE ASSESSEE. IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 19 RESPECTFULLY, FOLLOWING THE ABOVE, WE ALLOW GROUNDS NO.2-9,RAISED BY THE ASSESSEE. FACTS AND CIRCUMSTANCES BEING SIMILAR, RESPECTFULLY FOLLOWING THE SAID ORDER OF THE CO-ORDINATE BENCH, WE DECIDE GROUND NOS. 3 TO 2 3 IN FAVOUR OF THE ASSESSEE. 6. THE ISSUE RAISED IN GROUND NO.24 IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 93,686/- ON ACCOUNT OF DEPRECIATION ON BUILD ING. BEFORE US, LEARNED AR BROUGHT TO OUR NOTICE THAT THE ISSUE IS COVERED BY THE DECISION OF CO-ORDINATE BENCH, VIDE ORDER DATED 02.05.2018, IN ASSESSEES O WN CASE IN ITA NO. 1246/MUM/2016 FOR A.Y. 2011-12. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO AND GROUNDS OF APPEAL. 7. WE HAVE HEARD THE BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 201 1-12. THE OPERATIVE PART OF THE SAID ORDER IS REPRODUCED BELOW: 4. GOA-10 IS ABOUT DISALLOWANCE OF DEPRECIATION ON PLA NT AND MACHINERY AND BUILDING AMOUNTING TO RS.2.96 LAKHS. IT WAS BRO UGHT TO OUR NOTICE, BY THE REPRESENTATIVES OF BOTH THE SIDES, THAT THE ISS UE STANDS COVERED BY THE EARLIER ORDERS OF THE TRIBUNAL (ITA/812/AHD./20 08(04-05)& 1245/ AHD./2008(03-04);ITA/836/AHD/2008(04-05) & 1181/AHD /2008(03 04), DATED-25/5/2017).WE ARE REPRODUCING THE RELEVANT PO RTION OF THE ORDER AND IT READS AS FOLLOW: 11. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE ORDER OF THE LOWER AUTHORITIES FOR THE YEAR UNDER CONSIDERATION. IN THE A.Y. 2003-04, THE CIT(A) HAS CONFIRMED THE ADDITION ON ACCOUNT OF DEPRECIATION ON PLANT AND MA CHINERY, BUILDING, FURNITURE AND FIXTURES BY HOLDING THE SAME TO BE RE LATED TO THE DISCONTINUITY OF MANUFACTURING OPERATION OF THE ASS ESSEE AND ALSO HOLDING THAT THE SAME HAVE NOT BEEN USED DURING TH E YEAR. WE FOUND THAT EXACTLY THE SIMILAR ISSUE WAS CONSIDERED BY TH E TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2002-03 VIDE ORDER DATED 23/11/2007 ALSO IN THE A.Y.2007-08 VIDE ORDER DATED 30/03/2012 AND FOR A.Y.2009- 10 VIDE ORDER DATED 31/12/2015. 12. LEARNED DR FAIRLY CONCEDED THAT ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. WE ALSO FOUND THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING. HOWEVER, THE MANUFACTURING PROCESSES W ERE DISCONTINUED IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 20 WITH EFFECT FROM 25 JANUARY 2002. DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DEPRECIATIO N ON PLANT AND MACHINERY, BUILDING, FURNITURE AND FIXTURES AND OFF ICE EQUIPMENT. ONCE THE CONCEPT OF BLOCK OF ASSETS WAS BROUGHT INTO EFF ECT FROM AY 1989- 90 ONWARDS, THEN DEPRECIATION IS ALLOWABLE ON THE A GGREGATE OF WDV OF ALL THE ASSETS IN THE BLOCK AT BEGINNING OF THE FINANCIAL YEAR ALONGWITH THE ADDITIONS MADE TO THE ASSETS IN THE S UBJECT AY. THE INDIVIDUAL ASSET LOSSES ITS IDENTITY FOR DEPRECIATI ON. FROM THE RECORD, WE ALSO FOUND THAT IN AY 2007-08, THE HON'BLE CIT(A) H AS ALLOWED THE ASSESSEES GROUND BY PLACING RELIANCE ON THE DECISI ONS IN CASE OF CIT V OSWAL AGRO MILLS (197 TAXMAN 25) (HC), SWATI SYNTHE TICS LTD V ITA (38 SOT 208) (MUMBAI ITAT) AND ALLIED PHOTOGRAPHICS (8 SOT 318) (MUMBAI ITAT). THE DEPARTMENT HAS FILED AN APPEAL B EFORE THE HON'BLE ITAT FOR AY 2007-08. HOWEVER, THE AFOREMENT IONED ISSUE WAS NOT TAKEN IN APPEAL BY THE DEPARTMENT BEFORE ITAT. WE ALSO FOUND THAT DEPARTMENT ACCEPTED CIT(A) ORDER FOR AY 2002-0 3. THE CIT(A) HAS ACCEPTED THE PRINCIPLE THAT WITH THE INTRODUCTI ON OF CONCEPT OF WDV OF BLOCK OF ASSETS, THE DEPRECIATION IS ALLOWAB LE NOT ON INDIVIDUAL ITEMS BUT DEPENDING UPON DATE OF ACQUISITION AND PU T TO USE OF THE ASSET. FURTHER, CIT(A) WAS IN AGREEMENT WITH ASSESS EE'S VIEW THAT SECTION 38(2) DEALS WITH USAGE OF ASSETS FOR NON-BU SINESS PURPOSES AND DOES NOT REFER TO ASSETS PARTLY USED DURING THE YEAR FOR BUSINESS PURPOSES. ACCORDINGLY, CIT(A) HAS ALLOWED THE DEPRE CIATION CLAIMED ON PLANT AND MACHINERY DURING AY 2002-03. THE DEPARTME NT HAS FILED AN APPEAL BEFORE THE HON'BLE ITAT FOR AY 2007-08. HOWE VER, THE AFOREMENTIONED ISSUE WAS NOT TAKEN IN APPEAL BY THE DEPARTMENT BEFORE ITAT. IN VIEW OF THE ABOVE, BASED ON A COMBI NED READING OF ALL OF THE ABOVE, IT IS ABUNDANTLY CLEAR THAT DEPRECIAT ION IS ALLOWABLE ON THE PLANT AND MACHINERY, BUILDING, FURNITURE AND FI XTURE AND OFFICE EQUIPMENT OF INR 1,22,84,477 AND THE DISALLOWANCE M ADE BY THE AO WAS NOT JUSTIFIED. THUS, THERE IS NO MERIT FOR THE DISALLOWANCE SO MADE. RESPECTFULLY, FOLLOWING THE ORDER OF THE TRIBUNAL I N ASSESSEES OWN CASE, WE DELETE THE DISALLOWANCE OF DEPRECIATION SO MADE BY THE AO. RESPECTFULLY, FOLLOWING THE ABOVE ORDER, GROUND NO .10 IS DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. THE ISSUE RAISED IN GROUNDS OF APPEAL NOS. 25 TO 42 IS AGAINST THE DELETION OF DISALLOWANCE AS MADE BY THE TPO IN RESP ECT OF PAYMENT MADE TO DOCTORS AMOUNTING TO ` 27,11,48,553/-. IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 21 9. THE LEARNED AR, BEFORE US, SUBMITTED THAT THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ITS OWN CASE FOR A.Y. 2011-12 IN ITA NO.1246/MUM/2016 (SUPRA). THE LD AR ALSO SUBMITTED THAT HONBLE DELHI HIGH COURT IN THE CASE OF MAX HOSPITA L , PIRAMPURA (WP 1334/2013) HONBLE RAJASTHAN HIGH COURT IN THE CASE OF DR ANIL GUPTA (ITA NO.486/2008) HAVE HELD THAT MCI REGULATIONS GOVERN ONLY DOCTORS AND MEDICAL PRACTITIONERS AND NOT APPLICABLE TO OTHER A SSESSEE. THE LD AR SUBMITTED THAT THE HONBLE PUNJAB AND HARYANA HIGH COURT IN KAP SCAN AND DIAGNOSTIC CENTRE (344 ITR 476) HAS HELD THAT EXPEN SES WHICH ARE OPPOSED TO PUBLIC POLICY CAN NOT BE ALLOWED AS EXPENSES REL YING ON THE MCI REGULATIONS. THE LD COUNSEL ARGUED THAT WHEN THE TH ERE ARE DIVERGENT VIEWS OF THE VARIOUS HIGH COURT , THE CONSTRUCTION WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED AS HAS BEEN LAID DOWN IN THE CASE OF CIT VS VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) AND, THERE FORE, THE GROUNDS SHOULD BE DISMISSED. THE LEARNED DR RELIED ON THE ORDER O F THE TPO AND GROUNDS OF APPEAL. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. A PERUSAL OF THE ORDER OF THE TRIBUNAL IN ITA NO. 1246/MUM/2016 REVEALS THAT THE IDENTICAL ISSUE HAS BEEN ADJUDICAT ED IN FAVOUR OF THE ASSESSEE IN THE EA4RLIER YEAR. THE OPERATIVE PORTION OF THE SAID ORDER IS AS UNDER: 5. NEXT EFFECTIVE GROUND OF APPEAL(GS.OA 11 TO 29) PER TAINS TO DISALLOWANCE OF PAYMENT MADE TO DOCTORS(CONVENTION EXPENSES)AMOUNTING TO RS.17.23 CRORES.WE FIND THAT IDENTICAL ISSUE WAS DELIBERATED UPON AND DECIDED BY THE TRIBUNAL IN ITA/1600/MUM/2015(SUPRA).RELEVANT PORTION IS REPROD UCED HERE: DURING THE ASSESSMENT PROCEEDINGS ,THE AO FOUND TH AT THE ASSESSEE HAD DEBITED RS.13.26 CRORES ,IN ITS BOOKS OF ACCOUNTS, UNDER THE HEAD INVENTION EXPENSES. HE CALLED FOR DETAIL IN THAT RE GARD. AFTER CONSIDERING THE SAME, HE REFERRED TO AND RELIED ON THE AMENDMEN TS TO MCI ACT. HE HELD THAT AMENDMENT WAS EFFECTIVE FROM 10/12/2009,T HAT SAME WAS APPLICABLE TO EXPENSES INCURRED BY THE ASSESSEE, TH AT EXPENSES INCURRED ON OR AFTER 10/12/09 WERE IN VIOLATION OF MCI GUIDE LINES, THAT SAME WERE NOT ALLOWABLE. FINALLY, HE MADE DISALLOWANCE OF RS. 6.02 CRORES. IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 22 5.1. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AND RE FERRED TO CIRCULAR NO.05 OF 2012 AND CASE OF KAP SCAN AND DIAGNOSTIC C ENTRE(344 ITR 476).AFTER CONSIDERING THE AVAILABLE MATERIAL, IT H ELD THAT EXPENDITURE OF RS.5.93 CRORES WAS RELATED TO EDUCATION GRANTS TO M EDICAL ASSOCIATION FOR ORGANISING CONFERENCE AND SEMINARS(RS.2.69 CRORES), PRINTING AND EQUIPMENT HIRE CHARGES (RS. 16. 59LAKHS) ACCOMODATI ON EXPENSES(RS.1CRORES),EXPENSES INCURRED FOR ORGANIZI NG MEDICAL-EDUCATION MEETING(RS.1.75 CRORES) AND DISTRIBUTION OF FREE P RODUCT SAMPLES(9.03 LAKHS).THE DRP FURTHER HELD THAT A REGULATORY BODY LIKE MCA WOULD REGULATE ONLY THE CONDUCT OF INDIVIDUALS OR ORGANIS A -TIONS ONLY, THAT THE PAYMENT MADE BY THE ASSESSEE WERE PROHIBITED BY MCI REGULATION, THAT THE EXPENSES WERE INCURRED BY BENEFIT OF DOCTORS AN D NOT ASSOCIATIONS, THAT THE ASSOCIATIONS WERE NOT AT LIBERTY TO SPEND MONEY RECEIVED BY ASSESSEE, THAT ASSOCIATION HAD TO SPEND AS PER THE DESIRE AND GUIDANCE OF THE ASSESSEE COMPANY, THAT THE EXPENDITURE WAS INCU RRED AGAINST PUBLIC POLICY, THAT EXPENDITURE INCURRED ON HOSPITALITY, T RAVEL FACILITIES PROVIDED TO MEDICAL PRACTITIONERS FOR PARTICIPA-TION IN WORK SHOP WERE NOT ALLOWABLE, THAT MCI GUIDELINES HAD PROHIBITED GIVING FREE SAMP LES. FINALLY, IT UPHELD THE ORDER OF THE TPO/AO. 5.2. BEFORE US, THE AR ARGUED THAT THE CONVENTION EXPENS ES AND EXPENDITURE INCURRED ON DISTRIBUTION OF FREE PRODUC T SAMPLES DID NOT VIOLATE ANY OF THE PROVISIONS OF MCI REGULATION, TH AT SAME WERE NOT PROHIBITED BY ANY LAW TO ATTRACT PROVISIONS OF SECT ION 37(1) OF THE ACT, THAT THE CODE OF CONDUCT FOR DOCTORS/PROFESSIONAL A SSOCIATION, LAID DOWN BY MCA REGULATION ,WOULD APPLY TO DOCTORS AND NOT T O THE ASSESSEE WHO WAS A MEDICAL DEVICE COMPANY, THAT THE CIRCULAR OF THE CBDT WAS OPERATIVE FROM 1/08/2012,THAT SAME WAS NOT APPLICAB LE FOR THE EXPENDITURE INCURRED DURING THE YEAR UNDER CONSIDER ATION, THAT MCI GUIDELINES WERE EFFECTIVE FROM 10/12/2009, THAT ANY DISALLOWANCE INCURRED PRIOR TO THE ISSUE OF GUIDELINES COULD NOT BE MADE APPLYING THE GUIDE -LINES, THAT AO HAD NO DISPUTED THE GENUINENE SS OF EXPENSES. HE RELIED UPON THE CASES OF . THE DR CONTENDED THAT EX PENDITURE INCURRED BY THE ASSESSEE WAS NOT ALLOWABLE AS PER THE PROVISION S OF SECTION 37(1)EXPL.1 OF THE ACT, THAT THERE WAS CLEAR CUT VI OLATION OF THE GUIDELINES ISSUED BY THE MCI. HE RELIED UPON THE CASES OF OCH OA LAB(85 TAXMANN.COM.168). 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE TPO AND THE DRP WERE OF THE OP INION THAT EXPENDITURE INCURRED BY THE ASSESSEE IN VIOLATION O F THE MCI GUIDELINES WAS NOT ALLOWABLE UNDER THE ACT, THAT INCURRING OF EXPENDITURE FOR IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 23 EDUCATION GRANTS OR TRAVELLING WAS AGAINST THE PUBL IC POLICY, THAT THE ASSESSEE HAD INCURRED THE SIMILAR EXPENSES IN THE E ARLIER YEARS ALSO. 5.3.1 .BEFORE PROCEEDING FURTHER WE WOULD LIKE TO REFER T O CERTAIN MATTERS THAT DEAL WITH THE ISSUE UNDER CONSIDERATION. FIRST AMONG THEM IS THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF MAX HOSPITAL, PITAMPURA V/S. MEDICAL COUNCIL OF INDIA[W.P.(C) 133 4/2013,DTD. 10/01/2014].RELEVANT PORTION OF THE JUDGMENT READS AS FOLLOW: 6.THE PETITIONER'S GRIEVANCE IS TWOFOLD. FIRSTLY, THAT SINCE THE MEDICAL COUNCIL OF INDIA (PROFESSIONAL CONDUCT, ETIQUETTE A ND ETHICS) REGULATIONS, 2002 (THE REGULATIONS) HAVE BEEN FRAMED IN EXERCISE OF THE POWER CONFERRED UNDER SECTION 20-A READ WITH SECTION 33 ( M) OF THE INDIAN MEDICAL COUNCIL ACT , 1956, THESE REGULATIONS DO NOT GOVERN OR HAVE ANY CONCERN WITH THE FACILITIES, INFRASTRUCTURE OR RUNN ING OF THE HOSPITALS AND SECONDLY, THAT THE ETHICS COMMITTEE OF THE MCI ACTI NG UNDER THE REGULATIONS HAD NO JURISDICTION TO PASS ANY DIRECTI ON OR JUDGMENT ON THE INFRASTRUCTURE OF ANY HOSPITAL WHICH POWER RESTS SO LELY WITH THE CONCERNED STATE GOVT. THE CASE OF THE PETITIONER IS THAT THE PETITIONER HOSPITAL IS GOVERNED BY THE DELHI NURSING HOMES REGISTRATION AC T, 1953. IT IS URGED THAT IN FACT, AN INSPECTION WAS ALSO CARRIED OUT ON 22.07.2011 BY DR. R.N. DASS, MEDICAL SUPERINTENDENT (NURSING HOME) UNDER T HE DIRECTORATE OF HEALTH SERVICES, GOVT. OF NCT OF DELHI AND THE NECE SSARY EQUIPMENTS AND FACILITIES WERE FOUND TO BE IN ORDER WHICH NEGATES THE OBSERVATIONS DATED 27.10.2012 OF THE ETHICS COMMITTEE OF THE MCI. IT I S ALSO THE PLEA OF THE PETITIONER HOSPITAL THAT THE PETITIONER WAS NOT PRO VIDED AN OPPORTUNITY OF BEING HEARD AND THUS THE PRINCIPLES OF NATURAL JUST ICE WERE VIOLATED. 7. IN THE COUNTER AFFIDAVIT FILED BY THE RESPONDENT S, IT IS NOT DISPUTED THAT THE MCI UNDER THE 2002 REGULATIONS HAS JURISDICTION LIMITED TO TAKING ACTION ONLY AGAINST THE REGISTERED MEDICAL PRACTITI ONERS. IT'S PLEA HOWEVER, IS THAT IT HAS NOT PASSED ANY ORDER AGAINS T THE PETITIONER HOSPITAL THEREFORE; THE PETITIONER CANNOT HAVE ANY GRIEVANCE AGAINST THE IMPUGNED ORDER. AT THE SAME TIME, IT IS STATED THAT ONLY SIMPLE OBSERVATIONS WERE MADE BY THE ETHICS COMMITTEE OF T HE MCI ABOUT THE STATE OF AFFAIRS IN THE PETITIONER HOSPITAL AND THE SAME DID NOT HARM ANY LEGAL RIGHT OR INTEREST OF THE PETITIONER. IT WILL BE APPOSITE TO EXTRACT THE RELEVANT PARAGRAPHS OF THE COUNTER AFFIDAVIT FILED BY THE MCI AS UNDER: XXXXX IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 24 8. IT IS CLEARLY ADMITTED BY THE RESPONDENT THAT IT HAS NO JURISDICTION TO PASS ANY ORDER AGAINST THE PETITIONER HOSPITAL UNDE R THE 2002 REGULATIONS. IN FACT, IT IS STATED THAT IT HAS NOT PASSED ANY ORDER AGAINST THE PETITIONER HOSPITAL. THUS, I NEED NOT GO INTO T HE QUESTION WHETHER THE ADEQUATE INFRASTRUCTURE FACILITIES FOR APPROPRIATE POST-OPERATIVE CARE WERE INFACT IN EXISTENCE OR NOT IN THE PETITIONER HOSPIT AL AND WHETHER THE PRINCIPLES OF NATURAL JUSTICE HAD BEEN FOLLOWED OR NOT WHILE PASSING THE IMPUGNED ORDER. SUFFICE IT TO SAY THAT THE OBSERVAT IONS DATED 27.10.2012 MADE BY THE ETHICS COMMITTEE DO REFLECT UPON THE IN FRASTRUCTURE FACILITIES AVAILABLE IN THE PETITIONER HOSPITAL AND SINCE IT H AD NO JURISDICTION TO GO INTO THE SAME, THE OBSERVATIONS WERE UNCALLED FOR A ND CANNOT BE SUSTAINED. 