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2020 (9) TMI 141
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....el/2018 are reproduced as under: 1. That the CIT(A), has erred on facts and in law in upholding additional disallowance of Rs. 1,085,806/- (i.e. exempt dividend income of Rs. 3.509,948 less suo-motu disallowance made by the appellant Rs. 2,424,142) under section 14A of the Income Tax Act, 1961 (" the Act" ) 1.1 That the CIT(A) has erred on facts and in law in mechanically restricting the disallowance under section 14A of the Act to the exempt dividend income, without appreciating fulfillment of condition for applying provisions of the said section as contained in sub-section (2) of that section, viz., the requirement of the assessing officer not being satisfied with the correctness of claim of expenditure. 1.2 That the CIT(A) has erred on facts and in law in computing disallowance under section 14A of the Act without appreciating that the Appellant has already made a disallowance of all the expenses debited to the profit and loss account aggregating to Rs. 685,436,878 less expenses suo-motu disallowed in the computation under various sections aggregating to Rs. 12,970,624, proportionate to the exempt dividend income of Rs. 3,509,948. 1.3 That the....
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.... the appeal of the Revenue is in relation to deleting the part disallowance (of Rs. 1,80,83,891/-) under section 14A of the Act. 3.2 Brief facts qua the issue in dispute are that the assessee reported dividend income of Rs. 35,09,948/-as exempted under section 10(34) of the Act and made sumo disallowance of Rs. 24,24,142/-against the said exempt income. The assessee allocated expenses towards exempted dividend income in the ratio of dividend receipt to total receipts during the year under consideration, as under: Disallowance under section 14A of the Act = (Dividend receipt/total receipts)X allowable expenses for the year = (3509948/973248925)/672173271 = 2424142 3.3 The Assessing Officer did not accept the above working of the disallowance by the assessee due to two reasons. Firstly, the interest cost has not been taken into consideration while allocating the expenses towards exempted income. Secondly, the funds generating tax-free income are at a time much more as compared to other assets and thus expenses towards tax-free income computed on the basis of the receipt is not giving correct allocation. The Assessing Officer observed tha....
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....page 24 of the Paper-book, which is detail of the investments and submitted that during the year the assessee has made investment in 22,60,000 shares of ' Karnataka Bank Ltd' at value of Rs. 35,35,35,421/-. The LearnedCounsel referred to report of the Accountant obtained in relation to expenses incurred for earning exempt income, a copy of which is available on page 75 to 92 the Paper-book. He referred to page 85 of the Paper-book regarding explanation of the investment in equity shares of Karnataka bank Ltd. According to him, the investment in shares of the Karnataka bank Ltd was made out of the share application money of Rs. 125 crores and profit accrued during the year under consideration upto the date of the investment on pro rata basis, which works out to Rs. 22.09 crores. The Counsel referred to page 101 of the Paper-book, which is acopy of the bank statement of the assessee , to show that immediate source of investment in the shares of the Karnataka bank Ltd was out of the share application money received. He further submitted that no dividend income was earned from the shares of the Karnataka Bank Ltd. and no expenses have been incurred for making this investment. Thus, eve....
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.... the Bombay High court dated 12.08.2010 an appeal was filed in this court which has been decided by vide its judgment reported in Godrej and Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai & Anr. (2017) 7 SCC 421. This Court, while deciding the above appeal repelled the challenge raised by the assessee regarding vires of Section 14A. In para 36 of the judgment, this Court noticed that with regard to retrospectivity of provisions Revenue had filed appeal, hence the said question was not gone into the aforesaid appeal. In the above case, this Court specifically left the question of retrospectivity to be decided in other appeals filed by the Revenue. We thus have proceeded to decide the question of retrospectivity of Rule 8D in these appeals. 50. In view of our opinion as expressed above, dismissal of the appeal by the Bombay High Court is fully sustainable. As held above, the Rule 8D is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 200809. 3.9.1 The Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs CIT reported in 402 ITR 640 has affirmed the view held in the case of ....
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....mounted to Rs. 29.46 crores. If it is presumed that the profits accrue evenly throughout the year, then the profits accruing upto the date of investment in KBL shares on a pro-rata basis, would amount to Rs. 22.09 crores (Approximately) d. Here, the aggregate of Share Application Moneys and the profits accruing during the year upto the dates of investments in KBL shares are far in excess of the investment in KBL shares. Having regard to the above facts and the legal principles discussed in paras 6.3 to 6.7 above, it can be safely inferred that the investment in KBL shares is indeed out of own funds. As a cross-check we have also reviewed the yearly funds flow statement extracted from the audited financials of FY 2006-07. The said yearly funds flow statement, showing the incremental funds position for FY 2006-07. The said yearly funds flow statement, showing the incremental funds position for FY 2006-07 is annexed and marked as Annexure 3. The Summary of the incremental yearly funds position is as under: (Rs. In Crores) Particulars FY 2006-07 Shareholder's Funds A 112.82 Loan Funds B 86.23 Deferred tax Liabilit....
