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TMI Blog2021 (7) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in computing income chargeable under head of profits and gains of business or profession . Respectfully following the said decision of the Hon'ble Jurisdictional High Court allowing the additional ground No.2 of grounds of appeal, we direct the Assessing Officer to compute the income of the assessee after allowing deduction in respect of Education Cess, Secondary and Higher Education Cess on Income-tax. Expenditure incurred on Employee Stock Option Plan (ESOP) - HELD THAT:- We observe that the issue is decided in favour of the assessee by the Special Bench of the Tribunal, Bangalore Bench in the case of Biocon Ltd [ 2013 (8) TMI 629 - ITAT BANGALORE] and affirmed by the Hon'ble Karnataka High Court in the case of CIT v. Biocon Limted [ 2020 (11) TMI 779 - KARNATAKA HIGH COURT] . Thus, respectfully following the said decision we direct the Assessing Officer to allow the expenditure on Employee Stock Option Plan. Additional ground No.3 of the assessee is allowed. - ITA NOs. 7058 & 7059/MUM/2017, ITA NOs. 59 & 60/MUM/2018 - - - Dated:- 18-6-2021 - Shri C.N. Prasad, Hon'ble Judicial Member And Shri M. Balaganesh, Hon'ble Accountant Member For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax and 'secondary and higher education cess on income-tax (collectively referred to as 'education cess on income-tax) payable for the year under consideration, while computing the total income of the Appellant: 2.1 The Assessing Officer has erred in not allowing a deduction for the 'education cess on income-tax' payable for the year under consideration. 2.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, 'education cess on income-tax' for the year under consideration, ought to be allowed as a deduction while assessing its income for the year under consideration. 2.3 The Appellant submits that the Assessing Officer be directed to re-compute its total income and tax thereon after allowing deduction for 'education cess on income-tax'. 3. Re: Deduction in respect of expenditure incurred on Employee Stock Option Plan (ESOP) 3.1 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, expenditure incurred by the Appellant on ESOP, being the perquisite value in the hands of its empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 and 2011-12 in ITA.No. 2223/Mum/2014 and 5615/Mum/2015 by order dated 30.01.2020 held that the Assessing Officer has recorded general satisfaction and he has failed to record any objective satisfaction as to how the suomoto disallowance made by the assessee is wrong. Ld. Counsel for the assessee further in support to his submissions also placed reliance on the following decisions: - i. Maxopp Investment Ltd. v. CIT [402 ITR 640 (SC)] ii. Godrej and Boyce Manufacturing company Ltd. v. DCIT [394 ITR 449 (SC)] iii. PCIT v. Reliance Capital Asset Management Ltd., [400 ITR 217 (Bom)] iv. H.T. Media Ltd., v. PCIT [399 ITR 576 (Del.)] 8. With regard to the additional ground No.2 of grounds of appeal i.e., in respect of deduction of education cess on income tax and secondary and higher education cess on Income-tax, Learned Counsel for the assessee placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Sesa Goa Ltd., v. JCIT [423 ITR 426] submitted that the Hon'ble High Court held that Education Cess and Higher and Secondary Education Cess are eligible for deduction in computing income chargeable under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and tax free income did not record any objective satisfaction as to why the allocation of expenses made by the assessee is insufficient to meet the requirement of Rule 8D of the I.T. Rules r.w.s. u/s. 14A of the Act. 14. The assessee during the Assessment Years 2012-13 and 2013-14 earned dividend income of ₹.7,66,76,800/- and ₹.53,43,65,399/- and made suomoto disallowance of ₹.2,44,17,662/- and ₹.23,50,36,875/- respectively as expenses attributable for earning dividend income. The Assessing Officer before invoking Rule 8D of I.T. Rules did not specifically record that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of total income. On a perusal of the assessment orders it is abundantly clear that the Assessing Officer has recorded only a general satisfaction but did not record any objective satisfaction having regard to the suomoto disallowance made by the assessee. 15. In the case of Godrej Boyce Mfg., Co. Ltd., v. CIT (supra) the Hon'ble Bombay High Court held as under: - ..What merits emphasis is that the jurisdiction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules. The application of Rule 8D of the Rules would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee is not proper. 12. In fact, the Supreme Court in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax 2 while upholding the view of the Delhi High Court has held that the Assessing Officer needs to record his non-satisfaction having regard to the sou motu disallowances claimed by the assessee in the context of its accounts. It is only thereafter, the occasion to apply rule 8D of the Rules for apportionment of expenses can arise. 13. In the present facts, the Tribunal has correctly come to the conclusion that non-satisfaction as recorded by the Assessing Officer for rejecting the sou motu disallowances claimed by the assessee is not done as required under section 14A(2) of the Act. On facts, the view taken by the Tribunal is a possible view and calls for no interference. 14. In the above view, the question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 14A (2) and Rule 8 (D) of the Rules and (ii) in calculating the disallowance at 0.5% of average value of investments as per clause (iii) of Rule 8 D (2) of the Rules? 33. The contention of Mr. Singh is that if there was a valid recording of satisfaction by the AO as required by Rule 8D (1), then there was no option available to the AO other than to apply Rule 8D (2) of the Rules. Therefore, even according to the Revenue, the applicability of Rule 8D (2) hinges on the recording of the AO in terms of Rule 8D (1) that he was not satisfied with the Assessee's claim regarding expenditure incurred to earn the exempt income. 34. The Assessee had explained that ₹ 3 lakhs was being disallowed voluntarily as an expenditure which could be attributable for earning the said income. The Assessee explained that the disallowance had been determined on the basis of cost of finance department in the ratio of exempt income to total turnover. On that basis the disallowance in AY 2005-06 was upheld by CIT (A) at ₹ 1 lakh. The disallowance for this AY was worked out as ₹ 1,42,404/- and since the Assessee had already made a disallowance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (supra) where in the Hon'ble Bombay High Court held that Education Cess and Higher and Secondary Education Cess are liable for deduction in computing income chargeable under head of profits and gains of business or profession . 22. Respectfully following the said decision of the Hon'ble Jurisdictional High Court allowing the additional ground No.2 of grounds of appeal, we direct the Assessing Officer to compute the income of the assessee after allowing deduction in respect of Education Cess, Secondary and Higher Education Cess on Income-tax. 23. Coming to additional ground No.3 of grounds of appeal i.e., in respect of expenditure incurred on Employee Stock Option Plan (ESOP) we observe that the issue is decided in favour of the assessee by the Special Bench of the Tribunal, Bangalore Bench in the case of Biocon Ltd., v. DCIT (supra) and this Special Bench decision has been affirmed by the Hon'ble Karnataka High Court in the case of CIT v. Biocon Limted (supra). Thus, respectfully following the said decision we direct the Assessing Officer to allow the expenditure on Employee Stock Option Plan. Additional ground No.3 of the assessee is allowed. 24. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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