DCIT 7(3), MUMBAI V. VIP INDUSTRIES LTD, MUMBAI

ITA 6403/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78849 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 19-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: I P BAIRAGRA
• Keywords: Business expenditure; Question of law; Revenue expenditure; Capital expenditure

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI .., .!.'#$, !% , ! & BEFORE SHRI I.P.BANSAL, JM AND SHRI N.K.BILLAIYA, A M ITA NO.6403/MUM/2012 : ASST.YEAR 2005-2006 ITA NO.6401/MUM/2012 : ASST.YEAR 2006-2007 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 7(3) MUMBAI. M/S.VIP INDUSTRIES LIMITED DGP HOUSE, 88-C, OLD PRABHADEVI ROAD, MUMBAI 400 025. PAN : AAACV0177G. ( '( / // / APPELLANT) / VS. ( *+'(/ RESPONDENT) '( , - ! , - ! , - ! , - ! /APPELLANT BY : SHRI RAVI PRAKASH *+'( , - ! , - ! , - ! , - ! /RESPONDENT BY : SHRI I.P.BAIRAGRA , ./% / / / / DATE OF HEARING : 12.05.2014 012 , ./% / DATE OF PRONOUNCEMENT : 12.05.2014 !3 !3 !3 !3 / / / / O R D E R PER I.P.BANSAL (JM) : BOTH THESE APPEALS ARE FILED BY THE REVENUE. THEY A RE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOM E-TAX (APPEALS) DATED 23 RD JULY, 2012 FOR ASSESSMENT YEARS 2005-2006 AND 2006-2007. 2. GROUNDS OF APPEAL FOR BOTH THE YEARS ARE IDENTIC AL EXCEPT DIFFERENCE IN FIGURE. FOR ASSESSMENT YEAR 2005-2006, THE GROUNDS OF APPEAL RE AD AS UNDER :- 1(I) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING PENALTY OF RS.24,12,381/- WITHOUT PROPERLY APPRECIA TING THE FACTUAL AND LEGAL MATRIX OF THE CASE AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. (II) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT CLAIM OF CAPITAL EXPENDITURE AS N ATURE ;OF REVENUE EXPENDITURE ON GIVEN FACTS AMOUNTED TO FURNISHING O F INACCURATE PARTICULARS. ITA NOS.6403 & 6401/MUM/2012. M/S.VIP INDUSTRIES LIMITED. 2 2. THE LD.CIT(A)S ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. (FOR ASSESSMENT YEAR 2006-2007 THE FIGURE AS MENTIO NED IN GROUND NO.1 IS RS.41,78,930) 3. IN BOTH THESE APPEALS THE DEPARTMENT IS AGGRIEVE D BY THE DELETION OF CONCEALMENT OF PENALTY LEVIED ON THE ASSESSEE FOR D ISALLOWANCE OF EMPLOYEES STOCK OPTION SCHEME (ESOPS) OF RS.66,24,877 AND RS.1,24,1 5,123 FOR ASSESSMENT YEARS 2005-2006 AND 2006-2007, RESPECTIVELY. 4. IN QUANTUM, THE AFOREMENTIONED ADDITIONS WERE CO NFIRMED BY THE TRIBUNAL VIDE ITS ORDER DATED 17 TH SEPTEMBER, 2010 IN ITA NOS.7242/MUM/2008 AND 1004/ MUM/2008 FOR ASSESSMENT YEARS 2005-2006 AND 2006-2007. COPY OF T HIS ORDER IS PLACED AT PAGES 103 TO 110 OF THE PAPER BOOK. WHILE UPHOLDING THE ADDIT ION, THE TRIBUNAL HAS RELIED UPON THE DECISION OF THE CO-ORDINATE DELHI BENCH IN THE CASE OF RANBAXY LABORATORIES LTD. V. ADDL.CIT [124 TTJ (DEL.) 771] . THE DECISION RELIED UPON BY THE ASSESSEE IN ITS F AVOUR OF ITAT MADRAS BENCHES IN THE CASE OF SSI V. DCIT REPORTED IN 85 TTJ 104 WAS NOT FOLLOWED. IN THE CASE OF SSI V. DCIT (SUPRA) IT WAS HELD THAT ESOPS WILL NOT BE TAXABLE EITHER IN THE HANDS OF THE EMPLOYEES OR IN THE HAND S OF THE EMPLOYERS. IT IS THUS DECIDED BY THE TRIBUNAL IN THE CASE OF PRESENT ASSESSEE TH AT THE LEARNED CIT(A) WAS RIGHT IN CONFIRMING THE DISALLOWANCE MADE BY THE A.O. IT MAY ALSO BE MENTIONED HERE THAT THE ASSESSEE HAS FILED AN APPEAL BEFORE THE HONBLE BOM BAY HIGH COURT AGAINST THE SAID ORDER AND VIDE ORDER DATED 18 TH SEPTEMBER, 2012, THEIR LORDSHIP HAVE ADMITTED THE FOLLOWING QUESTION OF LAW IN IT APPEAL NO.1092 OF 2 001:- HEARD. ADMIT ON THE FOLLOWING QUESTION OF LAW. A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE TRIBUNAL ERRED IN DISALLOWING THE APPELLANTS C LAIM FOR DEDUCTION OF RS.66,24,877 IN RESPECT OF AMORTIZATION OF THE DIFF ERENCE BETWEEN THE MARKET PRICE AND THE OFFER PRICE OF THE SHARES OFFE RED TO THE EMPLOYEE AS COMPENSATION UNDER ESOS? ITA NOS.6403 & 6401/MUM/2012. M/S.VIP INDUSTRIES LIMITED. 3 5. THE PENALTY WAS LEVIED BY THE A.O. AND IT HAS BE EN DELETED BY THE LEARNED CIT(A) FOLLOWING THE MADRAS HIGH COURT DECISION IN THE CASE OF SSI V. DCIT (SUPRA). IT IS OBSERVED BY THE LEARNED CIT(A) THAT THE ISSUE WAS D EBATABLE HENCE NO PENALTY COULD BE LEVIED AS PER THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS PVCT. LTD. [(2010) 322 ITR 158 (SC)] . THE DEPARTMENT IS AGGRIEVED HENCE HAS FILED THE AFOREMENTIONED GROUNDS OF APPEA L. 6. AFTER NARRATING THE FACTS, THE LEARNED DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT THE PENALTY WAS RIGHTLY LEVIED BY THE A.O. AND IT H AS WRONGLY BEEN DELETED BY THE LEARNED CIT(A). HE SUBMITTED THAT THE ADDITION HAS ALREADY BEEN CONFIRMED BY THE TRIBUNAL, THEREFORE, THE ASSESSEE IS LIABLE FOR CON CEALMENT OF PENALTY. 7. ON THE OTHER HAND IT WAS SUBMITTED BY THE LEARNE D AR THAT THE ISSUE THAT WHETHER OR NOT ESOPS IS AN ALLOWABLE DEDUCTION AS BUSINESS EXPENDITURE WAS A VERY MUCH DEBATABLE ISSUE WHEN THE TRIBUNAL DECIDED THE MATTE R IN QUANTUM PROCEEDINGS. HE SUBMITTED THAT TWO DECISIONS OF ITAT WERE AVAILABLE , ONE WAS IN FAVOUR OF THE ASSESSEE AND THE OTHER WAS IN FAVOUR OF THE REVENUE. THE TRI BUNAL TOOK THE DECISION WHICH WAS IN FAVOUR OF THE REVENUE IGNORING THE OTHER DECISION. HE SUBMITTED THAT LATER ON SIMILAR ISSUE WAS REFERRED TO THE SPECIAL BENCH IN THE CASE OF BIOCOM LTD. V. DCIT [ 35 TAXMANN.COM 335 (BANGALORE TRIBUNAL) SB] AND VIDE ORDER DATED 16 TH JULY, 2013, IT HAS BEEN HELD BY THE SPECIAL BENCH THAT DISCOUNT ON ISS UE OF EMPLOYEES STOCK OPTION IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. REFERENCE WAS INVITED TO P ARA 11.3 OF THE ORDER OF THE SPECIAL BENCH, WHICH READS AS UNDER:- 11.3 WE, THEREFORE, SUM UP THE POSITION THAT THE D ISCOUNT UNDER ESOP IS IN THE NATURE OF EMPLOYEES COST AND IS HENCE DED UCTIBLE DURING THE VESTING PERIOD W.R.T. THE MARKET PRICE OF SHARES AT THE TIME OF GRANT OF OPTIONS TO THE EMPLOYEES. THE AMOUNT OF DISCOUNT CL AIMED AS DEDUCTION DURING THE VESTING PERIOD IS REQUIRED TO BE REVERSE D IN RELATION TO THE UNVESTING / LAPSING OPTIONS AT THE APPROPRIATE TIME . HOWEVER, AN ITA NOS.6403 & 6401/MUM/2012. M/S.VIP INDUSTRIES LIMITED. 4 ADJUSTMENT TO THE INCOME IS CALLED FOR AT THE TIME OF EXERCISE OF OPTION BY THE AMOUNT OF DIFFERENCE IN THE AMOUNT OF DISCOUNT CALCULATED WITH REFERENCE THE MARKET PRICE AT THE TIME OF GRANT OF OPTION AND THE MARKET PRICE AT THE TIME OF EXERCISE OF OPTION. NO ACCOUNT ING PRINCIPLE CAN BE DETERMINATIVE IN THE MATTER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT. THE QUESTION BEFORE THE SPECIAL BENCH IS THUS ANSWE RED IN AFFIRMATIVE BY HOLDING THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OP TIONS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. 8. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREA DY FILED AN APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE SUSTENANCE OF ADDITI ON IN QUANTUM PROCEEDINGS AND THE APPEAL OF THE ASSESSEE HAS BEEN ADMITTED ON THE QUE STION OF LAW WHICH HAS BEEN ALREADY REPRODUCED IN PARA 4 OF THIS ORDER. THUS, I T WAS SUBMITTED BY THE LEARNED AR THAT THE ISSUE ON WHICH THE ADDITION WAS MADE, WAS DEBATABLE AND ULTIMATELY DECIDED BY THE SPECIAL BENCH OF THE ITAT IN FAVOUR OF THE ASSE SSEE. THUS, IT WAS PLEADED BY HIM THAT THE LEARNED CIT(A) DID NOT COMMIT ANY ERROR IN DELETING THE PENALTY AND HIS ORDER SHOULD BE UPHELD. 9. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. AT THE TIME WHEN THE QUANTUM PROCEEDING S WERE DECIDED BY THE TRIBUNAL, THERE WAS DIVERGENT VIEW IN THE ORDERS PASSED BY TH E TRIBUNAL. THE DIVERGENT VIEW OF THE BENCHES IS EVEN CLEAR FROM THE ORDER PASSED IN QUAN TUM PROCEEDINGS. IT IS BECAUSE OF THAT ONLY, LATER ON, THE MATTER WAS REFERRED TO THE SPECIAL BENCH, VIDE WHICH THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, I T IS CLEAR THAT THE ISSUE WAS DEBATABLE AND AS PER WELL SETTLED LAW ON THE ISSUE, WHICH IS DEBATABLE AND WHERE THERE IS A POSSIBILITY OF TWO SUSTAINABLE VIEWS, PENALTY CANNOT BE LEVIED. THIS PROPOSITION IS WELL SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS PVCT. LTD. (SUPRA) , THE DECISION RELIED UPON BY THE LEARNED CIT(A). I N THIS VIEW OF THE SITUATION, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A), VIDE WHICH THE IMPUGNED PENALTIES HAVE BEEN DELETED. WE, THERE FORE, DECLINE TO INTERFERE IN HIS ORDER AND THE APPEALS FILED BY THE REVENUE ARE DISM ISSED. ITA NOS.6403 & 6401/MUM/2012. M/S.VIP INDUSTRIES LIMITED. 5 10. 4 .5 6 , 7 %46 , 6. 8# IN THE RESULT, REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED ON THIS 12 TH DAY OF MAY, 2014. !3 , 012 9 5 1 , : SD/- SD/- (N.K.BILLAIYA) (I.P.BANSAL) !% !% !% !% / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 9 DATED : 12 TH MAY, 2014. DEVDAS* !3 , *.' ;!'2. !3 , *.' ;!'2. !3 , *.' ;!'2. !3 , *.' ;!'2./ COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. *+'( / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. '?: *. , , / DR, ITAT, MUMBAI 6. :@ / GUARD FILE. !3 !3 !3 !3 / BY ORDER, +'. *. //TRUE COPY// A AA A/ // /8 6 8 6 8 6 8 6 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI