DY. CIT-5(2)(2), MUMBAI vs. M/S VODAFONE IDEA LIMITED (EARLIER KNOW AS VODAFONE INDIA LIMITED WHICH NOW STANDS MERGED WITH IDEA CELLULAR LIMITED (ICL) AND CONSEQUENTLY KNOWN AS VODAFONE IDEA LIMITED), MUMBAI

This appeal germinates from the order passed u/s 154 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Assessing Officer (AO).

The facts in brief relevant to the present appeal are: The assessee filed its original return of income for the impugned assessment year on 30.09.2009 declaring taxable income of Rs.5,09,100/-. Thereafter, the assessee filed revised return of income on 31.09.2011 declaring taxable income of Rs.8,44,31,495/-. The final assessment order was passed for AY 2009-10 on 21.01.2014 u/s 144C(3) r.w.s. 143(3) of the Act determining total income of Rs.749,96,15,830/-. Thereafter, the AO issued notice u/s 154 of the Act on 02.11.2015 indicating a mistake that in Schedule 2 to the Balance Sheet, Reserve and Surplus of Rs.5.49 crores was charged to Profit and Loss Account, whereas, in the Tax Audit Report in Form 3CD, the Tax Auditor has certified that an amount of Rs.5,41,73,264/- is a contingent liability. The AO vide order dated 30.03.2016 passed u/s 154 of the Act added back the P a g e | (A.Y.2009-10) C.O. NO.32/MUM/2020 (A.Y. 2009-10) M/S. VODAFONE IDEA LIMITED aforesaid amount to the total income assessed u/s 143(3) r.w.s. 144C(3) of the Act dated 21.01.2014. Thus, revising the taxable income to Rs.755,37,89,094/-.

The Department in appeal has raised single effective ground, the same reads as under:

Shri Anand Mohan representing the Department submitted that the only issue in appeal is whether the AO could disallow deduction of employee share based payment in proceedings u/s 154 of the Act. The CIT(A) held that since the issue is debatable, therefore, could not have been disallowed in proceedings u/s 154 of the Act. The ld. Departmental Representative (DR) supporting the order passed u/s 154 of the Act by the AO, prayed for reversing the findings of CIT(A).

Per contra, Shri P. J. Pardiwala appearing on behalf of the assessee vehemently defended the impugned order. The ld. Counsel for the assessee submits that the issue relevant to disallowance of deduction of employee share based payment is debatable. The Special Bench of the Tribunal in the case of Biocon Limited vs. DCIT, 144 ITD 21 (Bangalore Trib.) (SB) has held that expenditure on account of ESOP is revenue expenditure. The aforesaid decision by Special Bench was upheld by the Hon’ble Karnataka High Court in the case of CIT vs. Biocon Limited 430 ITR 151. The ld. Counsel asserted that it is a settled legal position that P a g e | (A.Y.2009-10) C.O. NO.32/MUM/2020 (A.Y. 2009-10) M/S. VODAFONE IDEA LIMITED wherever the issue is debatable, it is not a mistake apparent from record and hence, not amenable to proceedings u/s 154 of the Act.

We have head the submissions made by rival sides and have examined the orders of authorities below. The AO in proceedings u/s 154 of the Act has disallowed assessee’s claim of deduction of employee share based payment reserve amounting to Rs.5,41,71,264/- by treating it as contingent liability. The case of assessee is, the amount represents cost in relation to the award of shares under Vodafone Global Incentive Plan. The Employees covered under the said plan were granted an award which entitles them to receive shares of Vodafone Group Plc (the ultimate holding company of the assessee). Since, the expenditure is in the nature of additional compensation/reward given to the employees, it qualifies as compensation cost in the nature of revenue expenditure incurred wholly and exclusively for the purpose of business. The expenditure is not contingent as the shares granted under the plan are in the nature of additional deferred compensation which arose over the vesting period. As and when the services period rendered by the employees and the benefit of said expenses is available to the employer over the vesting period in the form of continued services of such employees. As per the contention of the assessee, the cost accrued over the period of rendition of services by the employee was deductible in the year of its accrual that is over the vesting period.

Since, we have dismissed the appeal of Revenue, Cross Objection filed by the assessee have become infructuous, hence, the same are dismissed as having become infructuous.

To sum up, appeal of the Revenue and Cross Objection of the assessee are dismissed.