SYNTHES MEDICAL PRIVATE LIMITED (NOW MERGED WITH JOHNSON & JOHNSON PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX - LTU-1, , MUMBAI

ITA 6886/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1775 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 05-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND MOHAN LD
• Assessee Lawyers: PRANAY GANDHI LD ARS
• Keywords: Gift; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency; Revenue expenditure; Capital expenditure; TDS
• Section: 271(1)(c); 143(3); 92B; 234B; 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T(TP)A. NO.2287/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) & ./ I.T.A. NO.6886/MUM/2017 ( / ASSESSMENT YEAR: 2013-14) SYNTHES MEDICAL PVT. LTD. (NOW MERGED WITH JOHNSON & JOHNSON PVT.LTD.) 501, ARENA SPACE, OFF JVLR OPP. MAJAS BUS DEPOT JOGESHWARI (EAST), MUMBAI-400 060. / VS. A CIT - LTU - 1 29 TH FLOOR, CENTRE NO.1 WORLD TRADE CENTRE CUFFE PARADE MUMBAI-400 005. ! ./ ./PAN/GIR NO. AAACJ0-0866-E ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : S/SHRI M.P. LOHIA & PRANAY GANDHI- LD.ARS / RESPONDENT BY : SHRI ANAND MOHAN- LD. CIT-DR / DATE OF HEARING : 02/04/2019 / DATE OF PRONOUNCEMENT : 06/06/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YEA RS (AY) 2012-13 AND 2013-14 CONTEST FINAL ASSESSMENT ORDER ON CERTA IN COMMON GROUNDS OF 2 APPEAL. SINCE COMMON ISSUES ARE INVOLVED, WE DISPOS E-OFF THE APPEALS BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E AND BREVITY. IT(TP)A NO.2287/MUM/2017 (2012-13): 2. THIS APPEAL CONTEST FINAL ASSESSMENT ORDER DATED 27/01/2017 PASSED BY LD. LD. ASSISTANT COMMISSIONER OF INCOME TAX-LTU -1 MUMBAI [AO] U/S. 143(3) R.W.S.144C (13) PURSUANT TO DIRECTIONS OF LD . DISPUTE RESOLUTION PANEL-I, MUMBAI (DRP) U/S. 144C (5) DATED 13/12/201 6. THE INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT RS.2320.41 LACS AFT ER CERTAIN ADDITIONS, DISALLOWANCES & TP ADJUSTMENTS AS AGAINST RETURNED INCOME OF RS.190.29 LACS E-FILED BY THE ASSESSEE ON 28/11/2011. 3. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE [AR], SHRI M.P.LOHIA , AT THE OUTSET, SUBMITTED THAT ALL THE ISSUES UNDE R APPEAL ARE COVERED BY THE EARLIER ORDERS OF THE TRIBUNAL IN AS SESSEES OWN CASE WHICH IS EVIDENT FROM THE FACT THAT EARLY HEARING WAS GRA NTED TO THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 27/07/2018. THE SAID FACTS WERE CONFRONTED TO LD. CIT-DR WHO COULD NOT REBUT THE SAME. THE DETAILS FO R TRIBUNALS ORDER, FOR EASE OF REFERENCE, COULD BE TABULATED IN THE FOLLOW ING MANNER: - IN THE ABOVE BACKGROUND, OUR GROUND WISE ADJUDICATI ON IS AS FOLLOWS. 4.1 GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.1.1 AND 1.2 READ AS UNDER: - PART I-CORPORATE TAX ADJUSTMENTS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO ON FACT AND IN LAW HAS: DISALLOWANCE OF AMORTISED EXPENSE OF LOANER SET AMO UNTING TO RS 8,15,92,059/- NO. ITA NO. ORDER DATED A YS 1. ITA NOS.6005,6006,5807/DEL/2013 31/03/2017 2007- 08 & 2008-09 2. ITA NOS. 1855, 979/DEL/2014 16/06/2017 2009-10 3. ITA NOS. 1784,1857/DEL/2016 13/04/2018 2011-12 3 1.1. ERRED IN DISALLOWING THE AMORTISED EXPENSE OF LOANER SET (DEFERRED WRITE OFF OF COST OF EQUIPMENT AND INSTRUMENTS GIVEN ON RETURNABLE BASIS ) AMOUNTING TO RS.8,15,92,059/- TREATING THE SAME TO BE CAPITAL IN NATURE AND ALLOWING ONLY DEPRECIATION ON THE SAME; 1.2. ERRED IN DISREGARDING THE PRINCIPLE OF CONSIST ENCY, MORE PARTICULARLY SINCE IDENTICAL CLAIM OF DEDUCTION HAD BEEN ALLOWED FROM ASSESSMENT YEARS 20 02-03 TO 2006-07 IN ASSESSMENTS FRAMED U/S 143(3) OF THE ACT. DURING ASSESSMENT PROCEEDINGS IT TRANSPIRED THAT TH E ASSESSEE LOANED CERTAIN MEDICAL INSTRUMENTS, EQUIPMENT WHICH WERE N EEDED FOR SURGICAL FIXATION, CORRECTION AND REGENERATION OF HUMAN SKEL ETON. THESE WERE SUPPLIED TO HOSPITALS / DOCTORS ON RETURNABLE BASIS . IT WAS SUBMITTED THAT IT WAS NECESSARY TO PROVIDE SUCH EQUIPMENT ON LOAN BAS IS TO FACILITATE SALE OF THE ASSESSEES PRODUCTS. THE USEFUL LIFE WAS ESTIMA TED TO BE 3 YEARS AND ACCORDINGLY, THE EXPENDITURE WAS AMORTIZED OVER A P ERIOD OF 3 YEARS. IT WAS SUBMITTED THAT SEPARATE ACCOUNTS FOR SUCH INVENTORY WAS MAINTAINED SINCE 1993 AND CONSISTENT ACCOUNTING METHODOLOGY WAS BEIN G FOLLOWED BY THE ASSESSEE, IN THIS REGARD. DURING IMPUGNED AY, THE A SSESSEE CLAIMED PROPORTIONATE DEDUCTION U/S 37(1). HOWEVER, LD. AO REJECTING THE ACCOUNTING METHODOLOGY ADOPTED BY THE ASSESSEE, DIS ALLOWED AMORTIZATION OF RS.15.27 CRORES AS CLAIMED BY THE ASSESSEE U/S 3 7(1). CONSEQUENTIALLY, TREATING THE SAME AS CAPITAL EXPENDITURE, DEPRECIAT ION OF RS.7.11 CRORES WAS ALLOWED AND NET ADDITION OF RS.8.15 CRORES WAS WORKED OUT AND ADDED TO THE INCOME OF THE ASSESSEE. THE LD. DRP, FOLLOWI NG DIRECTIONS IN AYS 2007-08 TO 2011-12, UPHELD THE SAME. 4.2 WE FIND THAT THIS ISSUE IS COVERED BY THE CITED ORDER OF TRIBUNAL FOR AYS 2007-08 & 2008-09, WHEREIN THE MATTER HAS BEEN CONC LUDED IN THE FOLLOWING MANNER: - 4.3.5 IN SUCH CIRCUMSTANCES, WE ARE OF CONSIDERED O PINION THAT THE AMOUNT OF RS.50,33,418/- TREATING LOANER SETS EXPENDITURE AS CAPITAL EXPENDITURE WAS NOT IN 4 ACCORDANCE WITH LAW AND THEREFORE, DIRECTED TO BE D ELETED. THUS, THE GROUNDS NO.1 AND 2 OF THE APPEAL ARE ACCORDINGLY ALLOWED. THIS DECISION HAS BEEN FOLLOWED BY THE TRIBUNAL IN AYS 2009-10 & 2011-12. SINCE NOTHING ON RECORD SUGGEST ANY CHANGE IN MATER IAL FACTS OR CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE CONSISTEN T VIEW OF TRIBUNAL, WE DELETE THE IMPUGNED ADDITIONS OF RS.8.15 CRORES. TH E LD. AO IS DIRECTED TO RECOMPUTE THE SAME IN TERMS OF OUR ABOVE DIRECTIONS . THE GROUNDS OF APPEAL STAND ALLOWED. 