5.3.2. IN THE CASE OF PHL PHARMA P LTD.(ITA/4605/MUM/2014- AY.2010- 11,DTD.18/5/2016) FOLLOWING GROUNDS OF APPEAL WERE RAISED BY THE AO: 1.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.22,99,72,607/- BEING FREEBIES GIVEN BY THE ASSESSEE TO DOCTORS, IG NORING THE FACT THAT SUCH PAYMENTS ARE SPECIFICALLY PROHIBITED W.E.F. 10 .12.2009 BY THE MEDICAL COUNCIL OF INDIA (MCI), WHICH IS THE COMPET ENT AUTHORITY, AND THEREFORE, THE SAID EXPENSES ARE ILLEGAL AND CONSEQ UENTLY NOT ALLOWABLE AS PER THE EXPLANATION TO SECTION 37(1) OF THE INCOME- TAX ACT, 1961? 2.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.22,99,72,607/- BEING FREEBIES GIVEN BY THE ASSESSEE TO DOCTORS OBS ERVING THAT THE PROHIBITION BY IMA IS ON MEDICAL PRACTITIONERS AND NOT APPLICABLE TO PHARMA COMPANIES WITHOUT APPRECIATING THAT THE PROH IBITION OF IMA IS TO CURB THE MALPRACTICES IN THE MEDICAL PROFESSION AND EQUALLY BINDING ON BOTH MEDICAL PRACTITIONERS AND PHARMA COMPANIES? 3.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDE R WHICH READS AS UNDER: 2.THE BRIEF FACTS OF THE CASE QUA THE ISSUE RAISED IN THE GROUNDS OF APPEAL ARE THAT, THE ASSESSEE IS A PHARMACEUTICAL COMPANY ENGAGED IN THE BUSINESS OF PROVIDING PHARMA MARKETING CONSULTANCY AND DETAILING SERVICES TO DEVELOP MASS MARKET FOR PHARMA PRODUCTS . .ON FURTHER PERUSAL OF THE DETAILS APPEARING IN THE LEDGER ACCO UNT FURNISHED BY THE ASSESSEE, HE FURTHER NOTED THAT THERE ARE CERTAIN E XPENSES WHICH HAS BEEN DEBITED BY THE ASSESSEE LIKE, CUSTOMER RELATI ONSHIP & MANAGEMENT IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 25 EXPENSES (CRM) OF RS.7,61,96,260/-; KEY ACCOUNT M ANAGEMENT EXPENSES (KAM)OF RS.2,56,68,509/-; GIFT ARTICLES O F RS.9,20,22,518/-; AND COST OF SAMPLES OF RS.3,60,85,320/-, WHICH ACCORDIN G TO HIM ARE IN THE NATURE OF FREEBIES GIVEN TO MEDICAL PRACTITIONERS/D OCTORS WHICH ARE DISALLOWABLE IN TERMS OF EXPLANATION TO SECTION 37( 1) AS CLARIFIED BY CBDT VIDE ITS CIRCULAR NO.5/2012 DATED 1.8.2012. IN RES PONSE TO THE SHOW CAUSE NOTICE BY THE AO, FIRSTLY, AS REGARD CRM EXPE NSES, ASSESSEE SUBMITTED THAT EXPENDITURE UNDER THIS CATEGORY INCL UDES ACTIVITIES LIKE HOLDING NATIONAL LEVEL SEMINARS ON NEW MEDICAL RESE ARCHES AND DRUGS FOR DISCUSSION PANELS OF EMINENT DOCTORS AND INVITING O THER DOCTORS TO PARTICIPATE IN IT; ARRANGING LECTURES OR SPONSORING KNOWLEDGE UPGRADE COURSE, WHEREIN EMINENT DOCTORS ARE INVITED TO SPEA K ON THE SELECTED TOPIC RELATED TO THE THERAPEUTIC AREA AND ALSO SHAR E THEIR RESEARCH AND OTHER LATEST KNOWLEDGE UPDATES; SUBSCRIPTION OF COS TLY JOURNALS, INFORMATION BOOKS ETC.; AND SPONSORING TRAVEL AND A CCOMMODATION EXPENSES OF DOCTORS FOR SUCH IMPORTANT CONFERENCES. UNDER THE KAM SERVICES, THE ASSESSEE PROMOTES ICCU RANGE OF PRODU CTS, WHICH NORMALLY FOCUSES ON EITHER SINGLE BRAND OR A GROUP OF BRANDS IN ONE PARTICULAR THERAPY AREA. THIS IS DONE FOR CERTAIN KEY DOCTORS, WHO ARE OPINION LEADERS AND HAS LARGER POTENTIAL FOR SALE OF BRANDS . REGARDING GIFT ARTICLES, IT WAS STATED THAT THIS INCLUDES EXPENSES FOR SMALL VALUE ITEMS GIVEN ACROSS THE ENTIRE POOL OF DOCTORS IN INDIA SO AS TO MAINTAIN BRAND MEMORY ON A CONTINUOUS BASIS. THESE SMALL ITEMS INCLUDE DI ARIES, PEN SETS, INJECTION BOXES, CALENDARS, TABLE WEIGHTS, POSTCARD HOLDERS, STATIONERY ITEMS, ETC., WHEREIN LOGO OF THE ASSESSEE COMPANY A ND THE NAME OF THE MEDICINE IS ADVERTISED. THIS IS IMPORTANT BECAUSE I N THE SAME GENERIC DRUG THERE ARE MORE THAN 40 TO 60 BRANDS, THEREFORE , BRAND PROMOTION IS DONE THROUGH SMALL VALUE ITEMS. LASTLY, FOR COST OF SAMPLES, IT WAS STATED THAT THESE SAMPLES ARE DISTRIBUTED THROUGH VARIOUS AGENTS TO DOCTORS TO PROVE THE EFFICACY OF THE DRUG AND TO ESTABLISH THE TRUST OF THE DOCTORS ON QUALITY OF DRUGS. FREE SAMPLES ARE GIVEN OF SMALLER SIZE, WHEREIN IT IS MARKED AS PHYSICIAN SAMPLE NOT FOR SALE. VARIOUS OTHER EXPENDITURE UNDER THE AFORESAID HEAD, HAVE BEEN ELABORATELY EXP LAINED AND ILLUSTRATED BY THE ASSESSEE IN ITS REPLY DATED, 27.12.2012 BEFO RE AO. THE RELEVANT PORTION OF THE REPLY HAS BEEN INCORPORATED BY THE A O FROM PAGES 3 TO 6 OF THE ASSESSMENT ORDER. REGARDING THE APPLICABILIT Y OF CBDT CIRCULAR NO.5 OF 2012 (SUPRA), WHEREIN THE CBDT HAS REFERRED TO AMENDMENT TO THE INDIAN MEDICAL COUNCIL REGULATIONS, 2002, BRO UGHT FROM 10.12.2009, IMPOSING PROHIBITION OF MEDICAL PRACTIT IONER AND THEIR PROFESSIONAL ASSOCIATIONS FROM TAKING ANY GIFT, TRA VEL FACILITY, HOSPITALITY, CASH OR MONETARY GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES, THE ASSESSEE SUBMITTED THAT FIRSTLY, CO ST OF FREE SAMPLES, KAM IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 26 EXPENSES, CRM EXPENSES ARE NOT PROHIBITED UNDER ANY LAW AND, SECONDLY, THE CBDT CIRCULAR CANNOT HAVE RETROSPECTIVE EFFECT SO AS TO BE MADE APPLICABLE IN THE ASSESSMENT YEAR 2010-11 AS THE CI RCULAR IS DATED 01.08.2012. AS REQUIRED BY THE AO, THE ASSESSEE A LSO SEGREGATED EXPENSES INCURRED AFTER 10.12.2009, I.E., THE DATE OF AMENDMENT BROUGHT IN THE INDIAN MEDICAL COUNCIL GUIDELINES. AFTER SEG REGATING THE EXPENSES, AO DISALLOWED THE EXPENDITURE AGGREGATING TO RS.22, 99,72,607/- (POST 10.12.2009) ON THE GROUND THAT, FIRSTLY, THE GUIDEL INES ISSUED BY THE MEDICAL COUNCIL OF INDIA IS BINDING BECAUSE IT IS A STATUTORY BODY HAVING BEEN SET UP UNDER THE ACT OF THE PARLIAMENT; SECOND LY, THE AMENDED NOTIFICATION DATED 10.12.2009, WHICH HAS BEEN REPRO DUCED BY HIM IN THE ORDER, CLEARLY FORBIDS MEDICAL PRACTITIONERS TO REC EIVE ANY KIND OF GIFT, TRAVEL FACILITIES, HOSPITALITY AND ANY KIND OF CASH OR MONETARY GRANTS FROM ANY PHARMACEUTICAL OR HEALTH CARE INDUSTRIES. THUS , SUCH AN EXPENSES, HE HELD THAT, IS DISALLOWABLE IN TERMS OF EXPLANATI ON TO SECTION 37(1). 5.WE HAVE CONSIDERED THE RIVAL CONTENTIONS MADE BY LD. CIT DR AS WELL AS LD. SR. COUNSEL, MR J.D. MISTRY, PERUSED THE RELEVA NT FINDING GIVEN IN THE IMPUGNED ORDERS AND MATERIAL REFERRED TO BEFORE US. THE ENTIRE CONTROVERSY REVOLVES AROUND, WHETHER THE EXPENDITUR ES IN QUESTION INCURRED BY THE ASSESSEE (A PHARMACEUTICAL COMPANY) IS HIT BY EXPLANATION 1 BELOW SECTION 37(1) IN VIEW OF CBDT C IRCULAR DATED 01.08.2012, INTERPRETING THE AMENDMENT DATED 10.12. 