The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has recently held that expenses towards clinical trials for promotion and sales of cardio products are allowable as expenditures.
The assessee is a private limited company domiciled in India. It 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 Assessing Officer (AO) disallowed the aforesaid expenses against whose order the assessee filed an appeal before the tribunal.
Bhaskar Goswami, Counsel for the revenue submitted 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 and 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 the assessee.”
Kanchun Kaushal, Counsel for the assessee submitted that the AO grossly erred in disallowing clinical trial expenses of INR 1,04,72,741 under Section 37(1) of the Income Tax Act despite it having been incurred wholly and exclusively for the business purpose of the assessee.
The two-member bench of the tribunal comprising Dr B. R. R. Kumar, (Accountant Member) and Yogesh Kumar US, (Judicial Member) allowed the appeal of the assessee.
The bench further observed that ”clinical trials are an integral part of the feedback system on the 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.”
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