5.1 THE NEXT GROUND READS AS UNDER: - DISALLOWANCE OF 50% OF ADVERTISEMENT AND SALES PRO MOTION EXPENSES AMOUNTING TO RS.9,08,930/- 1.3 ERRED IN DISALLOWING 1/2 OF THE ADVERTISEMEN T AND SALES PROMOTION EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS AMOUNTING TO R S 9,08,930/- BY HOLDING THAT SUCH EXPENSE ARE ENDURING IN NATURE AND IN NATURE OF DEF ERRED REVENUE EXPENDITURE; AND 1.4 WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT ALLOWING AMOUNT DISALLOWED IN THE EARLIER YEAR. ON PERUSAL OF PROFIT & LOSS ACCOUNT, IT TRANSPIRED THAT ASSESSEE DEBITED ADVERTISEMENT AND SALES PROMOTION EXPENDITURE FOR R S.18.17 LACS. THE LD. OPINED THAT THE SAME WERE INCURRED TO ENHANCE THE P ROFITABILITY. THEREFORE, 50% OF THIS EXPENDITURE I.E. RS.9.08 LACS WAS DEFER RED TO SUBSEQUENT YEAR. THE LD. DRP, FOLLOWING DIRECTIONS IN AYS 2008-09 TO 2011-12, UPHELD THE SAME. 5.2 WE FIND THAT THIS ISSUE IS COVERED BY THE CITED ORDER OF TRIBUNAL FOR AYS 2007-08 & 2008-09, WHEREIN THE MATTER HAS BEEN CONC LUDED IN THE FOLLOWING MANNER: - 5.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE ARE OF THE OPINION THAT NO BASIS WHATSOE VER HAS BEEN STATED BY THE AUTHORITIES TO RESTRICT THE EXPENDITURE TO 50% OF T HE CLAIM OR 1/5 TH OF THE CLAIM. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE JUD GMENT OF THE MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VS. CIT (SUPRA) IS M ISCONCEIVED, MISPLACED AND CONTRARY TO THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF THE TAPARIA TOOLS 5 LIMITED VS. JCIT (SUPRA), WHEREIN IT IS LAID DOWN T HAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE AND IS ONLY AT THE INSTANCE OF THE ASSESSEE, A REVENUE EXPENDITURE CAN BE SPREAD OR UNDER THE PRINCIPLE OF MATCHING CO NCEPT AND NOT OTHERWISE. THE LD. CIT-A HAS OBSERVED THAT IN RESPECT OF EXPENDITURE O F KEY CHAINS AMOUNTING TO RS.96,546/- TO DISTRIBUTORS AND AMOUNTING TO RS.3 ,23,560/- TO DOCTORS, THE ASSESSEE DID NOT ESTABLISH THAT SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE BUSINESS. WE OBSERVED THAT THE ASSESSEE VIDE REPLY DATED 12/08/2013 HAD SUBMITTED BEFORE THE LD. CIT-A THAT SUCH EXPENDITURE WAS INCU RRED FOR BUSINESS OF THE COMPANY AMONGST VARIOUS DOCTORS AND HEALTH WORKERS WHO ATTE NDED SEMINARS. IT WAS ALSO STATED THAT TURNOVER OF THE ASSESSEE COMPANY HAS INCREASED FROM RS.31.86 CRORES TO RS.42.04 CRORES. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE LD. CIT-A HAS DISPUTED THE GENUINENESS OF THE EXPENDITURE. IN SUCH CIRCUMSTANC ES, ONCE THE GENUINENESS OF THE EXPENDITURE IS NOT IN DISPUTE, THE COMMERCIAL EXPED IENCY CANNOT BE REJECTED ON THE GROUND OF SUSPICION. NO MATERIAL WAS LED BY THE REV ENUE TO ALLEGE THAT THE EXPENDITURE INCURRED IN THE COURSE OF BUSINESS IS NOT AN ELIGIB LE EXPENDITURE. WE ACCEPT THE CONTENTION OF THE LD. COUNSEL THAT IT IS NOT POSSIB LE TO GET RECEIPT OF KEYCHAINS EITHER FROM THE DOCTORS OR DISTRIBUTORS DISTRIBUTED FOR TH E PURPOSE OF DEVELOPMENT OF THE BUSINESS OF THE ASSESSEE. THE ENTIRE ACTION OF THE AUTHORITIES BELOW IS BASED ON SUSPICION AND THEREFORE FOUND UNTENABLE. ACCORDINGL Y, THE DISALLOWANCE MADE ON THIS ACCOUNT IS DELETED AND THE GROUND NO. 3 OF THE APPE AL IS ALLOWED. THIS DECISION HAS BEEN FOLLOWED BY TRIBUNAL IN SUBS EQUENT AYS 2009-10 & 2011-12. FACTS AND CIRCUMSTANCES BEING PARI-MATERIA THE SAME, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL, WE DELETE THE IMPUGNED ADDITIONS OF RS.9.08 LACS. GROUND NO. 1.3 STANDS ALLOWED WHEREAS GROUND NO. 1.4 BECOMES INFRUCTUOUS. 6.1 THE NEXT ISSUE THAT FALL FOR OUR CONSIDERATION IS AS UNDER: - DISALLOWANCE OF 4/5 TH OF THE RECRUITMENT AND TRAINING EXPENSES AMOUNTING TO RS. 44,76,295 1.5 ERRED IN DISALLOWING 4/5 LH OF THE RECRUITMENT AND TRAINING EXPENDITURE AMOUNT ING TO RS 44,76,295 BY HOLDING THAT SUCH EXPENDITURE ARE ENDU RING IN NATURE AND IN THE NATURE OF DEFERRED REVENUE EXPENDITURE TO BE AMORTIZED OVER A PERIOD OF 5 YEARS. THE ASSESSEE INCURRED AN EXPENDITURE OF RS.55.95 LA CS TOWARDS STAFF RECRUITMENT AND TRAINING. THE LD. AO TREATING THE S AME AS ENDURING BENEFIT, ALLOWED ONLY 1/5 TH OF THE SAME AND DISALLOWED THE BALANCE EXPENDITURE TO BE 6 APPROPRIATED IN THE NEXT 4 YEARS. THE LD. DRP, FOLL OWING DIRECTIONS IN AYS 2008-09 TO 2011-12, UPHELD THE SAME. 6.2 WE FIND THAT THIS ISSUE IS COVERED BY THE ORDER OF TRIBUNAL FOR AY 2008- 09, WHEREIN THE MATTER HAS BEEN CONCLUDED IN THE FO LLOWING MANNER: - 16.2 THE LD. CIT-A HAS CLEARLY HELD THAT NO ASSET W AS CREATED BY INCURRING EXPENDITURE ON RECRUITMENT AND TRAINING AND, THEREFORE, THERE W AS NO REASON FOR TREATING THIS EXPENDITURE AS CAPITAL EXPENDITURE. THE FINDING OF THE ASSESSING OFFICER HAS NOT BEEN FOUND BY THE LD. CIT-A IN ACCORDANCE WITH ACCOUNTIN G PRINCIPLES. HE ALSO FOUND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AGAINST THE PRINCIPLE OF CONSISTENCY. IN VIEW OF ABOVE, IN OUR OPINION, THE ORDER OF THE LD. CIT-A ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE FIND NO JUSTIFICATION TO INTERFERE WITH THE AFORESAID FINDING OF THE LD. CIT-A, AND ACCORDINGLY THE GROUND NO. 2 OF THE APPE AL OF THE REVENUE IS DISMISSED. THE SAID DECISION HAS BEEN FOLLOWED BY TRIBUNAL IN AYS 2009-10 & 2011- 12. FACTS AND CIRCUMSTANCES BEING THE SAME, RESPECT FULLY FOLLOWING THE EARLIER ORDERS OF TRIBUNAL, WE HOLD THAT THE ASSESS EE WAS ENTITLED TO CLAIM THE SAID EXPENDITURE OF RS.55.95 LACS IN FULL DURIN G IMPUGNED AY. THIS GROUND STANDS ALLOWED. 