GALDERMA INDIA P. LTD.,MUMBAI vs. ASSTT. CIT - 9(3)(2), MUMBAI

PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM

These appeals by the assessee and cross appeals by the assessee and cross-appeals by the appeals by the Revenue are directed against separate orders Revenue are directed against separate orders, dated 27.02.2020 dated 27.02.2020 each for assessment years 2014 for assessment years 2014-15 and 2015-16 and order dated 16 and order dated 15.02.2019 for assessment year 2013 15.02.2019 for assessment year 2013-14, passed by the Ld. 14, passed by the Ld. Commissioner of Income Income-tax (Appeals)-16, Mumbai [in short ‘the 16, Mumbai [in short ‘the Ld. CIT(A)’]. The grounds ]. The grounds raised in these appeals and cross appeals raised in these appeals and cross appeals being identical, same were heard together and disposed of same were heard together and disposed of same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of of this consolidated order for convenience and avoid repetition of of this consolidated order for convenience and avoid repetition of facts.

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Accordingly, firstly, firstly, we took up the appeals for assessment year up the appeals for assessment year 2015-16 for adjudication. adjudication.

The Ld. CIT(A) erred in law in disallowing Rs.74,46,247/ The Ld. CIT(A) erred in law in disallowing Rs.74,46,247/ The Ld. CIT(A) erred in law in disallowing Rs.74,46,247/- from Sales Promotion expenses. from Sales Promotion expenses. 3.1 The ground raised by the Revenue for assessment year 2015 The ground raised by the Revenue for assessment year 2015 The ground raised by the Revenue for assessment year 2015- 16 is reproduced as under: reproduced as under:

Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case Whether on the facts and in the circumstances of the case and in law, the and in law, the Ld. CIT(A) erred in deleting the addition of Ld. CIT(A) erred in deleting the addition of Rs.1,80,92,582/ Rs.1,80,92,582/- claimed as sales promotion expense claimed as sales promotion expense without appreciating that such expenses were incurred in without appreciating that such expenses were incurred in without appreciating that such expenses were incurred in violation of amended India Medical Council Act, in view of violation of amended India Medical Council Act, in view of violation of amended India Medical Council Act, in view of the provisions contained in Explanation 1 t the provisions contained in Explanation 1 to section 37(1) o section 37(1) of the Act and also in view of the clarifications made by of the Act and also in view of the clarifications made by of the Act and also in view of the clarifications made by CBDT Circular No. 5/2012 dated 01.08.2012. CBDT Circular No. 5/2012 dated 01.08.2012. 4. Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company during the year under consideration was engaged in the business of during the year under consideration was engaged in the business of during the year under consideration was engaged in the business of marketing & trading ting & trading ‘dermatology’ products. The assessee company products. The assessee company is a wholly owned subsidiary is a wholly owned subsidiary of ‘Galderma Pharma SA Galderma Pharma SA’, a Switzerland Company. For the year under consideration, the Switzerland Company. For the year under consideration, the Switzerland Company. For the year under consideration, the assessee filed return of income on 27.11.20 assessee filed return of income on 27.11.2015 declaring total 15 declaring total income at Rs.35,82,09,750/ income at Rs.35,82,09,750/-. The return of income filed by the . The return of income filed by the assessee was selected for scrutiny and statutory notices under the assessee was selected for scrutiny and statutory notices under the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied tax Act, 1961 (in short ‘the Act’) were issued and complied tax Act, 1961 (in short ‘the Act’) were issued and complied with. During the course of assessment with. During the course of assessment proceedings, the Assessing oceedings, the Assessing

Galderma India Pvt. Ltd. 4 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

Officer (AO) observed observed expenses incurred by the assessee incurred by the assessee for payments to the doctors and their professional associations, which to the doctors and their professional associations, which to the doctors and their professional associations, which according to him were inviolation of Medical Council of India (MCI) according to him were inviolation of Medical Council of India according to him were inviolation of Medical Council of India Regulation and CBDT Circular No. 5/2 Regulation and CBDT Circular No. 5/2012 dated 01.08.2012. Out 012 dated 01.08.2012. Out of the total expenses of Rs.15,34,05,440/ of the total expenses of Rs.15,34,05,440/- debited under the head debited under the head ‘sales promotion and marketing expenses, t romotion and marketing expenses, the Assessing Officer he Assessing Officer disallowed expenses to the disallowed expenses to the extent of Rs.2,55,38,829/ Rs.2,55,38,829/- observing as under:

“The learned AR of the asse The learned AR of the assessee has submitted that none ssee has submitted that none of the above expenses have been incurred on medical of the above expenses have been incurred on medical of the above expenses have been incurred on medical practitioners / their professional associations. Before practitioners / their professional associations. Before practitioners / their professional associations. Before dealing with the submission of the assessee that the said dealing with the submission of the assessee that the said dealing with the submission of the assessee that the said Circular is not applicable to the aforesaid expenditure, it Circular is not applicable to the aforesaid expenditure, it Circular is not applicable to the aforesaid expenditure, it is significant to identify the expenses, attracting the s significant to identify the expenses, attracting the s significant to identify the expenses, attracting the applicability of Circular No.05/2012 dated 01.08.2012. applicability of Circular No.05/2012 dated 01.08.2012. applicability of Circular No.05/2012 dated 01.08.2012. Having regard to the facts that the assessee has Having regard to the facts that the assessee has Having regard to the facts that the assessee has deducted tax at source in respect of certain expenses and deducted tax at source in respect of certain expenses and deducted tax at source in respect of certain expenses and also some of the expenditure has been i also some of the expenditure has been incurred in ncurred in relation to the employees / officers / field force of the relation to the employees / officers / field force of the relation to the employees / officers / field force of the assessee company, the following expenses, which are assessee company, the following expenses, which are assessee company, the following expenses, which are found to have nexus with the payments made to doctors found to have nexus with the payments made to doctors found to have nexus with the payments made to doctors / their professional associations, are hereby identified for / their professional associations, are hereby identified for / their professional associations, are hereby identified for the purpose of makin the purpose of making disallowance under Explanation to g disallowance under Explanation to Section 37(1) of the Act; Section 37(1) of the Act; Category Amount (Rs.) Nature of expense Nature of expense P.G. Grant 7,00,000 It is incurred to provide a fixed grant to PG It is incurred to provide a fixed grant to PG students presenting posters at the National students presenting posters at the National Conference. It is not a business related ac Conference. It is not a business related activity. Thus it comes within the mischief of the IMC Thus it comes within the mischief of the IMC Regulations. Doctors Group meeting 15,55,340 It is incurred to fund the educational programs It is incurred to fund the educational programs in the field of dermatology. This expenditure in the field of dermatology. This expenditure comes comes within within the the mischief mischief of of the the IMC IMC Regulations. Post marketing survey 29,34,000 It is incurred for documenting the feedback It is incurred for documenting the feedback (PMS) obtained from registered medical practitioners. obtained from registered medical practitioners.

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Thus, this expenditure comes within the Thus, this expenditure comes within the mischief of the IMC regulations. mischief of the IMC regulations. IADVL 26,05,970 Stata IADVL 15,67,771 Other conference 30,79,341 It It is is the the payment payment made made to to medical medical practitioners/their professional association for practitioners/their professional association for attending the congress and stall participation. attending the congress and stall participation. This expenditure comes within the mischief of This expenditure comes within the mischief of the IMC Regulations. Sponsorship local 22,56,907 The sum of Rs.22,56,907/ The sum of Rs.22,56,907/- has been incurred on purchase of test kits/instruments, which are on purchase of test kits/instruments, which are given to the Doctors. Thus, this expenditure given to the Doctors. Thus, this expenditure comes comes within within the the mischief mischief of of the the IMC IMC Regulations. Samples 2,16,78,999 The The expenditure expenditure of of Rs. Rs. 2,16,78,999/ 2,16,78,999/- isincurred on manufacture of samples of the d on manufacture of samples of the company's products, and dispatch on them company's products, and dispatch on them which are given to medical practitioners. As per which are given to medical practitioners. As per the assessee, it has incurred this expenditure the assessee, it has incurred this expenditure towards towards the the samples samples as as givento givento the the 600stockists 600stockists and and the the medical medical practitioners.However , the assessee plea is not r , the assessee plea is not acceptable in view of the fact that the assessee acceptable in view of the fact that the assessee has not been able to exactly quantify the has not been able to exactly quantify the amount of such samples distributed to its amount of such samples distributed to its stockists stockists or or Medical Medical practitioners. practitioners. Hence, Hence, considering the written submission of the considering the written submission of the assessee, the disallowance is restricted to the the disallowance is restricted to the 50% of the samples cost ie Rs. 1,08,39,500/ 50% of the samples cost ie Rs. 1,08,39,500/- Thus, as regards the expenditure of Rs. 2,55,38,829/ Thus, as regards the expenditure of Rs. 2,55,38,829/ Thus, as regards the expenditure of Rs. 2,55,38,829/- claimed under the name and style of"sales promotion claimed under the name and style of"sales promotion claimed under the name and style of"sales promotion expenses, the same is hereby held to have been incurred expenses, the same is hereby held to have been incurred expenses, the same is hereby held to have been incurred directly or indirectly to appease the doctors and their or indirectly to appease the doctors and their or indirectly to appease the doctors and their professional associations by way of giving away the professional associations by way of giving away the professional associations by way of giving away the freebies. which is against the public policy and prohibited freebies. which is against the public policy and prohibited freebies. which is against the public policy and prohibited by law, and hence the plea raised by the AR of the by law, and hence the plea raised by the AR of the by law, and hence the plea raised by the AR of the assessee that it is not required to be disallo assessee that it is not required to be disallowed as per wed as per Explanation to Section 3711 of the Act, is found to be not Explanation to Section 3711 of the Act, is found to be not Explanation to Section 3711 of the Act, is found to be not acceptable in view of the followi acceptable in view of the following detailed reasoning ng detailed reasoning therefore;” 5. The Ld. Assessing Officer supported the finding relying on the The Ld. Assessing Officer supported the finding relying on the The Ld. Assessing Officer supported the finding relying on the decision of the Hon’ble Allahabad High Court in the case of Abdul decision of the Hon’ble Allahabad High Court in the c decision of the Hon’ble Allahabad High Court in the c Hameed v. Mohd. Ishaq [AIR 1975 All. 166] Hameed v. Mohd. Ishaq [AIR 1975 All. 166], to explain the term , to explain the term

