ACIT, New Delhi v. M/s Ranbaxy Laboratories Ltd,, New Delhi

ITA 3599/DEL/2009 | 2005-2006
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 359920114 RSA 2009
Assessee PAN EMBER2001A
Bench Delhi
Appeal Number ITA 3599/DEL/2009
Duration Of Justice 9 month(s) 3 day(s)
Appellant ACIT, New Delhi
Respondent M/s Ranbaxy Laboratories Ltd,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 21-05-2010
Date Of Final Hearing 29-04-2010
Next Hearing Date 29-04-2010
Assessment Year 2005-2006
Appeal Filed On 18-08-2009
Judgment Text
ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 3599/DEL/2009 A.Y. : 2005-06 ACIT CIRCLE-15(1) VS. M/S RANBAXY LABORATORIE S LTD. CR BLDG. IP ESTATE 12 TH FLOOR DEVIKA TOWERS 6 NEHRU NEW DELHI PLACE NEW DELHI 110 019 (PAN: AAA CRO 127 N) AND C.O. NO. 368/DEL/09 (IN ITA NO. 3599/DEL/09) A.Y. 2005-06 M/S RANBAXY LABORATORIES LTD. VS. ACIT CIRCLE-1 5(1) 12 TH FLOOR DEVIKA TOWERS 6 NEHRU CR BLDG. NEW DEL HI PLACE NEW DELHI 110 019 (PAN: AAA CRO 127 N) [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. AJAY VOHRA ADV. MS. NEHA KHEMKA ADV. SH. VIRENDER SHARMA GM & MS. SHIKHA SHARMA ADV. DEPARTMENT BY : SH. STEPHEN GEORGE C.I.T. (D.R.) PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE EMANATE OUT OF ORDER OF THE LD. COMMISSION ER OF INCOME ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 2 TAX (APPEALS) DATED 25.5.2009 PERTAINING TO ASSESSM ENT YEAR 2005- 06. 2. IT IS NOTED THAT THERE IS DELAY OF 30 DAYS IN FI LING THE CROSS OBJECTION. UPON PERUSAL OF THE REASONABLE CAUSE OF DAY IN FILING THE CROSS OBJECTION WE ARE INCLINED TO CONDONE THE SAME. THE DELAY IS HENCE CONDONED. 3. THE GROUND RAISED IN REVENUES AND ASSESSEES CROSS OBJECTION READ AS UNDER:- REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE U/S 43B(B) OF THE IT ACT 1961 AMOUNTING TO RS. 21 31 56 460/- BEING PROVISION FOR PENSION BASED ON ACTUARIAL VALUATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 40 00 000/- IN R ESPECT OF CONTRIBUTION TO RANBAXY COMMUNITY HEALTH CARE SOCIETY AND RS. 14 00 000/- MADE TO RANBAXY SCIENCE FOUNDATION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 37 IN RESPECT OF DEMA ND RAISED BY NATIONAL PHARMACEUTICALS PRICING AUTHORIT Y (NPAA) AMOUNTING TO RS. 4 54 86 909/- ON CEFAZOLINE BASED FORMULATIONS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 37 IN RESPECT OF DEMA ND RAISED BY NATIONAL PHARMACEUTICALS PRICING AUTHORIT Y (NPAA) AMOUNTING TO RS. 4 65 08 333/- ON CLOXACILLI N BASED FORMULATIONS. ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 3 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF WEIGHTED DEDUCTION U/S 35(2AB) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RE SEARCH AND DEVELOPMENT CARRIED IN APPROVED IN HOUSE FACILI TIES AMOUNTING TO RS. 2 68 75 526/- . 