2018 (1) TMI 1631 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - It is by now settled legal position that disallowance under section 14A of the Act cannot exceed the related exempt income, and that in a case in which the assessee does not have earned any tax exempt income in the particular year, the disallowance under section 14A of the Act cannot be made either - Respectfully following the above legal position and having noted that the assessee did not have any tax exempt income during the relevant previous year, we uphold the grievance of the assessee and delete the impugned disallowance. Disallowance of entertainment exemption tax - whether it was a revenue receipts by observing that the exemptions was availed by the assessee after the commencement of commercial operations of the multiplexes? - HELD THAT - We see no reasons to take any other view of the matter than the view so taken by the co-ordinate bench in assessee s own case for the immediately preceding assessment year. Respectfully following the same, we confirm the action of the ld. CIT(A) who direct the A.O. to treat the amount as a capital receipt who had merely followed the stand in the assessment year 2010-11. Grievance of the Assessing Officer is accordingly rejected. Employee s stock option plan as an allowable expenditure u/s.37(1) - HELD THAT - The Hon ble High Court of Madras in the case of PVP Ventures Ltd 2012 (7) TMI 696 - MADRAS HIGH COURT has allowed such claim as business expenditure and the Hon ble High Court of Delhi in the case of Lemon Tree Hotels Ltd. 2015 (11) TMI 404 - DELHI HIGH COURT has followed the decision of the Hon ble High Court of Madras held that cost of ESOP could be debited in Profit and Loss account of the assessee. Respectfully following the aforementioned decisions, we direct the A.O to allow the claim of deduction on account of remuneration to ESOP - Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Treatment of entertainment tax exemption as revenue receipts.
3. Allowability of Employee’s Stock Option Plan (ESOP) expenditure under Section 37(1).

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The primary grievance of the assessee was the confirmation of a disallowance amounting to ?5,93,89,179 under Section 14A read with Rule 8D by the CIT(A). The assessee argued that since no dividend income was earned during the relevant assessment year, no disallowance under Section 14A should be made. The Tribunal noted that it is a settled legal position that disallowance under Section 14A cannot exceed the related exempt income. Furthermore, in cases where no tax-exempt income is earned, no disallowance under Section 14A can be made. This view was supported by a previous decision in the assessee's own case for the assessment year 2010-11 and the Gujarat High Court's decision in Corrtech Energy Ltd. Consequently, the Tribunal upheld the assessee's grievance and deleted the disallowance of ?5,93,89,179. The appeal of the assessee on this ground was allowed.

2. Treatment of entertainment tax exemption as revenue receipts:
The Assessing Officer (AO) contested the CIT(A)'s decision to allow entertainment tax exemption of ?10,22,78,787 as a capital receipt, arguing it should be treated as revenue receipts. The Tribunal referred to its earlier decision in the assessee's case for the assessment year 2010-11, which categorized similar subsidies as capital receipts. The Tribunal observed that the subsidies received from various state governments for constructing new cinema halls were intended to promote such construction and were thus capital in nature. This view was supported by the Rajasthan High Court's decision, which held that such subsidies were not operational subsidies but capital assistance. The Tribunal confirmed the CIT(A)'s action of treating the amount as a capital receipt and rejected the AO's grievance. The AO's appeal on this ground was dismissed.

3. Allowability of Employee’s Stock Option Plan (ESOP) expenditure under Section 37(1):
The AO challenged the CIT(A)'s decision to allow ESOP expenditure amounting to ?16,21,904 under Section 37(1). The Tribunal noted that this issue had been previously decided in favor of the assessee for the assessment year 2008-09, where the Tribunal allowed ESOP expenditure as a business expense. This view was further supported by the Madras High Court in PVP Ventures Ltd. and the Delhi High Court in Lemon Tree Hotels Ltd., which allowed ESOP costs to be debited in the Profit and Loss account. Respectfully following these precedents, the Tribunal upheld the CIT(A)'s decision to allow the ESOP expenditure and rejected the AO's grievance. The AO's appeal on this ground was dismissed.

Conclusion:
The Tribunal allowed the appeal of the assessee and dismissed the appeal of the Assessing Officer. The judgment was pronounced in the open court on January 5, 2018.