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Income Tax Appellate Tribunal, MUMBAI ‘D’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri Narender Kumar Choudhry (JM)
The Revenue has filed this appeal challenging the order dated 02.02.2023 passed by the learned Commissioner of Income Tax (Appeals)- 54, Mumbai (in short ‘ld. CIT(A)’) and it relates to Asst. Year 2018-19. The grounds raised by the Revenue relate to the following two issues :- a) Disallowance made under Section 14A of the Income Tax Act, 1961 (in short ‘the Act’); and, b) Disallowance of ESOP expenditure claimed by the assessee.
The assessee-company is a stock broker of National Stock Exchange and Bombay Stock Exchange.
The first issue relates to disallowance made under Section 14A of the Act. The assessee had earned exempt dividend income of Rs.18,20,000/-. However, the assessee disallowed a sum of Rs.100/- only under Section 14A of the Act read with Rule 8D of the Income Tax Rules. The Assessing Officer, however, computed the disallowance as per Rule 8D at Rs.7,34,68,829/- and accordingly disallowed the balance amount of Rs.7,34,68,729/-. The ld. CIT(A) gave the following directions on this issue:-
i) for computing average value of investments, only those investments that have yielded exempt income have to be considered; and, ii) disallowance cannot exceed the amount of exempt income.
The Revenue is aggrieved.
With regard to the first proposition, we notice that the ld. CIT(A) relied upon the decision of the Special Bench of ITAT Delhi in the case of ACIT vs Vireet Investments Pvt. Ltd., (2017) 82 taxmann.com 415. With regard to the second proposition, the ld. CIT(A) followed the decision rendered by the Hon'ble Bombay High Court in the case of M/s. Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017).
We heard the parties on this issue and perused the record. We noticed that the ld. CIT(A) has followed the decision rendered by the Special Bench in the case of Vireet Investments Pvt. Ltd. (supra) to hold that only those investments which have yielded exempt income should be considered for computing the average value of investments for the purpose of Rule 8D. Further, the ld. CIT(A) has followed the binding decision rendered by the Jurisdictional Bombay High Court in the case of M/s. Nirved Traders Pvt. Ltd. (supra), wherein it was held that the disallowance cannot exceed the exempt income. Since the ld. CIT(A) has followed the decision rendered by the Special Bench of ITAT and the Jurisdictional High Court in adjudicating
The next issue relates to disallowance of ESOP expenditure claimed by the assessee. The assessee-company has claimed ESOP expenditure of Rs.22.03 crores. While computing the total income, the Assessing Officer took the view that the ESOP expenditure is not Revenue expenditure as it has been incurred towards raising of Share Capital and hence it is clearly Capital in nature. Further, he took the view that the ESOP expenditure is not an actual expenditure incurred by the company and it is notional in nature. The ld. CIT(A), however, noticed that ESOP expenditure has been held to be Revenue in nature by the Special Bench of Tribunal in the case of Biocon Ltd. (2013) 35 taxmann.com 335. The ld. CIT(A) further observed that an identical disallowance of ESOP expenditure made in Asst. Years 2012-13, 2013-14 and 2017-18 has been deleted by the ld. CIT(A). Accordingly, following the decision rendered in the earlier years, the ld. CIT(A) deleted the disallowance.
We heard the parties on this issue and perused the record. The view taken by the Assessing Officer in order to disallow the ESOP expenditure is contrary to the view expressed by the Special Bench in the case of Biocon Ltd. (supra), wherein it has been held that ESOP expenditure is allowable as Revenue expenditure. We also noticed that the decision rendered by the ld. CIT(A) in Asst. Year 2012-13 in deleting the disallowance of ESOP expenditure has since been upheld by the Tribunal in vide order dated 16.02.2023. The learned AR brought to our notice that the ld. CIT(A) had granted identical relief in Asst. Year 2017- 18 and the Revenue did not challenge the said decision before the Tribunal.
Thus, we noticed that the disallowance of ESOP expenditure has been deleted by the ld. CIT(A)/ITAT in the earlier years in the hands of the assessee. Accordingly, following the above said decision, we uphold the order passed by the ld. CIT(A) on this issue.
In the result, appeal filed by the Revenue is dismissed.
Pronounced in the open court on 11/10/2023.