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Facts
The assessee filed appeals challenging the disallowance under Section 14A read with Rule 8D, and the Revenue appealed regarding ESOP expenses and additional claims. The assessee also argued that a settlement under the DTVSV Scheme should preclude further actions by the AO.
Held
The Tribunal held that disallowance under Section 14A read with Rule 8D should only consider dividend-yielding investments, reversing the CIT(A)'s order. The Tribunal also dismissed the Revenue's grounds concerning ESOP expenses, citing jurisdictional High Court decisions. Regarding the additional claims for medical reimbursement and leave travel allowance, the Tribunal upheld the CIT(A)'s decision to admit them, based on the Hon'ble Supreme Court's ruling in Goetze (India) Ltd. Furthermore, the Tribunal quashed the AO's rectification order under Section 154 as it was passed after the settlement of disputes under the DTVSV Scheme.
Key Issues
Whether disallowance under Section 14A r.w.r. 8D is applicable without dividend income, validity of rectification orders post-DTVSV settlement, and admissibility of ESOP expenses.
Sections Cited
14A, 8D, 37(1), 154, 282A, 156, 234A, 234B, 234C, 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI
Before: SHRI C.N. PRASAD & SHRI M. BALAGANESH
ORDER PER C.N. PRASAD, JM, These appeals are filed by the assessee for the A.Y.2013- 14, 2017-18, 2018-19 and 2020-21 and appeal by the Revenue for the A.Y. 2013-14 against different orders of the Ld. CIT(A).
First we take up appeal of the assessee for the A.Y.2013- 14 in and the only issue in the appeal of the assessee is in respect of disallowance u/s.14A of the Act r.w.r. 8D of the IT Rules.
The Ld. Counsel for the assessee at the outset submitted that the disallowance u/s.14A r.w.r. 8D of the IT Rules which the Ld. CIT(A) sustained, the assessee did not earn any exempt income on such investments. The Ld. Counsel for the assessee submitted that the Ld. CIT(A) by placing reliance on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd., sustained the additional disallowance. Now, the question for consideration is whether in the absence of dividend income earned the investments shall be considered for the purpose of disallowance under Rule 8D. The Ld. Counsel for the assessee submitted that on identical facts in assessee’s own case for A.Y.2014-15 and 2016-17 in dated 12.08.2021 and dated 10.10.2023 wherein the computation of disallowance of suo-moto made by the assessee was accepted since the assessee had considered only dividend yielding investments for the purpose of computation Page | 2 of disallowance under section 14A read with rule 8D of the I.T. Rules.
Heard rival submissions and perused the orders of the authorities below. We find merit in the submissions of the Ld. Counsel for the assessee that only the dividend yielding investments shall have to be considered for the purpose of making disallowance under rule 8D. We also find that the Tribunal sustained the computation of disallowance suo-moto made by the assessee for the A.Y. 2014-15 and 2016-17 which excluded dividend yielding investments.
Thus, reversing the order of the Ld. CIT(A) we direct the AO to delete the additional disallowance u/s.14A r.w.r. 8D made while computing income of the assessee. The grounds raised
by the assessee are allowed.
6. Now, we take up the Revenue’s appeal for A.Y.2013-14 in wherein the revenue raised the following grounds of appeal :-
“1. Whether on facts & circumstances of the case, the Ld, CIT(A) was correct in law in holding that the ESOP expenses are admissible as deduction by solely relying on earlier appellate order of Ld. CIT(A) in assessee's own case & the decision of Hon'ble Delhi High Court in the case of CIT vs Lemon Tree Hotels Ltd. without discussing the merits of the case? 2. Whether on facts & circumstances of the case, the Ld. CITIA) was correct in law in holding that the ESOP expenses are admissible as deduction whereas the same is capital in nature and not allowable u/s 37(1) of the Act? 3. Whether on facts & circumstances of the case, the Ld. CIT(A) was correct in la in allowing the additional claim of Rs. 82,28,903/- on account of Medic reimbursement Page | 3
& leave travel allowance which has not been claimed through Return of Income or Revised Return of Income as decided in the case of Goetz (India) Ltd. vs CIT by Hon'ble Supreme Court?”
