TaxTMI 
TaxTMI 
2022 (3) TMI 1190
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....lding that ESOP expenses did not represent expenditure incurred, by alleging that the same was not spent, that is to say, paid out or away, and erred by not considering the fact that the appellant company was following mercantile system of accounting as prescribed by Section 145 of the Act according to which the expenses which have accrued/ crystalised in the relevant assessment year were fully allowable u/s 37(1) of the Act. The learned Commissioner of Income Tax (Appeals) has erred in not following the law of the land as laid down in Woodward Governer India Pvt Ltd. 312 ITR 254 (SC) in regard to allowability of expenditure u/s 37(1) of the Act. 1.2 That on the facts and in the circumstances of the appellant company and in law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the learned Assessing Officer's action in holding that deduction of ESOP expenses is not allowable u/s 37(1) of the Act allegedly on the ground that the same is a notional loss and capital expenditure. 1.3 The learned Commissioner of Income tax (Appeals) has erred in disregarding the decision of the Special Bench of ITAT, Bangalore in the case of Biocon Limited 144....
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....(C) Aggrieved, the assessee has filed this present appeal in Income Tax Appellate Tribunal. In the present appeal, the assessee has appealed against the impugned appellate order dated 07.05.2018 of the Ld. CIT(A) wherein the Ld. CIT(A) upheld the aforesaid additions of Rs. 4,99,46,617/- and 14,823/-. In the course of appellate proceedings in Income Tax Appellate Tribunal, the following documents were filed from the assessee's side. S. No. Particulars 1. Copy of submissions filed before CIT(A) regarding disallowance of the ESOP expenses 2. Copy of submissions filed before CIT(A) regarding disallowance u/s 14A 3. Copy of Key Management Stock Option Plan 4. Copy of Summary of ESOP cost accounted in the books 5. Copy of the decision of Delhi Tribunal in the case of Bharti Airtel Ltd. [2014] 43 taxmann.com 50 (Delhi - Trib) 6. Copy of the decision of High Court of Madras in the case of PVP Ventures Ltd. [2012] 23 taxmann.com 286 (Mad) 7. Copy of the decision of Bangalore Tribunal in the case of Biocon Ltd. [2013] 35 taxmann.com 335 (Bang - Trib) 8. Copy of the decision of Chennai Tribunal in the case of Caterpillar India (P) Ltd. [20....
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....nd accounted in the books in accordance with the mandatory guidelines issued by Securities and Exchange Board of India ("SEBI"). 1.3 Copy of the guidelines attached with order of CIT(A). 1.4 The amount was debited in the audited Profit & Loss Account. PB 159. 1.5 Disclosure given in the audited Balance Sheet. PB 148 - note (m), Summary of Significant Accounting Policies (This confirms that the accounting is done in accordance with SEBI Guidelines) - Also P151 note 3(e). 1.6 ESOP scheme alongwith basis of valuation explained in the Notes to Accounts in the audited Financial Statements. PB 162 note 28. Purpose of the Scheme 1.7 Under the Scheme, as part of company's intention to attract and retain employees, an option to exercise/purchase shares of the assessee company was granted to the employees of the company at a discounted price compared to tire fair market value of the share. 1.8 In accordance with the recommended guidelines issued by SEBI and the Guidance note on Accounting for Employee share-based payments, issued by the Institute of Chartered Accountants of India, the difference between the fair market value ....
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..... [39 SOT 17 (Del)] Commissioner of Income Tax (Appeals) 2. The learned CIT(A) confirmed the disallowance of Rs. 4,99,46,617/- on account of ESOP cost claimed by the company. 2.1 CIT(A) stated that the expenditure/loss was not allowable as deduction because the amount was a notional loss and a capital expenditure and therefore not covered by tire provisions of Section 37(1) of the Act (para 5.14 page 9 of CIT(A1 order 1 2.2 CIT(A) chose to disregard the decision of the Special Bench of Bangalore Tribunal in the matter of Biocon 35 taxmann.com (PB 58-81) wherein it was held that it was not a notional loss and was revenue expenditure, as according to him facts were different (para 5.21 page 11 of CIT(A) order. 2.3 However the facts were identical. The difference between grant price and fair market value has been claimed as employee cost. CIT(A) was also of the view that accounting in the books of the liability as envisaged in the SEBI guidelines could not override the allowability as per provisions of Income Tax Act (para 5.17 page 10 and para 5.22 page 11 of CIT(A) order). 2.3.1 Learned CIT(A) disregarded the detailed decision of....
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.... 2.6 CIT(A) observes that the criteria for eligibility of employees was not given in the ESOP scheme of the company, (para 5.2.3(ii) of CIT(A) order)." (C.1.1) The first issue before us in this appeal is regarding aforesaid addition of Rs. 4,99,46,617/-. On this issue, the Ld. Counsel for the assessee relied on the aforesaid synopsis already reproduced in this order in foregoing paragraph (C.1). The Ld. Counsel for the assessee supported his submissions with the help of relevant documents from the documents referred to in foregoing paragraph (C) of this order. He also drew our attention to orders of Hon'ble Delhi High Court in the case of Pr. CIT vs. New Delhi Television Ltd. [2017] 398 ITR 57 (Delhi) and in the case of CIT vs. Lemon Tree Hotels Ltd. (order dated 18.08.2015 of Hon'ble Delhi High Court in ITA No.107/2015). Further, the Ld. Counsel for the assessee also drew our attention to Special Bench order of Income Tax Appellate Tribunal in the case of Biocon Ltd. vs. DCIT (LTU), Bangalore [2013] 35 taxmann.com335 (Bang-Trib) (SB) and decision of Karnataka High Court in the case of CIT vs. Biocon Ltd. [2020] 121 taxmann.com 351 (Karnataka) wherein the aforesaid Special....