ACIT Vs Thyrocare Technologies Limited (ITAT Mumbai)
The Income Tax Appellate Tribunal Mumbai decided multiple appeals filed by the Revenue involving common issues across assessment years 2018–19, 2020–21, 2021–22, 2022–23, and 2023–24. The primary issues related to disallowance under Section 14A, allowability of Employee Stock Option Plan (ESOP) expenses, and disallowance of sales incentive expenditure under Section 37(1).
On the issue of disallowance under Section 14A read with Rule 8D, the Assessing Officer had computed a higher disallowance by considering the total investments of the assessee, despite the assessee having already made a suo motu disallowance based on investments yielding exempt income. The Tribunal observed that the assessee had earned exempt dividend income and had computed disallowance by considering only those investments that generated such income. Relying on the decision in Vireet Investment Pvt. Ltd., the Tribunal held that only investments which yielded exempt income during the year should be considered for computing disallowance under Section 14A. Accordingly, the matter was remanded to the Assessing Officer to recompute the disallowance on this basis. Similar directions were issued for other assessment years involving the same issue.
Regarding ESOP expenses of ₹2 crore, the Assessing Officer had disallowed the claim on the ground that it was not a real or revenue expenditure. The CIT(A) allowed the deduction by relying on judicial precedents. The Tribunal upheld this view, following the Karnataka High Court decision in Biocon Ltd., which held that ESOP discount constitutes an ascertained liability incurred for business purposes and is allowable as deduction under Section 37(1). The Tribunal found no infirmity in the CIT(A)’s order and dismissed the Revenue’s ground on this issue.
