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Asst.Year -2013-14

- 8- as speculative loss under section 43(5) of the Act. Consequently, the entire disallowance of Rs.45.24 crores was deleted.

9. However, the Ld. CIT(A) upheld the disallowance made by the Assessing Officer in respect of expenditure incurred on freebies, gifts and incentives provided to doctors and medical practitioners under section 37(1) of the Act. The Assessing Officer had relied upon CBDT Circular No.5/2012 and observed that such expenditure violated Medical Council Regulations governing professional conduct of medical practitioners and therefore was hit by Explanation 1 to section 37(1) of the Act. The assessee submitted that the expenditure constituted ordinary business promotion expenditure incurred wholly and exclusively for pharmaceutical business purposes. Nevertheless, the Ld. CIT(A), following the CBDT Circular and prevailing judicial interpretation, sustained the disallowance by holding that expenditure incurred in violation of statutory regulations cannot be allowed as deduction under section 37(1) of the Act.

89. Ground No.1 relates to disallowance of expenditure of Rs.4,92,36,452/- incurred towards freebies, gifts, incentives and promotional items provided to doctors and medical practitioners, which has been disallowed under section 37(1) of the Act by invoking Explanation 1 thereto.

90. The Assessing Officer observed during the course of assessment proceedings that the assessee had incurred substantial expenditure towards distribution of gifts, sponsorships, hospitality, incentives and other promotional benefits to medical practitioners and healthcare professionals. According to the Assessing Officer, such expenditure was prohibited by the Medical Council of India Regulations and therefore hit by Explanation 1 to ITA Nos. 202&288/Ahd/2026 Cadila Pharmaceuticals Ltd. vs. DCIT & DCIT vs. Cadila Pharmaceuticals Ltd.

"The interpretation placed by the assessee that the Medical Council Regulations are applicable only to medical practitioners and not pharmaceutical companies is too narrow and would defeat the purpose of the regulation. Acceptance of such interpretation would indirectly permit pharmaceutical companies to do what medical practitioners are prohibited from accepting."

94. The Hon'ble Supreme Court further observed:

"A claim for any expense incurred in providing freebies to medical practitioners is clearly prohibited by law and therefore inadmissible under Explanation 1 to section 37(1)."

96. We further notice that the Coordinate Bench in assessee's own case for Assessment Year 2012-13 in ITA Nos.345 & 383/Ahd/2020 has already decided identical issue against the assessee by following the aforesaid judgment of the Hon'ble Supreme Court. The relevant findings read as under:

"Since the expenditure incurred by the assessee towards freebies and incentives to doctors is hit by Explanation 1 to section 37(1), the same cannot be allowed as business expenditure notwithstanding the fact that such expenditure may have been incurred for business promotion."