TaxTMI 
TaxTMI 
2016 (5) TMI 810
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....he assessee-company is engaged in the business of share broking. The original assessment was passed under Section 143(3) of the Act on 13.12.2010. Subsequently, the Assessing Officer issued notice on 26.03.2012 to reopen the assessment under Section 147 of the Act on the ground the ESOP cost of Rs. 1,11,18,000/- cannot be allowed as expenditure in the hands of the assessee-company. According to the Ld. counsel, the shares of the assessee-company were purchased by Shriram Insight Welfare Trust at the rate of Rs. 340/- per equity share from the employees of the assessee-company. This cost of acquisition of 32,700 equity shares of the company to the extent of Rs. 1,11,18,000/- was claimed as expenditure by the assessee as ESOP cost. The Assessing Officer, however, found that this cannot be allowed as expenditure and reopened the assessment by issuing notice under Section 148 of the Act. The Ld.counsel submitted that all the particulars were available with the Assessing Officer, therefore, the reopening of assessment is only due to change of opinion. According to the Ld. counsel, when the assessee has filed the details before the Assessing Officer, the Assessing Officer allowed the cla....
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....nce of any opinion formed by the Assessing Officer in the original assessment under Section 143(3) of the Act, at no stretch of imagination it can be said that the Assessing Officer reopened the assessment due to change of opinion. In view of the above, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment within a period of four years from the end of the relevant assessment year. In view of this, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. 6. The next ground of appeal is regarding disallowance of Rs. 1,11,18,000/- towards ESOP expenses. 7. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee-company introduced Employee Stock Option Plan 2006 with an intention to motivate the employees of the assessee-company to encourage them to increase their performance. The Ld.counsel submitted that the assessee6 company has discretion to offer the Employees Stock Option Plan Scheme either directly by the company itself or through a Trust. In this case, the assessee-company opted to form a Trust with a view to offer the stock option....
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....e ESOP Scheme was implemented through the Trust is not justified. In the case before us, the Trust purchased the shares from the employees of the assessee-company on a consideration of Rs. 340/- per equity share. According to the Ld. D.R., the ESOP Scheme cannot be extended for reimbursing the expenditure incurred by the Trust to buy back the shares from the assessee's employees. Referring to the judgment of Madras High Court in CIT-III v. PVP Ventures Limited (211 Taxmann 554), the Ld. D.R. submitted that in the case before the Madras High Court, the issue was whether the excess market price paid by the assessee over and above the value of the shares allotted to the employees are allowable as deduction or not? In this case, it is not the excess market value paid by the company for allotting the shares to its employees. It is a case of buy back of shares from employees by the Trust. Therefore, the cost of purchase of shares by the Trust cannot be a business expenditure in the hands of the assessee-company. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. 9. We have considered the rival submissions on eit....
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....t of purchase of very same shares said to be allotted at Rs. 15/- per equity share were bought back at Rs. 340/- per equity share creates a doubt whether the shares were in fact allotted to the respective employees or not? In the absence of any material, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer. 10. We have carefully gone through the decision of Bangalore Bench of this Tribunal in Novo Nordisk India Pvt. Ltd. v. DCIT (2014) 63 SOT 242. In the case before the Bangalore Bench, the actual issue of shares of the parent company by the assessee to its employees is not in dispute. Therefore, the difference between the fair market value of the shares of the parent company on the date of issue of shares and the price at which those shares were issued by the assessee to its employees was reimbursed by the assessee to its parent company. This sum was claimed as expenditure in the Profit & Loss account. The Bangalore Bench of the Tribunal in fact found that the difference between fair market value of the shares and the price at which the shares were allotted to the employees is revenue expenditure and....
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....o the Ld. counsel, the amount collected by the assessee represents excess brokerage charged on the clients and which was disputed by the clients. Therefore, the amount was kept pending till the dispute is resolved. If the clients refuse to pay higher brokerage, then the assessee-company has to refund the same to the clients. Since the amount is subjected to dispute, according to the Ld. counsel, a sum of Rs. 50,23,360/- was not shown as income of the assessee. 13. On the contrary, Shri Arun C. Bharat, the Ld. Departmental Representative, submitted that the assessee had disclosed a sum of Rs. 50,23,360/- as brokerage in the Profit & Loss account. It is also claimed that the same is payable to various parties. The assessee in fact treated the amount payable to the extent of Rs. 50,23,360/- as revenue expenditure. The Assessing Officer rejected the claim of the assessee on the ground that the assessee is expected to refund the amount only in case the dispute was decided in favour of respective clients. As on today, the assessee is retaining the amount with it, therefore, it has to be treated as income of the assessee. The Ld. D.R. further pointed out that the assessee was unable to s....
