The Income Tax Department has accused Dolo-650 maker Micro Labs of adopting "unethical practices" and distributing freebies worth ₹1,000 crore to medical professionals and doctors for promoting products made by the company.

This comes after the tax department carried out search and seizure operations on the Bengaluru-based pharmaceutical group on July 6. The search action covered around 36 premises spread across nine states.

The drugmaker, engaged in the business of manufacturing and marketing of pharmaceutical products and Active Pharmaceutical Ingredients (API), has presence in over 50 countries.

During the course of the search operations, substantial incriminating evidence, in the form of documents and digital data, has been found and seized, the Income Tax Department says.

The initial gleaning of the evidence has revealed that the group has been debiting in its books of account unallowable expenses on account of distribution of freebies to the medical professionals under the head 'Sales and Promotion', the tax department says.

"These freebies included travel expenses, perquisites and gifts etc. to doctors and medical professionals for promoting the group's products under the heads 'Promotion and Propaganda', 'Seminars and Symposiums', 'Medical Advisories' etc," it says, adding that the evidence indicates that the group has adopted unethical practices to promote its products and brands.

"The quantum of such freebies detected is estimated to be around ₹1,000 crore," it adds.

The group is also found to have claimed artificially inflated deductions under special provisions in respect of certain incomes, by resorting to suppression of expenses and over-appropriation of revenue to the unit eligible for such deduction, the I-T department says.

"Various other means of tax evasion, including inadequate allocation of research and development expenses to eligible units and inflated claim of weighted deduction under section 35 (2AB), have also been detected," it adds.

The quantum of tax sought to be evaded through such means is estimated at over ₹300 crore.

"Instances of violation of provisions of tax deduction at source under section 194C of the Income-tax Act, 1961 have also been detected in respect of transactions under contracts entered into with the third-party bulk drug manufacturers," the tax sleuths say.

During the search action, unaccounted cash amounting to ₹1.20 crore and unaccounted gold and diamond jewellery worth more than ₹1.40 crore have also been seized, the CBDT says, adding that further investigations are in progress.

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