TaxTMI 
TaxTMI 
2020 (8) TMI 48
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....14A of Rs. 2,75,99,362/- in the revised return of income. From the various details furnished by the assessee, the AO noted that the assessee company has invested in equity preference shares as well as in trading, investments and mutual funds. The income from trading, investments and mutual funds has been offered as business income and taxed under the head 'PGBP.' Therefore, the same has not been considered for the purpose of calculation of disallowance u/s 14A. He noted that the total investments as on 31.03.2011 related to the exempt income is Rs. 211,05,88,093/- out of which the assessee company claimed Rs. 72 crore (Rs. 12 crore invested on December, 1, 2008, Rs. 25 Cr. Invested in December, 24, 2008 and Rs. 35 crore invested on July 13, 2009) were met out of own funds. 3. However, the AO rejected the submissions made by the assessee justifying the suo motu disallowance made u/s 14A of Rs. 2,75,99,362/-. Applying the provisions of section 14A r.w. Rule 8D, the AO computed such disallowance at Rs. 5,80,61,219/-. After giving credit of Rs. 2,75,99,362/- offered by the assessee as suo motu disallowance, the AO made an addition of Rs. 3,04,61,857/- to the total income of the assess....
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....e back of SAR expenditure of Rs. 1,17,63,296/- being the amounts disallowed in earlier years treating it as a capital expenditure. 4. That the CIT(A) erred on facts and in law in sustaining the disallowance of Rs. 47,10,557 made by assessing officer holding the same to be as capital loss not allowable as business deduction. 4.1 That the CIT(A) erred on facts and in law in not appreciating that the aforesaid amount is a loan granted by the appellant to Religare Enterprise Ltd. Employee SAR Trust ("the Trust") for the purpose of administering Employee Stock appreciation Right Scheme ("SAR scheme") not recovered from the latter. 4.2 That the CIT(A) 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 Enterprise Ltd. and the aforesaid amount was, thus in nature of employee related cost allowable under section 37(1) of the Act. 4.3 Without Prejudice, the CIT(A) 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 2....
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....required to be investigated and the additional grounds being legal in nature, therefore, following the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT, reported in 229 ITR 383, the additional grounds are admitted for adjudication. 9. Grounds of appeal No.1 and 1(a) by the Revenue and grounds No.2 and 2.1 by the assesseee relate to the part relief granted by the CIT(A) out of the disallowance made by the AO u/s 14A r.w. Rule D of Rs. 3,04,61,857/-. 10. The ld. Counsel for the assessee submitted that the assessee during the impugned assessment year has earned dividend income of Rs. 3 crores from investment in shares of Religare Commodities Ltd., which was claimed as exempt. The assessee, in the revised return of income on the basis of erroneous understanding of the provisions has suo motu disallowed Rs. 2,75,99,362/- by considering interest u/s 2,41,81,922/- and ½ of average value of investment at Rs. 34,80,440/- both totaling to Rs. 275,99,362/-. He submitted that while erroneously computing the disallowance, the assesseee has even considered investments not yielding dividend income during the year while computing disallowance in terms of Rule 8D(2)(....
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.... investments that have yielded dividend income are to be considered for the purpose of computing average investments and for computing disallowance u/s 14A of the Act. He submitted that the Tribunal in assessee's own case for A.Y. 2008-09 has directed the AO to compute disallowance u/s 14A only qua investments which have yielded exempt income in the year under consideration. 13. The ld. Counsel for the assessee, in his next plank of argument, submitted that there is no warrant to consider interest expenditure for the purpose of disallowance u/s 14A since the assessee had net interest income and there was no interest expenditure. Referring to various decisions, he submitted that for the purpose of computing disallowance u/s rule 8D, only net interest expenses has to be considered. He submitted that in the instant case, the assessee had incurred interest expenditure of Rs. 73,57,40,035 whereas the interest income is Rs. 182,27,00,961/-. Therefore, the interest income earned by the assessee far exceeded the interest expenditure and, therefore, no interest expenditure can be considered for disallowance under Rule 8D(2)(ii). 14. Without prejudice to the above, he submitted that the AO....
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....62/-. However, in view of the various decisions, only the investments which yielded dividend income should be considered for computation of the average investment. It is also his submission that no interest expenditure has been incurred by the assessee in the instant case since the interest expenditure is much less than the interest income. It is also his submission that the total investments which has yielded dividend income is much less than the own capital and free reserves of the assessee company. It is also his submission that there is no estopple against law and it is always open to the assessee to resile from the decision taken under mis-conception of law. Accordingly, it is his submission that the assessee can suo motu raise grounds seeking correct computation u/s 14A of the Act. It is the submission of the ld. DR that once the assessee has suo motu made disallowance of Rs. 2,75,99,362/-, the disallowance u/s 14A, under no circumstances can be less than the said amount. Otherwise, the final computation will be less than the returned income. 17. The Hon'ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT, 402 ITR 640, has held that the disallowance u/s 14A cann....
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.... this issue are accordingly allowed for statistical purposes. 19. Ground No.3 to 4.3 of the assessee's appeal relates to the order of the CIT(A) in sustaining the disallowance of Rs. 47,10,557/- out of the disallowance on account of SAR expenses written off. 20. After hearing both the sides, we find, the AO made disallowance of Rs. 1,64,73,853/- on account of SAR expenses written off and advance of sale of shares written off. We find, the ld. CIT(A) sustained the disallowance by observing as under:- "8.2. The AO disallowed the deduction claimed by the appellant in respect of Stock Appreciation Right (SAR) expenditure of Rs. 1,17,63,296/- and Rs. 47,10,557/- aggregating to Rs. 1,64,73,853/- as not being eligible as an allowable expense u/s 37(1) of the Act. The AR has submitted that the said transaction pertained to write off of the loan given to the trust and was deductable as a business expenditure u/s 37(1) of the Act. It is noted that this issue was adjudicated in appeal for the A. Y. 2008-09 and the Ld. ClT(Appeals)-XVIII vide her order dated 28.02.2013 in A. No. 229/10-11 had held that the expenditure claimed was clearly a capital expense and hence not allowable. The findi....
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....e context of SAP discount, the Jurisdictional Tribunal - in the case of Ranbaxy Laboratories Limited (2009) 124 TTJ 771 (Del) held ESOP discount to be capital and not a allowable/ deductible business expenditure. The Delhi Tribunal placed it reliance on the decision of the House of Lords in the case of Lowry v Consolidated African Selection Trust Ltd. (1940) 8 ITR 88 (Supp) and held it to be capital. This decision was upheld by the Mumbai Tribunal. Thus the arguments, as fortified by the above decisions, wherein it has been held that SAR discount is NOT an allowable expenditure (largely for the reason that it is a capita/ expenditure), in favour of SAR discount being capital, are:- * SAR discount are incurred in relation to issue of shares to employees. They are not relatable to profits and gains arising or accruing from a business/trade. The Apex Court decision in the case of Punjab State Industrial Dev Corporation Ltd. (1997) 225 ITR 792 (SC) and Brooke Bond India Ltd. (1997) 225 ITR 798 (SC) have held that expenditure resulting in 'increase in capital' is not an allowable deduction even if such expenditure may incidentally help in business of the company. * SAR dis....
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....e Madras High Court in 211 Taxman 554 wherein it has been held that the above expenditure on account of employee stock option scheme is an ascertained liability for deduction and further the Hon‟ble Delhi High Court in CIT versus Lemon tree hotels Ltd in ITA No. 107/2015 has also held that the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. The Ld. departmental representative also could not point out any other judicial precedent against the above judicial precedents cited by the Ld. authorized representative. In view of this ground No. 1 and 2 of the appeal of the assessee is allowed reversing the decision of the Ld. CIT - A and directing the assessing officer to allow the sum of Rs. 2096 3780/- on account 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. Therefore ground no 1 & 2 of the appeal of the assessee is allowed." 22. We find, the Revenue filed appeal against the Tribunal and the Hon'ble High Court, vide ITA No.311/2018, order dated 19th M....
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....e second issue which is now canvassed before this Court viz., on the issue of expenditure of66.82 lakhs towards the issue of shares to the Employees Stock Option is concerned, the Tribunal pointed out that the shares were issued to the employees only for the interest of the business of the assessee to induce employees to work in the best interest of the assessee. The allotment of shares was done by the assessee in strict compliance of SEBI regulations, which mandate that the difference between the market prices and the price at which the option is exercised by the employees is to be debited to the Profit and Loss Account as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBI. On the facts thus found, the Tribunal held that....