INDIA MEDTRONIC P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 7555/MUM/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7200 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 10-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN LD
• Assessee Lawyers: NIKHIL TIWARI LD ARS
• Keywords: Gift; Depreciation; Transfer pricing; Additional evidence; Bad and doubtful debts
• Section: 143(3); 37(1); 28

Judgement Text

ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7555/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) INDIA MEDTRONIC PRIVATE LIMITED 1241, SOLITAIRE CORPORATE PARK BUILDING NO.12,4 TH FLOOR ANDHERI GHATKOPAR LINK ROAD ANDHERI (EAST),MUMBAI-400 093 / VS. DEPUTY COMMISSIONER OF INCOME TAX-8(2) MUMBAI ./ ./PAN/GIR NO. AAACI-4227-Q ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ASSESSEE BY : RAJAN R VORA & NIKHIL TIWARI, LD. ARS REVENUE BY : V.JENARDHANAN, LD. DR / DATE OF HEARING : 17/04/2018 / DATE OF PRONOUNCEMENT : 04/05/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2008-09 CONTEST THE FINAL ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 BY LD. DEPUTY ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 2 COMMISSIONER OF INCOME TAX-8(2) PURSUANT TO THE DIR ECTIONS OF LD. DISPUTE RESOLUTION PANEL [DRP] . THE ASSESSEE HAS BEEN ASSESSED AT RS.71.21 CRORES AFTER CERTAIN ADJUSTMENTS / ADDITIO NS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.56.55 CRORES E-FILED BY THE ASSESSEE ON 24/09/2008. BESIDES ORIGINAL GROUNDS OF APPEAL, THE ASSESSEE HAS FILED ADDITIONAL GROUNDS OF APPEAL ALSO VIDE ITS LETTERS DATED 18/05/2015 & 23/06/2017. SINCE THE SAME DO NOT REQUIRE APPRECIAT ION OF NEW FACTS, THE SAME ARE TAKEN ON RECORD. DURING IMPUGNED AY, THE A SSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF LIFE SAVING DEVICES. 2. THE LD. AUTHORIZED REPRESENTATIVE [AR], AT THE O UTSET, DREW OUR ATTENTION TO THE FACT THAT MOST OF THE ISSUES RAISE D IN APPEAL ARE COVERED BY THE DECISION OF THIS TRIBUNAL FOR EARLIER YEARS IN ASSESSEES OWN CASE AND THEREFORE, THE SAME VIEW MAY BE TAKEN IN THE IM PUGNED AY, THERE BEING NO CHANGE IN THE FACTS OR CIRCUMSTANCES. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] WHILE FAIRLY CONCEDING THE AFOR ESAID FACT, PLACED RELIANCE ON THE STAND OF LOWER AUTHORITIES. IN THIS BACKDROP, WE PROCEED TO ADJUDICATE THE ISSUES RAISED IN THE APPEAL. 3.1 GROUND NO. 1 IS GENERAL IS NATURE. GROUND NUMBE RS 2 TO 13 ARE RELATED WITH TRANSFER PRICING [TP] ADJUSTMENT OF RS.13.53 CRORES AGAINST ADVERTISING, MARKETING & SALES PROMOTION EXPENSES [ AMP] . THE LD TPO, IN HIS ORDER U/S 92CA(3) DATED 28/10/2011, NOT ED THAT THE ASSESSEES AMP EXPENDITURE AMOUNTING TO RS.42.53 CRORES CONSTITUT ED APPROX. 15.49% OF THE TURNOVER IN DISTRIBUTION SEGMENT AS AGAINST AVERAGE OF 4.89% REFLECTED BY SIX COMPARABLES. THER EFORE, BY APPLYING BRIGHT LINE TEST [BLT] , LD. TPO HAD SUGGESTED TP ADJUSTMENT OF RS.29.10 CRORES AGAINST THE SAME. THE LD. DRP PROVI DED CERTAIN RELIEF TO ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 3 THE ASSESSEE ON ACCOUNT OF EXCLUSION OF CERTAIN EXP ENSES WHICH HAS REDUCED THE IMPUGNED ADJUSTMENT TO RS.13.53 CRORES. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3.2 UPON PERUSAL, WE FIND THAT SIMILAR ISSUE OF AMP ADJUSTMENT AROSE IN ASSESSEES OWN CASE FOR AY 2010-11 WHEREIN THE T RIBUNAL VIDE ITA NO. 1600/M/2015 DATED 17/01/2018 DELETED THE IMPUGNED ADJUSTMENT, INTER-ALIA, ON THE PREMISE THAT IN THE ABSENCE OF ANY AGREEMENT / ARRANGEMENT BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISES [AE], THE AFORESAID TRANSACTION COULD NOT BE TERMED AS INTERN ATIONAL TRANSACTION. THE RELEVANT EXTRACT FROM THE SAID ORDER IS REPRODU CED HERE-IN-BELOW:- 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT T HE TPO HAD HELD THAT ASSESSEE SHOULD HAVE BEEN COMPENSATED BY ITS AE FOR THE AMP EXPENDI TURE INCURRED BY IT. WE HAVE GONE THROUGH THE AGREEMENTS ENTERED IN TO BY THE AE.S WI TH THE ASSESSEE, THAT IN THE AGREEMENTS THERE IS NO CONDITION ABOUT SHARING OF AMP, THAT TH E AGREEMENTS TALKS OF USING BEST EFFORTS TO MARKET AND DISTRIBUTE THE PRODUCT OR PROMOTE THE PR ODUCTS IN A COMMERCIALLY REASONABLE MANNER. IN OUR OPINION, THESE TERMS DO NOT GIVE ANY INDICATION THAT THE AE AND THE ASSESSEE HAD TO SHARE AMP EXPENSES. SECONDLY, IF THE AE WAS BENEFITTED INDIRECTLY 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 TH AT BRIGHT LINE METHOD SHOULD NOT HAVE BEEN APPLIED BY THE TPO. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER OF THE THOMAS COOK(SUPRA),WHEREIN THE IDENTICAL ISSUE HAS BEEN DEALT IN LENGTH, AND IT READS AS UNDER: . CONSIDERING THE ABOVE, WE DECIDE THE FIRST EFFECTIV E GROUND OF APPEAL (GOA-1-16) IN FAVOUR OF THE ASSESSEE. SINCE A VIEW HAS ALREADY BEEN TAKEN BY THE TRIBUNAL ON THE ISSUE, RESPECTFULLY FOLLOWING THE JUDICIAL DISCIPLINE, WE DELETE THE IMPUGNED ADJUSTMENT. RESULTANTLY, GROUND NO. 2 STANDS ALLOWE D WHEREAS GROUND NUMBERS 3 TO 13 BECOME INFRUCTUOUS . 4. GROUND NUMBERS 14 & 5 ARE NOT BEING PRESSED BY L D. AR AND THEREFORE, THE SAME STANDS DISMISSED IN LIMINE. ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 4 5. GROUND NUMBERS 16 & 17 ARE RELATED WITH EXPENDIT URE OF RS.49,15,181/- INCURRED BY ASSESSEE IN RESPECT OF FOREIGN TRIPS OF DOCTORS. THE SAME HAS BEEN DISALLOWED PRIMARILY ON THE GROUND THAT THE SAME WAS AGAINST THE CODE OF CONDUCT OF THE MEDICAL PROFESSIONALS AND THE MEDICAL FRATERNITY. THE DISALLOWANCE HAS BEEN C ONFIRMED BY RELYING UPON THE ORDER OF DRP FOR AY 2006-07. THE ARGUMENTS OF THE LD. AR ARE THAT THE ASSESSEE WAS ENGAGED IN THE TRADING OF HIG H PRECISION MEDICAL DEVICES WHICH REQUIRES THE DOCTORS PRESCRIBING / US ING IT TO UNDERSTAND THE TECHNICALITIES OF THE PRODUCT AND THE DOCTORS A RE TRAINED THROUGH LIVE SURGERIES, MEDICAL CONFERENCES ETC. THE AFORESAID E XPENDITURE REPRESENT SPONSORING THE TRIP FOR DOCTORS FOR GOING ABROAD TO ATTEND SEMINARS AND CONFERENCES FOR CREATING AWARENESS ABOUT THE COMPAN YS PRODUCTS AND UPDATE / EDUCATE THEM ABOUT THE COMPANYS PRODUCTS AND THEREFORE, THE EXPENDITURE IS IN THE ORDINARY COURSE OF BUSINESS A ND ALLOWABLE U/S 37(1). SUCH SPONSORING OF FOREIGN TRIPS IS NECESSIT ATED