TaxTMI 
TaxTMI 
2021 (10) TMI 1010
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....irst, we take up the appeal of Revenue for assessment year 2011-12. The grounds raised by the Revenue are reproduced as under: 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Employee Stock Option Scheme Compensation, amounting to Rs. 7,51,29,706/-. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance u/ 14A r.w. Rule 8D, amounting to Rs. 69,21,744/-. 3. The appellant craves leave for reserving the right to amend, modify, add or forego any ground(s) of appeal at any time before or during the hearing of appeal. 3. At the outset, we may like to mention that despite notifying neither anyone was present on behalf of the assessee, nor any application was filed for adjournment on behalf of the assessee. In the circumstances, we proceeded to hear the appeal on the basis of arguments advanced by Learned Departmental Representatives and material available on record. 4. We have heard learned Departmental Representative and perused the relevant material on record. 4.1 The ground No.1 of the appeal of the Revenue relates to deletion of disallowance of E....
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....hould be carried on by the assessee during the previous year. Expenditure should have been incurred in connection with assessee's own business. vii. In Income Tax Act, certain expenses are an allowable expenditure on the amortization basis provided these are actual one These expenses are identified like expenditure in connection with preparation of feasibility report .preparation of project report (section 35D), amortization of expenditure in the case of amalgamation and de-merger (section 35DD),voluntary retirement scheme (section 35DDA).Besides the expenses as specified above certain expenses are allowable u/s 37 of the Act provided these are actual expenditure viz there is an outgo of the capital in transaction relating to business activity of the assessee during the relevant year. As the assessee has not purchased the shares from the market but exhausted its own quota of issued capital while giving it to the employee and there is no monitory outgoing in its existing capital and no actual expenditure has been incurred by the assessee company. Even if the method of accounting of the assessee company is considered (mercantile), expenses are allowed on provision basis if i....
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....generally accepted accounting principles and thereafter claim a deduction on account of an expenditure or loss. It is only thereafter that the applicability of the provisions of the Income tax Act 1961 applies. 5.1b It is gathered from its response to all the reasons mentioned in the impugned order for the disallowance of its claim of deduction for the loss incurred on the ESOP scheme during the relevant PY (albeit on a 3 year pro rata basis) that while the appellant's contention is fortified by the judicial precedents relied on by it, especially by the IT AT Bangalore (SB) in the Biocon case (supra), its contention that the facts of the case apply to those in the present case squarely, is borne out from records. As regards the question of incurring 'actual expenditure' vis-a-vis 'notional expenditure' as held in the impugned order, the appellant's contention appears plausible in view of the fact that 'expenditure' is nowhere defined in the Act and that if the liability to incur an expenditure is ascertained, it is sufficient to claim the expenses under the mercantile system of accounting adopted regularly by the appellant as held legally by courts. In fact, it is mentione....
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....e - company for issuing shares at a discounted premium can be characterized as a contingent liability in the light of the definition of contingent contract... 9.3.3 The Hon'ble Supreme Court in Bharat Earth Movers vs CIT (2000) 245 ITR 428 / 112 Taxman 61 dealt with the deductibility or otherwise of provision for liability towards encashment of earned leave.... With this legislative amendment, the application of the ratio decidendi in the case of Bharat Earth Movers (supra) to the provision for leave encashment has been nullified. However, the principle laid down in the said judgement is absolutely intact that a liability definitely incurred by an assessee is deductible notwithstanding the fact that its quantification may take place in a later year. The mere fact that the quantification is not precisely possible at the time of incurring the liability would not make an ascertained liability a contingent... 9.3.5 When we consider the facts of the present case in the backdrop of the ratio laid down by the Hon'ble Supreme Court in Bharat Earth Movers (supra) and Rotork Controls India (P) Ltd (supra), it becomes vivid that the mandate of these cases is applicable with full force to the ....
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....xpenditure eligible for deduction u/s 37(1) of the Act, being revenue in nature on the strength of the argument that it represents "employee cost" and cannot be considered as a capital loss as held in the impugned order. Hence, the disallowance of the appellant's claim of deduction towards ESOS compensation (Rs. 7,51,29,706/-) made in the impugned order is deleted. This ground is therefore allowed." 4.4 We find that learned CIT(A) has allowed the appeal of the assessee following the decision of the Special Bench of Tribunal in the case of Biocon Ltd. (supra) and other decision of jurisdictional High Court. We do not find any infirmity in the order of the Learned CIT(A) in following binding precedents, and allowing employee stock option compensation as revenue expenditure. The ground of the appeal of the Revenue is, accordingly, dismissed. 5. The ground No.2 of the appeal is related to disallowance of Rs. 69,21,744/- under section 14A read with Rule 8D of Income-Tax Rules, 1962 (in short 'the Rules'). 5.1 Brief facts qua the issue in dispute are that the assessee claimed exempted income of Rs. 4,88,16,855/- which included dividend income of Rs. 2,69,42,798/- and profit on r....
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....The disallowance was worked out based on available information. However, it is observed that the average of the entire investment was working out the disallowance as per the extant Rule 8D(2)(iii) instead of what is stipulated-"...average of the value of investment, income from which does not or shall not form part of the total income..." From the audited accounts, this is discernible - income from growth funds is taxable and forms a part of the total income. Hence investment in such funds are to be excluded 3 working out the disallowance under Rule 8D(2)(iii). In fact, the AR's version of the facts is borne out from records. Also, investment in subsidiary where the object of such investment is no: dividend but controlling stake is also excluded while working out the disallowance under Rule 8D(2)(iii). Accordingly, in view of the extant law on the subject, presently settled by judicial precedents from the courts including the jurisdictional High Court (Delhi HC) - * Maxopp Investment Ltd vs. CIT (A Y 2002-03) IT A no. 687/2009 (Del) * Cheminvest Ltd. vs. CIT (AY 2004-05) (2015) 61 taxmann.com 118 (Del) [the ITAT decision mentioned in the impugned order stands over....
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.... case, the Ld. CIT(A) has erred in deleting the disallowance of Employee Stock Option Scheme Compensation, amounting to Rs. 12,91,99,000/-. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance u/s 14A r.w. Rule 8D, amounting to Rs. 1,00,53,608/-. 3. The appellant craves leave for reserving the right to amend, modify, add or forego any ground(s) of appeal at any time before or during the hearing of the appeal. Cross Objections raised by the assessee: 1. That the Ld. CIT(A) erred on facts and in law, in upholding disallowance under section 14A read with rule 8D of the Act in respect to investments in Indian subsidiaries. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of cross objections at any time before or at the time of hearing of the appeal. 7. We find that ground No.1 of the appeal of the Revenue in the year under consideration is identical to ground No.1 of the appeal of the Revenue for assessment year 2011-12, and therefore following our finding in assessment year 2011-12, the ground No.1 of appeal of the Revenue for assessment year 20....
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....as reached to such amount of disallowance u/s 14A. Further perusal of profit & loss account and balance sheet reveals that assessee company has made investment in shares/mutual funds at Rs. 2,29,95,71,000/- as on 31.03.2011 and Rs. 2,34,08,88,000/- as on 01.04.2012 for the purpose of earning dividend income, long term capital gains and interest income which has been claimed and will be claimed exempted and not chargeable to tax under the Income tax Act. During the assessment proceedings, the AR of the assessee proceedings, the AR of the assessee was asked to provide the working of disallowance of Rs. 15,47,540/- made suo moto u/s 14A and also asked to explain as to why disallowance u/s 14A should not be made in accordance with Rule 8D. However, nothing has been furnished by the assessee in this regard. Hence the claim of the assessee in this regard is found to be acceptable and the issue is decided on the basis of information available on record... ...There is no rationale furnished by the assessee in deciding the amount disallowed at Rs. 15,47,540/-. Further, no separate staff or work station has been deployed/maintained by the assessee towards the investment activities. ....