TMI Blog2023 (12) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... rong in the direction given by the Ld. CIT(A) and therefore, reiterate the direction of Ld. CIT(A) to assessee to submit before AO the value of investment which yielded exempt income and then the AO to compute disallowance u/s 14A of the Act taking average investment of those investment that have yielded the exempt income. And if the assessee is able to demonstrate that suo-motto disallowance made by assessee is in consonance with the aforesaid discussion, then no more disallowance is warranted. With the aforesaid observation, AO is directed to re-compute disallowance in accordance to law. For completeness, we do not find any merit in the contention of Ld. DR that in the light of amendment/explanation inserted by Finance Act, 2022, the disallowance made by AO is justified. We find that this issue is also no longer res-integra. The explanation inserted by Finance Act, 2022 w.e.f. 01.04.2022 is applicable from AY. 2022-23 onwards as held by Hon ble Delhi High Court in Era Infra Structure (India) Ltd. [ 2022 (7) TMI 1093 - DELHI HIGH COURT] Therefore, this contention of Ld. DR is also rejected. Nature of expenses - ESOP expenses - Revenue or capital expenditure - as decided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed from the details furnished by the assessee that while computing the disallowance the assessee only considered the investment on which it had earned exempt income and excluded those investment which were capable of generating exempt income. The assessee was show-caused as to why the disallowance u/s.14A should not be in accordance with Rule 8D of the Income Tax Rules, 1962 as, according to the AO all investments were to be considered for working out such disallowance. The assessee submitted that it had already made disallowance u/s.14A amounting to Rs. 22,55,27,357/- being the expenses attributable to the exempt income on the basis of investments on which exempt income had been earned. The assessee further stated that no other disallowance u/s14A is warranted other than the disallowance suo-moto made by the assessee. However, the assessee s explanation was not found acceptable to the AO who proceeded to compute the disallowance in accordance with Rule 8D and made a further disallowance of Rs. 38,76,81,666/- (Rs.61,32,09,023 - Rs. 22,55,27,357) and added the same to the total income of the assessee. 4. Aggrieved by the aforesaid action of AO disallowing further amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act taking average investment of those investments that have yielded the exempt income. The Ld. DR referring to the amendment brought in by Finance Act, 2022 wherein Explanation was inserted under proviso to sub section (3) of section 14A of the Income Tax Act, 1961 (hereinafter the Act ) submitted that the impugned action of Ld. CIT(A) is erroneous; and also submitted that impugned action is against the CBDT circular no. 05/2014. So, he contended that Ld. CIT(A) action is erroneous and pleaded that the impugned action of Ld. CIT(A) be reversed and action of AO be upheld. 7. Per contra, the Ld. AR of the assessee, inter-alia supported the action of Ld. CIT(A) in principle. However, pointed out that assessee have not received copy of Form-36 along with grounds of appeal and conveyed his desire to file Cross Objection (CO) against the action of Ld. CIT(A) to the extent of the direction given by him regarding verification by AO about quantification of average investment which yielded exempt income. Further, according to Ld. AR, the amendment brought in by Finance Act, 2022 in section 14A of the Act is prospective in operation w.e.f. 01.04.2022 for AY. 2022-23 onwards and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(2)(iii) of the Rules should be made only on investment which yielded exempt income by referring to Special Bench decision of this Tribunal in ACIT Vs. Vireet Investment (P) Ltd. (2017) 82 taxmann.com 415 (Delhi-Trib) (SB) and further directed the assessee to submit before AO, the bifurcation of investment that earned exempt income as well as investment which did not result in exempt income and directed AO to re-compute the disallowance u/s 14A of the Act by taking the average investment of those investment that have yielded the exempt income. We agree with the action of Ld. CIT(A), firstly because he has followed the ratio laid by Special Bench decision of this Tribunal in Vireet Investment (supra) wherein it was held that for computing the average investment for the purpose of Rule 8D(2)(iii) of the Rules, the investment that yielded exempt income during the year only have to be considered and not the investment which did not yield any exempt income. And for such a preposition, we also rely on the decisions of Hon ble High Court of Delhi in the case of ACB India Ltd. Vs. ACIT (374 ITR 108) (Del); and we find nothing wrong in the direction given by the Ld. CIT(A) and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses for AY 201112. Since, there was no change in the facts of the issue at hand, therefore, my Ld. Predecessor found no reason to deviate from the decision taken by the CIT(A)-22 and CIT(A)-IV, Delhi in respect of AY 2013-14 also. Thus, the disallowance of ESOP expenses made by the AO was deleted for AY 2013-14. The Hon ble Mumbai ITAT in the assessee s own case for AY 2013-14 in ITA NO.1414/MUM/2022 (order dated 31.10.2022) has also upheld the decision of the Ld CIT(A) in deleting the addition on the issue of ESOPs and dismissed the departmental appeal. Relevant extract of the aforesaid decision is as under: 8. In ground No. 4 and 5 of appeal, the Department has assailed the order of CIT(A) in allowing the claim of ESOP expenses. The learned Authorized Representative (AR) submits that the issue of ESOP expenses was considered by the Tribunal in assessee s own case in ITA No. 4849/MUM/2019 for assessment year 2013-14 decided on 08/03/2021. We find that the Co-ordinate Bench dismissed this ground in an appeal by the Revenue following the decision in assessee s group company in ITA No. 6602/Del/2016 for assessment year 2012-13 decided on 11/03/2020. The Delhi Bench placing r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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