The ACIT, Circle-1(2), Baroda V. Inox Leisure Ltd., Baroda

ITA 1412/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9298 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S N SOPARKAR WITH PARIN SHAH
• Assessee Lawyers: VIBHA BHALLA
• Keywords: Earning of tax free income; Source of fund; Capital receipt
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NOSS: 1378 & 1412/AHD/2014 (ASSESSMENT YEAR: 2010-11) INOX LEISURE LTD. 2 ND FLOOR, ABS TOWERS OLD PADRA ROAD, BARODA- 390007 THE ACIT CIRCLE 1(2), BARODAD V/S V/S DEPUTY. COMMISSIONER OF INCOME-TAX- CIRCLE 1(2), BARODA INOX LEISURE LTD. 2 ND FLOOR, ABS TOWERS OLD PADRA ROAD, BARODA-390007 (APPELLANT) (RESPONDENT) PAN: AAACI6063J APPELLANT BY : SHRI S. N. SOPARKAR WITH PARIN SHAH, A.R. RESPONDENT BY: MS.VIBHA BHALLA & PRASOON KABRA, SR . D.R. ( )/ ORDER DATE OF HEARING : 07 -02-20 17 DATE OF PRONOUNCEMENT : 10 -02-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 2 1. ITA NOS. 1378 & 1412/AHD/2014 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT( A)-I, BARODA DATED 17.02.2014 PERTAINING TO A.Y. 2010-11. 2. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1378/AHD/2014 ASSESSEES APPEAL FOR A.Y. 20 10-11 3. THE FIRST GRIEVANCE RELATES TO THE DISALLOWANCE OF RS. 57,31,329 BEING INCENTIVE BY WAY OF EXEMPTION FROM ENTERTAINMENT TA X IN RESPECT OF MULTIPLEX CRYSTAL PALM, JAIPUR TREATING THE SAME AS REVENUE RECEIPT. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED ENTERTAINMENT TAX AS EXEMPT IN RESPECT OF ITS MULTIPLEXES AT VADODARA, MUMBAI, BRUDWAN, JAIPU R INDORE, LUCKNOW AND DARJEELING AGGREGATING TO RS. 10,69,89,058/-. THE A .O. FOUND THAT THE SAME WAS TREATED AS CAPITAL RECEIPT NOT CHARGEABLE TO TA X. THE A.O. FURTHER OBSERVED THAT IN EARLIER ASSESSMENT YEARS I.E. A.Y. 2003-04 TO A.Y. 2008-09. THIS RECEIPT HAS BEEN CONSIDERED AS A REVENUE RECEI PT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS SUCCEEDED BEFORE TH E ITAT FOR A.Y. 2003-04 TO A.Y. 2005-06, THOUGH THE REVENUE HAS PREFERRED A PPEALS BEFORE THE HONBLE HIGH COURT. TAKING A LEAF OUT OF THE PREVIO US HISTORY OF THE ASSESSEE, THE A.O. MADE THE ADDITION OF RS. 10,69,8 9,058/-. ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 3 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM THAT THE IMPUGNED RECEIPT IS A CAPITAL RECEIPT. 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS`, T HE LD. CIT(A) OBSERVED THAT HIS PREDECESSOR HAS DECIDED SIMILAR ISSUE FROM A.Y. 2003-04 TO A.Y. 2009-10 IN FAVOUR OF THE ASSESSEE EXCEPT FOR THE PO LICY APPLICABLE TO MULTIPLEXES AT RAJASTHAN IN EARLIER YEARS. THE LD. CIT(A) FURTHER OBSERVED THAT THE TRIBUNAL HAS CONFIRMED THE DECISION OF THE LD. CIT(A) FOR ASSESSMENT YEARS 2003-04 TO 2005-06. ACCORDINGLY, T HE LD. CIT(A) HELD THAT THE ENTERTAINMENT TAX RECEIPTS OF RS. 101257728/- I N RESPECT OF MULTIPLEXES SITUATED IN GUJARAT, MAHARASHTRA, WEST BENGAL, RAJA STHAN, MADHYA PRADESH AND UTTAR PRADESH ARE OF CAPITAL NATURE AND HENCE T HE SAME ARE NOT LIABLE TO BE TAXED AS REVENUE RECEIPTS. 7. HOWEVER, INSOFAR AS THE ENTERTAINMENT TAX RECEIPT O F RS. 57,31,329/- IN RESPECT OF CRYSTAL PALM (RAJASTHAN) IS CONCERNED, T HE LD. CIT(A) OBSERVED THAT THE POLICY UNDER WHICH THE STATE OF RAJASTHAN HAS GRANTED IS DIFFERENT FROM OLD POLICY APPLICABLE TO JAIPUR. THE ASSESSEE STRONGLY CONTENDED THAT THE EXEMPTION PROVIDED IS TO ATTRACT INVESTORS TO I NVEST IN STATE OF RAJASTHAN AND IS APPLICABLE ON NEW INVESTMENTS AND THEREFORE, ON THE BASIS OF PRINCIPLES LAID IN EARLIER YEARS IN RESPECT OF V ARIOUS UNITS ENTERTAINMENT TAX SUBSIDY UNDER NEW POLICY IS ALSO CAPITAL RECEIP T IN STATE OF RAJASTHAN. HOWEVER, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED THE COPY OF RAJASTHAN INVESTMENT PROMOTION SCHEME OF 20 03. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE COULD NOT DEMONS TRATE HOW THE ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 4 ASSESSEE IS FULFILLING THE CONDITIONS OF THIS NEW S CHEME AND HOW IT IS ENTITLED FOR EXEMPTION IN RESPECT OF ENTERTAINMENT TAX RECEI PTS AS THE NECESSARY DOCUMENTS AND CORRESPONDENCES WITH THE CONCERNED AU THORITIES OF RAJASTHAN GOVERNMENT FOR CONSTRUCTING MULTIPLEXES A RE NOT FURNISHED. THE LD. CIT(A) ACCORDINGLY TREATED RS. 57,31,329/- AS R EVENUE RECEIPT. 8. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT THE NEW SCHEME OF RAJASTHAN GOVERNMENT WAS VERY MUCH ON RECORD. IT IS THE SAY OF THE LD. COUNSEL TH AT THE STATE GOVERNMENT GIVES SUBSIDY ONLY WHEN THE CONDITIONS ARE SATISFIE D AND SINCE THE ASSESSEE HAS RECEIVED THE SUBSIDY FROM THE STATE GOVERNMENT THAT ITSELF PROVES THAT THE ASSESSEE HAS FULFILLED ALL THE STATUTORY CONDIT IONS LAID DOWN IN THE POLICY. 9. PER CONTRA, THE LD. D.R. STRONGLY SUBMITTED THAT SI NCE THE NECESSARY DOCUMENTS WERE NOT MADE AVAILABLE BEFORE THE LOWER AUTHORITIES. THEREFORE, THEY WERE NOT IN A POSITION TO EXEMPT TH E CLAIM OF THE ASSESSEE. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW QUA THE RIVAL CONTENTIONS. THE CLAIM OF SUBSI DY CAN BE SUMMARIZED IN THE FOLLOWING CHART:- SR.NO MULTIPLEX AT AMOUNT (RS.) BRIEF 1 BARODA (GUJARAT) 20,616,897 HELD TO BE A CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEARS 20O3-04 TO ASSESSMENT YEARS 2009- 10 BY CIT(A) AND THE SAME CONFIRMED BY ITAT, AHMEDABAD FOR AY 2003-04 TO 2005-06 ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 5 2 N ARIMAN POINT (MAHARASHTRA) 33,578,000 HELD TO BE CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEARS 2006-O7 TO 2009-10 BY CIT(A). THE APPLICABLE POLICY COVERED IN FAVOUR OF THE APPELLANT BY IT AT, AHMEDABAD'S COMMON ORDER FOR AY 20O3-04 TO AY2OO5-06 3 BURDWAN (WEST BENGAL) 3,050,769 HELD TO BE A CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEAR 2009-10 BY CIT(A). THE APPLICABLE POLICY COVERED IN FAVOUR OF THE APPELLANT BY IT AT, AHMEDABAD'S COMMON ORDER FOR AY 2003-04 TO AY 2005-O6 4 LUCKNOW (UTTAR PRADESH) 14,656,794 HELD TO BE A CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEARS 2008-09 TO 2009-10 BY CIT(A) 5 INDORE (MADHYA PRADESH) 5,656,806 HELD TO BE A CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEARS 2006-07 TO 2009-10 ASSESSMENT YEAR BY CIT(A) 6 NAGPUR2 (MAHARASHTRA) 11,372,664 FIRST YEAR OF CLAIM. HOWEVER, SAME FACTS AS IN PUNE AND NARIMAN POINT APPLY. THE APPLICABLE POLICY COVERED IN FAVOUR OF THE APPELLANT BY IT AT, AHMEDABAD'S COMMON ORDER FOR AY2003-04 TO 2005- 06 7 DARJEELING (WEST BENGAL) 2,633,719 HELD TO BE A CAPITAL RECEIPT NOT EXIGIBLE TO TAX FOR ASSESSMENT YEARS 2008-09 TO 2009- 10. THE APPLICABLE POLICY COVERED IN FAVOUR OF THE APPELLANT BY IT AT, AHMEDABAD'S COMMON ORDER FOR AY 2003-04 TO AY 2005-06. ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 6 8 RAJA HAT (WEST BENGAL) 4,050,745 FIRST YEAR OF CLAIM. HOWEVER, SAME FACTS AS IN SALT LAKE, DARJEELING AND BURDWAN APPLY. THE APPLICABLE POLI CY COVERED IN FAVOUR OF THE APPELLANT BY IT AT, AHMEDABAD' 9 INDORE 2 (MADHYA PRADESH) 5,641,334 FIRST YEAR OF CLAIM. HOWEVER, SAME FACTS AS IN INDORE APPLY. 10 CRYSTAL PALM (RAJASTHAN) 5,731,329 FIRST YEAR OF CL AIM. NEW POLICY APPLIES. TOTAL (RS.) 106,989,057 11. WE FIND THAT THE CLAIM OF SUBSIDY AT VARIOUS MULTIP LEXES FROM SERIAL NO. 1 TO 9 ABOVE HAVE BEEN ACCEPTED AS CAPITAL RECEIPT IN EA RLIER YEARS. THIS HAS NOT BEEN DISPUTED BY ANY OF THE LOWER AUTHORITIES. THE ONLY DISPUTE RELATES TO THE SUBSIDY RECEIVED FROM THE GOVERNMENT OF RAJASTH AN IN RESPECT OF ITEM NO. 10 ABOVE. IT IS ALSO NOT IN DISPUTE THAT IN PUR SUANCE OF THE TERMS OF SCHEME INTRODUCED BY THE GOVERNMENT OF RAJASTHAN TO ENCOURAGE CONSTRUCTION OF NEW CINEMA HALLS, ASSESSEE WAS RUNN ING A CINEMA HALL. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COULD RECEIVE THE SUBSIDY ONLY AFTER THE FULFILLMENT OF THE MANDATORY CONDITIONS. THESE FACTS HAVE NOT BEEN CONTROVERTED BY ANY OF THE LOWER AUTHORITIES. 12. THE HONBLE HIGH COURT OF RAJASTHAN HAD THE OCCASIO N TO CONSIDER A SIMILAR ISSUE BEFORE IT THE FACTS OF WHICH READ AS UNDER:- * THE ASSESSEE FIRM WAS RUNNING A CINEMA HALL. IT H AD SHOWN CERTAIN RECEIPTS, WHICH INCLUDED ENTERTAINMENT TAX. IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD TRANSFERRED A PART OF RECEIPTS TO ENTERTAINMENT SUBSIDY ACCOUNT AND CLAIMED SAME TO BE EXEMPT FROM TAX BEING IN THE NATURE OF C APITAL RECEIPTS. ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 7 * THE ASSESSEE EXPLAINED THAT THERE WAS A SCHEME OF THE GOVERNMENT OF RAJASTHAN TO ENCOURAGE CONSTRUCTION OF NEW CINEMA H ALLS BY PROVIDING SUCH A SUBSIDY IN THE FORM OF ENTERTAINMENT TAX FOR A PART ICULAR PERIOD. A COPY OF NOTIFICATION ISSUED IN THIS REGARD WAS PLACED BEFOR E THE ASSESSING OFFICER. BUT THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESSEE A ND TREATED SAID AMOUNT AS ITS INCOME. * THE COMMISSIONER (APPEALS), HOWEVER, ACCEPTED THE PLEA OF THE ASSESSEE AFTER RE LYING, INTER ALIA, ON THE STATE GOVERNMENT'S NOT IFICATION AND DELETED THE ENTIRE ADDITION BY TREATING THE ENTERTAINMENT SUBSIDY AS A CAPITAL RECEIPT BECAUSE SAID AMOUNT HAD BEEN CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS A LIABILITY UNDER THE HEAD 'CAPITAL SUBSIDY'. * THE TRIBUNAL UPHELD THE ORDER OF THE COMMISSIONER (APPEALS). 13. AND ON APPEAL, THE HONBLE HIGH COURT HELD AS UNDER :- *IN THE INSTANT CASE, IT IS MORE THAN APPARENT THAT THE STATE GOVERNMENT PROCEEDED TO EXEMPT ENTERTAINMENT TAX FOR A PERIOD OF 5 YEARS PAYABLE BY A 'NEW' CINEMA HALL CONSTRUCTED, SUBJECT TO THE CONDITI ON THAT COMMERCIAL EXHIBITION OF FILMS IN SUCH CINEMA HALL WAS REQUIRE D TO BE STARTED BY 31-3-2000. *IN THE SCHEME OF THE RAJASTHAN ENTERTAINMENTS AND ADVERTISEMENTS TAX ACT, 1957, WHERE ENTERTAINMENT TAX IS DETERMINED AND REC OVERABLE FROM THE PROPRIETOR OF THE ENTERTAINMENT AND IS LEVIED WITH REFERENCE TO THE NUMBER OF ADMISSIONS TO THE ENTERTAINMENT, WHEN THE STATE GOV ERNMENT HAD EXEMPTED SUCH PROPRIETOR OF NEW CINEMA HALL FROM PAYMENT OF ENTERTAINMENT TAX ON THE GIVEN CONDITION, THE OBJECT WAS CLEARLY TO PROMOTE THE CONSTRUCTION OF NEW CINEMA HALLS. * MERELY BECAUSE THE AMOUNT WAS NOT DIRECTLY MEANT FOR REPAYING THE AMOUNT TAKEN FOR CONSTRUCTION OF THE CINEMA HALL, ITS PURP OSE COULD NOT BE CONSIDERED TO BE OTHER THAN THAT OF PROMOTING CONSTRUCTION OF NEW CINEMA HALL. AS HELD CONSISTENTLY BY THE COURTS, THE SOURCE OF FUNDS FOR CONSTRUCTION OF SUCH CINEMA HALL IS IRRELEVANT; AND IT WOULD ALSO NOT MATTER IF THE GRANT WOULD BE AVAILABLE AFTER THE BUSINESS HAS BEEN SET UP. * IN THE TOTALITY OF THE CIRCUMSTANCES; AND PARTICU LARLY LOOKING TO THE SCHEME OF THE ACT OF 1957 AS ALSO THE OBJECT AND PURPORT OF T HE EXEMPTION NOTIFICATION, THE ASSISTANCE IN QUESTION CANNOT BE SAID TO BE AN OPER ATIONAL SUBSIDY SO AS TO BE TAKEN AS A REVENUE RECEIPT. * THE SUBMISSION THAT ONCE THE ASSESSEE HAS COLLECT ED THE ENTERTAINMENT