7.1 THE NEXT GROUND READS AS UNDER: - DISALLOWANCE OF CONFERENCE EXPENSE AMOUNTING TO RS 5,32,72,615 1.6 ERRED IN DISALLOWING THE CONFERENCE EXPENSES AMOUNTING TO RS 5,32,72,615 ALLEGING THAT SUCH EXPENSES ARE IN THE NATURE OF SALES COMMI SSION TO THE DOCTORS AND TAXES SHOULD HAVE BEEN DEDUCTED THEREON, AND ALSO ALLEGING THAT THE SAID EXPENSES ARE NOT PERMITTED BY LAW; 1.7 ERRED IN DISALLOWING EXPENSES AGGREGATING TO RS 5,32,72,615 BY INVOKING EXPLANATION 1 TO SECTION 37(1) OF THE ACT. 1.8 ERRED IN NOT APPRECIATING THE FACT THAT THE CODE OF CONDUCT LAID DOWN IN THE INDIAN MEDICAL COUNCIL UNDER PROFESSIONAL CONDUCT ETIQUETT E & ETHICS REGULATION 2002 ISSUED WITH EFFECT FROM 10 DECEMBER 2009 APPLIES ONLY TO MEDICA L PRACTITIONERS. 1.9 ERRED IN HOLDING THAT THESE EXPENSES ARE DIS ALLOWABLE IN VIEW OF CIRCULAR NO. 05/2012 DATED 1 AUGUST 2012 ISSUED BY CENTRAL BOARD OF DIRE CT TAXES READ WITH THE AMENDMENTS MADE BY THE MCI REGULATIONS. IT TRANSPIRED THAT DURING THE COURSE OF ITS BUSINES S, THE ASSESSEE INCURRED A SUM OF RS.532.72 LACS TOWARDS CONVENTION, EDUCATION SUPPORT, OPR COURSE AND SYMPOSIUM EXPENSES IN THE NATURE OF SEMI NAR AND CONFERENCE 7 FOR SPONSORING DOCTORS AND HEALTH CARE WORKERS. THE SE EXPENDITURES, IN THE OPINION OF LD. AO, WERE AGAINST THE GUIDELINES ISSU ED BY MEDICAL COUNCIL AND NOT IN LINE WITH THE PROFESSIONAL ETHICS OF THE DOCTORS AND THEREFORE, NOT ALLOWABLE. ANOTHER FACTOR WHICH LED TO THE DISALLOW ANCE WAS THAT LD. AO OPINED THAT THE STATED EXPENDITURE WAS NOTHING BUT INDIRECT WAY OF ACCORDING BENEFITS / INCENTIVES TO THE DIRECTORS AN D THEREFORE, PARTAKES THE CHARACTER OF COMMISSION INCOME. SINCE NO TDS WAS DE DUCTED AGAINST THE SAME, IT WAS TO BE DISALLOWED U/S 40(A)(IA). THE LD . DRP, FOLLOWING DIRECTIONS IN AYS 2008-09 TO 2011-12, UPHELD THE SA ME. 7.2 THE PERUSAL OF DETAILS OF THESE EXPENDITURES, A S TABULATED ON PAGE NO. 107 OF THE PAPER-BOOK , WOULD REVEAL THAT THESE EXPENDITURES HAVE BEEN INCURRED TOWARDS CONVENTION EXPENSES, EDUCATION SUP PORT EXPENSES, SEMINAR SPONSORSHIP FEES, SYMPOSIUM/ WORKSHOP EXPEN SES. WE FIND THAT THIS ISSUE, ON SIMILAR FACTUAL MATRIX IS COVERED BY THE ORDER OF THE TRIBUNAL FOR AY 2011-12. THE TRIBUNAL HAS CONCLUDED THE MATT ER IN ASSESSEES FAVOR BY FOLLOWING THE JUDGMENT OF THIS TRIBUNAL RENDERED IN INDIA MEDTRONICS PVT. LTD. [ITA 1600/MUM/2015 DATED 17/10/2018]. THE LD. AR HAS FURTHER DRAWN OUR ATTENTION TO THE FACT THAT SIMILAR FACTUA L MATRIX IS ALSO COVERED BY THE SUBSEQUENT DECISION OF HONBLE RAJASTHAN HIGH C OURT RENDERED IN DR. ANIL GUPTA [ITA NO.286 OF 2018], MUMBAI TRIBUNAL IN ARISTO PHARMACEUTICALS PVT. LTD. [ITA NO. 5553 &6129 OF 20 14 26/07/2018] & PUNE TRIBUNAL IN EMCURE PHARMACEUTICALS LTD. [ITA NO. 1532 OF 2015 29/01/2018]. 8 SINCE NOTHING ON RECORD SUGGEST ANY CHANGE IN NATUR E OF EXPENDITURE, RESPECTFULLY FOLLOWING THE BINDING JUDICIAL PRONOUN CEMENTS, WE DELETE THE IMPUGNED ADDITIONS. THIS GROUND STANDS ALLOWED. 