LARSEN & TOUBRO INFOTECH LTD., MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX -2, MUMBAI

ITA 2263/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7932 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N S JANG
• Assessee Lawyers: J D MISTRI
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; Revenue expenditure
• Section: 143(3); 37(1); 37; 263; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A,MUM BAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.2263/MUM/2016 (ASSESSMENT YEAR- 2009-10) LARSEN & TOUBRO INFOTECH LTD. TAXATION DEPARTMENT, L&T HOUSE, 2 ND FLOOR, N.M. MARG, BALLARD ESTATE, MUMBAI-400001 PAN: ABGPS5477E VS. PCIT-2 ROOM NO. 384, 3 RD FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI J.D. MISTRI (AR) REVENUE BY : SHRI N.S. JANGPANGI (CIT- DR) DATE OF HEARING 16.07.2018 DATE OF PRONOUNCEMENT 19.09.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME TAX ACT IS DIRECTED AGAINST THE ORDER OF PRINCIPLE COMMISSIONER OF INCO ME TAX-2 ( LD. PCIT) DATED 8 TH FEBRUARY 2016 FOR ASSESSMENT YEAR 2009-10. THE ASS ESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LEARNED PCIT ERRED IN HOLDING THAT ORDER PASSED UNDER SECTI ON 143(3) OF INCOME TAX ACT ON 15 TH JANUARY 2014 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT OF ALLOWANCE OF AMORTISATION OF ESOP EXPENSES OF RS. 6,16,09,455/-. (II) WITHOUT PREJUDICE TO THE GROUND NO.1, ON THE FACT A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED PCIT ERRED IN HOLDING THAT AMORTISATION OF ESOP EXPENSES IS A NOTIONAL LO SS ON ACCOUNT OF SHORTLISTED OF SHARE PREMIUM AND HENCE IT IS NOT AL LOWABLE AS EXPENSES UNDER SECTION 37(1) OF THE INCOME TAX ACT. ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 2 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10 ON 26 TH SEPTEMBER 2010 DECLARING TAXABLE INCOME OF RS. 30,25,87,218/-. THE RETURN OF INCOME WAS ACCOMPANIED BY THE TAX AUDIT REPORT, AUDITED ACCOUNTS AND REPORT U NDER SECTION 92 E (IN FORM 3CEB). THE RETURN OF INCOME WAS SELECTED FOR S CRUTINY. THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER MA DE TRANSFER PRICING ADJUSTMENT AND ADDITION /DISALLOWANCE UNDER SECTION 10A IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) ON 15 JANUARY 2014. THE ASSESSMENT ORDER WAS REVISED BY LEARNED PCIT VIDE I TS ORDER DATED 8 TH FEBRUARY 2016. 3. THE NOTICE UNDER SECTION 263 DATED 04.12.2015 WAS S ERVED ON THE ASSESSEE. THE ASSESSEE FILED ITS REPLY DATED 22.01. 2016 IN RESPONSE TO THE SHOW CAUSE NOTICE. IN THE REPLY THE ASSESSEE CONTEN DED THAT THE ASSESSMENT ORDER WAS PASSED BY ASSESSING OFFICER AF TER CONSIDERING THE RECORD AND MADE VARIOUS ADJUSTMENT /DISALLOWANCES W HILE PASSING ASSESSMENT ORDER UNDER SECTION 143(3). THE ASSESSIN G OFFICER SUBSEQUENTLY ISSUED NOTICE UNDER SECTION 154, VIDE NOTICE DATED 19 TH JANUARY 2015. IN THE NOTICE UNDER SECTION 154 THE A SSESSING OFFICER POINTED OUT AN AMOUNT OF RS. 6,16,09,445/- CLAIMED AS EMPLOYEES STOCK OPTION AMORTISATION EXPENSES (ESOP) REPRESENTED A N ATIONAL LOSS TO THE ASSESSEE ON ACCOUNT OF SHORTLISTED OF SHARE PREMIUM AND NOT ON ACCOUNT OF ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 3 INCURRING ANY LIABILITY OR LOSS IN THE COURSE OF CA RRYING OF THE BUSINESS. AND ACCORDING TO THE ASSESSING OFFICER SUCH NOTIONA L LOSS WAS NOT ALLOWABLE UNDER THE ACT. THE ASSESSEE ALSO