TMI Blog2014 (11) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... AO held that the discounted surplus of sales tax loan represents sales tax subsidy and was taxable as revenue receipt chargeable to tax u/s 41(1) because assessee's liability to pay had been extinguished - CIT(A) rightly followed the order of the Tribunal and allowed the ground of assessee in regard to treating the deferred sales tax liability as capital receipt – thus, the AO is directed to treat the deferred sales tax liability as capital receipt – Decided against revenue. - ITA No. 4841/Mum/2013 - - - Dated:- 14-11-2014 - Shri I. P. Bansal, JM And Shri R. C. Sharma, AM,JJ. For the Petitioner : Shri Permanand J. For the Respondent : Shri B. V. Jhaveri ORDER Per R. C. Sharma (A. M.) : This is an appeal filed by the Revenue against the order of CIT(A), dated 1-3-2013 for assessment year 2007-08, in the matter of order passed u/s.143(3) of the I.T. Act, wherein following grounds have been taken :- 1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the disallowance of ESOP expenses of ₹ 1,86,63,187/-. 2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), order dated 8-1-2008, allowed the ground raised by the assessee regarding EOP expenses after having the following observations :- 5.2 Decision:- First ground of appeal elaborated in ground no. 2 to 4 states that A.O. erred in disallowing claim for deduction of ESOP expenses of ₹ 1,86,63,187/-. These ESOP expenses of ₹ 1,86,63,187/- represented the option discount, that is, the excess of the market price of the share on the date of grant of the option under ESOP 2006 over the exercise price of the option. It has been submitted that (1) SEBI guidelines mandate that the ESOP expenses should be debited to the P L Account, (2) the liability was not a contingent or notional liability but an ascertained liability and it was also not a capital expenditure, (3) ESOPs were granted to the employees of the company as per the scheme for motivating them to work for the company for a certain number of years and since these were taxable in the hands of the employees, the expenditure was allowable as revenue deduction. In this connection, assessee has relied on ITAT's decision in its own case for A.Y. 2001-02 2002-03 and plethora of other indirect judgments. A.O. disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (in short the ESOS Guidelines). The ESOS guidelines, then in force, required the option discount to be amortised on a straight line basis over the vesting period. The learned AO disallowed the expenses mainly on account of reasons that the similar expenses which were claimed in the earlier year were also disallowed. However, the AO did not consider order of the Tribunal on identical ground wherein the similar claim of ESOP expenses were allowed in favour of the appellant in ITA No.7136/Mum/2004 for A.Y.2001-02 2002-03. Therefore, the order of the CIT(A) deleting the disallowance in respect of ESOP expenses may be upheld. In support of his contentions, learned AR relied on the decision of the Special Bench in the case of Biocon Ltd. vs. DCIT (155 TTJ 649), wherein the decision of the Tribunal in the case of the assessee company for A. Y. 2001-02 is approved. The Tribunal has followed the aforesaid decision of the Special Bench in the case of Biocon Ltd. in the following cases: (i) Mylan Laboratories Ltd. vs. Addl. CIT, [(2014) 46 taxmann.com 76 (Hyd.)], (ii) Bharti Airtel Ltd. vs. Addl.CIT [(014) 161 TTJ 283 (Del.)] and (iii) Mahindra Mahindra Ltd, Addl.CIT [(2013) 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act are clearly applicable in the case of the assessee and the benefit received by the assessee company of ₹ 34,79,580/- cannot be treated as a capital receipt and treating the same as revenue receipt added back to the total income of the assessee. 10. By the impugned order, the CIT(A) allowed the above ground of the assessee after having the following observations :- 6.2 Decision:- Second ground mentioned at serial number 5, 6 and 7 of grounds of appeal states that Assessing Officer erred in holding that the preponement of deferred sales tax loan amounting to ₹ 34,79,580/- as chargeable to tax u/s 41(1) of I.T Act, 1961. Assessing Officer noticed that the surplus of ₹ 34,79,580/- representing remission of principal amount of sales tax loan was not offered for taxation and when queried assessee submitted that the sum of ₹ 34,79,580/- being remission of principal amount of loan is a capital receipt and is therefore not chargeable to tax under the Income-tax Act, 1961. It was also submitted that the company availed of the benefit offered SICOM scheme and decided to pay the discounted value of deferred liability which resulted in capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and when queried assessee submitted that the sum of ₹ 34,79,580/- being remission of principal amount of loan is a capital receipt and is therefore not chargeable to tax under the Income-tax Act, 1961. It was also submitted that the company availed of the benefit offered SICOM scheme and decided to pay the discounted value of deferred liability which resulted in capital receipt of ₹ 34,79,580/-. The AO held that the discounted surplus of sales tax loan represents sales tax subsidy and was taxable as revenue receipt chargeable to tax u/s 41(1) of I.T. Act, 1961 because assessee's liability to pay had been extinguished. The assessee submitted that in the earlier years the issue has been decided by the Hon'ble ITAT, Mumbai in its favour. The CIT(A) after following the order of the Tribunal has allowed the ground of assessee in regard to treating the deferred sales tax liability as capital receipt. We have also gone through the order of the Tribunal decided in assessee s own case in ITA No.7136 7177/Mum/2004, dated 8-1-2008 for A.Y.2001-02 2002-03, which has been decided in favour of assessee. Respectfully following the same, we uphold the findings of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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