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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY
सुनवाई क� तार�ख/Date of hearing : 04.02.2020 घोषणा क� तार�ख /Date of Pronouncement : 05.02.2020 आदेश /O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-15, Chennai, (in short ‘CIT(A)’) dated 30.04.2019 for the Assessment Year 2016-17.
The Revenue raised the following grounds of appeal:- 1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.
2. The Ld. CIT(A) erred in restricting the disallowance of ESOP expenditure of Rs. 22.29 crores by relying on the decision of the Hon'ble Madras High Court in the case of PVP Ventures Ltd [2012] 23 taxmann.com 286 (Mad.), decided in favour of the assessee.
2.1 The Ld. CIT(A) ought to have appreciated that the facts of the case for AY 2016-17 are distinguishable from those of the earlier assessment years.
2.2 The Ld. CIT(A) failed to note that in AY 2016-17 the payment on account of ESOP was a capital expenditure that arose due to cancellation of ESOP by the parent-company and hence this case is covered by decisions of the Hon'ble Supreme Court in the cases of Punjab State lndustries Development Corporation Ltd. [1997] 225 lTR 792 and Brooke Bond lndia Ltd l[1997] 225 ITR 798.
2.3 The Ld. CIT(A) ought to have noticed that the amount in question comprises of ESOP spread over several years which was erroneously claimed as expenditure of AY 2016-17.
2.4 The Ld CIT(A) should have notice that the expenditure is in fact expenditure of the parent-company and not of the assessee.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.
The brief facts of the case are as under: The respondent assessee namely M/s. Solar Winds India Pvt. Ltd., is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of providing support services in research. The return of income for the assessment year 2016-17 was filed on 30.11.2016 disclosing total income of Rs.4,11,16,420/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax , Corporate Circle 6(2), Chennai (hereinafter referred as ‘AO') vide order dated 21.12.2018 passed U/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’) . While doing so, the AO disallowed a sum of Rs.22,29,04,859/- claimed to be bonus expenditure but the AO treated as ESOP expenditure, held it to be capital in nature. Accordingly, the AO made disallowance of the same.
3. Being aggrieved by the assessment order, an appeal was preferred before Ld.CIT(A), who vide impugned order allowed the appeal treating as ESOP expenditure by placing reliance on the decision of the Special Bench of the Tribunal in the case of Biocon Ltd., vs. DCIT (LTU), 35 Taxmann.com 335 and the Hon’ble Judicial Madras High Court in the case of CIT v. PVP Ventures Limited, 23 Taxmann.com 286. Being aggrieved by the decision of the CIT(A), the Revenue is in appeal before us challenging the correctness of the findings of the Ld.CIT(A).
The Ld.DR vehemently submitted that the true nature of the expenditure was not discussed by the CIT(A) and the CIT(A) merely granted the relief placing reliance on the judicial precedent without looking into the true nature of the expenditure.
On the other hand, even the Ld.AR also submitted that the findings of both the authorities are based on the premise that it is ESOP expenditure as against the claim of assessee that it is bonus expenditure.
We heard the rival submissions and perused the material on record. From the perusal of the assessment order, it is clear that the submission before the AO is that the expenditure is in the nature of bonus as the payments were made to the employees in lieu of the ESOP, the submissions made by the respondent assessee were extracted by the AO in the assessment order vide para No.2.2 & 2.3. But, it appears that AO had proceeded on the basis that it is ESOP expenditure. The CIT(A) even without examining the factual matrix of the issue concluded that it is ESOP expenditure and allowed it as deduction. Having regard to the submissions made by the assessee before the AO and the notes to the balance sheet of the assessee
ESOP expenditure. But the submissions of the assessee that it is in the nature of bonus expenditure also cannot be accepted on its face value. The lower authorities had failed to consider the matter in proper perspective especially they failed to examine the applicability of the provisions of Section 36(1)(ii) of the Act, i.e., whether the bonus is paid in lieu of the profit or it is really in the nature of incentive to employees. In the circumstances, we remand the matter back to the file of the AO for denova adjudication in accordance with law. Accordingly the appeal filed by the Revenue stands partly allowed for statistical purposes.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in the court on 5th February, 2020 at Chennai.