BY RAPID DEVELOPMENT IN THE FIELD OF MEDICAL SCIENCE BOTH IN TERMS OF NEW PRODUCTS AS WELL AS DISEASES. THE LD. AR HAS ALSO R ELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS FOR THE CONTENTIONS THAT MEDICAL COUNCIL OF INDIA [MCI] GUIDELINES WERE APPLICABLE TO PROFESSIONALS ONLY AND DO NOT A PPLY TO OTHER TAX ENTITIES. IT IS FURTHER CONTENDED THAT CBDT CIRCULAR NO. 05/2012 DATED 01/08/2012 PROVIDING FOR DISALLOWANCE OF EXPENDITURE U/S 37(1) DO NOT APPLY TO IMPUGNED AY. RELIANCE HAS BEE N PLACED ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 200 4-05 & 2010-11. UPON PERUSAL, WE FIND THAT THE NATURE OF EXPENSES I NCURRED BY THE ASSESSEE IS NOT CLEAR I.E. WHETHER THE SAME HAS BEE N INCURRED TO SPONSOR FOREIGN VISITS OF DOCTORS TO ATTEND SEMINAR S OR CONFERENCES ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 5 RELATING TO ASSESSEES PRODUCTS OR WHETHER THE SAME ARE IN THE NATURE OF FREEBIES TO THE DOCTORS. IN OUR OPINION, THE EXPEND ITURE INCURRED BY THE ASSESSEE TO SPONSOR FOREIGN VISIT TO GENERATE KNOWL EDGE ABOUT THE COMPANYS PRODUCTS WAS CLEARLY ALLOWABLE U/S 37(1) AND THERE WAS NO RESTRICTION PER-SE REGARDING ALLOWABILITY OF THE SAME. THEREFORE, THE MATTER STANDS REMITTED BACK TO THE FILE OF LD. AO F OR APPRECIATION OF THE FACTUAL MATRIX AND TO BE DECIDED AS PER LAW AFTER P ROVIDING OPPORTUNITY TO THE ASSESSEE TO DEMONSTRATE THE NATURE OF THESE EXP ENSES. GROUND NO. 16 STAND ALLOWED FOR STATISTICAL PURPOSES WHEREAS G ROUND NO. 17 BECOMES INFRUCTUOUS. 6. GROUND NO. 18 IS RELATED WITH DISALLOWANCE OF DE PRECIATION ON GOODWILL FOR RS.1,29,776/-. THE SAME HAS BEEN DISAL LOWED ON THE PREMISE THAT THE GOODWILL DID NOT FALL UNDER SPECIF IC INTANGIBLE ASSETS AS MENTIONED IN SECTION 32. HOWEVER, WE FIND THAT THE ISSUE STOOD SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISION OF HON BLE APEX COURT RENDERED IN CIT VS. SMIFS SECURITIES LIMITED [CA 5961 OF 2012 22/08/2012] WHEREIN IT WAS HELD THAT GOODWILL WAS AN INTANGIBL E ASSET ELIGIBLE FOR DEPRECIATION U/S 32. ACCORDINGLY, BY D ELETING THIS ADDITION, WE ALLOW THIS GROUND OF APPEAL. 7. GROUND NO. 19 IS RELATED WITH DEPRECIATION ON PL ANT & MACHINERY & BUILDING FOR RS.4,55,605/-.THE SAME HAS BEEN DISALL OWED SINCE THESE ASSETS REMAINED IDLE SINCE MANUFACTURING PROCESS ST OOD DISCONTINUED. WE ARE OF THE OPINION THAT ONCE AN ASSET FORMS PART OF BLOCK OF ASSET, IT LOSES ITS INDIVIDUAL IDENTITY AND FURTHER, THERE IS NO REQUIREMENT THAT EACH AND EVERY ITEM IN THE SAID BLOCK SHOULD ACTUALLY BE USED IN THE IMPUGNED AY SO AS TO ENTITLE THE ASSESSEE TO CLAIM DEPRECIAT ION THEREUPON. ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 6 OTHERWISE ALSO, THIS ISSUE STOOD COVERED IN ASSESSE ES FAVOR BY THE CITED ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11. THEREFORE, THIS ADDITION STAND DELETED. 8. GROUND NO. 20 IS RELATED WITH CERTAIN ADVANCES WRITTEN-OFF BY THE ASSESSEE AGGREGATING TO RS.14,29,718/-. UPON PERUSA L OF THE NATURE OF THESE EXPENSES AS FILED BEFORE US, WE FIND THAT ADV ANCES ARE PRIMARILY IN THE NATURE OF ADVANCE FOR SHIPPING & HANDLING CHARGES, ADVERTISIN G MATERIAL, FREIGHT, PACKING, HOTEL BOOKING, PROJECT HIRING, CONSULTANCY CHARGES, BOOKING CHARGES ETC. WHICH ARE PRIMARILY IN RELATION TO BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE IN NORMAL CO URSE OF BUSINESS AND HENCE, ALLOWABLE AS BUSINESS LOSS U/S 28 AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN HARSHAD J CHOKSI VS CIT [254 ITR 499] . RESPECTFULLY FOLLOWING THE SAME, THE IMPUGNED ADDIT ION IS DELETED. 9. GROUND NO. 21 IS RELATED WITH TRADING ADVANCES (BAD DEBTS) WRITTEN OFF FOR RS.67,05,411/-. THE LD. AR DREW OUR ATTENTI ON TO THE ADDITIONAL EVIDENCES TO SUBMIT THAT THE IMPUGNED EXPENDITURE W AS NOTHING BUT BAD DEBTS WRITTEN-OFF AND HENCE ALLOWABLE IN TERMS OF DECISION OF HONBL E APEX COURT RENDERED IN TRF LTD. VS. CIT [323 ITR 397]. WE FIND THAT SINCE THE SAID DISALLOWANCE HAS BEEN MADE BY LOWER AUTHORITIES FOR WANT OF ADEQUATE INFORMATION / DETAILS, THE ISSUE NEEDS TO BE REMITTED BACK TO THE FILE OF LD. AO IN THE LIGHT OF ADDITIONAL EVIDE NCES SUBMITTED BY THE ASSESSEE. WE ORDER SO. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE HIS CLAIM IN THIS REGARD. THIS GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO. 22 TO 24 ARE CONSEQUENTIAL IN NATURE AND HENCE, DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 7 11. GROUND NO. 25 & 26 IS RELATED WITH DISALLOWANCE OF EXPENDITURE ON GIFT ARTICLES FOR RS.7,48,795/-. UPON PERUSAL OF PARA 8.3 OF THE QUANTUM ASSESSMENT ORDER, WE FIND THAT THIS ADDITION HAS BE EN DELETED BY LD. AO HIMSELF AND NO SUCH ADDITION HAS BEEN MADE IN FINAL COMPUTATIONS AND THEREFORE, THESE GROUNDS STANDS DISMISSED AS INFRUCTUOUS. 12. GROUND NO. 27 IS RELATED WITH DEPRECIATION OF O N NON-COMPETE FEES OF RS.4.73 CRORES PAID BY THE ASSESSEE IN AY 2002-0 3 TO AN ENTITY NAMELY MEDTRONIC DEVICE LIMITED . THE SAME WAS CLAIMED U/S 37(1) IN AY 2002-03 BUT THE TRIBUNAL VIDE ITS ORDER ITA NO. 811/AHD/2008 DATED 25/10/2016 HELD THAT THE SAID EXPENDITURE WAS CAPITAL EXPENDI TURE AND IN THE NATURE OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS AND HENCE ELIGIBLE FOR DEPRECIATION UNDER THE PROVISIONS OF THE ACT. T HE LD. AR, VIDE THIS GROUND, HAS PLEADED THAT CONSEQUENTIAL RELIEF SHOUL D BE PROVIDED TO THE ASSESSEE IN THE IMPUGNED AY AS PROVIDED BY TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 & 2004-05. THEREFORE, ON FACTUA L MATRIX, THIS ISSUE STANDS REMITTED BACK TO THE FILE OF LD. AO FOR VERI FICATION OF THE FACTS AND CONSIDER THE CLAIM OF THE ASSESSEE IN TERMS OF CITE D ORDERS OF THE TRIBUNAL. THIS GROUND STANDS ALLOWED FOR STATISTICA L PURPOSES. 13. ALL THE GROUNDS STAND DISPOSED-OFF IN TERMS OF OUR ABOVE ORDER. THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MAY, 2018 SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARW AL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04 .05.2018 SR.PS:-THIRUMALESH ITA.NO.7555/MUM/2012 INDIA MEDTRONIC PRIVATE LIMITED ASSESSMENT YEAR 2008-09 8 ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. +, '%- , - , / DR, ITAT, MUMBAI 6. ,./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI