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2023 (11) TMI 30 - ITAT BANGALORE
Revision u/s 263 - validity of order passed by the TPO - treatment to ESOP expenses, foreign exchange fluctuation loss and loss on investments in subsidiaries - As per CIT TPO has wrongly calculated the total operating expenses ignoring the ESOP expenses issued by the parent company to the employees of the subsidiary company and debited expenses to the P&L account of Rs. 4,054 million - Also foreign exchange fluctuation loss of Rs. 110 million and loss on investment in subsidiaries of Rs. 118 million was to be treated as operating expenses - TPO has not treated these as operating expenditure and accepted the TP study of the assessee - HELD THAT:- TPO has issued show cause notice to the assessee and the assessee has duly replied.
AR submitted that as per the disclosure policy, ESOP expenses are required to be disclosed as per the requirement of Ind-AS 102, therefore it was debited to P&L account by the assessee. While calculating the taxable income of the assessee, it has been added back to the total income as per computation filed by the assessee.
As gone through the judgments relied on by the ld. AR in this regard noted supra where it is held that ESOP expenditure is not to be treated as operating expenditure. Therefore we hold that ESOP expenses is non-operating expenditure for the purpose of computation of operating margin. Accordingly, the ld. CIT is not justified in treating it as operating expenses.
Foreign exchange fluctuation loss and loss on investments in subsidiaries CIT has himself noted that “these do not prima facie constitute operating expenses”. However, CIT has directed the AO for fresh consideration of all the above three issues. In respect of foreign exchange fluctuation loss and loss on investments in subsidiaries of Rs. 228 million, when the ld. CIT himself observed that these are not operating expenses, he cannot direct the TPO for fresh examination of the same issue.
Accordingly, we hold that the order passed by the TPO is not erroneous and prejudicial to the interests of the revenue and the impugned order of the ld. CIT is quashed. Decided in favour of assessee.
