M/S KOTAK MAHINDRA BANK LIMITED vs. THE ADDITIONAL COMMISSIONER OF

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF JUNE 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.762 OF 2017 BETWEEN: M/S. KOTAK MAHINDRA BANK LIMITED (BEING SUCCESSOR IN BUSINESS TO ERST WHILE ING VYSYA BANK LIMITED) REPRESENTED BY ITS JOINT MANAGING DIRECTOR SHRI. DIPAK GUPTA ING VYSYA HOUSE NO 22, M G ROAD BENGALURU - 560001 PAN: NO AABCT0529M.

... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. M. LAVA, ADV.) AND: THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE - 11 BMTC BUILDING 6TH BLOCK, 80 FEET ROAD KORAMANGALA, BENGALURU - 560095.

... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17.05.2017 PASSED IN ITA NO.934/BANG/2014 FOR THE ASSESSMENT YEAR 2008-09, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT. (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS THEREIN TO THE EXTENT AGAINST THE APPELLANT TRIBUNAL, BENGALURU 'C' BENCH IN ITA NO.934/BANG/2014 DATED 17.05.2017 FOR THE ASSESSMENT YEAR 2008-09 (VIDE ANNEXURE-A) & ETC. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether the Tribunal was justified in law in not admitting the additional ground of appeal filed by the Appellant which was question of law and was raised for the first time before the Tribunal on the facts and circumstances of the case? (ii) Whether the Tribunal was justified in law in not examining the merits of the

3 matter and ought to have granted deduction of Rs.4,39,44,909/- on the facts and circumstances of the case? (iii) Without prejudice, whether the Tribunal ought to have atleast remanded the matter back to the file of the Assessing officer for quantification and allowance of the expenditure in accordance with law on the facts and circumstances of the case?" 2. Facts leading to filing of this appeal briefly stated are that the assessee is a private sector banking company engaged in the business of providing retail wholesale and private banking services. The assessee filed the return of income on 28.09.2008 and declared total income of Rs.239,15,27,908/-. The assessee thereafter, filed the revised return of income on 31.03.2010 and declared a total income of Rs.218,80,13,403/-. The return was selected for scrutiny an the Assessing Officer passed an order of assessment under Section 143(3) of the Act on

4 25.11.2011 and determined the total income at Rs.361,97,87,613/-. 2. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 04.03.2014 partly allowed the appeal. Being aggrieved, the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The assessee sought an additional claim with regard to allowance of Employees Stock Options Expenditure (ESOP). The Tribunal by common order dated 17.05.2017 allowed the appeal preferred by the assessee with regard to the issues arising from the order passed by the Commissioner of Income Tax (Appeals) as well as by the Assessing Officer. However, the tribunal dismissed the additional claim with regard to allowance of ESOP. The tribunal dismissed the revenue's appeal. In the aforesaid factual background, the assessee has filed the appeal with regard to dismissal of additional claim

5 sought by the assessee. 3. Learned Senior counsel for the assessee submitted that the tribunal being the appellate authority and the final fact finding authority has the power to consider claims that are not made in the return of income and the tribunal ought to have considered the additional claim of the assessee for allowance of ESOP, which was based on the decision of the Special Bench of the Tribunal in 'M/S BIOCON LTD. VS. DCIT', (2013) 115 PTJ 649 (Bang-Trib). It is also urged that the tribunal erred in relying on the decision of 'M/S ULTRA TECH CEMENT LTD., VS. ADDITIONAL CIT', (2017) 81 TAXMANN.COM 74 (BOM.) while considering the additional ground raised by the assessee. It is also pointed out that ESOP expenditure of Rs.1,77,61,870/- was already debited to the profit and loss account of the assessee and the same was accepted by the Assessing Officer. It is also urged that additional claim was only with regard to enhancement of the same expenditure of

6 Rs.4,39,44,909/- and the tribunal ought to have treated the relevant material of the claim of the expenditure which is already on record before the Assessing Officer. In support of aforesaid submissions, reliance has been placed on decisions in 'NATIONAL THERMAL POWER CORPORATION LTD. VS. CIT', (1998) 229 ITR 383 (SC), 'GOETZE (INDIA) LTD VS. CIT, (2006) 284 ITR 323, 'CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS P. LTD', (2012) 349 ITR 336 (BOM.) AND 'CIT VS. JAI PARABOLIC SPRINGS LTD', (2008) 306 ITR 42 (DEL). 4. On the other hand, learned counsel for the revenue has submitted that the additional claim for allowance of ESOP was neither made before the Assessing Officer nor before the Commissioner of Income Tax (Appeals). It is further submitted that an additional ground can be raised before the appellate authority provided the assessee is able to satisfy the appellate authority that new ground could not have been

7 raised earlier for good and sufficient reasons. It is further submitted that there is no factual foundation to support the additional claim made by the assessee and in fact, if the assessee was of the opinion that he is entitled to allowance of additional claim with regard to ESOP, the remedy which was available to the assessee was to file a revised return under Section 139(5) of the Act and therefore, in the facts of the case, the tribunal has rightly declined to examine the additional claim raised by the assessee by placing reliance on the decision of the Bombay High Court in 'ULTRA TECH CEMENT LTD., VS. ADDITIONAL CIT', (2017) 81 TAXMANN.COM 74 (BOM.). 5. We have considered the submissions made by learned counsel for the parties and have perused the record. The Supreme Court while dealing with the scope and ambit of Section 254 of the Act in NATIONAL THERMAL POWER CO. LTD. supra in para 5, has held as under:

8 Under Section 254 of the Income Tax Act, 1961, the tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the tribunal in dealing with appeals is, thus, expressed in the widest possible terms. The purpose of theism.. proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If , for example, as a result of judicial decision given while the appeal is pending before the tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the tribunal under Section 254 as the Department have a right to file an appeal / cross-objections before the tribunal. We fail to see why the tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised

9 earlier. 6. In GOETZE (INDIA) LTD. supra, it has been held that power of the tribunal under Section 254 of the Act is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the tribunal. 7. Thus the scope and ambit of power under Section 254 of the Act is well settled. An assessee can be permitted to raise the question before the tribunal for the first time so long as the relevant facts are on record. In the instant case, the ESOP expenditure of Rs.1,77,61,870/- was already debited to the profit and loss account of the assessee and the same was accepted by the Assessing Officer. The additional claim of the assessee on account of ESOP was only for enhancement of the same expenditure of Rs.4,39,44,909/-. In other words, the additional claim only was restricted to the quantum of the amount and the facts, on the basis of

10 which the aforesaid additional claim of the assessee could have been adjudicated in law were already on record. The tribunal ought to have appreciated that the same was necessitated on account of decision of the special bench of the Tribunal in M/S BIOCON LTD. supra. The said fact is evident from the additional grounds of appeal, which read as under: 1. The Commissioner of Income Tax (Appeals)-I, Bangalore ("the CIT(A)") ought to have granted deduction of Rs.6,17,06,779/- being expenditure on Employee Stock Option Plan (ESOP). 2. He erred in not following the principles laid down principles by the jurisdictional Bangalore Special Bench of Income Tax Appellate Tribunal in the case of 'M/S BIOCON LTD', 155 TTJ 649 (SB) directly on the issue. 3. The appellant therefore, prays that the Assessing Officer be directed to grant a deduction of Rs.6,17,06,779/- being the amount which is in accordance with the

11 principles laid down by the Special Bench in the case of Biocon (supra) and the amount debited to thepl.. of Rs.1,77,61,870 be disallowed thereby allowing a net amount of Rs.4,39,44,909/- (i.e. Rs.6,17,06,779/- minus Rs.1,77,61,870/-). Thus, it is evident that in the fact situation of the case, the assessee was entitled in law to raise the additional claim with regard to allowance of ESOP as the facts were already on record. The tribunal therefore, committed an error of law in not adjudicating the same. 8. For the aforementioned reasons, since, the tribunal has remitted the matter to the Assessing Officer for adjudication of certain other claims of the assessee, the tribunal ought to have remitted the additional claim of the assessee with regard to allowance of ESOP to the Assessing Officer for decision in accordance with law. For the aforementioned reasons, third substantial question of law is answered in favour of the assessee and against the revenue. It is therefore, not necessary for us to deal

12 with the first and second substantial questions of law. In view of preceding analysis, the order passed by the tribunal dated 17.05.2017 insofar as it pertains to rejection of the additional claim of the assessee with regard to ESOP is quashed and the tribunal is directed to remit the matter to the Assessing Officer to adjudicate the additional claim made by the assessee with regard to ESOP for decision in accordance with law. It is clarified that we have not expressed any opinion on the merits of the case. In the result, appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss