The Tax Publishers2020 TaxPub(DT) 5545 (Mum-Trib)

INCOME TAX ACT, 1961

Section 37(1)

Where it was customary in the business of assessee to incur sales promotion expenses on providing gifts, free samples to doctors, hospitals, medical association for arranging conferences and workshops for demonstrative purposes and also gifts given to customers, distributors, doctors and hospital staff, therefore, these expenses were clearly covered under the provisions of section 37(1) as wholly and exclusively incurred for the purpose of business and accordingly allowed for deduction.

Business expenditure - Disallowance of sales promotion expenses being gifts to doctors and hospitals - Allowability -

Assessee was engaged in the business of manufacturing of pharmaceuticals and sales thereof. AO noticed that assessee had debited sales promotion expenses in the profit & loss account which included a sum on account of free samples and gifts to doctors and hospitals, etc. Accordingly, a show cause notice was issued to the assessee as to why these expenses should not be disallowed in view of Circular No.5/2012, dated 1-8-2012 issued by CBDT which provides that expenses incurred for the purpose of giving gifts, travelling facilities, hospitality and such other freebies to the doctors, medical practitioners and their professional associations are not admissible under section 37 in consonance with regulations issued by Medical Council of India under Medical Council Act, 1956. Held: Assessee was in the business of pharmaceuticals, it is customary in business of assessee to incur sales promotion expenses on providing gifts, free samples to doctors, hospitals, medical association for arranging conferences and workshops for demonstrative purposes and also gifts given to customers, distributors, doctors and hospital staff and therefore, these expenses were clearly covered under the provisions of section 37(1) as wholly and exclusively incurred for the purpose of business and accordingly allowed for deduction.

Followed:CIT v. HDFC Bank Ltd. (2014) 49 Taxmann.com 335 (Bom.) : 2014 TaxPub(DT) 3351 (Bom-HC) and Medley Pharmaceuticals Ltd. v. Dy. CIT (2020) 118 Taxmann.com 44 (Mum-Trib.) : 2020 TaxPub(DT) 2921 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15


INCOME TAX ACT, 1961

Section 37(1)

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