CONTENDE D THAT THE ASSESSEE FILED REPLY TO THE NOTICE UNDER SECTION 154 VIDE TH EIR REPLY DATED 28 TH JANUARY 2015 AND SUBMITTED AS TO HOW THE DISCOUNT E SOP IS AN ALLOWABLE EXPENSES UNDER SECTION 37 OF THE INCOME TAX ACT AND REQUESTED THE ASSESSING OFFICER THAT DISALLOWANCE ON ACCOUNT OF E SOP EXPENSES OF RS. 6.16 CRORE IS NOT CALLED FOR. THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSING OFFICER TOOK THE DETAILS RELATING TO THE ESOP ON RECORD AND HAS NOT PASSED ORDER RECTIFYING THE PURPOSED MISTAKE, D ESPITE LAPS OF MORE THAN ONE YEAR. THE ASSESSEE FURTHER CONTENDED IN IT S REPLY THAT THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIE WS AND THAT THE LEARNED PCIT HAVE NO JURISDICTION TO INTERFERE WITH SUCH A VIEW WHILE EXERCISING POWER UNDER SECTION 263. THE ASSESSEE PRAYED THAT E SOP DISCOUNT IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE IN COME TAX ACT WHICH HAS BEEN RECOGNISED BY LEGISLATURE AND HAS BEEN SET TLED BY VARIOUS LEGAL DECISIONS. 4. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY LEAR NED PCIT HOLDING IT THAT THE ASSESSMENT ORDER PASSED BY ASSESSING OFFIC ER IS ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AS TH E ASSESSING OFFICER HAS NOT VERIFIED WHETHER THE CLAIM OF ASSESSEE FOR EMPLOYEE S STOCK OPTION AMORTISATION EXPENSES (ESOP) IS ALLOWABLE, AND IF SO, HOW THE CLAIM ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 4 HAS BEEN CALCULATED. THE ASSESSEE HAS NOT BROUGHT O N RECORD THE TERM AND CONDITION OF ESOP PLAN, DETAILS OF THE SCHEME, OPTI ONS OUTSTANDING AT THE BEGINNING OF YEAR, OPTIONS GRANTED DURING THE YEAR , OPTION LAPSED DURING THE YEAR, OPTION EXERCISE DURING THE YEAR, OPTION C ANCELLED DURING THE YEAR, OPTION OUTSTANDING AT THE END OF YEAR, FAIR V ALUE PRICING MODEL USED FOR VALUATION OF ABSENCE, POLICIES ABOUT AMORTISATI ON OF COMPENSATION COST, ACCOUNTING TREATMENT OF AMORTISED AMOUNT OF C OMPENSATION COST, WEIGHTED AVERAGE EXERCISE PRICE, ASSUMPTIONS, RISK- FREE INTEREST RATE, EXPECTED LIFE, EXPECTED VOLATILITY EXPECTED DIVIDEN D, PRICE OF THE UNDERLYING SHARE IN THE MARKET AT THE TIME OF OPTIO N GRANT FOR THE CURRENT AND PREVIOUS YEAR. THE ASSESSING OFFICER WAS DIRECT ED TO MAKE FRESH ASSESSMENT ORDER AFTER GIVING OPPORTUNITY TO THE AS SESSEE AS PER LAW. THUS, AGGRIEVED BY THE ORDER OF LEARNED PCIT THE AS SESSEE HAS FILED PRESENT APPEAL BEFORE US. 5. WE HAVE HEARD LEARNED AUTHORISED REPRESENTATIVE (A R) FOR THE ASSESSEE AND LEARNED DEPARTMENTAL (DR) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO DELIBERATED ON VA RIOUS CASE LAW RELIED BY LOWER AUTHORITY AS WELL AS BY LEARNED REPRESENTA TIVE OF THE PARTIES. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE ASSESSI NG OFFICER CONSIDERED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD AND P ASSED THE ASSESSMENT ORDER. THE ASSESSEE MADE COMPLETE DISCLOSER AND DIS CLOSED ALL THE RELATED INFORMATION IN ITS AUDITED FINANCIAL STATEMENT FOR THE YEAR ENDING ON 31 ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 5 MARCH 2009. THE ASSESSEE IN THE NOTE OF ACCOUNT HAS CLEARLY MENTIONED ALL THE DETAILS RELATING TO THE ESOP EXPENSES. THE ASSESSING OFFICER PASSED ASSESSMENT ORDER AFTER CONSIDERING ALL THE COMPUTAT ION OF INCOME AND DETAILS OF AUDITED ACCOUNTS. AFTER PASSING THE ASSE SSMENT ORDER THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 154 