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2016 (1) TMI 641 - AT - Income TaxDisallowance of ESOP expenses - Held that:- Perused orders of lower authorities and the decisions relied on. L & T Ltd. which is a group concern of the assessee wherein held that absence of a written contract by itself might not be fatal to the claim of an expenditure especially when such expenditure is based on an understanding between a holding company and a subsidiary company,but nevertheless, it is the duty of the assessee to show that what has been reimbursed as amortised ESOP cost by its holding company were actually charged by such holding company in its P & L account as expenditure and the reimbursements made by the assessee were shown as a part of its income. Assessee has to demonstrate that the services received by it from such employees were commensurate with the payment. We are, therefore, of the opinion that the claim of the assessee requires a fresh look by the AO. We , therefore, set aside the orders of the lower authorities on this issue and remit it back to the AO for fresh consideration. Assessee will be free to produce fresh evidence to justify the incurrence of such expenditure and also show that the expenditure was not claimed twice, i.e., both by the assessee as well as by its holding company. Disallowance of portion of salary paid to deputed employees - assessee explained that cost of all the employees which were deputed to serve the assessee were either booked under "8036" or under "Voith" and that debit notes raised by the assessee combined the expenses towards employees having either of the two codes- Held that:- We find considerable force in the submissions of the assessee. In fact, the Commissioner of Income Tax (Appeals) initially agreed to the extent where the payments made to the deputed employees where the cost centre is shown as "voith" is to be allowed. The question now is whether cost centre "voith" and "8036" are one and the same or not. For this limited purpose of examining as to whether "voith" and "8036" are one and the same, we remit this issue to the file of the Assessing Officer to find out whether these two cost centres are one and the same and if they are one and the same, no disallowance towards reimbursement by the company to the parent company on account of deputed employees shall be made. The Assessing Officer may call for details and decide the issue accordingly after providing adequate opportunity of being heard to the assessee. Disallowance u/s sec 14A - Held that:- As held by the Hon'ble Supreme Court in the case of M/s. Walfort Share & Stock Brokers P.Ltd. (2010 (7) TMI 15 - SUPREME COURT ) for attracting section 14A there should be a proximate cause for disallowance with relation to its tax exempt income. The Punjab & Haryana High Court in the case of Hero Cycles Ltd. (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT ) held that disallowance under section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred disallowance under section 14A cannot be made. The Delhi High Court in the case of Maxopp Investment Ltd. (2011 (11) TMI 267 - Delhi High Court ) held that while rejecting the claim of the assessee with regard to no expenditure was incurred in relation to exempt income, the Assessing Officer should indicate cogent reasons for the same. The satisfaction of the Assessing Officer should be arrived on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, he can invoke the provisions of section 14A of the Act. In this case, the Assessing Officer has mechanically applied the provisions of section 14A read with Rule 8D without recording any satisfaction, which is not permissible in view of the above decisions. Respectfully following the decisions cited above, we direct the Assessing Officer to delete the addition made under section 14A of the Act. - Decided in favour of assessee.
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