TaxTMI 
TaxTMI 
2025 (7) TMI 893
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...."PCIT") has erred in passing the Order dated 07 March 2025 u/s. 263 of the Act. 1.2.1 On the facts and circumstances of the case and in law, the PCIT has erred in holding that the Assessment Order dated 09 September 2022 passed u/s. 143(3) r.w.s 144B of the Act was erroneous and prejudicial to the interests of revenue. 1.2.2 On the facts and circumstances of the case and in law, the Appellant submits that, the AO prior to passing the Assessment Order dated 09 September 2022 had undertaken necessary verification basis the details/ documents sought from the Appellant during the course of assessment proceedings, and hence, the Assessment Order passed is neither 'erroneous' nor 'prejudicial' to the interest of the revenue. 1.2.3 On the facts and circumstances of the case and in law, the Appellant submits that, the order passed under section 263 amounts to change of view by PCIT and hence the revision u/s. 263 of the Act is bad in law. 1.2.4 The learned PCIT has passed the revisionary order on the issues disregarding binding judicial precedents (also submitted during the revisionary proceedings). 1.3 On the facts and circumsta....
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.... that the ESOP is nothing more than expenditure related to the issue of shares, and therefore, is capital in nature. The learned PCIT alleged that the AO vide assessment order, did not carry out any enquiry on the issue of ESOP expenses debited to the profit and loss account. Therefore, to this extent, the assessment completed under section 143(3) read with section 144B of the Act on 09.09.2022 is erroneous and prejudicial to the interest of the Revenue. 6. In response to the notice issued under section 263 of the Act, the assessee submitted that the return filed was selected for complete scrutiny and vide notice dated 12.11.2021 issued under section 142(1) of the Act the assessee, inter alia, was asked to submit the copy of cash flow statement. It was further submitted that vide its replies dated 23.11.2021 and 05.08.2021, the assessee submitted the computation of income, audited financial statements and cash flow statement, which duly reflected the ESOP expenses incurred by the assessee, as evident from note 23 and further note 33 of the financial statement containing detailed note on the employee share-based payment. Therefore, the assessee submitted that the AO after making ....
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....it is noted that the assessee had debited claim under the head Employee Benefit Expenses-Rs.1,30,58,706/- towards Employee Stock Compensation Expenses. This issue was not at all enquired into by the A.O and nothing on this issue is mentioned in the assessment order also. In response to the show cause notice issued u/s. 263 of the Act, it has been stated that the assessee has debited Rs. 1,30,58,706/-in the Profit and Loss Account towards amortization of intrinsic value of shares issued in the Employees Stock Option Scheme to its employees and the same is allowable u/s. 37(1) of the Act. The assessee has objected to the initiation of S.263 proceeding on the ground that the assessment order is not erroneous in so far as prejudicial to the interest of revenue and referred to several decisions of various high courts. It is argued by the assessee that assessment order passed u/s143(3) of the Act deems it that the AO has passed the order after proper application of mind and this cannot fall under the category of erroneous order so to assume revisionary power u/s 263 of the Act. This contention of the assessee is not tenable as neither the notices u/s 142(1) or show cause notice nor the a....
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....date of vesting of shares to the employees. The moot question for the expenditure to be eligible for deduction is whether there is any accrued the liability of such expenditure or actual loss to the assessee on the date of exercise of option by the employees. ESOP expenditure does not fall into either liability of payment accruing to the assessee or any loss arising to the assessee on the date of vesting of ESOP shares to the employees. Such expenditure is merely a notional expenditure and not a real expenditure as neither any liability to pay arose to the assessee nor there is a case of any loss to the assessee company. In real sense, the assessee company will receive share issue proceeds pertaining to ESOP shares set aside for employees which will be received at a strike price (predetermined price as per valuation method adopted) higher than the book value of the shares. Thus. in the year of vesting of shares to the employees, the assessee company will receive Share issue proceeds pertaining to ESOP shares and if the amount received is more than book value of shares, where is the loss to the company or where is the liability to incur any expenses under the ESOP share issue proces....
