TMI Blog2020 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... vis- -vis the own funds and free reserves for making any disallowance out of any interest expenditure. He shall keep in mind the decision in the case of CIT vs. Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] and in the case of HT Media [ 2017 (8) TMI 962 - DELHI HIGH COURT] and Taikisha Engineering India Ltd. [ 2014 (12) TMI 482 - DELHI HIGH COURT]. - Decided in favour of assessee for statistical purposes. Disallowance on account of SAR expenses written off and advance of sale of shares written off - HELD THAT:- As decided in M/S. RELIGARE SECURITIES LTD. [ 2018 (3) TMI 1529 - DELHI HIGH COURT] assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction - the expenditure on issue of shares under the Employees Stock Option could be allowed as staff welfare expenditure - Decided in favour of assessee. Higher depreciation on UPS - assessee claimed depreciation on UPS @ 60% treating the same to be part of computer and peripherals - HELD THAT:- As in the case of BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. [ 2010 (8) TMI 58 - DELHI HIGH COURT] has held that UPS is an ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit of ₹ 2,75,99,362/- offered by the assessee as suo motu disallowance, the AO made an addition of ₹ 3,04,61,857/- to the total income of the assessee. 4. Similarly, the AO allowed depreciation @ 15% as against 60% claimed by the assessee on UPS. The AO also disallowed the deduction on account of SAR expenses of ₹ 1,64,73,853/- as not an allowable expenses u/s 37(1) of the Act. There is also another addition of ₹ 81,66,260/- made by the AO being disallowance of reversal of earlier year expenses not claimed in the revised return of income for which the assessee is not in appeal before us. Therefore, we are not concerned with the same. The AO determined the total income at ₹ 39,37,05,670. 5. In appeal, the ld.CIT(A) restricted the disallowance u/s 14A of the Act to the extent of exempt income of ₹ 3 crore. Similarly, he also directed the AO to allow depreciation @ 60% by considering the UPS as an essential part of computer system. He, however, sustained the other additions made by the AO. 6. Aggrieved with such order of the CIT(A), the assessee as well as the Revenue are in appeal before us by raising the following grounds:- Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted cost allowable under section 37(1) of the Act. 4.3 Without Prejudice, the CIT(A) erred on facts and in law in not allowing deduction of the aforesaid amount of loan written off as loss incidental to business under section 28 of the Act. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing. Grounds of appeal by the Revenue 1. That on facts and circumstances of the case and in law the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the IT Act to the extent of exempt income of ₹ 3,00,00,000/- and giving relief of ₹ 2,80,61,219/- to the assessee in the light of CBDT Circular No. 5 of 2014 dated 11.02.2014 issuing a clarification that provision of 14A read with Rule 8D shall be applicable even in the cases where the assessee does not have any dividend income. 2. That on fact and circumstances of the case and in law the Ld. CIT(A) erred in allowing the depreciation @ 60% considering the UPS essentially part of computer system and giving relief of ₹ 19,16,829/- whereas the UPS is not an integral part of computer system and eligible depreciation on it is @ of 15%. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment at ₹ 34,80,440/- both totaling to ₹ 275,99,362/-. He submitted that while erroneously computing the disallowance, the assesseee has even considered investments not yielding dividend income during the year while computing disallowance in terms of Rule 8D(2)(ii)(iii) of the IT Act which has been highlighted in the additional ground of appeal. He submitted that the AO computed the disallowance u/s 14A r.w. Rule 8D at ₹ 5,80,61,219/- and after deducting the suo motu disallowance made by the assessee, made disallowance of ₹ 3,04,61,857/-. He submitted that the ld.CIT(A) restricted such disallowance to ₹ 3 crore being the actual dividend income received during the year for which the Revenue is in appeal and for the addition sustained by the CIT(A), the assessee is in appeal before the Tribunal. 11. The ld. Counsel for the assessee submitted that the assessee has earned dividend income of ₹ 3 crore from investment in shares of Religare Commodities Ltd., wherein investment made was only of ₹ 3,75,00,000/- out of the total closing investment of ₹ 2,11,05,88,093/- as on 31.03.2011. Referring to various decisions, he submitted that altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,57,40,035 whereas the interest income is ₹ 182,27,00,961/-. Therefore, the interest income earned by the assessee far exceeded the interest expenditure and, therefore, no interest expenditure can be considered for disallowance under Rule 8D(2)(ii). 14. Without prejudice to the above, he submitted that the AO/CIT(A) has incorrectly included interest on bank overdraft, inter-corporate loan, commercial paper, client margin, interest on TDS, interest on service tax, interest on professional tax, interest paid to clients on advance brokerage received and bank guarantee commission, etc. which is not in accordance with the law. He, however, submitted that the investment of ₹ 3,75,00,000/- inshares of RCL which yielded commercial income can only be considered for disallowance u/s 14A of the Act. He submitted that the above investment of ₹ 3,75,00,000/- far exceeds shareholders funds of ₹ 433 crores as on 31.03.2011 and ₹ 425 crores as on 31.03.2010. Referring to various decisions including the decision of the Hon ble Supreme Court in the case of CIT vs. Reliance Industries Ltd., 410 ITR 466 and the decision of the Hon ble Delhi High Curt in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once the assessee has suo motu made disallowance of ₹ 2,75,99,362/-, the disallowance u/s 14A, under no circumstances can be less than the said amount. Otherwise, the final computation will be less than the returned income. 17. The Hon ble Supreme Court in the case of Maxopp Investments Ltd. vs. CIT, 402 ITR 640, has held that the disallowance u/s 14A cannot exceed the actual exempt income received. Therefore, the ground raised by the Revenue on this issue has to be dismissed. Accordingly, the ground by the Revenue on this issue is dismissed. 18. So far as the grounds raised by the assessee including the additional grounds are concerned, the Hon ble High Court in the case of ACB India Ltd. vs. ACIT, 374 ITR 108 has held that for the purpose of computing disallowance u/s 14A of the Act instead of taking into account total investment, only such investments which yielded exempt dividend income during the year are required to be considered for the purpose of disallowance. Further, the Tribunal in assessee s own case for A.Y. 2008-09 has directed the AO to compute the disallowance u/s 14A only qua investments which have yielded exempt income from the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion pertained to write off of the loan given to the trust and was deductable as a business expenditure u/s 37(1) of the Act. It is noted that this issue was adjudicated in appeal for the A. Y. 2008-09 and the Ld. ClT(Appeals)-XVIII vide her order dated 28.02.2013 in A. No. 229/10-11 had held that the expenditure claimed was clearly a capital expense and hence not allowable. The finding of the Ld. CIT(Appeals)-XVIII is as under: 5.5 Why SAR discount is capital in nature (not allowable)/Claim of SAR discount as a deduction is to be examined under the head Profits and gains of business or profession . This head of income is housed in sections 28 to 44DB. Under section 28(i) the profits and gains of any business or profession carried on by the assessee at any time during the previous; year is chargeable to tax. As per section 29, the income referred to in section 28 should be computed in accordance with the provisions contained in section 30 to 430. Section 36 to 36 confer specific deductions. Section 37 deals with expenditure which is general in nature and not covered within section 36 to 36. The remaining sections enlist various categories of nondeductible expenditure. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains arising or accruing from a business/trade. The Apex Court decision in the case of Punjab State Industrial Dev Corporation Ltd. (1997) 225 ITR 792 (SC) and Brooke Bond India Ltd. (1997) 225 ITR 798 (SC) have held that expenditure resulting in 'increase in capital' is not an allowable deduction even if such expenditure may incidentally help in business of the company. SAR discount does not diminish trading/ business receipts of the issuing company. The company does not suffer any pecuniary detriment. To claim a charge against income, it should inflict a detriment to the financial position. ESOP is a voluntary scheme launched by the employers to issue shares to employees. The intention is to only give a 'stake' to the employees in the organization. This discount is not incurred towards satisfaction of any trade liability as the employees have not given up anything to procure such ESOP. The discount was not a payment of sum contractually due to the employees and cannot be said to have been laid out for the purpose of business. Share premiums obtained on issue of shares are items of capita/ receipt. When such premium is foregone, it cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of the difference between the purchase price of stock appreciation right in the sale price of such stock appreciation right on exercise by the employees of the appellant as these are revenue expenditure in nature. Therefore ground no 1 2 of the appeal of the assessee is allowed. 22. We find, the Revenue filed appeal against the Tribunal and the Hon ble High Court, vide ITA No.311/2018, order dated 19th March, 2018, dismissed the appeal filed by the Revenue by observing as under:- The Revenue s appeal under Section 260A of the Income Tax Act alleges that the Income Tax Appellate Tribunal (1TAT) erred in allowing 22,09,63,780/- as a capital expense. That amount was the quantum of discount given in respect of the SAR (Stock Appreciation Rights) - similar to Employee Stock Option (ESO) offered by the employer to the work force. The IT AT followed its previous decision and also cited a judgment of this Court in Commissioner of Income Tax vs. Lemon Tree Hotels Ltd, (ITA 107/2015 decided on 18.08.2015). The ITAT also relied upon the judgment of Madras High Court in Commissioner of Income Tax-Ill, Chennai vs. PVP Ventures Ltd., TC(A) 1023 of 2005. In PVP Ventures Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBI. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee 'had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief granted by the Assessing Authority for the expenditure arising on account of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263 of the Act. In view of the above reasoning, the Court is of the opinion that there is no infirmity with the approach or order of the Tribunal. No question of law arises. The appeal is co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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