TaxTMI 
TaxTMI 
2024 (7) TMI 1734
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....n light of Rule 18(6) of the ITAT Rules, 1963. 4. During the course of scrutiny assessment proceedings vide notice dt. 15/02/2021 issued u/s 142(1) of the Act, the AO served a questionnaire which is placed at pages 77 to 84 of the paper book. The relevant query for the appeal under consideration reads as under :- "9. With respect to Outward Foreign Remittance, Please provide: a. Detailed note on all outward foreign remittance sent specifying its purpose, commercial expediency as well as bank account statement, highlighting such transactions. b. Give accounting treatment of all such remittance sent. Specify if same has been transferred from income already offered to taxation. (Give all related documentary evidence in order to substantiate your claim) 10. With respect to the deductions under chapter VI-A during the year under consideration, kindly submit the below specified details: a. Section/sub-section wise details of deductions claimed under VI-A. b. Details of earnings under the relevant heads against which deduction claimed. c. Note on eligibility criteria of deductions claimed under different sections o....
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....mount Allowed as Deduction/Considered separately - (A) 244A Interest on Income tax Refund - considered separately and offered to tax under Income from other sources 5,257,803 Actual expense of Employee Stock Option exercised during the year 135,061,022 As per IND AS Notional Interest income recognized on Security Deposit 15,469,173 Profit on sale of Fixed assets 56,800 Reversal of Provision for Bad Debts which was disallowed in AY 2015-16 14,811,465 Actual payment of Gratuity and Pension 79,067,369 VRS deduction u/s 35DDA of the Act - 1/5th of the amount being 2nd year of deduction 58,510,841 Total of Deduction Claimed - (A) 308,234,473 Add: Amount disallowed in computation of Income - (B) As per IND AS the Company has fair valued these security deposits. Difference between the fair value and transaction value of the security deposit has been recognized as prepaid expense. Since it is notional and debited to P&L it is disallowed 16,298,560 Employee Stock Option debited to P&L - Under Ind AS, the cost of equity shares is recognised based on the fair value. 88,569,795 Total disallowed - (B) ....
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....16 14,811,465 Depreciation as per Income tax (As per TAR) 1,781,318,831 244A Interest on Refund - Credited to P&L and considered separtely 5,257,803 Allowance under 32AC 266,922,835 Allowance under 32AD 57,421,231 Gratuity + Pension benefits considered in Comprehensive Income 79,067,369 Interest Income considered separately 276,423,878 Rental Income considered separately 19,845,000 Deduction under section Sec 43B(as per TAR) 3,094,518 Deduction under section Sec 40 (a) (as per TAR) 117,471,211 VRS deduction u/s 35DDA 58,510,841 2,830,731,977 Income from Business or Profession 7,426,802,662 Income from other sources 244A Interest on R....
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....tion of income show that the assessee has added Rs.15,58,06,642/- being expenditure claimed under Corporate Social Responsibility (CSR). It can also be seen that the assessee has added employee stock option debited to its P&L account amounting to Rs. 8,85,69,795/- and thereafter claimed a deduction of Rs.13,50,61,022/- and deduction under Chapter VIA u/s 80G(2) of the Act was claimed at Rs.1,50,42,600/-. 8.1. After considering the reply of the assessee to the first notice, on 16/03/2021, the AO issued another notice which is exhibited at page 115 to 119 of the paper book. The relevant queries reads as under :- "1. With respect to Foreign Outward Remittances, made during the year please provide following: 1a) Kindly submit details of all the payments made under various to no-residents in the below format. Also explain the source of Foreign remittance made with supporting documents: Name of Payee Amount (Rs.) Country of Residence of Payee Nature of Payment 1b) Kindly explain for each such payment, weather income tax was not deducted or was deducted at lower rate. If you have any certificate to tha....
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....ND AS wherein the accrual of stock option expenses are added back and actual expenses is claimed as dedcuton . Accordingly, during the year the company has added back INR 885.70 lacs (as per point no . 8 of this table) . and claimed actual expenses of INR 1350.61 lacs as dedcution. Please find attached payment debit notes at Exhibit 1 135,061,022 3 IND AS Notional Interest income recognized on Security Deposit - since it is notional income as per IND AS the same is excluded from computation of taxable income. Under the IGAAP, interest free lease deposits (that are refundable in cash on completion of the lease term) are recorded at their transaction value. However under Ind AS, all financial assets are required to be recognised at fair value. 15,469,173 4 Profit on sale of Fixed assets as per Note 27 of FY 2016-17 financials 56,800 5 Reversal of Provision for Bad Debts which was disallowed in AY 2015-16. We had disallowed the provision of INR 994.25 lacs in the computation of taxable income and offered the same tax in AY 2015-16. During the year against the said provison for bad ebts the assessee has reversed INR 148.11 lacs hence we have reduced this amou....
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....tion policy where the employees of the Colgate Group company are given an option to acquire the shares of Colgate-Palmolive Company, US, for a prescribed grant price. When the employees of the group company exercise such option, the Colgate- Palmolive Company, US, issues the shares to the employees at the pre- decided grant price and recovers the differential cost (i.e. difference between prevailing market price at the time of exercise less grant price) from the concerned Colgate Group Company. The said difference is also treated as income in the hands of the employees and taxed as perquisite. 9.1. It was further explained that the company recognized the ESOP expenses as a debit to P&L over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied, as determined on the grant date, based on the fair value of the options. It was further pointed out that such charge to P&L account is disallowed while computing the taxable income as has been show in the computation of income elsewhere. 10. This claim of the assessee was claimed to be supported by the decision of the Co-ordinate Benches in the case of Novo Nordisk India (P.) Ltd....
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....irement of the order being erroneous ". 13. Further, the Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. reported in [1993] 203 ITR 108 (Bombay), while dealing with identical issue has held as under :- 13. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to init....
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....ch decision of the Income- tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal." 14. The Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. reported in [2007] 295 ITR 282 (SC), had the occasi....
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....of the Commissioner was passed there were two views on the word 'profit' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act." 15. Considering the facts in totality, in light of the judicial decisions discussed hereinabove, we set aside the order of the PCIT dt. 12/03/2024 and restore that of the AO dt. 17/02/2022, framed u/s 143(3) r.w.s 144C(13) of the Act. 16. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 29th July, 2024 at Mumbai. ============= Document 1 GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE PRINCIPAL CO....