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TMI Blog2022 (2) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, share based payments of Rs. 1,52,46,000/- have been charged to the profit and loss account for the year ending 31.03.2010 under the head employees costs. The amount debited was the cost of shares of ultimate holding company vested in certain employees and was claimed by assessee as revenue expenditure. 2.2. The ld. AO vide draft assessment order dated 15.03.2014 passed under section 144C(1) of the Act rejected the claim of the assessee and held that entire expenditure incurred by the assessee is to increase the share capital and thus is in the nature of capital expenditure. Further, the ld. AO held that expenditure is fully unascertainable as same has not been actually incurred by the assessee. Assessee's objections against the aforesaid disallowance were rejected by Ld. DRP vide directions dated 29.12.2014 issued under section 144C(5) of the Act. 2.3. Aggrieved by the disallowance, the assessee is in appeal before us. In this regard, Ld. AR submitted that under the ESOP scheme, equity stock options were granted to permanent employees of Indian Branches of Deutsche Bank and employees and directors of subsidiaries of Deutsche Bank in India. The assessee is a subsidiary of Deu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a certain amount given in the shape of discounted premium on the issue of shares. As per the Revenue, the vesting of shares after award is contingent upon many subsequent events and accordingly, the provision made by the assessee on account of award of shares is only a contingent liability. Similar contentions of Revenue for denying deduction to employees stock options expenses have been specifically dealt by Special Bench of Bangalore Tribunal in Biocon Ltd. (supra). Special Bench of Tribunal after considering the ratio laid down by Hon'ble Supreme Court in Bharat Earth Movers v. CIT reported in 245 ITR 428 and Rotork Controls India (P) Ltd. v. CIT reported in 314 ITR 62 observed as under: "9.3.5 When we consider the facts of the present case in the backdrop of the ratio laid down by the Hon'ble Supreme Court in Bharat Earth Movers (supra) and Rotork Controls India (P.) Ltd. (supra), it becomes vivid that the mandate of these cases is applicable with full force to the deductibility of the discount on incurring of liability on the rendition of service by the employees. The factum of the employees becoming entitled to exercise options at the end of the vesting period and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.3. During the course of hearing, the Ld. AR submitted that only reason for denying the deduction as per revised claim was that ld. DRP failed to take into account the auditor's certificate dated 11.10.2010 filed before the ld. AO vide letters dated 15.10.2013 and 18.03.2014. The Ld. AR further submitted that ld. DRP wrongly noted the date of letter filed by assessee as 04.03.2014 when in fact the letter was filed on 18.03.2014. In reply, Ld. DR graciously requested that computation of deduction under section 10A as per revised claim may be sent back to ld. AO for verification. 3.4. We have considered the rival submissions and perused the materials available on record. From the facts available on record, it evident that revenue does not dispute the claim of deduction under section 10A of the Act made by the assessee in its return of income. The grievance raised by assessee is limited to denial of revised claim of deduction under section 10A of the Act as per auditor's certificate dated 11.10.2010. We find that the audit certificate for claiming deduction under section 10A of the Act was dated 11.10.2010 which was the same date of filing the return of income by the assessee. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule CG and CFL to return of income filed by assessee, which is also forming part of paper book, submitted that during the relevant assessment year, assessee has incurred Long Term Capital Loss of Rs. 26,29,364/- and sought carry forward of same to future years. Ld. AR further submitted that Long Term Capital Gain was wrongly mentioned as Long Term Capital Loss in the computation of income and thus finding of ld. DRP arrived on this basis is erroneous. Ld. DR relied on the observations of the ld. DRP. 4.4. We have considered the rival submissions and perused the materials available on record. We find from the return of income, the assessee had incurred Long Term Capital Loss of Rs. 26,29,364/- during the previous year which is duly reflected in Schedule CFL thereon. The workings of Long Term Capital Loss of Rs. 26,29,364/- are enclosed in page 172 of the paper book filed before us. But by inadvertence, this figure of Long Term Capital Loss was not mentioned by the assessee in the computation of income which had triggered the ld. AO to reject the claim of the assessee despite the fact that it is a genuine claim of the assessee. We are unable to persuade ourselves to accept to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thus cannot be allowed as deduction. 7.2. We have considered the rival submissions. As the issue raised by the assessee by way of additional ground of appeal is purely legal issue which can be decided on the basis of material available on record, we are of the view that same can be admitted for consideration and adjudication in view of the ratio laid down by Hon'ble Supreme Court in NTPC Ltd. V. CIT reported in 229 ITR 383. 7.3. Coming to the additional ground of appeal, same is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in the case of Sesa Goa Ltd. (supra) and Hon'ble Rajasthan High Court in the case of Chambal Fertilizers & Chemicals Ltd. v. Jt. CIT reported in 107 taxmann.com 484. As per the above decisions, the amount of education cess and higher & secondary education cess is not tax as covered under section 40(a)(ii) of the Act and accordingly allowable as deduction in computing the income from business or profession. Though coordinate bench of Tribunal has taken a contrary view in the case of M/s Kanoria Chemicals & Industries Ltd. (supra), however, as the decision in the case of Sesa Goa Ltd. (supra) has been rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary, the activity undertaken by the assessee is a high end support services which can be comparable to that of KPO service provider, as the KPO requires domain knowledge, analytical skills and decision making capabilities. Accordingly, the ld. TPO identified the comparable companies and sought to benchmark the international transactions carried out by the assessee. 8.3. The final list of comparable as chosen by the ld. TPO are as under:- Sr. No. Name of the company (Exc. Forex) 1 Accentia Technologies Limited 43.07 2 Vishal Information Technologies Ltd.,(Coral Hub) Limited 43.49 3 Cosmic Global Limited 16.59 4 ICRA Online Limited 43.43 5 Informed Technologies India Limited 26.92 34.69 8.4. As against the assessee's margin of 22.86%, the arithmetic mean margin of comparable companies was arrived by the ld. APO at 34.69%. The ld. TPO accordingly made an adjustment of Rs. 18,68,71,000/- on account of provision of support services and determined the arm's length price thereon as under:- Particulars Amount in Rs.'000 Cost 1,579,323 ALP Profit @34.69% 547,867 ALP Revenue 2,127,190 Actual Revenue 1,940,319 Adjustment 186,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Technologies Limited, it had developed and owned unique intangibles/intellectual property/process i.e copyrighted products namely Iridium Medical Transcription Automation System (iMTAS); Iridium Real Time School (iRTS); Iridium Accounts Management System (iAMS); Iridium Inventory Management System (iIMS); Iridium Payroll Management System (iPMS); Iridium Business Transcription System (iBTS); and Iridium Hospital Management System (iHMS). In our considered view, the owning of the aforesaid intangible property by the aforementioned company therein renders it incomparable to the assessee before us. 10.4 Insofar, the employee cost of the aforesaid company i.e Accentia Technologies Ltd. is concerned, we find, that a perusal of its financials for the year under consideration, Page 25 of APB, therein reveals that the same works out at 12% of its total cost. Keeping in view the low employee costs of the aforesaid company, we are of the considered view that it could not have been feasibility selected as a comparable for benchmarking the International transactions of the assessee. 10.5 As regards the claim of the ld. A.R that the aforementioned company is functionally dissimilar to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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