9911796707
TMI Blog2024 (7) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... was part of the Annual Report of the assessee and further the specific details of ESOP benefit granted to its employees had been duly disclosed to the assessing officer during the course of assessment proceedings, being the difference between the market price of shares at the time of grant of option to these employees and the market price of such shares as on the date of exercise by employees of the assessee company. Therefore, even from this perspective, the expenses so claim were not contingent the nature, since the assessee had claimed the ESOP expenses at the time of actual exercise of option by its employees, during the year under consideration. Sssessee had reflected such ESOP expenses as perquisites in the hands of its employees and TDS at appropriate rate had also been deducted by the assessee company at the time of grant of ESOP benefits to its employees. ESOP expenses are allowable in the hands of assessees under Section 37 of the Act and looking into the facts of the assessee s case, as highlighted above, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in deciding this issue in favour of the assessee. - Smt. Annapurna Gupta, Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. 1.6 The learned AO and Hon'ble CIT(A) has erred in not appreciating that Appellant has sufficient own funds which are far more than the amount of investment in shares and securities which yield exempt income and thereby erred in holding that a portion of operating expense should be attributable to investments which fetch exempt income. 2. Disallowance in relation to interest expenses under Section 14A read with Rule 8D of the Income-tax Act, 1961 (Tax effect - Rs. 8,24,56,452) 2.1 The Hon'ble CIT(A) erred in holding that the ground of appeal relating to disallowance of interest expenses under Section 14A does not emanate from Ld. AO's order. However, the Ld. AO., while computing total income as assessed under Section 143(3) read with Section 254 of the Act, has not provided relief in respect of disallowance of interest expenses under Section 14A and accordingly, the said ground of appeal does emanate from the order of Ld. AO. 2.2 The Hon'ble CIT(A) erred in failing to appreciate that the Ld. AO has not followed the observations and decision of the Hon'ble ITAT with respect to disallowance of interest expenses to the extent of Rs. 24.26 crores under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses . 4. Accordingly, the ground raised by the assessee with respect to disallowance under Section 14A vis- -vis administrative expenses is being dismissed as not pressed. Ground No. 2 of the assessee s appeal relates to disallowance of interest under Section 14A of the Act vis- -vis interest component 5. The brief facts of this Ground of Appeal are that assessee company filed its return of income for A.Y. 2010-11 on 07.09.2010 declaring a total income at Rs. 43,15,45,21,002/-. The first assessment order under Section 143(3) of the Act was passed on 26.02.2013 assessing the total income of the assessee at Rs. 44,82,61,63,918/- after making additions / disallowances of Rs. 2,61,960,802/- under Section 14A of the Act. 6. Thereafter, against the assessment order under Section 143(3) of the Act, dated 26.02.2013, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order No. CIT(A) -10/DCIT Circle- 1/265/2015-16 dated: 04.01.2016 partly allowed the assessee's appeal. Thereafter, the assessee preferred further appeal before ITAT. 7. The ITAT vide its order in ITA No. 311/Ahd/2016 dated 28.10.2021 made certain observations with regards to disallowance unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of hearing to explain the basis of making the disallowance of Rs. 1,06,38,000/- but he failed to provide any information. Rather the Ld. AR requested to set aside the issue to the file of the AO to allow one more opportunity to the assessee to furnish the details concerning the basis adopted for disallowance of Rs. 1,06,38,000/- only under rule 8D(2)(iii) of Income Tax Rules. 9. The Ld. DR has not raised any objection if the matter is set aside to the file with respect to administrative expenses as per the provisions of law. 10. Indeed, the onus lies upon the assessee to justify the expenses incurred in exempt income. If the assessee failed to discharge the onus, the only option available to Revenue is to make the disallowance by resorting the provisions of Rule 8D of Income Tax Rules. However, in the interest of justice, fair play and keeping in view to the fact that assessee has made suo moto disallowance of Rs. 1,06,38,000, we are inclined to extend one more opportunity to the assessee to provide the basis of such disallowance by furnishing the necessary details. Accordingly, the issue with respect to administrative expenses is set aside to the file of AO for fresh adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A of the Act, which was made in the first assessment order, in the computation of income, at page 6 of the assessment order. In appeal filed by the assessee against the assessment order passed by the assessing officer, Ld. CIT(Appeals) did not allow the appeal of the assessee by observing that the aforesaid disallowance is not coming from the contents of the assessment order. While dismissing the assessee s appeal with respect to this ground, Ld. CIT(Appeals) made the following observations: 8. GROND OF APPEAL NO. 2: Disallowance u/s14A- Interest (INR 24.25 crores): Vide this ground of appeal, the appellant has stated that the AO has disallowed Interest Expenses u/s 14A r.w. Rule 6D in spite of the fact that hon'ble ITAT in its order for A.Y 2010-11 in assessee's own case has allowed the appeal in assessee's favour. 8.1 I find that this ground of appeal does not emanate from the AO's order under section 143(3) r.w.s. 254 of the Act dated 29-12-2022 for A.Y.2010-11 as there is no discussion in this regard in the body of said order. There is no separate addition/disallowance made by the AO on this issue in the aforesaid order dated: 29.12,2022. Therefore, no cause of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act is allowed. Now we shall come to Department s appeal for Assessment Year 2010-11 15. The sole/single issue for consideration is regarding the disallowance of ESOP expenses, which was allowed by the Ld. CIT(Appeals) in favour of the assessee. 