Income Tax Appellate Tribunal - Delhi
Delhivery Pvt. Ltd., New Delhi vs Pr, Cit-3, New Delhi on 16 March, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H', NEW DELHI
Before Sh. C. N. Prasad, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 1036/Del/2021 : Asstt. Year : 2015-16
Delhivery Pvt. Ltd., Vs Pr. CIT-3,
Plot No. 5, Sector-44, Central Revenue Building,
Gurugram, Haryana-122002 New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAPCS9575E
Assessee by : Sh. K. M. Gupta, Adv. &
Sh. Shruti Khimta, AR
Revenue by : Sh. M. Baranwal, CIT DR
Date of Hearing: 05.01.2023 Date of Pronouncement: 16.03.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. PCIT-3, Delhi dated 16.03.2020.
2. Following grounds have been raised by the assessee:
"1. On the facts and circumstances of the case & in law, the Learned Principal Commissioner of Income Tax -3 ("Ld. Pr. CIT") erred in passing the impugned order under Section 263 of the Income-tax Act, 1961 ('the Act') without giving due consideration to the submissions of the Appellant and is thus, bad in law and void-ab-initio.
2. On the facts and circumstances of the case & in law, the Ld. Pr. CIT erred in invoking jurisdiction u/s 263 of the Act while concluding that the assessment order passed by the Deputy Commissioner of Income Tax, Circle 7(1), New Delhi ('Ld. AO') is erroneous in 2 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
nature and is prejudicial to the interest of revenue in terms of section 263 of the Act.
3. Disallowance of Employee Stock Option Plan (ESOP) expenses of INR 3,76,75,732.
3.1 On the facts and circumstances of the case & in law, the Ld. Pr. CIT erred in observing that the grant of ESOPs to the employee does not amount to incurring of expenditure wholly and exclusively for the purpose of business, thereby upholding revision proceedings under section 263 of the Act.
3.2 On the facts and circumstances of the case & in law, the Ld Pr. CIT grossly erred in not appreciating that claim of the Appellant on account of ESOP expenditure is duly allowable under section 37 of the Act.
4. Disallowance of Prior Period expenses of INR 79,10,087 4.1 On the facts and circumstances of the case & in law, the Ld. Pr. CIT erred in invoking the provisions of section 263 of the Act for an issue which has been examined, considered and concluded by the Ld. AO during the assessment proceedings.
4.2 On the facts and circumstances of the case & in law, the Ld. Pr. CIT erred in ignoring the submissions of the Appellant that the expenses had crystallized in the current year, that the Appellant has complied with tax withholding provisions (wherever applicable) in current year and accordingly, the same should be allowed as deduction in the current year.
5. Disallowance of interest on late payment of Tax Deducted at Source (TDS)/Tax Collected at Source (TCS) of INR 6,96,533 On the facts and circumstances of the case & in law, the Ld. Pr. CIT erred in invoking the provisions of section 263 of the Act by holding that interest on late payment of TDS/TCS of INR 6,96,533 paid under 3 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
section 201(1A)/206C(7) is not allowable as business expenditure under section 37(1) of the Act."
3. The assessee filed revised return of income on 05.02.2016 declaring loss of Rs.68,69,71,022/-. The assessee company is engaged in the business of providing warehousing and last mile logistics services. It is also involved in designing and deploying logistics management systems. The assessee was incorporated as SSN Logistics Private Limited on June 22, 2011 under the provisions of Companies Act, 1956. Its name was changed to Delhivery Private Limited as of December 8, 2015 and currently called as Delhivery Limited.
4. The Assessment Order under Section 143(3) was passed by making addition of Rs.68,41,731/- resulting in assessed loss of Rs.68,01,29,291/-. The following additions were made:
• Disallowance u/s 14A of the Act - Rs. 14,19,351/- • Disallowance of bad debts - Rs. 19,15,657/-
• Difference of income as per Form 26AS - Rs. 11,74,968/- • Ad hoc disallowance of 15% of certain expenses - Rs. 23,31,755/-
5. Subsequently, based on an audit objection, the Ld. PCIT while exercising the revisionary powers vested in him under the Act, issued a show cause notice u/s 263 of the Act on following issues after taking into account the Audit Objection of Revenue with respect to the taxability of:
a. Employee Stock Option (ESOP) Scheme expenses b. Prior Period expenses c. Interest on late payment of TDS 4 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
6. At the outset, it was argued that the AO made additions on account of disallowance u/s 14A, bad debts, non-reconciled income as per Form 26AS, ad-hoc disallowance which makes it evident that the taxability of the prior period expenses and all other claims were examined and accepted by the AO in the course of original assessment proceedings. It was argued that the computation of income TAR & Audited Accounts were duly submitted being examined and accepted towards the ESOP expenses and interest on TDS.
Employee Stock Option (ESOP) Scheme expenses:
7. The ld. PCIT held that the ESOP expenses of Rs.3.76 Cr. needs to be disallowed. The relevant part of the order of the ld. PCIT is as under:
"3. I have care fully considere d the facts on record of submissions of the Ld. ARs. Undispute dly, the asse ssee has claimed ESOP expenses at Rs. 3,76,85,732/- during the ye ar under conside ration which is o n account o f differe nce be tween the market price and the price at which stock optio n was allowe d to the employees. A dmitte dly, ES OPS is granted at the time of appointment of an employee , but the shares are actually allotted on reaching a particular milestone such as completio n of specific number of years of service, satisfacto ry perfo rmance etc. Further, share s are allo tte d in phased manner in differe nt years. A ccordingly, the assessee has not incorporate d the value of ESOPS as perquisite in the salary o f employe es of the ye ar unde r consideratio n. As per the detail furnishe d during the course of proceedings u/s. 263, it emerges that the tax has been deducte d on amount booked fo r ES OPS in Octo ber and December, 2019 o nly. This fact also shows the assessee has re cognized ESOPS expenditure only in financial year 2019-20 The Ho n'ble jurisdictional IT AT in the case 5 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
of Ranbaxy Laborations Ltd. Vs Addl. CIT, (2009) 124 TTJ (Del) 771:
(2009) 26 DTR 420 has ve ry cle arly held that granting of ESOPS to the employees do es not amount to incurring of expe nditure wholly and e xclusively fo r the purposes of business as co ntemplate d u/s.
37( 1). Accordingly, disallowance o f ES OPS e xpe nse s made in that case was confirmed. I find that the AO failed to consider the above position o f facts and law while completing the assessment u/s. 143(3) and hence the assessment order requires review u/s. 263."
8. Against this direction, the ld. AR argued that the issue of allowability of the ESOP expenses is no more res-integra, the Special Bench of Bangalore Tribunal in the case of Biocon Limited ([2013] 35 taxmann.com 335) held that discount on shares under the ESOP is an allowable deduction for the following words:
". . .1 1 .3 W e , t h e r e f o r e, su m u p t h e p o sit i on t h at t h e d i s c ou n t u n d e r ES O P is in t h e n a t u r e o f em p l oy e e s c o st a n d is h en c e d edu ct ib l e d u rin g t h e v est in g p e ri od w . r. t . t h e m a rk et p r ic e o f sh a r es at t h e t im e of g r an t of op t io n s t o t h e e m p lo y e es . Th e a m o u n t o f d i sc ou n t c lai m e d as d ed u ct i on d u ri n g t h e v e st in g p e ri od is r eq u ir e d t o b e r ev e r s ed in r ela t i on t o t h e u n v es t in g / l ap sin g o p t i on s at t h e ap p ro p ria t e t im e . H ow e v e r , an ad j u st m en t t o t h e in co m e is cal led f o r at t h e t im e o f e x e rc is e o f op t i o n b y t h e a m ou n t o f d if f e r en c e in t h e a m o u n t o f d i s c o u n t cal cu l at ed wit h r ef e r en c e t h e m a rk et p r ic e at t h e t im e of g r an t o f o p t i on an d t h e m a r k et p r ic e at t h e t im e of ex e r ci s e of op t io n . N o a c c ou n t i n g p r in cip l e can b e d et e r m in a t iv e in t h e m at t e r of c om p u t at i on o f t o t al in c om e u n d e r t h e A c t . Th e q u e st i on b e f o r e t h e sp e cial b en ch i s t h u s a n s w e r ed in af fi r mat i v e b y h old i n g t h at d is c ou n t on i s su e o f E m p l oy e e S t o ck O p t i on s i s all ow ab l e as d ed u ct i on in c om p u t in g t h e in co m e u n d e r t h e h e ad 'P r o fit s an d g a in s o f b u sin e s s o r p r o f es si on ' ."6 ITA No. 1036/Del/2021
Delhivery Pvt. Ltd.
9. The decision of the Hon'ble Special Bench has been affirmed by the Hon'ble Karnataka High Court in the case of CIT vs. Biocon Ltd.
10. Further, it was argued that the allowance of ESOP expenses being revenue expenditure and being deductible under section 37(1) of the Act was considered in the below cases:
PCIT v. Lemon Tree Hotels (P.) Ltd. - [2019] 104 taxmann.com 26 (Delhi) PCIT v. New Delhi Television Ltd. - [2018] 99 taxmann.com 401 (Delhi) SSI Limited v. Deputy Commissioner of Tax [(2004) 85 TTJ1049] Murugappa Management Services Ltd. [2013] 40 taxmann.com 451 (Chennai - Trib.)
11. It was brought to our notice that the order relied by the ld. PCIT in the case of Ranbaxy Laboratory Ltd. Vs. Addl. CIT (2009) 124 TTJ 771: (2009) 26 DTR 420 stands considered by Special Bench wherein the case of Ranbaxy Laboratory Ltd. Vs. Addl. CIT has been examined in the case of Biocon Limited (supra) which has been confirmed by the Hon'ble Karnataka High Court and hence the order relied upon by the ld. PCIT is no more good law. Hence, we hold that the directions given in the order u/s 263 are not valid.
Prior Period expenses:
12. It was submitted that for the subject year, the Appellant claimed prior period expenses amounting to Rs. 79,10,087 7 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
which were debited to the Profit and Loss Account which are as under:
S.No. Description Amount (in INR)
1. Power & F ue l 12,44,725
2. Misce llaneous Expenses 32,654
3. Rent 4,84,287
4. Repair and Mainte nance
- Building 8,68,925
- Computers 10,02,567
5. Trave lling and conveyance 76,674
6. Vehicle Rental Expenses 42,00,255
TOTAL 79,10,087
13. It was submitted that the AO had made specific inquiries pertaining to prior period expenses during the course of assessment. The Appellant had vide response dated November 29, 2017 and December 28, 2017 in response to notice dated 12 December 2017 provided the details of prior period expenses and made submissions on its allowability. Hence, it can be reasonably concluded that it was only after being satisfied with the documents filed and the submissions made that the AO decided to allow the claim of prior period expenses. Thus, it is specific submission of the appellant that the AO had allowed the above claim in the original assessment after making proper enquires and examining the issue in light of the facts and position of law.
14. The relevant part of the order u/s 263 is as under:
" 3 .1 It i s al so n ot i c ed t h at P ri o r P er i o d Exp en s e s of R s . 7 9,1 0, 0 8 7/ - h a v e b e en a ll ow ed b y t h e A O wit h o u t e xa m in in g t h e m f r om t h e an g l e o f y e a r in wh i ch t h e sa m e w e r e a ct u a lly in cu r r ed . Th is a sp e ct n e ed s t o ex am in e 8 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
t h o r ou g h l y b y t h e A O an d i f t h es e e xp e n s e s ar e a ct u all y c r ys t aliz e d in t h e y ea r u n d e r c on sid e r at i on an d n ot c lai m ed in an y ea rli e r y ea r s , t h en on ly t h e sa m e ca p b e all ow e d in t h i s y ea r . F ailu r e on t h e p a rt o f t h e A O on t h i s ac c ou n t al s o r en d e r s t h e a s s es s m en t o rd e r s e r r on e ou s an d p r ej u d i ci al t o t h e in t e r e st of t h e r e v en u e i n vi ew o f E xp l an at i on s b el o w s e ct i on 2 6 3 ( 1) . "
15. We find that the ld. PCIT held that on this issue the AO had not thoroughly examined the issue in hand and Explanation 2 below section 263(1) of the Act was invoked by the Ld. PCIT. The Ld. PCIT had admitted that the enquiries in respect of the above have been undertaken by the AO while completing the original assessment and it is not the case of 'no enquiry'/'lack of enquiry' but the case of 'inadequate enquiries' were conducted by the AO on this issue. It is well settled that the revision jurisdiction u/s.263 of the Act could be invoked only for 'lack of enquiry' and not for 'inadequate enquiry'. This is also being evident from the Explanation 2 below section 263(1) of the Act which reads as under:
" E xp l an at i on 2 .--F o r t h e p u r p os e s o f t h is s e ct i on , it i s h e r eb y d e cla r ed t h at an o r d er p a ss ed b y t h e A s s e ss i n g Of fi c e r o r t h e T ran sf e r Pr ic in g O ffi c e r , a s t h e ca s e m a y b e , sh al l b e d e em e d t o b e e rr on e ou s in s o fa r a s it is p r ej u d i cial t o t h e in t e re st s o f t h e r ev en u e, i f , in t h e op in i on o f t h e Pr in cip a l Ch i e f C om m i ss i on e r or Ch i ef C om m is si on e r or P rin cip a l Co m m is si on e r o r C o m m i s si on e r, --
( a) t h e o r d er i s p a s s e d wit h ou t m a k in g i n q u i ri es or v e ri fi cat ion wh ich sh ou ld h a v e b e en m ad e;
(b) t h e o rd e r i s p a ss e d al lo win g an y r e li e f wit h out in q u ir in g in t o t h e cla im ;
( c) t h e o rd e r h a s n ot b e en m ad e in a cc o rd an c e wit h an y o rd e r , d i r e ct i on o r in s t ru c t i on is su e d b y t h e B oa rd u n d e r s e ct i on 1 19 ; o r 9 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
