2018 (4) TMI 1680 - HC - Income Tax

Allowability of expenditure on Employee Stock Ownership Plan (ESOP) - HELD THAT - As decided in assessee s own case 2015 (11) TMI 404 - DELHI HIGH COURT following PVP Ventures Ltd. (2012 (7) TMI 696 - MADRAS HIGH COURT) the expenditure had to be allowed. Although the Revenue urges that in terms of Circular No.9 of 2007, the expenditure ought not to be allowed given that actual expenditure towards acquisition of shares, and not mere allotment of shares by the employer can be considered as a permissible deduction, this Court is of the opinion that such an argument is untenable; that was the rationale of disallowance in this case. What the Revenue urges essentially is that the unless the employer/assessee acquires the shares from a third party, it cannot claim any deduction and that expenditure claimed for allotment or issue of ESOP is merely notional. Such an argument ignores the realities of functioning of commercial entities who would then be asked to purchase shares from market place or third party at prevailing rates instead of allotting them. No substantial question of law. Disallowance u/s 14(A) - HELD THAT - ITAT granted relief following the judgment of this Court in Joint Investment Pvt. Ltd. vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT .

Summary

Issues:
1. Expenditure claimed towards Employee Stock Ownership Plan (ESOP)
2. Disallowance under Section 14(A) of the Act

Expenditure claimed towards ESOP:
The High Court addressed the issue of expenditure claimed towards ESOP, citing previous orders related to the present assessee. Referring to a specific case for A.Y. 2008-09, the Court highlighted that the expenditure had to be allowed based on previous judgments. The Revenue contended that as per Circular No.9 of 2007, the expenditure should not be allowed unless actual acquisition of shares occurred, not just allotment by the employer. However, the Court found this argument untenable, emphasizing that disallowance based on such grounds was not justified. The Revenue's stance that deduction could only be claimed if shares were acquired from a third party was rejected by the Court, which reasoned that commercial entities should not be compelled to purchase shares from the market instead of allotting them. Consequently, the Court concluded that no question of law arose in this regard.

Disallowance under Section 14(A) of the Act:
The second issue involved the disallowance under Section 14(A) of the Act. The ITAT provided relief in line with a judgment of the High Court in a specific case. The Court determined that no question of law arose concerning this matter. As a result, the appeal was dismissed based on the Court's findings on both issues.