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TaxTMI 
TaxTMI 
2023 (8) TMI 1478
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....decision rendered by the Special Bench of Bangalore ITAT in the case of Biocon Ltd. vs. DCIT (144 ITD 21), which has since been upheld by the Hon'ble Karnataka High Court in the very same case reported in 430 ITR 151. However, the Tribunal has restored the matter to the file of the AO with certain directions, even though the points narrated by the Tribunal for so restoring the issue to the AO has already been decided by the Special bench. He submitted that the same constitutes mistakes apparent from record. 4. The learned AR submitted that there are also mistakes in capturing the factual aspects relating to the ESOP claim by the Tribunal. Explaining it further, the Ld A.R submitted that the ESOP scheme involves following three stages:- Stage 1 - Granting of ESOP option to the employees Stage 2 - Vesting ESOP option Stage 3 - Exercise of ESOP option He submitted that the discount in granting of ESOP arises in two stages, viz., (a) First type of discount arises at the time of granting and/or vesting of ESOP options and it represents the difference between fair market value on the date of granting/vesting date and the price at which shares are....
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....g accounting entry, which question has since been answered by the Special bench. 7. The Ld A.R submitted the claim of Rs.5.74 crores represented second type of discount. He submitted that the details of the same have been given in the Annual report, even though it was not debited to the Profit and Loss account. He further submitted that the assessee has also paid fringe benefit tax on the above said amount of Rs.5.74 crores, since it is a case of employee welfare expense. Hence, the assessee has claimed the above said amount as deduction under section 37(1) of the Act, which is in accordance with the taxation principles as held by the Special Bench. The second type of discount arises only when there is upward movement of market prices of equity shares. However, if the market price of shares falls down, then the assessee is required to reverse part of first type of discount. Accordingly, the learned AR submitted that the Tribunal has not properly appreciated the fact that the claim made by the assessee falls under the category of "second type of discount" and the same has resulted in a mistake apparent from record. Accordingly he prayed for rectification of the order passed by th....
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....eriod. The employee need not exercise option at the time of vesting itself. (b) The second type of discount arises at the time of "actual exercise of option" by the employees and it represents the difference between the fair market value of the equity shares on the date of vesting of option and the date of exercise of option. In the instant case, the amount of Rs.5,74,85,066/- claimed by the assessee represents the second type of discount mentioned in (b) above, i.e., the additional discount arising at the time when the employees actually exercise option. It is the submission of the assessee that the first type of discount did not arise in the instant case, since there was no difference between market price of equity shares and the price at which the shares were offered to the assessee. As per the decision rendered by the Special bench of Bangalore ITAT in the case of Biocon Ltd (supra), the second type of discount arising at the time of actual exercise of option by the employees is also allowable as deduction. This is clear from the discussions made by the Special bench in paragraph 11.1.6 of its order, more particularly, the discussion made in respect of "Situat....
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....g principle or Guidance notes etc. in the matter of determination of total income. 11.2.9. The trump card of the ld. AR to bolster his submission for assigning the status of binding force to the SEBI Guidelines is the order in the case of SSI Limited (supra) which came to be affirmed by the Hon'ble Madras High Court in PVP Ventures (supra). We have noticed above that the said case dealt a situation falling within one of the three years of the vesting period, in which it was held that one third of the total amount of discount computed on the basis of the market price of the shares at the time of grant of option, is deductible. It is evident from the SEBI Guidelines that these deal with the deductibility of discount in the hands of company during the years of vesting period. These Guidelines are silent on the position emanating from variation in the market price of the shares at the time of exercise of option by the employees vis-à-vis the market price at the time of grant of option. In other words, the SEBI Guidelines prescribe accounting treatment only in respect of the period of vesting of the options and the situation arising out of unvested options or vested ....