2009 BROUGHT IN INDIAN MEDICAL COUNCIL REGULATION 2002 OR NOT. THE BREAK-UP OF SALES PROMOTION EXPENSES, WHICH HAS BEEN DISALLOWED BY TH E AO, ARE AS UNDER: PARTICULARS OF EXPENSES AMOUNT (IN RS.) 1 CUSTOMER RELATIONSHIP MANAGEMENT EXPENSES (CRM) 7,61,96,260 2 KEY ACCOUNT MANAGEMENT EXPENSES(KAM) 2,56,68,509 3 GIFT ARTICLES 9,20,22,518 4 COST OF SAMPLES 3,60,85,320 TOTAL 22,99,72,607 THE NATURE OF AFORESAID EXPENSES HAS ALREADY BEEN E XPLAINED ABOVE. NOW WHETHER THE NATURE OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE DISALLOWED IN VIEW OF THE CBDT CIRCULAR DATED 01.08 .2012.FOR THE SAKE OF READY REFERENCE, THE SAID CBDT CIRCULAR NO.5/2012 I S REPRODUCED HEREUNDER: XXXX IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 27 FROM THE PERUSAL OF THE AFORESAID BOARD CIRCULAR, I T CAN BE SEEN THAT HEAVY RELIANCE HAS BEEN PLACED BY THE CBDT ON THE C IRCULARS ISSUED BY THE MEDICAL COUNCIL OF INDIA, WHICH IS THE REGULATO RY BODY CONSTITUTED UNDER THE MEDICAL COUNCIL ACT, 1956. ONE SUCH REG ULATION HAS BEEN ISSUED IS INDIAN MEDICAL COUNCIL PROFESSIONAL COND UCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002. THE SAID REGULATION DEA LS WITH THE PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS FOR REGI STERED MEDICAL PRACTITIONERS ONLY. CHAPTER 6 OF THE SAID REGULATIO N/NOTIFICATION DEALS WITH UNETHICAL ACTS, WHEREBY A PHYSICIAN OR MEDICAL PRAC TITIONERS SHALL NOT AID OR ABET OR COMMIT ANY OF THE ACTS ILLUSTRATED IN CL AUSE 6.1 TO 6.7 OF THE SAID REGULATION WHICH SHALL BE CONSTRUED AS UNETHIC AL. CLAUSE 6.8 HAS BEEN ADDED (BY WAY OF AMENDMENT DATED 10.12.2009) I N TERMS OF NOTIFICATION PUBLISHED ON 14.12.2009 IN GAZETTE OF INDIA. THE SAID CLAUSE READS AS UNDER:- XXXXX 6. ON A PLAIN READING OF THE AFORESAID NOTIFICA TION, WHICH HAS BEEN HEAVILY RELIED UPON BY THE DEPARTMENT, IT IS QUITE APPARENT THAT THE CODE OF CONDUCT ENSHRINED THEREIN IS MEANT TO BE FOLLOWE D AND ADHERED BY MEDICAL PRACTITIONERS/DOCTORS ALONE. IT ILLUSTRATES THE VARIOUS KINDS OF CONDUCT OR ACTIVITIES WHICH A MEDICAL PRACTITIONER SHOULD AVOID WHILE DEALING WITH PHARMACEUTICAL COMPANIES AND ALLIED HE ALTH SECTOR INDUSTRY. IT PROVIDES GUIDELINES TO THE MEDICAL PRACTITIONERS OF THEIR ETHICAL CODES AND MORAL CONDUCT. NOWHERE THE REGULATION OR THE NO TIFICATION MENTIONS THAT SUCH A REGULATION OR CODE OF CONDUCT WILL COVE R PHARMACEUTICAL COMPANIES OR HEALTH CARE SECTOR IN ANY MANNER. THE DEPARTMENT HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE AFORESA ID REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS MEANT FOR PHARMACEUT ICAL COMPANIES IN ANY MANNER. ON THE CONTRARY, BEFORE US THE LEARNED SEN IOR COUNSEL, SHRI MISTRY BROUGHT TO OUR NOTICE THE JUDGMENT OF HONBL E DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL VS. MCI IN WPC 1334/2013 J UDGMENT DATED 10.01.2014, WHEREIN THE MEDICAL COUNCIL OF INDIA AD MITTED THAT THE INDIAN MEDICAL COUNCIL REGULATION OF 2002 HAS JURIS DICTION TO TAKE ACTION ONLY AGAINST THE MEDICAL PRACTITIONERS AND NOT TO H EALTH SECTOR INDUSTRY. RELEVANT PORTION OF THE SAID JUDGMENT READS AS UNDE R: XXXXX FROM THE AFORESAID DECISION, IT IS OSTENSIBLY CLEAR THAT THE MEDICAL COUNCIL OF INDIA HAS NO JURISDICTION TO PASS ANY ORDER OR R EGULATION AGAINST ANY HOSPITAL OR ANY HEALTH CARE SECTOR UNDER ITS 2002 R EGULATION. SO ONCE THE INDIAN MEDICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISDICTION NOR HAS ANY AUTHORITY UNDER LAW UPON THE PHARMACEUTICAL COM PANY OR ANY ALLIED IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 28 HEALTH SECTOR INDUSTRY, THEN SUCH A REGULATION CANN OT HAVE ANY PROHIBITORY EFFECT ON THE PHARMACEUTICAL COMPANY LI KE THE ASSESSEE. IF MEDICAL COUNCIL REGULATION DOES NOT HAVE ANY JURISD ICTION UPON PHARMACEUTICAL COMPANIES AND IT IS INAPPLICABLE UPO N PHARMA COMPANIES LIKE ASSESSEE THEN, WHERE IS THE VIOLATION OF ANY O F LAW/REGULATION? UNDER WHICH PROVISION THERE IS ANY OFFENCE OR VIOLATION I N INCURRING OF SUCH KIND OF EXPENDITURE. THE RELEVANT PROVISION OF SECTION 3 7(1)READS AS UNDER: XXXXX THE AFORESAID PROVISION APPLIES TO AN ASSESSEE WHO IS CLAIMING DEDUCTION OF EXPENDITURE WHILE COMPUTING HIS BUSINESS INCOME. THE EXPLANATION PROVIDES AN EMBARGO UPON ALLOWING ANY EXPENDITURE I NCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW. THIS MEANS THAT THERE SHOULD BE AN OFFENCE BY AN ASSESSEE WHO IS CLAIMING THE EXPENDITURE OR THERE IS ANY KIND OF PR OHIBITION BY LAW WHICH IS APPLICABLE TO THE ASSESSEE. HERE IN THIS CASE, N O SUCH OFFENCE OF LAW HAS BEEN BROUGHT ON RECORD, WHICH PROHIBITS THE PHA RMACEUTICAL COMPANY NOT TO INCUR ANY DEVELOPMENT OR SALES PROMOTION EXP ENSES. A LAW WHICH IS APPLICABLE TO DIFFERENT CLASS OF PERSONS OR PART ICULAR CATEGORY OF ASSESSEE, SAME CANNOT BE MADE APPLICABLE TO ALL. TH E REGULATION OF 2002 ISSUED BY THE MEDICAL COUNCIL OF INDIA (SUPRA), PRO VIDES LIMITATION/CURB/PROHIBITION FOR MEDICAL PRACTITIONE RS ONLY AND NOT FOR PHARMACEUTICAL COMPANIES. HERE THE MAXIM OF EXPRE SSIO UNIUS EST EXCLUSIO ALTERIUS IS CLEARLY APPLICABLE, THAT IS, IF A PARTICULAR EXPRESSION IN THE STATUTE IS EXPRESSLY STATED FOR PARTICULAR CLAS S OF ASSESSEE THEN BY IMPLICATION WHAT HAS NOT BEEN STATED OR EXPRESSED I N THE STATUTE HAS TO BE EXCLUDED FOR OTHER CLASS OF ASSESSEE. IF THE MED ICAL COUNCIL REGULATION IS APPLICABLE TO MEDICAL PRACTITIONERS THEN IT CANN OT BE MADE APPLICABLE TO PHARMA OR ALLIED HEALTH CARE COMPANIES. IF SECTION 37(1) IS APPLICABLE TO AN ASSESSEE CLAIMING THE EXPENSE THEN BY IMPLICATIO N, ANY IMPAIRMENT CAUSED BY EXPLANATION1 WILL APPLY TO THAT ASSESSEE ONLY. ANY IMPAIRMENT OR PROHIBITION BY ANY LAW/REGULATION ON A DIFFERENT CLASS OF PERSON/ASSESSEE WILL NOT IMPINGE UPON THE ASSESSEE CLAIMING THE EXPENDITURE UNDER THIS SECTION. 