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“prohibited by law”. He further relied on the decision of . He further relied on the decision of . He further relied on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT v. KAP Scan & Punjab & Haryana High Court in the case of CIT v. KAP Scan & Punjab & Haryana High Court in the case of CIT v. KAP Scan & Diagnostic Centre Private Limited [2012] 344 ITR 476 to Diagnostic Centre Private Limited [2012] 344 ITR 476 Diagnostic Centre Private Limited [2012] 344 ITR 476 support that paying commission to private doctors is unethical, support that paying commission to private doctors i support that paying commission to private doctors i against public policy and forbidden by law and therefore, same was against public policy and forbidden by law and therefore, same was against public policy and forbidden by law and therefore, same was not allowable being prohibited by Regulation 6.4.1 and 6.4.2 of the not allowable being prohibited by Regulation 6.4.1 and 6.4.2 of the not allowable being prohibited by Regulation 6.4.1 and 6.4.2 of the MCI Regulations.

“5.1.6 During appellate proceedings, the Ld. A.R. 5.1.6 During appellate proceedings, the Ld. A.R. 5.1.6 During appellate proceedings, the Ld. A.R. admitted that expenses claimed against continued admitted that expenses claimed against continued admitted that expenses claimed against continued Medical education Medical education - Rs. 2,70,520/- , P. G. Grant , P. G. Grant - Rs.12,30,833/ Rs.12,30,833/-Indian Acne Alliance -Rs. 5,61,172/ Rs. 5,61,172/- Doctor Group Meeting Doctor Group Meeting - Rs. 11,54,265/- Post Marketing Marketing Survey PMS Rs. 41,67,000, Sponsorship Local Survey PMS Rs. 41,67,000, Sponsorship Local Survey PMS Rs. 41,67,000, Sponsorship Local - Rs. 27,70,809/- Samples- Rs. 94,29,850/- and payments to and payments to doctors - Rs.2,62,963/ Rs.2,62,963/- totalling Rs. 1,98,47,412/ totalling Rs. 1,98,47,412/-were incurred directly or indirectly on doctors or their incurred directly or indirectly on doctors or their incurred directly or indirectly on doctors or their associations and no arguments were associations and no arguments were put forward put forward regarding disallowance of the same made by the AO.As regarding disallowance of the same made by the AO.As regarding disallowance of the same made by the AO.As mentioned by the AO in the assessment order, these mentioned by the AO in the assessment order, these mentioned by the AO in the assessment order, these payments were made in contravention to Explanation (1) payments were made in contravention to Explanation (1) payments were made in contravention to Explanation (1) to Section 371(1) of the Income Tax Act. There is a clear to Section 371(1) of the Income Tax Act. There is a clear to Section 371(1) of the Income Tax Act. There is a clear cut violation of Indian Cou cut violation of Indian Council Act, a law of land passed ncil Act, a law of land passed by the Parliament. The Hon'ble High Court of Allahabad by the Parliament. The Hon'ble High Court of Allahabad by the Parliament. The Hon'ble High Court of Allahabad has considered the similar issue in the case of CIT vs, PT has considered the similar issue in the case of CIT vs, PT has considered the similar issue in the case of CIT vs, PT Vishwanath Sharma (2009) 316 ITR 0419. Vishwanath Sharma (2009) 316 ITR 0419.”

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6.1 In respect of other expenses like IADVL In respect of other expenses like IADVL &other conference etc. other conference etc. by the Ld. CIT(A) allowed relief to the assessee allowed relief to the assessee observing as under: observing as under:

“5.1.9 In respect to payment made to IADVL New year 5.1.9 In respect to payment made to IADVL New year 5.1.9 In respect to payment made to IADVL New year - Rs. 31,12,488/ Rs. 31,12,488/- IADVL-Rs. 27,62,350/-, State IADVL , State IADVL - Rs. 14,86,618/ Rs. 14,86,618/- other conference - Rs. 24,32,510/ Rs. 24,32,510/- the assessee company claimed tota assessee company claimed total expenses of Rs. l expenses of Rs. 97,93,996/-, According to the appellant, these payments , According to the appellant, these payments , According to the appellant, these payments were made with an intention to attend congress & put a were made with an intention to attend congress & put a were made with an intention to attend congress & put a stall at the venue of congress. For promoting marketing of stall at the venue of congress. For promoting marketing of stall at the venue of congress. For promoting marketing of its product, the assessee company installed a stall where its product, the assessee company installed a stall where its product, the assessee company installed a stall where products of the company were put for exhibition and sale. f the company were put for exhibition and sale. f the company were put for exhibition and sale. According to the appellant, Indian Association of According to the appellant, Indian Association of According to the appellant, Indian Association of Dermatologists, is one of the largest dermatologic Dermatologists, is one of the largest dermatologic Dermatologists, is one of the largest dermatologic association in the world. Participating in it and just to association in the world. Participating in it and just to association in the world. Participating in it and just to having a stall at the meetings organised by such having a stall at the meetings organised by such having a stall at the meetings organised by such association, Have a boosting impact on its sales and association, Have a boosting impact on its sales and association, Have a boosting impact on its sales and advertisement of its products. Seminar are organized by advertisement of its products. Seminar are organized by advertisement of its products. Seminar are organized by the IADVL & large number of doctors and specialists the IADVL & large number of doctors and specialists the IADVL & large number of doctors and specialists participate in it. Therefore, having a stall a participation participate in it. Therefore, having a stall a participation participate in it. Therefore, having a stall a participation in the congress is very useful in in the congress is very useful in promoting and promoting and advertising the products of the assessee company. It was advertising the products of the assessee company. It was advertising the products of the assessee company. It was once again reiterated that the expense were exclusively once again reiterated that the expense were exclusively once again reiterated that the expense were exclusively incurred for installation of stall and fixed fee payment incurred for installation of stall and fixed fee payment incurred for installation of stall and fixed fee payment required for participation. It was clarified that expenses required for participation. It was clarified that expenses required for participation. It was clarified that expenses mentioned aga mentioned against IADVL New year, IADVL, State IADVL, inst IADVL New year, IADVL, State IADVL, other conference, were not incurred on organisation of other conference, were not incurred on organisation of other conference, were not incurred on organisation of seminars or giving free gifts, accommodation to doctors or seminars or giving free gifts, accommodation to doctors or seminars or giving free gifts, accommodation to doctors or any other favours to doctors. Necessary bills and any other favours to doctors. Necessary bills and any other favours to doctors. Necessary bills and vouchers relating to above mentioned expenses were vouchers relating to above mentioned expenses were vouchers relating to above mentioned expenses were also produced during course of appellate proceedings. These produced during course of appellate proceedings. These produced during course of appellate proceedings. These expenses incurred were exclusively for participation fee expenses incurred were exclusively for participation fee expenses incurred were exclusively for participation fee and installation of stall which are not prohibited by the and installation of stall which are not prohibited by the and installation of stall which are not prohibited by the Indian Medical Council Act. Therefore, provisions of Indian Medical Council Act. Therefore, provisions of Indian Medical Council Act. Therefore, provisions of Explanation Explanation - I to Section 37(1) will not be applicable in 7(1) will not be applicable in respect to payments of Rs. 97,93,996/ respect to payments of Rs. 97,93,996/-. Keeping in view . Keeping in view the facts of the case, expenditure for an amount of the facts of the case, expenditure for an amount of the facts of the case, expenditure for an amount of Rs.97,93,996/ Rs.97,93,996/- incurred in connection with installation of incurred in connection with installation of stall and participation fees are allowed and expenses of stall and participation fees are allowed and expenses of stall and participation fees are allowed and expenses of Rs.1,98,47,412/ s.1,98,47,412/- incurred for giving various direct and incurred for giving various direct and

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indirect favours to doctors and their associations were indirect favours to doctors and their associations were indirect favours to doctors and their associations were not allowed us. 37(1) of the Income Tax Act, 1961 not allowed us. 37(1) of the Income Tax Act, 1961. . 5.1.10In respect to P.G. Grant of Rs.7,00,000/ 5.1.10In respect to P.G. Grant of Rs.7,00,000/- Doctors group meetings Rs.15,55,340/ group meetings Rs.15,55,340/-, Post marketing survey rketing survey Rs. 29,34,000/ Rs. 29,34,000/-/ and Sponsorship local Rs.22,56,907 / / and Sponsorship local Rs.22,56,907 /-, the facts and submissions are same and I have no the facts and submissions are same and I have no the facts and submissions are same and I have no reason to deviate from order dated in appellant's own reason to deviate from order dated in appellant's own reason to deviate from order dated in appellant's own case. Therefore, disallowance of Rs.74,46,247 made by case. Therefore, disallowance of Rs.74,46,247 made by case. Therefore, disallowance of Rs.74,46,247 made by the A.O. is hereby the A.O. is hereby confirmed. Similarly my predecessor Similarly my predecessor has allowed paymentsmade to IADVL Rs. 26,05,970/ has allowed paymentsmade to IADVL Rs. 26,05,970/ has allowed paymentsmade to IADVL Rs. 26,05,970/-, State State IADVL IADVL Rs. Rs. 15,67,771/-, 15,67,771/ , Other Other conference conference Rs.30,79,341/ Rs.30,79,341/- in respect of these expenses facts are in respect of these expenses facts are similar to A.Y.2011 similar to A.Y.2011-12 . The appellant has incurred these 12 . The appellant has incurred these expenses with an int expenses with an intention to attend congress and put a ention to attend congress and put a stall at the venue of congress. Therefore, as decided in stall at the venue of congress. Therefore, as decided in stall at the venue of congress. Therefore, as decided in appellant's own case for A. Y.2011 appellant's own case for A. Y.2011-12 these expenses 12 these expenses are allowed. The A.O. is directed to delete the addition of are allowed. The A.O. is directed to delete the addition of are allowed. The A.O. is directed to delete the addition of Rs.72,53,082/ Rs.72,53,082/- made by the A.O.” 6.2 In respect of expenses on account of expenses on account of ‘free samples free samples’ to doctors, the Ld. CIT(A) allowed the expenditure observing as under: CIT(A) allowed the expenditure observing as under: CIT(A) allowed the expenditure observing as under:

