DCIT, CIRCLE-3(1), HYDERABAD vs. SANOFI HEALTHCARE INDIA PRIVATE LIMITED, HYDERABAD

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ITA 2425/HYD/2025Status: DisposedITAT Hyderabad09 September 2026AY 2011-1222 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to delete the disallowance, finding that advertisement and sales promotion expenses are revenue in nature and not capital, especially when the Revenue had accepted similar expenses as revenue in prior and subsequent years.

What were the facts?

The Assessing Officer (AO) disallowed a significant portion of the assessee's advertisement and sales promotion expenses, treating it as capital in nature due to brand building. The assessee argued it was revenue expenditure to maintain and promote sales.

What were the issues?

Whether advertisement and sales promotion expenses incurred by the assessee are revenue or capital in nature, and if they create an enduring benefit.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad “B” Bench, Hyderabad

आदेश / ORDER PER MANJUNATHA G., A.M :

This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 30.09.2025, pertaining to the assessment year 2011-12.

2.

The grounds raised by the Revenue read as under :

“1) On the facts and in the circumstances of the case and in law, the L4.CIT(A) erred in deleting the disallowance of Rs 10,72,98,302/- made by the Assessing Officer by treating advertisement and sales promotion expenditure as capital in nature. 2) The Ld. CIT(A) has failed to appreciate that the said expenditure resulted in the creation of an enduring benefit in the form of brand- building/marketing intangibles, and therefore the Assessing Officer was justified in capitalizing the expenditure. 3) The Ld.CIT(A) erred in relying on earlier Hon'ble ITAT orders without examining the year-specific facts and material gathered in the assessment. 4) The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at the time of hearing.”

3.

The brief facts of the case are that the assessee company i.e., “Sanofi Pasteur India Private Limited” is engaged in the business of trading in vaccines and medicines, filed its return of income for AY 2011-12 on 30.11.2011, declaring total income of Rs. 17,12,24,412/-. The case was selected for scrutiny and during the

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course of assessment proceedings, A.O. noticed that, the assessee has debited a sum of Rs. 21,31,63,428/- under the head advertisement and sales promotion in its profit and loss account. On perusal of the total expenses claimed by the assessee, it was observed that, the expenditure debited under the head advertising and sales promotion, was a single major expenditure, which the assessee has incurred during the year under consideration, and it accounts for almost 12% of the total expenditure debited, and also represents a 40% share of the total operating expenses debited in its profit and loss account. Further, when compared to the previous year, it was seen that there was 106% increase in the claim of expenditure under the head “advertisement and sales promotion” as compared to the expenses debited under the same head in the earlier year. Therefore, the A.O. called upon the assessee to file relevant details with supporting evidence. In response, the assessee vide letter dated 19.03.2015, submitted details of expenditure and claimed that, the assessee is in the business of trading in vaccines and medicines, incurred sales promotion expenses year on year to maintain and promote the sales of the products. The advertisement and sales promotion expenses provide a means for disseminating information about

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their business and the progress. The expenditure in relation to advertisement and sales promotion cannot be treated to be a long- term expenditure since the memory of purchasing market is short, and the expenditure incurred by the assessee does not create any asset of enduring benefit.

4.

The A.O., after considering the relevant submissions of the assessee, held that the expenditure incurred by the assessee on ‘advertisement and sales promotion expenses’ has a continuing nature, which inter alia contributes to the building up of its brand, as the expenditure definitely promotes the creation of certain intangible rights, which help in establishing an enduring identity of the product. Therefore, the expenditure incurred by the assessee cannot be considered as having been incurred just for the year under consideration and in the ordinary course of business. Therefore, taking into account the relevant details, the A.O. observed that, out of total expenditure of Rs. 21,31,63,428/-, the A.O. accepted Rs. 7,00,99,024/- as incurred for advertisement and sales promotion, and the balance amount of Rs. 14,30,64,404/- was considered as capital in nature and disallowed. However, depreciation on the same @ 25% was

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allowed, which amounts to Rs. 3,57,66,101/-, and the balance amount of Rs. 10,72,98,302/- was disallowed and added back to the total income.