7.BEFORE US THE LEARNED CIT DR STRONGLY RELIED UPON THE FACT THAT CBDT CIRCULAR, WHILE CLARIFYING THE APPLICABILITY OF EXP LANATION 1 TO SECTION 37(1) ON MEDICAL PRACTITIONERS AND PHARMACEUTICAL COMPANI ES HAVE INTERPRETED THAT INDIAN MEDICAL COUNCIL REGULATION IS APPLICABL E FOR PHARMACEUTICAL COMPANIES ALSO. HE ALSO BROUGHT TO OUR NOTICE THAT ANOTHER NOTIFICATION WAS ISSUED BY INDIAN MEDICAL COUNCIL WHICH WAS PUBL ISHED ON 01.12.2016 WHICH FURTHER PROHIBITS SUCH KIND OF EMBARGO ON MED ICAL PRACTITIONERS IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 29 AND HAVE ADDED PARA 6.8.1 AND ALSO GIVEN INSTANCES OF ACTION WHICH SHALL BE TAKEN UPON MEDICAL PRACTITIONERS. THE RELEVANT C LAUSE OF THE SAID NOTIFICATION AS RELIED UPON BY HIM IS REPRODUCED HE REUNDER: XXXXX FROM THE AFORESAID NOTIFICATION, LD. CIT DR SUBMITT ED THAT SO MANY VIOLATIONS AND CENSURES HAVE BEEN PRESCRIBED FOR AN Y EXPENDITURES/ OR BENEFIT GIVEN TO DOCTORS, THUS, VIOLATION OF SUCH G UIDELINES FOR INCURRING SUCH KIND OF EXPENDITURES CANNOT BE HELD TO BE ALLO WABLE EXPENDITURE. CBDT IS WELL WITHIN ITS POWER TO CLARIFY AND INTERP RET THE LAW AND PROHIBIT ALLOWANCE OF ANY EXPENDITURE WHICH VIOLATES ANY STA TUTE OR IS IN NATURE OF OFFENCE. 8.FROM A PERUSAL OF ABOVE AMENDMENT/NOTIFICATION IN THE MCI REGULATION, IT IS QUITE CLEAR AGAIN THAT SAME IS APPLICABLE FOR MEDICAL PRACTITIONERS ONLY AND THE CENSURE/ACTION WHICH HAS BEEN SUGGESTE D BY IT IS ONLY ON MEDICAL PRACTITIONERS AND NOT FOR PHARMACEUTICAL CO MPANIES OR ALLIED HEALTH SECTOR INDUSTRIES. THE VIOLATION OF THE AFOR ESAID REGULATION WOULD NOT ONLY ENSURE A REMOVAL OF A DOCTOR FROM THE INDI AN MEDICAL REGISTER OR STATE MEDICAL REGISTER FOR A CERTAIN PERIOD OF TIME AND IT DOES NOT IMPINGE UPON THE CONDUCT OF PHARMACEUTICAL COMPANIE S. THIS IMPORTANT DISTINCTION HAS TO BE KEPT IN MIND THAT REGULATION ISSUED BY MEDICAL COUNCIL OF INDIA IS QUA THE DOCTORS/MEDICAL PRACTIT IONERS AND NOT FOR THE PHARMACEUTICAL COMPANIES. AS A LOGICAL COROLLARY TO IT, IF THERE IS ANY VIOLATION OR PROHIBITION AS PER MCI REGULATION IN T ERMS OF SECTION 37(1) R.W.EXPLANATION1, THEN IT IS ONLY MEANT FOR MEDICAL PRACTITIONERS AND NOT FOR PHARMACEUTICAL COMPANY (ASSESSEE COMPANY) FOR C LAIMING THE EXPENDITURE. 9.ADVERTING TO THE CONTENTION OF THE LD. CIT DR THA T CBDT IS WELL EMPOWERED TO ISSUE SUCH CLARIFICATION, IT IS SEEN T HAT THE CBDT CIRCULAR DATED 01.08.2012 (SUPRA) IN ITS CLARIFICATION HAS E NLARGED THE SCOPE AND APPLICABILITY OF INDIAN MEDICAL COUNCIL REGULATION 2002 BY MAKING IT APPLICABLE TO THE PHARMACEUTICAL COMPANIES OR ALLIE D HEALTH CARE SECTOR INDUSTRIES. SUCH AN ENLARGEMENT OF SCOPE OF MCI REG ULATION TO THE PHARMACEUTICAL COMPANIES BY THE CBDT IS WITHOUT ANY ENABLING PROVISIONS EITHER UNDER THE PROVISIONS OF INCOME TA X LAW OR BY ANY PROVISIONS UNDER THE INDIAN MEDICAL COUNCIL REGULAT IONS. THE CBDT CANNOT PROVIDE CASUS OMISSUS TO A STATUTE OR NOTIFI CATION OR ANY REGULATION WHICH HAS NOT BEEN EXPRESSLY PROVIDED TH EREIN. THE CBDT CAN TONE DOWN THE RIGOURS OF LAW AND ENSURE A FAIR ENFO RCEMENT OF THE PROVISIONS BY ISSUING CIRCULARS AND BY CLARIFYING T HE STATUTORY PROVISIONS. CBDT CIRCULARS ACT LIKE CONTEMPORANEA EXPOSITIO I N INTERPRETING THE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 30 STATUTORY PROVISIONS AND TO ASCERTAIN THE TRUE MEAN ING ENUNCIATED AT THE TIME WHEN STATUTE WAS ENACTED. HOWEVER THE CBDT IN ITS POWER CANNOT CREATE A NEW IMPAIRMENT ADVERSE TO AN ASSESSEE OR T O A CLASS OF ASSESSEE WITHOUT ANY SANCTION OF LAW. THE CIRCULAR ISSUED BY THE CBDT MUST CONFIRM TO TAX LAWS AND FOR PURPOSE OF GIVING ADMIN ISTRATIVE RELIEF OR FOR CLARIFYING THE PROVISIONS OF LAW AND CANNOT IMPOSE A BURDEN ON THE ASSESSEE, LEAVE ALONE CREATING A NEW BURDEN BY ENLA RGING THE SCOPE OF A DIFFERENT REGULATION ISSUED UNDER A DIFFERENT ACT S O AS TO IMPOSE ANY KIND OF HARDSHIP OR LIABILITY TO THE ASSESSEE. IN ANY CA SE, IT IS TRITE LAW THAT THE CBDT CIRCULAR WHICH CREATES A BURDEN OR LIABILITY O R IMPOSES A NEW KIND OF IMPARITY, SAME CANNOT BE RECKONED RETROSPECTIVELY. THE BENEFICIAL CIRCULAR MAY APPLY RETROSPECTIVELY BUT A CIRCULAR IMPOSING A BURDEN HAS TO BE APPLIED PROSPECTIVELY ONLY. HERE IN THIS CASE THE C BDT HAS ENLARGED THE SCOPE OF INDIAN MEDICAL COUNCIL REGULATION, 2002 AND MADE IT APPLICABLE FOR THE PHARMACEUTICAL COMPANIES. THEREFORE, SUCH A CBDT CIRCULAR CANNOT BE RECKONED TO HAVE RETROSPECTIVE EFFECT. TH E SAME CBDT CIRCULAR HAD COME UP FOR CONSIDERATION BEFORE THE CO-ORDINAT E BENCH OF THE ITAT, MUMBAI BENCH IN THE CASE OF SYNCOM FORMULATIONS (I) LTD. (IN ITA NOS. 6429 & 6428/MUM/2012 FOR A.YS. 2010-11 AND 2011-12, VIDE ORDER DATED 23.12.2015), WHEREIN TRIBUNAL HELD THAT CBDT CIRCUL AR WOULD NOT BE NOT BE APPLICABLE IN THE A.YS. 2010-11 AND 2011-12 AS I T WAS INTRODUCED W.E.F. 1.8.2012. 10.FROM THE PERUSAL OF THE NATURE OF EXPENDITURE IN CURRED BY THE ASSESSEE, IT IS SEEN THAT UNDER THE HEAD CUSTOMER RELATIONSHIP MANAGEMENT, THE ASSESSEE ARRANGES NATIONAL LEVEL S EMINAR AND DISCUSSION PANELS OF EMINENT DOCTORS AND INVITING O F OTHER DOCTORS TO PARTICIPATE IN THE SEMINARS ON A TOPIC RELATED TO T HERAPEUTIC AREA. IT ARRANGES LECTURES AND SPONSORS KNOWLEDGE UPGRADE CO URSE WHICH HELPS PHARMACEUTICAL COMPANIES TO MAKE AWARE OF THE PRODU CTS AND MEDICINES MANUFACTURED AND LAUNCHED BY IT. UNDER KEY ACCOUNT MANAGEMENT, THE ASSESSEE MAKES ENDEAVOUR TO CREATE AWARENESS AMONGS T CERTAIN CLASS OF KEY DOCTORS ABOUT THE PRODUCTS OF THE ASSESSEE AND THE NEW DEVELOPMENTS TAKING PLACE IN THE AREA OF MEDICINE A ND PROVIDING CORRECT DIAGNOSIS AND TREATMENT OF THE PATIENTS. THE SAID ACTIVITIES BY THE ASSESSEE ARE TO MAKE THE DOCTORS AWARE OF ITS PRODU CTS AND RESEARCH WORK CARRIED OUT BY IT FOR BRINGING THE MEDICINE IN THE MARKET AND ITS RESULTS ARE BASED ON SEVERAL LEVELS OF TESTS AND AP PROVALS. UNLESS THE PHARMACEUTICAL COMPANIES MAKE AWARE OF SUCH KIND OF PRODUCTS TO KEY DOCTORS OR MEDICAL PRACTITIONERS, THEN ONLY IT CAN SUCCESSFULLY LAUNCH ITS PRODUCTS/MEDICINES. THIS KIND OF EXPENDITURE IS DEF INITELY IN THE NATURE OF SALES AND BUSINESS PROMOTION, WHICH HAS TO BE ALLOW ED. COMING TO THE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 31 GIFT ARTICLES AND FREE SAMPLES OF MEDICINES, IT IS SEEN THAT THE ASSESSEE GIVES VARIOUS KIND OF ARTICLES LIKE, DIARIES, PEN S ETS, CALENDARS, PAPER WEIGHTS, INJECTION BOXES ETC. EMBOSSED WITH BOLD LO GO OF ITS BRAND NAME AND THE PRODUCT NAME SO THAT THE DOCTORS REMEMBERS THE BRAND OF THE ASSESSEE AND ALSO THE NAME OF THE MEDICINE. ALL THE GIFT ARTICLES, AS POINTED OUT BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND ALSO BEFORE US ARE VERY CHEAP AND LOW CAST ARTICLES WHICH BEARS THE NAME OF ASSESSEE AND IT IS PURELY FOR THE PROMOTION OF ITS PRODUCT, BRAND REMINDER, ETC. THESE ARTICLES CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS. EVEN THE FREE SAMPLE OF MEDICINE IS ONLY TO PROVE THE EF FICACY AND TO ESTABLISH THE TRUST OF THE DOCTORS ON THE QUALITY OF THE DRUG S. THIS AGAIN CANNOT BE RECKONED AS FREEBIES