2020 (1) TMI 1668 - AT - Income Tax

Employee Stock Option Scheme Compensation - disallowance u/s 37(1) - AO disallowed the above expenditure holding that above expenditure is not a revenue expenditure it is not an actual expenditure incurred by the assessee company Sebi guidelines are not the prerogative for determining the eligibility or otherwise often item for income tax purposes the shares were the capital of the assessee company and loss to the capital can be considered as a capital loss and not revenue expenditure - CIT(A) deleted addition - HELD THAT - CIT(A) correctly allowed the claim of the assessee as following the decision in assessee s own case by his predecessor 2015 (8) TMI 319 - ITAT DELHI 2016 (6) TMI 1481 - ITAT DELHI and 2019 (1) TMI 1401 - ITAT DELHI and following the decision of the honourable mother High Court in case of PVP ventures Ltd 2012 (7) TMI 696 - MADRAS HIGH COURT which held that such a liability is an ascertained liabilities and the issue is squarely covered by the decision of the coordinate bench in case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE Decided against revenue. Disallowance u/s 14A - as per CIT(A) as assessee has computed the disallowance in revised return only taking those investments which had earned exempt income during the year. He found same to be in order and restricted the disallowance to that extent - HELD THAT - On careful consideration of the order of the learned CIT(A) it is noted that he has held that only those investments on which dividend income is received during the year should be considered for the purpose of working out average investment for computation of disallowance under rule 8D in accordance with section 14 A of the act. The above view has been upheld in case of ACB India Ltd 2015 (4) TMI 224 - DELHI HIGH COURT In view of this we do not find any infirmity in the order of the learned CIT A accordingly ground number two of the appeal is dismissed.

Summary

Issues:
1. Disallowance of Employee Stock Option Scheme Compensation
2. Disallowance under section 14A r.w. Rule 8D

Issue 1: Disallowance of Employee Stock Option Scheme Compensation
The appeal was filed by the Assessing Officer (AO) against the order of the ld CIT(A) for the Assessment Year 2012-13. The AO raised grounds of appeal regarding the deletion of the addition on account of Employee Stock Option Scheme Compensation and disallowance under section 14A r.w. Rule 8D. The assessee, a public limited company providing online services, had filed its return of income and later a revised return. The AO made additions related to ESOP and disallowances under section 14A. The CIT(A) partly allowed the appeal, deleting the disallowances to a certain extent. The AO challenged this decision, arguing that the ESOP compensation was not a revenue expenditure. The CIT(A) allowed the claim, citing precedents and decisions in favor of the assessee. The tribunal upheld the CIT(A)'s decision, stating that the issue was already decided in favor of the assessee in previous assessment years.

Issue 2: Disallowance under section 14A r.w. Rule 8D
The second ground of appeal related to the disallowance under section 14A, which was partially deleted by the CIT(A). The AO had asked for a working of the disallowance based on the investments made by the assessee. The assessee had disallowed a sum in the original and revised returns, but the AO recomputed the disallowance, leading to a dispute. The CIT(A found the assessee's computation in the revised return acceptable and restricted the disallowance. The tribunal noted that only investments yielding exempt income should be considered for the disallowance under rule 8D, in line with a Delhi High Court decision. Consequently, the tribunal dismissed the AO's appeal on this issue.

In conclusion, the tribunal dismissed the appeal of the AO, upholding the decisions of the CIT(A) regarding the disallowance of Employee Stock Option Scheme Compensation and the disallowance under section 14A r.w. Rule 8D. The judgment was pronounced in open court on 08/01/2020.