Comtrade Commodities Services Limited (Formerly Edelweiss Comtrade Ltd.), Mumbai V. The Pr.CIT, Ahmedabad-1, Ahmedabad

ITA 429/AHD/2023

AI Insights

The case involves Comtrade Commodities Services Limited, which appealed against the order of the Principal Commissioner of Income Tax, Ahmedabad, invoking revisionary powers under section 263 of the Income Tax Act, 1961. The revision was concerning the assessment year 2018-19, where the Principal Commissioner found the assessment order erroneous in allowing ESOP expenses and in the computation of carry forward losses. The Tribunal examined whether the assessment order was erroneous and prejudicial to the interest of the revenue, particularly focusing on the allowance of ESOP expenses and the computation of carry forward losses. The Tribunal concluded that the assessment order was not erroneous as it was in line with the law and judicial precedents, and the issues had been adequately addressed during the assessment proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133473 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-09-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 25-05-2023
• Other Referred Cases: Biocon Ltd. Vs. DCIT, (2013) 35 taxmann.com 335 (SB)(Trib-Bangalore), CIT Vs. Biocon, 121 taxmann.com 351 (Kar)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: TDS; Set aside
• Section: 37; 263; 143(3); 142(1); 37(1)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R.SENTHIL KUMAR, JUDICIAL MEMBER ITA No.429/Ahd/2023 Assessment Year :2018-19 Comtrade Commodities Services Limited (Formerly Edelweiss Comtrade Ltd) Edelweiss House Off: CST Road Kalina Santacrux East Mumbai. PAN : AABCA 2781 N Vs. Pr.CIT, Ahmedabad-1 Ahmedabad. (Applicant) (Responent) Assessee by : Shri Biren Shah, AR Revenue by : Shri Akhilendra Pratap Yadav, CIT-DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 1 / 0 9 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 2 7 / 0 9 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER This appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income Tax-1, Ahmedabad dated 30.3.2023in exercise of revisionary power under section 263 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst.Year 2018-19. 2. The assessee has raised the following grounds: “1. On the facts and in the circumstances of the case, the learned Principal Commissioner of Income-tax -1, Ahmedabad ("the learned PCIT") erred in ITA No.429/Ahd/2023 2 invoking the revision proceedings under section 263 of the Income-tax Act, 1961 (the "Act") and setting aside the Assessment Order dated 26 February 2021 passed by the learned Assessing officer ('the AO') under section 143(3) of the Act (the "Assessment Order"), on the alleged ground that the same is erroneous and prejudicial to the interest of the revenue. Accordingly, the Appellant prays that the order passed by the learned PCIT under section 263 of the Act is bad in law and ought to be quashed. 2. On the facts and in the circumstances of the case, revision proceedings under section 263 of the Act tantamounts to change of opinion as while passing the assessment order under section 143(3) of the Act, the learned AO had duly applied its mind and has adopted one of the possible views allowed under the law. Accordingly, the Appellant prays that the order passed by the learned PCIT under section 263 of the Act is bad in law and ought to be quashed. 3. On the facts and in the circumstances of the case, the Learned PCIT has erred in law by holding that the AO has failed to carry out adequate enquiries / verification while passing the assessment order without appreciating the fact that the case of the Appellant has been selected under Computer Aided Scrutiny Selection (CASS) for verification of "Claim of Any Other Amount Allowable as Deduction in Schedule BP" which in the Appellants case was ESOP and the AO had undertaken all the relevant and meaningful enquiry and verification and had called for specific details / information after perusing the said details/information during the course of assessment proceedings. Accordingly, the Appellant prays that the order passed by the learned PCIT under section 263 of the Act is bad in law and ought to be quashed 4. The Learned PCIT erred in setting aside assessment order for doing enquiries / verification / investigation without stating as to what enquiry should have been made by the AO which is not made by him; more particularly when specific questions have been asked by the AO and duly replied by the Appellant. Moreover, without stating as to how the verification / enquiries shall be done by the AO. 5. The Learned PCIT erred in invoking clause (a) of Explanation 2 to section 263 of the Act without appreciating that sufficient enquiry has been done by the AO during regular assessment proceeding and the claim of the Appellant has been allowed as per law. 6. On the facts and in the circumstances of the case, the learned PC IT has erred in disallowing the expenditure incurred by the Appellant in relation to ESOP under section 37 of the Act by holding that the expenses claimed on account of ESOP is notional, contingent and capital in nature.” 3. As transpires from order of the ld.Pr.CIT, on perusal of the record of the assessee he found the assessment order passed in the ITA No.429/Ahd/2023 3 case of the assessee erroneous and causing prejudice to the Revenue on the following two counts viz. (i) incorrect allowance by AO of Employee Stock Option Plan (ESOP) expenses to the assessee despite record revealing that the said expense hadneither been debited to the profit & loss account nor the expenses pertained to the impugned year, as was revealed from the details filed to the AO; (ii) the claim of carry forward of current loss in the return of income being to the tune of Rs.7,52,06,488/- as opposed to that allowed by the AO and shown in the computation sheet attached to the assessment order amounting to Rs.7,05,298/-. 4. Vis-à-vis the first issue of incorrect allowance of claim of ESOP expenses, we have gone through the order of the ld.Pr.CIT, have heard both the parties, and have also gone through all the documents referred to before us by both the parties; more particularly, the documents which are placed before us by the ld.counsel in Paper Book comprising of 135 pages. 5. On careful consideration of all the above we hold that there was no error in the order of the AO allowing the assessee’s claim of ESOP expenses; that the entire issue had been duly inquired into during the assessment proceedings; reply of the assessee duly considered by the AO and the AO had taken a plausible view on the issue based on the existing proposition of law with regard to the claim of ESOP expenses. Our reasoning follows. We find from the documents placed before us in PB that during the assessment proceedings the assessee was asked by the AO to justify its claim of ESOP expenses to the tune of Rs.2,52,14,540/- vide notice issued under section 142(1) of the Act dated 19.2.2021. Copy of the same was placed before us at PB Page No.55 to 56. The assessee was specifically asked to file copy of the ESOP proposal ITA No.429/Ahd/2023 4 made by it to M/s.Edelweiss Financial Services Ltd., who had framed ESOP scheme for the benefit of employees of the group companies including the assessee’s company. The AO had also asked the assessee to file list of employees who had exercised this option under the scheme along with sample Form No.16, and also to furnish detailed working of the deduction claimed under section 37 of the Act amounting to Rs.2.52 crores. 6. The assessee, we have noted, furnished all information as asked for by the AO in its reply dated 24-02-2021 (P.B 57-106) : • explaining in detail its eligibility to claim deduction of ESOP cost pointing out that by issuing ESOP to its employees the assessee undertakes an obligation to issue shares at a price below prevailing market value for the purpose of remunerating the employees for their services; that therefore, it is nothing but an expenditure incurred for the purpose of its business activity. The assessee had pointed out that difference between the market value on the date of exercise of option and offer price inrespect of the shares offered to the employees under ESOP scheme, being in the nature of benefit to the employees, was an expenditure to the assessee. • The assessee had also pointed out that as per the provision of law, this difference in market value of shares was treated as perquisite in the hands of the assessee, who had exercised their option, in terms of section 17 of the Act; that the assessee had deducted TDS on this perquisite given to its employees, and therefore, all the more, it tantamounts to be in the nature of expenditure incurred for the benefit of the employees of the assessee, and the assessee was thus liable to claim deduction of the same under section 37(1) of the Act. The assessee had ITA No.429/Ahd/2023 5 pointed out that this proposition had been accepted by the Special Bench of the ITAT in the case of Biocon Ltd. Vs. DCIT, (2013) 35 taxmann.com 335 (SB)(Trib-Bangalore) (supra), which had held it to be allowable expenditure noting that ESOP discount is a substitute to direct incentive in cash for the services of the employees, and that expenditure need not necessarily be incurred in cash; that incurrence of an obligation is also an expenditure. • The assessee had also pointed out that this decision of the Special Bench of the ITAT had been confirmed by the Hon’ble Karnataka High Court in its judgement in CIT Vs. Biocon, 121 taxmann.com 351 (Kar). • Various other decisions of the ITAT, allowing identical claim of ESOP expenses on the same principle, as referred to in the decision of Special Bench of the ITAT, were also cited before the AO. • The assessee had placed a detailed working of the expenditure on account of ESOP claimed during the year, pointing out that it was worked out on the basis of option which were exercised by the employees during the impugned year. • Copies of the form no.16 of the employees were also filed showing TDS on the perquisite of ESOP given to them, as also, copy of Edelweiss Employees Stock incentives offer, by virtue of which the ESOP given to the employees of the assessee. 7. Evidently, the assessee had explained in detail to the AO what ESOP scheme was, and how it was an expenditure for the assessee, and also basis for calculating the ESOP expenditure, pertaining to the year. Its claim was duly supported with the decision of the Special Bench of the ITAT, which was confirmed by the Karnataka ITA No.429/Ahd/2023 6 High Court also. Based on these submissions of the assessee, the AO allowed the claim of the assessee. 8. The ld.Pr.CIT’s order, however, reveals that he has taken a totally contrary view on the issue, that these ESOP expenses are capital in nature relating to discount on shares issued, and are notional in nature not actually incurred by the assessee, and thus not allowable. He has relied on various decisions of the ITAT to support his view. Accordingly, he has held that the AO had wrongly allowed the assessee’s claim. His findings in this regard at para 5 of his order is as under: ITA No.429/Ahd/2023 7 9. The ld.Pr.CIT, we find, has totally ignored the authoritative pronouncement of the Special Bench of the ITAT, which was ITA No.429/Ahd/2023 8 confirmed by the Hon’ble Karnataka High Court and has relied on decisions of the ITAT without distinguishing the Special Bench decision and the Hon’ble Karnataka High Court decision. He has not pointed out how and why the AO had erred in allowing assesses claim of ESOP expenses in accordance with the decision of the Special Bench of the ITAT and the Hon’ble Karnataka High Court. Therefore, we do not find any merit in the Ld.Pr.CIT’s finding of error in the assessment order on the allowance of claim of ESOP expenses. As noted by us above, the issue was thoroughly inquired during the assessment proceedings by the AO. His view in allowing the claim of ESOP expenses in accordance with judicial pronouncements has not been found to be at fault by the Ld.PCIT by pointing out in any way that the said decisions were not applicable to the facts of the case . 10. Even before us Ld.DR was unable to point out how the allowance of claim of ESOP expenses in accordance with the authoritative judicial pronouncements on the issue was erroneous, or for that matter, how the case laws relied upon by the Ld.PCIT were applicable to the facts of the case overruling the Special Bench decision of the ITAT and the Hon’ble Karnataka High Court decision. We hold therefore that the Ld.PCIT has failed to find any error in the order of the AO vis a vis the allowance of claim of ESOP expenses to the tune of Rs.2,52,14,540/- and his order on this issue is therefore directed to be set aside. 11. On the second issue of the claim of loss in the return of income to the tune of Rs.7,52,06,488/- as opposed to a meager Rs.7 lakhs reflected in the computation sheet attached to the assessment order, we have noted from the ld.Pr.CIT order that the assessee had explained that there wasa mistake in the computation sheet, and the ITA No.429/Ahd/2023 9 assessee had filed an application seeking rectification of the same. The ld.Pr.CIT taking note of the above facts, has directed verification of the said claim of the assessee. It is settled law that the power under section 263 of the Act cannot be exercised for verification of the issue. There has to be a finding of error causing prejudice to the Revenue, by the ld.Pr.CIT, for valid exercise of revisionary power under section 263 of the Act. Verification precedes finding of the error. Therefore, any direction for verification of the claim u/s. 263 of the Act is not in consonance with the requirement of law. Accordingly, the ld.Pr.CIT’s order, directing verification of claim of carry forward of current year’s business loss is also set aside. 12. In sum and substance, therefore, the order of the ld.Pr.CIT passed under section 263 of the Act, in entirety, is set aside. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 27 th September, 2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 27/09/2023