TaxTMI 
TaxTMI 
2022 (9) TMI 239
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....llowing deduction in respect of ESOP expenditure of Rs. 1,33,64,340/- u/s 37(1) of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon"ble Tribunal to decide this appeal according to law. ITA No. 1393/PUN/2018 for A.Y. 2011-12 "Based on the facts and in the circumstances of the case, Bajaj Finance Ltd (the Appellant") respectfully submits CIT(A)-6 Pune [CIT(A)] erred in disposing the appeal of the Appellant on the following ground which is without prejudice to each other. 1. Ground No. 1 - Not allowing deduction in respect of Employee Stock Options ("ESOP") expenditure. 1.1 The CIT(A) erred in not allowing deduction in respect of ESOP expenditure of Rs. 2,60,65,287/- u/s 37(1) of the Act. 1.2 the CIT(A) has further erred in not allowing deduction for ESOP expenditure on the basis of the perquisite value taxed in the hands of employees in respect of options exercised by them during the year, to the extent such expenditure is not allowed on accrual basis in earlier years. 1.3 Without prej....
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....galore Special Bench decision in the case of Biocon Limited Vs. DCIT reported as 25 ITR (Trib.) 602 the additional ground of appeal is raised before Tribunal for claiming ESOP expenditure as a tax deductible expense. 33. On the other hand ld. DR submitted that the assessee raised this issue first time before the Tribunal. The ld. DR submitted that the expenditure was never claimed by the assessee. Therefore, the same is not allowable. 34. Both sides heard. It is an admitted fact that the assessee has claimed ESOP expenditure for the first time before the Tribunal. The Hon'ble Supreme Court of India in the case of Goetze (India) Ltd. Vs. CIT has held that the powers of the Appellate Tribunal are not impinged to accept the claim of assessee which has not been made before the Assessing Officer. We deem it appropriate to remit this issue back to the file of Assessing Officer to consider the claim of the assessee in the light of decision of Special Bench of the Bangalore Tribunal in the case of Biocon Limited (supra). The assessee shall file fresh computation of income before the Assessing Officer. The Assessing Officer shall consider the same and decide the claim ....
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.... the ITO by AAC to re-examine the question of genuineness of hundi loans only in such circumstances the ITO had no jurisdiction to consider the admissibility or otherwise of development rebate and it was held by the Hon"ble High Court that the only issue which the ITO could have examined was as per what the AAC has directed him to look into and nothing further. Reverting to the facts of the present case taking guidance from the aforesaid decision, the A.O should have decided the issue taking the guidance from the Special Bench decision (supra) as has been directed by the Tribunal in the first round of litigation. Now, we find that the Special Bench Bangalore in the case of Biocon Ltd (supra) on the issue have held the discount on ESOP being a general expense, is an allowable deduction u/s 37(1) of the Act during the years of vesting on basis of percentage of vesting during such period subject to upward or downward adjustment at the time of exercise of option. When this issue was decided in favour of the assessee, the department took up this matter before the Hon"ble Karnataka High Court in the case of CIT LTU vs. Biocon Ltd ((2020) in ITA No. 653 of 2013 - 121 taxman.com 351 (Karna....
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....e as an expenditure under Section 37 of the Act. It was further held that the expenditure is not contingent in nature. The appeal preferred by the assessee was directed to be placed before the division bench for decision in the light of findings recorded by the special bench. In the aforesaid factual background, the revenue has filed this appeal." 5. Thereafter, the Hon"ble High court has held as follows: 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 the assessee), laid out or expended wholly and exclusively....
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....iscount 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 paragraph 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 in the books of accounts, which has been prepared in accor....
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.... of the Special Bench Bangalore has been upheld by the Hon"ble Karnataka High court (supra) and it has been categorically held that the expenditure on ESOP entitles the assessee for deduction u/s 37(1) of the Act. Respectfully following the aforesaid judicial pronouncement we allow the ground of appeal of the assessee. In the result, the appeal of the assessee in ITA 1392/PUN/2018 for A.Y. 2010-11 is allowed. 7. Both the parties, at the time of hearing, submitted that this issue also finds place in ITA No. 1393/PUN/2018. Under similar facts and circumstances therefore, having heard the parties, our decision on this issue in ITA No. 1392/PUN/2018 for A.Y. 2010-11 except for the amounts involved shall apply mutatis mutandis also for ITA No. 1393.PUN/2018 for A.Y. 2011-12. Accordingly, the ground No. 1.1 of assessee"s appeal is allowed. 8. The ld. Sr. Counsel further submitted that if Ground No. 1.1 is allowed, then ground No. 1.3 would become infructuous. Since we have decided the said ground No. 1.1 in favour of the assessee, therefore, taking the submissions of the ld. Sr. counsel ground No. 1.3 is dismissed as infructuous. 9. Ground No. 1.2 reads as follows: .2 t....
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....ctual amount of employees cost can be precisely determined only at the time of the exercise of option by the employees, the provisional amount of discount availed as deduction during the vesting period needs to be adjusted in the light of the actual discount on the basis of the market price of the shares at the time of exercise of options. It can be done by making suitable northwards or southwards adjustment at the time of exercise of option. This can be explained with the following example with the assumption of vesting period of four years and the benefit vesting at 25% each at the end of 1st to 4th years:- At the time of granting option At the time of exercise of option Situation I Situation II Situation III Market value per share 110 110 130 90 Option price 10 10 10 10 Employees compensation or discount 100 100 120 80 11.1.7. From the above table it can be noticed that the market price of the shares at the time of grant of option was Rs. 110 against the option price of Rs. 10, which resulted in discount at Rs. 100. With the vesting period of four years with the equal vesting, the ....