DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 6 (2), Chennai V. M/S SOLARWINDS INDIA PRIVATE LIMITED, Chennai

ITA 428/CHNY/2018

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5602 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 06-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D ROHINI
• Assessee Lawyers: SANDEEP BAGMAR R
• Keywords: Set aside
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 428/CHNY/2018 / ASSESSMENT YEAR : 2014-15 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -6(2), AAYAKARBHAVAN, NEW BLOCK, 7 TH FLOOR, 121 M.G. ROAD, CHENNAI 600 034. VS. M/S. SOLARWINDS INDIA PRIVATE LIMITED, NO. 16, III FLOOR, RMS APARTMENT, NO. 12, GOPALAKRISHNA STREET, PONDY BAZAAR, CHENNAI 600 017. [PAN: AACCT 4499H] ( / APPELLANT) ( '#% /RESPONDENT ) REVENUE BY : MS. D. ROHINI, JCIT ASSESSEE BY : SHRI. SANDEEP BAGMAR. R, ADVOCATE - /DATE OF HEARING : 03.10.2018 - /DATE OF PRONOUNCEMENT : 16.11.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI IN ITA NO. 266/CIT (A)-15/16-17 DATED 31.10.2017 FOR ASSESSMENT YEAR 2014-15. :-2-: ITA NO. 428/CHNY/2018 2. THE APPEAL IS FILED WITH A DELAY OF ONE DAY . T HE REVENUE FILED PETITION FOR CONDONATION OF DELAY. WE HEARD THE R IVAL SUBMISSIONS AND CONDONE THE DELAY. 3. M/S SOLARWINDS INDIA PVT. LTD., THE ASSESSEE, IS CARRYING ON THE BUSINESS OF PROVIDING RESEARCH AND DEVELOPMENT SERV ICES TO GROUP COMPANIES. WHILE MAKING THE ASSESSMENT FOR ASSESSM ENT YEAR 2014-15, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED ESOP (EMPLOYEES STOCK OPTION PLAN) OF RS. 3,54,30,445/- OUT OF WHICH IT HAS DISALLOWED RS. 2,21,73,740/- BUT CLAIMED THE BALANC E 1,32,56,705/- AS AN EXPENDITURE. WHEN THE AO PROPOSED TO DISALLOW SUCH EXPENSES FOR THE REASON THAT IT IS ONLY NOTIONAL AND ALSO A CAPITAL LOSS, THE ASSESSEE RELIED ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF PVP VENTURES LTD. THE AO CITED THE ITAT DECISIONS IN THE CASE OF RANBAXY LABORATORIES LTD VS ACIT (124 TTJ 771) (DELHI) AND M/S. VIP INDUSTRIES LTD. 2010 ITL 654 (MUM) AND THE REVENUES APPEAL AGAINST THE HONBLE HIGH COURT IN THE CASE OF PVP VENTURES LTD AND HELD THAT WITHOUT PREJ UDICE TO THE DECISION OF THE HONBLE HIGH COURT AND IN ORDER TO KEEP THE ISS UE ALIVE, HE DISALLOWED THE ASSESSEES CLAIM. 4. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) CONSIDERED THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS PVP VENTURES LTD 23 TAXMANN.COM 286 AND THE CBDT CIRCULAR :-3-: ITA NO. 428/CHNY/2018 9/2007 DATED 20.12.2007 AND IN VIEW OF THE BINDING DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT DECISION, DIRECTE D THE AO TO DELETE THE DISALLOWANCE MADE BY HIM. 5. AGGRIEVED, THE REVENUE FILED THIS APPEAL WITH TH E FOLLOWING GROUNDS: 1.THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2) THE LD CIT(A) ERRED IN DIRECTING THE AC, TO DELE TE THE DISALLOWANCE TOWARDS ESOP EXPENDITURE FOR RS. 1,32,56,705/- 2.1)THE LD CIT(A) FAILED TO NOTE THAT,. THE DISALLOW ANCE TOWARDS ESOP EXPENDITURE FOR RS. 1,32,56,705/-WHEN THE EXPENDITUR E IS CAPITAL IN NATURE AS IT INVOLVED ISSUES OF SHARES AT A DISCOUNTED RATE T O EMPLOYEES. 2.2)THE DECISION OF CIT(A) MAY NOT BE ACCEPTED ON T HIS ISSUE. AS CITED BY THE CIT(A) IN HIS ORDER, HONOURABLE SC HAS DISMI SSED THE SLP FILED BY THE REVENUE IN THE CASE OF PVP VENTURES ONLY ON GROUND OF ASSUMPTION OF JURISDICTION BY THE CIT U/S 263 AND HAS NOT PRESSED A SPEAKING ORDER AS TO THE MERITS OF THE ISSUE OF ESOP AND HENCE HAS NOT LA ID DOWN ANY PREPOSITION OF LAW. 2.3) THE LD CIT(A) ERRED IN DIRECTING THE AC TO DEL ETE THE ADDITION ON ACCOUNT OF ESOP EXPENSES EVEN THOUGH, IN THE CASE OF M /S SHRIRAM TRANSPORT AND SHRIRAM CITY UNION FINANCE DEPARTMENT APPEALS AR E PENDING BEFORE HIGH COURT. 2.4) THE LD CIT(A) OUGHT TO HAVE CONSIDERED THE DEC ISION IN THE CASES OF ITAT, DELHI BENCH IN ACIT VS RANBAXY PVT LTD VIDE ( ITA NO.2613 & 3871) ,HYDERABAD ITAT MEDHA SERVO DRIVES VIDE ITA NO. 1114 /HYDERABAD/2008 , MUMBAI ITAT DCIT VS BLOW PLAST LTD (ITA NO.512/MDS/ 2009), MAHENDRA & MAHENDRA VS DCIT VIDE ITA NO. 859/MDS/2010 AND M/S VIP INDUSTRIES VS DCIT VIDE ITA NO. 7242/MDS/2008 WHICH HAVE BEEN IN FAVOUR OF REVENUE ON THE ISSUE UNDER CONSIDERATION. 3) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. :-4-: ITA NO. 428/CHNY/2018 6. THE LD. DR PRESENTED THE CASE ON THE LINES OF GR OUNDS OF APPEAL. PER CONTRA, THE AR SUBMITTED THAT THE ASSESSEE, SOL ARWINDS INDIA PRIVATE LIMITED WAS INCORPORATED ON 4 JUNE 2006 AND WAS ACQ UIRED BY SOLARWINDS SOFTWARE EUROPE LIMITED (SOLARWINDS EUROPE) IN FE BRUARY 2010. IT IS ENGAGED IN THE BUSINESS OF PROVIDING RESEARCH AND D EVELOPMENT SUPPORT AND MARKETING SERVICES TO ITS GROUP ENTITIES OUTSID E INDIA. THE ULTIMATE HOLDING COMPANY OF SOLARWINDS INDIA IS SOLARWINDS U SA, A COMPANY LISTED ON THE NEW YORK STOCK EXCHANGE. THE BOARD OF DIRECT ORS AND SHAREHOLDERS OF SOLARWINDS USA HAVE APPROVED AN EQUITY INCENTIVE PLAN TITLED 2008 INCENTIVE SCHEME WHEREIN CERTAIN IDENTIFIED EMPLOY EES OF THE SOLARWINDS GROUP (INCLUDING EMPLOYEES OF SOLARWINDS INDIA) ARE GRANTED EMPLOYEE STOCK OPTION PLAN (ESOP)/ RESTRICTED STOCK UNITS (RSUS) OF SOLARWINDS USA. DURING THE AY, THE ASSESSEE DEBITED INR 35,43 0,445 TO ITS PROFIT AND LOSS ACCOUNT, ON ACCOUNT OF ESOP / RSUS. FURTHER, S OLARWINDS USA HAD RAISED A DEBIT NOTE OF INR 13,256,705 UPON VESTING OF ESOPS/RSUS DURING THE AY. THE ASSESSEE HAD REMITTED THE SAME TO SOLA RWINDS USA AND CLAIMED IT AS AN EXPENDITURE. THEREFORE, THE BALAN CE AMOUNT OF INR 22,173,740, WHICH HAD NOT BEEN REMITTED TO SOLARWIN DS USA HAS ALSO BEEN CORRECTLY DISALLOWED BY THE ASSESSEE ITSELF DU RING THE AY. RELYING ON THE JURISDICTIONAL HIGH COURT DECISION AND ALSO THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF BIOCON LTD., VS DCIT (LTU) BANGALORE (2013) 35 TAXMANN.COM 335, THE AR PLEADED THAT THE ORDER OF T HE LD. CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. :-5-: ITA NO. 428/CHNY/2018 7. WE HEARD THE RIVAL SUBMISSIONS. ON THE FACTS SUB MITTED BY THE ASSESSEE IN PARA 5, SUPRA, THE LD. CIT(A) FOLLOWED THE BINDING PRECEDENCE OF THE JURISDICTIONAL HIGH COURT. HENCE, HIS ORDER DOES NOT REQUIRE ANY INTERFERENCE, CONSEQUENTLY, THE REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON FRIDAY, THE 16 TH DAY OF NOVEMBER, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 16 TH NOVEMBER, 2018 JPV -'3454 /COPY TO: 1. % / APPELLANT 2. '#% /RESPONDENT 3. 7 ) ( /CIT(A) 4. 7 /CIT 5. 4' /DR 6. : /GF