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2016 (5) TMI 810 - AT - Income TaxReopening of assessment - Held that - Admittedly, the assessment was completed under Section 143(3) of the Act on 13.12.2010. There was no discussion in the assessment order about the cost incurred by the assessee for ESOP scheme. When the Assessing Officer has not framed any opinion in the original assessment, this Tribunal is of the considered opinion that it cannot be said that the Assessing Officer reopened the assessment due to change of opinion. For change of opinion, an opinion must have been formed by the Assessing Officer in the original assessment order. In the absence of any opinion formed by the Assessing Officer in the original assessment under Section 143(3) of the Act, at no stretch of imagination it can be said that the Assessing Officer reopened the assessment due to change of opinion. In view of the above, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment within a period of four years from the end of the relevant assessment year Disallowance towards ESOP expenses - Held that - Since the shares were purchased by the Trust from the promoters of the assessee-company at the rate of ₹ 15/- per equity share and the same was also claimed to be allotted to the employees of the assessee-company at a price of ₹ 15/- per equity share, this Tribunal is of the considered opinion that the buy back of the shares from the very same employees at a cost of ₹ 340/- per equity share cannot be an expenditure for the assessee-company. This Tribunal is of the considered opinion that the claim of the assessee is only to reduce the taxable income of the assessee. Therefore, the same cannot be allowed under Section 37 of the Act. Addition of brokerage income - Held that - Admittedly, the Profit & Loss account shows brokerage income after netting to the extent of ₹ 50,23,360/-. The claim of the assessee that a sum of ₹ 50,23,360/- is payable to various clients since there was dispute pending among them, was not substantiated by any material. The assessee could not produce any evidence before the authorities below that the liability has arisen during the year under consideration. It is also not in dispute that the brokerage income was shown as trading receipt in the books of account. The only contention of the assessee before the Assessing Officer is that the refund arises only in case the case was decided in favour of respective clients. Therefore, the liability of the assessee is contingent one on deciding the issue in favour of respective clients. As on today, the amount was treated as trading receipt in the books of account, and the assessee is not expected to refund the same till the issue was decided in favour of respective clients, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that the claim of the assessee cannot be allowed as revenue expenditure. In the absence of any material to show the liability of the assessee, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed Disallowance under Section 14A of the Act read with Rule 8D - Held that - The CIT(Appeals), after considering the material available on record, found that the assessee has earned dividend income of ₹ 15,41,947/- which was exempted from the provisions of Income-tax Act. The assessee claimed before the lower authorities that a sum of ₹ 15,41,947/- was received through ECS credit. Therefore, no expenditure was incurred for earning the dividend income. The assessee itself disallowed a sum of ₹ 7,200/- towards administrative expenses. Being not satisfied with the explanation of the assessee, the Assessing Officer adopted the provisions of Rule 8D and found the average expenditure by applying limb (ii) and (iii) of Rule 8D(2) to ₹ 4,44,491/-. After reducing the expenditure admitted by the assessee to the extent of ₹ 7,200/-, the balance of ₹ 4,37,291/- was treated as expenditure for earning the excess income. Since the CIT(Appeals), after applying the provisions of Rule 8D(2), which is mandatory for the year under consideration, rightly confirmed the disallowance made by the Assessing Officer at Rs. 4,37,291/-, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Computation of book profit under Section 115JB - Held that - A sum of ₹ 4,37,291/- was disallowed being an expenditure for earning dividend income. The question arises for consideration is whether ₹ 4,37,291/- was to be increased while computing income under Section 115JB of the Act? We have carefully gone through the provisions of Section 115JB of the Act. Explanation 1(f) to Section 115JB(2) of the Act clearly says that the amount of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) has to be increased with book profit computed under the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. In the case before us, the dividend income earned by the assessee to the extent of ₹ 15,41,947/- is exempted under Section 10(34) of the Act. Therefore, the expenditure relatable to such income has to be increased after computing the book profit under the provisions of Companies Act. In view of the specific provision in Explanation 1(f) to Section 115JB(2) of the Act, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Deduction of interest under Section 244A - Held that - A bare reading of assessment order shows that the assessee by letter dated 03.09.2012 accepted the interest amount received to the extent of ₹ 7,11,919/- which needs to be added to the total income of the assessee. The assessee itself admitted before the Assessing Officer by letter dated 03.09.2012 that the interest income of ₹ 7,11,919/- may be added to the total income. In view of this, the Assessing Officer has rightly found that the sum of ₹ 7,11,919/- would form part of total income. The CIT(Appeals) confirmed the order of the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. TDS credit - Held that - In the absence of any evidence for TDS to the extent of ₹ 13,81,600/-, the CIT(Appeals) directed the Assessing Officer to verify the claim on the basis of CBDT circular. This Tribunal is of the considered opinion that the Assessing Officer has to verify the claim and if any TDS was made, credit should be given in accordance with the provisions of Income-tax Act and the instruction given by the CBDT. Therefore, this Tribunal do not find any infirmity in the order of the lower authority and accordingly the same is confirmed. Allowability of expenditure - Held that - The payment was in pursuance of arbitration award passed by arbitrators in the course of business activity. Of course, there was a violation of contractual obligation. Therefore, the arbitrator decided the matter in favour of claimant. This Tribunal is of the considered opinion that meeting the obligations pursuant to award passed by arbitration cannot be construed as penal consequence. This Tribunal is of the considered opinion that the expenditure of ₹ 3,30,348/- incurred by the assessee consequent to arbitration, was for the purpose of meeting the business expenditure. Therefore, it cannot be construed as penalty. This is only violation of contractual obligation. Hence, the expenditure has to be allowed as revenue in nature. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the addition is deleted. Disallowance of bad debt - Held that - Merely because the clients could not honour their respective commitment of paying the purchase price, it does not mean that the assessee suffers loss at this stage. The assessee has to first sell the shares and the assessee could not realise the entire amount invested, then the amount which could not be realized may be claimed as business loss. At no stretch of imagination, it can be said that the amount due from the clients is bad debt. Since the provisions of Section 36(2)(i) was not complied with, this Tribunal is of the considered opinion that the outstanding amount cannot be construed as bad debt. Therefore, there is no question of allowing the same as bad debt. Since the shares remained with the assessee and it can be sold at any time, at the best, it can be claimed as business loss in the year in which those shares are sold provided there is any actual loss. Accordingly, the Assessing Officer shall verify whether the assessee sold the shares during the year under consideration and suffered any loss. If the assessee suffered loss on sale of such shares, the same shall be allowed as business loss.
Issues Involved:
1. Reopening of assessment under Section 147 of the Income-tax Act, 1961. 2. Disallowance of ESOP expenses. 3. Addition of brokerage income. 4. Disallowance under Section 14A read with Rule 8D. 5. Computation of book profit under Section 115JB. 6. Deduction of interest under Section 244A. 7. Credit for TDS. 8. Addition of loss on arbitration. 9. Disallowance of bad debt. Detailed Analysis: 1. Reopening of Assessment under Section 147: The first issue involves the reopening of the assessment for the assessment year 2008-09. The assessee argued that the reopening was due to a change of opinion since all particulars were available during the original assessment under Section 143(3). The Department contended that the reopening was justified as the ESOP cost was not discussed in the original assessment order. The Tribunal concluded that since no opinion was formed initially, the reopening was not due to a change of opinion and was within the permissible period of four years. 2. Disallowance of ESOP Expenses: The assessee claimed ESOP expenses of ?1,11,18,000/-, arguing that the expenditure was to motivate employees and should be allowed under Section 37. The Department countered that the expenditure was not incurred by the assessee but by a Trust, and hence, not allowable. The Tribunal found that the Trust's buyback of shares from employees at a higher price was not a business expenditure for the assessee and disallowed the claim, stating that the arrangement seemed to reduce taxable income. 3. Addition of Brokerage Income: The assessee did not show ?50,23,360/- as income, claiming it was disputed and potentially refundable to clients. The Department argued that the amount was retained and should be treated as income. The Tribunal upheld the addition, noting the lack of evidence for the liability and the contingent nature of the claim. 4. Disallowance under Section 14A read with Rule 8D: The assessee claimed minimal expenditure for earning exempt income, but the Assessing Officer applied Rule 8D and disallowed ?4,37,291/-. The Tribunal confirmed the disallowance, stating that the application of Rule 8D was mandatory for the year under consideration. 5. Computation of Book Profit under Section 115JB: The issue was whether the disallowance under Section 14A should increase the book profit. The Tribunal noted that Explanation 1(f) to Section 115JB(2) requires adding back such expenditure and upheld the addition. 6. Deduction of Interest under Section 244A: The assessee contested the addition of interest income of ?7,11,919/- for the year under consideration. The Tribunal found that the assessee had accepted this addition in a letter to the Assessing Officer and upheld the inclusion. 7. Credit for TDS: The assessee claimed a TDS credit of ?13,81,600/- which was not granted. The Tribunal directed the Assessing Officer to verify the claim and allow credit as per the provisions and CBDT instructions. 8. Addition of Loss on Arbitration: The assessee claimed a loss of ?3,30,348/- due to an arbitration award. The Department viewed it as a non-business expenditure. The Tribunal found that the payment was a business expenditure arising from a contractual obligation and allowed the claim, setting aside the lower authorities' orders. 9. Disallowance of Bad Debt: The assessee claimed bad debt of ?11,36,85,242/- for non-recoverable amounts from clients. The Department argued that the debt was not part of the assessee's income in earlier years and the shares were still with the assessee. The Tribunal held that the claim did not meet the conditions of Section 36(2)(i) and could only be considered as a business loss upon the actual sale of shares. The Tribunal directed the Assessing Officer to verify if any loss was incurred on the sale of shares during the year. Conclusion: The appeals for the assessment years 2008-09 and 2010-11 were dismissed, while the appeal for the assessment year 2011-12 was partly allowed. The Tribunal's decision was pronounced on 5th May 2016 at Chennai.
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