2024 (12) TMI 194 - AT - Income Tax

Additions u/s 14A in relation to exempt income - suo moto disallowancetowards expenditure incurred in relation to exempt income earned by way of dividend on investments made in subsidiary companies, associate companies and mutual funds - HELD THAT - The indication of prima facie presence of satisfaction can be deemed to be substantial compliance of the provisions without there being any explicit assertion about the same. As noted, the affirmative steps by way of SCN on the issue in the first instance tantamount to subsistence of 'satisfaction' in the instant case. Be that as it may, the Assessing Officer in the instant case has also duly recorded the satisfaction in writing as contemplated under section 14A of the Act. The requirement of section thus stands addressed in the present case as the satisfaction is duly discernible in the action of the AO. We are of the opinion that requisite satisfaction was expressed in unequivocal terms and was otherwise also subsisting for invoking section 14A and Rule 8D. Consequently, we hold that the objection of the assessee on this score is unfounded. Thus, we are of the considered opinion that the CIT(A) has rightly upheld the action of the AO with some modification towards exclusion of investments not yielding exempt income which is in accord with law. Hence, we decline to interfere with the order of the CIT(A) restricting the disallowance either to the extent of the exempt income claimed or computation of disallowance under Rule 8D with reference to investments yielding exempt income. The relief sought by the assessee for accepting the suo moto disallowance made by the assessee is thus not sustainable in law. Short credit of TDS granted by the AO - AO is directed to look into the grievance of the assessee and implement the directions provided in first appellate order on the issue in letter spirit. The AO shall grant relief expeditiously towards TDS credits in accordance with law. Short credit of Dividend Distribution Tax (DDT) - In view of the fact that the credit as per the DDT Challan appears in A.Y. 2016- 17, the AO has declined to accept the credit in relation to A.Y. 2015-16. The matter requires to be looked into administratively by the Competent Authority of the Income tax Department. It is not within the domain of the ITAT to examine such aspects. We are thus not in a position to give any direction in this regard. The issue requires to be resolved between the assessee and the Revenue in accordance with law. We thus decline to interfere with the order of the CIT(A) in the matter. Ground pertaining to Short credit of DDT is thus dismissed. Denial of credit of tax relief claimed by the assessee u/s 90/91 - It is the case of the assessee that the claim was duly substantiated by TDS certificates relating to foreign tax credit. The CIT(A) has referred the issue back to the file of the AO. However, the Assessing Officer has not disposed of the application seeking relief despite the directions by the CIT(A). The assessee seeks suitable relief. We direct the AO to expediently consider the case made out by the assessee seeking tax credit and pass suitable order in accordance with law. Nature of expenses - allowability of ESOP of compensation as Revenue expenditure - It is observed that the CIT(A) has followed the decision of the Co-ordinate Bench wherein the additions on account of ESOP compensation was deleted in assessee s own case in A.Y. 2007-08 to 2013-14. We thus see no reason to take a different view in the matter. The grievance of the Revenue thus does not hold any water.

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Short credit of Tax Deducted at Source (TDS).
3. Short credit of Dividend Distribution Tax (DDT).
4. Denial of tax relief under Section 90/91.
5. Allowability of Employee Stock Option Plan (ESOP) compensation as revenue expenditure.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The assessee challenged the disallowance of expenses under Section 14A, arguing that the Assessing Officer (AO) applied Rule 8D without pointing out any defect in the suo moto disallowance made by the assessee. The Tribunal noted that the AO had issued a show-cause notice and recorded satisfaction that the provisions of Section 14A were applicable. The CIT(A) modified the disallowance by excluding investments not yielding exempt income, which was upheld. The Tribunal found the AO's satisfaction sufficient and held that the CIT(A)'s approach was in accordance with the law, thereby dismissing the assessee's appeal on this ground for A.Y. 2014-15. Similar conclusions were reached for subsequent years, with the Tribunal emphasizing that disallowance should not exceed exempt income and should relate only to investments yielding exempt income.

2. Short Credit of TDS:
The assessee claimed a shortfall in TDS credit granted by the AO. The CIT(A) had referred the issue back to the AO for verification. The Tribunal directed the AO to expeditiously verify and grant the correct TDS credit in accordance with the law. This direction was consistent across different assessment years, allowing the appeals for statistical purposes.

3. Short Credit of Dividend Distribution Tax (DDT):
The assessee contended that due to a clerical error in the assessment year mentioned in the DDT Challan, credit was not granted. The Tribunal noted that such matters require administrative resolution by the Competent Authority within the Income Tax Department and declined to interfere, advising the assessee to seek administrative correction, thus dismissing the appeals on this ground.

4. Denial of Tax Relief under Section 90/91:
The assessee claimed denial of foreign tax credit relief substantiated by TDS certificates. The CIT(A) had referred the issue back to the AO, who had not yet resolved it. The Tribunal directed the AO to consider the claim expeditiously and in accordance with the law, allowing the appeal for statistical purposes.

5. Allowability of ESOP Compensation as Revenue Expenditure:
The Revenue challenged the CIT(A)'s decision to allow ESOP compensation as revenue expenditure, arguing it was not actual expenditure. The CIT(A) had relied on prior Tribunal decisions in the assessee's favor, supported by various judicial pronouncements, including the Karnataka High Court's decision in Biocon Ltd. The Tribunal upheld the CIT(A)'s decision, noting consistency with earlier rulings in the assessee's case and dismissed the Revenue's appeals on this issue.

Conclusion:
The Tribunal partly allowed the assessee's appeals concerning TDS and tax relief issues for statistical purposes, while dismissing the appeals related to DDT credit. All Revenue appeals challenging ESOP compensation were dismissed, affirming the CIT(A)'s allowance of such expenditure as revenue in nature. The order was pronounced on 29.11.2024.

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