The Comptroller and Auditor General (CAG) has asked the income tax department to disallow expenditure by companies in respect of all kinds of freebies and referral fees paid to doctors.

According to the report filed by the CAG, it also asked the department to disallow advertisement and business promotion expenses within the purview of explanation under section 37 of Income Tax Act 1961 to create an additional deterrence against such unethical practices.

The CAG in its report tabled in Parliament today observed that the “referral fees” paid to the doctors by the private hospitals, nursing homes, diagnostic centres for referring patients and payments made on account of “advertisement expenses” by the medical practitioners were allowed, although such expenditure has been held as disallowable and “unethical” as per CBDT’s directives and laws of regulatory bodies.

It also recommended the department to prescribe measurable parameters for assessment of charitable activities undertaken by private hospital trusts as a pre-condition for granting exemptions under the Income Tax Act.

The Income Tax Tribunals have recently took a view against allowing deduction in respect of amenities provided by the Pharmaceutical Companies in the cases of DCIT v. PHL Pharma Pvt Ltd and in M/s. India Medtronic Pvt. Ltd v. ACIT.

http://www.taxscan.in/cag-asks-dept-disallow-freebies-doctors-read-report/9814/