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2021 (4) TMI 911 - AT - Income Tax


Issues:
1. Disallowance of Employee Stock Expenditure (ESOP)
2. Disallowance u/s 43B towards Gratuity provision
3. Disallowance of interest expenditure

Analysis:

Issue 1: Disallowance of Employee Stock Expenditure (ESOP)
The Revenue appealed against the CIT(A)'s decision to delete the disallowance of ESOP expenditure of ?26,59,559. The AO disallowed this amount as the company did not add back the entire provision of ?9,69,25,414. The company argued that the loss from ESOP is a revenue expenditure. The CIT(A) deleted the disallowance based on the ITAT's decision in the assessee's own case for AY 2011-12. The ITAT upheld the CIT(A)'s decision, citing it was in line with the ITAT's decision. The Revenue's appeal on this issue was dismissed.

Issue 2: Disallowance u/s 43B towards Gratuity provision
The AO disallowed ?1,28,79,193 provision for gratuity under section 43B as it remained unpaid by the due date. The CIT(A) allowed this ground, referencing judicial decisions supporting the deduction of provisions for approved gratuity funds under section 40A(7)(b). The ITAT upheld the CIT(A)'s decision, citing relevant case law and dismissing the Revenue's appeal on this issue. A similar ground for AY 2014-15 was also allowed by the ITAT.

Issue 3: Disallowance of interest expenditure
The AO disallowed ?48,75,175 interest expenditure on a loan to an employees' trust as the source of funds was not proven to be interest-free. The CIT(A) allowed the ground based on the company's submission of sufficient internal accruals to fund the trust. The ITAT upheld the CIT(A)'s decision, considering the absence of contrary decisions and previous Tribunal rulings in favor of the company. The Revenue's appeal on this issue was dismissed.

In conclusion, the ITAT dismissed the Revenue's appeal in ITA No. 252/Hyd/2018 and allowed the assessee's appeal in ITA No. 907/Hyd/2019. The judgments were pronounced on 20th April 2021.

 

 

 

 

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