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"7.1 In this regard, Hon'ble Supreme Court bench of justices Uday U Lalit and S Ravindra Bhat underlined that it is not just an issue of taxation but "a Kepler Healthcare Pvt Ltd Vs. PCIT AY : 2018-19 matter of great public importance" when it is demonstrated that a doctor's prescription can be manipulated and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to international trips. The Bench further held as "These freebies are technically not 'free' - the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle," said the court, emphasising that medical practitioners have a quasi-fiduciary relationship with their patients, who take doctor's prescriptions as final words even if the cost of medication is unaffordable or barely within their economic reach. When doctors are prohibited under the law from accepting gifts, the court said, pharma companies cannot defeat the objective behind the legal provision by arguing that donors have not been forbidden under the law from giving gifts. Under the 2002 Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, receiving emoluments in the form of gifts, travel facilities, hospitality, cash, etc., can lead to suspension of a medical practitioner's right to practice for up to one year. "The 2002 Regulations, applicable to all medical practitioners (including doctors in private practice), was introduced from December 14, 2009. Thus, pharmaceutical companies' gifting freebies to doctors is clearly 'prohibited by law', and not allowed to be claimed as a deduction under Section 37(1) of the Income Tax Act (as business expenditure). Doing so would wholly undermine public policy," - said the bench."
"First of all, the above circular nowhere defines any monetary limit upto freebies, gifts etc. given expenditure. Therefore, assessee's contention that the gifts and freebies are low in cost is not satisfactory justification. Most of the items are directly related to freebies and gifts given to stockiest, distributors medical staff and doctors etc. but the assessee failed to furnish details of items given to doctors. Further, in the guise of camp and survey charges, assessee is providing undue benefits to doctors. Though assessee has contended that the above expenditure is incurred for sales promotion having logo and name of its brands but at the same time assessee failed to produce concrete proof which shows that the above items were only distributed to stockiest and distributors. Accordingly, it is assumed that some of the above items were also given to doctors and their staff members. Even otherwise also, the gift items/freebies which are given to distributors/stockiest also reach to the hands of doctors and their staff members.
As per circular No. 5 of 2012 CBDT and MCI guidelines and judgment of Himachal Pradesh High Court freebies and gifts to the doctors is not allowable u/s 37(1) of the Income Tax Act, 1961. Further the assessee has also not submitted the details of the schemes introduced by the assessee company under which gifts items were distributed.
It is also pertinent to mention here that similar additions were i.e 23,28,458/- is made u/s 37(1) as per the circular No. 5 of 2012 CBDT treated as gifts to the doctors. Penalty proceedings Act u/s 271(1)(c) of the are initiated separately for filing inaccurate particulars of income."