5.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee claimed that the expenditure incurred under the head ‘advertisement and sales promotion’ was incurred wholly and exclusively for the purpose of business of promotion of sales, and is in the nature of revenue expenditure, but not capital. The A.O., without considering the nature of expenditure, simply assumed that the expenditure enhanced the brand value of the assessee, which is in the nature of intangible asset, and therefore, treated the said expenditure as capital expenditure, allowed depreciation @ 25% thereon and made an addition of Rs. 10,72,98,302/- to the total income. The assessee further claimed that, this is a recurring issue, and in the earlier years, similar expenditure was disallowed by the A.O., and the matter had reached the Tribunal, and the Hon’ble ITAT right from AY 2005-06 to 2008-09 has considered identical issue, and held that expenditure incurred by the

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assessee is revenue in nature, and thus, deleted the additions made by the A.O.

6.

The Ld. CIT(A), after considering the relevant submissions of the assessee and also by following the decisions of the ITAT in assessee's own case for AYs 2005-06 to 2008-09, held that the advertisement and sales promotion expenses incurred by the assessee are revenue in nature, as the nature of advantage is in the revenue field, whereby the expenditure has facilitated its trading operations, or enabled the conduct of its business to be carried on more efficiently and more profitably. The Ld. CIT(A) also took support from the decision of the Hon'ble Supreme Court in the case of Empire Jute Company Limited Vs. CIT, reported in (1980) 124 ITR 1 (SC), and following the principle of judicial consistency, directed the A.O. to delete the addition made on account of disallowance of advertisement and sales promotion expenses held by the A.O. as capital expenditure.

7.

Aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

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8.

The learned Senior A.R. for the Revenue, Shri K. Prasad, submitted that the Ld. CIT(A) erred in deleting the disallowance of Rs. 10,72,98,302/- towards advertisement and sales promotion expenditure, treating it as capital in nature, without appreciating the fact that the expenditure incurred by the assessee resulted in creation of enduring benefit in the form of brand, public marketing intangible, and therefore the A.O. was justified in capitalizing the expenditure. The Ld. Senior A.R. further submitted that, the Ld. CIT(A) erred in relying on earlier orders of the ITAT without examining the year-specific facts and the material gathered in the assessment. He further submitted that for the year under consideration, there is a whopping increase of 106% in the expenditure incurred under the head advertisement and sales promotion, when compared to earlier years, and the assessee has not substantiated such a huge increase in expenditure. The A.O., after considering the relevant facts, has rightly allowed part of expenditure as revenue in nature, and the remaining part has been treated as capital, and allowed depreciation as applicable to intangible assets while making addition to the balance amount. The Ld. CIT(A), without appreciating the relevant facts, simply deleted the addition made by the A.O. Therefore, he submitted

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that the order of the Ld. CIT(A) should be set aside, and the addition made by the A.O. should be upheld.

9.

The learned counsel for the assessee, Shri Paras S Savla, Advocate, on the other hand, supporting the order of Ld. CIT(A), submitted that, there is no dispute with regard to the nature of expenditure incurred by the assessee and the genuineness of the expenditure. In fact, the A.O. accepted the genuineness of the expenditure and allowed partial expenditure as revenue in nature, and part of expenditure has been treated as capital in nature, and allowed depreciation as intangible asset. However, the A.O. disallowed part of expenditure without assigning any reason as to how the said expenditure comes under the capital expenditure, which gives enduring benefit to the assessee. He further submitted that this issue is recurring in nature, and the above expenditure incurred by the assessee has been disallowed in earlier assessment years also, and the matter had reached the ITAT and the ITAT in ITA Nos. 2356/Del/2010, 4903/Del/2010, 647 & 769/Mum/2013 for AYs 2005-06 and 2006-07 has considered the very same issue, and after considering relevant facts and by following certain judicial precedents, including the decision of

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Hon'ble Supreme Court in the case of Empire Jute Company Limited Vs. CIT (supra), deleted the addition made by A.O. Further, the Ld. CIT(A) has deleted the additions made by the A.O. for AY 2010-11. Further, the A.O. himself has accepted the expenditure for AYs 2012-13 to 2014-15. Therefore, making addition for the year under consideration without any change in facts is incorrect. The Ld. CIT(A), after considering relevant facts, has rightly deleted the addition made by the A.O. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

10.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the Ld. CIT(A) for deleting the additions made by the A.O. towards disallowance of part of expenditure incurred under the head advertisement and sales promotion, treating it as capital in nature after allowing depreciation as applicable to intangible asset. The relevant findings of the Ld. CIT(A) are as under :

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“5.1.7 I have perused the case laws cited by the AO in his assessment order and the submission of the appellant with regards to the case laws on which the AO has based his argument. The following judgments of Hon’ble SC have been cited by the AO:

1.Madras Industrial Investment Corporation reported in 225 ITR 802. 2.Arvind Mills Ltd v. CIT, reported in 197 ITR 422. 3.Taparia Tools Ltd v JCIT reported in 55 taxmann.com 361. These case laws cited above are however found distinguishable as they are relating to issue of deferred revenue expenditure and betterment charges which are quite distinguishable from the facts and circumstances of the present case. 5.1.8 The appellant during the present appellate proceeding has submitted that CIT(A) had deleted addition on the ground of disallowance of advertisement & sales promotion expenditure in AYs 2005-06 & 2006- 07 and the Department’s appeals for both these years have been dismissed by the Hon’ble ITAT vide its order dated 13th Feb 2015. For AY 2007 08 the appellant submitted that the Department’s appeal has been dismissed and issue decided in its favour. Further, it submitted that its appeal for AY 2008-09 has also been decided in its favour by the Hon’ble ITAT. Following the Hon’ble ITAT's order for AY 2005-06 & 2006- 07, CIT(A) has deleted the net addition in its case for AY 2010-11.Further, it submitted that the AO has not made addition on this account in the assessment for AYs 2012-13, 2013-14 & 2014-15 in its own case. Thus, the appellant submitted that based on Hon’ble ITAT's decisions in its own case, addition/disallowance on account of advertisement & sales promotion expenditure be deleted in this appeal since the facts are similar. 5.1.9 The Hon’ble ITAT, Mumbai while deciding the issue in favour of the appellant for the AY 2008-09 has held that merely because expenditure provides benefit of enduring nature should not ipso facto become capital. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT (124 ITR 01) wherein it has been observed as: “There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may nonetheless be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the

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case within the principle laid down in this test. What is material to consider is nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future.” 5.1.10 Applying the test as prescribed by the decision of the Hon’ble Supreme Court in Empire Jute Co. Ltd(supra) in the case of the present appellant, I am incline to hold that the Advertisement & Sales Promotion expenses are revenue in nature as the nature of advantage is in the revenue field whereby the expenditure have facilitated its trading operations or enabled the conduct of its business, to be carried on more efficiently or more profitably. 5.1.11 Thus, considering the facts and circumstances of the present case, and respectfully following the decisions of the Hon’ble ITAT and following the principle of judicial consistency, it is held that the advertisement and sales promotion expenses are revenue in nature. Accordingly, the AO is directed to delete the addition made on account of disallowance of advertisement and sales promotion expenses held by him as capital expenditure. Ground of appeal 1 is hereby allowed. 5.2 Findings on Ground of appeal 2: 5.2.1 Ground of appeal 2 is against not allowing depreciation of Rs. 1,49,27,318/- being 25% of the opening WDV of amounts of expenditure on advertisement, etc which were considered as intangible assets in respective asst. years, viz. AYs 2007-08, 2008-09 & 2009 10. 5.2.2 It was submitted that orders passed by the CIT(A) in earlier years, i.e. from A.Ys. 2005-06, 2006-07 and 2007-08 have reached the Tribunal wherein the Tribunal has allowed full relief to the appellant by holding that the entire advertisement expenses incurred by the appellant were revenue in nature. The Hon’ble Tribunal, vide its order dated 13-02-2015 in ITA Nos. 2356/Del/2010, 4903/Del/2010 I.T.A. No.647 &769/Mum/2013 dated 13-02-2015 for A.YS 2005-06 & 2006 07 held that the entire expenses incurred on advertisement by the appellant was revenue in nature. Similarly, in A.Y. 2007-08 also, the Hon’ble Tribunal vide its order dated 29-01-2016 has given full relief to the appellant by treating the product launch expenses also as revenue in nature.

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The Hon’ble Tribunal has discussed the issue citing the judgment of Hon'ble Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT (124 ITR 01). The Tribunal has also considered the Judgment rendered by Hon'ble High Court of Allahabad in the case of CIT vs. Modi Olivetti Ltd. (37 Taxmann.com 464) which also discussed by Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs CIT (124 ITR 01). The Hon’ble Tribunal has also given same judgment for the AY 2008-09 in its judgment dated 11-01-2017. The appellant submitted that the addition on this account for the AY 2009-10 has been sustained and its appeal before Hon. ITAT is pending disposal. The appellant submitted further that without prejudice to the final outcome of this appeal, it should be allowed depreciation in this assessment year on the WDV of disallowances made and confirmed by the CIT(A) for AY 2009-10. 5.2.3 I have carefully examined the facts of the case. The facts of the case are found to be similar to that of AYs 2005-06, 2006-07, 2007-08 and 2008-09. In Ground of appeal 1 following the principle of judicial consistency, it has already been held that the advertisement and sales promotion expenses are revenue in nature. For AY 2009-10 appellant has submitted that addition on this account has been sustained by CIT(A) and its appeal before Hon. ITAT is pending disposal. 5.2.4 In view of the facts as above, I am of the considered view that depreciation on the WDV of disallowances made and confirmed by the CIT(A) for AY 2009-10 cannot be allowed pending disposal of the appeal before Hon’ble ITAT. Thus, depreciation claim of Rs. 1,49,27,318/- is held as not allowable. Ground of appeal 2 is dismissed. 5.3 Findings on Ground of appeal 3: 5.3.1 Ground of appeal 3 is against disallowance of expenses of Rs. 51,59,4528/- as per Explanation to Section 37(1) of the Act alleged to be illegal expenses. 5.3.2 In the present case of the appellant Rs. 36,90,160/- paid as honorarium to Doctors for providing various services and travelling expenses incurred for them of Rs. 14,69,368/-, aggregating to the total expenditure of Rs. 51,59,528/- has been disallowed by the AO. 5.3.3 The AO in his assessment order noted that the Medical Council of India, in exercise of powers conferred under section 20A read with section 33(m) of the Indian Medical Council Act, 1956 has made "The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, which describes unethical acts under Chapter 6 of the said regulations. The said regulations has imposed prohibition on

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any medical practitioner or their professional associates from accepting any gift, travel facility, hospitality, cash or monetary grant from any pharmaceutical and allied health sector industries. Further, the AO noted that the regulations laid down by the Medical Council of India are in the nature of a public policy being laid down in the interest of the public at large and therefore, any person abetting the violation of such regulations by medical practitioners should also be found to be guilty of acting in clear opposition to the public policy. Thus, the AO held that payments being made falling within the category of illegal payments attract disallowance as per Explanation to S. 37 of the Act which states that any expenditure incurred by an appellant for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 5.3.4 During the present appellate proceedings, the appellant in its submission stated that honorarium paid to doctors does not include any payment for their engagement for carrying out any medical research or for endorsing its products. The payment to the respective medical practitioner was made in consideration of his rendering services in his professional capacity under an agreement with the appellant company. It submitted that payment of honorarium includes honorarium for providing professional services, such as giving lecture, act as advisor & consultant for providing clinical data, etc, These payments were made as per the agreements with them. Further, it submitted that expenditure incurred for doctors' travel, etc is also as per the agreement with such doctors. Furthermore, it submitted that the IMC Regulations have been formulated for the purposes of regulating the profession of medical practitioners and per se they did not apply to the appellant, which is in pharmaceutical industry. The appellant cited various case laws to substantiate its contention. During the present appellate proceeding the appellant has asked for Video Conferencing (VC) and accordingly VC was held on 25.09.2025. During the course of VC the appellant was asked to furnish submission on this particular issue in the light of the judgment of the Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd. vs. Deputy Commissioner of Income-tax LTU [2022] 135 taxmann.com 286 (SC)/[2022] 286 Taxman 200 (SC)/[2022] 442 ITR 1 (SC)[22-02-2022]. The appellant has furnished its written submission dated 29.09.2025 which is reproduced as under:

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“We are to refer to our appearance before your Honour on 25th September, 2025 the virtual hearing of which was fixed at 3.00pm on that date, faceless, through video conference. We are thankful to your Honour for having afforded the above opportunity to further the earlier submissions made before your Honour elaborated through letter(s), paperbook(s) etc. During the course of the hearing with regard to Ground No.3 of this appeal, viz. disallowance of expenditure aggregating to Rs.51,59,528/- (incurred partly on payment(s) of Rs.36,90,160/- as honorarium to the doctors and expenditure of Rs. 14,69,368/- incurred in connection with the travelling) which was made in the assessment by applying the provisions of Explanation to Section 37(1) of the Act, it was pointed out that based on our submissions that the said expenditure was incurred towards consultancy and travelling expenses and hence the issue was not covered by the decision of Hon’ble Supreme Court in the case of Apex Laboratories P. Ltd., your Honour had asked us to explain the merits in the appellant’s case and distinguishing the facts in the appellant’s case from the Hon’ble Supreme Court decision in support of our submission that our ground was not liable to be rejected on the merits of the supreme court’s decision. In this regard, we state as under: 1. As was pointed out at the time of hearing the expenditure incurred by the appellant company on the payments aggregating to Rs.51,59,528/- representing payments to the Doctors would not be hit by the decision of the Honourable Supreme Court in the case of M/S. Apex Laboratories P. Ltd. V/s DCIT (reported in (022) 135taxmann.com), since it is distinguishable on facts. 2. It need be appreciated that in the case before the Honourable Supreme court the set of facts present were distinguishable from the set of facts in the case of the appellant. The freebies in the case before Honourable supreme court included gifts ranging from gold coins, fridges and LCD TVs to funding international trips for vacations, whereas the appellant has incurred expenditure in the nature of consultancy fees and travelling expenses. 3. It is further submitted that as per the MCI Regulations a medical practitioner shall not receive a gift or any travel facility for vacation or as delegate, from a pharmaceutical company. However, in the same Regulations (a reference in this regard it being made to Regulation 6.8.1(g)) it is stated that the medical practitioner may work for the pharmaceutical company as consultants or in any other professional capacity after ensuring his professional integrity, freedom or ensuring his patients’ interest are not compromised by his professional relationship with pharmaceutical companies. Hence the payments made by the

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appellant for the consultancy fees are duly permissible as per Regulation 6.8.1(g) of the MCI guidelines. 4. However, it need also be appreciated that the freebies mentioned in the case before the Honourable Supreme court were clearly in contravention of the Regulation 6.8.1 of the MCI guidelines, whereas the expenses incurred in the case of the appellant ie consultancy fees and travelling expenses thereof are not opposed to public policy 5. In this regard, we wish to draw attention of your Honour to the remand report issued by the learned AO, in response to the application made under Rule 46A duly recorded the facts contained in the additional evidence and after considering it AO left it to the judgment of your Honour to decide the case on merits in light of the MCI Regulations and CBDT circular issued in this regard. 6. It is further submitted that the learned AO in the remand report, after due examination of the evidences and content on record did not draw any contrary conclusion to the facts presented by the Appellant with regard to the nature of the spend being duly permissible in accordance to Regulation 6.8.1(g) of the MCI guidelines. 7. Given the above facts of the case and the remand report accepting the nature of spend in the case of the appellant, being in the form of consultancy and travelling, we request your Honour’s, to kindly allow the ground in case of the Appellant. 8. At this juncture, it is appropriate that we draw your Honour’s kind attention to the decisions of the Honourable ITAT in the cases where after considering the decision of the Honourable supreme court in Apex Laboratories P. Ltd, delivered on 22-02-2022, it was held that the matter of disallowance of expenditure incurred by the Pharma companies under the Explanation to Section 37(1) of the Act and in the light of MCI Regulations was required to be examined on merits before making the disallowance. 9. A reference in this regard is being made to ITAT Bangalore’s decision dated 30-11- 2022, in the case of M/s.AstraZaneca Pharma India Ltd. v/s DCIT (ITO) Circle I, Bangalore and the decision of the ITAT Mumbai dated 23-05-2023 in the case of Medley Pharmaceutical Ltd., v/s DCIT Circle 44, Mumbai (scanned copies are attached for easy reference). 10. In the above backdrop, we now reiterate that the total honorarium of Rs.36,90,160/- as also the travelling expenses of Rs.14,69,368/- aggregating to Rs.51,59,528/- did not represent the expenditure disallowable by applying the provisions of Explanation to

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11.

It is submitted that the payments towards honorarium and or travelling expenses of the Doctors were made as per the agreements/contracts made with them for securing professional services and the specimen of such agreements were submitted to your Honour along with application under Rule 46A. It is also submitted that the expenditure on payment of honorarium and travelling expenses was incurred by the appellant company in regular course of its business with a view to secure professional services by engaging the Doctors for the purpose of appraising the medical fraternity and/or patients with respect to the developments in the health care industry. We trust that your Honour will kindly consider the above in the light of the facts of the appellant’s case and thereafter will kindly delete the disallowance of expenditure which was mentioned in the order under appeal under Explanation to Section 37(1) of the Act.” 5.3.5 I have carefully examined the findings of the AO and the submissions of the appellant and the case laws cited. In its judgment in Apex Laboratories (P.) Ltd. vs. Deputy Commissioner of Income-tax LTU [2022] 135 taxmann.com 286 (SC)/[2022] 286 Taxman 200 (SC)/[2022] 442 ITR 1 (SC)[22 02-2022], the Hon’ble Supreme Court has held that the agreement between the pharmaceutical companies and the medical practitioners in gifting freebies for boosting sales of prescription drugs is violative of Section 23 of the Contract Act, 1872. The provision is as follows: "23. What considerations and objects are lawful, and what not—The consideration or object of an agreement is lawful, unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void." Thus Hon’ble SC in this judgment(supra) has held that pharmaceutical companies' gifting freebies to doctors, etc. is clearly "prohibited by law", and not allowed to be claimed as a deduction under section 37(1). Doing so, it iterated, would wholly undermine public policy. It further held that the incentives (or "freebies") given by Apex, to the doctors, had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine. Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect. The Apex Court made its position clear by holding that forbiddance of medical

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practitioners from accepting such gifts, or "freebies" was no less a prohibition on the part of their giver, or donor, i.e., Apex

5.3.6 The Hon’ble SC while discussing the issue in Apex case cited the judgment in Dy. CIT v. PHL Pharma (P.) Ltd. [2017] 78 taxmann.com 36/163 ITD 10 (Mum) where the ITAT reiterated Max Hospital's (supra) decision to conclude that the 2002 Regulations were inapplicable to pharmaceutical companies, and that in absence of requisite jurisdiction, it could not be said that the pharmaceutical companies had violated any law or regulation. Further, it held that there was no enabling provision to allow the CBDT to bring pharmaceutical companies within the fold of the 2002 Regulations. It was observed by it that PHL Pharma (P.) Ltd. (supra) further discussed the High Court decisions of Kap Scan and Confederation of Indian Pharmaceutical Industry (SSI) (supra), holding that they did not lay down a blanket ban on pharmaceutical companies claiming tax benefit under section 37(1), and made it subject to the satisfaction of the Assessing Officer on a case-to-case basis. The Hon’ble SC however was of the opinion that such a narrow interpretation of Explanation 1 to section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an appellant from claiming a tax benefit for its participation in an illegal activity. The Hon’ble SC held “22. This Court is of the opinion that such a narrow interpretation of Explanation 1 to section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity. Though the memorandum to the Finance Bill, 1998 elucidated the ambit of Explanation 1 to include "protection money, extortion, hafta, bribes, etc.", yet, ipso facto, by no means is the embargo envisaged restricted to those examples. It is but logical that when acceptance of freebies is punishable by the MCI (the range of penalties and sanction extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium.” 5.3.7 The appellant in its submission has contended that its expenditure on doctors does not constitute “freebies”. The definition of “freebie” as found in different dictionaries are as follows: According to Cambridge Dictionary, Freebie has been defined as:

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“something that is given to you without you having to pay for it, especially as a way of attracting your support for or interest in something:” According to Britannica dictionary, Freebie has been defined as “something that is given for free” According to Oxford Learner’s dictionary, Freebie has been defined as: “something that is given to someone without payment, usually by a company” In the present case of the appellant, it is undisputed fact that the payments to doctors are incentives for which the company pays for it and there is no expenses recovered from the doctors. Thus, even though the appellant has claimed it as different from freebies, it still is a payment to doctors for free and is not distinguishable from the characteristics of freebies. Therefore, the contention of the appellant is held baseless and liable to be dismissed. 5.3.8 The appellant further contended that its case was not called to be examined for its allowability by the Hon’ble SC while deciding Apex Laboratories case. On going through the decision of the Hon’ble SC, it is clear that the Apex Court has dealt the issue of legality and allowability of pharmaceutical companies in general and has not called for examining in particular any pharmaceutical companies. The Apex Court has gone to the root of the issue and decision was based on facts and legal perspective of the case. Therefore, the contention of the appellant is not based on any factual matrix and thus liable to be dismissed. 5.3.9 In the light of the observations and discussions and after examining the details and documentary evidences furnished by the appellant and having gone through the agreements entered by the appellant and also considering the TDS deducted, I am of the view that the consulting expenses paid, travelling, boarding & lodging expenses, reimbursement to doctors are indirect way of gifting the doctors to promote the products. The agreement and deduction of TDS cannot give credence that the incentives received by the doctors are in fact deductible expenses in the hands of the appellant. 5.3.10 Considering the facts and circumstances of the case and the findings as discussed above and respectfully following the judgment of Hon’ble Supreme Court in the case of M/s Apex Laboratories P. Ltd. Vs DCIT in SLP (Civil) No. 23207 of 2019 vide order dated 22.02.2022, the amount of Rs. 1,20,63,169/- which are in the nature of freebies is held not allowable as deduction as per Explanation 1 to section 37(1) of the Act. The disallowance made by the AO is hereby confirmed. Accordingly, Ground of appeal 3 is dismissed

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5.4 Findings on Ground of appeal 4: 5.4.1 Ground of appeal 4 is against addition of Rs. 80,315/- on account of mismatch of receipts as per Form 26AS and the amount shown by the appellant in its P&L account. 5.4.2 The AO observed that the appellant has received bank interest of Rs. 16,36,568/-. However, on perusal of the Profit and Loss Account, it was noticed that the appellant has credited interest of Rs. 15,56,253/- only. Thus, interest income to the extent of the difference i.e. Rs.80,315/- ( Rs. 16,36,568 - Rs. 15,56,253) was added back to the total income as unaccounted interest receipt. 5.4.3 The appellant submitted that though Form 26AS (read with Rule 31AB and Sections 203AA and 206C(5) represents a part of a wholesome procedure designed by the Revenue for accounting of TDS (and TCS) the burden of proving as to why the said form (statement) does not reflect the details of the entire TDS and consequently the receipts from which the tax is deducted for and on behalf of the deductee, the burden of proving the full details in the said form with the books of accounts of the payee cannot be placed on the appellant/deductee i.e. SPIPL. It submitted that the deductee does not play any role in generating this statement and has no control over the entries made therein by various deductors. Reliance has been placed on the decision of Mumbai Tribunal in LSG Sky Chef (India) (P) Ltd. V/s. DICT / ITAT Mumbai, ITA No.4828 (Mum) of 2012 dated 27-03-2014 for assessment year 2009-10. 5.4.4 I have considered the findings of the AO and the submission of the appellant. The appellant submitted that the burden of proving the full details in the said form with the books of accounts of the payee cannot be placed on the appellant/deductee. The submission of the appellant however cannot be accepted. The appellant is required to prove that its account of interest is correct with evidence. Merely submitting a reconciliation statement is not sufficient. Thus, in the absence of any evidence, the contention of the appellant is held lacking merit and not substantiated. In view of the above, the addition made by the AO is hereby confirmed and Ground of appeal 4 is hereby dismissed.”

11.

From the observation of Ld. CIT(A), it appears that the issue involved in the present appeal is no longer res integra. The coordinate bench of the Tribunal of ITAT, Mumbai, in assessee's own case for AYs 2005-06 to 2008-09 has considered an identical

20 ITA No. 2425/Hyd/2025

issue of disallowance of part of sales promotion expenses as capital in nature, and after considering the relevant facts and also by following certain judicial precedents, including the decision of the Hon'ble Supreme Court in the case of Empire Jute (supra), has deleted the addition made by the A.O. From the observation of Ld. CIT(A), it appears that the dispute involved in the present appeal towards disallowance of advertisement and sales promotion expenditure has been made by the A.O. only on the basis of the above disallowance, without pointing out as to how the said expenditure falls under the head capital expenditure which gives enduring benefit to the assessee. Although, for the year under consideration, the A.O. claims that the expenditure incurred by the assessee gives enduring benefit to the assessee and enhances the brand value of the assessee, but the A.O. has not given any specific reason as to how the revenue expenditure incurred for promoting or selling the products gives rise to an asset which is in the nature of intangible asset. We further note that, the Ld. CIT(A) for the assessment year 2010-11 has considered very similar issue made by the A.O. and deleted the additions, and the order of Ld. CIT(A) has been accepted by the Revenue without filing further appeal before the Tribunal. Further, the A.O. himself

21 ITA No. 2425/Hyd/2025

has accepted the expenditure for AYs 2012-13 to 2014-15 and there is no disallowance of expenditure under the head advertisement and sales promotion expenses. From the above, it is undisputedly clear that the assessee is in the business of trading in vaccines and medicines, incurring advertisement and sales promotion expenses, which are in the nature of revenue expenditure, incurred wholly and exclusively for the purpose of promoting business by selling products. The Revenue, having accepted the fact of expenditure incurred by the assessee as revenue in nature for few years, has erred in making ad hoc disallowance for the year under consideration without giving any valid reasons. The Ld. CIT(A), after appreciating the relevant facts, has rightly deleted the addition made by the A.O. Thus, we uphold the order of Ld. CIT(A) and dismiss the appeal filed by the Revenue. 12. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 9th day of September, 2026.

Sd/- Sd/- (श्री रवीश सूद) (मंजूनाथ जी) (RAVISH SOOD) (MANJUNATHA G.) न्याययक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER

22 ITA No. 2425/Hyd/2025

Hyderabad, dated 09.09.2026. TYNM/sps

आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तनर्ााररती/The Assessee : SANOFI HEALTHCARE INDIA PRIVATE LIMITED CTS NO 117-B, SANOFI HOUSE, L&T BUSINESS PARK, SAKI VIHAR ROAD, POWAI MUMBAI-400072, MAHARASHTRA 2. राजस्व/ The Revenue : DCIT, CIRCLE-3(1) ROOM NO.433, 4TH FLOOR, C-BLOCK, INCOME TAX TOWERS, A.C. GUARDS, HYDERABAD-500004, TELANGANA 3. The Principal Commissioner of Income Tax, Hyderabad. 4. तवभागीयप्रतततनतर्, आयकर अिीिीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्ाफ़ाईि / Guard file

आदेशानुसार / BY ORDER TIRUPATI YAMINI Digitally signed by TIRUPATI YAMINI NAGA MALLESWARI NAGA Date: 2026.09.16 15:07:48 MALLESWARI +05'30' Senior Private Secretary ITAT, Hyderabad

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