TaxTMI 
TaxTMI 
2025 (2) TMI 1735
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....on 31.03.2017. The case was selected for scrutiny through CASS as complete scrutiny and statutory notice under section 143(2) of the Act was issued on 19.04.2016. Notice under section 142(1) of the Act along with questionnaire was also issued. Shri Daksha Kumar, C.A. & AR of assessee attended assessment proceedings from time to time and submitted details/documents. The ACIT, Circle 8(1), New Delhi vide order dated 08.02.2019 under section 154/143(3) of the Act made addition of Rs. 6,99,72,798/- on disallowance of sales return of Rs. 6,00,12,038/-. On conclusion of assessment proceedings, additions of Rs. 24,67,722/- on account of disallowance of Employee Stock Option Plans expenses Rs. 35,41,072/- on account of disallowance of IT Support services expenses paid to AE and Rs. 4,00,00,000/- on account of disallowance of Tester and Promotional expenses made by learned AO vide order dated 30.07.2019. 3. Appellant/assessee against orders dated 30.07.2019 and 08.02.2019 preferred appeal before learned CIT(A), which was partly allowed vide order dated 04.03.2020. 4. Being aggrieved, appellant/assessee preferred present appeal with the following grounds : "General 1.....
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....aper books filed by the assessee. The brief facts of the case is that three employees who had been deputed to assessee company were allotted the shares of Caterpillar Inc, U.S.A. at a price less than the prevailing market price and the differential amount of USD 1694120 (INR equivalent Rs. 7,41,51,630/-) was raised as a debit note by Caterpillar Inc, U.S.A. on the assessee company which was paid by the assessee. Since the concerned employees were deputed/working in the assessee company at the time of issuance of ESOP, the price differentials in the form of ESOP expenditure was debited in the books of the assessee company as part of staff welfare measures. Admittedly, the scheme provides for allotment of shares of Caterpillar Inc even to deputed employees. The said payment of Rs. 7,41,51,630/- was actually made by the assessee and hence it is not a notional loss. Moreover, the shares of the parent company were issued to those employees. Hence the finding given by Delhi Tribunal that issue of shares under ESOP at less than market price only results in short receipt of share premium does not arise at all. Accordingly, the case law relied upon by the lower authorities on the decision o....
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....xable income of the employer company. For the sake of convenience, the same is reproduced hereunder :- "16. Whether the fringe benefit arising on account of shares allotted or transferred under ESOP is allowed as deduction in calculating the taxable income of the employer company? Answer. In case where 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 deduction is allowable in computing the taxable income of the company since no expenditure has been incurred by it." In the instant case, the shares of Caterpillar Inc. U.S.A. has been allotted to the employees and the price differential is debited to the assessee company by way of a debit note and as stated supra, since the employees were under the control of the assessee company on deputation and more so the ESOP scheme also provided for allotment of shares under ESOP to deputed employees also, the assessee had debited the price differentials as ESOP expendit....
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....res allotted to its employees in connection with the ESPP. The AO had disallowed Rs. 9,06,788/- incurred by the assessee on the ground that this expenditure is not the expenditure of assessee company but that expenditure is of parent company and the benefit of such expenditure accrues to the parent company and not assessee. The disallowance made by the AO has been deleted by the CIT(A) by observing as under:- "I have gone through the submissions of the appellant and perused the material on record and noted that the common shares of Accenture Ltd. the parent company, have been allotted to the employees of ASPL and not to the employees of the parent company. Though the shares of the parent company have been allotted, the same have been given to the employees of the appellant at the behest of the appellant. It is an expense incurred by the appellant to retain, motive and award its employees for their hard work and is akin to the salary costs of the appellant. As has been pointed out by the appellant, this is a common practice to retain and motivate hard-working employees which is being followed by all major companies such as Infosys. Further, the amount that has been claimed ....
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....ees stock options is allowable as deduction in computing the income under the head profits and gains of business of profession. Ground No. 5 & 6 are accordingly allowed." 7. Learned Departmental Representative for Department of Revenue submitted that learned CIT(A) upheld the assessment order stating there are contradictory rulings in this regard and hence, there is still no finality on the issue. The issue relates to the rules of ICAI and SEBI, which have not been followed by ELCA. Learned CIT(A) held ESOP expenditure to be capital in nature as the assessee will get benefit that is enduring in nature. 8. From examination of record in light of aforesaid submissions, it is crystal clear that stocks of ELII were granted to the employees of the assessee via a relevant agreement and the cost of such shares issued to the employees are recovered by ELII from ELCA India. RSU agreement at page 1-5 of Appendix is annexed. RSO cost is an actual cash outflow and hence, not notional or contingent in nature. The shares of ELII are not regulated in India and hence, regulatory authorities' guidelines were inapplicable. The assessee had provided list of employees to the AO. Page 12 of Append....
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.... for earning profits. 35. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some this business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." 10. Learned Departmental Representative for the Department of Revenue submitted that assessee failed to show how the allocation of service cost was done and basis of claiming the expense. 11. From exam....
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....any. Hence, this objection of Ld DR is not proper that Ld CIT(A) has not considered this objection of the Assessing Officer that these are for earning goodwill. When it is held by Ld CIT(A) that these are essential business expenses, this objection of the Assessing Officer stands rejected that these expenses are for earning goodwill. Moreover, when we examine the facts in the case of CIT v. Salora International Ltd. (supra), we find that the facts of that case are also similar although not identical. In that case, the expenditure in dispute was for launching of its products by the assessee. In that case also, the Assessing Officer was of the view that such expenditure was of an enduring nature and he treated 1/3rd of the expenses as capital expenditure and allowed remaining 2/3rd of the expenditure. Under these facts, it was held by the Tribunal that there was direct nexus between the advertising expenditure and the business of the assessee and held that entire expenditure on advertisement is of revenue nature and allowed the same. Hon'ble High Court of Delhi has confirmed this Tribunal order in that case. In the present case also, we have noted that clear finding has been given by....
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....ts of that case are also similar although not identical. In that case, the expenditure in dispute was for launching of its products by the assessee. In that case also, the Assessing Officer was of the view that such expenditure was of an enduring nature and he treated 1/3rd of the expenses as capital expenditure and allowed remaining 2/3rd of the expenditure. Under these facts, it was held by the Tribunal that there was direct nexus between the advertising expenditure and the business of the assessee and held that entire expenditure on advertisement is of revenue nature and allowed the same. Hon'ble High Court of Delhi has confirmed this Tribunal order in that case. In the present case also, we have noted that clear finding has been given by Id CIT(A) that the expenses incurred by the assessee company has a direct nexus with the business carried on by the assessee and hence, the ratio of this judgment is applicable in the present case also. We, therefore, decline to interfere in the order of Ld CIT(A). This ground of the revenue is rejected." 10. The facts, circumstances and nature of expenditure raised in ground No.2 of appeal are same as in the preceding year. Theref....