The Himalaya Drug Company Vs DCIT (ITAT Bangalore)
The admitted facts are that the children and grand children of Mr. Meeraj Alim Manal, has studied/studies in the school in which the assessee has contributed for construction of swimming pool. It is the contention of the assessee that its name is displayed alongside of the swimming pool and hence the same will promote the brand name of the assessee. However, it is not the case of the assessee that it is making such type of contributions to other schools also as a strategy to promote its brand, meaning thereby, the assessee firm has made the contribution to the impugned school only for the reason that the children/grand children of Mr. Meeraj Alim Manal has studied/studies in this school. There should not be any dispute that Mr. Meeraj has full control over the assessee firm. Looking at these facts and the circumstances surrounding the contribution, we are of the view that there is merit in the contentions of Ld DR that the impugned contribution has been made on account of personal considerations only and not on commercial considerations. Hence, we are of the view that the main objective of making contribution could not be related to the business activity carried on by the assessee.
Before us, the ld AR placed his reliance on the decision rendered by the Hon’ble Karnataka High Court in the case of Infosys Technologies Ltd. (supra). The facts available in the above said case are that the assessee before the Hon’ble High Court had incurred expenditure on installation of traffic signals at various parts of the city. It was mentioned that the purpose of incurring such expenditure was to secure free movement of employees so that they reach office in time. The Hon’ble High Court noticed that the absence of traffic signals or traffic police at important junctions would lead to congestion which is a regular phenomenon in the Bengaluru City. Accordingly, the Hon’ble High Court accepted the plea of the assessee that the expenditure incurred on erection of traffic signals would help the employees of the assessee to reach the office in time, which would in turn, facilitate the business of the assessee. Hence, it was held the said expenditure in installing traffic signal is allowable as deduction. It can be noticed that the assessee before Hon’ble Karnataka High Court could establish the commercial consideration in incurring expenses on the construction of traffic signals.
On the contrary, we have noticed that the main objective of making contribution to the school was on account of personal consideration & gesture of the ultimate owner of the assessee firm and no commercial consideration relating to the assessee herein was attached thereto. Accordingly, we are of the view that the AO was justified in treating the expenditure as not related to the business activity carried on by the assessee. Accordingly, we confirm the disallowance made by the AO.
FULL TEXT OF THE ITAT JUDGEMENT
The assessee has filed this appeal challenging the assessment order dated 14-09-2018 passed by the Assessing Officer for assessment year 2014-15 u/s 143(3) r.w.s.92CA r.w.s.144C(13) of the Income-tax Act,1961 [‘the Act’ for short] in pursuance of directions given by the ld. Dispute Resolution Panel (DRP).
2. The grounds of appeal filed by the assessee run into 28 pages. The Ld A.R submitted that they give rise to the following issues:
a. Disallowance of advertisement expenditure in the form of construction of swimming pool.
b. Disallowance of Depreciation & additional depreciation claimed
c. Disallowance of product promotion expenses incurred with Doctors
d. Transfer Pricing adjustment relating to sale of goods to associated enterprises.
e. Transfer Pricing adjustment relating to advertisement and market promotion expenses.
f. Transfer Pricing adjustment relating to royalty
Other issues urged by the assessee are either general in nature or consequential.
3. The facts relating to the case have been narrated as under by the Tribunal in its order passed for AY 2013-14 in ITA No.1385/Bang/2017:-
“3. The facts relating to the case are stated in brief. The assessee is a partnership firm engaged in the business of manufacture and sale of Ayurvedic medicament and preparations, consumer/personal care products and animal health care products. The partners of the assessee firm are
(a) M/s Himalaya Global Holdings Pvt Ltd., a foreign company registered in Cayman Islands and
(b) M/s Himalaya Drug Co. Pvt. Ltd.
These two partners respectively hold 88% and 12% share in the profits of the assessee firm. The TPO has also discussed ownership details of the above said two partner companies. Mr. Meeraj Alim Manal, is holding 100% shares in M/s Himalaya Global Holdings Pvt. Ltd. He also holds entire shares except one share in M/s Himalaya Drug Co. Pvt. Ltd.”
The assessee firm was started in 1930. Currently, the products manufactured by the assessee firm is classified broadly into three groups, viz., Pharmaceutical products, Personal care products and Animal Health products.
3.1 The assessee filed its return of income for the year under consideration on 29.11.2014 declaring a total income of Rs.91.69 crores. The AO referred the matter to the Transfer Pricing Officer (TPO) for determining ALP of international transactions entered with its Associated Enterprises. The TPO determined addition of Rs.179.09 crores on account of following Transfer pricing adjustments:-
