ITAT allows trademark payment deductions and advertisement expenses but upholds delayed PF contribution disallowance

ITAT Delhi ruled in favor of the assessee on multiple grounds. The tribunal allowed deduction of trademark payments to associated enterprises, following precedent from earlier assessment years where HC had not stayed the order. Ad-hoc disallowance of 30% advertisement expenditure was deleted, holding such expenses were wholly for business purposes. However, disallowance of delayed PF contributions was upheld following Delhi HC precedent in Bharat Hotels Ltd. Interest under Section 234A was deleted as return was filed within due date, but Section 234B interest was upheld as consequential.

---

---

Issues Involved:
1. General grounds of appeal by the assessee.
2. Disallowance of payment for trademark to associated enterprises.
3. Ad-hoc disallowance of advertisement and publicity expenditure.
4. Disallowance of delayed deposit of employee's contribution towards Provident Fund.
5. Levying of interest under Sections 234A and 234B of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. General Grounds of Appeal:
The counsel for the assessee submitted that ground nos. 1 to 1.2 were general in nature and thus, these grounds of appeal were dismissed.

2. Disallowance of Payment for Trademark:
Ground nos. 2 to 2.4 pertained to the AO's order holding that no recognizable benefit was passed to the appellant, thus disallowing Rs. 12,14,96,000/- paid for the trademark to associated enterprises. The counsel for the assessee argued that this issue was covered in favor of the appellant by prior Tribunal orders for assessment years 2007-08 to 2012-13. The DRP noted that this was a legacy issue consistently decided in favor of the assessee by the Tribunal. The Tribunal found no material changes in the factual matrix and followed the precedent, setting aside the AO's order and allowing the appeal on this ground.

3. Ad-hoc Disallowance of Advertisement and Publicity Expenditure:
Ground nos. 3 to 3.2 challenged the AO's ad-hoc disallowance of Rs. 3,80,70,000/- being 30% of the total expenditure on advertisement and publicity. The counsel for the assessee stated that this issue was also covered in favor of the appellant by earlier Tribunal orders. The Tribunal noted that the AO had disallowed the expenses on the ground that the brand was not owned by the assessee, and thus, the expenses were for the benefit of the brand owner. However, the Tribunal had previously held that such advertisement expenditure was incurred wholly for the purpose of the assessee's business and should be allowed in entirety. Following the precedent, the Tribunal vacated the disallowance and allowed the appeal on this ground.

4. Disallowance of Delayed Deposit of Employee's Contribution Towards Provident Fund:
Ground no. 4 addressed the disallowance of Rs. 26,79,798/- due to delayed deposit of employee's contribution towards Provident Fund. The AO disallowed the amount based on CBDT Circular No. 22/2015, stating that such claims are governed by Section 36(1)(va) of the Act. The assessee argued that the amounts were paid before the due date for filing the return of income under Section 139(1). The Tribunal referred to the Delhi High Court's decision in CIT Vs. Bharat Hotels Ltd., which held that amounts deducted from employees' salaries and deposited beyond the stipulated period are not deductible. Consequently, the Tribunal found no error in the AO's order and dismissed the appeal on this ground.

5. Levying of Interest Under Sections 234A and 234B:
Ground no. 5 concerned the levy of interest under Sections 234A and 234B. The AO charged interest under Section 234A for late filing of the return. The assessee contended that the return was filed within the statutory time limit. The Tribunal confirmed that the return was filed within the due date and thus, no interest under Section 234A was leviable. As for interest under Section 234B, the AR of the assessee submitted that it was consequential, and this ground was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal setting aside the AO's orders on trademark payment and advertisement expenditure disallowance, while upholding the disallowance for delayed Provident Fund deposits and dismissing the interest under Section 234B. The Stay Petition filed by the assessee was dismissed as infructuous. The order was pronounced in the open court on 26/02/2019.

---