GIVEN TO THE DOCTORS BUT FOR P ROMOTION OF ITS PRODUCTS. THE PHARMACEUTICAL COMPANY, WHICH IS ENGA GED IN MANUFACTURING AND MARKETING OF PHARMACEUTICAL PRODU CTS, CAN PROMOTE ITS SALE AND BRAND ONLY BY ARRANGING SEMINARS, CONF ERENCES AND THEREBY CREATING AWARENESS AMONGST DOCTORS ABOUT THE NEW RE SEARCH IN THE MEDICAL FIELD AND THERAPEUTIC AREAS, ETC. EVERY DAY THERE ARE NEW DEVELOPMENTS TAKING PLACE AROUND THE WORLD IN THE A REA OF MEDICINE AND THERAPEUTIC, HENCE IN ORDER TO PROVIDE CORRECT DIAG NOSIS AND TREATMENT OF THE PATIENTS, IT IS IMPERATIVE THAT THE DOCTORS SHO ULD KEEP THEMSELVES UPDATED WITH THE LATEST DEVELOPMENTS IN THE MEDICIN E AND THE MAIN OBJECT OF SUCH CONFERENCES AND SEMINARS IS TO UPDAT E THE DOCTORS OF THE LATEST DEVELOPMENTS, WHICH IS BENEFICIAL TO THE DOC TORS IN TREATING THE PATIENTS AS WELL AS THE PHARMACEUTICAL COMPANIES. F URTHER AS POINTED OUT AND CONCLUDED BY THE LEARNED CIT(A) THERE IS NO VIO LATION BY THE ASSESSEE IN SO FAR AS GIVING ANY KIND OF FREEBIES TO THE MED ICAL PRACTITIONERS. THUS, SUCH KIND OF EXPENDITURES BY A PHARMACEUTICAL COMPA NIES ARE PURELY FOR BUSINESS PURPOSE WHICH HAS TO BE ALLOWED AS BUSINES S EXPENDITURE AND IS NOT IMPAIRED BY EXPLANATION 1 TO SECTION 37(1). 11.BEFORE US, THE LD. CIT DR HAS ALSO MUCH HARPED U PON THE DECISION OF THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SS) VS. CBDT (SUPRA ), IN SUPPORT OF THE ARGUMENT THAT CBDT CIRCULAR HAS BEEN APPROVED AND C ONFIRMED BY THE HIGH COURT AND THEREFORE, IT HAS A HUGE BINDING PRE CEDENCE. FROM THE PERUSAL OF THE SAID JUDGMENT OF THE HONBLE HIGH CO URT, IT IS SEEN THAT IN THAT CASE THE VALIDITY OF CIRCULAR NO.5/12 DATED 1. 8.2012 WAS CHALLENGED. THE HONBLE HIGH COURT THOUGH UPHELD THE VALIDITY O F THE SAID CIRCULAR BUT WITH A RIDER THAT IF THE ASSESSEE SATISFIES THE ASS ESSING AUTHORITY THAT THE EXPENDITURE IS NOT IN VIOLATION OF THE REGULATION F RAMED BY THE MEDICAL COUNCIL, THEN IT MAY LEGITIMATELY CLAIM THE DEDUCTI ON. THE ASSESSEE HAS TO SATISFY THE AO THAT THE EXPENDITURE IS NOT IN VIOLA TION OF THE MEDICAL IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 32 COUNCIL REGULATION. THUS, IF THE ASSESSEE BRINGS OU T THAT THE MCI REGULATION IS NOT APPLICABLE TO THE ASSESSEE BEFORE THE AO, THE SAME CANNOT BE APPLIED BLINDLY. 12. AT THE TIME OF HEARING, OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF TRIBUNAL OF OUR CO-ORDINATE BENCH IN TH E CASE OF LIVA HEALTHCARE LIMITED ITA NOS. 904 & 945/MUM/2013, DE CIDED VIDE ORDER DATED 12.09.2016. IN COUNTER, TO THIS DECISION THE LEARNED COUNSEL, SHRI JD MISTRY DISTINGUISHED THE SAID JUDGMENT AND SUBMI TTED THAT THE FACTS OF THE CASE IN THE LIVA HEALTHCARE (SUPRA) WERE SUBSTA NTIALLY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. IN THE CASE OF LIVA HEALTHCARE, THE HONBLE TRIBUNAL DISALLOWED SUCH EXPENSES U/S. 37(1) OF THE ACT ON THE GROUND THAT THEY WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS THE SAME WERE INCURRED TO CREATE GOOD R ELATIONS WITH THE DOCTORS IN LIEU OF EXPECTED FAVOURS FROM DOCTORS FO R RECOMMENDING TO THE PATIENTS THE PHARMACEUTICAL PRODUCTS DEALT WITH BY THE COMPANY TO GENERATE MORE AND MORE BUSINESS AND PROFITS FOR THE ASSESSEE COMPANY. THE TRIBUNAL ALSO RECORDED THE FACT THAT THE SPOUSE OF THE DOCTORS ALSO ACCOMPANIED THE DOCTORS FOR OVERSEAS TRIPS TO ISTAN BUL AND EXPENSES WERE INCURRED FOR CRUISE TRAVELS TO ISLAND, GALA DI NNER, COCKTAILS, GALA ENTERTAINMENT ETC. OF SUCH DOCTORS. IN ASSESSEES C ASE IT IS AN ADMITTED FACT THAT EXPENSES HAVE NOT BEEN INCURRED FOR THE P URPOSE PERSONAL BENEFIT/ENJOYMENT OF THE DOCTORS OR THEIR SPOUSES. IN THE CASE OF LIVA, THE QUESTION AS TO WHETHER SUCH IMC REGULATIONS CAN BE APPLICABLE TO PHARMA COMPANIES WAS NOT ARGUED BEFORE THE HONBLE BENCH. HE REITERATED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL (SUPRA) AND THE JURISDICTIONAL TRIBUNAL IN THE CASE OF SYNCOM (SUPRA) HAVE HELD THAT SUCH IMC REGULATIONS APPLY ONLY TO M EDICAL PRACTITIONERS. HE FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF ACIT VS. LIVA HEALTHCARE LTD. (ITA 847/MUM/2012) FOR A.Y. 2008-09 , HAS DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. HOWEVER, I N A.Y. 2009-10, HONBLE TRIBUNAL WHILE NOTING THE FACT THAT CONSISTENCY HAS TO BE ADOPTED, DISTINGUISHED THE ORDER OF A.Y. 2008-09 AS UNDER: THE ASSESSEE HAS CONTENDED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO. 388/MUM/2012 FOR ASSESSMENT YEA R 2008-09. IN OUR CONSIDERED VIEW, PRINCIPLES OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS ALTHOUGH WE ARE FULLY AGREEABLE THA T PRINCIPLES OF CONSISTENCY IS TO BE MAINTAINED (HONBLE SUPREME CO URT DECISION IN RADHA SOAMI SATSANG V. CIT (1992) 193 ITR 321 (SC) BUT IN THE INSTANT ASSESSMENT YEAR, WE HAVE OBSERVED THAT THESE OVERSE AS TRIPS FOR DOCTORS AND THEIR SPOUSES WERE ORGANIZED BY THE ASSESSEE WH EREBY NO DETAILS OF IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 33 THE CONTENTS OF SEMINAR, IF ANY CONDUCTED BY THE AS SESSEE OVERSEAS HAS BEEN BROUGHT ON RECORD AND ALSO EVEN THE SPOUSES AC COMPANIED THE DOCTORS TO THE OVERSEAS TRIP WHICH INCLUDED CRUISE VISIT TO ISLAND, GALA DINNERS, COCKTAIL, GALA ENTERTAINMENT ETC. RATHER T HAN BEING DIRECTED TOWARDS SEMINAR FOR PRODUCT INFORMATION DISSEMINATI ON OR DIRECTED TOWARDS KNOWLEDGE ENHANCEMENT OR KNOWLEDGE SHARING ORIENTED AS NO DETAILS OF SEMINAR AND ITS COURSE CONTENT IS BROUGH T ON RECORD RATHER THE TRIP IS DIRECTED TOWARDS LEISURE AND ENTERTAINMENT OF DOCTORS AND THEIR SPOUSES WHICH IN OUR VIEW APPEARS TO BE CLEARLY A D ISTINGUISHABLE FEATURE IN THIS YEAR ENABLING US TO TAKE A DIVERGENT VIEW A ND THE EXPENSES INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS BUSIN ESS EXPENDITURE U/S. 37 OF THE ACT AS IT IS CLEARLY HIT BY EXPLANATION T O SECTION 37 OF THE ACT BEING AGAINST PUBLIC POLICY AS UNETHICAL PROHIBITED BY LAW. IN VIEW OF THE ABOVE, HE POINTED OUT THAT IN THE AB OVE DECISION FOR A.Y. 2009-10 IN THE CASE OF LIVA HEALTHCARE, THERE WAS A SPECIFIC FINDING OF A FACT THAT NO DETAILS HAVE BEEN FILED WITH RESPECT T O ANY SEMINAR HAS BEEN CONDUCTED FOR DOCTORS AND THAT THE TRIPS WERE DIREC TED TOWARDS LEISURE AND ENTERTAINMENT OF DOCTORS AND THEIR SPOUSES. THI S WAS A DISTINGUISHABLE FEATURE FOR THE HONBLE TRIBUNAL TO TAKE A CONTRARY VIEW FROM A.Y. 2008-09. HE FURTHER SUBMITTED THAT THE HO NBLE TRIBUNAL IN THE CASE OF LIVA HEALTHCARE LTD. VS. ACIT (ITA NO. 4791 /MUM/2014) FOR A.Y. 2010-11 HAS FOLLOWED