TMI Blog2010 (9) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... it is observed that the disallowance made by the A.O. and confirmed by the ld. CIT(A) on account of employees contribution to PF and ESIC which was paid beyond the grace period but before the due date for filing of return u/s 139(1) is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd.[ 2009 (11) TMI 27 - SUPREME COURT] . Respectfully following the said decision, we delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on this issue and allow ground No. 2 of the assessee s appeal. Disallowance on outstanding liability for purchases - It is observed that a similar issue was involved in assessee s case for the immediately preceding year i.e. A.Y. 2002-03, 2003-04 2004-05 and the same was restored by the Tribunal restore the matter back to A.O. Respectfully following the decision of the Tribunal in assessee s own case for earlier years on the similar issue, we set aside the impugned order of the ld. CIT(A) and restore the matter back to A.O. Ground No. 3 is accordingly treated as allowed for statistical purpose. Quantum of Disallowance u/s 14A - administrative expenses - the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this total amount, the assessee company had charged Rs. 66.25 lacs to its P L account for the year under consideration and the balance amount of Rs. 124.15 lacs claimed in the immediately succeeding year i.e. A.Y. 2006-07. the A.O. held that the loss suffered by the assessee as a result of allotment of shares to its employees under ESOP below the market price was on capital account and the same was not allowable as deduction. CIT Confirmed the order of A.O. HELD THAT:- In our opinion, the decision of Delhi Bench of ITAT in the case of Ranbaxy Laboratories Ltd.[ 2009 (6) TMI 126 - ITAT DELHI-I] cited by the ld. D.R. is directly applicable in the present case and the same squarely covers the issue under consideration against the assessee and in favour of the Revenue. As held by the Tribunal, any short receipt of share premium would only be a notional loss to the assessee and not an actual loss. As further held by the Tribunal, any benefit or income foregone by the assessee cannot be considered as an expenditure and since the assessee had not incurred any expenditure but had merely received lesser amount of premium, the same could not amount to expenditure within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of expenses incurred on repairs was made by the A.O. and confirmed by the ld. CIT(A) in A.Y. 2004-05 to the extent of ₹ 3,90,662/- and the same has already been deleted by the Tribunal vide its order dated 10.6.2009 passed in ITA No. 478/Mum/08. A copy of the said order is placed at page No. 1 to 4 of the assessee s paper book and a perusal of the same shows that expenses incurred on repairs to the factory building of similar nature have been allowed by the Tribunal observing that the assessee had not derived any advantage of enduring nature by incurring the said expenses. Respectfully following the said decision of the Tribunal in assessee s own case for the immediately preceding year i.e. A.Y. 2004-05, we delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on account of expenses incurred on repairs and allow ground No. 1 of the assessee s appeal. 6. As regards ground No. 2, it is observed that the issue raised therein relating to the disallowance of ₹ 3,387/- made by the A.O. and confirmed by the ld. CIT(A) on account of employees contribution to PF and ESIC which was paid beyond the grace period but before the due date for filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee. 10. We have heard the arguments of both the sides and also perused the relevant material on record. In its recent judgment delivered in the case of Godrej Boyce Mfg. Co. Ltd.(ITA 626 of 2010 dtd. 12.08.2010) the Hon ble Bombay High Court has held that Rule 8D of the Income Tax Rules 1962 is applicable only prospectively i.e. from A.Y. 2008-09. Respectfully following the said judgment of the Hon ble Bombay High Court, we hold that the enhancement of income of the assessee made by the ld. CIT(A) by directing the A.O. to determine the quantum of disallowance to be made u/s 14A by applying Rule 8D is not sustainable. In the said judgment, the Hon ble Bombay High Court has also held that the quantum of disallowance u/s 14A for the years earlier to A.Y. 2008-09 has to be worked out by adopting some reasonable method. In our opinion, the disallowance computed by the A.O. u/s 14A on account of administrative expenses @ 5% of the exempt income earned by the assessee by way of dividend and interest from tax free bonds is quite fair and reasonable and even the learned counsel for the assessee has not been able to raise any material contention to dispute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital can be considered as capital loss and not the revenue expenditure. (iv) By allotting the shares the assessee has reduced the tax liability by an amount of Rs. 66,24,877/- . (v) The employees also did not disclose the gain as taxable in their hands. 13. For the reasons given above, the A.O. held that the loss suffered by the assessee as a result of allotment of shares to its employees under ESOP below the market price was on capital account and the same was not allowable as deduction. 14. The matter was carried before the ld. CIT(A) and reliance was placed on behalf of the assessee on the decision of Chennai Bench of ITAT in the case of SSI vs. DCIT reported in 85 TTJ 104 wherein it was held that ESOP will not be taxable either in the hands of the employees or in the hands of the employers. A reference again was made to the relevant SEBI Rules specifying the accounting treatment to be given to the difference between the market price and the price at which shares were allotted to the employees under ESOP. It was contented that the accounting treatment so prescribed is required to be adopted even for Income Tax purpose and the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting practices is also correct for tax purpose cannot be accepted. There is no provision under the income tax Act to allow distribution of capital by way of share or difference in market price of shares as allowable expenditure u/s 37 of the IT Act. When the company received any premium on allotment of shares over and above the issue price the same is credited to the premium reserve account and it never offered as taxable income or revenue receipt. In the same logic any capital distribution over and above on account of difference of the cost of shares and its market price of the share under ESOP scheme is going to reduce the reserve and allowable as business expenditure u/s. 37(1) of the I.T. Act. The appellant has not explained that in allotting shares to the employees, it incur any revenue loss on account of the price difference. In view of the above, the Assessing Officer is justified in not allowing an amount of ₹ 66,24,877/- as business expenditure to the appellant. The disallowance made by the Assessing Officer is confirmed. This ground of appeal is not allowed. 16. The ld. Counsel for the assessee submitted that ESOP 2004 framed by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ESOP was framed by the assessee company to give incentive to its top management employees in order to encourage them to continue to stay with the assessee company and also to do hard work so that the company can earn more profit. He contended that the ESOP expenditure thus was incurred by the assessee wholly and exclusively for the purpose of its business and the same being revenue in nature should be allowed as deduction. 17. The ld. D.R., on the other hand, submitted that this issue is squarely covered in favour of the Revenue and against the assessee by the decision of the Delhi Bench of ITAT in the case of Ranbaxy laboratories Ltd. vs. Addl. CIT 124 TTJ (Del) 771. He submitted that in the said case involving in similar facts and circumstances, the co-ordinate Bench of this tribunal has held that the issue of shares under ESOP at less than market price only results in short receipt of share premium and not in incurring of any expenditure within the meaning of section 37. It was held that such notional loss therefore cannot be allowed as deduction. 18. In the rejoinder, the ld. Counsel for the assessee submitted that the Tribunal while deciding a similar issue aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar expenditure which was allowed by the Assessing Officer. The learned CIT in his revision jurisdiction under s. 263 held such expenditure as notional and contingent in nature. The Tribunal held that in view of SEBI guidelines which the assessee was required to follow, such expenditure are in the nature of ascertained liability and not contingent liability upon happening of certain events. Hence, it was held that the order was not erroneous so as to be validly revised under s. 263 of the Act. However, the Tribunal in the said case has not answered the issue whether the loss is notional in nature or not. The Tribunal has also not considered the decision of Hon ble Supreme Court in the case of Eimco K.C.P. Ltd. (supra) and that of Delhi High Court in the case of Reinz Talbros (P) Ltd. (supra) which is a jurisdictional High Court for us. For all the reasons stated above we, therefore, hold that the expenses as claimed by the assessee are not allowable as such. 20. In the case of Ranbaxy Laboratories Ltd. (supra), shares were allotted by the assessee company to its employees under ESOP at price less than the market price and the resultant difference was claimed as expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36 and not being in the nature of capital expenditure or personal expenditure of the assessee. Such expenditure should be wholly and exclusively for the purpose of business. Thus, the prerequisite is that the assessee should have incurred an expenditure. Expenditure is what is paid out or away and is something which has gone irretrievably. A benefit or income foregone cannot be considered as n expenditure. Since the assessee had not incurred any expenditure but has merely received lesser amount of share premium, the same does not amount to expenditure within the meaning os s. 37. Therefore, the claim of assessee is not allowable. Eimco K.C.P. Ltd. Vs. CIT (2000) 159 CTR (SC) 137 : (2000) 242 ITR 659 (SC) and CIT vs. Reinz Talbros (P) Ltd. (2001) 252 ITR 637 (Del) followed . It is now settled law that entry or absence thereof in books of account is not conclusive either for treating the amount as income or allowability or otherwise of the expenditure. Thus, only on the basis of entry in the books of account the claim of expenditure is not allowable. The entry is made on the basis of recommendation of SEBI which is said to be mandatory for a listed company. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) confirming the disallowance made by the A.O. on account of ESOP expenses claimed by the assessee and dismiss ground No. 6 of the assessee s appeal. 22. In the result, appeal of the assessee for A.Y. 2005-06 being ITA No. 7242/Mum/08 is partly allowed. 23. Now, we shall take up the appeal of the assessee for A.Y. 2006-07 being ITA No. 1004/Mum/09 which is directed against the order of ld. CIT(A) C. VIII dated 11.12.2008. 24. Ground No. 1 of this appeal relates to the disallowance of Rs. 2,44,871/- made by the A.O. and confirmed by the ld. CIT(A) out of expenses claimed to be incurred by the assessee on repairs to its factory building. 25. During the year under consideration, the assessee company had incurred the following repairs expenses at its factory: 1) Fabrication work Rs. 88,505/- 2) Electrical concealed wiring Rs. 14,780/- 3) Foundation work Rs. 16,299/- 4) Glass Rs. 1,52,495/- Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of this order. As all the material facts relevant to the said issue as involved in A.Y. 2006-07 are similar to A.Y. 2005-06, we follow our decision rendered in A.Y. 2005-06 and uphold the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on account of ESOP expenses. Ground no. 3 of the assessee s appeal is accordingly dismissed. 29. As regards ground No. 4 relating to the disallowance of Rs. 36,75,706/- made by the A.O. and confirmed by the ld. CIT on account of outstanding liability for purchases, it is observed that a similar issue was involved in assessee s case for the immediately preceding year i.e. A.Y. 2002-03, 2003-04 2004-05 and the same was restored by the Tribunal to the file of the A.O. for deciding the same afresh in accordance with law after allowing opportunity of being heard to the assessee and after taking into consideration the specific directions given in its orders. Respectfully following the decision of the Tribunal in assessee s own case for earlier years on the similar issue, we set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of A.O. for deciding the same afresh as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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