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....ure incurred for investment in Mutual funds. 3.13 We find that Hon'ble Delhi High Court in the case of Joint Investment Company Private Limited Vs. CIT: 372 ITR 694 (Del.) has restricted the disallowance under section 14A to the extent of the exempted income. Following the finding of the Hon'ble Delhi High Court in the case of Joint Stock Investment Ltd. (supra), The Ld CIT(A) has restricted the disallowance u/s 14A of the Act in the case of the assessee to the extent of excepted income. In the facts and circumstances of the case, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute in following a binding precedent of the jurisdictional High Court. and accordingly, we uphold the same. The grounds of the appeal of the assessee as well as ground No. 1 of the Revenue are accordingly dismissed. 4. The ground No.2, of the appeal of the Revenue relates to deemed dividend income of Rs. 10,94,00,000/-, which has been deleted by the Ld. CIT(A). 4.1 The facts qua the issue in dispute are that the assessee has taken a loan of Rs. 10,94,00,000/- from M/s. Religare Securities Ltd. (RSL), which is subsidiary of M/s Religare enterprises Ltd (REL). The REL holds....
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....wance of Rs. 20,00,369 made by the Assessing Officer on account of the difference between purchase price of stock Appreciation Right ('SAR' ) and the sale price of such SAR at the time of exercise by the employees, holding the same to be capital loss not allowable as business deduction. 1.1 That the CIT(A) 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 later in accordance with the SAR scheme. 1.2 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 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 CIT(A) erred....
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....ed on facts and in law in computing disallowance under Section 14A of the Act by invoking provisions of Rule 8D of the Income Tax Rules, 1962 (" the Rules"), without appreciating that no part of borrowed funds was utilized for making any investment. 3.3 Without prejudice, that on facts and circumstances of the case, the CIT(A)/Assessing Officer grossly erred in computing disallowance under section 14A of the Act, inter alia, by wrongly including investments not actually yielding exempt income during the relevant year, while applying formulae prescribed in Rule 8D of the Rules. 4. That on the facts and circumstances of the case, the CIT(A) erred on facts and in law in upholding disallowance made by the Assessing Officer on account of provision for expenses to the extent of Rs. 27,90,535. 4.1 That on the facts and circumstances of the case, the CIT(A) erred in not appreciating that the aforesaid amount of Rs. 27,90,535/- has already been offered to tax in subsequent assessment year 2010-11, thus, resulting in double taxation of the said amount. 8.1 We have heard submission of the parties on the admission of the additional ground. We find that the additio....
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....e between sale price of the share and base price of Rs. 140/-) and secondly, the loan written off which was issued to the SAR trust for purchase of respective shares vested in the employees. The claim of the assessee is that both these expenses are allowable under section 37 of the Act as incurred wholly and exclusively for the purpose of the business. 9.2 The Assessing Officer made a addition of Rs.78,18,311/-under the head " SAR expenses treated as loss" observing as under: "I have considered the submission of the assessee in this regard. SARs, or stock appreciation rights, are contractual rights that entitle one to receive the appreciation from a corresponding number of company shares after the grant date. Instead of exercising a stock option, one exercises the SAR and, depending on the plan's design and practices, receive in either cash or stock the "spread" between the exercise price and the fair market value on the date of exercise. For stock plan participants, all the other rules and financial-planning considerations are similar to those of stock options. In the instant case the total number of SAR that were vested and exercised is 10614 and boo....
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....n dispute being covered in favour of the assessee, should be decided in favour of the assessee. 9.5 The learned DR, on the other, and relied on the order of the lower authorities. 9.6 We have heard the rival submission and perused the relevant material on record. We find that the Ld. CIT(A) has adjudicated the issue in dispute observing as under: "Therefore, considering the identical facts and circumstances of the present case with those of A.Y. 2011-12 and 2008-09, I am inclined to follow the judicial consistency and treat the claim of deduction made on account of SAR expenses of Rs. 50,29,087/- being capital in nature. During the appellant proceedings, Ld. AR has referred that addition of Rs. 78,18,311/- has been restricted to Rs. 50,29,087/- only by the AO by passing rectification order u/s. 154 of the Act dated 06.11.2015. a copy of which has been furnished while submissions dated 23.11.2015. Hence, above grounds of appeal are allowed. The remaining addition of Rs. 27,89,224/- has been treated as withdrawn considering the following submissions made by the Ld. AR: "While passing the assessment order the AO has disallowed a sum of Rs. 78,....
