AstraZeneca Estimates Rs 35 Crore Tax Benefit After ITAT Remands Transfer Pricing Issues
New Delhi: AstraZeneca Pharma India Limited has estimated a potential tax benefit of approximately Rs 35 crore following a favorable ruling from the Income Tax Appellate Tribunal (ITAT) on its tax disputes for the assessment years 2017-18 and 2018-19. The ITAT granted full relief on corporate tax matters, while remitting the transfer pricing issues back to the Assessing Officer (AO) for further review, in line with its directions.
The company disclosed the development to the stock exchanges, indicating that the final tax impact will be determined once the AO completes the review process.
The ITAT's decision granted complete relief to the company on corporate tax matters. However, the tribunal remitted the transfer pricing issue back to the Assessing Officer for further review, directing that the matter be resolved in line with the ITAT's guidance.
In a ruling on November 26, 2024, the ITAT, Bangalore delivered its judgment concerning the appeals filed by AstraZeneca Pharma India Limited against the assessment orders for the assessment years 2017-18 and 2018-19.
The company had contested various adjustments made by the Assistant Commissioner of Income Tax (ACIT), Bengaluru, related to transfer pricing and other corporate tax matters.
Key Issues and Rulings
- Transfer Pricing Adjustments: One of the primary issues in the appeals related to adjustments made in transfer pricing, specifically concerning the Unilateral Advance Pricing Agreement (APA) entered between the company and the Central Board of Direct Taxes (CBDT) in June 2023. This agreement covered assessments for the years 2016-17 to 2020-21. AstraZeneca’s arguments were accepted, as the adjustments were found to be resolved through the APA, rendering the adjustments for these years unnecessary. As a result, these grounds were dismissed by the Tribunal.
- Selling, Marketing, and Distribution Expenses: A major point of contention was the disallowance of Rs. 30,47,64,640 for selling, marketing, and distribution expenses. The Tribunal noted that this issue had been previously raised in the assessment year 2016-17, and the matter had been remitted to the Assessing Officer (AO) for fresh adjudication. The Tribunal decided that this issue should also be sent back to the AO/TPO for proper review, aligning with the directions from the earlier ruling.
- Club and Entrance Fees: Another significant matter concerned the addition of Rs. 1,78,659 for club and entrance fees, which the Assessing Officer (AO) had disallowed as personal expenditure. The Tribunal observed that the Dispute Resolution Panel (DRP) had already ruled in favor of AstraZeneca, directing the AO to delete this addition. However, the AO had failed to comply, and the Tribunal ordered that the addition be deleted in accordance with the DRP's direction.
- Adjustment of Book Profits under Section 115JB: A contentious issue revolved around the adjustment of book profits under Section 115JB of the Income Tax Act, particularly regarding transfer pricing adjustments. The AO had added adjustments related to transfer pricing and other corporate disallowances to the book profits. However, the Tribunal ruled that such adjustments were not permissible under Section 115JB, referencing previous rulings that disallowed such adjustments. The Tribunal thus directed the AO to exclude these adjustments in the final computation of book profits.
- Penalty Proceedings: The Tribunal also addressed the initiation of penalty proceedings under Section 270A, but determined that it was premature to make any decision at this stage, dismissing the issue as infructuous.
The Tribunal’s final decision was favorable to the appellant, AstraZeneca Pharma, in several areas, especially regarding the corporate tax issues and the treatment of certain expenses.
The case will now be returned to the Assessing Officer for further proceedings, particularly on the transfer pricing adjustments and other disallowed expenses. The final ruling also confirmed the company's favorable tax impact of approximately Rs 35.01 crores, though this remains an estimate pending the completion of the AO’s review.
The Tribunal's order on the two appeals, IT(TP)A Nos. 419 & 876/Bang/2022, covering both the assessment years 2017-18 and 2018-19, is partially allowed, mainly for statistical purposes, as the matters are to be further adjudicated by the AO in line with the Tribunal's directions.
Meanwhile, in its recent communication to the stock exchanges, AstraZeneca disclosed about the ITAT order, adding that the company will now work with the AO to ensure that the final order aligns with the ITAT's directions.
Further, expressing on the financial implications, the drug maker said, “The expected overall financial implication cannot be determined at this stage. However, the estimated favorable tax impact on account of the captioned ITAT order could be Rs. 35.01 crores (approx.).”
To view the original order, click on the link below:
