In what can be indeed termed as a landmark move, the Mumbai bench of the Income Tax Appellate tribunal, has taken head-on action against pharma companies, providing freebies and trips to medical practitioners to lure them to prescribe a specific medicines/formulations. As per the recent action of the tribunal, a pharma company has been disallowed to claim expenses made towards foreign trips of doctors and their spouses in its statements.
The case is that of Liva healthcare,a pharma company specializing in dermatology formulations which during the financial year 2008-09, incurred an expenditure of Rs 76.55 lakh towards overseas trips for doctors and their spouses. However, an I-T officer at the assessment stage disallowed the company to claim this as an expense, a decision, that has now been upheld by the Appellate tribunal, reports TOI
The ITAT’s September 12 order observes, “The payment of overseas trips of doctors and their spouses for entertainment, by the pharma company, in lieu of expectation of getting patient referrals from doctors for its products so as to generate more business and profits, by any stretch of imagination cannot be accepted as legal.Undoubtedly it is not a fair practice and has to be termed as against the public policy.”
Section 37 of the I-T Act, which is a residual section, permits a business entity to claim as a deduction revenue expenditure incurred by it, `wholly and exclusively for the purpose of the business’.However, an explanation to this section provides that expenses incurred for any purpose which is an offence or is prohibited by law shall not be deemed to have incurred for the purpose of the business.Consequently , such expenditure cannot be allowed as a deduction from taxable income adds TOI.