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2022 (1) TMI 525 - AT - Income TaxNature of expenditure - expenditure on account of leasehold improvement - revenue or capital expenditure - assessee is a franchise of Domino s Pizza and Dunkin Donuts to run a Dominos outlet having a specific ambience and outlook, assessee was required to make extensive modifications in the premises that was obtained on lease and modification - whether any new asset created? - HELD THAT - CIT(A) after considering the detailed submissions of the assessee has given a finding that considering the nature of business of the assessee, the modifications done in the various lease premises taken by the assessee for the purpose of business did not create any new asset, the expenditure of renovation and repairs of stores assumed a character of revenue in nature and the expenditure incurred by the assessee was necessary for the purpose of business and squarely fall u/s 37(1) of the Act. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. Case folowed M/S HI LINE PENS PVT. LTD. 2008 (9) TMI 25 - HIGH COURT DELHI - Decided in favour of assessee. Application of admission of additional ground - fresh claim with respect of allowability of ESOP expenses and allowance of deduction of education cess and secondary and higher education cess paid - HELD THAT - We find force in the argument of Learned AR that the ground raised is legal in nature. Hon ble Apex Court in the case of National Thermal Power Company Ltd. 1996 (12) TMI 7 - SUPREME COURT has held that the purpose of the assessment proceedings before the taxing authorities is to asses correctly the tax liability of an assessee in accordance with law. It has further held that if as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. In view of the aforesaid, we admit the additional ground of appeal. Applicability of the provisions of Section 92A(2) to the transactions of the assessee with Domino s Pizza Overseas Franchise BV (DPOF), Domino s Pizza International Franchising Inc. (DPIF) Dunkin Donuts Franchising LLC (DDFL) - HELD THAT - AR has fairly admitted that though CIT(A) had held the transaction by the assessee with DPOF/DDIF and DDFL to be subject to Transfer Pricing Regulation, but on the quantum of addition, he has decided the issue in favour of the assessee. In such a situation, we are of the view that the issue has been rendered academic and therefore requires no adjudication. We therefore dismiss the ground of CO of the assessee. Claim of deduction for ESOP Expenditure - HELD THAT - It is an undisputed fact that no claim of ESOP expenses was made by the assessee in the return of income nor was it claimed before the lower authorities. Assessee is now claiming the deduction of ESOP expenses in view of the decision of Special Bench of Tribunal in the case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE has inter alia held that the discount on issue of Employees Stock Options is allowable deduction in computing the income under the head profit and gains of business . It is also a fact that since the claim was never claimed by the assessee before the lower authorities, there is no finding on the issue by the AO/CIT(A). In such a situation, we are of the view that the issue needs to be examined. We therefore restore the issue back to the file of AO to decide it after considering the submissions of the assessee and in accordance with law. Claim of education cess and secondary and higher education cess paid by the assessee - It is assessee s contention that the aforesaid payment of cess was not claimed as deduction while filing the return of income- HELD THAT - We find that Hon ble Bombay High Court in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT after considering CBDT Circular No. F. No.91/58/66-ITJ (19) dated 18th May 1967 has held that provision of Section 40a(ii) of the Act does not include cess consequently, cess whenever paid in relation to business is allowable as deductible expenditure. It further observed that though the claim of deduction of education cess and higher and secondary education cess was not raised in the original or revised return but when it is claimed before the appellate authorities, the appellate authorities is bound to consider such claim Thus the expense on education cess to be allowable expense and therefore, we direct the AO to allow the claim of assessee in accordance with law. Thus, ground of Cross Objection of the assessee is allowed.
Issues Involved:
1. Treatment of leasehold improvement expenditure as capital or revenue in nature. 2. Applicability of Transfer Pricing Regulations to transactions with certain entities. 3. Claim of deduction for ESOP (Employee Stock Option Plan) expenses. 4. Claim of deduction for education cess and secondary and higher education cess. Detailed Analysis: 1. Treatment of Leasehold Improvement Expenditure: The core issue was whether the expenditure on leasehold improvements should be treated as capital or revenue in nature. The AO considered the expenditure as capital, leading to capitalization and allowing depreciation at 15%, thereby disallowing the net expenditure. The CIT(A) reversed this decision, treating the expenditure as revenue in nature, citing that the modifications did not create any new asset but were necessary for business operations. The ITAT upheld the CIT(A)'s decision, noting no fallacy in the CIT(A)'s findings and distinguishing the case law cited by the Revenue. The appeal of the Revenue on this ground was dismissed. 2. Applicability of Transfer Pricing Regulations: The issue pertained to whether transactions with Domino’s Pizza Overseas Franchise BV, Domino’s Pizza International Franchising Inc., and Dunkin Donuts Franchising LLC should be subject to Transfer Pricing Regulations under Section 92A(2) of the Act. The CIT(A) upheld the TPO's decision to subject these transactions to Transfer Pricing Regulations but ruled in favor of the assessee on the quantum of addition, which the Revenue did not appeal. The ITAT found the issue academic and dismissed the ground of the Cross Objection (CO) of the assessee. 3. Claim of Deduction for ESOP Expenses: The assessee did not initially claim ESOP expenses in the return of income but sought to claim them based on the Special Bench decision in Biocon Ltd. vs. DCIT, which allowed such expenses as revenue deductions. The ITAT admitted the additional ground for claiming ESOP expenses and remitted the issue back to the AO for examination, directing the AO to consider the assessee's submissions and decide in accordance with the law. 4. Claim of Deduction for Education Cess and Secondary and Higher Education Cess: The assessee sought to claim education cess as a deductible expense, relying on decisions from the Hon’ble Rajasthan High Court and Hon’ble Bombay High Court, which held that education cess is not disallowable under Section 40a(ii) of the Act. The ITAT, finding no contrary binding decision from the Revenue, directed the AO to allow the claim of education cess as a deductible expense, following the precedent set by the Hon’ble Bombay High Court. Conclusion: The ITAT dismissed the Revenue's appeals and allowed the assessee's Cross Objections. The ITAT upheld the CIT(A)'s decision on leasehold improvement expenditure, found the Transfer Pricing issue academic, admitted the additional ground for ESOP expenses, and directed the AO to allow the claim for education cess. The order was pronounced in the open court on 08.12.2021.
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