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2017 (10) TMI 589 - AT - Income TaxDisallowance of stock appreciation right - difference between the purchase price of stock appreciation right and the sale price of stock appreciation right at the time of the exercise by the employees holding the same to be capital loss and not allowable as business deduction - Held that:- According to the particular scheme the grant price was paid by the Granti who is an employee eligible to participate under the scheme. According to that scheme the 10 employees of the assessee company opted for the scheme and all of them exercised their stock appreciation rights. According to that ₹ 2505946 was sale proceeds of the stocks of the company, resulting into the loss of ₹ 1599362 which was claimed by the assessee as an employee compensation. Further, the company has purchased the shares of Religare enterprise Ltd, through a trust under that particular scheme at an average price of ₹ 503/– per share whereas the grant price of shared to the employees was ₹ 140/– per share. Therefore, the difference between the sale price of the share and the purchase price of the share was claimed by the assessee as deduction as employee compensation. In the identical circumstances. With respect to one of the group companies, Religare commodities Ltd for assessment year 2008 – 09 identical issue arose before the coordinate bench [2017 (1) TMI 783 - ITAT DELHI] claim of the assessee with respect to both the above items were allowed. The above expenditure on account of employee stock option scheme is an ascertained liability for deduction - the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. Deduction of expenditure incurred - Held that:- In the present case the business of the assessee was set up by employment of the employees as well as by hiring the requisite infrastructure which happened in the month of April 2007. The courts have held that there is a clear distinction between a person ‘commencing a business’ and a person ‘setting up a business’ and for the purposes of the Indian Income-tax Act the ‘setting up of the business’ and not the ‘commencement of the business’ that is to be considered for cut off of deductibility of expenditure. It is only after the business is set up that the previous year of that business commences and any expense incurred prior to the setting up of a business would not be permissible deduction. When a business is established and is ready to commence business then it can be said of that business that it is set up; but before it is ready to commence business it is not set up. There may however be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deductions. We also draw support from the decision of CIT versus Axis Equity private limited [2017 (2) TMI 340 - BOMBAY HIGH COURT] wherein on identical facts, issue has been decided that the expenditure are allowable to the assessee after the businesses are set up. Therefore in view of this we are of the opinion that the assessee must be allowed the deduction of expenditure incurred w.e.f. 01/04/2007 when the employees were hired and the expenditure With respect to infrastructure was incurred by the assessee. In the result we reverse the finding of the lower authorities and direct the assessee officer to allow the expenditure of ₹ 9389552/– incurred by the assessee for the period from April 2007 to June 2007. Disallowance u/s 14A - Held that:- As decided in Cheminvest Ltd versus CIT [2015 (9) TMI 238 - DELHI HIGH COURT ], where the assessee has not earned any exempt income during the year there cannot be any disallowance under section 14 A of the income tax act. Undisputedly there is no exempt income during the year, earned by the assessee, therefore there cannot be any disallowance under section 14 A of the income tax act. Addition u/s 40(a)(ia) - Expenditure incurred towards reimbursement of expenses by the other group concern and it is sharing of cost of common services utilised by those companies - Held that:- The Hon’ble Delhi High Court in case of CIT versus Fortis healthcare Ltd [2009 (1) TMI 842 - HIGH COURT OF DELHI] has held that no tax is required to be deducted on the reimbursement of the expenses. The revenue could not point out any fact that these expenses are not reimbursement of the expenses but for the purpose of rendering specific services to the assessee. Additions deleted. Appeal of the assessee is allowed.
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