2023 (12) TMI 1123 - AT - Income Tax

Allowability of Employee Stock Option Plan ESOP expenses - allowable revenue expenses or not? - AO who was of the firm belief that there is no specific section under which ESOP expenditure is allowable under the Income tax Act, 1961 and the only section under which the said claim can be made is section 37, but even u/s 37 of the Act, claim of ESOP expenses cannot be allowed and added the same - HELD THAT - It is the say of assessee that now this issue is no more res integra as the same has been decided in the case of Lemon Tree Hotels 2015 (11) TMI 404 - DELHI HIGH COURT similar question was answered in favour of the Assessee by holding that the cost of ESOP could be debited to the profit and loss account of the Assessee. This Court has also in its decision in Oswal Agro Mills Ltd. 2015 (11) TMI 301 - DELHI HIGH COURT held that the expenditure incurred in connection with issue of debentures or obtaining loan should be considered as revenue expenditure. Decided in favour of assessee. Disallowance u/s 40a(ia) - non deduction of TDS on reimbursement of circuit expenses - During the course of scrutiny assessment proceedings, AO noticed that the assessee has reimbursed to Ameriprise Financial Services Inc AFSI on behalf of the assessee but assessee has not deducted - HELD THAT - As considered the invoice and find that though the AT T has raised invoice on AFSI, but it is for the service provided to the assessee at Gurgaon. The said notice for an amount and AFSI has raised the invoice of the same amount on the assessee and this amount has been reimbursed to the assessee. Thus we are convinced that the amount reimbursed by the assessee is towards circuit expenses to which provisions of section 40a(ia) do not apply. We, therefore, decline to interfere with the findings of the ld. CIT(A). Ground No. 2 is also dismissed. Addition of employees contribution to the Provident Fund deposited beyond the due date - HELD THAT - This issue is now well settled in favour of the Revenue and against the assessee in the case of Checkmate Services 2022 (10) TMI 617 - SUPREME COURT Disallowance u/s 14A - as been strongly contended that during the year under consideration, the assessee did not earn exempt income. Therefore, no disallowance is called for u/s 14A - HELD THAT - We are of the considered view that if no exempt income is earned by the assessee, no disallowance can be made u/s 14A r.w.r 8D of the Rules as held in the case of Cheminvest Ltd 2009 (8) TMI 126 - ITAT DELHI-B affirmed in CORRTECH ENERGY PVT. LTD. 2014 (3) TMI 856 - GUJARAT HIGH COURT

Summary

Issues involved:
The judgment involves issues related to the disallowance of Employee Stock Option Plan (ESOP) expenses, non-deduction of TDS on reimbursement of circuit expenses, employees' contribution to Provident Fund deposited beyond the due date, and disallowance under section 14A of the Income-tax Act, 1961.

Issue 1 - ESOP Expenses Disallowance:
The Assessing Officer disallowed Rs. 34,93,954/- claimed as ESOP expenses, stating that there is no specific section allowing such expenses. The CIT(A) allowed the expenditure, citing precedents from the High Courts. The ITAT upheld the CIT(A) decision based on the High Court rulings, emphasizing that ESOP expenses can be debited to the profit and loss account.

Issue 2 - TDS on Reimbursement of Circuit Expenses:
The AO disallowed Rs. 1,40,45,473/- for non-deduction of TDS on reimbursement of circuit expenses. The CIT(A) reversed this decision after considering that it was a reimbursement and not subject to section 40a(ia). The ITAT concurred, noting that the reimbursement was for circuit expenses and not subject to disallowance under section 40a(ia).

Issue 3 - Employees' PF Contribution:
The AO disallowed Rs. 21,78,564/- for employees' PF contribution deposited beyond the due date. Citing a Supreme Court ruling in favor of the Revenue, the ITAT reversed the CIT(A) decision, sustaining the addition as the contribution was deposited late.

Issue 4 - Disallowance under Section 14A:
The AO disallowed Rs. 1,05,875/- under section 14A, which was contested as no exempt income was earned during the year. The ITAT upheld this argument, following precedents that no disallowance can be made under section 14A if no exempt income is earned. Therefore, the disallowance was dismissed.

In conclusion, the ITAT partially allowed the Revenue's appeal, sustaining the disallowance of employees' PF contribution deposited late while dismissing the disallowances related to ESOP expenses, TDS on reimbursement of circuit expenses, and under section 14A.