ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD vs. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD.,, MADHAPUR

Brief facts of the case are that the assessee is a captive banking and financial services of shoring entity for HSBC group Companies and the IT enabled services provided by the assessee or claim to be routine back office processes executed on the basis of the standard operating procedures of HSBC group. Assessee filed the return of income for the assessment year 2016-17 on 15/10/2016 declaring an income of Rs. 5,87,41,83,110/-under normal provisions and Rs.5,46,20,10,533/- under section 115JB of the Income Tax Act, 1961 (for short “the Act”).

While concluding the assessment by order dated 27/12/2019 under section 143(3) of the Act, learned Assessing Officer made an addition of Rs. 5,77,42,000/- by disallowing the expenditure on Employee Stock Option (ESOP) and Employee Stock Purchase Plan (ESPP), Rs.20,89,14,646/- by disallowing the hedging loss on forward contracts, and Rs.19,89,029/-by disallowing deduction under section 80G of the Act. Apart from this, learned Assessing Officer did not grant refund of excess Dividend Distribution Taxes (DDT). Precisely these 4 additions are the subject matter in these 2 appeals.

When the assessee appealed against the additions made by the learned Assessing Officer including the non-grant of refund of excessive DDT paid under section 115-O of the Act, learned CIT(A) followed the decision of the Tribunal in assessee’s own case for the earlier assessment years insofar as the issues relating to the ESOP and ESPP, and the disallowance of the hedging loss on forward contracts and granted relief directing the learned Assessing Officer to delete such additions. Aggrieved by such direction on those issues, Revenue preferred . Learned CIT(A), however, upheld the addition in respect of the disallowance of the deduction claimed by the assessee under section 80G of the Act and also rejected the claim for refund of excessive DDT paid under section 115-O of the Act by following the special Bench decision of the Tribunal in the case of Total Oil India Pvt. Ltd in by order dated 20/04/2023. Aggrieved by the order of the learned CIT(A) in upholding these 2 additions/disallowances, assessee preferred ITA No.302 /Hyd/ 2024. Now we shall deal with these issues hereunder.

Coming to the Revenue’s appeal, as stated above it is about the deletion of the disallowance of expenditure incurred by the assessee on ESOP & ESPP and also the disallowance of realized hedging loss on forward contracts. Though the pleader argued vehemently to justify the additions made by the learned Assessing Officer by making these 2 disallowances, there is no contradiction of the fact that in assessee’s own case for the assessment years 2010-11, 2012-13 and 2014-15 the Tribunal has taken a consistent view that the issue of expenditure on ESOP and ESPP is covered by the decision of the Hon’ble Karnataka High Court in the case of Biocon Ltd by order dated 11/11/2020 in ITA No.653/2013. Further, for the assessment years 2012-13 and 2014-15, this Tribunal has taken a consistent view that the issue relating to the activity of realized hedging loss on forward contracts is covered by the decision of the Hon’ble Apex Court in the cases of CIT vs. Woodward Governor India (P) Ltd (2009) 179 Taxmann 326 (SC) and also PR Prabhakar vs. CIT (2006) 284 ITR 584. This view is consistently followed in assessee’s own case for the above the assessment years. Copies of the orders are filed in the form part of record.

Since these 2 issues involved in Revenue’s appeal are squarely covered in assessee’s own case for the earlier assessment years, namely, 2010-11, 2012-13 and 2014-15 as stated in para 5 above, in the absence of any compelling circumstances, change of facts, we find it difficult to take a different view. While respectfully following the view taken by the Tribunal in those 3 assessment years while in turn following the special Bench decision in the case of Biocon Ltd (supra) rendered by the Hon’ble Karnataka High Court in respect of ESOP and ESPP expenditure, and following the Hon’ble Supreme Court in the case of Woodward Governor (supra) in respect of the issue relating to the hedging loss on forward contracts, we hold these 2 issues in favour of the assessee, and consequently, the appeal of the Revenue is devoid of merits. Grounds of appeal

Learned AR submitted that the word “MYRADA” is merely an abbreviation for Mysore Resettlement and Development Agency, and therefore the certificate that was enclosed in respect of Mysore resettlement and development agency relates to the entity MYRADA Kolar HSBC water and sanitation program is appropriate one, and it is only the confusion that is created due to the usage of abbreviation, the certificate relating to the Mysore Resettlement and Development Agency was not correlated to the MYRADA Kolar HSBC water and sanitation program. It is a verifiable fact, and the learned Assessing Officer will verify the same. If the certificate addressed to the Mysore Resettlement and Development Agency, Bangalore pertains to the MYRADA Kolar HSBC water and sanitation program, the learned Assessing Officer will correlate the same for the purpose of considering it under section 80G of the Act.

In respect of the renewal of the certificates of both the entities, learned AR drew our attention to the amendment in section 80G of the Act by Finance Act, 2009 wherein the proviso to section 80G(5)(vi) of the Act, which was to the effect that “provided that any approval shall have effect for such assessment year or years, not exceeding 5 assessment years, as may be specified in the approval” was omitted w.e.f. 1/10/2009, and submitted that subsequently clarifying this position CBDT issued circular No. 7 of 2010 dated 27/10/2010 wherein it is clearly mentioned that the existing approvals expiring on or after 1/10/2009 shall be deemed to have been extended in perpetuity unless specifically withdrawn and any approval under section 80G(5) of the Act on or after 01/10/2009 would be a one-time approval which would be valid till it is withdrawn. Basing on this he submitted that the approvals of both these entities shall be deemed to have been issued in perpetuity unless it is withdrawn and since it is not the case of the Revenue that such approvals were withdrawn at any point of time, the same may be accepted without seeking any approval from time to time.

We have gone through the provisions under section 80G of the Act in the light of the amendment by Finance Act, 2009 w.e.f. 1/10/2009 which were omitted the proviso that was reading “provided that any approval shall have effect for such assessment year or years, not exceeding 5 assessment years, as may be specified in the approval” and also the circular dated 27/10/2010 bearing No.7/2010 wherein it is stated unequivocally that to remove any doubts in this regard, it is reiterated that any approval under section 80G (5) on or after 01/10/2009 would be a one-time approval which would be valid till it is withdrawn. It, therefore, leaves no doubt in our mind that the impugned certificates relating to the hope Kolkata foundation and also the MYRADA Kolar HSBC water and sanitation program are valid ones and the learned Assessing Officer may act upon the same. We direct the learned Assessing Officer to cause verification of the certificate addressed to the Mysore Resettlement and Development Agency, Bangalore as to whether it pertains to the MYRADA Kolar HSBC water and sanitation program, and if it is so allow deduction under section 80G of the Act to the learned Assessing Officer in respect of both the entities. Ground No. 1 of assessee’s appeal is accordingly allowed.

Coming to the other issue relating to the claim of refund of excess DDT paid under section 115-O of the Act, learned CIT(A) and learned DR placed reliance on the decision of the Special Bench of the Tribunal in the case of Total Oil India (P) Ltd (supra), and the assessee fairly conceded that this decision was not brought to the notice of the Bench when the Bench took a view for the assessment years 2012-13 by order dated 14/4/2021 and 2010-11 by order dated 5/8/2024. As a matter of fact in the order for the assessment year 2010-11 the Tribunal referred to the orders for the assessment year 2012-13 in and following the same it restored the matter to the file of the learned Assessing Officer. Since the decision of the special Bench binds not only the learned Assessing Officer but also binds this Bench of the Tribunal also, we do not deem it necessary to restore the issue to the file of the learned Assessing Officer because the learned Assessing Officer cannot take a different view deviating from the view taken by the special Bench in the case of Total Oil India (P) Ltd (supra). Being bound by the decision of the special Bench in the case of Total Oil India (P) Ltd (supra), this Bench cannot take a different view nor can we find any illegality or irregularity in the order of the learned CIT(A) following the binding precedent. We, therefore, find this issue is devoid of merits and dismiss ground No.2 of assessee’s appeal.

In the result, appeal of the Revenue is dismissed, and the appeal of the assessee is allowed in part. Order pronounced in the open court on this the 17th day of October, 2024.