TMI Blog2022 (4) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicability of LIBOR has also been restored by the Tribunal to the file of the AO for the AY 2012-13. Following the ITAT s order in assessee s own case for assessment year 2012-2013, we restore this issue to the file of AO/TPO. The TPO is directed to follow the direction given in assessee s own case [ 2020 (6) TMI 135 - ITAT BANGALORE] for the AY 2012-2013. The TPO shall ascertain the applicable LIBOR during the year under consideration and make the adjustment. Fee imputed on corporate guarantee extended to subsidiaries - HELD THAT:- The assessee provided corporate guarantee to USL Holdings Ltd, BVI and USL Holdings UK Ltd without charging any guarantee commission. TPO computed the TP adjustment of Rs. 122,24,28,300 calculated at 3% of corporate guarantee given. DRP confirmed the TP addition made by the TPO. The learned AR argued that corporate guarantee was not an international transactions, it was given out of commercial expediency and as a part of shareholder activity. It was thus argued that TP adjustment should not be made for the corporate guarantee given. It was also argued that without prejudice, the TP adjustment should be restricted to 0.5% of the corporate gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter allowing sufficient opportunity of hearing to the assessee. Disallowance under section 14A - HELD THAT:- Disallowance under section 14A of the I.T.Act and restore the issue to the file of the AO. The AO shall follow the above directions of the ITAT and recompute the disallowance u/s 14A of the I.T.Act. It is ordered accordingly. Disallowance of interest u/s 36(1)(iii) - HELD THAT:- We set aside the substantive and the protective addition made under section 36(1)(iii) and restore the issue to the file of the AO to follow similar directions as given above. Disallowance of payments for promotion and advertisement expenses - AO disallowed the sales promotion and advertisement expenses for the reason that these expenses are brand promotion expenditures of USL logo, it promotes the brand the assessee, gives enduring benefit and hence capital in nature - HELD THAT:- 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] .- We al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(iii) of the Act. 1,40,46,63,276 6. Disallowance of payments for promotion and advertisement expenses. 44,33,55,403 7. Disallowance based on Project Spirits Report 54,49,10,000 As a result, the AO recomputed the total income of the assessee at Rs.15,19,93,90,755 as against the income of Rs.4,93,71,22,200 declared in the return of income. Further, interest u/s 234B of the Act was levied amounting to Rs.1,81,25,18,840 and also interest u/s 234C was recomputed to Rs.2,74,11,513. 4. Being aggrieved by the order passed by the AO, the assessee has preferred this appeal before the Tribunal, raising the following grounds:- Interest income imputed on interest free advance made to Associated Enterprises - Rs. 548,04,95,014 Erred in law by imputing interest on interest tree advances made to Associated Enterprises 1.1. The learned TPO / Hon'ble DRP have erred in law by imputing notional interest income on advances made to Associated Entities (' AE ') to the extent of Rs.548,04,95,014 1.2. The learned TPO / Hon'ble DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout prejudice to the above, the learned TPO/ Hon'ble DRP has erred in imputing interest at rates prescribed by CRISIL for long term debts but should have rather computed the same based on the borrowing rate prevalent in the recipient's country. 1.11. Notwithstanding and without prejudice to the above, having concluded that the funds given to AE's were diversion of funds the learned TPO has erred treating the transactions as an advance and imputing an interest on the same. 1.12. Notwithstanding and without prejudice to the above, the learned TPO ought have imputed interest at LIBOR +based on judicial precedents. 1.13. Notwithstanding and without prejudice to the above, the learned TPO erred in concluding that the transactions entered into by the Appellant are not in the normal course and not straight forward, hence, UBOR+ shall not be applicable to the Appellant. 2. Commission imputed on issue of Corporate Guarantee ('CG') to USL Holdings Limited - Rs.122,24,28,300 Erred in law by treating corporate guarantee provided as an international transactions 2.1. The learned TPO/ Hon'ble DRP has erred in law in inferring 'Corporate Guarantee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of accounts are maintained by the Appellant. Erred in law by considering the entire interest expenditure incurred during the year was for making investments 4.2. The learned AO/ Hon'ble DRP has erred in law and on facts while holding that the interest cost was incurred on account of earning tax free income. 4.3. The learned AO/ Hon'ble DRP failed to appreciate that there is no nexus between the borrowed funds and the funds utilized for investments. 