A ND PROPOSED TO RECTIFY THE ASSESSMENT ORDER VIDE NOTICE DATED 19 TH OF JANUARY 2015. THE ASSESSEE VIDE ITS REPLY DATED 28 TH JANUARY 2015 BROUGHT IN HIS NOTICE THAT THAT ESOP DISCOUNT REPRESENT THE EMPLOYEE REMUNERATION AND THUS REPRESENT REVENUE EXPENDITURE, ALTHOUGH INCURRED IN KIND, ALL OWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. SECTION 37 PROVIDES TH AT ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE TAXA BLE INCOME AMONGST OTHER THINGS. IN SUPPORT OF HIS SUBMISSION THE LEAR NED AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N CASE OF MALABAR INDUSTRIAL CO LTD VERSUS CIT 243 ITR 83(SC), CIT VE RSUS MAX INDIA [2007 ] 295 ITR 282 (SC ), DECISION OF HONBLE BOMB AY HIGH COURT IN CASE OF CIT VERSUS GABRIEL INDIA LTD 203 ITR 108(BO MBAY), DECISION OF DELHI HIGH COURT IN CASE OF CIT VERSUS ESCORT LTD [2011] 338 ITR 435(DELHI), CALCUTTA HIGH COURT IN RUSSELL PROPERTI ES PRIVATE LTD VERSUS ACIT (109 ITR 229 (CALCUTTA). 6. ON MERIT THE LD AR FOR THE ASSESSEE STRONGLY RELIE D UPON THE DECISION OF SPECIAL BENCH OF BANGALORE TRIBUNAL IN CASE OF BICO N LTD VERSUS DCIT ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 6 (35 TAXMANN.COM 335) WHEREIN IT WAS BEEN HELD THAT DISCOUNT ON ESOP IS AN ALLOWABLE EXPENSES UNDER SECTION 37 DURING THE Y EAR OF VESTING. THE ASSESSING OFFICER ON THE BASIS OF INFORMATION AVAIL ABLE ON RECORD ISSUED NOTICE UNDER SECTION 154. THE ASSESSEE FILED ITS RE PLY, WHICH WAS TAKEN ON RECORD AND THE ASSESSING OFFICER HAS NOT PASSED ORD ER RECTIFYING THE PROPOSED MISTAKE; THEREFORE, THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER WAS SATISFIE D WITH THE CONTENTION OF THE ASSESSEE THEREFORE; THE ORDER PASSED BY ASSESSI NG OFFICER WHILE PASSING THE ORIGINAL ASSESSMENT IS NEITHER ERRONEOUS NOR PR EJUDICIAL TO THE INTEREST OF REVENUE. 7. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITS THAT EVEN ON MERIT THE ISSUE ON WHICH THE LEARNED PCIT REVISE THE ASSESSME NT ORDER IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF SPECIAL BENCH IN BICON LTD VERSUS DCIT [2013] 35 TAXMANN.COM 335(BANGALORETRIB) (SB) , MUMBAI TRIBUNAL IN DBOI GLOBAL SERVICES PRIVATE LTD VERSUS PCIT IN ITA NO. 3170/MUM/2015 DATED 11 DECEMBER 2017 AND THE DECISI ON OF MADRAS HIGH COURT IN CASE OF CIT VERSUS PVP VENTURE LTD [2 012] 23 TAXMANN.COM 286 (MADRAS). 8. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU PPORTED THE ORDER OF LEARNED PCIT. THE LEARNED DR FOR THE REVENUE SUBMIT S THAT DURING THE ASSESSMENT THE ASSESSING OFFICER SIMPLY ACCEPTED TH E COMPUTATION OF INCOME FURNISHED BY THE ASSESSEE. THE ASSESSING OFF ICER HAS NOT VERIFIED ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 7 WHETHER THE CLAIM OF ESOP ASSESSEE IS ALLOWABLE OR NOT. THE ASSESSING OFFICER HAS NOT EXAMINED THE VARIOUS DETAILS AND TH E SCHEME OF ESOP. IT IS THE DUTY OF THE ASSESSING OFFICER TO ASCERTAIN THE TRUTH, THE FACT STATED BY THE ASSESSEE IN THE RETURN OF INCOME, WHEN THE CIRC UMSTANCE OF THE CASES IS SUCH TO PROVOKE AND INQUIRY. THE ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IF THE SAME IS PASSED WITHOUT MAKING ANY ENQUIRY OR SUCH INQUIRY WHICH WAS NECESSARY, HAS NOT BEEN MADE. THE LEARNED PCIT IN ITS ORDER HAS CLEARLY BROUGHT ON RECORD THAT THE ASSESS ING OFFICER WITHOUT PROPER ENQUIRY AND IN INVESTIGATION ALLOWED THE CLA IM OF THE ASSESSEE, THEREFORE, THE ORDER PASSED BY ASSESSING OFFICER IS NOT ONLY ERRONEOUS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AS WELL, THU S, THE TWIN CONDITION PRESCRIBED UNDER SECTION ARE FULFILLED IN THE PRESE NT CASE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO DELIBERATED ON VARIOUS CASE LAWS CITED BY LEARNED PCIT OR BY LEARN ED REPRESENTATIVE DURING THEIR SUBMISSIONS. 10. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO LTD (SUPRA) HAS LAID DOWN THE FOLLOWING PRINCIPAL; THE CIT HAS TO BE SATISFIED TWIN CONDITIONS, NAMELY (I), THE ORDER OF AO SOUGHT TO BE REVISED IS ERRONEOUS AND (II) IT IS PR EJUDICIAL TO THE INTEREST OF REVENUE. IF ONE OF THEM IS ABSENT- IF THE ORDER OF ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263 (1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVE RY TYPE OF MISTAKE OR ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 8 ERROR COMMITTED BY THE AO, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLE OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE IS NOT AN E XPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IT IS ORDINARY M EANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHE ME OF THE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISION OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS OR DER OF THE ITO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF REVENUE. THE PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE HAS TO BE READ IN CONJUNCTION W ITH AN ERRONEOUS ORDER PASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQ UENCE OF AN ORDER OF AO, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERES T OF REVENUE, FOR EXAMPLE, WHEN AN ITO, ADOPTED ONE OF THE COURSE PER MISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO V IEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE. UNLESS THE VIEW TAKEN BY ITO IS UNSUSTAINABLE IN LA W. 11. HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS GABRIAL INDIA LTD 203 ITR 108 (BOM), HELD THAT 10. THE POWER OF SUO MOTU REVISION UNDER SUB-SECTION (1 ) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXE RCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMST ANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISI ON UNDER THIS SUB- SECTION, VIZ., ( I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST S OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN O RDER CAN BE SAID TO BE ERRONEOUS. WE FIND THAT THE EXPRESSIONS 'ERRONEOUS' , 'ERRONEOUS ASSESSMENT' AND 'ERRONEOUS JUDGMENT' HAVE BEEN DEFINED IN BLACK 'S LAW DICTIONARY. ACCORDING TO THE DEFINITION/ERRONEOUS', MEANS 'INVO LVING ERROR; DEVIATING ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 9 FROM THE LAW'. 'ERRONEOUS ASSESSMENT' REFERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS, THEREFORE, INVALID, AND IS A D EFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DOES NOT REFER TO THE JUDGMENT O F THE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PROPERTY. SIM ILARLY, 'ERRONEOUS JUDGMENT' MEANS 'ONE RENDERED ACCORDING TO COURSE A ND PRACTICE OF COURT, BUT CONTRARY TO LAW UPON MISTAKEN VIEW OF LAW, OR U PON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES'. 11. FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN ITO ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSES SMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTE N MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUT ION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE OR DER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISU ALISED WHERE THE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, M AKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY M AKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORD S, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCE RNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER, HE WOULD HAVE ES TIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE ITO. T HAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE TH E ITO HAS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WI TH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED T O BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WI TH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF T HE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTERESTS O F THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT, VIZ., THAT THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY, IF AN ORDER IS ERR ONEOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEN ALSO THE POWE R OF SUO MOTU REVISION ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 10 CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT- MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT A LSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD T O SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTE RPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. 12. THE HONBLE SUPREME COURT IN MAX INDIA (SUPRA) HELD THE PHRASE 'PREJUDICIAL TO THE INTEREST OF THE REVENUE' UNDER SECTION 263 HAS TO BE READ IN CONJUNCTION WITH THE EXPRESSION 'ERRONEOUS' ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSE QUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDIC IAL TO THE INTEREST OF THE REVENUE. FOR EXAMPLE, WHEN THE INCOME-TAX OFFICER A DOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER H AS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 13. NOW, WE SHALL EXAMINE THE ISSUE ON WHICH THE ASSES SMENT ORDER WAS CANCELLED AND WAS DIRECTED TO BE PASSED AFRESH AFTE R GIVING PROPER OPPORTUNITY TO THE ASSESSEE. WE HAVE SEEN THAT ASSE SSMENT ORDER UNDER SECTION 143(3) WAS PASSED ON 15 JANUARY 2014. THE A SSESSING OFFICER ISSUED NOTICE UNDER SECTION 154 FOR RECTIFICATION O F THE MISTAKE IN THE ASSESSMENT ORDER, COPY OF WHICH IS PLACED ON RECORD VIDE PAGE NO.10 OF PAPER BOOK (PB). IN THE NOTICE UNDER SECTION 154 TH E ASSESSING OFFICER ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 11 MENTIONED THAT HE HAS SEEN FROM SIGNIFICANT ACCOUNT ING POLICIES (SCHEDULE-P OF THE ANNUAL ACCOUNTS) IN RESPECT OF E SOP GRANTED BY ASSESSEE COMPANY THE EXCESS OF THE FAIR VALUE OF SH ARE OVER EXERCISE PRICE OF OPTION IS TREATED AS DISCOUNT AND ACCOUNTE D AS EMPLOYEE COMPENSATION COST OVER THE VESTING PERIOD. IT WAS F URTHER MENTIONED THAT ( SL NO. 2 OF THE NOTES OF ACCOUNT) THAT THE ASSESSE E HAD GRANTED 25,31,159 OPTIONS TO ITS EMPLOYEE TO ISSUE SHARES OF FACE VAL UE OF RS. 5/- EACH (WITH OPTION PRICE OF RS.25/- UNDER I,II,& III SERIES AND RS.10/- FOR IV-XVI AND XVII-XVIII) OUTSTANDING AT MARCH 31 ST 2009 UNDER DIFFERENT ESOP SCHEME. IT IS ALSO MENTIONED IN THE NOTICE THAT IT WAS SEEN FROM THE CASH FLOW STATEMENT THAT AN AMOUNT OF RS. 6,61,09,445/- WAS ACCOUNTED AS