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2017 (9) TMI 1228 - AT - Income TaxAssessability of profits offered by the assessee in its return of income - taxation on who s hands - Held that - The additional ground of appeal requiring no investigation of facts is admitted. We have already in assessment year 2008-09 of even date order in the case of M/s. Vascon Hadapsar Ventures held that the said amount is to be taxed in the hands of M/s. Vascon Engineers Ltd. i.e. the assessee before us. Consequently there is no merit in the additional ground of appeal raised by the assessee Disallowance on account of expenses under section 14A r.w.r. 8D - Held that - Because of availability of interest free funds with the assessee vis- -vis total investments made there is no merit in disallowing any part of interest expenditure debited to the Profit and Loss Account as attributable to the earning of exempt income. Accordingly we delete the disallowance made under Rule 8D(2)(ii) of the Rules. Disallowance under Rule 8D(2)(iii) of the Rules of administration expenses being equivalent to one half percent of average of the value of investments - Held that - Referring to assessee s pleadings that in case the disallowance is to be made then the value of strategic investments made by the assessee in Special Purpose Vehicles needs to be excluded for computing the aforesaid disallowance we find merit in the plea of assessee in this regard and accordingly direct the Assessing Officer to re-compute the disallowance in the hands of assessee. The assessee has suo moto disallowed Rs. 6, 01, 956/- which may be considered as disallowance under Rule 8D(2)(iii) of the Rules. Accordingly the ground of appeal No.1 raised by the assessee is partly allowed. Disallowance of Donation payment - Held that - The assessee is carrying out the activities of upliftment of public at large and by way of making contributions for upgradation of Science lab or providing ambulance to organizations or contributing to the society by purchasing paintings etc. then such activities of assessee are to create and establish image of assessee company in the eyes of public. The business carried on by the assessee is relatable to public at large where the tenements built by the assessee were to be picked up by the public. Hence the expenditure incurred by the assessee in this regard is duly to be allowed as business expenditure in the hands of assessee. Here it may be pointed out that in some cases the assessee has receipts of donations under section 80G of the Act. The Assessing Officer is directed to verify the same and allow the claim of such receipts under section 80G of the Act Denial of leave encashment - Held that - We direct the Assessing Officer to verify the claim of assessee and allow the deduction to the extent of leave encashment actually paid during the year under section 43B of the Act. There is no merit in the alternate plea raised by the assessee that the provisions of section 43B(f) of the Act were struck down Disallowance of ESOPs discount expenses - Held that - The issue of allowability of ESOP expenses on the date of exercising of option by the assessee was held to be an ascertained liability and not contingent liability by the Special Bench of Bangalore Tribunal in Biocon Ltd. Vs. DCIT (2013 (8) TMI 629 - ITAT BANGALORE). The Special Bench held the said discount on ESOP was to be allowed as deduction under section 37(1) of the Act during the years of vesting on the basis of percentage of vesting during such period subject to upward or downward adjustment at the time of exercise of option.Following the same parity of reasoning we allow the claim of expenditure on account of exercise of ESOP option in the hands of assessee to the extent of 1/3rd as claimed by the assessee at Rs. 41, 58, 745/-. The ground of appeal raised by the assessee is thus allowed
Issues Involved:
1. Disallowance of expenses under section 14A of the Income-tax Act. 2. Disallowance of donation payment. 3. Disallowance of provisions for leave encashment under section 43B. 4. Disallowance of employees' compensation expenses (ESOPs discount). Detailed Analysis: 1. Disallowance of Expenses under Section 14A: The issue concerns the disallowance of Rs. 1,27,39,650/- under section 14A of the Income-tax Act. The assessee argued that it had sufficient own funds (Rs. 312.47 crores in share capital and reserves, and Rs. 198.62 crores in current liabilities) to cover the investments of Rs. 41.25 crores. The assessee relied on the Bombay High Court's decision in HDFC Bank Ltd. vs. DCIT, asserting that no disallowance should be made due to the availability of interest-free funds. The Tribunal found merit in the assessee's plea and deleted the disallowance under Rule 8D(2)(ii). For the disallowance under Rule 8D(2)(iii), the Tribunal directed the Assessing Officer to exclude strategic investments in Special Purpose Vehicles and re-compute the disallowance, considering the assessee's suo moto disallowance of Rs. 6,01,956/-. 2. Disallowance of Donation Payment: The assessee claimed donations of Rs. 52,13,941/- as business expenditure under section 37(1), arguing that contributions to labor welfare and public organizations helped build the company's public image. The Tribunal acknowledged the assessee's activities for public upliftment and directed the Assessing Officer to allow the expenditure under section 37(1). Additionally, the Assessing Officer was instructed to verify and allow claims under section 80G for donations with appropriate receipts. 3. Disallowance of Provisions for Leave Encashment under Section 43B: The assessee's claim for leave encashment of Rs. 1,10,81,202/- was disallowed under section 43B(f). The Tribunal accepted the assessee's plea to allow the deduction for the actual payment of leave encashment during the year. The Tribunal rejected the argument that section 43B(f) was invalid, citing the Supreme Court's stay on the Calcutta High Court's decision in Exide Industries Ltd. vs. Union of India. 4. Disallowance of Employees' Compensation Expenses (ESOPs Discount): The assessee claimed Rs. 41,58,745/- as ESOP expenses, which was part of a total discount of Rs. 1,24,76,235/- amortized over three years. The Tribunal referred to the Special Bench decision in Biocon Ltd. vs. DCIT and the Pune Bench decision in Sandvik Asia Pvt. Ltd. vs. ACIT, which allowed ESOP expenses as revenue expenditure under section 37(1). The Tribunal allowed the assessee's claim for the ESOP discount expense for the year. Conclusion: The appeal was partly allowed, with the Tribunal providing relief on several grounds while directing the Assessing Officer to re-evaluate certain claims based on the provided guidelines.
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