THE DECISION OF LIVA HEALTHCAR E (SUPRA) FOR A.Y. 2008-09 AND HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS, FURTHER BRINGS OUT THE FACT THAT THE HONBLE TRIBUN AL DISALLOWED THE EXPENSES U/S. 37(1) OF THE ACT IN THE CASE OF LIVA HEALTHCARE FOR A.Y. 2009-10 ONLY ON THE GROUND THAT THE SAME WERE NOT I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 13.APART FROM THE AFORESAID DISTINGUISHING FEATURES AS HIGHLIGHTED BY THE LEARNED SENIOR COUNSEL, WE FIND THAT ON THE FACTS I TSELF IN THE CASE OF LIVA HEALTHCARE (2009-2010) (SUPRA), THERE WAS A CLEAR C UT MATERIAL ON RECORD THAT THE DOCTORS ALONG WITH THEIR SPOUSES WERE TAKE N TO FOREIGN TOURS AND CRUISE TRAVEL ETC., IN LIEU OF EXPECTED FAVOURS FRO M DOCTORS. IN THE LIGHT OF THESE FACTS AND MATERIAL THE TRIBUNAL HAS DECIDED T HE ISSUE AGAINST THE ASSESSEE BY NOT FOLLOWING THE EARLIER YEAR PRECEDEN CE AND SUBSEQUENT YEAR ORDERS OF THE SAME ASSESSEE. AS BROUGHT ON REC ORD BEFORE US, WE FIND THAT SIMILAR ISSUE OF ALLOWANCE OF SUCH EXPEND ITURE IN THE CASE OF PHARMACEUTICAL COMPANIES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, IN THE CASE OF UCB INDIA PVT. LTD. V. ITO (ITA NO. 668 1/MUM/2013 ORDER DATED 13.05.2016, WHEREIN IT WAS HELD THAT CBDT CIR CULAR CANNOT HAVE A RETROSPECTIVE EFFECT. THIS JUDGMENT WAS LOST SIGHT OF BY THE BENCH. IN ANY CASE ON CAREFUL PERUSAL OF THE TRIBUNAL ORDER IN TH E CASE OF LIVA IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 34 HEALTHCARE (SUPRA) WE FIND THAT THE TRIBUNAL THOUGH HAS INCORPORATED THE RELEVANT PROVISIONS AND CLAUSES OF THE INDIAN MEDI CAL COUNCIL REGULATION 2002, HOWEVER, HAS NOT ELABORATED OR DWELL UPON AS TO HOW THIS MCI REGULATION WHICH IS STRICTLY MEANT FOR MEDICAL PRAC TITIONERS AND DOCTORS CAN BE MADE APPLICABLE TO PHARMACEUTICAL COMPANIES. THERE HAS TO BE SOME ENABLING PROVISION OR SPECIFIC CLAUSE IN THE S AID REGULATION WHEREBY THE PHARMACEUTICAL COMPANIES ARE BARRED FROM CONDUC TING SEMINARS OR CONFERENCES BY SPONSORING THE DOCTORS. THE ENTIRE C ONDUCT RELATES TO DOCTORS AND MEDICAL PRACTITIONERS AND LISTS OUT THE CENSURES AND FINES IMPOSED UPON THEM. WHAT HAS NOT BEEN PROVIDED IN TH E MCI REGULATION CANNOT BE SUPPLIED EITHER BY THE COURT OR BY THE CB DT. THERE HAS TO BE EXPRESS PROVISION UNDER THE LAW WHEREBY PHARMACEUTI CAL COMPANIES ARE PROHIBITED TO CONDUCT CONFERENCES OR SEMINAR OR GIV E FREE SAMPLES. IN THE TRIBUNAL DECISION OF LIVA HEALTHCARE, STRONG REFERE NCE HAS BEEN MADE TO HONBLE HIMACHAL PRADESH HIGH COURT (SUPRA), THAT T HE SAID CBDT CIRCULAR HAS BEEN UPHELD. ON THIS ASPECT WE HAVE ALREADY DIS CUSSED IN DETAIL HEREIN ABOVE THAT, FIRSTLY, HIGH COURT ITSELF CARVE S OUT A RIDER THAT ASSESSEE IS FREE TO DEMONSTRATE BEFORE THE AO THAT THIS CIRCULAR IS NOT APPLICABLE ON FACTS OF THE CASE; AND SECONDLY, CBDT CIRCULAR WHICH CREATES NEW IMPAIRMENT AND IMPOSES DISALLOWBI-LITY NOT ENVISAGED IN ANY OF THE ACT OR REGULATION CANNOT BE RECKONED TO BE R ETROSPECTIVE. ANOTHER STRONG REFERENCE HAS BEEN MADE TO THE DECISION OF H ONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. [2012] 25 TAXMANN.COM 92, WHEREIN COMMISSION WAS PAID TO THE PRIVATE DOCTORS FOR REFERRING THE PATIE NTS FOR DIAGNOSIS TO THE ASSESSEE COMPANY. IN BACKGROUND OF THESE FACTS AND ISSUES INVOLVED, THE HONBLE HIGH COURT HELD THAT SAID PAYMENT OF COMMIS SION IS WRONG AND IS OPPOSED TO BE A PUBLIC POLICY. IT SHOULD BE DISCOUR AGED AS IT IS NOT A FAIR PRACTICE. THE RATIO OF SAID DECISION CANNOT BE APPL IED ON THE FACTS OF THE PRESENT CASE BECAUSE THERE IS NO VIOLATION OF ANY L AW OR ANYTHING WHICH IS OPPOSED TO PUBLIC POLICY. SIMILARLY, THERE IS REFER ENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESKAYEF (NOW K NOWN AS SMITHKLINE BEECHAM) PHARMACEUTICALS (INDIA) LIMITED V. CIT (2000) 111 TAXMAN 561(SC), WHICH WAS GIVEN IN CONTEXT OF SECTION 37(3 A) OF THE ACT. IN THE SAID CASE THE ASSESSEE HAD CLAIMED EXPENDITURE ON D ISTRIBUTION OF PHYSICIANS SAMPLES U/S. 37. IN THE BACKGROUND OF S UCH CLAIM THE HONBLE APEX COURT HELD THAT, IF THE EXPENDITURE FALLS WITH IN THE BARE MINIMUM IT WILL NOT BE CAUGHT BY SUBSECTION (3A) OF SECTION 37 . ON THE CONTRARY, THE HONBLE APEX COURT OBSERVED THAT PHYSICIANS SAMPLES ARE NECESSARY TO ASCERTAIN THE EFFICACY OF MEDICINE AND INTRODUCE IT IN THE MARKET FOR CIRCULATION AND IT IS ONLY BY THIS METHOD THE PURPO SE IS ACHIEVED. IN SUCH CASES GIVING A PHYSICIAN SAMPLES FOR REASONABLE PER IOD IS ESSENTIAL TO THE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 35 BUSINESS OF MANUFACTURE AND SALE OF MEDICINE. IT IS ONLY IF A PARTICULAR MEDICINE HAS BEEN INTRODUCED BY THE MARKET AND ITS USES ARE ESTABLISHED THEN GIVING OF FREE SAMPLES COULD ONLY BE THE MEASU RE OF SALE/ PROMOTION AND DEVELOPMENT WOULD THUS BE HIT BY SUBSECTION (3A ). SAID DECISION NO WAY PROHIBITS THE NATURE OF EXPENDITURE WHICH HAS B EEN INCURRED IN THE CASE OF THE ASSESSEE. THEREFORE, SUCH A REFERENCE T O A HONBLE APEX COURT DECISION IS NOT GERMANE TO THE ISSUE INVOLVED . THUS, IN OUR OPINION, THE AFORESAID DECISION OF THIS TRIBUNAL IS CLEARLY DISTINGUISHABLE AND CANNOT BE HELD TO BE APPLICABLE AND ALSO WE HAVE AL READY GIVEN OUR INDEPENDENT FINDING AS TO ALLOWABILITY OF EXPENSES IN THE HANDS OF THE ASSESSEE AS BUSINESS EXPENDITURE. 14.ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT( A) DELETING THE DISALLOWANCE AGGREGATING TO RS.22,99,72,607/-. 5.3.3.. LASTLY,WE WANT TO REFER TO THE CASE OF SYNCOM FORMU LATIONS IN ITA NO. 6429 & 6428/ MUM/2012,DATED 23.12.2015, THE TRI BUNAL HAS HELD THAT THE CBDT CIRCULAR, DATED 1.8.2012 IS APPLICABL E W.E.F.1.8. 2012 RELEVANT TO AY.2013-14.WHILE HOLDING SO,IT WAS OBSE RVED AS UNDER: WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND TH AT RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER IS NOT PROHIBITED UNDER ANY LAW FOR TH E TIME BEING IN FORCE. GIVING SMALL GIFTS BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVING GIFTS TO DOCTORS BUT IT IS REGARDED AS AD VERTISING EXPENSES. AS REGARDS SPONSORING DOCTORS FOR CONFERENCES AND EXTE NDING HOSPITALITY, PHARMACEUTICALS COMPANIES HAVE BEEN SPONSORING PRAC TICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT THEY GATHER CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEA SE AND LEARN ABOUT NEWER THERAPIES. WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BY RELYING ON THE CBDT CIRCULAR DATED 01.08.2012 ONWAR DS. HOWEVER, THE CIRCULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUC ED W.E.F.01.08.2012 I.E. ASSESSMENT YEAR 2013-2014, WHEREAS THE RELEVAN T ASSESSMENT YEAR UNDER CONSIDERATION IS 2010-2011 AND 2011-2012. ACC ORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE A O IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. 