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2015 (8) TMI 319 - AT - Income TaxAddition on account of Employee Stock Option Scheme Compensation (ESOS) - CIT(A) deleted the addition - Held that - As decided in Biocon Ltd. Vs. DCIT 2013 (8) TMI 629 - ITAT BANGALORE discount on issue of ESOP is allowable as deduction in computing income under the head Profits and gains of business or profession. Since it is on account of an ascertained and not contingent liability, it cannot be treated as a short capital receipt. Thereafter, the Special Bench has laid down the mechanism for determining as to when and how much deduction should be allowed as held that the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of ESOP by considering the period and percentage of vesting during such period. Deduction of the discounted premium during the years of vesting should be allowed on straight line basis. Then, dealing with the subsequent adjustment to discount, any adjustment to income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference to the market price at the time of grant of option and market price at the time of exercise of option. Respectfully following the precedent, we set aside the impugned order and send the matter to the file of AO for deciding it in conformity with the decision taken by the Special Bench in the aforenoted case. - Decided in favour of assessee for statistical purposes. Disallowance of depreciation on intangible asset - CIT(A) deleted the addition - Held that - AO disallowed the claim of depreciation on intangible assets by following his opinion for the AY 2006-07. There is no elaborate discussion about this issue in the assessment order for the instant year. The ld. AR or the ld. DR failed to throw any light on the final view taken by the Tribunal on this issue in its order for AY 2006-07. In the absence of any discussion on the issue on merits, we are handicapped to give our independent opinion. We, therefore, set aside the impugned order and remit the matter to the file of AO for deciding this issue in conformity with the final view taken on this issue for the AY 2006-07.- Decided in favour of assessee for statistical purposes. Disallowance u/s 14A read with Rule 8D - CIT(A) deleted the addition - Held that - AO has not recorded any satisfaction whatsoever about incorrectness of the assessee s claim about the expenditure incurred in relation to exempt income. What to talk of recording satisfaction, there is no whisper in the assessment order on this score. He simply noticed the extent of exempt income in first two lines and, thereafter, started computing disallowance by applying Rule 8D. The ld. CIT(A) has ordered the deletion of disallowance and, as such, he had no occasion to make good the deficiency left by the AO in this regard. Once the pre requisite condition of recording satisfaction by the AO before computing disallowance u/s 14A is not satisfied, there can be no computation of disallowance as has been held in several judgments. We find that the absence of satisfaction by the AO in the instant case has the effect of taking away the jurisdiction to make disallowance u/s 14A in this regard. - Decided in favour of assessee.
Issues:
1. Deletion of addition of Employee Stock Option Scheme Compensation (ESOS) for assessment year 2007-08. 2. Deletion of addition of depreciation on intangible assets for assessment year 2007-08. 3. Deletion of addition under section 14A read with Rule 8D for assessment year 2007-08. 4. Deletion of addition of ESOS for assessment years 2008-09 and 2009-10. Analysis: Issue 1: Deletion of addition of ESOS for assessment year 2007-08 The Tribunal referred to the Special Bench decision in Biocon Ltd. Vs. DCIT, which allowed deduction of discount on ESOP as a business expense. The Tribunal directed the AO to decide the matter in line with the Special Bench decision, ensuring the assessee's right to a fair hearing in fresh proceedings. Issue 2: Deletion of addition of depreciation on intangible assets for assessment year 2007-08 The Tribunal noted that the AO disallowed depreciation on intangible assets based on the AY 2006-07 decision without detailed discussion. Due to lack of clarity on the Tribunal's final view for the previous year, the matter was remitted to the AO for a fresh decision based on the precedent set for AY 2006-07. Issue 3: Deletion of addition under section 14A read with Rule 8D for assessment year 2007-08 The AO disallowed an amount under Rule 8D, but the CIT(A) deleted the addition citing the inapplicability of Rule 8D for AY 2007-08. The Tribunal upheld the deletion, emphasizing the necessity of the AO's satisfaction regarding the incorrectness of the assessee's claim before making any disallowance under section 14A. Issue 4: Deletion of addition of ESOS for assessment years 2008-09 and 2009-10 The Tribunal found the facts and circumstances similar to the AY 2007-08 case and remitted the matter to the AO for fresh consideration in line with the directions provided for the earlier year. The Tribunal partially allowed the appeal for AY 2007-08 for statistical purposes and allowed the appeals for AY 2008-09 and 2009-10 for statistical purposes. The judgment emphasized adherence to legal precedents and fair assessment procedures, ensuring proper consideration of deductions and additions in accordance with relevant laws and decisions.
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