TaxTMI 
TaxTMI 
2023 (5) TMI 1354
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....olution Panel erred in The Id. A0 erred in disallowing Rs. 76,98,652/- under section 14A read with Rule 8D of the Income tax Rules, 1962 under section 115JB of the Act without appreciating that Section 14A the Act cannot be extended and read into section 115]B which is a complete code in Itself; 3. The Assessing Officer / DRP erred in making disallowing Rs.8,70,45,135/- pertaining to discount on Employee Stock Option Plan (being the difference of market price at the time of grant of option and exercise price) claimed over the vesting period under section 37(1) of the Act; 4. The Assessing Officer / DRP erred in not allowing additional claim of discount on Employee Stock Option Plan (being difference between market price at the time of, exercise of options and market price at the time of grant of options), of Rs.10,01,36,178/- claimed under section 37(1) of the Act. The Assessing officer / DR erred in holding that additional claim of deduction, not made in the return of income, cannot be directly made before the Assessing officer / DRP. 5. The learned A has erred in not granting the refund of excess Dividend DistributionTax (DDT) of Rs. 83,50,980/-; ....
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....med at the time of filing of return of income. 2.1 Aggrieved with the final assessment order, the assessee is before the Tribunal by way of raising grounds as reproduced above. 3. Before us, the assessee has filed a Paper Book containing pages 1 to 150. 4. The ground No. 1 of the appeal of the assessee relates to disallowance u/s 14A of the Act in the final assessment order. The Assessing Officer made disallowance u/s 14A r.w.r. 8D as under: "10.12 In view of the above direction of Hon'ble DRP-2, Mumbai, the assessee vide its submission dated 18.10.2019, furnished the computation of disallowance to be made u/s 14A r.w.s. 8D of the Act as under: S. No. Particulars Amount (Rs.) 1. Direct expenses attributable -- 2 Interest Expenses X Average Investment 76,89,652/- Average of Total assets 22,83,88,171/- X 62,53,18,827/- 18,55,07,05,474/- 3. 0.5% of Average Investments (Rs.62,53,18,827/-) i.e. 31,26,594/- Total 1,08,25,246/- 4.1 The only dispute between the assessee and the Assessing Officer is in respect of proportionate disallowance under Rule 8D(2)(ii) of the Income-tax Rules, 1962 (in short ....
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....n and/or borrowed at the time of making the investments and not at a time posterior to the event - which in this case, is the year for which scrutiny assessment was made. In any case, the position of funds on the first/last day of the assessment year under consideration is not germane unless all the investments yielding exempt income were acquired in the very same assessment year - which is not the fact of this case. The assessee has also collaterally argued that if the Assessing Officer wants to make a disallowance under section 14A of the Act on account of interest, then he has to prove that there is nexus between the borrowed funds and the investments made. This is not tenable. The basic details/documents as to when the relevant investments were made, has to be first made available by the assessee since these are in its exclusive knowledge alone. Moreover, there is the claim made by the assessee, which it has to support cogently, that no interestbearing funds were used for this purpose. Hence, the initial onus lies on it to lead the primary details linking the investment with the nature of funds deployed, and only when the same is adequately discharged, does it shift to the Asse....
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..... 4.40 crores preferred an appeal to the CIT (Appeals). It was the contention of the assessee that the assessee had invested Rs. 389.60 in Reliance Gas Limited and Rs. 1.01 in Reliance Strategic Investments Limited. The assessee themselves were in the business of generation of power. The companies in which the investments were made, were in the energy sector. Investments were made mainly during January, 2000 to March, 2000.It was the submission of the assessee that they had earned regular business income from distribution of power and investments made were in the companies in energy sector and were with a view to build long-term business prospects. Investments were in the regular course of business and accordingly no part of interest can be disallowed when the fund is utilized for the purpose of business. It was also pointed out that respondent had borrowed Rs. 43.62 crores by way of issue of Debentures and the said amount was utilized as capital expenditure and inter-corporate deposit. It was the submission that no part of the interest bearing fund have gone into investments in the two companies. Insofar as funds are concerned it was pointed out that income from operation of the c....
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....ng the investments. Once the assessee is unsuccessful in this regard, the formula incorporated in rule 8D(i) of the Income tax Rules. 1962 would inevitably come into play for making the estimate. 6.3.12 Thus, it is not possible to ignore the exercise of determining without any haziness as to whether interest bearing funds or interest-bearing funds were greater at the time when the underlying investments were made. The undeniable inability of the assessee to furnish the particulars of when the tax-exempt investments were made would lead precisely to the situation where the application of the formula engrafted in rule 8D(2)(il) would mandatorily comes into play for estimating the proportionate disallowance of interest expenditure. The estimation formula prescribed in the statute was inserted in contemplation of a situation similar to the one that is before us, where the assessee for whatever reasons, is unable to give the aforesaid details at the time of making the tax-free investments. Ex consequenti, the Assessing Officer is statutorily obliged to apply the provisions of section 14A(2) of the Act in such a situation and, therefore, bound to follow the prescribed method as ....
