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Income Tax Appellate Tribunal, DELHI “F” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & SHRI PRASHANT MAHARISHI
ORDER PER KUL BHARAT, JM :
This appeal filed by the Revenue for the assessment year 2014-15 is directed against the order of Ld. CIT(A)-38, Delhi dated 10.10.2017. The Revenue has raised following grounds of appeal:-
3. “On the facts and under the circumstance of the case, Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 1,18.59,997/- on account of disallowance of ESOP expenses. since the receipt of share of share premium is not taxable, any short receipt of such premium on Issuing options to employees will only be notional loss and not the actual loss for which any liability is incurred.
4. On the facts and under the circumstances of the case, Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 1,18,59,997/- on account of disallowance of ESOP expenses, in view of SEBI guidelines 1999. 5. The appellant craves to be allowed to add and later any fresh ground(s) of appeal and/or delete or amend any of the ground(s) of appeal."
Facts giving rise to the present appeal are that the assessee company filed its return of income through electronic mode on 24.09.2014, declaring total income of Rs.3,32,65,350/-. The case of the assessee company was selected for complete scrutiny under CASS. Thereafter, the Assessing Officer proceeded to frame the assessment. During the course of assessment proceedings, it was noticed by the Assessing Officer that during the period under consideration, the assessee company had debited to its P&L A/c, an amount of Rs.1,18,59,997/- on account of “Employee Stock Option (ESOP) scheme”. The Assessing Officer show caused the assessee company as to how this expenditure is allowable. In response thereto, the assessee filed a detailed written submissions and also relied upon certain case laws. However, the Assessing Officer did not accept this contention and proceeded to make the disallowance of the same and added the expenditure of Rs.1,18,59,997/- in the income declared by the assessee in the return of income. Hence, the Assessing Officer assessed income at Rs.4,51,25,347/- against the returned income declared as per return income of Rs.3,32,65,330/-.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) relying the judgement of the Hon’ble Delhi High Court in the case of Lemon Tree Hotels Ltd. in dated 18.08.2015 and decision of the Hon’ble Special Bench of Tribunal, partly allowed the appeal of the assessee.
Aggrieved against this, the Revenue preferred the present appeal before this Tribunal.
At the outset, Sh.Ajay Vohra, Sr. Advocate submitted that the issue is no more res integra as decided in favour of the assessee by the judgement of Hon’ble Delhi High Court who has concurred the view of the Special Bench of this Tribunal in the case of M/s. Biacon Ltd. vs DCIT in to 371 & 1206/Bang./2010 [Banglore ITAT Special Bench].
Ld. Sr. DR opposed these submissions. However, he conceded that the issue is covered in favour of the assessee by the judgement of Hon’ble Delhi High Court in the case of Lemon Tree Hotels Ltd. (supra).
We have heard the rival contentions and perused the material available on record. The solitary issue in this appeal is allowability of ESOP. We find that Ld.CIT(A) has in her decision relied on the judgement of Hon’ble Delhi High Court and the relevant contents have been reproduced in the impugned order. The same is reproduced hereunder for ready-reference:-
“As regards the second issue which is now canvassed before this Court viz., on the issue of expenditure of 66.82 lakhs towards the issue of shares to the Employees Stock Option is concerned, the Tribunal pointed out that the shares were issued to the employees only for the interest of the business of the assessee to induce employees to work in the best interest of the assessee. The allotment of shares was done by the assessee in strict compliance of SEBI regulations, which mandate that the difference between the market prices and the price at which the option is exercised by the employees is to be debited to the Profit and Loss Account as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBl. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief granted by the Assessing Authority for the expenditure arising on account of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263 of the Act.
In considering the other issues, the Tribunal ultimately pointed out the various grounds raised by the assessee as regards invoking of jurisdiction under Section 263 of the Act on the plain language of the said provision. The assessee contended that all that the Commissioner could do in exercise of power under Section 263 of the Act was either to enhance the assessment or modify the assessment or cancel the assessment and to give a direction for fresh assessment. Considering the words of "enhancing or modifying" as well as the use of word 'or' which is a disjunction thereafter, the Commissioner could only enhance or modify the assessment and it would not be possible for the Commissioner to do both this under the jurisdiction of Section 263 of the Act. The Tribunal agreed with the assessee's contention and held that the entire order stood vitiated by reason of fact that the Commissioner had not gone into the assessment in toto to set aside the order of assessment nor enhanced or modified the assessment in full. Since the order passed by the Commissioner is unworkable, the order of the Commissioner had to be set aside. However, the Tribunal further pointed out that since on merits, the Commissioner was also not justified in examining the content of the jurisdiction under Section 263, a detailed examination on this aspect was purely academic. Thus it left the question as it is. Aggrieved by this, the Revenue in on appeal.
As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal."
Ld. Sr. DR could not point out any other contrary binding precedents by the Hon’ble Delhi High Court or the Hon’ble Supreme Court. Therefore, we do not see any infirmity in the order of Ld.CIT(A). Thus, grounds raised by the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed.
Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 18th August, 2021.