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Freebies to Doctors illegal : ITAT upholds disallowance of expense against Mankind Pharma Ltd

New Delhi : The Income Tax Appellate Tribunal(ITAT) has recently observed in a major denial of relief against Mankind Pharma Ltd. that freebies given to doctors are illegal and do not fall under the head “Business Promotion Expenses”. The bench comprising of Anil Chaturvedi and Challa Nagendra Prasad disallowed the sales promotion expenses incurred by Mankind Pharma Ltd on account of freebies given to doctors and disallowed a claim of Rs. 1,06,78,600/- The Tribunal considered the nature of promotion expenses to decide whether the addition by the Assessing Officer(AO) was justified. The AO, during the assessment proceedings had noticed that Mankind Pharma Ltd had made payments to the Doctors by way of gift cards which could be exchanged for cash/merchandise from various locations and the same was debited to “Business Promotion Expenses”.

The AO was of the view that payment of all gratification money by Mankind Pharma Ltd to the Doctors is prohibited as per the guidelines issued by Medical Council of India (MCI). It was also noticed by the AO that such expenses were covered under Explanation to Section 37(1) of the Income Tax Act, 1961, making such transactions illegal and any deductions so claimed, disallowable as such expenses shall not be deemed to  have been incurred.