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....3. 9. From the perusal of the aforesaid decision, we find that the validity of the revisionary proceedings under section 263 of the Act initiated on a similar basis, i.e., as regards the deduction of the ESOP expenses, came up for consideration before the Co-ordinate Bench of the Tribunal. While quashing the revisional order passed under section 263 of the Act, the Co-ordinate Bench of the Tribunal observed as follows: - "4.1 On perusal of the above, it emerges that the PCIT formed a view that the order passed by the Assessing Officer was erroneous in so far as it is prejudicial to the interest of Revenue by placing reliance on the judgment of the Hon'ble Supreme Court in the case of Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) and the decision of the Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories Ltd. Vs. Additional Commissioner of Income Tax: [2010] 39 SOT 17 (Delhi) (URO) without appreciating that both the aforesaid decisions were considered by the Special Bench of the Tribunal in the case of Biocon Ltd. Vs. Deputy Commissioner of Income Tax - LTU, Bangalore: 2013] 35 taxmann.com 335 (Bangalore - Trib.) (SB)/[2013] 25 ITR(T) 602 (Bangal....
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....s held that since the receipt of share premium is not taxable, any short receipt of such premium on issuing options to employees will be notional loss and not actual loss for which any liability is incurred. The learned Departmental Representative contended that the Mumbai bench of the Tribunal in the case of VIP Industries v. Dy. CIT [IT Appeal No.7242 (Mum.) of 2008 has also taken similar view vide its order dated 17.09.2010.] xx xx 9.2.7 Now we espouse the second part of the submission of the ld. DR in this regard. He canvassed a view that an expenditure denotes "paying out or away" and unless the money goes out from the assessee, there can be no expenditure so as to qualify for deduction u/s 37. Sub-section (1) of the section provides that any expenditure (not being expenditure in 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 for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". To put it differently, an expenditure must be lai....
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....Governor India (P.) Ltd. [2009] 312 ITR 254/179 Taxman 326 has gone to the extent of covering "loss" in certain circumstances within the purview of "expenditure" as used in section in 37(1). In that case, the assessee incurred additional liability due to exchange rate fluctuation on a revenue account. The Assessing Officer did not allow deduction u/s 37. When the matter finally reached the Hon'ble Supreme Court, their Lordships noticed that the word "expenditure" has not been defined in the Act. They held that : "the word "expenditure" is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "profits and gains of business or profession". In sections 30 to 36 the expression "expenditure incurred", as well as allowance and depreciation has also been used. For example depreciation and allowances are dealt with in section 32, therefore, the parliament has used expression "any expenditure" in section 37 to cover bot....
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.... order before the Hon'ble High Court of Karnataka. We find that it is not the case of the department that either the order of the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra) had been set aside or the operation of the same had been stayed by the Hon'ble High Court. We are unable to comprehend that as to how the A.O despite conceding that the claim of the assessee as regards allowability of the discount of ESOP's was in accordance with the principle laid down by the 'Special Bench' of the Tribunal in the case of Biocon Ltd. (supra), could still decline to adjudicate the issue under consideration in terms with the order of the 'Special Bench'. We are seriously taken aback by the aforesaid observations of the A.O, and are of a strong conviction that as on the date on which the assessment was framed, the order of the 'Special Bench' of the Tribunal did hold the ground, therefore, he remained under a statutory obligation to have passed his order in conformity with the view taken by the 'Special Bench', which we find had also been followed by the jurisdictional Tribunal, viz. ITAT, Mumbai in the case of Mahindra an....
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....er Section 263 of the Act. We also note that the Ld. PCIT was cognizant of the fact that the decision of the Special Bench of the Tribunal in the case of Biocon Limited (supra) has been confirmed by the Hon'ble High Court of Karnataka vide judgment dated 11/11/2020 passed in IT Appeal No. 653 Of 2013 reported in [2020] 121 taxmann.com 351 (Karnataka)/[2021]; and the issue is now pending the Hon'ble Supreme Court. Despite that, the Ld. PCIT had, possibly to keep the issue alive, exercised the powers of revision under Section 263 of the Act by invoking provision of Explanation 2 to Section 263(1) of the Act to contend that the claim for ESOP expenses has been allowed without proper enquiry/verification by the Assessing Officer. In this regard, we note that, firstly, all the relevant facts were already on record and therefore, the question of further enquiry/verification did not arise. Secondly, on perusal of contents of the notice under Section 263(1) of the Act, as reproduced in paragraph 2 of the order impugned, we find that the Ld. PCIT had issued notice under Section 263(1) of the Act on forming a view that proper inquiry/verification as warranted in the facts and circumstances o....