Appollo health Street Limited, Hyderabad v. DY.CIT,Cir-1(1),, Hyderabad

ITA 1760/HYD/2012 | 2008-2009
Pronouncement Date: 25-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 176022514 RSA 2012
Assessee PAN AADCA4278N
Bench Hyderabad
Appeal Number ITA 1760/HYD/2012
Duration Of Justice 1 year(s) 4 month(s) 19 day(s)
Appellant Appollo health Street Limited, Hyderabad
Respondent DY.CIT,Cir-1(1),, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 25-04-2014
Assessment Year 2008-2009
Appeal Filed On 06-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A' HYDERABAD BEFORE SMT. P.MADHAVI DEVI JUDICIAL MEMBER AND SHRI B.RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO.1760/HYD/12 (ASSESSMENT YEAR 2008 - 09) M/ S . APOLLO HEALTH STREET HYDERABAD ( PAN - AADCA 4278 N ) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NISHANT THAKKAR RESPONDENT BY : SHRI P.SOMASEKHAR REDDY CIT - DR DATE OF HEARING 17.04.2014 DATE OF PRONOUNCEMENT 17.04.2014 O R D E R PER SMT. P.MADHAVI DEVI JUDICIAL MEMBER: TH IS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008 - 09 AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 31.12.2012 PASSED CONSEQUENT TO THE ORDER OF THE DRP DATED 14.9.2012 UNDER S.144C(5) READ WITH SUB - SECTION (8) OF S.144C OF THE INCOME - TAX ACT 1961. 2. IN THIS APPEAL THE A SSESSEE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL - TRANSFER PRICING MATTERS - RELATING TO DETERMINATION OF ARM'S LENGTH PRICE (HALP') IN RESPECT OF PROVISION OF INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES (HITES') TO ASSOCIATED ENTERPRISES (HAES') BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER ('AO') / LEARNED TRANSFER PRICING OFFICER ('TPO') AND THE HON'BLE DISPUTE RESOLUTION PANEL ('ORP') ERRED IN THE FOLLOWING: REJECTION OF TRANSFER PRICING DOCUMENTATI ON MAINTAINED AND U NDERTAKING FRESH SEARCH OF COMPARABLES: 1 . REJECTION OF THE TRANSFER PRICING DOCUMENTATION MAINTAINED BY ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 2 THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES 1962 ('RULES') AND UNDERTAKING A FRESH ECONOMIC ANALYSIS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ACCORDINGLY MAKING AN ADJUSTMENT OF RS 5 78 43 157 TO THE INT ERNATIONAL TRANSACTIONS RELATING TO PROVISION OF ITES TO ITS AE. SELECTION OF TESTED PARTY 2. SELECTING AHSL AS TESTED PARTY FOR COMPUTING ALP; REJECTION OF USE OF MULTIPLE YEAR DATA 3. REJECTING THE USE OF MULTIPLE YEAR DATA AND U SING DATA FOR THE FY 2007 - 08 ONLY; INFORMATION OBTAINED UNDER SECTION 133(6) 4. A) USING INFORMATION/DOCUMENTS OBTAINED BY EXERCISING POWERS U/S. 133(6) OF THE ACT WHICH ARE NOT AVAILABLE IN PUBLIC DOMAIN; AND B) FURTHER NOT PROVIDING ANY OPPORTUNITY TO APPELLANT TO CROSS - EXAMINE THE SAME. USE OF ADDITIONAL FILTERS 5. INTER - ALIA USE OF THE FOLLOWING ADDITIONAL FILTERS IN UNDERTAKING THE COMPARATIVE ANALYSIS TO REJECT COMPARABLE COMPANIES HAVING: A ) DIMINISHING REVENUE/PERSISTENT LOSSES; B ) 2 5% RPT FILTER; C ) DIFFERENT FINANCIAL YEAR - END SELECTION OF UN - COMPARABLES 6. NOT UNDERTAKING AN OB J ECTIVE COMP A RATIVE ANALYSIS AND INTER ALIA SELECTING THE FOLLO WI NG COMPANIES AS COMP A RABL E TO THE SERVICES OF THE APPELLANT; A ) ACCENTIA TECHN O LOGIES L TD.; B ) ACROPETAL TECH NO LOGIES L TD.(SEG); C ) COSMIC GLOBAL LTD.; D ) ECLERX SERVICES LTD.; E ) GENESYS I N TERN A TIONAL COR P ORATION LTD.; F ) HCL COMNET SYSTEMS & SERVI C ES L TD.(SEG.); G ) WIPRO LTD. (SEG); REJECTION OF COMP A RABLES 7. NOT UNDERTAKING AN OBJECTIVE COMPARATIVE ANALYSIS AND INTER ALIA REJECTING THE FOLLOWING COMPARABLE COMPANIES. A ) ACCURATE DATA CONVERTERS PVT. LTD. B ) ALLSEC TECHNOLOGIES LTD. C ) INFORMED TECHNOLOGIES LTD. D ) NIIT SMART SERVE LTD.; E ) JINDAL INTELLICOM LTD.; ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 3 F ) ASE STRUCTURE DESIGN PVT. LTD.; G ) CEPHA IMAGING PVT. LTD.; H ) CG - VAK SOFTWARE & EXPORTS LTD.(SEG.) I ) CHAKILAM INFOTECH LTD.(SEG); J ) MICROLAND LTD.; AND K ) IGATE GLOBAL SOLUTIONS LTD.(SEG.) ADJUSTMENT OF RISK DIFFERENCES 8. NOT ADJUSTING THE NET MARGINS OF THE COMPARABLE COMPANIES SELECTED TAKING INTO ACCOUNT THE FUNCTIONAL AND RISK DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION OF THE APPELLANT AND THE COMPARABLE COMPANIES IN ACCORDANCE WITH THE PROVISIONS OF RULE 108(1)( E); APPLICABILITY OF PROVISO TO SECTION 92C(2): 9. NOT ALLOWING THE OPTION UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT IN LIMITING THE ADJUSTMENT AT A VARIATION OF 5 PERCENT TO THE ARM'S LENGTH PRICE; CORPORATE GU A RANTEE PROVIDED TO THE AES 10. A) APPLYING THE PROVISIONS OF SECTION 92 OF THE ACT TO A TRANSACTION WHICH WAS NOT ENTERED IN THE BOOKS OF ACCOUNT; B) I) ERRED IN HOLDING THAT THE CORPORATE GUARANTEE PROVIDED BY THE APPELLANT IS AN 'INTERNATIONAL TRANSACTION' COVERED UNDER THE DEFINITION PROVIDED U/S 928 OF THE ACT; II) ERRED IN NOT APPRECIATING THE FACT THAT THE COMPUTATION MECHANISM FAILS IN DETERMINATION OF THE ARM'S LENGTH PRICE ('ALP') AS PRESCRIBED UNDER RULE 108 OF THE INCOME - TAX RUL ES 1962; III) ERRED IN DISREGARDING THE INTERNAL COMPARABLE PROVIDED BY THE APPELLANT; IV) ERRED IN DETERMINING THE ALP ON THE CORPORATE GUARANTEE @ 4.12% P.A. ON THE GUARANTEE AMOUNT WITHOUT UNDERTAKING ANY ECONOMIC ANALYSIS FOR THE SAME. C ) ERRED IN NOT APPRECIATING THE FACT THAT CORPORATE GUARANTEE WAS NOT INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' U/S 928 OF THE ACT FOR THE FY 2007 - 08. LEVY OF INTEREST UNDER SECTION 234B 11. IMPOSI N G INTER E ST UNDER SECTION 234B OF THE ACT ON TH E TP ADJUSTMENTS. DISCOUNT ON ISSUE OF ESOPS 12. DISALLOWING THE SESOP EXPENSES OF RS.1 67 53 537; 13. INITIATING THE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. .. ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 4 3. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL G R OUN D OF APPEAL BY LETTER DATED 7 TH MARCH 2013 - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ASSESSING OFFICER (ASSESSING OFFICER) ERRED IN - 1 . NOT FOLLOWING THE DIRECTION OF THE HONBLE DRP AND MAKING THE TP ADJUSTMENTS IN EXCESS OF THE GLOBAL PROFITS OF THE APPELLANT. 4 . THE ASSESSEE HAS FURTHER RAISED THE FOLLOWING ADDITIONAL GROUND OF APPEAL BY LETTER DATED 16 TH APRIL 2014 - 2. ON THE FAC T S AND IN THE CIRCUM S TANCES OF THE CASE THE DISPU T E RESOLUTION PANEL / TPO ERRED IN SELE C TING INFOSYS BPO LTD. AS A COMPARABLE COMPA N Y. 5. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS G R OUN D S NO.1 2 3 4 5 7 8 AND 9. IN VIEW OF THE SAME THESE GROUNDS ARE REJECTED AS NOT PRESSED. 6. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE LEGAL GROUNDS AND THER E F O RE SHOULD BE ADMITTED AN D CONSIDERED ON MERITS. 7 . THE FIRST ADDITIONAL G R OUND OF APPEAL RAISED BY THE ASSESSEE BY LETTER DATED 7 TH MARCH 2013 RELATES TO NON - COMPLI A N C E OF THE DIRECTIONS O F THE DRP BY THE ASSESSING OFFICER AND MAKING TP ADJUSTMENTS IN EXCESS OF THE GLOBAL PROFITS OF THE ASSESSEE. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A GLOBAL HEALTHCARE SER VICES COMPANY THAT OFFERS BPO AND I T SERVICES TO VARIOUS ORGANIZATIONS/CLIENTS. IT HAS A WHOLLY OWNED SUBSIDIARY IN USA TO MARKET THE SERVICES O F THE ASSESSEE IN USA. DURING THE RELEVANT FINANCIAL Y E AR THERE WERE INTERNATIONAL TRANSACTION S BETWEEN T H E ASSESSEE AND ITS SUBSIDIARY AND THE ASSESSING OFFICER MADE A REFERENCE TO THE TPO UNDER S.92CA OF THE INCOM E - TAX ACT FOR DETERMINATION OF TH E ARMS L ENGTH P RICE O F THE INTERNATIONAL ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 5 TR A NSAC T ION . THE TPO MADE TP ADJUSTMENT TO THE PRICE CHARGED BY THE ASSESSE E TO ITS AE. CONSEQUENTLY THE ASSESSING OFFICER PROPOSED THE DRAFT ASSESSMENT ORDER TAKING INTO ACCOUNT THE TP ADJUSTMENT MADE BY THE TPO. THE ASSESSEE RAISED ITS OBJECTIONS TO THE DRAFT ASSESSMENT ORDER BEFORE THE DRP WHICH PARTLY ALLOWED THE OBJECTIO NS OF THE ASSESSEE AND THE ASSESSING OFFICER THEREAFTER HAS PASSED THE ASSESSMENT ORDER IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS MADE TP ADJUSTMENT IN EXCESS OF THE PROFITS OF THE GROUP. HE SUBMITTED THAT THE ASSESSEE COMPANY BEING THE PARENT COMPANY OF THE GROUP ALL THE PROFITS HAVE TO FLOW BACK TO INDIA AND THEREFORE THE TP ADJUSTMENT CANNOT BE HIGHER THAN THE CONSOLIDATED PROFITS OF THE GROUP. HE SUBMITTED THAT THE DRP HAS CONSIDERED THIS OBJECTION OF THE ASSESSEE AND HAS ACCEPTED THE SAME BUT THE ASSESSING OFFICER HAS FAILED TO GIVE EFFECT TO THE ORDER OF THE DRP. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE COMPANYS CONSOLIDATED FINANCIAL RESULT FOR THE YEAR IS A LOSS AND FURTHER DUE TO TAX HOLIDAY IN INDIA THE TAX RATE OF THE AES IS MUCH HIGHER AND THERE IS NO INCENTIVE FOR SHI F TING OF PROFITS OUTSIDE INDIA . IT WAS ALSO SUBMITTED THAT THE TP ADJUSTMENT DETERMINED BY THE T PO IS SIGNIFICANTLY HI G H E R THAN THE GROUPS CO NSOLIDATED PROFIT. THE D RP CON S IDERED THE ASSESSEES OBJECTION AND HAS GIVEN A DIRECTION THAT THE UPPER LIMIT FOR ANY TP ADJUSTMENT IN TRANSACTIONS BETWEEN THE REL A TED PARTIES WOULD BE THE GLO B AL PR OF I T S EARNED BY THE GROUP. FOR COMING TO TH IS CON C LU S ION THE DRP HAS FOLLOWED THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN TH E CASE OF GLOBAL VANTEDGE PVT. LTD. V/S. DCIT(2010 - TIOL - 24 - ITAT - D EL ). THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE H A S NOT RAISED THIS GROUND IN THE ORIGINAL GROUNDS AS THE DRP HAS GRANTED RELIEF TO THE ASSESSEE BUT SINCE THE ASSESSING OFFICER HAS FAIL E D TO CONSIDER THE SAME WHILE PASSING TH E CON S EQUENTIAL ORDER THE ASSESSEE IS RAISING THIS GROUND AS AN ADDITIONAL GROUND OF APPEAL. HE SUBMITTED THAT S IN C E THE ISSUE WAS VERY MUCH BEFORE THE DRP THE ADDITIONAL G R OUND SHOULD B E ADMITTED AND CONSIDERED FOR SUITABLE DIRECTION TO THE ASSESSING OFFICER . FOR THIS PROPOSITION LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON FOL LOWING DECISIONS - ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 6 (A ) MAHALAXMI TEXTILE MILLS LTD. (66 ITR 710) - SC (B) GILBERT AND BARKER MANUFACTURING CO.(111 ITR 529) - BOM. (C) CIT V/S. P.B. CORPORATION (266 ITR 548) - GUJ. 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER OPPOSED THE ADMISSION OF THE ADDITIONAL G R OUND O F APPEAL OF THE ASSESSEE. 9 . HAVING H E ARD BOTH THE PARTIES AND HAVING CON S I D ERED TH E RI V AL CONTENTIONS WE FIND THAT THE ASSESSEE HAD IN FACT RAISED AN OBJECTION ON THIS ISSUE BEFORE THE DRP AND THE DRP HAD GIVEN A DIRECTION T O THE ASSESSING OFFICER TH AT THE TP ADJU S TM E NTS SHOULD NOT EXCEED THE GLOBAL PROFITS OF TH E ASSESSEE COMPANY. WE FIND THA T THE ASSESSING OFFICER HAS NOT GIVEN EFFECT TO THIS FINDING OF THE DRP WHILE PASSING THE ASSESSMENT ORDER AND THEREFORE THIS G R OUND IS VERY MUCH ADMISSIBLE AND HAS TO B E CON S IDERED ON MERITS. TH E R E FORE WE ADMIT THE ADDITIONAL G R OUND OF APPEAL. 10 . AS R EG ARDS THE MERITS OF THE ADDITIONAL GROUND O F APPEAL WE FIND THAT UNDER SUB - SECTION (3) OF S. 144C THE ASSESSING OFFICER SHALL COMPLET E THE ASSESSMENT ON THE BASIS OF TH E D R AFT ASSESSMENT ORDER IF NO OBJECTIONS ARE R E CEIVED WITHIN TH E PERIOD SPECI F IED IN SUB - SEC T ION (2) OF S.144C AND UNDER SUB - SEC T ION (5) OF S.144C THE DRP SHALL IN A CASE WHERE ANY OBJ E CTION HAS BEEN RECEIVE D UNDER SUB - SECTION(2) ISSUE SUCH DIRECTIONS AS IT DEEMS FIT FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPL E TE THE ASSESSMENT. SUB - SECTION (10) OF S.144C PROVIDES THAT EVERY DIRECTION ISSUED BY THE DRP SHALL BE BIN D ING ON THE ASSESS ING OFFICER. IN VIEW OF THE SAME THE ASSESSING OFFICER OUGHT TO HAVE GIVEN EFFECT TO THE DIRECTIONS O F TH E DR P . THER E FORE WE ARE OF THE OPINION THAT THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER TO RECOMPUTE THE TRANSFER PRICING AD JU S TMENT DULY COMPLYING WITH THE DIRECTION S OF THE DRP THAT THE TP ADJUSTMENTS SHALL NOT EXCEED THE GLOBAL PROFITS EARNED BY THE ASSESSEE COMPANY. ACCORDINGLY THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR COMPLIANCE WITH THE DIRECTIONS OF THE DRP AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 7 ASSESSEE. T HIS ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS ALLOWED . 1 1 . THE SECOND ADDITIONAL G R OUN D OF APPEAL RAISED BY TH E ASSESSEE BY LETTER DATED 16 TH APRIL 2014 IS ALSO ADMITTED AS ALL THE RELEVANT FACTS ARE ALREADY ON RECORD. SIN C E THE ISSUE OF CO M PU T ATION OF TRANSFER PR I CING ADJUSTMENT HAS BEEN REMITTED TO THE FILE O F TH E ASSESSING OFFICER TO CO M PLY WITH THE DIREC T ION S O F TH E DRP THE ADJUDICATION OF GROUNDS OF A PPEAL NO.6 7 10 AND SECOND ADDITIONAL GROUND ( BEING THE ONE RAISED WITH THE LETTER OF THE ASSESSEE DATED 16 TH APRIL 20 1 4 ) AT THIS STAGE WOULD ONLY BE AN ACADEMIC EXERCISE . TH E R E FORE THESE GROUNDS ARE ALSO REMI T TED TO THE FILE OF THE ASSESSING OFFICER FOR FR ESH CONSIDERATION IN ACCORDANCE WITH LAW. 1 2 . GROUND N O .11 RELATES TO TH E L E VY OF INTEREST UNDER S.234B OF THE ACT. AS TH E LEVY OF INTEREST UNDER S.234B IS CONSEQUENTIAL IN NATURE WE REMIT THI S ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR ALLOWING CONSEQUENTIAL RELIEF IF ANY DUE TO THE ASSESSEE. 1 3 . AS REGARDS GROUND NO.12 BRIEF FACTS ARE THAT D U RIN G THE RELEVANT FINANCIAL YEAR THE ASSESSEE CO M PANY HAD ISSUED E SOPS TO THE EMPLOYEES IN THE MANAGERIAL CADRE UNDER VARIOUS ESOP PLANS IMP LEMENTED BY THE COMPANY. THE DISCOUNT OF R S .1 67 53 537 ON THE OPTIONS I.E. MARKET VALUE O F THE OP T ION S OVER AND ABOVE THE VALUE AT WHICH THE SAME WERE ISSUED TO TH E EMPLOYEES HAS BEEN CONSIDERED UNDER PERSONNEL EXPENSES UNDER SCHEDULE 18 OF THE PROFIT & LOSS ACCOUNT AS THE SAME FORMS PART OF THE EMP L OYEES COMPENSATION. THE ASSESSING OFFICER HELD THAT THE DISCOUNT ON I SS UE OF ESOPS I S NOTHING BUT A NOTIONAL CAPITAL EXPENDITURE AND AC C ORDINGLY DISALLOWED THE SAME. THE D RP CONFIR M ED THE DISALLOWANCE HOLDIN G THAT THE LIABILITY O F THE CO M PANY TO ALLOT SHARES IS THOUGH REAL IT MAY CRYSTALLIZE UPON THE EXERCISE OF TH E OPTIONS BY TH E EMPLOYEES AND FOR THE RELEVANT ASSESSMENT YEAR IT I S NOTIONAL AND CANNOT B E TREATED AS ASCERTAINED LIAB I LI T Y. FURTHER THE DRP HAS OB S ERVED THAT THE ISSUE ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 8 REM A INS UNSETTLED SINCE IT IS UNDER LITIGATION BY THE DEPARTMENT. IT ACCORDINGLY CONFIRMED THE DI S ALLO W ANCE. HENCE TH E ASSESSEE IS IN APPEAL B E FORE US. 1 4 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T H A T THI S I S SUE IS NOW SETTLED BY THE DECISION OF THE SP E CIAL BENCH OF THE TRIBUNAL(BANGALORE BENCH) DATED 16.7.2013 IN TH E CA S E OF BICON LIMITED BANGALORE V/S. DCIT (ITA NO.368/HYD/2010 FOR THE ASSESSMENT YEAR 2003 - 04 AND OTHERS. 1 5 . THE LEARNED DEPARTMENTAL REPRESEN TATIVE ON THE OTH E R HAND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 1 6 . HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE MATERIAL ON RECORD WE FIND THAT THE ISSUE OF ALLOWABILITY OF DISCOUNT ON THE ISSUE OF ESOPS IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BIOCON LIMITED (SUPRA) W HEREIN THE SPECIAL BENCH HAS HELD AS UNDER - 11.3. WE THEREFORE SUM UP THE POSITION THAT THE DISCOUNT UNDER ESOP IS IN THE NATURE OF EMPLOYEES COST AND IS HENCE DEDUCTIBLE DURING THE VESTING PERIOD W.R.T. THE MARKET PRICE OF SHARES AT THE TIME OF GRANT OF OPTIONS TO THE EMPLOYEES. THE AMOUNT OF DISCOUNT CLAIMED AS DEDUCTION DURING THE VESTING PERIOD IS REQUIRED TO BE REVERSED IN RELATION TO THE UNVESTING/LAPSING OPTIONS AT THE APPROPRIATE TIME. HOWEVER AN ADJUSTMENT TO THE INCOME IS CALLED FOR AT THE TI ME OF EXERCISE OF OPTION BY THE AMOUNT OF DIFFERENCE IN THE AMOUNT OF DISCOUNT CALCULATED WITH REFERENCE THE MARKET PRICE AT THE TIME OF GRANT OF OPTION AND THE MARKET PRICE AT THE TIME OF EXERCISE OF OPTION. NO ACCOUNTING PRINCIPLE CAN BE DETERMINATIVE IN THE MATTER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT. THE QUESTION BEFORE THE SPECIAL BENCH IS THUS ANSWERED IN AFFIRMATIVE BY HOLDING THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTIONS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD `PR OFITS AND GAINS OF BUSINESS OR PROFESSION'. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SP E CIAL BENCH WE REMIT THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THIS ISSUE IN THE LIGHT OF THE ABOVE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. THIS GROUND OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 1 7 . GROUND NO.13 RELATING TO INITIATION OF PENALTY PROCEEDINGS UNDER S.271(1)(C) IS PREMATURE AND MISCONCEIVED IN THESE QUAN TUM PROCEEDINGS. HENCE THE SAME IS REJECTED. ITA NO.1760 /HYD/201 2 M/S. APOLLO HEALTH STREET HYDERABAD 9 1 8 . IN THE RESULT ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 25 TH OF APRIL 2014 SD/ - SD/ - ( B.RAMAKOTAIAH ) ( P.MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 25 TH APRIL 2014 COPY FORWARDED TO: 1. M/S. APOLLO HEALTH STREET APOLLO HEALTH CITY JUBILEE HILLS HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1) HYDERABAD 3. DISPUTE RESOLUTION PANEL HYDERABAD 4. DIRECTOR OF INCOME - TAX INTERNATIONAL TAXATION H YDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD. B.V.S