2023 (5) TMI 1354 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - proportionate disallowance under Rule 8D(2)(ii) - year of availability of the interest free funds with the assessee - HELD THAT - We are of opinion that availability of the fund has to be examined at the time of investment in assets eligible for yielding exempted income and not subsequently. Assessee submitted that if issue is restored back to the file of AO, the assessee will file details of availability of funds at the time of making investment in mutual funds from year to year. In view of undertaking by assessee and interest of substantial justice, we set aside the finding of the DRP or finding of the AO in the final assessment order pursuant to the Ld. DRP, and restore the matter back to the AO for providing one more opportunity to the assessee for submitting the documentary evidence in support of availability of interest free funds at the time of making investment in assets eligible for yielding exempted income. The ground of the appeal of the assessee is accordingly allowed for statistical purposes. Disallowance u/s 14A r.w.r. 8D while computing book profit u/s 115JB - HELD THAT - The issue in dispute is covered by the decision of the Special Bench of the Tribunal in the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI and the Ld. DRP has retained the addition only on the ground that DRP is not for appellate proceedings and continuation of the assessment proceedings. However, the issue in dispute being covered by the binding precedent in the case of Vireet Investment Pvt. Ltd. (supra). The addition made by the Assessing Officer is directed to be deleted the ground of appeal of the assessee is accordingly allowed. Nature of expenses - Disallowance of expenses on employee stock option - According to the Assessing Officer these expenses were in the nature of capital expenditure and being contingent in nature, samewere not allowable in the year under consideration - HELD THAT - As decided by HC Biocon Ltd 2020 (11) TMI 779 - KARNATAKA HIGH COURT assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of accounts. Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT , the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question. Rejection of additional claim by DRP as not authorized to admit such otherwise then by revised return of income - Claim of discount of ESOP (difference between market price at the time of exercise and market price at time of grant of option) - HELD THAT - We admit this claim of the assessee relying on the decision of Pruthvi Brokers Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT and restore the matter back to the file of AO for examining the claim in accordance with law after verifying the documentary evidence submitted by the assessee. The ground No. 4 of the assessee is accordingly allowed for statistical purposes. Refund of excess of dividend distribution tax - HELD THAT -Assessee fairly conceded that this issue is covered against the assessee by the decision of Total Oil India P Ltd 2023 (4) TMI 988 - ITAT MUMBAI (SB) Levy of Interest u/s 234B is concerned same is consequential and therefore, grounds realted to the same is dismissed as infructuous. Levy of interest u/s 234C - We direct the AO to verify the levy of interest u/s 234C of the Act in accordance with law after providing adequate opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance under Section 14A read with Rule 8D while computing book profit under Section 115JB.
3. Disallowance of discount on Employee Stock Option Plan (ESOP) under Section 37(1).
4. Additional claim of discount on ESOP under Section 37(1).
5. Refund of excess Dividend Distribution Tax (DDT).
6. Penalty under Section 271(1)(c).
7. Levy of interest under Sections 234B and 234C.

Issue-wise Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The Assessing Officer (AO) disallowed Rs. 76,98,652/- under Section 14A read with Rule 8D, asserting that the assessee failed to provide evidence of availability of own funds at the time of investment in mutual funds. The Dispute Resolution Panel (DRP) upheld this view, emphasizing that the verification of funds should be at the time of investment, not at a later date. The Tribunal restored the matter to the AO for re-examination, allowing the assessee to submit evidence of interest-free funds at the time of investment.

2. Disallowance under Section 14A read with Rule 8D while computing book profit under Section 115JB:
The AO added the disallowance under Section 14A to the book profit computed under Section 115JB. The DRP maintained this addition to keep the matter alive for further proceedings. The Tribunal, referencing the Special Bench decision in ACIT v. Vireet Investment Pvt. Ltd., directed the deletion of this addition, as disallowance under Section 14A cannot be added while computing book profit under Section 115JB.

3. Disallowance of discount on Employee Stock Option Plan (ESOP) under Section 37(1):
The AO disallowed Rs. 8,70,45,135/- claimed as ESOP expenses, considering them capital in nature. The DRP upheld this disallowance, noting that the Special Bench decision in Biocon Ltd. was under appeal. The Tribunal, following the Karnataka High Court's affirmation of the Biocon Ltd. decision, directed the AO to delete the disallowance, recognizing ESOP expenses as deductible under Section 37(1).

4. Additional claim of discount on ESOP under Section 37(1):
The DRP rejected the additional claim of Rs. 10,01,36,178/- for ESOP discount, citing procedural grounds. The Tribunal admitted the claim, noting that it is purely legal and does not require fresh fact investigation. The matter was remanded to the AO for examination and verification.

5. Refund of excess Dividend Distribution Tax (DDT):
The assessee's claim for a refund of excess DDT amounting to Rs. 88,50,980/- was dismissed. The Tribunal referenced the Special Bench decision in Total Oil India P Ltd., which held that the additional income tax on dividends paid to non-residents should be at the rate specified in Section 115-O, not the DTAA rate.

6. Penalty under Section 271(1)(c):
The initiation of penalty proceedings under Section 271(1)(c) was considered premature and dismissed as infructuous.

7. Levy of interest under Sections 234B and 234C:
Interest under Section 234B was deemed consequential, and the related ground was dismissed as infructuous. The levy of interest under Section 234C was remanded to the AO for verification in accordance with the law.

Conclusion:
The appeal was allowed for statistical purposes, with specific directions for re-examination and verification by the AO on various issues. The Tribunal emphasized the need for substantial justice and adherence to legal precedents. The order was pronounced on 31/05/2023.