TaxTMI 
TaxTMI 
2025 (7) TMI 886
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment, telecom and advanced materials sectors, amongst others. The assessee had filed original return of income for the assessment year under consideration on 30.11.2018 declaring total income at Rs. 242,96,68,370/- under normal provisions of the Act and Book Profit u/s 115JB of the Act at Rs. 269,08,73,462/- and thereafter, the assessee had filed revised return on 30.03.2019, declaring total income at Rs. 243,07,47,560/- under normal provision of the Act and Book profit u/s 115JB of the Act for Rs. 268,92,45,043/-. The case was selected for complete scrutiny, and thereafter the Assessing Officer has assessed the total income of the assessee at Rs. 628,31,46,240/-, vide the impugned order dated 29.11.2021 passed u/s 143(3) r.w.s. 144C(3) r.w.s. 144B of the Act, by making various additions / disallowances. 3. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the ld. CIT (A) who has given partial relief to the assessee. 4. Aggrieved by the order of the ld. CIT(A), the assessee and Revenue, both are in appeal before the Tribunal. The Revenue is in appeal against the relief allowed by the ld. CIT(A) while the assessee is in appeal against the addit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces of the appellant's case, the Ld. CIT(A) has erred in upholding upward adjustment of Rs. 30,008/-relating to share application money and subsequently shares were allotted. Ld. CIT(A) ought to have appreciated that share application is not loan transaction but it is in nature of quasi capital under TP regulation for which no further adjustment is required. 4. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) ought to have deleted entire disallowance of deduction claimed u/s. 35(2AB) of the Act amounting to Rs. 58,36,15,599/- as same was already approved by DSIR in Form 3CL before the date of passing of assessment order instead of directing Assessing Officer to pass rectification order pursuant to rectification application filed by Appellant on similar ground. 5. In law and in the fact and circumstances of the case, the Ld. CIT(A) has erred in rejecting additional claim made during the course of assessment proceedings/appellate proceedings even though all the facts relating to such claim was on record of Assessing Officer and claim so made is within four corners of the law. The Ld. CIT(A) ought to have appreciated that asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sis of the SEBI Guidelines when the deduction is not permissible under the income-tax Act unless a liability has either been paid or arisen during the year?" Ground No. 1 - Disallowance u/s 14A r.w.r 8D 7. The brief facts relating to this issue are that the Assessing Officer made disallowance u/s 14A of the Act amounting to Rs. 6,61,44,690/- on the ground that the assessee company has not made disallowance as per Rule 8D of the Act and disallowed an amount of Rs. 41,48,310/- instead of Rs. 7,02,93,000/-. The Assessing Officer held that the assessee has made investment in unlisted equities, preference shares, other investments etc. out of interest bearing funds as the equity and share capital of the assessee only suffice the investment in fixed assets, therefore the Assessing Officer held that the provisions of Sec. 14A read with rule 8D were applicable in assessee's case and the disallowance u/s.14A read with rule 8D towards expenditure made by the assessee was not sufficient to cover the investment to raise exempt income. The Assessing Officer accordingly made a disallowance of Rs. 6,61,44,690/- u/s 14A of the Act. On appeal before the Ld.CIT(A), the Ld. CIT(A) directed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ued that the assesses has earned exempt income u/s. 10 of the Act to the extent of Rs. 5,17,61,551 /- and the source of investment for earning income was out of borrowed funds, as the balance-sheet of the assessee prima-facie reflects that equity and share capital of the company has already utilized to meet the requirements to the extent of fixed assets i.e. property and plant and machinery. Therefore, it is clear that the investments in shares have been made out of interest-bearing funds and thus there is direct nexus between the exempt income and expenditure incurred. The Ld. DR relied on the judgment of the Hon'ble High Court of Allahabad in the case of CIT Vs. Subrata Roy (219 Taxman 0133) wherein it was held that interest on borrowed funds cannot be allowed on investment which are note exclusively and wholly for the purposes of business, having no chance to receive any pecuniary benefits and are colorable devises for tax evasion. The Ld. DR argued that the assessee has made investments in unlisted equities, preference shares, other investments etc. out of interest-bearing funds as the equity and share capital of the assessee only suffice the investment in fixed assets i.e., pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rex risk adjustment is reasonable. The Assessing Officer concluded that the assessee failed to charge an appropriate interest rate, ensuring the transaction was at arm's length. Consequently, the Assessing Officer applied an interest rate of 5.31% (computed using 6-month LIBOR 151 + average comparable rate 279.77 + forex risk 100), calculating an interest amount of Rs. 88,54,571/-. This resulted in an adjustment of Rs. 23,51,235 (88,54,571 - 65,03,336). The Ld. CIT(A) upheld the order of the Assessing Officer on this issue. 8.1 Before us, the Ld. AR submitted as under:- • The Associate Enterprise of the assessee company does not carry out any manufacturing or investment activity, it is created only for marketing and to increase the market presence; • The comparable taken over are from global database. Therefore, the risk has been already covered in the rate calculated by the assessee company and there is no need to add 100 basis points. • Also historically USD has appreciated over INR, hence there is no forex risk. • The rate of interest at ALP as calculated by assessee comes to 3.9778% and the actual rate of interest charged b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as deduction. The Assessing Officer held that the ESOP expenditure claimed is not an actual expenditure instead it is a notional expense and even if it is considered as an expense, it is not a revenue expense instead a capital nature of expenditure. 10.1 The Ld. CIT(A) held that ESOP benefits are taxable as perquisite and form part of employee's salary income. The employer is required to withhold tax at source in respect of such perquisite. The perquisite value is computed as the difference between the FMV of the share on the date of exercise and the exercise price. According to provisions of section 17(2) of the Act, said item is taxable in the hands of employees as Perquisite. The Ld. CIT(A) reversed the order of the Assessing Officer holding that if the appellant company is not allowed the deduction of expenditure i.e. "perquisite value" on which the employee has already paid the taxes, it would result into double taxation, which is completely against the principles of natural justice. 10.2 Aggrieved, the Revenue is in appeal before us against the deletion of Rs. 3,12,95,400/-. The assessee is in appeal arguing that the expenditure incurred was not Rs. 3,12,95,400/-, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 254 of the Income Tax Act, 1961. There shall be no order as to costs." 10.4 When the assessee reiterated such claim during the appellate proceedings, the CIT (A) rejected it relying on the same judgement. 10.5 Before us, the Ld. AR argued that the principle of assessing the correct taxable income should take precedence over procedural technicalities. It was argued that the denial of valid substantial claim will result in incorrect assessment of the taxable income. 10.6 Heard both the parties and the material available on record. The admissibility of a claim which is not made by filing of revised return before assessing officer/appellate authority, have always been a contentious issue. There are various judicial pronouncements that support the contention that an additional claim not claimed in the return of income can be raised before the appellate authorities, even if it has not been raised before the Assessing Officer. The normal procedure envisages that an assessee is required to file his return of income, u/s. 139(1), before the due date specified. In case the assessee discovers any omission or any wrong statement in such return of income, they can file a revised ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should - (a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;(b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs." still holds the water. 10.7 Similarly, in CIT vs. Jai Parabolic Springs Ltd. (306 ITR 42), the Delhi High Court held that the tribunal had power to allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 10.10 The Ld. AR submitted that when the assessee has claimed insufficient deductions, thereby resulting in higher tax payments, the Assessing Officer is obligated to notify the assessee and adjust the tax liability accordingly. The Ld. AR submitted that, the assessee in this case had inadvertently claimed Rs. 1,77,40,250/- less in ESOP deductions and, upon recognizing error, the assessee requested the Assessing Officer to adjust the deduction to reflect the correct expenditure incurred; however, the request of the assessee was denied by the Revenue Authorities. 10.11 The Ld. DR, on the other hand, supported the order of the authorities below. 10.12 We have heard the rival contentions and perused the material available on record. We find that there was no error in the above computation. The assessee is eligible to claim deduction of Rs. 4,90,35,650/- instead of Rs. 3,12,95,400/-. The computation is not in dispute even by the Revenue, but denied just because it was not claimed in the return. With regard to the merits of allowability on expenditure on ESOPs, we are guided by the judgment of Hon'ble Delhi High Court in the case of CIT vs. Lemon Tree Hotels Ltd, wherein ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he claim of the assessee which was correct is now being allowed. Since the computation is not being examined by the Tribunal, after laying down the proposition, the matter is remitted to the Assessing Officer for the limited purpose of re-computation of the capital gains. The appeal of the assessee on this ground is allowed for statistical purposes. Ground No. 8 - Notional interest 12. The relevant facts relating to this issue are that Arvind Premium Retail Limited had issued 9% redeemable non-cumulative preference shares to the tune of 60,000. 12.1 It was submitted that as per the Ind-AS Framework, for the purpose of fair valuation, the debt and equity component of the preference shares are required to be reported separately in the Balance sheet. Consequently, notional interest expense is recognized in the books of account of the issuer on the said debt component of the preference shares. The assessee-company, being the investee, has recognized the notional interest income on the debt component of the said preference shares in its books of account and interest income amounting to Rs. 37,76,627/- has been credited to profit and loss account under the head 'other income'....