8. GROUND NO.1.10 CONTEST LEVY OF INTEREST U/S 234B WHEREAS GROUND NO.1.11 CONTEST INITIATION OF PENALTY U/S 271(1)(C) . THESE GROUNDS BEING CONSEQUENTIAL / PREMATURE IN NATURE, WOULD NOT REQU IRE ANY INDULGENCE ON OUR PART. 9.1 THESE ARE TRANSFER PRICING GROUNDS WHICH READ A S UNDER: - PART II - TRANSFER PRICING ADJUSTMENTS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE DRP, THE LEARNED AO AND JOINT COMMISSIONER OF INCOME-TAX (TRANSFER PRIC ING) - 2(3) ('LEARNED TPO 1 ) HAVE ERRED IN: ADJUSTMENT IN RESPECT OF ADVERTISEMENT, MARKETING A ND PROMOTION ('AMP') EXPENSES 2. MAKING AN ADJUSTMENT IN RESPECT OF AMP EXPENS ES OF RS.7,27,61,569 ALLEGING THAT THE AMP EXPENSE INCURRED BY THE APPLICANT IS AN INTERNATION AL TRANSACTION UNDER SECTION 92B; 3. NOT CONSIDERING THE MERITS IN THE CASE OF THE APPLICANT AND WITH THE SHEER MOTIVE OF KEEPING THE ISSUE ALIVE AND TO PROTECT THE INTEREST OF THE DEPARTMENT, UPHELD THE REASONS OF TPO; 4. NOT CONSIDERING THE ARGUMENT THAT AMP EXPENSE S PURELY REPRESENT THE EXPENSES INCURRED BY THE APPLICANT FOR THE PURPOSE OF ITS BUSINESS AN D HAVE NO BEARING ON ANY INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES ('AES') AN D HENCE, IT IS NOT AN INTERNATIONAL TRANSACTION; 5. IGNORING THAT THE ALLEGED AMP EXPENSES INCURRED BY THE APPLICANT REPRESENTS ONLY DOMESTIC TRANSACTIONS UNDERTAKEN WITH THIRD PARTIES AND ARE OUTSIDE THE PURVIEW OF SECTION 92B OF THE ACT AND IS THUS IN EXCESS OF HIS JURISDICTION. 6. HOLDING THAT THE APPLICANT IS DEVELOPING MARK ETING INTANGIBLE BY INCURRING ALLEGED AMP EXPENSES (SUCH AS SELLING COMMISSION AND OTHER SELL ING EXPENSES) INSTEAD OF APPRECIATING THAT SUCH EXPENSES WERE INCURRED FOR PURELY INCREASING T HE SALES OF THE COMPANY 9.2 FACTS QUA THE SAME ARE THAT CERTAIN INTERNATIONAL TRANSACTION S CARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY WITH ITS ASS OCIATED ENTERPRISES [AE], WERE REFERRED TO LD. TRANSFER PRICING OFFICER U/S 92CA(1) FOR DETERMINATION OF ARMS LENGTH PRICE [ALP]. NO TRANS ACTION WAS REPORTED BY THE ASSESSEE UNDER THE HEAD ADVERTISING, MARKETING, SALES PROMOTION EXPENSES [AMP] AS INTERNATIONAL TRANSACTION. HOWEVER, LD. TPO NOTE D THAT THE ASSESSEE WAS A DISTRIBUTOR OF PRODUCTS MANUFACT URED BY THE ASSESSEES 9 AE AND THE PRODUCTS BEAR THE BRAND / TRADEMARK OF T HE AES. THEREFORE, BY INCURRING THESE EXPENDITURES, THE ASSESSEE, IN THE OPINION OF LD. TPO, HAS DEVELOPED MARKETING INTANGIBLES IN THE FORM OF DIST RIBUTION AND DEALER NETWORK, NETWORK WITH HOSPITALS, CUSTOMER BASES ETC . THEREFORE, THE ASSESSEE WAS REQUIRED TO BE COMPENSATED SUITABLY FO R THE SAME. THE EXPENSES INCURRED BY THE ASSESSEE UNDER THIS HEAD A MOUNTED TO RS.14.86 CRORES WHICH WORKED OUT TO BE 10.62 % OF GROSS