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Income Tax Appellate Tribunal, BANGALORE BENCHES : “C”, BANGALORE
Before: SHRI B.R.BASKARAN & SMT.BEENA PILLAI, JUDICAL MEMBER
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : “C”, BANGALORE BEFORE SHRI B.R.BASKARAN ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER (Assessment Year : 2013-14) The Joint Commissioner of Income tax, Cirle-4(1)(2), 2nd Floor, BMTC Building, 80ft Road, 6th Block, Koramangala Bangalore Appellant Vs M/s Molecular Connections Pvt.Ltd., No.5, Brigade Seshamahal, Vanivilas Road, Bangalore-560 004 PAN No.AACCM5956A Respondent Revenue by : Dr.P.V.Pradeep Kumar, Addl.CIT Appellant by : Shri K. Seshadri, CA Date of hearing : 30-07-2019 Date of pronouncement : 02-08-2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : Present appeal has been filed by revenue against order dated 21/03/19 passed by Ld. CIT (A)-4, Bangalore for assessment year 2015-16 on following grounds of appeal:
1. The Order of the Ld.CIT (A) is opposed to the law and facts of the case. 2.The CIT (A) was not justified in allowing ESOP expenses to the assessee ignoring the fact that it is not ITA No937(B)/2019. 2 a revenue expenditure actually incurred by the company, as per the provisions of the IT Act. On facts of the case, the Ld CIT (A) has erred in giving relief to the assessee by relying on the order of the Special Bench of the ITAT Bangalore in the case of M/s Biocon Ltd., in ITA Nos 248, 368 to 371 &1206 (BANG) of 2010, which has not been accepted by the Dept., and further appeal has been filed before the Hon'ble High Court of Karnataka, which is pending adjudication. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) in so far as it is relates to the above grounds may be reversed and that of the Assessing Officer may be restored. The appellant craves leave to add, alter, amend and/or delete any of the grounds that may be urged.
2. It is observed that only issue alleged by revenue is in respect of allowance of ESOP expenditure during the year. Both parties submitted that, issue stands settled in favour of assessee by decision of Special Bench in case of Biocon Ltd vs DCIT reported in (2013) 35 taxman.com 335. Ld.AR further submitted that the view has been upheld by Hon’ble Delhi High Court and Hon’ble Madras High Court in case of CIT vs Lemon Tree Hotels Ltd in ITA No. 107/2015 and CIT vs PVP ventures Ltd reported in (2012) 23 Taxmann.com 286 respectively.
3. Ld.AR submitted that decision of Delhi Tribunal in case of ACIT vs Ranbaxy Laboratories in ITA No. 2613 and 3871 has been considered by this is Special Bench in Biocon (supra).
4. We have perused submissions advanced by both sides in light of records placed before us. (B)/2019. 3 4.1 It is observed that Ld. AO disallowed ESOP expenditure by stating that there is no expenditure incurred and the expenditure crystallises only on the date on which the employee exercises option and any expenses claimed during vesting period is contingent in nature and that the expenditure on ESOP is a capital expenditure. 4.2 It is observed that Ld. CIT (A), while deciding the issue has looked into the merits of the case are as under: “6.2. It is seen that during the year employees were allotted 34.485 equity shares at the face value of Rs.2 per share. The expenditure in the appellant’s hands was thus calculated in the following manner. Particulars Amount Fair market value of 34,485 equity shares as per valuation 3,59,21,750 reports Less: Face value (34.485 shares x Rs.2) 68,970 Employee Compensation Expenses 3,58,52,780 6.3 Rs.3,58,52,780 consists of Rs.57,38,500 (5750 shares x Rs.998) relating to ESOP’s and Rs.3,01,14,280 (28735 shares x Rs.1,048) of sweat equity. Of this amount, expenditure to the tune of Rs.3,01,14,280/- was incurred on sweat equity shares and not as the AO wrongly observed on ESOPs. It is only the balance that relates to ESOPs. 6.4 This sum of Rs.3,58,52,780/- was taxed as perquisites in the hands of the employees and tax was deducted at source in that respect. It is also seen from page 13 of the appellant’s paper book, that note 2(share capital) to the audited financial statements shows that the ESOPs were due and have been exercised and allotted during the previous year. Sweat equity shares have also been issued and allotted during the year. This is also clear from the board resolutions (PB 80-81,82 & 83) and returns of allotment filed with the ROC(PB70 to74 ,75 to 79). 6.5 It is seen that during the year, the assessee had allotted equity shares and the same were issued and debited to their books of accounts. 6.6 The Hon’ble ITAT in the case of Spray Engineering Devices Ltd and SSI Ltd. Have held that the expenditure on sweat equity shares is allowable u/s 37(1) of (B)/2019. 4 the IT Act. It is also seen that necessary tax is also deducted from the hands of the employees treating this sum as perquisite. 6.7 Respectfully following the decisions of Special Bench in the ce of Biocon Ltd., Vs DCIT, Delhi High Court in CIT Vs Lemon Tree Hotels Ltd., and the Madras High Court in CIT Vs PVP Venture Ltd.(2012) 23 Taxman.co 286 favouring the appellant’s position on the issue, the appeal of th assesee is allowed”. And CIT (A) very categorically analysed that the objections raised by Ld. AO in present case has been addressed by Special Bench of this Tribunal in Biocon (supra) in favour of assessee
5. Ld.AR submitted that shares were allotted to employees during year under consideration, and therefore in our considered opinion, ratio of decision of Special Bench in Biocon (supra) squarely covers the issue.
6. We therefore do not find any infirmity in the view taken by Ld. CIT (A) and the same is upheld. Accordingly grounds raised by revenue stands dismissed.
7. In the result appeal filed by revenue stands dismissed. Order pronounced in the open court on 02-08-2019.