TaxTMI 
TaxTMI 
2026 (6) TMI 498
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....sed to law and facts of the case. 2. Disallowance of 'Pre-operative Expenses' deduction claimed under the provisions of section 35D of the Act: Disallowance of Deduction under Section 35D 2.1. The NFAC has erred in confirming the addition made by the Ld. AO by disallowing the deduction of pre-operative expenses amounting to Rs. 1,73,79,089, duly claimed in the return of income. 2.2. The NFAC has erred in disallowing the claim under Section 35D(2) without appreciating that the expenditure was necessarily incurred to obtain the Insurance and Regulatory Development Authority of India (IRDAI) licence, which was a pre-condition to commence business operations. 2.3. The Ld. AO/NFAC has erred in making a double disallowance, failing to appreciate that the said pre-operative expenses of Rs. 6,02,10,657 for AY 2016-17 and Rs. 2,66,84,786 for AY 2017- 18 had already been disallowed by the Appellant in the respective year's income tax return. Principle of Consistency 2.4. The NFAC has erred in disregarding the fact that the deduction under Section 35D has been claimed on a pro-rata basis since AY 2017-18, and the same ....
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....th Guidance Note on Accounting for Share-based payment (Revised 2020) issued by the Institute of Chartered Accountants of India. 3.7. The NFAC has failed to appreciate the principles laid down by various judicial precedents wherein, it was held that expenditure incurred on account of ESOP is an allowable expenditure as the same is incurred wholly and exclusively for the purpose of business of the taxpayer. 4. Disallowance of Share issue expenses 4.1. The NFAC has erred in disallowing share issue expenses of Rs. 18,57,400 incurred by the Appellant under section 37 of the Act. 4.2. The NFAC has erred in concluding that the expenditure incurred by the Appellant towards issuance of share capital is a capital expenditure without appreciating the nature of business of the Appellant and the fact that infusion of capital was towards working capital requirements. 4.3. The NFAC has failed to appreciate the fact that the share issue expenses have been incurred wholly and exclusively for the purpose of business and has no enduring benefit to the Appellant. 4.4. The NFAC ought to have appreciated that as the end use of the funds raised from ....
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....e was made. 5) On appeal, the ld. CIT(A) vide para 3.5 of his appellate order confirmed the same. 6) The assessee challenges the same as per ground No.2 of the appeal before us. 7) The ld. AR, Shri Ketan Ved, CA, submitted a paper book filed on issues and judicial precedents. His argument was that the claim made by the assessee u/s. 35D of the Act has been accepted by the Income Tax Department u/s. 35 of the Act and assessee is granted such deduction for AY 2017-18 to 2020-21. Further the issue is squarely covered in favour of the assessee by the decision of Hon'ble Karnataka High Court in the case of Subex Ltd. v. CIT, 132 taxmann.com 96 and SLP filed by the Revenue against the said decision has also been dismissed by the Hon'ble Supreme Court. He further relied upon the decision of Hon'ble Gujarat High Court in the case of DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd., 33 taxmann.com 117 and PCIT v. Deep Industries Ltd., 67 taxmann.com 6. Accordingly, he submitted that the claim of the assessee is allowable. 8) The ld. Sr. DR, Shri Subramanian, JCIT relied upon the order of the ld. AO. 9) We have carefully considered the rival contentions and find that assess....
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....ursed by the assessee to its parent. 12) The ld. AO disallowed the above expenditure holding that in fact Option is not exercised by the employees, no shares are issued and therefore there is no tax incidence in the hands of the employees. Thus, it was stated that till this Option is exercised, no shares are allotted and transaction has not taken place, therefore deduction is not allowable. Even otherwise, the ld. AO was of the view that shares have been issued by the holding company, out of its reserve by utilization of share premium account, thus it is not a case of simple reimbursement of cost. Accordingly Rs. 68,95,039 was disallowed. 13) The issue was agitated before the ld. CIT(A), who confirmed the action of the ld. AO. 14) The ld. AR submits that this issue is covered in favour of the assessee by the decision of the Coordinate Bench in the case of SAP India P. Ltd. v. DCIT, ITA No.704/BANG/2023 wherein it is held that such compensation cost is allowable u/s. 37(1) of the Act. It was further stated that the ESOP expenses claimed by the assessee are also covered by the decision of Hon'ble Karnataka High Court in the case of Biocon Ltd. v. DCIT, 430 ITR 151. Thus, the....
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....penditure. Accordingly ground No.3 of the appeal of the assessee is allowed. 17) Ground No.4 of the appeal is with respect to disallowance of share issue expenditure. The fact shows that assessee has incurred the share issue expenditure amounting to Rs. 18,57,400 and claimed the same as deductible expenditure u/s. 37(1) of the Act. The ld. AO held that same is not allowable to the assessee as the same is capital expenditure and covered by the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. Commissioner of Income-tax [1997] 91 Taxman 26 (SC)/[1997] 225 ITR 798 (SC)/[1997] 140 CTR 598 (SC)[27-02-1997]. The assessee submitted that shares were issued by the assessee to fund its working capital requirement and therefore it is not hit by the decision of the Hon'ble Supreme Court. The assessee further relied upon the decision of Navi Mumbai SEZ P. Ltd. [2015] 54 taxmann.com 259 and further the decision of ACIT v. P C Jewellers Ltd. [2022] 137 taxmann.com 71 wherein the decision of Hon'ble Supreme Court was considered. It is also the case of the assessee that the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corp....
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....penditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by the learned counsel for the assessee before the AAC as well as before the Tribunal. It is no doubt true that before the AAC as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was under taken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above quoted observations of this Court in Punjab State Industrial Development Corpn. Ltd. 's case (supra)clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses in....