2022 (2) TMI 1382 - AT - Income Tax

Tribunal allows appeal, directs deletion of disallowance under Section 14A & SAR expenses.

The appeal filed by the assessee was allowed by the Tribunal. The Tribunal directed the deletion of additions related to both the disallowance under ... Disallowance u/s. 14A - assessee earned dividend income which was claimed as exempt u/s. 10 (34) / 10 (35) - Suo moto disallowance made by assessee - HELD THAT:- This Tribunal in A.Y. 2010-11 [2022 (7) TMI 374 - ITAT DLEHI] has considered a similar disallowance as held for the purpose of computing the disallowance u/s. 14A of the Act only such investments which yielded exempt income during the year should be taken into consideration, but not the entire investment. Going by that principle, we find that during the year, the investment in Karnataka Bank Ltd. alone yielded dividend income. Tribunal accepted the contention of the assessee as far as the investment in shares of Karnataka Bank Ltd. was concerned. It is, therefore, clear that no disallowance could be made towards interest expense u/r. 8D(2)(ii) of the rules. Disallowance of SAR expenses written back in the current year - HELD THAT:- As decided in [2020 (9) TMI 141 - ITAT DELHI] the issue-in-dispute of SAR expenses as revenue in nature is covered in favour of the assessee. Respectfully following the above decisions, we set aside the order of the learned CIT(A) and delete the addition. Issues Involved:1. Disallowance made under Section 14A of the Income Tax Act.2. Disallowance of Stock Appreciation Rights (SAR) expenses.Issue-wise Detailed Analysis:1. Disallowance made under Section 14A of the Income Tax Act:The first grievance of the assessee pertains to the disallowance made under Section 14A of the Income Tax Act. The facts of the case reveal that the assessee earned a dividend income of Rs. 84,942,157/- which was claimed as exempt under Sections 10(34) and 10(35) of the Act. In the revised return, the assessee suo-moto disallowed Rs. 4,286,933/- under Section 14A. However, the Assessing Officer (AO) was not satisfied and computed the disallowance as per Rule 8D, resulting in a total disallowance of Rs. 6,86,56,904/-.The assessee argued that the dividend was received solely from investments in shares of Karnataka Bank Limited, and thus only those investments yielding tax-exempt income should be considered. The counsel for the assessee relied on the decision of the Hon’ble Jurisdictional High Court of Delhi in ACB India 374 ITR 108. The Tribunal found merit in the assessee's contention, noting that similar disallowances were deleted in the previous assessment year (2010-11) under identical facts. The Tribunal upheld that only investments yielding exempt income during the year should be considered for disallowance under Section 14A read with Rule 8D, as per the decision in ACB India Ltd. vs. ACIT 374 ITR 108.The Tribunal directed the AO to delete the addition of Rs. 6,43,69,971/-, allowing the assessee's grounds related to this issue.2. Disallowance of Stock Appreciation Rights (SAR) expenses:The second grievance concerns the disallowance of SAR expenses. The holding company of Religare Finvest Limited introduced the Religare Enterprises Ltd. Employees Stock Appreciation Rights Scheme 2007 to motivate and retain key employees. During the year under consideration, the assessee claimed a residuary amount of Rs. 11,89,114/- written back in the books. The AO disallowed this deduction and added the advances written off amounting to Rs. 3,40,868/-.The assessee referred to the decision of the Coordinate Bench in similar matters for previous assessment years, which had ruled in favor of the assessee. The Tribunal reviewed the orders and found consistency in the judicial decisions, noting that similar issues had been adjudicated favorably for the assessee in earlier cases. The Tribunal cited the relevant findings and judicial precedents, including decisions from the Hon’ble Delhi High Court and the Madras High Court, which recognized SAR expenses as revenue expenditure and not capital expenditure.Respectfully following these decisions, the Tribunal directed the AO to delete the addition of Rs. 15,29,982/-, thus allowing the grounds related to this issue.Conclusion:The appeal filed by the assessee was allowed, with the Tribunal directing the deletion of additions related to both the disallowance under Section 14A and the SAR expenses. The order was pronounced in the open court on 10.02.2022.