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2024 Supreme(Online)(ITAT) 3255
INCOME TAX APPELLATE TRIBUNAL (AHMEDABAD BENCH)
Shri Narendra Prasad Sinha, ACJ, Shri Siddhartha Nautiyal, J
Revenue – Appellant
Versus
M/s. XYZ Ltd. – Respondent
ITA No. 921/Ahd/2023
For the Appellant: Shri Pratik Sharma, Sr. D.R.
For the Respondent: Shri Vartik Choksi, A.R.
The court upheld the CIT(A)'s rulings on transfer pricing, ESOP expenses deductions, and disallowance under section 14A, emphasizing adherence to established legal principles and factual basis.
Headnote:(A) Income Tax Act, 1961 - Sections 143(3), 14A, 37(1), 92CA - Transfer Pricing adjustment - Revenue challenged CIT(A)'s restriction of transfer pricing adjustment from 0.77% to 0.20%, asserting that the CIT(A) disregarded relevant guidelines established by the TPO. (Paras 4-7)
(B) ESOP Expenses - CIT(A) upheld deduction of ESOP expenses, citing that such expenditure incurred is deductible as per section 37(1) and substantiated by precedents set in prior cases, where the liabilities crystallized upon issuance even before quantification. (Paras 8-10)
(C) Disallowance u/s 14A - Court upheld CIT(A)'s decision to delete disallowance, emphasizing that as no exempt income was earned, disallowance under section 14A was unwarranted, aligning with established judicial principles. (Paras 11-13)
Facts of the case:
The Revenue filed this appeal contesting decision by CIT(A) regarding transfer pricing adjustments, ESOP expenses, and disallowance under section 14A for the assessment year 2018-19.
Findings of Court:
The court upheld CIT(A)'s adjustments on transfer pricing, ESOPs, and deletion of 14A disallowance, affirming no errors in his decision-making.
Issues: The core issues revolved around the validity of adjustments made for transfer pricing, treatment of ESOP expenses, and the applicability of disallowance under 14A.
Ratio Decidendi: The tribunal maintained that proper valuation and treatment concerning corporate guarantees, ESOPs, and deduced disallowances must adhere strictly to factual and contextual frameworks, justifying the rulings made.
Result: The appeal of the Revenue is dismissed.
| Table of Content |
|---|
| 1. overview of appeal and assessment year. (Para 1 , 2 , 3) |
| 2. discussion on transfer pricing adjustments contested by the revenue. (Para 4 , 5 , 6) |
| 3. assessment of esop expenses and disallowance under 14a based on the court's observations. (Para 7 , 8 , 9 , 10 , 11 , 12) |
आदेश/ORDER
PER : NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:-
This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax-11, Ahmedabad (in short CIT(A)) dated 08/08/2023 for the assessment year 2018-19.
2. The brief facts of the case are that the return of income was filed by the assessee on 30-11-2018 declaring total income of Rs. 1,70,58,29,720/.
The assessment was completed u/s. 143(3) r.w.s. section 144C(3)/144(B) of the Act on 26-11-2021 at total income of Rs. 1,75,87,35,950/-. In the course of assessment, the Assessing Officer (AO) had made the following additions: -
| TP Adjustment | 26,32,930 |
| Disallowance of ESOP expenses | 1,50,21,000 |
| Disallowance u/s 14A r.w. rule 8D | 3,52,52,300 |
3. Aggrieved with the order, the assessee had filed an appeal before the first appellate authority which has been decided by the ld. CIT(A) vide the impugned order. The Revenue is in appeal us before us.
4. The Revenue has taken following grounds in this appeal: -
“a) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in restricting the addition 0.20% instead of 0.77% without appreciating the approach adopted by TPO?
b) Whether on facts and in the circumstances of the case and in law the Ld CIT(A) has erred in accepting ALP of the assessee determined by ignoring the ratio laid down by the Hon’ble ITAT, Mumbai in the case of Everest Kanto Cylinder Limited (ITA No. 542/Mum/2012) and Nimbus Communication Pvt. Ltd. (34 taxmann.com 299) & Hon’ble ITAT, ‘D’ Bench Ahmedabad in the case of M/s. Mastek Ltd (ITA Nos. 2931/Ahd/2017 & 1074/Ahd/2018)?
c) Whether on facts and in the circumstances of the cases and in the Hon’ble ITAT has erred in accepting the ALP of the assessee determined by ignoring the guidelines laid down under the Act and Rules and thereby violating the ratio laid down by the Hon’ble Supreme Court in the case of Sap Labs India Pvt. LID Vs. ITO ?”
d) In the facts and on the circumstances of the case Ld. CIT(A) erred in directing to delete the addition of Rs.1,50,21,000 account of disallowance of ESOP expenses relied upon decision of Jurisdictional Ahmedabad ITAT in ITA No. 287/Ahd/2020 dated 25.01.2023 appellant's own case. The decision of Hon'ble ITAT has already been challenged and appeаl was already filed before Hon'ble Gujarat High Court.
e) In the facts and on the circumstances of the case Ld. CIT(A) erred in directing to delete the addition of Rs 3,52,52,300 on account of disallowance u/s 14A relied upon decision of Jurisdictional Ahmedabad, ITAT ITA No 287/Ahd/2020 dated 25.01.2023 in appellant’s own case. The reason of Hon’ble ITAT has already been challenged and an appeal was already before Hon’ble Gujarat High Court.”
5. The first three grounds pertain to TP adjustment in respect of guarantee commission. The assessee had provided corporate guarantee to two of its associated enterprises (AEs) namely Astral Pipes Ltd., Kenya and Seal IT Services Ltd., UK. The Assessing Officer relying upon the order of the TPO made arms length price (ALP) adjustment of Rs. 26,32,930 u/s. 92CA @ 0.77% of the loan amount for which guarantee was provided. This adjustment was made for the reason that assessee company did not charge any guarantee fee from its AEs in respect of a corporate guarantee provided. The ld. CIT(A) restricted the TP adjustment @ 0.2% to Rs. 5,71,727/- only. The ld. Departmental Representative submitted that the ld. CIT(A) was not correct in restricting the ALP of corporate guarantee to the rate of 0.2% as against the rate of 0.77% adopted by the TPO. The ld. Authorized Representative on the other hand supported the order of the ld. CIT(A).
6. We have carefully considered the facts of the
