TaxTMI 
TaxTMI 
2022 (12) TMI 1418
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....('Rules'). 1.2. The CIT(A) erred in not appreciating the fact that the disallowance under section 14A of the Act of Rs. 50,000 made by the Appellant in the Return of Income is reasonable. 1.3. The CIT(A) erred in observing that the Appellant claimed that it has not incurred any expenditure for earning exempt income, whereas, as evident from the facts of the case, the Appellant had itself disallowed an amount of Rs. 50,000 under section 14A of the Act in the return of income. 1.4. The CIT(A) erred in not appreciating that the disallowance under section 14A read with Rule 80 cannot be invoked without recording objective satisfaction and that Rule 8D cannot be invoked automatically in every case. 1.5. Without prejudice to the above, the CIT(A) erred in not restricting the disallowance under section 14A to Rs. 6,750, being the amount of exempt income earned by the Appellant during the subject year. 2. GROUND 2 - DISALLOWANCE OF CLAIM FOR DEDUCTION IN RESPECT OF EMPLOYEE STOCK OPTIONS ('ESOP') EXPENDITURE. 2.1. The CIT(A) erred in not allowing deduction in respect of ESOP expenditure of Rs. 14,98,37,670 under section ....
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....e. It emerges during the course of hearing that this tribunal's very recent order dated 29-08-2022 in assessee's case itself in ITA No.1393/PUN/2018 involving the preceding twin assessment years 2010-11 and 2011-12, has already rejected the Revenue's arguments as follows : "3. We would first adjudicate appeal in ITA No. 1392/PUN/2018 for A.Y. 2010-11. The only ground is with regard to not allowing deduction by the ld. CIT(A) in respect of Employee Stock Options (ESOP) expenditure of Rs. 1,33,64,340/- u/s 37 sub-clause (1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act". The ld. Sr. Counsel for the assessee submitted that in the first round of litigation the Pune Tribunal in assessee's own case in ITA No. 579/PUN/2014 for A.Y. 2010-11, order dated 11-04-2016 had remanded this issue back to the file of the A.O to consider the claim of the assessee in the light of decision of Special Bench Bangalore Tribunal in the case of Biocon Ltd., in (2013) 35 taxmann.com 335 (Bangalore - Trib) (SB). The relevant paragraphs of Tribunal's order are extracted as follows: "32. The assessee raised additional ground as ground no. 4 on account of claim of deduction i....
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....fect tried to distinguish the Special Bench decision in the case of Biocon Ltd (supra) and has also referred to Delhi ITAT decision in the case of ACIT Vs. Ranbaxy Laboratories in ITA 2613 and 3871/Del/. The A.O has also commented that there is no jurisdictional High Court decision that has been placed before him. Thereafter, at para 7.3 in his order, he opines that ESOP claim of the assessee is not as per the guidelines issued by the Special Bench decision in the case of Biocon Ltd (supra) on which the assessee has placed reliance. According to the A.O the assessee has not clarified on this issue. In view of the discussion, the claim of deduction of ESOP expenditure amounting to Rs. 1,33,64,340/- was disallowed by the A.O. We find that in the order of the Tribunal (supra) it has been clearly mentioned that the A.O has to adjudicate the issue in the light of the Special Bench decision Bangalore whereas the A.O has gone beyond and has tried to distinguish the judgment itself along with other cases which is not in accordance with the judicial decorum. We find that the Hon‟ble Calcutta High court in the case of Surrendra Overseas Ltd. Vs. CIT in Income-tax Reference No. 406 of 1....
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....ed for scrutiny by the Assessing Officer. The Assessing Officer by an order dated 29.12.2006 inter alia held that assessee has floated a scheme viz., Employees Stock Option Plans (ESOP) and under the scheme had constituted the Trust. The shares of the company were transferred to the trust at the face value and the employees of the assessee were allowed to exercise the option to buy the shares within the time prescribed under the scheme subject to terms and conditions mentioned therein. The assessee claimed the difference of market price and allotment price as a discount and claimed the same as an expenditure under Section 37 of the Act. The Assessing Officer rejected the claim on the ground that the assessee has not incurred any expenditure and the expenditure is contingent in nature and therefore, the assessee is not entitled to claim the difference between the market price and the allotment price as an expenditure under Section 37 of the Act. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 13.11.2009 dismissed the appeal preferred by the assessee. 3. The assessee thereupon filed an appeal before the Income Tax ....
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....ction 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the securities offered by a company at a free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The employees are given stock options at discount and the same amount of discount represents the difference between market price of shares at the time of grant of option and the offer price. In order to be eligible for acquiring shares under the scheme, the employees are under an obligation to render their services to the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period....
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....cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Year in question was 1997-98 to 1999- 2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 01.04.2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in Gajapathy Naidu, Morvi Industries and Keshav Mills Ltd. supra support the case of assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of accounts. We are in respectful agreement with the view taken in PVP Ventures Ltd. And Lemon Tree Hotels Ltd. Supra. 13. It is also pertinent to mention ....
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....al held as follows: "11.1.5. The other side of the coin is the amount of remuneration to the employees in the hands of the company. We have noticed earlier that an expense becomes deductible on the incurring of liability under the mercantile system of accounting. Although the stage of taxability of perquisite in the hands of the employee may differ from the stage of the deductibility of expense in the hands of the company depending upon the method of account followed by the company, but the amount of such discount or employees remuneration can never be different. If the value of perquisite in the hands of the employee, whether or not taxable, is `x', then its cost in the hands of the company has also to be `x'. It can neither be `x+1' nor `x-1'. It is simple and plain that the amount of remuneration which percolates to the employees will always be equal to the amount flowing from the company and such remuneration to the employee in the present context is the amount which he actually becomes entitled to on the exercise of options. Thus, it is palpable that since the remuneration to M/s. Biocon Limited the employees under the ESOP is the amount of discount w.....
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....imilar to the market price at the time of grant of option. As the total amount of discount of Rs. 100 over the vesting period is actually quantified at Rs. 100, no further adjustment to the discount is required at the time of exercise of option. In Situation II, the market price of the share at the time of exercise of option has gone up to Rs. 130. The amount of real compensation to employee is Rs. 120 as against the tentative compensation of Rs. 100 per share which was accounted for and allowed as deduction during the vesting period. As the actual quantification of the compensation has turned out to be Rs. 120, the company is entitled to a further deduction of Rs. 20 at the time of exercise of option. In Situation III, the market price of the share at the time of exercise of option has come down to Rs. 90. The amount of real compensation to employees is Rs. 80 as against the tentative compensation of Rs. 100, which was allowed as deduction during the vesting period. As the actual quantification of the compensation has turned out to be Rs. 80, the company is liable to reverse the deduction of Rs. 20 at the time of exercise of option. 11. Having heard the parties, this grou....
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....hich had become non performing assets ("NPA" for short). The Assessing Officer disallowed the claim relying on such disallowance for the earlier assessment years which were on the ground that the assessee which was following the mercantile system of banking had to pay tax on interest on accrual basis. 3.2 The issue eventually reached the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee's claim, upon which, the Revenue has filed this appeal. 4. Learned counsel for the Revenue submitted that the assessee had to offer the interest income to tax on accrual basis. The special provision for taxing interest income on NPAs on the basis of receipt has been made under Section 43D of the Income Tax Act, 1961 ("the Act" for short) which does not apply to NBFC. By necessary implication, therefore, the legislature desired that such benefit would be restricted only to such of the entities as are referred to in Section 43D of the Act. 5. On the other hand, learned counsel for the assessee brought to our notice several judgments of the different High Courts holding that on the principle of real income theory, interest on NPAs cannot be charged on....
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....are not in any way in conflict with the Income Tax Act, 1961, the Hon'ble Supreme Court has held in the case of UCO Bank that the interest income would have been brought to the Profit and Loss Account provided it was actually realized, that in case of Nationalized Bank it treated something which is doubtful, and therefore, kept it in a suspense account, was held to be a permissible exercise. In respect of the loans which are advanced, recovery of some of them if considered doubtful, then, even the interest on the loans advanced may not be realized. That is how the amount is not brought to the profit and loss account because they are not likely to be realized by the bank or a NBFC as well. It is permissible therefore to disclose or to show them as income in assessment year in which either the interest amount or part of it is recovered. The Tribunal in this case, namely, of the assessee before us, has precisely followed this course. We do not find that the course permitted and upheld by the Tribunal is in any way in conflict with any legal provisions or the settled principles. Rather as held by us, it is in accordance with the same. Once the view taken by the Tribunal was possibl....