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING TO ALLOW DEDUCTION ON ACCOUNT OF LIABILIT Y FOR DEFERRED EMPLOYEES COMPENSATION IN RESPECT OF EMPLOYEES STOCK OPTION SCHEME (ESOP). ASSESSEES CROSS OBJECTION 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ALLOWING DEDUCTION FOR EMPLOYEES COMPENSATION EXPE NSE ON ACCOUNT OF GRANT OF OPTIONS UNDER THE EMPLOYEES STOCK OPTION SCHEME (ESOP) AMOUNTING TO RS. 3 55 74 519/-; INSTEAD IN DIRECTING THE ASSESSING O FFICER TO ALLOW THE SAME ONLY IN THE YEAR IN WHICH THE SHA RES ARE ALLOTTED TO EMPLOYEES UPON EXERCISE OF THE OPTI ONS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN N OT ALLOWING DEDUCTION OF RS. 60 691/- BEING CONTRIBUT ION TO EMPLOYEES STATE INSURANCE (ESI). 4. BOTH THE COUNSELS FAIRLY AGREED THAT ALL THE ISS UES IN THE APPEAL ARE COVERED BY THE DECISION OF THE TRIBUNAL IN EARLIER YEARS IN ASSESSEES OWN CASE. LD. COUNSEL OF THE ASESSEE ALSO SUBMITTED A PAPER BOOK IN WHICH THE EARLIER ORDERS OF THE TRIBU NAL IN ASSESSEES OWN CASE HAVE BEEN ENCLOSED. GROUND NO. 1 TO 5 OF R EVENUES APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIE R TRIBUNAL DECISIONS. GROUND NO. 6 OF THE REVENUES APPEAL A ND GROUND NO. 1 OF THE CROSS OBJECTION OF THE ASSESSEE IS COVERED I N FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE EARLIER TRI BUNAL DECISION. ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 4 GROUND NO. 2 OF THE CROSS OBJECTION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE APEX COURT DECISION. THE APPEAL NO. DATE OF THE ORDER AND CONCLUDING PORTION OF THE RELEVANT ADJUDI CATION OF THE TRIBUNAL IS AS UNDER:- 5. GROUND NO. 1 OF THE REVENUES APPEAL. IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NO. 2613/DEL/2004 & ORS. IN ASSESSEES OWN CASE VIDE ORDER DATED 12.6.2009 WHE REIN THE TRIBUNAL HAS HELD AS UNDER:- 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THIS ISSUE IS FOUND TO BE COVERED BY THE AFOREMENTIONED DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1999-00. FOR THE SAKE OF CLARITY THE RELEVANT PORTION FROM THE SAID ORDER IS REPRODUCED BELOW: - THE NEXT DISPUTE IN THE REVENUES APPEAL FOR A.Y. 1999- 2000 RELATES TO DISALLOWANCE OF RS. 1 99 73 822/- M ADE BY THE AO BY APPLYING THE PROVISIONS OF SEC. 43B(B) ON ACC OUNT OF PROVISION FOR PENSION. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RECORDS. EARLIER THE ASSESSEE WAS HAVING A SUPERAN NUATION SCHEME WITH THE LIC WHEREIN THE CONTRIBUTIONS WERE MADE AT CERTAIN PERCENTAGE OF SALARIES OF THE EMPLOYEES. T HE PENSION PAYABLE UNDER THE SAID SUPERANNUATION SCHEME WAS FO UND TO BE TOO LOW AND THE ASSESSEE FOUND IT DIFFICULT TO A TTRACT AND RETAIN MANAGEMENT OF EMPLOYEES. A NEW PENSION SCHE ME WAS INTRODUCED W.E.F. 01.11.1997. THIS PENSION WAS APP LICABLE TO ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 5 ALL MANAGEMENT EMPLOYEES AND WAS NON FUNDED. IN OT HER WORDS NO SEPARATE FUND WAS CREATED AND THE PENSION