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2015 (9) TMI 1303 - AT - Income TaxDisallowance u/s.14A r/w rule 8D - Held that:- As regards the claim of adequacy of capital or interest-free funds (held in current deposit accounts), we have already clarified of there being no finding of fact qua the specific source/s of financing, even as the Hon’ble Court has in Godrej & Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT) clarified that even the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question as to whether the assessee has incurred expenditure in relation to earning of such income. Even if, therefore, as explained by it, the assessee had utilized its own funds for making investments which have resulted in income which does not form part of the total income under the Act, the expenditure which is incurred in the earning of that income would have to be disallowed, which is to be determined by the A.O. In the facts of the present case, it is the admitted position that the investment in securities has been made out of common pool of funds. Funds in the business, it may be appreciated, are always in a state of flux, so that the proximate or the immediate source of funds may not and, in any case, not generally, reflect the real or the effective source. The same can be assessed on the basis of a fund flow statement (for the period) coupled with the legal obligations incident, if any. As an example, where a business assumes working capital advance from bank, maintaining net current assets at the prescribed level, it could safely be assumed that the borrowed funds have financed its current assets to that extent, precluding an apportionment of the expenditure by way of bank interest - a direct expenditure, against any other income of the assessee. Similar would be a case of (say) a term loan for machinery, all of which fall in the category of dedicated funds. Can, excepting dedicated arrangements, a particular asset of the business be said to be financed in a particular manner? The assets being of the business, it is only the funds of the business as a whole, save dedicated funds, that can be said to finance its activities. Accordingly, we uphold the application of section 14A r/w rule 8D in the facts and circumstances of the case, dismissing the assessee’s Gd. # I. - Decided against assessee. Disallowance of the amortized Employee Stock Options Plan (ESOP) expenses - Held that:- We direct the allowance of the discount on the shares issued to the employees, as held by the larger bench of the tribunal in Biocon Ltd. (2013 (8) TMI 629 - ITAT BANGALORE), subject to the same being reckoned with reference to issue price of the shares issued to the public during the relevant year. All other parameters, including the adjustment to the discount, shall be in terms of the said order, having regard to the terms and conditions of the assessee’s employee issue. - Decided partly against assessee. Disallowance of ESOP expenses - as claimed equity shares (3056.34 lac) other than ESOP shares (340.97 lac) have been issued during the year. As such, no disallowance of ESOP expenses, i.e., the expenditure under reference, is called for - Held that:- We are unable to understand the purport of the argument in-as-much as the ESOP expenses are only in relation to ESOP shares, i.e., shares issued to the employees under an optional scheme designed to benefit them. It is a share issue nevertheless, and the expenses thereon, share issue expenses all the same. They thus bear the same character. In fact, we have already answered Gd. II by stating, as indeed informed the decision by the larger bench, that no doubt the ‘expenditure’ inures in the form of a shortfall in the capital raised, the purpose in foregoing the same is to allow an incentive to its employees, i.e., a business purpose, so that the capital to that extent stands deployed thus, and further clarified that it is only the stated business purpose which qualifies the same to be considered as an expense and, in any case, as a revenue expenditure. The said Ground, which is in the nature of an alternate ground and/or argument, not pressed separately before us, stands, accordingly, dismissed as not pressed. - Decided against assessee.
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