EMPLOYEE STOCK OPTION AMORTIZATION EXPENSES WHICH I S OBVIOUSLY THE DISCOUNT AMOUNT TREATED AS EMPLOYEE COST. THUS, FRO M THE PERUSAL OF THE NOTICE UNDER SECTION 154 IT IS CLEAR THAT ALL THE D ETAILS RELATED WITH ESOP DISCOUNT WERE AVAILABLE WITH THE ASSESSING OFFICER. THE ASSESSEE FILE ITS REPLY VIDE REPLY DATED 28.01.2015, COPY OF WHICH IS FILED ON RECORD VIDE PAGE NO. 11 TO 18 OF PB. IN THE REPLY THE ASSESSEE EXPLAINED THE LEGISLATIVE HISTORY ESOP AND RELIED ON THE DECISION OF SPECIAL BENCH IN BIOCON LIMITED (SUPRA), WHEREIN IT WAS HELD THAT DI SCOUNT ON ESOP IS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) DURING YEAR S OF VESTING ON BASIS OF PERCENTAGE OF VESTING DURING SUCH PERIOD, SUBJEC T TO ADJUSTMENT AT TIME OF EXERCISE OF OPTION. THE LD AR FOR THE ASSESSEE W HILE MAKING ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 12 SUBMISSIONS SUBMITTED THAT AFTER TAKING THE REPLY O F ASSESSEE AND THE DETAILS RELATING TO THE ESOP, THE ASSESSING OFFICER HAS NOT CONVEYED HIS DECISION ON PROPOSED RECTIFICATION AND THE CONTENTI ON OF THE ASSESSEE IS DEEMED TO BE ACCEPTED AS ALLOWABLE EXPENSES UNDER T HE ACT. THE LD. DR FOR THE REVENUE HAS NOT DISPUTED THE CONTENTION OF THE LD. AR FOR THE ASSESSEE NOR FILED ANY MATERIAL ON RECORD REJECTING THE CONTENTION OF THE ASSESSEE, WHICH WAS CONVEYED BY THEM TO THE ASSESSI NG OFFICER IN REPLY TO THE NOTICE UNDER SECTION 154 OF THE ACT. 14. CONSIDERING THE FACTUAL MATRIX OF THE CASE WE FIND THAT, THOUGH THE ASSESSING OFFICER HAS NOT DISCUSSED THE ISSUE OF ES OP AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS, HOWEVER, IN THE PR OCEEDINGS INITIATED UNDER SECTION 154 THE ASSESSING OFFICER AFTER EXAMI NING THE DETAILS OF ESOP DISCOUNT WAS SATISFIED AND NOT DISALLOWED IT, BEING ALLOWABLE EXPENSES AND THE ASSESSING OFFICER HAS TAKEN A POSS IBLE VIEW. THOUGH, THE ASSESSING OFFICER HAS NOT COMMUNICATED HIS ORDER, I T SHOULD HAVE BEEN COMMUNICATED TO THE ASSESSEE OR THE LD. PCIT OUGHT TO HAVE CONFIRMED FROM THE ASSESSING OFFICER OF HIS FINDING ON PROPOS ED ACTION INITIATED UNDER SECTION 154, BEFORE PROCEEDING FURTHER IN THE MATTER. HENCE, IN OUR VIEW THE ORDER PASSED BY ASSESSING OFFICER IS NOT E RRONEOUS AND THEREFORE THE TWIN CONDITION AS ENUNCIATED UNDER SECTION 263 ARE NOT FULFILLED. WE ARE ALSO OF THE VIEW THAT NO REVISION UNDER SECTION 263 WAS WARRANTED, ON THE FACTS OF PRESENT CASE, WHEN THE ASSESSING OFFIC ER ON THE BASIS OF THE ITA NO. 2263/M/2016 LARSEN & TOUBRO INFOTECH LTD 13 MATERIAL AVAILABLE BEFORE HIM INITIATED ACTION UNDE R SECTION 154 AND AFTER EXAMINING THE ISSUE MADE NO DISALLOWANCE AND TAKEN A POSSIBLE VIEW IN ACCORDANCE WITH THE LAW. IT IS SETTLED LAW THAT EVE RY LOSS OF REVENUE AS A CONSEQUENCE OF A VIEW TAKEN BY THE ASSESSING OFFICE R CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR EXAMPLE, WHEN THE INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMI SSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E COMMISSIONER (PCIT) DOES NOT AGREE, IT CANNOT BE TREATED AS AN E RRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. IN THE RESULT THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE ALLOWED. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 19/09/2018 SD/- SD/- (N.K. PRADHAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 19/09/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/