AI Drafter 
TaxTMI 
TaxTMI 
2024 (12) TMI 1048
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...., the appeal filed by the assessee in all the years under consideration is on one issue, regarding disallowance of the amount paid to Larson & Toubro Ltd., towards cost of ESOP benefits given by it to the assessee's employees or by the employees deputed by Larson & Toubro Ltd. to the assessee. 2.1. The Ld. AR submitted that, assessee having PAN No.AABCL0552G merged with the parent company being Larson & Toubro Hydro Carbon Engineering Ltd. having PAN No.ABBCL5967D with effect from 01/04/2016, as per the scheme approved by National Company Law Tribunal, Bangalore Bench vide its order dated 31/05/2017 and by the order passed by Hon'ble Bombay High Court vide its order dated 29/09/2016. 2.2. He further submitted that, Larson & Toubro Hydro Carbon Engineering Ltd further merged with its ultimate holding company being Larson & Toubro Ltd. having PAN No.AAACL0140P with effect from 01/04/2021 as per the order passed by National Law Tribunal, Mumbai dated 28/01/2022. 2.3. The Ld. AR submitted that, at the time of passing of the assessment orders, the assessee was known as Larson & Toubro Valdel Engineering Ltd. He submitted that, at the time its assessment orders under conside....
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....condition. He submitted that the assessee (L & T Valdel Engineering Ltd.) was a subsidiary of L & T Ltd. being ultimate holding company and had deputed certain employees to work fulltime with the assessee who were always on the payroll of ultimate holding company. It was submitted that the expenditure in relation to such deputed employees incurred by the ultimate holding company was charged to the assessee on a cost to cost basis and on an ongoing basis. 3.2.2. The Ld. AR submitted that as per the ESOP scheme framed by the ultimate holding company, the employees deputed to the assessee were entitled to equity shares of the ultimate holding company. He submitted that the understanding between the assessee and the ultimate holding company was that the proportionate cost related to the employees deputed to the assessee were to be charged by the ultimate holding company. 3.2.3. Accordingly, the ultimate holding company raised debited notes to the assessee under the contractual obligation to bare all the expenditure as determined by the ultimate holding company. The Ld.AR submitted that assessee had filed copies of debit notes raised by the ultimate holding company at the time of ....
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....es as per the provision of section 194J of the Act. 3.2.7. The Ld. AR submitted that, the expenditure incurred by the assessee on cost to cost basis in such manner on behalf of deputed employees are allowable as deduction u/s. 37 of the Act and that the Ld. AO cannot doubt the necessity of incurring expenditure as it is not in the domain of the assessment. 3.2.8. The A.R. emphasized that deputation of employees by L & T Ltd. to assessee has not been disputed by the revenue authorities. However, only in the absence of the written contract the expenditure claimed by the assessee was denied. The Ld. AR submitted that L & T Ltd. confirmed that the reimbursement was on cost to cost basis in respect of the employees deputed to the assessee and the amortised ESOP cost of such employees was charged on quarterly basis. It was submitted that issue relating to ESOP was considered by the Hon'ble Special Bench of this Tribunal in case of Biocon Ltd. vs. DCIT reported in [2013] 35 taxmann.com 335. The Ld.AR submitted that, this decision was upheld by Hon'ble Karnataka High Court reported in [2020] 121 taxmann.com 351. The Ld. AR submitted that, though the decision in respect of ESO....
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.... by both sides in the light of the records placed before us. The Ld. CIT(A) in the impugned orders referred to the order of coordinate bench of this Tribunal for assessment year 2010-11 wherein the issue was remanded with following directions.: 26. Grounds 2 and 3 in A. Y. 2008-09 and grounds 3, 4 and 5 in A. Ys. 2009-10 and 2010-11 are allowed. 27. Vide its grounds 5 and 6 for A. Y. 2008-09 and grounds 6 and 7 for A. Ys. 2009-10 and 2010-00 assessee assails disallowance of debit notes raised by its parent company for defraying the ESOP charges of employees deputed by it. Amount disallowed was of Rs. 2,70,99,347/- for A. Y. 2008-09 Rs. 5,27,68,682/- for A. Y. 2009-10 and Rs. 2,48,75,779/- for A. Y. 2010-11. 28. Facts apropos are that assessee had debited the above amounts under the head 'professional charges. Assessee was a subsidiary of L & T Ltd which had deputed certain employees of it to the assessee. AO required from the assessee details of the payments made by it to the employees sent by L & T Ltd, on deputation. In so far as the amounts paid to these employees in relation to allotment of shares under ESOP scheme, the AO was of the opinion that ....
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....f the Special Bench in the case of Biocon Ltd, v. DCIT [(2013) 144 ITD 21], this would not entitle a person who was not a direct employer to claim such benefit. He thus upheld the disallowance. 31. Now before us, Ld. AR submitted that the payments effected by the assessee to L & T Ltd, its holding company were based on debit notes placed at paper book pages 111 to 123. As per the Ld. AR assessee was obliged to reimburse the claims made by L & T since the employees debuted by L & T were working for the assessee. Assessee was supposed to reimburse the holding company on cost to cost basis. It had produced a letter from L & T Ltd, placed at page124 which would show that the payments were reimbursement of cost incurred by L & T Ltd. As per the Ld. AR, L & T Ltd, had shown such receipts from the assessee as a part of its income: Discount in the value of shares under an ESOP scheme was held to be allowable by the Special Bench in the case of Biocon Ltd, (supra), over the period of vesting. When the employees were being used by the assessee for its own business, the benefit of the ESOP which would have otherwise been that of the holding company was actually enjoyed by the assesse....
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....man. However, production of evidence to show that the expenditure was incurred for the purpose of business is the onus of the assessee. What the assesse had produced before the lower authorities is only certain debit notes with narrations which did not give any details. No doubt before the CIT (A), it had produced a letter dt. 13.12.2012 from L & T Ltd, which stated as under: "To whomsoever It may Concern This is to confirm that Larsen & Toubro Limited has deputed its employees to L & T-Valdel Engineering Limited on cost- recovery basis. The amortized ESOP costs of such employees are being recovered on a quarterly basis. For the Financial Year 2007-08 an amount of Rs. 29,397,155/- has been recovered and the same has been treated as "Other income" in the books of Larsen & Toubro Limited and has also been offered to tax. For Larsen & Toubro Limited Sd/- Arun Kirtania Deputy General Manager Absence of a written contract by itself might not be fatal to the claim of an expenditure especially when such expenditure is based on an understanding between a Holding company and a subsidiary company, but nevertheless, it is the duty of the assessee to show that ....
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....he Act, wherein TDS u/s. 194 J of the Act is deducted by the assessee, in the name of L & T Ltd. 3.4.3. The assessee has filed in the paper book with details of salary, allowances paid by the assessee to such deputed employees, wherein the reimbursement made by the assessee to the ultimate holding company qua such employees considered as ESOP charges. For the sake of convenience the annexure referred for assessment year 2012-13 is scanned and reproduced as under: Annexure 2 SALARIES, ALLOWANCES & CONSULTANCY XI A 1 Particular Sch Amount (in Rs.) BONUS ACCOUNT XI A 1 2,28,116 CONSULTANCY FEES ICO BLR XI A 1 7,91,11,952 CONSULTANCY FEES ICO FBD XI A 1 6,45,66,681 ESOP CHARGES ICO XI A 1 3,35,38,024 INSURANCE MEDICLAIM XI A 1 16,77,256 INSURANCE MEDICLAIM ICO XI A 1 1,99,470 INSURANCE WORKMEN COMPENSATION XI A 1 4,52,635 LEASE RENTALS VEHICLES ICO XI A 1 3,03,493 LEAVE ENCASHMENT XI A 1 35,33,735 LEAVE TRAVEL ALLOWANCE XI A 1 82,81,655 LEAVE TRAVEL ALLOWANCE ICO XI A 1 21,16,566 MEDICAL REIMBURSEMENT XI A 1 17,77,410 MEDICAL ....
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.... been subjected to the TDS by the assessee or by the holding company. The confirmation of L & T in respect of treating the reimbursed cost received from assessee under the head other income has never been questioned. There is no contrary evidences/documents placed by the revenue on record before us to doubt the evidences filed by the Ld. AR. Under such circumstances we do not find any reason to doubt the expenditure incurred by the assessee on cost to cost basis. It is also not the case of the revenue that the mark-up has been charged by the assessee has these documents are made by the assessee in respect of those employees who were deputed by the parent company to assist the assessee. It has to be therefore considered to have been incurred for the purposes of business. We therefore of the opinion that this expenditure is allowable u/s. 37 (1) of the Act. We thus held that this issue in favour of the assessee and Ground No. 1 raised in the assessee's appeals for all the years under consideration stands allowed. 5. Departmental appeal: In the appeals filed by the revenue, it is submitted that, all the issues are common for the years under consideration. Accordingly all grou....
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....greater efficiency and functioning of assessee is business. A.3. Before us, the Ld.DR vehemently opposed the argument of the assessee and the observations of the Ld.CIT(A). He submitted that the expenditure incurred by the assessee towards purchase of software resulted in enduring benefit to the assessee. The Ld.DR thus placed reliance on the orders passed by the Ld.AO. A.4. On the contrary the Ld.AR submitted that, the assessee is engaged in the activity of engineering consultancy in the upstream domain of oil and gas sector. It is submitted that, THE assessee needs to use sophisticated modelling and analysis software and rendered consultancy services. It is submitted that the software required by the assessee for its activities are generally very high-end applications that carry very high price tag. The Ld.AR specifically mentioned that the licenses that are purchased on perpetual model are being capitalised in the books as is evident from the depreciation schedule. He brought our notice the depreciation schedule of the audited financials at the pages in the paper book filed before us for the years under consideration. A.5. The Ld.AR submitted that, the assessee is also ....
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....vs Holsim services (South Asia) Ltd (supra) as under: We find that in this case both the CIT (Appeals) as well as the Tribunal have rendered a finding of the fact that the software purchased from M/s. C.A.India Technologies Pvt. Ltd. brought about better efficiency in the appellant's business as it enabled it to meet specifically user problem faced by the Respondent-Assessee. The impugned order also records the fact that in view of fast changing technology, software has to be regularly updated so as to keep pace with the changing technology. On the aforesaid facts the view taken by the Tribunal that the expenditure of Rs. 38.90 Lakhs is on Revenue account is an entirely possible view. So far as the Revenue's grievance that once the CIT(A) has recorded the fact that benefit obtained is of enduring nature ipso facto it must be held to be capital and not revenue in nature is contrary to the decision of the Supreme Court in Empire Jute Co. Ltd. v. CIT (1980) 3 Taxman 69. In the above case, while dealing with a similar submission, the Court has observed as under: "..................There may be cases where expenditure, even if incurred for obtaining advantage o....
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....so submitted that this is the last of exemption available to the assessee under section 10A of the act. B.2. It was submitted that assessment year 2002-03 being the 1st year of the deduction under section 10 A, THE CLAIM and was disallowed by the Ld.AO holding that the STP unit was set up in the portion of the same premises where the assessee was already carrying on its business and that it constituted spitting up of the existing business. It was also denied for the reason that no plant and machinery was acquired during the initial year and that the existing infrastructure was split and hence undertaking has been formed by splitting up the business already in existence. The Ld.AR submitted that findings based on identical disallowance of deductin was made in subsequent assessment years also. B.2.1. However from assessment year 2008-09, the deduction was denied on additional ground that, the assessee is engaged in research and analysis being in the nature of information technology assisted, and does not fall under the category of information technology enabled product and services as notified by CBDT by notification dated 26/09/2000. B.3. The Ld.AR submitted that, in line w....
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....rt. The Ld.AR thus submitted that the claim under section 10A of the act therefore cannot be denied to the assessee year under consideration being the last year of claim. B.6. On the contrary the Ld.AR relied on the observations of the Ld. AO. We have perused the submissions advanced by both sides in the light of records placed before us. B.7. It is an admitted position that assessee is a sophisticated hardware/software to produce and export engineering designs, drawings, plans, analysis reports et cetera. Assessee is governed by the directorate of software technology Parks of India being the STP registered unit. It is not doubted that the assessee has received consideration in convertible foreign exchange and has made declaration before the exchange control for conversion of the foreign exchange into Indian currency. We refer to the decisions of coordinate bench of Hon'ble Delhi Tribunal in case of Outsourcing Services Pvt.Ltd vs ITO in ITA No.1204/Del/2011 vide order dated 27/05/2011 wherein, it has been held that export of customised electronic data as required by the definition of computer software would make an assessee eligible to claim the deduction under section 10....
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....revenue submitted that in order to claim the benefit of deduction under Section 10A of the Act, an assessee is required to satisfy the requirements mentioned in Section 10(2)() & (m) of the Act. It is further submitted that the eligibility of the assessee has to be ascertained in the first year itself and since, the assessee has not set up a new unit, it cannot claim the benefit of deduction under Section 10A of the Act. It is further submitted that the Tribunal erred in proceeding on the assumption that the nature of the business of the assessee does not require any infrastructure. In support of aforesaid submission, reliance has been placed on decision of the Supreme Court in 'DEPUTY COMMISSIONER OF INCOME TAX 11(1), BANGALORE VS. ACE MULTI AXES SYSTEMS LTD., (2017) 88 ΤΑΧΜΑΝN.COM 69 (SC). 4. On the other hand, learned counsel for the assessee submitted that the assessee is registered as STPL and was granted approval on 14.09.2001. It is further submitted that concurrent findings of fact have been recorded by the Commissioner of Income Tax (Appeals) as well as the Tribunal with regard to eligibility of the assessee to claim benefit of deduct....
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....ioner of Income Tax (Appeals) as well as the Tribunal. The aforesaid concurrent findings of fact by no stretch of imagination can be said to be perverse. 6. It is the cardinal principle of law that tribunal is fact finding authority and a decision on facts on the tribunal can be gone into by the High Court only if a question has been referred to it, which says the finding of the tribunal is perverse. [SEE: 'SUDARSHAN SILKS & SAREES VS. CIT', 300 ITR 205 SCC 211 and 'MANGALORE GANESH BEEDI WORKS VS. CIT', 378 ITR 640 (SC) @ 648]. A three judge bench of the Supreme Court in HAZARI 'SANTOSH VS. PURSHOTTAM TIWARI', (2001) 3 SCC 179 while dealing with the expression to be a question of law involving in the case' held that 'to be a question of law involving in the case', there must be first a foundation for it laid in pleadings and the questions emerged from sustainable findings of fact arrived at by courts of fact and it must be necessary to decide that question of law for a just and proper decision of the case. It has been held that entirely a new point raised for the first time before the High Court is not a question involved in a case unle....
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.....AR relied on the decision of Hon'ble Bangalore Tribunal in case of a CIT vs K. Mohan & company (Exports) Pvt. Ltd. reported in (2010) 130 TTJ 719. Aggrieved by the disallowance made, assessee preferre appeal before the Ld. CIT(A) D.2. It is submitted that the Ld. CIT(A) noted that the assessee entered into foreign-exchange forward contracts with banks to safeguard itself against future fluctuation in foreign exchange rates of foreign currency for the future receipts from its customers. It was noted that such forward contracts were incidental to carrying on its business. The Ld. CIT(A) placed reliance on the decision of Hon'ble Bombay High Court in case of CIT vs Badridas reported in (2003) 261 ITR 256 in support of the view. Aggrieved by the observations of the Ld.CIT(A), the revenue raised this issue before this Tribunal. D.3. The Ld.AR at the outset submitted that assessee does not deal in commodities or foreign-exchange contracts and therefore provisions of section 43 (5) of the act does not apply. It is submitted that the claim is made on the principles of matching concept and is based on the accounting standard as per the Income tax Act. It is submitted that, the ....
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....uch commodity. However in the present facts of the case, THE assessee being neither a dealer in foreign exchange or the any, other commodities, but was an exporter of the software services, in order to hedge against any losses, booked foreign-exchange in the forward market with the bank. As some of the contracts entered into by assessee for export of services failed in some cases loss was earned. Thus in our opinion the loss so earned by the assessee was in the course of rendering its services outside India and has to be treated as a business loss. In support of this view reliance was placed on the decision of Hon'ble Bombay High Court in case of CIT vs Vishindas Holaram reported in (2014) 50 taxman.com 337, wherein, Hon'ble Court observed and held as under: "9. With the assistance of Mr.Malhotra and Mr.Pardiwalla, we have perused the memo of appeal and all necessary annexures thereto. We have also perused the relevant statutory provisions. In our view, the concurrent findings of the Commissioner and the Tribunal with regard to the nature of the transaction that it not being speculative in character is not perverse or vitiated by an error of law apparent on the face of rec....