High Court allows deduction for ESOP expenditure; dismisses disallowance under Section 14(A)

The High Court ruled in favor of the assessee regarding the expenditure claimed towards Employee Stock Ownership Plan (ESOP). The Court held that the expenditure should be allowed, rejecting the Revenue's argument that deduction could only be claimed upon actual acquisition of shares from a third party. Additionally, the Court dismissed the disallowance under Section 14(A) of the Act, finding no question of law in the matter. Consequently, the appeal was dismissed based on the Court's findings on both issues.

---

---

Issues:
1. Expenditure claimed towards Employee Stock Ownership Plan (ESOP)
2. Disallowance under Section 14(A) of the Act

Expenditure claimed towards ESOP:
The High Court addressed the issue of expenditure claimed towards ESOP, citing previous orders related to the present assessee. Referring to a specific case for A.Y. 2008-09, the Court highlighted that the expenditure had to be allowed based on previous judgments. The Revenue contended that as per Circular No.9 of 2007, the expenditure should not be allowed unless actual acquisition of shares occurred, not just allotment by the employer. However, the Court found this argument untenable, emphasizing that disallowance based on such grounds was not justified. The Revenue's stance that deduction could only be claimed if shares were acquired from a third party was rejected by the Court, which reasoned that commercial entities should not be compelled to purchase shares from the market instead of allotting them. Consequently, the Court concluded that no question of law arose in this regard.

Disallowance under Section 14(A) of the Act:
The second issue involved the disallowance under Section 14(A) of the Act. The ITAT provided relief in line with a judgment of the High Court in a specific case. The Court determined that no question of law arose concerning this matter. As a result, the appeal was dismissed based on the Court's findings on both issues.

---