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2024 (7) TMI 1370 - AT - Income TaxDisallowance of interest component u/s 14A r.w.r. 8D - HELD THAT - As going through the contents of order passed by ITAT in the assessee s own case for assessment year 2010-11 we observe that the Tribunal has categorically given relief to the assessee on this issue on the ground that the assessee s own funds are far in excess of the investments made in funds yielding exempt income. Accordingly, so far as disallowance of interest u/s 14A of the Act is concerned, no disallowance is called for u/s 14A of the Act. Assessee appeal allowed. Disallowance of ESOP expenses - allowable business expenses or not? - CIT(A) deleted addition - HELD THAT - The law on the subject, is unanimous as various tribunals by following the decision of Biocon Ltd. 2020 (11) TMI 779 - KARNATAKA HIGH COURT have decided the issue in favour of the assessee. Secondly, we observe that the ESOP scheme under consideration was part of the Annual Report of the assessee and further the specific details of ESOP benefit granted to its employees had been duly disclosed to the assessing officer during the course of assessment proceedings, being the difference between the market price of shares at the time of grant of option to these employees and the market price of such shares as on the date of exercise by employees of the assessee company. Therefore, even from this perspective, the expenses so claim were not contingent the nature, since the assessee had claimed the ESOP expenses at the time of actual exercise of option by its employees, during the year under consideration. Sssessee had reflected such ESOP expenses as perquisites in the hands of its employees and TDS at appropriate rate had also been deducted by the assessee company at the time of grant of ESOP benefits to its employees. ESOP expenses are allowable in the hands of assessees under Section 37 of the Act and looking into the facts of the assessee s case, as highlighted above, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in deciding this issue in favour of the assessee.
Issues Involved:
1. Disallowance of administrative expenses under Section 14A read with Rule 8D. 2. Disallowance of interest expenses under Section 14A read with Rule 8D. 3. Disallowance of ESOP expenses. Issue-wise Detailed Analysis: 1. Disallowance of Administrative Expenses under Section 14A read with Rule 8D: The assessee raised several grounds challenging the disallowance of administrative expenses under Section 14A read with Rule 8D(2)(iii). The primary contentions were that the suo-moto disallowance of administrative expenses was reasonable and that the majority of investments were in the nature of stock in trade, to which Section 14A should not apply. Additionally, the assessee argued that they had sufficient own funds to cover the investments yielding exempt income, and previous favorable judgments in their own case were not considered. However, during the hearing, the Counsel for the assessee stated that they would not press Ground No. 1 related to disallowance of administrative expenses. Consequently, this ground was dismissed as not pressed. 2. Disallowance of Interest Expenses under Section 14A read with Rule 8D: The assessee contested the disallowance of interest expenses under Section 14A, arguing that the CIT(A) failed to appreciate that the AO did not follow the ITAT's decision regarding disallowance of interest expenses to the extent of Rs. 24.26 crores. The assessee highlighted that the ITAT had previously quashed similar disallowances in their own case for AY 2008-09 and AY 2010-11, and the CIT(A) erred by not following these precedents. The ITAT observed that the Tribunal had already provided relief to the assessee on this issue in their own case for AY 2010-11, noting that the assessee's own funds were far in excess of the investments made in funds yielding exempt income. Consequently, no disallowance was warranted under Section 14A for interest expenses. Accordingly, the ITAT allowed the assessee's appeal on this ground. 3. Disallowance of ESOP Expenses: The Department's appeal focused on the disallowance of ESOP expenses, which the CIT(A) had allowed in favor of the assessee. The AO had rejected the assessee's claim for ESOP expenses of Rs. 250.63 crores, arguing that the discount should be calculated based on the market price on the date of grant of options, not the exercise date. The AO also contended that no actual expenditure was incurred, and any such expenditure would be capital in nature. The CIT(A) allowed the assessee's appeal, relying on the ITAT Special Bench decision in Biocon Ltd. v. DCIT, which held that the discount on ESOPs is in the nature of employee cost and deductible as a business expenditure under Section 37. The CIT(A) directed the AO to allow the deduction subject to verification of the discount figure. The Department argued that the assessee's case was not covered by the Biocon decision and that the assessee failed to submit the relevant ESOP scheme. However, the ITAT upheld the CIT(A)'s decision, noting that the ESOP scheme was part of the Annual Report and the specific details of ESOP benefits were disclosed. The ITAT observed that the law, as it stands, supports the allowability of ESOP expenses as a deduction under Section 37, following the Biocon decision and subsequent judicial precedents. Combined Result: The appeal of the assessee was partly allowed, specifically regarding the disallowance of interest expenses under Section 14A, while the appeal of the Department was dismissed concerning the disallowance of ESOP expenses. The ITAT's decision for both assessment years (2010-11 and 2011-12) followed the same rationale. Conclusion: The ITAT upheld the assessee's appeal on the disallowance of interest expenses under Section 14A and dismissed the Department's appeal on the disallowance of ESOP expenses, aligning with established judicial precedents and the specific facts of the case.
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