AI Insights
In the miscellaneous petition MA No.57/Bang/2023, AstraZeneca Pharma India Limited sought rectification of certain errors in the Tribunal's earlier order concerning the disallowance of costs related to samples distributed to medical professionals and the computation of operating margins for clinical trial coordination. The Tribunal had previously remitted these issues to the Assessing Officer, referencing decisions and orders from different assessment years. The Tribunal's decision in this miscellaneous petition corrected the application of legal precedents and ensured consistency in the treatment of similar expenses across different assessment years, aligning with the Supreme Court's rulings and previous Tribunal decisions.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 129927 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
27-07-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
27-07-2023
Assessment Year
2014-2015
Appeal Filed On
24-01-2023
Judgement Text
MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER MA No.57/Bang/2023 (Arising out of IT(TP)A No.3250/Bang/2018) Assessment Year: 2014-15 AstraZeneca Pharma India Limited P.B. No.4525, Block No1 12 th Floor, Manyata Embassy Business Park, Rachenahalli Outer Ring Road Bengaluru 560 045 PAN NO : AABCA1722B Vs. Deputy Commissioner of Income-tax LTU Circle-1 Bengaluru APPELLANT RESPONDENT Appellant by : Shri Nageshwar Rao, A.R. Respondent by : Shri V. Parithivel, D.R. Date of Hearing : 28.07.2023 Date of Pronouncement : 28.07.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: In this miscellaneous petition, the assessee seeks to rectify certain errors crept in the order of the Tribunal in IT(TP)A No.3250/Bang/2018 for the assessment year 2014-15 dated 15.12.2022. 2. The ld. A.R. submitted that vide grounds of appeal nos. 5 to 5.4, the assessee challenged action of assessing officer/DRP in disallowing cost of samples. While deciding the said grounds, the Tribunal made the following observations in Para 5.1, extracted below: "5.1. These grounds are akin to ground nos. 4.1 to 4.6. In view of this, we remit this issue to the file of AO as discussed in earlier para no. 4 and MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 2 of 10 4.1 above. These grounds of appeal are partly allowed for statistical purposes." 2.1 Ground nos. 4.1 to 4.6 as referred to by the Tribunal in the above para pertains to grounds on disallowance of travel and conveyance, selling. marketing and distribution expenses, on which the Tribunal made the following observations: "4. ....After hearing both the parties, we are of the opinion that this issue is required to be re-examined by the AO in the light of the earlier order of the Tribunal in the assessee's own case in IT(TP)A no. 460/Bang/2016 dated 30.11.2022 in assessment year 2011-12 wherein it was held as under: 19. In the present case also there is no critical evaluation of the expenses and post the Hon'ble Supreme Court judgement, the dictum laid down, same needs to be followed and each of the expenditure needs to be evaluated to see if the disallowance is justified. 29. we remit the issue back to the AO to examine the nature of expenditure incurred by the assessee and to verify the issue afresh in the light of the recent judgement of the Hon'ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra)" 2.2 While arguing the present miscellaneous petition on this issue, the ld. A.R. submitted that the issue that was considered by coordinate bench of this Tribunal in the order relied for assessment year 2011-12 that was in respect of the freebies expenditure, which at present is already settled by the decision of Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd (SLP No. 23207 of 2019) against assessee. 2.3 The ld. A.R. submitted that the issue that is alleged by assessee in the present appeal in ground Nos.4.1 to 4.6 was in respect of disallowance of cost of samples (medicine) that was distributed to the medical professionals u/s 37 of the Income-tax Act,1961 ['the Act' for short]. The ld. A.R. relied on decisions in support of his contention that any expenditure by a pharmaceutical company towards samples (medicine) distribution to medical professionals and are admissible expenditure and cannot be held to MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 3 of 10 be prohibited as laid out in section 37(3A) of the Act, not covered by the decision in case of Apex Laboratories Pvt. Ltd. cited (supra). The ld. A.R. referred to following decisions in support of