(d) t h e o rd e r h a s n o t b e en p a s s ed in a c co r d an c e w it h an y d e ci si on wh i ch i s p r ej u d i ci al t o t h e as s e s s e e, r en d e r ed b y th e j u r i sd i ct i on al Hig h Co u r t o r S u p r e m e C ou rt in t h e c as e o f t h e a s s es s e e or a n y ot h e r p e r so n . "
16. The clause (a) of Explanation to section 263 of the Act states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made and not were enquires have been made by the AO in the course of original assessment. In the present case, the appellant already submitted above that the AO not only made sufficient enquiries but had also issued show cause that why such expenses would not be disallowed in the year under consideration. In addition to the above, the assessee not only provided justification of its allowability but also submitted the additional that the expenses are relatable to immediately preceding year, but the liability is confirmed in the year under consideration, and these were not claimed as deduction in the said preceding year. Incidentally, the Ld. PCIT had in fact alleged the same issue i.e. whether deduction in the earlier is claimed by the assessee and prior period expenses belonged to which year. Thus, from the above facts on record, it is clearly evident that the proper enquiry was done by the AO on this issue.
17. Reliance is being placed on the judgment of Hon'ble Delhi High Court in case of CIT vs. Vikas Polymers 236 CTR 476 (Del) wherein it was held that " 13. It is also trite that there is a fine though suhtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to e xercise his re visio nal powers by 10 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
calling for and examining the records of any proceedings under the Act and passing orders the reon."
18. Further, we find that the Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. 189 Taxman 436 (Del) held as under:
"1 2 . W e h av e co n si d e r ed t h e ri va l su b m is si on s o f t h e c ou n s el on t h e ot h e r sid e an d h a v e g on e t h r ou g h t h e r e c o rd s . Th e fi r st is su e t h a t ari s e s f o r ou r c on s id e rat i on i s ab ou t t h e e x e r ci s e o f p ow e r b y t h e C om m i ss i on e r o f In c o m e Ta x u n d e r S e ct i on 2 6 3 of t h e In c om e Ta x A c t . A s n ot ed ab o v e, t h e su b m is si on o f le a rn ed c ou n s e l f o r t h e R e v en u e wa s m at w h ile p as si n g t h e as s e ss m en t o rd e r, t h e A O d id n ot c on si d e r t h i s a sp ect sp e c ifi cal ly w h et h e r the e xp en d i t u r e in q u e st i on w a s r e v en u e o r c ap it al ex p en d it u r e . Th i s arg u m en t p r ed i ca t e s on t h e as s e s sm en t or d e r, wh i ch ap p a r en t l y d oe s n ot g iv e an y r ea s on s wh il e a ll owi n g the en t i r e e xp en d it u r e as R e v en u e e xp en d i t u r e. H ow e v e r , t h at b y it s el f w ou ld n ot b e in d ic at iv e o f t h e f act t h at t h e A O h a d n o t ap p li ed h i s m in d on t h e is su e . Th e r e ar e j u d g m en t s g al o r e la yin g d o wn t h e p r in c ip l e t h at t h e A O in t h e a ss e s s in g o rd e r i s n ot r eq u i r e d t o g iv e d et ail ed r e a so n in r e sp e ct o f ea ch an d e v e ry it em of d ed u ct i on , et c. Th e r e fo r e , on e h a s t o s e e f r om t h e r e co r d a s t o wh et h e r t h e r e wa s ap p li cat i on of m in d b e f o r e a llo win g t h e exp en d i t u r e in q u e st io n as r ev en u e e xp en d i t u r e . L ea rn e d c ou n s el f o r t h e a sse s s e e i s rig h t in h is su b m is si on t h at on e h a s t o k e ep in m i n d t h e d i st in ct i on b et w e en " la ck o f in q u i ry " an d "in a d eq u at e in q u i ry " . If there wa s an y in q u i r y, ev en in ad eq u at e t h at w o u ld n ot b y it s el f g i v e oc c asi on t o t h e Co m m is si on e r t o p as s o rd e r s u n d e r S e ct i on 2 6 3 o f t h e A ct , m e r el y b ec au s e h e h a s d i f fe r en t op in i on in t h e m at t e r . It i s on l y in c a s e s of "la ck o f in q u i ry " t h at su ch a c ou rs e o f ac t i on w o u ld b e op en . ''
19. The Hon'ble Delhi High Court in the case of CIT vs Anil Kumar Sharma [335 ITR 83], also held that where there was no "lack of enquiry" by AO even if it could be said to be inadequate, proceedings under section 263 of the Act was not 11 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
valid since the AO had applied his mind to complete details filed by the assessee.
20. In light of the facts submitted in the original assessment, the above expenses are crystallized during the year and no deduction of the same is claimed in the earlier year. Hence, in view of the above facts and circumstances and the position of law, the aforesaid expenses are an allowable deduction under the Act while computing the profit and gains of business and profession & that the AO has correctly appreciated the said position while passing the assessment order. Hence, we hold that the directions given in the order u/s 263 are not valid.
Interest on Late Payment of TDS:
21. For the year under consideration in Tax Audit Report, the Tax Auditor had in clause 34c had reported the liability of interest under section 201(1A) or section 206C(7) of the Act amounting to Rs.6,96,533/-. The appellant in the course of original assessment duly placed the said Tax Audit Report and the Computation of Income. The appellant in the computation of income also carried out adjustments taking into account the disclosures in the Tax Audit Report such as allowances under section 43B of the Act. The appellant had claimed deduction of interest on late payment of TDS for the year under consideration as the term 'tax' defined in section 2(43) of the Act does not include such amount.
22. It was argued that Section 201(1A) of the Act, any person who defaults in deducting whole or any part of the tax or after deducting fails to pay such tax as required by under this Act, is 12 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
liable to pay simple interest as prescribed under the said section. Further, as per section 40(a)(ii) of the Act, any amount paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains is concerned, the same shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession'.
23. It was argued that the definition of tax under the Act read with provisions of section 40(a)(ii) of the Act, the interest paid under section 201(1A)/206C(7) of the Act on late payment of TDS amounting to Rs. 6,96,533/- does not fall within the meaning of 'tax' and hence no adjustment is warranted in the returned income for the year under consideration.
24. It was argued that the above claim is allowed after verification. It was further submitted that the allowability of the interest on late payment of TDS have been allowed in favour taxpayer as the payment in question are compensatory in nature and in the absence of specific provision no such disallowance is warranted. The above view expressed in the following decisions:
Harshad Shantilal Mehta vs. Custodian [1998] 231 ITR 871 (SC) Arthur Anderson & Co. vs. ACIT [2010] 324 ITR 240 Mukand Ltd. [2019] 101 taxmann.com 214 (Mumbai -
Trib.) Rungta Mines Ltd. in I.TA No. 1531/Kol./2017) Mahalaxmi Sugar Mills Co. (1980) 123 ITR 429 13 ITA No. 1036/Del/2021 Delhivery Pvt. Ltd.
25. In the course of revisionary proceedings, the Ld. PCIT on verification of record and Audit party objections observed that such sum related to payment of interest on late payment of TDS was neither added by the assessee in the taxable income for the year nor the AO had added the same while completing the original assessment. The Ld. PCIT after considering the submission of the appellant in revisionary proceedings and held as under:
" U n d i sp u t e d ly , the as s e s s ee has cl aim ed in t e r e st p aid u/s 2 0 1 ( 1 A ) / 2 0 6 C( 7) on lat e p a ym en t of TD S / T CS at Rs. 6, 9 6 ,5 3 3/ - as b u sin e s s ex p en d it u r e . I fin d t h at in t e r e st u / s 2 0 1 (1A ) / 2 0 6 C( 7 ) is n ot a b u sin e s s ex p en d it u r e . In t h is r eg a rd , it is w o rt h whi l e t o m en t i on f oll o win g j u d ic ial p r on ou n c em en t s .
Bh a rat Co m m e r c e & In d u st ri e s Lt d . v s. CI T ( 1 9 8 8) 2 30 ITR 7 3 3 ( S C) A ru n a Mill s Lt d . v s. CI T ( 1 9 5 7) 3 1 I TR 1 5 3 ( B om ) CI T v s. Ch e n n ai P r o p e rt ie s an d O r s. ( 1 9 9 9) 2 3 9 I TR 4 3 5 ( M ad .)
26. In view of the facts narrated above, we find that the AO has failed to disallow above mentioned interest expenditure while passing the order u/s 143(3) and hence rendering the assessment erroneous and prejudicial to the interest of revenue. The order of the ld. PCIT u/s 263 is upheld on this issue.
27. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 16/03/2023.
Sd/- Sd/- (C. N. Prasad) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 16/03/2023 *Subodh Kumar, Sr. PS*