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TMI Blog2014 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own funds - the disallowance appears to be reasonable considering the nature of disallowance as computed by the assessee - the interest part shall be considered by the AO after verification and the addition of other expenses set aside Decided partly in favour of Revenue. Exclusion of taxable investment in unit of growth fund Held that:- The AO himself has excluded the investment in units of growth fund while calculating the disallowance u/s. 14A of the Act - The CIT(A) seems to have given this direction without appreciating the fact of the case - general observations made by the CIT(A) need not be interfered Decided against Revenue. Disallowance in respect of Employee stock option expenses Held that:- Relying upon Biocon Ltd. VS DCIT [2013 (8) TMI 629 - ITAT BANGALORE] - the expenditure in respect of ESOP is allowed after considering the SEBI guidelines - the allowability of the claim of the assessee has to be considered afresh thus, the matter is remitted back to the AO to consider the claim of the assessee Decided in favour of Assessee. Nature of Receipts Capital or not - Proceeds from certified emission reduction Receipts generated out of capital proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in A.Y. 2004-05, 2005-06 and 2006-07 in ITA Nos. 7735 7736/Mum/2007 and ITA No. 2604/M/09. A perusal of the aforestated orders of the Tribunal shows that in A.Y. 2004-05 and 2005- 06, the Tribunal has considered this issue in para-10 on page-6 of its order and at para-11.1 on page-9 of its order has confirmed the order of the Ld. CIT(A) who allowed claim u/s. 80IA in respect of captive power generating DG sets. As no new distinguishing facts/decisions have been brought before us, respectfully following the decisions of the Tribunal (supra), ground No. 2.1 and 2.2 are dismissed. 5. Ground No. 3.1 and 3.2 relate to the allowability of deduction u/s. 80IA in respect of the rail systems. 6. A similar issue was considered by the Tribunal in assessee s own case in A.Yrs. 2004-05, 2005-06 and 2006-07 in ITA Nos. 7735 7736/Mum/2007 and ITA No. 2604/M/09. This issue has been considered by the Tribunal at para-13 on page-9 of its order and at para- 17 on page-13, the Tribunal confirmed the decision of the Ld. CIT(A) who allowed deduction u/s. 80IA in respect of rail systems. As no distinguishing facts/decisions have been brought before us, respectfully following the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded that he is not satisfied with the correctness of the claim of the assessee that expenditure has been incurred for earning exempt income and went on to compute the disallowance u/s. 14A r.w. Rule 8D and computed the same at ₹ 71,073,131/-. 11. The assessee carried the matter before the Ld. CIT(A) and vehemently argued that the investments were made out of own funds and no borrowed funds were involved in purchase of units of Mutual fund during the year. Therefore, the disallowance of interest at ₹ 5,73,89,227/- is uncalled for. Regarding disallowance of other expenditure, the assessee gave a calculation of disallowance which is at page-10 of Ld. CIT(A) s order and also at page-26 of the paper book. 11.1. After considering the cash flow statement, the Ld. CIT(A) was convinced that no borrowed funds were involved in purchase of units of Mutual fund and directed the AO to delete the addition of ₹ 5,73,89,227/- being interest disallowed by the AO. However, the Ld. CIT(A) was of the opinion that the disallowance of other expenses were not supported by solid evidence therefore cannot be accepted and upheld the disallowance of other expenses made by the AO at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the disallowance calculated by the assessee at ₹ 10,26,367/- comes to 4.43% of the total exempt income. In our considered view, this disallowance appears to be reasonable considering the nature of disallowance as computed by the assessee mentioned hereinabove. To sum up, the interest part shall be considered by the AO after verification as per our directions given hereinabove and the addition of other expenses stands deleted. Ground No. 5.1 5.2 are allowed in part for statistical purpose. 17. In the result, the appeal filed by the Revenue is partly allowed for statistical purpose. ITA No. 7502/Mum/2010- A.Y. 2007-08 Assessee s appeal 18. Vide ground No. 1.1 1.2 the assessee is aggrieved by the order of the Ld. CIT(A) who partly confirmed the disallowance made by the AO u/s. 14A of the Act. 19. We have discussed this issue at length in Revenue s appeal in ITA No. 8143/M/2010 vide ground No. 5.1 5.2 wherein we have restored the issue of verification of interest back to the files of the AO and has deleted the disallowance of other expenditure and upheld the working of disallowance of other expenditure by the assessee at ₹ 10,26,367/-. For the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue has been discussed at length by us in ITA No. 8143/M/10 and 7502/M/10 for A.Y. 2007-08 wherein we have directed the AO to verify from the cash flow statements whether the investments in the units have been made out of own funds or borrowed capital and then decide whether the proportionate interest has to be disallowed. In so far as other disallowance of expenditure is concerned, no doubt Rule 8D is very much applicable for the year under consideration. But at the same time it is incumbent upon the AO to first show fallacies in the computation of disallowances made by the assessee with regard to the books of accounts. We therefore, restore this issue back to the files of the AO with the direction that so far as disallowance of interest is concerned, follow the findings of A.Y. 2007-08 and in respect of the disallowance of other expenditure is concerned, we find that the assessee has computed the disallowance as under: a)Full salary of an executive who was partly looking after the activity of investment in Mutual Fund - ₹ 1,51,041/- b)50% salary of an executive who was only partly looking after the activity of investment in Mutual Fund -Rs. 2,24,880/- c)Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of shares thus the expenses incurred are for the increase of the share capital base of the company. The AO also rejected the claim that allotment of shares under ESOP scheme as per SEBI regulations. The AO observed that compliance of SEBI regulations does not alter the character of share capital. The AO disallowed the entire expenditures concluding that the expenses related to issue or expansion of share capital is expenses of capital in nature. 35. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered this grievance of the assessee at para-7 on page-29 of his order. It was the claim of the assessee that the employees stock option expenses was a allowable expenditure which has been debited by following well recognized principle of accounting . After considering the facts and the submissions, the Ld. CIT(A) observed that ESOP is nothing but benefit or income forgone by the assessee therefore, such action cannot be considered as an expenditure allowable under the I.T. Act. The Ld. CIT(A) further relied upon the decision of the Tribunal in the case of VIP Industries Ltd. VS DCIT (2010-TIOL-654- ITAT-Mum) and held that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Counsel responded by stating that facts relating to the issues involved in the additional grounds are very much present in the assessment record. It is only because of the subsequent judicial decisions, the assessee was prompted to raise these grounds before the Tribunal. 40. We have carefully considered the objections of the Ld. DR. The Hon ble Supreme Court in the case of National Thermal Power Co. Ltd Vs CIT 229 ITR 383 has held as under: If, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the tribunal under s. 254 only to decide the grounds which arise from the order of CIT(A). Both the assessee as well as the department have a right to file an appeal/cross objections before the Tribunal. Tribunal should not be prevented from considering question of law arising in assessment proceedings although not raised earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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