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

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

, 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 appreciation of new facts, the same are taken on record. During impugned AY, the assessee was engaged in the business of trading of Life Saving Devices.

2. The Ld. Authorized Representative [AR], at the outset, drew our attention to the fact that most of the issues raised in appeal are covered by the decision of this Tribunal for earlier years in assessee’s own case and therefore, the same view may be taken in the impugned AY, there being no change in the facts or circumstances. The Ld. Departmental Representative [DR] while fairly conceding the aforesaid 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 numbers 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, noted that the assessee’s AMP expenditure amounting to Rs.42.53 Crores constituted approx. 15.49% of the turnover in distribution segment as against average of 4.89% reflected by six comparables. Therefore, by applying Bright Line Test [BLT], Ld. TPO had suggested TP adjustment of Rs.29.10 crores against the same. The Ld. DRP provided certain relief to ITA.No.7555/Mum/2012 India Medtronic Private Limited Assessment Year 2008-09 the assessee on account of exclusion of certain expenses 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 assessee’s own case for AY 2010-11 wherein the Tribunal vide 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 international transaction. The relevant extract from the said order is reproduced here-in-below:- 3.4.We have heard the rival submissions. We find that the TPO had held that assessee should have been compensated by its AE for the AMP expenditure incurred by it. We have gone through the agreements entered in to by the AE.s with the assessee, that in the agreements there is no condition about sharing of AMP, that the agreements talks of using best efforts to market and distribute the product or promote the products 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 that 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 effective 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 allowed whereas ground numbers 3 to 13 become infructuous. 4. Ground Numbers 14 & 5 are not being pressed by Ld. AR and therefore, the same stands dismissed in limine.

ITA.No.7555/Mum/2012 India Medtronic Private Limited Assessment Year 2008-09 5. Ground Numbers 16 & 17 are related with expenditure 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 confirmed 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 high precision medical devices which requires the doctors prescribing / using it to understand the technicalities of the product and the doctors are trained through live surgeries, medical conferences etc. The aforesaid expenditure represent sponsoring the trip for doctors for going abroad to attend seminars and conferences for creating awareness about the company’s products and update / educate them about the company’s products and therefore, the expenditure is in the ordinary course of business and allowable u/s 37(1). Such sponsoring of foreign trips is necessitated by rapid development in the field of medical science both in terms of new products as well as diseases. The Ld. AR has also relied on various judicial pronouncements for the contentions that Medical Council of India [MCI] guidelines were applicable to professionals only and do not apply 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 been placed on the order of Tribunal in assessee’s own case for AY 2004-05 & 2010-11. Upon perusal, we find that the nature of expenses incurred by the assessee is not clear i.e. whether the same has been incurred to sponsor foreign visits of doctors to attend seminars or conferences ITA.No.7555/Mum/2012 India Medtronic Private Limited Assessment Year 2008-09 relating to assessee’s products or whether the same are in the nature of freebies to the doctors. In our opinion, the expenditure incurred by the assessee to sponsor foreign visit to generate knowledge about the company’s 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 for appreciation of the factual matrix and to be decided as per law after providing opportunity to the assessee to demonstrate the nature of these expenses. Ground No. 16 stand allowed for statistical purposes whereas Ground No. 17 becomes infructuous.

7. Ground No. 19 is related with depreciation on Plant & Machinery & Building for Rs.4,55,605/-.The same has been disallowed since these assets remained idle since manufacturing process stood 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 depreciation thereupon.

ITA.No.7555/Mum/2012 India Medtronic Private Limited Assessment Year 2008-09 Otherwise also, this issue stood covered in assessee’s favor by the cited order of the Tribunal in assessee’s own case for AY 2010-11. Therefore, this addition stand deleted.

ITA.No.7555/Mum/2012 India Medtronic Private Limited Assessment Year 2008-09 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 been deleted by Ld. AO himself and no such addition has been made in final computations and therefore, these grounds stands dismissed as infructuous.