2018 (12) TMI 1724 - AT - Income Tax

Addition u/s 14A read with Rule 8D in the computation of book profits u/s 115JB - HELD THAT - We note that the Special Bench of ITAT Delhi Bench in ACIT vs Vireet Investment (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI answer the question referred to us in favour of assessee by holding that the computation under clause (f) Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D We restore the matter to ld AO to calculate the book profit u/s 115JB of the Act after working out the disallowance if any in terms of clause (f) to Explanation 1 of Section 115JB of the Act independently after considering the expenses debited in the profit and loss account as mandated under the provisions of law. We would like to state that the disallowances made under the provisions of Sec. 14A r.w.s 8D of the IT Rules cannot be applied to the provisions of Sec. 115JB. Accordingly Ground No. 1 of revenue s appeal is allowed for statistical purposes. Allowing the ESOP expenses - HELD THAT - Special Bench decision of Bangalore Tribunal in the case of Biocon Ltd vs DCIT 2013 (8) TMI 629 - ITAT BANGALORE wherein it had considered the allowability of ESOP expenses in detail and had held the discount on ESOP as a part of employee s cost and hence allowable in the hands of the employer. Accordingly the ld CIT-A correctly deleted the disallowance Addition towards exchange loss - HELD THAT - Reason given for disallowance was that in absence of details for transactions it could not be denied that the transactions were related to the business of the assessee. However the appellant has explained that the amount reduced this year was actually related to the reversal of entry in the previous year. During the year ended on 3l.03.2012 the assessee had a MTM loss on reinstatement of hedging transactions of 522.68 lacs which had been claimed in the books of accounts. At the time of filing of return for A.Y 2012-13 the said amount was added back while computing returned income. As on 0l.04.2012 in the books the said loss of 522.68 lacs had been reversed and therefore appeared an income side. Also as on 3l.03.2013 there was MTM loss of 239.38 which appeared as expenditure in the books. While filing of return for the year the appellant reversed both the entries resulting in net reduction of 283.30 lacs. The appellant has produced copy of computation of income for both the years to support its contention. Thus it can be seen that the deduction is on account of reversal of entry which had been considered as part of income in A.Y 2012-13. There is no justification in adding back the amount of 283.30 lacs. The addition of 283.30 lacs is accordingly deleted - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act in computation of book profits.
2. Allowability of ESOP expenses.
3. Deletion of exchange loss addition.

Issue 1 - Disallowance under section 14A:
The Revenue appealed against the Commissioner's decision to grant relief to the assessee in the sum of ?33,18,575 under section 14A of the Act. The Revenue argued that the disallowance should be made as per Rule 8D of the Income Tax Rules. However, the ITAT Kolkata, following a Special Bench decision, held that the disallowance under section 14A cannot be applied to the provisions of section 115JB of the Act. The matter was restored to the Assessing Officer to calculate the book profit independently. The appeal on this issue was allowed for statistical purposes.

Issue 2 - Allowability of ESOP expenses:
The Revenue contested the allowance of ESOP expenses amounting to ?23,98,000 by the Commissioner. The assessee argued that ESOP expenses should be considered as part of employee cost and hence allowable. The ITAT Kolkata, relying on a Special Bench decision, upheld the Commissioner's decision to delete the disallowance of ESOP expenses. The appeal by the Revenue on this issue was dismissed.

Issue 3 - Deletion of exchange loss addition:
The Revenue challenged the deletion of an addition of ?2,83,30,000 towards exchange loss by the Commissioner. The ITAT Kolkata noted that the deduction claimed by the assessee was related to a reversal of entry from the previous year and hence justified. The ITAT upheld the Commissioner's decision to delete the addition of exchange loss. The appeal by the Revenue on this issue was dismissed.

In conclusion, the ITAT Kolkata partly allowed the Revenue's appeal for statistical purposes, maintaining decisions on disallowance under section 14A and ESOP expenses, while dismissing the appeal regarding the deletion of exchange loss addition.