the allowability of the claim:- • Order passed by Hon'ble Supreme Court in the case of Eskayef vs CIT (245 ITR 116) — held the Court had to adjudge the admissibility of expenditure towards samples, due to the specific prohibition laid out in section 37(3A) of the Act (which was repealed later). • ACIT vs M/s Dupen Laboratories Pvt Ltd (I.T.A No. 5195/Mum/2013) — Post repeal of section 37(3A) 2.4 In support, he also relied on the view expressed by another decision of coordinate bench in assessee’s own case for AY 2009-10 in IT(TP)A No.107/Bang/2014 dated 27.12.2016, wherein held as under: “10. We have considered the rival submissions. The AO has disallowed the impugned claims in the light of the prohibition imposed by Medical Council of India (MCI), the CBDT Circular dated 1st August 2012 and held that such expenses being prohibited by MCI is not an admissible deduction under section 37(1). Assessee pleads that MCI regulation is effective from 10th of December 2009 and therefore it cannot be applied for any period prior to such date. These expenses are not prohibited by any law and therefore the CBDT C ircular has no application w hen such expens es w ere incurr ed before 10th of Decem ber 2009. The MCI guidelines have been is sued under Section 33 of Indian C ouncil Act of 1936. Therefore, they ar e statutor y. As provided in clause in 6.8. 1, thes e guidelines ar e mandatory but they are effective from the date of their publication in the Official Gazette i.e. 10 t h D ecember, 2009 only. T her efore, for the period pr ior to such publication, these guidelines are not operative and hence, no disallow ance can be m ade for the period prior to such date. The CBDT circular is issued to clar ify the allow ability of expens es on medical fr eebies w hich are prohibited by MC I. Expens es incurr ed and claimed by an assessee but prohibited by law, cannot be allow ed as deduction neither under section 37(1) nor under any other provisions of Act. The C BDT MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 4 of 10 circular only reiterates and clarifies the allowability of expens es prohibited under MCI guidelines. T he refore, C BDT circular is clar ificatory and he n c e i t is r e tr os pe ct i v e i n o pe r a t i o n. H ow e v e r , t he C B D T c i r c u l a r has no application for a period in which the MCI guidelines are not operative. The AO has not disputed the genuineness of the expenses claimed. The only reason for the disallowance is that the impugned expenses are prohibited by MCI guidelines and therefore they are illegitimate. Therefore, the deduction claimed by the assessee other than the cost of samples distributed for the period prior to MCI guidelines, is an admissible deduction and accordingly, the AO is directed to allow them. As held by the DRP in the assessee's own case for AY 2010- 11 and AY 2011-12, the cost of samples distributed is also an allowable claim based on the rationale of the decision of the Supreme Court in the case of Eskayef vs CIT 245 ITR 116 and accordingly the AO is directed to allow it too. In the result, the grounds of appeal on these issues are allowed.” 2.5 He submitted that in the above decision, this Tribunal relied on the decision of Hon’ble Supreme Court in the case of Eskayef Vs. CIT reported in 245 ITR 116 and had directed the ld. AO to allow the expenditure incurred by the assessee towards the cost of samples (medicine) distributed to medical professionals. The ld. A.R. submitted that to this extent, the directions of this Tribunal in the impugned order to verify the expenditure based on the decision of Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. cited (supra) is a mistake apparent on record. He thus, submitted that the said factual mistake is to be rectified. 3. The ld. D.R. relied on the impugned order of the Tribunal. 4. In our opinion, on a joint reading of all decisions relied by the ld. A.R. and the decision referred to by this Tribunal in the impugned order for AY 2014-15, the reliance placed on the observation for AY 2011-12 needs to be replaced that the view expressed by this Tribunal in assessee’s own case for AY 2009-10, wherein an identical issue has been dealt with. The relevant portion of the order of this Tribunal for AY 2009-10 has already been reproduced herein above. Considering the view expressed by this Tribunal for AY MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 5 of 10 2009-10, wherein the ratio of Hon’ble Supreme Court in case of Eskayef Vs. CIT cited (supra) was relied on, we direct the