TMI Blog2018 (12) TMI 1724X X X X Extracts X X X X X X X X Extracts X X X X ..... re Tribunal in the case of Biocon Ltd vs DCIT [ 2013 (8) TMI 629 - ITAT BANGALORE] wherein it had considered the allowability of ESOP expenses in detail and had held the discount on ESOP as a part of employee s cost and hence allowable in the hands of the employer. Accordingly, the ld CIT-A correctly deleted the disallowance Addition towards exchange loss - HELD THAT:- Reason given for disallowance was that in absence of details for transactions, it could not be denied that the transactions were related to the business of the assessee. However the appellant has explained that the amount reduced this year was actually related to the reversal of entry in the previous year. During the year ended on 3l.03.2012 the assessee had a MTM loss on reinstatement of hedging transactions of ₹ 522.68 lacs which had been claimed in the books of accounts. At the time of filing of return for A.Y 2012-13 the said amount was added back while computing returned income. As on 0l.04.2012 in the books the said loss of ₹ 522.68 lacs had been reversed and therefore appeared an income side. Also as on 3l.03.2013 there was MTM loss of ₹ 239.38 which appeared as expenditure in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning exempt income and an amount of ₹ 4.98 lakhs was offered for disallowance / s 14A of the Act. The submission of the assessee is considered but found not tenable. It has been clarified by Hon'ble CBDT vide Circular no. 05/2014 dated 11.02.2014 that the legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial-year or not. As the assessee did not maintain any separate books of accounts for accounting for expenses incurred in relation to income not includible in its total income, the amount of expenses actually incurred cannot be ascertained from the assessee's books of accounts satisfactorily. Accordingly, the provisions of section 14A r. w. rule 8Dd of the Act are attracted in the case of the assessee. Therefore, the disallowance u/ s 14A of the Act comes to 0.5% of ₹ 7633.15 lakhs i. e. ₹ 38, 16, 575/ -. Accordingly, an amount of ₹ 33, 18, 575/-(38, 16, 575- 4, 98, 000) is disallowed and added back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflected in the books and is not an allowable expense under the provisions of the Act. Accordingly, an amount of ₹ 23.98 lakhs is disallowed and added back to the total Income of the assessee. 4.2. The assessee argued that the expenditure incurred towards ESOP is an allowable expenditure. Without prejudice to the same, the assessee submitted that ESOP is a scheme under which the Directors, Officers and Employees receive a right to purchase securities or shares of the company at a pre-determined price, lower than the market value. The ESOP discount is a taxable perquisite to the employee at the time of exercise of option, and its valuation is to be done by considering the fair market value of the shares on the date on which the option is exercised. Since the remuneration to the employees under the ESOP is the amount of discount with respect to the market price of shares at the time of exercise of option, the employee cost in the hands of the company should also be respect to the same base. With regard to the ld AO s allegation that the assessee s claim on account of ESOP discount had not been reflected in the books of account, the assessee submitted that during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in the order of the ld CITA granting relief to the assessee. Accordingly, the Ground No. 2 raised by the revenue is dismissed. 5. The last issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition made in the sum of ₹ 2, 83, 30, 000/- towards exchange loss in the facts and circumstances of the case. 5.1. The brief facts of this issue are that during the relevant A.Y. the assessee has booked Mark to Market profit of ₹ 283.30 lakhs shown as negative figure under Note 24 finance cost arising on account of derivative transactions. It is noticed from the computation of income that the same amount has been reduced from the taxable profit in the computation of income. The assessee has referred to the Board s Instruction No. 3/10 dated 23.03.2010. It is noticed that this instruction of the Hon ble Board is applicable in the case of MTM loss on derivatives. Herein the assessee has not furnished any detail of the underlying assets, meaning thereby whether the transaction is related to the business or not. In the absence of the details of transactions it cannot be denied that the transaction can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by observing as under:- I have carefully considered the facts of the case, assessment order, the remand report and the other material brought on record. The assessing officer had disallowed an amount of ₹ 283.30 lacs shown as negative figure under note 24 as finance cost arriving out of derivative transactions. The reason given for. disallowance was that in absence of details for transactions, it could not be denied that the transactions were related to the business of the assessee. However the appellant has explained that the amount reduced this year was actually related to the reversal of entry in the previous year. During the year ended on 3l.03.20 12 the assessee had a MTM loss on reinstatement of hedging transactions of ₹ 522.68 lacs which had been claimed in the books of accounts. At the time of filing of return for A.Y 2012-13 the said amount was added back while computing returned income. As on 0l.04.2012 in the books the said loss of ₹ 522.68 lacs had been reversed and therefore appeared an income side. Also as on 3l.03.2013 there was MTM loss of ₹ 239.38 which appeared as expenditure in the books. While filing of retu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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