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DCIT, Circle 11(1), New Delhi. Vs. Info Edge India Ltd., GF-12A, 94, Meghdoot Building, Nehru Place, New Delhi.
August, 04th 2015
       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




                                      2
                                                  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.




                                     3
                                              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





                                    4
                                                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.

                                     5
                                                     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

                                        6
                                               ITA Nos.1896, 2444 & 2445/Del/2013


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-
                                    7
                                               ITA Nos.1896, 2444 & 2445/Del/2013


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



                                    8
                                                 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.




                                       9

 
 
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