Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

M/s Voith Paper Technology India Ltd Versus Asstt Commissioner Of Income Tax

2016 (1) TMI 641 - ITAT CHENNAI

Disallowance 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 h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 combine .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 Ho .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

CHANDRA POOJARI, AM AND CHALLA NAGENDRA PRASAD, JM For the Petitioner : Mr Ravi Sharma, Adv. For the Respondent : Mr A B Koli, JCIT ORDER Per: Challa Nagendra Prasad: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-III, Chennai dated 14.02.2014 for the assessment year 2009-10. 2. The first issue in the appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ESOP charges amounting to ₹ 35, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rsed by the assessee to the parent company. During the assessment year under consideration, the parent company has allotted eshares to the deputed employees of the assessee company under stock option scheme. The Assessing Officer disallowed the amount of ₹ 35,28,333/- being ESOP charges on the ground that assessee has not allotted the shares to its deputed employees and the expenditure claimed pertaining to L & T Ltd. and it is a notional expenditure. On appeal, the Commissioner of Inc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t case also L & T Ltd. deputed certain employees to its subsidiary company L & T Valdel Engineering P. Ltd. and the subsidiary company reimbursed the employee costs including ESOP cost. Counsel for the assessee submits that in that case the Assessing Officer treated such expenditure as capital expenditure but the Commissioner of Income Tax (Appeals) denied the expenses as such expenses are not belonged to the assessee but the Tribunal set aside the orders of lower authorities and remitte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Representative vehemently supports the orders of the lower authorities in denying ESOP expenses. 6. Heard both sides. Perused orders of lower authorities and the decisions relied on. L & T Ltd. which is a group concern of the assessee deputed certain employees to assessee company and the assessee is reimbursing employees cost to the parent company on such deputed employees. The parent company L & T Ltd. has issued shares to the deputed employees of the assessee company under stock optio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Bangalore Bench, we find that an identical issue has come up for consideration in the case of L & T Valdel Engineering P.Ltd. which is also a subsidiary company to M/s. L & T Ltd. in ITA No.518 to 520/Bang/2014 for the assessment years 2008-09 to 2010-11 and the co-ordinate Bench by order dated 29.06.2015 considering the submissions of both the parties and evidences on record held as under:- "27. Vide its grounds 5 and 6 for A. Y. 2008-09 and grounds 6 and 7 for A. Ys. 2009-1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssee. AO required from the assessee details of the payments made by it to the employeessent by L & T Ltd, on deputation. In so far as the amounts paid to these employees in relation to allotment of shares under ESOP scheme, the AO was of the opinion that assessee had no such contractual obligation and assessee was unable to provide any contract between it and its holding company, for supporting such payments. Though the assessee claimed that payments were effected based on debit notes raised .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a cost-to-cost basis. Employees of L & T Ltd, were given the benefit of ESOP framed by M/s. L & T Ltd. As per the assessee, such employees who were having ESOP benefit of the parent company when deputed to the assessee, and when they were working for the assessee, having received the benefit of labour of the employees, cost incurred for the employees by the principal, had to be defrayed by it to the holding company. Assessee also filed before the CIT (A) an abstract of the ledger book a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h had to be borne by the employer over its vesting period. However, he was of the opinion that the scheme of ESOP was between the employees of holding company and M/s. L & T Ltd. CIT (A) noted that the debit notes issued by the holding company did not have the names of the employees. There was no written agreement between the assessee and its holding company with regard to the contractual obligation assessee had in relation to those employees who were deputed by the holding company to the as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t paper book pages 111 to 123. As per the Ld. AR assessee was obliged to reimburse the claims made by L & T since the employees debuted by L & T were working for the ssessee. Assessee was supposed to reimburse the holding company on cost to cost basis. It had produced a letter from L & T Ltd, placed at page124 which would show that the payments were reimbursement of cost incurred by L & T Ltd. As per the Ld. AR, L & T Ltd, had shown such receipts from the assessee as a part o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a capital outgo. 32. Per contra, Ld. DR strongly supporting the order of CIT (A) submitted that on mere debit notes a claim could not be allowed. As per the Ld. DR the debit notes produced were dumb without any details.Claim for revenue expenditure should be based on tangible evidence which support the business need of such expenditure. Assessee had not demonstrated this. Disallowance therefore was rightly made according to the Ld. DR. 33. We have perused the materials on record and heard the ri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oted that it was a payment made to the holding company viz. M/s. Larsen & Toubro Ltd. For purposes of allotment of shares under Employees Stock Option Scheme (ESOP). According to the AO, no contract evidencing payments on account of contractual obligation was produced ; no proof of actual payment was furnished ; the claim that the payment is not optional but an actual expenditure is not supported with calculations ; and the intention of allotting equity shares under the ESOP was clear from t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee. Reimbursement for this to M/s. L & T Ltd , claimed by the assessee were all allowed by the Revenue, but for the ESOP. No doubt necessity of incurring an expenditure cannot be questioned by the Revenue, for it is in the domain of a businessman. However, production of evidence to show that the expenditure was incurred for the purpose of business is the onus of the assessee. What the assessee had produced before the lower authorities is only certain debit notes with narrations which d .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

same has been treated as "Other income" in the books of Larsen & Toubro Limited and has also been offered to tax. For Larsen & Toubro Limited Sd/- Arun Kirtania Deputy General Manager" 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. Grounds 5 & 6 for A. Y. 2008-09, grounds 6 & 7 of the assessee for A. Ys. 2009-10 and 2010-11 are allowed for statistical purposes." 7. The co-ordinate Bench set aside the issue to the file of the Assessing Officer for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the assessee is that Commissioner of Income Tax (Appeals) grossly erred in disallowing portion of salary paid to deputed employees as claimed by the assessee without taking cognizance of the explanation provided by the assessee and the clarification provided by L & T Ltd. which clearly 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 th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; and not as "8036". 10. Counsel for the assessee submits that during the year under consideration, the assessee incurred ₹ 3,12,39,355/- towards salary and bonus. Out of this amount ₹ 1,10,31,518/- was incurred towards deputed employees and remaining amount of ₹ 1,28,07,828/- was incurred towards assessee's own employees. The Assessing Officer disallowed ₹ 1,10,31,518/- by erroneously assuming that ₹ 1,28,07,828/- represented total salary cost paid to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r of Income Tax (Appeals) held that invoices bearing cost centre "Voith" should only be allowed and balance invoices bearing cost centre "8036" did not pertain to assessee's business and hence should be disallowed. While doing so, the Commissioner of Income Tax (Appeals) disregarded letter dated 3rd February 2014 signed by Mr. UD Patil, Manager Accounts of L&T issued on the letterhead of L&T, copy of the letter is placed at page 73 of Paper book. This letter clear .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n approval, rather it was just a confirmation that the invoices for deputed employees are raised by L&T and cost Centre 8036 pertains to Voith. L&T has not paid, rather it had received amount of ₹ 1,10,31,518 on account of salary of deputed employees to the assessee." It is further submitted by the counsel for t he assessee that the aforesaid letter was issued on L&T's letterhead, therefore primary onus of proof was discharged by the assessee and the Commissioner of In .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ry cost invoices pertaining to cost centre "8036" is clearly unwarranted and unjustified. The Commissioner of Income Tax (Appeals) has also alleged that there appears to be double claim for month of May 2008 possibly as there are 2 invoices raised by L&T both dated 30 June 2008 for ₹ 79,367 and ₹ 1,58,734, copy of invoices are placed at 33 & 34 of the Paper book. In this regard, as is evident from the narration invoice for ₹ 79,367 pertains to May 2008 and inv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which case expenditure has to be allowed, the Departmental Representative has no objection for verification. 12. Heard both sides. Perused orders of lower authorities. On hearing both the parties, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s and decide the issue accordingly after providing adequate opportunity of being heard to the assessee. 13. The last issue in the appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in applying Rule 8D while computing disallowance under section 14A when the assessee had not incurred any expenses in relation to earning of such dividend. 14. The Assessing Officer while completing the assessment disallowed ₹ 5,71,602/- un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

income. The Commissioner of Income Tax (Appeals) sustained the disallowance against which the assessee is in appeal. 15. Counsel for the assessee submits that Assessing Officer is not at all justified in invoking the provisions of section 14A without recording any satisfaction as to the correctness of the claim of the assessee. He submits that the onus is on the Assessing Officer to establish that assessee incurred expenses for earning dividend income. In the absence of any such finding by the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vehemently supports the orders of lower authorities., 17. Heard both sides. Perused orders of lower authorities and the decisions relied on. The Assessing Officer while completing the assessment noticed that assessee has earned dividend income and no disallowance was made by the assessee attributing expenditure for earning such dividend income and he mechanically applied the provisions of section 14A read with Rule 8D. No satisfaction has been recorded by the Assessing Officer as to correctness .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Section 14A cannot be invoked." 19. The Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles Ltd.(supra) held as under:- "The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under Section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Assessing Officer would have to indicate cogent reasons for the same." Similarly, the Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs DCIT (supra) at para 25, page 63 of Paper book - II held that "Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the Rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which do .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version