TaxTMI 
TaxTMI 
2022 (7) TMI 589
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....ESOP cost is incurred wholly and exclusively for the purpose of business and is in the nature of revenue expenditure and thereby, deductible under section 37(1) of the Act. (ii) In erroneously concluding that the Appellant has not incurred any expenditure but has forgone the benefit or income by receiving lesser amount of premium without appreciating the fact that the amount paid by the Appellant is merely towards the recharge of stock option units granted to its employees by group entity and no shares are issued by the Appellant. Ground 2: In Initiating penalty under section 271(1Xc) of the Act for disallowance made in respect of expenditure claimed towards ESOP cost. On the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271(1)(c) of the Act for the disallowance made in respect of expenditure claimed towards ESOP cost in the Final Assessment Order. Ground 3: Erroneously dismissing the appeal filed by the Appellant with the Commissioner of Income Tax (Appeals)-20 [now migrated to the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre) on the ground that the appeal....
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....he Act reads as under 37(1) Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purchases of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gain of business or profession." Reliance is also placed on Explanatory circular on Fringe Benefit Tax arising on allotment or transfer of specified securities or sweat equity shares (Circular No. 9/2007 F.No. 142/25/2007 TPL) Vide Question no. 16 CBDT has mentioned as under: Q-16 Whether the fringe benefit arising on account of shares allotted or transferred under an ESOP is allowed as deduction in calculating the taxable income of the employer company? Ans: In case whether the employer purchases the shares and then subsequently transfers such shares to its employees, the expenditure so incurred is allowable as deduction in computing the taxable income of the employer company. However, if the shares are allotted to the employees from the share capital of the company, no ....
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....a. Vesting means the process by which the employee gets the right to apply for and be issued shares of the company under the options granted to him. b. Vesting period means the period over which the vesting of the options of the employee takes place. c. Exercise period means the time period after vesting within which the employee should Exercise his night to buy the shares by payment of the option price on the options vested in him. If the exercise period lapses the vested option lapses and no right shall accrue to thereafter. d. Strike Price is usually the market value of the stock on the date that the options are granted. e. The act of exercise implies an application being made by the employee to the company to have the options vested in him issued as shares upon payment of the option price. f. Exercise can take place as specified after vesting. From the above what can be perused as is ESOP is nothing more than a expenditure related to issue of shares (capital in nature). As per provisions of section 37(1) of the Act it is amply clear that any expenses which is capital in nature is not allowable as expenditure for the purpose ....
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....nversion) based on the market pr of the underlying shares on the date of grant of the stock units. The provision debited to the pr and loss account over the life of the stock units (including foreign exchange fluctuation loss, disallowed while computing the total income for MSAS (kindly refer to Annexure F of tax audit report furnished as Annexure 4 of our submission dated 15 May 2018). MSAS makes payment to MSDW on the basis of the market price of the shares as on date of allotment of shares to the employees of MSAS. A deduction for the same is claimed in year of payment (kindly refer to Annexure E of tax audit report furnished as Annexure 4 of submission dated 15 May 2018). These shares allotted to employees are taxable as perquisite in the hands of employees and taxes are withheld on the same by MSAS and deposited into the Indian Government Treasury (the same is also submitted in our submission dated 12 November 2018). 13. We have considered and put reliance on explanatory circular on fringe benefit tax arising on allotment or transfer of specified securities or sweat equity shares (Circular No.9/2007, F. No. 142/Purchase/2007-TPL). 14. Vide Question no. 16 CBDT has mentio....
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....l stock award plan. The sum payable by the assessee to Goldman Sachs Group Inc. In respect of RSUs is determined with reference to the value of the shares of GST on the date of vesting of RSU. The value of RSU is amortized over three years and assessee marks to market the value of such RSU over a three year period in its books of account. The Assessing Officer, however, did not accept the contention of the assessee. Relying upon the decision of the Tribunal, Delhi Bench in Ranbaxy Laboratories Ltd., he disallowed assessee's claim of deduction. Though, assessee challenged the disallowance before the DRP, the Panel also sustained the disallowance agreeing with the Assessing Officer that it is a contingent liability till such time assessee actually pays it. 71. We have considered the submissions of the parties and perused the material available on record. We have noted that identical issue of deduction claimed on account of ESOP arose for consideration in assessee's own case for assessment year 2009-10 before the Tribunal in ITA no.222/Mum./2014. The Tribunal vide order dated 30th November 2015, held as under:- "12.3. Before us, the Ld. Senior Counsel drew our attent....