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TMI Blog2022 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts in allowing depreciation of Rs.30,90,866/- on WDV of certain Administrative Expenses capitalized in earlier years. 3. Whether the Id.CIT(A) has erred in law and on facts in allowing ESOP Compensation Expenses Rs. 90,28,831/- 4. It is, therefore prayed that the order of the Ld.Commissioner of Income-tax(Appeals) may be set aside and that of the Assessing Officer be restored. 5. The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary, 3. The first issue raised by the Revenue is that the learned CIT-A erred in deleting the addition of Rs. 1,51,46,813/- under section 14A read with rule 8D of the Act. Note: the amount as per ground and addition as per assessment order does not match. 4. The assessee is a public company engaged in the business of transmission of natural gas through pipeline. The assessee company during the year under consideration earned exempted income of Rs. 2,46,37,085/- from investments. However, the assessee has not made any disallowance in pursuance to the provisions of section 14A read with rule 8D of the Income Tax Rule. As per the assessee, the investment was made with view to enhance the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucceed. 9. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. 10. The learned DR before us contended that the facts of the case on hand are distinguishable from the facts of the case referred by the learned CIT-A insofar that there was no suo-moto disallowance made by the assessee in the year under consideration. Accordingly, the issue in the case on hand with regard to the disallowance of the expenses against the exempted income under the provisions of section 14A read with rule 8D cannot be said as a covered issue. As per the learned DR, there was no disallowance made by the assessee against the exempted income, there was no option available to the AO except to resort the provisions of rule 8D of income tax rules read with section 14A of the Act. The learned DR in support of his contention has relied on the judgment of Hon'ble Gujarat High Court in the case of Devarsons Industries (P) Limited Vs ACIT reported in 84 Taxmann.com 244. 11. On the contrary learned AR before us submitted that identical addition was made in own case of the assessee in A.Y. 2012-13 and 2013-14 which was deleted by this tribunal in ITA NO. 381 & 382/Ahd/2019. 12. Bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A read with rule 8D of Income Tax Rule. The Hon'ble Gujarat High Court in the case of Devarsons Industries (P.) Ltd. reported in 84 taxmann.com 244 has held as under: To give effect to the provision of section 14A and in particular sub-section (2) thereof, Rule 8D of the rules provides the method for determining the amount of expenditure in relation to the income not includable in the total income. Sub-rule (1) echoes the provision of subsections (2) and (3) of section 14A where it provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been incurred in relation to the income which does not form part of the total income, he would determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). Sub-rule (2) of rule 8D prior to its amendment with effect from 02-06-2016 provided a formula to apportion the expenditure in connection with the tax free income. Section 14A as well as Rule 8D require the Assessing Officer to arrive at a satisfaction that the claim of the expenditure made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 13.3 In view of the above we hold that there cannot be any disallowance of interest expenses against the impugned exempted income. 13.4 Now coming to the next issue i.e. disallowance of administrative expenses as per rule 8D of Income Tax Rule. Admittedly the assessee has made huge investments and has earned exempted income to the tune of Rs. 2,46,37,085/-. The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise, a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly, in a meeting the expenses on refreshment, travelling, patrol and stationary are generally incurred. The services of the accountants are also used to record the necessary transactions in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized indirectly for making the investments in equity shares. Thus, we hold that the argument of the learned AR is not acceptable that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the administrative expenses should be attributed to such capital work in progress and therefore the same should be capitalized. Based on the order of the ITAT for the assessment year under consideration, the AO calculated 1% of the administrative expenses amounting to Rs. 35,54,217/- and held that such expenses has to be capitalized. However, the AO further held that such expenses being capitalized are eligible for depreciation in the year under consideration at the rate of 15% under section 32 of the Act. Thus the amount of Rs. 5,33,133/- was worked out as depreciation on such capitalization and the AO added the balance amount of Rs. 30,21,084/- to the total income of the assessee. 