“5.1.11 Expenses of Rs.69,79,140/ 5.1.11 Expenses of Rs.69,79,140/- on account of free on account of free samples to doctors was confirmed by the Ld. CIT(A) samples to doctors was confirmed by the Ld. CIT(A) samples to doctors was confirmed by the Ld. CIT(A) - 16, Mumbai in A.Y. 2011 Mumbai in A.Y. 2011-12. At that time, no specific me, no specific arguments were made by the appellant regarding the arguments were made by the appellant regarding the arguments were made by the appellant regarding the allowability of these expenses.However, during appellate allowability of these expenses.However, during appellate allowability of these expenses.However, during appellate proceedings, in the instant case, the appellant has relied proceedings, in the instant case, the appellant has relied proceedings, in the instant case, the appellant has relied upon the judgements of Hon'ble ITAT 'D*** Bench Mumbai upon the judgements of Hon'ble ITAT 'D*** Bench Mumbai upon the judgements of Hon'ble ITAT 'D*** Bench Mumbai in in the the case case of of Dup Dupen en Laboratories Laboratories IT IT A A No.5195/Mum/2013 . The above mentioned judgement is No.5195/Mum/2013 . The above mentioned judgement is No.5195/Mum/2013 . The above mentioned judgement is received after appellate order dated 18.12.2015 in the received after appellate order dated 18.12.2015 in the received after appellate order dated 18.12.2015 in the appellant's own case. The issue before the Hon'ble Bench appellant's own case. The issue before the Hon'ble Bench appellant's own case. The issue before the Hon'ble Bench was whether the expenditure incurred on account of free was whether the expenditure incurred on account of free was whether the expenditure incurred on account of free sample distribu sample distribution of medicines to physicians is tion of medicines to physicians is allowable or not. After considering the arguments of the allowable or not. After considering the arguments of the allowable or not. After considering the arguments of the appellant and respondent, the Hon'ble Tribunal on the appellant and respondent, the Hon'ble Tribunal on the appellant and respondent, the Hon'ble Tribunal on the ground raised has held as under: ground raised has held as under:

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"Therefore, it is observed that the expenditure Therefore, it is observed that the expenditure Therefore, it is observed that the expenditure incurred for providing the sa incurred for providing the samples of medicines mples of medicines free of cost to the medical practitioners is liable to free of cost to the medical practitioners is liable to free of cost to the medical practitioners is liable to be allowed as business expenditure, and therefore, be allowed as business expenditure, and therefore, be allowed as business expenditure, and therefore, the order of the learned CIT(A) is hereby set aside the order of the learned CIT(A) is hereby set aside the order of the learned CIT(A) is hereby set aside in this regards and the file is hereby order to in this regards and the file is hereby order to in this regards and the file is hereby order to restore before Assessing Office restore before Assessing Officer to reassess the r to reassess the assessment of assessee in view of the above said assessment of assessee in view of the above said assessment of assessee in view of the above said observations". observations".” 7. Aggrieved with the above finding of the Ld. CIT(A) both the Aggrieved with the above finding of the Ld. CIT(A) both the Aggrieved with the above finding of the Ld. CIT(A) both the assessee and the Revenue are in appeal before the Tribunal by way assessee and the Revenue are in appeal before the Tribunal by way assessee and the Revenue are in appeal before the Tribunal by way of raising grounds as reproduced above. of raising grounds as reproduced above.

8.1 The Ld. Counsel of the assessee before us submitt Ld. Counsel of the assessee before us submitt Ld. Counsel of the assessee before us submitted that firstly, as far as violation of M as far as violation of MCI Regulations is concerned,t is concerned,the relevant authority has not held the assessee as guilty for violation of relevant authority has not held the assessee as guilty for violation of relevant authority has not held the assessee as guilty for violation of the said regulations and therefore in the case of the assessee, there the said regulations and therefore in the case of the assessee the said regulations and therefore in the case of the assessee is no finding from the relevant authorities regulating the MCI finding from the relevant authorities regulating the MCI finding from the relevant authorities regulating the MCI Regulations that the expenditure incurred by the assessee are in Regulations that the expenditure incurred by the assessee are in Regulations that the expenditure incurred by the assessee are in violation of law or prohibited under the relevant law. The Ld. violation of law or prohibited under the relevant law. The Ld. violation of law or prohibited under the relevant law. The Ld. Counsel submitted that in the case of Apex Laboratories (P.) Ltd. Apex Laboratories (P.) Ltd. Counsel submitted that in the case of v. DCIT [2022] 135 taxmann.com 286 (SC) IT [2022] 135 taxmann.com 286 (SC), violation of the MCI violation of the MCI Regulationswas not dispute not disputed in said case, as against as against the same is

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disputed by the assessee in the instant disputed by the assessee in the instant case, therefore,t case, therefore,the ratio of the said decision cannot be applied over the said decision cannot be applied over the facts of the instant the facts of the instant case. Secondly, without prejudice to the first argument, the Ld. , without prejudice to the first argument, the Ld. , without prejudice to the first argument, the Ld. Counsel of the assessee submitted that the expenses incurred were Counsel of the assessee submitted that the expenses incurred were Counsel of the assessee submitted that the expenses incurred were for the purpose of the business and not in violation of any law and for the purpose of the business and not in violation of any law and for the purpose of the business and not in violation of any law and therefore, all the expenses which were disallowed by the Assessing therefore, all the expenses which were disallowed by the therefore, all the expenses which were disallowed by the Officer are eligible u/s 37(1) of the Act. Regarding the disallowance u/s 37(1) of the Act. Regarding the disallowance u/s 37(1) of the Act. Regarding the disallowance of the free samples, the Ld. Counsel relied on the decision of the of the free samples, the Ld. Counsel relied on the decision of the of the free samples, the Ld. Counsel relied on the decision of the Tribunal in the case of Tribunal in the case of M/s Merk Limited v. DCIT (ITA No. M/s Merk Limited v. DCIT (ITA No. 1525/Mum/2016) (Mum. Trib.) 1525/Mum/2016) (Mum. Trib.), which according to hi which according to him has been passed after considering the ratio of Apex Laboratories Pvt. Ltd. passed after considering the ratio of Apex Laboratories Pvt. Ltd. passed after considering the ratio of Apex Laboratories Pvt. Ltd. (supra). Regarding other expenses also (supra). Regarding other expenses also, the Ld. Counsel submitted the Ld. Counsel submitted that payments for tho ose expenses had not been made to the medical not been made to the medical practitioner and therefore same practitioner and therefore same were not falling under the MCI not falling under the MCI Regulations.

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prior to the decision of the Hon’ble Supreme Court in the case of prior to the decision of the Hon’ble Supreme Court in the case of prior to the decision of the Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) Apex Laboratories Pvt. Ltd. (supra), the expenditure on sales the expenditure on sales promotion and advertisement incurred in the form of (i) PG grant to promotion and advertisement incurred in the form of promotion and advertisement incurred in the form of doctors (ii) group meeting based group meeting based survey sponsoring (iii) (iii) IADVL other conferences and (iv) and (iv) free samples etc. were allowed by the Tribunal free samples etc. were allowed by the Tribunal in assessment year 2011 in assessment year 2011-12 and 2012-13 and appeal of the 13 and appeal of the Department against which is pending before the Hon’ble High Department against which is pending before the Hon’ble High Department against which is pending before the Hon’ble High Court. In earlier years, the Tribunal Court. In earlier years, the Tribunal has allowed the appeal mainly has allowed the appeal mainly on the ground that CBDT Circular No. 5/2012 was to be applied on the ground that CBDT Circular No. 5/2012 was to be applied on the ground that CBDT Circular No. 5/2012 was to be applied prospectively and not retrospectively and further MCI regulations prospectively and not retrospectively and further MCI regulations prospectively and not retrospectively and further MCI regulations were applicable on the medical practitioners and were not applicable on the medical practitioners and were not applicable on the medical practitioners and were not applicable to the pharmaceutical compan applicable to the pharmaceutical companies. But we find that the ies. But we find that the Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) after considering the arguments from both sides held that after considering the arguments from both sides held that after considering the arguments from both sides held that expenses incurred for promotion of pharmaceutical products in the expenses incurred for promotion of pharmaceutical products in the expenses incurred for promotion of pharmaceutical products in the form of gifts or incentives (free form of gifts or incentives (freebies) to the doctors are are against public policy and being prohibited by law policy and being prohibited by law, same are not allowable u/s not allowable u/s 37(1) of the Act. The relevant finding of the Hon’ble Supreme Court 37(1) of the Act. The relevant finding of the Hon’ble Supreme Court 37(1) of the Act. The relevant finding of the Hon’ble Supreme Court (supra) is reproduced as under: is reproduced as under:

“24. Even if Apex’s contention were to be accepted 24. Even if Apex’s contention were to be accepted 24. Even if Apex’s contention were to be accepted - that it did not indulge in any illegal activity by committing an it did not indulge in any illegal activity by committing an it did not indulge in any illegal activity by committing an offence, as there was no corresponding offence, as there was no corresponding penal provision penal provision in the 2002 Regulations applicable to it in the 2002 Regulations applicable to it - there is no there is no doubt that its actions fell within the purview of doubt that its actions fell within the purview of doubt that its actions fell within the purview of “prohibited by law” in Explanat “prohibited by law” in Explanation 1 to Section 37(1) Section 37(1).

