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TMI Blog2018 (6) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... -09) [2015 (3) TMI 983 - ITAT HYDERABAD ] wherein it was held that the difference between the price of shares and their issuance price should be treated as an expenditure in the hands of the assessee - thus it is an ascertained liability and therefore treated as revenue expenditure allowable u/s 37(1) - hence order passed by the Ld. CIT(A) does not call for any interference since - appeal of revenue is rejected. Determination of ALP in respect of loans given to its Associated Enterprises - Held that:- CIT(A) concluded that LIBOR provides the basis for price and interest rates of all kinds of financial products like interest swaps, interest futures, savings account and mortgages - thus he accordingly held that LIBOR should be taken as bench-mark for charging interest - Following the decision of the ITAT in the assessee’s own case, A.O. was directed to adopt the LIBOR rate applicable for the years under consideration + 200 basis points to arrive at the ALP - hence we uphold the order of the Ld. CIT(A) and reject the ground of assessee. Allowable deduction u/s 37 (1) - expenses incurred towards travel, stay etc., in the public conferences attended by the Doctors is to improve th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The Ld. CIT(A) has erred in holding that the expenditure incurred towards stock based compensation (ESOPs) is ascertained liability and hence Revenue expenditure. 2. Learned Counsel for the Assessee prepared a brief note to highlight that the issues urged in the appeal by the Revenue are covered in favour of the assessee and against the Revenue. However, the facts are briefly narrated to appreciate as to how the issues urged therein are covered by the orders passed by the ITAT in the assessee s own case for the earlier years. 3. Grounds no.1 and 6 are general in nature and therefore they need not be considered independently. Ground Nos.2 to 4 are with regard to corporate guarantee given by assessee to its AEs. It deserves to be noticed that the A.O. has made TP adjustment on account of corporate guarantee commission @ 2% resulting in an addition of ₹ 26,34,86,623/-. During the financial year 2011-12, the assessee provided guarantee towards loans obtained by various subsidiaries which are Associated Enterprises. The TPO / A.O. treated the transactions as international transactions, for the purpose of section 92B of the Act, and charged 2% commission on the said g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it has been judicially held to be effective from A.Y. 2013-14. Hence, the Ground no.2 is allowed. 5. Aggrieved, Revenue is in appeal before us. 6. Learned CIT-DR merely relied upon the order passed by the Assessing Officer and has not brought anything on record to suggest that the order passed in the assessee s own case for the earlier years is bad in law. Under these circumstances, we hold that the Ld. CIT(A) having followed the decision of the Tribunal in the assessee s own case for the earlier years, the order of the Ld. CIT(A) does not call for any interference. Accordingly, grounds nos.2 to 4 urged by the Revenue are hereby rejected. 7. Vide ground no.5, the Revenue contends that the Ld. CIT(A) erred in holding that the expenditure incurred towards ESOPs is an ascertained liability and hence revenue expenditure. 8. Facts in brief are that the assessee-company instituted the plan for all eligible employees, in pursuance of the special resolution approved by the shareholders in the Annual General Meeting. As per the plan, the Compensation Committee of the Board shall administer grant of stock options to eligible employees subject to certain conditions i.e., num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its entities rest with the assessee-company, there is no scope for default risk and hence there is no need to assume premium over the bench-marked interest rate which needs to be charged. However, as a best practice, the assessee-company charged the nominal premium in addition to base interest rate. A.O. however was of the opinion that the interest rate of 7% should be considered as ALP and accordingly arrived at the short-fall of ₹ 6.50 Crs and made adjustment u/s 92CA(3) of the Act. 15. The case of the assessee before the Ld. CIT(A) was that rate fixed by the LIBOR has to be considered as ALP. Ld. CIT(A) however observed that in the assessee s own case for the A.Y. 2006-07 the ITAT allowed the interest, based on LIBOR, and adopted interest rate of 7%. Similar ruling was given by the DRP in its own case for the A.Ys 2008-2009 to 2010-11. 16. The ITAT has observed that in principle LIBOR + 200 basis points can be adopted as ALP and accordingly set-aside the matter to the file of A.O. with a direction to adopt the LIBOR rate applicable for the AYs under consideration + 200 basis points to arrive at the ALP. 17. After thoroughly analysing the issue, Ld. CIT(A) concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the assessee s own case in the earlier years, we hereby direct the Assessing Officer to verify the nature of expenditure and disallow only such expenditure which was not incurred for the purpose of business of the assessee. 24. Vide Ground no.5, assessee contends that allocating corporate overheads, ESOP and Research and Development expenditure to the units eligible for deduction u/s 80-IC of the Act, overlooking the fact that the each unit is a self-sustained unit, is not in accordance with law. It was also contended that without prejudice to the above contention, allocation of gross corporate overheads instead of net corporate overheads is not justified. 25. As regards the allocation of corporate overhead expenses, Learned Counsel for the Assessee submitted that identical issue was set-aside by the ITAT in the assessee s own case for the earlier years (pages 33 to 35 of the paper book) wherein the Tribunal observed as under: 49. We have considered the rival contentions and perused the record. In asessee s own case for the AYs 2007-08 and 2008-09 (supra), the Tribunal vide para 64 set aside the matter with the following observations: 64. The Learned Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Assessee as well as the Learned Departmental Representative and also carefully perused the record. Identical issue was considered by us in order dated 08.06.2018 (ITA. Nos.1844 to 1846/Hyd/2017) wherein we have relied upon the decision of the Hon ble Bombay High Court in the case of Zandu Pharmaceutical Works Ltd (supra) and after analysing the facts of the instant case, we observed as under: 49. The case of the assessee, all through, was that R D expenditure was incurred by the assessee in a separate unit known as IPDO , which is meant for carrying on R D. It is also not in dispute that formulations / products arising out of it may or may not be utilised in the special units wherein the assessee is eligible for deduction / exemption. It is not controverted that formulations / products arising out of it can be sold in the open market and need not necessarily be utilised in the existing special units. The Hon ble Bombay High Court in the case of Zandu Pharmaceuticals Limited (350 ITR 366) considered an identical issue wherein the assessee carried on business of manufacture of Ayurvedic medicines which had four units in Uttar Pradesh and Head Office separately. Ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that R D expenses will benefit the exempted units in the long run overlooking the fact that there is nothing on record to show that all the R D inventions / patents were never sold in outside market but only captively utilised in the exempted units. Under these circumstances, by respectfully following the decision of the Hon ble Bombay High Court (cited supra), we are of the view that the Revenue has not made out a case for apportionment of R D expenditure and ESOP cost to the exempt units. In the result, we hold that the Tax Authorities were not justified in apportioning R D expenditure and ESOP cost to the units which claimed exemption u/s 10B, 80IB and 80IC of the Act. 30. The Revenue, on the other hand, relied upon decision of the ITAT, Bangalore Bench (cited supra). 31. In view of the decision of Hon ble Bombay High Court (supra) and also on careful perusal of the facts, we are of the opinion that the view taken by the Hon ble Bombay High Court is an appropriate view and, at any cost, it is one of the possible views on the matter which requires to be taken into consideration in the light of the Apex Court decision in the case of CIT vs. Vegetable Products L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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