GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD., MUMBAI V. DCIT, CIR 7 (1)(1), MUMBAI

ITA 7207/MUM/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1391 (ITAT-MUMBAI)
• Duration Of Justice: 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2015-2016
• Appeal Filed On: 22-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Question of law; Non compliance
• Section: 37; 271(1)(c); 143(3); 37(1); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.7207/MUM/2019(A.Y. 2015-16) GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD. 951-A, RATIONAL HOUSE, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI 400 025. PAN:AAFCA6819F ...... APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, CIR.7(1)(1), AAYKAR BHAVAN, M.K.ROAD, MUMBAI ..... RESPON DENT APPELLANT BY : SHRI.MADHUR AGRAWAL RESPONDENT BY : SHRI ANAND MOHAN DATE OF HEARING : 10/12/2019 DATE OF PRONOUNCEMENT : 12/12/2019 ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 25/10/2019 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE IN APPEAL HAS RAISED THREE GROUNDS, WHICH READ AS UNDER:- AGGRIEVED BY THE ORDER PASSED BY THE DEPUTY COMMIS SIONER OF INCOME-TAX, CIRCLE - 7(1)(1), MUMBAI ('AO') DATED 25 OCTOBER 2019, UND ER SECTION 143(3) READ WITH SECTION 144C(13) OF THE ACT, IN PURSUANCE OF THE DI RECTIONS ISSUED BY DISPUTE RESOLUTION PANEL - I (WZ) ('DRP'), MUMBAI, THE APPE LLANT RESPECTFULLY SUBMITS THAT THE LEARNED AO ERRED IN PASSING THE ORDER ON THE FO LLOWING GROUNDS: 2 ITA NO.7207/MUM/2019(A.Y. 2015-16) 1. IN DISALLOWING THE AMORTIZATION COST IN RESPE CT OF EMPLOYEE STOCK OPTION PLANS (ESOP) GRANTED TO ITS EMPLOYEES [HEREINAFTER COLLEC TIVELY REFERRED AS 'ESOP COST'] AMOUNTING TO RS. 515,704,042 (INCLUDING MARK TO MAR KET FLUCTUATIONS AMOUNTING TO RS 144,737,733) INCURRED BY THE APPELLANT, ON THE B ASIS THAT THE ESOP COSTS ARE NOTIONAL/ CONTINGENT IN NATURE. IN DISREGARDING THE ORDER OF HON'BLE ITAT IN APPELL ANT'S OWN CASE FOR AY 2008-09, AY 2009-10 AY 2011 -12 AND AY 2012-13 WHERE THE DED UCTION OF ESOP COST WAS ALLOWED AS A DEDUCTIBLE EXPENDITURE IN THE YEAR OF AMORTIZATION. HOWEVER, A RELIEF OF RS 469,318,006 HAS BEEN GRANTE D ON ACCOUNT OF ESOP COSTS ACTUALLY PAID DURING THE YEAR, THEREBY RESULTING IN A NET ADDITION OF RS 46,386,036. 2. IN DISALLOWING AN AMOUNT OF RS.7,15,663 PAID TO THE STOCK EXCHANGES FOR NON- CONFIRMATION OF CLEARING HOUSE TRADES, CLIENT CODE MODIFICATION, ETC. ON THE BASIS THAT THE PAYMENT MADE IS IN THE NATURE OF PENALTIES / FINE. IN DISREGARDING THE ORDER OF HON'BLE ITAT IN APPELL ANT'S OWN CASE FOR AY 2008-09, AY 2009-10, AY 2011 -12 AND AY 2012-13 WHERE THE DE DUCTION OF AMOUNT PAID TO THE STOCK EXCHANGES WAS ALLOWED AS A DEDUCTIBLE EXP ENDITURE. IN FURTHER DISREGARDING THE ORDER OF HON'BLE BOMBAY HIGH COURT IN APPELLANT'S OWN CASE FOR AY 2008-09 AND AY 2009-10 WHERE THIS GROUN D OF THE REVENUE HAS NOT BEEN ADMITTED. 3. IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT. 3. THE BRIEF FACTS, AS EMANATING FROM THE RECORDS A RE: THE ASSESSEE COMPANY IS A SUBSIDIARY OF GOLDMAN SA CHS (MAURITIUS) LLC AND IS ENGAGED IN THE BUSINESS OF SECURITIES BROKIN G, INVESTMENT BANKING, UNDERWRITING AND OTHER FINANCIAL SERVICES IN INDIA SINCE MARCH, 2006. WHILE PASSING DRAFT ASSESSMENT ORDER DATED 17/12/20 18, THE ASSESSING OFFICER, INTER-ALIA, MADE AN ADDITION ON ACCOUNT OF EMPLOYEES STOCK OPTION PLAN (ESOP) COST RS.4,63,86,036/- AND ALSO MADE DISALLOWANCE OF STOCK EXCHANGE SETTLEMENT COST RS.7,15,663/- PAID T OWARDS NON- COMPLIANCE OF CLEARING HOUSE TRADES, CLIENT CODE MO DIFICATION, ETC. AGGRIEVED AGAINST THE ADDITIONS, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP VIDE DIRECTION DATED 17/09/2019 REJEC TED BOTH THE 3 ITA NO.7207/MUM/2019(A.Y. 2015-16) AFORESAID OBJECTIONS OF THE ASSESSEE, HENCE, THE PR ESENT APPEAL BY THE ASSESSEE. 