TMI Blog2016 (3) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... eration is undertaken by him before making the said addition. Assessee is certain. The consideration, if one more opportunity is granted considering the same, we read remand this ground to the file of the assessing officer for fresh adjudication of the issue after granting a reasonable opportunity of being heard to the assessee. Depreciation on uninterrupted power supply(UPS) - Held that:- Tribunal had decided the issue in favour of the assessee, while adjudicating the appeals for the earlier years as following the principle of consistency, the depreciation at the rate of 80% should be allowed on UPS instead of 15% granted by the assessing officer. Accordingly ground raised by the revenue are dismissed. Marked to market losses (MTM) allowance - Held that:- Identical issue had arisen in the earlier years and the tribunal had decided the issue in favour of the assessee held that the MTM loss is liable to be allowed. Disallowance made with regard to employee stock option scheme(ESOP) - Held that:- Offer was made by the parent company to the employees of the assessee for ESOP and the assessee had made payment for the discount allowed by the parent company. As far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference shares), that the assessee had made no disallowance in the return of income as per the provisions of section 14A of thy Act. Without prejudice the assessee had made a disallowance of ₹ 19.39 lakhs under section 14 A read with rule 8D of the income tax rules 1962 Rules. The assessee submitted that in case disallowance under section 14 A was to be made it should be restricted to ₹ 19.87 Lacs only. However, the AO held that the contention of the assessee regarding strategic investment was not acceptable, that investment in shares/ preference shares required experience and professional skills. Finally, he made a disallowance of ₹ 2.22 crores (Rs. 2.41 crores minus ₹ 19.39 lakhs) under section 14 A read with rule 8D of the rules. 3. Aggreived by the order of the AO, the assessee preferred an appeal before the first appellate authority (FAA). Before him, the assessee made elaborate submissions. After considering the assessment order and the submission of the assessee, he referred to the orders of his predecessors for the earlier years and upheld the disallowance made by the AO. 4. B efore us, the Authorised Representative (AR) stated that similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgement before deciding the issue. Assessing officer shall grant a reasonable opportunity of being heard of the assessee. Accordingly, ground number one is allowed for statistical purposes. Respectfully following the above order of the tribunal for the earlier years, first ground of appeal is decided in favour of the assessee, in part. 6. S econd ground of appeal deals with addition made on account of AIR information. As per the AO, the assessee was not able to reconcile the difference pointed out by him with regard to AIR information. Before the FAA, the assessee argued that the AO had not given the assessee an opportunity of cross examination with regard to the transActions appearing in the report. As the assessee did not produce any evidence to prove that the transactions listed in the report did not pertain to it, the FW following the principles of natural justice, directed the AO to re-examine the AIR data. He further held that if the assessee was able to reconcile the difference, no addition should be made. However, if the assessee was not in a position to file a consideration statement the AO could AO could make necessary additions. 7. D uring the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, Joe the poor in the case of surface finishing equipment (supra). We therefore, following the decision of the coordinate bench, direct the assessing officer to allow the depreciation at the rate of 80% on the UPS instead of 15%. Accordingly, ground number seven is allowed. 28. Considering the above covered nature of the issue as well as respectfully following the decision of the coordinate bench and also following the principle of consistency, the depreciation at the rate of 80% should be allowed on UPS instead of 15% granted by the assessing officer. Accordingly ground raised by the revenue are dismissed. Respectfully following the order of the bench for the earlier years ground number one is decided against the AO. 10. N ext issue is about marked to market losses (MTM). The DR and the AR, agreed that identical issue had arisen in the earlier years and the tribunal had decided the issue in favour of the assessee, that the FAA had followed the order of the tribunal. We are reproducing the order of the tribunal and it reads as under We have heard both the parties and perused the orders of the revenue authorities as well as cited decision of the tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with SEBI guidelines,1999, that the scheme provided the employee of the assessee to acquire the equity share of KMBL, that the employees of the assessee were granted option at a discount to the prevailing market price, that the assessee made payment to KMBL in respect of its share of discount and debited such payment to P and L account. The assessee claimed the direction of such is payment on the ground that it was nothing but compensation paid to the employees. However, the AO rejected the claim of the assessee holding that ESOP discounts were incurred in relation to the issue of shares to the employees, that same were not relatable to profits and gains arising or accruing from business/trade, that ESOP discount did not diminish trading/business receipts of the issuing company, that the company did not suffer any pecuniary detriment,, that the discount was not incurred towards satisfaction of any trading liability, that share premiums received on issue of shares were items of capital receipt, that there was no specific provision for such direction under section 30 -36 of the Act, that the expenditure was not also allowable under section 37 of the Act, that the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had offered ESOP to the employees of the assessee, that the assessee had made a payment of ₹ 519.19 lakhs to the parent company on account of discount for ESOP, that the AO had rejected the claim made by the assessee. We find that in the case of Biocon Ltd. the issue of allowability of expenditure with regard to ESOP has been deliberated upon at length. The order of the special bench is being followed by other benches. In our opinion the facts of the cases, relied upon by the DR i. e. Vodafone and Consolidated African Selection Process Ltd.(supra)are not relevant for deciding the issue before us. In the case of Vodafone issue to be decided was issue of shares at a premium by assessee to its nonresident holding company and applicability of provisions of chapter X of the Act. In the second case, the company had issued shares to its employees at par value while shares to public were issued at premium. In the case under consideration offer was made by the parent company to the employees of the assessee for ESOP and the assessee had made payment for the discount allowed by the parent company. We would like to refer to the case of Nova Nordisk India Private Limited(supra), wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cash from the assessee to the foreign parent company. The price at which shares were issued to the employees was paid by the employee to the Assessee who in turn paid it to the parent company. The difference between the fair market value of the shares of the price at which shares were issued to the employees was met by the Assessee. This factual position is not disputed at any stage by the revenue. In such circumstances, we do not see any basis on which it could be said that the expenditure in question was a capital expenditure of the foreign parent company. As far as the assessee is concerned, the difference between the fair market value of the shares of the parent company and the price at which those shares were issued to its employees in India was paid to the employee and was an employee cost which is a revenue expenditure incurred for the purpose of the business of the company and had to be allowed as deduction. There is no reason why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee. 20. We fail to see any basis for the observation of the CIT(A) that the obligation to issue shares at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) thus held that it was an expense incurred by the assessee to retain, motive and award its employees for their hard work and is akin to the salary costs of the assessee. The same was therefore business expenditure and should be allowable in computing the taxable income of the assessee. The tribunal upheld the view of the CIT(A). It can be seen from the decision in the case of Accenture (supra) that the shares of the foreign company were allotted and given to the employees of affiliate in India at the behest of the affiliate in India. The CIT(Appeals), however, presumed that the facts in the instant case of the assessee was that the shares were allotted to the employees of the affiliate in India at the behest of the foreign company. This is not the factual position in the assessee s case, as the assessee had on its own framed the NNIPL ESOP Scheme, 2005, to benefit its employees. NNAS may have a global policy of rewarding employees of affiliates with its shares being given at a discount and that policy might be the basis for the Assessee to frame ESOP. That by itself will not mean that the ESOP was at the behest of the parent company. In any event the immediate beneficiary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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