Religare Commodities Ltd vs. ACIT (ITAT Delhi) (ITA No.3634/Del/2014 dtd 04.01.2017) Background: – Religare Enterprise Ltd had launched a Stock Appreciation Right Scheme (‘SARS’) effective from 01/04/2007 for employee’s retention purposes. According to the Scheme, specified employees of the appellant company (Religare Commodities Ltd) were granted a specific number of SAR. – The market price of the shares at the time of granting was fixed to be the base price which was Rs. 140/- per share. As per the Scheme, if there is an increase in the value of those shares on the date of exercise of the right by the employees then the difference between the base market price and the enhanced or increased value shall be payable to the to the holder of such rights’ holder employees. – The scheme was administered through a trust. The Trust purchased shares of Religare from the Stock exchange at the time of granting of SAR to specified employees at an average price of Rs. 503/- per share. – The funding of such purchase was by way of loan given by respective companies whose employees to whom SAR were granted. – On exercise of the SAR by an employee, the trust sold the corresponding number of shares on the stock exchange and the amount realized was paid to the respective company in the settlement of the loan. – In addition to the SAR already granted to the employees, realisation of certain bonus shares were also paid to the employees as incentive. – The company retained Rs 140/- as value of the grant and paid to the employees – the amount which was the difference between the sale price of the shares at the time of exercise and SAR value of Rs. 140/- multiplied by the number of SAR exercised by the employee, after deducting tax at source. – The company claimed deduction under section 37 in the return of income of Rs 11,47,623 alongwith Rs 27,89,501 being bonus shares. – The Assessing Officer (‘AO’) disallowed an amount of Rs 11,47,623 as a capital loss. On appeal before the CIT(A), CIT(A) enhanced the disallowance by Rs. 27,89,501/- further as distribution of bonus incentive paid to the employees holding it to be a capital expenditure and therefore it is not allowable expenses.
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Apollo Tyres Ltd. v ACIT (ITA No. 223/Coch/2015 dated 10.01.2017) Deferred revenue expenditure allowed in year of incurring Facts: During the year, the assessee had claimed prepaid expenses amounting to Rs. 5,15,34,726 which comprises of – Insurance expense of Rs. 96,12,402/-, – Interest expenses of Rs. 1,54,19,700, – Rent expenses of Rs. 1,83,501/- and – General expenses of Rs. 2,63,19,123/- in the nature of employee mediclaim and other expenses. According to the A.O, the said expenses were not related to the income earned during the year under consideration and were therefore, disallowed. The DRP concurred with the findings of the Draft Assessment Order and held that the claim of deduction which does not pertain to the relevant accounting year distorts the income of that year. The assessee argued that the expenses included under the head prepaid expenses are revenue in nature. The said expenditure has not resulted in acquisition of a capital asset to the assessee and therefore, is an allowable deduction.
Deferred revenue expenditure allowed in year of incurring; Loss on sale of subsidiaries’ shares allowed ...
M/s Eicher Motors Ltd v DCIT (ITA No.207 /Del /2013 dated 12.12.2014) – Delhi ITAT Background: The assessee incurred consultancy charges of Rs 20,36,319 for services rendered in relation to bid-cum-delisting of shares of Eicher Limited, a subsidiary company. During the course of assessment proceedings, the assessee submitted that the said expenses were incurred for acquisition of the entire controlling interest in subsidiary company – Eicher Limited since the assessee was a promoter of the said subsidiary and also has business interest in it. It was, further, submitted that the assessee being a promoter of Eicher Limited and holding business interest in that company, decided to acquire entire control over that company and, consequently, made an open offer to the public share-holders to acquire their shares and delist Eicher Limited from Stock Exchange for which services of J M Morgan Stanley Pvt. Ltd [Merchant Banker] and ILFS Investments Securities Limited [Syndicate Member] were obtained. Pursuant to the delisting of shares of Eicher Limited [after acquisition of shares from public share-holders], Eicher Limited was amalgamated with the assessee w.e.f. 4.3.2008 pursuant to the scheme of amalgamation being approved by the Hon’ble High Court of Delhi. However, the AO disallowed the expenditure holding that the expenditure was capital in nature as the same was incurred in relation to acquisition of a new asset. The CIT(A) confirmed the disallowance.
Expenditure incurred for acquisition of controlling stake in subsidiary is revenue in nature – Delhi ...
Idea Cellular Ltd. v Addln CIT (ITA No 3260 & 3493 (MUM.) OF 2008 dated13.05.2014) – Mumbai ITAT Background: The assessee has incurred expenses on abandoned project of Rs. 3,94,75,619. The assessee was required to put up cell-sites for enabling its business. In certain cases the assessee had incurred expenses for putting up cellsites but this could not be completed and were therefore, abandoned. The assessee claimed that the expenses were incurred for the purpose of its business and, therefore, is allowable as business expenditure. The AO disallowed the claim of the assessee on the ground that the expenditure has been spent by the assessee on sites to bring into existence the new asset and new source of income. Accordingly the AO held that the loss incurred due to abandonment of project, is capital in nature and accordingly disallowed the deduction claimed by the assessee. On appeal, the CIT(A) has concurred with the view of the AO and held that the expenses incurred on cell sites were definitely capital expenses, when such a project is abandoned, the entire expenditure incurred is a capital loss.
Expenditure on abandoned project (in relation to existing business) is allowable as revenue expenditure – ...
CIT v M/s CUSHMAN AND WAKEFIELD (INDIA) PVT LTD [ITA No.475/2012 dated 23.05.2014] (Delhi HC) Background: The assessee, an Indian company, is engaged in the business of rendering services connected to acquisition, sales and lease of real estate and other services. The assessee reported following transactions under Section 92B: (a) Payment of referral fee of Rs. 1,73,26,631/- by the assessee to several foreign AEs for referring clients, and (b) Payment of Rs. 1,06,39,865/- as reimbursement to CWS (Singapore entity) and CWHK (Hong Kong entity) for costs incurred by them for certain coordination and liaison services in respect of their client, IBM. No benchmarking or a transfer pricing analysis was conducted by the assessee. In this respect, the transfer pricing study submitted by it stated: “A cost sharing agreement is a commercial decision of the company and helps the company liaise with international clients; it helps create a better understanding of client needs and disseminate information of the real estate market in India. The effort of these individuals is not a full marketing effort but provides a liaison and market access basis for the Company. The strong international presence of the Cushman and Wakefield group places it is a better position to identify and engage such a professional in a more cost effective manner than for the Company to do so directly with its own efforts.” In respect of the reimbursement of costs to the AEs, the TPO disallowed deduction of the expenditure. Additionally, the AO disallowed the referral fees as a deductible expenditure, stating that no benefit was derived by the assessee from the referral fees paid to the AEs. The assessee preferred objections before the Dispute Resolution Panel (“DRP”), against both findings. The DRP concurred with the AO, leading to a final assessment order under Section 143(3) read with Section 144C. The assessee then appealed to the ITAT, which held in its favour.
Reimbursement of costs to AE without markup cannot be treated as ALP in the absence ...
CIT v Sauer Danfoss (P.) Ltd. [IT Appeal No. 1367 of 2010 dated 26.03.2012] (Delhi High Court) Facts of the case The assessee company was incorporated on 5.2.2001 under the Companies Act, 1956. Following is the sequence of events considered: Application for FIPB approval – 24.01.2001 First director appointed – 05.02.2001 Additional directors appointed – 10.02.2001 Physical possession of the leased premises – 15.02.2001 Opening of Bank account – 01.03.2001 Agreement for entering into lease of premises – 01.04.2001 Agreement for take over of running business of DHL – 21.05.2001 (to be effective from 01.06.2001)