2022 (2) TMI 1535

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

..../2017-18] for the assessment year 2015-16, whereby the CIT(A) had allowed the appeal filed by the Assessee against the Assessment Order, dated 15.12.2017, passed under section 143(3) of the Act. 2. The Revenue has raised the following grounds of appeal: "1. (a) Whether in the facts and circumstances of the case, the ld. CIT(A) was justified in deleting the disallowance of Rs. 2,49,24,388/- on account of Employee Stock option Plan (ESOP) in the absence of employees not offering the same for tax purpose and also option has not been exercised by the employees. (b) Whether in the facts and circumstances of the case the ld. CIT(A) erred in appreciating the fact that the expenses claimed u/s 37(1) by tax payer are contingent ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....nd also appellant's submission submitted during the course of appellate proceedings. During the year appellant has granted ESOP of eligible employees and charged the expenses on prorate basis over the vesting period of one year. I find merit in the appellants contention that ESOP expenses is incurred to retain and motivate high performing employees. The employee becomes entitled to the shares over the vesting period and an obligation falls upon the company to allot the shares at the time of exercise of option based on the service rendered by the employee during the vesting period. Therefore the ESOP expenses is an ascertained liability not in the nature of contingent liability nor capital expenditure. This proposition has been upheld by Spe....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....vesting period is required to be reversed in relation to the unvesting/lapsing options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act. The question before the special bench is thus answered in affirmative by holding that discount on issue of Employee Stock Options is allowable as deduction in computing the income under the head 'Profits and gains of business or profession' . (Emp....