In so far as the issue in respect of ESOP expenditure is concerned, the issue is squarely covered by the Jurisdictional High Court in the case of CIT Vs. Lemon Tree Hotels Ltd. and also in the assessee’s own case for the A.Y.2012-13 and, therefore, we see no infirmity in the order passed by the Ld. CIT(A) and accordingly ground No.1 and 2 of Revenue’s appeal are dismissed.
Coming to ground No.3 of grounds of appeal
of Revenue’s appeal, we see that the Revenue is challenging the order of the Ld. CIT(A) in admitting the additional claim for medical reimbursement and leave travel allowance which was not claimed by the assessee in the return of income, relying on the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT.
9. In our considered view the appellate authority has all the powers to admit additional claim even though such claim is not made in the return of income which was otherwise not made in the return of income. Thus, we see no infirmity in the order passed by the Ld. CIT(A) in admitting additional claim for medical reimbursement and leave travel allowance. Thus, the ground of appeal of the revenue is rejected.
Now, we take up the appeal for the A.Y. 2017-18 in wherein the assessee has raised following ground of appeal :-
“1. That on the facts and circumstances of the case and in law, the NFAC has erred in not providing the opportunity of being heard thereby resulting in violation of principles of natural justice, the impugned order is erroneous, bad in law and liable to be quashed. 2 That on the facts and circumstances of the case and in law, the NFAC has erred in upholding the rectification order passed by the Learned Deputy Commissioner of Income Tax, Circle 10(1), Delhi (hereinafter referred to as 'the Ld. AO') as the said order is bad in law, void and liable to be quashed in-toto 3. That on the facts and circumstances of the case and in law, the NFAC has erred in passing rectification order dated 10 March 2024 after the limitation period prescribed under section 154 of the Act. (i.e. after 31 March 2024 as the DIN was generated on 10 June 2024).
That on the facts and circumstances of the case and in law, the NFAC failed to appreciate that the rectification order (dated 31 March 2024) was issued without signing of such documents which is in complete violation of the provisions of section 282A of the Act.
That on the facts and circumstances of the case and in law, the NFAC failed to appreciate that the rectification order (dated 31 March 2024) was issued without the income tax computation sheet (i.e., ITNS) and notice of demand u/s 156 of the Act which is a jurisdictional pre-requisite in terms of Section 154(6) of the Act.
That on the facts and circumstances of the case and in law, the NFAC has erred in determining the assessed income at INR 100,13,43,447.
That on facts and circumstances of the case and in law, the NFAC has erred in levying consequential/ excess interest under section 234A/234B/234C of the Act.
The Ld. Counsel for the assessee at the outset submitted that the AO completed the assessment order on 16.12.2019 u/s.143(3) of the Act by making certain additions/disallowances. The assessee filed an appeal before the Ld. CIT(A) on 16.01.2020. However, pursuant to introduction of Direct Tax VSV scheme, 2020 assessee settled the dispute by filing Form-5 on 07.10.2021 and paid the taxes due which includes the issue in respect of disallowance u/s. 14A r.w.r. 8D of IT Rules. The Ld. Counsel submitted that pending application under DTVSV Scheme, 2020 the assessee has withdrawn its appeal before the Ld. CIT(A) vide letter dated 30.03.2021. On 14.09.2022 the Ld. CIT(A) dismissed the appeal of the assessee as withdrawn since the disputes in appeal was settled under DTVSV Scheme, 2020.
The Ld. Counsel for the assessee submitted that after settling the issues/disputes under DTVSV Scheme, a notice u/s.154 was issued by the AO proposing to enhance the income of the assessee assessed u/s.143(3) on account of late depositing of employee’s contribution to PF. Assessee furnished its reply on 10.02.2022. However, the AO passed repetitive rectification orders u/s.154 dated 31.03.2024 and 10.03.2024. The Ld. Counsel for the assessee submitted that these two rectification orders passed u/s.154 of the Act are bad in law for the reason that the rectification order dated 31.03.2024 was issued without the income tax computation Form, nor the demand notices and the rectification order dated 10.03.2024 was Page | 6 generated with DIN only on 26.06.2024 and also the rectification order was issued without any signature.
The Ld. Counsel for the assessee placing reliance on the decision of the Jurisdictional Delhi High Court in the case of Satish Kumar Dhingra Vs. ACIT (467 ITR 574) submitted that when the assessee received Form No.5 pursuant to declaration made under DTVSV Act for settlement of disputed liability determined, under provisions of DTVSV Act any income Tax authority could not reopen or revise the assessment.
Heard rival contentions. In this case it seems that after the settlement of disputes under DTVSV Scheme, the AO issued order u/s.154 enhancing the income of the assessee. On identical situation the Hon’ble Delhi High Court quashed the rectification notice issued and order passed u/s.154 of the Act after the assessee settling the disputes under DTVSV Act holding that no income tax authority can reopen or revise the assessment once the assessee had been issued Form-5 pursuant to declaration made under DTVSV Act when the assessee paid the tax thereon.
Respectfully following the decision of the Hon’ble Jurisdictional High Court we reverse the order of the Ld. CIT(A) and quash the order passed by the AO u/s.154. The grounds raised by the assessee are allowed.
Now, we take up the appeal of the Assessee in A.Y.2018-19. Assessee in this appeal challenged the order of the Ld. CIT(A) in sustaining the additional disallowance made u/s.14A r.w.r. 8D of IT Rules under normal provisions as well as book profits u/s.115 JB of the Act.
Identical issue had been decided by us for the A.Y.2013-14 in favour of the assessee in respect of disallowance u/s.14A r.w.r. 8D while computing the normal provisions of the Act. Since the facts are identical in the assessment year under consideration, the decision taken therein shall apply mutatis mutandis to the appeal for the A.Y. 2018-19. We order accordingly.
In so far the disallowance made u/s.14A r.w.r 8D while computing the book profits u/s.115JB of the Act is concerned we observe that the issue has been decided by the Special Bench of Delhi Tribunal in the case of ACIT Vs. Vireet Investments Private Ltd. (82 taxmann.com 415) wherein it has been held that the computation under clause (f) of Explanation 1 to Section 115JB (2) is to be made without restoring to computation as contemplated under section 14A of the Act r.w.r. 8D of IT Rules.
Further the Jurisdictional Hon’ble Delhi High Court in the case of PCIT Vs. Bhushan Steel Ltd. in dated 29.09.2015 upheld the decision of the Tribunal holding that disallowance made under section 14A read with Rule 8D could not be added while computing Page | 8 book profits as per section 115JB, unless specifically mentioned in Explanation. Thus, we direct the AO to delete the additional disallowance made u/s.14A r.w.r. 8D while computing the profits under normal provision of the Act as well as books profits u/s.115JB of the Act. The grounds raised
by the assessee are allowed.
20. Lastly coming to the appeal of the Assessee for the A.Y. 2020-21 in A.Y.2013-14 and 2018-19 i.e. additional disallowances made u/s.14A r.w.r. 8D of the I.T. Rules and therefore, we hold that the decision taken therein shall apply mutatis mutandis for the A.Y. under consideration i.e. 2021-22.
21. The Ld. Counsel further argued that the NFAC failed to appreciate the fact that the amendment to section 14A brought in by Finance Act, 2022 has come into effect from 01.04.2022 and applies only from assessment year 2022- 23 and on words and do not apply to the assessment year under consideration i.e. A.Y. 2020-21. Reliance was placed on the decision of the Jurisdictional Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure India Limited (141 taxmann.com 289).
22. We find force in the submission of the Ld. Counsel for the assessee. We observed that Hon’ble Delhi High Court held that the amendment to section 14A is for removal of doubts and cannot be presumed to be retrospective even Page | 9 whether such language is used if it alters or changes the law as it earlier stood. The ground No.2 of the appeal of the assessee is allowed.
In the result, A.Y.2013-14 of Revenue’s appeal is dismissed and Assessee’s appeals for A.Y. 2013-14, 2017- 18, 2018-19 and 2020-21 are allowed. Order pronounced in the open court on 28.01.2026.