TaxTMI 
TaxTMI 
2022 (12) TMI 790
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....Assessing Officer (hereinafter after referred to as Ld. AO) under section] 43(3) of the Income-tax Act. 1961. 2. That on the facts and in the circumstances of the case the Ld. CIT (A) erred in upholding the disallowance made by the Ld. AO rejecting the claim of the Appellant of deduction of expenditure incurred by it on ESOP amounting to Rs.72,80,083/- u/s 37 of the Income-tax Act. 1961. 2.1. That the Ld. CIT( ) erred in simply following the decision in Appellant' own case, pertaining to Assessment Year 2013-14 appeal against which is pending adjudication before this Honble Tribunal, and disallowing the expenditure incurred on ESOP without any independent application of mind and examining the factual and legal position in this regard. 2.2. That the Ld. CIT(A) erred in holding that the ESOP expenditure was only notional and capital in nature, thus attracting disallowance. 2.3 That the Ld. CIT(A) erred in disallowing the expenditure incurred on ESOP on the premise that the Appellant has not actually disbursed any amount towards ESOP. The ld. CIT(A) failed to appreciate that for an expenditure to be claimed as deductible u/s 37(1) of the Income-....
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....der ESOP scheme for F.Y 2013-14. In the reply, no specific criteria for allotment of shares under the scheme was defined/explained. The A.O observed that three relevant events are important during an ESOP lifecycle, these are (a) grant options (b) vesting of options and (c) exercise of options. The assessee failed to submit as to how the facts of case laws are similar to the facts of the assessee company. According to the Assessing Officer there are notional expenses, capital in nature. The Assessing Officer placed his reliance on the decision of the Delhi & Mumbai Benches of the Tribunal, in the cases of M/s Ranbaxy Laboratories Ltd. vs ADIT and M/s VIP Industries Ltd. vs. DCIT. Accordingly, the Assessing Officer disallowed Rs.72,80,083/- claimed in the P&L Account. 5. Upon assessee's appeal, ld. CIT (A) found that his predecessor in AY 2013-14 has confirmed the similar order of the AO. Hence following the same, ld. CIT (A) confirmed the disallowance. 6. Against this order, assessee is in appeal before us. We have heard both the parties and perused the record. 7. Ld. Counsel of the assessee submitted that the CIT(A)'s order for AY 2013-14, on which ld. CIT (A) has placed ....
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....Hon'ble ITAT Delhi in the case of Ranbaxy Laboratories has also decided the issue subsequently in the favour of the assessee for AY 2008-09 in ITA No. 196/Del/2013 vide order dated 25-4-2016 as reported in 68 taxmann.com 322. Thus, the Hon'ble ITAT of Hyderabad, the jurisdictional Bench has already decided the issue holding ESOP expenses as allowable u/s. 37(1) and further as the Hon'ble High Courts of Delhi and Karnataka have also decided the issue of allowability of ESOPs as revenue expenditure, therefore the ESOP expense claimed by the appellant has to be allowed in principle accordingly. As regards the quantum of allowance, the appellant has calculated the ESOPs on the basis of market value of Rs.505 and has charged the employees Rs. 100 (face value being Rs.10 and security premium Rs.90). The difference has been considered as an expense and the relevant perquisite has been ITA No. 428/Hyd/2020 AY 2017- 18 DCIT vs . M/s Integrated Cleanroom Technologies Pvt. Ltd. accounted for in the hands of employees and the same have been taxed in their hands and due TDS has been deducted by the appellant. The Assessing Officer however has taken the val....
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....o 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 recognized 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 it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief granted by the Assessing Authori....
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.... "3. That on the facts and in the circumstances of the ca e the Ld. CIT(A) erred in confirming the disallowance made by the Ld. AO amounting to Rs.77,882/- on account or interest paid on money borrowed as unsecured loan. 3.1. That the Ld. CIT(A) erred in confirming the disallowance of interest expenditure without providing an) cogent basis. The Ld. CIT(A) also erred in upholding the disallowance on the basis that the Appellant did not furnish evidence of first approaching banks/financial institutions for obtaining loans and upon their denial to provide the same the Appellant approached, Smt. Vasantha Surva." 10. Brief facts of this issue are that AO noted that the assessee company had paid interest to M/s Vasntha Surya at the rate of 24% whereas the rate of interest charged by the banks/financial institutions was 17% to 18% on working capital. The Assessing Officer prepared a chart in which interest paid to Smt. Vasntha Surya was Rs.8,36,424/- and the rate of interest varied between 13% to 24%. The Assessing Officer has selected those amounts of interest which were paid at the rate of 24%. Before the Assessing Officer the assessee submitted that banks charge in....
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....n favour of the assessee. 14. Other issues raised vide grounds no.4, 5 & 6 in AY 2014-15 are as under : "4. That on the facts and in the circumstances of the case, the ld. CIT (A) erred on facts and in law in disallowing the expenditure incurred by the Appellant amounting to Rs.52,739/- towards gift provided to foreign delegate as a part of business promotion. 5. That on the facts and in the circumstances of the case. the Ld. CIT (A) erred on facts and in law in disallowing the expenditure incurred by the Appellant amounting to Rs.50,003/- towards the guest house taken on rent to provide accommodation facility to its foreign delegates. 6. That on the facts and in the circumstances of the case. the Ld. C IT(A) erred on facts and in law in disallowing the expenditure incurred by the Appellant amounting to Rs.11,200/- pertaining to donations, electricity repair and reimbursements made to the employees." 15. Following expenses claimed by the assessee as incurred has been disallowed by the AO :- (a) Expense on purchase of Gold chain Rs.52,739/- (b) Guest House Expenses Rs.50,003/- (c) Miscellaneous Expenses Donations, Electrici....
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....he business." 19. The other expenditure on misc. expenses was confirmed by the ld. CIT (A) with following reasons :- "16.8 With regard to the miscellaneous expenses disallowances it is submitted by the appellant that those pertained to grocery items, amounts paid to cook, electricity bill etc. The expenses are not allowable because the assessee failed to explain the nature of expenses before the A.O and before me. It has been held above that the appellant company failed to prove that the guest house was used for the guests related to the assessee company. Therefore, other expenses related to the guest house cannot be allowed. Before the Assessing Officer these expenses were found to be related to some donations. Accordingly, the additions made by the Assessing Officer are hereby confirmed." 20. Against this, the assessee is in appeal before us. We have heard both the parties and perused the records. 21. Upon hearing both the parties and perusing the record, we find that assessee has not adduced any evidence before us also to take a contrary view than the one taken by ld. CIT (A) on above issues. As regards gold chain, we may also observed that if it was a souvenir....
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....al Research, New Delhi filed on the dak on 09.11.2017. Perusal of Form 3CM dated 11.02.2016 submitted by the assessee revealed that approval to R&D facility of the assessee was w.e.f. 01-04-2015. This was brought to the AR's attention vide order sheet entry dated 28.11.2017. Thereafter vide letter dated 06.12.2017, the assessee furnished another Form 3CM dated 01.12.2017 as per which the R& D facility of the assessee is approved w.e.f. 01.04.2014 to 31.03.2015 for capital expenses only and from 01.04.2015 to 31.03.2017 for both capital & revenue expenses. 4.2 Before we proceed further, it would be useful to examine the provisions of Section 35(2AB) of the Income Tax Act and Rule 6 of the Income Tax Rules. The relevant portion of Section 35(2AB) of the l.T. Act, 1961 & Rule 6 of the I.T. Rules are reproduced below- "Expenditure on scientific research; 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed- ,........ .......... (2AB)(J) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or th....
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....authority to the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over such company .... " 4.3 Letter dated 11.12.2017 was issued to the office of the CCIT(Exemptions), Delhi, requesting it to confirm whether a copy of the Form 3CL had been received from the Secretary, Dept. of Scientific & Industrial Research for the Asst. Year 2015-16 in the case of the assessee and also to specify the date of receipt of the Form 3CL. In response, vide letter dated 13.12.2017, the CCIT(Exemptions), Delhi, has forwarded a copy of Form 3CM dated 11.02.2016 received in his office and further stated that as per the revised procedure under amended Rule 6 of the I.T. Rules w.e.f. 01.07.2016, the relevant forms are being filed with the PCCIT/CCIT/PDGIT/DG1T having jurisdiction over the applicant. Accordingly, a letter dated 18.12.2017 was addressed to the office of the CCIT-2, Delhi, to furnish the required information. In response, vide letter dated 22.12.2017, the office of the CCIT, Delhi-2, has informed Form 3CL has not been received from the Department of....
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....itself. Till assessment in 2017, no such quantification, categorization or recommendation of DSIR was available. Being a new fact, it is not admissible at this stage. Therefore, the order of the AO is confirmed." 25. Against the above order, assessee is in appeal before us. We have heard both the parties and perused the records. 26. The ld. Counsel of the assessee in his submissions referred that the section and rule referred by the AO are after amendment. That the same are not applicable here. Further, assessee made following submissions :- "2.7 The Form 3CL comes under rule 6(7 A) of the Income-tax Rules, 1962 framed under the provisions of the Act. The above sub-rule is relevant for approval of expenditure incurred on in house research & development facility by a company under section 35(2AB). Sub-clause (b) thereof is the specific provision thereto stipulating that the prescribed authority shall submit its report in relation to the approval of in-house Research & Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within 60 days of its granting approval. The same is merely in the form of intimation to be sent from prescribed autho....