The case number ITA 732/DEL/2019 involves the appellant, Aishika Pharma Pvt. Ltd., New Delhi, and the respondent, ITO, Ward-1(2), New Delhi. This case pertains to the assessment year 2015-16, with the final tribunal order pronounced on April 29, 2019. The appeal was filed on February 1, 2019.
Aishika Pharma Pvt. Ltd., a resident company engaged in the business of trading and marketing medicines, filed its return of income declaring an income of Rs. 2,48,070/- for the assessment year 2015-16. During this period, the company claimed an expenditure of Rs. 54,27,412/- on account of business promotion expenses. The assessing officer (AO) questioned the validity of these expenses under Section 37 of the Income Tax Act, 1961, leading to a disallowance of the claimed amount.
The primary issue was whether the business promotion expenses claimed by the assessee were allowable under Section 37(1) of the Income Tax Act, given the prohibition against medical practitioners accepting freebies from pharmaceutical companies under the Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations, 2002, and the CBDT Circular No. 5/2012.
The appellant argued that the expenses were incurred to promote its products in a highly competitive market. The promotion involved organizing medical camps, blood donation camps, free check-up camps, and seminars to educate medical practitioners about their products. These activities included distributing low-cost promotional items such as diaries, pens, calendars, and other branded materials.
The appellant contended that these promotional activities were essential for maintaining competitiveness against larger national and multinational brands. They cited a decision by the ITAT Mumbai Bench in the case of DCIT-8(2), Mumbai vs. PHL Pharma (P.) Ltd., which held that such expenses are allowable business expenditures and not freebies.
The AO and the Ld. CIT(A) relied on the CBDT Circular No. 5/2012 and the Indian Medical Council regulations to disallow the claimed expenses. They argued that the expenses were in violation of the regulations prohibiting medical practitioners from accepting gifts and other benefits from pharmaceutical companies, thus making the expenses inadmissible under Section 37(1).
The tribunal noted that the expenses were primarily for business promotion, such as organizing medical camps and distributing promotional items. These activities aimed to create awareness among medical practitioners and were not intended as bribes or inducements for recommending specific products.
The tribunal found that the authorities below had not demonstrated any specific law or regulation that the appellant had violated by incurring these expenses. The ITAT Mumbai Bench’s decision in DCIT-8(2), Mumbai vs. PHL Pharma (P.) Ltd. was considered relevant and applicable, as it clearly distinguished between legitimate business promotion and prohibited freebies.
The tribunal concluded that the business promotion expenses claimed by Aishika Pharma Pvt. Ltd. were allowable under the Income Tax Act. The appeal was allowed, and the disallowance of Rs. 54,27,412/- was set aside.
This case underscores the importance of distinguishing between legitimate business promotion expenses and prohibited inducements in the pharmaceutical industry. It highlights that expenses aimed at educating and creating awareness among medical practitioners about new products and developments are crucial for business operations and should be considered allowable deductions.
In the result, the appeal of the Assessee is allowed.
Order pronounced in the open court on April 29, 2019.
(L.P. SAHU) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER
Delhi, Dated 29th April, 2019.
VBP/- Copy to:
BY Order
Assistant Registrar: ITAT Delhi Benches: Delhi
Aishika Pharma Pvt. Ltd. vs ITO: Dispute over Business Promotion Expenses
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