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TMI Blog2020 (5) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... o interfere with the order of the ld. CIT (A) and the disallowance is directed to be deleted. Disallowance of excess depreciation - depreciation on software @25% against the 60 % depreciation claimed by the assessee - CIT (A) deleted the addition on the grounds that the AO has mislead himself treating the software as intangible asset - HELD THAT:- We find that the nature of the software acquired were licenses, which do not confer any enduring right and could be used for the duration as acquired for by the licensor. The taxpayer s objective was to use computer software to maximize its performance and streamline efficiency. The Hon ble Bombay High Court in the case of M/ s I- Flex Solutions Ltd. [ 2014 (3) TMI 1162 - BOMBAY HIGH COURT ] held that there is no reason to differentiate the computer and the software as the latter is an integral part of the former. The software cannot be seen in isolation delinked from the computers.The issue of depreciation @60% on the software is now a settled issue beyond any perplexity Disallowance of additional claim of deduction on account of Employee Compensation Expenses - HELD THAT:- From the details filed in the case Indiabulls Real Estate Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. ITA No. 6602/Del/2016 Disallowance u/s 14 A: 4. The relevant facts required for the adjudication of this issue are: Investments of the assessee: ₹ 656,58,000,000 /- Exempt income earned: ₹ 1,93,80,332/- Disallowance made by the assessee: ₹ 4,16, 933/- Disallowance made by the revenue: ₹ 16,41,20,606 /- 5. Thus, prima facie we find that the disallowance made by the revenue is much more than the exempt income earned by the assessee. From the assessment order, we find that the Assessing Officer resorted to re-computation of the disallowance on the grounds that no rationale was furnished by the assessee in deciding the amount disallowed. Further, no separate staff or work station has been maintained by the assessee towards investment activities. The Assessing Officer further held that the earning of income is not in the nature of passive activity but in fact, it is a well coordinated management decision regarding the deployment of funds. The Assessing Officer relied on the judgment of the ITAT Special Bench New Delhi in the case of Cheminvest Ltd. in ITA No. 87/ Del/2008. 6. Before us, during the arguments, the ld. DR relied on the assessment order and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14 A of the I T Act. The Hon ble ITAT, Special Bench, New Delhi in the case of M/s Cheminvest Ltd. ITA no 87 /Del/2008 has also held that the disallowance u/ s 14 A is to be made even if no exempt income has resulted or earned by the assessee in the year under consideration Therefore in view of the specific provisions for quantification of disallowance as contained in sub- sections ( 2 ) and ( 3 ) of section 14 A, which are procedural, the disallowance is strictly to be made in terms of the specific provisions of Rule 8 D. Attention is also invited to the language of Rule 8D( 2)( i i) wherein it has been dearly mentioned that the average value of assets shall be computed in respect of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Rule 8D(1 ) of Income Tax Rules, 1962 prescribed the applicability of the procedure. In case, the Assessing Officer is not satisfied with the correctness of the claim of the expenditure made by the assessee, the procedural provisions of Rule 8 D are very much applicable to compute the expenditure which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017] 394 ITR 449 (SC)/[2017 ] 295 CTR 121 (SC) where Hon ble Supreme Court held that where Assessing Officer after carrying out elaborate analysis and following steps enacted in statute, had determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his dissatisfaction about assessee's calculation, his conclusion could not be rejected. 6. Punjab Tractors Ltd Vs CIT [2017] 78 taxmann.com 65 (Punjab Haryana)/[2017 ] 246 Taxman 31 (Punjab Haryana)/[2017] 393 ITR 223 ( Punjab Harvana)/[2017 ] 293 CTR 50 ( Punjab Haryana), 2017-TIQL-353- HC- P H-IT where Hon ble Punjab Haryana High Court held that AO is bound to apply provisions of Rule 8D where he is not satisfied with the correctness of the claim of assessee in respect of expenditures incurred to earn exempt income. 7. Avon Cycles Ltd Vs CIT [2015 ] 53 taxmann. com 297 ( Punjab Haryana)/[2015] 228 Taxman 368 ( Punjab Haryana HMAG.) where Hon ble Punjab Haryana High Court held that where funds utilized by assessee was mixed funds and, hence, interest paid on borrowed fund was also relatable to interest on investment made in tax free funds, interest expenditure relatable to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no expenditure has been incurred by him in relation to the income which does not form part of the total income. From the reading of the judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd. Vs CIT in CA Nos. 104-109 OF 2015, we find that having regard to the language of Section 14 A(2 ) of the Act, read with Rule 8D of the Rules, it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the accounts of the assessee suo moto disallowance under Section 14 A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment, in that eventuality, the Assessing Officer will have to record its satisfaction to this effect. 11. In the instant case, we find that no such satisfaction has been recorded by the A. O to come to the conclusion to invoke the provisions of Section 14 A(2). Hence, we decline to interfere with the order of the ld. CIT (A) and the disallowance is directed to be deleted. 12. The similar ratio applies to ground no. 1 in ITA No. 6603/Del/2016 . Depreciation: 13. The Assessing Officer allowed the claim of depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue from the perspective of capital expenditure as laid down by the Delhi bench in the case of Ranbaxy Laboratories Ltd. Vs Addl. CIT 39 SOT 17. It was held in VIP Industries Vs DCIT in ITA No. 7242 /Mum/2008 that the short receipt of premium on receiving option to the employee will be notional loss but not actual loss for which any liability has incurred. The Chennai Bench of the Tribunal in SSI Ltd. Vs DCIT 85 TTJ 1049 wherein granting of deduction of the discount on shares was treated as employee cost. The order has been relied upon by the order of the Hon ble High Court of Madras in the case of CIT Vs PVP Ventures Ltd. 211 Taxmann 554. 20. It was held the amount of discount represents the difference between market price of the shares at the time of the grant of option and the offer price. In order to be eligible for acquiring the shares under the ESOP, the concerned employees are obliged to render services to the company during the vesting period as given in the scheme. 21. The Special Bench held that the discounted premium on shares is a substitute to giving direct incentive in cash for availing the services of the employees. There is no difference in the situations, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght line basis. 25. To sum up, it was held that the discount under ESOP is in the nature of employee cost and hence deductible during the vesting period. 26. From the details filed in the case Indiabulls Real Estate Ltd., we find that two schemes have been issued by the assessee namely, IBREL ESOP 2006 and IBREL ESOP 2007. The spread of ESOP 2006 was from FY 2006-07 to 2013-14 whereas ESOP 2008 spread from FY 2008-09 to FY 2009-10 . The assessee has also given the details of date of vesting, number of shares granted, number of shares vested, perk value, taxed in the hands of employees, period of vesting. The perk value of the share ranged from ₹ 635/- to ₹ 134 /- and ₹ 101 /-. The perk value of the share on the date of vesting i. e. 01.11 .2011 was ₹ 6158/-. The discount given in the ESOP 2008 scheme was ₹ 110 .50. Further, no material was placed as to what was the value of the shares as per the market at different years of vesting ( page 143 to 154 PB). The details in the case of Indiabulls Real Estate Ltd. are as per the table below: Scheme Name ESOP Exp (FY 06-07) ESOP Exp (FY 07-08) ESOP Exp (FY 08-09) ESOP Exp (FY 09-10) ESOP Exp (FY 10-11) ESOP E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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