ld. AO to allow the expenditure incurred by assessee towards the cost of samples (medicine) distributed to the medical professionals. Therefore, we remit this issue to the file of ld. AO for the limited purposes of verifying the nature of the expenditure that is submitted to be incurred by the assessee towards the cost of samples (medicine) distributed. In the event, it is found to be an expenditure incurred relating to the cost of samples (medicine) distributed to medical professionals, the same shall be allowed by following the ratio laid down by Hon’ble Supreme Court in Eskayef Vs. CIT cited (supra). Accordingly, this issue raised by the assessee in this miscellaneous petition is allowed. 5. Next ground in this MP is that the Tribunal has given direction for re-computation of operating margin of the assessee for the coordination of clinical trial segment on internal cost incurred and not on total cost. The ld. A.R. submitted that the assessee has raised the ground before this Tribunal that AO/TPO/DRP have erred in law and in facts in computing the operating margin of the assessee for this segment of total cost vis-à-vis internal cost. Further, it was submitted that the Tribunal made the following observations in relation to calculation of operating margin: "13. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in Assessee's own case in AY 2009-10 in IT(TP)A No. 107/Bang/2014." "13.1. In view of the above order of the Tribunal, we remit this issue to the file of AO to examine whether the said expenditure is operating expenditure or pass through expenditure." 5.1 The ld. A.R. submitted that the Tribunal remitted the case to AO/TPO to decide whether the said expenditure is operating expenditure or pass-through expenditure, relying on assessee's own MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 6 of 10 case in AY 2009-10. The ld. A.R. submitted that in assessee's own case for AY 2009-10, the issue was remanded to the Learned AO/ TPO by Tribunal for re-examination and eventually the ground was left unattended in the order giving effect to the ITAT's order issued by the Learned TPO as the entire TP adjustment was deleted pursuant to the exclusion of M/s Lotus Labs Ltd from the final set of comparable companies. Accordingly, the issue of computation of operating margin for the coordination of clinical trial segment on total cost vis-a-vis internal cost became academic in nature for AY 2009-10 and no position/ stance was taken on the same by the Learned AO/ TPO which can be followed for AY 2014-15. In view of the above, the ld. A.R. submitted that the total cost for co-ordination of clinical trial segment has two components i.e. internal and external cost. External cost pertains to payment made to investigators, hospitals, external agencies for processing raw reports into final ones and AZ Pharma India recovers the external cost on cost-to- cost basis. Hence, the margins should be calculated on the internal cost, as the markup is charged only on the internal cost (i.e. excluding external cost) and not on the total cost. The TPO in Assessee's own case for AY 2013-14 had computed mark-up for the co-ordination of clinical trial segment on the internal cost, and external cost was considered as reimbursement and no mark-up was charged on the same. The international transaction of coordination of clinical trial segment was accordingly considered by the Ld. TPO to be at arm's length. In AY 2012-13 also TPO has not drawn any adverse inference in relation to international transaction undertaken in clinical trial segment. 5.2 The ld. A.R. invited our attention to the decision of Hon'ble Mumbai Bench of the Tribunal in the case of FedEx MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 7 of 10 Express Transportation and Supply Chain Services India Private Limited Vs. Dy. Commissioner of Income Tax Range 8(1) [ITA No. 435/Mum/2014], wherein it was held that, if the taxpayer coordinated with third party on behalf of the AE for services in connection with custom clearance of high value package services and routed these payments through Balance Sheet, taxpayer merely provides coordinating services, and has not incurred any direct costs or performed any direct functions, deployed assets or undertaken risks. The Tribunal held that the payments made by the taxpayer to third parties on behalf of AE, which has been reimbursed by the AE was to be treated as pass through costs for determining profit margins. Relying on the Delhi High Court decision in the case of Li & Fung India Private Limited [ITA 306/2012], it was held that the payment made by the assessee to the third party on behalf of AE which was reimbursed by the AE cannot be included in the total cost of the assessee for determining the profit margin. 