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

ITA 2441/MUM/2024Status: DisposedITAT Mumbai08 November 2024AY 2016-1735 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal decided the issues on an issue-wise basis. Regarding survey fees paid to doctors, the Tribunal noted that the AO disallowed these expenses, viewing them as commission payments in violation of MCI guidelines and thus not deductible under Section 37(1) read with Explanation 1, relying on CBDT Circular No. 05/2012 and the Supreme Court decision in Apex Laboratories P Ltd. The CIT(A) had deleted this disallowance. The Tribunal's decision on this specific issue is not fully detailed in the provided excerpt, but the overall result indicates that the Revenue's appeals were dismissed, implying the Tribunal upheld the CIT(A)'s deletion of this disallowance. Regarding conference registration expenses, the Tribunal upheld the disallowance. It reasoned that the CIT(A) correctly followed the Supreme Court decision in Apex Laboratories P Ltd and the Tribunal's decision in Pfizer Ltd. The Tribunal found that conference registration charges, along with travel and stay, constitute a package of 'freebies' as observed by the Supreme Court. The Tribunal stated that when an assessee pays for expenses that would otherwise be borne by the doctor, such payments are 'freebies'. The assessee's voluntary disallowance of travel and stay expenses further indicated that conference registration expenses were paid on behalf of the doctors. Therefore, the CIT(A) was justified in confirming the disallowance. The operative direction was that all appeals of the Revenue and the assessee were dismissed.

What were the facts?

The assessee, Hegde and Hegde Pharmaceutica LLP, a pharmaceutical company, is in appeal against the order of the CIT(A)-49, Mumbai, for Assessment Years (AY) 2016-17 to 2022-23. The Revenue is also in appeal against the same order. A survey under Section 133A of the Income Tax Act, 1961, revealed that the assessee provided freebies to medical professionals, which are not allowable as deductions under Explanation 1 to Section 37(1). The Assessing Officer (AO) reopened assessments for AY 2016-17 to 2019-20 and scrutinized returns for AY 2020-21 to 2022-23. The AO disallowed expenses related to survey fees paid to doctors, conference registration expenses for doctors, distribution of scientific books, and differences in OTC payments. The CIT(A) confirmed the disallowance of conference registration expenses but deleted the others. The Revenue appeals the deletions, and the assessee appeals the confirmed disallowance.

What were the issues?

1. Whether the survey fees paid to doctors for market research and product surveys are allowable as a deduction under Section 37(1) of the Income Tax Act, 1961, or are they in the nature of commission payments violating MCI guidelines and thus disallowed under Explanation 1 to Section 37(1)? 2. Whether conference registration expenses paid by the assessee on behalf of medical practitioners are allowable as a deduction under Section 37(1) of the Income Tax Act, 1961, or are they considered freebies prohibited by law and thus disallowed under Explanation 1 to Section 37(1)? Assessee's Contentions: Regarding survey fees, the assessee's arguments are not explicitly detailed in the provided text, but the deletion by the CIT(A) implies they argued for its allowability. Regarding conference registration fees, the assessee argued that the Supreme Court decision in Apex Laboratories P Ltd and the Pfizer Ltd case did not specifically deal with conference registration charges. They contended that MCI guidelines only refer to travel and stay, not registration fees, and thus these expenses should be allowed, relying on the Tribunal's decision in DCIT vs. PHL Pharma Ltd. Revenue's Contentions: The Revenue contended that survey fees paid to doctors were in the nature of commission payments, violating MCI guidelines, and thus not deductible under Section 37(1) read with Explanation 1. They relied on statements from employees and a doctor, and the fact that a separate company was later used to channel these payments. The Revenue also argued that conference registration charges paid by the assessee on behalf of medical practitioners are freebies and not deductible, citing the Apex Laboratories P Ltd and Pfizer Ltd decisions.

Which sections of the Income-tax Act were involved?

Section 133A,Section 37(1),Section 131

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI “E” BENCH : MUMBAI

Before: SHRI B.R. BASKARAN

PER BENCH :

These cross appeals are related to AY 2016-17 t

The order continues below.

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