DCIT, CHENNAI V. Allsec Technologies Ltd., CHENNAI

ITA 857/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4756 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 05-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital expenditure
• Section: 143(3); 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , $ % BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 857/MDS/2016 $& & /ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 1(1), CHENNAI - 600 034. VS. M/S. ALLSEC TECHNOLOGIES LTD., 7 H CENTURY PLAZA, 560-562 ANNA SALAI, CHENNAI 600 018 [PAN: AACCA 5106G] ( / APPELLANT) ( /RESPONDENT) DEPARTMENT BY : SHRI. SUPRIYO PAL, JCIT ()+ , /RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE , /DATE OF HEARING : 10.04.2017 , /DATE OF PRONOUNCEMENT : 26.04.2017 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER O F THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNAI IN ITA NO. 109/CIT(A)- ITA NO. 857/MDS/2016 :- 2 -: 1/2014-15 DATED 31.12.2015 PASSED U/S. 143(3) R.W.S . 147 OF THE INCOME TAX ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISAL LOWANCE OF ; 77,52,000/- CLAIMED BY THE ASSESSEE AS EXPENSES INC URRED FOR ISSUE OF SHARES UNDER ESOP. 2.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN NOT APPRECIATING THE FACT THAT THE EMPLOYEES STOCK COMP ENSATION COST IS NOTHING BUT THE DIFFERENTIAL COST AT WHICH IT WA S ALLOTTED TO ITS EMPLOYEES THAN THE PREVAILING MARKET PRICE. 2.3 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS NEITHER I NCURRED ANY EXPENDITURE NOR ANY LIABILITY TO PAY FOR ANY EXPEND ITURE, BUT, MERELY GRANTED STOCK OPTION AND THE ASSESSEE DOES NOT INCU R ANY EXPENDITURE. 2.4 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO NOTE THAT THE ESOP IS A NOTIONAL LOSS WHICH CANNOT BE AL LOWED TO BE SET OFF AGAINST THE BUSINESS PROFITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF DATA AND CALL CENTER OPERATIONS AND FIL ED THE RETURN OF INCOME ON 29.09.2008 FOR THE ASST. YEAR 2008-09 ADMITTING A LOSS OF ; 10,79,42,549/- AND ASSESSMENT WAS COMPLETED U/S. 14 3(3) OF THE ACT ON 16.12.2010. SUBSEQUENTLY, THE ASSESSING OFFICER FO UND THAT THE COMPANY HAS ISSUED COMPANY SHARES TO ITS EMPLOYEES UNDER EM PLOYEES STOCK ITA NO. 857/MDS/2016 :- 3 -: OPTION SCHEME (ESOS) AT DISCOUNTED RATE OF 15% FROM THE PREVAILING MARKET PRICE. THEREFORE, THE ASSESSING OFFICER IS OF THE OPINION THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS AND CLAIMED THE DISCOUNT BETWEEN PRICE OFFERED TO EMPLOYEES AND MARKET VALUE OF SHAR ES ; 77,52,000/- UNDER THE EMPLOYEE STOCK COMPENSATION COST (ESCC T HE ASSESSING OFFICER IS OF THE OPINION THAT THE ESCC IS A NOTION AL LOSS AND NOT REAL LOSS AND IS IN THE NATURE OF CAPITAL EXPENDITURE AND ISS UED NOTICE U/S. 148 OF THE ACT. IN COMPLIANCE TO THE NOTICE, THE ASSESSEE FILED LETTER DATED 05.04.2013 TO TREAT THE EARLIER RETURN FILED AS IN RESPONSE TO NOTICE U/S. 148 OF THE ACT. THE LD. AR OF THE ASSESSEE FILED T HE DETAILS AND THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIM ED EXPENDITURE OF ; 77,52,000/- IN PROFIT AND LOSS ACCOUNT AND DEALT AT PARA 2 OF THE ORDER. THE ASSESSING OFFICER IS OF THE OPINION THAT THE BO OK ENTRIES IN THE ACCOUNTS BASED ON THE RECOMMENDATIONS OF THE SEBI C ANNOT BE CONSIDERED AND RELIED ON THE APEX COURT DECISION ON THE APPLICABILITY OF PROVISIONS OF NPA AND RBI GUIDELINES AND TREATED TH E NOTIONAL LOSS IS IN THE NATURE OF CAPITAL EXPENDITURE AND CANNOT BE ALL OWED TO BE SET OFF AGAINST THE BUSINESS PROFITS AND DISALLOWED OF ; 77 ,52,000/- AND PASSED ORDER U/S. 143(3) R.W.S. 147 OF THE ACT DATED 28.02 .2014. 