TMI Blog2021 (12) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... lity - Provision being created in compliance with revised Accounting Standard-15 issued by the Institute of Chartered Accountants of India (ICAI), relating to accounting of employee benefits - HELD THAT:- The incremental provision on account of post-retirement gratuity to employees has been made in respect of liability in presenti, viz., entitlement earned by the employee while in service until the end of the relevant previous year, on the basis of actuarial valuation Since the aforesaid liability was quantified and recognized on a scientific and rational basis based on report of the actuarial valuer, the liability therefore crystallized and accrued in the relevant assessment year itself and was allowable deduction in that year. As relying on M/S HEWLETT PACKARD INDIA (P) LTD. [ 2008 (3) TMI 23 - HIGH COURT OF DELHI] liability is considered as ascertained if the same is determined on actuarial valuation. The court held that the provision made for contingent liability was entitled to deduction if the provision was determined accurately and scientifically. In view of this we hold that provision of gratuity made in accordance with AS 15 and backed by actuarial valuation is an asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a joint venture company M/s. Indus Tower Limited. 2.1 The learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant company had sufficient interest free funds 14,246.38 crores to advance loan of ₹ 503 crores to its joint venture company and grossly erred in disregarding the decision of the Hon ble Supreme Court in Munjal Sales Corporation 168 taxmann 43 (SC) and with various jurisdictional High Court decisions. 2.2 The learned Commissioner of Income Tax (Appeals) failed to appreciate that the amount had been advanced for the purposes of business to its joint venture company Indus Tower Limited and grossly erred in disregarding the decision of the Hon ble Supreme Court in the case of SA Builders 288 ITR 1 (SC) and Hero Cycles Ltd 379 ITR 347 (SC). 3. The learned Commissioner of Income tax has erred both on facts and in law in adding to the declared book profits under section 115JB, provision for gratuity amounting to ₹ 1,32,03,725/- allegedly on the basis that the same is an unascertained liability and liable to be added as per clause (c) of Explanation (1) below subsection 2 of section 115JB of the Act. 4. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of explanation (1) of subsection 2 to Section 115JB of the act. 8. The learned assessing officer also noted that assessee company has given a loan of ₹ 1,896,53,52,348 to the joint-venture group companies. And therefore the learned AO after noting that the assessee has also paid term loan interest of ₹ 328,015,000, question the assessee that why the amount of advances given to Indus Tower Limited amounting to ₹ 11,164,820,000 without charging of the interest and therefore the interest to that extent should not be disallowed. Assessee submitted that it has made a strategic business promoting investment by acquiring 42% stake in the said capital of the above company. The above company provided infrastructure support to the assessee and therefore the advances were given to the above company for business purposes. The assessee also relied upon the decision of the honourable Supreme Court in case of SA builders private limited. Assessee also submitted that it has adequate own funds out of which interest free loans and advances were given to the above party and therefore even otherwise there cannot be any disallowance of interest expenditure. The learned assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred appeal before us. 11. First ground of appeal is with relation to the claim of ESOP expenses amounting ₹ 34.27 crores. The ld. AR submitted that above issue is squarely covered in favour of the assessee by the decision of Hon ble Karnataka High Court in CIT Vs. Biocon Ltd. 430 ITR 131 (Kar.) and also of Hon ble Delhi High Court in CIT Vs. Lemon Tree Hotels Ltd. He, therefore, submitted that the above deduction is allowable to the assessee. 12. With respect to ground No. 2 relating to interest disallowance of ₹ 27.49 crores on the amount of funds, ₹ 503 crores advance as interest free loan to a joint venture company M/s. Indus Tower Ltd., he submitted that the interest free funds in the above case exceed the advances made and, therefore, the presumption is available in favour of the assessee that such funds are advanced out of own funds and no disallowance can be made under Section 36(1)(iii) of the Act. He referred to the decision of the Hon ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. 410 ITR 466. Even otherwise explaining the facts of the case he submitted that advances are made out of commercial expediency and, therefore, no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, Profits and Gains of Business or Profession . 7. Thus, from perusal of section 37(1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expended and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of section 37(1) of the Act would be attracted. It is also pertinent to note that section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the securities offered by a company at a free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The employees are given stock options at discount and the same amount of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which has been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of Infosys Technologies Ltd.(supra) is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under section 201 of the Act for non-deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Years in question was 1997-98 to 1999-2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 1-4-2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. Therefore, we direct the learned assessing officer to delete the disallowance of interest expenditure of ₹ 274,985,908/ . Accordingly, ground number 2 of the appeal of assessee is allowed. 19. Ground number 3 is with respect to the addition of ₹ 132,03,725 being provision of the gratuity expenditure Provision for gratuity liability is being created in compliance with revised Accounting Standard-15 issued by the Institute of Chartered Accountants of India (ICAI), relating to accounting of employee benefits. The said Accounting Standard, it may also be mentioned here, makes it mandatory for all companies to estimate and accrue liability in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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