2021 (7) TMI 880 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - suomoto disallowance by assessee - HELD THAT - As following the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT and the decisions of the Hon'ble Jurisdictional High Court referred to above , we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of I.T.Rules for the assessment years 2012-13 and 2013-14 by accepting the suomoto disallowance of expenditure considered by the assessee for earning exempt income for the purpose of computing the disallowance u/s. 14A r.w. Rule 8D of I.T.Rules. Additional ground No.1 filed by the assessee is allowed. Deduction in respect of Education Cess, Secondary and Higher Education on Income-tax - HELD THAT - This issue is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT where in held that Education Cess and Higher and Secondary Education Cess are liable for deduction in computing income chargeable under head of profits and gains of business or profession . Respectfully following the said decision of the Hon'ble Jurisdictional High Court allowing the additional ground No.2 of grounds of appeal, we direct the Assessing Officer to compute the income of the assessee after allowing deduction in respect of Education Cess, Secondary and Higher Education Cess on Income-tax. Expenditure incurred on Employee Stock Option Plan (ESOP) - HELD THAT - We observe that the issue is decided in favour of the assessee by the Special Bench of the Tribunal, Bangalore Bench in the case of Biocon Ltd 2013 (8) TMI 629 - ITAT BANGALORE and affirmed by the Hon'ble Karnataka High Court in the case of CIT v. Biocon Limted 2020 (11) TMI 779 - KARNATAKA HIGH COURT . Thus, respectfully following the said decision we direct the Assessing Officer to allow the expenditure on Employee Stock Option Plan. Additional ground No.3 of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Deduction in respect of 'Education Cess on income-tax and 'secondary and higher education cess on income-tax'.
3. Deduction in respect of expenditure incurred on Employee Stock Option Plan (ESOP).

Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act, 1961:

The assessee and revenue filed cross appeals for the Assessment Years 2012-13 and 2013-14 against the orders of the Learned Commissioner of Income Tax (Appeals)-6, Mumbai dated 05.10.2017. The Assessing Officer (AO) completed the assessment u/s. 143(3) of the Act, determining the income and making disallowances u/s. 14A r.w. Rule 8D. The Ld.CIT(A) deleted the interest disallowance under Rule 8D(2)(ii) but upheld the disallowance under Rule 8D(2)(iii). The assessee appealed against the sustenance of disallowance under Rule 8D(2)(iii), while the revenue appealed against the deletion of disallowance under Rule 8D(2)(ii).

The Tribunal admitted additional grounds raised by the assessee, noting that they were purely legal issues. The assessee argued that the AO did not record any objective satisfaction in rejecting the assessee’s suomoto disallowance before invoking Rule 8D. The Tribunal observed that the AO recorded only general satisfaction and not objective satisfaction, failing to meet the requirements of Section 14A(2) of the Act. Citing precedents from the Supreme Court and various High Courts, the Tribunal directed the AO to delete the disallowance made under Rule 8D and accept the suomoto disallowance made by the assessee.

2. Deduction in respect of 'Education Cess on income-tax and 'secondary and higher education cess on income-tax':

The assessee contended that the education cess on income-tax should be allowed as a deduction while computing the total income. The Tribunal noted that this issue is covered by the decision of the Hon'ble Bombay High Court in Sesa Goa Ltd. v. JCIT, which held that education cess and higher and secondary education cess are eligible for deduction in computing income chargeable under the head "Profits and Gains of Business or Profession". Accordingly, the Tribunal directed the AO to allow the deduction for education cess on income-tax.

3. Deduction in respect of expenditure incurred on Employee Stock Option Plan (ESOP):

The assessee argued that the expenditure incurred on ESOP should be allowed as a deduction. The Tribunal referred to the Special Bench decision in Biocon Limited v. DCIT, which held that the discount on ESOP is an allowable deduction u/s. 37(1) of the Act. This decision was affirmed by the Karnataka High Court in CIT v. Biocon Limited. The Tribunal also noted a similar decision by the Mumbai Bench of the Tribunal in Mahindra & Mahindra Ltd. v. DCIT. Consequently, the Tribunal directed the AO to allow the expenditure on ESOP.

Conclusion:

The Tribunal allowed the appeals of the assessee partly and dismissed the revenue’s appeals. The disallowance under Section 14A was deleted, the deduction for education cess on income-tax was allowed, and the expenditure on ESOP was permitted. The order was pronounced on 18.06.2021.