2022 (12) TMI 1418 - AT - Income Tax

Tribunal decision: Partial win for assessee on Section 14A, ESOP expense allowed, Revenue's cross-appeal dismissed

Bajaj Finance Limited Versus The DCIT, Circle-8, Pune.

The Tribunal partly allowed the assessee's appeal regarding the disallowance under Section 14A, restricting the disallowance to Rs. 50,000. The Tribunal ... “ESOP” (Employee Stock Options) deduction - not an allowable revenue expenditure u/s.37? - HELD THAT:- As in assessee’s case itself [2022 (9) TMI 239 - ITAT PUNE] involving the preceding twin assessment years 2010-11 and 2011-12, has already rejected the Revenue’s arguments as relying on CIT Vs. Biocon Ltd [2020 (11) TMI 779 - KARNATAKA HIGH COURT] - Thus, we see no infirmity in the order passed in allowing the claim of ESOP expenses under section 37(1) of the Act. The ground raised by the Revenue is rejected. Disallowance of interest income on Non Performing Assets (NPAs) on accrual basis - HELD THAT:- It emerges during the course of hearing that the same is also no more res integra in light of hon’ble jurisdictional high court’s recent common order involving assessment years 2009-10 to 2011-12 in assessee’s case(s) itself [2019 (4) TMI 378 - BOMBAY HIGH COURT] declining the Revenue’s ground held that interest on NPAs cannot be taxed on accrual basis. It was noted that NBFC would be governed by the directions issued by the Reserve Bank of India and RBI directives provided that under certain circumstances, a loan or advance would be treated as NPA. The Court on the real income theory held that such interest would not be taxable. We notice that the decision of the Delhi High Court in case of Vasisth Chay Vyapar Ltd [2010 (11) TMI 88 - DELHI HIGH COURT] was carried in the appeal by the Revenue before the Supreme Court. The Supreme Court in the judgment reported in [2018 (3) TMI 56 - SUPREME COURT] approved the decision of the High Court and dismissed the appeal. Decided against revenue. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Disallowance of claim for deduction in respect of Employee Stock Options (ESOP) expenditure.3. Disallowance of interest income on Non-Performing Assets (NPAs) on accrual basis.Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee challenged the CIT(A)'s decision to uphold the Assessing Officer's (AO) disallowance under Section 14A by applying Rule 8D. The assessee argued that the disallowance of Rs. 50,000 made in the return of income was reasonable and that the AO failed to record objective satisfaction before invoking Rule 8D. The Tribunal referred to the case of Joint Investment Vs. ACIT (2015) 372 ITR 694 (Delhi), noting that disallowance should not exceed the exempt income itself. The Tribunal directed the AO to restrict the disallowance to Rs. 50,000, the amount already disallowed by the assessee, thus partly accepting the assessee's grounds.2. Disallowance of claim for deduction in respect of Employee Stock Options (ESOP) expenditure:The assessee contended that the lower authorities erred in disallowing the ESOP deduction claim of Rs. 14,98,37,670 under Section 37(1) of the Act. The Tribunal referred to its previous order and the Special Bench decision in Biocon Ltd., which allowed ESOP expenditure as a deductible expense under Section 37(1). The Tribunal noted that the AO should have followed the Special Bench decision without distinguishing it. The Tribunal also referred to the Karnataka High Court's decision in CIT LTU vs. Biocon Ltd., which upheld the deductibility of ESOP expenditure. Consequently, the Tribunal allowed the assessee's grounds relating to ESOP expenditure.3. Disallowance of interest income on Non-Performing Assets (NPAs) on accrual basis:The Revenue's appeal contested the CIT(A)'s decision to delete the disallowance of interest income on NPAs. The Tribunal referenced the jurisdictional High Court's order, which held that interest on NPAs should not be taxed on an accrual basis, aligning with the principle of real income theory. The Tribunal noted that the Revenue could not distinguish the facts or law for the assessment year under consideration. Thus, the Tribunal affirmed the CIT(A)'s decision and dismissed the Revenue's appeal.Conclusion:The Tribunal partly allowed the assessee's appeal regarding the disallowance under Section 14A and fully allowed the appeal concerning ESOP expenditure. The Revenue's cross-appeal on the disallowance of interest income on NPAs was dismissed.