WAS PAYABLE TO THE EMPLOYEES UPON THEIR RESIGNATION/RET IREMENT OR TO THE FAMILY MEMBERS IN THE EVENT OF DEATH OF THE EMPLOYEE. THE ASSESSEE GOT THE FRESH ACTUARIAL VALUATION. TH E INCREMENTAL DIFFERENCE WAS DEBITED TO THE P&L A/C. THE CIT(A) ALLOWED THE PROVISION AND HELD THAT THERE CAN NO QUESTION OF DI SALLOWANCE U/S 43B OF THE ACT. WE HAVE GONE THROUGH THE IMPUGNED ORDER AND IN THE LIGHT OF THE FACT THAT THERE WAS NO CONTRIBUTION OF ANY P ENSION TO ANY FUND AND THE ASSESSEE HAS ONLY PROVIDED ON THE BASI S OF THE ACTUARIAL VALUATION THE ADDITIONAL LIABILITY. THE QUESTION OF DISALLOWANCE OF SAME U/S 43B IS CLEARLY MI-SPELT. WE THEREFORE AGREE WITH THE REASONING GIVEN BY THE CI T(A) AND DECLINE TO INTERFERE. 5.1 RESPECTFULLY FOLLOWING THE PRECEDENT WE UPHOL D THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. GROUND NO. 2 OF THE REVENUES APPEAL. IDENTICA L ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NO. 3925/DEL/2002 VI DE ORDER DATED 31.3.2008 WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 6.16 IN VIEW OF THE ABOVE AUTHORITIES IT IS CLEA R THAT EVEN IF THERE IS NO STATUTORY OBLIGATION ON THE PART OF THE ASSESSEE TO INCUR THE EXPENDITURE BUT THE EXPENDITURE HAS BEEN INCURRED TO BRING GOOD-WILL TO THE ASSESSEE OR IS FOR THE PURPOSE OF PROMOTING IT S ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 6 BUSINESS THEN SUCH EXPENDITURE IS TO BE ALLOWED AS BUSINESS EXPENDITURE. IN VIEW OF THE ABOVE WE UPHOLD THE CLAIM OF THE ASSESSE AND ALLOW GROUND NO . 5. 6.1 RESPECTFULLY FOLLOWING THE PRECEDENT WE UPHOL D THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. GROUND NOS. 3 & 4 OF THE REVENUES APPEAL. IDEN TICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NO. 3871/DEL/20 04 & ORS. VIDE ORDER DATED 12.6.2009 WHEREIN THE TRIBUNAL HAS HEL D AS UNDER:- 51. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IT IS NOT DISP UTED THAT DEMAND WAS RAISED AGAINST THE ASSESSEE BY NPPA. TH E SAID DEMAND WAS ALSO ENFORCED BUT ASSESSEE APPROACHED HO NBLE HIGH COURT AND PART PAYMENT WAS ALSO MADE DURING TH E YEAR TO FULFILL THE DIRECTIONS OF HONBLE HIGH COURT. THUS THE DEMAND HAD NOT ONLY ARISEN DURING THE YEAR BUT IT WAS A QU ANTIFIED AND CRYSTALLIZED DEMAND ENFORCEABLE IN LAW. THUS IT W AS A STATUTORY LIABILITY WHICH WAS TO BE PAID BY THE ASS ESSEE WITHIN THE STIPULATED TIME SAVED IF OTHERWISE DIRECTED BY HIGHER COURT. DISPUTING THE PAYMENT OF LIABILITY BY WAY OF AN APP EAL DOES NOT MAKE DISENTITLE THE ASSESSEE TO CLAIM THAT DEMAND A S AN ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 7 EXPENDITURE AS WHAT IS SOUGHT BY THE ASSESSEE WHO I S DISPUTING THE LIABILITY IS A RELIEF FROM HIGHER COURT. SUPPO SE IF HIGHER COURT GIVE SOME RELIEF TO THE ASSESSEE AND DEDUCTION IS A LREADY GRANTED TO THE ASSESSEE IN A PARTICULAR YEAR SEC. 41(1) IS THERE TO TAKE CARE OF THE RELIEF GOT BY THE ASSESSEE BY W AY OF AN APPELLATE ORDER. THUS THERE IS NO LOSS TO THE REV ENUE WHEN DEDUCTION WITH RESPECT TO STATUTORY LIABILITY WHICH HAS ARISEN AND CRYSTALLIZED DURING THE YEAR IS ALLOWED. 