16. The assessee carried the matter to the learned CIT-A. 17. The assessee before the learned CIT-A did not dispute the finding of the AO as far as disallowances of 1% of certain administrative expenses is concern. However, the assessee before the learned CIT-A made additional claim by submitting that the depreciation on the amount of administrative expenses capitalised in earlier years should be allowed in the year under consideration on the written down value. For better understanding, the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on WDV of earlier year's additions. b) The appellant further submits that Hon'ble CIT(A)had in its orders for AY 10-11 (Copy enclosed - Annexure 09)A.Y. 12-13 (Copy enclosed -Annexure 07)& A.Y. 13-14 (Copy enclosed -Annexure OSjhaue directed theAO to grant the depredation on such capitalized expenditure. c) The appellant humbly prays to your honour that claim of depreciation of Rs. 13,90,866/~ on WDV of certain administrative expenditure which was disallowed and considered to be attributable to CWIP / Fixed asset in earlier AY's may kindly be granted 18. The learned CIT-A after considering the submission of the assessee allowed the ground of appeal of the assessee by observing as under: 5.7 As to the non-granting of depreciation of Rs.30,90,866/-, it is seen that in A.Y. 2008-09 to A.Y. 2012-13 the AO had disallowed 10% of specified expenditure out of CWIP which was reduced and restricted to 1% by the Hon'ble ITAT in its orders dated 07.12.2015 and 11.03.2016 for A.Y. 2008-09 and A.Y. 2009-10 respectively and accordingly the appellant has claimed additional allowance of depreciation of Rs.30,90,866/- on WDV of expenses (which was disallowed in earlier years) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is eligible for depreciation on the amount of administrative expenses which were capitalized in the earlier years. The answer stands in positive. It is for the reason that the AO himself has allowed the depreciation at the rate of 15% on the amount of Rs. 35,54,217/- which were capitalized in the year under consideration by attributing to the capital work in progress. Accordingly, the amount which were capitalized in the earlier year and brought forward after claiming the depreciation in the respective year is eligible for depreciation. Thus we do not find any infirmity in the order of the learned CIT-A. 21.2 Before parting, it is also important to note that the learned AR at the time of hearing contended that the issue raised by the revenue is not maintainable on the reason that the same is not arising from the order of the authorities below. We are in disagreement with the contention of the learned AR for the assessee. It is for the reason that the assessee has made additional claim before the learned CIT-A which was also admitted by him. But the learned CIT-A inadvertently has recorded the wrong amount. Thus we are of the view that the issue raised by the revenue c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 has decided the issue against the Revenue by observing as under: 13. We have heard both the respective parties, we have also perused the relevant materials available on record including the order passed by the Special Bench of ITAT in the matter of Biocon Limited vs. DCIT (LTU), reported in (2013) 35 taxmann.com 335 (Bangalore Trib. - SB). We have further perused the order passed by the Ld. CIT(A). However, no explanation is forthcoming as to how without verifying the records as regards the actual expenses incurred by the appellant's claim has been allowed. In this regard, we have carefully considered the order passed by the Special Bench in the case of Biocon Ltd. vs. DCIT (LTU) (supra) where it has been held that ESOP compensation expenditure is not a notional expenditure but an allowable expenditure under Section 37(1) of the Act. It has further been held that Special Bench that object of issuing of shares at a lower issue price than the market price to the employees under ESOP must be taken into consideration and thereby it cannot be treated as short receipt of securities premium but a cost on account of compensation of employees. Thus, principally the claim on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Revenue is partly allowed. 32. The next issue raised by the Revenue is that the learned CIT-A erred in allowing the depreciation on capitalisation of administrative expenses in the earlier year. 33. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2015-16 are identical to the issues raised by the Revenue in ITA No. 272/AHD/2020 for the assessment year 2014-15. Therefore, the findings given in ITA No. 272/AHD/2020 shall also be applicable for the year under consideration i.e. AY 2015-16. The appeal of the Revenue for the assessment 2014-15 has been decided by us vide paragraph No.21 to 21.2 of this order against the Revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2014-15 shall also be applied for the year under consideration i.e. AY 2015-16. Hence, the grounds of appeal filed by the Revenue is hereby dismissed. 34. The last issue raised by the Revenue is that the learned CIT-A erred in allowing the ESOP compensation expenses for Rs. 10,42,306/- only. 35. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2015-16 are i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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