Expense on Gifts bearing logo and name of assessee to doctors by pharma company allowable 

ACIT Vs J.B. Chemicals & Pharmaceuticals Ltd. (ITAT Mumbai)

Undisputedly, the assessee has incurred expenditure of Rs. 2,26,34,864, towards gifts, travel facilities and hospitality provided to doctors, customers and medical practitioners in medical conferences held both in India and abroad. Out of the aforesaid amount, the Assessing Officer has segregated an amount of Rs. 1,25,44,723, for computing disallowance towards expenditure incurred in India. As could be seen from the assessment order, the gift items provided by the assessee are T–shirts, suit lengths, umbrella, electronic goods, etc.

It is the contention of the assessee that the aforesaid gift items bearing assessee’s name and logo are only for sales promotion. The aforesaid factual position has not been controverted by the Assessing Officer. The only reason for making an ad–hoc disallowance of 40% is, CBDT Circular no. 5/2012, dated 1^st August 2012, wherein, the prohibition imposed by Indian Medical Council with regard to acceptance of gift by medical practitioner / doctor was imposed w.e.f. 10^th December 2009.

Thus, as could be seen, the prohibition imposed by Indian Medical Council against acceptance of gift is on the medical practitioner and doctor and not on the pharmaceutical companies. The applicability of the aforesaid CBDT Circular as well as prohibition imposed by Indian Council on Pharmaceutical companies came up for judicial scrutiny before the Tribunal in DCIT v/s PHL Pharma Pvt. Ltd. (supra). The Co–ordinate Bench after examining the regulation issued by the Medical Council of India as well as the CBDT Circular referred to above, ultimately concluded that the prohibition imposed by the Indian Medical Council Regulation are not applicable to pharmaceutical companies. Further, the said view was again reiterated by the Co– ordinate Bench in Solvay Pharma India Ltd. (supra). The Co–ordinate Bench has also held that the CBDT Circular referred to by the Departmental Authorities will not apply retrospectively. No contrary decision on the issue has been brought to our notice by the learned Departmental Representative. In view of the aforesaid, following the ratio laid down by the Co–ordinate Bench in the decisions referred to above, we allow assessee’s claim of expenditure. Consequently, the disallowance made of Rs. 50,17,890, is deleted.

FULL TEXT OF THE ITAT JUDGEMENT

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