February 28, 2024

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ITAT Confirms Addition of Expenses Incurred On Brand Reminders, Customer Gifts For Doctor

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has confirmed the addition towards expenses incurred on brand reminders, customer gifts, and the purchase of medical books and journals for doctors.

The bench of Rahul Chaudhary (Judicial Member) and Prashant Maharishi (Accountant Member) has relied on the decision of the Supreme Court in the case of Apex Laboratories, in which it was held that any free gift in any manner is prohibited by the provisions of the Indian Medical Council’s rules, and therefore the same is not allowable under Section 37(1).

The appellant/assessee is in the business of manufacturing, and selling pharmaceuticals, including over-the-counter pharmaceuticals, cosmetics, and allied consumer products, and trading pharmaceuticals. For AY 2014–15, it filed a return of income declaring income of Rs. 342.25 crore, which was later revised to Rs. 193.93 crore.

The department noted that the assessee has debited a sum of Rs. 482,612,000 as advertisement expenses in the profit and loss account. On examination of the details, a sum of Rs. 87,953,773 in respect of brand reminders and Rs. 28,080,940 on the purchase of medical books and journals provided to healthcare professionals has been disallowed by the AO, which has been deleted by the learned CIT-A.

The CIT stated that despite the IMC regulation 2002, circular number 05/2012 dated 1/8/2012 issued by the Central Board of Direct Taxes, the Supreme Court in the case of Apex Laboratories Private Limited dated 22/2/2022 has categorically held that if any expenses are prohibited by the law, the same cannot be allowed as deduction under Section 37(1) of the act. The Supreme Court has held that doctors’ prescriptions can be manipulated and driven by the motive to avail themselves of the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges, and LCD TVs to funding international trips for vacation or medical conferences.

The tribunal held that the allowance of expenditure in the hands of pharmaceutical companies, which is required to be incurred by the doctors for their continuing professional education, is against the letter and spirit of the law.

“Nobody denies that every profession should have a continuing education program, but the cost of such a program should be borne by the professional himself and cannot be given as a freebie by the other parties,” the ITAT remarked.

The ITAT quashed the CIT(A) order deleting the disallowance of Rs. 11.60 crore on account of brand reminders, customer gifts, and the purchase of medical books and journals for medical professionals, i.e., doctors.

Counsel For Appellant: P.J. Pardiwala

Counsel For Respondent: Jeet Kamdar

Case Title: ACIT Versus M/s Pfizer Limited

Case No.: ITA No.2108/Mum/2018

Click Here To Read The Order