TaxTMI 
TaxTMI 
2026 (6) TMI 1118
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.... lead case, and the decision rendered therein shall apply mutatis mutandis to the other appeal. 3. In its appeal for the assessment year 2018-19, the Revenue has raised the following revised grounds of appeal: - 1. "The order of the Ld. CIT(A) dated 09/12/2025 for A.Y. 2018-19 is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing the deduction on account of ESOP expenditure, ignoring the detailed findings recorded by the Assessing Officer that the alleged expenditure was merely a notional accounting entry without any actual outflow of funds. 3. The learned CIT(A) has erred in holding that the discount on issue of shares under the ESOP scheme constitutes allowable revenue expenditure, without appreciating that such discount represents short receipt of share premium, which is capital in nature and therefore not allowable as deduction under the provisions of the Income-tax Act, 1961. 4. The order of the learned CIT(A) is erroneous in law and on facts, as it disregards the settled principle that share capital and share premium are capital receipts, and any....
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....y of such expenses. In response, the assessee submitted that the company had incurred expenditure on ESOP for the benefit of its employees in lieu of the services rendered by them for the company. It was further submitted that the stock options provided under the ESOP policy are primarily a consideration for the services rendered by the employees, and it is in the nature of an additional remuneration for the employees. Thus, the assessee claimed that the expenditure on account of ESOP granted to the employees satisfies the conditions/criteria for allowability u/s. 37 of the Act. In support of its submission, the assessee placed reliance upon the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Biocon Ltd., reported in (2020) 121 taxmann.com 351 (Karn.). 7. The Assessing Officer ("AO"), vide order dated 23.2.2021, passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Act, disagreed with the submissions of the assessee and held that the assessee has not incurred any expenditure for the grant of ESOP to its employees and the entire expenditure claimed by the assessee is merely notional, without the same being crystallised. Accordingly, the AO held that the ESOP expe....
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....rice. The employees are given stock options at discount and the same amount of discount represents the difference between market price of shares at the time of grant of option and the offer price. In order to be eligible for acquiring shares under the scheme, the employees are under an obligation to render their services to the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on dec....
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....ision rendered in the case of Infosys Technologies is of no assistance to the revenue. The decisions relied upon by the revenue in Gajapathy Naidu, Morvi Industries and Keshav Mills Ltd. supra support the case of assessee as the assessee has incurred a definite legal liability and on following the mercantile system of accounting, the discount on ESOPs has rightly been debited as expenditure in the books of accounts. We are in respectful agreement with the view taken in PVP Ventures Ltd. And Lemon Tree Hotels Ltd. Supra. 13. It is also pertinent to mention here that for Assessment Year 2009-10 onwards the Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in Radhasoami Satsang vs. CIT, (1992) 193 ITR 321 (SC), the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed." 9.1 During the hearing, the learned Dep....
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....rt in PCIT Vs. M/s. Era Infrastructure (I) Ltd., reported in (2022) 288 Taxman 384 (Del.), held that the amendment by the Finance Act, 2022, in section 14A of the Act is prospective and will apply in relation to the assessment year 2022-23 and subsequent years. Thus, in view of the aforesaid amendment, the disallowance u/s. 14A of the Act, read with Rule 8D, is not permissible in the present case. 13. Therefore, we are of the considered view that a disallowance computed by the AO u/s. 14A read with Rule 8D of the Rules is completely unwarranted in the facts and circumstances of the present case. Accordingly, we do not find any infirmity in the findings of the ld. CIT(A) on this issue and the same are upheld. As a result, Ground Nos. 7 & 8 raised in Revenue's appeal are dismissed. 14. In the result, the appeal by the Revenue for the assessment year 2018-19 is dismissed. ITA No. 916/Bang/2026 (AY 2021-22): 15. In its appeal for the assessment year 2021-22, the revenue has raised the following revised grounds of appeal: - 1. The order of the Ld. CIT(A) dated 09/12/2025 for A.Y. 2021-22 is opposed to law and facts of the case. 2. On the facts and in the ci....