TaxTMI 
TaxTMI 
TaxTMI 
2010 (9) TMI 1097
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....02/- 2) Electrical concealed wiring Rs. 3,33,856/- 3) Foundation work Rs. 1,72,525/- 4) Glass Rs. 4,859/- Total Rs. 6,78,542/- According to the A.O., the above expenses incurred by the assessee company resulted in enduring benefit to it and the same therefore were treated by him as capital expenditure. Accordingly, depreciation @ 10% amounting to Rs. 67,854/- was allowed by him resulting in the net disallowance of Rs. 6,10,688/-. The ld. CIT(A) confirmed the said disallowance. 5. As submitted by the learned counsel for the assessee at the time of hearing before us, a similar disallowance on account of expenses incurred on repairs was made by the A.O. and confirmed by the ld. CIT(A) in A.Y. 2004-05 to the extent of Rs. 3,90,662/- and the same has already been deleted by the Tribunal vide its order dated 10.6.2009 passed in ITA No. 478/Mum/08. A copy of the said order is placed at page No. 1 to 4 of the assessee's paper book and a perusal of the same shows that expenses incurred on repairs to the factory building of similar nature have been allowed by the T....
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.... exempt from tax. According to the A.O., administrative expenses incurred by the assessee were partly attributable to earning of the said exempt income and by estimating such quantum at Rs. 29,175/-being 5% of tax free income earned by the assessee by dividend and interest from tax free bonds, he made a disallowance to that extent by invoking the provisions of section 14A. The ld. CIT(A) upheld the action of the A.O. in invoking the provisions of section 14A to make the disallowance of administrative expenses. As regards the quantum of such disallowance, he however directed the A.O. to determine such quantum by applying Rule 8D of Income Tax Rules, 1962 inserted subsequently which resulted in enhancement of the income of the assessee. 10. We have heard the arguments of both the sides and also perused the relevant material on record. In its recent judgment delivered in the case of Godrej Boyce Mfg. Co. Ltd.(ITA 626 of 2010 dtd. 12.08.2010) the Hon'ble Bombay High Court has held that Rule 8D of the Income Tax Rules 1962 is applicable only prospectively i.e. from A.Y. 2008-09. Respectfully following the said judgment of the Hon'ble Bombay Hig....
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....ce there was no specific provisions contained in the Income Tax Act dealing with this issue, accounting practice suggested by the SEBI is required to be applied and adopted for tax purposes also. 13. The submissions made on behalf of the assessee on this issue were not found acceptable by the A.O. for the following reasons given in the assessment order:- "(i) The market price of the shares of the assesee company was Rs. 53.80 and the assessee company allotted the shares at Rs. 30.00/-. Thus, there was a price difference of Rs. 23.80. (ii) During the year under consideration the assessee company allotted the shares of Rs. 66,24,877/- to its employees and debited this amount in the profit and loss account. (iii) The shares were the capital of the assessee company and any loss to the capital can be considered as capital loss and not the revenue expenditure. &....
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.... the assessee company has charged to the Profit & Loss account a sum of Rs. 66.25 lakhs in this year and the balance in A.Y. 06-07. The Assessing Officer has not allowed this expenditure being a capital expenditure on the ground that by allotting the shares the assessee has reduced tax liability by an amount of Rs. 66,24,877/-. The appellant has relied on the decision of Hon'ble Chennai ITAT in the case of SSI v. DCIT 85 TTJ 1049 in which the Tribunal has held that ESOPS received by the employees was not taxable as perquisites by virtue of proviso to section 17(2)(3c) of the I.T. Act which is omitted with effect from 1.4.2008 by Finance Act 2007. Since the amount of ESOPS was not perquisited in the hands of the employees, the same was not allowable as expenditure in the hands of the company also. This fact has not properly represented before the ITAT Chennai by the Department. Moreover, the decision of ITAT is with reference to appeal against the revision order passed by CIT u/s 263 and not on the basis of regular appeal. In view of this fact, I respectfully dis-agree with the observation of the Hon'ble ITAT that ESOPS expenditure is ....
