2016 (4) TMI 1352 - AT - Income Tax

Disallowance of interest and other expenditure u/s 14A by attributing it to earning exempt income u/s 10 - denial of exemption u/s 10(38) in respect of long-term capital gains on sale of shares held as long term investments and taxing it as business income - disallowance of amortization of Employee Stock Option Plan (ESOP) expenses - disallowance of software expenditure towards licences fees - HELD THAT - As relying on assessee's own case appeal for fresh adjudication after granting a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. AO is directed to decide the same strictly in the light of the ratio laid down in the said order of the Tribunal . Broken period interest debited to the Profit Loss Account - whether the same is required to be adjudicated in view of the judgment in the case of CIT vs. HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT - HELD THAT - After hearing both the parties on this issue, we remand the Ground no.5 to the file of the AO as desired by the ld Representatives of both the parties for fresh adjudication. AO is directed to adjudicate this issue in the light of the said judgment of Hon ble High Court (supra) complying with the ratio laid down in the said judgment on the issue under consideration - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of interest and other expenditure u/s 14A
2. Denial of exemption u/s 10(38) for long-term capital gains
3. Disallowance of amortization of Employee Stock Option Plan (ESOP) expenses
4. Disallowance of software expenditure towards licenses fees
5. Disallowance of broken period interest debited to the Profit and Loss account

Analysis:

Issue 1: Disallowance of interest and other expenditure u/s 14A
The appellant contested the disallowance of interest and other expenditure u/s 14A amounting to ?2.26 crores, arguing that it was wrongly attributed to earning exempt income u/s 10. The Tribunal remanded this issue for fresh adjudication, directing the AO to decide it in line with a previous order of the Tribunal.

Issue 2: Denial of exemption u/s 10(38) for long-term capital gains
The denial of exemption u/s 10(38) for long-term capital gains of ?45,252 on the sale of shares held as long-term investments was challenged. The Tribunal remanded this issue for fresh adjudication in accordance with a judgment of the Hon'ble jurisdiction High Court, directing the AO to consider the matter based on the said judgment.

Issue 3: Disallowance of amortization of ESOP expenses
The appellant objected to the disallowance of amortization of Employee Stock Option Plan (ESOP) expenses amounting to ?1,05,00,000, contending that it was a revenue expenditure for the purpose of business as employee compensation cost. The Tribunal remanded this issue for fresh adjudication after granting a reasonable opportunity to the assessee.

Issue 4: Disallowance of software expenditure
The disallowance of software expenditure towards licenses fees amounting to ?4,67,19,838 was disputed by the appellant, arguing it was revenue expenditure. The Tribunal remanded this issue for fresh adjudication in line with the principles set in a previous order of the Tribunal.

Issue 5: Disallowance of broken period interest
Regarding the disallowance of broken period interest debited to the Profit and Loss account amounting to ?10,63,93,626, the Tribunal remanded this issue for fresh adjudication based on a judgment of the Hon'ble jurisdiction High Court. The AO was directed to decide the matter in compliance with the said judgment.

In conclusion, the appeal of the assessee was allowed for statistical purposes, with the Tribunal remanding all the raised issues for fresh adjudication in accordance with relevant legal precedents and principles of natural justice.