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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The Revenue filed this appeal against the order of Commissioner of Income Tax (Appeals)-15, Chennai in dated 31.10.2017 for assessment year 2014-15.
The appeal is filed with a delay of one day . The Revenue filed petition for condonation of delay. We heard the rival submissions and condone the delay.
M/s Solarwinds India Pvt. Ltd., the assessee, is carrying on the business of providing research and development services to group companies. While making the assessment for assessment year 2014-15, the Assessing Officer noticed that the assessee has debited ESOP (Employees Stock Option Plan) of Rs. 3,54,30,445/- out of which it has disallowed Rs. 2,21,73,740/- but claimed the balance 1,32,56,705/- as an expenditure. When the AO proposed to disallow such expenses for the reason that it is only notional and also a capital loss, the assessee relied on the jurisdictional High Court decision in the case of PVP Ventures Ltd. The AO cited the ITAT decisions in the case of Ranbaxy Laboratories Ltd vs ACIT (124 TTJ 771) (Delhi) and M/s. VIP Industries Ltd. 2010 ITL 654 (Mum) and the Revenue’s appeal against the Hon’ble High Court in the case of PVP Ventures Ltd and held that without prejudice to the decision of the Hon’ble High Court and in order to keep the issue alive, he disallowed the assessee’s claim.
Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) considered the Jurisdictional High Court decision in the case of CIT Vs PVP Ventures Ltd 23 Taxmann.com 286 and the CBDT Circular 9/2007 dated 20.12.2007 and in view of the binding decisions of the Hon’ble Jurisdictional High Court decision, directed the AO to delete the disallowance made by him.
Aggrieved, the Revenue filed this appeal with the following grounds:
“1.The Order of the learned Commissioner of Income Tax(Appeals) is contrary to the Law and facts of the case. 2) The Ld CIT(A) erred in directing the AC, to delete the disallowance towards ESOP expenditure for Rs. 1,32,56,705/- 2.1)The Ld CIT(A) failed to note that,. the disallowance towards ESOP expenditure for Rs. 1,32,56,705/-when the expenditure is capital in nature as it involved issues of shares at a discounted rate to employees. 2.2)The decision of CIT(A) may not be accepted on this issue. As cited by the CIT(A) in his order, Honourable SC has dismissed the SLP filed by the Revenue in the case of PVP Ventures only on ground of assumption of jurisdiction by the CIT U/s 263 and has not pressed a speaking order as to the merits of the issue of ESOP and hence has not laid down any preposition of law. 2.3) The Ld CIT(A) erred in directing the AC to delete the addition on account of ESOP expenses even though, in the case of M/s Shriram Transport and Shriram City Union Finance department appeals are pending before High Court. 2.4) The Ld CIT(A) ought to have considered the decision in the cases of ITAT, Delhi Bench in ACIT Vs Ranbaxy Pvt Ltd vide (ITA No.2613 & 3871) ,Hyderabad ITAT Medha Servo Drives vide , Mumbai ITAT DCIT Vs Blow Plast Ltd (ITA No.512/Mds/2009), Mahendra & Mahendra Vs DCIT vide ITA No. 859/Mds/2010 and M/s VIP Industries Vs DCIT Vide ITA No. 7242/Mds/2008 which have been in favour of revenue on the issue under consideration. 3) For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.”
The Ld. DR presented the case on the lines of grounds of appeal.
Per contra, the AR submitted that the assessee, Solarwinds India Private Limited was incorporated on 4 June 2006 and was acquired by Solarwinds Software Europe Limited (‘Solarwinds Europe’) in February 2010. It is engaged in the business of providing research and development support and marketing services to its group entities outside India. The ultimate holding company of Solarwinds India is Solarwinds USA, a company listed on the New York Stock Exchange. The Board of Directors and shareholders of Solarwinds USA have approved an Equity Incentive Plan titled ‘2008 Incentive Scheme’ wherein certain identified employees of the Solarwinds Group (including employees of Solarwinds India) are granted Employee Stock Option Plan (‘ESOP’)/ Restricted Stock Units (‘RSUs’) of Solarwinds USA. During the AY, the assessee debited INR 35,430,445 to its Profit and Loss Account, on account of ESOP / RSUs. Further, Solarwinds USA had raised a debit note of INR 13,256,705 upon vesting of ESOPs/RSUs during the AY. The assessee had remitted the same to Solarwinds USA and claimed it as an expenditure. Therefore, the balance amount of INR 22,173,740, which had not been remitted to Solarwinds USA has also been correctly disallowed by the assessee itself during the AY. Relying on the jurisdictional High Court decision and also the Special Bench decision of the ITAT in the case of Biocon Ltd., vs DCIT (LTU) Bangalore (2013) 35 Taxmann.com 335, the AR pleaded that the order of the Ld. CIT(A) does not require any interference.
We heard the rival submissions. On the facts submitted by the assessee in para 5, supra, the Ld. CIT(A) followed the binding precedence of the jurisdictional High Court. Hence, his order does not require any interference, consequently, the Revenue’s appeal is dismissed.
In the result, the Revenue’s appeal is dismissed.
Order pronounced on Friday, the 16th day of November, 2018 at Chennai.