TaxTMI 
TaxTMI 
2021 (12) TMI 538
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....assessment proceedings, allegedly on the ground that the same is not allowable under section 37(1) of the Act as it is a notional loss following the decision of Delhi Tribunal in the case of M/s. Ranbaxy Laboratories Ltd. vs. ACIT (124 TTJ 771). 1.1 The learned Commissioner of Income Tax (Appeals) has failed to appreciate that since grant of option and issuance of shares was merely in the nature of employee compensation/ welfare expense, the same was allowable as revenue deduction following the decision of Special Bench in the case of Biocon Limited vs. DCIT (25 ITR (Trib) 602). 1.2 That on the facts and circumstances of the case, the difference between the fair market value of the shares and the amount receivable from the employee at the time of issue/ or exercise of the Employee stock option, debited to the profit and loss account for the year is in line with the recommendations of SEBI and have been further confirmed by Special Bench in the case of Biocon Ltd. (supra). 2. The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming the disallowance of interest amounting to Rs. 27,49,85,908/- paid for business purpos....
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....nd has considered the related compensation cost in its books of accounts. It employee stock option plan expenses amounting to Rs. 28,010,043/- these expenses have not been claimed by the assessee Under the normal computation of total income. Therefore there was a net deduction claimed by the assessee of Rs. 342,744,274/- on account of these expenditure. Assessee made that claim during the assessment proceedings. It also submitted the copy of the revised income tax computation. The learned assessing officer did not consider the request of the assessee holding that there is no specific provision Under the income tax act to allow such claim u/s 37 (1 of the act. He further held that the securities and exchange board of India guidelines would also not apply as those guidelines cannot supersede the provisions of income tax act. Hence he rejected the same. 7. The learned AO also noted that assessee has made a provision for gratuity amounting to Rs. 13,203,725 which has been debited to the profit and loss account but has not been added to the net profit while computing the book profit u/s 115JB of the act. He held that that the provision of the gratuity is and on a certain reliability ....
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....he ld. CIT (Appeals) who confirmed the disallowance of lease expenditure. With respect to the interest disallowance, he held that if the advances were not made for a business purpose, therefore, interest paid by the appellant on that part of borrowed capital, which is proportionate to the amount of interest from the advances extended by it cannot be said to have paid for the business purposes. Accordingly, he confirmed the disallowance. With respect to the deduction of employee stock option expenditure he confirmed the disallowance based on the decision of the coordinate bench in case of Ranbaxy laboratories Ltd versus Asst Commissioner of income tax 124 TTJ 771. With respect to the addition of Rs. 1,32,03,075/- as the provision of gratuity while computing book profit under Section 115JB of the Act he upheld the addition holding that the provision itself is based upon assessment which vary with the passage of time and are not fixed on the date of the balance sheet. The provision of the gratuity is contingent or conditional liability and is not eligible for deduction while computing the book profit. Thus, he upheld the same. The assessee is aggrieved with the above order of the ld. ....
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....e assessment proceedings, the lower authorities have disallowed the claim holding that it is a notional loss following the decision of the coordinate bench in case of Ranbaxy laboratories Ltd versus ACIT (supra). Now we find that this issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in Commissioner of income tax LTU versus Biocon Ltd [2020] 121 taxmann.com 351 (Karnataka) wherein it has been held as Under:- "6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under section 37 of the Act. Before proceeding further, it is apposite to take note of section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of ....
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....ls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. The tribunal therefore, in paragraphs 9.2.7 and 9.2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under section 37(1) of the Act subject to fulfilment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting ....
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....ourt, we allow ground number 1 of the appeal of the assessee and direct the learned assessing officer to allow employee stock option expenses amounting to Rs. 342,744,274/-. 18. Ground number 2 of the appeal of the assessee is with respect to the disallowance of interest amounting to Rs. 274,985,908/- on the ground that funds amounting to Rs. 503 crores have been advanced as interest free loan to a joint-venture company M/s Indus Tower Ltd. We find that assessee has interest free funds available in the form of share capital and reserve and surplus to the extent of Rs. 14,246,38,33,000 and interest free loan given to Indus Towers Ltd was to the extent of Rs. 503 crores on which the interest disallowance has been made. As the assessee has huge non-interest-bearing funds available with it against the amount advanced interest free to a joint-venture company, the issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of CIT versus Reliance Industries Ltd [2019] 102 taxmann.com 52 (SC)/[2019] 261 Taxman 165 (SC) as Under:- "7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Cou....