TMI Blog2019 (1) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... evant factor in determining the issue u/s. 14A. We, however, observe from the order of the Assessing Officer that the assessee in his computation of disallowance u/s. 14A filed before the AO has not even included such investments, from which he has earned the exempted income. The matter back to the file of the Assessing Officer to recomputed the disallowance u/s. 14A read with Rule 8D, after considering the decision of Hon’ble Apex Court in the case of Maxopp Investment (supra). The assessee is also directed to furnish complete details of investments as required by the assessing officer for correct computation of disallowance u/s. 14A. Accordingly, this ground is allowed for statistical purposes. - ITA No. 3837/Del/2015 - - - Dated:- 2-1-2019 - Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member For the Appellant : Sh. Sridhar Dora, Sr. DR For the Respondent : Sh. Deepesh Jain, CA, Sh. Meenal Goyal, CA ORDER PER L.P. SAHU, A.M.: This is an appeal filed by the Revenue against the order dated 31.03.2015 of ld. CIT(A)-4, New Delhi for the assessment year 2011-12 on the following grounds : 1. On the facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the decision of ITAT Special Bench, New Delhi in the case of M/s. Cheminvest Ltd., ITA No. 87/Del/2008 and CBDT Circular No. 05/2014 dated 11.02.2014. He recomputed the disallowance as per Rule 8D of the IT Rules and total resultant disallowance came to ₹ 80,98,193/-. Accordingly, the Assessing Officer made addition u/s. 14A read with Rule 8D of ₹ 12,86,407/- (80,98,193 68,11,786). Feeling aggrieved, the assessee appealed before the ld. CIT(A) who accepted the appeal of the assessee and directed the Assessing Officer for recomputation as per findings of the ld. CIT(A). Aggrieved from the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal. 4. The ld. DR relied on the order of the AO and submitted that the ld. CIT(A) has wrongly treated as Revenue expenditure the Employees Stock Option which has been debited into the profit and loss account of assessee. The Revenue has not accepted the judgment of Hon ble ITAT Special Bench in the case of CIT vs. Biocon Ltd. and has filed appeal before the High Court. The Assessing Officer has examined the issue in detail in the assessment order and therefore, the order of the Assessing Officer should be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viewed the legal position in the light of accounting and taxation principles and have disagreed with the views expressed by the Division Bench of Ranbaxy Laboratories (supra). 6.3.3 The Hon'ble Special Bench, Bangalore(SB) in its decision made the following observations which address the key reservations of the Ld. A.O.: when a company undertakes to issue shares to its employees at a discounted premium on a future date, the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of its dedicated employees during the vesting period. Such discount is construed, both by the employees and company, as nothing but a part of package of remuneration .... Para 9.2.6 There is no difference in two situations viz., one, when the company issues shares to public at market price and a part of the premium is given to the employees in lieu of their services and two, when the shares are directly issued to employees at a reduced rate. In both the situations, the employees stand compensated for their effort. .... Para 9.2.6 When section 43(2) of the Act is read in conjunction with section 37(1), the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of discount claimed as deduction during the vesting period is required to be reversed in relation to the unvesting/lapsing options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act. The question before the Special Bench is thus answered in affirmative by holding that discount on issue of Employee Stock Options is allowable as deduction in computing the income under the head 'Profits and Gains of Business or Profession'. 6.3.5 During the course of appellate proceedings, the appellant was also asked to furnish the details of working of the Scheme of ESOP expenditure. In response, the appellant submitted that the correct computation of allowance for ESOP comes at ₹ 12.32 Crores in the light of the computation scheme approved by the Hon'ble ITAT (SB) in the case of Biocon Ltd. (supra): It was submitted that as on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. As far as the disallowance u/s. 14A is concerned, we find that the ld. CIT(A) while deciding this issue has directed the Assessing Officer to recomputed the disallowance u/s. 14A, after considering the primary object of investment made in the subsidiary companies. For this, the ld. CIT(A) has recorded the decision of Hon ble Delhi High Court in the case of CIT v. Oriental Structural Engineering Pvt. Ltd., 216 Taxman 92 the decision of Mumbai Bench of Tribunal in Garware Wall Ropes vs. ACIT (ITA No. 5408/Mum/2012. We, however, find that Hon ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT(2018) 91 taxman.com 154 (SC) has categorically held that the dominant object for which the investment into the shares is made by the assessee may not be relevant. It is also held that the investment made in order to gain control of the investee company would not be relevant factor in determining the issue u/s. 14A of the IT Act. We, however, observe from the order of the Assessing Officer that the assessee in his computation of disallowance u/s. 14A filed before the Assessing Officer has not even included such investments, from which he has earned the exempted income. We, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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