JUBILANT FOODWORKS LIMITED,NOIDA V. ASSISTANT COMMISSIONER OF INCOME TAX-CIRCLE-5(1)(1), NOIDA

ITA 2888/DEL/2024

AI Insights

Jubilant FoodWorks Limited appealed against the order of the Commissioner of Income Tax (Appeals) which confirmed the assessment order treating certain expenditures as capital in nature. The main issues in the appeal were the treatment of leasehold improvement expenditures and the non-allowance of ESOP expenses. The Tribunal found that the leasehold improvements were capital in nature due to their long-term benefit and substantial cost, thus not eligible for revenue expenditure treatment. However, regarding the ESOP expenses, the Tribunal followed the precedent set by the Special Bench and the Karnataka High Court, allowing the claim. The Tribunal also addressed procedural issues like the charging of interest and initiation of penalties, dismissing them based on their nature.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839855 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 07-06-2024
• Other Referred Cases: Biocon Limited us DCOT 35 Taxmann.com 335 (SB), CIT vs Biocon Ltd [2020] 121 taxmann.com 351, Commissioner of Income tax, Madurai v. Viswams [2019] in 105 taxmann.com 289
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DAYAINDER SINGH SIDHU
• Assessee Lawyers: ASHOK JAIN
• Keywords: Capital asset; Revised return; Revenue expenditure; Business expenditure; Depreciation; Rule of consistency; Capital expenditure
• Section: 143(3); 142(1); 271(1)(c); 32; 234B; 37; 2; 115JB; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘C’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER& SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER ITA No.2888/Del/2024 [Assessment Year: 2016-17] Jubilant FoodWorks Limited, Plot No.-1A, Sector 16A, Gautam Buddha Nagar, Uttar Pradesh 201301, Vs Assistant Commissioner of Income Tax, Circle-5(1)(1), Noida, Uttar Pradesh-20301 PAN:AABCD1821C Appellant Respondent Assessee by Shri Ashok Jain, CA Revenue by Shri Dayainder Singh Sidhu, CIT(DR) Date of Hearing 10.12.2025 Date of Pronouncement 25.02.2026 ORDER PER AMITABH SHUKLA, AM, The captioned appeal has been preferred by theassesseeagainstorder dated 12.04.2025 of the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre, New Delhi,[hereinafter referred to as ‘ld. CIT(A)’] arising out of assessment order dated 24.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2016- 17. The word ‘Act’ herein this order would mean Income Tax Act, 1961. 2. Grounds of appeal raised by the assessee are as under:- 1. On the facts and circumstances of the case & in law, the action of the Ld. Commissioner of Income Tax (Appeals) confirming assessment Printed from counselvise.com ITA No.2888/Del/2024 Page | 2 order under section 143(3) r.w.s. 144B of the Income-tax Act, 1961 ('the Act) dated March 14, 2023 passed by the Learned Deputy Commissioner of Income Tax, Circle 5(1)(1), Noida ('Ld. AO') is erroneous and bad in law. Disallowance of Leasehold Improvements 2. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in treating expenditure of leasehold improvement amounting to INR 51,65,50,290 as capital in nature without appreciating the facts of the case and in violation of rule of consistency and appellate orders. 2.1. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in not allowing the claim of leasehold improvement expenditure on mere pretext that the Appellant has capitalised the expenses in the books of accounts under the head Fixed Assets - Building. 2.2. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in denying the claim of leasehold improvement expenditure based on irrelevant considerations and conjectures by comparing it with other forms of repairs debited in the Profit & Loss account during the year under consideration. 2.3. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in not appreciating the fact that the leasehold improvement expenditure is within the purview of provisions of Section 30(a)(i) and alternatively Section 37 of the Act. 3. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in incorrectly applying Explanation (1) to Section 32 of the Act to the facts of the Appellant and not appreciating that expenditure incurred for leasehold improvement is an allowable revenue expenditure under section 37(1)/30(a)(i) of the Act. 4. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) grossly erred in not following the binding decision of the Hon'ble Allahabad High Court in the Appellant's own case (ITA No. 51 of 2022) and the Hon'ble ITAT for AY 2012-13 & 2013-14 (ITA No.6558/Del/2018 & 612/Del/2019) wherein the identical issues were decided in favour of the appellant as well as the order of the Tribunal in AY 2014-15 (ITA No. 7937/Del/2018). Disallowance of Employee Stock Option Plan (ESOP) expenses 5. On facts and circumstances of the case and in law, the Ld. A.O. / Ld. CIT(A) erred in not allowing the expenditure incurred in respect of ESOP amounting to Rs. 26,93,55,572 under section 37(1) of the Act on options exercised by the employees during the year under consideration. 6. On facts and circumstances of the case and in law, the Ld. A.O/Ld. CIT(A) erred in not allowing fresh claim of the Appellant w.r.t. ESOP expenditure amounting to INR 26,93.55,572 in light of the circular no.14 (XL-35) dated 11 April 1955 issued by CBDT binding on the Printed from counselvise.com ITA No.2888/Del/2024 Page | 3 Income Tax Authorities under section 119(1) of the Act and various judicial precedents. 7. On the facts and circumstances of the case & in law, the Ld. A.O. / Ld. CIT(A) erred in not allowing fresh claim of ESOP expenses is no more res-integra in view of decision of Special Bench of Tribunal in the case of Biocon Limited us DCOT 35 Taxmann.com 335 (SB) and being approved by Hon'ble Karnataka High Court in the case of CIT vs Biocon Ltd [2020] 121 taxmann.com 351. 8. On facts and circumstances of the case & in law, the Ld. A.O./Ld. CIT(A) grossly erred in not appreciating the ratio in the case of Biocon Ltd Biocon Limited us DCOT 35 Taxmann.com 335(SB) which clearly spelt out the mechanics of allowability of ESOP Expenses irrespective of how the ESOP Expenses are being recorded in the books of accounts. 8.1. In doing so, the Ld. AO/CIT(A) failed to appreciate that the Appellant had placed complete computation of allowance of ESOP expenses in the year under consideration before the Ld. AO and such calculations are in conformity with manner of computation as prescribed in the case of Biocon Limited us DCOT 35 Taxmann.com 335 (SB). Other Grounds 9. On the facts and circumstances of the case & in law the Ld. A.O./Ld. CIT(A) grossly erred in charging interest under sections 234B of the Act. 10. On the facts and circumstances of the case & in law, the Ld. A.O. / Ld. CIT(A) grossly erred in initiating penalty proceedings under section 271(1)(c) of the Act.” 3. The brief facts of the case are that the appellant is engaged in the business of manufacturing and sale of pizza, garlic bread, donuts, choco lava cakes and other related food items. The company is operating under the Franchise Agreement entered into with Domino's Pizza Overseas Franchising BV (DPOF) and Domino Pizza International Franchising Inc (DPIF). It has also entered into Franchise agreement with Dunkin Donuts Franchising LLC (DDF) for manufacture and sale of Donuts, coffee and other food items. Return of Income for the A.Y. 2016-17 was filed on 30.11.2016 admitting a taxable income of Rs.118,85,63,910/- and book profit u/s 115JB of Rs.161,87,45,413/-. The case was selected for scrutiny Printed from counselvise.com ITA No.2888/Del/2024 Page | 4 under CASS. Notices u/s 143(2) & 142(1) of the Act were sent by the ld. AO. It was noted that the appellant assesseehas been operating in various leasehold premises situated all over India. Over the years, new outlets were opened by entering into new lease agreements with various lessors. The appellant attempts to abide by the requirements of uniformity of look and ambience of its store Pan-India, so as to maintain parity with standard format. The ld. AO noted that it had incurred huge expenditure in the leasehold premise and that expenditure was by capitalized into books of accounts as leasehold improvements, Later, more than 70 to 75% of the said expenditure was claimed as revenue expenditure in the computation of income u/s 37(1) of the IT Act. The ld. AO noticed that a sum Rs.51,65,50,290/- was claimed under Sec.37(1) of the IT Act. The AO