TMI Blog2022 (12) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and confirmed by the ld. CIT (A) is without any basis. It is not the case that the expenditure is bogus. In these circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Disallowing the expenditure incurred by the Appellant towards gift provided to foreign delegate as a part of business promotion - HELD THAT:- We find that assessee has not adduced any evidence before us also to take a contrary view than the one taken by ld. CIT (A) on above issues. As regards gold chain, we may also observed that if it was a souvenir on behalf of the assessee company, there is no reason why the bill is in the name of the Director in person. Hence, we confirm the disallowances as sustained by ld. CIT (A). Disallowing the claim for weighted deduction in respect of expenditure on scientific research u/s 35(2AB) - HELD THAT:- Upon careful consideration, we find ourselves in agreement with the submission of ld. Counsel of the assessee as above. Assessee has duly fulfilled the obligation cast upon it. It has duly obtained the required certificate from DSIR. The delay in respect of Form 3CL is not attributable to any act or omission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate that for an expenditure to be claimed as deductible u/s 37(1) of the Income-tax Act. 1961, there is no mandate that the expenditure should actually be spent especially when the assessee was following Mercantile system of accounting. 2.4. That the Ld. CIT (A) erred in holding that the Appellant has not been able to prove that expenses pertaining to ESOP were actually incurred inasmuch as the Appellant vide its written submissions categorically submitted that 22,918 ESOPs were vested. The Ld. CIT(A) failed to understand that by undertaking to issue shares at a discount, the Appellant was under an obligation to issue shares at a discounted price on future date in lieu of services rendered by the employees, which is nothing, but an expenditure incurred as contemplated u/s 37 (1) of the Act. 2.5. That the Ld. CIT (A) erred in holding that the Appellant failed to furnish copy of the agreements entered with the employees to whom options were allowed inasmuch as such copy of all the agreements was never sought by the Ld. CIT(A) in the first place. Despite the aforesaid factual position, a specimen ESOP agreement of the Appellant with one of its employee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submitted that the CIT(A) s order for AY 2013-14, on which ld. CIT (A) has placed reliance, has been reversed by the ITAT in assessee s own case in ITA No.7187/Del/2017 for AY 2013-14 vide order dated 01.11.2021. The ITAT after elaborately discussing this issue has decided the issue in favour of the assessee by observing as under :- 6. The Co-ordinate Bench of ITAT in the case of DCIT Vs. Integrated Cleanroom in ITA No. 428/Hyd./2020 vide order dated 17.09 .2021 dealing with the similar issue held as under: 23. We have considered the rival submissions as well as the relevant material on record . There is not dispute that for the year under consideration the assessee did not claim the deduction in respect of the payment made to the parent company on account of Employees Stock Option and compensation . However we find that an identical issue has been considered in assessee's own case for the Assessment Year 2008-09 and it was held that it is an allowable deduction. Therefore, so far as the issue of allowability of the deduction is concerned it has been decided in favour o f the assessee by this tribunal by following the decision of the Special Date of Judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. The Assessing Officer however has taken the value as per book value by considering the value around Rs.335/- and the Assessing Officer has commented that the valuation taken at Rs. 505/- is very high. The appellant has followed the DCF method and no fault has been found in the same by the Assessing Officer with regard to the parameters considered for the said valuation and the AO simply brushed aside that it is based on future projections. DCF method is a method prescribed by the Income Tax Act and the valuation requires future projections, therefore , the act of the AO in not examining and not finding anything improper and merely rejecting the value was incorrect . The appellant has also justified the financials considered for DCF method in its submission dated 18.02.2020 in the para 6. The same is reproduced as under: From the above statement actuals are little higher than the valuation as per DCF method and hence the estimates are reasonably good and are not made with intention to value share at higher price to claim expenses at a higher rate. From above, it is noted that the three years average cash flow as taken by the valuer for DCF method at the time of issuanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence 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. 8. In the case of CIT Vs. Lemon Tree Hotels Ltd. in ITA 107/2015 order dated 18.08.2015, the Hon ble Jurisdictional High Court allowed the ESOP expenditure as expenses has revenue expenditure. The relevant portion of the order is as under: 2. The question sought to be projected by the Revenue is whether the ITAT erred in deleting the addition of Rs.1,28,19,169/- made by the Assessing Officer ( AO ) by way of disallowance of the expenses debited as cost of Employees Stock Option ( ESOP ) in profit and loss account? The Court has been shown a copy of the decision dated 19th June 2012 passed by the Division Bench of Madras High Court in CIT-III Chennai v. PVP Ventures Ltd. (TC(A) No. 1023 of 2005) where a similar question was answered in favour of the Assessee by holding that the cost of ESOP could be debited to the profit and loss account of the Assessee. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee submitted that banks charge interest @ 17% to 18% and take the collateral security. Smt. Vasntha Surya supported the assessee company by providing unsecured loan, hence interest rate of 24% is justified. The assessee further submitted that Smt. Vasntha Surya paid tax on the income of interest @ 30.90%, therefore, there was no loss of revenue. The Assessing Officer disagreed with the explanation of the assessee company and restricted the rate of interest to 18% and accordingly disallowed Rs. 77,882/-. 11. Upon assessee s appeal, ld. CIT (A) noted that assessee had submitted that it needed funds for the R D activities and approached the banks to obtain the loan. However, none of the banks or financial institutions agreed to provide unsecured loans. That Smt. Vasntha Surya provided unsecured loan of Rs.25 lakhs but with a higher rate of interest. That the prevailing market rate of loans was 17% - 18% when the borrower was in the position to provide some collateral security. But in the case of the assessee, the loan was obtained without any collateral security. Ld. CIT (A) agreed with the AO that assessee has not submitted any evidence of approaching the banks and financial in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, Electricity Repair reimbursements Rs.11,200/- 16. The reasoning of the AO for making the disallowance is as under:- 16.2 The Assessing Officer examined a bill dated 17.08.2013 for the purchase of gold chain amounting to Rs.52,739/- in the name of Sh. Manish in place of the assessee company. The AR for the assessee company did not file any explanation before the A.O, therefore, he disallowed the amount claimed under the head 'Business Promotion'. 16.3 The Assessing Officer observed that Rs. 1100/- and 5100/- were paid as donation. But there was no exemption certificate no. of the donee. In the absence of any explanation from the assessee, the Assessing Officer disallowed Rs. 6200/-. 16.4 In a bill Rs.4000/- was claimed as Sales Tax, but no Sales Tax bill was produced in support of the above voucher. The Assessing Officer disallowed the amount for the want of any explanation. 16.5 The Assessing Officer has disallowed Rs.50,003/- claimed towards Guest House Expenses on the ground that no register for maintaining the records of guests was produced nor were any supporting documents filed. The assessee company did not submit any explanation be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the assessee company, there is no reason why the bill is in the name of the Director in person. Hence, we confirm the disallowances as sustained by ld. CIT (A). 22. One another issue was raised in ITA No.867/Del/2019 for AY 2015-16 as ground no.3 which reads as under :- 3. That on the facts and circumstance of case and in law, The Ld. CIT(A) has wrongly upheld the disallowance made by the Ld. A.O. in disallowing the claim for weighted deduction in respect of expenditure on scientific research amounting to Rs.3,72,54,792/- under section 35(2AB) of the Act stating that the conditions for availing the same have not been complied with. 3.1. That on the facts and circumstance of case and in law, The Ld. CIT(A) has wrongly upheld the disallowance made by the Ld. A.O. to appreciate that there is no dispute regarding nature of expenses or incurring of the same, the Appellant's research facility has been duly approved by the Department of Scientific and Industrial Research (hereinafter referred to as DSIR ) and hence the eligibility for weighted deduction under section 35(2AB) of the Act cannot be disputed. 3.2. That on the facts and circumstance of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule]] incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to two times of the expenditure so incurred ..... (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority (emphasis supplied) for co-operation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. (4) The prescribed authority shall submit its report in relation to the approval (emphasis supplied) of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or} Director General in such form and within such time as may be prescribed. (emphasis supplied) . Rule - 6, Income-tax Rules Prescribed authority for expenditure on scientific research. 6.(1) For the purposes of clause (i) of] sub-section (1) and sub-section (2A) of] section 35, .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has also been stated that Form 3CM dated 01.12.2017 alongwith a forwarding letter date 04.12.2017 from the Department of Science Industrial Research have been received. Copies of both these documents have been forwarded to this office. Perusal of the letter dated 04.12.2017 reveals that Form 3CL has not been issued to the assessee as the letter requires the assessee to undertake certain further formalities. 4.4 It needs to be highlighted that Form 3CL issued by the Secretary, Dept. of Scientific Industrial Research which is the pre-requisite for claiming deduction u/s 35(2AB) has not been received in the office of the CCIT( Exemptions)/CCIT-2 till the date of passing of this order. 24. On the assessee s appeal, ld. CIT (A) confirmed the same by holding as under :- This ground is directed against disallowance of expenses on scientific research u/s 35 (2AB) on the basis of nonfurnishing of Form 3 CL. From AO's order it appears that form 3 CMs granting approval of scientific research were issued twice. First was applicable for FY 15-16 only. The second one was issued cancelling the previous one mentioning both FY 15- 16 and 16-17. The form 3CM was without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined Form 3CM approval of its facility has no role to play in such correspondence. However, it is submitted that the Appellant has duly fulfilled its obligations to obtain the required certificate from DSIR within time and the delay in receipt of Form 3CL cannot be attributed to any act or omission on part of the Appellant. 2.8 Further during the appellate proceedings before the LD. CIT(A), the appellant duly submitted the form 3CL issued by the DSIR on 31.05.2018 certifying that the amount of Rs.186.27 lakhs have been spent as capital expenditure in the relevant previous year and is recommended for deduction under section 35(2AB) of the Act. 2.9 The Appellant submits that it is eligible to claim the deduction in the relevant previous year in view of the decision in the case of DCIT v. Famy Care Ltd, [2014152 taxmann.com 461 (Mumbai -Trib) wherein the Tribunal held that the assessee cannot be denied deduction under section 35(2AB) of the Act merely on the ground that the prescribed authority did not submit Form 3CL in time to the Income Tax Department. 2.10 The Appellant also wishes to place reliance on the decision in the case of CIT v. Sun Pharmaceuticals Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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