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TMI Blog2017 (10) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase price of the share was claimed by the assessee as deduction as employee compensation. In the identical circumstances. With respect to one of the group companies, Religare commodities Ltd for assessment year 2008 – 09 identical issue arose before the coordinate bench [2017 (1) TMI 783 - ITAT DELHI] claim of the assessee with respect to both the above items were allowed. The above expenditure on account of employee stock option scheme is an ascertained liability for deduction - the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. Deduction of expenditure incurred - Held that:- In the present case the business of the assessee was set up by employment of the employees as well as by hiring the requisite infrastructure which happened in the month of April 2007. The courts have held that there is a clear distinction between a person ‘commencing a business’ and a person ‘setting up a business’ and for the purposes of the Indian Income-tax Act the ‘setting up of the business’ and not the ‘commencement of the business’ that is to be considered for cut off of deductibility of expenditure. It is only after the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Ajay Vohra, Sr. Adv Shri Gaurav Jain, Adv Ms. Tejasvi Jain, CA For The Revenue : Shri Atiq Ahmad, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A)-XVIII, New Delhi dated 28.02.2013 for the Assessment Year 2008-09. 2. The assessee has raised the following grounds of appeal:- 1. That the Commissioner of Income tax (Appeals) erred on facts and in law in sustaining disallowance of ₹ 6,69,626 (as against correct amount of ₹ 7,51,482) made by the assessing officer on account of the difference between purchase price of Stock Appreciation Right ( SAFA) and the sale price of such SAR at the time of its exercise by the employees of the appellant holding the same to be capital loss not allowable business deduction. 1.1. That the Commissioner of Income tax (Appeals) erred on facts and in law in not appreciating that the above differential amount actually represents the loan granted by the appellant to Religare Enterprises Ltd. Employees SAR Trust ( the Trust ) for the purpose of administering Employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding disallowance of ₹ 1,96,524 made by the assessing officer under section 14A of the Act by applying Rule 8D of the Income Tax Rules, 1962 ( the Rules ). 4.1 That the Commissioner of Income tax (Appeals) erred on facts in upholding the observation of the assessing officer that the loan given by the appellant to the Trust would constitute investment for the purposes of making disallowance under section 14A of the Act. 4.2 That the Commissioner of Income tax (Appeals) erred in not appreciating that Rule 8D of the Rules would not apply, per se, inasmuch as no investments were appearing either on the opening or closing date of the audited annual accounts of the appellant. 5. That the Commissioner of Income tax (Appeals) erred on facts and in law in upholding the disallowance of ₹ 34,34,000 made by the assessing officer under section 40(a)(ia) of the Act alleging that tax was not deducted at source. 5.1 That the Commissioner of Income tax (Appeals) erred in not appreciating that the above sum of ₹ 34,34,000 were paid to the group companies towards reimbursements of actual expenditure and thus, there was no requirement to deduct tax at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore out of that some on reimbursement amount of ₹ 3103000 on which tax has been deducted is allowed and on the balance on which no tax is deducted of ₹ 3434000/ was disallowed. 8. Consequently, assessment under section 143 (3) of the income tax act 1961 was passed on 31/12/2010 determining net loss of ₹ 2364 4815/ against the returned loss of ₹ 3 733 4517/ . Appellate proceedings 9. Assessee aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A), who vide order dated 28/02/2013 disposed off the appeal of the assessee. He confirmed the disallowance of ₹ 669626/- on account of the difference between the purchase price of stock appreciation rights and the sale price of such stock appreciation right at the time of exercise by its employees holding the same to be capital loss not allowable as business deduction. He also confirmed the disallowance on account of pre-commencement expenditure of ₹ 9389552/ as pre-commencement expenditure holding that the business of the assessee was setup only on 30/06/2007 when the 1st invoice was raised by the appellant. He also confirmed the disallowance und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the services and for which various activities commenced in the month of April 2007 only. He further referred to the copy of the salary Ledger account showing payment of salary on 30/04/2007 plus various other memorandum of understanding dated 01/04/2007 to show that the businesses already set up on that particular date. He further referred to the resolution dated 10/03/2007 of the assessee with the appointment of the auditors were made. He further relied upon the decision of the Hon ble Delhi High Court in case of the Omniglobe information tech India (P) Ltd versus CIT 68 Taxmann.com 112 (Delhi) (369 ITR 1) to support his contentions. 14. With respect to ground No. 4 of the appeal of the assessee with respect to disallowance under section 14 A of the income tax act he submitted that there is no exempt income earned by the assessee during the year and when there is no exempt income, no disallowance can be made. He further referred to the decision of the Hon ble Delhi High Court in case of Cheminvest limited versus CIT, wherein identical issue was considered in para No. 23 of that order. 15. With respect to ground No. 5 of the appeal of the assessee against the confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the income has not been earned during the year, it cannot be said that the disallowance under section 14 A of the act cannot be made. He further referred that the provisions of section 14 A does not provide that the year in which no income is earned disallowances not to be made. He further referred that the expenditure incurred by the assessee with respect to the sister concern is not in the nature of reimbursement of expenditure as already held by the Ld. CIT (A) but in the nature of rendition of the services. Therefore, the tax would have been deducted thereon on these payments made by the assessee to the sister concern and hence disallowance has been correctly confirmed by the Ld. CIT (A). Decision and reasons 17. We have carefully considered the rival contention as well as perused the orders of the lower authorities on the various issues and grounds of appeal raised by the assessee. Our decision and reasons for the same on each of the ground are as follows. 18. The 1st and 2nd ground of appeal of the assessee is with respect to the disallowance of expenditure on stock appreciation right being the difference between the purchase price of stock appreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the special bench in 144 ITD 21 claim of the assessee with respect to both the above items were allowed vide para No. 7 of that order. The coordinate bench in para No. 8 also held that the issue is also squarely covered by the decision of the Hon ble Madras High Court in 211 Taxmann 554 wherein it has been held that the above expenditure on account of employee stock option scheme is an ascertained liability for deduction and further the Hon ble Delhi High Court in CIT versus Lemon tree hotels Ltd in ITA No. 107/2015 has also held that the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. The Ld. departmental representative also could not point out any other judicial precedent against the above judicial precedents cited by the Ld. authorised representative. In view of this ground No. 1 and 2 of the appeal of the assessee is allowed reversing the decision of the Ld. CIT A and directing the assessing officer to allow the sum of ₹ 6 69626/ on account of the difference between the purchase price of stock appreciation right in the sale price of such stock appreciation right on exercise by the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as by hiring the requisite infrastructure which happened in the month of April 2007. The courts have held that there is a clear distinction between a person commencing a business and a person setting up a business and for the purposes of the Indian Income-tax Act the setting up of the business and not the commencement of the business that is to be considered for cut off of deductibility of expenditure. It is only after the business is set up that the previous year of that business commences and any expense incurred prior to the setting up of a business would not be permissible deduction. When a business is established and is ready to commence business then it can be said of that business that it is set up; but before it is ready to commence business it is not set up. There may however be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deductions. We also draw support from the decision of Hon ble Bombay High Court in case of CIT versus Axis Equity private limited in ITA No . 1204 of 2017 dated 30/01/2017 wherein on identical facts, issue has been decided that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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