TaxTMI 
TaxTMI 
2021 (4) TMI 621
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....ee is engaged in the business of manufacturing, trading and export of animal health care products, bulk drugs and formulations etc. During the course of assessment proceedings, the AO noticed that assessee has charged to the profit & loss account a sum of Rs. 6,10,76,573/- as sample distribution cost under the head "Marketing Development Cost". The AO observed on the basis of details furnished by the assessee that these expenses are mostly incurred to give free samples to veterinary doctors and these veterinary doctors are further supposed to distribute the same to their patients so that the business of the assessee flourishes. The AO vide order sheet entry dated 22.03.2016 issued a show cause notice to assessee as to why the said expenses should not be disallowed and added to the income of the assessee as these samples are only given to vet. Doctors by referring to the notification of Veterinary Council of India published in official gazette on 01.04.1992. The AO also referred to circular No.5/2012 issued by CBDT on 01.08.2012 and held that Medical Council of India has imposed a prohibition on incentives to doctors by the pharmaceutical companies, providing freebies to medical pr....
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....expenditure of Rs. 6,10,76,573/- towards sample distribution expenses. 4.1.1. The Assessing officer has disallowed the said claim considering that it is in violation of code of conduct for veterinary doctors. Also the Assessing officer has referred circular no 5/2012 which prohibits medical practitioners and companies from providing any Gift, travel facility, hospitality, cash or monetary grant to the healthcare professionals. 4.1.2. During the course of appellate proceedings the appellant company has submitted before me the modus operandi for distribution of samples and also relied on following case laws: i) Max Hospital vs. MCI in Writ Petn. Case No. 1334/2013, judgment dt. 10th Jan., 2014, ii) Eskayef (Now Known as Smithkline Beecham) Pharmaceuticals (India) Ltd. vs. CIT (2000) 162 CTR (SC) 89 : (2000) 111 Taxman 561 (SC) iii) DCIT VS PHIL PHARMA. 55 ITR 168. 4.1.3. The appellant further stated that the company is in the business of manufacturing and marketing veterinary pharmaceuticals which includes drugs and feed used for cattle, pet and poultry. The appellant had distributed free samples to increase its sales. The marketing team known as medical representatives c....
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....owed by the appellant company. The appellant company has not violated the rules of the circular and there are no such expenses incurred. 4.1.4. I have considered the submissions and contentions made by the appellant company. The appellant has stated that the said samples are carried by its Medical representatives to villages and distributed directly to farmers free of cost without involvement of the veterinary doctors. MCI regulations and board circular speaks about prohibition on grant of Gifts, travel facilities, hospitality, cash or monetary grants. The MCI regulations or the board circular does not prohibit distribution of samples to doctors or otherwise. Also as per the data on record the said samples are marked as not for sale and hence does not provide any monetary benefit to the doctors. Hence distribution of samples are not prohibited under the MCI guidelines or the boards circular. Further distribution of samples is a necessary activity in pharmaceutical world to ascertain the efficacy of medicine and introduce it in the market for circulation and it is only by this method the purpose is achieved. In such cases giving a physician samples for reasonable period is essenti....
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....verseen by the medical representatives who go to the villages, town, cities to display their products and also show to the customers the benefit of these medicines. The Ld. CIT(A) observed that these samples are not given to veterinary doctors as freebies but they are displayed at the doctors' clinics so that the customers visiting the doctors can educate themselves from the displayed products and offered them to use these products. In the whole process, the medical representatives are constantly present in the market to see the response of the customers and looking at the results on animals and birds, the effect of these medicines are collated so that these medical teams could inform the doctors about the result of these medicines on animal and birds. The Ld. CIT(A) also noted that doctors can not sell these products and also can not earn any income from selling these samples. Therefore, these free samples in no way constitute any freebies to doctors or a gift or a travel facility or a hospitality or cash or money grants as has been contemplated by circular No.5/2012 dated 01.08.2012. The Ld. CIT(A) also observed that the medical guidelines issued by Medical Council of India or V....