IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "A" : DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA.No.732/Del./2019
Assessment Year 2015-2016
M/s. Aishika Pharma Pvt.
Ltd., New Delhi.
The ITO, Ward-2(1),
PAN AAGCA2654M
C/o. Sh.Vivek Bansal, 2nd vs New Delhi.
Floor, B-3/4, Safdarjung
Enclave, New Delhi-029.
(Appellant) (Respondent)
Shri I.P.Bansal And
For Assessee : Shri Vivek Bansal, Advocates
For Revenue : Shri P.V. Gupta, Sr. D.R.
Date of Hearing : 23.04.2019
Date of Pronouncement : 29.04.2019
ORDER
PER BHAVNESH SAINI, J.M.
This appeal by assessee has been directed against
the Order of the Ld. CIT(A)-1, New Delhi, Dated 19.12.2018,
for the A.Y. 2015-2016, challenging the addition of
Rs.57,27,412/- under section 37 of the Income Tax Act,
1961.
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
2. Briefly the facts of the case are that assessee is a
resident Company and filed return of income declaring
income of Rs.2,48,070/-. The assessee-company was
engaged in the business of Trading/Marketing of
medicines during the year. During the year under
consideration, the assessee company has claimed
expenditure of Rs.54,27,412/- on account of business
promotion expenses. The assessee company was asked to
furnish the details of expenditure claimed as business
promotion expenses. The assessee company explained that
it is engaged in the business of trading/marketing of
medicines and in the era of acute competition of present times
and to survive and run its business viably among the
national/multinational brands like Cipla, Ranbaxy etc., the
assessee company has to incur massive expenditure on sales
promotions. Sales promotion includes continuous and
constant meetings/seminars/knowledge dissemination with
doctors/medical practitioners/medical stores in the areas of
operation of the company. Continuous sales promotion
campaigns like free medical camps/blood donations
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
camps/free check-up camp with refreshment and free
distribution of medicines/kits etc., The A.O. did not found
explanation of assessee to be satisfactory as the assessee's
claim of deduction of expenditure incurred to provide
freebees to Medical Practitioners is against the Indian
Medical Council (Professional Conduct Etiquette and Ethics)
Regulations, 2002. Hence, the same is not allowable under
Section 37(1) of Income Tax Act, 1961. The A.O. also
referred to CBDT Circular No.5/2012, Dated 01.08.2012 for
inadmissibility of expenses incurred in providing
freebees to medical practitioners by pharmaceutical and
allied Health Sector Industry. The text of the same is
reproduced in the assessment order which prohibits Medical
Practitioners and their professional associations from taking
any Gift, Travel facility, Hospitality, Cash or monetary grant
from the pharmaceutical and allied Health Sector
Industries, in which, A.O. was also directed to examine the
same issue and take appropriate action. Further,
explanation of assessee was called for with reference to the
above Board Circular. The assessee, in response thereto,
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
submitted that assessee arranges seminars, discussion
panel of eminent doctors and inviting of other doctors to
participate in seminars on a topic related to therapeutic
area and blood donation camps and the assessee makes an
endeavour to create awareness amongst certain class of key
doctors about the product of the assessee company and its
new developments in the area of medicine in order to
provide correct diagnosis and treatment of the patients. The
said activities by the assessee company are to make aware
of the products of the assessee company to the knowledge of
the Doctors and to bring its medicines to the market. Since
the pharmaceutical companies make aware of such kind of
products/medicines to the notice of the Doctors by
conducting seminars as mentioned hereinabove by
incurring certain expenditure, the said expenditure is
definitely in the nature of sales and business promotion and
pleaded that the same has to be allowed.
2.1. With respect to gift articles like diaries, pen sets,
calendars, paper weights, injection boxes etc., embossed
with bold logo of its brand name and the product, the
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
assessee company submitted that all these gift articles are
very cheap and low cost articles which bears the name of
assessee company and it is purely for the promotion of its
product and brand name etc. and these articles cannot be
reckoned as freebies given to the Doctors. It was further
submitted that since the assessee company is engaged in
trading and marketing or even manufacturing of
pharmaceuticals products, it can promote its sale and
brand only by arranging seminars, conferences and thereby
creating awareness/update knowledge with the latest
development of the medicines amongst doctors about the
new research in the medical field and therapeutic areas
around the world and this exercise would help for correct
diagnosis and treatment of the patients. Therefore, the
assessee company pleaded that the said expenditure be
allowed as business expenditure. In support of its
contention, the assessee company relied upon the Order of
the ITAT, Mumbai Bench in the case of DCIT-8(2), Mumbai
vs. PHL Pharma (P.) Ltd., [2017] 163 ITD 10 (Mumbai-
Tribu.) in which the Tribunal has upheld the Order of the
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
Ld. CIT(A) in deleting the similar disallowance. The A.O.
