TaxTMI 
TaxTMI 
2017 (10) TMI 589
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.....1. That the Commissioner of Income tax (Appeals) erred on facts and in law in not appreciating that the above differential amount actually represents the loan granted by the appellant to Religare Enterprises Ltd. Employees SAR Trust ('the Trust') for the purpose of administering Employee Stock Appreciation Right Scheme ('SAR scheme'), which was not meant to be and, in fact, not recovered from the latter in accordance with the SAR scheme. 1.2. That the Commissioner of Income tax (Appeals) erred on facts and in law in not appreciating that the above SAR scheme was implemented to motivate, reward and retain key employees whereby each SAR granted to the employees of the appellant stood equivalent to one share of Religare Enterprises Ltd. ('REL') and the aforesaid differential amount was, thus, in the nature of employee benefit allowable under section 37(1) of the Income Tax Act, 1961 ('the Act'). 1.3 Without prejudice, the Commissioner of Income tax (Appeals) erred on facts and in law in not allowing deduction of the aforesaid amount of loan written off as loss incidental to business under section 28 of the Act. 2. That the Commissioner of Income tax (Appeal....
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.... tax was not deducted at source. 5.1 That the Commissioner of Income tax (Appeals) erred in not appreciating that the above sum of Rs. 34,34,000 were paid to the group companies towards reimbursements of actual expenditure and thus, there was no requirement to deduct tax at source on such payments." Brief facts 3. The assessee is a company which is engaged in the business of wealth management services including portfolio management services. It filed its return of income on 26/09/2008 declaring loss of Rs. 3.73 crores. Assessment proceedings 4. During the assessment proceedings it was observed by the Ld. assessing officer that the assessee company has introduced the scheme of stock appreciation rights for its employees. The company has invested in a trust who buys the shares of Religare Enterprise Ltd at an average price of Rs. 503/- per share and the grant price of shares to employees was Rs. 140/- per share. The difference between the grant price and cost price is treated as a bonus to the employees in the books of the company and the difference between the sale price of the share and the cost of shares is taken as a 'loan written off' by the company in books of....
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....ement expenditure of Rs. 9389552/- as pre-commencement expenditure holding that the business of the assessee was setup only on 30/06/2007 when the 1st invoice was raised by the appellant. He also confirmed the disallowance under section 14 A of the income tax act of Rs. 196524/- and disallowance under section 40(a)(ia) of the act. 10. The Ld. CIT appeal further enhanced the assessment of the assessee on account of loss on sale of shares difference between the purchase price o the SAR of Rs. 503/- per share and SAR value of RS 140/- per share being Rs. 363/- per share which is claimed by the assessee as loss on sale of shares . According to ld CIT (A) assessee has claimed total expenses of Rs. 2268932/- whereas the ld AO has disallowed only Rs. 669626/- therefore the balance amount was also disallowed for the same reasons after issue on notice of enhancement by him. 11. Therefore the assessee aggrieved with the order of the Ld. CIT (A preferred an appeal before us contesting all the disallowances confirmed by the Ld. CIT appeal as well as the enhancement made by him. Arguments of the Assessee 12. On the 1st issue of the disallowance of stock appreciation right and furthe....
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....t in case of Cheminvest limited versus CIT, wherein identical issue was considered in para No. 23 of that order. 15. With respect to ground No. 5 of the appeal of the assessee against the confirmation of disallowance under section 40 (a)(ia) of the act of Rs. 3434000/-. He submitted that the above amount of the expenditure is a reimbursement of expenditure on which no disallowance can be made. He further referred to the para No. 6 of the Ld. assessing officer wherein the above disallowance was made. He submitted that the total payment was of Rs. 65.37 lakhs and the Ld. assessing officer has already allowed Rs. 31.03 lakhs and made the disallowance of the balance of Rs. 34.34 Lacs. He submitted that the Ld. CIT-A has wrongly stated that the amount of reimbursement is for actual services rendered by this group entities to the assessee. He submitted that these are the expenditure of reimbursement of salary, travelling, conveyance, insurance etc made by the appellant without deduction of the tax at source. He further referred to MOU with Religare securities Ltd for reimbursement of rent and maintenance charges placed at page No. 170 - 175 of the paper book. He further referred to th....
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.... of appeal of the assessee is with respect to the disallowance of expenditure on stock appreciation right being the difference between the purchase price of stock appreciation right and the sale price of stock appreciation right at the time of the exercise by the employees holding the same to be capital loss and not allowable as business deduction. With respect to the enhancement made by the CIT - A of Rs. 1 599306/- on account of difference between the sale price of stock appreciation right and the exercise price of stock appreciation right holding the same to be capital expenditure incurred in relation to the issue of share issued to the employees. The assessee has submitted that Religare enterprise Ltd has introduced Employee stock appreciation rights scheme 2007 for Religare group of entities to reward and retained the employees for higher-level of individual performance and to attract the best talent and provide motivation for better performance of the employees. According to that non assignable shares equivalent were granted to the employees. Pursuant to clause No. 7 of the scheme which entitles them to receive stock appreciation rights compensation under the scheme provided ....
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....ount of the difference between the purchase price of stock appreciation right in the sale price of such stock appreciation right on exercise by the employees of the appellant as these are revenue expenditure in nature. Further the Ld. CIT (A) has also erred in making the disallowance by enhancing the assessment of Rs. 1 599306/- on account of difference between the sale price of the stock appreciation right and the exercise price of stock appreciation right paid to the employees of the appellant as it has already been held to be the revenue expenditure in relation to the stock appreciation rights scheme of the assessee to appreciate the performance of the employees holding the same as revenue expenditure. Therefore ground no 1 & 2 of the appeal of the assessee is allowed. 19. The 3rd ground of appeal is with respect to the issue that whether the assessee is eligible for deduction of expenditure incurred by it from April 2007 to June 2007. The Ld. assessing officer as well as the Ld. CIT (A) has held that the business was set up only on 30/06/2007 when the 1st invoice was raised by the appellant and therefore the expenditure incurred after that date would be deductible. The claim....
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....e of CIT versus Axis Equity private limited in ITA No . 1204 of 2017 dated 30/01/2017 wherein on identical facts, issue has been decided that the expenditure are allowable to the assessee after the businesses are set up. Therefore in view of this we are of the opinion that the assessee must be allowed the deduction of expenditure incurred w.e.f. 01/04/2007 when the employees were hired and the expenditure With respect to infrastructure was incurred by the assessee. In the result we reverse the finding of the lower authorities and direct the assessee officer to allow the expenditure of Rs. 9389552/- incurred by the assessee for the period from April 2007 to June 2007. In the result ground No. 3 of the appeal of the assessee is allowed. 20. Ground No. 4 of the assessee's appeal is with respect to upholding the disallowance of Rs. 196524/- under section 14 A of the income tax act applying the provisions of rule 8D of the income tax rules, 1962 even in the absence of any exempt income earned by the assessee. Hon'ble Delhi High Court has decided the identical issue in Cheminvest Ltd versus CIT [378 ITR 33], wherein in para No. 23, it is been held that where the assessee has not earne....