treated this expenditure as Capital Expenditure as per explanation (1) to section 32 of the IT Act. Hence, he allowed Depreciation @ 15% i.e. Rs.7,74,82,540/- and the rest the amount of Rs.43,90,67,750/- was disallowed and added back. Accordingly, the ld. AO completed the assessment u/s 143(3) of the IT Act on 24.12.2018 by assessing the total income at Rs.162,76,31,660/-. In appeal, the ld. CIT(A) confirmed the addition made by the ld. AO, inter alia, observing as under:- “12.6 Leasehold Improvement (LHI) in the appellant's case is extensive renovation work carried out on the bare shell of leasehold premise and that LHI has a life of minimum of nine years. The leasehold premise as a whole undergone such comprehensive renovation to bring the premise into uniform Printed from counselvise.com ITA No.2888/Del/2024 Page | 5 standard Pan-India to maintain parity. The vendor got the purchase order and carried out the work by issuing single invoice. The contract work includes dismantling of some existing structure, civil work, wood work, aluminium work, false ceiling work, steel work, painting work, electrical work, carpeting work, plumbing work, sanitary work etc. However, the appellant spilt the same into multiple heads and tried to claim each item as separate revenue expenditure. 12.7 It was actually bringing into a new asset to maintain uniform standard of every leasehold premise, Splitting a single invoice or single work order into multiple small works was the strategy adopted by the appellant to claim the whole expenditure of Fixed asset - building as revenue expenditure. It is not correct as per the decision of Hon'ble High Court of Madras discussed above. 12.8 This Explanation -1 to section 32 was extensively dealt by Madras High Court in another case i.e. Commissioner of Income tax, Madurai v. Viswams [2019] in 105 taxmann.com 289. ……. 13.1 It is proved with sufficient evidences that claim of Rs.51,65,50,290/as revenue expenditure in the computation of income u/s 37(1) of the IT Act was against their own books of accounts, ledger account, annual report, invoices and other related evidences submitted by the appellant. It was also proved that it was not a repairs and maintenance debited into P&L account to claim deduction u/s 30(a) (ia) of the IT Act. As the duration of all the LHI was minimum of nine years, it cannot be written off in the same year in which it has been incurred. Every lease agreement submitted by the appellant revealed a fact that the duration of lease was for minimum of nine years. It was not an erroneous classification at all as submitted by the appellant before CIT(A) during the AY 2012-13 or 2013-14. It was rightly capitalized in the books of accounts. The appellant relied upon several case laws. However, none of the case laws was applicable to the appellant. 13.2 The appellant company separately debited Repairs- Furniture (Rs.21,43,62,000) and Repairs-others (Rs.30,73,46,000) into the P & L account for the AY 2016-17. On the existing Leasehold improvement and furniture only, they can incur any repair. Such expenditure of repairs has been debited every AY and that was already allowed by the AO in all the AYs. This claim of repairs on furniture and other clearly indicates that, it was incurred to maintain the existing capital asset already invested by them. Printed from counselvise.com ITA No.2888/Del/2024 Page | 6 13.3 The appellant claimed that this issue was already covered in their favour for the AY 2012-13, 2013-14 and 2014-15. However, with utmost respect to my predecessor order, it is submitted that the facts discussed in this order were not at all examined by my predecessor. As Hon'ble ITAT is the last fact- finding authority, all these facts are now brought on record by collecting all these evidences to demonstrate that the claim of revenue expenditure by the appellant was against their books of accounts, ledger account, disclosure, invoices and lease agreements. 13.4 Hence the action of AO in treating this sum as capital expenditure is upheld. Claiming the LHI of Rs.51,65,50,290 as revenue expenditure or repairs is against the facts discussed above and hence the Ground No.2 is dismissed….. 