IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : C : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI H.S. SIDHU, JM
ITA Nos.1896, 2444 & 2445/Del/2013
Assessment Years : 2007-08, 2008-09 & 2009-10
DCIT, Vs. Info Edge India Ltd.,
Circle 11(1), GF-12A, 94, Meghdoot Building,
New Delhi. Nehru Place,
New Delhi.
PAN: AAACI1838D
(Appellant) (Respondent)
Assessee By : Shri Rupesh Jain, Advocate &
Shri Sambhav Jain, CA
Department By : Shri T. Vasanthan, Sr. DR
Date of Hearing : 29.07.2015
Date of Pronouncement : 31.07.2015
ORDER
PER BENCH :
These three appeals by the Revenue relate to assessment years
2007-08, 2008-09 and 2009-10. Since some of the issues raised in these
ITA Nos.1896, 2444 & 2445/Del/2013
appeals are common, we are disposing them off by this consolidated
order, for the sake of convenience.
Assessment Year 2007-08
2. The first issue is against the deletion of addition of Rs.52,07,566/-
made by the AO on account of Employee Stock Option Scheme
Compensation (ESOS).
3. We have heard the rival submissions and perused the relevant
material on record. At the outset, we find that similar issue came up for
consideration before the Special Bench of the Tribunal in Biocon Ltd.
Vs. DCIT (2013) 144 ITD 21 (Bang.) (SB). In this case, the Tribunal has
held that discount on issue of ESOP is allowable as deduction in
computing income under the head `Profits and gains of business or
profession.' Since it is on account of an ascertained and not contingent
liability, it cannot be treated as a short capital receipt. Thereafter, the
Special Bench has laid down the mechanism for determining as to when
and how much deduction should be allowed. It has been held that the
liability to pay the discounted premium is incurred during the vesting
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ITA Nos.1896, 2444 & 2445/Del/2013
period and the amount of such deduction is to be found out as per the
terms of ESOP by considering the period and percentage of vesting
during such period. Deduction of the discounted premium during the
years of vesting should be allowed on straight line basis. Then, dealing
with the subsequent adjustment to discount, the Special Bench laid down
that any adjustment to income is called for at the time of exercise of
option by the amount of difference in the amount of discount calculated
with reference to the market price at the time of grant of option and
market price at the time of exercise of option.
4. Both the sides are in agreement that the facts and circumstances of
the instant issue are squarely covered by this Special Bench decision.
Respectfully following the precedent, we set aside the impugned order
and send the matter to the file of AO for deciding it in conformity with
the decision taken by the Special Bench in the aforenoted case. Needless
to say, the assessee will be allowed a reasonable opportunity of hearing
by the AO in such fresh proceedings.
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ITA Nos.1896, 2444 & 2445/Del/2013
5. The second ground is against the deletion of addition of
Rs.38,75,625/- made on account of depreciation on intangible assets.
The facts apropos this ground are that the assessee claimed depreciation
to the above extent on operating and marketing rights. Following the
view taken for the AY 2006-07, the AO disallowed depreciation on
intangible assets by observing that there was no transfer of intangible
assets by Jeevan Sathi Internet Services Pvt. Ltd., and also the assessee
had not satisfied the basic two conditions for the allowance of
depreciation. The ld. CIT(A) reversed the assessment order on this
point.
6. We have heard the rival submissions and perused the relevant
material on record. It is noticed that the AO disallowed the claim of
depreciation on intangible assets by following his opinion for the AY
2006-07. There is no elaborate discussion about this issue in the
assessment order for the instant year. The ld. AR or the ld. DR failed to
throw any light on the final view taken by the Tribunal on this issue in
its order for AY 2006-07. In the absence of any discussion on the issue
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ITA Nos.1896, 2444 & 2445/Del/2013
on merits, we are handicapped to give our independent opinion. We,
therefore, set aside the impugned order and remit the matter to the file of
AO for deciding this issue in conformity with the final view taken on
this issue for the AY 2006-07.
7. The only other ground which survives for consideration is against
the deletion of addition of Rs.60,14,667/- made by the AO u/s 14A read
with Rule 8D of the Income-tax Rules, 1962.
8. The AO has discussed this issue in para 5 of his order, wherein he
initially noticed that the assessee has income from mutual fund to the
tune of Rs.4.61 crore which was claimed as exempt u/s 10 of the Act.
Thereafter, he opined that the provision of Rule 14A read with Rule 8D
require computation of disallowance. That is how he computed the
amount disallowable at Rs.60,14,667/-. The ld. CIT(A) has given his
conclusion on this issue on the last page of his order by observing that
the provisions of Rule 8D are applicable from AY 2008-09 as per the
judgment of the Hon'ble Bombay High Court in the case of Godrej &
Boyce (2010) 328 ITR 81 (Bom). That is how he deleted the addition.
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ITA Nos.1896, 2444 & 2445/Del/2013
9. We have heard the rival submissions and perused the relevant
material on record. The Hon'ble jurisdictional High Court in Maxopp
Investments Ltd. Vs. CIT (2012) 347 ITR 272 (Del) has held that the
provisions of Rule 8D cannot be invoked for making any disallowance
u/s 14A before AY 2008-09. As the assessment year under
consideration is 2007-08, it is, but, natural that Rule 8D cannot be
applied.
10. Now, coming to the making of any addition u/s 14A, we find that
sub-section (2) provides as under:-
`The Assessing Officer shall determine the amount of expenditure
incurred in relation to such income which does not form part of the
total income under this Act in accordance with such method as may
be prescribed, if the Assessing Officer, having regard to the
accounts of the assessee, is not satisfied with the correctness of the
claim of the assessee in respect of such expenditure in relation to
income which does not form part of the total income under this
Act.'
11. A bare perusal of this provision indicates that the AO shall
determine the amount of expenditure incurred in relation to exempt
income if he, `having regard to the accounts of the assessee is not
satisfied with the correctness of the claim of the assessee' in respect of
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such expenditure incurred in relation to exempt income. It shows that
satisfaction of the AO about the incorrectness of the assessee's claim is
sine qua non for making any disallowance u/s 14A. In some of the
decisions, it has been held that where the AO omits to record satisfaction
before making disallowance u/s 14A and the CIT(A) makes good the
deficiency by recording such satisfaction, there can be no illegality in
making disallowance under this provision because the powers of the first
appellate authority are coterminous with that of the AO inasmuch as the
first appellate authority can do anything which the AO could have done
and omitted to do so. When we turn to the facts of the instant case, we
find that the AO has not recorded any satisfaction whatsoever about
incorrectness of the assessee's claim about the expenditure incurred in
relation to exempt income. What to talk of recording satisfaction, there
is no whisper in the assessment order on this score. He simply noticed
the extent of exempt income in first two lines and, thereafter, started
computing disallowance by applying Rule 8D. The ld. CIT(A) has
ordered the deletion of disallowance and, as such, he had no occasion to
make good the deficiency left by the AO in this regard. Once the pre-
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requisite condition of recording satisfaction by the AO before computing
disallowance u/s 14A is not satisfied, there can be no computation of
disallowance as has been held in several judgments. We find that the
absence of satisfaction by the AO in the instant case has the effect of
taking away the jurisdiction to make disallowance u/s 14A in this regard.
We, therefore, uphold the impugned order on this legal aspect.
Assessment Years 2008-09 & 2009-10
12. The Revenue has filed revised ground for the AY 2008-09 in
which there is challenge to the deletion of addition of Rs.1,89,15,284/-
made on account of Employee Stock Option Scheme Compensation
(ESOS). There is no other ground taken by the Revenue. In its appeal
for the AY 2009-10, the only ground is against the deletion of addition
of Rs.1,29,58,000/- made on account of ESOS.
13. Both the sides are in agreement that the facts and circumstances of
the appeals for these two years are mutatis mutandis similar to those for
the AY 2007-08. Following the view taken hereinabove, we set aside
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ITA Nos.1896, 2444 & 2445/Del/2013
the impugned orders and remit the matter to the file of AO for deciding
this issue afresh in accordance with our above directions.
14. In the result, the appeal for AY 2007-08 is partly allowed for
statistical purposes and the appeals for AY 2008-09 and 2009-10 are
allowed for statistical purposes.
The order pronounced in the open court on 31.07.2015.
Sd/- Sd/-
[H.S. SIDHU] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 31st July, 2015.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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