4. AGGRIEVED BY THE ORDER, ASSESSEE HAS FILED AN APPEA L WITH THE CIT(A). THE LD. CIT(A) CONSIDERED THE GROUNDS ON T HE DISPUTED ISSUE AND ITA NO. 857/MDS/2016 :- 4 -: FURTHER, THE ASSESSEE HAS CLAIMED AN EXPENDITURE IN CURRED ON ISSUE OF SHARES UNDER ESOS. THE LD. CIT(A) DISCUSSED AUTHOR ISED REPRESENTATIVE SUBMISSIONS AT PARA 6 TO 8 OF THE ORDER AND THE CIT (A) OBSERVED THAT THE DECISION RELIED BY THE ASSESSING OFFICER DOES NOT A PPLY TO THE CASE. FURTHER, THE LD. CIT(A) FOUND IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR 2007-08 IN ITA NO. 203/14-15 DATED 14.10.2000 WAS ALLOWED AND FOLLOWED FOR THE ASSESSMENT YEAR 2008-0 9 AND ALSO DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION AND AL LOWED THE APPEAL. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE HAS F ILED AN APPEAL WITH THE TRIBUNAL. BEFORE US, THE LD. DR AR GUED THAT THE CIT(A) ERRED IN DIRECTING THE DELETION OF ADDITION CLAIMED BY THE ASSESSEE AS EXPENDITURE INCURRED FOR SHARES ISSUED UNDER ESOS A ND FURTHER THE LD. CIT(A) HAS NOT APPRECIATED THE FACTS THAT THE DIFFE RENTIAL COST BETWEEN THE ALLOTMENT MADE TO THE EMPLOYEES AND PREVAILING MARK ET PRICE CANNOT BE CONSIDERED AS EXPENDITURE AND PRAYED FOR DISMISSING THE APPEAL. CONTRA, THE LD. AR RELIED ON THE ORDERS OF THE CIT(A) AND T HE ASSESSEES OWN CASE AND SUPPORTED WITH JUDICIAL DECISIONS. 6. WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISION. THE SOLE CRUX OF THE ISSUE RAISED BY THE LD. DR THAT THE ASSESSEE HAS CLAIMED ESOP EXPENDITURE WHICH IS IN THE NATURE OF ITA NO. 857/MDS/2016 :- 5 -: NOTIONAL LOSS AND NOT REAL LOSS AND THE SAME CANNOT BE ALLOWED TO BE SET OFF WITH THE BUSINESS PROFITS. WHEREAS, THE LD. AR SUPPORTED HIS ARGUMENTS WITH THE ASSESSEES OWN CASE IN EARLIER Y EAR 2007-08 WITH DECISIONS OF JURISDICTIONAL HON'BLE HIGH COURT IN T HE CASE OF CIT VS PVP VENTURES LIMITED 101 DTR 0161 (MDS) AND THE HON'BLE HIGH COURT OF DELHI CIT VS. LEMON TREE HOTELS LTD., (2015) TIOL 2 636 HC DEL IT DATED 18.08.2016. WE FIND THE JURISDICTIONAL HIGH COURT CONSIDERED THE FACTS AND PROVISIONS AND ALLOWED THE CLAIM AS HELD AT PAR A 29 AS UNDER: AS RIGHTLY POINTED OUT BY THE TRIBUNAL, THE ASSES SEE HAD TO FOLLOW SEBI DIRECTION AND BY FOLLOWING SUCH DIRE CTION, THE ASSESSEE CLAIMED THE ASCERTAINED AMOUNT AS LIAB ILITY FOR DEDUCTION. THERE EXISTS NO ERROR TO DISTURB THE OR DER OF THE TRIBUNAL AND IN TURN THE ASSESSING AUTHORITY. 7. WE FIND, THE REVENUE HAS FILED LETTER DATED 08.06.2 016 IN RESPECT OF CLAIM IN THE EARLIER YEAR BY THE ASSESSE E ON ISSUE OF SHARES BY ESOP AND THE DECISION OF THE JURISDICTIONAL HIGH COURT M/S. PVP VENTURES LTD., (SUPRA) WAS NOT ACCEPTED BY THE DEPA RTMENT AND THE REVENUE HAS FILED SLP BEFORE APEX COURT AND ISSUE I S PENDING. WE FOLLOW THE JURISDICTIONAL HIGH COURT DECISION WHICH IS BINDING ON THE STATES OF TAMILNADU AND PUDUCHERRY AND MERE FILING OF SLP BEFORE THE APEX COURT, THE TRIBUNAL CANNOT TAKE A DIFFERENT VI EW AND FOLLOW THE JUDICIAL PRECEDENCE. HENCE, WE ARE NOT INCLINED TO INTERFERE WITH THE ITA NO. 857/MDS/2016 :- 6 -: ORDER OF THE CIT(A) WHO DEALT ON FACTS AND HON'BLE HIGH COURT DECISION AND ALLOWED THE APPEAL AND ACCORDINGLY WE UPHELD TH E CIT(A) ORDER AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 8. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 26TH DAY OF APRI L, 2017 AT CHENNAI. SD/ - ( ) (CHANDRA POOJARI) /ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 1 / DATED: 26TH APRIL, 2017. JPV , ($34 54 / COPY TO: 1 . + / APPELLANT 2. ()+ / RESPONDENT 3. 6 () / CIT(A) 4. 6 / CIT 5. 4 ($$ / DR 6. & / GF