4. While confirming the impugned addition of the ld. AO, the ld. CIT(A) also issued following directions following directions to the ld. AO qua allowance of suitable depreciation to the assessee:- In the assessment order depreciation was allowed fully at the rate of 15% on Rs.51,65,50,290/ without any verification. The appellant admitted that the AO has not called for any of the evidences while passing the assessment order. The appellant submitted the ledger account and party wise ledger account of those vendors for the whole year. From the ledger account it can be seen that addition to fixed assetBuilding held on lease prior to 30th September 2015 amounted to Rs.19,24,83,276/ and after 1st October 2015 it was Rs.31,97,74,897. Further substantial number of invoices were posted on 29.03.2016, 30.03.2016 & 31.03.2016. The AO is directed to verify whether those assets were put to use on or before 31.03.2016 and allow the depreciation as per the applicable rate while giving effect to the order. Similar work has to be carried out on the addition of furniture and fixture for a sum of Rs. 15,78,29,907/ where the appellant did not give the breakup of assets put to use before 30.09.2015 and after 01.10.2015 in the tax Audit report…..” 5. On the issue of Employee Stock Option Preferences (in short ‘ESOPs’), the ld. AO did not allow assessee’s claim of Rs.26,93,55,572/-. Printed from counselvise.com ITA No.2888/Del/2024 Page | 7 This claim admittedly was made by the assessee during the course of assessment proceedings vide its letter dated 31.10.2018, after having filed its Return of Income on 30.11.2016. Before the ld. CIT(A) appellant had claimed that this Tribunal through its order dated 08.12.2021 in assessee’s case for Assessment Years 2012-13 to 2014-15 decided the issue in its favour. The ld. CIT(A) observed that the claims made by the assessee were not correct as the Co-ordinate Bench of this Tribunal had merely remitted the issue to the ld. AO for reconsideration and had not given any favourable ruling per se. The ld. CIT(A) further argued that the appellant had not claimed the impugned ESOPs expenses in its books of accounts and hence was not eligible for allowance. He also observed that no revised return was filed by the appellant. Accordingly, holding that the relied upon the case laws are distinguishable and non-debit of the impugned expenses in the audited financials, the ld. CIT(A) dismissed the grounds raised by the assessee and confirmed the addition. 6. We have heard rival submissions on the matter in the light of material all available on records. As regard, the issue of ESOPs, we have noted that a Co-ordinate Bench of this Tribunal in assessee’s own case for Assessment Years 2012-13 and 2013-14, vide ITA No.2886/DEL/2024 and ITA No. 2887/DEL/2024 in order dated 10.01.2025 has allowed the claim of ESOPs on identical facts holding as under:- Printed from counselvise.com ITA No.2888/Del/2024 Page | 8 “…..19. We have heard both the parties and perused the records. We find that as regards merits of the case i.e. on the ground no. 3 & 4 relating to deductibility of ESOP expenditure is concerned, the ITAT accepted the allowability of ESOP as a business expenditure based on the findings ofITAT, Special Bench, Bangalore and subsequently upheld the abovesaid findings of Special Bench by the Hon’ble Karnataka High Court. In this case, it is fact on record that on account of Nil expenditure charged to profit & loss account for the year under consideration for ESOP expenditure, no deduction was claimed by the assessee in the return of income. Considering the fact that this issue was raised first time before ITAT, the same needs examination at the lower level, therefore, the coordinate Bench has remitted back the issue to the file of Assessing Officer. The Assessing Officer has rejected the claim of the assessee without considering the decision of the ITAT, Special Bench, Bangalore and Hon’ble Karnataka High Court. In our considered view, as far as the lower authorities are concerned, the abovesaid two decisions are binding on the authorities below as well as for us. After the decision of higher wisdom, still the authorities are not respecting the same. It is clearly disrespecting the principles of judicial precedents and judicial discipline. 