Tribunal re-computes disallowance under section 14A, upholds deletion of Employee Stock Option expenses. Revenue's appeal dismissed.

The Tribunal partially allowed the Revenue's appeal, directing a re-computation of the disallowance under section 14A read with Rule 8D. The Tribunal upheld the deletion of expenses under "Employee Stock Option cost" and dismissed the Revenue's appeal on the perversity of the CIT(A)'s order. The Tribunal did not address the general grounds of appeal, stating they were of a general nature. The order was pronounced on 18/01/2016 by the Tribunal comprising SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER, and SMT. BEENA A. PILLAI, JUDICIAL MEMBER.

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Issues:
1. Disallowance under section 14A read with Rule 8D
2. Addition of expenses under "Employee Stock Option cost"
3. Perversity of CIT(A)'s order
4. General grounds of appeal

Issue 1: Disallowance under section 14A read with Rule 8D:
The Revenue appealed against the CIT(A)'s order restricting the disallowance under section 14A read with Rule 8D to Rs. 35,10,844 from Rs. 1,78,71,632. The assessee argued that it had surplus interest-free funds available for investments in shares and no fresh borrowings were required. The Tribunal noted that Rule 8D applied to the assessee for the assessment year 2009-10. The Tribunal held that while there was no direct or indirect interest expenditure attributable to earning exempt income, the disallowance under Rule 8D(2)(iii) had to be made only for investments generating tax-free income. The Tribunal directed the Assessing Officer to recompute the disallowance accordingly.

Issue 2: Addition of expenses under "Employee Stock Option cost":
The CIT(A) deleted the addition of Rs. 1,68,10,243 made by the Assessing Officer in respect of expenses debited under "Employee Stock Option cost." The Tribunal upheld this decision based on precedents and the assessee's submissions, dismissing the Revenue's appeal.

Issue 3: Perversity of CIT(A)'s order:
The Revenue contended that the CIT(A)'s order was perverse and contradictory to CBDT's circular. However, citing precedents and the High Court's decision in the assessee's favor for a previous year, the Tribunal dismissed the Revenue's appeal on these grounds.

Issue 4: General grounds of appeal:
The Tribunal did not adjudicate on general grounds of appeal, stating they were of a general nature. The Tribunal allowed the Revenue's appeal in part, directing a re-computation of the disallowance under section 14A read with Rule 8D. The order was pronounced on 18/01/2016 by the Tribunal comprising SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER, and SMT. BEENA A. PILLAI, JUDICIAL MEMBER.

This detailed analysis covers the key issues raised in the legal judgment before the Appellate Tribunal ITAT DELHI.

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