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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य ,राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार -PER RAJENDRA, AM- अनुसार Challenging the order dated 28/12/2015 of the Dispute Resolution Panel (DRP)-I,Mumbai the assessee and Assessing Officer(AO)have filed cross appeals for the year under consideration. The assessee has also filed Cross Objection.Assessee,a Private limited company,world’s leading medical device group,engaged in the business of production, marketing and sale of instrument, implants and biomaterials for surgical fixation filed its return of income on 28/11/ 2011,declaring income of Rs.12.62 crores.The AO completed assessment u/s. 143(3) r.w.s. 144C of the Act,determining the income of the assessee at Rs.24.29 crores. During the assessment proceedings,the AO found that the assessee had entered into inter- national transactions(IT.s)with the Associated Enterprise(AE).So, he made a reference to the 1 ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) Transfer Pricing Officer (TPO) to determine the Arms Length Price (ALP) of the IT.s. After receiving the order of the TPO, he issued a draft order to the assessee.It filed objections before the DRP.As per the directions of the DRP the AO finalised the assessment.
ITA/1784/Mum/2016: 2.In the appeal,filed by the assessee,there are 12grounds of appeal.We are not adjudicating First ground of appeal,as it is of general nature. 3.During the course of hearing before us,the Authorised Representative(AR)and the Departm -ental Representative(DR)agreed that Grounds of appeal No.2-5 were covered in favour of the assessee by the orders of the Tribunal,dated 31/ 03/2007 and 16/06/2017(ITA.s/6005 & 6006/Del/2013 & ITA.s5807/Del/2013,AY 2007-08 and AY 2008-09 ,PB-128-132 para 4.3 PB 137 para 9). Second and third grounds deal with disallowance of amortised expenses of loaner set, amount -ing to Rs.6.38 crores.Next two grounds(GOA.4-5)are about disallowance of 50% of adverti- sement and sales promotions expenses, amounting to Rs. 8.18 lakhs.
3.1.We are reproducing the relevant portion of the orders of the Tribunal for the earlier years and same reads as under: 4.3 We have considered the rival submission and perused the relevant material on record. We find that the assessee company was engaged in trading of medical implants, surgical instruments etc in the field of orthopaedic. The assessee in the course of trading operations, purchased equipments/instruments for fixing the implants in the human body and out of those few items were given as 'loaner' sets to various hospitals/doctors on returnable basis. The issue therefore, is whether equipments/instruments given as 'loaner' sets are capital assets or part of inventory as claimed by the assessee, more particularly having regard to the fact that this claim of the assessee has been accepted since assessment year 1994-95. A Chart of the claim made by the assessee in various years is reproduced as under: XXXXX 4.3.1 The Ld. CIT-A has not accepted the claim by observing that the principle of res judicata does not apply to the income tax proceedings. We do agree with the said principle, however, the Hon'ble Apex Court in the case of CIT Vs. Excel Industries Ltd. (supra) has upheld the principle of consistency. The Hon'ble Apex Court in the said case followed judgment of Radha Soami Satsang Vs. CIT 193 ITR 321 (SC) and observed as under: "29. In Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax, [1992] 193 ITR 321 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said: "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."
It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it."
