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2022 (5) TMI 280 - AT - Income TaxDisallowance u/s 14A read with rule 8D - disallowance against the exempted income - HELD THAT - As there was no suo-moto disallowance made by the assessee, there was no option available with the revenue except to make the disallowance in the manner as provided under rule 8D of income tax rule. However, we find that the own fund of the assessee exceeds the investments. Thus, a presumption can be drawn that the assessee has made investment out of its own fund without involving any borrowed fund. The amount of own fund of the assessee stands at Rs. 2,94,057.78 Lacs as on 1st April 2013 and 31 March 2014 at Rs. 3,29,483.04 Lacs and likewise the amount of investment as on 1st April to 13 and 31 March 2014 stand at Rs. 52,602.09 Lacs and 65,610.45/- lacs respectively. There is no ambiguity, that the own fund of the assessee exceeds the investments - See TORRENT POWER LTD 2014 (6) TMI 185 - GUJARAT HIGH COURT - thus there cannot be any disallowance of interest expenses against the impugned exempted income. - Decided in favour of assessee. Disallowance of administrative expenses as per rule 8D - The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise, a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly, in a meeting the expenses on refreshment, travelling, patrol and stationary are generally incurred. The services of the accountants are also used to record the necessary transactions in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized indirectly for making the investments in equity shares. Thus, we hold that the argument of the learned AR is not acceptable that there was no expense incurred with respect to the impugned investments. Accordingly, we hold that the disallowance made by the AO on account of administrative expenses in pursuance of the provisions of rule 8D is correct and as per the provisions of law. Investments which have yielded the dividend income in the year under consideration should only be considered for the purpose of making the disallowance under section 14A read with rule 8D of income tax rule. Thus we hold that the disallowance with respect to administrative expenses has to be made as per the provisions of law and in the manner as discussed above against the exempted income. Hence the ground of appeal of the Revenue is partly allowed. Depreciation on account of capitalization of certain administrative expenses capitalized in the earlier year - HELD THAT - Question whether the assessee is eligible for depreciation on the amount of administrative expenses which were capitalized in the earlier years is to be answered in positive. It is for the reason that the AO himself has allowed the depreciation at the rate of 15% which were capitalized in the year under consideration by attributing to the capital work in progress. Accordingly, the amount which were capitalized in the earlier year and brought forward after claiming the depreciation in the respective year is eligible for depreciation. Thus we do not find any infirmity in the order of the learned CIT-A. - Decided against revenue. ESOP compensation expenses - Disallowance u/s 37(1) - HELD THAT - As decided in own case 2021 (8) TMI 1143 - ITAT AHMEDABAD Special Bench in the case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE where it has been held that ESOP compensation expenditure is not a notional expenditure but an allowable expenditure under Section 37(1) of the Act. It has further been held that Special Bench that object of issuing of shares at a lower issue price than the market price to the employees under ESOP must be taken into consideration and thereby it cannot be treated as short receipt of securities premium but a cost on account of compensation of employees. Thus, principally the claim on account of deduction of ESOP compensation is allowable but in our considered opinion it would be in the fitness of things to remit the issue to the file of the Ld. AO to verify the actual expenses incurred by the appellant and to allow the same
Issues Involved:
1. Disallowance under Section 14A applying Rule 8D. 2. Allowance of depreciation on WDV of certain administrative expenses capitalized in earlier years. 3. Allowance of ESOP compensation expenses. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A applying Rule 8D: The Revenue contested the deletion of Rs. 1,51,46,813/- under Section 14A read with Rule 8D by the CIT(A). The assessee, a public company, earned exempt income but did not make any disallowance under Section 14A. The AO disallowed Rs. 11,34,42,968/- following previous assessments, which was deleted by the CIT(A) based on earlier ITAT and Gujarat High Court decisions. The Tribunal noted that in earlier years, the AO did not record dissatisfaction with the assessee's disallowance, a requirement for invoking Rule 8D. However, in the current year, no suo-moto disallowance was made by the assessee, justifying the AO's application of Rule 8D. The Tribunal held that disallowance should be limited to administrative expenses and should not exceed the exempt income, as per the Gujarat High Court's ruling in Vision Finstock Ltd. Thus, the Revenue's appeal was partly allowed. 2. Allowance of depreciation on WDV of certain administrative expenses capitalized in earlier years: The AO capitalized 1% of administrative expenses attributable to capital work-in-progress and allowed depreciation at 15%, adding the balance to the assessee's income. The CIT(A) directed the AO to allow depreciation on WDV of administrative expenses capitalized in earlier years. The Tribunal noted a discrepancy in the amount recorded by CIT(A) and clarified that the dispute was limited to Rs. 13,90,866/-, not Rs. 30,90,866/-. The Tribunal upheld the CIT(A)'s decision to allow depreciation on the capitalized expenses, dismissing the Revenue's appeal. 3. Allowance of ESOP compensation expenses: The assessee claimed ESOP compensation expenses of Rs. 90,28,831/- as per SEBI guidelines, which was initially disallowed in the return. The CIT(A) allowed the claim following the Special Bench decision in Biocon Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the ESOP compensation is an allowable expenditure under Section 37(1) of the Act. The Tribunal remitted the issue to the AO to verify the actual expenses incurred by the assessee, allowing the Revenue's appeal for statistical purposes. For A.Y. 2015-16: The issues raised by the Revenue were identical to those in A.Y. 2014-15. The Tribunal applied the same findings: - Partly allowed the appeal concerning disallowance under Section 14A. - Dismissed the appeal on depreciation of administrative expenses. - Allowed the appeal for statistical purposes regarding ESOP compensation expenses. Conclusion: The Tribunal partly allowed the Revenue's appeals for statistical purposes, maintaining consistency with prior decisions and ensuring proper verification of claims.
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