4. SHRI MADHUR AGRAWAL APPEARING ON BEHALF OF THE A SSESSEE SUBMITTED THAT BOTH THE ISSUES RAISED IN THE PRESEN T APPEAL BY THE ASSESSEE ARE IDENTICAL TO THE ONE ALREADY ADJUDICAT ED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10 IN I TA NO.222/MUM/2014 DECIDED ON 30/11/2015 AND FOR AS SESSMENT YEAR 2008-09 IN ITA NO.6912/MUM/2012 DECIDED ON 22/7/201 6. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED T HAT TRIBUNAL WHILE ADJUDICATING THE ISSUE OF ESOP COST IN FAVOUR OF TH E ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF BIOCON LTD. VS. DCIT, 144 ITD 21(BANG). WHILE DECIDING THE ISSUE OF PAYMENTS MADE TO STOC K EXCHANGE FOR NON-COMPLIANCE OF CLEARING HOUSE TRADES, CLIENT C ODE MODIFICATION, ETC. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD. IN INCOME TAX APPEAL NO.[L] 475 OF 2011. THE LD. AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE FURTHER POINTED THAT SIMILAR ADDITIONS WERE MADE IN ASSESSMENT YEAR 2008-09. THE TRIBUNAL DELETED BOTH THE ADDITIONS BY FOLLOWING ITS ORDER IN ASSESSMENT YEAR 2009-10. 5. SHRI ANAND MOHAN REPRESENTING THE DEPARTMENT VE HEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSI NG THE APPEAL OF THE ASSESSEE. HOWEVER, THE LD. DEPARTMENTAL REPRESENT ATIVE ADMITTED THAT GROUND NO.1 & 2 RAISED BY THE ASSESSEE IN APPEAL HA S ALREADY BEEN 4 ITA NO.7207/MUM/2019(A.Y. 2015-16) ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SI DES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE A LSO PERUSED THE DECISIONS ON WHICH THE LD. AUTHORIZED REPRESENTATIV E OF THE ASSESSEE HAS PLACED RELIANCE IN SUPPORT OF HIS CONTENTIONS. 7. THE GROUND NO.1 OF THE APPEAL IS IN RESPECT OF E SOP COST. SIMILAR ADDITION WAS MADE IN ASESSEES OWN CASE IN ASSESSME NT YEAR 2009-10. THE TRIBUNAL DELETED THE ADDITION BY OBSERVING AS U NDER:- 12. GROUND NO. 5 & 6 RELATE TO THE GRIEVANCE RELAT ED TO ESOP COST. 12.1. THE AO HAS CONSIDERED THIS ISSUE AT PARA-6 OF HIS ORDER. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO FOUND THAT THE EMPLOYE E COSTS INCLUDE THE COST OF RESTRICTIVE STOCK UNIT AND STOCK OPTIONS PLANT UND ER THE GOLDMAN SACHS GROUP INC. AMENDED AND RESTATED STOCK INCENTIVE PLAN, WHI CH IS BEING CHARGED TO THE PROFIT AND LOSS ACCOUNTS OVER THE PERIOD OF VESTING . THE ASSESSEE WAS ASKED TO SUBMIT THE COPIES OF THE SAID AGREEMENT AND THE DET AILS OF SUCH EXPENDITURE. THE ASSESSEE FILED A DETAILED REPLY DATED 18.2.2013 , THE CONTENTS OF WHICH ARE EXTRACTED AT PARA-6.2 OF THE ASSESSMENT ORDER. 12.2. THE SUBMISSIONS MADE BY THE ASSESSEE WERE CON SIDERED BUT NOT FOUND CONVINCING. THE AO PROCEEDED BY DISALLOWING THE NET AMOUNT ON ACCOUNT OF AMORTIZATION WHICH WAS CONFIRMED BY THE DRP. 12.3. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR AT TENTION TO THE DECISION OF THE SPECIAL BENCH OF THE BANGALORE TRIBUNAL IN THE CASE OF BIOCON LTD 144 ITD 21 (BANG) WHEREIN ON SIMILAR FACTS THE DISCOUNT ON ISS UE OF ESOP WAS ALLOWED AS DEDUCTION. 12.4. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH (SUPRA), WE HOLD THAT DISCOUNT ON ISSUE OF EMPLOYEES STOCK OPTI ONS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD P ROFITS AND GAINS OF BUSINESS OF PROFESSION. GROUND NO. 5 & 6 ARE ACCORD INGLY ALLOWED. 