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2017 (5) TMI 59 - AT - Income TaxStock Appreciation right expenses - Difference between purchase price of Stock Appreciation Right ( SAR ) and the sale price of such SAR at the time of exercise by the employees - capital loss not allowable business deduction - Held that - Referring to the order of ITAT passed in the case of M/s Religare Commodities Ltd 2017 (1) TMI 783 - ITAT DELHI held that Stock Appreciation right expenses claimed by the appellant is not in a capital expenses but revenue expenditure and ascertained liability therefore it is allowable expenses. In the result the disallowance made by the Ld. and assessing officer and enhancement made to that taxable income of the appellant by Ld. 1 st appellate authority is held to be erroneous and therefore set aside - Decided in favour of assessee Disallowance of payment under section 40A(2)(b) - Held that - As the assessee contested for the first time that provisions of section 40A(2)(b) was not applicable in the case of the assessee as entire share capital of the company was held by REL. Since this fact has not been verified either by the Ld. AO or by the Ld. CIT-A we feel it appropriate to restore the issue to the file of the Assessing Officer to verify the applicability of section 40A(2)(b) of the Act and decide the issue afresh in accordance with law. Not taking on record Memorandum of Understanding holding that the same being in the nature of additional evidence - Held that - As we find that this Memorandum of Understanding goes to the root of the matter hence the Assessing Officer is directed to also consider this Memorandum of Understanding while adjudicating the issue no. 3. This ground of appeal is allowed. Depreciation on UPS - @ 15% or 60% - Held that - The Hon ble High Court in the case of BSES Rajdhani Powers Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT ) held that the computer accessories are peripherals such as scanners and server etc. form an integral part of the computer system and the same cannot be used without the computer. Thus they are entitled to depreciation at the higher rate of 60%.
Issues Involved:
1. Disallowance of expenses related to the Stock Appreciation Right (SAR) scheme. 2. Enhancement of income by disallowance related to SAR. 3. Disallowance of rental payments under section 40A(2)(b). 4. Non-admission of Memorandum of Understanding as additional evidence. 5. Depreciation rate on UPS. Detailed Analysis: 1. Disallowance of Expenses Related to SAR Scheme: The Commissioner of Income Tax (Appeals) erred on facts and in law in sustaining the disallowance of ?12,57,382 made by the assessing officer. The assessee contended that the differential amount represented a loan to the Religare Enterprises Ltd. Employees SAR Trust for administering the SAR scheme, which was not meant to be recovered, and was in the nature of employee benefit allowable under section 37(1) of the Income Tax Act, 1961. The Tribunal found that the issue was covered in favor of the assessee by the ITAT order in the case of M/s Religare Commodities Ltd. The Tribunal concluded that the SAR expenses claimed by the appellant were revenue expenditure and an ascertained liability, thus allowable as expenses. 2. Enhancement of Income by Disallowance Related to SAR: The Commissioner of Income Tax (Appeals) directed further disallowance of ?29,19,920 on account of the difference between the sale price of SAR and the exercise price of SAR, holding it to be capital expenditure related to the issue of shares to employees. The Tribunal, following the precedent set in the case of M/s Religare Commodities Ltd., held that the differential amount was employee compensation allowable as deduction under section 37(1) of the Act. The Tribunal allowed the grounds of appeal related to this issue. 3. Disallowance of Rental Payments Under Section 40A(2)(b): The assessee challenged the disallowance of ?81,85,383 made under section 40A(2)(b) on account of rental payments to Religare Securities Ltd. and Religare Realty Ltd. The assessee argued that the provisions of section 40A(2)(b) were not applicable as the entire share capital was held by Religare Enterprises Ltd., and the payments were neither excessive nor unreasonable. The Tribunal restored the issue to the Assessing Officer to verify the applicability of section 40A(2)(b) and decide the issue afresh in accordance with law. 4. Non-Admission of Memorandum of Understanding: The Commissioner of Income Tax (Appeals) did not take on record the Memorandum of Understanding, holding it as additional evidence without necessary application under Rule-46A. The Tribunal directed the Assessing Officer to consider the Memorandum of Understanding while adjudicating the issue related to rental payments, as it goes to the root of the matter. 5. Depreciation Rate on UPS: The assessee challenged the action of the Assessing Officer in allowing depreciation on UPS at 15% instead of 60%. The Tribunal noted that the issue was covered by decisions of the Hon’ble Delhi High Court, which held that computer accessories and peripherals, including UPS, form an integral part of the computer system and are entitled to a higher depreciation rate of 60%. The Tribunal allowed this ground of appeal. Conclusion: The Tribunal allowed the appeal of the assessee for statistical purposes, directing the Assessing Officer to verify certain facts and reconsider the applicability of specific sections of the Income Tax Act. The Tribunal also allowed the depreciation claim on UPS at the higher rate of 60%, following the precedent set by higher judicial authorities.
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