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Galderma India Pvt. Ltd. 13 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

vagrancy implies a power to allow interim maintenance; vagrancy implies a power to allow interim maintenance; vagrancy implies a power to allow interim maintenance; power conferre power conferred on a local authority to issue licences for d on a local authority to issue licences for holding 'hats' or fairs implies incidental power to fix days holding 'hats' or fairs implies incidental power to fix days holding 'hats' or fairs implies incidental power to fix days therefore; power conferred to compel cane growers therefore; power conferred to compel cane growers therefore; power conferred to compel cane growers to Inserted vide Inserted vide Medical Council (Amendment) Act Medical Council (Amendment) Act, 1964. (2003) 4 SCC 257. (2003) 4 SCC 257. supply cane to sugar factories implies an incidental supply cane to sugar factories implies an incidental supply cane to sugar factories implies an incidental power to ensure payment of price. In short, conferment of power to ensure payment of price. In short, conferment of power to ensure payment of price. In short, conferment of a power implies authority to do everything which could a power implies authority to do everything which could a power implies authority to do everything which could be fairly and reasonably regarded as incidental or be fairly and reasonably regarded as incidental or be fairly and reasonably regarded as incidental or consequential consequential to the power conferred. *** Herbert Broom states in the preface to his celebrated *** Herbert Broom states in the preface to his celebrated *** Herbert Broom states in the preface to his celebrated work on Legal Maxims work on Legal Maxims --"In the Legal Science, perhaps "In the Legal Science, perhaps more frequently than in any other, reference must be more frequently than in any other, reference must be more frequently than in any other, reference must be made to first principles." The fundamentals or the first made to first principles." The fundamentals or the first made to first principles." The fundamentals or the first principles of law often articulated as the maxims are s of law often articulated as the maxims are s of law often articulated as the maxims are manifestly founded in reason, public convenience and manifestly founded in reason, public convenience and manifestly founded in reason, public convenience and necessity. Modern trend of introducing subtleties and necessity. Modern trend of introducing subtleties and necessity. Modern trend of introducing subtleties and distinctions, both in legal reasoning and in the distinctions, both in legal reasoning and in the distinctions, both in legal reasoning and in the application of legal principles, formerly unknown, have application of legal principles, formerly unknown, have application of legal principles, formerly unknown, have rendered an accurate acquaintance with the first rendered an accurate acquaintance with the first rendered an accurate acquaintance with the first principles more necessary rather than diminishing the principles more necessary rather than diminishing the principles more necessary rather than diminishing the values of simple fundamental rules. The fundamental values of simple fundamental rules. The fundamental values of simple fundamental rules. The fundamental rules are the basis of the law; may be either directly rules are the basis of the law; may be either directly rules are the basis of the law; may be either directly applied, or qualified or limited, according t applied, or qualified or limited, according t applied, or qualified or limited, according to the exigencies of the particular case and the novelty of the exigencies of the particular case and the novelty of the exigencies of the particular case and the novelty of the circumstances which present themselves. circumstances which present themselves. In Dhannalal In Dhannalal vs. Kalawatibai and Ors vs. Kalawatibai and Ors.25 this court has held that: .25 this court has held that: "When the statute does not provide th "When the statute does not provide the path and the e path and the precedents abstain to lead, then sound logic, rational precedents abstain to lead, then sound logic, rational precedents abstain to lead, then sound logic, rational reasoning, common sense and urge for public good play reasoning, common sense and urge for public good play reasoning, common sense and urge for public good play as guides of those who decide".” as guides of those who decide".” 27. It is also a settled principle of law that no court will 27. It is also a settled principle of law that no court will 27. It is also a settled principle of law that no court will lend its aid to a party that roots its cause of action in an lend its aid to a party that roots its cause of action in an lend its aid to a party that roots its cause of action in an immoral or illegal act (ex dolo malo non oritur action) immoral or illegal act (ex dolo malo non oritur action) immoral or illegal act (ex dolo malo non oritur action) meaning that none should be allowed to profit from any meaning that none should be allowed to profit from any meaning that none should be allowed to profit from any

Galderma India Pvt. Ltd. 14 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

wrongdoing coupled with wrongdoing coupled with the fact that statutory regimes the fact that statutory regimes should be coherent and not self should be coherent and not self- defeating. Doctors and defeating. Doctors and pharmacists being complementary and supplementary to pharmacists being complementary and supplementary to pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive each other in the medical profession, a comprehensive each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of view must be adopted to regulate their conduct in view of view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations. e contemporary statutory regimes and regulations. e contemporary statutory regimes and regulations. Therefore, denial of the tax benefit cannot be construed Therefore, denial of the tax benefit cannot be construed Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. as penalizing the assessee pharmaceutical company. as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action Only its participation in what is plainly an action Only its participation in what is plainly an action prohibited by law, precludes the assessee from prohibited by law, precludes the assessee from claiming claiming it as a deductible expenditure. it as a deductible expenditure. 28. This Court also notices that medical practitioners 28. This Court also notices that medical practitioners 28. This Court also notices that medical practitioners have a quasi have a quasi-fiduciary relationship with their patients. A fiduciary relationship with their patients. A doctor’s prescription is considered the final word on the doctor’s prescription is considered the final word on the doctor’s prescription is considered the final word on the medication to be availed by the patient, e medication to be availed by the patient, even if the cost of ven if the cost of such (2002) 6 SCC 16. (2002) 6 SCC 16. medication is unaffordable or barely within the economic medication is unaffordable or barely within the economic medication is unaffordable or barely within the economic reach of the patient reach of the patient – such is the level of trust reposed in such is the level of trust reposed in doctors. Therefore, it is a matter of great public doctors. Therefore, it is a matter of great public doctors. Therefore, it is a matter of great public importance and concern, when it is demonstrate importance and concern, when it is demonstrated that a d that a doctor’s prescription can be manipulated, and driven by doctor’s prescription can be manipulated, and driven by doctor’s prescription can be manipulated, and driven by the motive to avail the freebies offered to them by the motive to avail the freebies offered to them by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as pharmaceutical companies, ranging from gifts such as pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international gold coins, fridges and LCD TVs to funding international gold coins, fridges and LCD TVs to funding international trips for vacations or to att trips for vacations or to attend medical conferences. end medical conferences. These freebies are technically not ‘free’ These freebies are technically not ‘free’ – the cost of the cost of supplying such freebies is usually factored into the drug, supplying such freebies is usually factored into the drug, supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly driving prices up, thus creating a perpetual publicly driving prices up, thus creating a perpetual publicly injurious cycle. The threat of prescribing medication that injurious cycle. The threat of prescribing medication that injurious cycle. The threat of prescribing medication that is significantly marked up, over effective generic significantly marked up, over effective generic significantly marked up, over effective generic counterparts in lieu of such a quid pro quo exchange was counterparts in lieu of such a quid pro quo exchange was counterparts in lieu of such a quid pro quo exchange was taken cognizance of by the Parliamentary Standing taken cognizance of by the Parliamentary Standing taken cognizance of by the Parliamentary Standing Committee on Health and Family Welfare26 which made Committee on Health and Family Welfare26 which made Committee on Health and Family Welfare26 which made the following observations: the following observations: “The Committee also n “The Committee also notes that despite there being a otes that despite there being a code of ethics in the Indian Medical Council Rules code of ethics in the Indian Medical Council Rules code of ethics in the Indian Medical Council Rules introduced in December 2009 forbidding doctors from introduced in December 2009 forbidding doctors from introduced in December 2009 forbidding doctors from accepting any gift, hospitality, trips to foreign and accepting any gift, hospitality, trips to foreign and accepting any gift, hospitality, trips to foreign and domestic destinations etc from healthcare industry, there domestic destinations etc from healthcare industry, there domestic destinations etc from healthcare industry, there

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is no let-up in this evil practice and the pharma up in this evil practice and the pharma up in this evil practice and the pharma companies continue to sponsor foreign trips of many companies continue to sponsor foreign trips of many companies continue to sponsor foreign trips of many doctors and shower with high value gifts like air doctors and shower with high value gifts like air doctors and shower with high value gifts like air conditioners, cars, music systems, gold chains etc. to conditioners, cars, music systems, gold chains etc. to conditioners, cars, music systems, gold chains etc. to obliging prescribers who then prescribe costlier drugs as obliging prescribers who then prescribe costlier drugs as obliging prescribers who then prescribe costlier drugs as quid pro quo. Ultimately all these expenses get added up quid pro quo. Ultimately all these expenses get added up quid pro quo. Ultimately all these expenses get added up to the cost of drugs. The Committee’s attention was to the cost of drugs. The Committee’s attention was to the cost of drugs. The Committee’s attention was drawn to a news item in Times of India dated July 1, drawn to a news item in Times of India dated July 1, drawn to a news item in Times of India dated July 1, 2010 by Reema Nagarajan giving specific instances of 2010 by Reema Nagarajan giving specific instances of 2010 by Reema Nagarajan giving specific instances of violations of MCI code. The Committee cal violations of MCI code. The Committee calls upon the ls upon the Government to take strict and speedy action on such Government to take strict and speedy action on such Government to take strict and speedy action on such violations. Since MCI has no jurisdiction over drug violations. Since MCI has no jurisdiction over drug violations. Since MCI has no jurisdiction over drug companies, the Government should take parallel action companies, the Government should take parallel action companies, the Government should take parallel action through DCGI and the Income Tax Department to penalize through DCGI and the Income Tax Department to penalize through DCGI and the Income Tax Department to penalize those companies that violate MC those companies that violate MCI rules by cancelling drug I rules by cancelling drug manufacturing licences and/or disallowing expenses on manufacturing licences and/or disallowing expenses on manufacturing licences and/or disallowing expenses on unethical activities.” (emphasis supplied) Interestingly, a unethical activities.” (emphasis supplied) Interestingly, a unethical activities.” (emphasis supplied) Interestingly, a similar conclusion was arrived at by the US Department similar conclusion was arrived at by the US Department similar conclusion was arrived at by the US Department of Health and Human Services Office of the Assistant of Health and Human Services Office of the Assistant of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation, in a report called ry for Planning and Evaluation, in a report called ry for Planning and Evaluation, in a report called Savings Available Under Full Generic Substitution Savings Available Under Full Generic Substitution Savings Available Under Full Generic Substitution 45th Report on Issues Relating to Availability of Generic, Report on Issues Relating to Availability of Generic, Report on Issues Relating to Availability of Generic, Generic-Branded Branded Branded and and and Branded Branded Branded Medicines, Medicines, Medicines, their their their Formulation and Therapeutic Efficacy and Effectiven Formulation and Therapeutic Efficacy and Effectiven Formulation and Therapeutic Efficacy and Effectiveness), dated 04.08.2010. dated 04.08.2010. of Multiple Source Brand Drugs in Medicare Part D (dated of Multiple Source Brand Drugs in Medicare Part D (dated of Multiple Source Brand Drugs in Medicare Part D (dated 23.07.2018).27 The report noticed inter alia, that an 23.07.2018).27 The report noticed inter alia, that an 23.07.2018).27 The report noticed inter alia, that an empirical study conducted in respect of 20 odd (out of the empirical study conducted in respect of 20 odd (out of the empirical study conducted in respect of 20 odd (out of the 600 drugs which were the subject matter of the research 600 drugs which were the subject matter of the research 600 drugs which were the subject matter of the research paper) brand medications dispensed for a particular brand medications dispensed for a particular brand medications dispensed for a particular period, were capable of generic substitution and would period, were capable of generic substitution and would period, were capable of generic substitution and would have resulted in substantial benefit to the patients: have resulted in substantial benefit to the patients: have resulted in substantial benefit to the patients: “Beneficiaries could have saved over $600 million in out “Beneficiaries could have saved over $600 million in out “Beneficiaries could have saved over $600 million in out of pocket payments had they been dispensed g of pocket payments had they been dispensed g of pocket payments had they been dispensed generic equivalent drugs. A significant amount of this spending equivalent drugs. A significant amount of this spending equivalent drugs. A significant amount of this spending occurred among the top 20 multiple source brands. occurred among the top 20 multiple source brands. occurred among the top 20 multiple source brands. Substituting these drugs for generic competitors at their Substituting these drugs for generic competitors at their Substituting these drugs for generic competitors at their median prices would have saved the program and median prices would have saved the program and median prices would have saved the program and beneficiaries $1.8 billion.” Likewise, beneficiaries $1.8 billion.” Likewise, in a previous study in a previous study by ProPublica (an independent, non by ProPublica (an independent, non-profit newsroom that profit newsroom that

Galderma India Pvt. Ltd. 16 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

does investigative journalism) titled “Dollars for Doctors: does investigative journalism) titled “Dollars for Doctors: does investigative journalism) titled “Dollars for Doctors: Now Extracted from https://aspe.hhs.gov/reports/data Extracted from https://aspe.hhs.gov/reports/data Extracted from https://aspe.hhs.gov/reports/data- point-savings savings-available-under-full-generic-substitution substitution- multiple-source source-brand-drugs-medicare accessed at 16:37 medicare accessed at 16:37 on 13.02.2022. The report states, inter alia, that: “More on 13.02.2022. The report states, inter alia, that: “More on 13.02.2022. The report states, inter alia, that: “More 600 brand name drugs were dispensed and paid for by 600 brand name drugs were dispensed and paid for by 600 brand name drugs were dispensed and paid for by Part D plans in 2016, despite the presence of generic Part D plans in 2016, despite the presence of generic Part D plans in 2016, despite the presence of generic competition. Plans and beneficiaries paid $8.7 competition. Plans and beneficiaries paid $8.7 billion for billion for multiple source brands and $34.0 billion for generics. Full multiple source brands and $34.0 billion for generics. Full multiple source brands and $34.0 billion for generics. Full substitution of multiple source brands would have substitution of multiple source brands would have substitution of multiple source brands would have resulted in total spending on generic drugs of $39.9 resulted in total spending on generic drugs of $39.9 resulted in total spending on generic drugs of $39.9 billion, saving the Part D program and its beneficiaries billion, saving the Part D program and its beneficiaries billion, saving the Part D program and its beneficiaries $2.8 billion in 2016. T $2.8 billion in 2016. These estimates do not account for hese estimates do not account for manufacturer rebates paid to Part D plans or pharmacy manufacturer rebates paid to Part D plans or pharmacy manufacturer rebates paid to Part D plans or pharmacy benefit managers (PBMs) or statutory discounts paid by benefit managers (PBMs) or statutory discounts paid by benefit managers (PBMs) or statutory discounts paid by manufacturers for brand name drugs, and thus may manufacturers for brand name drugs, and thus may manufacturers for brand name drugs, and thus may overstate savings to the program after accounting for the overstate savings to the program after accounting for the overstate savings to the program after accounting for the effects that rebates often have on premiums. See Figure s that rebates often have on premiums. See Figure s that rebates often have on premiums. See Figure 1. *********** Of this $2.8 billion, $2.25 billion is for brand 1. *********** Of this $2.8 billion, $2.25 billion is for brand 1. *********** Of this $2.8 billion, $2.25 billion is for brand name drugs that have faced generic competition for at name drugs that have faced generic competition for at name drugs that have faced generic competition for at least a full year (e.g. the first generic was available in least a full year (e.g. the first generic was available in least a full year (e.g. the first generic was available in 2015 or earlier). A further $ 2015 or earlier). A further $584 million in savings is 584 million in savings is estimated for substituting generics that were first estimated for substituting generics that were first estimated for substituting generics that were first launched in 2016 and therefore on the market for less launched in 2016 and therefore on the market for less launched in 2016 and therefore on the market for less than a full year. These 12 Single source includes than a full year. These 12 Single source includes than a full year. These 12 Single source includes payments for brand drugs prior to generic entry, e.g. payments for brand drugs prior to generic entry, e.g. payments for brand drugs prior to generic entry, e.g. $1.13 billion of Cre $1.13 billion of Crestor spending in the example used in stor spending in the example used in the Methods section. savings are likely to grow as the Methods section. savings are likely to grow as the Methods section. savings are likely to grow as additional additional additional generic generic generic competitors competitors competitors enter enter enter the the the market. market. market. Beneficiaries spent $1.1 billion out Beneficiaries spent $1.1 billion out-of-pocket in cost pocket in cost- sharing for brand drugs with comparable generics, sharing for brand drugs with comparable generics, sharing for brand drugs with comparable generics, averaging averaging twic twice as much out-of-pocket pocket than than for for comparable generics. In 2016, multiple source brand comparable generics. In 2016, multiple source brand comparable generics. In 2016, multiple source brand drug cost- sharing averaged $39.15, while generic cost sharing averaged $39.15, while generic cost sharing averaged $39.15, while generic cost- sharing sharing sharing for for for substitutable substitutable substitutable products products products was was was $17.04. $17.04. $17.04. Beneficiaries could have saved over $600 million in out of Beneficiaries could have saved over $600 million in out of Beneficiaries could have saved over $600 million in out of pocket payments had they been dispensed generic ments had they been dispensed generic ments had they been dispensed generic equivalent drugs. A significant amount of this spending equivalent drugs. A significant amount of this spending equivalent drugs. A significant amount of this spending occurred among the top 20 multiple source brands. occurred among the top 20 multiple source brands. occurred among the top 20 multiple source brands. Substituting these drugs for generic competitors at their Substituting these drugs for generic competitors at their Substituting these drugs for generic competitors at their median prices would have saved the program and median prices would have saved the program and median prices would have saved the program and

Galderma India Pvt. Ltd. 17 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

