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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI SATBEER SINGH GODARA & SHRI AMARJIT SINGH
PER SATBEER SINGH GODARA, J.M. : This assessee’s appeal, for assessment year 2018- 2019, arise against the National Faceless Appeal Centre [in short the “NFAC”] Delhi’s Din and Order No.ITBA/NFAC/S/250/2022- 23/1050799147(1), dated 15.03.2023, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).
Heard both the parties. Case file perused.
2 ITA.No.418/COCH./2023 2. The Revenue pleads the following substantive grounds in the instant appeal :
“The orders of the Commissioner of Income Tax(Appeals), NFAC, Delhi opposed to the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals) is not justified in deleting the disallowance of Rs.13,23,33,414/ by holding that the deduction claimed on account of ESOP is revenue expenditure only and an ascertain liablility allowable as deduction u/s.37(1).
The learned CIT(Appeals) ought to have considered the fact that the Hon'ble Supreme Court on similar issue has accepted SLP of the revenue in the case Lemon Tree Hotels (P) Ltd [2019] 104 Taxmann.com (SC).
It is prayed that the orders of the learned CIT(Appeals) be reversed and that of the Assessing Officer restored.
For these and other grounds that may be urged at the time of hearing, it is requested that the order of the Commissioner of 3 ITA.No.418/COCH./2023 Income Tax(Appeals) may be set aside and that of the Assessing Officer restored.”
Both the learned representatives next invited our attention to the CIT(A)-NFAC's detailed discussion deleting the assessment findings disallowing employees stock option scheme disallowance of Rs.1,32,33,414/- reading as under :
“6.1. The submissions of the appellant and the case laws relied on are carefully considered. The appellant has submitted that the discount on shares allotted under ESOP is a revenue expenditure of the company towards employee benefits and it is for this reason only that the discount of ESOP is treated as a perquisite in the hands of the employees under the head salary. This submission of the appellant is found to be genuine and acceptable. Accordingly, the appellant company has claimed this discount on issue of ESOP shares i.e., the difference between the exercise price and the market price as on the date of exercise as an expenditure in the return of income allowable u/s 37 of the Act.
4 ITA.No.418/COCH./2023 6.2. The case laws relied on by the appellant are applicable to the facts of the appellant's case. In the case of Kotak Mahindra Bank, cited supra, the Hon'ble ITAT, Mumbai, has held that Discount on shares allotted by assessee to its employees under ESOP scheme out of its share capital is an allowable deduction under section 37(1). Similarly, the Hon'ble Delhi High Court in the case of New Delhi Television, cited supra, has held that expenditure arising on account of 'Employees' Stock Option Plan (ESOP) is an ascertained liability. Also, the Hon'ble High Court of Madras in the case of PVP Ventures Ltd., cited supra, has held that where assessee allotted shares to its employees under Employees Staff Option Plan and Employee Staff Purchase Scheme Guidelines, 1999, difference between market value of shares and value at which shares were allotted was allowable as revenue expenditure.
6.3. The AO has observed in the assessment order that no deduction can be on the discount as it is a short capital receipt and also a contingent liability in this regard, attention is drawn to the Hon'ble Bangalore, ITAT in the case of Biocon Ltd., cited supra, wherein it was held that discount 5 ITA.No.418/COCH./2023 on premium under ESOP is simply a mode of compensating employees for their continued services to company and is a part of their remuneration, and cannot be described either as a short capital/share premium receipt or a capital expenditure and discount on ESOP is an ascertained liability and not a contingent liability.
6.4. On the AO's observation that the method of deduction on account of ESOP claim should be straight line, the appellant submitted that in the assessee's case, there is no difference between market price at the time of grant of option and exercise price, and hence there is no requirement for straight lining the deduction. The appellant submitted that the deduction only pertains to the difference between the exercise price and the market price at the time of exercise of the option by the employee, which is claimed as a deduction by the company since the ascertained liability has crystallised. This argument of the appellant is acceptable. Therefore, respectfully following the decisions of the Hon'ble High Court of Delhi, Chennai, Karnataka and the ITAT, Bangalore and Mumbai, the deduction claimed by the assessee on account of ESOP is held to be revenue 6 ITA.No.418/COCH./2023 expenditure and an ascertained liability which is an allowable deduction u/s 37(1). Accordingly, the AO is directed to delete the disallowance of Rs. 13,23,33,414/- claimed as deduction by the appellant u/s 37(1). This ground of appeal is hereby allowed.”
4. Suffice to say, there is hardly any dispute between the parties that this tribunal’s Special Bench decision in Biocon Ltd., has already settled the issue of allowability of revenue expenditure representing such an employees stock option scheme is concerned. Faced with this situation, learned DR vehemently argued that the Revenue’s SLP in PCIT vs. Lemon Tree Hotels (P.) Ltd., [2019] 262 Taxman 311 (SC) stands admitted in hon’ble apex court. We are of the considered view that mere pendency of SLP in hon’ble apex court does not preclude us from adjudicating an identical issue once there is no dispute on facts. We accordingly find no reason to interfere with the CIT(A)-NFAC’s detailed discussion deleting the impugned disallowance. Rejected accordingly.
7 ITA.No.418/COCH./2023 5. Delay of 12 days in filing the instant appeal is condoned as per Revenue’s solemn averments in light of Collector, Land Acquisition vs., MST Katiji [1987] 167 ITR 471 (SC) having settled the law long back that all such technical aspects must make a way for the cause of substantial justice.
This Revenue’s appeal is dismissed in above terms.
Order pronounced in the open Court on 25.09.2024.
Sd/- Sd/- [AMARJIT SINGH] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin, Dated 25th September, 2024 VBP/- Copy to 1. The appellant 2. The respondent 3. The CIT(A) concerned. 4. The CIT concerned 5. The D.R. ITAT, Cochin Bench, Cochin. 6. Guard File. //By Order// //True copy// Sr. Private Secretary, ITAT, Cochin Bench, Cochin