By TIOL News Service

KOLKATA, MARCH 21, 2018: THE issue is - Whether the CBDT Circular prohibiting 'freebies' to doctors for promotion of sales is retrospective in nature. NO is the verdict.

Facts of the case:

The Assessee-company, engaged in manufacturing of various pharmaceuticals products. The Assessee had filed its return for the relevant AY declaring its total income. In the course of the assessment proceeding, the AO noted that the Assessee had paid to doctors for rendering operational services. The AO held that though the payment was made by the Assessee in order to increase the sale of the pharmaceutical products but these expenses were not admissible as per the CBDT Circular No.05/2012. The AO further held that the said circular was explanatory in nature and the effect of the same would be given from 10.12.2009, the date of amendment of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation 2002. Accordingly, the AO completed the assessment u/s 143(3) by making disallowance on account of doctor investment expenses.

On appeal, the CIT(A) held that the said expenses were made for the purpose of business and therefore, deleted the additions made by the AO.

the Tribunal, held that,

++ the coordinate Bench of ITAT Mumbai in the case of Syncom Formulations (I) Ltd Vs. DCIT has held that the CBDT Circular No.05/2012, is prospective in nature and therefore applicable only from the AY 2013-14 onwards. The Coordinate Bench also held that "... receiving of gifts by doctors is prohibited by MCI guidelines but giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses ..." The AO has not disputed the genuineness of the expenditure, his solitary grievance was that the Assessee had paid such amount as "Freebies" to the doctors for prescribing pharmaceutical product of the Assessee. Further, the AO has not brought any cogent evidence on record to prove that said payment was merely a "Freebies" to the doctors for prescribing pharmaceutical product of the Assessee except a written submission made by Mr.D Chatterjee in the original course of assessment proceedings, who does not have accounting and taxation knowledge, and subsequently he retracted by filing affidavit on dated 04.07.2015. The AO failed to corroborate the statement/submissions of Mr. D Chatterjee with any tangible material/ evidence and therefore, this Tribunal is of the view that addition should not be made solely based of statement/submission. If an earlier statement or submission does not reflect correct fact and circumstances in their true spirit, it is legally permissible to retract the earlier statement, provided the Assessee is able to show that his earlier submission was not factually correct;

++ during the remand proceedings, the Assessee submitted nine photographs of medical camps, five certificates and seven hotel bills in support of medical camp organized by it and the AO did not find any mistake or irregularity therein. During the remand proceedings, the Assessee also explained to the AO that medical camps organized by the Assessee required large expenditure for cost of travelling, reimbursement of cost of conveyance, reimbursement of lodging cost, reimbursement of paramedical persons who attended the camps, cost of chemicals, hire charges of certain equipments and cost of free samples of medicines and the AO failed to bring any evidence that these expenses were not genuine;

++ even otherwise the expenses were not covered by the CBDT Circular No.05/2012, as the expenses were incurred by the Assessee for the purpose of business. This Tribunal noted that the AO was not justified in applying the guidelines as laid down by CBDT in the said circular in respect of AY 2012-13. In subsequent AYs i.e. 2013-14 and 2014-15, the AO has allowed the similar claims of the Assessee. That being so, this Tribunal declines to interfere with the order of the CIT(A) in deleting the addition made by the AO.

(See 2018-TIOL-412-ITAT-KOL)