M/s. Religare Securities Ltd., New Delhi V. DCIT, New Delhi

ITA 4644/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4028 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 14-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 28

Judgement Text

RELIGARE SECURITIES LTD V DCIT , CIRCLE - 21(1) NEW DELHI ITA NO 4644/DEL/2015 AY 2010 - 11 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4644/DEL/2015 (ASSESSMENT YEAR: 2010 - 11 ) M/S. RELIGARE SECURITIES LTD, D3, P3B, DISTRICT CENTRE, SAKET, NEW DELHI - 110017 PAN:AAACF1952D VS. DCIT, CIRCLE - 21(1), CR BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SR. ADV SHRI GAURAV JAIN, ADV MS. TEJASVI JAIN, CA REVENUE BY: SHRI ATIQ AHMAD, SR. DR DATE OF HEARING 03/08 /2017 DATE OF PRONOUNCEMENT 09 / 10 /2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A ) 11 , NEW DELHI DATED 22.07.2013 FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN SUSTAINING THE DISALLOWANCE OF RS.2,09,63,780 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE DIFFERENCE BETWEEN PURCHASE PRICE OF STOCK APPRECIATION RIGHT (SAR) AND THE SALE PRICE OF SUCH SAR AT THE TIME OF EXERCISE BY THE EMPLOYEES, HOLDING THE SAME TO BE CAPITAL LOSS NOT ALLOWABLE BUSINESS DEDUCTION. 1.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT AP PRECIATING THAT THE ABOVE DIFFERENTIAL AMOUNT ACTUALLY REPRESENTS THE LOAN GRANTED BY THE APPELLANT TO RELIGARE ENTERPRISES LTD. EMPLOYEES SAR TRUST (THE TRUST) FOR THE PURPOSE OF ADMINISTERING EMPLOYEE STOCK APPRECIATION RIGHT SCHEME (SAR SCHEME), WHI CH WAS MEANT TO BE AND, IN FACT, NOT RECOVERED FROM THE LATTER IN ACCORDANCE WITH THE SAR SCHEME. RELIGARE SECURITIES LTD V DCIT , CIRCLE - 21(1) NEW DELHI ITA NO 4644/DEL/2015 AY 2010 - 11 1.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ABOVE SAR SCHEME WAS IMPLEMENTED TO MOTIVATE, REWARD AND RETAIN KEY EMPLOYEES WHEREBY EACH SAR GRANTED TO THE EMPLOYEES OF THE APPELLANT STOOD EQUIVALENT TO ONE SHARE OF RELIGARE ENTERPRISES LTD. (REL) AND THE AFORESAID DIFFERENTIAL AMOUNT WAS, THUS, IN THE NATURE OF EMPLOYEE BENEFIT ALLOWABLE UNDER SECTIO N 37(1) OF THE INCOME TAX ACT, 1961 (THE ACT). 1.3 WITHOUT PREJUDICE, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF THE AFORESAID AMOUNT OF LOAN WRITTEN OFF AS LOSS INCIDENTAL TO BUSINESS UNDER SECTION 28 OF THE ACT. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT (WITHOUT ISSUING NOTICE UNDER SECTION 251 OF THE ACT) BY DIRECTING FURTHER DISALLOWANCE ON ACCOUNT OF DIFFERENCE BETWEEN THE SA LE PRICE OF SAR AND THE EXERCISE PRICE O F SAR (PREFIXED AT RS. 140 PER SAR) PAID TO THE EMPLOYEES OF THE APPELLANT, HOLDING THE SAME TO BE CAPITAL EXPENDITURE INCURRED IN RELATION TO ISSUE OF SHARES TO EMPLOYEES. 2.1 THAT THE COMMISSIONER OF INCOME TAX (AP PEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ABOVE DIFFERENTIAL AMOUNT WAS IN THE NATURE OF EMPLOYEE COMPENSATION ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. 2.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND I N LAW IN FOLLOWING DECISION OF THE CO - ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES LTD. V. ACIT: 124 TTJ 771, AND THEREBY NOT FOLLOWING THE PRINCIPLE/ RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BIOCON LTD. V . DCIT: 155 TTJ 649, HOLDING THAT THE LAW LAID DOWN BY SPECIAL BENCH DOES NOT HAVE ANY PRECEDENTIAL VALUE. 3. ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE SECURITIES BUSINESS, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010 11 ON 05/10/2010 DECLARING T OTAL INCOME OF RS. 1009305722/ AND FILED REVISED RETURN ON 27/03/2012 DECLARING TOTAL INCOME OF RS. 1002192108/ . 4. IN THE COMPUTATION OF THE TOTAL INCOME ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 2 096 3780/ AS DEDUCTION OF STOCK APPRECIATION RIGHT PAID BY THE ASSESSEE TREATED AS LOSS INCIDENTAL TO THE BUSINESS. 5. BEFORE THE LD. ASSESSING OFFICER THE ASSESSEE EXPLAINED THAT RELIGARE ENTERPRISE LTD (REL) THE HOLDING COMPANY OF THE ASSESSEE INTRODUCED THE SCHEME OF STOCK APPRECIATION RIGHT 2007 TO MOTIVATE REWAR D AND RETAIN KEY EMPLOYEES, INCLUDING EMPLOYEES OF THE SUBSIDIARIES OF THAT GROUP. THE RELIGARE SECURITIES LTD V DCIT , CIRCLE - 21(1) NEW DELHI ITA NO 4644/DEL/2015 AY 2010 - 11 ASSESSEE SUBMITTED THE COPY OF THE SCHEME AS WELL AS THE DETAILS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. 6. THE LD. ASSESSING OFFICER HELD THAT IT IS A CAPITAL LOSS BEI NG THE DIFFERENCE BETWEEN THE PURCHASE PRICE OF AN ASSET AND THE PRICE THAT THE INVESTOR ULTIMATELY SALES, THE SAME ASSETS 4. AND THEREFORE HE DISALLOWED A SUM OF RS. 2 096 3780/ UNDER THE HEADS ARE EXPENSES TREATED AS A LOSS. 7. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT ON 28/03/2013 UNDER SECTION 143 (3) FOR ASSESSMENT YEAR 2009 - 2010 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1 034966460/ AGAINST THE RETURNED INCOME OF RS. 1 002192108/ , PREFERRED AN APPEAL BEFORE THE LD. CIT (A). 8. THE LD. CIT (A) VIDE HIS ORDER DATED 22/07/2013 CONFIRMED THE ADDITION MADE BY THE LD. ASSESSING OFFICER. WITH RESPECT TO THE STOCK APPRECIATION RIGHT LOSS HOLDING THE SAME TO BE THE CAPITAL EXPEND ITURE IN NATURE. HE FURTHER PASSED THE ENHANCEMENT UNDER SECTION 251 OF THE INCOME TAX ACT BY DISALLOWING THE DIFFERENCE BETWEEN THE SALE PRICE OF STOCK APPRECIATION RIGHT AND THE EXERCISE PRICE OF STOCK APPRECIATION RIGHT HOLDING THE SAME TO BE CAPITAL EX PENDITURE IN RELATION TO ISSUE OF SHARES TO EMPLOYEES. THEREFORE, ASSESSEE, AGGRIEVED WITH THE ORDER OF THE LD. CIT (A) PREFERRED APPEAL BEFORE US. THE ASSESSEE HAS RAISED 2 GROUNDS OF THE APPEAL, HOWEVER, BOTH THE GROUNDS OF APPEAL ARE WITH RESPECT TO THE ALLOWANCE WITH RESPECT TO THE EXPENDITURE INCURRED BY THE ASSESSEE ON STOCK APPRECIATION RIGHT. 9. THE LD. AUTHORIZED PREVENTATIVE SUBMITTED THAT THE ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELAYED BENCH IN THE GROUP CASES. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO DEFENDED THE ORDER OF THE LOWER AUTHORITIES. 10. YOU CAREFULLY CONSIDERED THE RIVAL CONTENTION AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO PERUSED THE SCHEME OF STOCK APPRECIATION RIGHT OF REL GR OUP COMPANIES. IN THE IDENTICAL CIRCUMSTANCES. WITH RESPECT TO ONE OF THE GROUP COMPANIES, RELIGARE RELIGARE SECURITIES LTD V DCIT , CIRCLE - 21(1) NEW DELHI ITA NO 4644/DEL/2015 AY 2010 - 11 COMMODITIES LTD FOR ASSESSMENT YEAR 2008 09 IDENTICAL ISSUE AROSE BEFORE THE COORDINATE BENCH, WHICH DECIDED THIS ISSUE IN ITA NO. 2283/DEL/2013 BY ORDER DATED 04/01/2017 WHEREIN RELYING UPON THE DECISION OF THE SPECIAL BENCH IN 144 ITD 21 CLAIM OF THE ASSESSEE WITH RESPECT TO THE ABOVE DISALLOWANCE WERE ALLOWED VIDE PARA NO. 7 OF THAT ORDER. THE COORDINATE BENCH IN PARA NO. 8 ALSO HELD THAT THE ISSUE IS AL SO SQUARELY COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN 211 TAXMAN 554 WHEREIN IT HAS BEEN HELD THAT THE ABOVE EXPENDITURE ON ACCOUNT OF EMPLOYEE STOCK OPTION SCHEME IS AN ASCERTAINED LIABILITY FOR DEDUCTION AND FURTHER THE HONBLE DELHI HIGH COURT IN CIT VERSUS LEMON TREE HOTELS LTD IN ITA NO. 107/2015 HAS ALSO HELD THAT THE EXPENSES DEBITED IS COST OF EMPLOYEE STOCK OPTION PLAN IN THE PROFIT AND LOSS ACCOUNT IS AN ALLOWABLE EXPENDITURE. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT POINT OUT ANY OTHER JUDICIAL PRECEDENT AGAINST THE ABOVE JUDICIAL PRECEDENTS CITED BY THE LD. AUTHORIZED REPRESENTATIVE. IN VIEW OF THIS GROUND NO. 1 AND 2 OF THE APPEAL OF THE ASSESSEE IS ALLOWED REVERSING THE DECISION OF THE LD. CIT A AND DIRECTING THE ASSESSING OFFICER TO ALLOW THE SUM OF RS. 2096 3780 / ON ACCOUNT OF THE DIFFERENCE BETWEEN THE PURCHASE PRICE OF STOCK APPRECIATION RIGHT IN THE SALE PRICE OF SUCH STOCK APPRECIATION RIGHT ON EXERCISE BY THE EMPLOYEES OF THE APPELLANT AS THESE ARE REVENUE EXPENDITURE IN NATURE. THEREFORE GROUND NO 1 & 2 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. RELIGARE SECURITIES LTD V DCIT , CIRCLE - 21(1) NEW DELHI ITA NO 4644/DEL/2015 AY 2010 - 11 11. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 / 1 0/2017. - SD/ - - SD/ - ( SUDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09/ 1 0/2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI