2018 (9) TMI 1244 - AT - Income Tax

Tribunal ruling: Depreciation rates, mark to market losses, ESOP expenses allowed; 0.5% disallowance under section 14A upheld.

The Tribunal allowed the higher rate of depreciation on UPS batteries, deleted the disallowance of mark to market losses, and ESOP expenses. The ... Addition u/s 14A - Held that:- The investments have been classified by the assessee as Strategic investments, Stock–in-trade & investment in other Shares / Venture Capital Fund. The assessee has already offered suo-moto disallowance @0.5% against investment in other Shares / Venture Capital Fund and therefore, there is no dispute against this category of investment. The disallowance under dispute is against Strategic investments & Stock–in-trade. In the absence of adequate data before us, AO to compute disallowance @0.5% against Strategic investments & Stock–in-trade after excluding there-from those investments which have not yielded any exempt income during impugned AY or which were not, at all, capable of yielding any exempt income subject to a further condition that overall disallowance, in no case, shall exceed exempt income of ₹ 131.46 Lacs earned by the assessee during the impugned AY. This ground stand partly allowed in terms of our above order. Unexplained entries appearing in Annual Information Return [AIR] - Held that:- Assessee was unable to reconcile certain entries as appearing in Annual Information Return [AIR] and therefore, the same were added to the income of the assessee. The same, upon confirmation by Ld. first appellate authority, is under appeal before us. The Ld. Sr. Counsel submitted that keeping in view the voluminous nature of data, the same remained un-reconciled and a view may be taken. In the absence of complete factual matrix, we are unable to provide any relief to the assessee, in this regard. This ground stand dismissed. Issues:1. Depreciation on UPS Batteries2. Mark to Market Loss of Rs. 7 Crores3. Employees Stock Option Plan (ESOP) expenses of Rs. 2.64 Crores4. Additional disallowance under section 14A and an addition based on Annual Information Return (AIR)Depreciation on UPS Batteries:The assessee claimed 80% depreciation on UPS and batteries, but the Assessing Officer (AO) restricted it to 15%, resulting in a disallowance of Rs. 66.47 Lacs. The Tribunal allowed the higher rate of depreciation based on previous decisions in the assessee's favor for earlier assessment years.Mark to Market Loss:The claim of Rs. 7 Crores for mark to market losses on future and option contracts was disallowed by the AO as a notional loss. However, the Tribunal deleted this addition by following its previous decisions for the relevant assessment years.Employees Stock Option Plan (ESOP) expenses:The AO disallowed Rs. 2.64 Crores claimed as ESOP expenses, considering it not a real expenditure. The Tribunal, following its decision for the relevant assessment year, deleted this addition, as the expenses were incurred for retention and remuneration purposes.Additional Disallowance under Section 14A and AIR Addition:The AO computed a disallowance of Rs. 327.19 Lacs under section 14A, which the assessee contested. The Tribunal directed the AO to compute the disallowance at 0.5% against strategic investments and stock-in-trade, excluding investments not yielding exempt income. The addition based on AIR entries amounting to Rs. 1.13 Lacs was upheld due to lack of reconciled data.In conclusion, the revenue's appeal was dismissed, while the assessee's appeal was partly allowed concerning the disallowance under section 14A. The Tribunal's decision was pronounced on 19th September 2018.