4.4. The learned AO/ Hon'ble DRP ought to have appreciated that the Appellant's internal accruals far exceeds the value of the investments made. Erred in not considering the additional evidences made 4.5. The Hon ble DRP has erred in not considering the additional evidences submitted by the Appellant on 10 August 2017. Inclusion of investments that did not yield exempt income during the year 4.6. Notwithstanding and Without prejudice to the above, learned AO/ Hon'ble DRP erred in law and facts by not excluding investments which did not yield any exempt income while arriving at the disallowance under section l4A of the Act read with Rule 80 of the Rules. Inclusion of interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.140,46,63,276 Erred in law by invoking provisions of section 36(1 )(iii) 5.1. The learned AOI Hon'ble DRP has erred in law and on facts by disallowing interest incurred by the Assessee to the extent of Rs. 140,46,63,276 under section 36(1)(iii) of the Act by concluding that borrowed funds had been utilized for the purpose of advancement of interest free loans to related parties. 5.2. The learned AO / Hon'ble DRP has erred in concluding that the borrowings made by the Assessee were not utilized for the purpose of business. 5.3. The learned AO / Hon'ble DRP erred in concluding that advances made for acquisition and expansion of the Appellant's business and to ensure smooth supply of raw material qualify as commercial expediency. Commercial Expediency for loans and advances made to related parties 5.4 The learned AO / Hon'ble DRP has erred in not observing that the loans and advances were made to related parties were for the reason of commercial expediency. 5.5 The learned AO / Hon'ble DRP has failed to observe that the advances made to the related parties / subsidiaries has been utilized for their business purposes, which is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the Appellant and accordingly incorrect 5.14. Notwithstanding and without prejudice to the above grounds, the learned AO has erred in law and on facts in making a protective assessment and computing disallowance on loans granted to certain related parties, as the learned TPO has already imputed notional interest income on these loans granted to such related parties during the year under consideration resulting in double taxation of the same income. 6. Disallowance of payments made to Royal Challengers Sports Private Limited, United Racing Bloodstock Breeders and United Mohun Bagan Football Team Private Limited for promotion and advertisement - Rs 36,91,12,995 6.1. The learned AO/ Hon'ble DRP has erred in law and on facts in disallowing payments made on sales promotion and advertisement expenditures, by treating the same as capital in nature. 6.2 The learned AO/ Hon'ble DRP has erred in considering that the incurrence of such expenditure results in enduring benefit to the Appellant and accordingly capital in nature. 6.3. The learned AO/ Hon'ble DRP has erred in not observing that the Appellant had already an established brand logo and the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO and the DRP has erred in not granting depreciation on the aforesaid expenditure, merely because no asset was recorded in the books of the accounts of the Appellant. 8. Disallowance of payments based on Project Spirit report- Rs.54,49,10,000 8.1. The learned AO has erred in making disallowance without giving any reasons for the same without appreciating the contents of the said report and making an arbitrary disallowance. 8.2. The Hon'ble DRP has failed to adjudicate on this objection filed by the Appellant. 8.3. The Hon'ble DRP and the learned AO erred in making the disallowance of the revenue expenditure without appreciating the fact that the said transactions are not recorded in the books of the Appellant and consequently no expenditure is claimed in the return of income. 8.4. The Hon'ble DRP erred in confirming the disallowance made by the learned AO based on Project Spirits Report under section 37 of the Act without taking cognizance of the provisions of the section, which provides for disallowance of expenditures laid out only by an assessee. In the given case, no such revenue expenditure of Rs.48, 14,00,000 was claimed by the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional grounds, which reads as follows:- Ground no. 12: Claim of deduction in respect of 'education cess on income-tax' and 'secondary and higher education cess on income-tax' for the year under consideration 12.1. The learned AO has erred in not allowing a deduction for the 'education cess on income-tax' payable for the year under consideration. 12.2. The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, 'education cess on income-tax' for the year under consideration, ought to be allowed as a deduction while assessing its income for the year under consideration. 12.3. The Appellant submits that the learned AO be directed to re-compute its total income and tax thereon after allowing deduction for 'education cess on income-tax. 6. We shall adjudicate the issue / grounds as under: Notional interest imputed on interest-free advances extended by the assessee to its AE (Ground 1) (TP Adjustment) 7. From the year 2007, the assessee had advanced interest free funds to its AE. It is stated that the amount was advanced for the purpose of acquisition of business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to be imputed. In this context, it was contended that the loan advanced had in fact been converting to equity on 21.09.2020 (The evidence of same was placed as additional evidence). Further, the learned AR relied on the order of Bennett Coleman Co. Ltd. reported in (2021) 129 taxmann.com 397 and contended that notional interest cannot be computed when loan transaction was for the purpose of acquiring share of another entity so as to further the assessee s business interest. Without prejudice to all the above contentions, it was submitted that interest ought to be restricted to LIBOR. 7.6 The learned DR submitted that the issue in question was decided by the ITAT in assessee s own case (supra) for assessment year 2012-2013 in favour of the Revenue. 7.7 We have heard rival submissions and perused the material on record. In the instant case the admitted facts are that the assessee provided interest free loans to AEs. These loans were given for the purposes of acquisition of business of various global suppliers of liquor. The TPO made an adjustment of Rs. 548,04,95,014 computed as per Annexure 1 to order passed under section 92CA and the DRP confirmed the same. As mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending or guarantee etc. Hence, TPO has examined the interest free loan given by the assessee to its AE, as the same falls under the definition of International Transaction and made Transfer Pricing adjustment in this year. 27. We shall now deal with various arguments advanced by the assessee. The Ld A.R submitted that Chapter X dealing with determination of Arms Length price of international transactions is a machinery provision and the same cannot acquire primacy over the charging provisions like sec.4,5, 15 etc. Accordingly, he submitted that the income should have accrued to the assessee and then only the provisions of Chapter X can be applied to international transactions, i.e., it was submitted that the provisions of sec.92(1) could be invoked only when there arises any income from the international transaction, since the provisions of sec.92(1) uses the expression Any income arising from an international transactions shall be computed having regard to the arms length price . Accordingly, it was contended that existence of income is sine qua non for invoking the provisions of sec.92(1) of the Act. It was contended that the assessee does not have any contractual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession international transactions has been defined to include capital financing, loan transactions etc. Hence there should not be any dispute that the impugned interest free loan given by the assessee to its AE shall fall under the definition of International transaction . However, it is the case of the assessee that there is no requirement of determining ALP of transactions, when there is no income at all from the international transactions. This argument was rejected by the Ld DRP by following the decision rendered by the Special bench of ITAT in the case of Instrumentarium Corporation Ltd (supra) and the Ld DRP has extracted following observations made by the Special bench dealing with the above said contentions of the assessee:- 37. In our considered view, the commercial expediency of a loan to subsidiary is wholly irrelevant in ascertaining arm's length interest on such a loan. There is indeed no bar on anyone advancing an interest free loans to anyone but when such transactions are covered by the international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext of benefit test, but then the benefit test is not really relevant in the context of Indian transfer pricing legislation. Learned counsel has not explained as to how these inputs are relevant in interpreting the scope of the statutory provision before us, nor do we see any relevance of this material in the present context and given the fact situation above. It is also important to bear in mind the uncontroverted findings of the Assessing Officer that the interest was all along charged by the assessee on its loans to Datex but, for some unexplained reasons, the assessee has stopped charging interest in the assessment year 2003-04. The commercial bonafides of the present transactions are not established. As regards the assessee's claim that the revenue authorities have re- characterized the transaction, and that they do not have the powers to do so, we find that the claim of the assessee is ill conceived inasmuch as there is no re-characterization of the transaction, inasmuch as it continues to be a loan transaction and inasmuch as the substitution of zero interest by arm's length interest does not alter the basic character of transaction. The question of re characterizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP adjustment therein, and then bring the ALP adjustment to tax, since the computation is of income and it is only the price at which transaction is entered into that is to be taken as an arm's length price in computation of that income. The ALP adjustments cannot be treated as income per se. However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm's length interest must substitute this zero interest. The answer is obvious. As long as the transaction is an international transaction between the AEs, the computation of income has to be on the basis of arm's length interest. Therefore, in our considered view, even when no income is reported in respect of an item in the nature of income, such as interest, but the substitution of transaction price by arm's length price results in an income, it can very well be brought to tax under Section 92. This plea of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of doubts, it is hereby clarified that the allowance for any expenses or interest arising from an international transaction shall also be determined having regard to the arms length price. The argument of the assessee that income should arise out of the international transaction contradicts the above said Explanation, because allowance for any expenses per se cannot produce any income. However, if the said claim for any expense falling under international transaction is not at arms length, then the same shall produce income to the extent of payment made in excess of arms length price. As observed by the Special bench, if the transaction falls under the definition of international transaction, then the same is required to be tested under arms length principle even if it did not produce any real income to the assessee. Suppose the income that arose to the assessee from an international transaction is Rs.100/- and the arms length price is Rs.125/- For computing total income, the AO shall adopt Rs.125/- only as income arising from the said international transaction. The real income principle fails here, since Chapter X brings in a legal fiction/deeming provision and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 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. 34. The Ld A.R submitted that the AO/TPO was not right in adopting yield rate applicable to bonds rated by CRISIL agency. He submitted that the impugned loan has been given to a foreign AE and hence the LIBOR rate should have been applied by the TPO. He also placed his reliance on the decision rendered by Hon'ble Rajasthan High Court in the case of Vaibhav Gems Ltd (supra). He also submitted that the LIBOR has been accepted by the co-ordinate bench of Bangalore ITAT in the case of M/s Sasken Technologies Ltd vs. DCIT (IT(TP)A 550/Bang./2016). In view of these judicial rulings, we restore this issue to the file of AO/TPO with the direction to examine this claim of the assessee by duly considering the decisions referred above and also that may be relied upon by the assessee in the set aside proceedings. 7.7.2 The assessee has filed the additional evidence for conversion of loan to shares subsequent to the year under consideration. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s own case for assessment year 2012-2013, we restore this issue to the file of AO/TPO. The TPO is directed to follow the direction given at para 34 of decision in assessee s own case in IT(TP)A No 489/Bang/2017 for the AY 2012-2013. The TPO shall ascertain the applicable LIBOR during the year under consideration and make the adjustment. 7.8. In the result, ground 1.1 to 1.13 are partly allowed for statistical purposes. Fee imputed on corporate guarantee extended to subsidiaries (ground 2) (TP Adjustment) 8. The assessee had extended corporate guarantee during the financial year 2007-2008 to its subsidiaries, i.e., USL Holdings UK Limited, which had obtained funds from Banks for the acquisition of Whyte Mackay Group. It was stated that the said guarantees continued during the year under consideration too. It was submitted that since corporate guarantee was given for the expansion of the company s business, no fee was charged on the same. Further, it was submitted that no guarantee commission was charged / imputed by the AO / TPO up to assessment year 2012-2013. 8.1 The TPO, however, held that giving a guarantee is an `international transaction and has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 4074,76,10,000. The DRP confirmed the TP addition made by the TPO. The learned AR argued that corporate guarantee was not an international transactions, it was given out of commercial expediency and as a part of shareholder activity. It was thus argued that TP adjustment should not be made for the corporate guarantee given. It was also argued that without prejudice, the TP adjustment should be restricted to 0.5% of the corporate guarantee given. The assessee also relied on the decision of the Bombay High Court in CIT v Asian Paints India Ltd [2016] 75 taxmann.com 152 and contended that the adjustment if any should be restricted to 0.2% as held in the above decision. The learned DR relied on the TPO, DRP orders and justified the addition. 8.6.1 The Bombay High Court in CIT v Everest Kento Cylinders Ltd [2015] 378 ITR 57 dismissed the revenue s appeal and upheld the charging of guarantee commission at 0.5% on the corporate guarantee. Thus, the contention of the learned AR that TP adjustment should not be made cannot be accepted. The co-ordinate bench in the case of Manipal Global Education Services Pvt. Ltd ITA No 388/Bang/2016 and recently in Medreich Ltd ITA No 1574 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udited financial statements for assessment year 2013-2014, the outstanding balance of Whyte Mackay as on 31st March, 2013 was Rs.10,428 million, whereas, the value of the impugned transaction is only Rs.686.02 million (refer page 1088 of the paper book capturing the relevant page of the annual report for the year). Therefore, the allegation of the TPO that the assessee has not purchased the raw materials was incorrect and accordingly the disallowance made is not in line with the facts of the case. (iii) The assessee also submits that the purchases made during the year were stored in the warehouse for maturation and hence, at the end of the year, the same was considered in the closing stock. Accordingly, if the purchases are disallowed, the closing stock also ought to be reduced from the taxable income resulting in no tax impact. (iv) Notwithstanding and without prejudice to the above, we wish to submit that the TPO has not applied any of the six methods as prescribed under section 92C of the Act to determine the arm s length price of the transaction. In this regard, reliance is placed on the following rulings wherein Courts have held that not adopting one of the mandatorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mutual Funds / Dividend from domestic companies 2.299 Exempt by virtue of section 10(34) and 10(35) of the Act. Total 4.838 10.1 During the course of assessment proceedings, the AO proposed to apply the provisions of section 14A read with rule 8D. The AO had proposed to make the subject disallowance of Rs.90,89,00,000. 10.2 Aggrieved, the assessee filed objection before the DRP. The DRP upheld the proposed disallowance, however, with specific directions to exclude overseas investments, the income from which was offered to tax in India (para 2.12 page 45 of the paper book). 10.3 Based on the DRP s direction, the AO excluded the investments in overseas subsidiaries and recomputed the disallowance at Rs.48,04,00,000 in the final assessment order. 10.4 Aggrieved by the final assessment order, the assessee has raised this issue before the ITAT. The learned AR submitted that the issue stands covered in favour of the assessee by the order of the Tribunal in assessee s own case for assessment year 2012-2013 (supra), wherein the Tribunal has given the following dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities. When the disallowance is worked out under rule 8D(2)(ii), this contention of the assessee would loose its significance. (c) The Ld A.R submitted that, for the purpose of computing average value of investments, the AO should consider only those investments which have actually yielded exempt dividend income. We notice that this argument of the assessee finds support from the decision rendered by the Special bench in the case of Vireet Investments P Ltd (165 ITD 27)(Delhi-SB). Accordingly, we direct the AO to exclude investments, which did not yield exempt income, while computing average value of investments. (d) The Ld A.R also contended that the disallowance should not exceed the amount of exempt income. In this regard, he placed his reliance on the decision rendered by jurisdictional High Court in the case of Pragathi Krishna Gramin Bank vs. JCIT (2018)(95 taxmann.com 41). We direct the AO to take into consideration above said binding decision while examining this issue. Accordingly, we restore this issue to the file of the AO for examining it afresh in the light of discussions made supra. 10.6.1 Following the above order of the ITAT in assessee s own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. The AO made a disallowance of Rs.138,05,93,276 under section 36(1)(iii) for the reason that the interest bearing funds have been given as interest free loans to various related parties including AEs. The DRP upheld the disallowance made by the AO with a direction that the disallowance of interest by the AO to the extent of TP adjustment in relation to this interest free loan should be only on protective basis. Following the directions, the AO in the final assessment order, made an addition of Rs.140,46,63,276 and a protective addition of Rs. 26,77,06,867 under section 36(1)(iii) of the I.T.Act. 11.5.1 The Tribunal in appellant s own case for the AY 2012-13 in IT(TP)A No. 489/B/2017 order dated 29.5.2020 considered similar issue and held as follows:- 42. We heard Ld D.R and perused the record. From the arguments of the ld A.R, we notice that the 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 (supra) shall apply to the facts of the present case, in which event, no interest disallowance is called for. We notice that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed, no depreciation can be allowed. 