2018 (10) TMI 1962 - AT - Income Tax

Tax Tribunal Upholds Disallowance Decision under Section 14A, Rules in Favor of Taxpayer on ESOP Expenses

D.C.I.T. Circle – 14 (2) (1), Mumbai Versus M/s. L&T Infrastructure Finance Co. Ltd.

The ITAT Mumbai upheld the decision of the Ld.CIT(A) in the case concerning disallowance under section 14A r.w.s. Rule 8D of the Act, citing no infirmity ... Disallowance u/s. 14A r.w.s. Rule 8D - CIT-A deleted the addition - HELD THAT:- Disallowance was deleted for the reason that the assessee has its own funds far exceeding the investments. The Ld.CIT(A) followed the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT], CIT v. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] and HDFC Bank Ltd [2016 (3) TMI 755 - BOMBAY HIGH COURT]- Thus, we do not find any infirmity in the order passed by the Ld.CIT(A). This ground is rejected. Addition of Employee Stock Option Scheme [ESOP] expenses - revenue or capital expenditure - AO disallowed the ESOP expenses treating them as capital expenditure - As per CIT-A there are allowable as Revenue expenses u/s. 37 - HELD THAT:- CIT(A) following the decision of the Hon'ble Jurisdictional Tribunal in the case of DCIT v. Accenture Services (P.) Ltd [2010 (3) TMI 1107 - ITAT MUMBAI] and the Bangalore Bench of the Tribunal in the case of M/s. Novo Nordisk India (P.) Ltd. [2013 (11) TMI 218 - ITAT BANGALORE] and also the decision in the case of CIT v. Lemon Trees Hotel Pvt. Ltd. [2015 (11) TMI 404 - DELHI HIGH COURT] held that the ESOP expenses are Revenue expenses and therefore reimbursement of ESOP expenses by the assessee was deleted . We do not find any infirmity in the order passed by the Ld.CIT(A), hence the same is sustained. - Decided against revenue. Issues:1. Disallowance under section 14A r.w.s. Rule 8D of the Act.2. Employee Stock Option Scheme (ESOP) expenses treatment as capital expenditure.Issue 1: Disallowance under section 14A r.w.s. Rule 8D of the Act:The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals) concerning the Assessment Year 2012-13. The first ground of appeal was the deletion of disallowance under section 14A r.w.s. Rule 8D of the Act by the Ld.CIT(A). The Revenue argued that the disallowance was deleted by the Ld.CIT(A) based on the assessee's balance sheet, which showed own funds exceeding investments. The Ld.CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Reliance Utilities & Power Ltd. The ITAT Mumbai, after hearing the arguments, upheld the decision of the Ld.CIT(A) and rejected the Revenue's appeal, stating no infirmity in the order passed by the Ld.CIT(A).Issue 2: Employee Stock Option Scheme (ESOP) expenses treatment as capital expenditure:The second ground raised by the Revenue was the deletion of ESOP expenses treated as capital expenditure. The Assessing Officer disallowed the ESOP expenses as capital expenditure, but the Ld.CIT(A) reversed this decision following the rulings of the Hon'ble Jurisdictional Tribunal and the Bangalore Bench of the Tribunal. The ITAT Mumbai, after considering the arguments and perusing the order of the Ld.CIT(A), found that the ESOP expenses were allowable as Revenue expenses under section 37 of the Act. The ITAT Mumbai upheld the decision of the Ld.CIT(A) based on the legal positions held by various Courts and dismissed the Revenue's appeal. The reimbursement of ESOP expenses by the assessee was allowed, emphasizing that the expenses were part of motivating and awarding employees for their hard work and thus constituted allowable expenses for the business. The order passed by the Ld.CIT(A) was sustained, and the appeal of the Revenue was dismissed.