Gifts & Freebies to Doctors are Legally Prohibited: ITAT upholds Disallowance of Expenses to Pharma Company [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) while upholding the disallowance of expenses to a pharma company for the reason that the gift and freebies to doctors are prohibited by law.

The assessee, Amay Pharmaceuticals Pvt. Ltd, approached the Tribunal challenging the addition of Rs.34,20,163/- made by the Assessing Officer and confirmed by the CIT(A) by way of disallowance of expenditure incurred by the assessee for giving gifts and freebies to the doctors.

The department contended that this issue is squarely covered in favor of the Revenue and against the assessee by the latest decision of Supreme Court in the case of Apex Laboratories (P.) Ltd. Vs. DCIT, wherein it is held that since acceptance of freebies by medical practitioners is punishable by MCI, distribution of such freebies would fall within purview of prohibited by law and therefore, expenditure incurred by assessee-pharmaceutical company in distribution of such freebies would not be granted as deduction in terms of Explanation 1 to Section 37(1) of the Act.

While accepting the contentions of the department, Shri P.M. Jagtap, Vice-President observed that although the learned Counsel for the assessee has made an attempt to challenge the applicability of the said decision to the facts of the present case by submitting that the gifts and freebies, in the present case, were not given to the doctors specifically for promoting its products by prescribing the same, I am unable to accept this contention of the learned Counsel for the assessee.

Dismissing the appeal, the Tribunal concliuded that “In my opinion, when the acceptance of gifts and freebies by the doctors itself was prohibited by law, the expenditure incurred by the assessee-pharmaceutical company in distribution of such gifts and freebies to the doctors is clearly hit by Explanation 1 to Section 37(1) of the Act as held by the Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd. (supra) and the assessee-company, therefore, is not entitled for deduction on account of expenditure incurred on distribution of freebies and gifts to the doctors as rightly held by the authorities below.”

To Read the full text of the Order CLICK HERE

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