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TMI Blog2022 (12) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... as Ld. AO) under section] 43(3) of the Income-tax Act. 1961. 2. That on the facts and in the circumstances of the case the Ld. CIT (A) erred in upholding the disallowance made by the Ld. AO rejecting the claim of the Appellant of deduction of expenditure incurred by it on ESOP amounting to Rs.72,80,083/- u/s 37 of the Income-tax Act. 1961. 2.1. That the Ld. CIT( ) erred in simply following the decision in Appellant' own case, pertaining to Assessment Year 2013-14 appeal against which is pending adjudication before this Honble Tribunal, and disallowing the expenditure incurred on ESOP without any independent application of mind and examining the factual and legal position in this regard. 2.2. That the Ld. CIT(A) erred in holding that the ESOP expenditure was only notional and capital in nature, thus attracting disallowance. 2.3 That the Ld. CIT(A) erred in disallowing the expenditure incurred on ESOP on the premise that the Appellant has not actually disbursed any amount towards ESOP. The ld. CIT(A) 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the scheme was defined/explained. The A.O observed that three relevant events are important during an ESOP lifecycle, these are (a) grant options (b) vesting of options and (c) exercise of options. The assessee failed to submit as to how the facts of case laws are similar to the facts of the assessee company. According to the Assessing Officer there are notional expenses, capital in nature. The Assessing Officer placed his reliance on the decision of the Delhi & Mumbai Benches of the Tribunal, in the cases of M/s Ranbaxy Laboratories Ltd. vs ADIT and M/s VIP Industries Ltd. vs. DCIT. Accordingly, the Assessing Officer disallowed Rs.72,80,083/- claimed in the P&L Account. 5. Upon assessee's appeal, ld. CIT (A) found that his predecessor in AY 2013-14 has confirmed the similar order of the AO. Hence following the same, ld. CIT (A) confirmed the disallowance. 6. Against this order, assessee is in appeal before us. We have heard both the parties and perused the record. 7. Ld. Counsel of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 in ITA No. 196/Del/2013 vide order dated 25-4-2016 as reported in 68 taxmann.com 322. Thus, the Hon'ble ITAT of Hyderabad, the jurisdictional Bench has already decided the issue holding ESOP expenses as allowable u/s. 37(1) and further as the Hon'ble High Courts of Delhi and Karnataka have also decided the issue of allowability of ESOPs as revenue expenditure, therefore the ESOP expense claimed by the appellant has to be allowed in principle accordingly. As regards the quantum of allowance, the appellant has calculated the ESOPs on the basis of market value of Rs.505 and has charged the employees Rs. 100 (face value being Rs.10 and security premium Rs.90). The difference has been considered as an expense and the relevant perquisite has been ITA No. 428/Hyd/2020 AY 2017- 18 DCIT vs . M/s Integrated Cleanroom Technologies Pvt. Ltd. accounted for in the hands of employees and the same have been taxed in their hands and due TDS has been deducted by the appellant. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the market prices and the price at which the option is exercised by the employees is to be debited to the Profit and Loss Account as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. 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 recognized 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed as unsecured loan. 3.1. That the Ld. CIT(A) erred in confirming the disallowance of interest expenditure without providing an) cogent basis. The Ld. CIT(A) also erred in upholding the disallowance on the basis that the Appellant did not furnish evidence of first approaching banks/financial institutions for obtaining loans and upon their denial to provide the same the Appellant approached, Smt. Vasantha Surva." 10. Brief facts of this issue are that AO noted that the assessee company had paid interest to M/s Vasntha Surya at the rate of 24% whereas the rate of interest charged by the banks/financial institutions was 17% to 18% on working capital. The Assessing Officer prepared a chart in which interest paid to Smt. Vasntha Surya was Rs.8,36,424/- and the rate of interest varied between 13% to 24%. The Assessing Officer has selected those amounts of interest which were paid at the rate of 24%. Before the Assessing Officer the assessee 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 Sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the expenditure incurred by the Appellant amounting to Rs.52,739/- towards gift provided to foreign delegate as a part of business promotion. 5. That on the facts and in the circumstances of the case. the Ld. CIT (A) erred on facts and in law in disallowing the expenditure incurred by the Appellant amounting to Rs.50,003/- towards the guest house taken on rent to provide accommodation facility to its foreign delegates. 6. That on the facts and in the circumstances of the case. the Ld. C IT(A) erred on facts and in law in disallowing the expenditure incurred by the Appellant amounting to Rs.11,200/- pertaining to donations, electricity repair and reimbursements made to the employees." 15. Following expenses claimed by the assessee as incurred has been disallowed by the AO :- (a) Expense on purchase of Gold chain Rs.52,739/- (b) Guest House Expenses Rs.50,003/- (c) Miscellaneous Expenses Donations, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. The expenses are not allowable because the assessee failed to explain the nature of expenses before the A.O and before me. It has been held above that the appellant company failed to prove that the guest house was used for the guests related to the assessee company. Therefore, other expenses related to the guest house cannot be allowed. Before the Assessing Officer these expenses were found to be related to some donations. Accordingly, the additions made by the Assessing Officer are hereby confirmed." 20. Against this, the assessee is in appeal before us. We have heard both the parties and perused the records. 21. Upon hearing both the parties and perusing the record, 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). 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed another Form 3CM dated 01.12.2017 as per which the R& D facility of the assessee is approved w.e.f. 01.04.2014 to 31.03.2015 for capital expenses only and from 01.04.2015 to 31.03.2017 for both capital & revenue expenses. 4.2 Before we proceed further, it would be useful to examine the provisions of Section 35(2AB) of the Income Tax Act and Rule 6 of the Income Tax Rules. The relevant portion of Section 35(2AB) of the l.T. Act, 1961 & Rule 6 of the I.T. Rules are reproduced below- "Expenditure on scientific research; 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed- ,........ .......... (2AB)(J) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Asst. Year 2015-16 in the case of the assessee and also to specify the date of receipt of the Form 3CL. In response, vide letter dated 13.12.2017, the CCIT(Exemptions), Delhi, has forwarded a copy of Form 3CM dated 11.02.2016 received in his office and further stated that as per the revised procedure under amended Rule 6 of the I.T. Rules w.e.f. 01.07.2016, the relevant forms are being filed with the PCCIT/CCIT/PDGIT/DG1T having jurisdiction over the applicant. Accordingly, a letter dated 18.12.2017 was addressed to the office of the CCIT-2, Delhi, to furnish the required information. In response, vide letter dated 22.12.2017, the office of the CCIT, Delhi-2, has informed Form 3CL has not been received from the Department of Science & Industrial Research in the case of the above mentioned assessee. In the letter, 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Further, assessee made following submissions :- "2.7 The Form 3CL comes under rule 6(7 A) of the Income-tax Rules, 1962 framed under the provisions of the Act. The above sub-rule is relevant for approval of expenditure incurred on in house research & development facility by a company under section 35(2AB). Sub-clause (b) thereof is the specific provision thereto stipulating that the prescribed authority shall submit its report in relation to the approval of in-house Research & Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within 60 days of its granting approval. The same is merely in the form of intimation to be sent from prescribed authority's end to the department. An assessee engaged in such Research &Development activity having already obtained 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), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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