Aricent Technologies (Holdings) Ltd. vs Addl. CIT: Disallowance of Depreciation and ESOP Expenses for AY 2015-16

Aricent Technologies (Holdings) Ltd. vs Addl. CIT: Disallowance of Depreciation and ESOP Expenses for AY 2015-16

Case Number: ITA 5708/DEL/2019

Appellant: Aricent Technologies (Holdings) Ltd., New Delhi

Respondent: Addl. CIT, Special Range-1, New Delhi

Assessment Year: 2015-16

Case Filed On: 2019-06-28

Order Type: Final Tribunal Order

Date of Order: 2019-12-23

Pronounced On: 2019-12-23

Background

The case involves Aricent Technologies (Holdings) Ltd., New Delhi, as the appellant, and the Additional Commissioner of Income Tax, Special Range-1, New Delhi, as the respondent. The dispute centers around the disallowance of depreciation on goodwill and ESOP expenses for the assessment year 2015-16.

Reason for Filing the Case

Aricent Technologies (Holdings) Ltd. filed the case challenging the order of the Assessing Officer (AO) dated 30.05.2019, which disallowed depreciation of Rs. 89,28,64,060 on the written-down value of goodwill and ESOP expenses of Rs. 14,99,05,312. The appellant contended that the AO’s order was erroneous and barred by limitation in terms of section 153 read with section 144C of the Income-tax Act, 1961.

Tribunal Proceedings

On 23rd December 2019, the tribunal, comprising Ms. Sushma Chowla, Judicial Member, and Dr. B.R.R. Kumar, Accountant Member, heard the case.

The appellant was represented by Sh. Ajay Vohra, Sr. Adv., Sh. Neeraj Jain, Adv., and Sh. Anshul Sachar, Adv. The respondent was represented by Sh. Sanjay I. Bara, CIT DR.

Arguments Presented

The appellant argued that the disallowance of depreciation on goodwill and ESOP expenses was unjustified and against the principles laid down in various judicial pronouncements. They contended that:

• The AO did not allow depreciation on goodwill arising from the amalgamation of Flextronics Software Limited and Futures Software Limited with the appellant.
• The AO erroneously disallowed ESOP expenses claimed by the appellant for granting stock options to employees.
• The AO failed to grant Foreign Tax Credit (FTC) of Rs. 4,51,62,275 and Minimum Alternate Tax (MAT) credit of Rs. 21,22,53,782 as claimed in the return of income.

The respondent, on the other hand, supported the AO’s order and argued that the disallowances were made following the provisions of the Income-tax Act.

Tribunal’s Decision

The tribunal considered the rival submissions and the material placed on record. The key points from the tribunal’s order are as follows:

Disallowance of Depreciation on Goodwill

The tribunal noted that the issue of disallowance of depreciation on goodwill had already been adjudicated in favor of the appellant in earlier years. The tribunal referenced its own orders in ITA No. 1308/Del/2015 (AY 2010-11) and ITA No. 7637/Del/2018 (AY 2014-15), where similar issues were decided in favor of the appellant. The tribunal followed the same reasoning and allowed the appellant’s claim for depreciation on goodwill.

Disallowance of ESOP Expenses

The tribunal referred to its earlier order in ITA No. 7637/Del/2018 (AY 2014-15), where it was held that ESOP expenses were deductible as business expenditure under section 37(1) of the Act. The tribunal reiterated that the reimbursement paid to the parent company towards ESOP for granting stock options to the appellant’s employees was in the nature of employee compensation and deductible as business expenditure. The tribunal allowed the appellant’s claim for ESOP expenses.

Foreign Tax Credit (FTC)

The tribunal found no merit in the appellant’s plea regarding the disallowance of FTC, as the appellant had failed to produce the necessary certificates to substantiate the claim. The tribunal dismissed this ground of appeal.

Minimum Alternate Tax (MAT) Credit

The tribunal directed the AO to allow the MAT credit claimed by the appellant after giving effect to the appeal orders for earlier years. The tribunal allowed this ground of appeal.

Credit of Tax Deducted at Source (TDS)

The tribunal directed the AO to allow the credit of TDS claimed by the appellant based on the details provided and the revised Form No. 26AS, if applicable. The tribunal allowed this ground of appeal.

Interest under Sections 234A, 234B, and 234C

The tribunal allowed the appellant’s plea regarding the incorrect levy of interest under section 234A, as the return of income was filed within the due date. The tribunal also directed the AO to re-compute the interest under section 234C based on the returned income and not the assessed income. The tribunal dismissed the ground related to interest under section 234B as consequential.

Conclusion

The tribunal upheld the appellant’s claims for depreciation on goodwill and ESOP expenses, directed the AO to allow the MAT credit and TDS credit as claimed, and allowed the appellant’s plea regarding the incorrect levy of interest under sections 234A and 234C. The tribunal dismissed the ground related to the disallowance of FTC for lack of evidence.

Order pronounced on: 23/12/2019

Signatories:

MS. SUSHMA CHOWLA, Judicial Member

DR. B.R.R. KUMAR, Accountant Member

Dated: 23/12/2019

Copy forwarded to:

• Appellant
• Respondent
• CIT
• CIT(A)
• DR: ITAT

ASSISTANT REGISTRAR

ITAT NEW DELHI

Aricent Technologies (Holdings) Ltd. vs Addl. CIT: Disallowance of Depreciation and ESOP Expenses for AY 2015-16