beneficiaries $1.8 billion. See Appendix Table A for these iaries $1.8 billion. See Appendix Table A for these iaries $1.8 billion. See Appendix Table A for these drugs, and figure 2 below for an example. In terms of drugs, and figure 2 below for an example. In terms of drugs, and figure 2 below for an example. In terms of beneficiary cost beneficiary cost-sharing, we find similar results as for the sharing, we find similar results as for the overall calculation. Average per beneficiary spending is overall calculation. Average per beneficiary spending is overall calculation. Average per beneficiary spending is significantly higher for these b significantly higher for these brands than for the rands than for the substitutable generics. (See Appendix Table A, also.) substitutable generics. (See Appendix Table A, also.) substitutable generics. (See Appendix Table A, also.) Brand drug cost Brand drug cost-sharing averaged $30.69, compared to sharing averaged $30.69, compared to $22.41 for their generic equivalents. For 17 of the top 20 $22.41 for their generic equivalents. For 17 of the top 20 $22.41 for their generic equivalents. For 17 of the top 20 drugs, the ratio of brand to comparable generic out drugs, the ratio of brand to comparable generic out drugs, the ratio of brand to comparable generic out-of- pocket spending pocket spending ranges from 117% (Namenda) to 1,476% ranges from 117% (Namenda) to 1,476% (Lamictal) indicating significant per (Lamictal) indicating significant per-drug savings are drug savings are available for beneficiaries. In three cases (Abilify, available for beneficiaries. In three cases (Abilify, available for beneficiaries. In three cases (Abilify, Lovenox, and Tricor), beneficiary out Lovenox, and Tricor), beneficiary out-of-pocket costs are pocket costs are marginally higher for the generic than the brand dru marginally higher for the generic than the brand dru marginally higher for the generic than the brand drug. We believe this is due to the interaction of total drug costs believe this is due to the interaction of total drug costs believe this is due to the interaction of total drug costs and plan coverage in the coverage gap for generics (42% and plan coverage in the coverage gap for generics (42% and plan coverage in the coverage gap for generics (42% in 2016), meaning patients paid 58% coinsurance for in 2016), meaning patients paid 58% coinsurance for in 2016), meaning patients paid 58% coinsurance for generics that year. This compares to 25% plan coverage generics that year. This compares to 25% plan coverage generics that year. This compares to 25% plan coverage and a 50% statutory manufact and a 50% statutory manufacturer discount for brand urer discount for brand drugs in 2016.” drugs in 2016.” There’s Proof: Docs who Get Company There’s Proof: Docs who Get Company Cash Tend to Prescribe More Brand Cash Tend to Prescribe More Brand- Name Meds” (dated Name Meds” (dated 17.03.2016)28 stated that: 17.03.2016)28 stated that: “…doctors who receive payments from the medical “…doctors who receive payments from the medical “…doctors who receive payments from the medical industry do indeed tend to prescribe drugs different industry do indeed tend to prescribe drugs different industry do indeed tend to prescribe drugs differently than their colleagues who don’t. And the more money than their colleagues who don’t. And the more money than their colleagues who don’t. And the more money they they they receive, receive, receive, on on on average, average, average, the the the more more more brand-name brand brand medications they prescribe.” Data is now available medications they prescribe.” Data is now available medications they prescribe.” Data is now available publicly, in the United States, by reason of the Physician publicly, in the United States, by reason of the Physician publicly, in the United States, by reason of the Physician Payment Sunshine Act, 2010 i.e., Section 6002 Payment Sunshine Act, 2010 i.e., Section 6002 Payment Sunshine Act, 2010 i.e., Section 6002 of the Affordable Care Act, 2010. Affordable Care Act, 2010. This law compels manufacturers of drugs, devices, This law compels manufacturers of drugs, devices, This law compels manufacturers of drugs, devices, biologics, and medical supplies covered by Medicare, biologics, and medical supplies covered by Medicare, biologics, and medical supplies covered by Medicare, Medicaid, or the Children's Health Insurance Program to Medicaid, or the Children's Health Insurance Program to Medicaid, or the Children's Health Insurance Program to report to the Centers for Medicare & Medicaid Services on report to the Centers for Medicare & Medicaid Services on report to the Centers for Medicare & Medicaid Services on three broad categories of payments or "transfers of e broad categories of payments or "transfers of e broad categories of payments or "transfers of value". These categories cover general payments or value". These categories cover general payments or value". These categories cover general payments or transfers of value such as meals, travel reimbursement, transfers of value such as meals, travel reimbursement, transfers of value such as meals, travel reimbursement, and consulting fees. These include expenses borne by and consulting fees. These include expenses borne by and consulting fees. These include expenses borne by manufacturers, such as speaker fees, travel, gif manufacturers, such as speaker fees, travel, gif manufacturers, such as speaker fees, travel, gifts,

Galderma India Pvt. Ltd. 18 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

honoraria, honoraria, honoraria, entertainment, entertainment, entertainment, charitable charitable charitable contribution, contribution, contribution, education, grants and research grants, etc. education, grants and research grants, etc. 29. The impugned judgment, along with the judgments of 29. The impugned judgment, along with the judgments of 29. The impugned judgment, along with the judgments of Punjab & Haryana High Court (Kap Scan) and Himachal Punjab & Haryana High Court (Kap Scan) and Himachal Punjab & Haryana High Court (Kap Scan) and Himachal Pradesh High Court (Confederation) (supra) have co Pradesh High Court (Confederation) (supra) have co Pradesh High Court (Confederation) (supra) have correctly addressed the important public policy issue on the addressed the important public policy issue on the addressed the important public policy issue on the subject of allowance of benefit for supply of freebies. The subject of allowance of benefit for supply of freebies. The subject of allowance of benefit for supply of freebies. The impugned judgment’s reasoning is quoted as follows: impugned judgment’s reasoning is quoted as follows: impugned judgment’s reasoning is quoted as follows: “A perusal of the decision of Co “A perusal of the decision of Co-ordinate Bench of this ordinate Bench of this Tribunal in the assessee's ow Tribunal in the assessee's own case as also the decision n case as also the decision of the Hon'ble Himachal Pradesh High Court clearly of the Hon'ble Himachal Pradesh High Court clearly of the Hon'ble Himachal Pradesh High Court clearly shows that the basic intention of the decision was that shows that the basic intention of the decision was that shows that the basic intention of the decision was that the receiving of the gifts/freebies by Professionals is the receiving of the gifts/freebies by Professionals is the receiving of the gifts/freebies by Professionals is against public policy as also against the law in so far as against public policy as also against the law in so far as against public policy as also against the law in so far as the amendment by the endment by the Medical Council Act, 1956 to the , 1956 to the Indian Medical Council (Professional Conduct, Etiquette Indian Medical Council (Professional Conduct, Etiquette Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, once receiving of such and Ethics) Regulations, 2002, once receiving of such and Ethics) Regulations, 2002, once receiving of such gifts have been held to be unethical obvious gifts have been held to be unethical obvious gifts have been held to be unethical obviously the corollary to this would also be unethical, being giving of corollary to this would also be unethical, being giving of corollary to this would also be unethical, being giving of such gifts or doing such acts to induce such Doctors and such gifts or doing such acts to induce such Doctors and such gifts or doing such acts to induce such Doctors and Medical Professionals to violate the Medical Professionals to violate the Medical Council Act Medical Council Act, 1956.” 1956.” 1956.” (emphasis (emphasis (emphasis supplied) https://www.propublica.org/article/doctors https://www.propublica.org/article/doctors- https://www.propublica.org/article/doctors who-take-company company-cash-tend-to-prescribe-more-brand brand- name- drugs accessed at 16:45 on 13.02 drugs accessed at 16:45 on 13.02-2022 30. Thus, one arm of the law cannot be utilised to defeat 30. Thus, one arm of the law cannot be utilised to defeat 30. Thus, one arm of the law cannot be utilised to defeat the other arm of law the other arm of law – doing so would be opposed to doing so would be opposed to public policy and bring the law into ridicule.29 blic policy and bring the law into ridicule.29 In Maddi In Maddi Venkataraman & Co. (P) Ltd. v. CIT30 Venkataraman & Co. (P) Ltd. v. CIT30, a fine imposed on , a fine imposed on the assessee under the the assessee under the Foreign Exchange Regulation Regulation Act, 1947 was sought to be deducted as a business , 1947 was sought to be deducted as a business , 1947 was sought to be deducted as a business expenditure. This Court held: expenditure. This Court held: “Moreover, it will be against public policy to allow the “Moreover, it will be against public policy to allow the “Moreover, it will be against public policy to allow the benefit benefit benefit of of of deduction deduction deduction under under under one one one statute, statute, statute, of of of any any any expenditure incurred in violation of the provisions of expenditure incurred in violation of the provisions of expenditure incurred in violation of the provisions of another statute or any penalty imposed under another r statute or any penalty imposed under another r statute or any penalty imposed under another

Galderma India Pvt. Ltd. 19 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

statute. In the instant case, if the deductions claimed are statute. In the instant case, if the deductions claimed are statute. In the instant case, if the deductions claimed are allowed, the penal provisions of FERA will become allowed, the penal provisions of FERA will become allowed, the penal provisions of FERA will become meaningless”. meaningless”. (emphasis supplied) (emphasis supplied) 10.1 Before us, the Ld. Counsel of the assessee has objected Before us, the Ld. Counsel of the assessee has objected Before us, the Ld. Counsel of the assessee has objected for applying the ratio of the Apex Laboratories Pvt. Ltd. (supra) mainly applying the ratio of the Apex Laboratories Pvt. Ltd. (supra) mainly applying the ratio of the Apex Laboratories Pvt. Ltd. (supra) mainly on the ground that no violation of MCI Regulations has been on the ground that no violation of MCI Regulations has been on the ground that no violation of MCI Regulations has been observed in the case of assessee by the relevant regulators. The Ld. observed in the case of assessee by the relevant regulators. The Ld. observed in the case of assessee by the relevant regulators. The Ld. Counsel relied on the decision of the Hon’ble Supreme Court in the Counsel relied on the decision of the Hon’ble Supreme Cour Counsel relied on the decision of the Hon’ble Supreme Cour case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC) and submitted that (SC) and submitted that any decision of the Hon’ble Court is Hon’ble Court is only binding in respect of binding in respect of issues which are called upon to upon to decide and not on any other issues. He further referred to th issues. He further referred to the decision of the e decision of the Hon’ble Supreme Court in the case of ACIT v. A.K. Menon [1995] Hon’ble Supreme Court in the case of ACIT v. A.K. Menon [1995] Hon’ble Supreme Court in the case of ACIT v. A.K. Menon [1995] 215 ITR 364 (SC) to support that authority 215 ITR 364 (SC) to support that authority entrusted entrusted under the concerned statute/law alone concerned statute/law alone can determine and adjudicate the law determine and adjudicate the law or liability or consequence thereof and no othe or liability or consequence thereof and no other part r party can do so. In support of the proposition proposition, the Ld. Counsel also relied on the other the Ld. Counsel also relied on the other decisions of various courts. Referring to the decisions, the Ld. decisions of various courts. Referring to the decisions, the Ld. decisions of various courts. Referring to the decisions, the Ld. Counsel submitted that disallowance applying Explanation-1 below Counsel submitted that disallowance applying Explanation Counsel submitted that disallowance applying Explanation section 37(1) of the Act of the Act can be made only in respect of expenditure e only in respect of expenditure pertaining to act of the assessee pertaining to act of the assessee, which has been established to which has been established to be inviolation/infraction of the law or prohibited by the law by the inviolation/infraction of the law or prohibited by the law by the inviolation/infraction of the law or prohibited by the law by the relevant authority under the Government law. relevant authority under the Government law. The Ld. Counsel The Ld. Counsel submitted that in the case o submitted that in the case of the assessee no adverse action has f the assessee no adverse action has

Galderma India Pvt. Ltd. 20 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

been initiated against the assessee by the IMC under its been initiated against the assessee by the IMC under been initiated against the assessee by the IMC under Regulations or notification Regulations or notification. However, in our opinion However, in our opinion, how any expenditure incurred by the assessee will be in the prohibition of expenditure incurred by the assessee will be in the prohibition of expenditure incurred by the assessee will be in the prohibition of the law, has been discussed has been discussed in detail by the Hon’ble Supreme Court detail by the Hon’ble Supreme Court in the case of the Apex Laboratories Pvt. Ltd. (supra) which being in the case of the Apex Laboratories Pvt. Ltd. (supra) which being in the case of the Apex Laboratories Pvt. Ltd. (supra) which being the law, there is no further scope for the assessee to deviate here is no further scope for the assessee to deviate here is no further scope for the assessee to deviate from same and thus all the arguments raised in and thus all the arguments raised in this this respect, are accordingly dismissed. accordingly dismissed.

