2025 (8) TMI 379

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....rounds of appeal assessee has challenged the validity of reopening u/s. 148 on various grounds and on merits has challenged disallowance of expenses paid to parent company towards Employee Stock Option Plan (ESOP) and the International Stock Ownership Plan (ISOP) amounting to Rs. 11,17,00,000/- 3. The ultimate holding company, Procter & Gamble Co., USA ("the Holding Company"), had formulated and administered globally integrated stock-based compensation schemes, namely the Employee Stock Option Plan (ESOP) and the International Stock Ownership Plan (ISOP), which were extended to the employees of the appellant company. [Refer pages 113-159 of the Financial Paper Book]. 4. Under the ESOP scheme, certain eligible employees of the appellan....

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...., the expenditure could not be said to have been incurred during the relevant year. 9. Additionally, the ld. AO opined that the cost, to the extent it relates to any shortfall in the securities premium or stock price differential, partakes the nature of capital expenditure, being intrinsically linked to share capital. 10. In support of his findings, the ld. AO placed reliance on decisions such as ACIT v. Ranbaxy Laboratories Ltd., Eimco K.C.P. Ltd. v. CIT (159 CTR 137, SC), CIT v. Reinz Talbros Pvt. Ltd. (252 ITR 637, Delhi HC), and Indian Molasses Co. Pvt. Ltd. v. CIT (37 ITR 66, SC), to emphasize that deductible expenditure must be real, ascertained, and irrevocably incurred. 11. The ld. CIT(A) affirmed the disallowance made by t....

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.... 17. It was contended that such expenses are incurred wholly and exclusively for business purposes to incentivise, retain, and reward key personnel, and are squarely covered by the doctrine of commercial expediency. 18. Strong reliance was placed on the decision of the Hon'ble Special Bench in Biocon Ltd. v. DCIT (144 ITD 21) (Bang), affirmed by the Hon'ble Karnataka High Court in CIT v. Biocon Ltd. [2020] 121 taxmann.com 351, which categorically held that ESOP discounts form part of employee remuneration and are deductible under section 37(1) of the Act. 19. The ld. DR supported the orders of the ld. AO and the ld. CIT(A), contending that the disallowance was justified on grounds of non-crystallisation of liability and the notional....

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....pany, not the appellant. No capital advantage accrues to the appellant, nor is there any change in its capital structure. 26. The judgment of the Hon'ble Karnataka High Court in Biocon Ltd. is directly on point. Pending appeal before the Hon'ble Supreme Court does not detract from its binding effect in the absence of a stay or contrary ruling. 27. Moreover, the principle of commercial expediency laid down in decisions such as Sassoon J. David & Co. (P) Ltd. v. CIT (118 ITR 261, SC) and CIT v. Walchand & Co. (65 ITR 381, SC) mandates allowance of any expenditure incurred to secure competent workforce and ensure organisational growth. 28. In the present case, the appellant's outlay towards ESOP and ISOP represents a conscious, busine....