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.... the Income-tax Rules, 1962. 16. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the Assessing Officer disallowed a sum of Rs. 4,37,291/-. According to the Ld. counsel, the assessee received dividend income of Rs. 15,41,947/- and claimed the same as exempted under the provisions of Income-tax Act. The assessee claimed that no expenditure was incurred for earning the dividend income of Rs. 15,41,947/-. The assessee claimed a sum of Rs. 7,200/- as expenditure for earning the exempted income. However, the Assessing Officer disallowed the claim of the assessee. The CIT(Appeals) also confirmed the addition made by the Assessing Officer. According to the Ld. counsel, unless the Assessing Officer is not satisfied with the correctness of the claim of the assessee, the Assessing Officer shall not determine the amount of expenditure incurred in connection with earning of the income which is warranted under the provisions of the Income-tax Act. The Ld.counsel further submitted that the expenditure in relation to exempted income needs to be satisfactorily considered. 17. On the contrary, Shri Arun C. Bharat, the Ld. Departmental Representative, submitted that Rule 8D provi....
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....e income for the purpose of Section 115JB of the Act. Therefore, the Assessing Officer computed the income on the basis of material available on record. The question arises for consideration is when the disallowance was made under Section 14A read with Rule 8D, whether such disallowance would go to increase the total income of the assessee in computing income under Section 115JB of the Act? According to the Ld. D.R., in the absence of any specific provision in 115JB of the Act, deduction cannot be allowed. 22. Referring to Section 115JB of the Act, the Ld. D.R. submitted that once book profit was computed according to the provisions of Companies Act, the same has to be increased or reduced as provided in Explanation to Section 115JB of the Act. In the case before us, according to the Ld. D.R., Explanation 1(f) to Section 115JB(2) of the Act clearly provides for increasing the amount of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof). In this case, the expenditure was incurred on earning the dividend income which was exempted under Section 10(34) of the Act. Therefore, the book profit computed under the Companies ....
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....at the assessee by letter dated 03.09.2012 accepted the interest amount received to the extent of Rs. 7,11,919/- which needs to be added to the total income of the assessee. The assessee itself admitted before the Assessing Officer by letter dated 03.09.2012 that the interest income of Rs. 7,11,919/- may be added to the total income. In view of this, the Assessing Officer has rightly found that the sum of Rs. 7,11,919/- would form part of total income. The CIT(Appeals) confirmed the order of the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 28. The next ground of appeal is with regard to direction of the CIT(Appeals) to exclude a sum of Rs. 32,300/- being an excess interest. 29. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the Assessing Officer charged interest under Section 234A of Rs. 1,41,740/-, even though the return of income was filed within the stipulated period. According to the Ld. counsel, the due date of return of income was extended upto 15.10.2010 for the assessment year under consideration. Therefore, the interest, if any, has to be recomputed in....
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....CBDT circular. This Tribunal is of the considered opinion that the Assessing Officer has to verify the claim and if any TDS was made, credit should be given in accordance with the provisions of Income-tax Act and the instruction given by the CBDT. Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly the same is confirmed. 36. Now coming to the assessment year 2011-12, the first ground is with regard to disallowance made by the Assessing Officer under Rule 8D of Income-tax Rules, 1962. 37. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee received a sum of Rs. 15,51,317/- as dividend income through ECS system, therefore, no expenditure was incurred. However, the Assessing Officer estimated the expenditure by applying the provisions of Rule 8D. According to the Ld. counsel, in the absence of any expenditure incurred by the assessee, there is no question of disallowance. 38. On the contrary, Shri Arun C. Bharat, the Ld. Departmental Representative, submitted that the Assessing Officer is not satisfied by the claim of the assessee, therefore, he recomputed the expenditure by applying provisions of Rule 8....
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....tration, was for the purpose of meeting the business expenditure. Therefore, it cannot be construed as penalty. This is only violation of contractual obligation. Hence, the expenditure has to be allowed as revenue in nature. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the addition of Rs. 3,30,348/- is deleted. 44. The next ground of appeal is with regard to disallowance of bad debt of Rs. 11,36,85,242/-. 45. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee claimed a sum of Rs. 11,36,85,242/- as bad debt written off in the books of account. According to the Ld. counsel, one Smt. Nirmala Ben Shah and M/s Grannayak Traders Pvt. Ltd., being the clients of the assessee, requested the assessee to purchase shares. Accordingly, the assessee purchased shares on their request. The debit balance in the accounts was intimated to them and inspite of several requests, the payment was not made. The share price went down to Rs. 6.35. If the shares were sold at that price, the assessee has to incur heavy loss. Since the clients have not honoured their commitment,....
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.....R., at any stretch of imagination, it cannot be said that the amount cannot be recovered from the clients. At the best, what can be claimed as loss is the difference between the amount invested by the assessee and sale proceeds recovered on sale of the shares. In this case, according to the Ld. D.R., the shares were not sold so far. It remains with the assessee. Therefore, according to the Ld. D.R., merely because the market rate went down from purchase price, it cannot be construed as loss in the hands of the assessee as on today. It may be loss in the hands of the clients of the assessee. Therefore, according to the Ld. D.R., the outstanding amount from the clients cannot be construed as debt. 47. We have considered the rival submissions on either side and perused the relevant material available on record. Section 36(2)(i) of the Act reads as follows:- "36(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply - (i) No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off....