4.3.2 In the instant case, we also find that there is no change in the facts or position of law whereby 'loaner' sets are declared as 'inventory' and accepted as 'inventory' by the Department. We do not find any justifiable basis to adopt a contrary stand in the instant year. According to the Revenue, since the assessee has accepted that useful life of the loaner set is 36 months, therefore, they are capital assets. The above conclusion to our mind is contrary to the judgment of the Hon'ble Apex Court in the case of Empire Jute Company Limited Vs. CIT (supra) wherein it has been held that expenditure even if incurred for obtaining advantage of enduring benefit, may nonetheless, be on revenue account and the tests of enduring benefit may breakdown. It was held that if the advantage consists merely in facilitating, the assessee's trading operation or enabling the management and conduct of the assessee's business to be carried on more efficiently and more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. In the case of the assessee, we find that admittedly 'loaner' sets are made available to the doctors for the purpose of encouraging sale of implants and therefore, advantage to the assessee is to facilitate the trading operation of the implants. The 'loaner' or 'demo' sets are not instruments of earning income so as to qualify as capital asset but those are for encouraging the use of assessee's products in doctor community, which in turn would recommend for the sale of the products of the assessee. The 'loaner' sets have been found to have average life of 36 months. In such circumstances, merely because the assessee has amortized the expenditure, it does not warrant the conclusion that such expenditure is capital expenditure. The assessee has consistently disclosed the said loaner sets as 'inventory' and valued the same in & 6006/Del/2013 & ITA No. 5807/Del/2013 accordance with the Accounting Standard-2 of ICAI, which prescribes an assessee to value the 'inventory' at cost or net realizable value, whichever is lower. 4.3.3 Moreover, the finding of the Ld. CIT-A that the claim of assessee is based on the principle of deferred revenue expenditure, is not correct. It is a case of valuation of inventory and the method of valuation has been consistently accepted by the Revenue. Moreover even otherwise expenditure on purchase of 'loaner' sets is not capital expenditure and therefore eligible for deduction as revenue expenditure, which at the option of the assessee can be amortized over a period of years as held in the judgment of the Hon'ble Apex Court in the case of Taparia Tools Ltd Vs. JCIT (supra), as under: "Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period.
What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures.
In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 & 6006/Del/2013 & ITA No. 5807/Del/2013 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).
At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However,it abandoned the same before reaching the crucial stage, inasmuch as, in the income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(1)(iii) of the Act.Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it is claimed." 4.3.4 In the aforesaid judgment, there Lordships have held that normally revenue expenditure is to be allowed in the year in which it is incurred but at the instance of the assessee, spreading out of the expenditure is permissible. 4.3.5 In such circumstances, we are of considered opinion that the amount of Rs.50,33,418/- treating loaner sets expenditure as capital expenditure was not in accordance with law and therefore, directed to be deleted. Thus, the grounds No. 1 and 2 of the appeal are accordingly allowed.’ Considering the above,we decide grounds no.2-5 in favour of the assessee.
4.Next ground of appeal(GOA.6-9)pertains to disallowance of confidence expenses amount - ing to Rs. 5.19 crore.In his draft assessment order, the AO observed that the assessee had incurred a sum of Rs. 5.17 crore towards convention, education support, symposium expenses in the nature of seminars and conferences (both in India and overseas) for sponsoring the doctors and healthcare workers. He directed the assessee to explain as to why the expenditure should not be treated as capital in nature. After considering the reply of the assessee, he held that the assessees was justifying incurring of the expenditure by stating that same was for the business purposes, that it had also claimed that expenditure was incurred for providing free courses to the doctors to promote the products of the company through the doctors, that it was an indirect way of according benefits/incentives to the doctors.He treated the expenditure incurred by the assessee as payment of commission.He further held that the assessee was required to deduct tax for such payments, as per the provisions of section 194H of the Act. He referred to Medical Council (professional conduct, etiquette and ethics) Regulations, 2002 ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) and Circular No. 5/2012,dated 01/08/2012, issued by the Central Board Of Direct Taxes and made a disallowance of Rs.5,19, 02, 418/-. 4.1.Aggrieved by the order of the AO, the assessee filed objections before the DRP and made detailed submissions. It also relied upon certain case laws. Following the order of CIT(A)-IX, New Delhi and the order of the DRP for the AY.2009-10 and 2010-11 respectively, the DRP upheld the action of the AO and rejected the objections of the assessee. It further observed that in the AY.2008-09,disallowance of similar expenses was upheld u/s.40 (a) (i) of the Act/u/s.37 (1) was made. In pursuance of the order of the DRP, the AO made the addition 4.2.During the course of hearing before us, the AR stated that issue stands decided in favour of the assessee by the orders of the tribunal delivered in the cases of PHL Pharma (ITA/ 4605/Mum/2014,AY. 2010-11,dated 12/01/2017)Syncom Formulations (ITA.s/6248 and 6249/Mum/2012, AY.s 2010-11 and 2011-12,dated 23/12/2015) India Medtronic Private Ltd (ITA/1600/Mum/2015,dated 17/10/2018). He also relied upon the case of Max Hospital, Pritampura(Writ Petition 1334 of 2013)of the honorable Delhi High Court. The DR relied upon the case of OCHOA Laboratories Ltd. (85 taxmann .com 168) and stated that the doctors were acting as agents of the assessee,that they were not performing the duties of professionals. 4.3.We find the issue of disallowance of conference expenses,sponsoring of doctors, application of CBT circular and Medical Council Regulations were deliberated upon and decided in the case of India Medtronic Private Ltd (supra).We are reproducing the relevant portion of the order of the tribunal which reads as under: 5.Next effective Ground of appeal(Gs.OA 20 to 32) pertains to disallowance of payment made to doctors.During the assessment proceedings,the AO found that the assessee had debited Rs.13.26 crores,in its books of accounts,under the head invention expenses.He called for detail in that regard.After considering the same,he referred to and relied on the amendments to MCI Act. He held that amendment was effective from 10/12/2009,that same was applicable to expenses incurred by the assessee,that expenses incurred on or after 10/12/09 were in violation of MCI guidelines,that same were not allowable.Finally, he made disallowance of Rs.6.02 crores. 5.1.The assessee filed objections before the DRP and referred to Circular No.05 of 2012 and case of KAP Scan and Diagnostic Centre(344 ITR 476).After considering the available material,it held that expenditure of Rs.5.93 crores was related to education grants to medical association for organising conference and seminars(Rs.2.69 crores),printing and equipment hire charges (Rs. 16. 59lakhs)accomodation expenses(Rs.1crores),expenses incurred for organizing medical-education meeting(Rs.1.75 crores)and distribution of free product samples(9.03 lakhs).The DRP further held that a regulatory body like MCA would regulate only the conduct of individuals or organisa - tions only,that the payment made by the assessee were prohibited by MCI regulation,that the expenses were incurred by benefit of doctors and 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 incurred against public policy,that expenditure incurred on hospitality,travel facilities provided to medical practitioners for ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) participation in workshop were not allowable,that MCI guidelines had prohibited giving free samples. Finally,it upheld the order of the TPO/AO. 5.2.Before us,the AR argued that the convention expenses and expenditure incurred on distribution of free product samples did not violate any of the provisions of MCI regulation, that same were not prohibited by any law to attract provisions of section 37(1) of the Act, that the code of conduct for doctors/professional association,laid down by MCA regulation,would apply to doctors and not to the assessee who was a medical device company,that the Circular of the CBDT was operative from 1/08/2012,that same was not applicable for the expenditure incurred during the year under consideration,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 genuineness of expenses.He relied upon the cases of . The DR contended that expenditure incurred by the assessee was not allowable as per the provisions of section 37(1)Expl.1 of the Act,that there was clear cut violation of the guidelines issued by the MCI.He relied upon the cases of Ochoa 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 opinion that expenditure incurred by the assessee in violation of the MCI guidelines was not allowable under the Act,that incurring of expenditure for education grants or travelling was against the public policy,that the assessee had incurred the similar expenses in the earlier years also. 5.3.1.Before proceeding further,we would like to refer to certain matters that deal with the issue under consideration.First among them is the judgment of the Hon’ble Delhi High Court in the case of MAX Hospital,Pitampura v/s.Medical Council of India[W.P.(C) 1334/2013,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 and Ethics) Regulations, 2002 (the Regulations) have been framed in exercise of the power conferred u/s.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 running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. The case of the Petitioner is that the Petitioner hospital is governed by the Delhi Nursing Homes Registration Act, 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 the Directorate of Health Services, Govt. of NCT of Delhi and the necessary 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 is also the plea of the Petitioner hospital that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated.
In the counter affidavit filed by the Respondents, it is not disputed that the MCI under the 2002 Regulations has jurisdiction limited to taking action only against the registered medical practitioners. It's plea however, is that it has not passed any order against 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 the 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 8. It is clearly admitted by the Respondent that it has no jurisdiction to pass any order against the Petitioner hospital under 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 the question whether the adequate infrastructure facilities for appropriate post-operative care were infact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated 6 ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and 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 of Rs.22,99,72,607/- being freebies given by the assessee to doctors, ignoring the fact that such payments are specifically prohibited w.e.f. 10.12.2009 by the Medical Council of India (MCI), which is the competent authority, and therefore, the said expenses are illegal and consequently 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 of Rs.22,99,72,607/- being freebies given by the assessee to doctors observing that the prohibition by IMA is on medical practitioners and not applicable to Pharma companies without appreciating that the Prohibition 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 order 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 account furnished by the assessee, he further noted that there are certain expenses which has been debited by the assessee like, ‘Customer Relationship & Management expenses’ (CRM) of Rs.7,61,96,260/-; ‘Key Account Management expenses’ (KAM)of Rs.2,56,68,509/-; gift articles of Rs.9,20,22,518/-; and cost of samples of Rs.3,60,85,320/-, which according to him are in the nature of freebies given to medical practitioners/doctors 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 response to the show cause notice by the AO, firstly, as regard CRM expenses, assessee submitted that expenditure under this category includes activities like holding national level seminars on new medical researches and drugs for discussion panels of eminent doctors and inviting other doctors to participate in it; arranging lectures or sponsoring knowledge upgrade course, wherein eminent doctors are invited to speak on the selected topic related to the therapeutic area and also share their research and other latest knowledge updates; subscription of costly journals, information books etc.; and sponsoring travel and accommodation expenses of doctors for such important conferences. Under the KAM services, the assessee promotes ICCU range of products, 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 diaries, pen sets, injection boxes, calendars, table weights, postcard holders, stationery items, etc., wherein logo of the assessee company and the name of the medicine is advertised. This is important because in 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 explained and illustrated by the assessee in its reply dated, 27.12.2012 before AO. The relevant portion of the reply has been incorporated by the AO from pages 3 to 6 of the assessment order. Regarding the applicability of CBDT Circular No.5 of 2012 (supra), ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) wherein the CBDT has referred to amendment to the “Indian Medical Council Regulations, 2002”, brought from 10.12.2009, imposing prohibition of medical practitioner and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries, the assessee submitted that firstly, cost of free samples, KAM 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 AY. 2010-11 as the Circular is dated 01.08.2012. As required by the AO, the assessee also segregated expenses incurred after 10.12.2009, i.e., the date of amendment brought in the Indian Medical Council Guidelines. After segregating the expenses, AO disallowed the expenditure aggregating to Rs.22,99,72,607/- (post 10.12.2009) on the ground that, firstly, the guidelines 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; secondly, the amended notification dated 10.12.2009, which has been reproduced by him in the order, clearly forbids medical practitioners to receive 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 Explanation 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 relevant finding given in the impugned orders and material referred to before us. The entire controversy revolves around, whether the expenditures in question incurred by the assessee (a pharmaceutical company) is hit by Explanation 1 below section 37(1) in view of CBDT Circular 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 the AO, are as under: SN. 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 explained 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 is reproduced hereunder: xxxx From the perusal of the aforesaid Board Circular, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the ‘Medical Council Act, 1956’. One such regulation has been issued is “Indian Medical Council Professional Conduct, Etiquette and Ethics) Regulations, 2002”. The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners shall not aid or abet or commit any of the acts illustrated in clause 6.1 to 6.7 of the said regulation which shall be construed as unethical. Clause 6.8 has been added (by way of amendment dated 10.12.2009) in 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 notification, which has been heavily relied upon by the department, it is quite apparent that the code of conduct enshrined therein is meant to be followed 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 health sector industry. It provides guidelines to the medical practitioners of their ethical codes and moral conduct. Nowhere the regulation or the notification mentions that such a regulation or code of conduct will cover pharmaceutical companies or health care sector in any manner. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, before us the learned senior counsel, Shri Mistry brought to our notice the judgment of Hon’ble Delhi High Court in the case of Max Hospital vs. MCI in WPC 1334/2013 judgment dated 10.01.2014, wherein the ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. Relevant portion of the said judgment reads as under: xxxxx From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceutical company like the assessee. If Medical Council regulation does not have any jurisdiction upon pharmaceutical companies and it is inapplicable upon Pharma companies like assessee then, where is the violation of any of law/regulation? Under which provision there is any offence or violation in incurring of such kind of expenditure. The relevant provision of section 37(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 incurred by the assessee for any purpose which is an offence or which 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 prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee, same cannot be made applicable to all. The regulation of 2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of “Expressio Unius Est Exclusio Alterius” is clearly applicable, that is, if a particular expression in the statute is expressly stated for particular class of assessee then by implication what has not been stated or expressed in the statute has to be excluded for other class of assessee. If the Medical Council regulation is applicable to medical practitioners then it cannot be made applicable to Pharma or allied health care companies. If section 37(1) is applicable to an assessee claiming the expense then by implication, 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 Explanation 1 to section 37(1) on medical practitioners and pharmaceutical companies have interpreted that Indian Medical Council Regulation is applicable for pharmaceutical companies also. He also brought to our notice that another notification was issued by Indian Medical Council which was published on 01.12.2016 which further prohibits such kind of embargo on medical practitioners and have added para 6.8.1 and also given instances of action which shall be taken upon medical practitioners. The relevant clause of the said notification as relied upon by him is reproduced hereunder: xxxxx From the aforesaid notification, ld. CIT DR submitted that so many violations and censures have been prescribed for any expenditures/ or benefit given to doctors, thus, violation of such guidelines for incurring such kind of expenditures cannot be held to be allowable expenditure. CBDT is well within its power to clarify and interpret the law and prohibit allowance of any expenditure which violates any statute 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 suggested by it is only on medical practitioners and not for pharmaceutical companies or allied health sector industries. The violation of the aforesaid regulation would not only ensure a removal of a doctor from the Indian Medical Register or State Medical Register for ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) a certain period of time and it does not impinge upon the conduct of pharmaceutical companies. important distinction has to be kept in mind that regulation issued by Medical Council of India is qua the doctors/medical practitioners and not for the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of section 37(1) r.w.Explanation1, then it is only meant for medical practitioners and not for pharmaceutical company (Assessee Company) for claiming the expenditure. 9.Adverting to the contention of the Ld. CIT DR that CBDT is well empowered to issue such clarification, it is seen that the CBDT Circular dated 01.08.2012 (supra) in its clarification has enlarged the scope and applicability of ‘Indian Medical Council Regulation 2002’ by making it applicable to the pharmaceutical companies or allied health care sector industries. Such an enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like ‘contemporanea expositio’ in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However the CBDT in its power cannot create a new impairment adverse to an assessee or to 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 administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liability or 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 CBDT 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. The same CBDT circular had come up for consideration before the co- ordinate Bench of the ITAT, Mumbai Bench in the case of Syncom Formulations (I) Ltd. (in & 6428/Mum/2012 for A.Ys. 2010-11 and 2011-12, vide order dated 23.12.2015), wherein Tribunal held that CBDT circular would not be not be applicable in the A.Ys. 2010-11 and 2011-12 as it was introduced w.e.f. 1.8.2012. 10.From the perusal of the nature of expenditure incurred by the assessee, it is seen that under the head “Customer Relationship Management”, the assessee arranges national level seminar and discussion panels of eminent doctors and inviting of other doctors to participate in the seminars on a topic related to therapeutic area. It arranges lectures and sponsors knowledge upgrade course which helps pharmaceutical companies to make aware of the products and medicines manufactured and launched by it. Under Key Account Management, the assessee makes endeavour to create awareness amongst certain class of key doctors about the products of the assessee and the new developments taking place in the area of medicine and providing correct diagnosis and treatment of the patients. The said activities by the assessee are to make the doctors aware of its products 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 approvals. 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 definitely in the nature of sales and business promotion, which has to be allowed. Coming to the gift articles and free samples of medicines, it is seen that the assessee gives various kind of articles like, diaries, pen sets, calendars, paper weights, injection boxes etc. embossed with bold logo 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 ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) 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 efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies. Further as pointed out and concluded by the learned CIT(A) there is no violation by the assessee in so far as giving any kind of freebies to the medical practitioners. Thus, such kind of expenditures by a pharmaceutical companies are purely for business purpose which has to be allowed as business expenditure and is not impaired by EXPLANATION 1 to section 37(1). 11.Before us, the Ld. CIT DR has also much harped upon the decision of the Hon’ble 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 confirmed by the High Court and therefore, it has a huge binding precedence. From the perusal of the said judgment of the Hon’ble High Court, it is seen that in that case the validity of Circular No.5/12 dated 1.8.2012 was challenged. The Hon’ble High Court though upheld the validity of the said circular but with a rider that if the assessee satisfies the assessing authority that the expenditure is not in violation of the regulation framed by the medical council, then it may legitimately claim the deduction. The assessee has to satisfy the AO that the expenditure is not in violation of the Medical Council regulation. Thus, if the assessee brings out 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 the case of ‘Liva Healthcare Limited & 945/Mum/2013’, decided vide order dated 12.09.2016. In counter, to this decision the learned counsel, Shri JD Mistry distinguished the said judgment and submitted that the facts of the case in the Liva Healthcare (supra) were substantially different from the facts of the present case. In the case of Liva Healthcare, the Hon’ble 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 relations with the doctors in lieu of expected favours from doctors for 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 Istanbul and expenses were incurred for cruise travels to island, gala dinner, cocktails, gala entertainment etc. of such doctors. In assessee’s case it is an admitted fact that expenses have not been incurred for the purpose 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 Hon’ble Bench. He reiterated that the Hon’ble 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 medical 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, in A.Y. 2009- 10, Hon’ble 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 AY. the Tribunal has decided the issue in favour of the assessee in ITA NO. 388/Mum/2012 for AY. 2008-09. In our considered view, principles of Res judicata is not applicable to income tax ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) proceedings although we are fully agreeable that principles of consistency is to be maintained (Hon’ble Supreme Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC) but in the instant AY., we have observed that these overseas trips for Doctors and their spouses were organized by the assessee whereby no details of the contents of seminar, if any conducted by the assessee overseas has been brought on record and also even the spouses accompanied the Doctors to the overseas trip which included cruise visit to island, gala dinners, cocktail, gala entertainment etc. rather than being directed towards seminar for product information dissemination or directed towards knowledge enhancement or knowledge sharing oriented as no details of seminar and its course content is brought 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 distinguishable feature in this year enabling us to take a divergent view and the expenses incurred by the assessee cannot be allowed as business expenditure u/s. 37 of the Act as it is clearly hit by explanation to 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 above 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 to any seminar has been conducted for doctors and that the trips were directed towards leisure and entertainment of doctors and their spouses. This was a distinguishable feature for the Hon’ble Tribunal to take a contrary view from A.Y. 2008-09. He further submitted that the Hon’ble 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 Healthcare (supra) for A.Y. 2008-09 and has decided this issue in favour of the assessee. This, further brings out the fact that the Hon’ble Tribunal 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 incurred wholly and exclusively for the purpose of business.Apart from the aforesaid distinguishing features as highlighted by the learned senior counsel, we find that on the facts itself in the case of Liva Healthcare (2009-2010) (supra), there was a clear cut material on record that the Doctors along with their spouses were taken to foreign tours and cruise travel etc., in lieu of expected favours from doctors. In the light of these facts and material the Tribunal has decided the issue against the assessee by not following the earlier year precedence and subsequent year orders of the same assessee. As brought on record before us, we find that similar issue of allowance of such expenditure 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. 6681/Mum/2013 order dated 13.05.2016, wherein it was held that CBDT circular 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 the case of Liva Healthcare (supra) we find that the Tribunal though has incorporated the relevant provisions and clauses of the ‘Indian Medical Council Regulation 2002’, however, has not elaborated or dwell upon as to how this MCI regulation which is strictly meant for medical practitioners and doctors can be made applicable to pharmaceutical companies. There has to be some enabling provision or specific clause in the said regulation whereby the pharmaceutical companies are barred from conducting seminars or conferences by sponsoring the doctors. The entire conduct relates to doctors and medical practitioners and lists out the censures and fines imposed upon them. What has not been provided in the MCI regulation cannot be supplied either by the court or by the CBDT. There has to be express provision under the law whereby pharmaceutical companies are prohibited to conduct conferences or seminar or give free samples. In the Tribunal decision of Liva Healthcare, strong reference has been made to Hon’ble Himachal Pradesh High Court (supra), that the said CBDT circular has been upheld. On this aspect we have already discussed in detail herein above that, firstly, High Court itself carves 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 disallowbility not envisaged in any of the Act or regulation cannot be reckoned to be retrospective. Another strong reference has been made to the ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) decision of Hon’ble 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 patients for diagnosis to the assessee company. In background of these facts and issues involved, the Hon’ble High Court held that said payment of commission is wrong and is opposed to be a public policy. It should be discouraged as it is not a fair practice. The ratio of said decision cannot be applied on the facts of the present case because there is no violation of any law or anything which is opposed to public policy. Similarly, there is reference to the decision of Hon'ble Supreme Court in the case of Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Limited v. CIT (2000) 111 Taxman 561(SC), which was given in context of Section 37(3A) of the Act. In the said case the assessee had claimed expenditure on distribution of physician’s samples u/s.
In the background of such claim the Hon’ble Apex court held that, if the expenditure falls within the bare minimum it will not be caught by subsection (3A) of section 37. On the contrary, the Hon’ble 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 purpose is achieved. In such cases giving a physician samples for reasonable period is essential to the 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 measure of sale/ promotion and development would thus be hit by subsection (3A). Said decision no way prohibits the nature of expenditure which has been incurred in the case of the assessee. Therefore, such a reference to a Hon’ble 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 already given our independent finding as to allowability of expenses in the hands of the assessee as business expenditure.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 Formulations in & 6428/ Mum/2012,dated 23.12.2015, the Tribunal has held that the CBDT Circular,dated 1.8.2012 is applicable w.e.f.1.8. 2012 relevant to AY.2013-14.While holding so,it was observed as under: “We have considered rival contentions and found that receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the 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 advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease 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 onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012 i.e. AY. 2013-2014, whereas the relevant AY. under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the AY.s under consideration”. 5.4.Considering the above,we are of the opinion that the MCI guidelines are applicable to the professionals i.e. Doctors only.They do not and cannot govern the other tax entities like Drug manufacturing or drug distributing Companies or individuals other than the doctors, or HUF,s., or Firms etc.MCI,as a body can formulate policy for the Doctors.The assessee is not a practicing professional.So,any guidelines issued by it cannot decide the allowability or otherwise of an expenditure under the Act.Income tax Act is a code in itself and business income an assessee has to be assessed and taxed as envisaged by the provisions of the Act.The AO/DRP had not doubted incurring of expenditure.They have heavily relied upon the guidelines issued by the MCI for the doctors.The Hon’ble Delhi High Court in the case of MAX Hospital,Pitampura (supra)has clearly held that MCI could issue guide lines for the Doctors only and that the MCI in its affidavit admitted that it has ‘no jurisdiction’ to pass any order against the ‘Petitioner hospital’.Ethics 13 ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) Committee of MCI is authorised to pass some order about the infrastructure 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 also like to hold that distribution of free samples cannot be treated as violation of Expl.1 to section 37(1). 5.5.We would also like to prefer to follow the judgment of the Hon’ble Delhi High Court delivered in the case of MAX Hospital,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 appeal(Gs.OA 20-32)is decided in favour of the assessee.” 4.4.Considering the above,we are of the opinion that the DRP was not justified in endorsing the view of the AO and approving disallowance made on account of payments to .We allow Grounds 6-9.
5.Grounds no.10-11 being consequential in nature are not being adjudicated.Last ground of appeal about initiation of penalty being premature is dismissed.
ITA/1857/Mum/16 6.Representatives of both the sides agreed that Grounds No.1-4 (adjustment in respect of AMP expenditure of Rs.5.57crores) and Ground No.5(disallowance on account of recruit - ment and training expenditure of Rs.36.86 lakhs)are covered against the AO by the order of the Tribunal for AY.s 2009-10,2007-08,2008-09(supra).We are reproduceing the relevant part of the above order of the Tribunal for the AY.2009-10 and it reads as under: “23.Undisputedly, there is no agreement between the assesseç and its AE to ascertain or determine if any part of the AMP expenses was expended for the purpose of creating marketingintangibles: for AE. It is also not in dispute that the assessee ha incurred AMP expenses for its distribution function. 24.The ld. AR for the assessee further contended that AMP expenses is not an international transaction and relied upon the cases of Akruti Suzuki Ltd. vs. CIT - 381 ITR 117 (Del.), Bausch & Lomb Eycare (India) (P) Ltd. vs. Addl. CIT 381 ITR 22.7 (Del.) and CIT vs Whirlpool of India Ltd - /2011(Del.) dated. 22.12.2015.
Hon'ble jurisdictional High Court in the case Maruti Suzuki. Ltd. (supra) held that when there being no international transaction in AMP spend with an ascertainable price, neither substantive noi machinery provision of Chapter - X were applicable to transfei pricing adjustment exercise. In Bausch & Lomb Eycare ('India) (F) Ltd. (supra), Hon'ble jurisdictional High Court held that in the absence of an international transaction involving AMP expenses between isse.s:5 e'e and its AE, addition is not sustainable. Similar1y, in Whirlpool of India Ltd. (supra) case also, Hon'ble Court held that merely because there is an incidental benefit to AE, it cannot be said that AMP expenses incurred by the Indian entity are for promoting brand of its AR.
In the instant case, the Revenue has not brought on record any material that brand loyalty has been generated by making payment on account of selling commission and selling expenses by the assessee company. Furthermore, the assessee has made payment under AMP head to its independent parties for promotion of its own business which exclude this transaction from th definition of international transaction particularly in the face of the fact ITA/1784/Mum/2016; I.T.A./1857/Mum/2016 & C.O. No.160/Mum/2016 (11-12) Synthes Medical Private Limited (merged with Johnson & Johnson Pvt.Ltd.) that there is no agreement between the assessee and AR fcr sharing the AMP expenses When we examine all these facts in the light of the fact that no such adjustment has been made by the R e v e n u e f o r the earlier years,the details of which is given in tabulated form by the assessee in its synopsis as hereunder :- XXXXX This adjustment made by TPO is not sustainable in the eyes of law.: 27.So,in the given circumstances, we are of the considered view that addition made by the TPO/AO/DRP by wrongly computing AMP expenses by including selling commission of Rs.4,99,32,478/- and selling expenses of Rs. 1,47,72,866/- as part of total turnover during the year under assessment is not sustainable in the eyes of law. So, Grounds No.2, 2. 1, 2.2, 2.3, 2.49 2.5, 2.6, 3, 2.8, 3.0 & 3.1 are determined in favour of the assessee and the TPO/AO are directed to benchmark the international transactions in the light of the findings returned herein above.” Respectfully following the above,we dismiss Grounds of appeal No.1-4,rasied by the AO.
6.1.We are also reproducing paragraph 16.1.and 16.2 of the order of the Tribunal for the AY. 2007-08,2008-09(supra) which reads as under: “16.In ground No. 2,the Revenue has raised the issue of disallowance of Rs.40,06, 0701- on account of recruitment and training expenditure. 16.1 We have heard the rival submission and perused the relevant material on record. We find that The Ld. CIT-A has deleted the aforesaid disallowance by holding as under: "4.3After going through the observations of the A.O.,submissions of the A.R. of the appellant and various judicial pronouncements, this ground is being finalized after making the following observations: (a) The A.O.has made this disallowance on training expenses by treating it as deferred revenue expenditure and stating that the expenditure should be allowed over a period of 5 years. The A.R., has, however, argued that I the past, similar expenses has been allowed as a revenue expenditure and there was no justification for treating this amount as deferred revenue expenditure over 5 years. The A.R. also relied upon various judicial pronouncements to argue that since no asset was being created in this case, there was no reason for treating this as a capital expense. (b) It is pertinent to note that if the amount is treated as deferred revenue expenditure, then the whole accounting computations had to be altered over the next 4 years to allow the claim of expenditure in several years. This will create complications both for the department and the appellant and more importantly it will also disturb the consistent system of accounting on this issue as strongly argued by the A.R. of the appellant. The assessing officer has also not disputed this consistent method being followed by the appellant in the past. Considering the documents of the A.R. of the appellant as well as the reliance placed by the various judicial pronouncements, such expenses on training should be allowed as a revenue expense and the assessing officer has not justified as to why there is a reason for disturbing the consistent methodology on this issue. Since no unique training programme or asset creation has been pointed out by the A.R. during the relevant assessment year which will justify the treatment of these expenses as deferred revenue expenditure, after considering the various judicial pronouncements on this issue, as well as the principle of consistency, I do not find any reason to uphold the disallowance made by the assessing officer. Accordingly, the A. 0. is directed to delete this addition and treat the same as revenue expenditure pertaining to the relevant assessment year. This ground is, therefore, treated as allowed." 16.2 The Ld. CIT-A has clearly held that no asset was created by incurring expenditure on