TaxTMI 
TaxTMI 
2015 (11) TMI 1737
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....xpenses') incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) of the Act. 4. Briefly, the facts of the case are that the assessee did detailed transfer pricing study relating to export of manufactured malted food biscuits, export of raw material, IT services received and cost reimbursement to and from group company, during the year under consideration. The said study was not disputed by the TPO and all these international transactions were treated at arms' length. However, the TPO undertook the benchmarking analysis of advertisement, marketing and sales production (AMP) expenses aggregating to Rs. 12847.66 lakh incurred by the assessee on product 'Horlicks' during the year. The bench marking was done applying the 'Bright Line Test'. The TPO was of the view that the AMP expenses to the extent incurred for creating marketing intangibles of 'Horlicks' brand which belongs to the Associated Enterprise (AE), requires consideration along with a mark up for the brand promotion services. For applying Bright Line Test, the TPO compared AMP expenditure of the assessee, being 7.076% of total turnover with average expend....
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....dly excess AMP expenditure incurred by it. Therefore, no such adjustment on account of AMP activity should be made. 7. The learned D.R. relied upon the orders of the authorities below. However, he did not controvert the findings given by the Hon'ble Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd's case (supra), as summarized by the learned counsel for the assessee. Further, he also did not controvert the fact that the assessee is a full-fledged manufacturer. To assist the Bench, he filed before us a copy of the order of the Delhi Bench of the I.T.A.T. in the case of Perfect Van Melle India (P.) Ltd. v. Dy. CIT, ITA No.407/Del/2015, dated 2.6.2015, which was the case of manufacturer. The case was sent back to the TPO to follow the judgment of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra). In this background, he prayed to send this case also back to the file of the TPO. 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. In view of the developments happening after the order of t....
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....t, being reimbursed for its promotional expenditures by the owner of the marketing intangible. In that case, the distributor would be entitled to compensation appropriate to its agency activities alone and would not be entitled to share in any return attributable to the marketing intangible. 6.38 Where the distributor actually bears the cost of its marketing activities (i.e. there is no arrangement for the owner to reimburse the expenditures), the issue is the extent to which the distributor is able to share in the potential benefits from those activities. In general, in arm's length transactions the ability of a party that is not the legal owner of a marketing intangible to obtain the future benefits of marketing activities that increase the value of that intangible will depend principally on the substance of the rights of that party. For example, a distributor may have the ability to obtain benefits from its investments in developing the value of a trademark from its turnover and market share where it has a long-term contract of sole distribution rights for the trademarked product. In such cases, the distributor's share of benefits should be determined based on w....
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....e marketing intangible, not being the legal owner. The position may be different where there is a long-term contract of sole distribution rights of the trademarked products, thereby acquiring―economic ownership benefit. In some cases, where the distributor bears extraordinary marketing expenses, he would be entitled to additional or higher return, through decreased price or reduction of royalty rate. The difficulty in attributing advertisement and other promotional expenditures towards trademark valuation or towards marketing activities, i.e. contributing to manufacture and current income and the impracticability of division in the case of such attribution is highlighted in paragraph 6.39." 11. It is clear from the above that the case of an entity having economic ownership benefit is on a different footing as there is a long term contract of sole distribution right of the trademark products. Further, on the basis of above-stated para 134, the Hon'ble High Court has held in paras 151 to 153 that the concept of economic ownership being not recognized under the Act, is not a correct finding as recorded by the Special Bench in the case of L.G. Electronics India (P.) Ltd. (....
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....would be equally valid, where no AMP or 'brand building' expenses are incurred. (See paragraphs 21.8 to 22.10 of the majority decision). The net profit margins can be affected by variation of operating expenses. Thus, the requirement to select appropriate comparable and adjustment. It would be inappropriate and unsound to accept comparables, with or without adjustment and apply TNM Method, and yet conjecturise and mistrust the arm's length price. TNM Method would not be the most appropriate method when there are considerable value additions by the subsidiary AEs. In paragraph 22.9, the majority decision has observed that all costs including the AMP expenses are independent of cost of material. This indicates that the observations have been made with reference to manufacturing activities. It would not be appropriate and proper to apply the TNM Method in case the Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products, as interconnected transactions. Import of raw material for manufacture would possibly be an independent international transaction viz. marketing and distribution activities or functions. We....
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....e lying in PLA amounting to Rs. 32,62,786 resulting in a net addition of Rs. 5,50,049." 17. Briefly, the facts of the case are that on perusal of the return filed by the assessee the Assessing Officer noted that the assessee has calculated an amount of Rs. 5,50,049/- by arriving at the difference between the figures of 31.3.2008 Rs. 32,62,786/- and as on 31.3.2009 Rs. 27,12,737/- on account of excise duty. The assessee had added this amount from the book profit before taxation. The assessee submitted before the Assessing Officer that the assessee had in fact, added this amount of Rs. 5,50,049/- in its return of income. Since the same issue was also there in assessment year 2008-09, the Assessing Officer was of the view that since such claim for deduction was not accepted in the previous year, in order to maintain judicial consistency in the stand taken by the Department in earlier years in assessee's own case, the addition of Rs. 5,50,049/- is not called for in the current assessment year also. Accordingly, he proposed to lessen the returned income by the said amount. Following the order of the DRP in assessment years 2007-08 and 2008-09, the DRP in its order also confirmed ....
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....zuki India Ltd. [250 CTR 140 (Del)] . The learned A.R. for the assessee further pointed out that the Supreme Court in CIT v. Shri Ram Honda Power Equipment Corporation in Civil Appeal No.5721 of 2012 vide judgment dated 19.9.2012 had laid down that the credit of the excise duty paid was to be allowed. The learned A.R. for the assessee further referred to the ratio laid down by the Hon'ble Delhi High Court in CIT v. Maruti Suzuki India Ltd. (supra) and pointed out that the only issue raised was in connection with the excess payment made on account of excise duty, which was lying in the PLA Account . 42. The Tribunal vide paras 38 to 42 held as under: 38. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is against disallowance made under section 43B of the Act on account of excess payment made on account of excise duty. The assessee during the year under consideration had claimed expenditure of Rs. 36,87,481/- being the difference between the excise deposit with the excise department i.e. the balance in the central excise lying in PLA Account as on 31.3.2007 and as on 31.3.2006. The said sum of Rs. 36,87,48....
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....d and the amount was deposited, which could not possibly be treated as an advance. The amount was deductible. 40. Further the Delhi High Court in CIT v. Modipon Ltd. (supra) had allowed similar claim of excise duty paid in advance under the provisions of section 43B of the Act and held as under: (ii) That with regard to the deduction of Rs. 14,71,387/- on account of excise duty paid in advance as business expenditure, the procedure envisaged for payment of excise duty envisages such duty to be deposited in advance with the treasury before the goods were removed from the factory premises. The duty, thus, already stood deposited in the accounts of the assessee maintained with the treasury and the amount, thus, stood paid to the State. The submission of the Department that it was only on removal of the goods that the amount credited to the personal ledger account could be claimed as deductible under section 43B of the Income-tax Act, 1961, could not be accepted. 41. Further the Hon'ble Delhi High Court in CIT v. Maruti Suzuki India Ltd. (supra) also deliberated upon the payment made towards excise duty in Personal Ledger Account and consequent allowance ....
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....unts relate to the assessee's duty liability, falling within the description under s. 43B. The Tribunal was therefore justified in holding that the amounts deposited by the assessee in the Excise Personal Ledger Account could not be disallowed under s. 43B.- CIT v. Shri Ram Honda Power Equipment Corporation (Civil Appeal No. 5721 of.2012, dt. 19th Sept., 2012) followed; CIT v. C.L Gupta & Sons (2003) 180 CTR (All) 530 : (2003) 259 ITR 513 (All) concurred with. 42. The Hon'ble Delhi High Court in CIT v. Maruti Suzuki India Ltd. (supra) in turn relied upon the ratio laid down by the Supreme Court in CIT v. Shri Ram Honda Power Equipment Corporation (supra), wherein it has been laid down that the PLA credit was excise duty paid. The said observation was made where the assessee was following net method of valuation of closing stock. In view of the abovesaid ratio laid down by the Hon'ble Delhi High Court in CIT v. Maruti Suzuki India Ltd. (supra), CIT v. Modipon Ltd. (supra), Hon'ble Punjab & Haryana High Court in Raj & Sandeeps Ltd. (supra) and also the Special Bench of the Tribunal in assessee's own case, we direct the Assessing Officer to allow the claim....
