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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-6, Mumbai, [in short CIT(A)] in appeal No. CIT(A)- 6/IT-128/2014-15 dated 19.01.2016. The assessment was framed by the Deputy Commissioner of Income Tax, Circle- 2(3)2, Mumbai (in short DCIT) for the assessment year 2012-13 order dated
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 30.01.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
At the outset, it is noticed that the cross objection filed by the assessee is delayed by 64 days and for this assessee has filed application for condonation of delay. For this learned Counsel for the assessee stated that this fact regarding disallowance of interest under section 14A of the Act read with Rule 8D(2)(ii) in respect of interest, despite the fact that own funds or non interest bearing funds are more than the investments made in investments giving exempt income, has not been adjudicated by the CIT(A). This fact came to light only when a conference was held with the learned Sr. Counsel Shri F. V. Irani who advised the assessee to file cross objection in view of the proposition of Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd. vs. DCIT 366 ITR 505. The relevant para of the condonation petition reads as under: -
“7. During a conference held on 13.02.2018 with Mr. F.V. Irani, Counsel, in connection with the hearing of the above appeal fixed for hearing on 14.02.2018, it was realized that the no Cross Objection was filed by the Cross Objector against the disallowance confirmed by the CIT(A). The Counsel also pointed out that issue under Cross Objection is squarely covered in favour of the Cross Objector by the Jurisdictional Bombay High Court decision in the case of HDFC Bank Ltd v/s DCIT 383 ITR 529 (Born) and CIT v/s HDFC Bank Ltd 366 ITR 505 (Bom) and CIT v/s Reliance Utilities & Power Limited 313 ITR 340 (Bom).
The Cross Objector inadvertently and under a bona fide belief did not file Cross Objections even
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 though it had taken a ground before CIT(A) that no disallowance u/s 14A should be made following the law laid down by the Bombay High Court in the case of HDFC Bank Ltd (supra) & Reliance Utilities Ltd (supra).
It was pointed out by Mr. F.V. lrani, a Cross Objection should be preferred before the ITAT challenging the disallowance on account of interest u/s. 14A read with Rule 80(2)(ii). Mr. F.V. lrani, therefore, advised that a Cross-Objection should be raised in the above Departmental Appeal and that an application should be made to the Hon’ble Tribunal for condonation of delay in making such Cross Objection.”
When this was pointed out to the learned Sr. Departmental Representative, he objected to condonation but could not give any reason for objection. After hearing both the sides, we feel that this is a fit case for condonation because the assessee inadvertently and under bonafide belief could not file cross objection even though it had taken ground before CIT(A). Accordingly, we admit the cross objection and proceed to adjudicate the same.
The first common issue in this appeal of Revenue and the cross objection of the assessee is as regards to the computation of disallowance under section 14A of the Act read with Rule 8D(2). For this Revenue has raised the following ground No. 2 and 3 and assessee in its CO has raised following ground No. 1 to 3: -
“Assessee: -
The CIT(A) erred in confirming the disallowance of Interest u/s. 14A without
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 appreciating the fact that the Cross Objector had not incurred any interest expenditure in relation to non- strategic / non group company investments and the said investments were made out of own funds, interest free funds and internal accruals.
The CIT(A) ought to have appreciated and held that:
a. No borrowed funds have been used for acquiring any non-strategic non group company investments and all such investments have been acquired out of own funds interest free funds and internal accruals.
b. No disallowance u/s. 14A could have been made since Cross Objector had own funds, interest free funds and internal accruals far more in excess than investments made in non-strategic / non group companies.
The AO be directed to delete the disallowance of interest u/s. 14A r.w. Rule 8D(2)(ii) since the Cross Objector has not incurred any interest expenditure in relation to the exempt income and investments in non-strategic / non group company investments were made out of own funds, interest free funds and internal accruals which are much more than investments yielding exempt income.
Revenue
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 1. The order of the CIT (A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Hon. CIT(A) has erred in directing the AO to recomputed the disallowance under rule 80(2)(ii) on the investments other than strategic investments amounting to Rs. 75.23 crores as on 01.04.2011 and Rs. 21.04 crores as on 31.03.2012.
On the facts and in the circumstances of the case and in law, the Hon. CIT(A) has erred in directing the AO to compute the disallowance under rule 8D(2)(ii) after excluding investment of Rs. 328.80 crores as on 01.04.2011 & Rs. 328.78 crores as on 31.03.2012 relying on the decision of the Hon. ITAT in the case of Garware Wall Ropes Ltd. (65 SOT 83) without appreciating the fact that the decision of the Hon. (TAT has not been accepted by the department and appeal has been admitted by the Hon'ble High Court.“
Briefly stated facts are that the AO going through the accounts of the assessee and computation of income noted that the assessee company made investment in shares, subsidiaries and joint ventures amounting to ₹ 349,83,43,151/- and received an exempt income under section 10(38) of the Act at ₹ 13,74,38,789/- on the above investments. The AO noticed that the assessee has worked out expenses relatable to exempt income at ₹ 24,07,046/- as inadmissible in view of the provisions of section 14A read with rule 8D(2) of the Rules. The AO rejected the suomoto disallowance made by the assessee and computed the disallowance in respect of interest paid at ₹ 23,73,05,873/- under Rule
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 8D(2)(ii) and 0.5% of average value investments of ₹ 1,88,46,862/- under Rule 8D(2) (iii) of the Income Tax Rules. Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) partly allowed the claim of assessee vide Para 4.7, 4.8 and 4.9 as under: -
“4.7 As regards investment made by the appellant in subsidiaries companies, amounting to Rs.106.44 crores, the appellant has submitted the balance sheet I trial balance on the date of making the investment to demonstrate that the appellant had substantial balance in current account which is interest-free funds from which investments were made. The AO in A.Y. 2010-11 has held that considering the balance in the current account on the date of investment, investments made during A.Y. 2010-11 should be excluded. I find no reason as to why the same principle of A.Y.2010-1 1 be not applied to investments made in A.Y. 2008-09, A.Y.2009-10 & A.Y.2011-12. The appellant had substantial balance in current account on the date of investment, far more than the amount of investment made. Accordingly, investment amounting to Rs.106.44 crores is excluded for the purpose of section 14A r.w.r.8D(2)(ii) disallowance, since it is made out of interest free funds.
4.8 The issue may be looked at from another angle. The appellant carries on life insurance business, stock broking, asset management, etc. through separate subsidiary companies. These companies are regulated by various regulators e.g. insurance business is regulated by IRDA, stock broking & asset management is regulated by SEBI, NBFC is
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 regulated by RBI etc. I find force in the submission of the appellant that investments have been made in subsidiary companies to meet the regulatory requirements, for e.g. IRDA requires that life insurance companies should be adequately capitalized to meet the solvency requirement. The primary object of holding these investments is to hold controlling stake in the subsidiary company and not to earn any income out of the same. The appellant submitted a detailed chart showing investment held in subsidiaries companies, nature of business, regulated by ]RDA. SEW etc., percentage of holding in each subsidiary. All subsidiaries are 100 per cent owned by the appellant except life insurance business where holding is 74 per cent. Therefore, even on this count, the appellant has clearly explained that investment in subsidiary companies, which are strategic in nature, are to be excluded while making disallowance under rule 8D(2)(ii) r.w.s.14A.The principle laid down by the Hon'ble Mumbai Tribunal in the case of Garware Wall Ropes Ltd. vs. ACIT (ITA No.5408/M/2012) is squarely applicable in the present case.
4.9 In view of the above factual position and the clear findings by the AO and the Ld. CIT(A) in the earlier assessment years, and relying upon judicial pronouncements cited supra, no disallowance could be made under rule 8D(2)(ii) in respect of interest expenditure pertaining to strategic investment of RS.328.80 crores as on 01.04.2011 and Rs. 318.78 crores as on 31.03.2012. The AO is directed to re- compute the disallowance under the rule 8D(2)(ii) on
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 the investments, other than the above strategic investments, amounting to Rs. 75.23 crores as on 01.04.2011 and Rs.21.03 crores as on 31.03.2012. The ground is partly allowed.”
The learned CIT Departmental Representative relied on the order of Assessing Officer. On the other hand, the learned Counsel for the assessee Shri FV Irani, stated that the issue is squarely covered by the Tribunal decision in assessee’s own case for AY 2008-09 to 2011-12 and he referred to ITA Nos. 1657,1929/Mum/2012 and ITA No. 3491,3592,3593,6394 and 6217/Mum/2013 order dated 18-04-2017 para 4 for the proposition that the CIT(A) has not adjudicated the issue of interest in respect of own funds or non-interest bearing funds which are more than the investments made in the instruments giving tax free income while disallowing under Rule 8D(2)(ii) of the Rules. He referred to the following Para 4 which reads as under: -
“4.First ground of appeal, raised by the assessee, is about disallowance of interest of Rs. 17.30 crores u/s.14A r.w.r.8D(2)(ii)of the Act. The Authorised Representative(AR)relied upon the case of HDFC Bank Ltd. (383ITR529. The Departmental Representative(DR) supported the order of the First Appellate Authority(FAA).We find that similar issue was deliberated by the Tribunal in the cases of Premier Finance & Trading Co.Ltd.(ITA./1655/Mum/2013, AY. 2008-09 & others, dtd. 25.05.2016) and Aditya Birla Nuvo Ltd.(ITA/8427/8483/Mum/2010- dtd. 17. 09. 2014), referred to by the AR.We are reproducing the relevant portion of the order of the case of Premier Finance & Trading Co.Ltd.(supra) and that reads as under:
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 9.The effective ground of appeal,raised by the assessee,is about disallowance made u/s.14A of the Act,amounting to Rs.2.21 crores under the head interest expenditure and Rs.12.15 lakhs out of the administrative and other expenses.
XXXXX
12.We have heard the rival submissions and careers the material before us.We find that assessee was holding shares as stock in trade as well as investments, that it had earned dividend income for the shares held as stock in trade only, that assessee had not earned any dividend from the investments made for the year under appeal, that the investment was made in the shares of unquoted companies, that it had made strategic investment in group companies.A perusal of the balance sheet of the assessee revealed that the funds available to it was far more than the investment made during the year under consideration.The assessee had made investment of Rs. 48.43 crores,that the funds available to it in form of share capital, reserves & surplus,share application money and unsecured loans and others was Rs.1,14,44, 54,709/-.Therefore it has to be presumed that investments were made out of the own fund and not from the borrowed funds.We find that in the case of HDFC Bank Ltd.(67taxmann.com 42) the Hon’ble Bombay
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 High Court has held that when there were sufficient own funds there was a presumption that investment in tax-free securities was made out of own funds. In the case of Pan India network infravest Pvt.Ltd.(ITA/3378/Mum/2013-AY.2009- 10,dated11/05/016),we have held as under :
“5.We have heard the rival submissions and perused the material before us.There is no doubt that the assessee had not earned exempt income during the year under consideration,so,in our considered opinion, no disallowance can be made u/s.14A of the Act.We find that in the case of M/s Gateway Distriparks Ltd.(supra),identical issue was adjudicated by us,as under:
“3.The next ground pertains to deleting the disallowance made u/s 14A of the Act ignoring the ratio of the Tribunal in Cheminvest Ltd. (121 ITD 318)(Del.). The crux of argument on behalf of the assessee is that no income was earned by the assessee and merely hypothetical disallowance has been made. Reliance was placed 378 ITR 33 (Del.) order dated
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 02/09/2015. Considering the totality of facts and the arguments from both sides, we find that the Hon’ble Delhi High Court in the aforesaid order dated 02/09/2015 held that where no exempt income was earned by the assessee in the relevant assessment years and since the genuineness of expenditure is not in doubt, there is no question of disallowance u/s 14A of the Act. While coming to this conclusion, the Hon’ble High Court relied upon following decisions:-
i. Cheminvest Ltd. v. CIT [2009] 317 ITR (AT) 86 (Delhi) [SB] (para 15) ii. CIT v. Chugandas and Co. [1964] 55 ITR 17 (SC) (para 14) iii. CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) (para 14) iv. CIT v. Corrtech Energy (P.) Ltd. [2015] 372 ITR 97 (Guj) (para 15) v. CIT v.Holcim India (P.) Ltd.(I.T.A.No.486 of 2014 decided on 5- 9-2014) (para 15) vi. CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H) (para 15) vii. CIT v. Lakhani Marketing Incl. [2015] 4 ITR-OL 246 (P&H) (para 15)
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 viii. CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) (para 10) ix.CIT v.Shivam Motors (P.) Ltd. (ITA No. 88 of 2014 decided on 5-5-2014) (para 15) x. IT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H) (para 15) , xi. Eicher Goodearth Ltd. vs. CIT [2015] 378 ITR 28 (Delhi) (para 14) xii. Harish Krishnakant Bhatt v. ITA [2005] 278 ITR (AT) 1 (Ahd) (para 10) " xiii. Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi) (para 12) 3.1. In view of the factual matrix and following the aforesaid decision from Hon’ble Delhi High Court and in the absence of any contrary decision brought to our notice by either side, we find no infirmity in the conclusion of the Commissioner of Income Tax (Appeal) and affirmed the same, thus, this ground of the Revenue is also having no merit, consequently, dismissed.”” Respectfully, following the same we decide the effective ground of appeal against the AO.” In our opinion, in absence of any exempt income no disallowance could be made u/s.14A of the Act. Considering the facts-like availability of sufficient own funds, non-receipt of exempt income during the year, and strategic investment in the sister concerns-we hold that the FAA was not justified in upholding the disallowance. Reversing his order we
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 decide effective ground of appeal in favour of the assessee. Considering the above and respectfully following the judgment of HDFC Bank Ltd.(supra),we decide first ground in favour of the assessee, holding that the FAA was not justified in confirming the disallowance under the head interest expenditure."
The learned Counsel for the assessee also referred to the issue of strategic investments in the orders of Tribunal for AY 2008-09 to 2011-12 referred above (supra).
In view of the above, we are of the view that the assessee has availability of sufficient own funds which was claimed by assessee before AO as well as before CIT(A). The company has own funds of ₹ 7945.94 crores as on 31-03-2012 as per financial accounts and out of which company has made temporary investments in mutual funds and earned dividend income. The assessee has made investment of ₹ 342.54 crores as on 31-03-2012 in subsidiaries and associate companies as on 31-03- 2012. In view of these facts, we are of the view that subject to limited purpose of verification of facts whether the assessee’s investments in instruments giving interest free income is in commensurate with that the interest free funds available, the AO will not make any disallowance qua that. Secondly, the AO will not include the strategic investments while computing these disallowances. The AO will accordingly compute the disallowance if any. Accordingly, this issue of Revenue’s appeal is dismissed and that of the assessee is allowed subject to verification as suggested by us.
The next issue of this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on disallowance of bad debts
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 under section 36(1)(viia) of the Act. For this Revenue has raised the following ground No.4: -
“4. On the facts and in the circumstances of the case and in law, the Hon. CIT(A) erred in directing the AO to allow bad debts account u/s 36(1)(viia) independent of the claim and balance available in the provision of bad debts created u/s 36(1)(viia) pertains only rural advances."
Brief facts are that according to AO, the assessee has claimed full bad debts of ₹ 105,67,43,526/- under section 36(1)(vii) over and above the claim and deduction under section 36(1)(viia) of the Act. According to AO bad debt is allowable to the assessee is nil and hence, the entire bad debts of ₹ 105,67,43,526 added to the total income of the assessee. Aggrieved assessee preferred the appeal before CIT(A), who relied on the earlier years order of CIT(A) for assessment year 2010-11 and 2011- 12 and deleted the addition by observing in Para 5.2 as under:-
“5.2 I have carefully considered the facts of the case and submission made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR. The appellant has stated that it has not claimed any double deduction in respect of the bad debts written off. This ground is covered by the decision of my learned predecessor in appellants own case for A.Y.2010-11 (vide para No.8 of Page 10 of his order bearing No. CIT(A)-4/IT100/DCIT.3(2)/2011-12 dated 04.02.2013) and A.Y.2011-12 (vide para No.9.2 of page 36 bearing No. CIT(A)-4/lT- 84/DCIT.3(2)/2012-13 dated 20.8.2013). Since the facts in the present appeal are identical to those in A.Y.2010-11 & A.Y.2011-12. respectfully following
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 the decisions of my learned predecessor and the rule of consistency, the AO is directed to allow bad debt u/s 36(1)(vii) independent of the claim and balance available for the purpose for 36(1)(viia). The AO is directed to delete the addition amounting to Rs.10567,435261-. Accordingly, this ground is allowed.”
Aggrieved, now Revenue is in appeal before us.
At the outset, the learned Counsel for the assessee filed copy of tribunal orders for AY 2008-09 to 2011-12 in ITA No. 1657,1929/Mum/2012 and ITA No. 3491,3592,3593,6394 and 6217/Mum/2013 order dated 18-04-2017 and referred to Para 6 which reads as under : -
“6. Disallowance of bad debts of Rs.45.74 crores is the subject matter of ground no.3.During the course of hearing the AR stated that the issue stands finally decided by the order of the Hon’ble Apex Court, delivered in the case of Catholic Syrian Bank Ltd.(343ITR270).He also referred to the matter of Karnataka Bank Ltd. (349 ITR705).The DR stated that matter could be decided on merits. We have heard the rival submissions. We find that the Hon’ble Supreme Court has dealt with the issue ,in the case of Catholic Syrian Bank Ltd.(supra),as under: “The provisions of sections 36(1)(vii) and (viia) of the Income-tax Act, 1961, are distinct and independent items of deduction and operate in their respective fields. Bad debts written off, other than those for which
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 provision is made under clause (viia) , will be covered under the main part of section 36(1)(vii) , while the proviso will operate in cases under clause (viia) to limit the deduction to the extent of difference between the debt or part thereof written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia) . Thus, the proviso would not permit the benefit of double deduction, operating with reference to rural loans while under section 36(1)(vii) . XXXXX The clear legislative intent of the provisions and unambiguous language of the circulars with reference to the amendments to section 36 of the Act is that the deduction on account of provisions for bad and doubtful debts under section 36(1)(viia) is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of the bad debts. After introduction of section 36(1)(viia) by the Finance Act, 1979, with effect from April 1, 1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1) , relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of deduction of the bad debts. In other words, scheduled commercial banks would continue to get the benefit of the write-off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia) . The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The court would give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert them. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. The deductions permissible under section 36(1)(vii) should not be negated by reading into this provision, limitations of section 36(1)(viia) on the reasoning that it will form a check against double deduction. The language of section 36(1)(vii) of the Act is unambiguous and does not admit of two
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 interpretations. It gives a benefit to all banks, commercial or rural, scheduled or unscheduled, to claim a deduction of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to section 36(2) of the Act. The proviso to section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under section 36(1)(viia) of the Act. The Explanation to section 36(1)(vii) , introduced by the Finance Act, 2001, specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of “any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee”. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of section 36(1)(vii) simpliciter. Once the bad debt is actually written off as irrecoverable and the requirements of section 36(2) satisfied, then, it will not be permissible to deny such deduction on the apprehension of double deduction under the provisions of section 36(1)(viia) and the proviso to section 36(1)(vii) .” Respectfully, following the above, we decide ground no.3 in favour of the assessee.”
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 11. We find that the tribunal in earlier years followed the judgment of Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (2012) 343 ITR 270, wherein it is held that the assessee is entitled for deduction under section 36(1)(vii) read with section 36(2)(v) of the Act and also this deduction is independent of provisions made in section 36(1)(viia) of the Act. Accordingly, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. This issue of Revenue’s appeal is also dismissed.
The next issue in this appeal of Revenue is against the order of CIT(A) deleing the disallowance of expenditure incurred by the assessee on Employees State Option Plan (ESOP). For this Revenue has raised the following ground No. 5: -
“5. On the facts and in the circumstances of the case and in law, the Hon. CIT(A) erred in directing the AO to allow the expenditure incurred on ESOP after verification, in accordance with the principle laid down by the Hon'ble Special Bench in the case of Bicon Ltd (368/Bang/2010) without appreciating that the same is not an ascertained liability, is contingent in nature, quantum cannot be worked out precisely and is capital in nature and hence is not allowable."
Briefly stated facts are that the assessee claimed expenditure on ESOP by debiting the same to P & L account amounting to ₹ 48,58,60,549/- on the ground that the liability on account of ESOP has been crystallized in the year when the ESOP have been vested and / or exercised during the year under assessment in view of the decision of Bangalore Tribunal, Special Bench of ITAT in the case of Biocon Ltd. Vs. DCIT 368 ITR 206 (Bang. Trib). The AO disallowed the claim of assessee
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 on the reason that department has not accepted the decision of Tribunal in special bench in the case of Biocon Ltd. (supra) and hence, he disallowed this amount by observing in Para 6.3.10 and 6.3.11 as under: -
“6.3.10 The Assessee has heavily relied upon the Special Bench decision in the case of Biocon (supra). The assessee has also made the claim of Rs.48,58,60,549 in the return of income in. I have gone through the working submitted by the assessee which is in accordance with the principles laid down in Biocon (supra). However, the Department has not accepted the decision and appeal has been filed with Hon’ble Karnataka High Court. The High Court has admitted the question of law in the said case. Therefore, the claim of the assessee made in accordance with the principles laid down in Biocon (supra) is not accepted.
6.3.11 In view of the above the alleged expenditure claimed by the assessee on account of ESOP is fully disallowed. Amount disallowed is Rs. 48,58,60,549. Penalty proceedings u/s 271(1)(c) are initiated against this issue for furnishing inaccurate particulars of income."
Aggrieved, assessee preferred the appeal before CIT(A), who allowed the claim of the assessee by following the ratio of special bench of this tribunal in the case of Biocon Limited (supra) by observing as Para 6.3 as under: -
“6.3 I have carefully considered the facts of the case and submission made by the Ld. AR I have also gone through the decisions relied on by AO and
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 Ld. AR. This ground is covered by my own order in appellants own case for A.Y.2009-10 (vide para No.9.3 of page 15 of the order bearing No. ClT(A)- 6/IT-27/2014-15 dated 12.11.2015). Since the facts in the present appeal are identical to that in A.Y.2009-10, following the reasons given therein, the AO is directed to allow the expenditure incurred on ESOP after verification, in accordance with the principle laid down by the Hon’ble Special Bench in the case of Biocon Ltd (Appeal No.368IBangI2010). Accordingly, this ground is allowed"
Aggrieved, now Revenue is in appeal before Tribunal.
At the outset, the learned Counsel for the assessee stated that this issue also covered by Tribunal’s decision in assessee’s own case for AY 2009-10 reported in (2018) 89 taxmann.com 223 (Mumbai-Trib), wherein in Para 8 reads as under:-
“8. We find that the A.O while framing the assessment had specifically observed that the claim of the assessee towards entitlement of discounted premium on ESOP's as an expenditure under sec. 37(1) was though found to be in accordance with the principle laid down by the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra), however, as the order of the 'Special Bench' of the Tribunal had not been accepted by the department and had been assailed before the Hon'ble High Court of Karnataka, therefore, the claim of the assessee as regards allowability of discounts on ESOP's could not be accepted. We are unable to persuade ourselves to subscribe to the aforesaid view of the
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 A.O that the order of the 'Special Bench' of the Tribunal was not to be followed for the reason that an appeal had been filed by the department against the said order before the Hon'ble High Court of Karnataka. We find that it is not the case of the department that either the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra) had been set aside or the operation of the same had been stayed by the Hon'ble High Court. We are unable to comprehend that as to how the A.O despite conceding that the claim of the assessee as regards allowability of the discount of ESOP's was in accordance with the principle laid down by the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra), could still decline to adjudicate the issue under consideration in terms with the order of the 'Special Bench'. We are seriously taken aback by the aforesaid observations of the A.O, and are of a strong conviction that as on the date on which the assessment was framed, the order of the 'Special Bench' of the Tribunal did hold the ground, therefore, he remained under a statutory obligation to have passed his order in conformity with the view taken by the 'Special Bench', which we find had also been followed by the jurisdictional Tribunal, viz. ITAT, Mumbai in the case of Mahindra and Mahindra Ltd. (supra). We are afraid that the conduct of the A.O in declining to follow the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra), which as observed by us had neither been set aside or stayed by the Hon'ble High Court has to be deprecated. We find that the Ld. CIT (A) duly appreciating the serious infirmity in the
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 order of the A.O, therein going by the principle of judicial discipline had set aside the order of the A.O by observing that the issue under consideration was covered by the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra). We find that the department had assailed the order of the CIT (A) before us for the reason that the latter had erred in directing the A.O to follow the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra). We would not hesitate to observe that it is absolutely beyond our comprehension that as to how the department could be aggrieved with the order of the Ld. CIT (A) who had set aside the observations of the A.O which were palpably found to be in serious contradiction of the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd.(supra). We may herein clarify that neither anything has been placed on record nor averred before us which could persuade us to conclude that the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra) had either been stayed or set aside by the Hon'ble High Court of Karnataka, or a view taken by the 'Special Bench' no more holds the ground on account of a contrary view taken by any other High Court. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to accept the ground of appeal raised by the revenue before us, therefore, finding no infirmity in the well-reasoned order of the CIT (A), uphold the same.”
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 16. Respectfully following the Tribunal’s decision in assessee’s own case, we confirm the order of CIT(A) and dismiss this issue of Revenue’s appeal.
In the Result, the appeal of the Revenue is dismissed and that of the assessee is allowed.
Order pronounced in the open court on 28-02-2018.
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(MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 28-02-2018 Sudip Sarkar /Sr.PS
ITA No. 2817/Mum2016 Cross Objection No. 38/Mum/2018 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI