TMI Blog2016 (5) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... ards ESOP expenses - Held that:- Since the shares were purchased by the Trust from the promoters of the assessee-company at the rate of ₹ 15/- per equity share and the same was also claimed to be allotted to the employees of the assessee-company at a price of ₹ 15/- per equity share, this Tribunal is of the considered opinion that the buy back of the shares from the very same employees at a cost of ₹ 340/- per equity share cannot be an expenditure for the assessee-company. This Tribunal is of the considered opinion that the claim of the assessee is only to reduce the taxable income of the assessee. Therefore, the same cannot be allowed under Section 37 of the Act. Addition of brokerage income - Held that:- Admittedly, the Profit & Loss account shows brokerage income after netting to the extent of ₹ 50,23,360/-. The claim of the assessee that a sum of ₹ 50,23,360/- is payable to various clients since there was dispute pending among them, was not substantiated by any material. The assessee could not produce any evidence before the authorities below that the liability has arisen during the year under consideration. It is also not in dispute that the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to be increased while computing income under Section 115JB of the Act? We have carefully gone through the provisions of Section 115JB of the Act. Explanation 1(f) to Section 115JB(2) of the Act clearly says that the amount of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) has to be increased with book profit computed under the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. In the case before us, the dividend income earned by the assessee to the extent of ₹ 15,41,947/- is exempted under Section 10(34) of the Act. Therefore, the expenditure relatable to such income has to be increased after computing the book profit under the provisions of Companies Act. In view of the specific provision in Explanation 1(f) to Section 115JB(2) of the Act, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Deduction of interest under Section 244A - Held that:- A bare reading of assessment order shows that the assessee by letter dated 03.09.2012 accepted the interest amount received to the extent of ₹ 7,11,919/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be realized may be claimed as business loss. At no stretch of imagination, it can be said that the amount due from the clients is bad debt. Since the provisions of Section 36(2)(i) was not complied with, this Tribunal is of the considered opinion that the outstanding amount cannot be construed as bad debt. Therefore, there is no question of allowing the same as bad debt. Since the shares remained with the assessee and it can be sold at any time, at the best, it can be claimed as business loss in the year in which those shares are sold provided there is any actual loss. Accordingly, the Assessing Officer shall verify whether the assessee sold the shares during the year under consideration and suffered any loss. If the assessee suffered loss on sale of such shares, the same shall be allowed as business loss. - ITA Nos. 733, 734 & 735/Mds/2015 - - - Dated:- 5-5-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Shri R. Sivaraman, Advocate For the Respondent : Shri Arun C. Bharat, CIT ORDER Per N. R. S. Ganesan, Judicial Member All the three appeals of the assessee are directed against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Insight Welfare Trust to the extent of ₹ 1,11,18,000/-. According to the Ld. D.R., expenditure for purchasing the shares of the assessee s employees by the Trust cannot be a business expenditure. Therefore, it is not an allowable expenditure either under Section 37 of the Act or otherwise. The Ld. D.R. submitted that the Assessing Officer has not discussed anything in the assessment order about the allowability of the cost of ESOP. Therefore, it cannot be said that the Assessing Officer has taken one of the possible view. According to the Ld. D.R., reopening the assessment is not due to change of opinion. In the absence of any opinion framed by the Assessing Officer in the original assessment order, according to the Ld. D.R., it cannot be said that the Assessing Officer reopened the assessment due to change of opinion. The Ld. D.R. further submitted that the assessment proceeding was reopened under Section 147 of the Act within four years from the end of the relevant assessment year. Since the entire expenditure was incurred by Shriram Insight Welfare Trust and not by the assessee-company, according to the Ld. D.R., the Assessing Officer has rightly reopened the assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption either directly or indirectly to the eligible employees. Therefore, merely because the assessee established a Trust for implementation of ESOP Scheme, the expenditure incurred by the assessee cannot be disallowed. Referring to the order of the CIT(Appeals), the Ld.counsel submitted that the ESOP Plan was approved by the Board and shareholders, the assessee has advanced a sum of ₹ 1,76,25,000/- to the Trust to enable them to purchase and allot the shares to the employees. In fact, the Trust purchased 3,50,000 equity shares from existing promoters of the company at a price of ₹ 15/- per equity shares which were sold to the eligible employees at ₹ 15/- per equity share. Subsequently, the Trust purchased the shares from the employees to whom the shares were allotted. The expenditure incurred by the Trust to the extent of ₹ 1,11,18,000/- to buy back the equity shares was claimed as expenditure by the assessee-company. The Ld.counsel submitted that the Assessing Officer disallowed the claim of the assessee in respect of ₹ 1,11,18,000/- which was utilised to buy back the equity shares from the respective employees. The Ld.counsel submitted that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Trust purchased 32,700 equity shares from the employees at a price of ₹ 340/- per equity share. The assessee-company granted a sum of ₹ 1,11,80,000/- for the purpose of buying back the equity shares by the Trust from its employees. The question arises for consideration is whether the sum of ₹ 1,11,18,000/- advanced by the assessee to the Trust for buying back the equity shares from its employees can be allowed as expenditure or not? As per the scheme of ESOP, as approved by the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, the scheme can be implemented either directly or through a Trust. In this case, the assessee opted to implement the scheme through a Trust. The CIT(Appeals) found that the Trust is a separate legal entity and the expenditure incurred for buying back the shares from its employees was accounted in the books of account of the Trust. Therefore, the CIT(Appeals) found that the amount advanced by the assessee for buying back the shares from the employees has to be treated as loan. Even though the assessee has produced material before the authorities below for purchase of 3,50,000 equity shares from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omoters of the company at a price of ₹ 15/-. The very same shares were claimed to be purchased from the employees at ₹ 340/-. The assessee is not claiming difference between fair market value and allotment price as expenditure. The assessee is claiming the purchase price at Rs. 340/- from its employees as expenditure. Therefore, this Tribunal is of the considered opinion that the decision of Bangalore Bench in Novo Nordisk India Pvt. Ltd. (supra) is not applicable to the facts of the case. Since the shares were purchased by the Trust from the promoters of the assessee-company at the rate of ₹ 15/- per equity share and the same was also claimed to be allotted to the employees of the assessee-company at a price of ₹ 15/- per equity share, this Tribunal is of the considered opinion that the buy back of the shares from the very same employees at a cost of ₹ 340/- per equity share cannot be an expenditure for the assessee-company. This Tribunal is of the considered opinion that the claim of the assessee is only to reduce the taxable income of the assessee. Therefore, the same cannot be allowed under Section 37 of the Act. In view of the above, this Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is admittedly following mercantile system of accounting. The gross brokerage income was shown as trading receipt in the books of account. Therefore, the claim of the assessee that the part of the amount to the extent of ₹ 50,23,360/- was not receivable is not correct. Therefore, according to the Ld. D.R., the claim of the assessee that a sum of ₹ 50,23,360/- is a revenue expenditure is not justified. 14. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the Profit Loss account shows brokerage income after netting to the extent of ₹ 50,23,360/-. The claim of the assessee that a sum of ₹ 50,23,360/- is payable to various clients since there was dispute pending among them, was not substantiated by any material. The assessee could not produce any evidence before the authorities below that the liability has arisen during the year under consideration. It is also not in dispute that the brokerage income was shown as trading receipt in the books of account. The only contention of the assessee before the Assessing Officer is that the refund arises only in case the case was decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2), and arrived at ₹ 4,44,491/-. The expenditure admitted by the assessee to the extent of ₹ 7,200/- was also reduced and the expenditure was computed to ₹ 4,37,291/-. This was disallowed by the Assessing Officer. 18. We have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals), after considering the material available on record, found that the assessee has earned dividend income of ₹ 15,41,947/- which was exempted from the provisions of Income-tax Act. The assessee claimed before the lower authorities that a sum of ₹ 15,41,947/- was received through ECS credit. Therefore, no expenditure was incurred for earning the dividend income. The assessee itself disallowed a sum of ₹ 7,200/- towards administrative expenses. Being not satisfied with the explanation of the assessee, the Assessing Officer adopted the provisions of Rule 8D and found the average expenditure by applying limb (ii) and (iii) of Rule 8D(2) to ₹ 4,44,491/-. After reducing the expenditure admitted by the assessee to the extent of ₹ 7,200/-, the balance of ₹ 4,37,291/- was treated as expenditure f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses for consideration is whether ₹ 4,37,291/- was to be increased while computing income under Section 115JB of the Act? We have carefully gone through the provisions of Section 115JB of the Act. Explanation 1(f) to Section 115JB(2) of the Act clearly says that the amount of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) has to be increased with book profit computed under the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. In the case before us, the dividend income earned by the assessee to the extent of ₹ 15,41,947/- is exempted under Section 10(34) of the Act. Therefore, the expenditure relatable to such income has to be increased after computing the book profit under the provisions of Companies Act. In view of the specific provision in Explanation 1(f) to Section 115JB(2) of the Act, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 24. The next ground of appeal is with regard to deduction of interest under Section 244A of the Act to the extent of ₹ 16,51,266/-. 25. Shri R. Sivaraman, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular dated 27.09.2010, the CIT(Appeals) directed the Assessing Officer to compute the interest keeping in view of the CBDT circular. Therefore, according to the Ld. D.R., no interference is called for. 31. We have considered the rival submissions on either side and perused the relevant material available on record. Section 244A of the Act provides for refund of interest on any amount due to the assessee. In the case before us, the assessee claimed that the return of income was filed within the due date extended by the CBDT. Therefore, the CIT(Appeals) directed the Assessing Officer to verify the due date for filing of return of income and thereafter compute the interest accordingly. In view of the above direction of the CIT(Appeals), this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. 32. The next ground of appeal is with regard to credit for TDS to the extent of ₹ 13,81,600/-. 33. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the TDS was ₹ 38,17,769/-. The Assessing Officer gave a credit of ₹ 24,36,169/-. However, the credit was not given to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. As rightly submitted by the Ld. D.R., the Assessing Officer computed the disallowance by applying limb (ii) and (iii) of Rule 8D(2) and took the average as expenditure. Since the application of Rule 8D is mandatory for the year under consideration, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 40. The next ground of appeal is with regard to addition of loss on arbitration to the extent of ₹ 3,30,348/-. 41. Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that three claims of the assessee appeared in arbitration proceeding. On the basis of arbitration award, the assessee has to pay to the clients a sum of ₹ 3,30,348/-. According to the Ld. counsel, this is only consequent to the arbitration award as mechanism for dispute resolution, therefore, it cannot be construed as penalty. 42. On the contrary, Shri Arun C. Bharat, the Ld. Departmental Representative, submitted that the claim made by the assessee was for violating the contractual obligation. Penalty has also been imposed for violation of rules and regulations framed by Securities and Exchange Board of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has to settle the amount to the stock exchange regardless of whether the assessee received the payment from the clients or not. If the payment was not made, the assessee will be declared as defaulter and the assessee will not be allowed to transact business in exchanges. Therefore, the assessee was forced to make the payment. Similarly, in the case of M/s Grannayak Traders Pvt. Ltd., the share price went down to ₹ 31.85 as on 31.03.2011. The client failed to honour its commitment. Therefore, an amount of ₹ 72,77,034/- was written off. Since the debt could not be recovered from the respective client, accordingly, the same was claimed as bad debt. 46. On the contrary, Shri Arun C. Bharat, the Ld. Departmental Representative, submitted that the bad debt has to be allowed provided the conditions stipulated in Section 36 of the Act are complied with. Section 36(1)(vii) of the Act clearly says that the deduction of bad debt can be allowed provided the same was written off. The debt should be an actual debt which was offered for taxation in the earlier assessment year. In the case before us, according to the Ld. D.R., the assessee is not doing any money lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding which is carried on by the assessee. In view of the above, it is for the assessee to establish that the bad debt has been taken into account in computing the income of the assessee of any of the previous year or the money was lent in the course of ordinary business of the assessee. In case the money lending is not the business of the assessee, then the assessee has to necessarily establish that the so-called debt was taken as income of the assessee for the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. There is no material on record to suggest that the amount invested in shares was taken as income of the assessee in any of the previous year. Moreover, as rightly submitted by the Ld. D.R., the shares purchased by the assessee remained with assessee. The price of the share might have gone down considerably, however, the fact remains that the shares remained with the assessee and the assessee has a right to hold the same till the payment was made by the respective clients. Therefore, merely because the clients could not honour their respective commitment of paying the purchase price, it does not mean that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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