VASCON ENGINEERS LTD, V. ADDL CIT RG 10(3),

ITA 7404/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7480 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Gift; Business expenditure; Charitable institution; Earning of tax free income; Fair market value; Revenue expenditure
• Section: 43B; 143(3); 14A; 37(1); 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 7 404/MUM/2011 / ASSESSMENT YEAR : 2008 - 09 M/S. VASCON ENGINEERS LIMITED, 15 - 16, HAZARI B AUG, L.B.S. MARG, VIKHROLI (WEST), MUMBAI 400 083 . / APPELLANT PAN: AAACV1249F VS. THE ADDL. COMMISSIONER OF INCOME TA X, RANGE - 10(3), MUMBAI . / RESPONDENT ASSESSEE BY : S HRI DHARMESH SHAH REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 22 .0 6 . 201 7 / DATE OF PRONOUNCEMENT: 18 . 0 9 .201 7 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF CIT (A) - 22, MUMBAI DATED 17 . 08 . 2011 RELATING TO ASSESSMENT YEAR 20 08 - 09 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF RS.1,27,39,650/ - ON ACCOUNT OF EXPENSES U/S.14A OF THE ACT. ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 2 2. THE LD. COMMISSIONER OF INCOME - TAX (APP EALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 52,13,941/ - ON ACCOUNT OF DONATION PAID BY THE APPELLANT. 3. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF RS.1,10,81,202/ - O N ACCOUNT OF PROVISIONS FOR LEAVE ENCASHMENT U/S.43B OF THE ACT. 4. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF RS.41,58,745/ - ON ACCOUNT OF EMPLOYEES COMPENSATION EXPENSES. 5. THE APPELLANT C RAVES LEAVE OF YOUR HONOUR TO ADD TO, ALTER, AMEND AND/OR DELETE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. 3 . THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUND OF APPEAL: - 1. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE INCOME OF RS.13,82,94,326/ - OFFERED BY THE APPELLANT IN THE RETURN HAS ALSO BEEN ASSESSED SUBSTANTIVELY IN THE HANDS OF VASCON HADAPSAR VENTURES FOR A.Y. 2008 - 09 BY ITS ASSESSING OFFICER AND HENCE THE SAID INCOME CANNOT BE ASSESSED IN THE HANDS OF THE APPELLANT AS T HE SAME WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME INCOME. 4. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IS AGAINST ASSESSABILITY OF PROFITS OF RS.13,82,94,326/ - OFFERED BY THE ASSESSEE IN ITS RETURN OF INCOME WHICH HAS BEEN SO ASSESSED SUBST ANTIALLY IN THE HANDS OF ASSESSEE AND ALSO ASSESSED IN THE HANDS OF M/S. VASCON HADAPSAR VENTURES FOR THE INSTANT ASSESSMENT YEAR. THE QUESTION IS THE HANDS IN WHICH THE SAME IS TO BE ASSESSED. THE ADDITIONAL GROUND OF APPEAL REQUIRING NO INVESTIGATION O F FACTS, IS ADMITTED. WE HAVE ALREADY IN ITA NO. 1285/PUN/2013, RELATING TO ASSESSMENT YEAR 2008 - 09 OF EVEN DATE ORDER IN THE CASE OF M/S. VASCON HADAPSAR VENTURES HELD THAT THE SAID AMOUNT IS TO BE TAXED IN THE HANDS OF M/S. VASCON ENGINEERS LTD. I.E. THE ASSESSEE BEFORE US. CONSEQUENTLY, THERE IS NO MERIT IN THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE AND THE SAME IS DISMISSED. 5. THE ISSUE VIDE GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOWANCE ON ACCOUNT OF EXPENSES UNDER SECTION 14A OF THE ACT AT RS.1,27,39,650/ - . ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 3 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND SALE AND ALSO IN EXECUTION OF CONSTRUCTION CONTRACTS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INC OME OF RS.74,97,007/ - WHICH WAS EXEMPT FROM TAX. THE ASSESSEE HAD ALSO MADE HUGE INVESTMENTS IN AOPS. THE ASSESSEE HAD SUO MOTO DISALLOWED SUM OF RS.5,01,956/ - I.E. ON ACCOUNT OF EXPENDITURE RELATABLE TO INVESTMENTS IN AOPS AND FIRMS AND RS.1 LAKH IN RES PECT OF INVESTMENTS IN MUTUAL FUNDS. THE AUDITOR HAD REPORTED THAT THE INVESTMENTS IN SHARES OF SPECIAL PURPOSE VEHICLES WAS MADE WITH ULTIMATE OBJECT OF EARNING CAPITAL GAINS ON TRANSFER OF THE SAME AT A LATER DATE. THE ASSESSEE WAS ASKED TO GIVE THE BA SIS OF WORKING EXPENSES INCURRED FOR EARNING EXEMPT INCOME AND ALSO JUSTIFY THE SAME. IN RESPONSE THERETO, THE ASSESSEE FURNISHED COMPUTATION OF EXPENDITURE DISALLOWABLE UNDER SECTION 14A OF THE ACT AT RS.26,64,487/ - . THE ASSESSING OFFICER HOWEVER, WAS N OT SATISFIED WITH THE CLAIM OF ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 14A R.W.S. 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) AND WORKED OUT THE DISALLOWANCE AT RS.1,33,41,606/ - . THE ASSESSING OFFICER MADE THE NET DISALLOWANCE UNDER SEC TION 14A OF THE ACT AT RS.1,27,39,650/ - . 7. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE PLEA OF ASSESSEE BEFORE US IS THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS IN THE FORM OF S HARE CAPITAL AND RESERVES AND INTEREST FREE FUNDS IN THE FORM OF CURRENT LIABILITIES, AGAINST WHICH THE TOTAL INVESTMENTS CONSIDERED BY THE ASSESSING OFFICER FOR CALCULATING DISALLOWANCE ARE ONLY RS.41.25 CRORES. THE PLEA OF ASSESSEE WAS THAT SINCE THE OW N FUNDS WERE SUFFICIENT AND MORE THAN THE ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 4 AMOUNT INVESTED, THEN NO DISALLOWANCE IS TO BE MADE UNDER SECTION 14A OF THE ACT. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN HDFC BANK LTD. VS. DCIT (2016) 383 ITR 529 (BOM) . A NOTHER PLEA RAISED BY THE ASSESSEE BEFORE US WAS THAT STRATEGIC INVESTMENTS WERE MADE BY THE ASSESSEE IN THE SAID SPECIAL PURPOSE VEHICLES I.E. BEING SUBSIDIARIES, JOINT VENTURES AND PARTNERSHIP FIRMS. THE PROFITS ARISING FROM INVESTMENTS OF SUCH SPECIAL PURPOSE VEHICLES WE RE SHARED BY THE ASSESSEE AND OTHER JV PARTNERS AND THE SAME SHOULD BE EXCLUDED FROM TOTAL INVESTMENTS CONSIDERED FOR THE DISALLOWANCE UNDER SECTION 14A R.W.S. 8D OF THE RULES. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS TWO - FOLD I.E. DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT ON ACCOUN T OF INTEREST EXPENSES WHICH HAS BEEN WORKED OUT UNDER RULE 8D(2)(II) OF THE RULES AT RS.1,06,77,119/ - AND ONE HALF PERCENT OF AVERAGE OF THE VALUE OF INVESTMENTS FOR ADMINISTRATION PURPOSE AT RS.20,62,531/ - . THE FIRST PLEA RAISED BY THE ASSESSEE BEFORE U S IS THE AVAILABILITY OF INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AT RS.312.47 CRORES AND IN THE FORM OF CURRENT LIABILITIES AT RS.198.62 CRORES. THE ASSESSEE HAS PLACED ON RECORD THE BALANCE SHEET AS ON 31.03.2008 TO SUPPORT ITS CASE AND HAS PLEADED THAT THE TOTAL INVESTMENTS MADE AT RS.41.25 CRORES STAND COVERED FROM THE OWN FUNDS AVAILABLE WITH THE ASSESSEE. WE FIND MERIT IN THE PLEA OF ASSESSEE, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN HDFC BANK LTD. VS. DCIT (SUPRA). CONSEQUENTLY, WE HOLD THAT BECAUSE OF AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE VIS - - VIS TOTAL INVESTMENTS MADE, THERE IS NO MERIT IN ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 5 DISALLOWING ANY PART OF INTEREST EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT, AS ATTRIB UTABLE TO THE EARNING OF EXEMPT INCOME. ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) OF THE RULES. 12. NOW, COMING TO THE SECOND ASPECT I.E. DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES OF ADMINISTRATION EXPENSES BEING EQUIVALENT TO ONE HALF PERCENT OF AVERAGE OF THE VALUE OF INVESTMENTS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS PLEADED THAT IN CASE THE DISALLOWANCE IS TO BE MADE, THEN THE VALUE OF STRATEGIC INVESTMENTS MADE BY THE ASSESSEE IN SPECIAL PURPOSE VEH ICLES NEEDS TO BE EXCLUDED FOR COMPUTING THE AFORESAID DISALLOWANCE. WE FIND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD AND ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE IN THE HANDS OF ASSESSEE. THE ASSESSEE HAS SUO MOTO DIS ALLOWED RS.6,01,956/ - WHICH MAY BE CONSIDERED AS DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. ACCORDINGLY, THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13. NOW, COMING TO THE ISSUE IN GROUND OF APPEAL NO.2 AGAINST DISALLOWANCE OF DONATION PAYMENT OF RS.52,13,941/ - . 14. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD MADE CERTAIN PAYMENTS TO VARIOUS ORGANIZATIONS AND CLAIMS THAT THE SAME WERE BY WAY OF DONATIONS AND /OR SHOULD BE ALLOWED AS INCURRED FOR THE PURPOSE OF BUSINESS UNDER SECTION 37(1) OF THE ACT. THE ASSESSEE CLAIMED THAT WHERE IT WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL PROJECTS AND SEVERAL LABOURERS WERE WORKING AT VARIOUS SITES OF THE ASSESSEE, THE LABOURERS OFTEN ASKED FOR CONTRIBUTION TOWARDS FESTIVAL DONATIONS LIKE GANPATI, DIWALI AND COMMUNITY CELEBRATIONS, ETC. FURTHER, CERTAIN DONATIONS WERE MADE ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 6 TO VARIOUS ORGANIZATIONS VIZ. ROTARY CLUB, EDUCATIONAL INSTITUTIONS, ETC. THE ASSESSEE CLAIMS THAT THE SAID EXER CISE WAS TO BUILD AND ESTABLISH BETTER IMAGE OF THE COMPANY IN THE EYES OF PUBLIC. THE ASSESSEE CLAIMED THAT THE EXPENDITURE WAS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND THE PROVISIONS OF SECTION 80G OF THE ACT WERE MUTUALLY EX CLUSIVE TO SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER HOWEVER, DISALLOWED THE CLAIM OF ASSESSEE IN THE ABSENCE OF ANY RECEIPTS ON ACCOUNT OF 80G. 15. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. 16. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 17. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED BEFORE US THAT THE DONATIONS WERE PAID TO VARIOUS ORGANIZATIONS AROUND HIS BUILDING SITES IN ORDER TO BUILD UP ITS IMAGE, WHICH IN TURN, WOULD HEL P IN ITS BUSINESS ACTIVITIES AND THE EXPENDITURE INCURRED FOR BUSINESS EXIGENCY, WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. HE FURTHER POINTED OUT THAT CERTAIN CERTIFICATES UNDER SECTION 80G OF THE ACT WERE AVAILABLE AND THE SAID DONATIONS ARE TO BE ALLOWED IN THE HANDS OF ASSESSEE. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, REFERRED TO THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF ALLAHABAD IN ELECTRA INDIA LTD. VS. CIT (2008) 303 ITR 242 (ALL.) AND POINTED OUT THAT DONATIONS MADE IN CASH AND K IND TO EDUCATIONAL INSTITUTIONS FOR DEVELOPMENT OF PLAY GROUND, CONTAINING SIGN BOARD OF DONORS, WAS HELD TO BE NOT ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 7 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS A B UILDER AND PROMOTER AND IS ENGAGED IN THE DEVELOPMENT OF VARIOUS SITES FOR COMMERCIAL AND RESIDENTIAL PURPOSES. THE CASE OF ASSESSEE IS THAT IT MAKES CERTAIN CONTRIBUTIONS FOR LABOUR WELFARE AND TO OTHER PUBLIC WELFARE ORGANIZATIONS. THE LIST OF EXPENSES INCURRED BY THE ASSESSEE ARE PLACED AT PAGES 40 TO 43 OF THE PAPER BOOK. THE PERUSAL OF THE DETAILS REFLECT THE FIRST ITEM OF RS.1,01,000/ - ON ACCOUNT OF PURCHASE OF PAINTING, WHEREIN BILL IN WHICH IT IS MENTIONED THAT VOLUNTARY CONTRIBUTION TOWARDS LABO UR WELFARE FUND IS PLACED. T HE NECESSARY CERTIFICATE FROM PROMOTERS & BUILDERS ASSOCIATION IS ENCLOSED. THE ASSESSEE HAS FURTHER PAID SUM OF RS.1 LAKH ON 23.05.2007 I.E. CONTRIBUTION TO ROTARY CLUB OF PUNE DOWNTOWN CHARITABLE TRUST TOWARDS GIFT OF MOBILI TY PROGRAM FOR THE PHYSICALLY CHALLENGED. THE ASSESSEE HAS ALSO PURCHASED FORCE TRAVELER AMBULANCE FOR RS.7,43,265/ - WHICH HAS BEEN DONATED TO VIKAS MANDAL BY THE ASSESSEE. THE NECESSARY DOCUMENTS IN THIS REGARD ARE PLACED ON RECORD. THE ASSESSEE HAS AL SO CONTRIBUTED RS.11,54,837/ - TO UPGRADE SCIENCE LAB OF ST. FELIX HIGH SCHOOL, PUNE. THE NECESSARY BILLS ARE PLACED IN THE PAPER BOOK ALONG WITH QUOTATIONS RECEIVED. FURTHER AMOUNTS HAVE BEEN GIVEN TO THE SAID SCHOOL. THE ASSESSEE HAS ALSO ENCLOSED CERT IFIED DONATION RECEIPTS, WHEREIN THE RECIPIENT IS DULY REGISTERED UNDER SECTION 80G OF THE ACT FOR WHICH, 80G RECEIPTS ARE ENCLOSED. IN VIEW OF THE FACTS AND CIRCUMSTANCES AND EVIDENCES AVAILABLE, THE ASSESSEE IS CARRYING OUT THE ACTIVITIES OF UPLIFTMENT OF PUBLIC AT LARGE AND BY WAY OF MAKING CONTRIBUTIONS FOR UPGRADATION OF SCIENCE LAB OR PROVIDING AMBULANCE TO ORGANIZATIONS OR CONTRIBUTING TO THE SOCIETY BY PURCHASING PAINTINGS, ETC., THEN SUCH ACTIVITIES OF ASSESSEE ARE TO CREATE AND ESTABLISH IMAGE OF ASSESSEE COMPANY IN THE EYES OF PUBLIC. THE BUSINESS CARRIED ON BY THE ASSESSEE IS RELATABLE TO PUBLIC AT LARGE, WHERE THE TENEMENTS BUIL T BY THE ASSESSEE WE RE TO BE PICKED UP BY THE PUBLIC. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN THIS ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 8 REGARD IS DULY TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF ASSESSEE. THE FACTS BEFORE THE HONBLE HIGH COURT OF ALLAHABAD IN ELECTRA INDIA LTD. VS. CIT (SUPRA), WHERE ADVERTISEMENT MATERIAL WAS GIVEN IN THE LAST THREE DAYS OF ACCOUNTING YEAR AND WHERE IT WAS NOT POSSIBLE TO PUBLISH OR ADVERTISE THE NAME THROUGH MEDIUM OF BOARD, THEN SUCH EXPENDITURE WAS HELD TO BE BEING MARGINAL ADVERTISEMENT CONTENT AND WAS DISALLOWED IN THE HANDS OF ASSESSEE. HOWEVER, THE FACTS BEFORE US ARE AT VARIANCE AND WE FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. HERE, IT MAY BE POINTED OUT THAT IN SOME CASES, THE ASSESSEE HAS RECEIPTS OF DONATIONS UNDER SECTION 80G OF THE ACT. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND ALLOW THE CLAIM OF SUCH RECEIPTS UNDER SECTION 80G OF THE ACT. ACCORDINGLY, THE GROUND OF APPEAL NO.2 RAISED BY THE ASSE SSEE IS ALLOWED. 20. NOW, COMING TO THE NEXT ISSUE RAISED IN GROUND OF APPEAL NO.3 IS AGAINST DENIAL OF LEAVE ENCASHMENT OF RS.1,10,81,202/ - . THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED THE PROVISION FOR LEAVE ENCASHMENT WHICH WAS DISALL OWED IN TERMS OF SECTION 43B(F) OF THE ACT. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER. 21. THE ASSESSEE BEFORE US HAS RAISED THE LIMITED PLEA ON WITHOUT PREJUDICE BASIS THAT THE CLAIM TO THE EXTENT OF PAYMENT OF LEAVE ENCASHMENT IN TERMS OF SEC TION 43B (F) OF THE ACT BE ALLOWED. WE FIND MERIT IN THE SAID PLEA OF ASSESSEE AND DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE AND ALLOW THE DEDUCTION TO THE EXTENT OF LEAVE ENCASHMENT ACTUALLY PAID DURING THE YEAR UNDER SECTION 43B OF THE ACT. THERE IS NO MERIT IN THE ALTERNATE PLEA RAISED BY THE ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 9 ASSESSEE THAT THE PROVISIONS OF SECTION 43B(F) OF THE ACT WERE STRUCK DOWN BY THE HONBLE HIGH COURT OF CALCUTTA IN EXIDE INDUSTRIES LTD. & ANR. VS. UNION OF INDIA & ORS. (2007) 292 ITR 470 (CAL) , WHEREIN THE HON'BLE SUPREME COURT IN SLP (CIVIL NO.2289/2008) VIDE ORDER DATED 08.05.2009 HAD STAYED THE OPERATION OF SAID JUDGMENT. ACCORDINGLY, THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 22. NOW, COMING TO THE ISSUE RAISED VI DE GROUND OF APPEAL NO.4 IS AGAINST THE DISALLOWANCE OF ESOPS DISCOUNT EXPENSES OF RS.41,58,745/ - . 23. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD DEBITED SUM OF RS.6,58,85,245/ - UNDER THE HEAD EMPLOYEES COMPENSATION EXPENSES. THE ASSE SSEE HAD ALLOTTED 16,50,000 SHARES OF THE COMPANY TO THE DIRECTORS @ RS.10/ - PER SHARE AS AGAINST THE FAIR MARKET VALUE DETERMINED AT RS.47.41 PER SHARE. THE SHARES WERE THUS, ISSUED AT DISCOUNT OF RS.37.41 PER SHARE EQUIVALENT TO RS.6.17 CRORES. THE SAI D SUM WAS CLAIMED AS REVENUE EXPENDITURE SINCE ESOP WAS GRANTED AND SHARES WERE ALLOTTED DURING THE YEAR. THIS CLAIM OF ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER. SIMILARLY, 3,33,500 SHARES WERE ISSUED TO VARIOUS EMPLOYEES WITH VESTING PERIOD OF THR EE YEARS. THUS, TOTAL DISCOUNT ON ISSUE OF ESOPS TO VARIOUS EMPLOYEES WAS RS.1,24,76,235/ - . THE SAID EXPENDITURE WAS AMORTIZED OVER A PERIOD OF THREE YEARS STARTING FROM ASSESSMENT YEAR 2008 - 09 TO 2010 - 11. THE ASSESSEE DURING THE YEAR HAD CLAIMED 1/3 RD OF TOTAL EXPENDITURE TOWARDS DISCOUNT ON ISSUE OF ESOPS TO EMPLOYEES. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF ASSESSEE AS NO FRINGE BENEFIT TAX (FBT) WAS PAID ON THE SAID SUM OF RS.41,58,745/ - . THE PLEA OF ASSESSEE THAT ALLOWABILITY OF ESOP EXPE NSES AND PAYMENT OF FBT FOR ESOPS WERE TWO DIFFERENT ASPECTS, WAS NOT ACCEPTED. THE ASSESSEE ALSO EXPLAINED THAT ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 10 SHARES WERE ALLOTTED IN ASSESSMENT YEAR 2010 - 11 AND HENCE, NO FBT WAS DUE IN THE YEAR UNDER CONSIDERATION. THE CLAIM OF ASSESSEE WAS NOT ALLO WED BY THE ASSESSING OFFICER AND THE CIT(A). 24. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SPECIAL BENCH OF BANGALORE TRIBUNAL IN BIOCON LTD. VS. DCIT (LTU) REPORTED IN 144 ITD 21 (BANG.) AND THE PUNE BENCH OF TRIBUNAL IN SANDVIK ASIA PVT. LTD. VS. ACIT IN ITA NOS.1841 & 1842/PN/2012 AND IN CROSS APPEALS IN ACIT VS. SANDIVK ASIA PVT. LTD. IN ITA NOS.2053 & 2054/PN/2012, RELATING TO ASSESSMENT YEARS 2002 - 03 & 2003 - 04, ORDER DATED 31.12.2014 HAD ALLOWED THE DEDUCT ION ON ACCOUNT OF ESOP AND HENCE, THE SAME IS TO BE ALLOWED AS REVENUE EXPENDITURE . 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES VIDE GROUND OF APPEAL NO.4 BEFORE US IS IN RELATION TO THE ALLOWABILITY OF CLAIM OF DEDUCTION ON ACCOUNT OF ESOP OF EMPLOYEES. THE ASSESSEE HAD ALLOTTED 16,50,000 SHARES TO ITS EMPLOYEES @ RS.10/ - P ER SHARE AS AGAINST THE MARKET PRICE OF SAID SHARES @ RS.47.41 PER SHARE. THE TOTAL DISCOUNT ON THE ISSUE OF ES OPS WORKED OUT TO RS.1,24,76,235/ - AND THE ASSESSEE AMORTIZED THE SA ME OVER A PERIOD OF THREE YEARS. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE CLAIMED EXPENDITURE OF RS.41,58,745/ - . THE ISSUE OF ALLOWABILITY OF ESOP EXPENSES ON THE DATE OF EXERCISING OF OPTION BY THE ASSESSEE WAS HELD TO BE AN ASCERTAINED LIABILITY AND NOT CONTINGENT LIABILITY BY THE SPECIAL BENCH OF BANGALORE TRIBUNAL I N BIOCON LTD. VS. DCIT (SUPRA). THE SPECIAL BENCH HELD THE SAID DISCOUNT ON ESOP WAS TO BE ALLOWED AS DEDUCTION ITA NO. 7 404/MUM/2011 VASCON ENGINEERS LTD. 11 UNDER SECTION 37(1) OF THE ACT, DURING THE YEARS OF VESTING ON THE BASIS OF PERCENTAGE OF VESTING DURING SUCH PERIOD, SUBJECT TO UPWARD OR DOWN WARD ADJUSTMENT AT THE TIME OF EXERCISE OF OPTION. THE PUNE BENCH OF TRIBUNAL FURTHER IN SANDVIK ASIA PVT. LTD. VS. ACIT (SUPRA) HAD ALSO ALLO WED THE CLAIM OF ASSESSEE VIDE PARA 6 IN TURN, RELYING ON THE SPECIAL BENCH DECISION IN BIOCON LTD. VS. DCIT (SUP RA). FOLLOWING THE SAME PARITY OF REASONING, WE ALLOW THE CLAIM OF EXPENDITURE ON ACCOUNT OF EXERCISE OF ESOP OPTION IN THE HANDS OF ASSESSEE TO THE EXTENT OF 1/3 RD AS CLAIMED BY THE ASSESSEE AT RS. 41,58,745/ - . THE GROUND OF APPEAL NO.4 RAISED BY THE ASS ESSEE IS THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 2 7 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF SEPTEMBER , 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 18 TH SEPTEMBER , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE CIT(A) CENTRAL, PUNE ; 4. THE CIT(A) - 12, PUNE 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE