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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI VIKAS AWASTHY
This appeal by the assessee is directed against the assessment order dated 25/10/2019 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “the Act”).
The assessee in appeal has raised three grounds, which read as under:- “Aggrieved by the order passed by the Deputy Commissioner of Income-tax, Circle - 7(1)(1), Mumbai ('AO') dated 25 October 2019, under section 143(3) read with section 144C(13) of the Act, in pursuance of the directions issued by Dispute Resolution Panel - I (WZ) ('DRP'), Mumbai, the Appellant respectfully submits that the learned AO erred in passing the order on the following grounds:
1. In disallowing the amortization cost in respect of employee stock option plans (ESOP) granted to its employees [hereinafter collectively referred as 'ESOP cost'] amounting to Rs. 515,704,042 (including mark to market fluctuations amounting to Rs 144,737,733) incurred by the Appellant, on the basis that the ESOP costs are notional/ contingent in nature. In disregarding the order of Hon'ble ITAT in appellant's own case for AY 2008-09, AY 2009-10 AY 2011 -12 and AY 2012-13 where the deduction of ESOP cost was allowed as a deductible expenditure in the year of amortization. However, a relief of Rs 469,318,006 has been granted on account of ESOP costs actually paid during the year, thereby resulting in a net addition of Rs 46,386,036.
2. In disallowing an amount of Rs.7,15,663 paid to the stock exchanges for non- confirmation of clearing house trades, client code modification, etc. on the basis that the payment made is in the nature of penalties/ fine. In disregarding the order of Hon'ble ITAT in appellant's own case for AY 2008-09, AY 2009-10, AY 2011 -12 and AY 2012-13 where the deduction of amount paid to the stock exchanges was allowed as a deductible expenditure. In further disregarding the order of Hon'ble Bombay High court in appellant's own case for AY 2008-09 and AY 2009-10 where this ground of the Revenue has not been admitted.
3. In initiating penalty proceedings under section 271(1)(c) of the Act.”
The brief facts, as emanating from the records are:
The assessee company is a subsidiary of Goldman Sachs (Mauritius) LLC and is engaged in the business of securities broking, investment banking, underwriting and other financial services in India since March, 2006. While passing Draft Assessment Order dated 17/12/2018, the Assessing Officer, inter-alia, made an addition on account of Employees Stock Option Plan (ESOP) Cost Rs.4,63,86,036/- and also made disallowance of Stock Exchange settlement cost Rs.7,15,663/- paid towards non- compliance of clearing house trades, client code modification, etc. Aggrieved against the additions, the assessee filed objections before the DRP. The DRP vide direction dated 17/09/2019 rejected both the aforesaid objections of the assessee, hence, the present appeal by the assessee.
Shri Madhur Agrawal appearing on behalf of the assessee submitted that both the issues raised in the present appeal by the assessee are identical to the one already adjudicated by the Tribunal in assessee’s own case in assessment year 2009-10 in decided on 30/11/2015 and for assessment year 2008-09 in ITA No.6912/Mum/2012 decided on 22/7/2016. The ld. Authorized Representative of the assessee pointed that Tribunal while adjudicating the issue of ESOP Cost in favour of the assessee has placed reliance on the decision of Special Bench in the case of Biocon Ltd. vs. DCIT, 144 ITD 21(Bang).
While deciding the issue of payments made to Stock Exchange for non-compliance of clearing house trades, client code modification, etc. reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT vs. Angel Capital & Debit Market Ltd. in Income Tax Appeal No.[L] 475 of 2011. The ld. Authorized Representative of the assessee further pointed that similar additions were made in assessment year 2008-09. The Tribunal deleted both the additions by following its order in assessment year 2009-10.
Shri Anand Mohan representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee. However, the ld. Departmental Representative admitted that ground No.1 & 2 raised by the assessee in appeal has already been adjudicated by the Tribunal in assessee’s own case in assessment year 2009-10.
We have heard the submissions made by rival sides and have perused the orders of authorities below. We have also perused the decisions on which the ld. Authorized Representative of the assessee has placed reliance in support of his contentions.
The Ground No.1 of the appeal is in respect of ESOP Cost. Similar addition was made in asessee’s own case in assessment year 2009-10. The Tribunal deleted the addition by observing as under:-
“12. Ground No. 5 & 6 relate to the grievance related to ESOP cost. 12.1. The AO has considered this issue at para-6 of his order. While scrutinizing the return of income, the AO found that the employee costs include the cost of restrictive stock unit and stock option’s plant under the Goldman Sachs Group Inc. amended and Restated Stock Incentive Plan, which is being charged to the profit and loss accounts over the period of vesting. The assessee was asked to submit the copies of the said agreement and the details of such expenditure. The assessee filed a detailed reply dated 18.2.2013, the contents of which are extracted at para-6.2 of the assessment order. 12.2. The submissions made by the assessee were considered but not found convincing. The AO proceeded by disallowing the net amount on account of amortization which was confirmed by the DRP. 12.3. Before us, the Ld. Senior Counsel drew our attention to the decision of the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd 144 ITD 21 (Bang) wherein on similar facts the discount on issue of ESOP was allowed as deduction. 12.4. The Ld. DR could not bring any distinguishing decision in favour of the Revenue. Respectfully following the decision of the Special Bench (supra), we hold that discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business of profession. Ground No. 5 & 6 are accordingly allowed.”
The Tribunal in appeal of the assessee for assessment year 2008-09 decided subsequently has taken a similar view. The ld. Departmental Representative has not placed on record any contrary material in support of his contentions. Respectfully following the decision of the Co-ordinate Bench in assesee’s own case for assessment year 2009-10, the addition made on account of ESOP cost is deleted. The assessee succeeds on ground No.1 of the appeal.
The second ground of appeal of the assessee is in respect of payment made to Stock Exchange for non-compliance of clearing house trades, client code modification, etc. We have observed that similar payments were made by the assessee in assessment year 2009-10. The payment made to Stock Exchange were disallowed by the Department. The Tribunal after placing reliance on the decision of CIT vs. Angel Capital & Debit Market Ltd. (supra) deleted the addition. For the sake of completeness, relevant findings of the Tribunal on this issue are reproduced below:-
“13. Ground No. 7 relates to the disallowance of charges paid to National Securities Clearing Corporation Ltd, Bombay Stock Exchange and National Stock Exchange. 13.1. This issue has been considered by the AO at para-7 of his order. While scrutinizing the return of income, the AO found that the assessee has paid Rs. 22,91,790/- to Stock Exchanges towards find for non compliance of clearing house trades, client code modification etc. The AO disallowed the same treating as violations of legislated law. The same was confirmed by the DRP. 13.2. Before us, the Ld. Senior Counsel drew our attention to the decision of the Hon’ble High Court of Bombay in the case of Angel Capital & Debit Market Ltd. in Income Tax Appeal (L) No. 475 of 2011 wherein the Hon’ble Court had the opinion to consider the following question of law. “Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in deleting the disallowance made by the Assessing Officer of claim of the Assessing Company for a deduction of payment of Rs. 6,51,240/- towards penalty paid to Stock Exchange even though such penalty payment was clearly disallowable under Explanation to Section 37(1) of the Income Tax Act?” and the same was answered by the Hon’ble High Court as under: “As regards question (C) is concerned, the finding of fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee’s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such a case the explanation to Sec. 37 would not apply. Accordingly question (C) raised by the revenue cannot be entertained.” Respectfully following the ratio laid down by the Hon’ble High Court (supra), we direct the AO to delete the impugned additions. Ground No. 7 is accordingly allowed.” [ Emphasised by us] The ld. Departmental Representative has not been able to distinguish the aforesaid decision of the Tribunal. Accordingly, ground No.2 of the appeal is decided in favour of the assessee.
In ground No.3 of the appeal, assessee has assailed the initiation of penalty under section 271(1)(c) of the Act. This ground of the appeal is premature, accordingly the same is dismissed as such.
In the result, appeal of the assessee is partly allowed.