After Apex Laboratories, has the Assessing Officer to disallow my entire sales promotion budget as freebies to doctors, or only part of it?
Only part of it, and only after a head-wise examination. The Mumbai Tribunal upheld a Commissioner (Appeals) order that confined the Explanation 1 disallowance to expenditure on travel facilities and hotel accommodation for medical practitioners, and allowed patient detection and education camps, symposiums and exhibition stalls, sponsorship of trade bodies, journals and periodicals, field printing, taxi hire for the company's own field staff and nominal brand recall items. Both the assessee's appeal and the Revenue's appeal on this issue were dismissed.
Decided by the ITAT (Om Prakash Kant AM and Anikesh Banerjee JM (ITAT Mumbai 'H' Bench)) on 2026-06-23, reported as ITA Nos.4233, 4234, 4235, 4236 and 4237/Mum/2025 and ITA Nos.5191, 5192, 5193, 5194 and 5056/Mum/2025; assessment years 2013-14, 2015-16, 2016-17, 2017-18 and 2018-19. It bears on section 37(1), section Explanation 1 to 37(1), section Explanation 3 to 37(1), section 132(4), section 153A, section 80-IB, section 80-IC of the Income Tax Act 1961, in Deductions & Disallowances, Search, Survey & Block Assessment and Evidence & Burden of Proof matters.
Apex Laboratories P Ltd v DCIT (Supreme Court, 2022), already in this library, decided that freebies to medical practitioners contrary to the Medical Council regulations are hit by Explanation 1 to s.37(1). What Apex did NOT do is tell an Assessing Officer where the line falls inside a pharmaceutical company's marketing ledger, and this order is the working answer: the prohibited categories are those in Regulation 6.8.1 — gifts, travel facilities, hospitality, and cash or monetary grants — and expenditure outside them is ordinary business promotion. Three time-lines matter and are recorded in the order. CBDT Circular No.5/2012 dated 1 August 2012 is clarificatory but effective only from 14 December 2009, the date of implementation of Regulation 6.8, so pre-14 December 2009 sales promotion expenditure is not hit at all. The MCI Notification dated 1 February 2016 excludes brand recall items of less than Rs 1,000. And for AY 2022-23 onwards, clause (ii) of Explanation 3 to s.37(1) puts the point beyond doubt by covering expenditure to provide any benefit or perquisite whose acceptance by the recipient violates any law, rule, regulation or guideline governing his conduct — so a pre-2022 finding that the payer was not himself bound by the MCI regulations no longer helps.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Following a search, the Assessing Officer examined the assessee pharmaceutical company's 'Sales Promotion and Marketing Expenses' for AY 2013-14 and, relying principally on statements recorded under s.132(4) from an employee and a director, on the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations 2002, the MCI Notification dated 10 December 2009 and CBDT Circular No.5/2012, held that expenditure under heads including patient education and detection camps, doctors' meetings and medical awareness programmes, participation in symposiums and exhibition stalls, sponsorship, brand recall purchases, camp expenses, journals and periodicals, taxi hire charges and field printing represented prohibited freebies to medical practitioners and was inadmissible under Explanation 1 to s.37(1). He disallowed Rs 19,23,79,082 in aggregate, apportioned it between units eligible for deductions under ss.80-IA, 80-IB and 80-IC and non-eligible units in the ratio of turnover, and made an effective addition of Rs 10,69,34,270 attributable to the non-eligible units. The Commissioner (Appeals), following a coordinate Bench order dated 8 April 2024 in the assessee's own case for AYs 2009-10 to 2014-15 arising out of the same search, examined the expenditure head-wise and restricted the disallowance to expenditure on travel and hotel facilities provided to medical practitioners. The assessee challenged the sustained disallowance and the Revenue challenged the relief.
The Commissioner (Appeals)'s findings on this issue were upheld. There was no infirmity in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners. Grounds 2 and 3 raised by the assessee and ground 1 raised by the Revenue were both dismissed (para 7.24).
The Tribunal held the issue was no longer res integra: a coordinate Bench, adjudicating identical additions in the assessee's own case for AYs 2009-10 to 2014-15 arising out of the very same search, had examined the scope of Regulation 6.8.1, CBDT Circular No.5/2012 and Apex Laboratories, and held that only expenditure which directly confers prohibited benefits upon medical practitioners — gifts, travel facilities, hospitality or monetary grants — attracts Explanation 1 to s.37(1), while expenditure on patient education programmes, medical awareness camps, symposiums, exhibitions, journals, periodicals, sponsorship of professional events, field printing materials, taxi hire incurred by sales personnel and nominal brand recall items does not; expenditure on travel facilities, hotel accommodation and similar hospitality extended to medical practitioners was held disallowable (paras 7.19 and 7.20). The Commissioner (Appeals) had faithfully followed that precedent and examined each category head-wise (para 7.21). The Departmental Representative could not point to any distinguishing feature in the facts of the year, and no material showed a change in the factual matrix or the legal position, so judicial discipline and consistency required the earlier view to be followed (paras 7.22 and 7.23).
