2010 (11) TMI 1122 - AT - Income Tax

Summary

Issues involved: Appeal by the assessee against disallowance of expenses to earn dividend income and ESOP expenditure, and appeal by the revenue against excess provision on account of dealers discount and ESIC contribution paid after due date.

Assessee's Appeal - Disallowance of Expenses to Earn Dividend Income:
The assessee, a company in the business of marketing luggage accessories, earned dividend income not forming part of total income. The Assessing Officer disallowed Rs. 25,46,965 as expenses incurred in earning this income. The CIT(A) upheld this disallowance. The Tribunal referred to the Hon'ble Bombay High Court's decision on disallowance u/s 14A, emphasizing the need for a reasonable basis for determining such expenses. As Rule 8D was not applicable for the assessment year in question, the matter was remanded to the AO for fresh consideration.

Assessee's Appeal - Disallowance of ESOP Expenditure:
The Tribunal dismissed the assessee's appeal regarding the disallowance of Rs. 98,06,904 as expenditure on Employees Stock Option Scheme (ESOP). Citing a previous Tribunal decision, it held that the difference between share price offered to employees and market price cannot be allowed as ESOP expenses.

Revenue's Appeal - Excess Provision on Account of Dealers Discount:
The revenue's appeal challenged the allowance of excess provision made on account of dealers discount as sales promotion expenses. The Tribunal upheld the CIT(A)'s decision based on a previous Tribunal ruling concerning a similar issue in an earlier assessment year.

Revenue's Appeal - ESIC Contribution Paid After Due Date:
The revenue's appeal contested the allowance of employees' ESIC contribution paid after the due date but within the grace period. The Assessing Officer disallowed this claim, but the CIT(A) reduced the disallowance to Rs. 911 based on a previous ITAT decision allowing payments within the grace period. The Tribunal confirmed the CIT(A)'s order, considering such payments as made within the due date.

In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal. The orders were pronounced on November 26, 2010.