TAX FROM THE PERSONS ADMITTED TO THE ENTERTAINMENT AND HAS NOT DEPOSITED THE SAME ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 8 WITH THE GOVERNMENT, IT IS REQUIRED TO BE TREATED A S REVENUE RECEIPT REMAINS DEVOID OF SUBSTANCE. THE REMISSION BY THE GOVERNMEN T HAD BEEN TO THE PROPRIETOR OF THE ENTERTAINMENT AND NOT TO THE PERS ON ADMITTED TO THE ENTERTAINMENT. THE REMISSION HAD BEEN THE METHODOLO GY ADOPTED BY THE STATE GOVERNMENT TO PROVIDE ASSISTANCE TO THE NEW CINEMA HALL; AND HAD BEEN ESSENTIALLY IN THE NATURE OF A SUBSIDY, IE., THE AS SISTANCE FROM THE GOVERNMENT TO THE NEW CINEMA HALL [PARAS 15,16 & 17] * ACCORDINGLY, IT IS HELD THAT THE TRIBUNAL WAS JUS TIFIED IN AFFIRMING THE DELETION OF ADDITION, BEING THE AMOUNT OF ENTERTAINMENT TAX CAP ITALIZED AS SUBSIDY. [PARA 18] * IN VIEW OF THE ABOVE, THE APPEAL FAILS AND IS, THER EFORE, DISMISSED. [PARA 19] 14. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON R ECORD BEFORE US. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT OF RAJASTHAN (SUPRA), WE DIRECT THE A.O. TO TREAT THE AMOUNT OF RS. 5731329/- ALSO AS A CAPITAL RECEIPT. GROUND NO. 1 IS ACCORDINGLY ALLOWE D. 15. GROUND NO. 2 RELATES TO THE ADDITION OF RS. 83,58,3 40/- MADE U/S. 14A READ WITH RULE 8D OF THE ACT. 16. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS. 82,48,38,619/- IN FAME I NDIA LTD. THE A.O. FOUND THAT THIS INVESTMENT WAS ENTIRELY FUNDED BY T HE ASSESSEE COMPANIES PROMOTER AND HOLDING COMPANY BY WAY OF PROVIDING IN TEREST BEARING LOAN OF RS. 132 CRORES AND THE INTEREST PAID ON CAPITAL BOR ROWED FOR ACQUISITION OF SHARES IN A COMPANY WOULD AMOUNT TO EARNING EXEMPT DIVIDEND INCOME. INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R EAD WITH RULE 8D, THE A.O. COMPUTED THE DISALLOWANCE AT RS. 83,58,340/-. 17. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 9 18. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT NO DISALLOWANCE CAN BE MADE AS THE ASSESSEE HAS RECEIV ED NO EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. 19. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT RECEIVED ANY E XEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. THE DISALLOWANCE HAS BEEN MADE ON FINDING OF THE FACT THAT THE ASSESSEE HAS MADE CERTAIN INVESTM ENTS OUT OF BORROWED FUNDS. IN OUR CONSIDERED OPINION, SINCE THE ASSESSE E HAS NOT EARNED ANY EXEMPT INCOME, NO DISALLOWANCE U/S. 14A READ WITH R ULE 8D IS CALLED FOR. OUR VIEW IS ALSO FORTIFIED BY THE DECISION OF THE H ONBLE HIGH COURT OF GUJARAT IN THE CASE OF CORRTECH ENERGY LTD. 372 ITR 97. HELD THAT THE TRIBUNAL HAD RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. HENCE, NO DISALLOWANCE COULD BE MADE U/S. 14A OF THE I.T. ACT . 20. RESPECTFULLY FOLLOWING THE AFOREMENTIONED RATIO OF THE HONBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE FINDING S OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 83,58 ,340/- .GROUND NO. 2 IS ALLOWED. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 1412/AHD/2014 REVENUES APPEAL ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 10 22. THE FIRST GROUND RELATES TO THE DELETION OF THE ADD ITION OF RS. 10,12,57,729/- TREATING THE SAME AS CAPITAL RECEIPT NOT EXIGIBLE T O TAX. 23. THIS ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 137 8/AHD/2014 (SUPRA) QUA GROUND NO. 1 OF THAT APPEAL. FOR OUR DETAILED DISCU SSION THEREIN, THIS GROUND IS DISMISSED. 24. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLO WANCE OF CLAIM OF EMPLOYEES STOCK OPTION PLAN OF RS. 16,21,904/-. 25. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF AMORTIZATION OF VALUE OF STOCK OPTIONS TO EMPLOYEES AMOUNTING TO RS. 16,2 1,904/-. THE A.O. FOUND THAT SIMILAR EXPENSES CLAIMED BY THE ASSESSEE IN A.Y. 2008-09 HAVE BEEN DISALLOWED. TAKING A LEAF OUT OF THIS, THE A.O . MADE AN ADDITION OF RS. 16,21,904/-. 26. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT TH E SPECIAL BENCH OF BANGALORE ITAT HAS CONSIDERED THIS ISSUE IN THE CAS E OF BIOCON LTD.35 TAXMANN. COM 335 AND HAS DECIDED THIS ISSUE IN FAVO UR OF THE ASSESSEE. 27. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED AS UNDER:- 4.2 THE REASONS AS MENTIONED BY THE AO FOR NOT ALLO WING DEDUCTION OF RS, 16,21,904/- IN THE ASSESSMENT ORDER AND ALSO THE AB OVE SUBMISSION OF THE ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 11 APPELLANT HAVE BEEN CONSIDERED. IT IS MENTIONED THA T THE SIMILAR ISSUE HAS BEEN DECIDED BY MY LD. PREDECESSOR, I.E. CIT(A)-1, BAROD A IN FAVOUR OF APPELLANT FOR AY 2009-10 VIDE HIS APPEAL ORDER IN APPEAL NO. CAB-1/1 9/11-12 DATED 22/08/2012. HOWEVER, THE APPELLANT HAS SUBMITTED THAT ESOP IS J UST ANOTHER FORM OF COMPENSATING EMPLOYEES. AS PER THE APPELLANT ESOPS ARE ISSUED TO THE EMPLOYEES ONLY FOR THE INTEREST OF THE BUSINESS SO AS TO INDUCE EMPLOYEE TO WORK IN THE BEST INTEREST OF THE COMPANY. AS PER THE APP ELLANT THE ALLOTMENT OF SHARES WAS DONE BY THE COMPANY IN STRICT COMPLIANCE WITH S EBI REGULATIONS, WHICH MANDATES THAT THE DIFFERENCE BETWEEN THE MARKET PRI CES AND THE PRICE AT WHICH THE OPTION IS EXERCISED BY THE EMPLOYEES IS TO BE D EBITED TO THE PROFIT AND LOSS ACCOUNT AS EXPENDITURE. AS PER THE APPELLANT ESOPS ARE ISSUED AND VALUED IN TERMS OF ESOP SCHEME FRAMED AS PER THE SEBI GUIDELI NES. THE APPELLANT HAS SUBMITTED THAT IN VIEW OF ABOVE, ESOP LIABILITY OF RS.16,21,904/- BE ALLOWED AS A DEDUCTIBLE EXPENSE AS THE RECOGNITION OF ESOP EXPEN DITURE IS IN ACCORDANCE WITH THE SEBI GUIDELINES. THE APPELLANT HAS RELIED UPON DECISION OF VARIOUS HON'BLE COURTS INCLUDING THE DECISION OF HON'BLE ITAT, BANG ALORE (SPECIAL BENCH) IN THE CASE OF BIOCON LTD. VS DCIT, REPORTED IN [2013] 55 TAXMANN.COM 335 (BANGALORE). AS PER THE APPELLANT IN THIS REFERRED CASE THE HON' BLE ITAT SPECIAL BENCH, BANGALORE HAS HELD THAT WHEN A COMPANY UNDERTAKES T O ISSUE SHARES TO ITS EMPLOYEES AT A DISCOUNTED PREMIUM ON A FUTURE DATE, THE PRIMARY OBJECT OF THIS EXERCISE IS NOT TO RAISE SHARE CAPITAL BUT TO EARN PROFIT BY SECURING THE CONSISTENT AND CONCENTRATED EFFORTS OF ITS DEDICATED EMPLOYEES DURING THE VESTING PERIOD. SUCH DISCOUNT IS CONSTRUED, BOTH BY THE EMPLOYEES A ND COMPANY, AS NOTHING BUT A PART OF PACKAGE OF REMUNERATION. IN OTHER WORDS, SUCH DISCOUNTED PREMIUM ON SHARES IS A SUBSTITUTE TO GIVE DIRECT INCENTIVE IN CASH FOR AVAILING THE SERVICES OF THE EMPLOYEES. THIS SUBMISSION OF THE APPELLANT IS FOUND TO BE TENABLE. IN THIS REFERRED CASE THE HON'BLE ITAT SPECIAL BENCH, BANGA LORE WHILE DECIDING THE SIMILAR ISSUE AT PARA 9.2.7 OF ITS ORDER HAS HELD T HAT BY UNDERTAKING TO ISSUE SHARES AS DISCOUNTED PREMIUM, THE APPELLANT DOES NO T PAY ANYTHING TO ITS EMPLOYEES, BUT INCURS OBLIGATION OF ISSUING SHARES AT DISCOUNTED PRICE ON A FUTURE DATE IN LIEU OF THEIR SERVICES WHICH IS NOTHING BUT AN EXPENDITURE U/S 37(1) OF THE IT ACT. THE HON'BLE ITAT HAS DEALT WITH THE SIMILAR ISSUE IN ITS ORDER IN DETAIL AND BY RELYING UPON DECISIONS OF VARIOUS HON'BLE COURTS HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE DEPARTMENT. RESP ECTFULLY FOLLOWING THE DECISIONS OF HON'BLE ITAT SPECIAL BENCH, BANGALORE IT IS HELD THAT THE AMOUNT OF RS. 16,21,904/- BEING REMUNERATION TO EMPLOYEES BY WAY OF EMPLOYEES' STOCK OPTION PLAN DEBITED TO PROFIT AND LOSS ACCOUNT IS A N ALLOWABLE EXPENDITURE U/S 37(1) OF THE IT ACT. IN VIEW OF THIS THE ADDITION O F RS. 16,21,904/- AS MADE BY THE ITA NOS. 137 8 & 1412/AHD/2014 . A.Y. 2010-1 1 12 AO IS HEREBY DELETED. THUS, THE GROUND OF APPEAL NO . 2 OF THE APPELLANT IS ALLOWED. 28. BEFORE US, THE LD. D.R. COULD NOT BRING ANY DISTING UISHING DECISION IN FAVOUR OF THE REVENUE. WE FIND THAT THE FINDINGS OF THE FI RST APPELLATE AUTHORITY DERIVE SUPPORT FROM THE FINDINGS OF THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF BIOCON LTD. (SUPRA). THEREFORE, WE DO NOT F IND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROU ND NO. 2 IS ACCORDINGLY DISMISSED. 29. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 02- 20 17 SD/- SD/- (S.S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 10 /02/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD