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2018 (2) TMI 52 - AT - Income TaxDisallowance of marketing & sales promotion expenses u/s 37(1)- Freebies to Doctors - Held that - the circular issued by the CBDT enlarging the scope of disallowance to the pharmaceutical companies is without any enabling notification or circular of the Medical Council of India. Considering the settled legal position on the issue we are of the opinion that the issue now stands covered in favour of the assessee. The pharmaceutical company like the assessee is outside the scope of the circulars by the Medical Council of India or the CBDT. Therefore the conclusions of the AO/CIT(A) in this regard are reversed. Thus the grounds raised by the assessee are required to be allowed. See The Dy. CIT 8 (2) Mumbai Versus PHL Pharma P Ltd. 2017 (1) TMI 771 - ITAT MUMBAI - Decided in favour of assessee.
Issues Involved:
1. Disallowance of marketing and sales promotion expenses considered as "Freebies to Doctors" under CBDT Circular No. 5/2012. 2. Applicability of Medical Council of India (MCI) regulations to pharmaceutical companies. 3. Validity of CBDT Circular No. 5/2012 in relation to pharmaceutical companies. Issue-wise Detailed Analysis: 1. Disallowance of Marketing and Sales Promotion Expenses Considered as "Freebies to Doctors" Under CBDT Circular No. 5/2012: The core issue in the appeal is the disallowance of ?76,28,622/- claimed by the assessee as marketing and sales promotion expenses, which the Assessing Officer (AO) considered as "Freebies to Doctors" based on CBDT Circular No. 5/2012. The AO referenced the MCI Circular dated 09-12-2009, which prohibits medical practitioners from accepting gifts, travel facilities, and hospitality from the pharmaceutical sector, and concluded that such expenses are not allowable under Section 37(1) of the Income Tax Act. 2. Applicability of Medical Council of India (MCI) Regulations to Pharmaceutical Companies: The assessee argued that the MCI regulations, specifically Chapter 6, sub-clause 6.8 and 6.8.1 of the Professional Conduct, Etiquette, and Ethics Regulations, 2002, apply only to medical practitioners and not to pharmaceutical companies. The assessee contended that the prohibition on receiving gifts applies to doctors, not to the pharmaceutical companies giving the gifts. The assessee supported this argument by referencing various tribunal decisions, including DCIT Vs. PHL Pharma Pvt. Ltd. and M/s. Solvay Pharma India Ltd. Vs. CIT, which held that the MCI regulations do not extend to pharmaceutical companies. 3. Validity of CBDT Circular No. 5/2012 in Relation to Pharmaceutical Companies: The assessee further argued that the CBDT Circular No. 5/2012, which directs disallowance of such expenses under Section 37(1), does not have the backing of any notification from the MCI and should not apply to pharmaceutical companies. The tribunal found that the CBDT Circular improperly expanded the scope of the MCI regulations to include pharmaceutical companies, which was not intended by the MCI regulations. The tribunal cited the judgments in DCIT Vs. PHL Pharma Pvt. Ltd. and M/s. Solvay Pharma India Ltd. Vs. CIT, which clarified that the MCI regulations are meant for medical practitioners and not for pharmaceutical companies. The tribunal concluded that the CBDT Circular cannot create a new burden or liability on pharmaceutical companies without any enabling provision in the law. Conclusion: The tribunal held that the disallowance of ?76,28,622/- by the AO and its confirmation by the CIT(A) were not justified as the MCI regulations do not apply to pharmaceutical companies. The CBDT Circular No. 5/2012 was found to be inapplicable to the assessee, a pharmaceutical company, as it improperly extended the scope of the MCI regulations. Consequently, the tribunal allowed the appeal of the assessee. Order: The appeal of the assessee is allowed. Order Pronounced: Order pronounced in the open court on this 29th day of January.
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