52. IN VIEW OF ABOVE DISCUSSION WE FIND NO INFIRMI TY IN THE ORDER OF CIT(A) VIDE WHICH HE HAS HELD THAT SUCH LI ABILITY BEING ARISEN AND CRYSTALLIZED DURING THE YEAR SHOULD HAVE BEEN ALLOWED TO THE ASSESSEE. THE CASE LAW RELIED UPON BY LD. CIT(A) AND BY LD. AR DULY SUPPORT SUCH CLAIM. 7.1 RESPECTFULLY FOLLOWING THE PRECEDENT WE UPHOL D THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. GROUND NO. 5 OF THE REVENUES APPEAL. IDENTICA L ISSUE WAS DECIDED BY THE TRIBUNAL IN ITA NO. 2613/DEL/2004 & ORS. VIDE ORDER DATED 12.6.2009 WHEREIN THE TRIBUNAL HAS HEL D AS UNDER:- ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 8 36. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE FOUND THAT THIS ISSUE IS COVERED BY AFOREMENTIONED DECISION OF TRIBUNAL FOR A.Y. 99-00 IN ASSESSEES OWN CASE. TH E RELEVANT PORTION OF ORDER IS REPRODUCED BELOW: - THE NEXT DISPUTE IN ASSESSEES APPEAL FOR A.Y. 99 -00 RELATES TO THE CLAIM OF WEIGHTED DEDUCTION U/S 35(2 AB) ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF IN-HOUSE R&D CENTER WHICH IS DULY APPROVED BY TH E GOVT. OF INDIA. THE ASSESSEE IS A PHARMACEUTICAL COMPANY AND RESGULARLY CARRIES ON IN-HOUSE AND RESEARCH AND DEVELOPMENT ACTIVITY RELATING TO ITS BUSINESS AT TH E FACILITIES APPROVED BY THE DEPARTMENT OF SCIENCE & INDUSTRIAL RESEARCH GOVT. OF INDIA U/S 35(2AB) OF THE ACT. IN THE COMPUTATION OF THE TOTAL INCOME THE ASSESSEE CLAIM ED THE ENTIRE EXPENDITURE BOTH OF REVENUE AND CAPITAL AS A DEDUCTION UNDER THE AFORESAID SECTION. THE DEPARTM ENT ACCEPTED AND ALLOWED IT AS BUSINESS EXPENDITURE. T HE ASSESSEE HAS RELIED ON THE FOLLOWING AUTHORITIES IN SUPPORT OF ITS CLAIM FOR WEIGHTED DEDUCTION IN RESPECT OF T HESE EXPENSES: 1. CIT VS. SMITHKLINE & FRENCH (LTD.) 77 TAXMAN 153 (KAR.) (SLP 2. VIJAY SEEDS PVT. LTD. VS. ACIT 79 ITD 233 (PUNE) 3. CLARIS LIFE SCIENCES LTD. VS. ACIT 112 ITD 307 (AHD .) ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 9 4. SMITHKLINE BEECHAM CONSUMER HEALTHCARE LTD. (FORMERLY KNOWN AS HMM LTD.) VS. IAC 1089/CHD./87 (A.Y. 1983-84). THE LD. DR ON THE OTHER HAND VEHEMENTLY SUPPORTED THE IMPUGNED ORDER. WE HAVE GONE THROUGH THE RECORDS. THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE ON VEHICLES COMPUTERS AND OTHER ASSETS PROVIDED TO ITS EMPLOYE ES WORKING AT THE APPROVED RESEARCH FACILITIES AND DIR ECTLY ENGAGED IN THE RESEARCH AND DEVELOPMENT ACTIVITIES. THE AO IT MAY BE POINTED OUT DID NOT ACCEPT THE CLAIM OF THE ASSESSEE IN RESPECT OF WEIGHTED DEDUCTION WITHOUT ANY DISCUSSION IN HIS ORDER. THERE IS NO DISPUTE THAT THE EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSE E IN RESPECT OF RESEARCH & DEVELOPMENT FACILITIES WHICH