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.... the provisions of section 17(2)(iii)(c) upto 31.3.01 and the same has now been treated as fringe benefit w.e.f. 1.4.08 whereby the benefit given to the employees is treated as fringe benefit and the company has to pay fringe benefit tax. He contended that this treatment given by the statute to ESOP itself shows that the expenditure incurred on ESOP is of revenue nature and there was no justification for the authorities below to treat the same as capital expenditure. In support of this contention, he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Infosys Technologies Ltd. 297 ITR 167. He also relied on the decision of Chennai Bench of ITAT in the case of SSI vs. DCIT (supra) to contend that once the ESOP is granted and exercised by the employees, the liability of the company in this behalf is an ascertained liability which is admissible an expenditure in accordance with the SEBI guidelines. He contended that the assessee company had an option to pay even directly to its employees certain sum as compensation for the services rendered without taking ESOP rout and the employees could have used the said amount for acquiring the shares in ....
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....nd the value at which the same were allotted to the employees under ESOP were not properly appreciated by the Tribunal in the case of Ranbaxy Laboratories Ltd. (supra). According to him, even the cases relied upon by the Tribunal to decide the similar issue against the assessee in the case of Ranbaxy Laboratories Ltd. (supra) involved different issue and the same were also distinguishable on facts. 19. We have heard the arguments of both sides and also perused the relevant material on record. We have also carefully perused the case laws cited by the ld. Representatives of both the sides. In our opinion, the decision of Delhi Bench of ITAT in the case of Ranbaxy Laboratories Ltd. (supra) cited by the ld. D.R. is directly applicable in the present case and the same squarely covers the issue under consideration against the assessee and in favour of the Revenue. In the said case, the decision of Chennai Bench of ITAT in the case of SSI Ltd. (supra) heavily relied upon by the learned counsel for the assessee in the present case was also cited on behalf of the assessee. The same, however, was found by the Tribunal to be distinguishable on facts for the foll....
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....f short receipt of share premium amount and not by way of any expenditure or incurring any liability for such expenditure. By issuing shares at below market price, the same does not result into incurring any expenditure. By issuing shares at below market price, the same does not result into incurring any expenditure rather it results into short receipt of share premium which the assessee was otherwise entitled to. Though the guidelines of SEBI requires the assessee to account for short receipt of share premium as employees compensation expense, for claiming such expense as allowable, the assessee has to qualify that expenses are incurred and the same are wholly and exclusively for the purpose of business. By issuing shares at lesser that market price, the assessee cannot be said to have incurred any expenditure rather it amounts to short receipt of share premium. The receipt of share premium is not taxable and hence any short receipt of such premium will only be a notional loss and not actual loss for which no liability is incurred. SEBI guidelines are relevant for the purpose of accounting but are not conclusive for the purpose of allowing....
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.... us, the ld. Counsel for the assessee has made an attempt to point out that certain aspects have not been considered by the tribunal while rendering its decision in the case of Ranbaxy Laboratories Ltd. (supra) on the similar issue. In our opinion, the said aspects pointed out by the ld. Counsel for the assessee, however, are not material enough to have any direct bearing on the well considered and well reasoned decision rendered by the Tribunal. As held by the Tribunal, any short receipt of share premium would only be a notional loss to the assessee and not an actual loss. As further held by the Tribunal, any benefit or income foregone by the assessee cannot be considered as an expenditure and since the assessee had not incurred any expenditure but had merely received lesser amount of premium, the same could not amount to expenditure within the meaning of section 37. In our opinion, the issue involved in the present case as well as all the material facts relevant thereto are thus similar to the case of Ranbaxy laboratories Ltd. (supra) and the decision rendered in the said case by the co-ordinate Bench of this Tribunal is squarely applicable in the present case. ....
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.... on repairs to the factory building of similar nature were allowed by the Tribunal observing that the assessee had not derived any advantage of enduring nature by incurring the said expenses. Respectfully following the said decision of the Tribunal in assessee's own case for the A.Y. 2004-05, we delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on account of expenses incurred on repairs and allow ground No. 1 of the assessee's appeal. 27. As regards ground No. 2, it is observed that the issue raised therein relating to the disallowance of Rs. 1,368/- made by the A.O. and confirmed by the ld. CIT(A) on account of employees contribution to PF and ESIC which was paid beyond the grace period but before the due date for filing of return u/s 139(1) is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. 319 ITR 306. Respectfully following the said decision, we delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on this issue and allow ground No. 2 of the assessee's appeal. &n....