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....ite monies from abroad and domestic debt borrowings were not permitted as per the applicable Press Notes issued by the Ministry of Finance. We are unable to be persuaded by this as it is difficult to fathom a a reason for not submitting the details of investment in its position and instead relying on tangential, circumstantial and hypothetical explanations to get over this fundamental factual deficiency. No immunity under the Act can be granted for examining the facts merely because some other law, rules or regulation prescribes something. Had this been so, then the Legislature would have provided for this exception in the rule itself. We are also unable to accept its sweeping, purely theoretical claim that no person would ever utilize borrowings for making investment in mutual funds (current investments) as the return on mutual funds is "generally lower" than the borrowing cost. There may be some obvious situations in which this assertion is untrue, such as parking of borrowed"idle" funds in short-tenure investments till they are redeployed for the purpose they were borrowed or a general expectation of earning returns greater than the interest cost based on market reports or analy....
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....essing Officer, the assessee will file details of availability of funds at the time of making investment in mutual funds from year to year. In view of undertaking by the Ld. Counsel of the assessee and interest of substantial justice, we set aside the finding of the DRP or finding of the Assessing Officer in the final assessment order pursuant to the Ld. DRP, and restore the matter back to the Ld. Assessing Officer for providing one more opportunity to the assessee for submitting the documentary evidence in support of availability of interest free funds at the time of making investment in assets eligible for yielding exempted income. The ground No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes. 8. The ground No. 2 of the appeal relates to disallowance u/s 14A r.w.r. 8D while computing book profit u/s 115JB of the Income-tax Act, 1961. 9. We find that on this issue the grievance of the assessee is that the Assessing Officer wrongly added the disallowance of Rs.2,08,08,691/- made u/s 14A to the book profit computed made u/s 115JB of the Act. Before us, the Ld. Counsel of the assessee submitted that no addition could be made in view of the decis....
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....s and continuation of the assessment proceedings. However, the issue in dispute being covered by the binding precedent in the case of Vireet Investment Pvt. Ltd. (supra). The addition made by the Assessing Officer is directed to be deleted the ground of appeal of the assessee is accordingly allowed. 11. The ground No. 3 of the appeal of the assessee relates to disallowance of discount of employee stock option plan (being difference between exercise price and at the time of grant of addition amended of Rs.8,70,45,135/-. 12. Briefly stated facts qua the issue in dispute are that the assessee claimed employee stock option claim expenses of Rs.8,70,45,135/- in the profit and loss account. According to the Assessing Officer these expenses were in the nature of capital expenditure and being contingent in nature, samewere not allowable in the year under consideration. The assessee on the other hand contended that discount of expenses amounting to Rs.8,70,45,135/- was claimed as revenue expense. The ESOP scheme was introduced with an objective to attract and retain its human talent by motivating the employees to contribute to the business activities and to inculcate a sense of belong....
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....y the Assessing Officer and the assessee." 14. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. Before us, the Ld. Counsel of the assessee submitted that subsequent to the passing of the order of the Ld. DRP the Hon'ble Karnataka High Court in the case of CIT v. Biocon Ltd -21 taxmann.com 351 has upheld the finding of the Special Bench Tribunal in the case of CIT v. Biocon Ltd (supra). The relevant finding of the Hon'ble Karnataka High Court is reproduced as under: 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act. Before proceeding further, it is apposite to take note of Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and no....
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....cisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of Section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraph 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfillment of the condition. 11. The deduction of discount ....
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.... of the Hon'ble Karnataka High Court(supra), the Ld. Assessing Officer is directed to delete the addition. The ground of appeal of the assessee is accordingly allowed. 15. In ground No. 4, the assessee has prayed for admitting the claim of discount of ESOP (difference between market price at the time of exercise and market price at time of grant of option) amounting to Rs.10,01,36,178/-. This ground was raised before the Ld. DRP as additional ground however, the Ld. DRP rejected the contention mainly on the ground that proceedings before the DRP are in the continuance of the assessment proceedings and not in the nature of the appellate proceedings and therefore, claim cannot be admitted otherwise then filing revised return of income. The relevant finding of the Ld. DRP is reproduced as under: "8.3.7 The assessee relied on the decision of the Hon'ble Bombay High court in the case of Pruthvi Brokers & Shareholders (ITA No 3098/2010), which relying on the decisions of the National Thermal Power Company Limited [1998] (229 IT 383), held that the Id. Tribunal had a jurisdiction to examine a question of law which arose from the facts as found by the lower authorities and ....