HAVE BEEN DULY APPROVED BY THE PRESCRIBED AUTHORITY U/S 35(2AB). THEREFORE THE ASSESSEE IS CLEARLY ENTITL ED FOR WEIGHTED DEDUCTION. IT WAS ALSO REPORTED TO US AT THE TIME OF HEARING THAT THE CIT(A) DIRECTED WEIGHTED DEDUCTION U/S 35(2AB) WHILE DEALING WITH THE CLAIM OF THE ASSESSEE FOR A.Y. 01-02 IN RESPECT OF SIMILAR EXPENSES. THERE IS NO REASON TO DENY THE SAME IN T HE YEAR IN QUESTION. ACCORDINGLY WE DIRECT THE AO TO ALLOW THE WEIGHTED DEDUCTION IN RESPECT OF THESE EXPENSES U/S 35(2AB) OF THE ACT. ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 10 8.1 RESPECTFULLY FOLLOWING THE PRECEDENT WE UPHOLD TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DE CIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. GROUND NO. 6 OF THE REVENUES APPEAL AND GROUND NO. 1 OF THE CROSS OBJECTION FILED BY THE ASSESSEE ARE RELATED TO A COMMON ISSUE WHICH HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ITA NO. 1855/DEL/2004 & ORS. DATED 12.6.2009 AS UNDER:- 7.3 WE HAVE CONSIDERED RELEVANT FACTS ARGUMENTS A DVANCED AND THE CASE LAWS CITED. THE UNDISPUTED FACT REMAI NS THAT THE ASSESSEE GRANTED STOCK OPTION TO ITS EMPLOYEES FOR 3 32 250 SHARES ON 3 RD DECEMBER 2001 AT RS.595 PER SHARE. THE PREVAILING MARKET PRICE ON THAT DATE WA S RS.738.95 PER SHARE. AS PER ESOP SCHEME OF THE COMPANY SHARES AT 20% PER ANNUM OF THE TOTAL OPTIO N GRANTED TO THE VEST ON THE EXPIRY OF ONE YEAR FROM THE DATE OF GRANT OF OPTION. IN OTHER WORDS AFTER COMPLETI ON OF ONE YEAR FROM THE DATE OF GRANT OF OPTION AN EMPLOYEE WOULD BE ENTITLED TO EXERCISE THE OPTION FOR ALLOTMENT OF SHARES AT 20% PER ANNUM BY MAKING AN APPLICATION IN WRITING A ND TENDERING THE OFFER PRICE IN CASH. HOWEVER DURING THE YEAR THE ASSESSEE HAS MERELY GRANTED OPTION BUT THE SAME WERE NOT EXERCISED BY MAKING PAYMENT THEREOF. 7.4 THE ASSESSEE WAS TO ISSUE SHARE OF FACE VALUE O F RS.10/- BY RECEIVING A SUM OF RS.595/- PER SHARE FROM ITS ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 11 EMPLOYEES. THUS THE ASSESSEE WAS ENTITLED TO RECEI VE RS.585/- TOWARDS PREMIUM ON ISSUE OF SHARES. THE MARKET PRICE AT RS.738.95 PER SHARE WOULD HAVE RESU LTED IN REALIZATION OF HIGHER SHARE PREMIUM. THE ASSESS EE HAS NOT ACCOUNTED FOR THE DIFFERENCE BETWEEN RS.738.95 AND RS.10 AS ITS INCOME DURING THE YEAR. THUS THERE IS NO LOSS OF INCOME HELD TO BE TAXABLE. WHAT IS LOSS TO THE ASSESSEE IS BY WAY OF SHORT RECEIPT OF SHARE PREMIUM ACCOUNT AND NOT BY WAY OF ANY EXPENDITURE OR INCURRING ANY LIAB ILITY FOR SUCH EXPENDITURE. BY ISSUING SHARES AT BELOW MARKE T PRICE THE SAME DOES NOT RESULT INTO INCURRING ANY EXPENDITURE RATHER IT RESULTS INTO SHORT RECEIPT OF SHARE PREMIUM WHICH THE ASSESSEE WAS OTHERWISE ENTITLED T O. THOUGH THE GUIDELINES OF SEBI REQUIRES THE ASSESSEE TO ACCOUNT FOR SHORT RECEIPT OF SHARE PREMIUM AS EMPLO YEES COMPENSATION EXPENSE FOR CLAIMING SUCH EXPENSE