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2016 (4) TMI 905 - ITAT MUMBAI

2016 (4) TMI 905 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- We find that the AO had not mentioned as to how much expenditure was incurred by the assessee for earning tax free income. We are of the opinion that, if the assessee had not incurred any expenditure to earn tax free income, then, the AO cannot invoke the provisions of section 14A r.w. Rule 8D of the Rules. First of all, the AO has to record his satisfaction about invoking the provisions and has to decide the issue after o .....

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AA. - Decided in favour of assessee

Addition of the expenditure incurred under ESOP(Employee Stock Option Scheme) - Held that:- We find that stock options of the parent company were offered to the employees of the assessee company, that the assessee had made payment of ₹ 1.07 crores to the parent company, that during the year FBT was paid for sum of ₹ 50.65 lakhs. In our opinion, once a stock option is granted to and exercised by the employee of an assessee the liability i .....

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penditure incurred for business purposes allowable u/s. 37(1) of the Act. Respectfully following the above decision, we decide Ground in favour of the assessee - ITAs No. 5152/Mum/2012 - Dated:- 31-3-2016 - Joginder Singh, JM And Rajendra, AM For the Petitioner : Shri M Murli For the Respondent : Ms Neha Paranjpe ORDER Challenging the order dt. 17.5.12 of the CIT(A)-4 Mumbai the assessee has filed the present appeal. Assessee -Company, engaged in the business of executive search, consulting and .....

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14A on account of expenses relating to dividend income. The AO applied Rule 8D of the Income tax Rules, 1962(Rules) and made a disallowance of ₹ 2, 74, 489/-(0.5% of average value of investment). 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). Before him, it was argued that the assessee had made investment in Mutual Funds only, that investment was made out of assessee s own funds, that no other expenditure was incurred regar .....

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claimed an expenditure for earning the dividend income, that the AO had mechanically applied the provisions of section 14A r.w. Rule 8D of the Rules. He relied upon the case of Om Prakash Khaitan (376 ITR 390) of Hon ble Delhi High Court. Departmental representative (DR) left the issue to the discretion of the Bench. 5. We have heard the rival submissions and perused the material before us. We find that the AO had not mentioned as to how much expenditure was incurred by the assessee for earning .....

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at in the case of Om Prakash Khaitan (supra), the Hon ble Delhi High Court has held that in order to disallow the expenditure there must be a nexus between the expenditure incurred and the income not forming the part of the total income. Considering the above, we reverse the order of the FAA. Ground No.1 is decided in favour of the assessee. 6. Next Ground of appeal is about addition of ₹ 56.40 lakhs out of the expenditure incurred under ESOP(Employee Stock Option Scheme). During the asses .....

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.12.12, stated that the value of FBT taken for ESOP(Rs.50.65lakhs) as against cost of stock awarded to KF Employees(Rs.1.07crores), that the amount of ₹ 50.65 represented the value of ESOP, that had been vested with the employees during FY 2007-08 and consequently considered for FBT, that the amount of ₹ 1.07crores represented the amount charged by Korn Ferry International USA to Korn Ferry International Pvt. Ltd. India, towards stock awarded to the employees of the assessee. After c .....

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the AO made an addition of ₹ 56, 40, 195/- to the total income of the assessee. 7. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him, it was argued that allowability of ESOP expenses and payment of FBT for ESOP were two different concepts, that the FBT would become payable upon vesting of the ESOP in the hands of the employees accordingly the assessee had paid FBT during the year, that assessee had made full payment of ₹ 1.07 crores to its .....

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