While allowing a departmental appeal against M/s. OCHOA Laboratories Ltd, a pharmaceutical company, the Mumbai Income Tax Appellate Tribunal (ITAT) held that sponsoring tour to doctors would amount to commission which is against the public policy and therefore, the expenses so incurred cannot be allowed under the Income Tax Act, 1961.
The respondent-assessee, the pharmaceutical company took a defense that the amount was paid as part of sales promotion since without such incentives, the doctors would not recommend their medicines to patients.
The bench found that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 (MCA Regulations) prohibits medical practitioners from receiving any kind of gift, travel facilities, hospitality and any kind of cash or a monetary grants from the pharmaceutical healthcare industry.
It further relied on the CBDT in Circular No. 5/2012 dated 1/8/2012 which strictly instructed the officials that freebees mentioned in the MCA Regulations being an expense prohibited by the law, the disallowance shall be made in the hands of pharmaceutical industries also.
The bench said that “providing free air travel, stay and food in hotels, local car conveyance etc. for prescribing medicines of the assessee is akin to giving commission and certainly in contravention of the public policy. Thus, respectfully following the decision of the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Kap Scan and diagnostics Centre (p) Ltd (supra), the 50% expenses out of the sales promotion expenses disallowed by the Assessing Officer was justified. Here we find that the expenses toward sponsoring to doctors appears to be exceeding 50% of the sales promotion expenses and therefore the Assessing Officer is more than liberal in disallowing 50% of the sales promotion expenses of the assessee.”
Read the full text of the Order below.