5.4. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT T HE MCI GUIDELINES ARE APPLICABLE TO THE PROFESSIONALS I.E. DOCTORS ON LY. THEY DO NOT AND CANNOT GOVERN THE OTHER TAX ENTITIES LIKE DRUG MANU FACTURING OR DRUG DISTRIBUTING COMPANIES OR INDIVIDUALS OTHER THAN TH E DOCTORS, OR HUF,S., OR FIRMS ETC. MCI, AS A BODY CAN FORMULATE POLICY F OR THE DOCTORS. THE ASSESSEE IS NOT A PRACTICING PROFESSIONAL. SO, ANY GUIDELINES ISSUED BY IT CANNOT DECIDE THE ALLOWABILITY OR OTHERWISE OF AN E XPENDITURE UNDER THE IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 36 ACT. INCOME TAX ACT IS A CODE IN ITSELF AND BUSINES S INCOME AN ASSESSEE HAS TO BE ASSESSED AND TAXED AS ENVISAGED BY THE PR OVISIONS OF THE ACT. THE AO/DRP HAD NOT DOUBTED INCURRING OF EXPENDITURE . THEY HAVE HEAVILY RELIED UPON THE GUIDELINES ISSUED BY THE MCI FOR TH E DOCTORS. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAX HOSPITAL, PITAM PURA (SUPRA)HAS CLEARLY HELD THAT MCI COULD ISSUE GUIDE LINES FOR T HE DOCTORS ONLY AND THAT THE MCI IN ITS AFFIDAVIT ADMITTED THAT IT HAS NO J URISDICTION TO PASS ANY ORDER AGAINST THE PETITIONER HOSPITAL. ETHICS COM MITTEE OF MCI IS AUTHORISED TO PASS SOME ORDER ABOUT THE INFRASTRUCT URE OF ANY HOSPITAL. BUT, AS FAR AS CORPORATE ENTITIES ARE CONCERNED MCI CANNOT ISSUE ANY GUIDE LINES. THEREFORE, WE ARE NOT DEALING WITH THE ISSUE AS TO FROM WHICH AY. THE GUIDE LINES WOULD BE APPLICABLE. WE WOULD A LSO LIKE TO HOLD THAT DISTRIBUTION OF FREE SAMPLES CANNOT BE TREATED AS V IOLATION OF EXPL.1 TO SECTION 37(1). 5.5. WE WOULD ALSO LIKE TO PREFER TO FOLLOW THE JUDGMENT OF THE HONBLE DELHI HIGH COURT DELIVERED IN THE CASE OF MAX HOSPI TAL, PITAMPURA AND THE ABOVE REFERRED TWO ORDERS OF THE TRIBUNAL I.E. PHL PHARMA P LTD.(SUPRA)AND SYNCOM FORMULATIONS(SUPRA)OVER THE ORDER OF OCHOA LAB. (SUPRA). ACCORDINGLY ,THIRD EFFECTIVE GROUND OF APP EAL(GS.OA 20-32)IS DECIDED IN FAVOUR OF THE ASSESSEE. IN VIEW OF ABOVE DISCUSSION, WE DECIDE GROUNDS NO.1 1-29 IN FAVOUR OF THE ASSESSEE. THE ISSUE AT HAND BEING SIMILAR TO ONE AS DECIDED B Y THE COORDINATE BENCH IN ASSESSEE OWN CASE IN AY 2011-12 AS REPRODUCED ABOV E AND ALSO SQUARELY COVERED BY RATIO LAID DOWN BY THE HONBLE DELHI AN D RAJASTHAN HIGH COURTS IN WP ( C ) 1334/2013 AND ITA NO. 485/2008 RESPECTIVE LY , WE ARE THEREFORE INCLINED TO UPHOLD THE ORDER OF CIT(A) ON THIS ISSU E BY ALLOWING THE GROUND NOS 25 TO 42 RAISED BY THE ASSESSEE. 11. THE ASSESSEE HAS RAISED ADDITIONAL GROUND, WHIC H IS IN RESPECT OF CONSEQUENTIAL DEPRECIATION ON NON-COMPETE FEE OF ` 4,73,00,000/- AS IT HAS BEEN HELD TO BE CAPITAL IN NATURE IN A.Y. 2002-03. THE FACTS IN BRIEF ARE THAT THE ASSESSEE ENTERED INTO EXCLUSIVE DISTRIBUTION AG REEMENT WITH MEDTECH DEVICES LIMITED (MDL) ON 1 ST MAY 1999 FOR DISTRIBUTION OF ASSESSEES IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 37 PRODUCTS IN INDIA, WHICH ACCOUNTED FOR APPROXIMATEL Y 40% OF THE TOTAL REVENUE OF THE ASSESSEE IN THAT YEAR. HOWEVER, DUR ING A.Y. 2002-03, THE DISTRIBUTION AGREEMENT WAS TERMINATED VIDE AGREEMEN T DATED 31 ST JULY 2001 ON ACCOUNT OF MEDTECH DEVICES LIMITED CONSTRAINTS I N INVESTING THE REQUIRED RESOURCES TO EXPAND ITS OWN BUSINESS IN LINE WITH A SSESSEES EXPECTATIONS. THE SAID TERMINATION AGREEMENT PROVIDED FOR CERTAIN STIPULATED CONDITIONS, WHICH ARE AS UNDER: MDL WOULD CEASE DISTRIBUTION OF MEDTRONICS PRODUCTS IN THE TERRITORIES ASSIGNED. THEIR EMPLOYEES WOULD BE TRANSFERRED TO THE ASSESSE E; CERTAIN MOVABLE AND IMMOVABLE PROPERTIES OF MDL WOU LD BE SELECTIVELY PURCHASED BY THE APPELLANT; THREE DIRECTORS OF MDL NAMELY A DAMODHARAN, M. SWAM INATHAN AND SANDIP DAVE HAVE WOULD BE RETAINED AS CONSULTANTS BY THE A SSESSEE FOR A PERIOD OF THREE YEARS AND THEY WOULD NOT ENGAGE IN ANY COMPET ING ACTIVITIES; THE DIRECTORS OF MDL SHALL EXECUTE A NON-COMPETE AG REEMENT WITH ASSESSEE . CONSEQUENTLY, A NON-COMPETE AGREEMENT WAS ENTERED I N BY THE ASSESSEE WITH THE THREE DIRECTORS OF MDL AND IN TERMS OF THE SAID AGREEMENT, THE ASSESSEE PAID A SUM OF USD 1 MILLION EQUIVALENT TO ` 4,73,00,000/- TO THE DIRECTORS OF MDL TO BE EQUALLY DISTRIBUTED AMONG TH EMSELVES AND CLAIMED THE SAME AS NON-COMPETE FEES OF REVENUE IN NATURE U/S. 37(1) OF THE ACT IN THE RETURN OF INCOME FOR A.Y. 2002-03. HOWEVER, THE LE ARNED TPO DISALLOWED THE SAME BY HOLDING IT TO BE IN THE NATURE OF CAPITAL EXPENDITURE. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE CO-ORDINATE BENCHES IN ITS OWN CASE IN ITA NOS. 812 & 1245/AHD/2008 FOR A.YS. 2004-05 & 2003- 04) AND IN ITA NO.7555/MUM/2012 FOR A.Y. 2008-09 & ITA NO. 1246/MUM/2016 FOR A.Y. 2011-12, WHEREIN THE TRIBUNA L HAS ADMITTED THE ADDITIONAL GROUND AND DIRECTED THE ASSESSING OFFICE R TO ALLOW DEPRECIATION ON PAYMENT MADE FOR NON-COMPETE FEE TREATING THE SAME AS CAPITAL EXPENDITURE. THE LEARNED AR PRAYED BEFORE THE BENCH THAT IN VIEW OF THE SAID DECISIONS OF IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 38 THE CO-ORDINATE BENCHES, THE ADDITIONAL GROUND RAIS ED BY THE ASSEESSEE ALLOWED. 13. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE, THE OPERATIVE PORTION OF THE ORDER FOR A.Y. 2011-12 IS REPRODUCED BELOW: 6. IN THE ADDITIONAL GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE ISSUE OF ALLOWING CONSEQUENTIAL DEPRECIATION ON NON COMPETE FEE. IT WAS ARGUED THAT WHILE DECIDING THE APPEAL FOR THE AY.20 02-03, THE TRIBUNAL(ORDER DTD.25.10.2016) HAD DIRECTED THE AO TO ALLOW DEPRECIATION ON PAYMENT MADE FOR NON COMPETE FEE TREATING THE SA ME AS CAPITAL EXPENDITURE. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE ALLOW THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESS EE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON PAYMENT MADE FOR NON-COMPETE FEE AND ACCORDINGLY THE GROUND RAISED BY THE ASSESS EE IS ALLOWED. 14. GROUND NOS. 43 TO 46 ARE CONSEQUENTIAL IN NATUR E AND, HENCE, NEED NOT BE ADJUDICATED. THEY ARE DISMISSED AS SUCH. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7 TH MAY, 2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 27 TH MAY,2019 SA IT(TP)A NO.2160/MUM/2017 INDIA MEDTRONIC PVT. LTD. 39 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI
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