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2021 (10) TMI 1010 - AT - Income TaxDisallowance of Employee Stock Option Scheme Compensation - Addition on the ground expenditure was on account of issuance of share capital, which being in the nature of capital expenditure, was not allowed as business expenditure - CIT-A allowed the deduction - HELD THAT - We find that learned CIT(A) has allowed the appeal of the assessee following the decision of the Special Bench of Tribunal in the case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE and other decision of jurisdictional High Court. We do not find any infirmity in the order of the Learned CIT(A) in following binding precedents, and allowing employee stock option compensation as revenue expenditure. The ground of the appeal of the Revenue is, accordingly, dismissed. Disallowance u/ 14A r.w. Rule 8D - assessee claimed exempted income which included dividend income and profit on redemption of investment - assessee made suo motu disallowance for earning the above exempted income - CIT(A) has deleted the disallowance mainly on the ground that investment from growth fund is taxable, and therefore, said investment should be excluded while working out the disallowance under Rule 8D(2)(iii) of the Rules. Also directed not to consider investment in subsidiary, which according to the Ld. CIT(A), was for controlling stake - HELD THAT - As in view of the recent decision of the Hon ble Supreme Court in the case of Maxxop Investment Ltd 2018 (3) TMI 805 - SUPREME COURT strategic investment for obtaining controlling stake has also been found liable for computing disallowance under Rule 8D(2)(iii) of the Rules and therefore to this extent, the order of the Ld. CIT(A) is set aside and matter restored back to the learned Assessing Office for re-computing the disallowance under Rule 8D(2)(iii) of the Rules. The Assessing Officer is also directed to verify whether income from growth funds has been included under taxable income and if so, then he shall exclude the said investment for computing disallowance in terms of Rule 8d(2)(iii) of Rules. The ground of the appeal of the Revenue is accordingly allowed partly for the statistical purposes.
Issues Involved:
1. Deletion of disallowance of Employee Stock Option Scheme (ESOP) Compensation. 2. Deletion of disallowance under Section 14A read with Rule 8D of the Income-Tax Rules, 1962. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of Employee Stock Option Scheme (ESOP) Compensation: Assessment Year 2011-12: - The Assessing Officer (AO) disallowed the ESOP compensation of ?12,91,99,000/- on the grounds that it was a capital expenditure related to the issuance of share capital and not an actual expenditure but a notional loss. - The Learned Commissioner of Income-tax (Appeals) [CIT(A)] deleted the disallowance, observing that the ESOP compensation was recognized as an 'employee cost' in accordance with SEBI guidelines and was deductible under Section 37(1) of the Income Tax Act. - The CIT(A) referenced judicial precedents, including the Special Bench decision in Biocon Ltd. and the jurisdictional High Court's ruling in Lemon Tree Hotels Ltd., to support the deductibility of ESOP compensation as a revenue expenditure. - The ITAT upheld the CIT(A)'s decision, finding no infirmity in following binding precedents and allowing the ESOP compensation as revenue expenditure. Assessment Year 2012-13: - The issue and facts for AY 2012-13 were identical to AY 2011-12. - Following the findings for AY 2011-12, the ITAT dismissed the Revenue's ground for AY 2012-13 as well. 2. Deletion of Disallowance under Section 14A read with Rule 8D: Assessment Year 2011-12: - The AO disallowed ?85,43,800/- under Section 14A read with Rule 8D, which was reduced by the assessee's suo motu disallowance of ?16,22,056/-, resulting in a net disallowance of ?69,21,744/-. - The CIT(A) deleted the disallowance, noting that the AO incorrectly included the entire investment value instead of only those investments generating exempt income. The CIT(A) also excluded investments in subsidiaries aimed at obtaining controlling stakes. - The ITAT, referencing the Supreme Court's decision in Maxopp Investment Ltd., held that strategic investments for controlling stakes should be included in the disallowance computation. The matter was remanded to the AO for re-computation, excluding only those investments whose income formed part of taxable income. Assessment Year 2012-13: - The AO disallowed ?1,16,01,148/- under Section 14A read with Rule 8D, reduced by the assessee's suo motu disallowance of ?15,47,540/-, resulting in a net disallowance of ?1,00,53,608/-. - The CIT(A) deleted the disallowance, emphasizing the exclusion of investments in growth funds and subsidiaries aimed at controlling stakes. - The ITAT upheld the CIT(A)'s exclusion of growth funds but remanded the issue to the AO for verification, consistent with the treatment in AY 2011-12. The cross objection by the assessee was dismissed, and the Revenue's ground was allowed for statistical purposes. Conclusion: - Appeals for AY 2011-12 and 2012-13: Partly allowed for statistical purposes. - Cross Objection for AY 2012-13: Dismissed. - Order Pronounced: 14th October 2021.
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