however, did not accept the contention of assessee and
submitted that Board Circular is in line with Section 37(1)
of the I.T. Act, 1961. The A.O. relied upon Judgment of
Hon'ble Punjab & Haryana High Court in the case of CIT vs.
Kap Scan and Diagnostic Centre (P.) Ltd., [2012] 344 ITR
476 (P & H) in which it was held that "commission paid to
Doctors for referring patients is not an allowable deduction."
The A.O. also noted that the assessee's act of incurring
expenditure or providing freebies is an offence. The A.O,
therefore, following the Board Circular above, rejected the
claim of assessee and disallowed the business promotion
expenses of Rs.54,27,412/- under section 37 of the I.T. Act,
1961.
3. The assessee challenged the addition before the
Ld. CIT(A). The Ld. CIT(A) on the same reasoning as given by
the A.O. and following the decision of Hon'ble Punjab &
Haryana High Court in the case of CIT vs. Kap Scan and
Diagnostic Centre (P.) Ltd., (supra) and Order of ITAT, Delhi
Bench in the case of DCIT vs. OCHOA Laboratories Ltd.,
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
[2017] 85 taxmann.com 168 (Delhi.Tribu.) confirmed the
addition and dismissed the appeal of assessee.
4. Aggrieved by the Order of the Ld. CIT(A), the
assessee is in appeal before the Tribunal. Learned Counsel
for the Assessee reiterated the submissions made before the
authorities below and submitted a detailed chart of
business promotion expenses as per the ledger account and
submitted that the business promotion expenses are not in
the nature of gift or freebies as noted by the authorities
below. The details are in the nature of expenses incurred for
medical camps held for business purposes. Ball pens
distributed with logo of the assessee, organizing camps,
small snacks provided at the camps and relates expenses
which were not in the nature of gifts provided to the
professional Doctors or Medical Practitioners etc. Therefore,
the very basis of the authorities below was wrong in
disallowing the expenditure. He has referred to various
replies filed before the authorities below in which assessee
has specifically pleaded that it is engaged in the business of
trading/marketing of medicines and these expenses were
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
incurred only for business promotion. He has submitted
that CBDT Circular No.5/12 dated 01.08.2012 is not
applicable to Pharma Companies. He has submitted that the
said Circular have been considered by the ITAT, Mumbai
Bench in the case of DCIT-8(2), Mumbai vs. PHL Pharma
(P.) Ltd., (supra), in which the assessee company was a
Pharmaceutical Company engaged in business of providing
Pharma Marketing, Consultancy and Detailing services to
develop mass market for pharma products. In this case, the
assessee claimed advertisement and sales promotion
expenses and customer related management expenses, key
accounting management expenses, gift articles and cost on
sample. The Tribunal, in this case noted that Medical
Council of India has no jurisdiction to pass any Order or
Regulation against any Hospital or any Health Care Centre
in the aforesaid Circular. The Medical Council Regulation is
applicable to Medical Practitioners, then, it cannot be made
applicable to Pharma or allied Health Care Companies.
Therefore, Section 37(1) of the I.T. Act, would not be
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
applicable in such cases. The Tribunal, ultimately has held
as under :
"Expenditure incurred by assessee Pharma. Company for
customer relationship management, key account
management, gift articles, free medicine sample,
advertisement article sales promotion could not be
considered as freebies given to doctors, they were purely
for brand recognition; allowable as business expenditure
and were not impaired by Explanation 1 to section 37(1)."
