TaxTMI 
TaxTMI 
2019 (1) TMI 1401
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.... case was selected for scrutiny and statutory notices were issued to the assessee. Subsequently, the return was revised declaring the income of Rs. 120,65,90,546/-. In the scrutiny proceedings, the Assessing Officer observed that the assessee has charged in the profit and loss account, an amount of Rs. 1,76,67,000/- as Employees Stock Option Scheme Compensation. In this regard, the assessee submitted that the Employees Stock Option Scheme Compensation is an allowable expenditure and he relied on the judgment of CIT vs. Biocon Ltd. vs. ITAT, 35 taxmann.com 335 (Bangalore Tribunal) (SB). The Assessing Officer did not accept the submissions of the assessee and held that Employees Stock Option (ESOP) would not be treated as a Revenue expenditure, but it is a capital expenditure and there is no any flow of funds, therefore, no actual expenditure has been incurred by the company either in the form of capital expenditure or Revenue expenditure. Accordingly, the Assessing Officer added a sum of Rs. 1,76,67,000/- to the total income of the assessee. 3. The Assessing Officer further noticed that on perusal of balance sheet that the assessee has made investment in shares/mutual funds to th....
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.... record, we observe in respect of ground No. 1 that the ld. CIT(A) has done a good reasoned order which does not call for any interference. The findings reached by the ld. CIT(A) are reproduced below for ready reference : "6.2. The ground No. 2 is covered by my own order for AY 2008-09, 2009-10 & 2010-11, in which following the decision of Ld. CIT(A)-XXX in favour of the appellant for A.Y. 2007-08, which was on the basis of the decision of the Madras High Court in the case of PVP Ventures Ltd.(supra), and of the Chennai ITAT in the case of SSI Ltd. Vs. DCIT [85 TTJ 1049], ESOP expenses were held as revenue in nature. 6.3. I find that the Ld. AO has heavily relied upon the decision in the case of M/s VIP Industries Ltd. Vs DCIT & Ranbaxy Laboratories Vs Addl.CIT 124 TTJ (Del) 771 and held that since the ESOP expenses were in the nature of loss to the capital, the same were capital loss and not revenue expenditure. The Ld. AO has also held that the SEBI Guidelines is not a prerogative for determining the allowability under the Income Tax Act. Furthermore, the AO was of the view that as the Central Govt., has not notified Accounting Standards in the matter of ESOP, s....
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....(1) of the Act".... Para 9.2.7 "discount in relation to options vesting during the year cannot be held as a contingent liability."... Para 9.3.6 "The incurring of liability towards the discounted premium, being compensation to employee, is directly linked with the span of service put in by the employee. It, therefore, transpires that a company under the mercantile system can lawfully claim deduction for total discounted premium representing the employees cost over the vesting period at the rate at which there is vesting of options in the employees.".... Para 10.4 "Reverting to the questions of 'when' and 'how much' of deduction for discount on options is to be granted, we hold that the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of the ESOP scheme by considering the period and percentage of vesting during such period."... Para 10.8". 6.3.4 The Hon'ble Spl. Bench, ITAT Bangalore, on comprehensive review of the legal position in the matter, after taking into account the relevant accounting principles did not follow the decision....
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....difference between the market price of the shares of the company and the offer price to the employee is to be proportionately allocated over the vesting period of such option, which in the appellant's computation comes at Rs. 12.32 Crs. 6.3.6 On careful consideration of the above, and respectfully following the Hon'ble Madras High Court in the case of PVP Ventures (supra) and of the Special Bench, Bangalore(S.B.) in the case of M/s Biocon Ltd. (supra), I allow the claim of the appellant for treating the ESOP expenses as revenue in the nature. Since there is no contrary High Court decision, the decision of Special Bench of ITAT in the matter, is a binding precedent. The AO is directed to verify the quantum of the deduction based on guidelines laid down by the Hon'ble Spl. Bench in the case of M/s Biocon Ltd. (supra) on verification of the details of the eligible employees, who had left the job before exercising the option and reduce such amount for ascertaining the correct amount of liability for the current year and allow the deduction accordingly". 7. From the above order of ld. CIT(A), it is clear that the ld.CIT(A) has relied on various decisions and has per ....