8. THE TRIBUNAL IN APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2008-09 DECIDED SUBSEQUENTLY HAS TAKEN A SIMILAR VIEW. THE LD. DEPARTMENTAL 5 ITA NO.7207/MUM/2019(A.Y. 2015-16) REPRESENTATIVE HAS NOT PLACED ON RECORD ANY CONTRAR Y MATERIAL IN SUPPORT OF HIS CONTENTIONS. RESPECTFULLY FOLLOWING THE DEC ISION OF THE CO-ORDINATE BENCH IN ASSESEES OWN CASE FOR ASSESSMENT YEAR 20 09-10, THE ADDITION MADE ON ACCOUNT OF ESOP COST IS DELETED. THE ASSES SEE SUCCEEDS ON GROUND NO.1 OF THE APPEAL. 9. THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS I N RESPECT OF PAYMENT MADE TO STOCK EXCHANGE FOR NON-COMPLIANCE OF CLEARING HOUSE TRADES, CLIENT CODE MODIFICATION, ETC. WE HAVE OB SERVED THAT SIMILAR PAYMENTS WERE MADE BY THE ASSESSEE IN ASSESSMENT Y EAR 2009-10. THE PAYMENT MADE TO STOCK EXCHANGE WERE DISALLOWED BY T HE DEPARTMENT. THE TRIBUNAL AFTER PLACING RELIANCE ON THE DECISION OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD. (SUPRA) DELETED THE ADDITION. FOR THE SAKE OF COMPLETENESS, RELEVANT FINDINGS OF THE TRIB UNAL ON THIS ISSUE ARE REPRODUCED BELOW:- 13. GROUND NO. 7 RELATES TO THE DISALLOWANCE OF CH ARGES PAID TO NATIONAL SECURITIES CLEARING CORPORATION LTD, BOMBAY STOCK E XCHANGE AND NATIONAL STOCK EXCHANGE. 13.1. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT P ARA-7 OF HIS ORDER. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO FOUND THA T THE ASSESSEE HAS PAID RS. 22,91,790/- TO STOCK EXCHANGES TOWARDS FIND FOR NON COMPLIANCE OF CLEARING HOUSE TRADES, CLIENT CODE MODIFICATION ETC. THE AO DISALLOWED THE SAME TREATING AS VIOLATIONS OF LEGISLATED LAW. THE SAME WAS CONFI RMED BY THE DRP. 13.2. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR AT TENTION TO THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ANGEL C APITAL & DEBIT MARKET LTD. IN INCOME TAX APPEAL (L) NO. 475 OF 2011 WHEREIN TH E HONBLE COURT HAD THE OPINION TO CONSIDER THE FOLLOWING QUESTION OF LAW. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER OF CLAIM OF THE ASSESSING COMPANY FOR A DEDUCTION OF PAYMENT OF RS. 6,51,240/- TOWARDS PENALTY PAID TO STOCK EXC HANGE EVEN THOUGH SUCH PENALTY PAYMENT WAS CLEARLY DISALLOWABLE UNDER EXPL ANATION TO SECTION 37(1) OF THE INCOME TAX ACT? 6 ITA NO.7207/MUM/2019(A.Y. 2015-16) AND THE SAME WAS ANSWERED BY THE HONBLE HIGH COUR T AS UNDER: AS REGARDS QUESTION (C) IS CONCERNED, THE FINDING OF FACT RECORDED BY THE ITAT IS THAT THE AMOUNT PAID AS PENALTY WAS ON ACCOUNT O F IRREGULARITIES COMMITTED BY THE ASSESSEES CLIENTS. SUCH PAYMENTS WERE NOT O N ACCOUNT OF ANY INFRACTION OF LAW AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. IN SUCH A CASE THE EXPLANATION TO SEC. 37 WOULD NOT APPLY . ACCORDINGLY QUESTION (C) RAISED BY THE REVENUE CANNOT BE ENTERTAINED. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE H ONBLE HIGH COURT (SUPRA), WE DIRECT THE AO TO DELETE THE IMPUGNED ADDITIONS. GROUND NO. 7 IS ACCORDINGLY ALLOWED. [ EMPHASISED BY US ] THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN AB LE TO DISTINGUISH THE AFORESAID DECISION OF THE TRIBUNAL. ACCORDINGLY, G ROUND NO.2 OF THE APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. 10. IN GROUND NO.3 OF THE APPEAL, ASSESSEE HAS ASSA ILED THE INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS G ROUND OF THE APPEAL IS PREMATURE, ACCORDINGLY THE SAME IS DISMISSED AS SUC H. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 12TH DAY OF DECEMBER , 2019. SD/- SD/- (R.C.SHARMA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12/12/2019 VM , SR. PS(O/S) 7 ITA NO.7207/MUM/2019(A.Y. 2015-16) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI