JCIT(OSD)-14(1)(1), MUMBAI vs. AVENDUS CAPITAL PVT. LTD., MUMBAI

*Wheth law, th on "ES that ex nature 2. "Wheth law, th of disa of Hon wherei shares "as con and Ho been taxable expend incurre and re 14A.» 3. "Wheth law, th 14A h which amend provide earned 4. "Wheth law, th 14A h which of 201 that Ru disallo a parti 5. "Wheth law, th the Act the fac in wi specific is volu to mak expens purpos require M/s her on the facts and circumstances of the he Ld.CIT(A) right in allowing the expen SOP Scheme" as revenue expenditure, igno xpenses incurred on the said scheme a and hence not allowed u/s 37(1) of the I her on the facts and circumstances of the he CIT(A) erred deleting the addition mad allowance u/s 14A of the Act, ignoring th n'ble Supreme Court in Maxopp Inve in it is held that the dominant object of s is irrelevant for interpreting the words " ntemplated in section 14A of the Income on'ble Apex Court has assented that sect introduced to bifurcate the expenditu e and non-taxable income and to d diture relatable to exempt income and ed in respect of investment in shares f etaining a controlling interest therein is h her on the facts and circumstances of the he CIT(A) erred in holding that the disal as to be made considering only those yielded exempt income, ignoring the ded to section 14A with retrospective es for disallowance u/s 14A even if n d during the year." her on the facts and circumstances of the he CIl'(A) erred in holding that the disal as to be made considering only those yielded exempt income, ignoring the CBD 4 dated 11.02.2014 in which it is clearl ule 8D read with section 14A of the Act wance of the expenditure even when the icular year has not earned any exempt inc her on the facts and circumstances of the he CIT(A) erred in allowing the deduction t claimed by the assessee on CSR donat ct that in view of the explanatory notes to ith Corporate Social Responsibility cally disallowed u/s. 37, CSR is mandat ntary out of profit, the intention of legisla ke it a tax saving tool, hence treatin se under 2 different heads, would defe se of it, hence the sum of Rs. 69,00,00 ed to be disallowed". s Avendus Capital Pvt. Ltd 2 e case and in nses incurred oring the fact are capital in I.T Act." e case and in de on account he judgement estment Ltd. f investing in "in relation to tax Act 1961 tion 14A has ure between disallow the Expenditure for acquiring hit by section e case and in lowance u/s investments explanation effect which no income is e case and in lowance u/s investments DT circular 5 ly mentioned provides for e taxpayer in come. e case and in n u/s 80G of tion, ignoring o Finance Act (CSR) was tory and 80G ature was not ng the same feat the very 00/- claimed

Briefly stated f return of income on 69,44,25,330/-. The selected for the scru the Income-tax Act, complied with. In the the Act on 26/09/ addition/disallowanc the Ld. CIT(A) who gr relief allowed to the Tribunal by way of ra 3. In ground No. 1 the Ld. CIT(A) of dele for disallowance of ES 3.1 The brief facts q debited ₹7,66,75,028 based payments to e based payments’ of ₹ optionally convertible amount of Rs.1,96,7 added in the compu purposes but the a revenue expenditure. M/s facts of the case are that the 13/02/2021 declaring total in return of income filed by th utiny assessment and statutory , 1961 (in short ‘the Act’) we e assessment completed under s /2022, the Assessing Officer ces. Aggrieved, the assessee file ranted relief to the assessee. Ag assessee, the Revenue is in ap aising grounds as reproduced as 1( one), the Revenue has challe ting the addition made by the A SOP expenses under section 37 qua the issue in dispute are th 8/- to the profit and loss acc employees ‘which consisted of ‘e ₹5,70,00,000/-and ‘employee be e expenses’ amounting to ₹1,96 75,028/- was disallowed by th utation of the income for inc amount of ₹5,70,00,000/- was . s Avendus Capital Pvt. Ltd 3 e assessee filed ncome at rupees e assessee was y notices under ere issued and section 143(3) of r made certain ed appeal before ggrieved with the ppeal before the s above. enged finding of Assessing Officer (1) of the Act. hat the assessee ount as ‘share- employee share- enefit expenses- 6,75,028/-. The he assessee and come-tax return s considered as 3.2 During the cour contended that stock market price prevaili price) but that stock as per the terms of E On completion of th stock options at thei vested in them again determined based on date of the grant and 3.3 The assessee co banking and other fi an employee depen deals/transactions w Therefore ESOP wer highly skilled resou discounting of shar business of the comp 3.4 The assessee re bench of the Income Limited Vs DCIT undertaking to issue does not pay anythi issuing shares at a M/s rse of the assessment proceedin k options were granted to the e ing on the date of the grant of k options vest gradually over th ESOPs, which is normally from o he vesting period, the employe r discretion for issue of shares nst exercise price. The fair valu n excess of market value of th d the exercise price. ontended that it was engaged in nancial service business where nds on his ability to succe with client and recover fees fo re issued to employees for ret urces, hence the expenditur es to employees was in the pany. eferred to the decision of the -tax Appellate Tribunal in the c (2013) 144 ITD 21 and s e shares at discounted premium ing to its employees but incu discounted price on future dat s Avendus Capital Pvt. Ltd 4 ngs, the assessee mployees at the option (exercise e vesting period one to five years. ee may exercise against options ue of option was he stock on the n the investment performance of essfully finalize r his employer. tention of such re incurred on interest of the Hon’ble special case of Biocone ubmitted while m, the company rs obligation of te in lieu of the services, which is not the Act. The Hon’ taxmann.com 351 fu Tribunal (supra) and discounted price to th profits by securing therefore same canno assessee contended t a joint reading of the the Act, the term ‘exp actually paid but al same by an assessee 3.5 Further, the a Supreme Court in the (1995) 27 ITR 34 an expenditure determin would be a capital source or the man consequence. He su issue shares to its em date, the primary obj but to earn profit b efforts of its dedicate further submitted th M/s thing but an expenditure under ’ble Karnataka High Court urther affirmed the order of th d noted that primary object of is he employees is not to waste cap consistent services of the ot be construed as short receip that in above decisions, it was h provisions of section 43(2) and penditure’ should refer not only lso any obligation incurred in . assessee referred to the decis e case of Assam Bangal Cemen nd submitted that the aim and ne the character of the expend expenditure or revenue expen nner of the payment would bmitted that when a company mployees at discounted premium ject of this exercise is not to rai by securing the consistent an ed employee during the vesting hat ESOP expenditure should s Avendus Capital Pvt. Ltd 5 r section 37(1) of in (2020) 121 e special bench ssuing shares at pital but to earn employees and t of capital. The held that as per section 37(1) of to the amounts relation to the sion of Hon’ble nt Co. Ltd Vs CIT d object of the iture whether it nditure and the then be of no y undertakes to m on the future ise share capital nd concentrated g period. It was be regarded as revenue in nature as for the company and rendered and effectiv the employees. 3.6 Further, the as on shares issued to retaining and incent the services of the em or expended wholly a of the assessee comp 3.7 Further, it wa Tribunal in the case 2010-11 and 2011-1 expenditure. 3.8 The learned As assessee for two rea employees while issu employees, but it aff change in the amou shares, accordingly i profit and loss accou the special leave petit M/s s it does not result in the creati d primarily it is a consideration vely, it amounts to additional re sessee submitted that expendit o employees being for attracti tivising employees, therefore it mployee, hence should be regar and exclusively for the purpose any. as submitted that coordinate of the assessee for assessment 12 held the expenditure on ES sessing Officer rejected the con asons. Firstly, the discount uing shares though might be fo fects the capital of the compan unt of the share capital and t is shown in the balance sheet nt, hence it is a capital expendi tion(SLP) filed by the Revenue a s Avendus Capital Pvt. Ltd 6 ion of any asset for the services emuneration for ture of discount ing, motivating, was related to rded as laid out of the business bench of the t years 2009-10, SOP as revenue ntentions of the allowed to the for retaining the ny and leads to number of the t and not in the iture. Secondly, against the order of the Hon’ble Karnat pending before Hon’b 4. On further app Tribunal in the case 2010-11 and 2011-12 5. Before us, the made twofold argum debited total expense employees which c ₹5,70,00,000/- towa ₹1,96,75,028/- towa convertible expense expenditure of ₹1,96 itself being in the justification for cla ₹5,70,00,000/- as r exclusively for the pu that expenditure clai and the actual expe completion of the ve by the employee for submitted that no ac who exercised the op been filed by the as M/s taka High Court in the case of B ble Supreme Court. eal, the Ld. CIT(A) following th of the assessee for assessment 2, deleted the addition. e Learned Departmental Repr ments. Firstly, he submitted th es of ₹7,66,75,028/- as share-ba comprised of two payments ards employee share-based ards employee benefit expen es. The learned DR contes ,75,028/- has been disallowed nature of capital expenditur aiming the identical expense evenue expenditure for incurr urpose of the business. Secondl imed by the assessee is a notio enditure could be determined sting period and the option ac purchasing shares at a discou ctual details of the name and N ption along with details of cash ssessee, therefore as far as d s Avendus Capital Pvt. Ltd 7 Biocone Ltd was he finding of the t years 2009-10, resentative (DR) hat the assessee ased payment to s, payment of payments and nses- optionally sted that the by the assessee re, there is no amounting to ring wholly and ly, he submitted onal expenditure only the after ctually exercised unted price. He No. of employees h discount have determination of quantum of expendi verification. 6. Before us the l finding of the coordi assessee for earlier address of the emplo provided cash discou 7. We have had ri relevant material on whether the cash d shares under ESO expenditure or reven coordinate bench of assessment year 201 assessee’s own case deleted the addition under: “4. After peru appellant's ow entitled to cla section 37(1 circumstances in appellant' 1739/Mum/2 Bench decide portion is repr "5. We below M/s iture to be allowed, is concern learned counsel for the assesse inate bench of the Tribunal in years, but he failed to prov oyees, who actually exercised E unt on purchase of shares of the ival submission of the parties a n record. The issue in dispu discount issued to employees o OP scheme should be treat ue expenditure. In the case of t f Tribunal in ITA No. 6547/ 15-16, following the decision of for assessment year 2016-17 an made by the Assessing Office using the ITAT orders of the Coordinat wn case, it observed that the appellant c aim ESOP expenses are allowable expe ) of the Income Tax Act.As the s are similar, the decision of the Coordi 's own case is followed. In ITA No 2023 for A.Y. 2016-17 & 2017-18, th d the issue in favour of the respondent a roduced as under :- have carefully perused the orders of the and the decision of the Tribunal brou s Avendus Capital Pvt. Ltd 8 ned, same need ee relied on the the case of the vide name and SOP option and company. and perused the ute involved is on purchase of ted as capital the assessee the /Mum/2024 for the Tribunal in nd 2017-18 has er, observing as te Bench in company is nses under facts and nate Bench o. 1738 & e ITAT "A" and relevant e authorities ught to our notice. erred i claimed Option identic Bench that ES of the Bench followi aside t the ES 7.1 Therefore, in p assessee that the is assessee, but, we departmental represe to the assessee follow been explained by w who actually exercise and circumstances, Assessing Officer fo accordance with law expenses claimed by appeal of the asse purposes. 8. The ground nos Rs. 7,52,91,644/- in 8D of Income Tax Ru M/s

1 The brief facts q company made vario mutual fund debt g shares of Indian com investment in comp investment in par contention of the as section 14A could n dividend income, sec the strategic investm of the assessee. Bu expenditure incurred which were capable forming part of the t section 14A of the expenses towards act Officer some expend investment activity. contention of the ass 14A is attracted even relevant financial yea disallowance under investment and stock the Rules, he com investment at ₹7,52,9 M/s qua the issue in dispute are th ous kinds of investments, firstly growth plan, Secondly, invest mpanies being a strategic inve pulsorily convertible debentur rtnership/Limited liability pa ssessee was that firstly, disa not be made in the year whe condly, 14A disallowance was n ment, thirdly, judicial decisions ut according to the Assessin d for carrying out investment ac e of earning exempted incom total income, was liable for disa Act, but the assessee did no tivity of investment. According t diture must have been incurr Further, The Assessing Offic essee and held that disallowanc n if no dividend income was ea ar. The learned Assessing Office section 14A is attracted on k-in-trade. Thereafter, invoking mputed 1% of annual avera 91,644/- and added the same f s Avendus Capital Pvt. Ltd 10 hat the assessee y, investment in ment in equity estment, thirdly re and fourthly artnership. The allowance under ere there is no not attracted on s were in favour ng Officer, any ctivity in shares, me, though not allowance under ot attribute any to the Assessing ed towards the cer rejected the ce under section rned during the er also held that both strategic rule 8D(2)(ii) of age of monthly for disallowance under section 14A o following the decision International Airpor 209 (SC) held that w no disallowance unde made. He also referre the case of PCIT taxmann.com 326. A 9. We have heard r relevant material on assessee referred to t of the assessee in assessment year 20 wherein also the Tri exempt income earn reproduced as under “7. Heard bot Id. Counsel exempt incom Delhi High C (2015) 61 tax not be applied during the re High Court in No. 204/2022 Sec. 14A by take effect fr retrospective supra we de u/s 14A of th M/s of the Act. On further appeal, n of Hon’ble Supreme Court in th rt Private Limited (2022) 143 where the assessee did not have er section 14A read with rule a ed to the decision of Hon’ble Su Vs Oil Industry developme Accordingly, deleted the addition rival submission of the parties a record. Before us the learned the decision of the coordinate be n ITA No.1738 and 1739/M 016-17 and 2017-18 passed o ibunal has deleted the addition ned. The relevant finding of t : 2) held that amendment made by Finance inserting non-obstante clause and exp rom 01.04.2022 and cannot be presum effect. Therefore, following the judicial elete the addition made by the asses he Act.” s Avendus Capital Pvt. Ltd 11 the Ld. CIT(A) he case of Delhi 3 taxmann.com exempt income, and the could be upreme Court in ent Board 103 n. and perused the counsel for the ench in the case Mum/2023 for on 10/08/2023, n in view of the the Tribunal is n record. The earned any The Hon'ble Hon'ble Delhi e (I) Ltd. (ITA e Act 2022 to lanation will med to have findings as ssing officer

1 Further, we find the Hon’ble Suprem Airport Private Lim Board(supra), therefo the Ld. CIT(A) on the the same. The groun accordingly dismissed 10. The ground no. corporate social resp deduction under se Officer. 10.1 The brief facts debited some of ₹1,3 deduction of the sam of the section 80G o claim of CSR expens provisions of section allowed under the Assessing Officer held donation of voluntar incurring of CSR exp the Companies Act 2 the claim of the asse M/s d that the Ld. CIT(A) has followe me Court in the case of Delh mited(supra) and Oil Industr ore we do not find any infirmity e issue in dispute and accordin nd Nos. 2 to 4 of the appeal of t d. 5 of the appeal of the revenu ponsibility (CSR) expenses clai ection 80G but disallowed by qua the issue in dispute are 38,00,000/- being CSR expens me to the extent of the 50% unde of the Act. According to the A ses have been specifically prohi n 37 of the Act, therefore sa provisions of section 80G of d that under the provisions of s ry nature are entitled for ded penses was mandatory under th 2013. On further appeal, the Ld essee following the decisions of s Avendus Capital Pvt. Ltd 12 ed the finding of hi International ry development y in the order of ngly, we uphold the Revenue are ue related to the imed by way of y the Assessing e that assessee ses but claimed er the provisions ssessing Officer ibited under the ame cannot be f the Act. The section 80G only duction whereas he provisions of d. CIT(A) allowed f the Coordinate bench in the case observing as under: “5.3.4 The iss of CSR under Motilal Oswa 18.08.2023 b “9. The issue is pertaining under section ("CSR") expen 10. The brief f from the rec assessee incu donation un 2,21,41,893. claim of dedu against the C order passed submissions o by the assess cannot be cla AO further he of the Compa voluntary con disallowed un the tax dedu result in s Accordingly, claim under s income of the 11. The learn raised by th precedents re Being aggriev 12. We have c the material M/s of Motilal Oswal Securities sue in dispute is no longer res-integra. Th r the provision of section 80G is decided al Securities Ltd in ITA No.1795/Mum by Hon’ble ITAT, ‘D’ Bench Mumbai as und arising in ground no. (iv), raised in Reve to the deletion of disallowance of dedu n 80G of the Act on Corporate Social nses. facts of the case pertaining to this issue, cord, are: During the year under cons urred CSR expenses of Rs. 2,25,71,775, nder section 80G of the Act amoun The assessee was asked to show cause uction under section 80G of the Act of Rs CSR expenses should not be disallowed. under section 143(3) of the Act did not a of the assessee and held that the expend see under the provisions of the Compan aimed as a donation under section 80G o eld that the expenditure under the afores anies Act, 2013 is a mandatory contribut ntribution and this expenditure has categ nder section 37 of the Act. The AO furth uction is allowed on CSR expenses the subsidising the expenses by one-th the AO disallowed the deduction of Rs. section 80G of the Act and added the sam assessee. ned CIT(A), vide impugned order, allowe he assessee on this issue following endered by the coordinate benches of ved, the Revenue is in appeal before us. considered the submissions of both sides available on record. We find that th s Avendus Capital Pvt. Ltd 13 s Ltd (supera), he allowability in the case of m/2023 dated der: enue's appeal, uction claimed Responsibility as emanating sideration, the , and claimed nting to Rs. as to why the . 1,10,70,947, . The AO vide agree with the diture incurred ies Act, 2013, of the Act. The aid provisions tion and not a gorically been her held that if en this would hird amount. . 1,10,70,947, me to the total ed the ground g the judicial the Tribunal. s and perused he coordinate benches of th of the assess allowed und Explanation-2 01/04/2015. section 80G of 5.3.5 Further No. 1693/B Bangalore, wh “18. In prese forming part o computing In Profession”. It of CSR were computing “T authorities be benefit of cla computing ‘To merely becau double disallo 19. On the ba have erred in Act. We also payments qu quantum of el 20. Under su Ld.AO for ver section 80G details in orde directed to gra 5.3.5 Further, Ltd. in [2021] “Since Parlia expenditure in CSR expendit has impliedly claim of CSR M/s he Tribunal have consistently taken the v see and held that the CSR expenses eve er section 37 of the Act pursuant to 2 to section 37 vide Finance Act, 2014 w However, the said expenditure is allo of the Act.” r in the case of Allegis Services (India) P Bang/2019 dated 29.04.2020 by H herein it was held that: ent facts of case, Ld.AR submitted that of CSR does not form part of profit and lo ncome under the head, “Income from B t has been submitted that some payment claimed as deduction under section80G Total taxable income”, which has been d elow. In our view, assessee cannot b aim under Chapter VI A, which is c otal Taxable Income”. If assessee is denie use such payment forms part of CSR, w owance, which is not the intention of Legi asis of above discussion, in our view, aut n denying claim of assessee under sectio note that authorities below have not veri alifying exemption under section 80G of ligibility as per section 80G(1) of the Act. uch circumstances, we are remitting the rifying conditions necessary to claim de of the Act. Assessee is directed to file er to substantiate its claim before Ld.AO. ant deduction to the extent of eligibility.” r, Hon’ble ITAT, Kolkata in the case of JM 130 taxmann.com 118 (Kolkata - Trib.)he ament intended certain restrictions t n respect of two donations included by an ture i.e. [Swachh Bharat Kosh and Clean y not made any prohibition/restriction expenses in other cases if it is otherwise s Avendus Capital Pvt. Ltd 14 view in favour en though not o insertion of with effect from owable under Pvt. Ltd. in ITA Hon’ble ITAT, all payments oss account for Business and ts forming part of the Act, for disallowed by be denied the considered for ed this benefit, would lead to islature. thorities below on 80G of the ified nature of of the Act and issue back to duction under e all requisite Ld.AO is then MS Mining Pvt. eld as under: to only CSR n assessee as n Ganga Fund] in respect of eligible under section 80G. I donation by R Trust which w has also mad is also appro Director (Exem satisfies the assessee's cla section 80G Thus, the act section 80G is 5.3.6 As the Hon’ble ITAT of CSR in ITR are eligible fo Act. According 11. We have heard r relevant material on r decision of the coord we do not find any i issue in dispute and No. 5(five) of the appe 12. In result, the a statistical purpose. Order pronoun (KAVITHA RA JUDICIAL M Mumbai; Dated: 06/03/2025 Rahul Sharma, Sr. P.S. M/s