12.3 The final assessment order was passed by the AO in accordance with the directions of the DRP. 12.4 Aggrieved, the assessee has raised this issue before the ITAT. The learned AR submitted that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case for A.Y. 2012-2013 wherein the Tribunal has held that payment of these expenses on sponsorship are revenue expenditure. The said issue has been discussed by the Tribunal in para 43 to para 49 on page 28 to page 38 of its order. (The findings of the Tribunal are recorded in para 45 to para 49 on page 30 to 38 of the order). In view of the foregoing, the AR submits that the brand promotional expenses be allowed as business expenditure u/s 37(1) of the Act. 12.5 The learned Departmental Representative supported the finding of the AO and the DRP. 12.6 We have heard rival submissions and perused the material on record. The AO disallowed the sales promotion and advertisement expenses totally amounting to Rs. 44,33,55,403 [36,91,12,995 + 7,42,42,408] for the reason that these expenses are brand promotion expenditures of USL logo, it promotes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d General Mills Co.Ltd.(115 ITR 659) of the honorable Delhi High Court, the FAA allowed the appeal filed by the assessee. 3.1.a. With regard to management fee, the FAA observed that there was no doubt about the genuineness of expenditure, that the expenditure was incurred for availing infrastructure facilities administrative support, like manpower recruitment, HR services, uses of computer, telephone, photo copiers, infrastructure set up etc. in order to carryout business operations smoothly, that the parent company had allocated a certain amount to the account of the assessee in the ratio of its turnover. He finally held that expenditure had to be allowed as revenue expenditure. 3.2. Before us, the DR supported the order of the AO and the AR relied upon the order of the FAA. We find that the assessee group had entered into an agreement with India Win, that it was a co- sponsor of Mumbai Indian IPL team, that it had incurred similar expenditure in the subsequent two years, that out of the total expenditure the assessee had claimed a very small proportion under the head sponsorship expenses. Such an expenditure is for advertising the brand name of the Group. Being a recurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he action of the AO, on the ground, that the expenditure was benefitting all the entities across the globe and hence, it could not be said to have been incurred wholly and exclusively for the business of the assessee. 89. The learned counsel for the assessee submitted that the said disallowance was unwarranted since the said expense was incurred in view of the fact that major viewership of cricket is in the Indian subcontinent. He also referred to various newspapers reports which demonstrated the popularity of the sport in India to support the aforesaid contentions. It was also submitted that the assessee company has consistently promoted its range of products using cricket as an advertising platform. It was also to our notice that payment of sponsorship fees to ICC was remitted by the assessee after deduction of tax at source as instructed by the Income Tax Department. Further, the assessee had obtained the approval of the Ministry of Youth Affairs and Sports for sponsoring the events covered under the agreement. Copy of the order under section 195 of the Act and the approval received from the Ministry of Youth Affairs and Sports has been enclosed at pages 247 to 249 and 224 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO that in all the years transfer pricing adjustments has been made on this score and benefit is arising to the other AEs also. What is relevant for an expense to be allowable as revenue expense is that, whether it has been incurred during the course of business and is for the purpose of business. Benefit factor to other related parties is relevant under transfer pricing provision and not while allowability of business expense u/s 37(1). It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. Any such incurring of expenditure is ostensibly for promotion of business only and hence, no disallowance is called for. Accordingly, Grounds No.7 to 7.3 in ITA No.1044/Del/2014 pertaining to A.Y. 2009-10 are allowed. 47. We notice that the co-ordinate benches are consistently holding the view that the 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 (supra) and the relevant discussions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al commercial sense and in common parlance sales promotion and publicity are activities aimed at gaining goodwill in the market. They need not be confined to media propaganda but can involve indirect approaches. The judgment of a Division Bench of this Court in CIT v. Adidas India Marketing (P.) Ltd. [2010] 195 Taxman 256 (Delhi) has recognized that brand promotion exercises undertaken through media campaigns, schemes, programmes etc are essential for propagation of the brand. The necessity (or lack of it) is not something which income tax authorities can go into; as long as it is voluntarily undertaken by the business enterprise for profit earning, it would be entitled to claim relief under section 37(1). 23. In the present case, the AO was conscious of the fact that brand promotion expenses are a necessary ingredient in marketing strategies. Therefore, he allowed about 50 per cent of those expenses. However, the reasoning for disallowance of the rest, i.e. that the assessee could claim only a proportion of such expenses, since advertising expenses were to be borne by the sister concern dealer, and that the proportion was in respect of its territory, was not upheld. This Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in the said judgment. 8. We have perused the judgment. We find ourselves in agreement with the learned counsel appearing for the respondent/assessee. It would be relevant to reproduce the relevant observation made by the Supreme Court, in the said judgment, which, in our opinion, support the case of the respondent/assessee to contend that the expenditure of Rs. 10 lakhs would be on revenue account. The relevant observation in the case of Empire Jute Co. Ltd. (supra) reads thus: 'The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the Courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave L.C. in Atherton Vs. British Insulated H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nite future. In the present case, except the right to use the court yard, no other rights were created in favour of assessee. In other words, the amount paid to the Trust was for the use of the court yard under the MOU for an indefinite future, and therefore, it would be on revenue account. In other words merely because the advantage may endure for an indefinite future would not mean that the expenditure would be on capital account and not revenue. The advance of Rs. 10,00,000/-, in the present case, 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 and against the Revenue is correct and deserve no interference by this Court. 49. Respectfully following the above cited decisions, we set aside the order passed by AO on this issue and direct him to allow the impugned sponsorship expenses as revenue expenditure. 12.6.2 Following the above order the ITAT in assessee s own case for assessment year 2012-2013 (supra), we allow deduction of sales promotion and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 to 130 of the paper book). Given that the expenses were not claimed by the assessee, the disallowance of the expenses is unwarranted and bad in law. With respect to the remaining transactions, the assessee submitted that the disallowance based on the Project Spirit Report has been made without providing the reasons for making such disallowance and on an arbitrary basis without adjudicating on the objections filed by the assessee. In this connection, it was submitted that various Courts have repeatedly held that there must be something more than bare suspicion to support an addition or disallowance in an assessment. No disallowance can be made which are based on mere conjectures and surmises. In this context, it was submitted that the assessee being a victim of such fraud would in fact be eligible to claim such sums a deductible bonafide business loss as highlighted in the following judicial pronouncements:- (i) Baridas Daga v. CIT (34 ITR 10 (SC) (ii) Sassoon J David Co. P. Ltd. v. CIT (1975) 98 ITR 50 (Bom.) (iii) CIT v. Parmanand Makhan Lal (1983) 15 Taxman 12 (Patna) (v) Ramchandar Shivnarayan v. CIT (1978) 111 ITR 263 (SC) (vi) Khaitan Co. v. CIT (1979 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the claim of the assessee that certain transactions and the addition made thereto does not relate to the assessee. Considering the material on record and for the aforesaid reasoning, we set aside the impugned addition and restore this issue to the file of the AO for proper examination of all the facts relating to the said issue. The assessee shall provide all documentary evidence relating to its claim and the AO also shall make a proper enquiry in this regard. All contentions are left open to be considered by the AO in accordance with the law. 13.4.1 Hence grounds 8.1 to 8.8 are allowed for statistical purposes. Interest u/s 234B of the I.T.Act (ground 9) 14. The above ground is only consequential and the same is dismissed. Interest u/s 234C of the I.T.Act (ground 10) 15. The limited submission of the assessee is that interest u/s 234C of the I.T.Act should be calculated on the return income and not on the assessed income of the assessee. In this context, the learned AR relied on the Bangalore Bench order of the Tribunal in the case of SAP India Private Limited reported in (2014) 41 taxmann.com 7 (Bangalore Trib.). 15.1 We have heard rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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