×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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08-01-2020, Shriram EPC, Section 32(1)(ii), 30(a)(i), Tribunal Chennai
These are appeals and Cross appeals filed by the assessee and Revenue directed against different orders of the Commissioner of Income Tax (Appeals)-15, Chennai ( in short ‘CIT(A)’ for Assessment Years 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14.
2. First we take up Revenue appeal in ITA No 2011/CHNY/2016 for assessment year 2009-10 for adjudication.
3. The Revenue raised the following grounds of appeal.
‘’1. The order of the learned CIT(A) is contrary to law and facts of the case.
2. The Ld CIT(A) erred to direct the AO to allow the ESOP expenses for Rs 2, 52,80,000/-
2.1 The Ld CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not relatable to regular business.
2.2 The Ld CIT(A) failed to appreciate the facts mentioned in the case of Brooke Bond India Ltd and Punjab State Industrial Development Corporation that expenditure incurred in relation to increase in share capital is not allowable.
2.3 The Ld CIT(A) erred to direct the AO to allow depreciation of Rs.64,16,093/- as depreciation on intangible assets.
2.4 The Id. CIT(A) erred in directing the AO to allow i.e depreciation based on his predecessor orders for A.Ys.05-06 to 08-09 since appeals have been filed against all the above order before ITAT on 24.03.2016 and the department’s appeal has not yet reached its finality on this issue on similar grounds 2.5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored’’.
4. The respondent- assessee namely ‘’M/s. Shriram EPC Limited’’, is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of integrated designing, engineering, procurement, construction and projection management. The return of income for the AY 2009-10 was filed on 29.09.2009 disclosing total income of Rs.34 59,53,000/- and the same was revised on 05.01.2010 disclosing same total income as the original return of income filed. Against the said return of income, the assessment was completed by the Joint Commissioner of Income Tax, Company Range VI, Chennai (hereinafter referred as Assessing Officer) vide order dated 28.03.2013 passed u/s.143(3) r.w.s. 92CA(4) of the Income Tax Act, 1961 (in short ‘’the Act’’) at total income of D37,76,49,093/-. While doing so, the AO disallowed ESOP expenditure of D2,52,80,000/- and depreciation on intangible assets of D64,16,093/-.
5. The Assessing Officer disallowed ESOP expenditure giving reasons which are extracted at para 5.3 of the assessment order and Assessing Officer also took note of the fact that Hon’ble Jurisdictional High Court in the case of CIT vs. PVP Ventures, 211 Taxman 554, wherein it was held that ESOP expenditure allowable as revenue expenditure, but noting that the decision of Jurisdictional High Court in the case of PVP Ventures (supra) is appealed before the Hon'ble Supreme Court and disallowed the expenditure. The Assessing Officer also disallowed depreciation on intangible assets of D500 lakhs acquired on amalgamation of Shriram Engineering Construction Ltd during the previous year relevant to assessment year 2005-06 as same was disallowed its initial assessment year is 2005-06.
6. Being aggrieved by the above additions, the assessee-company preferred an appeal before ld. CIT(A), who vide impugned order allowed ESOP expenditure following the decisions of Hon’ble Jurisdictional High Court in the case of PVP Ventures Ltd (supra) and Hon’ble Delhi High Court in the case of CIT vs. Lemon Tree Hotel in ITA No.107/2015, dated 18.08.2015. As regards to the issue of depreciation, the ld. CIT(A) directed the Assessing Officer to allow depreciation on technical knowhow.
7. Being aggrieved, the Revenue is in appeal before us in the present appeal. The ld. Sr. Departmental Representative contested that ld. CIT(A) ought not have allowed ESOP expenditure as revenue expenditure as it is notional expenditure and capital in nature. He further submitted that the decision of Jurisdictional High Court in the case of PVP Ventures (supra) is being challenged before the Hon'ble Supreme Court. The ld. Sr. Departmental Representative also challenged the decision of ld. CIT(A) to allow depreciation on technical knowhow as identical issue in earlier years was restored to the file of the Assessing Officer.
8. On the other hand, ld. Authorised Representative submitted that ESOP cost debited to Profit and Loss account is not national loss but only business expenditure incurred wholly for the purpose of business and the same should be allowed as deduction, placing reliance on the decision of Hon’ble High Court of Madras in the case of PVP Ventures (supra). He further submitted that the Hon'ble Supreme Court had dismissed the SLP filed against the order of Jurisdictional High Court in the case of PVP Ventures(supra). As regards to depreciation, he submitted that the technical knowhow acquired under slump sale agreement is in the nature of business or commercial rights or right of similar nature are eligible for depreciation under Section 32(1) (ii) of the Act. He placed reliance on the decision of Co-ordinate Bench of the Tribunal in assessee’s own case in ITA