20. With regard to ground no. 1 & 2 relating to violating the principles of judicial discipline are concerned, we note that during the first round of appellate proceedings, the Tribunal after consideration to the facts and the position of law, allowed the additional claim of ESOP expenditure. Since this issue was first time raised in the appellate forum and not claimed in the ROI, the coordinate Bench felt that this issue needs examination and remitted the issue to the file of Assessing Officer. However, AssessingOfficer has applied his lower wisdom and rejected the claim of the assessee without considering the higher wisdom of Hon’ble High Court and ITAT Special Bench. The coordinate Bench felt that this issue needs examination and gave one opportunity to the Revenue, but lower authorities does not care for the opportunity and in order to keep the issue alive since the ESOP issue was pending before Hon’ble Supreme Court, they have grossly rejected the claim of the assessee. Therefore, respectfully following the decision of Hon’ble High Court in Biocon Ltd. (supra), we direct the Assessing Officer to allow the claim of the assessee. Accordingly, the grounds raised by the assessee are allowed. Printed from counselvise.com ITA No.2888/Del/2024 Page | 9 21. In the result, appeal filed by the assessee for assessment year 2012-13 is allowed. 22. With regard to appeal for AY 2013-14, since the facts are exactly similar to AY 2012-13 our above findings in AY 2012-13 are applicable mutatis mutandis in AY 2013-14. Accordingly, the appeal being ITA No.2887/Del/2024 for AY 2013-14 filed by the assessee is allowed…..” 7. We have noted that the facts of the present case are akin to those deliberated by the Co-ordinate Bench in assessee’s case for AY 2012-13 and 2013-14 (supra). The ld. Counsel for the assessee has also affirmed that in earlier years, its claim for ESOPs has been allowed on identical facts. Accordingly, for the purposes of consistency and in respectful compliance to the decision of Hon’ble Co-ordinate Bench(supra), the ld. Order of the ld. CIT(A) is set-aside and the ld. AO is directed to allow the assessee’s claim of ESOPs. Ground of appeal no.5 to 8 raised by the assessee are thus allowed. 8. The ground of appeal nos.2 to 4 raised by the assessee is regarding disallowance of leasehold improvement expenditure of Rs.43,90,67,750/- made by the ld. AO. Before the ld. CIT(A), assessee has premised that the issue was decided in its favour by the predecessors CIT(A) for AYs 2012- 13, 2013-14 and 2014-15. We have noted from pages 4 to 105 of the appellate order that the ld. CIT(A) has extensively and comprehensively examined the entire issue in the light of the facts of the case and the submissions made by the assessee. All the facts have been elaborately and vividly brought on records by the ld. CIT(A). Apropos to his above Printed from counselvise.com ITA No.2888/Del/2024 Page | 10 analysis, he has concluded that the assessee is not entitled for allowance of impugned expenses as revenue expenses neither under section 37(1) nor under section 30(a)(ia) of the Act. The decision arrived at by the ld. CIT(A) is based upon adequate marshaling of facts and evidences of records and we do not find any infirmity in the same. Accordingly, we are of the considered opinion that no case for any intervention to the decision of ld. CIT(A) is made out at this stage. The ground of appeal no.2 to 4 raised by the assessee is therefore dismissed. 9. Ground of appeal no.1 is general in nature and hence dismissed. 10. Ground of appeal no.9 is regarding the charging of interest under section 234B. The charging of interest under section 234B is consequential in nature and hence ground of appeal no.4 is dismissed as infructuous. 11. Ground of appeal no.10 is regarding the initiation of penalty under section 270A. The ground is dismissed as being premature in nature. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 25th February, 2026. Sd/- Sd/- [ANUBHAV SHARMA] [AMITABH SHUKLA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:.25.02.2026 f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Printed from counselvise.com ITA No.2888/Del/2024 Page | 11 Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Printed from counselvise.com "