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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI SAKTIJIT DEY, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. CIT(A) – 32 dated 30.10.2017, pertaining to A.Y. 2012-13.
The grievances of the Revenue read as under:
“1. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of Rs.34,93,954/- made by the AO on account of Employee stock option Plan (ESOP) expenses.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 1,40,45,473/- made by the AO u/s 40(a) (ia) of the Income-tax Act, 1961 on account of non- deduction of TDS on reimbursement of circuit expenses.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 21,78,564/- made by the AO on account of employee's contribution to PF deposited beyond the due date u/s 2(24)(x) r.w. section 36(1)(va) of the Income-tax Act, 1961.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 1,05,875/- made by the AO u/s 14A of the Income-tax Act, 1961 r.w.r. 8D of Income-tax Rules.
5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
3. Ground No. 1 relates to the deletion of disallowance of Rs. 34,93,954/- made by the Assessing Officer on account of Employee Stock Option Plan [ESOP] expenses.
4. During the course of assessment proceedings, the Assessing Officer noticed that the assessee company has debited an amount of Rs. 34,93,954/- in the Profit and Loss Account towards cost of share awards granted under ESOP to the employees.
The assessee was asked to show cause as to why this amount should not be disallowed.
The assessee filed a detailed reply which is extracted by the Assessing Officer in the body of his order at Pages 2 and 3.
The reply of the assessee did not find any favour with the Assessing Officer who was of the firm belief that there is no specific section under which ESOP expenditure is allowable under the Income- tax Act, 1961 [the Act, for short] and the only section under which the said claim can be made is section 37 of the Act. But, according to the Assessing Officer, even u/s 37 of the Act, claim of ESOP expenses cannot be allowed and added the same.
The claim was reiterated before the ld. CIT(A) and the ld. CIT(A) was convinced with the claim and allowed the expenditure.
9. Before us, the ld. DR placed strong reliance on the assessment order.
Per contra, ld. counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the ld. counsel for the assessee that now this issue is no more res integra as the same has been decided by the Hon'ble Jurisdictional High Court of Delhi in the case of Lemon Tree Hotels Ltd order dated 18.08.2015, seized with the following facts :
“2. The question sought to be projected by the Revenue is whether the ITAT erred in deleting the addition of Rs. 1,28,19,169/- made by the Assessing Officer (‘AO’) by way of disallowance of the expenses debited as cost of Employees Stock Option (‘ESOP’) in profit and loss account?
The Court has been shown a copy of the decision dated 19th June 2012 passed by the Division Bench of Madras High Court in CIT- III Chennai v. PVP Ventures Ltd. (TC(A) No. 1023 of 2005) where a similar question was answered in favour of the Assessee by holding that the cost of ESOP could be debited to the profit and loss account of the Assessee. This Court has also in its decision dated 4th August 2015 in of 2002 (CIT v. Oswal Agro Mills Ltd.) held that the expenditure incurred in connection with issue of debentures or obtaining loan should be considered as revenue expenditure.
In the circumstances, the impugned order of the ITAT answering the question in favour of the Assessee is affirmed.”
Similar view was taken by the Hon'ble High Court of Karnataka in the case of Biocon Ltd 430 ITR 0151.
10. Respectfully following the decision of the Hon'ble Jurisdictional High Court [supra], we decline to interfere with the findings of the ld. CIT(A). Ground No. 1 is accordingly dismissed.
Ground No. 2 relates to the deletion of disallowance of Rs. 1,40,45,473/- made by the Assessing Officer u/s 40a(ia) of the Act on account of non deduction of TDS on reimbursement of circuit expenses.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has reimbursed Rs. 1,40,45,473/- to Ameriprise Financial Services Inc [AFSI] on behalf of the assessee. The Assessing Officer noticed that the assessee has not deducted tax at source for which the assessee was asked to justify.
The assessee, in its reply, explained that it has only reimbursed the impugned amount to its associate in USA towards circuit expenses incurred by it on behalf of the assessee. It was explained that such expenses have been incurred on telecommunication services rendered by the service provider to AIPL outside India which was paid by AFSI on behalf of AIPL and subsequently, reimbursed by AIPL to AFSI.
The assessee furnished copies of invoices raised by AFSI. It was contended that reimbursement provisions of section 40a(ia) do not apply.
Reply of the assessee did not find any favour with the Assessing Officer who went on to make addition of Rs. 1,40,45,473/-.
The assessee questioned the addition before the ld. CIT(A) and reiterated its claim of reimbursement.
After referring to various judicial decisions, the ld. CIT(A) was convinced that it was merely a reimbursement and therefore, provisions of section 40a(ia) do not apply and directed the Assessing Officer to delete the impugned disallowance.
Before us, the ld. DR strongly supported the findings of the Assessing Officer and the ld counsel for the assessee reiterated what has been stated before the lower authorities.
We have given careful consideration to the orders of the authorities below. We have also considered the invoice and find that though the AT&T has raised invoice on AFSI, but it is for the service provided to the assessee at Gurgaon. The said notice is at page 119 of the Paper book for an amount of Rs. 24203.80 dollars and AFSI has raised the invoice of the same amount on the assessee, which is at page 118 of the Paper Book and this amount has been reimbursed to the assessee.
Considering the facts, we are convinced that the amount reimbursed by the assessee is towards circuit expenses to which provisions of section 40a(ia) do not apply. We, therefore, decline to interfere with the findings of the ld. CIT(A). Ground No. 2 is also dismissed.
Ground No. 3 relates to the deletion of disallowance of Rs. 21,78,564/- made by the Assessing Officer on account of employees contribution to the Provident Fund deposited beyond the due date.
This issue is now well settled by the Hon'ble Supreme Court in favour of the Revenue and against the assessee in the case of Checkmate Services 448 ITR 518.
Respectfully following the same, the findings of the ld. CIT(A) are reversed. Addition is sustained. Ground No. 3 is allowed.
Ground No. 4 relates to the deletion of disallowance of Rs. 1,05,875/- made by the Assessing Officer u/s 14A of the Act.
It has been strongly contended that during the year under consideration, the assessee did not earn exempt income. Therefore, no disallowance is called for u/s 14A of the Act.
We are of the considered view that if no exempt income is earned by the assessee, no disallowance can be made u/s 14A r.w.r 8D of the Rules as held by the Special Bench of ITAT in the case of Cheminvest Ltd 121 ITD 318 affirmed by the Hon'ble High Court of Delhi and Kotak Energy 372 ITR 97.
Respectfully following the same, we decline to interfere with the same. Ground No. 4 is dismissed.
In the result, the appeal of the Revenue in is partly allowed.
The order is pronounced in the open court on 22.12.2023.