2022 (2) TMI 177 - AT - Income Tax

Tribunal allows ESOP deduction, remands quantification, instructs on LTCG, interest calculation, and admits additional grounds.

M/s. Deutsche CIB Centre Pvt. Ltd. Versus The Assistant Commissioner of Income Tax-12 (2) (1), Mumbai

M/s. Deutsche CIB Centre Pvt. Ltd. Versus The Assistant Commissioner of Income Tax-12 (2) (1), Mumbai - TMI Issues Involved:1. Disallowance of Equity Stock Options (ESOP) expenditure.2. Quantification of deduction under section 10A of the Income Tax Act.3. Incorrect recording of Long Term Capital Loss.4. Rectification application for credit of tax paid.5. Charging of interest under sections 234B, 234C, and 234D.6. Admission of additional ground of appeal regarding deduction on account of Education Cess and Higher and Secondary Education Cess.7. Transfer pricing adjustment.Detailed Analysis:1. Disallowance of Equity Stock Options (ESOP) expenditure:The assessee's claim of Rs. 1,52,46,000/- as ESOP expenditure was disallowed by the Assessing Officer (AO) on the grounds that it was capital expenditure and unascertainable. The Dispute Resolution Panel (DRP) upheld the AO's decision. The Tribunal, however, allowed the deduction under section 37(1) of the Act, following the Special Bench decision in Biocon Ltd. v. DCIT and its affirmation by the Karnataka High Court. The Tribunal ruled that ESOP expenses are not contingent liabilities and should be allowed as revenue expenditure.2. Quantification of deduction under section 10A:The assessee's revised claim for deduction under section 10A, amounting to Rs. 35,53,98,193/-, was rejected by the AO for not being filed through a revised return. The DRP also rejected it, citing the absence of a CA certificate. The Tribunal remanded the issue back to the AO for verification of the revised claim, noting that the audit certificate was filed on 11.10.2010, the same date as the return of income.3. Incorrect recording of Long Term Capital Loss:The AO recorded Long Term Capital Loss as NIL instead of Rs. 26,29,364/-. The DRP upheld this, stating it was not discernible from the return. The Tribunal found that the loss was correctly reflected in the return's Schedule CFL and directed the AO to allow the carry forward of the Long Term Capital Loss.4. Rectification application for credit of tax paid:The assessee's rectification application dated 30.03.2015 for tax credit of Rs. 3,31,24,030/- was pending. The Tribunal directed the AO to dispose of the rectification application.5. Charging of interest under sections 234B, 234C, and 234D:The Tribunal directed the AO to compute interest under sections 234B, 234C, and 234D in accordance with the law, specifically noting that interest under section 234C should be computed on the returned income, not the assessed income.6. Admission of additional ground of appeal regarding deduction on account of Education Cess and Higher and Secondary Education Cess:The Tribunal admitted the additional ground, citing it as a legal issue based on the Jurisdictional High Court's decision in Sesa Goa Ltd. v. JCIT. The Tribunal allowed the deduction for education cess and higher & secondary education cess, following the precedent set by the High Court.7. Transfer pricing adjustment:The Transfer Pricing Officer (TPO) categorized the assessee as a Knowledge Process Outsourcing (KPO) service provider and made an adjustment of Rs. 18,68,71,000/-. The Tribunal directed the exclusion of Accentia Technologies Ltd. from the list of comparables, following its own decision in the assessee's case for A.Y. 2008-09, where it was found functionally dissimilar. The Tribunal remanded the issue to the TPO for re-working the arm's length margin, noting that the exclusion of Accentia Technologies Ltd. would bring the assessee within the tolerance band of +/- 5%.Conclusion:The appeal was partly allowed for statistical purposes, with directions for the AO to verify and re-compute various claims and adjustments in accordance with the Tribunal's findings and legal precedents.