AS ALLOWABLE THE ASSESSEE HAS TO QUALIFY THAT EXPENSE S ARE INCURRED AND THE SAME ARE WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. HERE WE FIND THAT BY ISSUING SHARES AT LESSER THAN MARKET PRICE THE ASSESSEE CANNOT BE SAID TO HAVE INCURRED ANY EXPENDITURE RATHER IT AMOUNTS TO SHORT RECEIPT OF SHARE PREMIUM. THE RECEIPT OF SHARE PRE MIUM IS NOT TAXABLE AND HENCE ANY SHORT RECEIPT OF SUCH PRE MIUM WILL ONLY BE A NOTIONAL LOSS AND NOT ACTUAL LOSS FO R WHICH NO LIABILITY IS INCURRED. SEBI GUIDELINES ARE RELE VANT FOR THE PURPOSE OF ACCOUNTING BUT ARE NOT CONCLUSIVE FO R THE ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 12 PURPOSE OF ALLOWING THE SAME AS EXPENDITURE. IN A CASE WHERE THE ASSESSEE CONTRACTS FOR SALE OF GOODS SAY AT RS.100/- PER PIECE AS AGAINST MARKET PRICE OF RS.15 0/- PER PIECE WHETHER THE LOSS OF RS.50 CAN BE SAID TO BE ALLOWABLE WHERE THE ASSESSEE ACCOUNTS FOR ONLY RS.1 00/- AS SALES NOT AT RS.150/-. IN SUCH A SITUATION THE LOSS WILL BE ONLY A NOTIONAL LOSS OR THE LOSS OF POSSIBLE BEN EFIT BUT NOT THE LOSS OR LIABILITY INCURRED SO AS TO BE HELD AS ALLOWABLE UNDER THE SCHEME OF INCOME-TAX ACT. SIMI LARLY IN THE PRESENT CASE WHAT IS LOSS TO THE ASSESSEE IS SHORT RECEIPT OF SHARE PREMIUM AND NOT INCURRING ANY LIAB ILITY OR LOSS IN THE COURSE OF CARRYING ON THE BUSINESS. TH EREFORE SUCH NOTIONAL LOSSES ARE NOT ALLOWABLE UNDER THE AC T. THE ASSESSEE IS NOT TO DEFRAY OR PAY ANY LIABILITY UNDE R THE CLAIM. THEREFORE SUCH NOTIONAL LOSS CANNOT BE HEL D TO BE ALLOWABLE UNDER THE SCHEME OF THE ACT. 9.1 AFTER ELABORATELY REFERRING TO THE CASE LAWS AN D DEALING WITH THE SAME THE TRIBUNAL CONCLUDED THAT THE EXPENSES A S CLAIMED BY THE ASSESSEE ARE NOT ALLOWABLE AS SUCH. 9.2 SINCE THE FACTS ARE IDENTICAL. RESPECTFULLY F OLLOWING THE PRECEDENT WE HOLD THAT THE IMPUGNED EXPENDITURE I S NOT ALLOWABLE. HENCE THE REVENUE APPEAL IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED ON THIS ISSUE. 10. GROUND NO. 2 OF THE CROSS OBJECTION FILED BY T HE ASSESSEE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C.I.T. VS. ALOM EXTRUCTIONS LTD. ITA NO. 3599/DEL/09 & CO NO. 368/DEL/09 A.Y. 2005-06 13 319 ITR 306 ACCORDING TO WHICH CONTRIBUTION TO ESI IS ALLOWABLE AS DEDUCTION IF THE SAME IS PAID BEFORE THE DUE DATE O F FILING THE RETURN. HONBLE DELHI HIGH COURT IN THE CASE OF C .I.T. VS. AIMIL LIMITED 188 TAXMAN 265 FOLLOWING THE AFORESAID HON BLE APEX COURT HAS HELD THAT THE EMPLOYEES CONTRIBUTION TO PF WOULD BE ALLOWED IF THE SAME IS PAID BEFORE THE DUE DATE OF FILING RETURN. 10.1 RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE S AND CROSS OBJECTION FILED BY THE ASSESSEE ARE BOTH PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/05/2010. SD/- SD/- [I.P. BANSAL] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 21/05/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES