Boston Scientific India Pvt. Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that expenditure towards clinical trial incurred solely and exclusively for the business purpose is allowable expenditure.
Facts- The assessee is engaged in the promotion; marketing, sales and distribution in India of a wide range of cardio products and related medical instruments and devices manufactured by Boston Scientific Group and also provides related post-sales support services. Its product portfolio emphasizes critically important therapeutic areas such as interventional cardiology, cardiac rhythm management and electrophysiology, peripheral interventions, endoscopy, urology and women’s health.
The assessee incurred clinical trial expenses amounting to INR 1.04 crores which were in the nature of financial aid provided to two hospitals to support the clinical trials. The AO disallowed the aforesaid expenses holding that “the clinical trials are studies undertaken by the hospitals over the period of time to see the impact of different products including the products being dealt with by the assessee. It was held that the trials are not solely & exclusively to see the impact of products dealt by the assessee or clinical research to see the efficacy of the products dealt by the assessee company” and “the benefit of the trials so undertaken are not solely and exclusively for the business of assessee.” DRP upheld the above disallowance by holding that “since the assessee has failed to prove that the expenditure was incurred solely and exclusively for business purposes, therefore the same has been disallowed”.
Conclusion- We hold that clinical trials are an integral part of the feedback system on efficiency of the products of the assessee and hence it is intricately connected with the business of the assessee and hence it cannot be said that the expenses have not been incurred solely and exclusively for the business purpose. The appeal of the assessee on this ground is allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order dated 22.06.2021 passed by the, National Faceless Assessment Centre, Delhi u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. The assessee has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case 8c in law, the final assessment order passed under section 143(3) r.w.s. 144C(i) and s. 144B of the Income-tax Act, 1961 (‘the Act’) dated 22 June 2021 by the National Faceless Assessment Centre (‘NFaC’ or ‘Ld. AO’) is bad in law.
Grounds relating to transfer pricing adjustments:
2. On the facts and circumstances of the case & in law, the Ld. AO grossly erred in making an upward adjustment of INR 11,22,76,671 pertaining trading segment of Appellant in the final assessment order despite the adjustment being reduced to NIL in Ld. TPO’s subsequent rectification order dated 18 December 2019 and Ld. TPO’s order dated 16 April 2021 giving effect to Ld. DRP’s directions.
3. On the facts and circumstances of the case 8c in law, the Ld. AO/ TPO/ DRP grossly erred in making an upward adjustment of INR 1,75,15,590 pertaining to business support service segment by alleging that the transactions undertaken therein do not satisfy arm’s length principle and by including companies not comparable to Appellant’s functions performed, assets employed and risks assumed.
4. On the facts and circumstances of the case 8c in law, the Ld. AO/ TPO/ DRP grossly erred in enhancing Appellant’s income by INR 3,33,740 towards recovery of expenses without providing any opportunity of being heard as otherwise mandated under the first proviso to section 920(3) of the Act and without application of transfer pricing methods provided under section 92C r.w. Rule 10B of the Income-tax Rules, 1962.
Grounds relating to corporate tax disallowances:
5. On the facts and circumstances of the case 8c in law, the Ld. AO/ DRP grossly erred in disallowing expenditure of INR 3,27,74,708 incurred in relation to doctors under Explanation 1 to section 37(1) of the Act read with CBDT circular no. 5/2012 despite being otherwise and specifically permissible under MCI Regulations 2002.
6. On the facts and circumstances of the case 8c in law, the Ld. AO/ DRP grossly erred in disallowing clinical trial expenses of INR 1,04,72,741 under section 37(1) of the Act despite it having been incurred wholly and exclusively for the business purpose of the Appellant.
7. On the facts and circumstances of the case 8c in law, the Ld. AO/ DRP grossly erred in disallowing depreciation under section 32(1) of the Act of INR 1,38,45,026 in respect of assets placed with hospitals whilst incorrectly alleging that the Appellant is engaged in hire purchase transaction and without appreciating that the Appellant is the owner of such assets being used for its business purpose.
8. On the facts and circumstances of the case 8c in law, the Ld. AO grossly erred in not granting credit of advance tax paid of INR 2,75,00,000 to the Appellant in the computation sheet annexed with impugned assessment order.
9. On the facts and circumstances of the case 8c in law, the Ld. AO erred in initiating penalty under section 271(1)(c) of the Act without appreciating that the Appellant has neither concealed any income nor furnished inaccurate particulars relating to any income.”
3. The assessee is a private limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956.
4. It is engaged in promotion, marketing, sales and distribution in India of a wide range of cardio products (such as coronary stents, pacemakers etc.) and related medical instruments and devices manufactured by Boston Scientific Group and also provides related post-sales support services. Its product portfolio emphasizes on critically important therapeutic areas such as interventional cardiology, cardiac rhythm management and
electrophysiology, peripheral interventions, endoscopy, urology and women’s health.
Transfer Pricing Adjustment:
Business Support Services:
5. The TPO has choosen the following comparables and determined the ALP margin @ 15.81% and made an adjustment of Rs.1.75 Cr.
