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2022 (2) TMI 177 - AT - Income TaxDisallowance of Equity Stock Options ( ESOP ) expenditure - eligible criteria for acquiring the shares under the ESOP - HELD THAT - In order to be eligible for acquiring the shares under the ESOP, the concerned employees are obliged to render services to the company during the vesting period as given in the scheme. On the completion of the vesting period in the service of the company, such options vest with the employees. The options are then exercised by the employees by making application to the employer for the issue of shares against the options vested in them. The company, on the exercise of option by the employees, allots shares to them who can then freely sell such shares in the open market subject to the terms of the ESOP. It is during the vesting period that the options granted to the employees vest with them. This period commences with the grant of option and terminates when the options so granted vest in the employees after serving the company for the agreed period. By granting the options, the company gets a sort of assurance from its employee for rendering uninterrupted services during the vesting period and as a quid pro quo it undertakes to compensate the employees with a certain amount given in the shape of discounted premium on the issue of shares. As per the Revenue, the vesting of shares after award is contingent upon many subsequent events and accordingly, the provision made by the assessee on account of award of shares is only a contingent liability. Similar contentions of Revenue for denying deduction to employees stock options expenses have been specifically dealt in Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE as confirmed by HC 2020 (11) TMI 779 - KARNATAKA HIGH COURT to be in favour of assessee. Quantification of deduction u/s 10A by considering revised computation - denial of revised claim of deduction under section 10A as per auditor s certificate dated 11.10.2010 - HELD THAT - The audit certificate for claiming deduction under section 10A of the Act was dated 11.10.2010 which was the same date of filing the return of income by the assessee. Audit certificate in Form No. 56F is enclosed in pages 194 to 196 of the paper book filed by the assessee which contains the detailed workings for computation of deduction u/s 10A of the Act together with a note stating that the export turnover was not realised within 6 months from the end of the financial year i.e 31.3.2010 and is expected to be received within the time allowed by RBI vide Circular RBI/2004-05/264 dated 1.11.2004. We also find from paper book filed before us that the assessee during the course of assessment proceedings vide letter dated 21.2.2014 had duly submitted that the revised claim of deduction under section 10A as against that claimed in the return. The assessee had also submitted the detailed reconciliation of the difference in claim thereon in the said letter. Since no finding has been given by the lower authorities with regard to the computation of enhanced deduction u/s 10A we deem it fit and appropriate to remand this issue to the file of ld AO for verification of the veracity of the workings of enhanced claim made by the assessee and decide the same in accordance with law. Accordingly, Ground No.2 raised by the assessee is allowed for statistical purposes. Incorrect recording of Long Term Capital Loss as NIL - HELD THAT - We find from the return of income, the assessee had incurred Long Term Capital Loss during the previous year which is duly reflected in Schedule CFL thereon. The workings of Long Term Capital Loss - But by inadvertence, this figure of Long Term Capital Loss was not mentioned by the assessee in the computation of income which had triggered the ld. AO to reject the claim of the assessee despite the fact that it is a genuine claim of the assessee. We are unable to persuade ourselves to accept to the observations made by the ld. DRP and the ld. AO in this regard. Despite the fact that the correct loss figure is reflected in the relevant schedule in the return of income, the legitimate claim of the assessee has been denied by the revenue. Hence we have no hesitation in directing the ld. AO to allow the Long Term Capital Loss to be carried forward to subsequent years. Accordingly, the Ground No. 3 raised by the assessee is allowed. Deduction on account of Education Cess and Higher and Secondary Education Cess paid by the appellants - HELD THAT - As the issue raised by the assessee by way of additional ground of appeal is purely legal issue which can be decided on the basis of material available on record, we are of the view that same can be admitted for consideration and adjudication in view of the ratio laid down by Hon ble Supreme Court in NTPC Ltd. V. CIT 1996 (12) TMI 7 - SUPREME COURT Coming to the additional ground of appeal, same is squarely covered in favour of the assessee by the decision of Hon ble Jurisdictional High Court in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT and in the case of Chambal Fertilizers Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT . As per the above decisions, the amount of education cess and higher secondary education cess is not tax as covered under section 40(a)(ii) of the Act and accordingly allowable as deduction in computing the income from business or profession. Though coordinate bench of Tribunal has taken a contrary view in the case of M/s Kanoria Chemicals Industries Ltd. 2021 (10) TMI 1153 - ITAT KOLKATA , however, as the decision in the case of Sesa Goa Ltd. (supra) has been rendered by Hon ble Jurisdictional High Court, we are bound to follow same. Accordingly, the additional ground raised by the assessee is allowed. Transfer pricing adjustment - Comparable selection - HELD THAT - We hold that Accentia Technologies Ltd., is functionally not comparable with the assessee company and hence, we direct the ld. TPO / AO to exclude the same from the final list of comparables. AR before us stated that once Accentia Technologies Ltd., is excluded, the assessee would be within the tolerance band of /- 5% and accordingly, there will be no need to make any adjustment in arm s length price of international transactions of the assessee. Considering the same, we direct the ld. TPO to re-work the arm s length margin in view of the above directions.
Issues Involved:
1. Disallowance of Equity Stock Options (ESOP) expenditure. 2. Quantification of deduction under section 10A of the Income Tax Act. 3. Incorrect recording of Long Term Capital Loss. 4. Rectification application for credit of tax paid. 5. Charging of interest under sections 234B, 234C, and 234D. 6. Admission of additional ground of appeal regarding deduction on account of Education Cess and Higher and Secondary Education Cess. 7. Transfer pricing adjustment. Detailed Analysis: 1. Disallowance of Equity Stock Options (ESOP) expenditure: The assessee's claim of ?1,52,46,000/- as ESOP expenditure was disallowed by the Assessing Officer (AO) on the grounds that it was capital expenditure and unascertainable. The Dispute Resolution Panel (DRP) upheld the AO's decision. The Tribunal, however, allowed the deduction under section 37(1) of the Act, following the Special Bench decision in Biocon Ltd. v. DCIT and its affirmation by the Karnataka High Court. The Tribunal ruled that ESOP expenses are not contingent liabilities and should be allowed as revenue expenditure. 2. Quantification of deduction under section 10A: The assessee's revised claim for deduction under section 10A, amounting to ?35,53,98,193/-, was rejected by the AO for not being filed through a revised return. The DRP also rejected it, citing the absence of a CA certificate. The Tribunal remanded the issue back to the AO for verification of the revised claim, noting that the audit certificate was filed on 11.10.2010, the same date as the return of income. 3. Incorrect recording of Long Term Capital Loss: The AO recorded Long Term Capital Loss as NIL instead of ?26,29,364/-. The DRP upheld this, stating it was not discernible from the return. The Tribunal found that the loss was correctly reflected in the return's Schedule CFL and directed the AO to allow the carry forward of the Long Term Capital Loss. 4. Rectification application for credit of tax paid: The assessee's rectification application dated 30.03.2015 for tax credit of ?3,31,24,030/- was pending. The Tribunal directed the AO to dispose of the rectification application. 5. Charging of interest under sections 234B, 234C, and 234D: The Tribunal directed the AO to compute interest under sections 234B, 234C, and 234D in accordance with the law, specifically noting that interest under section 234C should be computed on the returned income, not the assessed income. 6. Admission of additional ground of appeal regarding deduction on account of Education Cess and Higher and Secondary Education Cess: The Tribunal admitted the additional ground, citing it as a legal issue based on the Jurisdictional High Court's decision in Sesa Goa Ltd. v. JCIT. The Tribunal allowed the deduction for education cess and higher & secondary education cess, following the precedent set by the High Court. 7. Transfer pricing adjustment: The Transfer Pricing Officer (TPO) categorized the assessee as a Knowledge Process Outsourcing (KPO) service provider and made an adjustment of ?18,68,71,000/-. The Tribunal directed the exclusion of Accentia Technologies Ltd. from the list of comparables, following its own decision in the assessee's case for A.Y. 2008-09, where it was found functionally dissimilar. The Tribunal remanded the issue to the TPO for re-working the arm's length margin, noting that the exclusion of Accentia Technologies Ltd. would bring the assessee within the tolerance band of +/- 5%. Conclusion: The appeal was partly allowed for statistical purposes, with directions for the AO to verify and re-compute various claims and adjustments in accordance with the Tribunal's findings and legal precedents.
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