TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 803
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.... incurred on purchase of application software products as capital expenditure. 4. (a) The ld. CIT(A) erred in law in confirming the addition made by ld. Addl. CIT (hereinafter referred to as the ld. ACIT} by invoking the provisions of Rule 8D read with section 14A of the Act, on the ground that rule 8D is retrospective in nature and hence applicable to the assessee year under appeal. (b) Without prejudice to the above, the ld. CIT(A) erred on facts in not considering the appellants submission that interest expenditure of Rs. 10,38,82,525/- pertains to interest on preshipment loans, the same being for the purpose of the business of the company cannot be considered for allocation u/s 14A. 5. The ld. CIT(A) erred in treating the expenditure accounted by the appellants as prescribed by the accounting standard under its Employee Stock Purchase Scheme as Capital expenditure. 6. a) The ld. CIT(A) erred in law and on facts in not allowing the claim of set off of loss of Rs. 21,27,69,208/- pertaining to certain STP units against taxable business income of the appellant as required u/s 70 of the Act. b) Without prejudice to the above, the ld. CIT(A) erred in not directing the ....
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....tion of the order of the Tribunal has not been stayed, the effective order in operation as on date is that of the Tribunal, whereby the matter stands decided against the assessee. Therefore, Ground No.1 is rejected. 7. In so far as regards Ground No.2, as per the record, the assessee had paid Rs. 4,61,683/- as penal interest in USA towards late payment of tax. This was claimed as a deduction. The AO disallowed the claim, holding the provisions of section 40(a)(ii) of the Act to be applicable. It was observed that the late filing of return or late payment of advance tax or improper payment of advance tax is compensatory in nature and is a part and parcel of the tax covered u/s 40(a)(ii) of the Act. The ld. CIT(A) upheld the disallowance of penal interest. 8. This matter is also covered against the assessee by the Tribunal decision in assessee's own case in ITA No.4776/M/2004 (supra). Therefore, Ground No.2 is also rejected. 9. As per Ground No.3, the ld. CIT(A) erred in treating expenditure of Rs. 38,59,97,989/-, incurred on purchase of application software products as capital expenditure. 10. As per the record, the assessee incurred expenses of Rs. 38,59,97,989/- on account of ....
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....is decision, Rule 8D has no retrospective application. Therefore, it was not applicable to the year under consideration, i.e., 2005-06 and it has been wrongly applied. In this regard, the Department's contention that the AO has not applied the provisions of Rule 8D, but has rather merely taken guidance therefrom is of no avail to the department. Once rule 8D is not applied, according to the assessee, the addition is to be sustained for Rs. 17,000,686/- only. This amount represents the actual apportioned expenditure, This basis of disallowance, as per the assessee, as worked out by the assessee has been accepted by the department in the assessment years 2006-07 & 2007-08. 20. A perusal of the assessment order for AY 2006-07, a copy whereof has been placed on record, shows that the AO has followed/carried out the DRP's direction. Similar is the case for the A.Y. 2007-08. 21. For assessment year 2006-07, the amount of Rs. 16,73,399/-(employee and other cost of treasury group) and interest cost of Rs. 30,4000/- was taken to be direct and indirect expenses having proximity with the earning of exempted income. Therefore, a total of Rs. 19,77,399/- was disallowed. The assessee got a rel....
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....enditure was definitely for the purpose of business; that the issue was as to whether the expenditure was capital expenditure or not; that the two Supreme Court decisions cited by the AO were directly in connection with the expenditure incurred to expand the capital base and the Hon'ble Supreme Court had held that the expenditure was capital in nature and that the same principle was applicable to the assessee's case also. 26. The Ld. DR strongly relied on the impugned order. 27. In this regard, on behalf of the assessee, it has been asserted that the expenditure is for the purpose of the assessee's business, as the shares are allotted to the employees to incentivise and remunerate them for their performance. It has further been contended that the expenditure accounted for by the assessee is as per the SEBI Guidelines. Reliance has been placed on the following case laws: i) "Biocon Limited", 25 ITR (T) 402 (SB) Bangalore ii) "Nova Nordisk India (P) Ltd.", 63 SOT 242 (ITAT Banglore) iii) "SSI Ltd.", 85 TTJ 1049 (Chennai ITAT) iv) "PVP Ventures Limited", ( 211 Taxman 554) (Mad) v) Spray Engineering, 53 SOT 70 (ITAT Chandigarh) vi) "Dr. Reddy's Laboratories Limited", 30 I....
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....ith the earning of income. However, when a company undertakes to issue shares to its employees at a discounted premium at a future date, the primary object of this exercise is not to raise share capital, but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Such discount is construed, both by the employees and the company, as nothing but a part of package of remuneration, a substitute to giving direct incentive in cash for availing of the services of the employees. There is no difference between the two situations: one, when the company issues shares to the public at market price and a part of the premium is given to the employees in lieu of their services, and two, when the shares are directly issued to employees at a reduced rate. In both the situations, the employees stand compensated for their effort. It follows that the discount on premium under the employees' stock option scheme is simply one of the modes of compensating the employees for their services and is a part of their remuneration. Thus, such discount cannot be described as either a short capital receipt or a capital expenditure. 29.2. An expendit....
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....irecting the AO to consider the revised loss after making adjustment on account of disallowance made in the assessment order, instead of the loss of Rs. 21,27,69,208/-, as claimed by the assessee in the return of income. 33. As per the record, during the year under consideration, the following units of the assessee, which were otherwise eligible for deduction, had losses: Sr.No. Name of the undertaking Business Loss (in Rs.) 1. Malad STP 1 2,08,24,076 2. Kolkata GDC STP 2,57,83,149 3. New Delhi (TCS Towers)-STP 6,20,09,085 4. Abhilash-STP 1,40,71,059 5. Thane-STP 5,93,12,566 6. Vikhroli-STP 3,07,69,272 34. The assessee's set offs of the above losses were against the taxable business income u/s 70 of the Act. Further, these losses were set off against the taxable income of other STP units. The AO disallowed the assessee's claim of loss of Rs. 21,27,69,208/- pertaining to certain STP units. The AO applied the provisions of section 14A of the Act. Further, the AO disallowed the above loss as claimed in the return of income, instead of the revised loss after making adjustment on account of disallowance made in the assessment order. The ld. CIT(A) up....
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....order. 38. With regard to this issue, it is seen that in "Hindustan Unilever Ltd." (supra), the jurisdictional High Court, while dealing with the provisions of section 10B of the Act, the provisions whereof are like those of section 10A, were amended by the Finance Act, 2000, held, that the provisions, post amendment, are for deduction and that u/s 10B, loss in an eligible unit could be set off against the profits of business. The provisions of section 10A and those of section 10B are, mutatis mutandis, undisputedly pari-materia interse. Therefore, "Hindustan Unilever Ltd." is squarely applicable to the facts of the present case also. No decision contrary to this jurisdictional High Court judgment has been placed before us. Further, in "Galaxy Surfactants Ltd." (supra), again rendered by the jurisdictional High Court and in the context of section 10B of the Act, it has been held that loss in an eligible unit can be set off against the profits of business. "Hindustan Unilever Ltd." was referred to. 39. Besides, " Yokogawa India Ltd." (supra), according to the assessee, is the assessee's own case, the decision wherein has been rendered by the Hon'ble Karnataka High Court. Therein, ....