Various issues related to allowability of expenses, deductions, ...

Pharma Tax Rulings: Freebies to Doctors, PF/ESI Disallowances, R&D Deductions, Biotechnology Grant, and Interest Income.

September 2, 2024

Case Laws     Income Tax     AT

Various issues related to allowability of expenses, deductions, transfer pricing adjustments, and other income tax matters for a pharmaceutical company. Key points are: Expenses incurred in providing freebies to doctors are disallowed u/s 37(1) retrospectively from 14-12-2009 as per MCI regulations and CBDT circular. Disallowance restricted to 5% of business advancement and sales promotion expenses, and entire doctor sponsorship expenses disallowed. Employee PF/ESI contribution disallowed for late deposits. Deductions u/ss 80-IC and 80-IE allowed for certain incomes like notice pay, scrap sale, service tax refund, miscellaneous income, export benefits, insurance claims, forex gains, cash discounts. Interest income eligible after excluding related expenses. Government biotechnology grant not connected to eligible units, hence disallowed. Administrative expenses allocated based on human resources instead of turnover. Leave encashment provision disallowed u/s 43B, allowed on actual payment. Weighted deduction u/s 35(2AB) allowed for certain R&D expenses like clinical trials, product registration, interest, labor charges, furniture, electrical equipment. Disallowance u/s 14A not added to book profits under 115JB. Transfer pricing adjustments: No adjustment for corporate guarantee fee already offere.

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