TaxTMI 
TaxTMI 
2023 (8) TMI 369
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....assessment is on several issues on which the revisionary authority found an absence or lack of enquiry by the Assessing Officer (AO), necessitating restoration back to his file for the said verification and examination, holding as: '6.4 From the above discussion, it is clear that the Assessing Officer in the impugned assessment order has incorrectly assumed the facts of the case and has incorrectly applied the law as applicable to the issues at hand. He has failed to take note of the salient aspects of the case and has passed the assessment order without application of mind and without making any enquiry whatsoever and in my view has committed an error in the assessment which is also prejudicial to the interests of the revenue. Therefore, I hold that the AO has passed an erroneous order which is prejudicial to the interests of the revenue.' 3. At the outset, Shri Nair, the ld. counsel for the assessee, would submit that he would proceed qua each of the 07 issues raised vide the impugned order for verification by the AO in the set aside proceedings, demonstrating of the same having been in fact already considered by the AO in assessment, so that the revision was impermissible in ....
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.... not permissible. AO has omitted to notice this aspect of the case.' With reference to clause 18 of Form 3CD, the assessee-company had claimed additional depreciation for AY 2015-16 on assets put to use for less than 180 days. The assessee's claims to have furnished all the relevant details in assessment, taking us through the same, and of it being in order; rather, consistent with the decision by the Apex Court in Brakes India Pvt. Ltd. SLP(C) No. 033755/2017 (PB-2, pgs.334, 402, 415, 431-432/PB-4, pg. 23). Depreciation had been correctly claimed at 50% of the normal depreciation for the assets put to use for less than 180 days. The confusion arose as, due to large number of additions in the second half of the year, these were stated as made and, accordingly, put to use, on one date (31/3/2016). The matter stands looked into by the AO. Now, the difference in depreciation, if any, for AY 2015-16, could in our view be rectified, pursuing a remedial course, only for that year, even if by way of rectification u/s. 154. The depreciation claimed and allowed for that year would be irrespective of the extent unabsorbed entitled to be carry-forward for this year, forming part of the curre....
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....Account (NTA) (PB-2, pgs. 544). The same determines an amount of Rs. 2413.52 lacs as interest payable to Micro, Small and Medium Enterprises, in terms of the MSMED Act, 2006. The assessee has explained that no claim qua this interest has been preferred; having in fact been not debited in it's accounts, so that the question of disallowance thereof for tax purposes does not arise. Reference stands also made to the Guidance Note (para 39.10) by ICAI. The ld. Pr. CIT, while recording this clarification by the assessee, states it to have not clarified the position (para 6.2). What, pray, we wonder, does that mean, and what further clarification the Revenue seeks we are unable to understand. Once the expenditure has not been claimed, the question of it's disallowance for the relevant year cannot arise, so that there is no prejudice per the impugned order to the Revenue. Sure, there is non-observance of the said Act, but that is outside the domain of the Act. No case for revision is made out. 4.5 Issue # 5: Provision for warranty expenses 'In the notes forming part of the financial statements, note no.25-other expenses, assessee has debited Rs. 2975.98 lakhs towards warranty expenses. ....
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.... as well as the assessee's reply in the revision proceedings (PB-2, pgs.349-351, 531-532), including a tabulation of the provision movement, as under: (Rs. in lakhs) Opening Provision as on April 1, 2015 Additional provision made Provision reversed Closing Provision as on March 31, 2016 1,944.37 (1,311.31) 1,522.03 (1,537.69) 1,392.72 (904.63) 2,073.68 (1,944.37) The adverse remarks by the ld. Pr. CIT (para 6.2), denoting the infirmity observed in the assessee's claim, clearly not verified by the AO, reads as under: '6.2 .... As regards huge provision for warranty shown in the books, assessee has replied that such provision for warranty created is reversed in the subsequent years and such reversal offered as income in those subsequent years and there is no prejudice caused to the revenue. This submission of the assessee is misplaced as it is the bounden duty of the AO to compute the correct total income for the impugned AY and he cannot permit excess claims or postponement of income, deliberate or otherwise, in the hope that such excess claims/postponed income will be subject to tax somewhere in the future.' (emphasis, ours) 4.6 It may at this stage be relevant to visit....
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.... must thus be circumstances which would make the enquiry prudent, and not de hors the same, even as explained in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), the same being an objective fact which must be satisfied on the basis of the material on record. This in fact is captured by the words: 'which should have been made' occurring in Explanation 2(a) to s. 263(1) with reference to any inquiry or verification by the AO. 4.7 We may next discuss the case on merits. In the facts of the case, as noted by the ld. Pr. CIT, the assessee has claimed an expenditure of Rs. 2975.98 lacs as warranty expenses. Our first observation is that the assessee's explanation only outlines the manner in which the warranty expense is accounted for, and is sans any facts. Why, it does not even state if the expenditure stood examined and, if so, what was the rate/s on different products, stated to be reviewed annually and, further, vis-a- vis that obtaining in the past. Further, the Pr. CIT has made a factual observation, which remains unaddressed. The Auditor, who had access to the details, states that the expenditure of Rs. 2073.68, which in fact works to 70% of the total expenditure claimed, has....
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....provision of warranty, claimed to be on empirical evidence, generated by past data, would have to be examined by him, even if on a test-check basis, arriving at a satisfaction before accepting the same, as explained in Malabar Industrial Co. Ltd. (supra). The invocation of s. 263 in its respect is thus valid. We decide accordingly. 4.8 Issue # 6: Claim in respect of 'employee stock option scheme' 'Assessee has shown 'employee stock option scheme' expenses at Rs. 357.88 lakhs (refer note 23). It has also reported this amount towards 'amortisation' during the year. In the significant accounting policies (refer pare no.2.1-item O), assessee has stated that expenses or credit recognized in the statement of P&L for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense. In other words there is no consistent policy of 'amortisation' regarding ESOP and as admitted by the assessee, it may either be an expense or an income. AO has failed to probe the correctness of such claim in the light of available details.' The final observations by the ld. Pr. CIT are to the same....
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....Balance-Sheet. The actual amount of options exercised during the year is at Rs. 232.47 lacs (PB-2, pgs.529). The rationale of the expenditure, as explained, is the difference between the market price of the share as on the date/s of the grant of the option by the Company (stated as July 2013 and May 2015, for Grant I & II respectively), and the price charged to the employee in its respect, which is at par value of Rs. 10. This difference, which forms the basis of the 'expenditure', is amortised over the period of service of the concerned employee with the company inasmuch as the same forms the basis of his eligibility under the scheme. The options can though be exercised within a period of three years of the Grant. The market price of the shares (being at Rs. 485.35 & Rs. 999 for the two dates respectively) may well be different on the date of the exercise of the option, resulting in either an additional or lower expenditure being booked. It is this expenditure or credit, being in addition to or in retraction of that provided earlier, that the assessee refers to in Note 2.1(o) (PB-2, pg. 526). There is, however, no reversal of the expenditure and the entire amount of Rs. 232.47 la....
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....the net asset value, is surely more realistic and conservative vis-a-vis the market value, even as the employee stands to be benefited on the basis of the market value thereof. The question however is if this value (i.e., BV/NAV) (in excess of the purchase cost of shares to the employees) could be regarded as a cost to or expenditure incurred by the company or even as a loss to it. By issuing shares at lower than the book-value, it is the general body of the shareholders that suffers a decline in the value of it's share-holding, as in the case of bonus shares or even rights shares, where issued at a discount. This is as the same is only a capitalization of it's profits by the company, securitizing it. The only difference is that in this case the allottees, as a class, are employees (or ex-employees), who had worked for the company for a definite period of time. In other words, it is the existing shareholders, as opposed to the company, that suffers the loss in the value of their shareholding on a pro-rata basis. That is to say that neither any expenditure is incurred nor any loss suffered by the company issuing the shares on the exercise of the stock option by an employee, even as....
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....vis that obtaining at the time of exercise of option, could be adjusted in accounts. In other words, there is no scope for charge or claim of expenditure on the grant of options or their exercise, which could only be in the year of rendering services against which the same are allowed, where the accounts are maintained on accrual basis, mandatory under the governing law and that adopted under the Act (s. 145). There is yet another aspect of the matter, i.e., the point of time at which the rights in the shares inure to the employee. That is, upon the employee accepting the stock option or on exercising it. This is as the benefit can be said to be allowed by the company to the employee only on the right being acquired by him. The Tribunal in Asst. CIT v. Pramod H. Lele [2012] 66 DTR 134 (Mum), and again in Asst. CIT v. Pramod H. Lele [2016] 156 ITD 571 (Mum), held that the said right passes only on the exercise of the option by the employee. Prior thereto, an employee signifying his willingness to take the shares, only promises to accept the offer of the company in future. Promise to offer or to accept is not an 'offer' or 'acceptance' per se. This becomes relevant as the expenditur....