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TMI Blog2024 (6) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... no justification for applying mark up 0.25% when the transaction was bench marked with a third-party comparable transaction - TPO had also not given any basis for arriving at the mark up for 0.2%. CIT(A) was correct in deleting the mark-up of 0.25% as applied by the TPO, which was without any basis or rationale. Once the corporate guarantee fee is worked out on the basis of third-party prevailing market rate, there is no basis or justification for further mark-up. Ground taken by the revenue is dismissed. Addition on account of ESOP expense u/s 37 - expenses claimed by the assessee was the difference between market value of shares as computed under the guidelines of SEBI and the value at which the shares were issued to the employees - AO treated this expenditure as being capital in nature or being only notional entry and made the disallowance - CIT(A) has deleted the addition - HELD THAT:- As decided in assessee s own case for the [ 2023 (1) TMI 1380 - ITAT AHMEDABAD] assessment year 2016-17 held that assessee floated Employees Stock Option Plans (ESOP) and provided shares to its employees at a discount discount - on exercise of option by an employee, actual amount of benefit that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of Rs. 1,70,58,29,720/. The assessment was completed u/s. 143(3) r.w.s. section 144C(3)/144(B) of the Act on 26-11-2021 at total income of Rs. 1,75,87,35,950/-. In the course of assessment, the Assessing Officer (AO) had made the following additions: - TP Adjustment 26,32,930 Disallowance of ESOP expenses 1,50,21,000 Disallowance u/s 14A r.w. rule 8D 3,52,52,300 3. Aggrieved with the order, the assessee had filed an appeal before the first appellate authority which has been decided by the ld. CIT(A) vide the impugned order. The Revenue is in appeal us before us. 4. The Revenue has taken following grounds in this appeal: - a) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in restricting the addition 0.20% instead of 0.77% without appreciating the approach adopted by TPO? b) Whether on facts and in the circumstances of the case and in law the Ld CIT(A) has erred in accepting ALP of the assessee determined by ignoring the ratio laid down by the Hon ble ITAT, Mumbai in the case of Everest Kanto Cylinder Limited (ITA No. 542/Mum/2012) and Nimbus Communication Pvt. Ltd. (34 taxmann.com 299) Hon ble ITAT, D Bench Ahmedabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by the TPO. The TPO had benchmarked the transactions on the basis of bank guarantee provided by Indusland Bank Ltd to the assessee. It was found that for the guarantee amount of Rs. 1,97,45,068/- total guarantee commission of Rs. 1,02,180.69 was paid. On this basis the rate of guarantee commission was worked out at 0.52% by the TPO. Further, a markup of 0.25% was also applied by the TPO and the ALP rate of guarantee commission was determined by applying the rate of 0.77% (0.52+0.25). The ld. CIT(A) noticed that the guarantee commission of Rs. 1,02,181/- paid by the assessee to Indusland Bank was for a period of 822 days and, therefore, the proportionate rate applicable for 365 days was only 0.2% and not 0.52% as worked out by the TPO. Further, the bench mark of 0.25% as applied by the TPO was also not found correct as the internal CUP was worked by the TPO after considering assessee s transactions with the third-party bank. Accordingly, the ld. CIT(A) has confirmed the addition to the extent of rate of 0.2% only. 7. We do not find anything wrong with the order of the ld. CIT(A). The TPO had benchmarked the transaction on the basis of independent third-party transaction of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2016-17, which has been placed before us. We find that the Co-ordinate Bench of this Tribunal (in which one of us the Judicial Member is party and also the author) has examined and discussed this issue at length. The finding given by the Tribunal in that case is reproduced below: - 8. We have heard the rival contentions and perused the material on record. The issue for consideration before us is that expenses of _ 22.65 lakhs were debited to the profit and loss account under the head ESOP expenses, being the difference between the market value of shares as computed under the guidelines of SEBI and the value at which these shares were issued to the employees. The contention of the Department is that no expenditure has been incurred by the company at the time of issuance of shares under the ESOP scheme and the expenditure has not crystallised till the date on which the employee exercises the option and hence any expenditure debited during the vesting period remains contingent in nature. The counsel for the assessee on the other hand contended that the liability had crystallised at the time of issuance of shares itself and only the quantification remained pending at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of account, which has been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 8.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption scheme expense is allowable as deduction u/s 37 of the Act. In this case, the assessee-company had implemented employees' stock option scheme. It had offered its shares to its employees at discount and resulting loss was claimed as deduction. The Assessing Officer disallowed said loss. The ITAT held that basically the Assessing Officer was of the view that it is a capital loss. It is not materialized in this year. It would happen only when option is exercised by the employees. All these aspects have been considered by the Special Bench of the Tribunal in Biocon Ltd. v. Dy. CIT [2013] 35 taxmann.com 335/[2014] 114 ITD 21 (Bang.) wherein it has been explained that share premium is a capital receipt and not chargeable to tax in the hands of the company. If a company issues shares to the public or to the existing shareholders at lesser than prevailing premium due to market sentiments or otherwise such share receipts of a premium would be a case of receipt of lower amount on capital amount. As the object of issuing such share at a lower price is nowhere directly connected with the earning of income but when the company undertakes to issue shares to its employees at a discounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no dispute to the fact that no exempt income was earned during the year. Therefore, no addition u/s 14A of the Act was called for as held by the Apex Court and also by the jurisdictional High Court on this issue. We do not find any infirmity with the order of the ld. CIT(A) which is based on the findings of the ITAT in the assessee s own case for A.Y. 2016-17 cited supra, wherein all the relevant decisions were discussed. The finding on this issue as given by the Co-ordinate Bench in that case was as under: - 13. We have heard the rival contentions and perused the material on record. Admittedly, during the year under consideration, the assessee did not earn any exempt income. 13.1 It is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income. The Hon'ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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