2017 (4) TMI 1380 - AT - Income Tax

Disallowance as expenses incurred for issue of shares under ESOP - as per DR assessee has claimed ESOP expenditure which is in the nature of notional loss and not real loss and the same cannot be allowed to be set off with the business profits - Held that - Revenue has filed letter dated 08.06.2016 in respect of claim in the earlier year by the assessee on issue of shares by ESOP and the decision of the Jurisdictional High Court M/s. Pvp Ventures Ltd., (2012 (7) TMI 696 - MADRAS HIGH COURT) was not accepted by the Department and the Revenue has filed SLP before Apex Court and issue is pending. We follow the Jurisdictional High Court decision which is binding on the states of Tamilnadu and Puducherry and mere filing of SLP before the Apex Court, the Tribunal cannot take a different view and follow the judicial precedence. Hence, we are not inclined to interfere with the order of the CIT(A) who dealt on facts and Hon ble High Court decision and allowed the appeal and Accordingly we upheld the CIT(A) order and dismiss the grounds of appeal of the Revenue.

Summary

Issues:
The Revenue's appeal against the order of the Commissioner of Income-tax (Appeals) regarding the disallowance of expenses claimed by the assessee for issuing shares under ESOP.

Analysis:

1. Disallowance of Expenses for ESOP:
The Revenue contended that the disallowance of ?77,52,000 claimed by the assessee as expenses for issuing shares under ESOP was erroneous. They argued that the Employees Stock Compensation Cost (ESCC) was a notional loss and not a real loss, hence not allowable against business profits. However, the assessee argued that the differential cost between the allotment to employees and the market price should be considered as a liability. The CIT(A) found in favor of the assessee, citing the assessee's own case from a previous assessment year where a similar claim was allowed. The Tribunal upheld the CIT(A)'s decision, emphasizing the binding nature of the Jurisdictional High Court's decision in similar cases.

2. Judicial Precedents and Legal Interpretation:
The Tribunal considered various judicial decisions, including the Jurisdictional High Court's rulings in cases like CIT Vs PVP Ventures Limited and CIT Vs. Lemon Tree Hotels Ltd. The Tribunal noted that the High Court had allowed similar claims based on the assessee's compliance with SEBI directions and the treatment of the claimed amount as a liability. The Tribunal emphasized the importance of following judicial precedents and upheld the CIT(A)'s decision based on legal interpretations and past rulings.

3. Binding Nature of High Court Decision:
The Tribunal highlighted the significance of the Jurisdictional High Court's decision, which was binding on the states of Tamil Nadu and Puducherry. Despite the Revenue's appeal and Special Leave Petition (SLP) filed before the Apex Court, the Tribunal maintained that the High Court's decision must be followed until overruled. The Tribunal refused to interfere with the CIT(A)'s order, citing the binding nature of the High Court decision and the principle of judicial precedence.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the assessee's claim for expenses incurred on issuing shares under ESOP. The Tribunal's decision was based on legal interpretations, past rulings, and the binding nature of the Jurisdictional High Court's decision, emphasizing the importance of following established judicial precedents in such matters.