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TMI Blog2021 (10) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2011-12. The grounds raised by the Revenue are reproduced as under: 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Employee Stock Option Scheme Compensation, amounting to Rs. 7,51,29,706/-. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance u/ 14A r.w. Rule 8D, amounting to Rs. 69,21,744/-. 3. The appellant craves leave for reserving the right to amend, modify, add or forego any ground(s) of appeal at any time before or during the hearing of appeal. 3. At the outset, we may like to mention that despite notifying neither anyone was present on behalf of the assessee, nor any application was filed for adjournment on behalf of the assessee. In the circumstances, we proceeded to hear the appeal on the basis of arguments advanced by Learned Departmental Representatives and material available on record. 4. We have heard learned Departmental Representative and perused the relevant material on record. 4.1 The ground No.1 of the appeal of the Revenue relates to deletion of disallowance of Employee Stock Option Scheme (ESOP) compensation, amounting to Rs. 12,91,99, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's own business. vii. In Income Tax Act, certain expenses are an allowable expenditure on the amortization basis provided these are actual one These expenses are identified like expenditure in connection with preparation of feasibility report .preparation of project report (section 35D), amortization of expenditure in the case of amalgamation and de-merger (section 35DD),voluntary retirement scheme (section 35DDA).Besides the expenses as specified above certain expenses are allowable u/s 37 of the Act provided these are actual expenditure viz there is an outgo of the capital in transaction relating to business activity of the assessee during the relevant year. As the assessee has not purchased the shares from the market but exhausted its own quota of issued capital while giving it to the employee and there is no monitory outgoing in its existing capital and no actual expenditure has been incurred by the assessee company. Even if the method of accounting of the assessee company is considered (mercantile), expenses are allowed on provision basis if it is ascertained one but first and foremost condition that needs to be fulfilled is that there has to be a transaction which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act 1961 applies. 5.1b It is gathered from its response to all the reasons mentioned in the impugned order for the disallowance of its claim of deduction for the loss incurred on the ESOP scheme during the relevant PY (albeit on a 3 year pro rata basis) that while the appellant's contention is fortified by the judicial precedents relied on by it, especially by the IT AT Bangalore (SB) in the Biocon case (supra), its contention that the facts of the case apply to those in the present case squarely, is borne out from records. As regards the question of incurring 'actual expenditure' vis-a-vis 'notional expenditure' as held in the impugned order, the appellant's contention appears plausible in view of the fact that 'expenditure' is nowhere defined in the Act and that if the liability to incur an expenditure is ascertained, it is sufficient to claim the expenses under the mercantile system of accounting adopted regularly by the appellant as held legally by courts. In fact, it is mentioned in the aforesaid case, inter alia, "9.2.8 Though discount on premium is nothing but an expenditure U/S 37 (1), it is worth noting that the Hon'ble Supreme Court in the case of CIT vs Woodword Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat Earth Movers vs CIT (2000) 245 ITR 428 / 112 Taxman 61 dealt with the deductibility or otherwise of provision for liability towards encashment of earned leave.... With this legislative amendment, the application of the ratio decidendi in the case of Bharat Earth Movers (supra) to the provision for leave encashment has been nullified. However, the principle laid down in the said judgement is absolutely intact that a liability definitely incurred by an assessee is deductible notwithstanding the fact that its quantification may take place in a later year. The mere fact that the quantification is not precisely possible at the time of incurring the liability would not make an ascertained liability a contingent... 9.3.5 When we consider the facts of the present case in the backdrop of the ratio laid down by the Hon'ble Supreme Court in Bharat Earth Movers (supra) and Rotork Controls India (P) Ltd (supra), it becomes vivid that the mandate of these cases is applicable with full force to the deductibility of the discount on incurring of liability on the rendition of service by the employees. The factum of the employees becoming entitled to exercise options at the end of the vesting pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order. Hence, the disallowance of the appellant's claim of deduction towards ESOS compensation (Rs. 7,51,29,706/-) made in the impugned order is deleted. This ground is therefore allowed." 4.4 We find that learned CIT(A) has allowed the appeal of the assessee following the decision of the Special Bench of Tribunal in the case of Biocon Ltd. (supra) and other decision of jurisdictional High Court. We do not find any infirmity in the order of the Learned CIT(A) in following binding precedents, and allowing employee stock option compensation as revenue expenditure. The ground of the appeal of the Revenue is, accordingly, dismissed. 5. The ground No.2 of the appeal is related to disallowance of Rs. 69,21,744/- under section 14A read with Rule 8D of Income-Tax Rules, 1962 (in short 'the Rules'). 5.1 Brief facts qua the issue in dispute are that the assessee claimed exempted income of Rs. 4,88,16,855/- which included dividend income of Rs. 2,69,42,798/- and profit on redemption of investment of Rs. 2,18,74,057/-. The assessee made suo motu disallowance of Rs. 16,22,056/- for earning the above exempted income. Despite being specifically asked by the Assessing Officer, no details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discernible - income from growth funds is taxable and forms a part of the total income. Hence investment in such funds are to be excluded 3 working out the disallowance under Rule 8D(2)(iii). In fact, the AR's version of the facts is borne out from records. Also, investment in subsidiary where the object of such investment is no: dividend but controlling stake is also excluded while working out the disallowance under Rule 8D(2)(iii). Accordingly, in view of the extant law on the subject, presently settled by judicial precedents from the courts including the jurisdictional High Court (Delhi HC) - * Maxopp Investment Ltd vs. CIT (A Y 2002-03) IT A no. 687/2009 (Del) * Cheminvest Ltd. vs. CIT (AY 2004-05) (2015) 61 taxmann.com 118 (Del) [the ITAT decision mentioned in the impugned order stands overruled by this decision] * CIT vs. Holcim India Pvt. Ltd. ITA No. 486/2014 and 299/2014 (Del) * CIT vs. Taikisha Engineering India Ltd (2014) ITA 115/2014 & 119/2014 (Del) * DCM Ltd. vs. DCIT and Vice-Versa (2015) 9 TM11110 (ITAT, Delhi) * Joint Investments Pvt. Ltd. vs. CIT 372ITR 694 (Del) * CIT vs. Hero Cycles Ltd.[2010] 189 taxmann 50 (P&H) * ACB India Ltd. vs. ACIT (2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cross Objections raised by the assessee: 1. That the Ld. CIT(A) erred on facts and in law, in upholding disallowance under section 14A read with rule 8D of the Act in respect to investments in Indian subsidiaries. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of cross objections at any time before or at the time of hearing of the appeal. 7. We find that ground No.1 of the appeal of the Revenue in the year under consideration is identical to ground No.1 of the appeal of the Revenue for assessment year 2011-12, and therefore following our finding in assessment year 2011-12, the ground No.1 of appeal of the Revenue for assessment year 2012-13 is dismissed. 8. The ground No. 2 of the appeal and cross objection relate to disallowance under section 14A of the Act read with Rule 8D of Rules. 8.1 Brief facts qua the issue-in-dispute for the year under consideration are the assessee claimed exempted income of Rs. 2,10,87,429/- and against which disallowed sum of Rs. 15,47,540/- for earning the said exempted income. In the year under consideration also, no details of suo motu disallowance was provided by the assessee and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in as to why disallowance u/s 14A should not be made in accordance with Rule 8D. However, nothing has been furnished by the assessee in this regard. Hence the claim of the assessee in this regard is found to be acceptable and the issue is decided on the basis of information available on record... ...There is no rationale furnished by the assessee in deciding the amount disallowed at Rs. 15,47,540/-. Further, no separate staff or work station has been deployed/maintained by the assessee towards the investment activities. Further the earning of exempt income is not in the nature of passive activity having no input. In fact in present situation making of investment, maintaining or continuing of Investment and time to exit from Investment are well informed and well coordinated management decision involving not only inputs from various source but also acumen of senior management functionaries. Therefore cost is inbuilt into even so called "passive" investment. There are incidental expenditures of collection, telephone, follow up etc. Therefore expenses in relation to earning of income are embedded in indirect expenses... ... Therefore, the disallowance u/s 14A r.w. Rule 8D is comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the impugned order." 8.3 We have heard submission of Learned Departmental Representative and perused the relevant material on record. In view of the decision of Hon'ble Supreme Court in the case of Maxoop Investment Ltd. (supra), the investment in subsidiaries made for acquiring controlling stake, cannot be excluded for the purpose of the computation of disallowance under Rule 8D and, therefore, we uphold the finding of the Ld. CIT(A) on the issue in dispute and dismiss the cross objection raised by the assessee. As far as claim of income from growth fund, which is claimed by the assessee as taken into consideration for computed total income, has been restored to the file of the Assessing Officer for verification in assessment year 2011-12, and to have consistency in our finding, the issue-in-dispute in the year under consideration is also restored to the file of the Assessing Officer. The ground of the appeal of the Revenue is accordingly allowed for statistical purposes. 9. In the result, the appeals of the Revenue for assessment year 2011-12 and 2012-13 are allowed partly for statistical purposes and Cross Objection of the assessee for assessment year 2012-13 is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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