The Delhi bench of the Income Tax Appellate Tribunal (ITAT), Delhi bench has held that conducting various programmes by the pharmaceutical companies for the purpose of brand promotion expenses is business expenditure under the provisions of the Income Tax Act, 1961.
The assessee, engaged in the business of trading and marketing of medicines, incurred expenses on business promotion which includes constant meetings/ seminars/ knowledge dissemination with doctors/ medical practitioners/ medical stores in the areas of operation of the company as part of brand promotion. The Company claimed that such expenses were inevitable due to competition in the pharma industry.
The authorities disallowed the expenditure considering that assessee company has provided freebies to the Medical Practitioners and referred to the provisions contained under Indian Medical Council (Professional Conduct Etiquette and Ethics) Regulations, 2002 and also referred to CBDT Circular No.5/2012, Dated 01.08.2012. They further relied on the relevant judicial decisions in support of their conclusion.
The Company claimed that since the assessee company make aware of such kind of product to the key persons in the market, then only it can successfully launch its product/ medicine. Thus, these expenditures were purely incurred for business promotion of the assessee company.
Considering the nature of the business promotion expenses incurred by the assessee company in the light of Order of ITAT, Mumbai Bench, the Tribunal observed that whatever expenses incurred by the assessee company are only on account of business promotion expenses which are allowable under the provisions of the I.T. Act.
“The authorities below have failed to provide as to what offence have been committed by the assessee company on incurring such expenses under any Law. Therefore, there is no question of applying Explanation to Section 37(1) of the I.T. Act, 1961, against the assessee company,” the Tribunal said.
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