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2023 (8) TMI 913 - AT - Income TaxRectification of mistake u/s 154 - addition of sales promotion expenses - Debatable issue - HELD THAT - On perusal of column Broad Nature of Expenses of the table forming part of Paragraph 4 of the Rectification Order (reproduced hereinabove), it was not apparent the all the sales promotion expenses were incurred on freebies. To the contrary, the broad nature of expenses given in the table suggested that the sales promotion expenses were not in the nature of freebies such as Market Research Fee , Off Supplies Puch (Sales Promotion) , Printing Reproduct (Sales Promotion) , and Documentation Books (Promotional Expenses) . The balance expenses could have included expenses on freebies. This was a matter of investigation as it was not apparent that the sales promotion expenses was incurred on freebies. Thus, the issue of allowance of sales promotion expenses (including freebies) in the hands of the Appellant was debatable and required investigation and arguments on facts and in law. Thus, it cannot be said that allowance of deduction of sales promotion expenses by the AO resulting in a mistake apparent on record. Therefore, absent mistake apparent on record, the action of the AO fell beyond the scope of Section 154. Accordingly, order passed by the AO u/s 154 is quashed. Appeal of assessee allowed.
Issues Involved:
1. Jurisdiction of the Assessing Officer to pass rectification order under Section 154 of the Act. 2. Merits of the addition of sales promotion expenses of INR 11,30,18,798/-. 3. Charging of tax at the rate of 30% (plus surcharge and education cess) on addition of INR 4,13,91,854/-. 4. Consequential levy of interest under Section 234B of the Act. 5. Charging of interest under Section 220(2) of the Act. Summary: Jurisdiction of the Assessing Officer to pass rectification order under Section 154 of the Act: The Appellant challenged the jurisdiction of the Assessing Officer to pass the rectification order under Section 154 of the Income Tax Act, 1961. The Tribunal noted that Section 154 allows rectification of "mistake apparent from the record," which refers to glaring and obvious mistakes but not debatable issues requiring investigation and arguments. The Tribunal emphasized that the issue of sales promotion expenses was debatable and not a mistake apparent on record. The Tribunal referenced past decisions where similar expenses were allowed and noted that the Assessing Officer did not have the benefit of the Supreme Court's judgment in Apex Laboratories Pvt. Ltd. at the time of passing the rectification order. Thus, the Tribunal quashed the order dated 29/01/2016, passed by the Assessing Officer under Section 154 of the Act. Merits of the addition of sales promotion expenses of INR 11,30,18,798/-: The Appellant argued that the sales promotion expenses were allowed by the Assessing Officer after due inquiry and verification. The Tribunal observed that the expenses were not entirely freebies and included legitimate business expenses such as market research fees and printing costs. The Tribunal concluded that the issue was debatable and required further investigation, making it unsuitable for rectification under Section 154. Charging of tax at the rate of 30% (plus surcharge and education cess) on addition of INR 4,13,91,854/-: This issue was rendered infructuous as the Tribunal quashed the rectification order, making the addition irrelevant. Consequential levy of interest under Section 234B of the Act: Similarly, this issue was also rendered infructuous due to the quashing of the rectification order. Charging of interest under Section 220(2) of the Act: This issue was disposed of as infructuous following the quashing of the rectification order. Conclusion: The Tribunal allowed the appeal, quashing the rectification order dated 29/01/2016, passed by the Assessing Officer under Section 154 of the Act, and rendered the other grounds of appeal infructuous. The order was pronounced on 27.06.2023.
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