GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED,MUMBAI vs. ASSESSMENT UNIT, INCOME-TAX DEPARTMENT, NEW DELHI

The assessee is a private limited company and is a non-deposit taking non- banking finance company (NBFC). The assessee filed the return of income for AY 2020-21 on 15.02.2021 declaring a total income of Rs. 187,36,66,790/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) completed the assessment by making the following additions / disallowances:

Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) confirmed the disallowance of ESOP Expenses and deleted the disallowance made towards reversal of provision for gratuity. With regard to the disallowance of depreciation on Occupancy Expenses the CIT(A) enhanced the disallowance to the entire amount allocated by Goldman Sachs India Securities Pvt Ltd (GSISPL) Goldman Sachs (India) Finance Pvt. Ltd. assessee's group entity towards Occupancy Expenses to the assessee to the tune of Rs. 1,87,40,284/-.

The ld. AR with regard to enhancing the disallowance towards cost allocation of Occupancy Expenses submitted that the AO did not issue any show- cause notice to the assessee stating that he is proposing to enhance the disallowance. The ld. AR further submitted that though the CIT(A) called for various details there was no intimation to the assessee that there is a proposal to enhance the disallowance made by the AO. The ld. AR also submitted that the CIT(A) has stated that the AO during the assessment proceedings for AY 2022-23 has made disallowance of the entire expenditure and that the assessee could not substantiate with documents supporting the claim of Occupancy Expenditure. The ld. AR argued that enhancing the disallowance made by the AO without issue of show-cause notice cannot be sustained.

The ld. DR on the other hand submitted that the Occupancy Expenses claimed by the assessee has been disallowed by the AO in AY 2022-23 for want of evidence. The ld. DR further submitted that the CIT(A) called on the assessee to furnish the supporting documents with regard to cost allocation towards Occupancy Expenses and that the assessee failed to substantiate the claim. Accordingly, the CIT(A) has directed the AO to disallow the entire amount as has been done in AY 2022-23. Therefore, the ld. DR argued that the claim of the assessee that separate show-cause notice is required to be issued on the impugned issue cannot be entertained. Goldman Sachs (India) Finance Pvt. Ltd. 6. We heard the parties and perused the material on record. With regard to the disallowance of depreciation on Occupancy Expenses, the CIT(A) noticed that the assessee has claimed total occupancy expenses of Rs. 1,87,40,284/- which includes the depreciation disallowed by the AO. The CIT(A) further noticed that the assessee is claiming the said expenses towards the space rented from its group entity GSISPL with which the assessee has entered into a cost allocation agreement. The CIT(A) also noticed that the AO has disallowed the entire Occupancy Expenses in assessee's case for AY 2022-23 for the reason that the assessee has not discharged the onus of substantiating the claim of the said expenses. The CIT(A) held that the expenses claimed need to be verified based on the actual expenditure incurred by GSISPL and since the assessee has not produced any details as called for the CIT(A) directed the AO to disallow the entire amount claimed as Occupancy Expenses as has been done in AY 2022-23. In this regard we notice that the only reason for making the disallowance is that the assessee has not submitted any supporting documents or the basis of cost allocation by GSISPL. The ld. AR during the course hearing submitted that the details called for pertain to the group entity and therefore the assessee needed time to collate the details which was not provided by the lower authorities. Accordingly the ld AR prayed for one more opportunity to submit the relevant details called for. Considering the facts and circumstances of the case, we see merit in the plea of the assessee that details called for is time consuming to collate and accordingly in the interest of natural justice and fair play we deem it fit to remit the issue back to the AO. The AO is directed to examine the impugned issue afresh by calling for necessary details and decide on merits in accordance with law. The assessee is directed to furnish the details as may be called without seeking unnecessary adjournments and cooperate with the proceedings. It is ordered accordingly. Goldman Sachs (India) Finance Pvt. Ltd. Disallowance of ESOP expenses

During the course assessment proceedings it is noticed that the assessee has debited a sum of Rs.1,89,23,119/- towards ESOP expenses. The assessee submitted that Goldman Sachs Group Inc (GSGI) under the stock award plan allots Restricted Stock Units (RSU) the employees of the assessee and the cost towards the same allocated to the assessee. The assessee further submitted that the after the vesting period when the shares are delivered to the employees of the assessee, the payments towards the same is required to be made by the assessee to GSGI. The AO disallowed the claim for the reason that the assessee has not submitted the details of shares delivered to the employees of the assessee during the year under consideration and that RSU would vest over a period of time after grant date subject to fulfilment of vesting conditions. Therefore the AO held that the liability to pay towards ESOP is contingent in nature which is not ascertainable and accordingly cannot be claimed as a deduction. The CIT(A) upheld the disallowance made by the AO.

We heard the parties and perused the material on record. The issue of allowability of ESOP expenditure is no longer res-integra and is covered by the decision of the Hon'ble Karnataka High Court in the case of CIT v. Biocon Ltd. [2020] 121 taxmann.com 351/276 Taxman 1/430 ITR 151. Accordingly in our view, the disallowance on basis that the ESOP expenses is contingent in nature cannot be sustained. However, the amount claimed as expenditure, the basis of allocation of ESOP cost by GSGI etc., needs to be factually examined. From the perusal of the orders of the lower authorities we notice that one more reason for disallowance of ESOP expenses is that the assessee failed to furnish the details called for with regard to the claim of expenditure such number of employees towards whose ESOP cost GSGI has recharged the assessee, whether TDS has Goldman Sachs (India) Finance Pvt. Ltd. been deducted under section 192 etc. Therefore to the limited extent of verifying the cost recharged by GSGI we are remitting the issue back to the AO with a direction to examine the issue on merits and allow keeping in mind the above judicial precedence. The AO is further directed to provide a reasonable opportunity of being heard.

We heard the parties and perused the material on record. From the perusal of records we notice that the facts pertaining to the issues contended by the assessee with regard to disallowance of Occupancy Expenses and disallowance of ESOP Expenses for AY 2017-18 & AY 2018-19 are identical to facts in AY 2020-21. This is substantiated by the findings of the CIT(A), where the CIT(A) has relied on the findings of the AO for AY 2020-21 with regard to the impugned issues and the reasons for upholding the disallowance are based on his own findings in AY 2020- 21. Therefore in our considered view our decision on these two issues in AY 2020-21 is mutatis mutandis applicable for AYs 2017-18 & 2018-19 also. Accordingly we remit the issues back to the AO with similar directions. It is ordered accordingly.

From the perusal of records we notice that the facts pertaining to the issues contended by the assessee with regard to disallowance of Occupancy Expenses and disallowance of ESOP Expenses for AY 2022-23 are identical to facts in AY 2020-21. This is substantiated by the findings of the CIT(A), where the CIT(A) has relied on the findings of the AO for AY 2020-21 with regard to the impugned issues and the reasons for upholding the disallowance are based on his own Goldman Sachs (India) Finance Pvt. Ltd. findings in AY 2020-21. Therefore in our considered view our decision on these two issues in AY 2020-21 is mutatis mutandis applicable for AY 2022-23 also. Accordingly we remit the issues back to the AO with similar directions. It is ordered accordingly.

During the year under year under consideration, the assessee has claimed a sum of Rs.43,17,804 towards legal and professional expenses. The AO during the course of hearing noticed that the claim includes a sum of Rs.10,23,393 which is claimed on adhoc basis. The AO did not accept the submission of the assessee that these are provision made towards services already received by the assessee and disallowed the said amount. The CIT(A) upheld the disallowance.

We heard the parties and perused the material on record. The ld AR during the course of hearing submitted that the adhoc provision made towards services received is subsequently reversed and offered to tax by the assessee and therefore the impugned disallowance if sustained would result in taxing the same twice disallowance. We therefore deem it appropriate that the issue should be remitted back to the AO for factually examining the claim of the assessee. The AO is directed to examine whether amount claimed as deduction in the year under consideration is subsequently reversed and offered to tax and in that case delete the disallowance made in the year under consideration. Needless to say that the assessee be given a reasonable opportunity of being heard.

We heard the parties and perused the material on record. From the perusal of the lower authorities, we notice that the reason for the lower authorities to make Goldman Sachs (India) Finance Pvt. Ltd. the disallowance is that the assessee has not furnished the required documents supporting the claim. We further notice that the assessee before the CIT(A) has sought some more time for collating the details which the CIT(A) denied stating that the assessee is seeking adjournments only. The ld AR during course of hearing before us submitted that since these details are to be received from affiliates, the assessee could not file them in time before the lower authorities and therefore prayed that one more opportunity be given. Considering the facts and circumstances of the case, we see merit in the plea of the assessee that details called for is time consuming to collate and accordingly in the interest of natural justice and fair play we deem it fit to remit the issue back to the AO for consideration afresh. The assessee is directed to furnish the necessary details in support of the claim without seeking unnecessary adjournments and cooperate with the proceedings. It is ordered accordingly.

In result, the appeal of the assessee for AY 2017-18, AY 2018-19, AY 2020-21 & AY 2022-23 are allowed for statistical purposes.