Case Law Details
ACIT Vs Pfizer Limited (ITAT Mumbai)
ITAT Mumbai held that expenditure towards brand reminder, customer gifts, purchase of medical books and journals is not allowable expenditure u/s 37(1) of the Income Tax Act as such expenses are in the nature of free bees and prohibited.
Facts- Assessee is a company engaged in the business of manufacturing, sale of pharmaceutical including over-the-counter [OTC] pharmaceuticals, cosmetics and allied consumer products and trading of pharmaceuticals. The return of the assessee was picked for complete scrutiny. During the course of assessment, AO made three additions i.e. unreconciled amount; disallowance of amount incurred for providing brand reminders, medical books and journal to medical practitioners; unexplained difference between income in revised return after amalgamation and total income in original return of assessee and amalgamating company.
Conclusion- No doubt, difference between AIR data and books of account triggers the examination by the learned AO. However, when the assessee is helpless and unable to obtain confirmation from those parties, it is the duty of the assessing officer to issue notices under section 133 (6) of the act to those parties, which the assessing officer has done in this case also, but unless the information is received contrary to what assessee has stated, the addition cannot be made in the hence of the assessee.
Honourable Supreme Court in case of Apex laboratories private limited dated 22/2/2022 has categorically held that if any expenses prohibited by the law, the same cannot be allowed as deduction under section 37 (1) of the act. Undoubtedly, the decision of the honourable Supreme Court in case of Apex laboratories has strong binding precedent and serves as an authority on the facts with respect to the payment of freebies by the pharmaceutical companies and on all the legal issues arising out of such payment and its allowability in the hence of pharmaceutical companies. In view of this, we reverse the order of the learned and CIT – A deleting the disallowance of ₹ 87,953,773 on account of brand reminders and customer gifts and ₹ 28,080,940 of purchase of medical books and journals for the medical professionals i.e. doctors.
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