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2022 (12) TMI 790 - AT - Income TaxESOP expenditure - nature of expenditure - whether CIT(A) erred in holding that the ESOP expenditure was only notional and capital in nature, thus attracting disallowance? - HELD THAT - As decided in assessee s own case in 2021 (11) TMI 1119 - ITAT DELHI expenditure incurred in connection with the ESOP is treated as revenue expenditure, we hereby allow the ground of appeal on this issue. Addition on account or interest paid on money borrowed as unsecured loan - HELD THAT - We note that the AO has prepared a chart in which interest paid to Smt. Vasntha Surya was Rs.8,36,424/- and the rate of interest varied between 13% to 24%. Assessee s claim was that it was in need of funds and banks did not provide necessary assistance, has been rejected by the authorities below on the ground that no such evidence is available. Comparing the interest rate with bank rates in the facts of this case is quite anomalous considering the fact that assessee has claimed that assessee has got the loan without any collateral security and rate varied from 13% to 24%. So blanket disallowance by the AO and confirmed by the ld. CIT (A) is without any basis. It is not the case that the expenditure is bogus. In these circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Disallowing the expenditure incurred by the Appellant towards gift provided to foreign delegate as a part of business promotion - HELD THAT - We find that assessee has not adduced any evidence before us also to take a contrary view than the one taken by ld. CIT (A) on above issues. As regards gold chain, we may also observed that if it was a souvenir on behalf of the assessee company, there is no reason why the bill is in the name of the Director in person. Hence, we confirm the disallowances as sustained by ld. CIT (A). Disallowing the claim for weighted deduction in respect of expenditure on scientific research u/s 35(2AB) - HELD THAT - Upon careful consideration, we find ourselves in agreement with the submission of ld. Counsel of the assessee as above. Assessee has duly fulfilled the obligation cast upon it. It has duly obtained the required certificate from DSIR. The delay in respect of Form 3CL is not attributable to any act or omission of the assessee. Moreover the case laws referred above duly cover the issue in favour of assessee. No contrary decision has been brought to our notice. Hence, following the aforesaid precedents, we set aside the order of authorities below and decide the issue in favour of assessee.
Issues Involved:
1. Disallowance of ESOP expenditure. 2. Disallowance of interest paid on unsecured loans. 3. Disallowance of business promotion expenses, guest house expenses, and miscellaneous expenses. 4. Disallowance of weighted deduction on scientific research expenditure under section 35(2AB). Issue 1: Disallowance of ESOP Expenditure The core issue pertains to the disallowance of ESOP (Employee Stock Option Plan) expenditure amounting to Rs. 72,80,083/- claimed by the assessee under section 37 of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed this claim, considering the ESOP expenditure as notional and capital in nature. The AO relied on decisions from the Delhi and Mumbai Benches of the Tribunal, specifically in the cases of M/s Ranbaxy Laboratories Ltd. vs ADIT and M/s VIP Industries Ltd. vs. DCIT. The CIT(A) upheld the AO's disallowance, following a similar decision in the assessee's case for AY 2013-14. However, the ITAT reversed this decision, citing a previous order in the assessee's favor for AY 2013-14. The ITAT referenced judgments like DCIT Vs. Integrated Cleanroom (ITA No. 428/Hyd./2020) and CIT vs. Lemon Tree Hotels Ltd. (ITA 107/2015), which affirmed that ESOP expenditure is allowable as revenue expenditure under section 37(1). Issue 2: Disallowance of Interest Paid on Unsecured Loans The AO disallowed Rs. 77,882/- of interest paid on unsecured loans to Smt. Vasntha Surya, arguing that the interest rate of 24% was excessive compared to the 17%-18% charged by banks. The CIT(A) upheld this disallowance, stating that the assessee failed to provide evidence of approaching banks for loans. The ITAT found the comparison with bank rates inappropriate, noting that the unsecured loan was obtained without collateral security, and the interest rate varied between 13% to 24%. The ITAT concluded that the disallowance was without basis and decided in favor of the assessee. Issue 3: Disallowance of Business Promotion, Guest House, and Miscellaneous Expenses The AO disallowed the following expenses: - Rs. 52,739/- for a gold chain claimed as a business promotion expense. - Rs. 50,003/- for guest house expenses. - Rs. 11,200/- for miscellaneous expenses, including donations and electricity repair. The CIT(A) upheld these disallowances, citing a lack of evidence proving the expenses were related to the business. The ITAT agreed with the CIT(A), noting that the assessee failed to provide sufficient evidence to support the claims. Issue 4: Disallowance of Weighted Deduction on Scientific Research Expenditure The AO disallowed the assessee's claim for a weighted deduction of Rs. 3,72,54,792/- under section 35(2AB), due to the non-receipt of Form 3CL from the Department of Scientific & Industrial Research (DSIR). The CIT(A) confirmed this disallowance, emphasizing that the form was necessary for quantifying and categorizing the expenditure. The ITAT disagreed, noting that the delay in receiving Form 3CL was not attributable to the assessee. The ITAT cited decisions like DCIT v. Famy Care Ltd. and CIT v. Sun Pharmaceuticals Ltd., which held that the absence of Form 3CL should not prevent the deduction. The ITAT decided in favor of the assessee, allowing the weighted deduction. Conclusion: The ITAT allowed the appeals for AYs 2015-16 and 2016-17 and partly allowed the appeal for AY 2014-15, deciding various issues in favor of the assessee based on precedents and the facts presented.
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