10.2 Now, when we come to the facts of the instant case regarding when we come to the facts of the instant case regarding when we come to the facts of the instant case regarding various expenses under the hea various expenses under the head sales promotion and marketing, d sales promotion and marketing, we find that the Ld. he Ld. CIT(A) has upheld the disallowance in respect has upheld the disallowance in respect of PG grant (Rs.7 lacs), doctors group meeting (Rs.15,53,340/-) post of PG grant (Rs.7 lacs), doctors group meeting (Rs.15,53,340 of PG grant (Rs.7 lacs), doctors group meeting (Rs.15,53,340 marketing survey (Rs.29,34,000/ marketing survey (Rs.29,34,000/-) and sponsoring (Rs.22,56,907/ ) and sponsoring (Rs.22,56,907/-) totaling to Rs.74,46,241/ totaling to Rs.74,46,241/-. Regarding the PG grant, the Ld. Counsel of the assessee submitted that th of the assessee submitted that those were provided to the post provided to the post graduate students for duate students for displaying posters, presenti presenting papers and article etc. in national conference article etc. in national conferences. The Ld. Counsel of the assessee . The Ld. Counsel of the assessee submitted that for for those expenses, payment were were made to the medical institution medical institution for further distribution to to post graduate students and no to the medical practitioners students and no to the medical practitioners , therefore, same are therefore, same are not in violation of the MCI Regulations not in violation of the MCI Regulations. Regarding post marketing Regarding post marketing survey, the Ld. Counsel submitted that tho e Ld. Counsel submitted that those payments se payments were made to the medical practitioners for conducting medical research, survey to the medical practitioners for conducting medical research to the medical practitioners for conducting medical research

Galderma India Pvt. Ltd. 21 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

to gain insight on their products. I on their products. In respect of the post marketing n respect of the post marketing survey, the Ld. DR submitted that research or efficacy of the survey, the Ld. DR submitted that research or efficacy of the survey, the Ld. DR submitted that research or efficacy of the medical products can only be determined under the relevant drug medical products can only be determined under the relevant medical products can only be determined under the relevant trial rules and any cannot be prescribed on the basis of the trial rules and any cannot be prescribed on the basis of the trial rules and any cannot be prescribed on the basis of the feedback for questionnaire questionnaires given by the doctors selected on the doctors selected on random basis. According to him, th basis. According to him, those expenses are in violation of se expenses are in violation of the IMC guidelines. Regarding the the IMC guidelines. Regarding the “doctors group meeting doctors group meeting” also, the assessee submitted that tho submitted that those had been incurred for organizing been incurred for organizing and conducting meeting meeting for continued medical education through a ed medical education through a panel of the speakers and no the speakers and no payment was made to the medical payment was made to the medical practitioners. Regarding Regarding ‘sponsoring expenses’ also, the Ld. Counsel submitted that expenses were incurred/ that expenses were incurred/were spent by the assessee were spent by the assessee on the books etc. which etc. which were provided to the medical practitioner rovided to the medical practitioner for supporting them and enhancing knowledge. or supporting them and enhancing knowledge.

10.3 The Ld. Counsel of the assessee was asked to provide details, The Ld. Counsel of the assessee was asked to provide details, The Ld. Counsel of the assessee was asked to provide details, ledger statement of the expenses along with vouchers of the expenses along with vouchers of the expenses along with vouchers, for determination whether same have been incurred in violation of the determination whether same have been incurred in violation of the determination whether same have been incurred in violation of the MCI Regulations as explained by the Hon’ble Supreme Court in the MCI Regulations as explained by the Hon’ble Supreme Court in the MCI Regulations as explained by the Hon’ble Supreme Court in the case of Apex Laboratories Pvt. Ltd. (supra) however, no such details case of Apex Laboratories Pvt. Ltd. (supra) however, no such details case of Apex Laboratories Pvt. Ltd. (supra) however, no such details were filed before us and therefore, in the interest of the substantial were filed before us and therefore, in the interest of were filed before us and therefore, in the interest of justice, we feel it appropriate to restore the issues in respect of we feel it appropriate to restore the issues in respect of we feel it appropriate to restore the issues in respect of disallowance sustained by the Ld. CIT(A) to the file of the Assessing disallowance sustained by the Ld. CIT(A) to the file of the Assess disallowance sustained by the Ld. CIT(A) to the file of the Assess Officer for deciding afresh, Officer for deciding afresh, after taking into consideration details of fter taking into consideration details of

Galderma India Pvt. Ltd. 22 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

the medical practitioners to w the medical practitioners to whom the assessee has made payments hom the assessee has made payments along with vouchers of all the expenses. The grounds of appeal of along with vouchers of all the expenses. The grounds of appeal of along with vouchers of all the expenses. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. the assessee are accordingly allowed for statistical purposes. the assessee are accordingly allowed for statistical purposes.

Galderma India Pvt. Ltd. 23 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

assessee submitted that Tribunal in the case of M/s Merk Limited assessee submitted that Tribunal in the case of M/s Merk Limited assessee submitted that Tribunal in the case of M/s Merk Limited (supra) has allowed th (supra) has allowed the expenses incurred on free samples not e expenses incurred on free samples not being in violation of the MCI guidelines. The relevant finding of the being in violation of the MCI guidelines. The relevant finding of the being in violation of the MCI guidelines. The relevant finding of the Tribunal (supra) on the issue is reproduced as under: on the issue is reproduced as under: on the issue is reproduced as under:

“28. We We We have have have carefully carefully carefully considered considered considered the the the rival rival rival contentions.With respect to free samples, we do contentions.With respect to free samples, we do contentions.With respect to free samples, we do not find that same is covered against the assessee by the that same is covered against the assessee by the that same is covered against the assessee by the decision of Honourable SC or it is prohibited by MCI decision of Honourable SC or it is prohibited by MCI decision of Honourable SC or it is prohibited by MCI Guidelines. Free sample of medicines supplied to doctors Guidelines. Free sample of medicines supplied to doctors Guidelines. Free sample of medicines supplied to doctors is for promotion of the product of the pharmaceutical is for promotion of the product of the pharmaceutical is for promotion of the product of the pharmaceutical company. When a new product is lau company. When a new product is launched, the doctors nched, the doctors through the free sample provided, test marketability of through the free sample provided, test marketability of through the free sample provided, test marketability of new drug launched in the market, give necessary inputs new drug launched in the market, give necessary inputs new drug launched in the market, give necessary inputs regarding its acceptability etc. of the product. Provision of regarding its acceptability etc. of the product. Provision of regarding its acceptability etc. of the product. Provision of free samples help impart knowledge to other doctors free samples help impart knowledge to other doctors free samples help impart knowledge to other doctors about the ne about the new medicine/product coming into the relevant w medicine/product coming into the relevant practice of their profession. Therefore, distribution of free practice of their profession. Therefore, distribution of free practice of their profession. Therefore, distribution of free samples is directly related to business promotion activity samples is directly related to business promotion activity samples is directly related to business promotion activity of the pharmaceutical company. Thus it is wholly and of the pharmaceutical company. Thus it is wholly and of the pharmaceutical company. Thus it is wholly and exclusively for the purposes of the bu exclusively for the purposes of the business of the siness of the company. Further Providing samples of pharmaceutical company. Further Providing samples of pharmaceutical company. Further Providing samples of pharmaceutical products is not prohibited under either the Indian Medical products is not prohibited under either the Indian Medical products is not prohibited under either the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Council (Professional Conduct, Etiquette and Ethics), Council (Professional Conduct, Etiquette and Ethics), Regulations 2002 (MCI Code) or the Uniform Code of Regulations 2002 (MCI Code) or the Uniform Code of Regulations 2002 (MCI Code) or the Uniform Code of Pharmaceutical Marketing Pharmaceutical Marketing Practices by the Department of Practices by the Department of Pharmaceuticals, 2014 (UCPMP) or2019 Organization of Pharmaceuticals, 2014 (UCPMP) or2019 Organization of Pharmaceuticals, 2014 (UCPMP) or2019 Organization of Pharmaceutical Producers of India (OPPI) Code of Pharmaceutical Producers of India (OPPI) Code of Pharmaceutical Producers of India (OPPI) Code of Practice. The UPMP prescribes guidelines under which Practice. The UPMP prescribes guidelines under which Practice. The UPMP prescribes guidelines under which medical samples should be dispensed which ensure that medical samples should be dispensed which ensure that medical samples should be dispensed which ensure that they are used st they are used strictly for clinical evaluation purposes and rictly for clinical evaluation purposes and each sample shall be marked "free medical sample each sample shall be marked "free medical sample each sample shall be marked "free medical sample - not for sale".Even the draft Uniform Code for Medical Device for sale".Even the draft Uniform Code for Medical Device for sale".Even the draft Uniform Code for Medical Device Marketing Practices (UCMDMP) published for stakeholder Marketing Practices (UCMDMP) published for stakeholder Marketing Practices (UCMDMP) published for stakeholder consultation on March 16, 2022 lays down guid consultation on March 16, 2022 lays down guidelines to elines to ensure that medical devices are distributed as samples ensure that medical devices are distributed as samples ensure that medical devices are distributed as samples for evaluation purposes only.The Drugs and Cosmetics for evaluation purposes only.The Drugs and Cosmetics for evaluation purposes only.The Drugs and Cosmetics Rules, 1945 also recognizes the practice of providing Rules, 1945 also recognizes the practice of providing Rules, 1945 also recognizes the practice of providing drugs for distribution to medical professionals as a free drugs for distribution to medical professionals as a free drugs for distribution to medical professionals as a free

Galderma India Pvt. Ltd. 24 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

sample by providing specif sample by providing specific labelling requirements, ic labelling requirements, requiring requiring requiring such such such samples samples samples to to to be be be labelled labelled labelled with with with the the the words'Physician's Sample words'Physician's Sample - Not to be sold," . Further Not to be sold," . Further assessee has submitted the complete details of such assessee has submitted the complete details of such assessee has submitted the complete details of such expenses therefore disallowing it to the extent of 50 % is expenses therefore disallowing it to the extent of 50 % is expenses therefore disallowing it to the extent of 50 % is not justified whe not justified when the same issue is covered in favour of n the same issue is covered in favour of the assessee by the decision of the coordinate bench in the assessee by the decision of the coordinate bench in the assessee by the decision of the coordinate bench in earlier years. Thus, we direct lower authorities to delete earlier years. Thus, we direct lower authorities to delete earlier years. Thus, we direct lower authorities to delete the disallowance of expenses on free samples. Ground no the disallowance of expenses on free samples. Ground no the disallowance of expenses on free samples. Ground no 4 is allowed. 4 is allowed.” 12. The Ld. Counsel of the assessee was asked to provide details The Ld. Counsel of the assessee was asked to provide details The Ld. Counsel of the assessee was asked to provide details of ledger statement of the expenditure incurred along with vouchers of the expenditure incurred along with vouchers of the expenditure incurred along with vouchers but no such details were provided before us for determining no such details were provided before us for determining no such details were provided before us for determining whether the expenses incurred are in violation of the ratio laid whether the expenses incurred are in violation of the ratio laid whether the expenses incurred are in violation of the ratio laid down in the case of Apex Laboratories Pvt. Ltd. (supra) and wn in the case of Apex Laboratories Pvt. Ltd. (supra) and wn in the case of Apex Laboratories Pvt. Ltd. (supra) and therefore, in the interest of the substantial justice, we feel it therefore, in the interest of the substantial justice therefore, in the interest of the substantial justice appropriate to restore this issue also to the file of the Assessing appropriate to restore this issue also to the file of the Assessing appropriate to restore this issue also to the file of the Assessing Officer with the direction of the assessee to produce detail of Officer with the direction of the assessee to produce detail Officer with the direction of the assessee to produce detail expenses along with vouchers and details of the medical expenses along with vouchers and details of the medical expenses along with vouchers and details of the medical practitioners or other persons or other persons etc. to whom benefit has been etc. to whom benefit has been extended by the assessee. The grounds of appeal of the Revenue are by the assessee. The grounds of appeal of the Revenue are by the assessee. The grounds of appeal of the Revenue are accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.

“1. On the facts and circumstances of the case and in On the facts and circumstances of the case and in On the facts and circumstances of the case and in law, the Appellant prays that deduction of Primary law, the Appellant prays that deduction of Primary law, the Appellant prays that deduction of Primary Education Cess and Sec Education Cess and Secondary and Higher Education ondary and Higher Education

Galderma India Pvt. Ltd. 25 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

Cess (*Education Cess") paid on Corporate Tax of Rs. Cess (*Education Cess") paid on Corporate Tax of Rs. Cess (*Education Cess") paid on Corporate Tax of Rs. 35.46.277/- be be allowed allowed since since the the same same is is not not disallowable expenditure under section 40(a)(ii) of the disallowable expenditure under section 40(a)(ii) of the disallowable expenditure under section 40(a)(ii) of the Act. 2. The Appellant prays that the AO be directed to allow The Appellant prays that the AO be directed to allow The Appellant prays that the AO be directed to allow the deduction the deduction of the Education Cess while computing the of the Education Cess while computing the total income of the Appellant. total income of the Appellant.” 14. Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that issue has already been settled by the Hon’ble Supreme Court in the issue has already been settled by the Hon’ble Supreme Court in the issue has already been settled by the Hon’ble Supreme Court in the case of M/s. Chambal Fertilizers Chambal Fertilizers & Chemicals Limited & Chemicals Limited [SLP(C) No. 7379 of 2019] and therefore, this additional ground raised by and therefore, this additional ground raised by and therefore, this additional ground raised by the assessee was not pressed. Accordingly the assessee was not pressed. Accordingly, the additional ground the additional ground raised is dismissed as infructuous. raised is dismissed as infructuous.

Galderma India Pvt. Ltd. 26 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

“Part I : The Appellant has fil The Appellant has filed additional ground on Refund of ed additional ground on Refund of excess dividend distribution tax(DDT*) paid for AY 2013 excess dividend distribution tax(DDT*) paid for AY 2013 excess dividend distribution tax(DDT*) paid for AY 2013- 14 on February 21, 2023 and for AY 2014 14 on February 21, 2023 and for AY 2014-15 on October 15 on October 04, 2021.The Assessee is 100% WOS subsidiary of 04, 2021.The Assessee is 100% WOS subsidiary of 04, 2021.The Assessee is 100% WOS subsidiary of Galderma Pharma SA, a Switzerland Company.Thus, Galderma Pharma SA, a Switzerland Company.Thus, Galderma Pharma SA, a Switzerland Company.Thus, Assessee can pro Assessee can provide the TRC for those year to vide the TRC for those year to substantiate that the recipient of Dividend was resident substantiate that the recipient of Dividend was resident substantiate that the recipient of Dividend was resident of Switzerland. of Switzerland. The Assessee submits that even if DDT was paid under The Assessee submits that even if DDT was paid under The Assessee submits that even if DDT was paid under 1150, the rate of DTAA ought to be applied and hence the 1150, the rate of DTAA ought to be applied and hence the 1150, the rate of DTAA ought to be applied and hence the excess DDT should be refunded. The said is excess DDT should be refunded. The said issue was sue was referred to the Special Bench vide order dated June 23, referred to the Special Bench vide order dated June 23, referred to the Special Bench vide order dated June 23, 2021 in case of Total Oil Corporation (India) Limited and 2021 in case of Total Oil Corporation (India) Limited and 2021 in case of Total Oil Corporation (India) Limited and it is believed that same is heard in week ending February it is believed that same is heard in week ending February it is believed that same is heard in week ending February 24, 2023. The Appellant has sought adjournment for the 24, 2023. The Appellant has sought adjournment for the 24, 2023. The Appellant has sought adjournment for the hearing fixed on Marc hearing fixed on March 06, 2023 vide letter dated March h 06, 2023 vide letter dated March 03, 2023 for making additional submissions post perusal 03, 2023 for making additional submissions post perusal 03, 2023 for making additional submissions post perusal of the awaited order. of the awaited order. However, if the Hon'ble Bench decides to hear the matter However, if the Hon'ble Bench decides to hear the matter However, if the Hon'ble Bench decides to hear the matter despite the outcome and order of the Special Bench, the despite the outcome and order of the Special Bench, the despite the outcome and order of the Special Bench, the Appellant requests that approp Appellant requests that appropriate directions be given riate directions be given for recalling and reposting the matter if same is for recalling and reposting the matter if same is for recalling and reposting the matter if same is warranted based on decision of the Special Bench so that warranted based on decision of the Special Bench so that warranted based on decision of the Special Bench so that if any similar / distinguishing facts are to be pointed out if any similar / distinguishing facts are to be pointed out if any similar / distinguishing facts are to be pointed out and any further submissions are to be made, the same and any further submissions are to be made, the same and any further submissions are to be made, the same can be considered. On merits, the Appellant has relied on sidered. On merits, the Appellant has relied on sidered. On merits, the Appellant has relied on the favorable decisions compiled in LPB the favorable decisions compiled in LPB-1 from Pg. 125 1 from Pg. 125- 226.” 17. The Ld. DR on the other hand submitted that decision of the The Ld. DR on the other hand submitted that decision of the The Ld. DR on the other hand submitted that decision of the Hon’ble Special Bench shall apply over the facts of the case of the Hon’ble Special Bench shall apply over the facts of the case of the Hon’ble Special Bench shall apply over the facts of the case of the assessee also and therefore, the Assessing Officer may be directed nd therefore, the Assessing Officer may be directed nd therefore, the Assessing Officer may be directed to follow the finding of the Special Bench on the issue. to follow the finding of the Special Bench on the issue. to follow the finding of the Special Bench on the issue.

Galderma India Pvt. Ltd. 27 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

Order pronounced under Order pronounced under Rule 34(4) of the ITAT Rules, Rule 34(4) of the ITAT Rules, 1963 on 30/03/2023. 03/2023. Sd/- Sd/- - (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/03/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent.

Galderma India Pvt. Ltd. 28 ITA Nos. 1747/M/2019, 1987, 1988, 1964 & 1747/M/2019, 1987, 1988, 1964 & 1965/M/2020

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai