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Before: Shri Amit Shukla & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the Revenue against the order dated 29.12.2015 passed by the learned CIT(A)-1, Gurgaon for the assessment year 2011-12 on the following solitary ground :
1. Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.6,35,10,008/- made by the A.O. on account of disallowance of expenses incurred towards distribution of free samples to doctors or medical practitioners, in accordance with the CBDT Circular No. 5/2012 (F. No. 225/142/2012-ITA-II) dated 01.08.2012.
The brief facts of the case are that the assessee debited Rs.6,35,10,008/- as expenses towards distribution of free samples to doctors/medical practitioners and claimed deduction thereon. The Assessing Officer after referring to the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 (as amended in 2009), disallowed the expenses of Rs.6,35,10,008/- incurred towards free samples to doctors and medical practitioners. The learned CIT(A) deleted the aforesaid disallowance after following the decision of ITAT Delhi Benches in the case of assessee itself for A.Y. 2010-11 (ITA No. 788/Del/2015), vide the impugned order. Aggrieved, the Revenue is in appeal before the Tribunal.
We have heard the submissions of both the parties and have gone through the entire material available on record including the orders of authorities below and the orders of Tribunal of earlier years. The ld. counsel for the assessee submitted at the outset that the identical issue in the similar facts and circumstances stood decided by the Tribunal in favour of the assessee in A. Yrs. 2009-10 and 2010-11. Copy of order is placed on record. The ld. DR, on the other hand, though relied on the order of the Assessing Officer, but could not controvert the aforesaid contentions of the assessee. In presence of these facts, we are in agreement with the contentions of the assessee that the issue involved in this appeal is covered in favour of the assessee. For ready reference, the extract of Tribunal order for A.Y. 2010-11 are reproduced as under, wherein the Tribunal after following its decision for A.Y. 2009-10 has deleted the similar disallowance :
“13. Having considered the rival submissions we find that in the immediately preceding assessment year DRP by an order dated 5.9.2013 had deleted the identical disallowance by observing as under:
“6.11.3 The Panel has carefully considered the submissions made by the assessee and also gone through the relevant Act/Rules/ Guidelines. For understanding the intent of the government on this issue, it would be relevant to refer to the UCPMP and reproduce the relevant provisions.
This is a voluntary code of marketing practices for Indian Pharmaceutical Industry for the present and its implementation will be reviewed after a period of implemented effectively by the Pharma Association/companies, the Government would consider making it a statutory code. 1…… 2…… 3…… 4……. 5 Samples 5.1 Free sample of drugs shall not be supplied to any person who is not qualified to prescribe such product.
5.2 Where sample of products re distributed by a medical representative, the sample must be handed directly to a person qualified to prescribe such product or to a person authorized to receive the sample on their behalf.
5.3 The following conditions shall be observed in the provisions of samples to a person qualified to prescribe such product. i) Such samples are provided on an exceptional basis only (see (ii) to (vii) below) and for the purpose of acquiring experience in dealing with such a product ii) Such sample packs shall be limited to prescribed dosages for three patients for required course of treatment iii) Any supply of such sample must be in response to a signed and dated request for the recipient iv) An adequate system of control and accountability must be maintained in respect of the supply of such samples v) Each sample pack shall not be larger than the smallest pack present in the market vi) Each sample shall be marked “free medical sample-not for sale” or bear another legend of analogous meaning vii) Each sample shall be accompanied by a copy of the most up to date version of the product information (As required in Drug and Cosmetic Act; 1940) relating to that product 6 Gifts 6.1 No gifts, pecuniary advantages or benefits. In kind may be supplied offered or supplied drugs by a pharmaceutical company or any of its agents i.e. distributors, wholesalers, retailers etc.
6.2 Gifts for the personal benefit of healthcare professionals and family members (both immediately and extended) (such as tickets to entertainment events) also are not be offered or provided 7 Relationship with Healthcare professionals 7.1 Travel facilities…….
7.2 Hospitality…….
7.3 Cash or monetary grants…… Where there is any item missing, the code of MCI as per “Indian Medical Council (professional conduct, etiquette and ethics) Regulation, 2002 as amended time to time will prevail”
6.11.4 Thus it is evident from the above that a clear distinction has been made between the free samples, gifts, travel facilities, hospitality and cash or monetary grants. It would accordingly be incorrect to put samples in the definition of gifts being separately categorized in Para 5 & 6 of the UCPMP respectively. It is noticed from the CBDT Circular No. 5/2012 that it refers the IMC Regulations 2002 which imposed a provision on the medical practitioner for taking any gift, travel facility, hospitality, cash and medical grant from the pharma sector. The Government of India has clearly demarcated the operation nature of each term in the UCPMP, which has been discussed above and therefore, it cannot be said that the term ‘Gift’ covers free samples also.
6.11.5 Moreover a medical practitioner is bound by the IMC Regulations 2002. Para 7.8 of the said regulations read as under:
7.8 A registered medical practitioner shall not contravene the provisions of the Drugs and Cosmetics Act and regulations made there under. Accordingly 1 Prescribing steroids/psychotropic drugs when there is no absolute medical indications; 2 Selling schedule “H” and “L” drugs and poisons to the public except to his patient”
In contravention of the above provisions shall constitute gross professional misconduct on the part of the physician.”
6.11.6 It is noticed from the above that the medical practitioner is to adhere to the provisions of the Drugs and Cosmetics Act and regulations made there under. The relevant regulations 65(18) applicable to the license/distributor and regulation 95 regards as under:
65(18) No drug intended for distribution to the medical profession as free sample which bears a label on the container as specified in clause (viii) of sub-rule () of rule 96 and no drug meant for consumption by the Employees State Insurance Corporation. The Central Government Health Scheme, the Government Medical Stores Depots, the Armed Forces Medical Stores or other Government institutions, which bears a distinguishing mark or any inscription on the drug or on the label affixed to the container thereof indicating this purpose shall be sold or stocked by the licensee on his premises
95 Prohibition of sale or distribution unless labeled-subject to the other provisions of these Rules, no person shall sell or distribute any drug (including a patent or proprietary) unless it is labeled in accordance with these Rules.
Thus, it becomes evident that even the Drugs and Cosmetics Act and regulations made there under do not prohibit the licensee or a medical practitioner to distribute the free samples, albeit following prescribed conditions. On this account also, the Panel observes that the free samples cannot be said to have been covered by a wider definition of ‘Gift’.
6.11.7 Moreover, as held by the Hon’ble Supreme Court in the case of Eskayef Pharmaceuticals (245 ITR 116), “the object of distribution of the samples of the drugs to the doctors is to make them aware that such drugs are available in the market in relation to the cure of a particular affliction and, therefore, to persuade them to prescribe the same in appropriate cases and this is tantamount to publicity and sales promotion.” Accordingly, such expenditure cannot be said to be disallowable u/s 37(1) of the Income-tax Act in the hands of the Pharma companies distributing such free samples to doctors.
6.11.8 In the light of the details discussion made above, the Panel holds that the free samples are not covered by the IMC regulations of 2002 (as amended in 2009) read with CBDT circular no. 5/2012, UCPMP and the Drugs and Cosmetic Act and regulations made there under. Accordingly the O is directed to delete the proposed addition on this account. Accordingly the AO is directed to delete the proposed addition on this account.
The above order has acquired finality and no appeal there from has been preferred by the revenue. In light of the above and in accordance with principle of consistency the disallowance is held to be legally untenable. In support of the above conclusion reliance is placed on the judgment of Apex Court in the case of CIT vs. Excel Industries 358 ITR 295 wherein it has been held as under:
“29. In Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax, [1992] 193 ITR 321 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said:
Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.
For the aforesaid reasons stated above the disallowance made are deleted and grounds raised are allowed.”
Respectfully following the aforesaid decision of co-ordinate Bench, we find no justification to interfere with the impugned order on this score. Accordingly, the solitary ground raised by the Revenue in this appeal deserves to be dismissed.