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....ng out the consumer surveys, market research and consumer analysis, data analysis, product designing, promotional samples of manufactured and traded goods, etc. The said expenditure was incurred wholly and exclusively for the purposes of the existing business of the assessee and did not result in acquisition of any asset. It was submitted that the issue is covered in favour of the assessee by the orders of the Tribunal in assessee's own case for assessment years 1998-99 to 2008-09, wherein the Tribunal allowed the claim holding it to be revenue in nature. Without prejudice, it was prayed that the Assessing Officer has made transfer pricing adjustment to the total AMP expenses, which includes market research expenses also. Accordingly, the disallowance of market research expenses of Rs. 7,19,98,000/- by treating the same to be capital expenditure as well as the entire adjustment of AMP expenses as transfer pricing addition, has resulted in double disallowance and adjustment. 26. The learned D.R. relied upon the orders of the Assessing Officer as well as the DRP. 27. On perusal of the order of the I.T.A.T. for assessment year 2008-09 i.e. the preceding year, we find the iss....
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....be considered for the purpose of benchmarking analysis as undertaken by the TPO. The learned D.R. for the Revenue placed reliance on the orders of the authorities below. 28. We have heard the rival contentions and perused the records. The claim of the assessee is that the total AMP expenditure considered by the TPO while determining the ALP included certain expenses which are in relation to the sales made by the assessee and are not related to the brand promotion. The claim of the assessee is with regard to the expenses totalling Rs. 5500.86 lakh as tabulated below: S. No. Name of Expenses Amount (Rs. Lakh) 1. Discount - sales 60.52 2. Market Research 664.24 3. Sales Promotion 3939.90 4. Selling and distribution 826.17 5. Service charges paid to selling agent 10.03 Total 5500.86 29. We find that the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. v. ACIT (supra) held that the expenses in connection with the sales do not lead to brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determin....
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....lready dealt with while adjudicating ground No.2 of appeal. 29. The ground No.5 raised by the assessee reads as under: "5. That the Assessing Officer erred on facts and in law in making disallowance of Rs. 5,97,00,000, claimed in respect of liability for post-retirement medical benefits to employees on the basis of actuarial valuation, in accordance with the revised Accounting Standard-15, relating to accounting of employee benefits, on the ground that same is an unascertained liability. 5.1 That the Assessing Officer erred on facts and in law in observing that the aforesaid provision made for post-retirement medical benefits to employees has resulted in double deduction to employees and that the provision has been made by debiting the general reserves." 30. Briefly, the facts of the case are that in the Profit & Loss Account the assessee has claimed expenditure of Rs. 5.97 crore on account of medical reimbursement liability for ex-employees. The assessee filed detailed reply together with the actuarial valuation certificate on the basis of which the liability was shown in the Profit & Loss Account. The Assessing Officer was of the view that reading of this ....
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....of the order of the I.T.A.T., Chandigarh Bench in assessee's own case for assessment year 2007-08, we observe that similar disallowance made by the Assessing Officer was deleted by the Tribunal observing as under : "51. We have heard the rival contentions and perused the record. The assessee was providing benefit of medical assistance/reimbursement of medical expenses to the employees post-retirement. The said benefit was being allowed by the assessee in terms of the employment agreed upon between the company and the employees at the time of their appointment. In order to meet the said liability of providing medical benefits/assistance to its employees post-retirement, the assessee was contributing towards the insurance policy taken for the said purpose. The assessee prior to the year under consideration had claimed and was allowed deduction in respect of the premium paid for keeping afloat the medical insurance policy taken for the benefit of employees from year to year. Such medi-claim insurance policies were taken by the assessee in order to provide medical assistance post-retirement to the employees. However, during the year under consideration the Institute of Cha....
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....S-15 provides post-employment benefits include: (a) Retirement benefits, e.g., gratuity and pension; and (b) Other benefits, e.g., post-employment life insurance and post-employment medical care. Arrangements whereby an enterprises provides post-employment benefits are post-employment benefit plans. An enterprises applies this Standard to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. 54. Under clause 73 of Revised AS-15 it has been laid down that actuarial assumptions are to be worked out and should be more than unbiased and mutually compatible. Further the method of working actuarial benefits is to be laid down under Accounting Standard-15. Further in respect of termination benefits, as per clause 133 it is provided that the termination benefits are to be treated separately from other employee benefits as the event which gave rise to the obligation is the termination rather than employee service. Under clause 134 it is laid down that an enterprise should recognize termination benefits as a liability and an expense when, and only when: (a) The enterp....
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.... valuation has been carried out keeping in view the provisions of AS-15 (R) as an on going concern basis. (A.D.GUPTA) 57. The auditors vide notes to the accounts vide note No.6 had reported as under: "6. (a) The Company has during the year adopted Accounting Standard-15 (Revised 2005) 'Employees Benefits'. Accordingly, the transitional adjustment aggregating to Rs. 11,37.19 Lakh (net of deferred tax asset RSNil) has been charged against the Opening General Reserves. The details of the transitional adjustment is as follows - -Post-Employment Medical Assistance Scheme Rs. 11,09.90 Lakh -Leave Encashment/Compensated Rs. 27.29 Lakh Absences for workers (Earned/Sick Leave) (Also Refer Scheme 2) 58. The assessee accordingly made a provision of Rs. 1636.20 lakh on account of employees benefits which included the provisions for post-retirement medical benefits to employees at Rs. 11.09 crore. The abovesaid amount was booked as an expenditure for computation of income in compliance to the mandatory revised Accounting Standard-15. The claim of the assessee in respect of the abovesaid expenditure was as under: (a) The said deduction has bee....
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....f payment of premium of insurance companies and secondly, at the time of creating the impugned provision for medical benefits. 59. The first aspect of the issue raised before us is whether the recognition of the liability in view of the revised Accounting Standard-15 which is a notified accounting standard by the ICAI is to be recognized while computing the income of the assessee in line with the method of accounting regularly followed by the assessee. The second aspect of the issue is whether such expenditure is to be allowed as a deduction though the liability has been recognized in the year under consideration but the same has to be incurred in the succeeding year. 60. Their lordship of Supreme Court in Bharat Earth Movers (supra) held that the provision made for meeting liability of leave encashment scheme is to be allowed as deduction, observing as under: The law is settled : if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being es....
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....nts in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC) wherein this court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting ....
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....ation and the same was held to be not an unascertained liability and was held as allowable, observing as under: 5. We have heard both the sides on the issue. We have also perused the order of authorities below. The assessee-company was liable to pay for medical expenses of its retired employees in accordance with the terms of employment. Prior to this year, the assessee was claiming these expenses in the year of expenditure. Due to the change in the Accounting Standard in respect of the accounting of post retirement benefits, the assessee got done the actuarial valuation of these liabilities and started claiming the same on that basis. It is claimed in view of the Accounting Standard,AS-15. This claim was based on the valuation of liability on actuarial and scientific basis. In such cases, the actual and exact quantification may not be possible, however, liability cannot be said to be a contingent one. Since the provision has been made on scientific basis and the assessee is following mercantile system of accounting, therefore, in our considered view, the CIT (A) was justified in deleting the addition while deciding ITA No.149/Del/2012. A liability which has already accrue....
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....but without deduction bonus, then work out the quantum of taxes thereon at rates applicable during the year to the income, profits and gains of the employer and, after deducting the amount of taxes so worked out, arrive at the available surplus. This will be consistent with the rule laid down by courts and Tribunals before the Act was enacted, that the bonus amount should be calculated after provision for tax was made and not before, from which Parliament does not appear to have made a departure." Hon'ble Supreme Court in the case of Bharat Earth Movers Limited vs. CIT - 245 ITR 428 = (2002-TIOL-123-SCrm has held as under :- "Held, reversing the decision of the High Court, that the provisions made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, was entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability." ....
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.... to allow the deduction of Rs. 11.09 crore on account of post-retirement medical benefits. The ground Nos.5 and 6 raised by the assessee are thus allowed.' 35. Relying on the said order of the Chandigarh Bench of the I.T.A.T. for assessment year 2007-08, similar disallowance made by the Assessing Officer in assessment year 2008-09 was also deleted by the Chandigarh Bench of the I.T.A.T. in assessee's own case. Since no distinguishing facts were brought to our notice, respectfully following order of the Coordinate Bench of the Tribunal, the claim of the assessee is allowed. The ground of appeal raised by the assessee is decided in its favour. 36. The ground No.6 raised by the assessee reads as under : "6. That the Assessing Officer erred on facts and in law in disallowing expenditure aggregating to Rs. 61,67,79,000 incurred by the appellant during the relevant previous year on account of royalty, holding the same to be capital in nature." 37. Briefly, the facts of the case are that the assessee had paid royalty of Rs. 6167.79 lakh to M/s Glaxo Smithkline Asia Pvt. Ltd. for use of trademark 'Horlicks'. The assessee is paying every year royalty @ 5% o....
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....ection 35AB are not attracted as the same were applicable till assessment year 1997-98. Therefore, the said decision is not applicable to the facts of the case. 40. The learned D.R. relied upon the orders of the Assessing Officer as well as the DRP. 41. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the order of the I.T.A.T. for assessment year 2008-09, we observe that on similar issue the I.T.A.T. deleted the disallowance made by the Assessing Officer on account of royalty paid to M/s Glaxo Smithkline Asia Pvt. Ltd. in the following words : "53. We have heard the rival contentions and perused the record. The issue arising vide the abovesaid ground of appeal Nos.6 and 6.1 is in relation to the expenditure claimed by the assessee on account of payment of royalty to the GSKAP. Admittedly the assessee was paying the said royalty from year to year as per the terms of agreement dated 7.2.1997. As per the terms of the said agreement the payment was made for the licence/rights to use trademark provided by GSKAP. The copy of the agreement is placed at ....
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....tal in nature. The assessee had not acquired title to the said trademark as is apparent from the perusal of the terms of agreement entered between the assessee and GSKAP. The royalty was being paid at prescribed percentage of the net sale value of the contracted product and hence was linked to the sales made by the assessee. The said expenditure was duly allowable in the hands of the assessee. Reliance is placed on the ratio laid down by the Delhi High Court in Sharda Motor Industrial Ltd. [319 ITR 109 (Del)] wherein it was held that royalty paid on the basis of rate per unit of production is revenue expenditure and could not be considered as capital expenditure. Another aspect to be kept in mind is that the issue of payment of royalty was also referred to the TPO during the year under consideration, being deemed international transaction and after fully scrutinizing the transaction, the TPO has accepted the arms' length price of the transaction for the year under consideration. Accordingly, we direct the Assessing Officer to allow the claim of royalty paid at Rs. 5556.64 lakh. The ground Nos.6 and 6.1 raised by the assessee are thus allowed.' 42. Since no distinguishing....
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....s, therefore, there was no long-term or short-term loan appearing in the balance sheet. Hence, there was no interest paid or payable on account of borrowed funds for assets purchased or lying in capital work-in-progress. Further, it was submitted that from the details of interest expenditure, it may be appreciated that no interest was relatable to any loan taken during the relevant year. The interest on deposits from dealers and wholesalers was paid in the course of running of the business. The interest to banks was paid for various banking services also in the regular course of running the business. The differential interest on housing loans to employees was also incurred in the regular business of the assessee. Since no part of the business claimed under the Act having been incurred for the purposes of business was attributable towards acquiring any capital assets and thus, no disallowance under section 36(1)(iii) of the Act can be made. Rejecting the submissions of the assessee and making his own calculation, the Assessing Officer proposed to capitalize an amount of Rs. 203.16 lakh. 45. Before the DRP, detailed submissions were made by the assessee. However, rejecting the sam....
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.... with banks 83.71 Differential Interest on Housing Loan to employees 96.95 Interest on others 3.35 TOTAL 474.07 63. Out of the abovesaid list of interest paid, the differential interest on housing loan to employees at Rs. 96.95 lakh had been excluded on the instructions of the DRP by the Assessing Officer. However, as the net interest expenditure paid by the assessee was over and above the interest relatable to CWIP balance as on 31.3.2008, the disallowance of Rs. 154.76 lacs was made by the Assessing Officer. 64. The assessee-company during the year under consideration had shown sales of Rs. 1389 crore, net of excise duty. Further the assessee had deposits with bank at Rs. 5750.00 lakh as against Rs. 1650.00 lakh along with reserves and surplus at Rs. 66248.2 lakh. The assessee had shown income of interest earned by it during the year at Rs. 608.44 lakh. The perusal of the interest expenditure incurred by the assessee reflects that the major portion as on interest on deposits from dealers/wholesalers at Rs. 290.06 lakh, which is being paid by the assessee due to the business compulsion. No fresh deposit has been received during the ....
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....s of the case are that during the year under consideration, the assessee has made investments in shares amounting to Rs. 0.05 lakh. The assessee has earned dividend income amounting to Rs. 1265.21 lakh and claimed that it incurred expenses amounting to Rs. 6,38,304/- for earning the said income. The assessee has allocated the salary of employees directly and indirectly involved and also added communication expenses, audit fees and taxation fees to arrive at this figure of Rs. 6,38,304/-. The Assessing Officer was of the view that the assessee has not justified the nominal expenses of Rs. 6.38 lakh against the huge income of Rs. 1265.21 lakh. Therefore, not satisfying with the correctness of the expenses so claimed by the assessee, the Assessing Officer invoking the provisions of section 14A of the Act made the disallowance computed under Rule 8D of the Income Tax Rules. In this way, a disallowance of Rs. 162.30 lakh was proposed. 53. Before the DRP, detailed submissions were made by the assessee. However, rejecting all the submissions made by the assessee, the DRP found no fault in the action of the Assessing Officer. Therefore, the Assessing Officer made a disallowance of Rs. 1....
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....erusing the record, the first aspect of the issue is whether the provisions of section 14A of the Act read with Rule 8D of Income Tax Rules are applicable? The assessee during the year under consideration had received dividend on mutual funds amounting to Rs. 1954.70 lakh. The assessee on its own motion had disallowed expenditure of Rs. 6,06,977/- being relatable to earning of the exempt income. In other words, the assessee had admitted that it had incurred certain expenditure for earning the said exempt income. The claim of the assessee is that it had worked out all the disallowance in a scientific manner by making disallowance out of salaries and other heads involved in the investment activity and also out of administration and other expenses. The second aspect of the issue was that no borrowed funds were available with the assessee-company. There was no merit in the disallowance under Rule 8D(ii) of Income Tax Rules on account of such interest expenditure. In view of our decision in the paras hereinabove in relation to the disallowance of interest under proviso to section 36(1)(iii) of the Act, we hold that no disallowance of interest expenditure being relatable to the investmen....
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....ess in attracting and retaining Senior Grade Manager. In terms of the said plan, the option granted to the employees was valued at the prevailing market price of the shares of the parent company of the assessee. This amount is converted into Indian Rupee and liability is provided by the assessee, which is re-valued every quarter for both share value and the exchange value. The employee receives cash equivalent of the market price of the shares granted under the option as on the date of exercise of the option after the expiry of three years from the date of grant of the option provided the employee is in continuous employment till such date. The payment is made to the employee which is equivalent to market price of the shares on the date of exercise of the option. In this background, the assessee had made a provision of Rs. 158.96 lakh for proportionate liability of the relevant year in respect of the amount payable to the employees relatable to services rendered by the employees until the end of the relevant year. The said amount represents the value of options granted during the current year as well as the differential amount on revaluing the options granted in earlier years by ap....
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....in the relevant assessment year for the first time the said expenditure has been disallowed by the Assessing Officer holding the same to be contingent liability. Further, it was explained that the amount represents the value of option granted during the current year as well as the differential amount on revaluing the options granted in earlier years by applying the share value as well the exchange rate as at the end of the year. The method also takes into account reversal of the provision made in earlier years in respect of employees who left or ceased to be eligible for the benefit. The provisions reversed during the year are accordingly credited to the Profit & Loss Account and duly offered to tax. The computation part was explained with the help of a chart filed. In view of the same, it was submitted that the provision of incentive payable to employees is in respect of services rendered by employees until the end of the relevant year and the same accrued or crystallized into a liability during the relevant year on grant of the option to the employee. Therefore, it is necessary to the assessee to make provision of such accrued or crystallized liability under the mercantile system....
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.... his order, he has mentioned that there is uncertainty as to the quantum of expenses to be incurred in any particular year. It is a known fact that in this type of incentive scheme, options are reversed due to non-exercise or under vested option that get cancelled due to leaving of office by any of the employees. This fact weighed very heavily in the mind of the Assessing Officer while making this disallowance. Now the issue arises whether the liability in question is contingent liability or an unascertained liability. It is a trite law that the liability which is ascertained during the year is an allowable expenditure, while contingent liability is not. It is also a settled law that an unascertained liability has to be allowed even if the same is quantified on a future date. The incentive plan so formulated by the assessee is a very common form of scheme formed by many of the companies popularly known as 'ESOP' scheme. The terms and conditions of the investment plan of the assessee are same as in any general scheme of ESOP. The question of liability of this type of provision came before the Bangalore Bench of the Tribunal in the case of Biocon Ltd. (supra). The basic quest....
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....distinguishing facts were brought to our notice by the learned D.R., respectfully following the order of the Special Bench, we also hold that the provision on account of incentive plan made by the assessee during the year is an ascertained liability. Further, we see that the Assessing Officer has nowhere objected to the method of quantifying the said provision by the assessee. The ground of appeal No.9 raised by the assessee is allowed. 61. The ground No.10 raised by the assessee reads as under : "10. Thus the Assessing Officer erred on facts and in law in not allowing credit of TDS amounting to Rs. 58,817 while finally computing the income tax liability although the same was allowed as per the assessment order." 62. The Assessing Officer is directed to allow the credit of TDS amounting to Rs. 58,717/- while computing the income tax liability. 63. The ground No.11 raised by the assessee reads as under : "11. That the Assessing Officer erred on facts and in law in not allowing the relief of Rs. 2,69,492 claimed under section 90 of the Act in the return of income although the same was allowed as per the draft order passed under section 143(3)/144C of the Ac....
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....back the opening balance lying in PLA amounting to Rs. 27, 12,737/- (claimed as deduction u/s 43B by the appellant in the return of the immediately preceding assessment year), resulting in a net addition of Rs. 3,03,146/-." 73. The issue in this ground is similar to the issue in ground No.3 raised by the assessee in ITA No.290/Chd/2014 and the findings given in ITA No.290/Chd/2014 shall apply to this case also with equal force. 74. The ground of appeal No.5 raised by the assessee reads as under : "5. That the Assessing Officer erred on facts and in law in making disallowance of Rs. 2,10,00,000/-, claimed in respect of liability for post-retirement medical benefits to the employees, holding the same to be an unascertained liability. 5.1 That the Assessing Officer erred on facts and in law in observing that the provision has been made by debiting the general reserves, without appreciating that the said provision was made by debiting the profit and loss account." 75. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.5 raised by the assessee in ITA No.290/Chd/2014 and the findings given in ITA No.290/Chd/2014 sh....