SALE S. IN THE ABOVE BACKGROUND, LD. TPO PROCEEDED TO DETERMINE THE ALP OF THE SAME. 9.3 THE ASSESSEE AGITATED THE SAME BY SUBMITTING TH AT THE AMP EXPENSES WERE PAID TO THIRD PARTIES IN INDIA AND TH ERE WAS NO ARRANGEMENT / AGREEMENT, WHATSOEVER, BETWEEN THE ASSESSEE AND ITS AE FOR UNDERTAKING ANY BRAND BUILDING ACTIVITY AND THEREFORE, MERE INC URRING OF AFORESAID EXPENDITURES WOULD NOT CONSTITUTE INTERNATIONAL TRA NSACTION. THESE EXPENSES WERE STATED TO HAVE BEEN INCURRED BY THE A SSESSEE FOR ITS OWN BENEFIT AND IT WAS SUBMITTED THAT NO SERVICES HAVE BEEN RENDERED TO ITS AE. HOWEVER, DISREGARDING THE SAME, LD. TPO PROCEEDED T O COMPUTE THE ARMS LENGTH PRICE OF THE SAME BY ADOPTING BRIGHT LINE TEST . THE MEAN AVERAGE OF 3 COMPARABLE SELECTED BY LD. TPO WORKED OUT TO 5 .94% AND APPLYING THE SAME TO GROSS SALES, EXCESS EXPENDITURE INCURRED BY THE ASSESSEE WAS WORKED OUT TO RS.6.55 CRORES. AFTER ADDING MARK-UP OF 11.03%, THE TRANSFER PRICING ADJUSTMENT, THUS PROPOSED WORKED O UT TO RS.7.27 CRORES. 9.4 THE LD. DRP, ALTHOUGH OBSERVED THAT BRIGHT LINE TEST WAS NOT ACCEPTABLE METHOD TO BENCHMARK THESE TRANSACTIONS A ND FURTHER, IN THE ABSENCE OF ANY AGREEMENT, THESE TRANSACTIONS COULD NOT BE TERMED AS INTERNATIONAL TRANSACTIONS, HOWEVER, CONFIRMED THE ADDITION TO KEEP THE 10 ISSUE ALIVE AND TO PROTECT THE INTEREST OF THE DEPA RTMENT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR HAS SUB MITTED THAT THE ISSUE IS COVERED IN ASSESSEES FAVOR BY THE ORDER OF THIS TR IBUNAL FOR AY 2009-10. 9.5 UPON CAREFUL CONSIDERATION, WE CONCUR WITH THE SUBMISSIONS THAT THIS ISSUE IS COVERED IN ASSESSEES FAVOR BY THE ORDER O F TRIBUNAL FOR AY 2009-10 WHEREIN IT HAS, INTER-ALIA, BEEN HELD THAT IN THE ABSENCE OF ANY AGREEMENT, THESE TRANSACTIONS WOULD NOT CONSTITUTE INTERNATION AL TRANSACTION. THIS DECISION HAS SUBSEQUENTLY BEEN FOLLOWED IN AY 2011- 12. FACTS & CIRCUMSTANCES BEING PARI-MATERIA THE SAME, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, WE HOLD THAT IN TH E ABSENCE OF ANY AGREEMENT BETWEEN THE ASSESSEE AND ITS AES, THESE T RANSACTIONS COULD NOT BE TERMED AS INTERNATIONAL TRANSACTIONS AND ACCORDI NGLY, COULD NOT BE SUBJECT TO DETERMINATION OF ALP. BY DELETING IMPUGN ED ADDITIONS, THIS GROUND STANDS ALLOWED. FINALLY, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OUR ABOVE ORDER. ITA NO.6886/MUM/2017 (2013-14): 10. IN THIS AY, THE GRIEVANCE OF THE ASSESSEE IS ON SIMILAR LINES AS IN AY 2012-13 AND THE ASSESSEE IS BEFORE US WITH SIMILAR GROUNDS OF APPEAL. FOR EASE OF REFERENCE, THE ADDITIONS UNDER APPEAL COULD BE TABULATED IN THE FOLLOWING MANNER: - NO. NATUR E OF ADDI TION AMOUNT (RS.) 1. TP ADJUSTMENT OF AMP EXPENDITURE 106.58 LACS 2. DISALLOWANCE OF AMORTISED EXPENSES OF LOANER SET 957.76 LACS 3. DISALLOWANCE OF ADVERTISEMENT, SALES PROMOTION E XPENSES 10.09 LACS 4. DISALLOWANCE OF 4/5 TH OF RECRUITMENT AND TRAINING EXPENSES 35.50 LACS 5. DISALLOWANCE OF CONFERENCE EXPENSES 496.44 LACS 11 FACTS BEING PARI-MATERIA THE SAME, OUR FINDINGS, OBSERVATION, CONCLUSION AS FOR AY 2012-13 SHALL MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. ACCORDINGLY, ADDITIONS LISTED AT SERIAL NOS. 1,2,4 & 5 STANDS DE LETED. 11.1 FACTS QUA ADDITION OF RS.10.09 LACS LISTED AT SERIAL NO. 3 AR E SLIGHTLY DIFFERENT IN THIS YEAR. THE LD.AO HAS DISALLOWED 50 % OF ADVERTISEMENT AND SALES PROMOTION EXPENSES OF RS.28.62 LACS AS CLAIME D BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT AND PROPOSED ADDITION OF RS.14.31 LACS. THE LD. DRP, AT PARA 8.1, PERUSED THE NATURE OF EXPENDITURE AND DELETED THE ADDITIONS EXCEPT ADDITION OF RS.11.66 LACS [WRONGLY REFERRED TO AS RS.10.09 LACS IN THE DIRECTIONS OF LD. DRP]. THE SAID AMOUNT REPRESENT EXPENDITURE TOWARDS PURCHASE OF GIFT CARD OF RELIANCE DIGITAL R ETAIL LTD. IT WAS OBSERVED THAT THESE GIFT CARS WERE ACTUALLY CASH WHICH PERMI TS THE RECIPIENT TO BUY HIS OWN CHOICE OF GOODS FROM RELIANCE DIGITAL STORES AS PER OWN CONVENIENCE. THESE CARDS WERE REDEEMABLE AT ALL RELIANCE DIGITAL STORES. THE MINIMUM VALUE OF THE CARD WAS STATED TO BE RS.500/- WHEREAS THE MAXIMUM VALUE COULD BE MUCH MORE. THE LD. DRP STATED THAT THE EXP ENDITURE COULD NOT BE TERMED AS ADVERTISEMENT & SALES PROMOTION EXPENSES AND IT WAS ONLY A BRIBE AT BEST AND THEREFORE, THE SAME WAS NOT ALLOW ABLE AS DEDUCTION. FURTHER, THE COMPANY HAS NOT MAINTAINED ANY RECORD TO SHOW AS TO WHOM THESE GIFTS CARED WERE ISSUED TO. THEREFORE, AN AMO UNT OF RS.10.09 LACS [AS AGAINST CORRECT AMOUNT OF RS.11.66 LACS] WAS AD DED TO THE INCOME OF THE ASSESSEE, AGAINST WHICH THE ASSESSEE IS IN APPE AL BEFORE US. 11.2 UPON CAREFUL CONSIDERATION, WE ARE OF THE OPIN ION THAT ADDITIONS COULD NOT BE MADE ON MERE ALLEGATIONS OR PRESUMPTIONS. NO DOUBT, THE ONUS WAS ON ASSESSEE TO PROVE THAT THE AFORESAID EXPENDITURE FULFILLS THE CONDITIONS AS 12 ENVISAGED BY SECTION 37(1). IT APPEARS THAT NO DETA ILS, IN THIS REGARD, HAS BEEN SUBMITTED BY THE ASSESSEE AND NO RECORD HAS BE EN MAINTAINED TO SHOW AS TO WHOM THESE CARDS WERE ISSUED. NEVERTHELE SS, KEEPING IN VIEW THE PRINCIPAL OF NATURAL JUSTICE, WE REMIT THIS MAT TER BACK TO THE FILE OF LD. AO FOR RE-ADJUDICATION WITH A DIRECTION TO THE ASSESSE E TO SUBSTANTIATE HIS STAND, IN THIS REGARD. THIS GROUND STAND ALLOWED FOR STATI STICAL PURPOSES. THE APPEAL STANDS PARTLY ALLOWED. CONCLUSION 12. FINALLY, BOTH THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JUNE, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06/06/2019 SR.PS:-JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )& * , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.