4.1. Learned Counsel for the Assessee submitted that
authorities below have relied upon decision of Hon'ble
Punjab & Haryana High Court in the case of CIT vs. Kap
Scan and Diagnostic Centre (P.) Ltd., (supra) in which
"commission was paid by Diagnostic Centre to private Doctors
for referring patients for diagnosis was not allowed as
business expenses". In the case of DCIT vs. OCHOA
Laboratories Ltd., [2017] 85 taxmann.com 168 (Delhi-Tribu.)
it was held that "providing free air travel, stay and food in
hotels, local car conveyance, etc., to doctors for prescribing
medicines of assessee-pharma company being in
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
contravention of public policy, the amount was correctly
disallowed with reference to Explanation to section 37(1) of
the I.T. Act, 1961." Learned Counsel for the Assessee,
therefore, submitted that both these decisions are
distinguishable on facts. He has, therefore, submitted that
addition may be deleted.
5. On the other hand, Ld. D.R. relied upon the
Orders of the authorities below.
6. We have considered the rival submissions and
perused the material available on record. The authorities
below have rejected the claim of assessee of claiming
expenses on account of business promotion. The assessee is
admittedly engaged in the business of trading and marketing
of medicines. During the year under consideration, the
assessee claimed that due to competition in the Pharma
Industry, the assessee company shall have to incur
expenditure on business promotion which includes constant
meetings/seminars/knowledge dissemination with doctors/
medical practitioners/medical stores in the areas of operation
of the company. The assessee company in this way organized
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
medical camps/blood donations camps/free check-up camp
etc., and on such occasion, incurred expenditure including
distribution of medicines /kits etc., with logo of assessee
company and refreshment and dinner etc. The list of
expenditure as per ledger account is filed which shows that
business promotion expenses have been incurred mostly on
medical camps organized with tea and snacks, ball pens,
purchased for distribution to Doctors and Hospitals, with
logo of the assessee company, organizing cardiac camps,
Doctors meetings for various products for awareness of their
product with refreshment and dinners etc., The authorities
below have not commented upon these expenditure incurred
by the assessee company for business promotion. The
assessee company in this way made aware the Professionals
of the product in which assessee company was giving small
gifts having logo and brand name of the assessee company
and product name have been mentioned. Copies of the bills
and certificates from the concerned persons are filed which
supports the explanation of assessee company that assessee
company did not provide any gifts to the professionals for
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
referring any patient or customer. The expenditure incurred
by assessee company are thus not in the nature of freebies
provided to any of the professionals. The activity of the
assessee company for incurring the sale promotion expenses
are to make the persons connected with business of the
assessee company, aware of its product and research work
carried out by the company for bringing the medicine in the
market and its results are based on several efforts made by
the assessee company. 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 expenditure were purely incurred for
business promotion of the assessee company. The
authorities below, rejected the claim of assessee company
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.
The said Circular have been considered by the ITAT,
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
Mumbai Bench in the case of DCIT-8(2), Mumbai vs. PHL
Pharma (P.) Ltd., (supra), in which it was clearly held that
said Regulations and Board Circular are not applicable to
Pharma and allied Health Care Companies. Therefore, there
is no question of application of Section 37(1) of the I.T. Act.
The issue is, therefore, covered in favour of the assessee by
the Order of ITAT, Mumbai Bench, in the case of DCIT-8(2),
Mumbai vs. PHL Pharma (P.) Ltd., (supra). The authorities
below have also referred to decision of Hon'ble Punjab &
Haryana High Court in the case of CIT vs. Kap Scan and
Diagnostic Centre (P.) Ltd., (supra) and Order of ITAT Delhi
Bench in the case of DCIT vs. OCHOA Laboratories Ltd.,
(supra), which are clearly distinguishable on facts and would
not be applicable to the facts and circumstances of the case.
Considering the nature of the business promotion expenses
incurred by the assessee company in the light of Order of
ITAT, Mumbai Bench, in the case of DCIT-8(2), Mumbai vs.
PHL Pharma (P.) Ltd., (supra), we are of the view that
whatever expenses incurred by the assessee company are
only on account of business promotion expenses which are
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ITA.No.732/Del./2019 M/s. Aishika
Pharma Pvt. Ltd., New Delhi.
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. We, accordingly,
set aside the Orders of the authorities below and delete the
entire addition.
7. In the result, appeal of Assessee allowed.
Order pronounced in the open Court.
Sd/- Sd/-
(L.P. SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 29th April, 2019.
VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT `A' Bench, Delhi
6. Guard File.
// BY Order //
Assistant Registrar : ITAT Delhi Benches :
Delhi.
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