6. The ld. D.R. relied on the impugned order of Tribunal. 7. We have heard the rival submissions and perused the materials available on record. It was submitted that the same issue has been considered by the AO in the assessment year 2013-14 and decided the issue in favour of the assessee and same may be followed. Since the Tribunal has set aside the issue in AY 2009-10 to AO, no stand has been taken on this issue. Being so, in our opinion, it is appropriate to take the same view in this assessment year 2014-15 as AO taken in assessment year 2013-14. Ordered accordingly. This ground of assessee is allowed. 8. Next issue in this miscellaneous petition is that the assessee has raised ground No.10.4, however, no adjudication has been made on this issue. Further, it was submitted that the Tribunal did not MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 8 of 10 make any observation with regards to the above ground of appeal relating to exclusion of APITCO Ltd from the final set of comparables for coordination of clinical trial segment and the same stands unobserved. In this regard, although the Learned DRP held that APITCO Ltd should be excluded from the final set of comparables being a government company, the Learned AO/ TPO did not exclude the same while giving effect to the Learned DRP directions. Considering the above, with respect to Ground No.10.4, the ld. A.R. prayed that for issuance of directions for exclusion of APITCO Ltd as a comparable for the co-ordination of clinical trial segment. Legal Submission 8.1 At the outset, the ld. A.R. submitted that in a plethora of decisions, Courts have laid down that when incorrect observation/ finding has been given by the Tribunal the same constitutes a mistake apparent from record and the order of the Tribunal needs to be rectified. For this purpose, he placed reliance on the decision of Hon'ble Supreme Court in case of Honda Siel Power Product Ltd v. CIT (295 ITR 466) wherein the principle was laid down by Hon'ble Supreme Court that in a case where prejudice had resulted to the party, which is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake. Further, he invited our attention to binding decision of Full Bench of Hon'ble Delhi High Court in the case of Lachman Dass Bhatia Hingwala (P) Ltd. v. ACIT (330 ITR 243) wherein Hon'ble High Court held that Tribunal. while exercising the power of rectification under section 254(2) of the Act, can recall its order in entirety if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal's mistake, error or omission and which error is a manifest error. The ld. A.R. also MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 9 of 10 stated and confirmed that it has not filed any other Miscellaneous Application under section 254(2) of the Act earlier before the Tribunal against captioned order. Based on above the ld. A.R. submitted that incorrect finding or omission to give a finding on any disputed issue as detailed herein above constitutes a mistake which is apparent from record and the same can be rectified under section 254(2) of the Act. 9. The ld. D.R. relied on the order of the Tribunal. 10. We have heard the rival submissions and perused the materials available on record. Admittedly, assessee has raised the above ground No.10.4 on earlier occasion before this Tribunal as it has raised the ground No.11.3 before this Tribunal. The Tribunal adjudicated ground No.11.3, however, failed to adjudicate ground No.10.4. It was the submission of the assessee that the finding of the Tribunal to ground No.11.3 is same applicable to ground No.10.4. We find force in the argument of the assessee’s counsel. Accordingly, ground No.10.4 is remitted to the file of AO to follow the direction of ld. DRP on this issue and decide accordingly. 11. Apart from the issues raised in this miscellaneous petition, there is no other changes in the impugned order of Tribunal or view taken by the Tribunal on any other issues. 12. In the result, the assessee’s miscellaneous petition is allowed. Order pronounced in the open court on 28 th July, 2023 (Beena Pillai) Judicial Member (Chandra Poojari) Accountant Member Bangalore, Dated 28 th July, 2023. VG/SPS MA No.57/Bang/2023 M/s. Astrazeneca Pharma India Limited, Bangalore Page 10 of 10 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.
