2020 (6) TMI 135 - ITAT BANGALORE

Rectification u/s 154 - draft assessment order, i.e., without complying with the directions issued by Ld DRP - AO has passed a rectification order suo-motu complying with the directions issued by the Ld DRP in respect of transfer pricing adjustment and also complying with the directions in respect of other matters except the matter of addition relating to belated payment of PF/ESI - HELD THAT:- Action of the AO would show that he has consciously omitted to comply with or completely disregarded the provisions of sec.144C of the Act by either ignoring the directions issued by Ld DRP or they have passed the final assessment order beyond the limitation period.

In the instant case, we have noticed that the AO has actually passed the order u/s 143(3) r.w.s 144C(13) of the Act, meaning thereby, he has intended to comply with the directions issued by Ld DRP.

By inadvertence, he has omitted to incorporate the directions in the final assessment order, which was duly rectified by passing a rectification order u/s 154 of the Act. There should not be any dispute that the Act visualizes committing of mistakes apparent from record either by the assessee or by the assessing officer and hence the provisions of sec. 154 have been incorporated in the Act.

The mistakes apparent from record can be either pointed out by the assessee or it can be noticed by the assessing officer himself. Accordingly he may pass the rectification order suo-motu or on the application filed by the assessee in order to rectify the said mistake apparent from record. The Act also prescribes a time limit of four years for rectifying such mistakes.

In the instant case, the assessing officer has passed the rectification order within one week from the date of passing of final assessment order. Accordingly, we are of the view that there was inadvertent omission on the part of the AO in not complying with the directions issued by Ld DRP, which has been duly rectified by him by passing the rectification order u/s 154 - A.R submitted that the AO has only partially complied with the directions, i.e., he has not followed the direction in respect of addition relating to belated payment of PF/ESI. In our view, this omission should also be treated as mistake apparent from record, which could have been brought to the notice of the AO by the assessee himself. Hence the said omission, in our view, would not be fatal to the final assessment order.

Transfer Pricing adjustment made in respect of interest free advances given to M/s USL Holdings Limited - HELD THAT:- The fact remains that, during the year under consideration, the impugned transactions remained as loan transactions only. The loan has been given to a holding company and the proposed acquisition of a foreign company was proposed to be executed through Special Purpose Vehicles. Thus we notice that there appears to be multiple layers in the proposed scheme. There was no contractual obligation or option for converting the loan into equity as existed in the case of Cadila healthcare Ltd [2017 (4) TMI 462 - ITAT AHMEDABAD]. It is a fact that the TPO/DRP did not deal with the contentions of the assessee regarding quasi-equity. However, it is stated that the assessee has intended to convert the loan into equity. When the loan transactions remained as loan transactions in the books, in our view, the contention of any such intention cannot be recognized. Under these set of facts, we are unable to appreciate this alternative contention of the assessee.

Disallowance made u/s 14A - HELD THAT:- We direct the AO to exclude investments, which did not yield exempt income, while computing average value of investments.

Disallowance of interest expenditure relatable to the interest free advances given by the assessee to the related parties - own funds available with the assessee is in excess of the aggregate amount of interest free advances and hence the decision rendered by Hon'ble Supreme Court in the case of Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] shall apply to the facts of the present case, in which event, no interest disallowance is called for. We notice that this contention of the assessee has not been examined by the AO in the light of decision of Hon'ble Supreme Court referred above. Accordingly, we restore this issue to the file of the AO to examine the factual aspects and for deciding this issue following the decision rendered by Hon'ble Supreme Court, referred above. If the disallowance gets deleted on this ground, then other contentions of the assessee would be rendered academic in nature. However, if any part of disallowance is liable to be made, then the AO should consider other arguments of the assessee also in the set aside proceedings.

Disallowance of promotion and advertisement expenses - HELD THAT:- We notice the issue relating to allowability of expenditure incurred on sponsorship of sports event was considered by the Mumbai bench of ITAT in the case of Samudra Developers Pvt Ltd [2017 (4) TMI 1188 - ITAT MUMBAI] and it was held that the same is allowable as revenue expenditure.

Expenditure incurred on sponsoring of sports events are intended to promote business only and hence the same is allowable as expenditure. The allowability of brand promotion expenses was examined by Hon'ble Delhi High Court in the case of Modi Revelon P Ltd [2012 (9) TMI 48 - DELHI HIGH COURT] consists merely in facilitating the assessee's business operations, enabling the management to conduct their Hotel business more efficiently and profitably. We are, therefore, satisfied that the view taken by the Tribunal in answering this question in favour of Assessee.

Disallowance of PF/ESI payments for belated remittance - DRP directed the AO to delete the disallowance by following the decision rendered by jurisdictional Karnataka High Court in the case of Sabari Enterprises [2007 (7) TMI 169 - KARNATAKA HIGH COURT] - It is the say of the assessee that the AO did not follow the direction given by Ld DRP on this issue in the final assessment order as well as in the rectification order passed by the AO thereafter - HELD THAT:- Since it is a matter of rectification, we direct the AO to rectify the mistake pointed out by the assessee on this issue by deleting the disallowance as per the direction issued by Ld DRP.

We heard the parties on this issue. Since it is a matter of rectification, we direct the AO to rectify the mistake pointed out by the assessee on this issue by deleting the disallowance as per the direction issued by Ld DRP.