ASST COMMISSIONER OF INCOME TAX CEN CIR 7(2), MUMBAI, MUMBAI vs. HEGDE AND HEGDE PHARMACEUTICA LLP, MUMBAI

ITA 2437/MUM/2024Status: DisposedITAT Mumbai08 November 2024AY 2018-1935 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the payments made to doctors for market research and product surveys were not in the nature of freebies or commission, and did not violate MCI guidelines. The surveys were conducted for business necessity and regulatory compliance.

What were the facts?

The assessee, a pharmaceutical company, was found to be making payments to doctors under the guise of 'survey fees' during a survey operation. The Assessing Officer (AO) disallowed these expenses, considering them as commission payments violating MCI guidelines and Section 37(1) of the Income Tax Act.

What were the issues?

Whether payments made to doctors for market research and product surveys are allowable business expenditure under Section 37(1) or are to be treated as prohibited expenses.

Which sections of the Income-tax Act were involved?

Section 37(1)

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Cause title — parties, addresses and appearances
2 Hegde and Hegde Pharmaceutica LLP (batch)

PER BENCH : These cross appeals are related to AY 2016-17 to 2022-23 and they are directed against the common order dated 14-02-2024 passed by Ld CIT(A)-49, Mumbai. Since common issues are urged in all these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.

2.

The assessee is a pharmaceutical company manufacturing Dermatological products. It is incorporated as a Limited Liability Partnership company in 2013. A survey operation u/s 133A of the Act was conducted in the hands of the assessee on 04-02-2022 and during the course of survey operations, it was noticed that the assessee was giving freebies to the medical professionals. It was noticed that those kinds of expenses are not allowable as deduction in terms of Explanation 1 toto sec.37(1) of the Act. Based on this information, the AO reopened the assessment of the assessment years 2016-17 to 2019-20. The returns of income filed for AYs 2020-21 to 2022-23 were taken up for scrutiny. In the assessment proceedings, the AO noticed that the assessee has incurred expenses on freebies under the following heads:- (a) Survey fees

The order continues below.

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