16. The brief facts relating to this Ground of Appeal is that assessee had raised an additional ground before the Hon'ble ITAT and claimed deduction on account of Employees Stock Option Scheme (ESOP) expenses of Rs. 250.63 crores while computing its total income. The ITAT has restored back the said issue to the file of AO to examine the same as per the provisions of the I.T Act. The AO observed that the assessee, as part of it s policy of rewarding it s employees and key management people, has formulated an Employee Stock Option Plan (ESOP) Scheme in accordance with the Securities and Exchange Board of India Guidelines, 1999/Securities and Exchange Board of India (Share Based Employee Benefits) Regulations under the name and style of Axis Bank Limited Employees Stock Option Scheme Grant . During the year under consideration the assessee claimed ESOP expenditure of Rs. 250.63 crores being difference between market price as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted at a predetermined price . Even in the decision relied by the assessee in case of Biocon, it has been clarified that the discount eligible to be allowed as revenue expenditure shall be the difference between market price of the shares at the time of the grant of option and actual exercise price. Such difference is calculated on the basis of predetermined price as on the date of grant of option and has been allowed as revenue expenditure. The assessee in the present case, while computing discount, has erred in taking market price on the date of exercise of option . Such market value has to be taken on the date of grant of option. If discount in the present case is calculated considering market price of option as on the date of grant of option and actual exercise price, it is observed that there is no actual discount passing on to the employees of the assessee company which means that market price on the date of grant of option and actual exercise price are the same . Hence, no benefit has actually been offered to the employees in terms of discount . Therefore, no discount has actually been offered to the employees in the present case and value of discount calculated by takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected by the AO. 17. The assessee filed appeal before Ld. CIT(Appeals) against the aforesaid order of the Ld. Assessing Officer. Ld. CIT(Appeals) allowed the appeal of the assessee on this issue by relying upon decision of ITAT Special Bench in the case of Biocon Ltd vs. DCIT [2013] 25 ITR(T) 602 (Bangalore-Trib.) (SB) . While allowing the appeal of the assessee, Ld. CIT(Appeals) made the following observations: 9.2 Having considered the factual matrix of the case, I find that the Appellant had raised the claim for deduction of ESOP for first time as additional ground with ITAT relying upon decision in the case of Biocon Ltd vs DCIT [2013] 25 ITR(T) 602 (Bangalore-Trib.) (SB). The issue was remanded back to AO by the Hon'ble ITAT since the lower authorities had not got an opportunity to examine the same as per the provisions of the Act. The AO vide his aforesaid order dated: 29.12.2022 has thereafter disallowed the claim of The Appellant. The AO has rejected the claim for ESOP mainly on the following issues/reasoning: 1. The Appellant had erred in claiming discount being difference between market price as on date of exercise of option and actual exercise price. 2. No actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.1.6 and 11.1.7 of its order including the one involving the case of the assessee and has held that subsequent adjustment of discount is required with respect to market price as on the date of exercise of option and the same would also be available as deduction. It has also been held by the Hon'ble ITAT that discount on ESOP being a general expense is allowable u/s 37(1) during the years of vesting on the basis of percentage of vesting during such period. In view of the foregoing discussion and respectfully following the hon'ble Special Bench in the case of Biocon Ltd., supra which has been upheld by the Hon'ble Karnataka High Court in CIT v. Biocon Ltd. [2020] 121 taxmann.com 351 (Karnataka), I am of the considered view that the Appellant's claim of deduction of ESOP cost is an allowable expense u/s 37(1) of the Act. The AO is accordingly, directed to follow the hon'ble Special Bench in the case of Biocon Ltd., supra which has been upheld by the Hon'ble Karnataka High Court in CIT v. Biocon Ltd. [2020] 121 taxmann.com 351 (Karnataka) and allow the Appellant's claim of deduction of ESOP cost subject to verification of discount figure of Rs. 250.63 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the market price as on the date of grant of stock options and the market price as on date of exercise were claimed as a revenue expenditure. During the course of assessment proceedings, the assessee had furnished a detailed chart of the specific employees of the company to whom such discount was offered. The Counsel for the assessee submitted that a perusal of the chart submitted before the assessing officer clearly shows that there was a substantial difference between the market price as on the date of grant of option and the market price as on the date of exercise of such option by the assessee and therefore, the employee s of the assessee company had clearly benefitted in terms of discount. Secondly, the Counsel for the assessee submitted that in the instant case, the discount was not claimed on a notional basis but on the date of actual exercise of such option by the employees. Therefore, it was submitted that the case of the assessee stands on a better footing since the loss is not on a notional basis, but has been claimed by the assessee as on the date of actual exercise of stock options by the employees of the assessee company after meeting the specific requirements under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability but was an ascertained liability. Further, the Karnataka High Court held that issuance of shares at a discount would be an expenditure incurred for purposes of Section 37(1) as primary object of aforesaid exercise was not to waste capital but to earn profits by securing consistent services of employees and therefore, same could not be construed as short receipt of capital and thus, discount on issue of ESOP was allowable deduction under Section 37(1). The Mumbai ITAT in the case of IPCA Laboratories Ltd 161 taxmann.com 511 (Mumbai - Trib.) , following the decision of Karnataka High Court held that ESOP compensation expenditure incurred by assessee is an allowable deduction under Section 37(1). The ITAT Hyderabad in the case of Nagarjuna Construction Co. Ltd 159 taxmann.com 538 (Hyderabad - Trib.) again decided this issue in favour of the assessee by holding that discount on issue of ESOPs i.e., difference between grant price and market price on shares as on date of grant of options was allowable deduction under Section 37(1) of the Act. In the case of Fortune Park Hotels Ltd. 159 taxmann.com 1217 (Delhi - Trib.) , the Delhi ITAT held that ESOP expenses are allowable as per ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