we find no infirmity in the order of the learned CIT(A) in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners
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Handle my notice → Ask a CA on WhatsAppOnly part of it, and only after a head-wise examination. The Mumbai Tribunal upheld a Commissioner (Appeals) order that confined the Explanation 1 disallowance to expenditure on travel facilities and hotel accommodation for medical practitioners, and allowed patient detection and education camps, symposiums and exhibition stalls, sponsorship of trade bodies, journals and periodicals, field printing, taxi hire for the company's own field staff and nominal brand recall items. Both the assessee's appeal and the Revenue's appeal on this issue were dismissed. This was decided by the ITAT (Om Prakash Kant AM and Anikesh Banerjee JM (ITAT Mumbai 'H' Bench)) and bears on section 37(1), section Explanation 1 to 37(1), section Explanation 3 to 37(1), section 132(4), section 153A, section 80-IB, section 80-IC of the Income Tax Act 1961. It is reported as ITA Nos.4233, 4234, 4235, 4236 and 4237/Mum/2025 and ITA Nos.5191, 5192, 5193, 5194 and 5056/Mum/2025; assessment years 2013-14, 2015-16, 2016-17, 2017-18 and 2018-19. Apex Laboratories P Ltd v DCIT (Supreme Court, 2022), already in this library, decided that freebies to medical practitioners contrary to the Medical Council regulations are hit by Explanation 1 to s.37(1). What Apex did NOT do is tell an Assessing Officer where the line falls inside a pharmaceutical company's marketing ledger, and this order is the working answer: the prohibited categories are those in Regulation 6.8.1 — gifts, travel facilities, hospitality, and cash or monetary grants — and expenditure outside them is ordinary business promotion. Three time-lines matter and are recorded in the order. CBDT Circular No.5/2012 dated 1 August 2012 is clarificatory but effective only from 14 December 2009, the date of implementation of Regulation 6.8, so pre-14 December 2009 sales promotion expenditure is not hit at all. The MCI Notification dated 1 February 2016 excludes brand recall items of less than Rs 1,000. And for AY 2022-23 onwards, clause (ii) of Explanation 3 to s.37(1) puts the point beyond doubt by covering expenditure to provide any benefit or perquisite whose acceptance by the recipient violates any law, rule, regulation or guideline governing his conduct — so a pre-2022 finding that the payer was not himself bound by the MCI regulations no longer helps. If it applies to you, the first step is this: Break the sales promotion ledger down head by head before the Assessing Officer, with the nature and recipient of each head stated — a global disallowance is what fails on appeal.
Following a search, the Assessing Officer examined the assessee pharmaceutical company's 'Sales Promotion and Marketing Expenses' for AY 2013-14 and, relying principally on statements recorded under s.132(4) from an employee and a director, on the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations 2002, the MCI Notification dated 10 December 2009 and CBDT Circular No.5/2012, held that expenditure under heads including patient education and detection camps, doctors' meetings and medical awareness programmes, participation in symposiums and exhibition stalls, sponsorship, brand recall purchases, camp expenses, journals and periodicals, taxi hire charges and field printing represented prohibited freebies to medical practitioners and was inadmissible under Explanation 1 to s.37(1). He disallowed Rs 19,23,79,082 in aggregate, apportioned it between units eligible for deductions under ss.80-IA, 80-IB and 80-IC and non-eligible units in the ratio of turnover, and made an effective addition of Rs 10,69,34,270 attributable to the non-eligible units. The Commissioner (Appeals), following a coordinate Bench order dated 8 April 2024 in the assessee's own case for AYs 2009-10 to 2014-15 arising out of the same search, examined the expenditure head-wise and restricted the disallowance to expenditure on travel and hotel facilities provided to medical practitioners. The assessee challenged the sustained disallowance and the Revenue challenged the relief. The matter was decided on 2026-06-23 by the ITAT (Om Prakash Kant AM and Anikesh Banerjee JM (ITAT Mumbai 'H' Bench)). On those facts the ITAT held as follows. The Commissioner (Appeals)'s findings on this issue were upheld. There was no infirmity in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners. Grounds 2 and 3 raised by the assessee and ground 1 raised by the Revenue were both dismissed (para 7.24).
The Tribunal held the issue was no longer res integra: a coordinate Bench, adjudicating identical additions in the assessee's own case for AYs 2009-10 to 2014-15 arising out of the very same search, had examined the scope of Regulation 6.8.1, CBDT Circular No.5/2012 and Apex Laboratories, and held that only expenditure which directly confers prohibited benefits upon medical practitioners — gifts, travel facilities, hospitality or monetary grants — attracts Explanation 1 to s.37(1), while expenditure on patient education programmes, medical awareness camps, symposiums, exhibitions, journals, periodicals, sponsorship of professional events, field printing materials, taxi hire incurred by sales personnel and nominal brand recall items does not; expenditure on travel facilities, hotel accommodation and similar hospitality extended to medical practitioners was held disallowable (paras 7.19 and 7.20). The Commissioner (Appeals) had faithfully followed that precedent and examined each category head-wise (para 7.21). The Departmental Representative could not point to any distinguishing feature in the facts of the year, and no material showed a change in the factual matrix or the legal position, so judicial discipline and consistency required the earlier view to be followed (paras 7.22 and 7.23). In the words reproduced by the source cited on this page: "we find no infirmity in the order of the learned CIT(A) in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners" The decision followed or applied Apex Laboratories Pvt. Ltd. v. DCIT (442 ITR 1) (SC) — applied, as construed by the coordinate Bench; IPCA Laboratories Ltd., ITA Nos.879 to 883/Mum/2021, order dated 8 April 2024 (ITAT Mumbai) — followed; Himalaya Drug Company v. CIT (124 taxmann.com 252) (ITAT Bangalore) — relied on for brand recall items below Rs 1,000.
It was decided by the ITAT on 2026-06-23 and is reported as ITA Nos.4233, 4234, 4235, 4236 and 4237/Mum/2025 and ITA Nos.5191, 5192, 5193, 5194 and 5056/Mum/2025; assessment years 2013-14, 2015-16, 2016-17, 2017-18 and 2018-19. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 37(1), section Explanation 1 to 37(1), section Explanation 3 to 37(1), section 132(4), section 153A, section 80-IB, section 80-IC, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Commissioner (Appeals)'s findings on this issue were upheld. There was no infirmity in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners. Grounds 2 and 3 raised by the assessee and ground 1 raised by the Revenue were both dismissed (para 7.24). It arises in Deductions & Disallowances, Search, Survey & Block Assessment and Evidence & Burden of Proof matters, on section 37(1), section Explanation 1 to 37(1), section Explanation 3 to 37(1), section 132(4), section 153A, section 80-IB, section 80-IC of the Income Tax Act 1961, and was decided by Om Prakash Kant AM and Anikesh Banerjee JM (ITAT Mumbai 'H' Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test each head against Regulation 6.8.1's four categories: gifts, travel facilities, hospitality, and cash or monetary grants to a medical practitioner. Expenditure to institutions and trade bodies, and expenditure benefiting patients rather than doctors, falls outside. Concede what cannot be defended — doctors' air tickets, hotel accommodation, local conveyance and refreshments for doctors attending conferences were disallowed here. For brand recall items, keep item-wise values and documentation showing each is under Rs 1,000, and cite the MCI Notification dated 1 February 2016. Where the disallowance rests only on a statement recorded under s.132(4) with no seized material, take that point squarely: it was the assessee's principal ground here. Check where the year falls: expenditure before 14 December 2009 is outside Circular No.5/2012, and from AY 2022-23 Explanation 3(ii) applies.
Validity check could not be completed. Pronounced on 23 June 2026 and not yet tested; no later treatment exists to check and none was checked. The order is a Tribunal decision following a coordinate Bench in the same assessee's own case, so it binds nobody else; the underlying 2024 coordinate Bench order was not retrieved. All of the assessment years dealt with are before AY 2022-23, so clause (ii) of Explanation 3 to s.37(1) did not fall for consideration. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
IMPORTANT ON LOCATORS: the Tribunal's own paragraphs on this issue are 7 to 7.24. Paragraphs 7.20 and 7.21 reproduce, at length, a coordinate Bench order dated 8 April 2024 in the assessee's own case (ITA Nos.879 to 883/Mum/2021) and a passage from the Commissioner (Appeals) order; the internal numbering inside those quotations runs from 11.10 to 11.28 and belongs to the 2024 order, NOT to this order. Nothing between 11.10 and 11.28 is cited here as this Bench's paragraph. The 2024 coordinate Bench order was not itself retrieved. The findings on Circular No.5/2012 and on Abbott India Ltd v ACIT (WP No.685 of 2016, Bombay High Court, 10 February 2023) are reported here as the quoted 2024 order records them; the Abbott India judgment could NOT be located on indiankanoon (a title search returned only industrial-disputes and state-tax matters) and has not been read. TRUNCATION: the indiankanoon text of this order is truncated at source. It ends mid-sentence in the over-invoicing discussion, at "…only over invoicing was done. The Investigating Authorities are noted to have followed up with another question to explain the details of transactions made with this answer with", the last numbered paragraph printed being 9.13. There is no "In the result" paragraph on the page and THE FORMAL DISPOSAL OF THE APPEALS WAS NOT READ; the only dismissal recorded above is the ground-wise dismissal inside para 7.24 itself. Separately, the source text of para 7.24 carries a line-wrap artefact and prints "sustaining the disallowance owance relating to travel and hotel facilities"; the duplicated syllable has been removed from the key_quote and nothing else in it has been altered. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Commissioner (Appeals)'s findings on this issue were upheld. There was no infirmity in granting relief in respect of the expenditure held to be outside the ambit of the MCI Regulations while sustaining the disallowance relating to travel and hotel facilities provided to medical practitioners. Grounds 2 and 3 raised by the assessee and ground 1 raised by the Revenue were both dismissed (para 7.24).
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Can a pharmaceutical company deduct the cost of gifts given to doctors?
The whole disallowance rests on an Investigation Wing report. Is that enough?
They recorded your statement in a survey. Can the addition rest on that alone?
The seized documents say nothing about the years being assessed. Can s.153C still be used for them?