Case summary, Income Tax

Whether the Assessee can claim an amount which was spent on giving gifts to medical practitioners as a deduction?

Case: Shine Pharmaceuticals v. DCIT (Ahmedabad ITAT)


  1. The assessee did not make employees’ contribution as mandated by the ESIC by the given due date.  The AO added INR 3,79,404 to the assessee’s income due to this non-compliance.
  2. The AO further disallowed the expenditure of INR 19,45,443 to be claimed as a deduction. The assessee had spent this amount on distributing gifts/providing hospitality to doctors/medical practitioners. Out of this amount, the assessee spent INR 14,45,443 in buying gifts such as laptop, mobile, watches etc. for doctors/medical practitioners and INR 500,000 on the lodging, boarding and travelling of doctors/medical practitioners.
  3. The Assessee filed an appeal on the aforementioned grounds against the CIT(A), but the CIT(A) confirmed the AO’s order.
  4. Hence, the assessee filed an appeal in the ITAT.

Revenue’s Arguments

  • The assessee had not made employee contributions under ESIC by the due date. Revenue relied on the case of CIT v. Gujarat State Road Transport Corporation, wherein it was held that the assessee shall not be entitled to the deduction of payments of Employee’s Contribution to ESIC account if it is paid to the concerned account after the due date.
  • The revenue argued that the MCI prohibits medical practitioners from inter alia, accepting gifts, travel facilities, hospitality, cash or monetary grants.  It relied on the CBDT Circular being No. 5/2012 (F. No. 225/142/2012-ITA.II), dated 01.08.2012 in order to advance its argument. Keeping in view the same, it argued for the invocation of explanation to Section 37(1) which prohibits a deduction for any expenditure which is incurred for a purpose prohibited under law or for an offence.

Assessee’s Arguments

  • The assessee submitted that the matter has already been decided by a coordinate bench in an identical issue in assessee’s own case for the Financial Years, 2013-14 (Shine Pharmaceuticals v. DCIT Circle) which was decided in February 2019.  The assessee, in this case, had argued that the gifts were given to dealers and not to doctors/medical practitioners and hence did not attract the applicability of Section 37(1). The assessee did not contest the applicability of the aforementioned circular.

Tribunal’s Judgement

  • The Tribunal also relied on the order passed by the coordinate bench.
  • In the order passed by the coordinate bench, the following was held:
    • The gifts such as laptops, mobiles and watches were not part of sales promotion expenses.
    • No documentary evidence was furnished by the assessee to show that the intended recipients of these gifts were dealers and not doctors/medical practitioners.
    • The assessee also failed to furnish any scheme under which these gifts were given to the dealers or any evidence to show that these freebies were not further passed on to the doctors.
    • The assessee had duly admitted the disallowance of INR 500000 during the assessment proceedings. It argued that the travelling expenses were incurred for medical representatives but no documentary evidence for the same was provided.
    • The appeal of the assessee was accordingly dismissed.
  • The ITAT too relied on this identical judgement and dismissed the appeal of the assessee while confirming the CIT(A)’s order.

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