TMI Blog2022 (12) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... that under certain circumstances, a loan or advance would be treated as NPA. The Court on the real income theory held that such interest would not be taxable. We notice that the decision of the Delhi High Court in case of Vasisth Chay Vyapar Ltd [ 2010 (11) TMI 88 - DELHI HIGH COURT] was carried in the appeal by the Revenue before the Supreme Court. The Supreme Court in the judgment reported in [ 2018 (3) TMI 56 - SUPREME COURT] approved the decision of the High Court and dismissed the appeal. Decided against revenue. - ITA No. 1394 & 1722/PUN/2018 - - - Dated:- 23-12-2022 - SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER For the Assessee : Ms. Vasanti B. Patel For the Revenue : Shri Keyur Patel, CIT-DR ORDER PER SATBEER SINGH GODARA, JM : These assessee s and Revenue s twin cross appeals ITA. Nos. 1394 1722/PUN./2018, arise against the CIT(A)-6, Pune s order dated 30.07.2018, in case No.PN/CIT(A)-/DCIT, Cir 8/10806/2016-17, in proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short the Act ). 2. Heard both the parties. Case files perused. 3. We first of all advert to the assessee s appeal ITA. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehest that both the lower authorities have erred in law and on facts in invoking section 14A read with Rule 8D disallowance of Rs. 1,32,42,138/- for the impugned assessment year, in relation to the corresponding exempt income of Rs. 50,000/- offered by the assessee. Suffice to say, the assessee had suo motu disallowed Rs. 50,000/- for the impugned assessment year under consideration. Faced with this situation, we quote Joint Investment Vs. ACIT (2015) 372 ITR 694 (Delhi) that such a disallowance ought not to exceed the corresponding exempt income itself. The fact also remains that the assessee s suo motu disallowance of Rs. 50,000/- already exceeds the sum which has nowhere been contested during the course of hearing. We, therefore, direct the Assessing Officer to restrict the impugned section 14A read with rule 8D disallowance to a lump sum figure of Rs. 50,000/- for the impugned assessment year. Ordered accordingly. Necessary computation shall follow as per law. The assessee s identical first and foremost grounds are partly accepted in very terms. 4. The assessee s second substantive grievance is that both the lower authorities have erred in law and on facts in disallowing its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le expense. 33. On the other hand ld. DR submitted that the assessee raised this issue first time before the Tribunal. The ld. DR submitted that the expenditure was never claimed by the assessee. Therefore, the same is not allowable. 34. Both sides heard. It is an admitted fact that the assessee has claimed ESOP expenditure for the first time before the Tribunal. The Hon'ble Supreme Court of India in the case of Goetze (India) Ltd. Vs. CIT has held that the powers of the Appellate Tribunal are not impinged to accept the claim of assessee which has not been made before the Assessing Officer. We deem it appropriate to remit this issue back to the file of Assessing Officer to consider the claim of the assessee in the light of decision of Special Bench of the Bangalore Tribunal in the case of Biocon Limited (supra). The assessee shall file fresh computation of income before the Assessing Officer. The Assessing Officer shall consider the same and decide the claim of assessee in accordance with law. Accordingly, this ground of appeal of the assessee is allowed for the statistical purpose. 4. Therefore, as per the remand proceedings and judicial discipline, the A.O should ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held by the Hon‟ble High Court that the only issue which the ITO could have examined was as per what the AAC has directed him to look into and nothing further. Reverting to the facts of the present case taking guidance from the aforesaid decision, the A.O should have decided the issue taking the guidance from the Special Bench decision (supra) as has been directed by the Tribunal in the first round of litigation. Now, we find that the Special Bench Bangalore in the case of Biocon Ltd (supra) on the issue have held the discount on ESOP being a general expense, is an allowable deduction u/s 37(1) of the Act during the years of vesting on basis of percentage of vesting during such period subject to upward or downward adjustment at the time of exercise of option. When this issue was decided in favour of the assessee, the department took up this matter before the Hon‟ble Karnataka High Court in the case of CIT LTU vs. Biocon Ltd ((2020) in ITA No. 653 of 2013 - 121 taxman.com 351 (Karnataka). The Hon‟ble Karnataka High court analysed the facts involving the issue and the background of the case as follows: 2. Facts leading to filing of this appeal briefly stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division bench for decision in the light of findings recorded by the special bench. In the aforesaid factual background, the revenue has filed this appeal. 5. Thereafter, the Hon‟ble High court has held as follows: 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act. Before proceeding further, it is apposite to take note of Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraph 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, 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 CIT VS. INFOSYS TECHNOLOGIES LTD. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the aforesaid judicial pronouncement we allow the ground of appeal of the assessee. In the result, the appeal of the assessee in ITA 1392/PUN/2018 for A.Y. 2010-11 is allowed. 7. Both the parties, at the time of hearing, submitted that this issue also finds place in ITA No. 1393/PUN/2018. Under similar facts and circumstances therefore, having heard the parties, our decision on this issue in ITA No. 1392/PUN/2018 for A.Y. 2010-11 except for the amounts involved shall apply mutatis mutandis also for ITA No. 1393/PUN/2018 for A.Y. 2011-12. Accordingly, the ground No. 1.1 of assessee s appeal is allowed. 8. The ld. Sr. Counsel further submitted that if Ground No. 1.1 is allowed, then ground No. 1.3 would become infructuous. Since we have decided the said ground No. 1.1 in favour of the assessee, therefore, taking the submissions of the ld. Sr. counsel ground No. 1.3 is dismissed as infructuous. 9. Ground No. 1.2 reads as follows: 2. the CIT(A) has further erred in not allowing deduction for ESOP expenditure on the basis of the perquisite value taxed in the hands of employees in respect of options exercised by them during the year, to the extent such expenditure is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discount on the basis of the market price of the shares at the time of exercise of options. It can be done by making suitable northwards or southwards adjustment at the time of exercise of option. This can be explained with the following example with the assumption of vesting period of four years and the benefit vesting at 25% each at the end of 1st to 4th years: At the time of granting option At the time of exercise of option Situation I Situation II Situation III Market value share per 110 110 130 90 Option price 10 10 10 10 Employees compensation or discount 100 100 120 80 11.1.7. From the above table it can be noticed that the market price of the shares at the time of grant of option was Rs. 110 against the option price of ₹ 10, which resulted in discount at ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also no more res integra in light of hon ble jurisdictional high court s recent common order involving assessment years 2009-10 to 2011-12 in assessee s case(s) itself dated 02-04-2019 declining the Revenue s Income Tax Appeal Nos. 237 and 485/2017 as follows : 2. The appeal is filed by the Revenue to challenge the judgment of the Income Tax Appellate Tribunal ( the Tribunal for short) raising following questions for our consideration:- (i) Whether on the facts and circumstances of the case and in law, the Tribunal was correct in disregarding the judgment of the Hon'ble Supreme Court given in the case of Southern Technologies Ltd Vs. JCIT 320 ITR 577 (SC) which says that provisions of RBI Act cannot override the provision of Section 145 of the Income Tax Act, 1961, since both the Acts operate in different fields and therefore, assessee cannot recognize interest income on NPA and yet not offer it in Profit and Loss account? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the disallowance of Rs. 71,13,261/- made by AO u/s. 14A r/w Rule 8D after treating the disallowance of Rs. 57,600/- offered by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court did record that the assessee was a co-operative bank and not NBFC. However, this distinction may not have much significance now in view of the fact that this Court in case of CIT Vs. M/s. KEC Holdings Ltd (Income Tax Appeal No. 221 of 2012 decided on 11.6.2014) held and observed as under:- 8. The assessee had credited only an amount of Rs. 38,57,933/- as interest on loans. The Assessing Officer was of the view that the interest accrued on the entire loans should have been shown as income. The details as to how the interest income on accrual basis should have been disclosed are, therefore, referred to by the Tribunal. The Tribunal held that the said income was not realized. It held that the assessee follows the mercantile system of accounting. The Tribunal held that the loan advanced by the assessee which was in NBFC had become nonperforming asset. That is how following judgments rendered by the Hon'ble Supreme Court and the Delhi High Court, the Tribunal has eventually held that once there is no dispute that the interest considered as accrued was a non-performing asset as per Reserve Bank of India guidelines, then, the income from this interest did not accrue to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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