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....duced as under: "7. We have carefully ................................................................. 8. Hon'ble Madras High Court has also an occasion to consider the allowability of the ESOP expenditure in 211 taxman 554 wherein Hon'ble high court has held that the claim of the ESOP is an ascertained liability for deduction on is allowable. Similarly Hon'ble Delhi High Court in case of CIT versus Lemon tree Page 25 of 25 hotels Ltd in ITA No. 107/2015 has held that the expenses debited as cost of employee stock option plan in the profit and loss account is allowable. In view of the above judicial precedents of special bench of tribunal and decision of the Hon'ble Delhi and Madras High Courts, we respectfully hold that stock Appreciation right expenses claimed by the appellant, amounting to Rs. 393714/- is not in a capital expenses, but revenue expenditure and ascertained liability therefore it is allowable expenses. In the result the disallowance made by the Ld. and assessing officer of Rs. 1147623/- and enhancement made to that taxable income of the appellant by Ld. 1 st appellate authority of Rs. 2789501/- is held to be erroneous and therefore set aside. In ....
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....s, holding that the revision proceedings were validly initiated, the income received on account of exchange fluctuation was held as a revenue receipt and be taxed as such and the Staff Welfare expenditure was to be disallowed. xxx xxx xxx 11. As regards the second issue which is now canvassed before this Court viz., on the issue of expenditure of 66.82 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 concer....
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.... - Religare Art Fund 22,500,000 22,500,000 Birla Cash Plus - 850,163,307 Total 881,761,571 1,088,379,879 Average value of investments 985,070,725 0.5% of average value of investments 4,925,241 10.3 The Assessing Officer however computed the disallowance of Rs. 11,95,19,889/-in terms of section 14A of the Act read with Rule 8D of the 'Rules' as under: Particulars 31.03.2009 31.03.2008 A.1 Investment in shares and mutual fund (shown as investment) 881,716,571 2,088,379,878.00 A. Total Investment 881,716,571 2,088,379,878 B. Average Investment 1,485,048,224.50 C. Total Assets 21,780,570,613 21,210,852,105.00 D. Average Assets 21,495,711,359.00 E. Indirect Interest Costs 1,622,542,721.00 1) Direct Costs Attributable - 2) Indirect Cost of Interest (Total-Considered above) 112,094,647.47 3) Other Expenses (.5% of Av....
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.... rate of borrowing for the quarter ended December 2008 was 15.04%. Copy of the scrip wise details of mutual funds units purchased and redeemed by the Appellant dividend earned thereon and corresponding interest cost attributed by the Appellant @ 15.04% to the value of such units over the period of holding is enclosed as Annextures 15 to the submission dated October 25, 2013." 10.6 The assessee also pointed out before the Ld. CIT(A) as why the computation of disallowance of Rs. 11,95,19,889/- by the Assessing Officer is not correct due to incorrect average value of the investment taken by him. 10.7 The assessee submitted that in view of the decision of the Hon'ble Delhi High Court in the case of Joint Investment Private Limited versus Commissioner of Income-tax (2015) 59 taxmann.com 295 (Delhi), the disallowance under section 14A of the Act cannot exceed the exempt income declared by the assessee. 10.8 In view of the submissions, the Ld. CIT(A) following the decision of Hon'ble Delhi High Court in the case of joint investment private limited (supra), restricted the disallowance to the amount of the exempted income of Rs. 2,77,17,070/-. 10.9 The Department is in ....
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....13 Without prejudice to the above arguments, the learned Counsel further submitted that the computation under Rule 8D of the 'Rules' by the Assessing Officer is erroneous due to attributing interest expenditure towards assets yielding exempt income. According to him the assessee has made investment out of own funds and no borrowed funds have been utilized because the RBI circular prohibited utilization of the borrowed funds for investment in shares/securities. He also submitted that investment in shares of Karnataka bank Ltd in assessment year 2007-08 was made out of own funds. The learned Counsel also submitted that no dividend was received from the investment in shares of Hindalco Industries Ltd. in assessment year 2009-10 amounting to Rs. 51 35 crores and therefore said investment is not relevant for the purpose of the disallowance under section 14A of the Act. The learned Counsel submitted that investment in units of Vistaar Media Fund (VMF) of Rs. 14 crore made during the year under consideration was not out of the borrowed funds and it was out of the cash profit earned by the assessee during the year under consideration. The learned Counsel summarised that the assessee has ma....
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....Rs. 49,25,241/-, resultant disallowance was made to the extent of Rs. 11,45,94,648/-. 4.6.1 From the assessment order passed, it is gathered that addition u/s 14A was based since no separate bank accounts were found to be maintained by the appellant in respect of investments and other activities, in other words, common funds were found to be used by the appellant for both the above activities. Further, it was held by the AO that while computed the disallowance, appellant did not consider administrative expenses which were also attributable to earn the exempt dividend income. 4.6.2 During the appellate proceedings, detailed submission have been made by the Ld. AR wherein it has been explained that AO has erred in ignoring the fact that investment held by the appellant in Karnatka Bank Ltd., Hindalco Industries Ltd. and VISTAAR Media fund were funded through its own funds. Further, it has been contended that AO has also erred in including the investment held by the appellant in Lotus India Liquid Fund India from which is chargeable to tax. In this connection, Ld. AR placed reliance on the appellate order passed by Ld. CIT(A)-XVIII, New Delhi in appeal No. 2....
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....t gets relief of Rs. 8,68,77,578/-." 10.18 Before the Ld AO, the assessee made disallowance according to its own method of disallowance , which was not accepted by the Ld AO and invoked the Rule 8D of the Rules. In our opinion, when he rejected the disallowance computed by the assessee, that in itself is dissatisfaction with the claim of the assessee of disallowance. It is not necessary that such dissatisfaction has to be recorded in explicit words, when the it is evident from the implied action of the Assessing Officer. Accordingly, we dismiss the plea of the assessee that dissatisfaction was not recorded by the Assessing Officer while invoking the Rule 8D of Rules. 10.19 Further, In view of the admission by the assessee itself of the disallowance in terms of section 14A of the Act read with rule 8D of Rules and thereafter request for restricting the disallowance following the decision of the Hon'ble Jurisdictional High Court in the case of Joint Investment Private Limited (supra), we do not find any justification in challenging the issue again before the Tribunal, disputing its own factual submissions made before the Ld. CIT(A). The assessee has admitted before the Ld CI....
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....d payment/written back in subsequent years as under: S.No. Particulars Amount (in Rs.) Paid in AY 2010-11 Reversed in AY 2010-11 Remarks 1. Bonus 51,01,156 51,01,156 Deleted by AO vide rectification order dated 06.11.2015 2. Stock Appreciation Right ("SAR") expenses 51,22,651 This issues is considered twice by the assessing officer Moreover, issue of allowability of SAR is covered in favour of the assessee-company [refer Ground Nos. 1 to 2.1 supra] 3. Leave Travel Allowance 45,48,172 24,24,401 21,55,463 Rs. 24,24,401 paid in AY 2010-11. Employees wise payment details placed at Pages 266- 273 of PB-Vol I Excess provision of Rs. 21,55,463 has been reversed in subsequent assessment year. 4. Full and final settlement payable to employees serving their notice period as on March 31, 2009 9,83,218 8,32,877 1,50,341 Employee wise details of payment of medical reimbursement amounting to Rs. 8,32,877 made in AY 2010-11 was furnished vide letter dated 9.10.2013. Excess provision of Rs. 1,50,341 has been reversed in subsequent assessment year. 5. Other allowances payable to empl....
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....ned, the assessee has already offered for tax a sum of Rs. 27,90,535/-in subsequent assessment year and thus disallowance of the same by the Assessing Officer and sustained by the Ld. CIT(A) has resulted in a double disallowance. 11.9 On the contrary, the Learned DR relied on the order of the Assessing Officer and submitted that the provisions for expenses were purely under estimate basis without ascertaining the exact liability, which is clear from the fact that in subsequent assessment years, the assessee has reversed most part of the provisions. According to him the assessee cannot be allowed to shift the tax liability which was to be paid in the year under consideration, to the subsequent assessment years. 11.10 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The provision in respect of the bonus of Rs. 51,01,156/-has already been deleted by the Assessing Officer while rectification dated 06/11/2015, which is not in dispute before us. The second provisions of stock appreciation right (SAR) for which separate addition of Rs. 51,22,651/- was also made by the Assessing Officer. The addition has been deleted i....